How Starbucks made people buy Coffee in recession

Starbucks Coffee took a hit during the economic slowdown of 2008 as customers opted for cheaper options for their everyday coffee. Starbucks was forced to shut 600 shops that were not making profits. By March 30, 2008, its profit had fallen 28 per cent compared to the same period in 2007. In 2009, it closed another 300 stores and laid off 6,700 employees.

On January 8, 2008, Howard D. Schultz returned as CEO of Starbucks after a gap of eight years.
Upon coming back, he found that apart from the worsening economic condition in the US, the company’s rapid expansion had distracted it from making its cafes an inviting place with new products. In addition, Starbucks also faced competition from McDonald’s, which had, in 2008, started setting up coffee bars that sold espresso.

Schultz shot off a letter to the employees on the day he took office once again as CEO. He said, “The company must shift its focus away from bureaucracy and back to customers.” He made his objective very clear: “Reigniting the emotional attachment with customers.

Schultz took an entirely different view of the situation. He told the employees, “The company shouldn’t just blame the economy; Starbucks’s heavy spending to accommodate its expansion has created a bureaucracy that masked its problems.”

In a departure from conventional strategies like “a redo of the store layout”, Starbucks soon embarked on a technology-oriented strategy. An environment where employees could think freely about the organization and contribute in terms of strategies and ideas was fostered. As a result, a community involvement concept was developed.

In March 2008, “My Starbucks Idea” was rolled out for customers to exchange ideas with each other and directly with the company. As part of this, customers were able to give opinions on everything such as products, services, layout, advertising, corporate social responsibility, in-store music and so on. More than 93,000 ideas were shared by about 1.3 million users on social media, and page views per month rose to 5.5 million.

After the 2007/08 crisis, Starbucks had to rebuild its customer relationships and show the world that it cared for quality and consistency. It also had to give a leg up to the altruistic component of the brand such as community building and care for the environment. Through the “My Starbucks Idea” customers had a direct link with the headquarters and of course Starbucks was listening. Soon Starbucks’s ubiquity became an asset as customers from around the world had an opportunity to connect with each other, spawning like-minded communities like the ‘free Wi-Fi group , ‘soy group’, ‘comfy chair group’ or ‘frappuccino lovers’.

Starbucks implemented over 100 ideas. Through this initiative, the coffee retailer built a robust fan base. By giving customers a platform to voice their ideas and views on the brand and by responding to it, it was able to reignite the brand trust.

Starbucks soon realized that it had to project its ‘cool’ element via social media-based marketing. The organization must never look desperate or too keen to increase its sales. So the company refrained from pushing too many products, causes or offers to its followers. The focus was more on building and engaging with the community.

The company embraced mobile apps much before its competitors. Very early in the race, Starbucks had linked its social media strategy objectives with technology channels like mobile apps. Through its iPhone app features like store locator, nutrition-based information and rewards programme, it integrated and enhanced its social media community fabric. The head start in technology adoption has helped the company come up with trend-setting ideas.

In 2008, the marketing teams had started a promotion to increase customer visits to stores during breakfast hours. It included a free pastry with a coffee bought before 10:30 a.m. The initiative created traction online and over one million people across the US queued up at Starbucks outlets.

Such social media promotions were much less expensive than the company’s promotions at its stores or putting up billboards across cities. The awareness and response was also more than that from promotions through traditional channels like television advertisements.

*Starbucks’ ability to use technology to capture ideas, votes, and comments from its three key broad participant groups – customers, employees, and partners* – has created value for the company. It was amongst names like Lego, Ford, and Verizon, who are driving innovation as a sustainable value creation strategy. Starbucks became a company to watch out for as its continued to innovate; a story where every customer is a stakeholder and very vested in the company.

Starbucks is a great example of a brand turning around its business by returning to its roots and reconnecting directly with its customers.

While many companies were struggling to get back to pre-2007 financial figures, *Starbucks has shown that people are willing to spend $5 or 3 pound every day on their latte and tweet about it too.

Learning from the Story
1. Recession is an opportunity for radical approach to change and grow.
2. Client centric businesses always remain relevant. Our job is to not loose client centricity.
3. You are not short of resources; you are just short of ideas & creativity.

Questions to ask ourselves
1. What opportunities lie in these recessionary times, how can I use those to change and grow?
2. Who are my clients? How can I be more clients centric?
3. How do I learn all this and thrive in these times just like Starbucks?

If you really want to Learn what Starbucks did and just like them if you want to build a client centric business & attract thousands of them ; here’s my personal invitation to our seminar “Business On Autopilot”.