Thursday, 15 March 2012

Service business 101: Starbucks Wars

My recent post about Stabucks versus Costa produced a surprising level of response, I think (as I indicated at the start of that post) because of a knee-jerk reaction to Starbucks-as-corporate-behemoth. But what I found fascinating in the comments was how many people don't understand the basics of the kind of business Starbucks is in, and think that it is all about selling great coffee. It really isn't. Before I was a science writer I spent a long time in business and I hope you won't mind a quick excursion into service business 101.

Some companies - the no frills ones, typically - are pretty much about what they seem. So EasyJet is in the business of getting people from A to B. But many businesses are really about something else - the experience. British Airways, for instance, is not primarily about getting you from A to B. They can get away with charging as much as 10 times what EasyJet does for the same journey because this is the case. Of course they have to do the basics as well - but the reason a customer goes to them and not to a no frills company is because of what they provide on top.

The same is true of most clothing shops. They are not really in the business of selling clothes, or they'd all be like Primark or George at ASDA. And, perhaps most starkly of all, most coffee shops are not about the quality of their coffee.

For one thing lots of people going in these places to buy coffee. But even if they do, it will usually be a secondary aspect of the visit. If I look at occasions I've drunk coffee in Starbucks I'd say about a third were to socialize with friends and family, about a third because I had to wait to do something else and wanted somewhere to sit, wait and use the Internet and about a third when I was in a strange place and needed somewhere I could rely on to deliver some refreshment with familiarity because I hadn't time to explore and find the better local version. Pretty well never was it because I wanted a great coffee. To be honest, coffee isn't that important in my life.

What you are buying with a service business like Starbucks is primarily the experience, not the coffee. And that's where in my humble-but-at-the-same-time-I-have-written-an-excellent-book-about-customer-service-recommended-by-Harvard-Business-School opinion Starbucks does a lot better than Costa.

You might wonder about takeaway coffee. Frankly there is no good reason for paying those prices for anyone's takeaway coffee. And if you have someone who makes better takeaway coffee that is convenient I can't see why anyone would sensibly buy from Starbucks. That a lot of people do is partly a testament to the power of brands, but also reflects the fact that Starbucks has some good locations. With takeaway convenience rules.

Think about it. Drinks like tea and coffee cost pence to make. Allow a 100 percent markup to make a profit - it's still pence. All the rest of the £2.30, or whatever you spend, is for something else.

One last observation - one of my commenters dug up the old 'I would never use Starbucks because they refused to serve war veterans' line. I can strongly recommend the website for checking out urban legends (despite their irritating pop-up advertising, the content is excellent) - and their analysis of this story makes really interesting reading. It is a fascinating insight into the way untrue rumours can spread, and in this case could even be changed from the original US soldiers to Royal Marines. But it appears the 'wouldn't serve war veterans' line is a total fabrication.

Image from Wikipedia

1 comment:

  1. Yes. What you say is so true and we all know it (if we are honest). However we don't like to admit that we are being duped/manipulated so we invent justifications for our(?) choices.