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Marketing Insights

Our Industry Can Learn From Starbucks

By Anastasia Malagisi, SSA Director of Marketing and Outreach

You walk into a Starbucks. You're greeted with a smile and a promise. Over the years you've developed an expectation that your barista is already going to know what you want. In two minutes or less, your drink is prepared and handed to you with a promise: "Your drink should be perfect, every time. If not, let us know and we'll make it right."

It's a promise you can depend upon. It's a promise that doesn't make you hesitate when you walk through the door day after day. You are a loyal customer. You're a brand believer. You're willing to spend, at minimum, $2 on a hot cup of coffee, because Starbucks doesn't let you down.

As of July 2015, Starbucks increased the price of some of its hot drinks by 5 to 20 cents at the majority of its U.S. stores. According to CNN Money, the higher prices came despite an 18 percent boost in company profits by the end of Q1 2015, and with higher operating costs due in part to upping wages and benefits for its employees.

In fact, you could say Starbucks is unconventional in its benefits, as the company offers healthcare to part-time employees and has recently offered a tuition-reimbursement plan. Starbucks doesn't just take care of its customers, it takes care of its employees.

With a Dunkin' Donuts or local coffee shop predictably next to or across from every one of Starbucks' approximately 7,300 company-operated stores throughout the U.S., one could arguably ask: How does Starbucks do it? However, it wasn't always a pretty picture for this Seattle-based retail giant.

Competition is Fierce

In March 2008, Starbucks shut down most of its U.S. shops for three hours to retrain baristas on espresso basics. At 5:30 p.m. local time, 135,000 baristas across the country were retrained on how to adjust the grind of espresso to make sure a shot doesn't pour too quickly (making it watery) or too slowly (making it bitter). While Starbucks has utilized automatic espresso machines for years, its baristas--skilled employees trained to prepare and serve various types of specialty coffee--were overdue for a refresher training program.

This resulted after Starbucks reported that its stock declined 50 percent since late 2006, along with projections of closing approximately 100 poorly performing stores across the U.S., and paying severance to more than 200 corporate support staff it was said to lay off, all around the same time.

In April 2008, Starbucks Chairman and Chief Executive Howard Schultz told Terry Moran in an interview for Nightline that the coffee business had also been affected by the mortgage crisis.

"I think people also underestimate the impact of the economy right now, which is very acute, I think more significant than people realize," Schultz said. "I was in California last week and I got a tour of the impact of subprime issues and the foreclosures around Starbucks stores, and

See Starbucks, page 12

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Starbucks, from page 10

it was stunning to me just how many empty houses there were."

While Starbucks did not disclose the revenue said to be lost from the three-hour training program, Schultz said the training was necessary to uphold "the uncompromising standards and quality that have made Starbucks the world's coffee leader." The very next day, Starbucks welcomed its customers back with its promise, "Your drink should be perfect, every time. If not, let us know and we'll make it right."

At the time, U.S. stores made up the bulk of Starbucks' revenue, totaling $9.4 billion in fiscal 2007. Senior management had the foresight to address the real issue-- that the quality of the product had deteriorated over the last couple years--even if it meant potentially losing some customers and a hit to their revenue, which had continued to decline anyway.

In fact, while Starbucks' doors were closed, competitors tried to capitalize by handing out free espresso and discounting hot latte drinks in an effort to gain new customers. This is just one of many examples that capturing customers and retaining those same customers, especially during economic hardships, requires more than understanding them. It also requires a company to continue delivering on its promise.

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Lead, Or Be Left Behind

On July 1, 2008, four months after the new slogan was introduced, Starbucks announced it would close 600 stores in the U.S. and lay off more than 12,000 employees in the process.

"In January, we committed to transforming the company through a series of critical and strategic initiatives to improve the current state of our U.S. business and build the business for the long term," stated Schultz. "Our executive and field leadership teams conducted an extensive review of our U.S. company-operated store portfolio with a goal of enabling our organization to focus its efforts on locations where we can more effectively improve the customer experience."

At the heart of every business is the customer. A customer is the bloodline to any business and transcends across all industries and products. People are perceptive, selective and, in most cases, they have choices--an abundance of choices in some instances.

Whether your self storage business is surrounded by competition or you're the only option, customer service should be at the heart of your business. It must be present to weather the economic storms and ride the waves of the good times. Exceptional customer service has the potential to lead to repeat business, referrals and ratings. You can't afford not to address problems and exploit best practices. Just ask Starbucks. v

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