01 July 2021
For Starbucks to continue their growth and attract higher value customers they needed to become their customers' "third place".
Starbucks attracts upwardly mobile professionals by introducing wireless technology into all its outlets.
Compaq developed a strategy that met Starbucks' goals where the terms and investment were worthwhile.
By 2002 Starbucks was well on the way to creating one of the world’s most recognised global brands. From opening its first store in Seattle in 1995, it had over 1,000 outlets in USA, a global franchise network, and was responsible for buying 1% of the world’s coffee beans. Turnover was approaching $3.3 billion.
The following case study illustrates the impact the positive values can have in driving collaborative transformation and new business opportunities. The case study explores the process at Starbucks that led to them issuing a request for proposal for building an internet solution at their stores and that of Compaq (later acquired by Hewlett-Packard (HP) in August 2002) which won the deal.
With many Starbucks outlets being in prime locations, it is not hard to work out that you need to sell a lot of coffee to break even. The problem was that Starbucks was recognised as just a “coffee shop” and not as a destination. Howard Schultz, its CEO wanted Starbucks to be the ‘third place’. The first place was home, the second place was work and the third place was Starbucks.
The concept was to create an environment where people would want to meet, with each visit lasting longer in duration. They had to attract a large number of profitable customers – individuals who had a higher-than-average disposable income. But how could Starbucks develop new income streams that did not impact its traditional core products?
Starbucks recognized the opportunity to introduce wireless technology into all of its outlets. By providing internet access, it would attract the upwardly mobile professional and encourage a higher frequency of off-peak purchases. They started to look at what it would cost to have Starbucks outlets wireless-enabled and estimated that the investment would be a significant $100 million when all the costs were taken into account.
Their solution was to offer one telecommunications company and one IT company the opportunity to install their technology through the 1,200 US outlets, allowing them access to Starbucks’ customers. Starbucks already knew how many people visited their outlets, 20 million every week and about 55% of these customers visited Starbucks five times a week.
Compaq’s regional director was charged with developing the strategy and recommending whether Compaq should invest $100 million in the deal and on what terms. Compaq account team put forward counter recommendations to Starbucks as follows:
If we look into the underpinning values that led both parties to this deal, We can see that it took proactive creativity to differentiate one coffee house from another Starbucks came up with the idea of the third place and with this idea was able to create differentiation around what is a commodity product, ie coffee.
Client centricity is a central value to Starbucks. They have to understand their customer target market in order to create a compelling value proposition. Their coffee is not the cheapest. They recognise the importance of understanding the customer, not only in terms of how many times they bought coffee but also in terms of what lifestyle their customers have.
Creativity was used by Starbucks to develop the idea of creating a wireless environment in the store. Audacity was used to suggest that its vendors should invest $100,000,000 over 5 years in implementing the idea in Starbucks’ stores.
Proactive creativity can also be seen from Compaq account team in order to create value out of the deal and make the numbers work, they developed a ‘sell through’ and ‘sell to’ concept. They not only wanted to supply the wireless environment but also saw the potential in Starbucks selling personal digital assistants.
On 21 August 2002, Starbucks announced the expansion of high-speed wireless internet service to about 1,200 Starbucks locations in North America and Europe.
After two years Compaq had secured all of Starbucks’ desktop and laptop business, they had also won consulting revenues, sold HP software, and won some business, for the first time ever, in their retail stores where IBM had dominated before and sold managed services.
Living the first 2 values of authenticity and client centricity is the baseline for building a trusting relationship. It earns the salesperson the right to move the relationship to an altogether higher and more strategic level. But to earn the right to be in that winner’s circle, customers will want to see proactive creativity and tactful audacity from their salespeople.