What will Web 2.0 do for Starbucks?

Starbucks has been in a bit of a rough spot recently. Sure, the company is doing OK financially. As of March of 2008, it has nearly 16,000 stores in 44 countries, and is opening stores at a pace of about 6 a day. Income is still positive, and the company is not overloaded with debt.

But there are storm clouds: operating margin is down to a paltry 12%, and growth of same store sales has shrunk to a flat 1% as of the first quarter of 2008.

And it’s not going to get easier. The dust cloud on the horizon? That’s McDonald’s, and it is coming after the lucrative coffee market. McDonalds has brand, and it has convenience. And it’s selling a new “Premium Brew” that Consumer Reports taste-tested and pronounced “better than Starbucks”. Huh? McDonalds? GTFOH!

And, oh yeah, McDonalds has hot breakfast items. All Starbucks has is carbohydrate-intensive fare that make us tremble even to think about the impending bathing suit season. Muffins that conjure images of muffin-tops. Love handles.

Not only that, the buzz in the blogosphere is negative verging on nasty - disappointed people are asking WTF is going on at Starbucks? People are sharing tales of belligerent baristas, stale, crumbly food, filthy bathrooms, and worst of all, bad coffee.

Bad coffee? At Starbucks?

But wait a minute. Starbucks has always been about much more than just the coffee. It re-defined the whole idea of the coffee shop. Starbucks features a shared coffee experience, and a community of intelligent, connected coffee drinkers who are passionate about their brew and about their lives and about their world. They like the way Starbucks and its coffee makes them feel. Not only that, the joe is damn good. Or was.

Earnings flat. Margins squeezed. Quality of questionable consistency. Recession looming. Food fattening. Competitors circling.

What’s a brand to do?

Here’s what: Starbucks is going to unleash the power of Web 2.0.

On March 21, 2008, Starbucks announced the creation of an online Starbucks community at MyStarbucksIdea.com. The big idea is to extend the community from the coffee shop to the world. To leverage the power and goodwill of the brand to induce passionate Starbucks customers to conceive ideas for the improvement of the product, the experience and the community (world). The ideas will be shared within the community, voted on by members, and presumably acted upon by Starbucks.

If Starbucks can pull this off, it will be a huge victory for the organization and for 2.0. All of a sudden, Web 2.0 will move from the abstract to the concrete for a great many organizations whose only nod to 2.0 is to have a MySpace page. Needless to pint out, this could have ramifications throughout the global economy for people who make a living on the web. This is a pretty major attempt, by a company that has a stellar brand, to use Web 2.0 an interactive tool to understand and improve the entire customer experience. We should all watch, listen and learn.

Let’s take a look at what Starbucks is doing right and wrong so far.

Starbucks is doing several things right:

First, Starbucks recognized it had a problem. Then it acted. Some companies never even do the first part. Maybe Starbucks should have been soliciting and listening to customer feedback all along, but at least they are doing it now.

Starbucks appears to be listening. Really. Listening for more than just the words, listening for real meaning - trying to intuit something about the needs of its customers so the stores can connect with them in a more profound way. Moderators (noted by the sbx tag) are responding to suggestions and comments with questions designed to obtain clarification - to get real understanding. And this understanding is always going to be the best foundation for profitable marketing decisions.

There is immediate gratification. Site members vote on ideas, and watch the overall score increase with their vote. They see how all ideas rank relative to all of the other ones. Ideas are “sorted” into the categories of Products, Experience and Involvement. Each of the categories has hot linked sub-categories that take the reader to all of the ideas concerning that topic. It’s logical and easy to follow.

Members are allowed to “comment” upon the ideas of others, which can be a very instructive way to observe how the market of customers may react to the idea were it to be implemented. Too many of the comments are of the “dude...w00t” variety, which takes up a lot of space without contributing to the discussion, but that’s still better than censoring any of the comments. The site also provides readers with a sense for the popularity and/or controversy of the suggestion, since it gives the number of comments.

They are NOT censoring ideas or responses. They’re putting all criticism up there for the world to see, which is painful but confers credibility. One writer excoriated Starbucks for putting the same number of “shots” in the Grande and Venti Espresso drinks - apparently the .55 price difference is for milk, not for one more shot like a lot of people surmised! This sort of thing terrifies the denizens of the C-suite, who want to maintain “control” over the conversation, just as they have tried to control advertising and PR messages over the years. Giving it up is hard, and I’m betting somebody at Starbucks has gambled his job that this is going to work out well for the company.

They are practicing UPR (Unconditional Positive Regard) and suspending judgment on ideas at first. This prevents shallow, defensive thinking and brings even more ideas, even the “outlandish” ideas that sometimes are the the breakthrough ones. Sometimes, leaving up the cheesy ideas leads commenters to come up with stellar ones.

It’s taking real action - telling customers which ideas are going to be implemented, and the timeframe for implementation. For instance, they have decided to offer “free AT&T wi-fi in the stores for 2 hours following a purchase that has been made with a Starbucks card. It’s not perfect, but it’s a step in the right direction. They note which ideas will be implemented and which are actively under consideration. For one suggestion - that of a separate line for Drip-coffee drinkers as opposed to Espresso based drinks, they offered the results of a test they had done on that very issue, and gave the reasons its implementation would be a challenge in their stores.

This is in essence, an online creative brainstorming session with thousands of participants. It will be unwieldy, difficult to follow but probably very fruitful. The challenge will be keeping the enthusiasm level high, and keeping the output organized in a way that does not suggest manipulation. So far so good.

What they’re doing wrong, or could be doing but aren’t.

That said, there are some opportunities Starbucks is missing - it is not addressing some of the areas that have come under fire recently, areas that people desperately want to see addressed.

Face the ugly truth - quality is in question. It’s costing Starbucks customers. Tell us what Starbucks is going to DO about it. Now. Whenever I ask the question on Twitter, “What Should Starbucks be doing?”, the quickest answer is “make better coffee”. There is very little mention of the quality issue on the website. Why? This issue has not been addressed and should be. If the company is buying cheaper coffee in a move to save money and improve earnings, tell us about it and tell us what you’re going to DO about it.

The number two suggestion so far, with 29,220 points (or 2922 votes) has been “free wi-fi”. Not free wi-fi for AT&T customers. Not free wi-fi for those who pay with a Starbucks card. From the ideas in action page, they have announced that customers who make a purchase with their Starbucks card will have free wi-fi for two hours (reasonable), but they have to have an AT&T wi-fi account and be subject to “limited marketing” by AT&T. Huh? Free wi-fi is NOT a difficult concept to grasp. Panera does it, as do Mom and Pop shops across the country. Don’t tell us Starbucks is going to implement an idea, and then fetter it with regulations and exceptions. People will go away.

To fully harness the power of 2.0, Starbucks needs to make the site even more interactive. Why not have one of the sbx “partners” recruit original idea posters and creative commenters to an online discussion board, and moderate an online discussion designed to flesh out and understand the original intent of an idea and the needs it would be addressing.

Why not have a weekly online focus group (that can be observed by other members) to focus on an “idea of the week”. Essentially, this would move the discussion into the realm of “real-time”, which will give it more weight.

If they aren’t, Starbucks also should be doing research and study offline. Starbucks will end up with the names and email addresses of thousands of passionate coffee drinkers. They should be doing online focus groups and online surveys with this group, testing and ranking ideas as they emerge, then putting fleshed-out ideas back up for more feedback. Listening, probing and listening some more.

Even though Starbucks is about more than just coffee, Starbucks needs to remember that coffee is the linchpin of their value proposition - and they have been losing taste-tests to McDonalds. Free wi-fi will not make any difference if the coffee sucks - we can get those at Panera. I wouldn’t be worried about this except for the fact that I have noted a couple times recently when the coffee was a little over-extracted and bitter - not my usual experience. If Starbucks coffee does not improve, it won’t matter what else they are doing right, they will lose their customers. And they will deserve to!

Starbucks has put itself out on a limb with the launch of www.mystarbucksidea.com, and it is going to be very interesting to see what happens from here. If they build a large following for the site, generate a lot of enthusiasm and ideas, and then do very little, or spend a lot of time rationalizing the corporate position or blogging about what they can’t implement this or that idea, they will fail miserably. And that will be a loss for the 2.0 community, as well.

But if they get it right, it could be a great victory for 2.0, one that leads many other organizations to do more than simply put up a MySpace page and posts blogs about how committed to their stakeholders they are. They will begin to suspect that the best business application of 2.0 is in discourse - not monologues. In listening to your customers and giving them what they want.