Corporate Governance

Starbucks, Social Activism and A Loyalty Program

By J. Robert Brown

I was in DC the other day and wanted a latte.  On one corner stood a Starbucks, on the other a Caribou.  Caribou had free Internet, Starbucks did not.  Needless to say, it was Caribou that received my pittance.

The latest from Starbucks is that it plans to introduce new coffee blends, some kind of improved espresso equipment, and a loyalty program for regular customers.  Starbucks is struggling and things will only get worse when the baristas open for business at the 14,000 McDonalds in the United States.

Starbucks is trying to win customer loyalty and no doubt these efforts will have some marginal impact.  But it is not the right way for the company to win a stronger customer base.  As we have discussed, the dilemma is how to transform Starbucks from a commodity to an experience.  People will pay for an experience.  For a commodity, they'll go where it is cheapest or most convenient.  At least sometimes that means McDonalds.

Starbucks should be trying to win over customers through an intelligent mix of social activism, an activism that might be related to healthier ingredients.  This is largely the approach used successfully by Chipotle.  Customers would be willing to pay extra or look for a Starbucks if they knew their latte was doing some good, whether helping coffee growers or contributing to a living wage for employees (both of which Starbucks does but does little to publicize).  This type of loyalty will take time.

In the meantime, the best loyalty program in the short term?  Free Internet.  With it, Starbucks might have had my latte in Washington. 

Full post as published by The Race to the Bottom on March 24, 2008 (boomark / email).