Starbucks adds value by taking on wireless
February 3, 2003
BY MICHAEL KRAUSS
customers really are different. Here's an example: I was waiting
in line for a grande decaf skim latte at Starbucks in New York's
"Just wanted to
tell you the wireless network isn't working," said a twenty-something
customer to the clerk, being genuinely helpful, without a hint
of East Coast hostility in his voice. "I just want you to
know in case anyone else has problems." Only at Starbucks,
I thought, with its brand and culture, would the customers be
so collaborative. My guess is the network wasn't down for long
-- at least not if Anne Saunders had anything to say about it.
"We get great
feedback from customers," says Saunders, vice president of
Starbucks Interactive in Seattle and the force behind Starbucks'
promising wireless initiative. "I get unsolicited e-mail
daily talking about how people are using the network. We even
get articles about people who don't have offices and have started
new businesses at their local Starbucks."
Launched in August 2002, Starbucks' "T-Mobile HotSpot service"
offers wireless Internet connectivity in about 2,000 locations
in the United States and Europe. The ambitious move is yet another
example of Starbucks' commitment to innovation and risk-taking.
Though the effort's success is still uncertain, Starbucks' approach
is a guide to marketers in general.
While Oak Brook, Ill.-based
McDonald's and Miami-based Burger King engage in a dollar-menu
death-spiral price war, Starbucks has customers paying nearly
$ 5 for a cup of coffee and $ 49.99 per month for a wireless access
connection. My guess is Ray Kroc, McDonald's Corp.'s founder,
would admire Starbucks CEO Howard Schultz's chutzpah. This is
the right way to build a customer franchise.
The Starbucks initiative
is instructive because it's a coffee company using technology
to enhance its core offering --- the Starbucks experience. Its
marketers see the promise of technology, but are pragmatic and
realistic in their expectations about what it can do. And they've
adapted the technology to their environment, rather than the other
"We're not creating
an Internet coffee-house," Saunders says. "We've enabled
a new service for our customers."
Saunders is trying to capitalize on Starbucks becoming the "other
place" in people's lives where they want to be connected
to the Internet. "It's not the office and it's not home,"
she says. According to Saunders, it's working; Starbucks customers
who use the connection spend more time in the store and buy more
product than others.
Reluctant to give many
metrics, Saunders volunteered, "The average customer using
the network is in the store 45 minutes, which exceeds the general
average, and 90% of that is outside our peak day part. All of
that says there is 'plus' business for us."
Then there's the revenue
opportunity from the wireless network subscriptions with T-Mobile,
although Saunders declines to go into details.
adds value to its core business. It helps differentiate the company.
It rewards the customer and meets a need. It enhances the experience.
And over time, it has the potential to become a separate, profitable,
incremental revenue stream. And isn't that what all of us are
seeking in the recession?
Still, there were some obstacles and difficult decisions --- what
technology to use and which partners to select, to name just two.
"A row of monitors
and desktop computers isn't conducive to the kind of environment
we want to have at Starbucks," Saunders says. So Starbucks
is betting heavily on WiFi -- the wireless fidelity standard that
acts as a high-frequency wireless local access network -- to build
out its networking capability. That is, instead of the Internet
coffeehouse, Starbucks has become an enabler, or a platform, as
tech marketers like to say. You can connect your laptop or wireless
Internet device at their store. If your PC isn't enabled for wireless,
they'll point you to a Hewlett-Packard Internet site where you
can get the necessary hardware and software (including some free
downloads). And they'll help you get connected through a monthly
wireless Internet access account from T-Mobile costing $ 29.99
for a local account and $ 49.99 for national access in the United
Picking your corporate
partners and negotiating a deal is always a risk and a challenge
for a major technology initiative. Starbucks picked Bellevue,
Wash.-based T-Mobile, the wireless subsidiary of Bonn, Germany-based
Deutsche Telekom AG, because of its focus on wireless and because
of its reputation for quality customer service and support. They
picked Hewlett-Packard to provide hardware and software both because
HP had the right technology and because of the relationship and
shared vision of Palo Alto, Calif.-based HP CEO Carly Fiorini
and Starbucks' CEO Schultz.
"We tend to be judicious about our partnerships," Saunders
says. "It's rare that you'll see someone else's brand in
one of our stores. As a coffee company, we wanted to host the
service and provide the hospitality, but we clearly were not the
network provider and our expertise is not in configuring your
Adds Saunders, "We
needed companies that align with us in terms of focus on the customer
and quality of service."
Reflecting on her launch
of the wireless network, Saunders told me there's a mantra around
Starbucks that comes straight from Howard Schultz: "Continue
to grow and expand." That's not always easy, but, as Saunders
says, "Management is supportive of trying new things."
Saunders' advice for
marketers is fairly straightforward. "You have to be a little
bit of a pioneer," she says. "You have to have a lot
of determination and perseverance. You have to have a stomach
for experimentation. You have to be in an organization that's
art of downplaying
But Saunders is doing something especially wise. She's managing
expectations down --- not up, the way many marketers did in the
get into situations in which they get overly optimistic. In a
program like this, you have to have realistic expectations about
the 20% of our customer base that is never going to use this service.
I have to set realistic expectations about how long it is going
to take to get a new technology adopted," Saunders says.
Listening to Saunders, I understand why that fellow in Manhattan
was so nice about the network being down. Starbucks has created
a culture that's positive and embracing -- a culture that attracts
and retains smart marketers like Anne Saunders.
Oh, by the way, that
guy in New York . . . he bought a big coffee and an expensive
pastry after he told the counter clerk about the network problem.
is a partner with DiamondCluster International in Chicago. He
can be reached at firstname.lastname@example.org