by Tiffani Bova
SHAKE SHACK
KEY TAKEAWAYS
Be open to suggestions from anywhere. Shake Shack is a firm believer in customer feedback, providing comment cards, roundtable discussions, and monthly dining vouchers for its staff, to use real-time feedback to ensure a consistent dining (customer) experience.
If you are going to pursue the Customer Experience path, you must ensure your employees are part of the equation. It is no coincidence that many companies who excel at CX also top “Best Places to Work” lists. Happy employees give you a much better chance to have happy customers.
A compelling customer experience isn’t about just one thing—it’s a combination of many things. You have to have great, or at least good enough, products. You have to have happy employees. You must be able to track and respond to customer sentiment. You must be consistent. And if you don’t get it right, own up to it, fix it, and move on!
STORY
3
STARBUCKS
LOSING THE SOUL OF THE PAST
The damage was slow and quiet, incremental, like a single loose thread that unravels a sweater inch by inch.
—HOWARD SCHULTZ, former CEO of Starbucks
STARBUCKS IS NOT ONLY ONE of the biggest and best-known brands in the world and a worldwide leader in coffee, but it also has an industry-leading Net Promoter Score (NPS) of 77 against an industry average of 40 in the fast-food category where it competes. So you might be surprised that I’ve picked it as a case study in “how things can go wrong” in Customer Experience. But suspend your disbelief for a moment and just stay with me here for a minute.
Consider the story of Starbucks Coffee in its darkest days. When you think about Starbucks, you usually look at either its explosive beginnings—from a tiny “second-generation” coffee pioneer emerging out of Pike Place Market in 1976, to leading the artisanal era of adult beverage drinking in the twenty-first century; or its current world dominance—with twenty-five thousand cafés around the world and nearly $20 billion in annual revenues.
What is often forgotten is that, beginning in 2007, Starbucks was a company in trouble, its stock tumbling, competitors challenging on every front, and both customers and employees exhibiting declining loyalty and morale. The cause? Ironically, the greatest success story of the coffee age had lost, well . . . its soul. It had actually grown too fast and, in doing so, put a tremendous strain on the entire organization. It failed to understand its customers’ relationships with its coffee and the experience they had come to expect with the brand.
Every day, coffee drinkers around the world make a decision on whether they are going to make their own at home or stop someplace and spend their hard-earned money. It’s not very likely that Starbucks is going to be your least expensive option, so keeping customers coming back again and again even while spending more money requires a highly differentiated and unique experience—and losing sight of that can be reason enough for a growth stall.
A TRIFECTA: NOT ALL GROWTH IS GOOD GROWTH
Between 1987 and 2007, Starbucks opened an average of two locations each day, an increasing percentage of which (currently one-third) were outside the United States. In time it was hard not to find a city or large town anywhere in the developed world that didn’t have at least one Starbucks location. As for the stores themselves, part of the appeal was that they were uniform in decor and designed to offer a warm haven both for people on the road and locals looking for a comfortable place to enjoy a cup of coffee, socialize . . . and enjoy free Wi-Fi.
When Howard Schultz stepped down in 2000 after a thirteen-year run as CEO, he assumed the role of chairman, with the mission of focusing on the company’s global growth strategy. At that time, Starbucks had only twenty-eight hundred stores, including 350 Starbucks locations outside the United States, and earned roughly $2 billion in annual revenue. Under Schultz’s replacements, Orin Smith and then Jim Donald, Starbucks embarked on a trifecta of efforts. Business exploded, and there was no question Starbucks was in hyper-growth mode.
It pursued the Market Acceleration path with store count tripling to nine thousand locations. It more than doubled its revenue to more than $5 billion in fiscal 2004. By 2007, the company had roughly thirteen thousand locations worldwide. In combination with Market Acceleration, Starbucks also pursued the Product Expansion and Customer and Product Diversification growth paths—adding snacks, healthy food, CDs, gifts, and other retail items designed to further monetize its customers.
Isn’t that amazing? Isn’t all growth good growth? Well, not really. Unfortunately, although Starbucks was seeing top-line growth, all that growth came with an unexpected price tag. The rapid pace of change, explosion of product offerings, and store openings (with little consideration for letting the employees absorb all the changes and analyzing the impact of those changes to CX) managed to alienate just about everyone . . . existing loyalists and new customers alike.
GROWTH STALL: when companies find themselves in a revenue slowdown, resulting in flat to no growth or, worse yet, negative growth. A company may be entering a growth stall when it has two consecutive quarters of lower revenue or profit compared to the prior year.
RETURN TO THE SOURCE
Starbucks found itself in a full-blown growth stall. Howard Schultz saw a disaster coming and wrote a memo to then CEO Jim Donald, predicting that if the situation didn’t improve, Starbucks would eventually disappear. When the media got hold of the memo, Starbucks’ stock, already falling, slumped even further—until by the end of the year it had lost nearly half of its value. The board fired Donald and asked Schultz to once again take over the role of CEO.
For most companies, the timing of this disaster would have been the worst possible news, as the entire world economy was itself tipping over into the Great Recession. But for troubled Starbucks, it was the perfect moment to stop and then hit the reset switch. That’s exactly what Schultz did. It helped that the day he returned to Starbucks the stock market showed its confidence in him, boosting Starbucks stock by 8 percent.
Schultz returned as Starbucks CEO in 2008, saying: “The most serious challenge we face is of our own doing,” and, “We became less passionate about customer relationships and the coffee experience. We spent time on efficiency rather than the experience.”
Within a week of Schultz returning as CEO, he became laser focused on shifting Starbucks away from bureaucracy and back to its customers. He wanted all employees to put themselves in the shoes of their customers. The battle cry became: “Live and breathe Starbucks the way our customers do.”
Schultz set out to determine the cause of the growth stall. His approach was similar to Danny Meyer’s, who believed in a strong feedback loop with customers and employees. Schultz’s first step was to ask Starbucks customers and employees to e-mail and tell him what was wrong with the company, how it had lost its way. Within days he had received more than five thousand e-mails—and he took in all the complaints. He also called individual Starbucks stores across the United States and queried them about their problems.
Two of the biggest complaints Schultz heard were that the quality of Starbucks coffee was uneven and that many of the company’s baristas didn’t seem sufficiently competent to brew a good cup of coffee. It’s important to note here that Starbucks charges a premium for its coffee, so if you get a subpar cup of coffee for that premium, you aren’t only failing yourself and your employees—you are failing your customers.
Your premium brand had better be delivering something wonderful, or it’s not going to get the business.
—WARREN BUFFETT
In response, in an extraordinary moment in modern business history, in February 2008 Schultz closed more than seven thousand Starbucks stores—in a single shot—all across America for three and a half hours to retrain its baristas in the “art of espresso.” The company lost an estimated $6 million that day—but the blanket coverage
of the event by the media perfectly conveyed Starbucks’ newfound commitment to quality and experience. And, thanks to the training, the company’s product did improve markedly, giving it a chance to regain its former glory, one customer at a time.
THE SMALLEST DETAILS COUNT
As I’ve said a few times the experience customers have isn’t one thing—it’s the combination of many things. But sometimes it’s the smallest things that can make the biggest impact. Starbucks had unknowingly abandoned its focus on CX. Had they consciously kept CX as a key part of their growth strategy, it might have restrained them from the overzealous acceleration/expansion that ultimately diluted their brand. In all, Business Insider listed nineteen different actions Schulz made in turning Starbucks back around (a sample of which is below).
There was no quick fix—no single thing that could help Starbucks course-correct. It took Starbucks two years to reset itself and find its true north again. In 2010, Starbucks had more than $10 billion in revenue and employed 150,000 people. Starbucks came out of its hard times, its growth stall, stronger than ever. From January 8, 2008—the day Howard Schultz took back the corner-office duties and decided to double down on CX and not compromise on the soul of its business—through April 2017, when he became executive chairman, the stock’s total return was 551 percent. Does focusing on the customer pay off? I would say, in this case, yes!
Key Actions Spearheaded by Howard Schultz
Starbucks closed seventy-one hundred U.S. stores for three and a half hours to retrain its baristas on how to make the perfect espresso. It lost $6 million that day.
Schultz invited people to e-mail him directly—he received five thousand e-mails.
The company replaced all of its outdated cash registers and computers for faster service.
The company replaced all of its espresso machines with the Mastrena, a sophisticated Swiss-made machine.
The company created a customer rewards card. In five months, customers had loaded $150 million onto the cards.
The company rolled out a new design for all of its stores.
The company nixed heated breakfast sandwiches from the menu because the smell was overpowering the smell of the coffee.
The company required baristas to grind the beans in the stores. Any coffee that had been sitting more than thirty minutes was to be tossed.
The company launched “My Starbucks Idea” to help increase its focus on customers and what they wanted. By 2013, it had generated more than 150,000 ideas and had implemented 277 of them.
STARBUCKS
KEY TAKEAWAYS
You must combine growth paths in the right sequence and pace so as not to damage the momentum you’ve been able to achieve from other path(s). If you jump from one path to the other too quickly, you aren’t able to pause and reflect on the results. Were they what you expected? Did they provide the boost you were looking for? Similarly, doubling down on a path too quickly—or worse, killing a path too quickly when all it needed was a bit more time to take hold—can damage growth.
There is an interconnectedness among the growth paths chosen, and sometimes the unintended consequences of decisions made in isolation can negate all of the momentum other growth paths provide. The company pursuing the most growth paths is not automatically the winner.
Even if you have historically been extremely effective in maximizing performance on a particular growth path, that doesn’t guarantee future success.
No growth decisions should damage the most important sources of sustainable, profitable growth: loyal and satisfied customers and happy and inspired employees.
PUTTING IT ALL TOGETHER
It is not the employer who pays the wages. Employers only handle the money.
It is the customer who pays the wages.
—HENRY FORD
CUSTOMER EXPERIENCE CAN BECOME A vital part of almost every successful company, which is why it is such a powerful path when pursuing growth. But navigating a successful Customer Experience growth path can be a long, often confusing endeavor: long, because your relationship with customers can evolve over years, and confusing, because it is constantly changing and evolving and on some occasions counterintuitive—most of it now controlled by the customer and not you. In other words, you have the most control over your destiny by having the least control over what your customers actually do with you.
WHAT WORKS—AND POTENTIAL PITFALLS
Often, I think of companies experiencing a growth stall as a massive Undercover Boss experiment. If you haven’t watched the show, Undercover Boss is a reality television series in which each episode follows a person who has an upper-management position at a major business going undercover as an entry-level employee to discover what’s really going on in a company—both good and bad. There rarely is an issue uncovered on the episode that isn’t painfully obvious once the CEO or other executive actually experiences (sees it with their own two eyes) what their employees and customers must deal with on a day-to-day basis.
Suddenly everything becomes crystal clear—and long-overdue changes suddenly bubble to the top of the corporate to-do list. Why does it take Undercover Boss to highlight the somewhat obvious? I believe it is because those making the big decisions have gotten too far away from the customer, and its frontline employees, those who play a huge role in delivering the customer’s experience. They make management decisions sometimes without the right context, with spreadsheets and reports that turn customers, and their people, into numbers, instead of the valuable assets which they are.
So far, there is something of a consensus on using Net Promoter Score (NPS) as an additional metric alongside traditional customer satisfaction (CSAT) scores and voice of the customer (VOC) research to help you zero in on what your customers really think—and how to make your products consistently exceed their expectations. If you haven’t begun at least tracking those three things (NPS, CSAT, and VOC), that would be a place to start prior to embarking on this particular growth path.
Well-intended decisions sometimes have unintended consequences, and a vicious cycle of mediocrity, or worse, becomes the new normal. If you haven’t figured it out yet, let me be clear: CX is not an either-or decision; it must be a philosophy embedded into your company’s DNA. The reward? Loyal advocates who are willing to pay you more money for similar products, stay longer with you than a fly-by-night customer, and are much more likely to purchase from you again and again.
Using a customer-centric approach to achieve growth is to drive customer obsession throughout the entire organization. Today, you need an exceptional sales team. You need to have a strong marketing team. You need a responsive customer service team. By comparison, you may only need a “good enough” product. But those things alone aren’t enough to sustain growth. It is the combination of all of those things that are required if you choose to pursue this path—this is the path that must be combined with all of the others.
There’s no way to fake your way through this path; no amount of money, advertising, or vast product portfolio will make up for subpar experiences. Now don’t get me wrong: you can’t just have the best customer experience in town and serve terrible food or a subpar cup of coffee—or sell a product that doesn’t work. Remember: this path is a combination play supporting all of the other nine paths in some way. And if you don’t use it as a combination play when pursuing one or more (additional) growth paths, you actually risk finding yourself in a similar situation as Starbucks—diluting the value of your brand to your customers.
Furthermore, if you do make changes to your products or services that are not immediately embraced (think Apple removing the headphone jack or Twitter increasing its character counts), don’t panic—sometimes short-term customer discomfort is needed to make way for longer-term improvement to customer experience.
&nb
sp; PATH 2
CUSTOMER BASE PENETRATION
CUSTOMER BASE PENETRATION
Make new friends, but keep the old. One is silver, the other gold.
—UNKNOWN
WHY CUSTOMER BASE PENETRATION MATTERS
Acquiring a new customer is anywhere from five to twenty-five times more expensive than retaining an existing one.
It costs six to seven times more to acquire a new customer than to retain an existing one.
Seventy percent of companies say it’s cheaper to retain a customer than acquire one.
The probability of selling to an existing customer is 60–70 percent. The probability of selling to a new prospect is 5–20 percent.
Repeat customers, on average, spend 67 percent more.
Loyal customers are five times as likely to repurchase, five times as likely to forgive, four times as likely to refer, and seven times as likely to try a new offering.