I hadn’t been aware of one of the more important CRM stories of the year until I was doing research for a new book. But it’s a great story and it deserves retelling, especially if you are like me and think that focusing on customers’ moments of truth is important. Thanks to Narina Sippy for pointing it out.
Back in April, Starbucks announced revenues for the just completed quarter that exceeded year-over-year attainment by a whopping 17.8 percent. Usually when there’s a break this big it needs explaining and often there’s a logical reason. Maybe it’s because one company bought another or it introduced a world-beating product, or it opened a lot of new stores. Starbucks did add 210 stores in the quarter under discussion but 210 out of 22,088 is not likely to move the needle in the way reported. Still, there was Starbucks announcing record revenues of $4.56 billion and the aforementioned 17.8 percent improvement. For a retailer in the restaurant business that’s just about unheard of.
Also reported in the earnings results was the fact of the company’s 10.3 million loyalty members, up 10 percent from the previous quarter. According to Starbucks, an average a loyalty member spends three times as much as a non-member. But most of the credit for the outsized (should we say grande?) increase came from technology, specifically a mobile app that enables loyalty members to get their orders faster and with less hassle.
The mobile app now lets loyalty members order and pay without standing in line; moreover, it serves as a marketing platform for people well disposed to upsells. This is a big deal and not simply because it exemplifies the digital revolution taking place. Like any hype-cycle, there will be impressive successes in the everything-goes-digital transformation of business and there will be failures. The difference, as is often the case, is in understanding the application of the new technology rather than implementing it just because you hear voices.
In Starbucks’ case they didn’t simply decide to build a mobile app. Instead they decided to understand customer moments of truth and then tried to figure out how to be there for their customers. As it turns out, waiting in line at a busy coffee shop not once—to place an order—but twice, to wait for your order as well, is a major time sink for busy people. Why not skip the lines all together and just head right to pickup? That’s part of the mobile app’s appeal. Best of all, you can order on your way so that your stuff is waiting for you when you arrive, and yes, you’ve already paid for it too—so be on your way.
Now, perhaps you are reading this and thinking well, of course, why not build a mobile app to do this? It seems intuitive but if it really was there would be so many examples of companies engaging this way that my book would have written itself by now. But that’s not the case. The Starbucks example does, however, show what moments of truth and digital transformation are all about and how they can work synergistically.
The transformation is really about finding ways to proactively reach customers with something of value for their consideration and that leads directly to capturing customer data so that the vendor can know before hand where the moments of truth are and then forecast which customers to prepare for, like eliminating lines.
The Starbucks example shows two things. First, it demonstrates the right sequence for the transformation, which amounts to listen to customers first, then act. The availability of powerful technologies made a mobile app possible but it didn’t do anything to change the moments of truth. Without Wi-Fi and mobile and all the rest, customers would have had the same moments of truth and eliminating the waiting would have still been an important thing to tackle.
Previously, solving such a problem meant putting more people on duty or buying more machines to crank up output but that was capital intensive. And if no other vendor was competing on reducing wait time, those investments might have proven to be wasteful or without acceptable ROI.
The second thing I learned from this example is that the mobile app is effectively a new channel, newer even than social networking running on your phone. As a channel the mobile app needs to be filled, it needs content but not just any content. The nature of this channel is highly personal so the content needs to be also. This channel needs to be able to predict customer needs well enough that the customer will always think a suggestion is valid even if that customer rejects it.
So that’s it in a small space. Digital transformation is about getting tighter with customers, it is not primarily about saving a few parts of a penny on a transaction. The transaction is already basically free—the customer buys the device and air time and supplies the labor of the interaction. The responsibility or duty for vendors now is to be relevant.
Last week in New York, I began some field research in social CRM that will result in a longer paper later this fall. One of the things that interested me was the level of frustration and, well, anger that some customers have for some of their vendors.
It’s a mixed bag, really — some people take great umbrage at Starbucks (Nasdaq: SBUX), others at a social networking site, and still others target their ire at oil companies, their colleges or even retailers.
In my research, there isn’t a single industry — or vendor, for that matter — that doesn’t have a group of antagonists.
This should surprise no one, but in the age of the Internet, some people might stew in their own juices over a problem or slight — either real or imagined — that happened just yesterday or one that goes back several years, but many others take action by airing their gripes online. If this is the age of transparency, it is not simply about vendor transparency — customers have a lot to say on the idea and they do.
Everyone Has Their Enemies
For part of my research, I relied on the highly subjective and unscientific international expression of annoyance and resistance to corporate affronts — I searched on the phrase “[insert name here, please] sucks.” Dear reader, I understand your delicate sensibilities, and I assure you that my interest in this research and the use of this mild form of profanity is not at all prurient — it is used in the furtherance of science. Think of me like a doctor or a photographer for National Geographic.
My reasons for beginning this quest are not germane to this piece but will be explained in the paper. Nonetheless, the more I searched, the more I realized that any company you can think of that serves the mass market has its detractors. These detractors have reached a personal level for frustration or loathing sufficient to cause them to invest many hours of their time to initiate Web sites and blogs to drive their points home and to invite others to likewise vent their frustrations.
In all but the smallest number of cases, searching on “___ sucks” brought to the screen not thousands or tens of thousands of hits but hundreds of thousands, and in many cases millions of them.
Dissatisfaction on 2 Levels
Here’s where it gets interesting. It is no surprise that some people have problems with corporations that supply them with life’s necessities. I can’t say that I have read or analyzed more than a small speck of the rants online, but after spending several hours with these for a, I feel safe in stating this preliminary conclusion: People are less dissatisfied over products or services than you might think. They are much more likely to have problems with their customer experiences.
But saying the customer experience is an issue really understates the point, which is that it appears there are at least two levels of customer experience to contend with. Moreover, it is the second level that gives many corporations agita, or at least it should.
The two levels? Thought you’d never ask.
Level One is the customer experience that the company knows about and in many cases designs around.
Level Two is the customer experience expectation that has developed in the customer’s head.
A company may not even be aware of Level Two — how could it be? It’s completely subjective. But level two is where companies falter, often badly, because of the impressions they have unwittingly encouraged to take form in their customers’ crania. More on Level Two shortly.
A simple example is all we have room for here, so it will have to suffice until the paper is ready. Note there are loads of variables in this data that are unaccounted for, and controlling for them will probably inform the work of thesis writers for the next generation. You are welcome.
Starbucks is the example. Searching on “Starbucks sucks” brought back 335,000 hits in 0.15 seconds — the number of hits seems large but broader research proves it to be middling at best. If you want some really scary numbers, try “BP Sucks” — about 2,510,000 results (0.38 seconds), according to Google (Nasdaq: GOOG), or “Facebook sucks,” clocking in at a whopping 24,300,000 results (0.19 seconds).
Case in Point: Starbucks
Reading the posts on these sites provides a clear understanding of Level Two. To be sure, there are Level One critiques of products and services — the absence of non-dairy creamer or the extra charge for soy in espresso drinks, for example. But extensive reading shows that many more of the complaints deal with Level Two and aspirations.
For instance, the reason many people patronize Starbucks’ shops is the vibe. People want to associate with Starbucks because it reflects the image they have of themselves in a Gatsby-esque way — it shows how they want to see themselves on their best hair days. They seem to see themselves as kind, ethical, caring and nurturing people.
So when Starbucks has a disagreement with African coffee growers over trademarks and the price of raw beans, people complain. They also complain about the wages and low level of tipping for the baristas and they are happy to supply reports from Oxfam on the African situation and information about a successful lawsuit over tips in Los Angeles by baristas against the chain. Two sides play this game — consider the Starbucks water brand “Ethos.”
These and many other examples of Level Two failures point out the downside of living by the customer experience. It seems to me that many large companies have taken the approach of doing their best on Level One customer experience and of working to ensure that Level Two never gets totally out of control, a la BP (NYSE: BP).
What can a company do about it? Plenty, as it turns out, but it requires a different kind of thinking and another column. Next week, part two of this piece on how to approach the Level Two customer experience.
It’s a curiosity that we’ve lived with for a long time. On one hand, they provide fat free, one percent and two percent — your choice — at no extra cost. Where cows are concerned, leche is leche and it comes with the latte, cappuccino or what ever you order. But let one soy bean into the equation and bingo! It’s a license to print money.
Hold on though. Soy isn’t a choice the way two percent is — my jeans fit a little snug today so I’d better get the fat free. No siree, if you are lactose intolerant soy is the only way you get to enjoy espresso with steamed white stuff.
So the question is, why is Starbucks adding this hurdle for a distinct group of customers? It’s sort of like charging for salad dressing, maybe just one flavor, or for McDonalds charging for ketchup. How long would that last?
Ok, soy might be more expensive wholesale than cow juice — I don’t know but let’s do the thought experiment — but, really, if your are charging over three bucks for a cup of Joe I doubt you’d lose money or that any widows and orphans would fall into penury over the largess.
Hey, Starbucks, time to start treating all your customers the same. Drop the charge for soy.
I recently read “Tribes” by Seth Godin and I think it might hold some clues to the future of CRM. Godin is a business blogger and author of more than a dozen books with titles like “Permission Marketing” and “Purple Cow”. He’s not about the status quo, he’s all over change and leadership like a junkyard dog.
One of Godin’s points — something that I have tried to articulate with less success — is that our business and personal relationships are tribal and, parenthetically, social media is an ideal tool for communication within the tribe. Godin’s point is that tribes are a natural form of association and leveraging them is a strong human drive. Tribes are everywhere or they are waiting to form, waiting for someone to exert leadership.
If you have a Facebook, Twitter, LinkedIn or other social media account and people subscribe to your posts, you are a tribe leader. You are also likely to be a tribe member for the same reason. In business customers more or less fit the description of tribe members though something of tangible value is often involved in the relationship too.
In an expanding market a tribe might be nothing more than a customer base especially at the beginning. Vendors have most of the relationship power in expanding markets because customers are often busy figuring out what a product really does. Nonetheless, a very loose alliance of customers inevitably begins to come together around shared interests. It starts simply enough — someone hosts a meeting, writes up some reasons the group wants to exist and members trade contact information so that they can communicate, and there it is. Godin says that’s about all a tribe needs — a shared interest and a means of communication and isn’t that what social media provides?
If you’re a savvy vendor you might look for ways to engage the group so that you can benefit from its ideas and maybe even share some ideas of your own. If you’ve been using a product like RightNow or Salesforce you are a member of those tribes. You may go to annual or regional meetings and trade ideas on line with other members. You may also offer suggestions for improving these services through the tribe. A smart vendor will also want to hear what the tribe is discussing and ask a few questions for clarity, too.
Tribes are not limited to a kind of product or service such as technology. Starbucks has a thriving tribe consolidated around, not coffee, per se, but the Starbucks experience. Visit the MyStarbucksIdea hosted by Salesforce.com and you will see what I mean.
As you may know, I think that the era of expanding markets and exponential growth is at least taking a pause and it may even be over for a while. What replaces expanding markets is often zero-sum markets — a situation where your best customers are your best customers. In other words, the people who bought from you are the people you expect to sell to again (and again).
Zero-sum markets are positively tribal — iPhone or BlackBerry, Bud or Coors, Starbucks or Dunkin’ Donuts, Coke or Pepsi, paper or plastic, and on and on. CRM can play a natural role in tribal markets. If your tribe is your customer base — and all those who would be customers (and it is) — then CRM ought to be the tool you use to share your thought leadership.
But here’s the thing. It’s more than bi-directional, vendor to customer communication. It’s omni-directional including customer to customer, vendor to customer and customer to vendor. It’s also much more than a vendor using social media to promote a product or service.
My only critique of “Tribes” is that there isn’t much explicit discussion of the importance of capturing customer input though it’s certainly there if you read between the lines.
Social media came along at a perfect time for all of this tribalism and we adopted it in our personal lives with stunning results. Business adoption is something different though and I think business has been somewhat hobbled by a too literal interpretation and translation from personal to business.
We hardly think about our personal thought leadership because it is so much a part of us but in business thought leadership is not a single person’s view. It’s something that gets synthesized from many external and internal inputs, that’s why inbound social media is so important.
Your friends might follow you simply because you are you or maybe you are a natural leader but customers need a reason and that’s why I focus on social media that capture customer voice. Godin’s idea of tribes comes along at a good time. Vendors need a way to address customers that’s more effective than the marketing we did in the expanding markets era and thinking of the customer base as a tribe has a lot going for it.