There’s a lot to learn from Starbucks at Piaras Kelly PR

There’s a lot to learn from Starbucks

6 Comments Published September 12th, 2006 in General

Just reading one of the latest Change This manifestos, Tribal Knowledge – Business wisdom brewed from the grounds of Starbucks corporate culture by John Moore. A couple of things really jumped off the page for me which I wish other companies would take note of, especially when you consider how successful Starbucks is:

But as Starbucks grew, building its business and its brand in concert, it realized something significant: Word-of-mouth was the best advertising. any company could ever hope to receive. And, despite the fact that many marketers are now figuring out ways to “buy” this kind of buzz from consumers, the most effective word-of-mouth advertising still can’t be bought.

…

During the ten years from 1987 to 1997, Starbucks spent less than $10 million on advertising—for a publicly traded retailer the size of Starbucks, that kind of miniscule advertising expenditure is almost unheard of, especially for a growing brand. Keep in mind, in 2004, the company spent nearly $70 million on the recruiting and training of store partners—that’s more money than Starbucks spent on advertising that year.

…

Starbucks spends its marketing dollars to make the customer experience better by:

adding more unique beverages to its menu;
adding wireless internet (wi-fi) and music listening/CD-burning

kiosks to the coffee experience;

adding more comfy couches and more reading tables in its stores;
and adding more partners on staff to increase speed of service to customers.

All of the business activities mentioned above are considered marketing activities to Starbucks because a customer’s experience is “the marketing” for Starbucks.

There’s a lot of buzz around word-of-mouth marketing, but instead of making a great product or service which consumers will instinctively talk about, people seem more inclined to throw money on PR and advertising even if they have nothing to talk about. As the excerpt above goes to show, they’ll probably get a better ROI if they improved their actual offering, especially when you consider the following survey results.

Increase in advertising will only bring about 2% rise in sales.
18%: Proportion of TV advertising campaigns generating positive ROI
54 cents: Average return in sales for every $1 spent on advertising
256%: The increase in TV advertising costs (CPM) in the past decade
84%: Proportion of B2B marketing campaigns resulting in falling sales
100%: The increase needed in advertising spend to add 1-2% in sales
14%: Proportion of people who trust advertising information
90%: Proportion of people who can skip TV ads who do skip TV ads
80%: Market share of video recorders with ad skipping technology in 2008
95%: The failure rate for new product introductions

Technorati Tags: Piaras Kelly, PR, Public Relations, Starbucks, Word-of-mouth

6 Responses to “There’s a lot to learn from Starbucks”

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1 Memsaab - The Global Indian Women Sep 12th, 2006 at 9:25 am

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2 Tom Sep 12th, 2006 at 10:48 am

Some very good points in that. Effective word-of-mouth marketing is genuine, unplanned and unscripted. It’s the ‘if you build it’ approach to marketing. If you have a truly enjoyable and customer focused experience with a retailer or organisation, then people will let other people know.

If you try and do it artificially and don’t have the products or services that will get people talking organiically, the money spent on the marketing effort won’t be as effective.
3 fmk Sep 12th, 2006 at 11:22 am

I hope Moore’s book is more readable than Schulz’s own Starbucks biography, Pour Your Heart Into It – that contained some fo the worst management twaddle I’ve ever had to read, and god knows, I’ve read a lot of management twaddle in my time.

As for Starbucks relying on no-cost WOM advertising – bullshit! Starbucks so heavily invests in prime, branded real estate that there is no need for advertising – the shops themselves are abot the most expensive ads you can possibly find. You can’t miss them, even if you never go into them!

Add in the fact that many people buy their coffee to go and then count up how many peope are walking down the street carrying Starbucks’ ad (aka a branded coffee cup) and ask yourself why you’d ever need to spend your money on bllboards, radio/tv spots or newspaper/magazine ads!
4 Michael Morton Sep 13th, 2006 at 5:47 pm

Hi Piaras,

I have been meaning to read that manifesto. It seems like it would be an enjoyable and educational read.

Pardon this bit of self-promotion but a few months back I wrote a post on Starbucks’ impressive customer relations and how it contributes to the company’s success, which in turn contributes to its Word-of-Mouth marketing. You can read it here:

http://constituencycommunication.blogspot.com/2006/04/starbucks-case-study-great-customer.html

Just last week, Starbucks came underfire for cancelling an email promotion. Their excuse for the cancellation was that the viral nature of the promotion spread beyond their original intention. This mistake by Starbucks has had a negative impact on their word-of-mouth reputation. However, another company has used Starbucks’ mistake to generate their own positive word-of-mouth campaign. Read more about that here:

http://constituencycommunication.blogspot.com/2006/09/starbucks-sees-marketing-blunder.html
5 Courtney Oct 27th, 2006 at 4:08 am

Fmk’s right…you can’t miss the stores. The sheer number of locations creates word of mouth. Their investment in training and ambiance makes that WOM positive. They claim opening new stores doesn’t cannibalize profits from other stores; it just reduces waiting times and offers convenience. For those getting their morning coffee, that’s the factor that counts.

There’s something to be said for service. During the 70s and 80s, it was cut to increase profits. Now, service is the factor that actually creates profits.

Starbucks has branded itself worldwide in a way that no one could have imagined. They have truly created a lifestyle including music, books, and, of course, coffee.

Starbucks is a company that is actively pursuing a conversation with its customers. “The Way I See It” campaign allows for voices outside of the company and something more than the mermaid.