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Starbucks One in Reno

The survival of any organization depends on the ability to satisfy…no, surprise the customer.  Satisfying the customer is a major challenge, but surprising the customer separates the Disney’s of the world from amusement parks.   Surprising the customer takes many forms but it all comes down to offering a value-added service or product.

Paul Kiser - CEO of 2020 Enterprise Technologies, inc.

The economic definition of value-added is the difference between the actual cost of producing a product or service and the price the customer is willing to pay. However, author/speaker/ranter extraordinaire Tom Peters uses the term value-added to describe the satisfaction a customer experiences with the product or service that exceeds their expectations.  This is a point that most organizations (for profit or not) fail to understand.

The Lesson of Starbucks
Starbucks is a good example of a company that has traditionally succeeded in giving ‘value-added’ products and service.  Many people forget that in the 1970’s and 1980’s coffee was on it’s way out.  Younger generations were choosing sweet soda drinks and mocking their parent’s addiction to coffee.

While it was Peet’s Coffee that pioneered specialty coffee in the 1960’s, it was two of Peet’s customers, Jerry Baldwin and Gordon Bowker, who started a little company called Starbucks that copied Peet’s idea of selling quality specialty coffee beans.  But Balwin and Bowker couldn’t visualize how coffee could become a new staple in a world that was done with drinking coffee.

It was Starbucks Director of Retail Operations and Marketing, Howard Schultz, that saw how coffee could establish a new market that was almost non-existent at the time.   Schultz couldn’t convince his company that a retail specialty coffee outlet (not just beans, but fresh, made-to-order coffee drinks) was realistic.

The lesson of Starbucks is that Howard Schultz could understand how a customer could love the uniqueness of providing fresh specialty coffee when no one else could.  Somehow Schultz knew that he could provide a value-added experience to his customers even before there was a market of specialty drinking customers.  Peet’s coffee didn’t get it…even the owners of Starbucks didn’t get it…but Howard got it.

So what happened?  Like in every great success story the champion quit.  Howard Schultz quit Starbucks.  He started his own specialty coffee retail outlet in 1985 using coffee beans he purchased from his former employer, and then in 1987, Schultz bought Starbucks from his former employers and the rest is…well, a lot of brewed coffee.

Customers liked Starbucks because it was different, because it was a good product, because it was convenient, because it made them feel special, but mostly because the experience of Starbucks exceeded her or his expectations.  It was a value-added product that surprised the customer…and everyone else.

Next time: What’s next for Starbucks?