Customer Experience

How Starbucks Devalued Its

Own Brand
by B. Joseph Pine II and Louis-Étienne Dubois

June 26, 2024

Hyoung Chang/Getty Images

Summary. Starbucks is struggling. It has strayed from its successful strategy of

offering customers exceptional experiences and, in the process, has commoditized
itself. This article analyzes where it went wrong and offers ideas for how the
company can turn itself... more

Starbucks is in trouble again. In its last quarterly-earnings report,

it announced disappointing results, including a 4% drop in same-
store sales (11% in China, its second-biggest market). After that
announcement, its stock plunged. (It is still well below its 12-
month high.) And its founder and three-time CEO Howard
Schultz once again fired off a missive on LinkedIn pleading with
Starbucks’ current leaders to rediscover and embrace the
company’s core purpose, its reason for existence.

Schultz’s open letter, which followed another he issued in

February, largely echoes the growing sentiments of many long-
time customers: Going to Starbucks isn’t what it used to be, and
the brand itself isn’t what it used to mean. The fundamental
problem: Starbucks has been commoditizing itself.

In this article, we argue that the company should shift its focus
back to the in-person experience and suggest ways to do that. Its
problems illustrate how companies that had succeeded by
offering customers exceptional experiences can succumb to the
temptation to pursue goals like efficiency and volume and, in the
process, commoditize themselves. Our recommendations are all
about how those who have strayed can return to the path.

Self-Commoditization
The term “third place” (coined by sociologist Ray Oldenburg),
which Schultz has long applied to Starbucks, means “a place
beyond home and work where people could gather, relax and
talk.” But over the past decade, comfy chairs have largely
disappeared, replaced by hard wooden ones, the better to push
people back out to their homes and offices. The company has also
turned finding electrical outlets to plug in computers or phones
into somewhat of a treasure hunt.

Printed orders have replaced handwriting on cups — once upon a

time including compliments or pick-me-ups — removing the
human touch from its famously handcrafted beverages. Gone is
the rich aroma of coffee beans roasting and grinding; instead,
there are now ready-to-use sealed packages. And in June 2024,
the company announced it was going to offer value meals for
goodness sakes!
Starbucks’ vaunted loyalty program is also self-commoditizing.
Despite increasing sales overall, its tracking of purchases focuses
customers on the price of what they buy — especially when the
company switched it from tracking items to total dollars spent —
rather than the value of what they drink, eat, and experience. The
explicit bargain of “you buy more, and we’ll give you something
for free” comes with the implicit message that “you’re overpaying
on each cup, so we can afford to throw in a freebie every once in a
while.”

The company long ago added drive-throughs at many suburban

locations, which also increased sales while decreasing the on-
premise experience. It divided the attention of baristas, increased
the length of service, and took up space that could be used to
enhance the in-person experience.

Mobile ordering places you and your in-house order in an

invisible queue of indeterminate and sometimes seemingly
interminable length. You end up bumping elbows with in-and-out
convenience buyers, hearing and seeing them go in and out for
the entire time you try to enjoy your time away from home and
work. And now some Starbucks venues removed all the chairs —
comfy and hard alike — to focus on mobile orders.

Starbucks may call it “experiential convenience,” but we consider

that an oxymoron; convenience is about time well saved and
experience is about time well spent. It’s really just the experiential
equivalent of “shrinkflation.”

Concurrently, the company has witnessed mounting tensions

within its workforce and a push to unionize. While Starbucks
consistently used to rank as one the best places to work, it has
completely disappeared from the charts since 2016. Instead,
employees have been increasingly verbal about their working
conditions, pointing to the disconnect between performance
metrics geared toward sales volume and those focused on the
quality of the connections with customers.
Sure, the company gained revenue and efficiency in the short
term, but at what price in the long term if it commoditizes itself,
loses its authenticity, and lessens the experience of being in a
third place — if it ends up losing what Schultz described in his
February open letter as its “soul” in the process? We see it as a
Faustian bargain that may please Wall Street today but will
eventually corrode the company, leaving it a hulking shell of
itself.

The Way Back

It’s certainly not too late for Starbucks to right the ship, return to
its experiential course, and break out of its self-commoditization.
In many regards, we agree with Schulz’s assessment that the path
forward begins with revisiting what made the company so
successful in the first place.

Recapturing the authenticity of the brand means doing away with

the assembly-line feel of today’s Starbucks, letting employees
once again be key actors in the experience. The liveliness that
comes with baristas shouting orders and the human connections
they make are precisely what gave these places a neighborhood
coffee shop feel — even if that meant an occasional odd
misspelling on your cup or an unwarranted extra pump of syrup.
Such “mistakes” made the Starbucks experience authentically
human. Re-enriching jobs that have become routinized and
empowering employees to stage meaningful experiences might
also go a long way in improving their sentiment toward the
company.

The company should also redesign its self-commoditizing loyalty

program to stop giving away drinks and food for free that guests
would buy anyway. Instead, turn the program into an experience
platform that offers guests experiences that they would not
otherwise have. This is what most every credit card company,
airline, and hospitality company has already done. Delta’s
SkyMiles Experiences program, for example, talks of how “you
can turn your miles into memories.” Mastercard’s platform offers
“priceless” experiences. And the Hilton Honors loyalty program
tells members to put their points “where your passion is, with
Experiences across the globe and in your hometown that money
can’t buy.”

Starbucks must also find ways to cater to those people who treat
Starbucks as a mere service without impairing the experience of
those who consider it something more. This means separating
mobile and drive-through orders from the on-premise ones to
minimize interactions between the different crowds. It also
means reinvesting in comfort and amenities for people who want
to hang around. In fact, given that remote work isn’t going
anywhere and many people’s homes prove to be less-than-ideal
settings since the recent pandemic, there has never been a better
time for Starbucks to position itself as a worthy place for work.

One way of making the distinction between in-house and

takeaway customers clear is to recognize that while services
charge for the activities that employees perform, experiences
charge for the time customers spend in the place. This could mean
charging an admission or membership fee or a higher price for
drinks and food. Pret A Manger in the UK already uses such a two-
tiered pricing model for those who stay versus those who take
away.

There are many places around the world, often called “anticafes,”
that charge for the time spent there socializing, playing games,
doing work, and so on — and they often throw in machine-made
coffee for free. But you don’t need to charge for the entire place;
you can charge for places-within-the-place and the experiences
that happen there. Indeed, Starbucks already charges admission
for tasting experiences and classes in its Reserve Roastery
locations where the experience still reigns supreme.

No doubt embracing these ideas requires not only the right

strategy but strong leadership. Can anyone do it but Howard
Schultz? His latest open letter may be a plea to be invited back, as
he’s done so often before. Given he’s no longer even on the board,
that is highly unlikely. But if not Schultz, then Starbucks needs a
 leader with similar passion, drive, and appreciation for the value
of experiences. Someone who bleeds coffee and connections, not
just dollars and cents.

B. Joseph Pine II is co-founder of Strategic

Horizons LLP and the author of many books,
including The Experience Economy, with
James H. Gilmore, and Infinite Possibility:
Creating Customer Value on the Digital
Frontier, with Kim C. Korn.

 @joepine

Louis-Étienne Dubois is an associate

professor of creative industries management at
Toronto Metropolitan University’s School of
Creative Industries.

Recommended For You

Choosing Between a Structured or Conversational Interview

PODCAST
Should Your Business Sell on Amazon?

Reinventing the Core Value Statement

How to Improve the Hiring Process for Disabled Candidates