As you have probably heard, Starbucks is going through its first ever round of large-scale layoffs, letting about 12,000 people go and shuttering 600 stores. Not surprisingly this is being blamed on $4+/gallon gas, the housing crisis, the credit crisis, and the general recessionary feel going around the economy. So sad news for those getting laid off, though schadenfreude for those who disparage the mass ubiquity of the brand.

The Leftlane blog notes:

$4 a gallon gas has forced many Americans to drive less, but the high price of gas is also causing many to change their spending habits all together. A new survey reveals that many Americans are cutting out small luxury in order to keep their car’s tank topped off.

A new study conducted by Kelly Blue Book finds that one in four people has cut out Starbucks completely from their morning routine, with another 21 percent greatly reducing their patronage of the coffee house.

But wait a minute, wasn’t Starbucks supposed to be recession-proof? If anything, it was supposed to do better during hard economic times because people would cut out on bigger luxuries like eating out, but they would increase purchases of mini luxuries like Venti Frappacinos because these made them feel good and cost relatively little. As one article has put it:

Wasn’t Starbucks supposed to be immune to economic ups and downs? That was always the investor argument made in favour of owning the company’s shares, and it was borne out during the U.S. recession that followed the dot-com collapse and 9/11. While most restaurants and retailers felt the squeeze as consumers scaled back, Starbucks’ latte-sipping well-to-dos kept coming back for more. That’s because, typically, luxury brands attract premium customers who are less sensitive to economic swings. They’ve got better job security and more disposable income to ride out the lows. When Starbucks continued to rack up impressive gains through 2002 and 2003, analysts went so far as to label the company “recession-proof.”

So which is it? Starbucks can’t have it both ways, either it’s recession-proof or it’s not.

But what the company offers has changed, or rather the way it offers it has changed. Service got worse, quality got worse, expansion happened too quickly and in an un-controlled way. I wrote a couple of years ago that Starbucks should be worried about how poor experiences happening at its periphery were affecting perceptions of its core stores:

Starbucks’ problem is that they are letting their experience get away from them at the peripheries: airports, corporate installations that “Proudly Brew Starbucks”, airlines, and so on. They are getting sloppy: the milk is too hot, the coffee brewed too weak or is burnt, espresso shots don’t have the punch, the counters are filthy and messy, the supplies aren’t stocked, the staff are impolite or poorly trained….

Perhaps [executives’] infatuation with new opportunities like selling CD’s at the stores and being in the movie business are distracting them from their core. Or perhaps their executives are not spending enough time really living the experiences they are selling, in all its variations. This happens a lot. I remember working with a wireless company a few years back where the executives used Blackberries instead of the phones the company was selling to customers at the time. They had no idea what actual customer experience they provided.

Starbucks stopped “eating its own dogfood” as the saying goes, or got so caught up in its own hype and self image that it lost track of the value that its customers actually put on what it was selling. And their rapid expansion actually lowered the perceived value by making it too commoditized and not special enough, as well as lowering the actual value because the quality got worse. Starbucks have now run smack into that limit. 

Related posts:
Starbucks Should be Worried 

Creating good user experiences (UX) over and over again means creating first good employee experiences (EX - I’m trademarking that!). That’s the lesson from Southwest airlines according to an NY Times article about retiring co-founder Herbert Kelleher:

Over the years, whenever reporters would ask him the secret to Southwest’s success, Mr. Kelleher had a stock response. “You have to treat your employees like customers,” he told Fortune in 2001. “When you treat them right, then they will treat your outside customers right. That has been a powerful competitive weapon for us.”…

[W]hen you look at a company like American, with its poisonous employee relations and its glum customer base, and compare it with Southwest, with its happy employees and contented customers, you can’t help thinking that Mr. Kelleher was on to something when he put employees first. “There isn’t any customer satisfaction without employee satisfaction,” said Gordon Bethune, the former chief executive of Continental Airlines, and an old friend of Mr. Kelleher’s. “He recognized that good employee relations would affect the bottom line. He knew that having employees who wanted to do a good job would drive revenue and lower costs.”

This isn’t really surprising for a service company like Southwest, but the same rule applies, I believe, to companies that make products. Employee happiness often comes from walking the walk — in other words not just making big pronouncements about how much you love your employees (Kelleher wept when talking about his employess in his going-away speech), but in seeing those through in actions big and small. And often it’s the small ones  that show how you actually mean. It’s kind of like what they say about ethics - it’s what you do when nobody’s looking.

These small touches to how you treat employees are often the most intimate ones, and they communicate how deeply felt the relationship is (or not, as the case may be). Southwest, for example, seems to give its flight staff a great deal of autonomy when it comes to how they intereact with passengers, but bounded by some established guidelines. This has famously led to some staff singing the safety announcements and adding comedic commentary (I once heard one say “There may be fifty ways to leave your lover, but there are only four ways off this big bird!”). It also probably led to the more recent episodes of passengers getting walked off planes for risque clothing…just goes to show that what constitutes a “good” UX is different for different people.

While any company can luck out with one-off good experiences, a long term systemic philosophy of treating employees right fosters a mindset that is focused on thinking about the needs of others, which ideally translates into the products the employees create for the company’s customers.

Cable TV companies are famously indifferent to user experiences, and my provider, Comcast, recently showcased one example. They finally started allowing previews of on-demand movies, but check out how they managed to  mess up the experience:

That giant blue box stays on screen for the entire duration of the preview, obscuring a good chunk of it (even more for non-widescreen previews than what you see here). It’s really distracting.

You wouldn’t see something like this if Southwest ran a cable system.

References:

The Sinatra of Southwest Feels the Love, NY Times

Org Chart 2.0: Built for User Experience Systems

Isn’t it interesting that in the latest airline quality rankings the top three spots were taken by low-cost carriers? JetBlue, Southwest and AirTran ranked the best while overall the industry had its worst ratings in twenty years.

Just goes to show that providing a leading user experience does not have to mean premium price. All three are relative start-ups compared to the likes of United and American, and they have been able to structure themselves (and therefore their) costs based on lessons learned from the older airlines.

Nevertheless, with issues like number of passengers bumped per flight, amount of baggage lost, and late flights that the survey measured, it’s hard to see how these three airlines would have intrinsic benefits over their older competitors.

There is also a more intangible difference between JetBlue and Southwest compared to most other carriers: the atmosphere on the ground and the plane that emanates from the staff. It is more relaxed, more can-do, more enjoyable. One can always find one-off examples at other airlines, of course, but the widespread nature of it at these two airlines (I have not flown AirTran recently so cannot comment) makes it clear there is systemic approach to managing and encouraging this atmosphere.

(And neither Southwest or JetBlue are perfect: JetBlue had its famed debaucle with passengers stranded for hours on runways in snow conditions, and Southwest is currently not looking so good with questionable maintenance practices. If you raise the user experience bar high, the punishment is extra hard if you fail to meet it consistently.)

People often think of good user experiences as uncontrollable black magic. Nothing could be further from the truth, as JetBlue, Southwest and AirTran show: even in a highly cost-sensitive industry there is room to make it a competitive differentiator. And not just for premium brands.