text:
**PRAISE FOR
 _LEADING THE STARBUCKS WAY_**

"Starbucks Coffee and Tea Company began just a few blocks from my business, the Pike Place Fish Market. Joseph Michelli helped me tell the story of how we create engaging and powerful experiences at Pike Place Fish. He has also been trusted to work with and share business principles used at companies like Starbucks, The Ritz-Carlton Hotel Company, and Zappos. In _Leading the Starbucks Way_ , Joseph takes an incisive look at the leadership excellence of Starbucks. Unlike his prior book about the coffee leader, _Leading the Starbucks Way_ helps you leverage the connection you build at the person-to-person level while expanding your customer bond globally, through technology, and even onto your products and goods. What are you waiting for? Buy the book, dive-in, gain practical tools, and be transformed!"

—JOHN YOKOYAMA,
Owner of the World Famous Pike Place Fish Market and coauthor of _When Fish Fly_

"Joseph Michelli offers interesting insights into the fundamentals involved in creating the world's biggest coffee chain. As a businessperson, you will learn how Starbucks leaders drive success as well as how they learn from setbacks. By reading _Leading the Starbucks Way_ , you will be able to bypass many business pitfalls and streamline your pursuit of desired business objectives."

—MARTIN LINDSTROM,
bestselling author of _Buyology_ and _Brandwashed_

"Culture is everything! This fast-moving, fascinating book gives you countless practical ideas you can use immediately to create a company climate of inspiration and loyalty."

—BRIAN TRACY, author of _Full Engagement_

"In _Leading the Starbucks Way_ , Joseph Michelli shows us how a small Seattle-based chain of coffee shops became one of the most beloved brands on the planet. Charming, real-life examples of true service culture blend with behind-the-scenes corporate training strategies to create a pleasant and interesting read. So grab a cup of coffee, put your feet up, and read this book!"

—KEN BLANCHARD,
coauthor of _The One Minute Manager®_ and _Leading at a Higher Level_

"As a Seattleite who remembers when there was just one Starbucks store on the planet, I continue to be fascinated by the company's evolutionary journey to corporate icon. Michelli identifies the principles by which Howard Schultz and his team passionately perform in a culture that loves, respects, and rewards suppliers, employees, customers, shareholders, and the community."

—ROBERT SPECTOR,
author of _The Nordstrom Way_ and coauthor of the forthcoming _What's Love Got to Do with It?: Courting, Catching, and Caring for the Ideal Customer_

" _Leading the Starbucks Way_ provides the key success factors of a lifestyle brand that is globally scaled, locally relevant, and powered by the passion of the Starbucks culture."

—JOHN TIMMERMAN, PHD,
Senior Strategist of Customer Experience and Innovation, Gallup

#
Copyright © 2014 by Joseph A. Michelli. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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Starbucks® coffee, Starbucks® café, Starbucks VIA® Ready Brew, Frappuccino® blended beverage, Seattle's Best Coffee® café, Seattle's Best Coffee® coffee, Tazo® Tea, and other names or marks in this book are trademarks of Starbucks Coffee Company. The absence of a trademark from this list or the absence of TM, SM, or ® symbol in connection with the marks in the book does not constitute a waiver of any intellectual property rights that Starbucks has established in any of its trademarks.

Pike Place is a trademark of The Pike Place Market PDA, used under license.

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**TERMS OF USE**

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_This book is dedicated to the memory of my wife,
Nora Leigh Michelli (September 7, 1961, to February 11, 2013)—
the woman with whom I shared more than half my life.
You've been released from your six-year battle with breast cancer,
and I know you heard, "Well done, good and faithful servant."
Nora, it is your time to enjoy the Master's happiness!_

## **Contents**

Foreword

Acknowledgments

**1.** The Starbucks Connection

[**PRINCIPLE 1**
 **SAVOR AND ELEVATE**](part01.html#part01)

**2.** If You Don't Have Passion for Your Product, Why Should Your Customer?

**3.** From Replicable and Consistent to Magical and Unique

[**PRINCIPLE 2**
 **LOVE TO BE LOVED**](part02.html#part02)

**4.** It's a Matter of Trust and Love

**5.** It Must Thrive Inside to Be Experienced Outside

[**PRINCIPLE 3**
 **REACH FOR COMMON GROUND**](part03.html#part03)

**6.** Assume the Universal: Serve the Unifying Truths of Humans

**7.** Respect, Celebrate, and Customize: Listening and Innovating to Meet Local, Regional, and Global Needs

[**PRINCIPLE 4**
 **MOBILIZE THE CONNECTION**](part04.html#part04)

**8.** Growing the Connection Through Technology

**9.** Personal Relationships Translate: Sharing the Love from People to Products

[**PRINCIPLE 5**
 **CHERISH AND CHALLENGE YOUR LEGACY**](part05.html#part05)

**10.** Honor the Past, but Don't Be Trapped in It

**11.** Taking the Long View: Building Success That Lasts

**12.** Forging a Real Lifestyle Connection

Bibliography

Index

## **Foreword**

Many business leaders today face a dynamic set of challenges. How does one choose employees who have the talents and interpersonal qualities necessary to deliver memorable customer experiences? How can leaders bring on board, train, and acculturate team members so that they develop a passion for product excellence and the skills required to become consummate service professionals? How can technology be leveraged to strengthen, _not_ diminish, personal service delivery?

If you are fortunate enough to be a manager or leader in a company with a global footprint like The Ritz-Carlton Hotel Company or Starbucks, you face the added challenges of constantly refining your products and services to connect with changing and culturally diverse customer groups—all the while maintaining operational excellence and the loyalty of your existing customer base.

Each of Dr. Joseph Michelli's books offers a learning laboratory that's rich with examples from leaders as they address the aforementioned challenges and opportunities. They provide information, insights, and analysis on how leaders seek to create a high-performance organization that operates through the lens of humanity. This book demonstrates both the setbacks and the breakthroughs that the Starbucks leadership has encountered as it has attempted to position its products and people to deliver consistent, engaging, and loyalty-enhancing experiences.

I first met Dr. Michelli approximately six years ago. At that time, he brought his background as a customer experience professional, business consultant, and author to The Ritz-Carlton Hotel Company and chronicled our never-ending commitment to foster the engagement of our "Ladies and Gentlemen" and the guests whom we are fortunate to serve at our hotels and resorts in 27 countries presently.

As president of The Ritz-Carlton Hotel Company, I believe that a company's culture is critical to its success. At The Ritz-Carlton, we strive to anticipate and exceed guests' expectations in a warm, relaxed, and refined setting. We are constantly looking for ways to infer and go beyond the wants, needs, and desires of our Ladies and Gentlemen and of our guests. All of the Ladies and Gentlemen of The Ritz-Carlton (myself included) invest in and communicate about our cultural foundation on a daily basis.

American author M. Scott Peck suggested that we should "share our similarities, and celebrate our differences." While The Ritz-Carlton and Starbucks are different organizations in many respects, _Leading the Starbucks Way_ is a powerful and useful reminder that every one of us (no matter what our function or our industry) can contribute in some way to improved product quality, enhanced service delivery, emotionally engaging experiences, and enriched community involvement.

I wish you a fond farewell and joyful reading.

HERVE HUMLER
President and Chief Operations Officer
The Ritz-Carlton Hotel Company, L.L.C.

## **Acknowledgments**

Physician, philosopher, and theologian Albert Schweitzer once wrote, "At times our own light goes out and is rekindled by a spark from another person. Each of us has cause to think with deep gratitude of those who have lighted the flame within us." In the next few paragraphs, I am challenged to express the depths of my gratitude to so many people who have blessed my life with a willingness to kindle the flame that made this book possible.

_Leading the Starbucks Way_ would not exist were it not for the support of Howard Schultz and the leadership team at Starbucks. While a list of Starbucks partners who contributed to it can be found in the Bibliography, special recognition must be provided to Gina Woods, director, Executive Communications, and Heidi Peiper, program manager, Corporate Communications. Both Gina and Heidi were involved in all strategic and tactical aspects needed to take _Leading the Starbucks Way_ from idea to reality. Thanks for your patience, enthusiasm, insights, and diligence.

Lynn Stenftenagel has worked on five books with me, starting with _The Starbucks Experience_. Through years of book writing, unimaginable business success, and our share of headwinds, I can resoundingly say that there is no one I admire and respect more than Lynn. While we continue to grow and refine our business relationship, there is no denying the transformational impact that Lynn has had on my career and my life. When it comes to our work, Lynn is the true "keeper of the flame."

During that same five-book run, I have been fortunate to work with Donya Dickerson and Lloyd Rich. Lloyd, my publishing attorney, is the epitome of professionalism. He is an exceptional subject-matter expert with an amazing ability to create win/win solutions. Donya, an executive editor at McGraw-Hill, has the enviable ability to spark people to perform at unexpected levels. Donya sets clear performance expectations and dives in to help realize those objectives; but it is her unfailing encouragement, even temperament, and resourcefulness that push people past what they think they are capable of doing.

While this book is dedicated to Nora Michelli, I must provide some context if the remainder of these acknowledgments is to make sense. Nora and I met in 1987, married in 1989, and parted in the final stage of this book's completion. In fact, my earthly time with Nora ended in 2013 as our children and I sat at her bedside while she took her final breath.

Over the course of our journey, Nora and I brought into the world two children: Andrew and Fiona. We laughed, fought, delighted, angered, prayed, and battled cancer—together. I am happy to say that Nora knew everything about me and forgivingly loved me anyway, and for that I am eternally grateful.

During her extended cancer fight, and upon her death, many people have relit my life flame. Andrew and Fiona, you are my most significant inspirations. I know your lives have been painfully altered with the loss of your mom, but I pledge to be the best parent possible to carry forward the part of her that was delighted by and believed in your greatness and your ability to change the world. Andrew, may your nursing career allow you to transfer your loving spirit into acts of healing. Fiona, congratulations on Loyola and your journey into a life of leveraging business leadership to do significant good in the world.

Jim Collins talks about the people you would place on the board of directors of your life. The following have earned that place for me by their sage counsel, amazing depths of compassion, leadership vision, and resolute friendship, particularly during the challenges of late. Thank you, Rob Graf, Bob and Judy Yarmuth, Tommy and Diane Nance, Jeff Woodell, Barry and Lori Torman, Matt Lurz, Paul Prouty, Leanne Hadley, and Michael Pollard.

Thanks as well to those who have taught me so much about serving others through their example. Not the least of these include Kim Blankenburg, Carolyn Churchill, and so many others at Janus Capital Group, as well as Christie Schatz and staff members at Sonny's Franchise Company. Similarly, I offer gratitude and praise for Saint Peter's Healthcare System in New Brunswick, New Jersey, Jackie Houston, and the special nurses of Sun-coast Hospice.

As always, I conclude with a word of gratitude to you the reader. _Nothing plays a greater role in sparking me to write than an appreciation for the willingness of someone like you to take the time to read, learn, and grow_. Philosopher Eric Hoffer said, "In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists." I extend a heartfelt thank you for allowing me to learn and to share with you. May _Leading the Starbucks Way_ play a small role in helping us all move forward in this grand adventure!

###
**The Starbucks Connection**

_A couple in Switzerland make their first visit to a Starbucks® store and are welcomed enthusiastically. When asked what they'd like to have prepared for them, they both respond that they aren't there to make a purchase. They just want to see "what all the Starbucks fascination is about." They become regulars at that store_.

_A partner (as employees are called at Starbucks) shares how he was "moved" while attending the funeral of a regular customer. During the eulogy, the son of the deceased expressly mentioned the significance of those daily interactions between his father and that Starbucks partner_.

_A man sits alone at lunch in his favorite Starbucks store and tells a green apron–clad Starbucks barista (coffee preparer) that the store is his midday refuge, noting, "At Starbucks, you are nice to me, you remember me, and you seem genuinely grateful that I am here."_

These actual stories exemplify a company whose leaders establish a compelling vision and manifest behaviors that culminate not only in product sales but in powerful, loyalty-rich human connections. You are probably looking into the pages of this book to essentially understand how "all this Starbucks fascination comes about." How do leaders at Starbucks strategically and tactically steward the company's products and people to build customer engagement, loyalty, advocacy, and even brand love? How do these leaders model and inspire excellence in product delivery, the creation of moments of authentic service, an enterprise-wide appreciation for the importance of shareholder value, and a contagious demonstration of social conscience? You are probably also interested in what Starbucks partners are doing to expand relationships beyond the café environment, how they leverage technology to enhance customer experiences, and the ways in which they customize offerings to address local desires across the globe. Ultimately, lessons from Starbucks leaders, managers, and frontline partners will teach you to build connections with those you serve to effectively enrich your business and personal life.

### **STARBUCKS: A LEADERSHIP BENCHMARK**

Starbucks is consistently recognized as one of the world's most effectively led and beloved brands. For example, _Entrepreneur_ magazine ranks the company among the 10 "most trusted" businesses, and _Fortune_ magazine places it among the "most admired" global brands. Before delivering an important jobs speech, U.S. president Barack Obama placed a call to the president, chairman, and chief executive officer of Starbucks, Howard Schultz, because of Howard's leadership on job creation. _Fortune_ magazine has named Howard Schultz as businessperson of the year, and other magazines have suggested that he is among the top tier of global leaders when it comes to his impact on business ethics. Leadership across all levels of the company has produced more than 54 million Facebook fans, and millions more follow the company on Twitter and Pinterest.

Most important, Starbucks leaders are responsible for substantial global economic and social impact as well as considerable workforce stewardship. Starbucks leaders guide more than 200,000 people who serve the more than 60 million weekly customers frequenting more than 18,000 stores in more than 60 countries worldwide.

My previous book about Starbucks, _The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary_ , looked at how Starbucks leaders positioned the company for meteoric growth through much of the 1990s and early 2000s. Following the publication of that book, Starbucks leaders faced challenges resulting from their frenzied speed of expansion, decisions they made to drive year-over-year sales numbers, the effects of a sliding global economy, and less frequent visits from loyal customers to Starbucks U.S. stores. In 2008, Howard Schultz, who had been serving as the chief global strategist for Starbucks, returned to the helm as the company's chief executive officer. At the fiscal 2008 second-quarter earnings conference call, when Howard was explaining a 21 percent earnings decline over the prior year period, he noted, "While our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our Transformation Agenda, we will reinvigorate the Starbucks Experience for our customers, and in doing so, deliver increased value to our shareholders."

Howard's "Transformation Agenda" is detailed in his 2011 book titled _Onward: How Starbucks Fought for Its Life without Losing Its Soul_. At its core, Starbucks leadership crafted a transition plan that established a forward-looking vision that enhanced the company's established mission. While the Starbucks mission was "to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time," the transformation vision set an energizing and rallying objective, "to become an enduring, great company with one of the most recognized and respected brands in the world, known for inspiring and nurturing the human spirit."

Tactically, Starbucks leaders identified "seven bold moves" to focus on existing strengths and identify innovations and process improvement objectives that should position the company for long-term viability. Those bold moves were stated as follows:

**1.** Be the undisputed coffee authority.

**2.** Engage and inspire our partners.

**3.** Ignite the emotional attachment with our customers.

**4.** Expand our global presence—while making each store the heart of the local neighborhood.

**5.** Be the leader in ethical sourcing and environmental impact.

**6.** Create innovative growth platforms worthy of our coffee.

**7.** Deliver a sustainable economic model.

Adherence to these seven bold moves has resulted in desired financial outcomes, as evidenced by 13 consecutive quarters of global comparable store sales growth greater than 5%. While Starbucks was making its turnaround, global economic factors were triggering peak business failure rates, as Dun & Bradstreet reported: "The number of formal bankruptcy filings in the 12 months ending June 2010... increased by 10%... and the year over year increase between 08 and 09 was 50%." Unlike the leaders of the proliferation of businesses that failed in 2008, 2009, and 2010, Starbucks leadership positioned the company for enduring profitability and brand respect.

This book, _Leading the Starbucks Way_ , outlines the foundational principles that have guided Starbucks leaders during sustained periods of meteoric growth, economic downturn, recovery, and transformation. Like the tactical course defined in the Transformation Agenda, _Leading the Starbucks Way_ looks at key strategies and tools that leaders are deploying to achieve sustainable success, particularly in the areas of product creation, category growth, international expansion, and technological and social media innovation. These guiding principles and strategies are presented in language consistent with the Starbucks culture, even though that language may be somewhat unusual for most leadership discussions. The foundation for Starbucks leadership is reflected in terms like _connection, humanity, humility, passion_ , and, yes, even _love_.

### **WHAT'S LOVE GOT TO DO WITH IT—LEADING A HIGH-PERFORMANCE ORGANIZATION**

When you're sitting across from Howard Schultz, it doesn't take long for him to get to the heart of leadership excellence. From Howard's perspective, much of leadership comes down to three traits: "Take love, humanity, and humility and then place it against a performance-driven organization; these are in conflict to the naked eye. But I believe that performance is significantly enhanced by this kind of leadership. I am so convinced of it because we have become more performance driven than at any other time in our history and the values of the company are at a high level. If we can infuse love, humanity, and humility on a global basis and build it into a performance-driven organization, we are unbeatable."

While Howard's views about positive emotional connections and high performance standards are somewhat unusual among CEOs of large corporations, that perspective is consistent with a groundswell of opinions and findings from leadership experts and researchers. Leadership author James Autry, for example, notes, "Good management is largely a matter of love. Or if you're uncomfortable with that word, call it caring, because proper management involves caring for people, not manipulating them." Professor Leonard Berry of Texas A&M summarizes decades of consumer research by noting, "Great brands always make an emotional connection with the intended audience. They reach beyond the purely rational and purely economic level to spark feelings of closeness, affection, and trust. Consumers live in an emotional world; their emotions influence their decisions. Great brands transcend specific product features and benefits and penetrate people's emotions."

Consumers are not the only ones who "live in an emotional world." Employees do so as well. Starbucks demonstrates, and research confirms, high levels of partner (employee) engagement, retention, and productivity when supervisors positively penetrate the emotions of those they lead.

At Starbucks, leadership champions the human connection in all aspects of business. Additionally, leaders build their business strategies based on opportunities that emerge from connections with partners, customers, communities, and shareholders. Ultimately, they manage through a lens of humanity and high performance expectations.

### **STANDARDS, OPPORTUNITY, AND CONNECTION: FORGING A HOLISTIC LEADERSHIP APPROACH**

This book shares essential principles used by Starbucks leaders as they forge emotional connections that drive innovation, grow new business product lines, and foster employee and customer loyalty. These principles are especially relevant in a service world that has been revolutionized by mobile technology, social media, and increasing consumer choice. Each principle is outcome-focused and is easily applied, no matter where your business is in its developmental journey. The principles in _Leading the Starbucks Way_ are the result of more than two years of research spanning all regions that Starbucks serves. Access was granted to leaders and partners at all levels of the company. More than 500 hours of interviews and research produced the following five leadership principles:

**1.** Savor and elevate.

**2.** Love to be loved.

**3.** Reach for common ground.

**4.** Mobilize the connection.

**5.** Cherish and challenge your legacy.

Executing on these principles produces powerful bonds with employees, customers, suppliers, and even noncustomers. In turn, these operational and emotional bonds will help any leader achieve sustainable profits, increase brand equity, and fuel online and offline stories of loyalty and love.

One such story involves Diana Kelly, a Starbucks district manager who ran across a circumstance that she had seldom encountered in her suburban location of Fredericksburg, Virginia—a homeless man in her store. Rather than treating that man, Dominic, as an unwanted intrusion in her business operation, Diana bought him a hot chocolate and asked him about his life. To her surprise, she found that he lived in a makeshift homeless encampment in a nearby woods. Diana and several other Starbucks store managers and baristas decided to go to the woods to "connect with" and serve Dominic and dozens of people like him.

Based on those experiences, Diana and her team shared stories from the homeless camp with customers and leveraged their customer connections by placing collection bins in each of the 14 stores in Diana's district. The bins became a repository for items like toothbrushes, toiletries, and clothing for distribution at the homeless camp. A local businessman (and Starbucks customer) donated the necessary funds and found a local attorney to help this grassroots community effort become an actual nonprofit organization called Project Dominic.

Why did Diana take an interest in Dominic? What good could possibly come out of such an act, particularly as it relates to Starbucks sustainable profits, brand equity, and love? While I suspect that her initial intentions were based on nothing more than a genuine concern for Dominic irrespective of his ability to produce a visible impact on a Starbucks cash register, Starbucks benefited from Diana's willingness to offer Dominic a few moments of human connection.

Specifically, Starbucks partners in Fredericksburg have had the benefit of making a tangible difference in their community and engaging regular customers. Those partners and customers have been enriched through the chance to work together for good. Finally, without Diana and her team ever meaning for this to be a benefit, people close to and far away from Virginia are reading about and being inspired to engage in actions like those that began so humbly in Fredericksburg. Writing in _The Washington Post_ , columnist Petula Dvorak noted, "The City Council called for hearings and solutions. Some residents demanded that all the homeless be rounded up and jailed. The leaders at Micah Ministries, a Christian outreach program that provides social services, asked for calm and understanding.... [Diana and Project Dominic] bring hundreds of supply bags into the woods and, with each delivery, try to talk the folks into going to one of the city's outreach centers for counseling, medical care and shelter. They are helping more than 200 people." Call it what you want—kindness, compassion, or love. I call it the Starbucks connection and leading the Starbucks way!

My hope is that this book helps you, as a leader in your organization, build and grow your business through a genuine relational strategy, guided by the leadership excellence of individuals like Howard Schultz and his team at Starbucks. In so doing, you will not only drive success and profitability but develop a significant and purposeful business anchored in engaging and compassionate leadership practices.

## **PRINCIPLE 1**
 **SAVOR AND ELEVATE**

Before we start our deep exploration of Starbucks, I challenge you to think about your own business. Something drew you to sell your goods or services. Hopefully, that original attraction came from positive connections you formed with your product or industry, and those original favorable feelings have grown over time and spread to those you lead and serve.

"Savor and Elevate" is a business principle that emphasizes the importance of maximizing enthusiasm for the products, services, and experiences your company provides. It reflects the importance of helping your people autonomously master product knowledge, develop strong emotional connections to your products, and innovate timely solutions and experiences that build on the strengths of your product array.

Like each of the principles in this book, "Savor and Elevate" is explored in two chapters. Chapter 2, "If You Don't Have Passion for Your Product, Why Should Your Customer?," focuses on how Starbucks leaders communicate and demonstrate their personal passion for their product. It explores ways in which passion is fueled through formal training, company rituals, immersive experiences, and corporate strategy.

Chapter 3, "From Replicable and Consistent to Magical and Unique," sets product passion and consistent service execution as the foundation for fostering craveable customer experiences. By defining an authentic and attainable set of desired experiences, and by engaging in active and continuous dialogue, Starbucks leaders have inspired and empowered employees to deliver products and services in the context of genuine human connections that result in uplifting customer moments. Chapter 3 explores the ways in which Starbucks leadership communicates with partners and empowers them to create extraordinary experiences. When good is not good enough, it's time to lead your people to "Savor and Elevate."

###
**If You Don't Have Passion for Your Product, Why Should Your Customer?**

_Only passions, great passions, can elevate the soul to great things_.

DENIS DIDEROT, _French philosopher_

Many books and articles suggest that with the right techniques, anyone can sell anything. The authors of these works seem to imply that you can be successful at selling any product, even if you do not particularly like what you sell. Certainly, some entrepreneurs achieve success without having a positive emotional connection with their goods or services. Steve Chou, the founder of Bumblebee Linens, reports that his online store went from zero earnings to more than $100,000 profit in a single year, despite the fact that he was "not terribly passionate about wedding linens. Decorative pieces of fabric don't really make me excited and to be honest, I'm not in love with what we sell.... When my wife and I first started our business, it was all about the numbers and whether the business could make enough money so my wife could quit her job."

Even Tony Hsieh, the CEO of Zappos, a company I wrote about in my book _The Zappos Experience: 5 Principles to Inspire, Engage, and WOW_ , notes that he is "not passionate about shoes at all." Despite running a company that has an inventory of more than 50,000 varieties of shoes, Tony has reported he owns three pair. Instead, Tony acknowledges that he is "passionate about customer service and company culture," which may be why Zappos has reached a level of success that most other stores that just sell shoes have not.

While passion for the product may not be necessary for sales success, it certainly differentiates sales leaders from most of their competitors. Additionally, employee passion for the product fuels the emotional engagement of customers and facilitates sustainability. Sales consultant Troy Harrison defines the link between employee passion and customer engagement by suggesting, "Passion is the indefinable something that creates and builds interest and excitement on the part of the customer." From Troy's perspective, customer excitement emerges when your people have "a need to make buyers feel the same excitement" that they do. To achieve that level of customer enthusiasm, Troy suggests you have to first sell yourself "on your products or services. If you were in the position of a target customer, would you buy?... All else is meaningless."

Starbucks chief executive officer Howard Schultz explains the transference of passion slightly differently: "You can walk into any store and you can feel whether the proprietor or the merchant or the person behind the counter has a good feeling about his product. If you walk into a department store today, you are probably talking to a guy who is untrained; he was selling vacuum cleaners yesterday, and now he is in the apparel section. It just does not work."

Howard consistently transfers his excitement for Starbucks offerings and anchors that enthusiasm to the product that is at the center of the company—coffee. He reports that his enchantment with coffee was heightened in 1982 when he joined Starbucks. As he described in his book _Onward_ , he gained an enriched awareness of the "magic" of coffee and the coffee ritual a year later when he visited Milan, Italy, and experienced coffee artisans who "seemed to be doing a delicate dance as [they] ground coffee beans, steamed milk, pulled shots of espresso, made cappuccinos, and chatted with customers standing side by side at the coffee bar." Reflecting on his Italian experiences, Howard concluded that espresso, coffee, and cappuccino creation was not a "job" but a "passion."

To achieve the company's mission "to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time," leaders at Starbucks crafted a set of principles to be lived daily, the first of which involves passion for:

Our Coffee. It has always been, and will always be, about quality. We're passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done.

In support of this principle, Starbucks leaders have developed a variety of mechanisms to help everyone who comes to work for the company (not just those in customer-facing roles) understand and hopefully gain a deep connection with the rich history of coffee; the journey of coffee from farm to Starbucks cup; the economic, social, and environmental aspects of the coffee industry; and also a sophisticated respect for the special nuances of coffee flavor profiles. In short, Starbucks leaders have produced diverse tools to help Starbucks partners develop or deepen a genuine product passion.

The remainder of this chapter will look at the wide-ranging product passion-enhancing tools that Starbucks deploys internally and examine how those tools build excitement for customers. In the process, you will be challenged to consider how training, corporate rituals, immersive employee experiences, and aligned strategies for product excellence can incite passion in your people and your customers.

#### **SETTING THE STAGE THROUGH KNOWLEDGE**

When you think of someone who works at Starbucks, you are likely to envision a barista. In fact, many of us have a personal connection with the brand through frequent contact with this group of service providers. As in many large organizations, however, the barista is only one essential part of a complex array of professionals who function across corporate, international, regional, and store-level functions.

While many employees seek careers at Starbucks because of their interest in coffee or as a result of experiences that they have had as customers, a large number of applicants seek employment despite _not_ having had a taste for the primary product the company sells. Virgil Jones, director, Partner Services, at Starbucks, shares his introduction to Starbucks by noting, "I used to walk by Seattle's Capitol Hill Starbucks store when I was in college, and I knew nothing about coffee or about Starbucks. One day I decided to go inside, and I was confused by a number of items on the board. When the store manager asked if I was a new customer, I said yes, and he responded, 'I'm going to make you a mocha,' and he handed it to me. He then said, 'This one is on me, but I want you to come back, and the next time I'll introduce you to some of our brewed coffees.' I walked away that day being impressed. So I did some research on the company, and my junior year in college decided I wanted to work for Starbucks. When I was graduating, I applied for probably 15 to 20 positions at Starbucks and got hired as temporary full-time help for the holiday season in the warehouse." Like so many other Starbucks partners, Virgil continued to evolve, and professionally grow from that temporary warehouse job into his career as director of the Partner Services team.

While a passion for coffee is not required in order to be hired at Starbucks, new partners across the company do receive a strong introduction to the significance, specialness, and importance of coffee. At the store level, for example, Starbucks on-boards baristas by a "first impressions" meeting with the store manager. That visit typically begins with the new barista experiencing a coffee tasting of the store manager's favorite coffee and continues with activities and conversation that emphasize the centrality of coffee and the desired Starbucks Experience.

Over the days and weeks that follow, new baristas learn a great deal about coffee-growing regions, trade practices in coffee purchasing, processing methods for removing the coffee bean from the coffee cherry, coffee roast profiles, the skills necessary to pull a high-quality espresso shot, the fundamentals of coffee brewing, steps in coffee tasting, foundational taste characteristics of coffee, and all aspects of preparing Starbucks wide range of beverages and other offerings. This training combines a formal curriculum with individual development discussions and job practice sessions with the new hire's store manager and an experienced barista who functions as a learning coach.

This coffee education reflects a 70/20/10 growth and development approach. Based on research on how people integrate and utilize new information, new baristas at Starbucks receive approximately 70 percent of their initial coffee education through on-the-job experience and hands-on practice. Another 20 percent of their training is the result of feedback and mentorship from their peers, their learning coach, and store management, and 10 percent is derived from an online modularized curriculum. (See the sidebar for the specific learning blocks presented in Starbucks barista certification training.)

To be certified as a barista, a new partner must complete the following curriculum:

**Learning Block 1:** First Impressions and Customer Experience, Starbucks Experience, Coffee Brewing and Tasting, Espresso Bar Basics, and Food Warming

**Learning Block 2:** Beverage Essentials, Cold Beverages, Coffee Growing and Processing, and Point of Sale

**Learning Block 3:** Beverage Preparation, Customer Service Essentials, and Coffee Roasting and Packaging

At intervals during the certification training and development process, new partners must pass a knowledge test and demonstrate to their store manager skill competency in tasks such as preparing a cappuccino. While rich knowledge and skills-based education alone do not guarantee that certified baristas will have a passion for the products that they prepare and serve, education and personal growth do increase a barista's awareness of and appreciation for coffee. Ryan, a Starbucks barista from Denver, Colorado, notes, "After I started working at Starbucks, I changed my drink preference to brewed coffee. I learned so much about different blends and regions. I now love Asian coffee; Sumatra is my go-to drink. I never really knew how much taste could change from coffee to coffee."

At Starbucks, leaders also help new hires begin to understand the importance of coffee-growing communities and the economic challenges they face. Early training experiences identify coffee as a socially powerful product (in fact, it is one of the world's most heavily traded agricultural commodities, and it bolsters the economies of many equatorial countries). New Starbucks partners are given insights into the importance of fair trade and price transparency throughout the supply chain of coffee sourcing.

In addition to offering a social context for the substantial social, economic, and political impact of their product, leaders encourage baristas (both new and veteran) to view themselves as artisans of a handcrafted product. In essence, a person can become passionate not only about the coffee itself, but also about the artistry involved in its creation. Howard Schultz notes in _Onward_ , "Pouring espresso is an art, one that requires the barista to care about the quality of the beverage. If the barista only goes through the motions, if he or she does not care and produces an inferior espresso that is too weak or too bitter, then Starbucks has lost the essence of what we set out to do 40 years ago: inspire the human spirit. I realize this is a lofty mission for a cup of coffee, but this is what merchants do. We take the ordinary... and give it new life, believing that what we create has the potential to touch others' lives because it touched ours."

**REFLECTION ON CONNECTION**

1. Are you driving product knowledge and certifying service excellence from the onset of employment?

2. What is your team's overall level of product passion? How does it compare to the product passion levels at the best service providers you have encountered?

3. What first impressions do you create for new hires so that they can be intrigued by the products that you provide? What are the nuances or uniquely important aspects of your offerings?

Can you imagine how different our lives would be if most business owners worked to infuse product passion into their entire workforce? What if those owners also believed it was their job to improve or elevate the products that they touch? How would your next visit to your dry cleaner, post office, electronics store, or supermarket be different? Better yet, imagine how your customers might feel if all your people were passionate about your products and felt responsible for elevating them with each touch.

While the opportunity for developing a passion for coffee and the artistry of its preparation is built into the formative learning experiences of Starbucks new hires, the company's leadership understands that this passion is reinforced, sustained, and deepened through corporate rituals, immersive learning opportunities, and core business strategy. But before we look at the Starbucks approach, let's define corporate rituals and explore their relevance to developing a culture of product passion.

#### **CORPORATE RITUALS**

For some people, the word _ritual_ tends to conjure up images of religious or personal behavior; however, S. Chris Edmonds, a senior consultant with the Ken Blanchard Companies and coauthor of _Leading at a Higher Level_ , defines corporate rituals "as events which communicate and reinforce desired performance and values." Chris believes, "Few senior leaders leverage corporate rituals as an intentional strategy to define and reinforce a company's desired culture."

Edmonds provides a structure for looking at rituals and criteria to assess their effectiveness. Specifically, he breaks leadership rituals down into those oriented toward celebration and those directed toward communications. In assessing the effectiveness of either approach to ritual, Chris suggests that intentional efforts should be made to "ensure that all corporate rituals create a common bond, inspire commitment and innovation, and build the 'finely woven cloth' of an effective culture." Let's look at how Starbucks leadership builds a culture of product passion through celebration and communication rituals, and also define ways in which you can do the same.

#### **CELEBRATION RITUALS**

When I described the first impressions meeting between a newly hired Starbucks barista and a store manager, you were given a preview of one of the key celebration rituals at Starbucks—the coffee-tasting ritual. When a store manager celebrates the first day with a new hire by preparing a coffee tasting, that manager is producing an event that both communicates the desired behavior of learning the unique flavor profiles of coffee and demonstrates values that support coffee passion.

The coffee-tasting ritual is also a prominent feature at major cultural events for Starbucks. For example at the October 2012 Leadership Conference, Dub Hay, then senior vice president, Global Coffee Authority, who was nearing retirement after 10 years at Starbucks (with whom I have done coffee tastings in Costa Rica), led the assembled store managers and other leaders in a tasting of the newly released Starbucks® Thanksgiving Blend. Addressing the crowd, Dub noted, "I can't tell you all how humbling it is to be on this stage... knowing all the work and care and love that went into this coffee that now sits in your hand. This is probably one of the largest coffee tastings I've done in my history at Starbucks. I can't think of a better combination than to be tasting Starbucks Thanksgiving Blend with 10,000 store managers, the 200 Houston partners who delivered their coffee to you, and, as you see ringing the stage, the senior leadership team and managing directors from around the world." Dub then led a massive tasting. Just think about the logistics of having 10,000 Starbucks partners taste a cup of coffee simultaneously. Some might say that such an undertaking is a pointless exercise; however, Starbucks leadership sees it as a ritual that reinforces the essence of the brand.

Starbucks district manager Tisha Kimoto explains how she integrates coffee tasting into her leadership ritual, noting, "With the district manager role, we are not in the office, we are always in the field; I get to meet with the store managers. We start the meetings with coffee tastings. What do we not know about the coffee? What more can we learn? And for us it really is, how can we be passionate about the product that we sell?" Howard Schultz, Dub Hay, leaders and district managers with store managers, store managers with new hires and their teams... the coffee-tasting ritual is alive and well at Starbucks.

This ritualization of coffee tasting is further supported by guidelines set for employees throughout the company. For example, new hires are encouraged to complete a "Coffee Passport" within their first 90 days of employment. A Coffee Passport (see next page) serves as a road map and journal to guide partners through tasting all of the coffees that Starbucks offers. A barista from New York notes, "When I was first learning about coffee three years ago at a Starbucks in Connecticut, I tasted Caffè Verona®. The partner who was doing that tasting poured some mocha sauce into a cup. We smelled the mocha and we smelled the Verona, and it was a newfound experience full of joy. I realized there were different depths of flavor to coffee that I never knew existed. I thought coffee was just something to keep you awake when you were tired. So that was the beginning of my love affair with coffee. Part of Starbucks training is completing the Coffee Passport.... You have to taste and describe every coffee that we offer. I finished my passport within the first two weeks of my time at Starbucks. In the process, I discovered some of my favorite coffees and my least favorite coffees, and I couldn't stop telling people about the vast array of flavors that existed between coffees. It was a brand-new world. It was exciting, and my manager seemed to understand my excitement. She nurtured my passion for coffee, and I never stopped."

**A page from the Starbucks Coffee Passport.**

Similarly, Samantha Yarwood, director of marketing, Switzerland and Austria, shares how she has seen new baristas not only get excited about the coffees they taste but also lead others through tastings: "I met a new barista who had been with the company for only two weeks when she conducted a coffee tasting of her own. I wish I had a picture that I could share of the amazing presentation she arranged. It was incredible. She presented chocolates, cookies, cakes, and fruit that reflected and paired well with the coffees she was tasting with us. She was so engaged and engaging. I later found out that she stayed up the night before to prepare all the food items she had presented. That coffee tasting left me saying, 'Wow.'"

Coffee-tasting rituals and the Coffee Passport tool serve to create a patterned exploration of the richness and complexity of coffee mastery that opens up many Starbucks partners to a genuine fascination with and passion for the product. All the while, these rituals ingrain coffee's centrality in the way things are done throughout the company.

#### **COMMUNICATION RITUALS**

Starbucks leaders have also ritualized corporate storytelling. Rather than providing messages that just describe the "what" and "how" of their products, leaders listen for and share stories that help connect partners to coffee farmers and the journey that coffee takes before it is served at Starbucks. While I was talking to Howard Schultz about the rituals of communication at Starbucks, he noted, "One of the strengths of Starbucks is storytelling and being able to infuse an authentic, genuine story about the journey of a coffee—where it comes from or how we do things.... Those stories are enriched by the passion and feeling we have about what we do. You cannot fake that. The customer is too smart, and our people are too smart. If our people do not believe in what you might loosely describe as the love story behind the coffee or the truth behind it, it is over before it starts."

While the methods of story delivery at Starbucks are varied (one-on-one, group, or video), the themes of communication regularly highlight the coffee journey, the coffee-farming experience, and the impact of ethical sourcing on the lives of suppliers. Clarice Turner, senior vice president, U.S. Business, shares, "As we educate our partners on our coffee, we talk about how the sale of coffee beverages changes the lives of farmers around the world, and we have a lot of specific examples that we use to demonstrate the importance of fair pricing and transparency." Through storytelling, Starbucks leaders humanize and connect Starbucks partners to the very real impact of farmer support and ethical sourcing efforts like C.A.F.E. (Coffee and Farmer Equity) Practices. C.A.F.E. Practices were created in partnership with Conservation International (a nonprofit environmental organization committed to benefiting humanity through bio-diversity and protection of nature) to define guidelines to help grow coffee in a way that sustains farmers and the planet. By deploying measurable objectives, including Starbucks quality standards; transparency of verified payments across the coffee supply chain; third-party-verified measures of safe, humane, and fair working conditions; and environmental leadership, Starbucks is able to work with coffee farmers to increase sustainability.

Kelly Goodejohn, Starbucks director, Ethical Sourcing, exemplifies the effectiveness of leadership storytelling by sharing, "I was in Costa Rica recently visiting small-holder farms who were participating in C.A.F.E. Practices. Given that many of these farmers only work a couple of acres of land, everything they earned is essential for their families to thrive." Kelly notes that, as always, she was greatly affected by the uplifting stories shared by farmers concerning the impact of the premiums Starbucks pays in accord with the farmer's level of engagement with C.A.F.E. Practices. Many talked about how those premiums made the difference in their children getting a quality education and in some cases going on to universities.

Noting that her visit followed a rainy period in the steep hills and mountains of the Tarrazú region, Kelly reported being particularly troubled by a farmer who said that he had been participating in C.A.F.E. Practices in a limited way. Kelly shares, "The farmer pointed to a hill where an enormous landslide had sheared off coffee trees. He then told me he hadn't been paying enough attention to erosion control measures, and as such he had lost a third of his trees in one rainy time of the year. He wasn't going to be able to harvest coffee there for about three to five years, and a third of his income was lost. The look on his face expressed regret and sorrow for the impact of his choices. That touched me deeply. He then asked if Starbucks could help him manage his farm more effectively, and our agronomists are working to give him the technical tools so that in the future, he'll be able to mitigate some of the severe impacts of weather change. It is these experiences that result not only in passion for the coffee but a deep compassion for the people and families who work with us all along the journey."

Stories of coffee farming, the journey of the bean, and ethical sourcing (like the one provided by Kelly) clearly engage Starbucks partners. Katie McMahon, national account executive, Branded Solutions, shares, "One of the images that resonates with me is the image of the coffee farmer. You look at their hands and they are covered in dirt. For me, that's at the core of who we are as a company, and I think about them every day when I work with other partners and customers." Barista Ruth Anderson notes, "Our coffees travel so far before they reach us. I often hear about the first 10 feet of the coffee's journey and about the lives of coffee farmers. I care that our product is ethically sourced and that the people at the beginning and throughout the coffee journey are cared for. As a barista, I need to be at my personal best to deliver that coffee for the last 10 feet of that coffee's journey as I craft drinks for our customers. I see my job not just as a coffee preparer. I see my job as having impact on the world through coffee."

Aristotle once said, "We are what we repeatedly do. Excellence is not an act but a habit." While the celebration and communication rituals in your business will certainly differ from those of Starbucks, isn't it worthwhile to examine the habits, rituals, and messages that you deploy? Are they facilitating emotional connections, a sense of community, and product passion excellence? By effectively building authentic rituals into your business, you will also define unique aspects of your culture and reinforce your business's broader purpose, particularly when the rituals are supported by enriched experiential learning and a congruent business strategy.

**REFLECTION ON CONNECTION**

1. How have you used celebration rituals to increase the connection between your staff members and your products?

2. What, if any, parallels to the Coffee Passport program at Starbucks do you have? What might you create?

3. Overall, how effectively have you used corporate rituals to intentionally "create a common bond, inspire commitment and innovation, and build the 'finely woven cloth'" of a culture of product passion?

#### **IMMERSIVE EXPERIENCES**

It is one thing to have leaders telling stories that will help link staff members to product passion and quite another to place staff members directly in positions where they can garner stories of their own. When it comes to conversations about coffee farming and the impact of ethical sourcing, Starbucks leaders have taken a number of different approaches, including having coffee farmers tour Starbucks stores and a rather unusual program called the Origin Experience. If you would like to get a glimpse of an Origin Experience trip, please visit: <http://tinyurl.com/mrrk5wr> or direct your QR reader here:

Valerie O'Neil, Starbucks senior vice president, Partner Resources and Brand Leadership, shares the idea behind the Origin Experience trips: "My team and I spearheaded the pilot program where we took 35 to 40 partners from U.S. and Americas to Costa Rica. We took Asia-Pacific partners to Indonesia, and then Europe and Middle Eastern partners to Tanzania. They spent a weeklong immersion seeing how coffee is grown, produced, processed, and then shipped out to our roasting plants. What that helped to do was not only infuse passion for the product, but it also helped our partners understand what happens in the lives of the farmers and processors and all that we do to support those communities as well. It's not only about what we buy and give to the farmers; but it's also about the schools and the support programs in those coffee-farming areas. Participants are also planting seedlings and picking coffee cherries themselves."

As you might imagine, selection for these regularly scheduled Origin Experience opportunities is highly competitive, and most of the participants come from customer-facing store-level functions. Criteria for participation include overall job performance, demonstrated coffee knowledge, and communication skills. Valerie notes, "The participants have to be able to and want to share the stories from the experience. As much as we would love to send 200,000 partners to these regions, it would not be respectful to the communities or practical for us. We are relying on the partners who go to give their own authentic accounts to other partners throughout the organization."

In a culture of ritualized storytelling, enriched and immersive experiences provide unique opportunities for reinforcing important messages. In the case of coffee knowledge, Starbucks has also created an intensive training curriculum that produces impassioned subject-matter experts referred to as Coffee Masters and Coffee Ambassadors. Before we get to these masters and ambassadors, let's look at the motivational importance of creating opportunities for "mastery."

#### **CREATING STATUS FOR PRODUCT EXPERTISE**

Considerable research on human motivation suggests that mastery is a key driver of human performance and that extrinsic reward programs can undermine the intrinsic joy of personal growth and development. Daniel Pink, author of the book _Drive: The Surprising Truth About What Motivates Us_ , notes, "Rewards can perform a weird sort of behavioral alchemy: They can transform an interesting task into a drudge. They can turn play into work. And by diminishing intrinsic motivation, they send performance, creativity and upstanding behavior toppling like dominoes." With this context in mind, leaders at Starbucks encourage the pursuit of coffee expertise through a mastery- and social recognition–based approach, not through a monetary or reward solution. The first level of this two-tiered coffee knowledge program is aptly referred to as Coffee Master, with a more advanced level being referred to as Coffee Ambassador.

Carrie Dills, a former Starbucks barista, shares her journey to Coffee Master by noting, "The manager who hired me was a Coffee Master, and when he talked about the product, there was just this love and passion, and he infused it into me. I don't even work for Starbucks anymore and should have no incentive to talk about coffee, but I get googly-eyed sharing about the way a bean is harvested, the farmers that harvested it, or how Starbucks takes care of those people." Carrie notes that she has encountered people who are skeptical of the authenticity of her product passion. "People would say, 'You're just spewing company rhetoric,' and I would push back that I feel it, I believe it, and I've gone out of my way to see it for myself and interview farmers." While she was a barista, Carrie reports, she went on a personal vacation in Costa Rica, and "I visited a farm where they harvest Starbucks beans. I told the farmers that I was employed at Starbucks, and they were in awe. I sought out that experience because of involvement with the Coffee Master program and the level of interest it generated in me."

Opportunities for Coffee Master status are not limited to U.S.-based Starbucks operations or exclusively to those who brew and serve coffee in Starbucks stores. Wang Bin Wolf, a Starbucks partner and supervisor at the Jianwai SOHO branch of Starbucks in Beijing, China, shares that he was not motivated by his prior employment in a printing factory and often felt exhausted and drained after his workday. Wolf reports that his prior negative work experience was in stark contrast to the friendliness and knowledgeability of the baristas he personally had encountered at Starbucks, and that because of this, he made a conscious decision that he would work at Starbucks. Upon his employment, he became involved in the Coffee Master program.

As a result of his participation in the Coffee Master training, Wolf appreciates that "coffee-making is a form of art.... To someone who had never had coffee before Starbucks, it simply tasted bitter to me. During the process, I had to keep on tasting, and learning from others to gain more experience. Gradually, I discovered the complexity of flavors.... Once a stranger, coffee has now become my very good friend.... Through my learning and effort, I continued to improve. Eventually I was able to wear the black apron and carry the title of Coffee Master. Personally, I am very proud and happy."

Like many partners who do not serve in a customer-facing coffee preparer role, Jenny Cui, business analysis manager, who works in the Starbucks Support Center in Seattle, Washington, shares her journey to Coffee Master: "I grew up with tea, and coffee was not really my thing. When I joined Starbucks, I was swept into information and experiences about coffee-growing regions, different taste profiles, and how to make beverages. It was a totally different world for me, but I enjoyed it. And now, I'm proud that I am certified as a Coffee Master." Based on her early learning experiences after her arrival at Starbucks, Jenny reports that she decided to sign up and learn more about coffee and how the human connection is forged through coffee: "Through my work to achieve the Coffee Master designation and based on the general culture here, I'm regularly part of groups who taste different blends and talk about coffee. I also attend regular coffee-roasting events to better understand how our coffees are crafted." When asked why, as a finance professional, she would invest so much time in the pursuit of coffee knowledge, Jenny stated, "It's just a great feeling to learn about the product that drives our business and to develop a deeper appreciation for the complex characteristics of coffee and the way it comes to market."

While the Coffee Master designation represents a sufficient growth challenge for many Starbucks partners, the leaders at Starbucks have created an additional level of coffee expertise referred to as a Coffee Ambassador. Andrea Bader, Coffee Ambassador for Starbucks in Switzerland, wears a special brown apron and offers insights on how she achieved her title: "Ten Coffee Masters and our store managers participated in an event judged by the district leadership team for our region in Switzerland. Each of the Coffee Masters had to present two Starbucks coffees and craft perfect food pairings. After being selected to represent my district, I joined the other district representatives in the Coffee Ambassador challenge for Switzerland. This time all store managers from Switzerland and the entire leadership team evaluated our coffee presentations and our food pairings. I am delighted to have been chosen as the Swiss Coffee Ambassador." When asked if she was being financially rewarded (extrinsically motivated) for achieving this level of expertise, Andrea responded, "I did this to have a greater impact on coffee knowledge in my company. In fact, recently I had this crazy idea to do coffee tastings over Skype and Facebook. Literally, 1,000 people from around the world joined me in the experience. People were asked to prepare a specific blend of coffee, and we used the Skype call to discuss the flavor experiences of the participants."

Leaders at Starbucks have crafted ways to immerse staff members in enriched learning experiences that create opportunities for product passion. Moreover, they have found ways to spark mastery of product knowledge by relying on an intrinsic sense of accomplishment that comes from advanced learning and the ability to teach others. What immersive opportunities and volunteer training recognition resources should you consider to enhance product passion among your people?

#### **STRATEGY CONSISTENT WITH PRODUCT PASSION**

Jim Collins, author of the bestselling business book _Good to Great: Why Some Companies Make the Leap and Others Don't_ , asserts that visionary companies are led by individuals who are constantly assessing their company's strategy and ensuring that it is in "alignment to preserve an organization's core values, to reinforce its purpose, and to stimulate continued progress towards its aspirations. When you have superb alignment, a visitor could drop into your organization from another planet and infer the vision without having to read it on paper."

For all their effort to value coffee quality, passion, and knowledge, there was a time in Starbucks history when the strategic decisions of the leaders failed to support product passion. In fact, Starbucks leaders became so focused on driving positive sales numbers (reflected in year-over-year same-store comparables, or "comps") that coffee excellence was compromised. Howard Schultz readily acknowledges that comps "were a dangerous enemy in the battle to transform the company. We'd had almost 200 straight months of positive comps, unheard-of momentum in retail. And as we grew at a faster and faster clip during 2006 and 2007, maintaining that positive comp growth history drove poor business decisions that veered us away from our core." Howard goes on demonstrate what he calls the "comp effect" by describing a store visit where he encountered a large pile of stuffed animals for sale: "'What is this?' I asked the manager in frustration, pointing to a pile of wide-eyed cuddly toys that had absolutely nothing to do with coffee." In response, the manager pointed out that the stuffed animals were good for his store's comps, building incremental sales and high profit margins. This led Howard to conclude that the comp effect had produced a "mentality that had become pervasive. And dangerous."

In his book _Onward_ , Howard detailed a series of strategic moves that were made at the senior leadership level in an effort to retain the "soul" of Starbucks. A number of these efforts clearly demonstrated the leadership's passion for coffee and a declaration that Starbucks was "reclaiming its coffee authority." Some of these coffee-specific strategies included closing all U.S. Starbucks stores for an afternoon to retrain baristas on how to make the perfect espresso shot and espresso-based beverages, the creation and launch of the Pike Place® Roast (a transformative balanced coffee roast that brought the aroma of grinding fresh beans back into Starbucks stores), and the acquisition and thoughtful deployment of the Clover® brewing system (an advanced brewing method that creates a personalized high-quality coffee by drawing water down through finely ground coffee, thus retaining the coffee's most flavorful oils).

Since the company's turnaround, leaders have maintained their alignment with the centrality of coffee. This is evidenced by coffee product innovations such as Starbucks® Blonde Roast. For years, Starbucks leaders had been aware that a large number of coffee consumers (approximately 40 percent) rejected dark roast coffee or preferred lighter roasts. Evaluations of coffee-roasting taste profiles consistently had shown that lighter roasts were grassy with a sour green flavor, resulting in significantly lower quality ratings than those for the darker roasts of Starbucks.

Brad Anderson, one of the key coffee roasters responsible for Blonde, shares how the lighter roast emerged after 80 attempts. "We wanted a mild sweetness and the taste of cereal to be flavor notes for Blonde. We didn't know how to get there with our existing roast styles. So we started from scratch and tweaked things over and over again. For me, it was a technical and personal challenge, and we spent a lot of time developing that coffee. Every time the product came back to us, we asked how we could make it better. I am extremely proud of our final product and the teams of people who stayed so dedicated to its creation."

**REFLECTION ON CONNECTION**

1. How do you help your staff fully experience your products or services? What are your parallels to a Starbucks Origin Experience?

2. Are you incorporating mastery and social recognition into your training programs? If so, how?

3. How aligned are your strategies and your stated values concerning product excellence? In the words of author Jim Collins, if "a visitor could drop into your organization from another planet," would that visitor be able to know your vision for product excellence "without having to read it on paper"?

Partners at the store level appreciate it when product-based strategies and values align. More important, partners experience the positive impact of that alignment on the lives of their customers. Barista Elisha shares, "I like dark coffee, but I think that making Blonde available to customers is wonderful, because many aren't dark drinkers. Blonde is in keeping with our commitment to product excellence, and it hits a market of new customers. Bringing in those new customers allows us to talk to them about coffee and lets them in on an experience others have enjoyed for years." When you combine innovative products that add new customer segments with a loyal customer base, you have a recipe for business success and sustainability.

#### **CONNECTING CUSTOMERS TO PASSION**

With Starbucks leadership investing a great amount of energy in creating an environment where partners are passionate about coffee, it is important to determine the return on that investment. Do product-impassioned Starbucks partners actually incite product passion on the part of customers?

In this chapter, you've seen how fueling a customer's coffee passion can contribute to an interest in becoming a Starbucks partner. While most customers won't be moved to the point of seeking employment with Starbucks, many will strengthen their relationship with Starbucks and expand the frequency, depth, and breadth of their purchases. For example, barista Paul Quinn shares how a customer's purchase patterns changed as he shared his coffee passion with her: "I am in the process of becoming a Coffee Master, and I have found that the process has reinvigorated my whole-bean passion, and has in turn enhanced my ability to sell. Everyone has regulars, and with the knowledge gained... from my Coffee Master Journal, I've turned one of my Friday night regulars into somewhat of a coffee buddy." Paul reports that he and this regular had talked about a variety of Starbucks roasts and appropriate food pairings. As a result, Paul prepared a small coffee press of Guatemala Casi Cielo® and sampled it with a slice of lemon loaf. Paul adds that the customer's "face lit up as she began to understand exactly what I meant as I explained how the citrus enhances the taste of the coffee.... Now, I see her almost every Friday between 10:30 and 11 p.m., and we have a chat about what's brewing... or snacks and pastries that go well with certain coffees." For example, Paul notes that he recommended Gold Coast Blend® with a Snickers bar. As a result of their relationship, Paul notes, "She almost always picks up a pound of coffee.... There is a genuine connection with the customer, which is fantastic, and the Coffee Master program is only helping me become more knowledgeable and a better barista."

Increased visit frequency, wider product penetration, greater customer engagement, consistent product sell-through, and employee pride and professional development are enviable by-products of igniting the passion of your team members. Will you give your customers a reason to be passionate about your products? What specifically will you do to champion product passion in your business? We know, thanks to mounting research evidence, that "knowledgeable employees" is one of the top items on the wish list for customers today. Imagine what knowledgeable and passionate employees can do, not only for your customers, but for the morale and enthusiasm associated with your business. Starbucks isn't imagining!

  When frontline staff members are passionate about your products, they build interest and excitement on the part of your customers.

  Passionate staff members not only sell products, but have a magnetically positive impact when it comes to turning customers into future employees and brand fans.

  Research suggests that effective staff growth and development often follows a 70/20/10 approach, with 70 percent of education coming from on-the-job experience and hands-on practice, 20 percent from mentoring and coaching, and 10 percent from a formal curriculum.

  Corporate rituals are powerful ways to create a common bond, inspire commitment and innovation, and build an integrated and effective culture.

  Authentic corporate rituals also define unique aspects of your culture and reinforce your business's broader purpose, particularly when those rituals are supported by enriched experiential learning and a congruent business strategy.

  Rather than providing messages that solely describe the "what" and "how" of your products, listen for and share stories that will help connect your people to the nuances of your products and/or special aspects of the customer journey.

  As Aristotle said, "We are what we repeatedly do. Excellence is not an act but a habit."

  Rewards can transform an interesting task into drudgery and diminish intrinsic motivation. Rather than relying on rewards, consider the power of autonomy, mastery, and purpose.

  Evaluate every strategy to ensure that it aligns with your core values, reinforces your purpose, and stimulates continued progress toward your aspirations.

  When you combine innovative products that add new customer segments with a loyal customer base, you have a recipe for business success and sustainability.

###
**From Replicable and Consistent to Magical and Unique**

_Men are rich only as they give. He who gives great service gets great rewards_.

ELBERT HUBBARD

While passion for coffee has been and continues to be essential to Starbucks, leaders like Howard Schultz emphasize that human experiences are at the heart of the brand. For example, Howard notes, "Starbucks is at its best when we are creating enduring relationships and personal connections." Building on that theme in 2008, while strategizing how to mount a resurgence for Starbucks, Howard communicated to partners that the "Transformation Agenda includes... re-igniting our emotional attachment with our customers by restoring the connection our customers have with you, our coffee, our brand, and our stores. Unlike many other places that sell coffee, Starbucks built the equity of our brand through the Starbucks Experience. It comes to life every day in the relationship our people have with our customers. By focusing again on the Starbucks Experience, we will create a renewed level of meaningful differentiation and separation in the market between us and others who are attempting to sell coffee." People can copy your products and your services, but seldom can another business effectively or consistently execute a differentiated experiential offering—this is equally as true for a visit to an Apple Store as it is for a visit to Starbucks.

So, how does a company like Starbucks take a product that can easily be commoditized and offer it in a way that produces differentiation anchored to enduring relationships and personal connections? This chapter unpacks multifaceted aspects of Starbucks customer experience excellence, including how Starbucks leaders:

• Define and communicate the desired and unique Starbucks Experience.

• Select individuals with the requisite talent to deliver that experience consistently.

• Train partners on the key pillars necessary to engage customers routinely.

More important, this chapter allows you to see the strategic and tactical customer experience–based efforts deployed by Starbucks, so that you can consider how those approaches fit with the challenges and opportunities that you face.

#### **WHAT EXPERIENCE DO YOU WANT CUSTOMERS TO HAVE?**

American personal development pioneer Earl Nightingale observed, "Success is the progressive realization of a worthy goal or ideal." As was the case with product passion, the worthy customer experience ideals at Starbucks are expressed in the company's mission statement (to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time) and are supported by the principles of how this mission is lived every day, including:

**Our Customers**

When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers—even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It's really about human connection.

**Our Stores**

When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It's about enjoyment at the speed of life—sometimes slow and savored, sometimes faster. Always full of humanity.

That's brief and clear—leaders like those at Starbucks put customers, products, and experiences at the purposeful center of their businesses.

#### **LOOKING FOR EXPERIENCE CREATORS**

By using words like _inspire, nurture_ , and _uplift_ , Starbucks leadership defines the Starbucks Experience as being much more than the accurate and efficient service of high-quality beverages. Partners should aspire to deliver moments, products, and environments that elevate and transform those who are served. Human connection is the magic at the core of the Starbucks brand. In order to make the magic happen, Starbucks looks for prospective partners who are authentically and consistently interested in others. That interest can cut through the chaos and unpredictability in the lives of customers, thus producing reliable and positive experiences at your business. Consumer data, consistently reflected in studies such as the American Express Global Customer Service Barometer, validate the perspective that customer service is chaotic, unpredictable, and in decline. But how does an organization select individuals who have an interest in "authentically and consistently" serving others?

Charles Douglas III, a paralegal at Starbucks, believes that the key element in selection is observing and interviewing for enthusiasm and service talent. In fact, he believes he was selected for his first job at Starbucks (as a barista) based largely on those factors. According to Charles, "I was looking for a place that closely aligned with my personal values and a place I would be proud to say that I worked." Charles reviewed the company's guiding principles and felt they were credibly reflected in the experiences he had as a customer. Charles then reports that he put on a dress shirt and green tie and "with a smile on my face, ran up to a store manager as she was opening her store at 4 in the morning. I noticed that she was scared, but I did my best to say, 'I am here because I really want this job, and I bet you I want it more than anybody else.'" Charles goes on to note, "Starbucks store managers are really good at hiring based on enthusiasm, your sense of purpose for serving others, and a willingness to learn. We really look for those people who are willing to live by what the company holds most important, and we will train them from there." Résumés, past work history, and even favorable recommendations notwithstanding, there is something to be said for observing and interacting with prospects to determine whether they are eager, teachable, and authentically interested in others.

#### **GUIDING EXPERIENCE DELIVERY**

Many businesses orient new hires by teaching them the tasks to be performed on the job but fail to educate them on service excellence skills and/or the experience that they want those employees to consistently deliver. At Starbucks, however, initial training dives quickly into courses like "Customer Service Basics" and the "Starbucks Experience."

During these training sessions, new hires are provided guidance on what "customer experience" means at Starbucks, and they are placed in positions where they can observe the service experience from the customer's perspective. For example, newly hired baristas are exposed to a process tool called the "Store Walk Thru," where they move through the café environment observing and recording salient aspects that a customer is likely to encounter as she journeys from her arrival through her departure. Starbucks leadership sets the expectation that after initial training, the new hire will be a part of these customer-perspective walks, which occur once per shift at each store. Like all tools of this nature, store managers must constantly reinforce the importance and value of taking the customer's perspective and ensure that this process does not become a perfunctory and routine task.

In addition to this customer empathy tool (Store Walk Thru), initial customer service and desired experience training help new hires reflect on their personal history of consumer experiences (inside or outside of Starbucks) to identify what makes an experience memorable, uplifting, inspiring, or elevated for them. The training hones in on the concept of "branded" experiences and how customers need to be assured that all encounters that they have with a brand will deliver consistent products, processes, and engaging experience elements. Execution on the branded/consistency dimension is reflected in comments from customers like Jenny, who notes, "When I travel, I try to spot a Starbucks. It feels like you are connecting with a little bit of home wherever you are in the world.... It carries a set of expectations for products, feelings, and the way you are treated." Even if a business operates from a single location, the issue is the same: Will I have a comparable experience the next time I visit? Will the expectations set today be matched or exceeded tomorrow? Or will I have a random, unreliable collection of encounters that erode the concept of the brand?

To deliver consistent experiences at Starbucks, the leadership offers a defined service vision that describes what needs to be achieved during service experiences. Additionally, it provides four customer service behaviors that help partners understand how the customer service vision is to be accomplished. The Starbucks customer vision statement reads: "We create inspired moments in each customer's day." To accomplish this objective, partners are encouraged to focus on the following customer service behaviors:

• Anticipate

• Connect

• Personalize

• Own

In essence, the leadership offers partners the desired service experience outcome ("inspired moments") and the key actions needed to deliver it. For example, if a barista reads the customer's need state, the barista can anticipate, connect, personalize, and own that customer's experience to create an inspired moment for him. To be more specific, if a customer looks rushed, the barista can anticipate and take responsibility for delivering an accurate and expedited beverage with a brief but personal moment of connection (something as simple as a genuine smile). By contrast, if a customer is a regular who enjoys conversation, the partner can make a connection by remembering his drink or calling him by name and taking responsibility for personalizing the drink or conversation in a way that produces meaningful, if not inspired, moments in his day.

Customers often share the joy they experience when baristas execute the Starbucks service vision. Alli Higgins, a 10-year Starbucks customer, notes, "Baristas remember my drink and my name. It's amazing, since it usually takes only one or two times and they already know my name. That stands out in a world where you don't see much of that care or thoughtfulness. Baristas also remember when I take a trip and ask me about it. Because of the way I am treated at Starbucks, I'll occasionally bake cookies for them. Now they'll jokingly say, 'Hey, Alli, where's our cookies?' That's the kind of thing I want to do because I consider them part of my family." By providing the desired destination and ways to arrive there, you help your teams develop exceptionally strong bonds with customers (in Alli's words, "I consider them part of my family") that powerfully differentiate your company from the competition.

**REFLECTION ON CONNECTION**

1. If asked, what percentage of your employees could articulate your customer experience vision or the way you want customers to feel as a result of the experiences they have with your brand? What would you hope to hear?

2. Do you provide tools like the "Store Walk Thru" to help your staff empathize with customers and adopt their perspective?

3. Have you outlined key behaviors such as anticipate, connect, personalize, and own which will help your team members understand how to deliver your desired experience?

#### **CREATING THE ENVIRONMENT—KEEPING IT CLEAN AND LEAN**

So you sell excellent products, you've ignited product passion throughout your organization, and your staff authentically and consistently delivers your branded experience. You have mastered the customer experience challenge, right? Not exactly. To be on the same trajectory as world-class service providers like those I write about (Starbucks, Zappos, or The Ritz-Carlton), you need to possess at least three additional competencies: (1) the ability to maximize customer engagement through environmental design, (2) integration of key sensory factors, and (3) a capacity to listen and adapt your offerings to meet the changing wants, needs, and desires of your customers.

In the late 1990s, business theorists and economists like B. Joseph Pine and James H. Gilmore started to suggest that we were entering an age in which "memorable experiences" served as key drivers for economic growth. Rather than simply focusing on the benefits and attributes of products or the financial advantages of efficient service delivery, these pioneers initiated discussion about the benefits accrued from scripting sensory-rich experiences upon the "stage" of a business. Borrowing themes from the world of live theater, they offered guidance on how to remove negative and align positive cues in order to build experiences that not only engage customers but "transform" them. While theatrical metaphors for customer experience design can be problematic when they refer to "staging" and "scripting" (which imply inauthenticity or robotic transactions), these references allude to the importance of sensory elements and to the attention that is needed to build the right environment or platform on which service experiences are cast.

In a variation of Shakespeare's immortal line delivered by Jacques in _As You Like It_ —"All the world's a stage. And all the men and women merely players"—all business settings are a stage from which all experiences emerge. At Starbucks, the design of the stage (the store environment) and the sensory elements placed on that stage are carefully considered to heighten the customer experience.

Starbucks leaders understand that the design of extraordinary experiences involves a willingness to see the environment from the customers' perspective and to attend to the need states of core customer segments. While many leaders look for ways to improve experiences by adding elements to the environment, the best outcomes often come from the removal of negative cues that detract from a memorable experience. Howard Schultz, for example, removed breakfast food items from Starbucks stores until he could be assured that any negative smells of food preparation (charred bread or burnt cheese) did not intrude upon a key sensory element in the coffee shop—the smell of coffee. This battle involved the leadership's willingness to forgo revenue from breakfast food sales until preparation technologies could be developed to abate unwanted food aromas. Similarly, decisions by Starbucks leadership to reduce non-coffee-related merchandise (like the stuffed animals referred to in the previous chapter), even if that merchandise contributed to positive margins, reflect a commitment to the elimination of cues that compromise an ideal experience. In the end, great customer experiences depend on both the addition and the removal of emotional stimuli and environmental design elements.

Lest you think that "stage" design considerations relate only to brick-and-mortar storefronts, every contact point between your customer and your business serves as an opportunity to engage customers through thoughtful presentation. For example, Mike Peck, creative director, Packaging, Starbucks Global Creative Studio, who led the team responsible for the redesign of the Starbucks iconic logo, saw opportunities to enhance the customer experience and modernize the brand through the newly updated mark.

The original 1971 Starbucks logo had the words "Starbucks Coffee and Tea" encircling the siren (the mythical character at the center of the logo that is often confused with a mermaid). The revised logos of 1987 and 1992 dropped the word _tea_ , but still had the siren bound by the words _Starbucks_ and _Coffee_.

**Starbucks logo introduced in 1992.**

According to Mike, "Although not a core reason for the update to the icon, the words on the logo actually created confusion in the customer experience. For example, we had Starbucks ice cream flavors like vanilla, chocolate, and strawberry, none of which have coffee in them." With the existing logo, people who glanced at those particular ice cream containers might assume coffee was an ingredient. Mike shares, "Putting a big stamp on the container that says 'coffee free' is a rather inelegant solution. You want your design to be as clean and pure as possible. Consumers, when they looked at it, just saw coffee and strawberries, not an optimal taste combination. We have other beverages domestically and internationally that are not coffee-based, yet they would have the word _coffee_ affixed to them by virtue of the logo. Ultimately our redesign opened up the siren, let her be the hero, broke down some barriers, and even streamlined the customer experience." Looking across all your contact points with your company, from its logo to its product return policies, where can you clean up your clutter and confusion?

**Starbucks logo introduced in 2011.**

Since eliminating clutter and increasing clarity improve customer experiences, Starbucks has entered a "Lean" transformation process, focusing on a shift from traditional efforts toward enhancing value to an approach based on a discipline modified from pure manufacturing settings to minimize waste and increase customer value.

During this transformation period, Starbucks leaders have had individuals at all levels of the organization comprehensively look at processes to identify issues and streamline their efficiency. Troy Alstead, chief financial officer and chief administrative officer, states, "As good as we were about spontaneity at forging human connections, we weren't as good at removing waste and creating processes that maximized efficiency and customer value while making it easier for partners to serve our customers. Over the recent past we have made great strides in these areas of discipline. So the idea now is to remove the things that really aren't critical to customer value. We shouldn't be putting our partners in positions of having to be creative with processes. Let's leverage their best practices that maximize efficiency for the partner and for the customer. Our partners should be encouraged to bring every bit of their creativity to how they interact with our customers, but quality and execution ultimately should be designed and measured by the benefit it brings to partners, customers, and our business." Inherent in Starbucks approach to reduce inefficiencies is the understanding that to be truly effective, those reductions should produce routines that free up people or resources to make stronger interpersonal connections.

Unlike many other businesses that deploy Lean strategies, Starbucks takes a frontline empowerment approach to achieve its objectives. John Shook, a former executive at Toyota (the company from which much of Lean manufacturing practice emerged) and a past advisor to Starbucks, compares the strategy taken to increase efficiency at Starbucks with the methodologies used by McDonald's: "McDonald's very business model seeks a highly cookie-cutter approach. Therefore, McDonald's may be successful in implementing traditional Industrial Engineering (Taylorism and all that—not lean) in a very traditional, top-down, programmatic way."

By contrast, John suggests, "Starbucks decided long ago—and reconfirms this every day—that a cookie-cutter store approach is not the pathway to success for their product, which is a higher-end, higher-priced coffee that emphasizes the customer's experience.... Each Starbucks store is different. The footprint is different, the customer experience is different. I believe Starbucks wants the customer experience from store to store to be consistent but unique. McDonald's wants the customer experience to be exactly the same, totally common from store to store."

Given that the drink and syrup combinations at Starbucks allow for more than 80,000 different beverages to be ordered by any given customer, John suggests that at Starbucks, "The goal is to make as many things as possible routine so that the barista can spend just a few more seconds talking with the customer.... No workarounds due to the line backing up, no shortcuts to get caught up—handling each unique order as it should be handled, in stride, without burden, and to the customer's satisfaction." If you are looking to create consistent but unique experiences, Starbucks approach to Lean serves as a template. Develop expertise in Lean-type strategies and engage a dialogue with and informative observation of those who perform important operational tasks. Those conversations and observations will readily enable you to create effective routines and efficiencies. Ultimately, this effort should result in more time for your people to create personally engaging experiences.

#### **ADDING, ERRING, AND PERSISTING**

When it comes to the customer experience, quite often enhancements take the form of trial-and-error adjustments in an attempt to hit upon the right ingredients in the right quantities necessary to deliver an optimal customer experience. Frequently, key elements are sensory in nature, such as music. Author and journalist Nick Chiles notes, "For companies looking to make an emotional connection with consumers, music continues to be one of the most reliable devices in the marketer's toolbelt.... Take the case of Starbucks, which endeavored to turn its coffee shops into a fully experiential adult playground that tickled and stroked every one of the customers' senses while they were in the café, making them want to stick around all day. A big part of that was music—interesting, off-beat, quirky musical finds that thrilled customers with a feeling that they had made a new discovery."

Because customers became so connected with the music that Starbucks played in the stores and the discovery moments associated with that music, Starbucks began selling compilation and compact discs of featured artists.

What role do sensory elements play for your business? What do your customers hear at key touch points in their journey with you? Are there opportunities to incorporate sensory elements (auditory, olfactory, visual, or tactile) that will authentically enhance the customer's experience?

#### **KEEPING IT CORE AND EVOLVING**

As we've explored previously, extraordinary customer experiences rely on processes of simplification and a willingness to experiment with sensory enrichment. The path to excellence also requires an ability to merge design elements in a brand-congruent fashion. Arthur Rubinfeld, chief creative officer for Starbucks and president, Global Innovation and Evolution Fresh Retail, notes, "As an architect, I believe that everyone can have an impression and an opinion on how to create a coffeehouse experience. The key, however, is to support the brand's position seamlessly in the physical design. The most difficult part of retail store design is connecting the gestalt of the company, the mission of the company, the culture of the company to the physical solution. I've often said that in judging a store design, if you were to remove the logo discs and the signs from the fascia of the storefront tonight, would people shopping in that retail space tomorrow know that it was a Starbucks store?"

Throughout the 1990s Starbucks certainly seemed to be mixing the right ingredients to deliver coffeehouse experiences that contributed to the brand's meteoric growth. Because they serve the ever-changing needs of people, physical spaces can't remain static. In addition to sharing the importance of environmental factors in store design (which will be addressed extensively in Chapter 11), Arthur suggests that much has changed in creating Starbucks environments. "Our concepts in the 1990s were rooted in a thematic design, with a leading-edge color palette and extensive iconography. For example, we used a wonderful group of icons and swirls that gave us opportunities to present the siren and other nautical graphic design elements in fixture designs."

By contrast, today Arthur indicates that his design teams work to provide flexible design approaches that allow individual in-house designers to use local artists and materials to make them more locally relevant in their look and feel. He also suggests that customers are looking for authenticity, seating choices, and places where they can connect with their community. According to Arthur, "We promote interaction and community gathering by providing unique and specific elements. The community table is one of them. The community table also allows for group meetings and participatory conversations about whatever is on someone's mind. In addition, we're trying to provide as many alternative-seating areas because of the varied need states of our customers who come in the morning, at noon, and in the evening. Maybe they will sit on a comfortable chair, in a nice settee, or at a community table. We are also incorporating 42-inch-high tables which complement the 30- and 36-inch tables. If you are coming in to work on a laptop, a 42-inch-high table is ergonomically better for you, as you can stand. It's also an alternative kind of perch for people to experience the 'life' of the store that goes on versus sitting in a settee in the front or back section of a store."

Starbucks leadership is comfortable experimenting with design elements that the leaders believe will address the evolving need states of the company's customers. They consider emerging trends and observed customer behavior as they refine the stage on which their experiences are provided.

**REFLECTION ON CONNECTION**

1. Take a moment to put yourself in the place of your key customer group. As you walk through their experience, what elements of clutter or confusion stand out to you? What can be done to clean up these experience detractors? Repeat the exercise with other important customer groups.

2. If you were to do a "sensory audit" of your business, what would be your strengths, weaknesses, and opportunities? What sights, sounds, smells, and tactile elements do your customers experience at key contacts with your brand?

3. Have you used or are you using disciplined processes like Lean (or Six Sigma) to increase efficiencies, improve your customer experience, or even determine the root cause of service breakdowns? If so, how has the customer experience improved? If you aren't taking a disciplined approach, what would cause you to explore such processes?

Whether it is connecting the design of your physical space to your company's mission, vision, and values; streamlining efficiencies to improve the customer experience; or adding sensory elements, successful customer experience enhancements have one unifying component: the need to execute the details. As Arthur puts it, "One of my mantras is, 'The difference between mediocrity and excellence is attention to detail.' The attention to detail that we put into every aspect of our business is geared toward staying on the leading edge of design and providing the most powerful, unique experience possible in our stores."

Executing details to achieve leading-edge customer experiences works for Starbucks. How are you doing on perfecting the details of your desired customer experiences?

#### **CO-CREATE THE EXPERIENCE WITH YOUR CUSTOMER**

To provide the "leading-edge" experience that Arthur referred to, Starbucks leaders do more than observe, try, evaluate, and refine their offerings. Starbucks engages with customers to help the leaders prioritize experience improvement targets. In 2008, Starbucks was at the forefront of the online "co-creation with customers" movement. Cecile Hudon, online community manager at Starbucks, explains, "When we first launched the My Starbucks Idea website in March 2008, we felt we were losing some of the connection we had with our customers. So Howard Schultz spearheaded our effort to let customers know that we were listening. We did that by creating one of the earliest and most successful online idea sites at MyStarbucksIdea.com."

Members of My Starbucks Idea can share, vote on, and discuss product, experience, and involvement ideas. As ideas are shared, site-goers vote on those ideas and also interact with Starbucks partners who can evaluate them and affect change. According to Cecile, "The secret to the success of the site is our customers get to talk to subject-matter experts who function as moderators. So as customers offer food items or suggest gluten-free products, for example, a partner from the Starbucks food team looks through those suggestions. If we had tried to support this site with a single person from, say, the marketing department, they may not recognize a good and relevant idea, because they are not as close to the work being done in each department and the process would be slower to move ideas forward. Today we have about 40 moderators that are on the site from all over the company listening to the ideas that are relevant to their work. Customers interacting with Starbucks partners in areas that they care about helps the customer feel a part of the company. Their opinion matters."

**Infographic prepared by Starbucks for the five-year anniversary of My Starbucks Idea.**

As items gain popularity through the votes of members in the community, moderators engage in dialogue about those ideas. Cecile notes, "We encourage the moderators to comment and look for responses to the most popular ideas each week, and also look for diamond in the rough ideas—innovative ideas that have low point scores because they may be too new of a concept for people to recognize as a good idea."

Beyond commenting on ideas, moderators move the best options through a series of possible categories: "under review," "reviewed," "coming soon," and "launched." As ideas go under review, functional teams look at whether an idea is innovative, whether it is a differentiator for Starbucks, how quickly the idea can go to market, how much impact it will have on the customer experience, and whether it is a good business driver. Examples of ideas launched from My Starbucks Idea were identified in the infographic on the preceding pages.

More than 150,000 ideas have been submitted on the site, and 265 ideas launched, as of this writing. My Starbucks Idea has helped shape the Starbucks loyalty program, inspired the Starbucks Card eGift program, encouraged the company to sell reusable cup sleeves, and prioritized its recycling efforts. Years after the launch, the community is vital and active, with some users visiting more than 200 times a month. As customers continue to share their ideas with Starbucks partners, leadership continues to listen and respond. Partners participate on the consumer site, and a separate site has been created for them to offer ideas that affect their work lives and the experience of their store's customers.

While Starbucks has developed a variety of other tools for engaging customer input, My Starbucks Idea demonstrates how customers and partners can be engaged in an advisory counsel function to suggest, prioritize, and invest in the evolution of experience offerings. How effectively are you mobilizing your engaged customers to help them help you address their wants and needs?

#### **PERMISSION TO BUILD ON AN EXPERIENCE PLATFORM**

If you deliver high-quality products in experiential environments, served up by knowledgeable and passionate staff members, customers not only will support your growth through that product line but are also likely to explore other offerings you innovate in the context of those core competencies. For Starbucks leadership, this has meant a growth plan that includes café environments serving other high-quality beverages—enter the Evolution Fresh™ and Tazo® tea stores.

In late 2011, Starbucks announced that it had acquired Evolution Fresh, Inc., "as part of its commitment to evolve and enhance the Customer Experience with innovative and wholesome products." The move signaled that Starbucks would takes its beverage expertise into the $3.4 billion superpremium cold-pressed juice market and broadly into the $50 billion health and wellness sector.

Upon announcing the acquisition, Howard Schultz noted, "Our intent is to build a national health and wellness brand leveraging our scale, resources and premium product expertise. Bringing Evolution Fresh into the Starbucks family marks an important step forward in this pursuit." Prior to the acquisition, Evolution Fresh sold premium juice products through health supermarkets such as Whole Foods. Evolution Fresh, which was created by the founder of Naked Juice, uses patented technology to pasteurize most of its juices without exposing them to nutrient-depleting heat.

By acquiring Evolution Fresh's existing bottled juice products, Starbucks leadership expanded its presence in the consumer products goods space (which will be discussed in detail in Chapter 9, "Personal Relationships Translate: Sharing the Love from People to Products") and also created a new experiential platform, Evolution Fresh retail stores. These stores focus on the same principles of customer experience crafted in a traditional Starbucks café environment, but adapt that experience in keeping with the health and wellness products that they sell.

Starbucks rolled out its first Evolution Fresh stores in the Seattle area. The centerpiece of these stores is the "tap wall," which dispenses seasonal cold handcrafted juices like Field of Greens (a low-calorie blend of ginger, greens, organic apple, and cucumber) and natural smoothies. The stores also offer globally inspired, personalized food experiences with hot and cold selections, including breakfast items, lunch and dinner wraps, soups, sandwiches, and bowls (such as an under-300-calorie offering made up principally of quinoa, organic kale, and butternut squash). Of course, Evolution Fresh stores also sell Starbucks coffee and Tazo teas.

Kevin Petrisko, director of business operations, Evolution Fresh, describes the experience he wants customers to have in Evolution Fresh stores by noting, "Our vision is, a customer walks out and says, 'Wow, that was a fantastic experience. I learned something new, I had an amazing human connection with the juice partner who guided me through this experience, ultimately the food or the drink taste like the fruit and vegetable it came from, and I have to return. I have to tell my friends how high the quality is of the food I'm eating and the beverage I'm drinking. I've learned something, and I understand how this is going to help me think differently about what I put into my body.'"

Other than the mention of Starbucks coffee on the menu board, there is no signage linking Evolution Fresh to Starbucks, yet online customer reviews frequently make the connection. This is exemplified by one review that reads, "Evolution Fresh is Starbucks newest addition to health food. Although spendy, it's totally worth the experience. The partners behind the counter are knowledgeable and happy." While Evolution Fresh is its own independent-branded store experience, the human connection anchors the retail stores to the essence of Starbucks.

Unlike Evolution Fresh, which represents a fairly recent foray into an adjacent beverage category, the Tazo tea stores are a newly evolved retail concept that links back to the origins of Starbucks. When it was founded in 1971, Starbucks was known as the Starbucks Coffee and Tea Company. As the company grew, the leaders positioned Starbucks with coffee at its core, but in 1999 they purchased a premium tea brand. A _New York Times_ article from 1999 described that acquisition by noting, "Tazo, the Oregon company that once aspired to be the Starbucks of teas, has been bought out by the Starbucks Corporation.... The Seattle-based Starbucks hopes that with Tazo it can attract new customers."

Effectively, Starbucks built Tazo from an $8.1 million purchase price in 1999 into a brand with more than $1.4 billion in sales, and recently positioned a retail concept to further grow the brand in a Tazo tea store setting. The first Tazo store opened in Seattle in November 2012 and provides a retail experience where customers can purchase more than 80 varieties of loose-leaf teas or enjoy a freshly brewed cup of tea—hot, iced, or prepared as a latte. In fact, customers work with Tazo partners to create their own unique tea flavors and can buy those personal blends by the ounce or by the cup.

**Tazo tea retail store, Seattle, Washington, USA.**

According to Charles Cain, vice president, Tazo Merchandise and Operations, "In our Tazo tea retail store, we want to create an experiential offering and a place where customers can get a rich sense of our extraordinary teas. Additionally, we want to take a leadership role in exposing people to premium tea. When we hit our stride, we anticipate that 25 percent of our sales will be from prepared tea beverages and the remainder will be from the purchase of loose-leaf teas and related supplies for customers to prepare their beverages at home."

Like the Evolution Fresh concept, the Tazo tea store is not branded with the iconic Starbucks logo. While having less emphasis on prepared beverages and more on take-home purchases, a Tazo tea retail store is marked by the same product passion and attention to experience detail highlighted throughout this chapter.

Annie Young-Scrivner, executive vice president and president, Starbucks Canada, expresses the aspiration of the leadership as it relates to the market relevance of decisions like the creation of the Tazo tea retail stores: "The tea category is exploding right now; it's literally at the point where coffee was a number of years ago. The majority of tea is in filter bags, not full leaf, and we hope to elevate tea-drinking experiences across the global landscape. This is a particularly relevant opportunity given our commitment to beverage delivery in tea-drinking counties like China and India. Hopefully, our collective efforts around Tazo tea will represent a big win that is very complementary to what we are doing with coffee." Stacy Speicher, director of category brand management, Tea, adds, "As we move into stores designed around products other than coffee, we guide our decisions by the most important common denominator—the customer. At the heart of everything we do are our customer insights and data. We need to understand who is buying tea, where they are, even how to reach them through social media or advertising. We need to understand our consumers backwards and forwards in order to do what we do best—connect with them."

While the true success of Evolution Fresh or the Tazo tea retail concept won't be fully known for years to come, it is clear that Starbucks success in product execution, customer connection, and experience design have allowed it to explore adjacent categories. Starbucks leadership appears to explore new business opportunities by asking questions like:

• How can we translate our core competencies into future opportunities for our existing and prospective customers?

• What external factors or consumer trends can guide us as we leverage our strengths?

• How will this possibility serve our mission and elevate the experience of our customers and all stakeholders?

• How will this opportunity enhance a connection of trust and love for those we serve?

In my view, these types of questions are relevant to every business leader. The final question, "How will this opportunity enhance a connection of trust and love?", is addressed directly in the chapters that immediately follow under the principle titled "Love to Be Loved."

  Human experiences are at the heart of your brand.

  People can copy your products and your services, but seldom can they build the powerful connections with customers that emerge from the well-designed experiences that you deliver.

  Observe and interact with your prospective employees to determine whether they are eager, teachable, and authentically interested in others.

  Define your service vision in such a way that it describes what needs to be achieved during service experiences.

  Well-designed experiences involve a willingness to see the environment from the customers' perspective and attend to the needs of core customer segments.

  Great customer experiences depend on both the addition and the removal of emotional stimuli and environmental design elements.

  When it comes to the customer experience, quite often enhancements take the form of trial-and-error adjustments in an attempt to hit upon the right ingredients in the right quantities necessary to deliver an optimal customer experience.

  Whether it is connecting the design of your physical space to your company's mission, vision, and values; streamlining efficiencies to improve the customer experience; or adding sensory elements, successful customer experience enhancements have one unifying component, the need to execute the details.

  Co-create your experience with your customers.

  If you deliver high-quality products in experiential environments served by knowledgeable and passionate staff members, customers will support your growth through that product line and are also more likely to explore other offerings you innovate in the context of those core competencies.

## **PRINCIPLE 2**
 **LOVE TO BE LOVED**

I don't need to tell you that these are challenging times for leaders. We all seek to engage staff members, create innovative products, satisfy customers, and drive brand loyalty despite operating in an environment of consumer anxiety. To make things more complicated, we have to differentiate ourselves from the competition in as cost-effective a manner as possible and react to the increasing service demands of customers, who expect immediate responses through their desired communication channels or on their preferred social media platforms. The silver lining in what appears to be a dark cloud is the fact that every leader is faced with these exact same opportunities and market conditions. Leaders at companies like Starbucks have found ways to maintain strong emotional bonds with their customers and achieve their business objectives despite a landscape of heightened consumer empowerment and corporate cynicism. At the center of these sustained emotional bonds is a leadership principle that I refer to as "Love to Be Loved."

"Love to Be Loved" is presented in Chapter 4, "It's a Matter of Trust and Love," and Chapter 5, "It Must Thrive Inside to Be Experienced Outside." Chapter 4 explores the hierarchical nature of customer engagement and how Starbucks leaders model integrity to secure stakeholders' trust. In addition, the chapter explores the role that leaders play in charting a course toward brand passion.

Chapter 5 takes a broad look at the many and varied efforts that Starbucks leaders deploy to maximize the company's connection with partners. Given the diversity and international nature of the Starbucks workforce, the chapter offers insights into effective communication methods that maintain personalization and intimacy.

In these two chapters, you will see how employee and customer satisfaction will keep your company's lights on today. More significantly, you will come to appreciate that in order to be a viable force well into the future, you will most likely need to "love to be loved."

###
**It's a Matter of Trust and Love**

_Trust is... the beginning place, the foundation upon which more can be built. Where trust is, love can flourish_.

BARBARA SMITH

On January 5, 1914, Henry Ford more than doubled the minimum wage for many of his employees by introducing a $5 a day minimum pay scale for employees of the Ford Motor Company. On that same day, Ford began offering profit sharing to his employees and reduced shifts from nine hours to eight. Ford's treasurer at the time, James Couzens, explained these bold leadership moves by saying, "It is our belief that social justice begins at home. We want those who have helped us to produce this great institution and are helping to maintain it to share our prosperity."

On January 5, 2012, 98 years later, embittered individuals who identified with the Occupy Wall Street movement were in the 111th day of a protest that began in Zuccotti Park in New York City's Wall Street financial district. These protestors were expressing what they perceived as economic unfairness and inequality resulting from corporate greed. The group's mantra, "We are the 99 percent," reflected cynicism and distrust for business, financial, and governmental systems that they viewed as sacrificing the interest of the country's 99 percent in favor of the wealthiest 1 percent. Where had we come in a century?

Dov Seidman, founder, chairman, and CEO of LRN, a company that helps businesses develop and maintain effective corporate governance, suggests, "This crisis of trust in our basic institutions is so troubling precisely because the lack of trust is in so many cases well deserved. Broken promises, obfuscation, spin, concealment, all have created a suspicion—often unfortunately true—that there is something to hide."

Given these global trust issues, LRN commissioned research among U.S. citizens and executives to assess their attitudes concerning the trustworthiness of corporate America. According to Dov, "The results were dismal. Over two-thirds (71%) of the Americans polled said that none, very few, or only some corporations operated in a fair and honest manner. Nowhere is the crisis of trust more acute and widespread than in corporate America, although the recent scandals overseas point to a global problem that defies national borders. In light of the power, influence, and impact of corporations, any hope of stabilizing... and restoring trust will not only need to involve business; it must, I believe, be led by business and business leaders."

Starbucks chief executive officer, Howard Schultz, also champions the importance of business leaders stepping up to address social problems like unemployment, destructive government partisanship (more on these two topics in Chapter 11), and distrust of businesses by employees and consumers. Howard suggests, "Most people come to work for a company having had previous work experiences. In many cases, their experience has been bad. As such, they enter with cynicism, and the burden of proof is on leaders to demonstrate that this is a different place."

Howard views the rise of distrust among employees and consumers as a "seismic change" that produces opportunities for those who behave in socially conscious ways. Howard shares, "There is a longing by the consumer, a longing to do business with companies they trust, respect, and admire. Those companies, whether it is Whole Foods, Costco, or Timberland, that have done the right thing for a long time are winning and winning for a reason. We all have competitors, and there is disparity in the marketplace of social responsibility. Consumers are smart and will reject companies that are not making deposits in the reservoir of trust or who are not authentic about the way they appear to go about it." Alli Higgins, a regular Starbucks customer from Denver, Colorado, acknowledges that authentic social responsibility matters to her: "If I am going to frequent a company, I want to feel good about how it treats its employees, its suppliers, and the earth. I think we all have to do our part with this by looking into the companies we support. I am all for businesses making healthy profits, as long as they still do the right thing. So that's why I go to Starbucks."

This chapter is about, in Howard's terms, making authentic "deposits in the reservoir of trust." It also explores how those deposits produce returns in the form of engagement loyalty and beloved brand status. Let's start with a conceptual framework for accessing brand passion by first focusing on competence and trust.

#### **NO POINT IN SEEKING LOVABILITY IF YOU AREN'T LIKABLE OR TRUSTWORTHY**

Most of us have had some exposure to the work of Abraham Maslow. Reflecting back on your high school or college coursework, you may recall that Maslow's 1943 paper "A Theory of Human Motivation" identified a hierarchy of five human needs (physiological, safety, belongingness and love, esteem, and self-actualization). Later in Maslow's lifetime, he went on to expand his theory to eight definable need levels (adding cognitive, aesthetic, and transcendence needs). While the number of need levels may be subject to debate, Maslow is credited with appreciating that basic survival requirements take precedence over more evolved social and transformational needs. In his hierarchy, Maslow identifies biological and safety needs as having primacy over the need for love. In essence, Maslow suggests that humans have to answer the question, "Am I safe?" before they will seek to answer the question, "Am I loved?" Maslow's hierarchical view has enjoyed a renaissance among business theorists addressing the motives of customers and employees. Maslow is also relevant to our exploration, as we examine the hierarchical nature of consumers' need states when it comes to business trust, belongingness, and love.

Theorists and researchers at the Gallup Corporation, for example, have defined a hierarchy of customer perceptions that escalate from low levels to full customer engagement. In the Gallup model, the first hurdle a company must face is the question, "Are you competent?" If you provide a satisfactory experience and customers report that they are likely to purchase from you again, you have established foundational competence and achieved an entry level of engagement by the consumer. Your customers are content with your offering, and for reasons of habit or convenience are likely to purchase from you again. Your product or service delivery did _not_ disappoint your customers, and therefore they feel no need to actively look elsewhere for similar products. Unfortunately, your customers also have no strong reason to stay loyal to you, and they are vulnerable to being lured away by competitors.

Being viewed as competent is a necessary but insufficient threshold for business success. In large measure, competence and satisfaction (which is used to determine perceived competence) are intellectually based perceptions that offer no protection from the effective marketing strategies of competitors or from the entrance of new businesses into your marketplace. In essence, your customers are a coupon away from exploring elsewhere.

If you are to ensure a more secure relationship with your customers, they must be able to answer the question, "Can I predict that this company will demonstrate fairness and consistency in the way it delivers products and experiences?" In essence, customers must conclude that the company operates with honesty and integrity. Based on what they have experienced firsthand or gleaned from friends, online reviews, and the media, they are determining whether a company will honor its implied and stated promises. Are senior leaders acting in accordance with their values? When problems arise, are those problems resolved in a reasonable and appropriate way? Do representatives of the company behave in a manner that is consistent with what they promise or what the marketing materials suggest?

If customers view your company as being competent and having integrity, you have created the environment for consumer trust. That trust can set the stage for yet deeper levels of customer engagement, such as brand passion or beloved brand status.

In the Gallup hierarchy, for example, being perceived as having integrity establishes the opportunity for customers to experience a heightened level of emotional engagement—"pride." In order to derive pride from a business relationship, customers must be able to offer a resounding yes to questions like, "Was I smart to have made the choice to buy here?" "Do I want to be known as a customer of this company and tell my friends and family about my positive experiences?" Customer pride comes when your business is viewed as a positive force in your customers' lives or in the lives of others they care about, as well as when you behave in ways that leave them pleased to associate with you. In some cases, pride comes from status that is derived through a connection to your brand.

The pinnacle of Gallup's customer engagement hierarchy is _passion_. To determine the presence of consumer passion, Gallup's customer engagement measurement tool (CE-11) asks questions that get at whether a company is "perfect for someone like" the customer or whether the customer can "imagine a world without" that business. (A detailed exploration of the 11 questions that Gallup used in the CE-11 can be found in my book _The New Gold Standard: 5 Leadership Principles for Creating a Legendary Customer Experience Courtesy of The Ritz-Carlton Hotel Company_.)

For our purposes here, the Gallup model serves to explain that trust is a gateway emotion on a journey to greater levels of engagement. As a consumer, I can be satisfied with the product you provide today, but I need to know that the product will be delivered consistently tomorrow or at other locations that carry your brand name. I also need to know that in the rare instances where something goes wrong, you will make it right and make me whole. Finally, if possible, I would like to feel esteem from my association with your brand and an even deeper sense that you play an intimate and personal role in things that bring pleasure to my life. In this context of hierarchical thresholds of customer engagement, let's look at how Starbucks leadership first establishes trust through integrity. More important, let's connect Starbucks actions to the way you wish to affect your customers' perceptions concerning your competence, your integrity, pride, and passion.

#### **WATCH YOUR FEET**

From my vantage point, brand integrity is the result of leaders authentically striving to align expectations and actions. Valerie O'Neil, senior vice president, Partner Resources and Brand Leadership at Starbucks, supports this view by noting, "When I joined the company, I was struck by the authenticity of our senior leaders and how they create alignment around the importance of doing the right thing for partners, customers, shareholders, and the sustainability of our planet. By acting in accord with a moral compass to 'do what is right,' leaders set the stage for the execution and integrity of partners who also want to do what is right. That has become wired into the DNA of our brand. It drives operational excellence, it affects how we fulfill promises, it guides the respect we offer customers, and it reinforces our commitment to be good stewards for our shareholders and neighborhoods."

Striving to do "the right thing" is at the core of leadership excellence, and, in today's interconnected world, it involves both the public and private behavior of leaders. Dov Seidman notes, "Virtue has been, is, and always will be its own reward. The best companies have always understood this and have refused to pursue the easy path to short-term gains at the sacrifice of long-term value and reputation. But there has been a sea change. Circumstances have combined to tangibly reward adherence to virtue. It has become practical to be principled. Why? Because the rules have changed to lay bare corporate behavior forever. The profound impact of technology has enabled greater transparency in evaluating business, institutions, and organizations. The corporate veil has been pierced."

Even before the Internet, scholars like Albert Einstein suggested that success should be measured not only through short-term profitability but also by morally considering the betterment of others. Einstein opined, "The most important human endeavor is striving for morality in our actions. Our inner balance and even our very existence depend on it. Only morality in our actions can give beauty and dignity to life."

Based on my observation, I can say that Starbucks leaders strive to demonstrate morality in their actions by making deposits in their stakeholders' reservoir of trust. This is accomplished by:

**1.** Empathetically looking at business decisions through the lens of humanity

**2.** Communicating straightforward intent, acknowledging shortcomings, and keeping promises

**3.** Balancing the competing interests of stakeholders

**4.** Creating operational systems and quality improvement processes to deliver a consistently reliable product

**5.** Establishing training and empowering partners to deliver service recovery

The first three items in this list relate to expansive leadership behaviors that affect diverse stakeholders and can be exemplified at Starbucks by a single, albeit significant, leadership decision: the retention of employee health-care benefits and the Bean Stock equity rewards program. The latter two items (systems and training and empowerment) will be addressed later in the chapter in the context of operational excellence and the predictability of products or services.

#### **INTEGRITY DURING CHALLENGING TIMES AND LOOKING THROUGH THE LENS OF HUMANITY**

In 2008, in the midst of making difficult decisions about the financial future of Starbucks, Howard Schultz was being encouraged, and in some ways pressured, to do away with health-care benefits for those who work at Starbucks. Openly, Howard and his leadership team took a strong stand for these and other benefits. In his communications at the time, Howard reaffirmed the leadership's commitment to partners, acknowledged uncertainties where promises couldn't be made, and ultimately delivered on his word in a way that balanced the needs of investors and partners. As Howard reflects, "Significant change was about to occur, and our people would want to know what it meant for them and their jobs.... We made it clear that no one employed by Starbucks would lose their health-care coverage or stock in the company. For me, that would never be an option. As for the security of their jobs, that was a decision I could not predict, a promise I could not make." Howard and the leadership team anguished about needing to scale back on jobs for the greater good of the organization. They also could have withdrawn employee benefits as part of that preservation effort; however, based on his promise, they trimmed jobs as necessary, but they did not cut into the partners' stock benefits and health-care coverage.

Difficult decisions that affect both people and the bottom line garner respect when they reflect corporate values, demonstrate compassion and sound judgment, and reflect a unity of words and deeds. Corey Lindberg, senior accounting manager, notes, "My trust in leadership starts at the top. I came here many years ago, and I have watched how leaders genuinely care for people and know what this brand stands for. It is often the case that leaders lose trust with time and with familiarity, but by balancing the demands of being a profitable company with a willingness to make decisions from the perspective of caring for people, my respect for leadership has grown. Because leaders do what they say and openly communicate their intentions, partners do the same, and most of us aspire to our leader's level of integrity." When people hear your words and see you take actions to support those words, when they have transparency into your efforts to balance competing interests, and when they know that you care about them and also care about the long-term sustainability of your business, they extend their trust.

I have suggested that integrity, like every important component of leadership, must be thought of on both an operational and a personal level. In essence, your integrity helps your people profit other people. Adrian Levy, founder of the performance improvement company RLG International, draws out the significance of the human element as it relates to the people inside an organization by noting, "People are not a company's most important asset. People are the company. Everything else is an asset." In Chapter 5, "It Must Thrive Inside to Be Experienced Outside," we will examine the many ways in which Starbucks leaders commit to the _people_ they call partners. Furthermore, it will explore how those people foster the love and profitability of _people_ called customers. A willingness to make tough choices on behalf of your employees can make all the difference for your employees, your customers, and even your shareholders.

In the book titled _The SPEED of Trust: The One Thing That Changes Everything_ , Stephen M. R. Covey cites a number of studies that show how employee trust and brand reputation even create financial benefits for stockholders. According to Covey, research by "Watson Wyatt shows that total return to shareholders in high-trust organizations is almost three times higher than the return in low-trust organizations. That's a difference of 300 percent!" As is the case with any publicly traded company, the trust of investors is essential to Starbucks, and the company's leadership places shareholder value among its guiding principles. In keeping with the Watson Wyatt research, Howard Schultz suggests that employee trust and shareholder value are inextricably connected at Starbucks. Howard indicates, "There are 200,000 people who work for Starbucks. The equity of the brand has been defined by the relationship we have with them and the relationship they have with our customers. I think the success we have enjoyed, which is linked to shareholder value, has a great deal to do with whether or not people are proud of the company they work for and feel as though they are part of something larger than themselves.... Shareholder value has increased significantly, in large part because management has made the right kind of decisions that are in the best interest of the entire company. We have multiple constituencies... and we have linked shareholder value to the communities we serve and to our people."

**REFLECTION ON CONNECTION**

1. Based on the hierarchical stages of customer engagement (competence, integrity, pride, and passion), how do most of your customers and employees perceive your business? Are you a "competent" employer, or is your staff "proud" to work in your organization? Do customers see you as a brand with "integrity" (you do it right and make it right when things go wrong), or are you a "passion" brand that is perfect for your customers?

2. Are most of your business decisions made solely for profit, or do those decisions also reflect "morality of action" and a desire to make "deposits in the reservoir of trust" for your stakeholders?

3. Give yourself a letter grade as a leader in each of the following areas. What is the rationale for each grade?

• Empathetically looking at business decisions through the lens of humanity

• Communicating straightforward intent, acknowledging shortcomings, and keeping promises

• Balancing the competing interests of stakeholders

Are you content with your grades? What actions will you put in place to improve them?

Irrespective of the stakeholder, leaders need to understand that integrity and trust come from the conjunction of words and actions. They must communicate their intent, mistakes, and victories while acting in accordance with their values and promises. A consistent and enduring commitment to do the transcendent "right thing," despite competing interests, is essential to developing a high-trust organization that pays rich interpersonal and financial benefits. In addition to having the company be viewed as one that is governed with integrity, leaders must inspire employees to earn the trust of customers every day and in every interaction through excellent product delivery. At Starbucks, the product promise most often occurs through a consistent deliverable: achieving excellence and consistency one cup at a time.

#### **TRUST IN A CUP**

People come into your business to address a need. Customers don't engage in service transactions simply to see how friendly a service provider will be. They want to have a functional need met, and if you treat them in a way that engages them emotionally, you will be providing a differentiating bonus.

So how do you make sure that you are addressing functional needs in as consistent a manner as possible? At Starbucks, that answer includes the use of cross-functional teams in product and implementation design as well as a willingness to solicit and act on input received from those who have the task of delivering the product consistently. Kevin Petrisko, director of business operations, Evolution Fresh (an acquired brand I discussed in Chapter 3), a 16-year Starbucks partner who has spent most of his career working on product rollout and consistent product delivery at Starbucks, notes, "From the consumer side of trust, they want to know that they will get the same beverage if they go to Starbucks in San Antonio, Honolulu, or Paris. Because of our team approach to product creation, implementation, and testing, we've done a pretty good job at earning trust through consistency."

By bringing cross-functional teams together early to develop and improve products and implementation protocols, Starbucks anticipates and resolves many rollout challenges long before new products arrive in Starbucks stores. Field-testing encourages barista input on how to improve the consistency, efficiency, and quality of product delivery. This, in turn, ensures that swift and effective execution will occur when the product is launched across the brand. All of these efforts culminate in consistent product presentation that strengthens customer trust.

Kevin offers an example of how a new product was conceptualized from a customer experience perspective, how that product was created, and how implementation was improved by frontline input. According to Kevin, "We had iced tea at Starbucks, but it really wasn't a finished, handcrafted product like a beautiful latte. In previous versions, we poured the tea from a pitcher directly into a cup, and its presentation was rather ordinary. So the original goal was to combine tea with juice or lemonade to see if we could create something very different and explore if we could also provide a more enriched experience in the process." In order to deliver the shaken tea product, implementation teams had to design a beverage shaker, establish the optimal product build process, and establish training tools for ease of product introduction in the stores.

Kevin notes, "As we tested the product, we were hearing from customers about noticeable variation. We'd given the partners the tea shakers and said, 'Mix the tea with the lemonade, add syrups as appropriate to the recipe, and shake the blend for 10 seconds. You will then pop the lid off the shaker and then pour the hand-shaken drink in the cup; it's going to be a beautiful beverage.'" In an attempt to increase consistency and make the product easy to deliver, the team of Starbucks partners that was observing the product test also asked questions of the baristas who were preparing the beverages in the test-market stores. The baristas were asked, among other things, about the ease of drink preparation, the functionality of the newly designed shakers, and the baristas' perception of the preparation process.

According to Kevin, an unsuspected issue emerged through the evaluative process. "What we learned was that the inconsistencies came from our partners not knowing how to shake the beverage," he explains. "It sounds kind of silly, but 10 seconds allows for considerable variability, as some partners were shaking it for closer to 20 seconds and others for 5 seconds. As it turns out, that time difference in shaking made a big difference in how the beverage tasted. So we changed the protocol so that partners are to shake the tea 10 times. As a result, now you walk into our stores and you can still see partners shaking the tea (and counting to themselves 1 through 10). That adjustment has made a big difference in product consistency." To achieve trust in product reliability, Starbucks leaders begin by leveraging teams of talented people and encouraging them to steward new ideas and concepts in the direction of repeatable and effective delivery systems. These teams coordinate to test those ideas with customers and with in-store partners in strategic ways to refine aspects of the product or delivery method to remove product or service variations.

#### **CONSISTENT AND BEYOND EXPECTATIONS**

Since consistency is critical to consumer trust, how do Starbucks leaders drive reliable and emotionally engaging service that not only meets but also exceeds customer expectations? In short, leaders at Starbucks train and develop partners to create inspired moments by defining those service behaviors that should "always" or "never" occur at Starbucks. In addition, training materials communicate the impact of service basics and the expectations that leaders have for consistent service delivery. For example, as part of the Starbucks service basics, leaders have set the expectation that baristas will connect with customers to understand their needs before making a product recommendation. Leadership identifies the rationale for this service expectation and the "always/never" behaviors that emerge from it as a matter of customer trust, noting that customers form trust when the intent behind product recommendations is linked to the customer's best interest and not the business's interest. The leadership at Starbucks asserts that inspired moments begin for customers when partners exceed customers' basic service expectations—many of which have to do with being proactive in delivering personalized service even before customers have to ask.

#### **WAIT—THIS IS NOT WHAT I EXPECTED**

In circumstances in which products do not live up to consumers' expectations, a critical moment of truth occurs. From the perspective of the customer, the internal dialogue usually goes something like this: "Should I let the business know that this isn't right, or should I leave bad enough alone?" "Will the business blame me by saying something like, 'That's what you ordered'?" "Will the company stand behind this product, or is it my problem now?" or, "How much hassle will I encounter in an effort to get this remedied?" From the company's side of the interaction, the internal dialogue _should_ be, "What can we do to increase the likelihood that people will let us know when they encounter a problem?" "How can we ensure that every employee knows how to handle service recovery?" and "How do we use this breakdown as an opportunity to demonstrate integrity and facilitate greater levels of customer engagement?"

Since complaints are opportunities to both reengage customers and demonstrate integrity, strong leaders look for ways to encourage customers to share their concerns. At Starbucks, this begins with offering a customer-facing promise displayed in Starbucks stores and on the company's website that reads, "We want you to be completely satisfied. If for any reason you are not satisfied with your purchase, you may return it for a replacement or refund of the purchase price." While it is easy to make such a promise, it is much more difficult to stand behind it. John Hargrave, founder of the humor site zug.com and author of _Sir John Hargrave's Mischief Maker's Manual_ , decided to put the Starbucks promise to the test. John writes, "But would Starbucks really replace _anything_? To find out, I decided to buy the most perishable item on the menu, keep it in my garage for several weeks, then attempt to exchange it."

While I will spare you the details concerning the condition of the cup at the point when John elected to return it, suffice it to say that John had to place the residual components of the cup in a plastic container. John adds, "I entered the Starbucks, feeling faint from the smell, and handed the Tupperware container to the barista. 'Could I get a replacement?' I asked, 'I think this one has turned.'" According to John, after the barista got past his confusion as to what he had been handed, the barista said, "'All right, man. No problem.' He tossed the drink in the trash, then added, 'But... aaaahhhhhhhh!!' He moaned, his eyes watering, as the Starbucks filled with the stink of the drink. Another barista quickly ran over to bag the trash, then carried it outside, retching.... But I have to say: _they didn't even ask to see the receipt_. They made me up a new Steamy Creamy, and served it with a smile." So how do leaders help employees smile and accept the type of return John offered? This can be accomplished, in part, by making sure that your staff is well trained in service recovery tools and expectations.

From the earliest phases of training, Starbucks partners are provided with the resources and the autonomy to resolve customer complaints or concerns. In the context of customer service basics, partners are encouraged to assess the need state of the customer as it relates to the complaint. For some, that may involve simply apologizing that the drink did not meet their expectations and offering to remake the beverage; for others, it may involve those components and also offering a service recovery tool like a beverage coupon. From the initial barista training through ongoing career development, the leadership's message to Starbucks partners is clear: assess the customer's need, own responsibility, avoid the "blame game," make it right with urgency, and loop back with the customer to ensure that your resolution left him highly satisfied. Starbucks leaders help staff members understand that customers whose reaction to their Starbucks Experiences is "highly satisfied" (in the course of either ordinary service experiences or service recovery) are substantially more likely to repurchase and recommend Starbucks compared to those who are simply in the satisfied range. You can think of highly satisfied as equaling the perception that you both are competent _and_ have integrity; whereas satisfied equals the conclusion that your customer will stay with you until she gets a better offer.

**REFLECTION ON CONNECTION**

1. Do you have a publicly stated service guarantee like Starbucks? If not, why is one not in place?

2. If someone were to go to extremes to test your organization's service skills (hopefully not quite to the level of John Hargrave), what situation might that person craft? How likely is it that you would respond with service recovery efficacy in the most extreme of circumstances?

3. How much time do you spend setting expectations and providing training on what service recovery should look like in your organization?

#### **IT'S TIME FOR PASSION AND LOVE**

So your customers are highly satisfied, and they view you as competent and worthy of trust. Now how do you get them to be fully engaged? Part of this question has already been answered in Chapters 2 and . If you select people with genuine talent for serving others, give them opportunities to become more knowledgeable and passionate about your products, and insist upon product and customer experience excellence, you are well on the way to gaining the pride and passion of customers. Furthermore, if you define your optimal customer experience, train staff to deliver it, reduce clutter, and enhance sensory elements during the customer journey, you are even closer to reaching beloved brand status. So what's missing? Often, it comes down to the leadership's commitment to communicating the importance of emotional value and a willingness to set a goal of becoming a beloved and not just a strongly liked brand. It may be that effective business leaders are accustomed to making very practical and tactical moves to achieve success. To that end, they may view emotionality as an unwelcome aspect of their own business decision making. Or possibly they may not be well versed in the burgeoning research on emotional value. Irrespective of the reasons for the resistance, it is clear that if you communicate the importance of emotional value and you set "beloved" or "passion brand" status as your destination, you can derive a significant business advantage.

Graham Robertson, president of the brand strategy and coaching firm Beloved Brands Inc., notes, "A few brands like Starbucks and Zappos become beloved brands, and, sadly enough, they are unique. Those brands that break through like Starbucks have a certain magic to the work that they do."

To help leaders assess their journey on the continuum to brand love, Graham developed a brand love curve where leaders self-assess consumers' emotional connection in the context of one of four categories ("indifferent," "like it," "love it," or "beloved brand for life").

**Brand Love Curve**

From Graham's perspective, as businesses move to beloved brand status, they gain greater power in the marketplace. He notes, "Love is a source of power. So if I have a customer base that loves me, I am actually more powerful. As I exercise that power, I become more profitable. So if I have a following, I'll likely be more attractive to vendors and other business partners. I will have greater ease in getting neighborhood and government support when needed. I'll even have power in the context of the media because people will be more likely to report on things I do. If I launch a new skinny vanilla coffee, it will actually make the news in a way it wouldn't for a nonloved brand."

Even economists have shifted in their appreciation of the role that emotionality plays in consumer behavior and customer loyalty. Through much of the history of economics, theorists and researchers have evaluated consumer decision making through the lens of "unbounded rationality"—essentially connecting why we buy what we buy with rational factors like the functionality of our purchases. However, in the late 1970s and early 1980s, psychologists Daniel Kahneman and Amos Tversky began a revolution in economics by focusing on the role of emotional factors in decision making. The ensuing decades of exploration of customer behavior have supported a number of intuitively interesting findings about the way reason and emotion affect purchase patterns, improve customer retention, increase employee engagement, and even strengthen brand evangelism.

Even though people may claim to make purchases based on objective factors like a product's benefits and attributes, we know that those decisions are often strongly influenced by the emotional value that individuals attach to products or brands. Emotionality is also a factor in aspects of customer loyalty, frequency, and spending patterns and is manifest in a willingness to refer a business to friends and associates. Customers who make extremely strong emotional connections with a company actually perceive their preferred brands as extensions of their personality and integrate the brands into their rituals, lifestyle, and identity.

Kate Newlin, author of _Passion Brands: Why Some Brands Are Just Gotta Have, Drive All Night For, and Tell All Your Friends About_ , has captured the benefit of having people identify with your company by suggesting that a passion brand is "a brand you recommend to friends wholeheartedly, even evangelically—so much so that if they don't embrace it as vigorously as you do, you perceive a cloud over _their_ heads, blocking the sunshine of the brand.... The cloud moves on and the friendship remains. But still. What is going on?" Kate's test is fairly simple: if your customers would feel disappointed if their friends aren't as excited about you as they are—you are a passion brand.

Starbucks leaders have not been reluctant to talk about love, passion, or the romance of the brand. But they have also been very clear that the only way to become beloved is to be loving. From the perspective of the leaders at Starbucks, love is a bidirectional phenomenon—it is enjoyed when it is authentically given. So, how about you? Are you perceived as being competent and acting with integrity? In essence, have you earned the trust of your customers? Where are you on Graham Robertson's brand love curve? Are your customers recommending you with such zeal that they would be disappointed if their friends did not share their excitement? Short-term success may be achieved through operational excellence and satisfaction alone. However, if you want to fully engage your customers, it may be time to authentically lead the human connection from a foundation of trust and set your course for belovedness.

  If customers view your company as being competent and having integrity, you have created the environment for consumer trust. Trust is a gateway emotion on a journey to greater levels of emotional engagement.

  Brand integrity is the result of leaders authentically striving to align expectations and actions.

  Seeking to do "the right thing" is at the core of leadership excellence, and in today's interconnected world, it involves both your public and your private behavior.

  Success should be measured not only through short-term profitability, but also by whether you consider the betterment of others.

  Difficult decisions that affect both people and the bottom line garner respect when they reflect corporate values, demonstrate compassion and sound judgment, and offer a unity of words and deeds.

  Integrity, like every important component of leadership, must be thought of on both an operational and a personal level. In essence, your integrity helps your people improve the lives of others.

  Leaders must inspire employees to earn the trust of customers every day and in every interaction through excellent product delivery.

  Complaints are opportunities to both reengage customers and demonstrate integrity; strong leaders look for ways to encourage customers to share their concerns.

  If you communicate the importance of emotional value and you set "beloved" or "passion brand" status as your destination, you can derive a significant business advantage.

  Customers who make extremely strong emotional connections with a company actually perceive their preferred brands as extensions of their personality and integrate the brands into their rituals, lifestyle, and identity.

###
**It Must Thrive Inside to Be Experienced Outside**

_Treat employees like partners, and they act like partners_.

FRED ALLEN, _American radio personality_

Words matter! Therefore, many leaders have moved away from using the word _employee_ because it connotes a power dynamic in the work relationship. The term suggests that there is a more powerful person (the _employer_ ) and a less powerful one (the _employee_ ). Additionally, _employee_ describes a financial or transactional relationship—if you employ me, I work for you and you pay me. In lieu of _employee_ , two popular alternatives have become part of business-speak— _associate_ and _team member_. While these words are a softer way to describe the connection between people in an organization, they also imply a more affiliative or collaborative environment. Sadly, at some businesses, words like _associate_ and _team member_ ring hollow. In some settings, team members are not afforded the respect, trust, and appreciation that would indicate members of a true interdependent group. As for associates, frequently there is very little "association" between the leaders and the led. So why is the word _partner_ used at Starbucks? And does that word describe reality or a good-feeling intention?

#### **PARTNERSHIP? REALLY?**

Business definitions of partnership typically involve a number of elements:

• An agreement between two parties to pursue common objectives

• Shared investment to realize those objectives

• A distribution of the risks and rewards emerging from pursuit of the objectives

Most business owners enter into a work agreement with new hires that hopefully has both parties seeking a shared goal. Typically, those who have been hired invest their time and talents alongside the time, talents, and financial resources of the owners. However, there is _no_ true partnership because employees do _not_ receive a distribution of the rewards from the business's profitability beyond a predetermined wage agreement. The employees, if you will, are definitely not partners because they have no access to the upside or any liability for the downside of the business relationship. So is the Starbucks "employee" relationship a business partnership? Well, in the most technical sense of the word, no. Starbucks "partners" face no financial liability from their working relationship, but they do enjoy a functional partnership in that they are granted Bean Stock.

By 1991, Starbucks was starting to enjoy healthy enough levels of profitability for Howard Schultz to ask for the support of the Starbucks board of directors in creating an equity reward program for employees. Since Starbucks was a private company at the time, the proposed plan was designed to grant stock options company-wide, calculated as a proportion of the employees' base pay. Howard believed that such a program would establish a direct connection between the contribution of employees and the overall market value of Starbucks. Though the board members expressed concern that this type of program might dilute the value of the shares of the investors who were funding the business, the plan was unanimously approved. When the Bean Stock program was presented to employees in 1991, Starbucks stopped using the term _employees_ and began calling everyone _partners_ , since even part-time staff members could become eligible for the program after six months on the job.

Through the years, the Bean Stock program has continued to evolve to increase the benefit to partners. In November 2010, Starbucks began to grant Bean Stock in the form of restricted stock units (RSUs) instead of stock options. In addition, Starbucks expanded eligibility to more than 115,000 partners in 19 markets, with a recent addition being Rwanda. Howard and the board shortened the vesting period and allowed partners to receive actual shares of Starbucks stock when they vest, as an alternative to realizing the market gain from the time of the grant to the time when they exercise their stock options. Bean Stock and the company's Future Roast 401(k) program, coupled together, constitute key components of Starbucks forward-looking compensation plan.

In fiscal year 2012, Starbucks delivered more than $214 million in pretax gains to partners from vested RSUs or from the exercise and sale of their Bean Stock options and more than $55 million to 401(k) participants in the form of the employer match, which demonstrates a guiding philosophy of leadership that success is best when it's shared. Through a steadfast commitment to this philosophy in good years and in bad, Starbucks leaders set themselves apart from those in most businesses. Communicating with partners in 2011, Howard noted, "For the past two decades, Starbucks has been one of the only retailers with a stock program that includes part-time hourly partners. This truly sets us apart from other organizations by making us not only a preferred place to work, but a business whose partners' pride in ownership undeniably contributes to the authentic connections you make with your customers. Bean Stock grants fulfill our long-standing promise to you: that if we succeed as a company, you succeed with us.... I have been touched personally by the many letters I have received from partners sharing how the company's performance is helping them care for their families. These are difficult times for many people, and we have to continue earning the trust of our customers and partners in all aspects of our business."

While I certainly don't have access to Howard's mail, I have encountered my share of partners who are eager to talk about how the Bean Stock they have saved over time has changed their lives. Kaycee Kiesz, a 20-year partner and program manager, Global Diversity, reports, "I went on a YMCA volunteer trip to Thailand and to Bali for a yoga retreat thanks to Bean Stock. The program also helped me put 20 percent down on my house. I wouldn't have been able to come up with the amount I needed for the house if it hadn't been for the generosity reflected in the Bean Stock program. The dollars are fantastic, but I also feel taken care of." One partner indicated that he had used Starbucks Bean Stock on three occasions, once to remodel his home, once to purchase land, and once to purchase dental implants, noting that Bean Stock had essentially given him his smile back. Volunteer trips, houses, remodeling, and the ability to regain one's smile—not bad rewards for partnering with Starbucks to drive shareholder value.

At the Global Leadership Conference in Houston in 2012, approximately 5 percent of the district managers and store managers in attendance had not activated their Bean Stock accounts. The goal was to have every one of those individuals stop by a conference booth to complete their activations. What a pleasant surprise for those partners who found out for the first time that they had an account balance of $13,000, or better yet, a long-time partner who had more than $50,000. Some business owners would say that they don't have the profit necessary to create a program like Bean Stock. I wonder if part of their problem with profits might not result from a failure to provide incentives to those who could have helped them earn more.

#### **BEYOND THE MONEY—CARING ABOUT WELL-BEING**

In the United States, the first forms of workplace insurance occurred in the mid-1800s, when employees received policies covering them in the event that they sustained disabling injuries from steamboat or railroad accidents. While employer-sponsored health insurance popped up in the 1920s, such plans didn't truly proliferate until World War II, when the federal government placed stringent wage controls on businesses but exempted health benefits from counting against salary caps. Enriched health-benefit plans were a way for companies to attract the best employees possible in a challenging wartime labor market.

Now fast-forward to 1961. Although many employers provided health insurance at that time, Howard Schultz's father was not lucky enough to work for such a company. That year, Howard personally experienced hardship because of the uninsured health costs his family incurred as a result of his father's breaking his ankle at work. Jump with me one last time to 1987. Howard Schultz, along with a group of investors, purchased Starbucks from Howard's former employers. Within one year, the company had grown from 17 to 55 stores, and Howard was in front of his board of directors making a pitch for health-care benefits for full-time and eligible part-time employees. Since Starbucks wasn't profitable at the time (unlike when Howard sold the idea of Bean Stock in 1991), he experienced considerable resistance from the board. Howard argued that the cost of providing health-care benefits was 50 percent less than the cost of hiring and retaining a new employee. He made a case for part-time employee coverage on the grounds that two-thirds of the workforce at the time were not full-timers. In addition to the fixed costs of replacing employees, Howard addressed the impact of high turnover on the customer experience by indicating that regular customers form relationships with baristas that are disrupted when employees churn. Howard's reasoning was compelling, and the board approved the Starbucks health-care benefit. As a result, Starbucks became among the first companies in the United States to provide comprehensive health insurance for all eligible employees, including people who worked just 20 hours a week. What some would see as an unnecessary expense, Howard saw as an investment in people and in Starbucks future. Toward the end of this chapter, we will look at the return on that investment from the standpoint of partner engagement and retention. Furthermore, we will explore the impact of high levels of employee engagement on innovation and customer loyalty.

The provision of health-care benefits in the quick-service restaurant sector was revolutionary in 1988, as was the extension of health-care benefits to part-time workers. In 1994, U.S. president Bill Clinton even consulted with Howard as the president explored health-care policy. To date, most employers still do not offer health benefits to part-time employees, and many of those that had provided them dropped the offering during the recent economic challenges. According to the 2012 Kaiser Family Foundation's Employer Health Benefits Survey, "In 2012, 28% of all firms that offer health benefits offer them to part-time workers, a significant increase from the 16% reported in 2011 but similar to the 25% reported in 2010."

I started this chapter by saying that _words matter_. In the words of Starbucks partners, concern shown through widespread health-care benefits _matters more_. Posting on a blog, one barista wrote, "I can also say in all seriousness that I owe Starbucks my life. If it weren't for the OUTSTANDING health coverage Starbucks provides to its employees, I wouldn't have been able to spend 90 days at a residential treatment center for a life-threatening eating disorder. The health insurance I had through my part-time job at Starbucks paid for a major portion of my treatment and aftercare, neither of which I would have been able to afford on my own." Juan, a Starbucks shift supervisor, puts it this way: "It's really amazing to me that we can just start out for a few months working 20 hours a week and get quality health insurance and its good benefits. I've had some health problems recently that required hospitalization. My insurance was my saving grace. It seems like a gift. Health insurance is but one example of how I feel valued and appreciated. In essence, leadership is saying my work means something, and that's a large part of why I have such a strong love for this company."

Throughout this chapter, I will be discussing a variety of ways in which Starbucks leaders demonstrate appreciation of, respect for, and investment in their people. My intent is not to say that this is "the" way to make the connection or to imply that the way Starbucks connects is perfect. I am, however, asserting that Starbucks leadership is dedicated to employee engagement and that concerted effort is needed to sustain a substantial workforce advantage.

#### **INVESTING IN GROWTH AND DEVELOPMENT**

In a blog article posted on the website for CollegePlus, a company that creates customized dual credit and bachelor's degree programs, columnist and blogger Caitlin Muir explains that the title of her article _33 Companies That Can Save You From College Debt_ was not her initial choice. "Originally, this article was going to be 'Why I love Starbucks.' As a former barista, the company was good to me. Not only did I get cheap health insurance, great hours, and a flexible schedule but I got something that really helped me. _Tuition reimbursement_." Caitlin goes on in the article to explain how this Starbucks benefit, along with other resources, allowed her to graduate without having student loans hanging over her head.

The "ability to grow and develop" is a key factor in securing employee engagement. To make that growth happen, leaders must attend to workplace opportunities and seek educational opportunities outside of the workplace. "Starbucks U" is an example that merges on-the-job training with formal academic offerings.

Starbucks U refers to a recently created program for U.S. partners, wherein they are eligible to receive college credits for training provided as part of their job (for example, the barista training course described in Chapter 3, shift supervisor training, and so on). Starbucks leaders have secured college-credit eligibility for partners by working with the American Council of Education (ACE) to accredit select training offerings. Similarly, the leadership has collaborated with City University of Seattle and Strayer University to amplify the impact of the company's existing tuition reimbursement program for eligible partners in the United States and Canada. The City University program, for example, provides eligible Starbucks partners with the opportunity to have their application fee waived, a 25 percent reduction in all undergraduate and graduate tuition, and exclusive scholarships, among other benefits. Similarly, the Strayer University program offers 20 percent tuition discounts, free academic tutoring and advising, and the flexibility of 24/7 online courses. One partner noted, "I decided to go back to school last year.... I enrolled at Strayer University and received an initial $1,000 scholarship from Strayer as well as a 20 percent discount on tuition and credit for Starbucks training. A few months after I started school, I received a $2,500 fall scholarship from Starbucks U. All of this is because I am a Starbucks partner. Starbucks has made a difference in my life, a girl from Haiti who barely spoke English when I started working here. It has been the best time of my life." Leaders who are interested in growing their people find ways to collaborate with other businesses and with learning institutions like Strayer University and City University to offer benefits that they might not be able to provide alone. By finding strategic alliances, these leaders stretch and extend their employee benefit budgets and serve to answer an important question for their people: "Do you care enough about me to help me achieve personal as well as professional development objectives?"

#### **UNITING PARTNERS IN CRISIS AND IN COMMUNITY**

In addition to supporting partners through the Bean Stock program, retirement funds, health-care coverage, and educational benefits, Starbucks leadership oversees a program that encourages partners to help one another. The CUP (Caring Unites Partners) Fund began in 1998. It emerged when a group of partners worked with Starbucks leadership to establish a mechanism for raising and distributing funds for partners who encounter a disruptive hardship. Funding for the program comes from voluntary contributions by partners and the proceeds of fund-raising events that they sponsor. Starbucks administers the fund. An applicant may receive up to $1,000 if that partner is determined to have encountered an uncontrollable, financially unmanageable, catastrophic circumstance—such as the impact of Superstorm Sandy, which affected many partners in the northeastern quadrant of the United States in 2012. Eligibility for funding is independent of a partner's ever having made a contribution. While employee-to-employee funds have become more prominent since the late 1990s, the CUP Fund at Starbucks is noteworthy on several levels: sustainability, infrastructure, ongoing leadership support for the fund, expansion into international markets (more on this in Chapter 6), and how the CUP Fund connects partners to one another and to organizational pride.

People have a natural tendency to want to help those with whom they work. Many of those helping efforts, however, are ad hoc or poorly organized. Since employee engagement is connected to peer cohesion as well as employer support, leaders at companies like Starbucks offer the infrastructure and systems to maximize a caring community (this is evidenced not only in the CUP Fund program, but also in the Partner Access Alliance Network, which will be addressed later in the chapter). The company's participation in the program is largely administrative, but it also takes the form of financial contributions such as those from the busy Starbucks store located on the eighth floor of the Starbucks Support Center in Seattle, Washington.

Starbucks partners express appreciation for the opportunity to give to and receive from the CUP Fund. Partner Shao Wei, a student at Tianjin University in Tianjin, China, experienced two tragic events in rapid succession shortly after becoming a part-time employee at the Starbucks Baisheng store: her father was diagnosed with advanced liver cancer, and six months later, doctors needed to operate to remove a tumor from her mother. Shao notes, "For a poor family like ours, the huge medical cost is an extremely heavy burden. The store manager found out about the sudden blow to my family. He was very accommodating in terms of shift arrangement. Later, I had to work at several different stores. The store managers and partners at each store were both helpful and supportive. They even helped me apply for the CUP Fund. The aid from the CUP Fund is more than just money. It's more of a mental support."

Thanks to the support of her peers, Shao Wei is looking to make a career at Starbucks. "This June, I will graduate from college. I plan to stay at Starbucks for further professional development. Starbucks gives me energy. Starbucks makes me stronger. In my future work, I will pour my passion into every cup of coffee and serve every customer with a smile." Even those who have not needed assistance from the CUP Fund find value in it. Alison Edwards, program manager, Global Learning at Starbucks, adds, "The CUP Fund is about taking care of other partners. They are part of my community. Given all the challenges in the world today, we all need a community that cares and offers a security blanket, like the CUP Fund. When I go home each day, I am proud that I work for a company where people can feel loved and I can give and receive support."

While you may or may not be able to help create or administer a program that allows your team members to support one another in times of crisis, clearly there are low-cost aspects of your infrastructure that can be leveraged to care for your team members. Often the returns to your company (in the case of Shao Wei, an interest in going from a part-time job to pursuing "professional development" as she serves "every customer with a smile") are far in excess of the resources you will expend.

The Starbucks Partner Networks are yet another example of a low-cost/high-return investment on the part of the leadership. Partner resource groups are provided meeting space at Starbucks and opportunities to work with senior leaders.

**Starbucks Partner Network Groups**

(Groups are voluntary and open to all partners.)

• **Starbucks Access Alliance Network** promotes equal access to physical locations, product, communication tools, and information for all partners and customers.

• **Starbucks Armed Forces Network** supports Starbucks military partners, their families, and transitioning veterans, and creates a military-friendly culture in the workplace.

• **Starbucks Black Partner Network** works to cultivate, enhance, and share the African American experience at Starbucks, one partner and one customer at a time.

• **Starbucks China Club Network** develops a global community driving business acumen, nurturing culture, and developing leaders through the lens of the China/Asia-Pacific partner network and the growth agenda.

• **Starbucks Hora Del Café Network** is a Hispanic affinity group dedicated to creating an environment for partners to develop professionally, build cultural awareness, and celebrate Hispanic culture while affecting the community in a positive way.

• **Starbucks Pride Alliance Network** works to produce positive change and increase awareness of the LGBT community within Starbucks. It strives to cultivate an equitable, dynamic, and supportive environment for LGBT partners, allies, and customers.

• **Women's Development Network** focuses on the professional and personal development of its members. The network focuses on three established pillars: community, education/development, and networking.

Kaycee Kiesz, program manager, Global Diversity, notes, "The company regularly leverages our networks to derive full value from new business, drive innovations, build relevance in new markets, and reinforce the humanity of our brand in the global communities we serve. The senior leadership team listens to concerns and supports the efforts of the members. The Access Alliance Network, for example, consulted with our Legal department to update our service dog policy. The network was also instrumental in creating our Starbucks Braille and large-print menus and Braille Starbucks Card. The Armed Forces Network partners closely with staffing/recruiting to help veterans make the transition into Starbucks careers. Our networks are often called upon to provide translation services, offer feedback on marketing materials, and help in product development."

According to Carolina Morales, senior financial analyst at Starbucks, one project of importance to the partner group Hora Del Café was to connect with partners in Brazil. "Our group focuses on kindling connections to Hispanic heritage. We share our love of Hispanic culture, food, music with one another and with all interested partners and leadership. We also want to be able to help our leaders look at Starbucks business through the lens of our culture. Recently, our executive sponsor helped us arrange a videoconference with our Brazil office, and we explored their aspirations for the Brazil market and began a conversation as to how we could help. We had a packed house here at the Support Center in Seattle, with so many people wanting to know more about Brazil and what the opportunities are there. It was such a powerful start to our relationship; our partners in Brazil seemed so inspired that we were enthusiastic here in the United States about them. The love was there." Often caring for other team members involves a critically important yet not costly investment: logistics support. When a business makes meeting space, business infrastructure, and organizational abilities available to employees who seek to care for one another and/or create positive communities, its team members engage one another in pursuits that fortify a dynamic and healthy workplace.

**REFLECTION ON CONNECTION**

1. What are your employees saying about your level of financial support for them in terms of their physical, emotional, educational, and financial well-being?

2. Have you looked for strategic partnerships that could allow you to extend your employee benefits budget (for example, an academic institution that will work with you to accredit your training classes for college credit)?

3. How might you leverage your business infrastructure to produce high-value/low-cost opportunities to support your team members logistically?

#### **LISTENING AND EMPATHIZING**

President Woodrow Wilson once said, "The ear of the leader must ring with the voices of the people." This is easily said, but less easily done! In fact, systematic and authentic listening may be one of the most economical and differentiating investments a leader can make. Many leaders either are too busy to listen or are more interested in speaking. As a result, listening intently, regularly, and respectfully to team members separates the great leader from the good one.

At Starbucks, effective listening takes many forms. While leaders listen informally at an individual or team level, Starbucks also has formalized a department that consistently listens for the needs and engagement level of partners. Virgil Jones, director, Partner Services, at Starbucks, notes, "Our team conducts surveys, focus groups, and continuously takes a pulse on our partner population. Within that department, the most important thing I do on a daily basis is listen to our partners. The second most important thing I do is continue to touch base with our partners and adjust, because with the way technology is advancing, the things that are hot, interesting, and engaging with our partners today is going to be completely different 18 months from now." By routinely asking questions and listening to partner input, Starbucks leaders are able to anticipate, tailor, and shift their employee-related resources for an ever-changing workforce. Virgil adds, "If you look at our total pay, we have many traditional buckets—401(k), health-care benefits, compensation—and my group is the X-factor group where we consistently look at our demographic and we try to come up with new, innovative programs that will appeal to our partners. For example, health and wellness and college-related needs are important to our demographic. Included under health and wellness is our Partner Connection program."

According to Virgil, Starbucks has about 400 different teams and clubs in the United States, with 30,000 partners participating. For sports teams, Starbucks typically offsets approximately 50 percent of the fees that participants incur and welcomes non-Starbucks partners to participate. Since approximately 60 percent of Starbucks partners are technology-savvy students, many partner-engaging services involve discount programs with computer and phone companies.

Michelle Gass, president, Starbucks EMEA (Europe, Middle East and Africa), like many other Starbucks senior leaders, demonstrates a different kind of regular and personal listening that fuels partner engagement. Her approach comes in the form of "listening tours." According to Michelle, "I travel across the EMEA region regularly and conduct listening tours and roundtable meetings. These are informal meetings where we spend about 90 minutes paying attention to the thoughts, needs, and ideas of those we serve. While listening is important, taking swift action to elevate experiences is essential. These tours are an ongoing process of connection and discovery, not an event." Starbucks senior leaders deploy a variety of processes to connect, discover, and respond to the needs of partners.

For many leaders, one of the earliest forms of empathy building they encounter comes in the form of store immersion. Clarice Turner, senior vice president, U.S. Business, arrived at Starbucks with a solid background in food and beverage service. She had worked with PepsiCo and Yum! Brands for 16 years, and immediately prior to coming to Starbucks, she had been president and COO of Papa Murphy's Pizza. Despite her varied and established experience in the industry, she was sent to a four-month immersion program that began with working behind a Starbucks counter. Clarice reports, "At that time, I thought, 'Okay, I've been in this industry for a long time. Surely I can get up to speed quicker than four months.' But those experiences are something I now credit as having the most impact on me being able to hit the ground running and truly embrace the essence of Starbucks. That time was such a gift. I did every job in the store, from taking out the trash and cleaning the bathrooms to actually training to be the store manager. I also trained to be a district manager, regional director, and regional vice president before I assumed my role at the time as division senior vice president. From the onset, it was clear that my role as a leader involved immersing myself into and empathizing with our partners."

It is common for Starbucks leaders to talk about the significance of their initial immersive experiences. Cliff Burrows, president, Americas, indicates, "I worked for six weeks at our Queen Anne store in Seattle. I am sure I wasn't the best barista ever, but I enjoyed every moment of my store immersion. That was over 10 years ago, and I will never forget the people and experiences I had there. It was an immediate, profound, and personal introduction to our work and to the world of partners who make it happen one cup at a time every day." At Starbucks, the practice of immersion was initially introduced for leaders at the level of vice president or above. Now new managers and leaders throughout the organization are afforded opportunities to gain a deeper understanding of the life of barista partners by spending time in the store and behind the bar.

Often leaders see listening as a passive pursuit. At Starbucks, listening is synonymous with connecting, discovering, understanding, empathizing, and responding. The benefits of this listening fuel the entrepreneurial and adaptive spirit of a brand that could easily have lost its nimbleness as a result of its growth and scale. In many ways, when leaders demonstrate formal and informal listening, they not only engage employees but also gain access to information that helps them stay relevant to the needs and observations of their team members. Of course, listening is a skill that parallels another critical leadership behavior: observation. When it comes to employee engagement, observation often comes in the form of acknowledgment and recognition programs.

#### **THE POWER OF AN ACKNOWLEDGING LEADER**

While most of us intend to recognize the achievements of our team members regularly, those intentions often get lost amid the deluge of challenges and demands that we face every day. By creating effective reward and recognition programs, leaders at Starbucks develop recognition excellence as a core competency within the organization. In their book _The Carrot Principle: How the Best Managers Use Recognition to Engage Their Employees, Retain Talent, and Accelerate Performance_ , Adrian Gostick and Chester Elton suggest, "In response to the question 'My organization recognizes excellence,' the organizations that scored in the lowest fourth overall had an average return on equity (ROE) of 2.4 percent, whereas those that scored in the top fourth had an average ROE of 8.7 percent. In other words, companies that most effectively recognize excellence enjoy a return that is more than triple the return of those that do so the worst." Similarly, Gostick and Elton found that managers who were rated highest on recognizing employee contributions also typically produced the highest levels of employee satisfaction, employee retention, and even customer satisfaction.

Because of the importance of recognizing excellence, Starbucks leadership has developed a broad array of recognition and award programs, which include, but are not necessarily limited to, the following:

**P ERFORMANCE AWARD PROGRAMS**

M.U.G. award

Bravo award

Team Bravo award

The Green Apron program

Spirit of Starbucks award

Team Spirit of Starbucks award

Manager of the Quarter

Manager of the Year

District Manager of the Year

A detailed review of all of the Starbucks awards and recognition programs is beyond the scope of this book, but the diversity of offerings affords a number of important teachable lessons, including the following:

• The value of peer-to-peer recognition

• The need to scale rewards at both the individual and team levels

• Reliance on social aspects of recognition

• The enterprise-wide importance of awards

Many of the reward programs offered at Starbucks involve nominations from peers (Bravo awards, Spirit of Starbucks awards) and/or direct and immediate recognition by peers (M.U.G. awards, the Green Apron program). Rather than relying only on managers or leaders to catch people who meet the criteria for recognition, the entire organization is mobilized to immediately, or through nomination, bring those acts of excellence to light.

Similarly, excellence is recognized in terms of both individual effort and team collaboration at Starbucks. In the course of my function as a professional speaker, I have attended a large number of sales conferences, award banquets, and even service recognition events. It is rare to see awards provided to groups at these events. At Starbucks, an award like the Team Spirit of Starbucks "is presented to teams or groups of partners who work together to contribute well beyond their day-to-day responsibilities, making a significant and positive difference at Starbucks. The Team Spirit of Starbucks Award recognizes a team of partners for a single, exceptional achievement." According to the criteria for the award, that exceptional achievement must also reflect the Starbucks mission. While individual awards can foster healthy competition within an organization, they can also undermine collaboration. Balancing individual and team recognition allows both independent and interdependent excellence to be acknowledged at your company.

While some businesses get caught up in high-cost extrinsic rewards and bonuses, most of the awards offered at Starbucks do _not_ involve items with substantial tangible value. In the case of M.U.G. awards, Bravo awards, or Green Apron recognition, partners receive pins, handwritten notes, or certificates to acknowledge their achievement. These pins often carry a social value among baristas, who typically wear them on their aprons. Consistent with trends in social psychological research showing that extrinsic rewards can extinguish intrinsic motivation, the emphasis at Starbucks is much less on prizes and much more on acknowledgment.

Kay Corio, a former Starbucks partner and a recipient of the Spirit of Starbucks award, shared her views of recognition at Starbucks. "I was honored to win the award. I appreciated that leadership let us know what excellence looks like and that I would be in a position to garner acknowledgment for my effort. I believe that recognition at Starbucks plays an important role in offering us uplifting moments in acknowledgment of the work we do." Providing uplifting moments for those who uplift customers—that is the role of leadership at Starbucks.

**REFLECTION ON CONNECTION**

1. Do you conduct "listening tours" with your people? What are your systematic approaches to leadership listening (for example, formal surveys or regular roundtable sessions)?

2. In addition to your direct observation of behavior that demonstrates excellence, what peer-to-peer recognition programs have you developed?

3. How are you balancing individual and team awards? Do you emphasize acknowledgment or rewards of substantial financial value?

#### **THE RETURN ON PARTNER INVESTMENT**

So why invest so much in your people? While it feels good to generously encourage the growth, development, and well-being of your team members, does it make good business sense? Let's address this issue at a macroeconomic level and then examine the specific benefits that Starbucks derives from its partner engagement efforts.

Across industries and continents, companies with highly engaged employees have been shown to produce improved sales, profits, and shareholder value. One such example comes from the Kenexa Research Institute's WorkTrends report. According to the findings, "Organizations with highly engaged employees achieve seven times greater 5-year TSR [total shareholder return] than organizations whose employees are less engaged." Other research groups have found that as employee engagement increases, workplace errors and lost-time accidents decrease. Elevated employee engagement is also linked to increased repeat customer purchases and strong customer advocacy.

As you will recall, Howard Schultz initially appealed to the Starbucks board of directors for health-care benefits based on his projection that it would ultimately save the company money in turnover-associated costs. From a research perspective, such an argument is sound, given findings like those of the Corporate Executive Board, which state, "By increasing employees' engagement levels, organizations can expect an increase in performance of up to 20 percentile points and an 87% reduction in employees' probability of departure." However, do investments in programs such as health insurance for eligible part-time employees at Starbucks actually result in retention rates greater than those of competitors in the quick-service sector? Typically, Starbucks reports a voluntary annual turnover rate for _full-time_ partners of around 12 to 15 percent (meaning that 12 to 15 percent of full-time partners voluntarily elect to leave the company for other options); however, this percentage does not reflect the entire picture of turnover, since a large number of employees are _part-time_. Analysts who have taken into consideration both the full-time and part-time employees suggest that the actual turnover rate is somewhere around 65 percent. For many of us, 65 percent seems remarkably high, but author, broadcaster, and journalist John-Paul Flintoff puts it in perspective: "While other fast-food retailers lost staff at rates as high as 400% a year, Starbucks' turnover was a relatively low 65%."

Assuming that your turnover costs exceed your cost of benefits and you turn over one-sixth as many employees as your competition, your business will be well positioned for long-term success. This is particularly true if your engaged employees help you innovate new processes or help you reduce waste. Given the size of Starbucks, a simple act performed by an engaged partner can result in phenomenally large benefits to the company. Such is the case of Joe Young, a barista in Hutchison, Kansas, who was engaged in his job and developed a process improvement that also eliminated waste of an expensive Starbucks product, namely, whipped cream. Cliff Burrows announced the accomplishment at the 2012 Global Leadership Conference, noting, "Joe found a way in his store to improve the quality of the partner experience, the quality of the beverage, and he saved the company between 5 and 10 million dollars within the year." Are your employees engaged and generating solutions that produce savings (albeit probably not on the scale of Joe Young's) in your business? Are they seeing the business from the perspective of an owner?

At Starbucks, the ultimate value of employee engagement occurs in the millions of interactions that take place every day in buildings carrying the Starbucks brand. Since managers can't monitor all of those interactions, the care and concern leaders extend to partners is reflected in the loving discretionary effort partners show in their moments with customers. A highly engaged workforce consistently contributes to remarkable service experiences for customers, much like the ones reported by Starbucks customers.

In a blog post written by a member of the My Starbucks Idea community, one customer writes about her visit to a store she had not previously visited. Her father had died the night before, so she and her sister were getting the arrangements made for the days to come. They stopped at a Starbucks for drinks, and the barista could see that she had been crying and asked what was wrong. The customer described what happened after she told the partner that her father had died: the barista "reached onto the counter and patted my hand, extending her sympathy and telling me the drinks were on them. It sounds so trite but it was such a comfort.... I will always remember that kindness." The barista who served that customer went off task to give comfort to the deeply saddened person, and in the process was fully engaged in the Starbucks mission of producing uplifting moments.

Having an engaged workforce means that employees can do what is right for customers without having to be told. They can rise above the rules, processes, and procedures inherent in doing a job to make purposeful connections with the people they serve. In the end, employee engagement produces memorable kindness, profitability, sustainability, and customers for life. As an added benefit, it is much easier to manage a fully engaged workforce when the work culture is a pleasant and enjoyable one. What steps will you take to drive greater engagement within your team? The engagement of your customers relies on the engagement _you_ produce for your employees, partners, team members, associates, or whatever you choose to call the people you serve.

  The ability to grow and develop is a key factor in securing employee engagement.

  Leaders who are interested in growing their people find ways to work with other businesses and learning institutions to offer benefits that those leaders might not be able to provide alone.

  People have a natural tendency to want to help those with whom they work. Consider overseeing a program that encourages employees to help one another.

  Listening is not a passive pursuit; listening is synonymous with connecting, discovering, understanding, empathizing, and responding.

  Good leaders provide uplifting moments for those who uplift customers.

  Rather than relying only on managers or leaders to catch people meeting the criteria for recognition, the entire organization should be mobilized to recognize individuals and teams that perform acts of excellence.

  Across industries and continents, companies with highly engaged employees produce improved sales, elevated profits, and increased shareholder value.

  Having an engaged workforce means that employees do what is right for customers without having to be told.

  Employee engagement contributes to memorable kindness, profitability, sustainability, and customers for life.

  It is much easier to manage a fully engaged workforce when your work culture is a pleasant and enjoyable one.

## **PRINCIPLE 3**
 **REACH FOR COMMON GROUND**

Cultural anthropologists have been engaged in a longstanding debate between two conflicting perspectives: universalism and cultural relativism. While the words sound daunting, the concepts are rather straightforward. Universalism suggests that the underlying similarities among all people are greater than their cultural differences. By contrast, cultural relativism asserts that cultural differences have a profound effect on people, making it difficult for "outsiders" to fully understand the relevant context of behavior. While anthropologists may argue for universalism or cultural relativism, most business owners and leaders are not interested in winning a debate. Instead, they need to scale their business to maximize commonalities while making local adjustments to assure market acceptance.

Chapter 6, "Assume the Universal: Serve the Unifying Truths of Humans," examines how Starbucks leaders create connection with maximum global appeal. Conversely, Chapter 7, "Respect, Celebrate, and Customize: Listening and Innovating to Meet Local, Regional, and Global Needs," looks at how leaders localize certain aspects of their products, environments, and service delivery to forge relationships that are relevant to local customers throughout the world.

Starbucks leaders have made their share of mistakes in attempting to strike a balance between the universal and the cultural. In the process of their setbacks and victories, Starbucks serves as a helpful guide on how to make powerful and respectful connections in new markets. Whether you are considering customers in the next town, in an adjacent state, or through online delivery in this global economy, or even if you are opening a location in a country that is half a world away, this is your opportunity to "reach for common ground."

###
**Assume the Universal: Serve the Unifying Truths of Humans**

_All things are the same except for the differences, and different except for the similarities_.

THOMAS SOWELL

Do you believe that people want similar things from a service experience in two different boroughs of New York City (say, Manhattan and Queens)? Do people in New York and New Delhi want the same things from service experiences? A number of research groups have looked at what customers want when they are being served. These studies segment customers by industry, nationality, age, gender, income, and a myriad of other demographic distinctions. While some differences surface across this breadth of variables, a number of service universals remain, regardless of time and place. This consumer research intersects closely with the work of theorists and researchers concerning overall human similarity.

Michelle Gass, president, Starbucks Europe, Middle East and Africa (EMEA), states, "The balance between the universal and the local is much more an art than it is a science. We have global brand standards, and my expectation is leaders who are making decisions have the Starbucks brand in their blood, so they can provide good judgments. I think you have to create an experience where it's undeniably Starbucks." Upon assuming her position as president of EMEA, Michelle toured her region, sitting down with partners and customers to understand their views on the company and its offerings. Michelle reported that she had expected to hear more of a desire for local relevance in Starbucks stores, but instead she had heard quite the opposite. Customers want to connect with the key elements that led to brand growth and love in the United States.

Whether the issue is wide cultural differences among employees, customers, or regions, your "love story" or underlying brand value proposition has to translate and your actions have to connect with those you serve. Starbucks has a fundamental service platform and leadership approach that fuels global connections because the company operates from an understanding of universal needs.

For the sake of our exploration, let me guide you through a discussion of universal human needs with insights into how Starbucks leadership is addressing them. Furthermore, I will examine how you can connect to transcendent human service by focusing on attention, appreciation, and community, as well as comfort and variety.

#### **ATTENTION**

Jean-Marie Shields, director, Brand Strategy, at Starbucks, notes, "The number one request or desire of every human around the world is to be seen and heard. The magic of the Starbucks brand comes from a willingness to actively see and hear our customers on many levels." At the individual service level, for example, the "seeing" and "hearing" aspects to which Jean-Marie refers come with an initial greeting that acknowledges a customer's presence and starts a human connection. Karen Joachim, a customer from Albert Lea, Minnesota, notes, "Quite often when I buy something, I feel invisible. Starbucks is a different story. They actually make a momentary but noticeable connection." Diala, a customer in the Mall of Emirates in Dubai, puts it this way: "I want to feel acknowledged whenever I am in a human interaction. Much more of the time at Starbucks than at many other businesses, I feel like I am noticed as a person, not viewed as a transaction."

Clearly, it is a challenge for the leader of any business with high levels of transactions to help employees see the uniqueness of the next customer. Barbara McMaster, district manager, Starbucks Northern Ireland, notes, "As a leader, I am responsible for keeping a spotlight on the next customer. Each customer needs to be recognized in the same manner as our first customer of the day. It's a lot about empathizing and thinking about how I would want to be treated. It's more than eye contact; with time, it is a matter of actually coming to know your repeat customers. Who is this is in front of me? What are their needs? What can I do?" Going beyond an initial greeting that connects, Barbara's comment ratchets up the idea of authentically "knowing" and acknowledging those whom you serve. A greeting may signal that you have seen your customer, but to feel known, those customers have to experience you as having taken the time and interest to connect with their uniqueness.

##### **_Names and Controversy_**

Michelle Gass reports that upon being appointed president of Starbucks EMEA, she and her leadership team sought to strengthen the Starbucks "knowing" or personal connection in her region. "We went back to our universal principal around human connection. What does every person walking the planet have? They have a name. As such, we started considering whether we should ask each customer for their first name and place their name on their cup. We certainly had lots of debate around the possible risks with doing it." Those risks included the possibility that cultural differences might produce resistance in parts of the region. Michelle notes, "We concluded that the benefits were worthy of the attempt, since a loyal customer might now be 'known' as a tall, skinny mocha, but would feel much better walking in our door and having us really 'know' them by saying, 'Hey, Jane, how's your day going today?'"

In the United States, asking customers for their names and placing the names on their cups has not consistently been a required standard, and partners had never been required to place their names on their uniforms. However, in March 2012, Starbucks launched its "names on cups and names on partners" campaign in EMEA. In addition to asking for customers' names, Starbucks baristas began wearing name tags on their aprons. An online video and paid advertisement content introduced the United Kingdom to this concept:

Have you noticed how everything seems a little impersonal nowadays? We've all become user names, reference numbers and IP addresses. That's why at Starbucks we've decided to do things differently. From now on, we won't refer to you as a 'latte' or a 'mocha', but instead as your folks intended: by your name. Ok, we know it's only a little thing but hey, why don't we buy you a coffee... and you can introduce yourself. We're Starbucks. Nice to meet you.

To see the actual commercial, point your web browser to <http://tinyurl.com/lecr7d2> or direct your QR reader here:

As predicted, some people in England were skeptical about the "first name" approach to personalization. For example, Chris Hackley, professor of marketing at Royal Holloway, University of London, told the BBC, "Some people might like being called by their first name, but I think many will be indifferent, and some might feel awkward—like it's over-familiar, or a bit of an intrusion into privacy.... It's a bogus personalisation of an economic relationship. Friendship needs to be genuine."

While I certainly agree that privacy is paramount for customers and employees today, providing a first name that will be written on a cup or that is placed on a barista's apron is not perceived as a threat by most people. Additionally, customers are free to choose the name they provide or to elect not to offer a name at all. Typically, in cases of resistance, customers will provide playful names or baristas will simply draw something like a smiling face on their cup. While Professor Hackley notes that friendship needs to be genuine, I am of the opinion that Starbucks leaders are seeking a connection that is more personal than a "hey you," but that is less intimate than friendship.

Dirk Nickolaus, Starbucks district manager in Germany, talks about the speed of acceptance for offering names in Germany: "When we first started asking our customers for their first names, it took some people by surprise, and it was a bit challenging for us. Now I hear our customers say, 'Wow! I used to walk in and the baristas would recognize me and know my drink, but now they actually address me by name. It feels welcoming.'"

Despite growing acceptance of the practice of putting names on cups, there are real downside risks, not the least of which are misspelled names or other inadvertent errors. While breakdowns can and will occur in the use of a customer's name, they happen in all aspects of human interaction. The goal of leadership is to create the right environment for human connection to occur and to help staff members manage the inevitable issues that surface. The success of name badges and name seeking in the EMEA region has had additional functional benefits. Michelle Gass notes, "Customers and partners have told me about improved handoff accuracy by having names on cups. It can be quite unsettling if a customer isn't sure if they are grabbing their cup from several on the bar. The last thing you want to do is leave the store and find you've taken the wrong drink. So now your name gives reassurance that you are getting your beverage."

The positive benefits of names on cups and names on partners in EMEA has prompted leaders in other regions to more systematically engage in a similar process. At the Starbucks 2012 Global Leadership Conference in Houston, Cliff Burrows, president, Americas, noted that he had been inspired by Michelle and her team to make names on cups and names on partners a standard practice in the United States, Canada, and Latin America. Cliff added, "It's a way we can innovate. It's a way we can differentiate. And it's a way we can strengthen that relationship between our partners and our customers." As a result of this commitment, Starbucks leadership has developed training tools to strengthen connections with customers by helping partners learn and use the customer's name and personalize the customer's cup. At the center of this training is an appreciation that baristas have an opportunity to build deeper relationships with the people they serve (particularly regular customers) by learning their names and appropriately calling them by name.

##### **_Innovation, Differentiation, and Strengthening Relationships_**

By taking a simple step like asking people for their first names, Starbucks leadership is systematically differentiating the brand. Karen Mishra, marketing professor at Meredith College and coauthor of the book _Becoming a Trustworthy Leader_ , highlights the power of differentiation through relationships. In the course of my research, I happened upon an online Twitter post from Karen in which she shared her surprise at receiving a birthday note on a Starbucks cup. During a follow-up interview, Karen added, "The partners at my Starbucks know me. Tanya is the manager. We lived in Durham years ago, left for a couple of years, and when we came back, Tanya still remembered me and my husband." Karen notes that she is impressed by Tanya's memory for customers' names and how much she knows about her customers. Karen adds, "When training new hires, Tanya will say, 'Okay, now, Justin, this is so-and-so, and they're married to so-and-so, and this is their drink.'" Karen asked Tanya about this ability to remember people, and Tanya responded that people should be remembered and that she makes a point of learning the name of one new person every day. It is in the context of that commitment to "knowing" that Karen posted the microblog entry that caught my eye. On Karen's birthday, her husband let her sleep in and went to Starbucks to get her coffee. When he was asked where Karen was, her husband mentioned that it was her birthday. Karen notes, "Any time one of us isn't there, the baristas at that store will write our names and a little note like 'hi' on our cups, but this time it was a special birthday message signed by my 'Starbucks family,' and I just had to share it online."

Because a group of baristas at a single store, led by a manager like Tanya, cared about seeing, hearing, and knowing their customers, Karen was compelled to share a message about the differentiated care she received at Starbucks. Karen's status as a marketing professor and an author on brand trust was probably _not_ a consideration for the barista who wrote Karen's name and birthday wish on her cup, but clearly that simple act of acknowledgment has led to a story through which Starbucks itself has been acknowledged.

Are you paying attention to your customers' need to be seen and heard? Would you go so far as to say they feel understood and known? In your business, customer knowledge may require more than remembering names and drink preferences. However, by getting to know your customers, you will probably differentiate yourself through transformative customer relationships.

#### **APPRECIATION**

Worldwide, customers want to be appreciated for their business. In fact, one of the most powerful opportunities for building loyalty occurs after the sale. Do your employees say thank you, offer a warm farewell, and invite customers into future opportunities to connect? At a leadership level, are you creating an environment of gratitude and structuring your business to demonstrate appreciation for loyal patronage?

When I wrote my first book about Starbucks in 2006, I had spent the prior two years occasionally talking with the company's leaders about the absence of a corporate loyalty card program. At the time, the typical response I heard centered on the possibility that such a program might dilute the perceived value of Starbucks products. Like many businesses operating in the robust economy of the late 1990s and early 2000s, Starbucks leadership knew the value of repeat business, but wasn't rewarding customer loyalty. All that changed for Starbucks in June 2008, when the company made its first significant move toward a rewards program. Aimee Johnson, vice president, Digital Commerce, Loyalty and Content at Starbucks, established the rationale for the program by noting the brand was unveiling "bold consumer-facing elements to further enhance the Starbucks Experience and deepen the relationship with our customers." By creating an account, loading a Starbucks Card with funds, and paying an annual membership fee of $25, a customer could participate in the Starbucks rewards program and receive, among other benefits, a 10 percent discount on most purchases, a complimentary birthday beverage, and two hours of free wireless internet (at the time, Wi-Fi was a paid service that was available only at some Starbucks stores—more on that in Chapter 8). Ron Lieber reviewed Starbucks initial effort at loyalty rewards in a 2008 _New York Times_ article and noted, "We all want to be recognized for our loyal patronage.... Starbucks is a company that others look to as a model. What it does with this program will influence plenty of businesses that deal in higher-dollar products. And that is why I'm glad to report that Starbucks is indeed considering some sort of elite status. It is also studying ways that card use can speed up your visit and is looking for ways to make the giveaways more generous. Big, ambitious loyalty programs evolve over many years. So it will be fascinating to see what Starbucks adds to the mix." As Ron predicted, Starbucks has continued to refine its loyalty reward concept to include special status and streamlined ease of use. Starbucks also did away with paid subscription as a point of entry and expanded the perks associated with membership. As a Gold-level member, I routinely receive announcements and member benefits that complement the free food or beverage item that I receive with each twelfth purchase.

What's noteworthy about the evolving Starbucks reward program, now called My Starbucks Rewards™, is how it addresses not just a need in the United States, but a global desire to be acknowledged as a valued customer. Since launching the program in the United States, Starbucks has progressively rolled out similar reward programs around the world. In 2010, a blogger in Singapore noted, "After many years of not having any sort of rewards/loyalty program... [Starbucks] finally launched a card!... It's definitely good to be rewarded after being a regular customer for many years."

In announcing its first-quarter results for 2012, Starbucks leadership reported that the company had gained 413,000 new members of its loyalty program in December 2011, increasing total membership to more than 3.7 million. The reward program in China demonstrated exponential growth, with 250,000 participants enrolled since its inception approximately 10 months earlier. In North America, the purchases made under the My Starbucks Rewards loyalty program represent almost 20 percent of Starbucks Card purchases.

Ying, a customer from Bangkok, Thailand, says it best: "I notice when employees say thank you for my business, and I also notice when managers appreciate their employees and leaders appreciate their customers. I see all those things happening at Starbucks. Nowadays, I particularly feel valued and appreciated for my purchases by the loyalty rewards I receive in return." In a world in which so much investment is made in marketing and advertising goods and services, the simple act of saying thank you or rewarding customers for their loyalty can go a long way toward securing their repeat business and emotional engagement.

**REFLECTION ON CONNECTION**

1. What universal needs for service is your business addressing?

2. When it comes to seeing, hearing, and knowing your customers, what are the strengths and opportunities for your business? Are you connecting with each customer verbally and nonverbally upon first contact? Do you go from listening to customers to customer knowledge on which you can act?

3. Do you have an appreciative business culture? Is that appreciation demonstrated in service interactions through the way managers treat frontline workers and the way leaders craft customer rewards and recognition?

#### **COMMUNITY**

John Donne's classic poem "For Whom the Bell Tolls" begins with an observation of the human condition relevant to most business leaders. In it, Donne says, "No man is an island, entire of itself; every man is a piece of the continent, a part of the main." In essence, people may enter your business individually, but many of them seek the opportunity to connect with like-minded individuals to experience the benefits of community.

Some business leaders have a heightened awareness of the human craving for community, while others have failed to help connect customers to something larger than themselves. I vividly remember sitting in a _Fast Company_ magazine "Circle of Friends" group in Las Vegas, Nevada, in the late 1990s. In 1997, the founders of the magazine created an opportunity for regular readers to get together to talk about the ideas raised in each issue of the magazine. While that community building at _Fast Company_ was fairly innovative at the time, online groups and discussion boards have since proliferated.

Similarly, Starbucks leadership has demonstrated innovation in building a community that consists of customers and partners; in addition, it has added a key element of social activism. Community service involvement occurs year-round at Starbucks, and the leaders set ambitious goals to motivate partners and customers to contribute 1 million hours per year in support of causes that have a meaningful impact. Starbucks has dedicated a website to helping partners and customers connect (community.starbucks.com), giving listings of upcoming projects and blogs and stories of past activities. In addition, the website confers virtual community service badges as a way of recognizing those who progress from being a new volunteer up through the level of community change maker.

In addition to its year-round efforts, for the past several years, Starbucks has declared April to be the Global Month of Service. In April 2012, nearly 60,000 Starbucks partners and customers, local organizations, and community members provided more than 700,000 individual community service acts that made a difference in more than 34 countries. More than 230,000 hours of service were donated, and 2,100 community service projects were completed in the one-month time frame. The global resonance of a program that builds purposeful community is reflected in the 50 percent increase in projects completed and 45 percent increase in volunteered hours when compared to prior-year levels.

Clearly, the level of participation in the Starbucks Global Month of Service is high and growing, and the projects are producing substantial positive benefits. For example, the 2012 Global Month of Service included projects such as 250 volunteers in Vancouver, British Columbia, building pathways, storage shelves, and cubicles in support of the Strathcona Community Centre to assist inner-city youth programs and 395 volunteers in Shanghai, China, sprucing up the Gumei community in the Minhang District while assisting local residents to reuse waste material and engage in organic gardening.

In addition to mobilizing direct opportunities to serve in the community, Starbucks leaders have engaged customers to determine who should receive a portion of Starbucks grant money. A 2012 program referred to as "Vote.Give.Grow" allowed Starbucks Card holders to register at www.votegivegrow.com. Once they were registered, customers could vote weekly throughout the month of April concerning the recipients of $4 million in grant funding from the Starbucks Foundation. While other forms of direct corporate giving will be discussed in Chapter 11, suffice it to say that Starbucks leaders continue to look for ways to partner with customers to do "good" in the world.

In Asia, for example, customers were able to connect with members of their community through purchases of Muan Jai®, a mix of arabica coffees from Thailand and other Pacific island countries. By purchasing this coffee blend, customers in Thailand and elsewhere helped improve the environment and the socioeconomic conditions of hill-tribe coffee farmers and their families in northern Thailand. A portion of the proceeds of the Muan Jai blend was contributed directly to the farmers. Not so coincidentally, in the Northern Thai language, Muan Jai means "wholehearted happiness."

One additional example that had reach both within the United States and across international borders was an alliance forged between Starbucks leadership and the HandsOn Network to create the "I'm In!" campaign. After U.S. president Barack Obama was inaugurated for his first term, Starbucks offered free beverages to individuals who pledged five hours of volunteer time through the HandsOn Network. The HandsOn Network is a subsidiary of the Points of Light Foundation, with 250 volunteer action centers in 16 countries worldwide. The response to the "I'm In!" campaign was more than 1.25 million pledged volunteer hours worldwide.

Jeremy Tolmen, a customer in San Diego, California, reports how he connects with Starbucks through its commitment to community. "I was in Starbucks at a launch party for a nonprofit I work with, and I had my non-profit's shirt on. I started talking to a Starbucks partner named Kate. She asked about our non-profit and if we needed coffee for our event. It turns out Kate was the store manager, and she ended up donating all of the coffee for our event, along with five or six boxes of Tazo tea, and all the additional supplies we needed for our coffee bar. She even put together a Starbucks basket to raffle off; it had a pound of coffee in it and two mugs. I think it's amazing that a humongous corporation like that can be so generous and connect on such a small community-based level." _Amazing, generous, connection_ , and _community_ : Jeremy's words capture the unique and powerful opportunity that leaders have to forge special relationships with customers by community building. All leaders have the opportunity to look at their businesses as offering more than products or services. With good stewardship and a willingness to think beyond the tangible benefits and attributes of their product offerings, leaders can create places of belonging and purposefulness for their customers.

#### **COMFORT AND VARIETY**

It seems that humans have contrary needs for both predictable comfort and variations from the predictable. In other words, we want our comforts to remain stable and yet to have sufficient variety to avert boredom. In a social context, irrespective of where people live, they want to manage the inconsistencies of life by having what Starbucks offers, namely, a pleasing physical location where they can relax, unwind, and savor their favorite beverage. It is a place of comfort for locals and travelers alike.

Helen Wang, author of _The Chinese Dream: The Rise of the World's Largest Middle Class and What It Means to You_ , notes that even in countries like China, where the historically preferred beverage has been tea, Starbucks has deployed staff training and inviting physical locations to foster aspiration, comfort, and success: "The chic interior, comfortable lounge chairs, and upbeat music are not only differentiators that set Starbucks apart from the competition, but also have strong appeal to younger generations who fantasize about Western coffee culture as a symbol of modern lifestyle. Starbucks [also] understands the value of its global brand and has taken steps to maintain brand integrity. One of Starbucks best practices is to send their best baristas from established markets to new markets and train new employees. These baristas act as brand ambassadors to help establish the Starbucks culture in new locations and ensure that service at each local store meets their global standards."

Uniformly executing against brand standards and consistently creating a welcoming physical environment allow people to develop daily habits and rituals that comfort them. One blogger noted, "I suppose I'm a creature of habit.... I just run through Starbucks on my way to work.... I do have to admit, as a single person, it's nice to start your morning with a friendly face that actually knows you. A few of us have developed a strange little Drive Thru window friendship."

While many of us lead companies where customer contact is not a repeated daily occurrence, rituals can still be created around seasonal product offerings or even annual events. For Starbucks, these seasonal rituals include such things as the global rollout of Starbucks® "red cups" to coincide with the Thanksgiving and Christmas holiday season in the United States. The worldwide appeal of the red cups is evidenced by a website titled countdowntoredcups.com, which is not affiliated with Starbucks. Even before there is an announcement of the cup's release date, the website posts wording like "we're still waiting for official confirmation from Starbucks, but our guess is that it starts November 2nd." As a result, a countdown clock clicks away based on the website owner's best guess.

In addition to the countdown to red cups website, the internet is flooded with photos that people share when they hold their first red cup of the season, as well as with tweets and blog posts like, "Today is the day!... we stopped by our favorite neighborhood Starbucks and there... low and behold... the Mother Ship... Red Cup Day. That alone just makes me happy. I don't know what it is about those happy red cups but for me it marks the beginning of the holiday season and just puts me in the mood for cookie baking, snuggling by the fire and enjoying your family and friends.... I did a happy dance with the baristas, (my husband tried to hide and pretend he doesn't know me)." When you have people doing happy dances with your team members, you know you have produced a comforting ritual.

The allure of the red cup not only results from its seasonal presence but emerges from the changing design of the cup from year to year. It is the combination of the predictable and the anticipation of change that strengthens interest. Surely you have grown tired of brands that provide predictable products but fail to add new or exciting offerings. Or, by contrast, maybe you have lost your interest in a company when it removed an iconic product to accommodate an endless parade of "just arrived" or "new this year" items. Thanks to a strong core set of offerings, seasonal introductions, and a small set of enticing new products, Starbucks leadership drives customer loyalty, comfort, and enthusiasm. Tracy Olsen, a U.S. citizen teaching in Korea, notes, "I love Starbucks. It's the only place I can get a chai tea latte in Daegu. It's the place where I can get a comforting experience of home and enjoy new and interesting products. I can also enjoy some products that are unique to the culture of which I am a part." While Chapter 7 will look at how Starbucks adds unique elements to product selection, environment, and service delivery, Tracy's comment reflects the comfort derived from the right mix of predictable and varied offerings.

**REFLECTION ON CONNECTION**

1. What do your employees and customers value? What causes, events, or educational opportunities might serve to bring together a community of customers or a unity of customers and employees? How might you play a facilitating role in building social connections among like-minded people?

2. What aspects of your products or services create comfort or a sense of stability for your customers? How can you enhance the comfort aspects of your business? What products at the core of your business should remain constant?

3. What brands do you view as striking an effective balance between consistent delivery of legacy items or services with a mix of new product or service offerings? What percentage of stable to new items best suits the needs of your customers?

#### **THE PROOF IS IN THE CAFÉ**

Let's assume you have identified ways in which you can serve underlying human needs through your products, services, and community involvement. Furthermore, let's assume that you have just launched a branch of your business in a new setting (possibly on the other side of your state or even on another continent). How do you know whether your brand will be well received? Moreover, how will you know whether you are creating a sustainable connection?

For Starbucks leaders, initial acceptance in a new market can often be seen in the enthusiasm of people who anticipate a store's opening or by the lines that occur at its launch. In October of 2012, for example, Starbucks, accompanied by its joint-venture partner Tata Coffee Group, made its long-awaited entrance into India with a flagship store in Mumbai.

**Starbucks store in Mumbai, India.**

Approximately a week and a half after the opening, Shymantha Asokan wrote the following in an article for the _Guardian_ : "During the past 10 days, sweaty queues of up to 50 people have formed outside an old colonial building in downtown Mumbai, while a security guard operates a one-in-one-out policy. These hopefuls are not trying to get into an edgy new nightclub or shake hands with a visiting politician. They are waiting for up to an hour to go to Starbucks." No celebrities and no edgy entertainment venue; just the first Starbucks to come to India.

Customer Hazel Hardijzer understands the eagerness with which people anticipate a Starbucks opening in markets around the world. According to Hazel, "Starbucks opened at [Amsterdam's] Schiphol airport around 2007. I remember that getting our 'own' Starbucks was something very special for us. Having traveled quite a bit by that time, I had experienced Starbucks in other countries and could report that I had 'been there, done that' and enjoyed the unique treat of the Starbucks coffee experience." When customers are eager to get "their" own new store or are willing to wait an hour to get through the line at a store opening, you know that your product has appeal. But as the hype and novelty wear off, will you be able to sustain the enthusiasm and keep the cash register ringing?

For Starbucks, international success is validated by the company's financial sustainability or growth in many regions of the world. Much like the story of Starbucks success in the United States, growth came fairly swiftly during periods of global economic prosperity and positive brand reputation (although there have been exceptions in an occasional market; see Chapter 7). Even during sustained global economic challenges, Starbucks has been experiencing stability throughout North America and Europe, with strong growth noted in Latin America and Asia. For example, in 2012, Starbucks launched its first store in Costa Rica as a joint-venture partnership with Corporación de Franquicias Americanas and also opened a Farmer Support Center in Colombia. Latin American growth plans also include hundreds of new stores in Brazil and more than 300 new openings in Argentina and Mexico by 2015. Pan Kwan Yuk, a reporter and commentator who specializes in emerging markets, suggests, "As in the U.S. before Starbucks came along, there are few places in Latin America where one can just sit with a book or a laptop and while the day away." From the standpoint of stability in the rest of the Americas, Starbucks achieved the landmark of 25 years in Canada in 2012. Canada is Starbucks oldest and largest international market. In 2013, Starbucks marked 42 years of operation in the United States, with nearly 11,000 stores across all 50 states.

Some of the greatest growth of the brand is occurring throughout Asia, with 500 new stores planned to open in fiscal year 2013. More than half of those openings are in China alone. Also, 2013 marks the opening of Starbucks 1,000th store in Japan, the first international location of the brand outside of North America.

According to a report in _MSN Money_ in August of 2012, Asia was contributing approximately 13 percent of Starbucks profits. At the time, John Culver, president, Starbucks China and Asia Pacific, noted, "With high-store margins and low-store penetration, given the size of the country we are in the very early stages of what we think this market can ultimately reach." China will probably eclipse Canada as Starbucks largest market outside the United States in 2014.

Overall, at the start of fiscal year 2012, Starbucks anticipated 1,200 new store openings (representing growth of approximately three stores per day), with the bulk of them likely to occur outside of the United States. These numbers suggest that the Starbucks connection is robust and thriving globally, thanks in large measure to the leadership's ability to position the brand to meet the product and the universal emotional, social, and lifestyle needs of customers from very diverse backgrounds. Even with that strong universal platform, however, Starbucks leaders, like those in every successful broad-sweeping company, have had to find ways to enhance the local relevance of their offerings—which happens to be our exploration in Chapter 7.

  Customers want to be seen and heard.

  While cultural difference may affect how you demonstrate it, a willingness to seek personal connections with customers will help your business stand out from your competitors.

  A goal of the leadership should be to create the right environment for human connection to occur and to help staff members manage the inevitable challenges that emerge during human interactions.

  By getting to know your customers, you are likely to differentiate yourself from the many brands that try to sell without listening.

  One of the most powerful opportunities for building loyalty occurs after the sale, with your employees saying thank you, offering a warm farewell, and inviting customers into future opportunities to connect.

  Leaders must create an environment of gratitude and structure the business to demonstrate appreciation for loyal patronage.

  All leaders have the opportunity to look at their businesses as offering more than products or services. Leaders can create places of belonging and purposefulness for their customers.

  Demonstrate innovation in building a community that consists of both your customers and your employees; in addition, consider adding an element of social activism.

  Human beings want their comforts to remain stable, and yet to have sufficient variety to avert boredom.

  While many of us lead companies where customer contact is infrequent, rituals can still be created around seasonal product offerings or even annual events.

###
**Respect, Celebrate, and Customize: Listening and Innovating to Meet Local, Regional, and Global Needs**

_Our Similarities bring us to a common ground; Our Differences allow us to be fascinated by each other_.

TOM ROBBINS

Market expansions are challenging, and companies often overreach or fail to understand the local needs of their new market. While this chapter will explore the challenges that Starbucks has faced as it has attempted to ensure its relevance on a global stage, let's take a quick glimpse at major lessons learned from Intuit, the company behind the very successful U.S. product Quicken tax preparation software, which was started in 1983.

In the 10 years following the product's U.S. launch, Intuit successfully expanded into the Canadian and British markets. Shortly thereafter, the firm's leaders launched the product in other European countries, South America, Mexico, and Japan. Despite considerable media attention at its introduction in those countries, Intuit's sales dropped after the initial orders were filled. As a result, the company pulled back its operations in all countries except the United Kingdom, Canada, and the United States. In explaining the failed expansion efforts, the founder of Intuit, Scott Cook, noted, "The root cause was baked into our early decision where we didn't build these products based on a deep study of the countries. We built them based on what we had in the U.S.... The reason we succeeded in the U.S. was because we studied the potential customer better than anyone else. We knew them cold and built a product so native to the way they worked.... We didn't do that overseas; we gave them the product we had built in the U.S." Upon pulling out of these markets, Intuit avoided global expansion for more than a decade. As Scott Cook notes, when Intuit renewed its global growth plan, it benefited from the lessons it had learned during its first large-scale foray, this time "doing it the right way, hiring people locally who can go in and understand the customer cold and design what the solutions should be, not what they are stuck with from the US." Since Intuit revised its approach, the company has successfully expanded into Singapore, India, South Africa, and New Zealand.

This chapter takes you through a series of key approaches and adjustments that Starbucks leadership has deployed to maximize the local relevance of products, services, and physical environment. The journey begins with a regionalized model of operations. The chapter also explores the role of local business partnerships and outlines specific methods for customizing products and services to address culturally specific wants and needs.

#### **DECENTRALIZATION AND REVITALIZATION**

Prior to July 2011, Starbucks operated as two centralized business entities, Starbucks U.S. and Starbucks International, both of which were led from Seattle, Washington. In 2011, a dramatic shift in operations took place to address the mounting challenges and to seize emerging global opportunities. Starbucks senior leaders decentralized and separated into a three-region model. Earlier in this book, I've shared stories from the leaders in each of these regions, but for clarity, the leaders and regions are as follows:

_China and Asia Pacific Rim_ ; president, John Culver. Countries included in this region are Australia, China, Hong Kong, India, Indonesia, Japan, Macau, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

_Europe, Middle East and Africa_ ; president, Michelle Gass. The countries in EMEA include Austria, Bahrain, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Ireland, Jordan, Kuwait, Lebanon, Morocco, Netherlands, Norway, Oman, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, and the United Kingdom.

_Americas_ ; president, Cliff Burrows. The region includes Argentina, Aruba, the Bahamas, Brazil, Canada, Chile, Costa Rica, Curaçao, El Salvador, Guatemala, Mexico, Peru, Puerto Rico, and the United States.

The impetus behind this Starbucks restructuring was to create a model that was less U.S.-centric but that still leveraged the best of Starbucks in ways that are relevant in global markets. This restructuring gives regional presidents a geographic area for which they are responsible and gives them full authority to develop strategic plans that address business objectives in their areas. Michelle Gass, president, EMEA, demonstrates the regional nature of business strategy development: "It's fair to say that the EMEA business is the lowest profit unit of the three, whether you are calculating profit on an absolute or percentage basis." After spending a considerable amount of time traveling around the region, Michelle and her leadership team created a strategy based on observations and perceived needs in their geographic area, including such things as exploring the local relevance of coffee offerings, building inspirational store environments, and attempting to increase the "daily ritual" of coffee by enhancing access and availability consistent with the lifestyle of customers across the region. Later in the chapter, we will look specifically at changes made to espresso drinks in EMEA, store redesign approaches, and the enhanced availability of Starbucks products and beverages for people on the go. However, for the purpose of this discussion, senior leaders like Michelle are no longer attempting to manage a global business from the Starbucks Support Center in Seattle, Washington, and are better positioned, with full independence, to do what is needed in their regions. Certainly, the challenges faced by John Culver in the China and Asia Pacific market are quite different from those faced by Michelle in Europe, the Middle East, and Africa. For example, John has to help Starbucks be viewed as an employer of choice in China and skillfully steward expansion and distribution opportunities in India and greater China while also exploring many opportunities in emerging regional markets like Vietnam.

In addition to having a new leadership structure in the regions and creating autonomous business planning, this reorganization continues to afford leaders like Michelle, John, and Cliff the ability to share best practices that can prove helpful in other areas of the world. We saw how well this worked in Chapter 6 when Cliff Burrows, president, Starbucks Americas, adopted the "names on partners and names on cups" approach that Michelle had deployed in EMEA.

While repositioning the leadership to generate local oversight has its advantages, it is not a panacea for global success. Each business leader at Starbucks must still balance relevant cultural needs with a recognizable Starbucks brand connection. The objective is not to subsume the Starbucks brand beneath cultural differences, nor is it to deliver an Americanized Starbucks Experience that overpowers the needs of the customers in a local market. In fact, researchers have suggested that brands like Starbucks both shape communities and are shaped by local cultures. Craig Thompson and Zeynep Arsel, writing in the _Journal of Consumer Research_ , note, "In recent years, anthropological studies have built a strong empirical case... [that] consumers often appropriate the meanings of global brands to their own ends, creatively adding new cultural associations, dropping incompatible ones, and transforming others to fit into local cultural and lifestyle patterns.... From this perspective, the interjection of global brands into local cultures paradoxically produces heterogeneity as global brands take on a variety of localized meanings." In essence, all successful brands must realize that they need to be shaped by local culture and, in turn, that they are a force that shapes the cultures of those they serve.

#### **FINDING LOCAL PARTNERS**

In the beginning of this chapter, I highlighted the initial challenges Intuit faced in its global expansion efforts. In repositioning the brand for success, founder Scott Cook suggested that getting global growth right means "hiring people locally who can go in and understand the customer cold and design what the solutions should be." At Starbucks, hiring is extremely important in each market, but so is the selection of joint-venture business partners. Starbucks often must carefully vet and rely on business allies to bring an awareness of difficult-to-discern cultural subtleties as well as operational knowledge of needed business practices, optimal real estate positioning, and even local consumer behavior.

In 2007, while I was speaking and consulting across India, I repeatedly faced questions like, "When is Starbucks coming to India?" My typical response was, "I suspect when the company finds the right local business partner to assure its success here." Given that India has a young population (median age around 25 years) of 1.2 billion people who have been exposed to a growing café culture in local coffeehouses, it has long been an attractive market for Starbucks. In January 2011, Starbucks leadership deepened this exploration through a nonbinding memorandum of understanding with Tata Coffee. Ultimately, this relationship resulted in a joint-venture partnership arrangement.

Tata is a public company that is traded on the Bombay Stock Exchange. It is part of the Tata Group, a multinational conglomerate operating in seven business sectors in more than 80 countries across six continents. Tata Coffee was founded in 1922 and has been described as the "largest integrated coffee plantation company in the world." The partnership with Tata not only provides Starbucks with an opportunity to leverage cultural relevance but also created a sourcing and roasting platform with supply chain opportunities for procuring green arabica coffee beans from Tata Coffee plantations and roasting those beans at existing Tata roasting facilities.

After Starbucks opened its first store in Mumbai (followed a week later by the opening of three additional stores), Howard Schultz was also asked why it had taken Starbucks so long to enter India. His answer echoed the importance of waiting until it had secured an arrangement with Tata to warrant the substantial risk and investment: "[India] is a very complex market to enter. At one point we thought we could come here alone and we underestimated the complexity. But once we met the people from Tata, we realized overnight that the assets were so complementary between Tata and Starbucks that together we could co-author a very unique strategy—bring Starbucks in India and over a time build a very substantial significant business together."

Howard's answer not only highlights the role of partnership selection but also suggests the importance of the patient, long-term commitment required to achieve success in a global setting. John Culver, president, Starbucks China and Asia Pacific, shares, "Success in the global marketplace is not instantaneous. Your global partners and the communities you enter need to know that you are committed to their long-term growth and development. They want a good corporate citizen who will make them better and who will go through ups and downs to achieve sustainable success and positive outcomes. If you consistently provide these things, those partners and communities will make you better over the long term." As it specifically relates to the Starbucks joint venture in India, Howard Schultz adds, Tata and Starbucks "are bringing an unparalleled experience to India customers. We are investing for the long term and see great potential for accelerated growth in India." Careful selection of business partners, decentralized leadership, patient execution of strategy that integrates your brand essence with locally relevant needs, and a commitment to the long term is quite the formula for success beyond your hometown.

#### **STRIKING A BALANCE THROUGH THE PHYSICAL ENVIRONMENT**

Many brands enter communities and appear "out of place" simply because they either do not understand or have not attempted to integrate the physical properties or history of the new community. Kimberlee Sherman, program manager, Global Design and Construction Support Services, acknowledges that for a time Starbucks was not adapting its store designs to provide local relevance. "We were becoming very ubiquitous, and independent coffeehouses were able to distinguish themselves in local communities by providing interesting spaces. Their locations were more contemporary and relevant to the communities they served. We had to admit that we needed to update our design approach. After the economic downturn, we started to really reevaluate the uniqueness and fit of our design concepts."

As a result of this reevaluation process, Starbucks design leaders crafted a more customizable approach to store design. During its high-growth period, Starbucks did benefit from consistency of store presentation and economies of scale. By replicating store designs, Starbucks could purchase tables, chairs, and other fixtures in a cost-effective way; however, the stores began to look more similar and local relevance was minimized. This cookie-cutter approach to design probably detracted from the specialness of the Starbucks Experience and had an impact on customer loyalty. More freedom for unique design has been a component of the turnaround strategy. As a result, Starbucks has developed a scalable, malleable, and innovative solution that began with store design concepts referred to as heritage, artisan, and regional modern.

Kimberlee adds, "We take what we learn from concept store tests and harvest the great ideas, baking those key learnings into standard offerings for our core stores. Within each of those concept styles, there is a lot of variety in the furniture and fixtures that a local store designer can select. We have a design resource center website which is a one-stop shop for designers anywhere in the world. At that site, designers can find design guidelines and also select store elements to fit and inspire the community to be served. Then they can provide more uniqueness with local custom artwork, finishes, and the like." From Kimberlee's perspective, this blended approach, with standard items and opportunity for local variation, serves a central objective. Kimberlee continues, "We wanted to be locally relevant. We want the design to work for the customers who use each individual store. Designers need to understand the architecture of the store, the neighborhood, the customer base, and the competition. They look for anything historical or interesting about the architecture that they can use versus eliminate. Just like our baristas customize the drinks for our customers, we're customizing solutions for our regions and our markets to make the third-place environment suit them."

To better understand how Starbucks designers make stores fit with local communities, we need only look at the redesigns made prior to the 2012 Olympic Games in England. Thom Breslin, director, Design, Starbucks UK, suggests that a redesign process can sometimes be disruptive for both partners and customers. Thom sees this process as needing to drive functional, financial, and creative returns that will justify this disruptive investment. Thus, he suggests that local use patterns must first be addressed: "Considering local cultural influences is an important layer of our design process to ensure market relevance. For us, it starts with listening and observing the needs of our partners and customers. It's about communicating up front, talking to customers, listening to partners, and it's also seeing things through the lens of that collective experience. Our partners spend a great deal of time in this environment, so if we fail to design a relevant experience for them, it's hard to create a physical space that allows them to effectively connect with our customers. Design is about supporting neighborhoods with great-looking stores that surpass community ambitions and needs where people are able to develop an emotional connection with our brand."

There are many examples of Starbucks integrating brand connection with local building design; however, for our purposes, let's look at the Dazaifutenmangu Ometesando store in Dazaifu, Japan. The space was designed by Kengo Kuma and Associates; it integrates aspects of traditional Japanese and Chinese architecture (piling small items from the ground up) and uses more than 2,000 wooden batons to create a woven lattice. According to an article in _Dezeen_ magazine, the "location of this Starbucks is somehow characteristic, as it stands on the main approach to the Dazaifutenmangu, one of the most major shrines in Japan. Established in 919 A.D., the shrine has been worshiped as 'the God for Examination,' and receives about 2 million visitors a year who wish their success.... The project aimed to make a structure that harmonizes with such townscape, using a unique system of weaving thin woods diagonally."

While store design must have functional and local relevance to the communities being served, often the products served in those settings must also change to fit with local preferences. At Starbucks, product variations typically occur with food offerings and in some cases through beverage innovation.

#### **INNOVATING AND EVOLVING PRODUCT**

Have you had a black sesame green tea or a mooncake at Starbucks? If not, you probably don't live near or haven't visited a Starbucks in China. Belinda Wong, Starbucks president, China, noted, "Our customers can definitely expect to see more locally relevant innovations across our food and beverage offerings." The company's local food and beverage innovations are far too numerous to list here, but they have included items like Murg Tikka (chicken cooked in a tandoori oven) in India, Azuki Matcha Frappuccino® blended beverage (matcha green tea, sweet red beans, and a sprinkle of kinako or soybean powder) in Japan, pão de queijo (traditional cheese bread) in Brazil, and Mozaik Pasta (a favorite local chocolate cake) in Turkey.

Barbara McMaster, district manager in Northern Ireland, shares how customized items can fit an important taste preference in a region. "We're doing work to constantly evolve our food offerings and to provide choices that make sense in England and here in Northern Ireland. One example is our evolution of the bacon butty, a sandwich that people often enjoy with a cup of coffee and which serves as a comfort food. We originally positioned it as a morning item, but as a result of customers' requests, it is now available all day. It made sense to add the bacon butty to our lineup, and we did consumer research to assure we are providing the taste experience our customers are looking for."

While many of Starbucks localized products are items that are unique to the preferences of a region, Samantha Yarwood, director of marketing, Starbucks Switzerland and Austria, adds, "At times we simply need to make a few adjustments to our traditional offerings to accommodate local appetites. Customers in Switzerland and Austria often come to us for an American-style experience and are looking for high-quality American-style beverages and food categories like muffins, donuts, and cheese-cake. In our region, and in others throughout Europe, American pancakes are served with honey, syrup, or fruit, even if pancakes aren't part of a typical menu in Starbucks in the United States."

Clearly there are trade-offs in seeking local relevance. For all the gains derived from connecting with local preferences, customers have many other choices for local fare. Brands like Starbucks must also consider whether they can execute local offerings at a level of quality consistent with that of their core products.

**REFLECTION ON CONNECTION**

1. Are you seeking to sell your same products to customers in new markets, or are you understanding the needs of those markets and tailoring your solutions to be relevant to them? How far can and do you go to achieve local relevance?

2. How effectively have you sought partnerships and repositioned your leadership structure to achieve relevance in new markets?

3. Have you created a "sense of place" in your new markets such that you can blend your brand with local needs?

#### **HOW FAR CAN YOU GO?**

The localized food and beverage items discussed thus far involve either new market-specific product innovations or adjustments of important but not core products. While those changes are guided by consumer research, certainly some products, like the recipe for Starbucks lattes or Starbucks® Espresso Roast, can't possibly be changed, even if local consumer sentiment favors a modification. Or can they?

Kris Engskov, managing director, Starbucks UK and Ireland, addresses a rather historic change in lattes in his region: "People drink Starbucks lattes throughout the world, and it's our top-selling beverage. Historically, we've held to the notion that our latte, like all of our core coffee offerings, should be the same everywhere all the time." Despite that traditional view, Kris notes that Starbucks in the UK and Ireland were hearing from customers that they wanted a "stronger" latte, and over a five-year period, stores in the region had noted an approximately 60 percent increase in customers adding an extra shot of espresso to their lattes. Kris continues the product evolution story by noting, "We considered making our latte stronger by defaulting to an extra shot of espresso. We test-marketed that idea, and that recipe was a success—a success not only in the taste tests with our customers, but also in tests with a key competitor's customers; 60 percent of the competitor's customers liked our latte better than the latte being prepared by the competitor. So at no extra charge, we changed our tall latte to a two-shot espresso drink." Shortly thereafter, a headline in the London _Telegraph_ read, "Starbucks' UK sales boosted by extra shot of espresso." The article added that a 9 percent increase in latte and cappuccino sales occurred even in "cash-strapped" and "difficult economic times."

A similar challenge occurred with the Starbucks Espresso Roast in France. Rob Naylor, managing director, Starbucks France, shares, "We were hearing anecdotally from customers that they would like us to consider a change to our Espresso Roast. You have to understand our Espresso Roast has been the absolute foundation of the brand for over 40 years—so any changes would certainly be unlikely." Despite his reluctance to consider a change, Rob reports that consumer research was conducted. As expected, the existing Espresso Roast received "extremely good" ratings from a large portion of the French consumer base; however, a significant number of younger females in those tests preferred a lighter Espresso Roast. Rob remembers getting sample data from 1,000 customers and addressing the findings with Michelle Gass and Howard Schultz. Rob notes, "That was a tough message to deliver, but Howard, with good grace, said, 'We've got to give people what they want. Let's give it a go as long as it's the highest quality coffee, it's ethically sourced, and it's served in a way that is consistent with our brand and values.'" So Starbucks created the Starbucks® Blonde Espresso Roast for the French market. If you were to place the beans that constitute the standard and Blonde Espresso Roast side by side, you would see that the standard bean is very deep brown (almost black) and glossy, whereas the Blonde Espresso Roast bean is lighter in color, an almost chestnut brown, with a substantially different flavor profile.

While brewed coffee is a key business driver in the United States, straight espresso (or what is sometimes referred to as a long espresso) is essential to success in France. Rob shares the significance of this product addition: "Our Blonde Espresso Roast now accounts for about 25 percent of all the espresso we sell. I think it's a great story about listening to the consumer and then doing something bold about what you hear. We have done research in a number of areas in the past—food being a good example—and we've made incremental improvements, but adding a new espresso blend specifically for the needs of a market like France... that is simply a breakthrough for us and our customers!"

One essential takeaway from both the new latte recipe in the UK and the Blonde Espresso Roast in France is that each increases customer choice in a relevant way. While the default recipe for a tall latte in the UK is now two shots of espresso, customers who prefer the nonregional standard can easily ask for a single-shot drink. In the case of Blonde Espresso Roast, the traditional blend is available and is serving the largest section of the market. Leaders at Starbucks understand that maximized choice is essential to today's global consumer, but with choice comes a responsibility to ensure that you can execute the new product offerings at a level commensurate with your existing levels of excellence.

#### **LOCALIZING TO LOCATION**

Its origins are still a subject of debate, but the first printed reference to the phrase "location, location, location" appears to be a real estate advertisement in the _Chicago Tribune_ in 1926. While the phrase is more than 87 years old, it remains particularly important when it comes to opening stores in new markets. From the perspective of the United States, for example, Starbucks has opened a coffee shop directly on the slopes of Squaw Valley, near Lake Tahoe in California. Skiers can literally ski in (no need to remove your boots or skis) and ski out. To see customers being served in this unique and relevant location, go to <http://tinyurl.com/onq59kl> or point your QR-enabled mobile device to:

Daily rituals and product use patterns across the world vary greatly, and site selection is critical. Rob Sopkin, vice president, Starbucks Store Development East, offers a sense of the economic risk involved in a Starbucks store opening: "Every decision about opening a store is about a $1 million investment.... Site selection is often a mix of art and science, a combination of strategy and opportunity."

Frank Wubben, managing director, Starbucks Switzerland and Austria, shares how strategy and opportunity combined to provide the planned 2013 debut of Starbucks stores on Swiss Federal Railways trains: "We are always looking to provide Starbucks opportunities that meet people where they are. We essentially want to position ourselves in the high-traffic lifestyle locations of our customers." Frank adds that the head of passenger traffic for Swiss Federal Railways had been a longstanding and devoted Starbucks customer who was committed to transforming the passenger train experience. Shortly after assuming her position with Swiss Federal Railways, she initiated a program called "Home on Track" and shared with Frank that she wanted to create the same type of experience on Swiss trains that Starbucks was creating in its stores. Frank adds, "We put a project team together, and within six months, we were able to get the green light to build two fully equipped stores in two double-decker trains."

In many countries, Starbucks is seeking to locate in areas that not only provide high "on-the-go" traffic but also serve as community hubs. In China, for example, business strategist and author Moe Nawaz suggests that Starbucks positions stores that are "aiming at the young urban Chinese demographic, and store locations are comfortable and offer a social setting—a welcome break from cramped apartments." The social as well as the more mobile store positioning strategy depends on cultural values and the lifestyle use patterns of local consumers.

Starbucks leaders are looking for ways to be where people are and not make customers have to seek them out. They understand the need to position their product offerings in accordance with local lifestyles. Frequently, leaders will also experiment with bold concepts to keep the brand fresh and to determine what new ideas resonate in communities.

#### **EXPERIMENTING TO RELEVANCE**

Thom Breslin, director, Design, Starbucks UK, puts it rather succinctly, "If you don't innovate, renovate, and constantly seek relevance—you die." One example of this energizing innovation occurred in Amsterdam with a store referred to as "the Bank." While one might think that "the Bank" refers to how Starbucks is banking on the innovations of the concept, the name simply arose from the fact that the store is located in a former bank vault. Liz Muller, a Dutch-born designer and Starbucks concept design director, worked with 35 craftsmen and artists to make the underground store locally relevant and sustainable under LEED® (Leadership in Energy and Environmental Design) criteria (more on environmental building practices in Chapter 11). Rich Nelsen, senior vice president, Starbucks Europe, Middle East and Africa, described the Bank as "the ultimate expression of coffee, design, and community at its best."

Qaalfa Dibeehi, chief operating and consulting officer of Beyond Philosophy, validates the design and community aspects through his experience at the Bank by noting, "All of the displays and materials and design are from the Netherlands.... The space is designed to encourage interaction between customers themselves and between customer and employee. There are spaces for bands to play live music; there is a central area where a gigantic long communal table is situated. The counters are all at just slightly above waist height so as to minimise the counter barrier. This store has its own Twitter hashtag (#starbucksthe bank) where employees tweet things like when the next fresh-baked cookies will be put out.... Additionally, there is 'Slow bar' which is where a barista will make you a specially brewed coffee. The coffees on offer in this area are specially prepared small batch makes and are to be enjoyed 'black'.... Three types of brewing methods were on offer: coffee press, slow brew (a slow drip method) and a new technology called 'Clover'" (the Clover brewing system).

**REFLECTION ON CONNECTION**

1. Would you be willing to make a change like Starbucks leaders did when it came to the recipe for lattes in the United Kingdom and Ireland? How are you adding choice for potential customer groups who might not have an affinity for your core product offerings?

2. What are the product rituals and daily use patterns of prospective customers in new markets? How are you positioning your product (such as Starbucks on Swiss trains) to capture customers in the context of their lifestyles?

3. If Thom Breslin is correct and a failure to "innovate, renovate, and constantly seek relevance" leads to corporate death, what are you doing to stay alive and thrive in new markets?

Suffice it to say that the Bank and other cutting-edge concept stores are not scalable as designed. Each offers an experimental opportunity to highlight and explore aspects of an experience tailored for a community. From those explorations and observations of customer behavior, Starbucks can adopt, adapt, and extrapolate new ideas that will connect both locally and globally.

#### **SPECIAL SENSITIVITIES**

While most of the major customization issues required to achieve broad business success have already been covered in this chapter, it's important to realize that every location has unique nuances that must be considered from the point of your market entry all the way through your mature market presence. In the case of Starbucks, these special considerations range from logo presentation to the structure of loyalty programs.

Subtle cultural differences affect delivery across a gamut of needs. These variations even affect things like the desire to be valued as a customer, as discussed in the loyalty program information in Chapter 6. For example, Starbucks leaders have had to craft culturally relevant customer reward incentives that are consistent with community-based values. Starbucks leaders in China teamed up with a local digital engagement company around a holiday promotion that involved outdoor signs, social media, and location-based services. Starbucks used digital outdoor signs to describe the promotion. Customers then used their mobile devices to check into Starbucks stores in the provinces of Jiangsu and Zhejiang, and in the process received a virtual badge on their device. When 30,000 badges had been given out, a large electronic billboard at Raffles City in Shanghai lit up with special Christmas wishes, a virtual Christmas tree lit up on the Starbucks event website, and customers were notified that they had received a drink upgrade. This promotion worked well in the collaborative Chinese culture, as customers texted friends and family members, telling them to check into Starbucks stores so that the community could achieve the virtual Christmas tree lighting. Feng Bao, international market manager at Starbucks, explains, "Similarly, our actual loyalty program in China focuses more on sharing experiences with friends and family and less on achieving individual rewards based on individual purchases." Whether it is market entry, segregated service delivery, or the structure of promotions and loyalty programs, culture affects _how_ people want to connect with your brand.

#### **CULTURE IS MORE THAN COUNTRY**

While much of our exploration has been provided in the context of continental or national differences, it is important to emphasize that localization needs are not defined by national borders. In the case of China, for example, Starbucks has forged relationships based on regional differences within the country. According to author Helen Wang, "China is not one homogeneous market. There are many Chinas. The culture from northern China is very different from that of the east. Consumer spending power inland is not on par with that in coastal cities. To address this complexity of the Chinese market, Starbucks collaborated with three regional business partners as part of its expansion plans.... Each partner brings different strengths and local expertise that helped Starbucks gain insights into the tastes and preferences of local Chinese consumers."

Even when working with the Walt Disney Corporation, which has a strong corporate culture and themed customer experiences in its parks, Starbucks leadership tailored the presentation of its product offerings to blend into the prevailing Disney environment. In April 2012, Starbucks announced that it would be opening six stores in Disneyland and Disney World. The first of these locations opened at Disney's California Adventure within the Fiddler, Fifer & Practical Cafe (after the characters from the Three Little Pigs). The name tags and aprons of the baristas in the café match those of Disney cast members, and the overall theme of the costumes is consistent with Los Angeles in the 1920s.

The store is split between a more traditional Starbucks presentation and a side with soups and sandwiches. Customer Nicole Mancini notes, "The Starbucks offerings were my focus during my visit (three in one weekend, in fact).... In addition to the menu, this café offers a quiet escape from the hustle and bustle of a busy park. All in all, I am excited that Disney and Starbucks have partnered together in order to help bring better options to the parks. Due to their commitment to quality products and commitment to responsible business practices, the two companies are bound to find success while working together over time. This is already obvious based on the amount of people that can be seen on line in the café or walking around the park showing off their beverages emblazoned with the Starbucks logo."

There are extensive commonalities that underlie the human condition and ample similarities in what people desire when it comes to connections. At the same time, there is a vast chasm of subtle local variability that can make the difference between successful and failed brand extensions. Starbucks leaders actively seek local relevance and adjust their product and service offerings accordingly. When leaders find the right business partners and make conscious and concerted efforts to give customers what they love, their businesses achieve lasting connections and maximal success.

  Market expansions are challenging, and companies often either overreach or fail to understand the local needs of their new markets.

  Successful expansion often involves choosing the right local business partner who can assist you in understanding subtleties in the needs and desired solutions of your target audience.

  Store design must have functional and local relevance to the communities served, as should the products offered in those settings.

  Maximized choice is essential to today's global consumer, but with choice comes a responsibility to ensure that you can execute your new product offerings at a level commensurate with your existing levels of excellence.

  Leaders look for ways to be where people are and not make customers have to seek them out.

  In an increasingly competitive marketplace, it is essential that you experiment with bold concepts to keep your brand fresh and to determine what new ideas resonate in the communities you serve.

  Observe your customers, then adopt, adapt, and extrapolate new ideas that will connect both locally and globally.

  Internationally, people have many common needs, but culture affects how people will want to connect with your brand.

## **PRINCIPLE 4**
 **MOBILIZE THE CONNECTION**

Up to this point in the book, we have primarily examined the bond that Starbucks forges with its customers in the context of Starbucks stores. While "brick-and-mortar" connections tend to be terrific opportunities to develop personal face-to-face relationships, much of today's commerce is happening outside of a traditional retail building. People are making purchases while they are sitting in front of a computer or are engaging with brands through their mobile devices. This business principle, "Mobilize the Connection," looks at how Starbucks strengthens the relationships formed in Starbucks stores and extends them into the home, office, and supermarket experiences of customers. Moreover, it examines how Starbucks leaders leverage technology to integrate a multichannel relationship with their customer base.

Many business leaders have a love/hate relationship with technology. On the one hand, technological advances offer great business opportunities. On the other hand, the infrastructure costs associated with technology shifts and the rapid pace of technological change pose strategic and operational challenges. Although some business leaders fall in love with technology for technology's sake, Starbucks love of its customers and its appreciation for the relationship that those customers have with technology leads to a functional use of digital, social, and mobile tools. In the words of Howard Schultz, you have to "run with people in the way they run their lives." Chapter 8, titled "Growing the Connection Through Technology," explores how the leadership has improved the in-store experience through the use of technologies such as the Starbucks Digital Network. It also examines the comprehensive digital strategy that Starbucks deploys, including internal assets like mobile apps and external resources like social media.

Chapter 9, "Personal Relationships Translate: Sharing the Love from People to Products," explores the multichannel strategy adopted by Starbucks leaders that has resulted in Starbucks products being available for customers not only in Starbucks stores but also in their homes, their offices, other businesses, and virtually anywhere they go. Building on concepts from the prior chapter, "Personal Relationships Translate" looks at how technology and marketing can interface to encourage customers to explore offerings across product channels. Chapter 9 is also designed to assist you as you consider ways to present products to your customers in as many locations as you can reasonably manage. Starbucks is no longer just a coffee brand or a company limited by its brick-and-mortar footprint. Just as the Starbucks logo was redesigned to release the siren from the circle that confined her, the Starbucks connection has emerged beyond the boundaries of the Starbucks store.

###
**Growing the Connection Through Technology**

_Information technology and business are becoming inextricably interwoven. I don't think anybody can talk meaningfully about one without talking about the other_.

BILL GATES

In a 2012 _Time_ magazine survey, people were forced to choose one item to take to work: their wallet, their lunch, or their mobile device. The result: 66 percent chose their mobile device over their lunch, and 44 percent chose their mobile device over their wallet. In the same study, 68 percent of adults report that they sleep with their mobile phone next to them, and 89 percent say that they couldn't make it through a single day without using their mobile device.

In my 2006 book _The Starbucks Experience_ , I spent little time talking about technology or the future of mobile communication and interconnectivity. Instead, I shared how Starbucks leaders positioned their coffeehouse as the "third place," an environment that provided a desired alternative to customers' first place (home) and their second place (work). In the intervening years, Starbucks leaders have widened their focus to engage customers in the first and second places (more on that in Chapter 9), as well as to innovate connections in a mobile world that essentially encompasses all the places where customers find themselves other than work, home, or Starbucks stores. While I was discussing this evolution with Howard, he shared, "We started out before there was a digital revolution; the third place was our stores. Our mobile focus has evolved to the point where everyone is getting primary information and communicating in a way that was nonexistent before. I don't think any enterprise or organization can exist in the future without having a primary relevant position in the minds and hearts of people through these mechanisms, whether it is technology or software. I think we are off to a very good start, but we also recognize it could be fleeting. As such we must continue to make the investments and understand what is relevant. Many brands will come and go in terms of relevancy and trust in the digital world, as trust and relevance will be harder to maintain digitally than through a physical presence."

Starbucks has become a recognized leader in digital platforms, social media engagement, and innovation. For example, Starbucks was selected by _Forbes_ as one of the top 20 innovation companies in 2011 and was recognized by General Sentiment's QSR MediaMatch report in 2012 as having the highest impact value ($111 million) among the quick-service restaurant sector. Impact value assesses the reach of a brand and determines a monetary estimate based on the broad discussions and overall exposure garnered by a company. Additionally, the Starbucks Card mobile app received the Wireless Application and Mobile Media (WAMM) award as Best Retail, Shopping and Commerce Application in 2011.

At the core of Starbucks successful digital strategy are several interrelated areas that all business leaders should consider when they are attempting to connect with customers from the broad mass market to the one-to-one. The five key components of this digital strategy are (1) commerce, (2) company-owned web and mobile channels, (3) loyalty/customer relationship management (CRM)/targeted database, (4) social media, and (5) paid digital marketing.

#### **COMMERCE, STARBUCKS WEB AND MOBILE CHANNELS, AND LOYALTY/CRM/TARGETED DATABASE**

One of the largest components of Starbucks current mobile strategy is anchored to commerce and connects through the Starbucks Card. Even before Starbucks initiated the loyalty card program discussed in Chapter 6, the leaders had created a Starbucks gift card. To understand the dimensionality of the card business, let's assume that you buy a $10 Starbucks Card as a gift for a friend. Your friend can use the $10 and simply throw the card away. Alternatively, he might add value to the card while he is in a Starbucks store and continue to use it as a prepayment card. Finally, he may register the card online (thus becoming part of the Starbucks loyalty program). Once the card is registered on the Starbucks website, your friend can either manually or automatically replenish the Starbucks Card from a credit card that he places on file or add value to the card at the register. Given these options, the Starbucks Card itself represents a multibillion-dollar business, with half of Starbucks Card customers using it solely as a gift card and the other half using it as their own loyalty and prepayment mechanism.

As of January 2011, customers in the United States with an iPhone, iPod touch, or BlackBerry were able to download the Starbucks Card mobile app, add their Starbucks Cards, track rewards, and reload their cards through either PayPal or a credit card. Subsequently, Starbucks enhanced the app's capability to include phones with Android-based operating systems, merged it with an existing app so that it includes a store locator and other features, and expanded its availability outside of the United States. Adam Brotman, chief digital officer, offers a sense of the importance of these enhancements and the challenges involved in them: "It was hugely important for us to extend our mobile pay app to Android and integrate functions of our existing apps into one seamless app experience. Android took off fast as we were developing our original iPhone and BlackBerry apps, so we worked as quickly as possible to produce a well-integrated app for this exploding population of mobile phone customers."

Through these efforts, Starbucks leaders produced a complex, yet easy-to-use, mobile payment and social app that also offers a rich value-added experience for Android and iOS mobile platforms. From the standpoint of ease of mobile payment, a customer simply selects "touch to pay" and positions her phone for a Starbucks barista to scan. In addition to ease of payment, customers can track purchases and see their progress toward rewards, receive messages in a mobile inbox, garner information on food and beverages, and select e-gifts.

The Starbucks mobile app was the first widespread mobile payment program of its kind in the United States, and it reflects the leadership's willingness to take a practical and innovative step into the mobile arena. Starbucks leaders did not attempt to declare a technical standard in mobile payment, as they believed that future standards would probably emerge from credit card companies working with businesses like Square, Google, Amazon, PayPal, Microsoft, and Apple. Instead, Starbucks leaders took a pragmatic and adaptable approach, utilizing the most readily available technology at the time—the 2D barcode. As part of a large-scale upgrade of the company's Point of Sale system (POS), Starbucks leaders purchased 2D scanners and integrated them into the POS.

After extensive testing prior to the initial launch, Adam Brotman notes, "Mobile pay is the fastest way to make a purchase at Starbucks. Not only is the transaction quick but the line isn't slowed down with customers reloading their cards. It's better for everybody. Our customers are voting with their hands and they want mobile payment." Within approximately a year and a half of starting to accept mobile payments, Starbucks had captured more than 100 million transactions, and by late 2012, it was capturing more than 2 million mobile payment transactions per week. Adam adds, "Mobile pay is accelerating, but we also realize that not every customer is going to be a member of our loyalty program. Not everyone is going to have a Starbucks Card and want to pay with it." Although Starbucks Card transactions are 25 percent of Starbucks tender, leaders wanted to give customers more choices. In essence, they wished to reach a larger segment of their customer base through the mobile momentum that they achieved with their mobile payment app. As a result, they looked for a mobile wallet that would give customers the ability to make purchases directly from a debit or credit card using their mobile device.

In August 2012, Starbucks announced a strategic alliance with and a $25 million investment in Square Inc. to achieve a mobile wallet solution. Square gained widespread attention in 2009 when it launched a mobile credit card capture solution geared primarily to small business owners. That solution involved placing a small credit card capture device into the headphone jack of an iPhone. Square's leadership in mobile payment technology served as the foundation for the Starbucks leadership's choosing Square's existing wallet software for expanded use in Starbucks stores. Curt Garner, Starbucks chief information officer, notes, "There are a large number of Starbucks customers who pay with traditional credit and debit cards. That may be because their visit frequency is low or they prefer not to use prepaid cards. Square is an option for those people so that they can enjoy the convenience of mobile and all the benefits of tracking their purchases, along with getting digital receipts. Additionally, their mobile wallet provides a directory of businesses near them that accept mobile pay tender on their platform." At full functionality, the Starbucks and Square collaboration is expected to utilize geotracking technology that will facilitate not only mobile payment but mobile ordering as well.

Within three months of the announced alliance between Starbucks and Square, the Square Wallet mobile payment option went live, with initial mobile payment benefits at 7,000 company-operated U.S. Starbucks stores. At the time of the launch, Marcus Wohlsen, a staff writer for business at _WIRED_ magazine, predicted that a mobile payment revolution would be initiated at Starbucks: "Because of its openness and seamless approach, Square at Starbucks is better positioned than any other technology to become the gateway drug that could finally make mobile payments mainstream.... Paying with Square at Starbucks is simple. People will start using it because of little perks like getting your receipt via text. Soon you'll also be able to add a tip just by tapping. Multiply that usage by even a few dozen customers at each of 7,000 Starbucks stores, and the network effect starts to ripple. You use Square next at a merchant nearby because you see it in the app. Merchants near Starbucks start using Square to get into the directory. A virtuous cycle ensues, and Square—which is to say your phone—becomes just another way you pay."

Both the Square Wallet and the Starbucks Card mobile app afford customers convenience in the purchasing process. These apps also provide valuable information to customers. In the closed-loop system of a loyalty program (one where you can track the effectiveness of marketing efforts through the sales information obtained during loyalty card or loyalty app use), a merchant can also learn from and refine its offerings for its customers. Adam Brotman, Starbucks chief digital officer, gives a specific example of the power of integrating customer analytics, customer relationship management information, and a targeted database approach. According to Adam, there are more than 10 million members in the Starbucks loyalty program, of which about 5.5 million have opted in to receive communications, marketing messages, and offers from Starbucks. On average, those 5.5 million opt-in customers receive a weekly e-mail from Starbucks (although the frequency is higher for those who purchase merchandise from the StarbucksStore.com website and separately opt in for communications through that platform). The frequency of e-mails also tends to increase around the holidays.

Adam addresses the targeted nature of these e-mails by noting, "We tend to create about five or six different groups of emails so that we can make sure that people get an offering that is highly relevant to them. For example, we looked at our database of My Starbucks Rewards members and isolated customers who buy food regularly. We then started examining other characteristics about this group such as what drinks they were buying, when they were coming in, and other demographic or psychographic variables. We then did predictive modeling by looking at the rest of our My Starbucks Rewards customer database." In essence, Adam notes that his team found other individuals in the rewards customer database who were similar to the regular food customers in behavioral and demographic characteristics, with one exception: they were not buying food at Starbucks. Adam's team then crafted a message targeted at these individuals, encouraging them (without making a discount offer) to consider Starbucks food offerings. The e-mail also featured attractive pictures of Starbucks food. Several hundred thousand of these customers who had behavioral characteristics that resembled those of regular food customers received this targeted e-mail. According to Adam, "Customers who received the food email purchased food seven times more often than they ever did before. We had an initial sales lift with a sustained tail effect and this targeted group performed 700 percent better than the control group performed."

While Starbucks is utilizing data gathering, analysis, and data modeling approaches to better forge relevant messages to and connections with customers, Adam and other leaders at Starbucks readily admit that they are still working to create more tools to automate these processes. Additionally, the leaders are looking for ways to communicate more efficiently and personally into the mobile inbox that is part of the Starbucks Card mobile app. Rather than targeting their communications to traditional e-mail, the future holds great opportunities for Starbucks leaders to send messages through the mobile app, thus utilizing the app as a one-to-one connection platform. Eventually, Starbucks leaders will also be able to personalize the look and feel of the company's website and mobile app based on their knowledge of the individual user. The Starbucks website and app can be presented differently depending on the characteristics of the customer.

Before we leave our discussion of the capabilities and importance of the Starbucks Card mobile app, let's take a moment to understand how the app engages customers through "gamification" strategies. Amish Shah, chief product officer of the mobile apps company Bitzio, Inc., describes gamification as "using game-type mechanics in non-game businesses to increase efficiency, customer loyalty and engagement." As it relates to Starbucks, Amish notes, "Starbucks has incorporated game mechanics and design into its popular loyalty program. Through multiple reward levels and a progression tracker, Starbucks coffee lovers are continually given incentives to engage with the brand." From a visual perspective, this "progression tracker" takes the form of virtual gold stars falling into a virtual cup on the Starbucks Card mobile app, and it is just one example of the company's deployment of gamification principles.

Conversations with Starbucks leaders who are involved with digital technology often focus on the mechanics of popular online games. Beyond acknowledging the fun and theatrics of games like World of Warcraft, Zynga Poker, and Rovio's Angry Birds, common drivers behind the success of these games include factors such as achievement, rewarding frequency, and being able to publicly show advancement. With this awareness, leaders at Starbucks are integrating emotional drivers from game theory into the ways they engage customers through their mobile devices. One example of how Starbucks deploys gamification came in the form of a two-week, seven-round scavenger hunt in collaboration with the American pop singer and song-writer Lady Gaga. Each round involved customers decoding clues by going into Starbucks stores, using mobile QR readers, and visiting Starbucks digital properties and blogs. The scavenger hunt was designed to get customers to want to work in teams and share their experiences. The venture was a win/win for both Starbucks and Lady Gaga, as she released a new album during the hunt and customers gained exclusive access to it on the Starbucks Digital Network. The winners of each round received Starbucks and Lady Gaga prizes. The Starbucks/Lady Gaga marketing and gamification example reflects the power of working with individuals or organizations that have the ability to generate social media interest, followed by welcoming customers to gain special access or playfully interact.

**REFLECTION ON CONNECTION**

1. How would you assess your success in forging a digital connection of trust and relevance?

2. Do you have a multipronged and integrated strategy concerning digital and mobile solutions?

3. Are you using game-type mechanics to increase efficiency, customer loyalty, and engagement? How can you deploy common drivers behind popular games more successfully in your digital strategy, such as by rewarding achievement or frequency and enabling public displays of achievement?

#### **GIVING CUSTOMERS SOMETHING TO TALK ABOUT—IT'S A SOCIAL MEDIA WORLD**

In many ways, Starbucks, by the nature of its culture, was well suited for social media. After all, Starbucks leaders value emotional engagement and connections with customers and community. Yet in other ways, a full commitment to digital and social strategy took a mind shift for its leaders. For example, Chris Bruzzo, senior vice president, Channel Brand Management, was charged with launching Starbucks in the social space. Chris notes that the social connection is authentic to the Starbucks brand and that coffeehouses by their nature facilitate social meeting networks: "In a sense, coffeehouses have served as the original social network. That said, Howard called me around Christmastime in 2007 and shared, 'We need to be in the social and digital space. I know people have been giving me that message for a while, but now we've got to move. We are struggling to hear our customers, and we must address this digitally.' Howard propelled us to launch the My Starbucks Idea customer idea site in 2008, and shortly thereafter to move into Twitter."

In Chapter 3, I shared the benefits of the MyStarbucksIdea.com site from the perspective of hearing the voice of the customer. It is important to note that the site has also helped change the Starbucks culture in a way that is necessary for future social media success. Prior to the customer idea site, messages to and from customers were mainly routed through the brand communication division at the Starbucks Support Center. My Starbucks Idea created a much broader and more immediate dialogue between customers and Starbucks subject-matter experts. Against that backdrop, Starbucks could next launch onto the highly interactive microblog platform of Twitter. Chris Bruzzo notes that Starbucks Twitter (@starbucks) launch was greatly aided by having the right person approaching the right leader at the right time: "This young technical guy knocked on my door one day and said, 'Chris, I want to grow and I want to help develop the business through social. I think Twitter could be the place.' This was before Twitter was a well-known concept, and frankly, I didn't fully appreciate what it had to offer or how it would effectively work for us. But since this partner had a background as a barista and he envisioned Twitter as a 'way to extend the barista connection online,' I thought we should give it a chance. Starbucks engaged Twitter before any other social media thanks to that partner because he perceived it to be the place for brands. Facebook was not getting a great deal of traction for companies at the time. On the first day the account was created, Starbucks had 600 followers; 1,500 the second day. Starbucks has over 3 million followers as of mid-2013."

From the perspective of outside analysts, the Starbucks approach to Twitter is praised on the basis of its direct engagement with customers and responsiveness to customer service issues. Kylie Jane Wakefield, writing for _The Content Strategist_ , notes, "Checking out Starbucks' Twitter page, it's visible that most of the tweets are directed at users.... In fact, many of its tweets start with 'sorry about that!' or 'sorry to hear!,' offering dismayed customers solutions to their problems. Instead of losing disgruntled customers, Starbucks directly responds, solving the issues and making sure that customers are, in the end, satisfied.... By responding to customers directly and doing its best to fix the problem, Starbucks shows that it cares about the people who buy its products." From a social media perspective, Twitter fits well with the Starbucks focus on "uplifting moments" and personal connections. As a result, the Starbucks Twitter strategy is to speak directly with customers as opposed to microblogging "look at us" or marketing-type messages.

While Starbucks had an easy entry into Twitter, the company's Facebook page required initial groundwork. Alex Wheeler, vice president, Global Digital Marketing, and the first person to be hired to address social and digital issues as part of the Starbucks brand team back in 2006, notes, "It took a little effort for us to establish our official presence on Facebook. In order for that to happen, we connected with the Facebook page owners of about a dozen existing fan pages. All together there were probably about 30,000 fans across those dozen pages. We let those page owners know that we wanted to consolidate their pages to have an official presence. Everybody was very receptive and excited about that consolidation and that was the beginning of our Facebook journey."

Two of the key elements in the Starbucks Facebook strategy are authenticity and interesting content. Starbucks is committed to making friends, not offers. In essence, the Starbucks social media team wants to generate credible interest, not to give people incentives to follow the company. Using that test, Alex and her colleagues on the social media team have helped steer the Starbucks page away from "baits." A bait is where you get someone to "like" your page so that he can see additional content.

In addition to authentic and high-quality content, Starbucks leaders seek to deliver frequent and consistent messages. For example, the social media team tweets daily and posts on Facebook with regularity, but not in an overwhelming fashion. Specifically, the team believes that its Facebook feeds should engage the appetite of Starbucks followers without overwhelming them with content. The social media team also reads posts that people place on the Facebook wall and engages with them actively. A significant challenge for this team is managing the scale of activity on these sites. For example, there have been threads that had 30,000 comments on a status update. From a strategic perspective, managing scale is a good problem to have. Twitter posts and Facebook feeds should engage the appetite of your followers without your bombarding them with messages. Twitter and Facebook are about connecting. There are more appropriate settings for selling and closing.

In addition to Facebook, Starbucks has a strong social presence through YouTube, Google+, Foursquare, Instagram, and Pinterest. Also, the company's employment team has been actively involved with LinkedIn. With regard to YouTube, a marketing content specialist at Pardot, Matt Wesson, notes, "Starbucks is constantly expanding its content channels and exploring new formats to connect with its customers. I believe it is also one of the best companies out there when it comes to the use of video to tell its brand story. The company's YouTube channel has over 250 videos that focus on the company's values, give 'behind the scenes' insight, and share customer's personal experiences."

Despite effective expansion onto new platforms and praise from analysts, forward-moving Starbucks leaders are continuously looking for new ways to innovate their social media strategy. Adam Brotman states, "We are excited about the opportunity to do a lot more with YouTube. When we tell story through video, we're just as apt to embed those videos into the player on the home page of Starbucks.com as well as embed them within Facebook. So when we connect and tell our story through video, YouTube is only one of several different channels that we're utilizing. Given the speed of change in the digital space, complacency or a sense of contentment is not an option." Great leaders continually seek to leverage the options that are emerging through technology and to position their businesses on social platforms more effectively and strategically.

#### **WHY STARBUCKS IS SUCCESSFUL IN SOCIAL MEDIA**

In 2012, PhaseOne, a leading analytical-based marketing communication research firm, conducted a study that looked at 75 top brands across six vertical markets: automotive, dining, food/beverage, retail, services, and technology. In order to assess social engagement, PhaseOne analyzed the brands in its survey by using metrics such as Facebook likes, Klout scores, and Net-base sentiment analyses. The conclusion: _Starbucks is the number one brand when it comes to engaging social media users_. In discussing this finding, PhaseOne researchers noted, "To achieve this successful social media engagement, Starbucks focused its Web page, Facebook page and television advertisements on the individual and his or her individualized experience with the brand. For example, Starbucks Facebook page engages the visitor by speaking to his or her coffee preferences and personal stories." While individualized experiences and unique preferences are substantial components of Starbucks social media success, the company also benefits from a thoughtful and respectful approach to each social platform in which it participates. By taking this strategic and methodical approach, Starbucks ultimately draws participants on those platforms toward the brand.

Many companies jump on emerging social platforms with zeal; however, Starbucks leaders take a more calculated approach to entry. Members of the Starbucks social media team examine each new platform opportunity to determine whether there is a fit with the human connection that is the essence of the brand. Similarly, they look at whether they have the resources to engage on that platform effectively while seeking to respect the existing members of the community. Adam Brotman notes, "Considering the level of reach and engagement we have achieved, we are a pretty small team that is very thoughtful about our commitment to an emerging platform. Let's take Pinterest as an example. It is such a personal platform that we knew we should be there. As it was taking off, we saw a lot of our customers on Pinterest and we were eager to reach and connect with them but we spent about 6 months discussing our launch. Behind the scenes, we were agonizing about not getting on the platform quickly, but we also wanted to do it right. If you get into Pinterest you realize there's a way to engage and a respectful way to show up. Just like on Twitter, Facebook, and Instagram, there is an authentic approach needed to engage the community and we had to place that into the context of how we honor our brand essence. When we did engage Pinterest with a concept of Starbucks love, we tended to post and pin a lot of things that were not our own. We put considerable thought into the Pinterest boards we put up." In the context of its "Starbucks Loves" theme, Starbucks pins things like coffee, food, music, and inspiration. As a result, Starbucks boards include "real food," "coffee moments," and "inspiring places." These themes are not only at the heart of the brand but close to the hearts of Starbucks customers.

By building social media connections through individualized experiences, unique preferences, thoughtful platform selection, and respect for the platform community, Starbucks pulls customers to its content, as opposed to pushing marketing material to them. Mark Bonchek, PhD, founder of ORBIT+Co, describes this as creating "gravity." Mark states, "Where traditional companies push out messages and products, these companies pull customers in. Instead of treating customers as passive targets, they treat them as active participants. Like the sun in a solar system, they create a gravitational field that pulls customers into their orbit. They go beyond customer loyalty to building customer gravity."

Thanks to this gravity, Starbucks has done what many brands only talk about: translate social media and digital spending into ROI. Alex Wheeler, vice president, Starbucks Global Digital Marketing, notes, "One of the really important moments in our social media journey occurred in 2009 when we did Free Pastry Day. We decided to launch our new food platform through digital only, which was very unusual for us. The question was: could digital and a free food offer drive traffic? On the strength of digital/social, a million people went into Starbucks that day, and we created awareness through about a million and a half pastries." While it's one thing to see that many people in a Starbucks store for a free item, the company routinely garners hard data that show digital investment to be an efficient business driver. As Alex puts it, "We have validation of the amplifying effect that digital engagement has on the direct marketing and paid marketing investment."

#### **BENEFITING FROM THE AMPLIFYING EFFECT OF SOCIAL MEDIA ON PAID DIGITAL ADVERTISING**

On a purely strategic level, Starbucks leaders see both social media and paid digital advertising as playing important roles in creating connections with customers. Paid ads expand the brand's reach, while social media addresses reach along with engagement, fun, and brand building. Starbucks leaders are building fans and followers through social media and are deciding when to do something in that space that is directed at promotion or at engagement. If leaders are seeking engagement, they attempt to trigger "virality." Adam Brotman puts it this way: "In social, if somebody likes you or likes your comment, it shows up to their friends, family, and followers. When they retweet you in social, it literally amplifies and magnifies your brand's reach. The benefit of social is that people are engaging with us. They are telling their friends that they are checking in at a Starbucks, and they are usually telling it on Foursquare and connecting their Foursquare to Facebook or Twitter or Instagram. We integrate paid digital advertising into our social strategy. We take the viral effect of the messages we send into our regular feed and enhance them intelligently by connecting with paid digital advertising in the social space. So when we do promoted tweets and promoted stories on Facebook and Twitter, we efficiently lower the cost of each paid impression and connect with that many more customers."

Dave Williams, CEO, BLiNQ Media, who likens Facebook to the world's largest cocktail party, suggests that the goal of the medium should not be to give a hard sell on the platform, but to achieve likes—the equivalent of receiving a business card at the party. Dave notes that the Starbucks approach to the integration of social and paid media is a desirable best practice. "For me, consumer-initiated ads are the future of advertising, not only on Facebook, but across other social networks too. Facebook's Sponsored Stories—initiated by the consumer, not the brand—is one of the cleverest ways to tap into this data mine. Here the user becomes a brand champion, with micro interactions such as likes, posts, check-ins or apps used relayed to friends and turned into subtle, but promoted content. Starbucks is the obvious brand example here that has utilized Sponsored Stories well, steadily building up its fan base before using the social graph to pick up on discussions around coffee breaks and its various food and drink products, and serving up ads with a social context."

Given Starbucks thought leadership on social media strategy, I asked Adam Brotman to offer his advice directly to readers like you. His response was straightforward: "I can't imagine there is a more powerful place than digital when it comes to connecting with your customers, telling your story, or gaining reach. Digital is everything from a website to digital marketing and even loyalty. Square is a great example—for a physical retail merchant, Square gives you the ability to not just have an efficient way to accept credit card payments easily but they've created an entire operating system between the small merchant and his or her customers and you can complement that with Twitter and Facebook and a compelling website." Adam also offered the opinion that every business should have a dedicated person or team that pays attention to community management, brand building, and marketing through digital. If a business is small, those responsibilities might be only part of a single individual's job description, but they need to be addressed consistently and tactically. Adam suggests that you need someone to "commit time to thinking about the platform that fits your business and customer interface, and not just social media but your own website, your loyalty program, how you use payment as a form of communication, the nature of customer relationship management systems, and how data can guide your marketing and engagement strategy. Whether there are two people or 2,000 people in your business, you have to have a strategy. You can be scalable and customizable, but you must have someone to chart and monitor the course."

**REFLECTION ON CONNECTION**

1. How strategic are your decisions concerning the social media platforms through which your brand will engage?

2. Are you looking for ways to measure the ROI and amplifying effects of your social and media strategies? Are you linking paid digital advertising to your social media strategy?

3. Have you dedicated resources to "commit time to thinking about the platform that fits your business and your customer interface,... your own website, your loyalty program, how you use payment as a form of communication, the nature of customer relationship management systems, and how data can guide your marketing and engagement strategy"?

#### **TECHNOLOGY THAT SERVES MISSION**

Starbucks leadership has made vast investments in technology, some of which its customers and partners notice, while others operate in the background. The bulk of these capital expenditures targets the delivery of uplifting moments and enhancement of the Starbucks connection. One of the most obvious of these changes was the company's transition to having one-touch free Wi-Fi in stores. The company's former chief information officer told me he knew Starbucks was behind the times several years back when he went to the taco truck outside the Starbucks Support Center in Seattle and noticed that the truck was offering one-click free Wi-Fi, but Starbucks was giving customers only two hours of Wi-Fi a day, and only if they registered a Starbucks Card and kept a minimum balance of $5 on it. So in 2009 Starbucks made the investment needed to make Wi-Fi seamless and easy to use. At the same time, Starbucks worked with content partners to create the Starbucks Digital Network, which allows customers who use the in-store Wi-Fi network to access free curated Internet content from various partners. For example, customers can get a Pick of the Week download from iTunes, view local businesses on the Square Directory, scan a local restaurant review, or read a book through New Word City. From premium content to locally relevant information, the Starbucks Digital Network provides added value to enhance the in-store Starbucks Experience.

Another less obvious example of technology being used to improve the in-store connection is a project as mundane yet massive as the overhaul of the stores' Point of Sale (POS) system to something called Simphony. Curt Garner, Starbucks chief information officer, notes, "To take an order in our old POS, it had to be entered in a particular sequence, with size first and then drink and then any modifiers." Leaders observed ordering interactions and noticed that even regular Starbucks customers who had actually learned the correct ordering sequence for their drinks occasionally were tripped up. For instance, let's assume that someone regularly comes into Starbucks by himself, but on a particular occasion is accompanied by his child. The customer says, "I'll have a double short peppermint mocha, a hot chocolate, an oatmeal, and a turkey bacon breakfast sandwich." In that stream, the barista would be forced to remember the hot chocolate and not ring it in until she could go back and clarify the size. Obviously such a system placed a considerable cognitive demand on the baristas, distracted them from full engagement, and produced ordering errors. A new customer might come in and give an order that was not in the prescribed sequence; the barista would repeat the order in the way that was necessary to ring it into the POS, but it often sounded as if the customer was being corrected. Curt notes, "From all those observations, the idea of conversational ordering was born. That notion was we would let technology resolve the order of a drink entry. The barista could enter a drink into the system in any order consistent with the customer's ordering pattern."

In essence, the computer starts constructing the drink on the screen, and it shows the default part of that recipe in light gray and what needs to be marked on the cup in dark green. Curt and his colleagues anticipated that the conversational ordering aspects of the new POS would be of particular value to new baristas, but they were surprised to find that tenured baristas appreciated the new system as well because it gave them a visual check that they had rung the order in correctly. Curt adds, "We also took advantage when rolling out Simphony, our Point of Sale solution, to do several things from a tech perspective that tried to look around the corner into the future. One was to create a networked solution so instead of having dumb cash registers sitting on a counter disconnected from anything in the enterprise, and then dialing into them once a day to retrieve sales, every single register has an IP address on our network. We are pulling sales from those registers constantly and also sending and receiving information from them continually. The POS architecture allows us to connect with APIs (application programming interfaces) and other routines that enable us to plug and play things like scanners and afforded us a 90-day turnaround time on Square."

A great deal of technology spend at Starbucks is also occurring on behalf of streamlining communication to those within the organization. As difficult as it is to deliver consistent leadership messages in a small organization, Starbucks leaders have the added challenge of communicating to hundreds of thousands of partners around the world. As a result, Starbucks leadership is constantly working to develop integrated technology solutions to offer options other than relying on very busy store managers to see to it that all messages cascade down.

When asked what the future of technology and digital looks like for Starbucks, Alex Wheeler said it succinctly: "Technology will evolve and people will change, but our mission will guide us. Technology will serve our mission, and we will deploy our strategies to engage our partners and customers wherever they spend their time. We will seek to stay relevant to them and uplift them through human connection."

Technology is powerful when you view it as a way to enhance the human connection rather than as inevitably leading to impersonalization. In the area of leveraging technology to fuel humanity, Starbucks leaders have produced some interesting and unexpected results, even in other businesses. For example, Jack Dorsey, CEO of Square, discontinued the use of the word _users_ thanks to the Starbucks leadership. According to Jack, Howard Schultz, a member of Square's board of directors, privately inquired why Square referred to its customers as users. Jack reflected, "The term 'user' made its appearance in computing at the dawn of shared terminals.... It was solidified in hacker culture as a person who wasn't technical or creative, someone who just used resources and wasn't able to make or produce anything (often called a 'luser')." Based on the provocative nature of Howard's question, Jack noted that Square will replace the word _user_ with the word _customer_. From Jack's perspective, this simple word change reflects a shift to a more humanity-based focus on service. Specifically, he notes that Square must stop "distancing ourselves from the _people_ that choose our products over our competitors.... We have customers we earn. They deserve our utmost respect, focus, and service."

When talking about the word _partner_ in Chapter 5, I said that _words matter_. Hopefully, the lessons provided here will help you see the powerful "human connection" that you can forge with the help of technology. Technology is not an end unto itself, nor is it something that is provided for technology "users"; it is a tool for serving and connecting with your "people" and your "customers"!

  While "brick-and-mortar" connections tend to be terrific opportunities to develop personal face-to-face relationships, most brands today face the challenge of building or extending personal connections outside of a traditional retail building.

  Key components of a comprehensive digital strategy include (1) commerce, (2) company-owned web and mobile channels, (3) loyalty/customer relationship management (CRM)/targeted database, (4) social media, and (5) paid digital marketing.

  Today, successful businesses look for ways to integrate their digital assets to build online commerce, brick-and-mortar traffic, customer engagement, and consumer loyalty.

  Twitter and Facebook approaches should focus on consistent but not overwhelming levels of communication, delivered for the purpose of connecting.

  When you consider engaging on an emerging social media platform, you should consider three aspects: Does the platform fit with your brand? Do you have the resources to sustain engagement? Have you spent time understanding how people prefer to interact on that platform?

  By building social media connections around individualized experiences and unique preferences, you are likely to pull customers to your content.

  No matter what the size of a business, its leaders should designate someone to be in charge of social media strategy.

  Technology should serve the mission, not the reverse.

  Technology is powerful when you view it as a way to enhance the human connection rather than seeing it as inevitably leading to impersonalization.

  Technology might be something that you should not view as being provided for "users," but instead should see as a tool for serving and connecting with your "people" and your "customers"!

###
**Personal Relationships Translate: Sharing the Love from People to Products**

_Advertising moves people toward goods; merchandising moves goods toward people_.

MORRIS HITE

When personal relationships are created between employees and customers and strengthened through the use of technology, brands are given permission to transfer those emotional connections to new product offerings. Starbucks is an example of how to take in-store person-to-person connections and leverage them into consumer packaged goods (CPG) categories such as Starbucks VIA® Ready Brew (individual servings of instant coffee), Starbucks ready-to-drink beverages, bulk-packaged coffee and tea, and other Tazo and Starbucks-owned branded products that are served by foodservice providers. In a case study on relational capital (translating human connections into marketable value), Ranjay Gulati, Sarah Huffman, and Gary Neilson suggest that Starbucks has earned a license to sell consumer packaged goods: "Due in large part to Howard Schultz's careful nurturing and development of the Starbucks Experience, the company has been able to leverage its increasingly strong brand through a variety of alliances to sell Starbucks coffee and develop new products with the Starbucks name. The goal in establishing these relationships has been to continue to develop the brand outside the company's retail stores in order to reach customers through multiple points of contact..."

That having been said, many people are surprised to find that Starbucks started out in the bulk-goods business, _not_ the brewed coffee business. The original Starbucks store dark-roasted small batches of coffee beans and sold them to in-store customers, by mail order, and to local restaurateurs. In essence, Starbucks began as a consumer packaged goods business. Leaders later strategically positioned the company as a global service experience business, delivering brewed coffee and espresso-based drinks. While the leaders built the brand into the global giant that it is through the store-based connection (the third place), they have more recently mobilized the connection to move into customers' homes (the first place) and offices (the second place). Because of the success, connection, and love they've forged in the Starbucks stores, the leaders have also developed a substantial market selling in the business-to-business space. In addition, the leadership has fostered new product innovation that serves consumers' mobile lifestyles.

Throughout this chapter, we will examine how Starbucks deploys a multichannel approach to product creation, launch, and delivery. We will explore innovation in both coffee and adjacent categories, and also look at how Starbucks positions its products to be used where customers want them—and not necessarily requiring customers to come into a Starbucks-branded location. This chapter is designed to help you see how Starbucks innovates relevant product offerings in new categories through either strategic business alliances, innovation, or acquisitions. It is intended to help you take your existing connection with customers and extend it into their highly mobile lifestyles.

#### **RECLAIMING COFFEE MERCHANDISING—IN STORE**

While most customers look at a Starbucks store as a place to grab a cup of coffee or to share a conversation while enjoying a beverage or food item, each store also has a limited amount of prime merchandising space available. As you will recall from Chapter 2, in the mid-2000s, Starbucks store managers became so concerned with their year-over-year comps that the merchandise shelves in Starbucks stores were filled with non-coffee-related products. This prompted Howard Schultz (who was functioning as the chief global strategist for Starbucks at the time) to write an e-mail memo to then–chief executive officer Jim Donald, with copies to the Starbucks senior leadership team, on February 14, 2007. That e-mail, which somehow was leaked to the media, was titled "The Commoditization of the Starbucks Experience." In it, among other things, Howard wrote, "I am not sure people today even know we are roasting coffee. You certainly can't get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don't have coffee grinders, French presses from Bodum, or even coffee filters."

Merchandising in Starbucks stores has certainly changed since Howard crafted his cautionary memo. In my nearest Starbucks store in St. Petersburg, Florida, and probably in a store close to you, there are normally two seven-feet-tall by four-feet-wide displays with seven shelves of merchandise in each. This merchandise usually includes the Bodum French Press pots that Howard wanted to see in 2007. In addition, the shelves contain various hot and cold Starbucks-logoed mugs and cups, canisters of full-leaf Tazo tea, boxes of Tazo tea bags, and Starbucks VIA instant coffee and tea packages. These shelving units are supplemented by four or five wicker baskets that sit in containers on the floor and typically hold various coffee blends and occasionally packaged food items like potato chips or gourmet popcorn. Complementing these baskets are packaged food and beverage items in or around the display case, including Starbucks Refreshers™ beverages, Evolution Fresh juices, milk products, fruit cups, yogurt cups, Starbucks ready-to-drink beverages, Ethos® water (a Starbucks subsidiary), and Starbucks branded nuts and fruit snacks. At various locations around the café, there are specialty merchandise tables displaying items like the Starbucks at-home espresso brewing machine, the Verismo® system by Starbucks, and espresso and milk pods used in that machine.

The presence of coffee-related items in Starbucks stores is congruent with a broader business strategy that includes diversifying the company's sales mix well beyond the products that baristas handcraft for customers. This enhancement of Starbucks consumer goods follows a path that has been successfully traveled by foodservice brands like Ben & Jerry's ice cream, which was once a small ice cream store in Vermont and is now a powerful brand that is owned by Unilever. Ben & Jerry's now operates a vast global network of ice cream shops and enjoys widespread distribution of its packaged ice cream in supermarkets and convenience stores. Jeff Hansberry, president, Starbucks Channel Development and Emerging Brands, notes, "Starbucks captures only a small portion of the $100 billion coffee, tea, and ready-to-drink beverage market globally.... We are working to build a greater share of that global opportunity with our [consumer packaged goods] business by growing across channels, categories, and countries where our products are sold."

Annie Young-Scrivner, president, Starbucks Canada and former global chief marketing officer and president of Tazo, places the scope of this retail opportunity in the context of the four Starbucks location models: "We really want to make sure we're earning the connection with the customers no matter where they are. Our future is based on selling coffee and related products for customers to use at home, at work, in our stores, and on the go. We have great opportunities for gaining market share and expanding our business out through consumer channels that stretch well beyond our vast store footprint." The evolution of this Starbucks channel strategy offers lessons for us all—namely, define an initial channel of delivery, master execution in that channel, then direct your efforts more broadly to other channels of distribution that meet your customers' needs wherever they are. As you look at your business, how are you performing on the "four-place" model that Starbucks uses? Are you engaging your customers with your products, services, or communications in their home, at their work, in your building, and at all the places in between? To achieve this breadth of presence in its customers' lives, Starbucks must rely upon and serve the needs of other businesses that wish to either sell or distribute its products. Given this reliance on other business entities, let's take a moment to understand the business-to-business side of Starbucks.

#### **DELIVERING THE BUSINESS-TO-BUSINESS CONNECTION**

Starbucks is not exclusively a business-to-customer (B2C) company. In reality, the company engages in several types of business-to-business (B2B) relationships that support an ever-widening sales mix. Most notably, these include foodservice customers, licensed stores, and joint-venture partnerships.

On the foodservice side, Starbucks offers training, marketing, and merchandising expertise along with equipment and a portfolio of beverage products (including brewed coffee, hot and cold espresso-based drinks, syrups, cocoa, and Tazo tea) to business customers in retail settings such as fine dining, travel, recreation, universities, government offices, lodging, and health-care facilities. In addition, Starbucks sources companies' internal beverage needs, including those for cafeterias, public spaces, meetings, and catering. When you attend a conference and the break station has a sign that says we "proudly brew" Starbucks coffee or when you see Starbucks coffee being served at a restaurant at which you are dining, you are experiencing the Starbucks brand extension into the foodservice space.

In the case of licensed stores, businesses like Kroger, Vons, and Safeway (large supermarket chains) own, staff, and operate the physical store or kiosk locations under a Starbucks-approved license. In addition to a strong licensed store position in supermarkets (a favorable affinity placement for leveraging sales into supermarket aisles), licensed stores are also frequently located in airports, general merchandise retailers like Target and Meijer, and other compatible settings.

In some cases, Starbucks goes beyond a licensing agreement to a full-fledged joint-venture alliance with a distribution partner. In fact, Starbucks longstanding relationship with other companies in consumer goods began in 1994 with its North American Coffee Partnership agreement, which involved collaboration with PepsiCo North America. Through this agreement, Pepsi manufactures, markets, and distributes ready-to-drink coffee beverages in a joint-venture arrangement. Currently these ready-to-drink beverages carry either the Starbucks or the Seattle's Best Coffee brand. (Seattle's Best Coffee is a company that started roasting coffee on a Seattle pier in 1970. It was a rival company that Starbucks purchased in 2003.) Specific coffee beverages made available through this joint venture include Starbucks® bottled Frappuccino® coffee drinks, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy+Coffee drinks, Starbucks® Iced Coffee, Starbucks Discoveries, Iced Café Favorites, and Starbucks Refreshers.

In these joint-venture arrangements, Starbucks leadership must ensure that both parties are carrying out their responsibilities in a reciprocal relationship where both companies gain from the other's efforts. In Chapter 7, we discussed how choosing the right collaborative business partner is critical to success in new markets, particularly international ones. Similarly, partner selection is of great importance when it comes to extending the breadth of your offerings. Gary Stibel, founder and CEO of the New England Consulting Group, notes, "The key is choosing a partner.... Everybody thinks most licenses succeed—it's absolutely the opposite. The vast majority of all licensing arrangements or attempts to enter [consumer packaged goods] by restaurants fail." To appreciate the complexity of the challenge of CPG licensing, food and travel writer Robert Lillegard notes, "Even long-standing relationships can grow sour. Starbucks and Kraft had a very ugly public split in 2011 after the coffee giant claimed that the distributor wasn't doing enough to promote its products." Robert adds that Kraft sought to enjoin the 13-year partnership from dissolving, "but was ultimately unsuccessful. Now the two companies compete for shelf space, with Kraft's Gevalia and Maxwell House going up against Starbucks' offerings." The Kraft relationship notwithstanding, Starbucks leaders have enjoyed strong licensed and joint-venture partnership arrangements, largely because of the way Starbucks leaders perceive themselves as serving their business partners.

Whether it is selling through a foodservice customer, a Starbucks licensed store, or a joint-venture partner, Starbucks leaders expect business-to-business service experiences to reflect Starbucks mission and values while producing strong connections and relationships like those forged in the café environment. Starbucks seeks to provide solutions and partnerships that improve outcomes by connecting with and anticipating the needs of business customers. Beyond products, Starbucks leaders want the company's business customers to experience personalized care based on a deep understanding of where their business is going and the goals they wish to realize from working with Starbucks. In essence, business customers should enjoy a Starbucks Experience marked by personalized attention and a commitment to a lasting relationship.

For Starbucks, serving business customers and business partners takes on added significance for brand equity. Andrew Linnemann, vice president, Green Coffee Quality and Engagement at Starbucks, notes, "When a customer is served in a licensed store, for example, our name is on the cup. We need to care for our business customers and select our business partners carefully because their actions reflect on the way Starbucks is perceived through the customers they serve. When it comes to licensed store partners and joint-venture partners, we are looking to not only understand their operational competencies but we want to know who they are as a company and a culture. Do they share and demonstrate similar values as us? We will walk away from a licensee or joint-venture partner if it's not the right fit."

In the mind of the end consumer, a Starbucks is a Starbucks, whether it is a licensed store in an airport or a company-owned store down the street. From the perspective of the leadership, the service experience at Starbucks should be uplifting, personal, and relationship-focused, whether a Starbucks partner is serving a customer in a Starbucks store or a Target employee is serving Starbucks products to a customer in a Target location. In the end, a business is not buildings or brand names; it is a collection of people who should share like-minded objectives. While the delivery of a business-to-business experience has to vary based on the needs of the business being served, this is equally true for the delivery of experiences to individuals.

Ultimately, the principles that define great customer experiences are extremely similar, no matter whether your customer is an individual consumer or a group of individuals from different departments within a business. With the right partners in place and a rich understanding that the needs of your business partners have similarities to those of your individual customers, you should be positioned to present your offerings to connect with your customers across all settings. For Starbucks, a key strategic opportunity exists in serving customers in their first place—their homes.

**REFLECTION ON CONNECTION**

1. With whom do you partner to magnify the scope of the customers you can serve?

2. Do you view business partners as customers of your business? How do you see your relationship with your partners affecting your service to your end customers or to those that they serve?

3. Have you earned a "license to sell" other services or products to your customers through the strength of the connections that you form in the delivery of your current slate of offerings?

#### **SERVING CUSTOMERS AT HOME**

While it initially partnered to distribute its packaged coffee products, Starbucks has taken over the manufacturing, distribution, and sale of those items, and the leaders at Starbucks continue to innovate ways to place their coffee products in settings other than their stores. This has led critics to warn that Starbucks is grabbing for profit in mass retail in a way that will compromise its in-store sales. For example, when Starbucks launched its single-serve instant coffee product VIA in 2009, Steve Toback, managing partner of Invisor Consulting, noted, "Starbucks is positioning VIA against its own fresh brewed coffee, challenging people to see if they can taste the difference. So, why should customers pay a premium for Starbucks fresh brewed coffee when they can get VIA for a buck a cup? If the campaign is successful, won't VIA potentially cannibalize fresh brewed coffee sales?" While these outsiders' concerns are reasonable, Starbucks leaders have not experienced cannibalization and in fact have grown sales by combining in-store and in-home coffee options. Ultimately, the leaders' ability to see and seize opportunities across channels is what drove the decision to expand the company's offerings. The decision emerged largely from the leadership's acute sensitivity to the different need states and rituals that surround coffee consumption. Some customers may visit Starbucks regularly for their morning coffee, but still have times when they want to make high-quality coffee at home. Similarly, some might have a morning ritual in which they routinely make coffee at home, but also stop at a Starbucks store during a morning break. In essence, coffee consumption is not a zero-sum game where customers choose to either brew at home or go into a Starbucks store, and this is something of which the leadership team was acutely aware.

Because of the complexities and the dynamic nature of the consumer packaged goods marketplace, Starbucks leaders are constantly facing tactical challenges. For example, Starbucks worked with a competitor, Green Mountain Coffee Roasters (GMCR), to craft a partial partnership. GMCR, a Vermont-based specialty coffee company, acquired Keurig Incorporated in 2006. Keurig is the market leader in single-cup brewing machines for the consumer market. The Keurig machines offer ease of coffee brewing by requiring coffee drinkers to simply place a mug under the brewing mechanism, add water to a reservoir, insert a single-serving coffee packet (referred to as a K-Cup pack), and push a button. Through the acquisition of Keurig, GMCR positioned itself as the exclusive supplier of K-Cup packs. In addition to providing its own coffee brand, GMCR purchased the Quebec-based coffee company Van Houtte and added K-Cup packs with the Van Houtte name. Other brands like Newman's Own and Folgers have entered into licensing agreements with GMCR for manufacturing and distribution of their coffees in K-Cup packs for use in Keurig brewing systems.

So what could Starbucks do in terms of positioning its products in K-Cups? Starbucks had previously endorsed the Tassimo coffee brewer (which is a direct competitor to Keurig) and sourced coffee in a different single-serving format (t-discs) needed for use in the Tassimo system. Given the termination of Starbucks agreement with Kraft Foods Inc., the Tassimo system, which was created by Kraft, was less integrated into Starbucks existing distribution system. Many coffee consumer analysts speculated on the course Starbucks would take with its historic rival GMCR and the Keurig system. Some suggested that Starbucks would acquire GMCR; others indicated that Starbucks would create its own alternative to both Tassimo and Keurig. But in March 2011, Starbucks and GMCR announced a K-Cup agreement. Since that time, Starbucks has expanded its license with GMCR to include products for Green Mountain's Vue™ brewer (which is a newer system that produces stronger, hotter, and larger beverages). Through their collaboration, Starbucks is the exclusive licensed super-premium brand for GMCR's traditional Keurig and Vue brewers. In addition, GMCR distributes Starbucks K-Cups and Starbucks Vue packets to department, specialty, and mass retail stores. In discussing the decision to engage with GMCR, Andrew Linnemann, vice president, Green Coffee Quality and Engagement, notes, "In the United States, the growth of the coffee sector has been refueled by single-cup brewing systems, and it makes sense to offer our highest-quality coffee to those looking to enjoy the convenience and consistency of delivery through their Keurig." Imagine that one of your competitors creates a platform on which you can sell your goods. You know that selling on that platform will be good for you from a distribution standpoint, but will also fuel the strength of your competitor. What would you do? While Starbucks has found a way to collaborate with GMCR, that does not imply that healthy competition has ended.

In 2012, Starbucks released a home-brewing single-serve system. The Starbucks brewer creates not only drip coffee drinks, but espresso and latte beverages as well. The Verismo system features Swiss-engineered high-pressure technology to create Starbucks-quality drinks through the use of milk and coffee pods. From the perspective of Starbucks leaders, Verismo offered a variety of important opportunities for customers and for Starbucks. These included such things as (1) an at-home brewed coffee option, with an adjustable high-pressure system specific to your drink selection, (2) an opportunity to release a product that goes beyond brewed coffee and also creates Starbucks signature espresso beverages, and (3) a chance to create a proprietary coffee-brewing platform for Starbucks that fits nicely as a merchandise item in Starbucks stores. The tactical decisions made in the highly competitive coffee brewer world demonstrate key lessons for leaders. Specifically, leadership requires skill in collaboratively positioning products in the context of competitors' proprietary delivery systems while constantly innovating proprietary delivery systems of their own through strategic relationships with manufacturing and distribution partners.

#### **COFFEE IN THE SECOND PLACE: THE WORLD OF WORK**

A 2012 Reuters survey suggests that about 10 percent of the world's workforce works from home. The remainder may find themselves at the mercy of the oft-maligned world of office coffee. Through the years, companies like Starbucks have been elevating the experience of the office coffee brewer and providing solutions to meet their customers at work. Companies with between 20 and 50 employees can select a Starbucks coffee service that provides brewing equipment, ground Starbucks coffee, and regular service. Additional items like Tazo tea, napkins, and cups are also available. Larger companies can enjoy the same coffee service or upgrade their brewing system to the Starbucks Interactive Cup® brewer, which grinds and brews individual cups or carafes of coffee with the push of a button. To see the Starbucks Interactive Cup brewer demo, go to <http://tinyurl.com/bovsqhm> or point your QR reader here:

The success of Starbucks efforts to win the second place can be demonstrated through examples such as an alliance between Starbucks and Selecta. Selecta, Europe's largest vending services company, is working with Starbucks in Switzerland to deliver three solutions to address the needs of businesses of all sizes. These brewing/dispensing options range from small table-top products to large integrated coffee corners. Selecta provides its customers with a swath of Starbucks products, including Vanilla Latte, Espresso, Doppio Espresso, Cappuccino, Café Crème, Caffè Latte, Chai Tea Latte, Latte Macchiato, Espresso Macchiato, and Hot Chocolate, and a variety of Tazo teas, including Calm™, China Green Tips, Earl Grey, English Breakfast, and Refresh™.

According to Frank Wubben, managing director, Starbucks Switzerland and Austria, "I met the CEO of Selecta and we created the vision of how the two market leaders in coffee, Selecta in office coffee and Starbucks in retail, could bond together to build an exciting office customer proposition through Starbucks coffee. In about 5 months' time, we were able to develop our scalable office coffee concept. For me, the most important part is customers who come to our stores will have the opportunity to enjoy their favorite beverage at their office desk. Conversely, people who have not entered our stores may now do so thanks to the quality of Starbucks coffee they are enjoying at work." The leaders are banking on the fact that, rather than detracting from the in-store Starbucks connection, a product must be available in the context of both a customer's work and home life. This availability increases customer contact with the product and embeds it more deeply into the customer's rituals, lifestyle, and identity.

#### **CREATING ON-THE-GO SOLUTIONS**

While much of life is experienced at home or at work, Starbucks has created product offerings for the grab-and-go speed at which many of us live. Whether it was testing Drive Thrus in California in 1994, collaborating with Pepsi to manufacture bottled Frappuccino beverages in 1996, or the arduous process of creating VIA, the instant single-serving coffee product that was launched in 2009, Starbucks has been constantly looking to make its products available to customers so that they can enjoy a high-quality beverage wherever they go. Howard Schultz explained VIA to Starbucks partners by noting, "We announced that Starbucks will introduce an instant coffee, providing our customers with great tasting Starbucks coffee, anywhere and anytime. Not surprisingly, this news raised some eyebrows, and some cynics are asking, 'Why go instant, Starbucks?' There are numerous logical reasons: the significant size of the instant coffee market...; the increasing mobility of consumers (imagine a cup of Starbucks VIA Ready Brew on a mountaintop); and, regardless of our ubiquity, that customers continue to tell us they want more Starbucks, and more ways and opportunities to enjoy it."

Beyond market trends, Howard also emphasized the importance of sustaining the company's core values and innovating dynamic solutions that respond to the changing needs of customers irrespective of the inevitable criticism: "I know some will question our decision, and I understand this reaction. Expectations from brands like Starbucks are high, and interaction with our brand is very personal. Yet in spite of those high expectations (or perhaps because of them), we are confident we can disrupt and reinvent the instant coffee category—introducing quality coupled with value. I believe that Starbucks VIA Ready Brew is just that—and the proof is in the cup."

The proof is not only in the Starbucks cup, but in the profitability of products like VIA, which had global sales of $100 million in its first 10 months. That represented approximately 30 percent of the $330 million premium single-serving (or pod) category. Domenick Celentano, an entrepreneurial food executive, chose Starbucks VIA as one of the "most memorable new product launches" based largely on how effectively Starbucks partners sampled the product in stores and across channels (in-store and supermarket), as well as how effectively the leadership embedded the product launch through social media strategies like those discussed in Chapter 8. As far as sampling is concerned, Domenick notes, "Sampling is a time proven method for facilitating consumer trial. Starbucks having ultimate control in their own stores orchestrated sampling customers with free VIA coffee. To control their sampling effort they waited to introduce the product in grocery stores until sometime in 2010. Even though they were not in retail groceries initially, they used the brand presence of their regular line of coffee and dispatched baristas to retailers such as Safeway and Target stores to give out VIA samples to shoppers."

Annie Young-Scrivner, president, Starbucks Canada, echoes Domenick's view concerning sampling. Talking about the rollout of Starbucks Blonde Roast, Starbucks light roast coffee, Annie notes, "What is different here than at other consumer package companies is our sheer ability to drive awareness and trial in a very cost-effective way. So as an example, after two weeks we had exceptional awareness on Starbucks Blonde Roast, which is incredible." Annie suggests that those extraordinary levels of awareness are achieved with an absolute spending rate that is only 10 percent of what competitors often need to spend to achieve similar results. She explains, "We have been able to efficiently gain awareness and trial due to the excitement and enthusiasm of our fantastic 200,000 partners across the globe who engage nearly 70 million consumers every single week. In order for other CPG companies to get a trial, they typically have to go through a third-party grocery sampling or a dry sampling. We, however, can get a fresh cup of coffee right in front of our customers as they walk through the door and create excitement around the new product launch, while also soliciting helpful feedback." By training Starbucks partners in how to sample new products, collect feedback, and share it with the leadership, Starbucks has a distinct in-store advantage. In the case of VIA, as Domenick Celentano noted, Starbucks baristas were then deployed in the shopping aisles of Target and Safeway. This approach demonstrates the genius of leveraging human assets to maximize effectiveness in cross-channel efforts. Once baristas had mastered sampling VIA in the Starbucks store environment, the expertise and the overall acumen of those baristas was used to drive the product's success across channels.

From the perspective of integration with social media and cross-channel promotion, Domenick observes, "You just can't get away from the fact that social media in food [promotion] is powerful and Starbucks being marketing geniuses know this.... Social media gave them viral publicity and very little cost to the company.... They promoted their VIA Taste Challenge through Facebook driving people into their stores comparing VIA against freshly brewed Starbucks coffee. The Facebook promotion offered a free coffee in-store for trying." Using social media to drive customers into your business so that your people can enrich the connection and engage increased customer awareness, trial, and product adoption—that sounds like a formula for success, doesn't it?

#### **GETTING CUSTOMERS TO CROSS THE CHANNEL**

In addition to the cross-channel promotions mentioned previously, Starbucks has explored and engaged both low- and high-tech ways to drive customers from one channel to the next. On the low-tech side of the equation, Starbucks has provided customers with a free in-store tall coffee when they bring in an empty one-pound. bag of coffee beans purchased outside of a Starbucks store (such items had a coupon that was not present on coffee bean packages purchased in Starbucks stores). Similarly, early in the launch of the Verismo system, purchasers were provided with a Gold-level membership in the My Starbucks Rewards program, which ordinarily would have required the customer to buy 42 beverages before receiving special loyalty rewards on in-store beverages and food.

On the higher-tech side of integration, Starbucks is working with some supermarkets and other distributors to enable purchases of Starbucks bulk coffee or related Starbucks consumer products to count toward loyalty rewards on the Starbucks Card and is exploring packaging materials that will interface with the Starbucks mobile app. Annie Young-Scrivner shares how technology and Starbucks packaging have merged: "Caffè Verona is one of our dark roast coffees and we actually call it our coffee of love. On Caffè Verona bags we have placed a QR code that links to stories of the coffee. One such example is of a couple's engagement story. The man had a first date with his girlfriend at Starbucks and later proposed to her in a forest that he staged to look like a Starbucks. He took pictures of the engagement scene and posted them on Facebook. We found that couple and asked if we could re-create his engagement experience and make the story available through a QR code on our bags. So if you're in the supermarket aisle or drinking your coffee at home, you can click on the Caffè Verona bag and experience a true love story about our customers and Starbucks. That's an example of how we seek to share our story, leverage technology, and engage with customers across channels. It is our effort to reach for the magical." Since you may not have that particular Starbucks bag available, you can experience that story by directing your browser to <http://tinyurl.com/clu9bmm> or using your QR reader here:

Suffice it say that Starbucks leadership is perpetually seeking magic and exploring synergies that will encourage customers or give them incentives to widen the array of Starbucks products that they purchase or consume and the settings in which they purchase and consume them. Often the magic can be achieved in rather subtle ways, including simple e-mails like one I received announcing that I would receive a holiday Starbucks Card if I bought three qualifying Starbucks or Tazo products. The e-mail depicted consumer products and indicated that qualifying products had to be purchased outside of a Starbucks store. Redemption required the original grocery register receipt and the universal product code (UPC) from the qualifying products' packaging.

**Starbucks and Tazo holiday e-mail promotion.**

**REFLECTION ON CONNECTION**

1. Have you outlined the key contact points you have with customers? Have you identified strategic opportunities that might enable you to connect with and serve your customers in more settings?

2. What methods do you use to drive awareness, trial, and product adoption cost-effectively? How can you allow customers to sample your services or products?

3. How are you encouraging your customers to experience the breadth of your product or service offerings, so that they are not siloed into one channel of your deliverables?

#### **INNOVATING AND ACQUIRING STRONG PRODUCTS IN ADJACENT CATEGORIES**

In Chapter 3, I shared how Starbucks leaders tactically moved into adjacent beverage categories through the acquisition of Tazo and Evolution Fresh. In that chapter, we focused specifically on how those products allowed Starbucks to migrate the brand's core competency of creating in-store experiences onto other product platforms. Through those types of acquisitions, combined with non-coffee-based innovation, Starbucks has also been able to strengthen its consumer packaged goods footprint. For example, bottled Evolution Fresh juices include flavors in four categories:

• Fruit (organic orange, pomegranate, and so on)

• Greens and vegetables (a wide array, including essential vegetables and vital greens)

• Refreshment (organic ginger limeade, pineapple coconut water, and so on)

• Smoothies (apple berry fiber smoothie, protein power smoothie, super greens smoothie, and more)

These beverages are being made available through select Starbucks stores in the United States. Both Evolution Fresh and Tazo are becoming more prominent consumer brands through their presence in grocery stores like Whole Foods, Albertsons, Ralphs, Vons, and Gelson's. In fact, to accommodate the demand for Evolution Fresh juices, Starbucks has had to expand from its original 72,000-square-foot manufacturing facility in San Bernardino, California, to a 260,000-square-foot building in Rancho Cucamonga, California.

Not only has Starbucks opened the Tazo Tea store concept mentioned in Chapter 3, but in late 2012, Starbucks also purchased Teavana. Teavana has more than 300 company-owned stores and reaches customers globally through its website, www.teavana.com. As the name implies, Teavana is positioned as the "heaven of tea" and is a specialty retailer that caters to newcomers to the world of tea as well as tea connoisseurs, offering more than 100 varieties of premium loose-leaf teas, crafted teaware, and other merchandise associated with tea. While the full strategic value of the acquisition has yet to be realized, Teavana creates for Starbucks a ready-made distribution channel (given Teavana's existing store network in prominent high-traffic areas like shopping malls) and the opportunity to serve a broader base of consumers.

Starbucks has also expanded its retail opportunities through pure innovation, particularly when it comes to products like Starbucks Refreshers, a drink made with Green Coffee Extract that fits into the "energy drink" category as opposed to the "coffee" category. In announcing the launch of Refreshers in 2012, Annie Young-Scrivner, president, Starbucks Canada, suggests the importance of Starbucks entry into the energy drink sector by stating, "The energy category is the fastest-growing category within measured CPG channels at $8 billion, up 16 percent over the last year. The launch of Starbucks Refreshers beverages continues to support our growth strategy to innovate with new products, enter new categories, and expand into new channels of distribution."

Starbucks Refreshers come in three forms: handcrafted in-store beverages, canned sparkling beverages, and a VIA single-serve instant option. The essence of Refreshers across these three presentation formats is a blend of fruit juice and Green Coffee Extract. Cliff Burrows, president, Starbucks Americas, emphasizes the importance of the innovative component of Starbucks Refreshers by noting, "Innovation is at the core of everything we do.... The introduction of Starbucks Refreshers beverage platform, featuring Green Coffee Extract, is an innovative extension of the coffee market and is the perfect solution for customers looking for a boost of natural energy and thirst-quenching, delicious refreshment." Extending the coffee market into tea, juice, and energy drinks certainly affords more opportunities to grow the brand through both café/beverage service environments and shelf space in retail establishments, but as with all strategic decisions, there are both risks and rewards.

#### **THE RISKS AND THE PAYOFFS**

Jane Genova, a member of the Motley Fool Blog Network, eloquently identifies four key risks of Starbucks expanded consumer packaged goods approach. From Jane's perspective, these challenges include competition with established consumer packaged goods brands, competition from private-label discount brands, projections of flat packaged coffee sales, and "the fourth possible peril is this: A combination of brand fatigue (too much Starbucks distributed through too many market channels) and unbundling the beverage from the iconic ritual of carrying it around in a cup with the green logo and the cardboard wrapper." Certainly Jane raises an important question about brand fatigue and the presentation of products outside of the familiar relationship forged with customers; however, Starbucks has invested a great deal in the creation of the primary relationship with customers in the retail store environment and has created a global demand for its product offerings. Rather than people becoming tired of the brand, the company finds ways to broaden its opportunities to engage customers and expand the places where it can do so. Thus, Jane's concerns are addressed by Starbucks diversification beyond packaged coffee sales and by the return on investment generated by Starbucks channel strategy.

In 2012, Starbucks grocery revenues were growing almost three times as fast as its in-store sales. Currently, Starbucks is still deriving most of its revenue from its retail stores. However, operating revenue for fiscal year 2011 reflects that the packaged goods business was 32 percent of global revenue and 19 percent of its U.S. business. Bill Smead, portfolio manager at Smead Capital Management Inc., notes, "The company's real value and growth potential lies in its brand.... They sell water, milk, and coffee beans at boiling temperatures. Warren Buffett says the best companies buy a commodity and sell a brand."

Starbucks leaders definitely buy commodities, build connections, and then mobilize those connections to further strengthen the Starbucks brand. As reflected in earlier chapters, the leaders at Starbucks begin with their passion for their commodities and their people. From there, the leaders steward relationships (connections) between partners and customers. Once those connections are made, Starbucks leaders build even greater brand strength by leveraging technology and constantly exploring ways to provide wider sets of offerings in more areas of a consumer's life. In the end, the leaders elevate products to the status of brands and then leverage brand strength to deliver more products that are designed to ultimately create even greater brand equity.

  When personal relationships are created between employees and customers and strengthened through technology, brands are given permission to transfer those emotional connections to new product offerings.

  To achieve a maximum presence in your customers' lives, you may have to serve the needs of other businesses in order to get them to sell or distribute your products.

  The central decision in brand expansion is the degree to which your company owns the infrastructure through which you are growing your brand and the degree to which you can control versus influence those you entrust with maintaining your brand standards.

  A business is not buildings or brand names; it is a collection of people who should share like-minded objectives.

  The principles that define great customer experiences are extremely similar no matter whether your customer is an individual consumer or a group of individuals from different departments within a business.

  Leadership in the world of consumer packaged goods requires skill in collaboratively positioning your products in the context of competitors' proprietary delivery systems and constantly innovating proprietary delivery systems of your own through strategic relationships with manufacturing and distribution partners.

  When it comes to new product introduction, social media is an important tool for driving your customers' awareness, trial, and product adoption.

  Forward-thinking leaders find ways to encourage customers or give them incentives to widen the array of products that they purchase and consume and expand the settings in which they purchase and consume them.

  According to Warren Buffett, the best companies buy a commodity and sell a brand.

## **PRINCIPLE 5**
 **CHERISH AND CHALLENGE YOUR LEGACY**

As a consultant and speaker, I work with a considerable number of entrepreneurs, business owners, and corporate executives. While there are great differences among these leaders, most of them share two commonalities. First, they wish to guide their people and their businesses in the direction of profitability. Second, they want to make a substantial and sustainable difference through their work. This principle, "Cherish and Challenge Your Legacy," addresses both the success and the significant ambitions of leaders, while also examining how the leadership at Starbucks approaches these goals.

Chapter 10, "Honor the Past, but Don't Be Trapped in It," demonstrates how Starbucks leaders have renewed the entrepreneurial spirit that led to the company's success as a start-up. Additionally, the chapter explores how the leaders direct that entrepreneurship toward solutions that will meet the future needs of their partners and customers. In Chapter 10, you will experience some of the bold and experimental steps that Starbucks leaders are taking to increase the relevance and uniqueness of the brand. In addition, you will encounter some of Starbucks innovative breakthroughs and setbacks.

Chapter 11, "Taking the Long View: Building Success That Lasts," explores how Starbucks leaders make choices to achieve a lasting positive impact on partners, customers, and communities. It examines how Starbucks serves as a catalyst in areas such as sustainable building design, environmental stewardship, small business viability, and global employment. Further, it demonstrates the strength of conviction required to sustain a focus on the significance of your impact and not simply your quarterly profit and loss statements.

Ultimately, "Cherish and Challenge Your Legacy" should encourage you to define the legacy you wish to leave and evaluate your leadership performance, in part, based on your progress toward that legacy.

###
**Honor the Past, but Don't Be Trapped in It**

_The day before something is a breakthrough, it's a crazy idea_.

PETER DIAMANDIS

Before we examine the adaptive and progressive strategies Starbucks designed to ensure that the brand stays relevant, let's take a moment to look at one of the biggest challenges to fostering innovation for strong brands like Starbucks: complacency and inertia born of success. One of the best examples of the liability created by past accomplishments is the Polaroid Corporation.

The glory days for the legendary Polaroid brand ran from the company's creation in 1937 through the late 1970s. During World War II, the company prospered as a defense contractor, but the pivotal innovative moment for the brand occurred in 1948, when Polaroid's founder, Edward Land, created a camera that could process a photograph in minutes. For the next 20-plus years, that single invention was the ticket to Polaroid's monopoly on the instant photography marketplace.

Despite having invested more than 40 percent of Polaroid's research and development budget in digital technology, the company's leaders never fully engaged customers in their efforts to develop digital cameras. As a result, Polaroid saw its market share drop and was ultimately forced to file for bankruptcy in 2001.

Andrea Nagy Smith, writing for the Yale School of Management, places the responsibility for the company's failure squarely on faulty "fundamental assumptions that did not allow top management to adjust to new market realities. First, Polaroid leaders believed that customers would always want a hard-copy print.... When customers abandoned the print, Polaroid was taken by surprise." Andrea further points out that the leaders at Polaroid had a history and a bias toward making money in photography through chemistry as opposed to digital breakthroughs. According to Andrea, "The sheer profitability of film sales created another obstacle to thinking about new business models.... 'Instant film had gross margins well in excess of 65%. So if you're dealing with a media change, how do you replace that with something that's almost or probably as profitable as instant film?'" Polaroid's leaders were victims of their own success. The very strengths that had brought Polaroid dominance in its market worked against the leadership's nimble pursuit of an alternative path. To a lesser degree, Starbucks leaders in the early to mid-2000s became overly fixated on a rapid store growth model.

#### **CHANGING THE PARADIGM**

When I wrote my previous book about Starbucks in 2006, I noted that the company was opening a store every four hours and that Howard Schultz suggested that Starbucks was "in 'the early stages of growth,' 'the second inning of a nine-inning game,' and the 'beginning chapters of a long book.'" In 2006, I also gave examples of Starbucks imminent growth plans, including "aggressive growth in China, in-store downloading of music on customers' MP3 players, espresso dating in conjunction with Yahoo!TM Personals, and the distribution of movies and books."

While the focus on international growth (in China and throughout the world) has been sustained since 2006, a great deal has changed. MP3 players are not as popular as they once were. In fact, drippler.com, an electronic gadget news source, reported a substantial rise in site visitors in 2012 who no longer had an interest in owning an MP3 player because of the surge in the desirability of smartphones. Yahoo! Personals shut down in 2010, and customers were migrated over to Match.com. Starbucks 2006 plunge into the movie marketing business with the release of the movie _Akeelah and the Bee_ failed to deliver the hoped-for result, so the company pulled back from movie distribution. The ultimate reality was that the 2006 rate of Starbucks store growth was also not sustainable. In fact, opening six new stores a day posed such an operational and staffing challenge that Starbucks was not able to sustain the strength of its brand connection, particularly in the context of global economic challenges.

Jon Gertner, author of _The Idea Factory: Bell Labs and the Great Age of American Innovation_ , describes how Starbucks leaders shifted their strategic course. He opines, "Starbucks no longer seems to perceive its future as depending on an ability to clone its essential store concept ad infinitum.... These days, the overarching gestalt of the company—demonstrated by its plans for redesigned stores, investments in innovative coffee machines, an expansion of its digital networks and rewards programs—is striving for every branch to be both more versatile and more artisanal."

#### **TIGHTENING UP**

In addition to reliance on artisanship and versatility, Troy Al-stead, Starbucks chief financial officer and chief administrative officer, suggests that the transition was also anchored to fervent attention to operational excellence and efficiency: "It's interesting for me in hindsight to recognize that new store growth was masking problems we were beginning to experience before we closed 800 U.S. stores in 2008 and 2009. Many in the press, consumers, analysts, and even most of us inside Starbucks believed that we were great store operators." Troy goes on to note that Starbucks brand strength in attracting customers was clouding the picture, covering merely satisfactory operations. Specifically, he points to the leadership's historically marginal performance on the effectiveness of labor deployment or on using data to determine whether a store's hours should be adjusted. Troy shares, "Across many important operational elements, we were just getting by. As such we have had to innovate to exercise greater financial discipline. We still need to achieve powerful human connections, but in the process we also need to create more efficient staff deployment as well as greater management of productivity and waste."

A key element in the success of the Starbucks transformation in the area of efficiency improvement results from an alignment between leaders who are charged with driving change and those who are responsible for ensuring consistent operations. As Craig Russell, senior vice president, Global Coffee, puts it, "If you only let operators run the world, we probably wouldn't have as many stores and we wouldn't have as much innovation. If you only let innovators run the world, you'd have businesses that would be very hard to run and may not make as much money. Our challenge has been to bring both sides of this equation together so we could produce innovations that improve operations, drive growth, enhance the partner and customer experience, and increase profitability. That's a tall order, but it often occurs in the most subtle ways." Ultimate success in driving innovation hinges on the alignment of those who foster change and those who maintain stability.

One example of the subtlety of the improvements that have emerged from an "operational innovation" mindset is the Starbucks "steaming pitcher." Starbucks leaders announced the new pitcher in 2012 by noting that the innovative "design will allow Starbucks baristas to handcraft espresso beverages more efficiently and consistently, so they can continue to deliver great customer service." Specifically, the pitcher's tapered bottom not only was created in pursuit of perfectly steamed milk, but also allowed baristas to easily pour milk to lines marked in the pitcher that conformed to all Starbucks drink sizes. It also limited the space available to overfill the pitcher, thus decreasing waste. In essence, the pitcher, which was smaller than its predecessor, offered a threefold win: (1) improved product quality and consistency, (2) increased ease of use for baristas, and (3) reduced milk waste. While some innovation occurs through changing a central tool like the steaming pitcher, other breakthroughs come from reworking entire delivery systems like Drive Thru.

As mentioned in Chapter 9, the history of the Starbucks Drive Thru concept dates back to 1994, when the first Drive Thru was opened in Vancouver, Washington. While early exploration verified that many customers had the desire to buy Starbucks beverages from the comfort of their vehicle, the execution of that delivery has been a source of continued innovation and operational improvement. Clarice Turner, senior vice president, U.S. Business, indicates, "Drive Thru has been somewhat of a challenge for us at Starbucks. We pride ourselves on the third place experience, and it is often difficult to bring that to life in a Drive Thru. In fact, our customer research had shown a difference in how our Drive Thrus perform relative to the in-store experience. The core of these differences involved consistency and speed of service." One baseline assessment of success in the Drive Thru is the balking rate, or the rate at which people leave the Drive Thru line prior to ordering. Clarice notes, "Our balk rates were unacceptable, so we created a burning platform around this information and asked our partners, 'How do we fix this?' The answer involved operationalizing standards, making the work simpler, and clarifying roles to drive consistent outcomes across our Drive Thrus." This was essential for Starbucks, since Drive Thrus are company-operated stores that contribute nearly 45 percent of U.S. retail profit.

According to Clarice, the standardization process began with an across-the-board upgrade to state-of-the-art headsets and other tools to ensure that baristas could communicate effectively with customers. Timers were later introduced as an awareness tool, with the caveat that speed of service was important, but it was not the only aspect of the experience. Subsequently, wireless 2D scanners were introduced to facilitate mobile payment in the Drive Thru lanes. Upon announcing the availability of using the Starbucks Card mobile app while paying at a Drive Thru, Starbucks leaders explained the innovation challenges they had faced: "Implementing mobile pay in the Drive Thru took a few more considerations than it did inside the store. For one, we needed something that would allow you to perform the scan yourself, rather than handing your phone over to us. Plus, we needed a scanner that would still provide a smooth experience when the weather acts up and at night when it's harder to see, and one that you could comfortably reach from various car heights." If you are using your mobile phone to pay at a Starbucks Drive Thru, the barista can easily use her wireless 2D handheld scanner to capture the bar code off your phone, irrespective of weather, lighting, or the vehicle you are driving. Obstacles overcome, innovation implemented, operational efficiencies achieved, and customer experience enhanced—that is the evolution of great advances in business.

**REFLECTION ON CONNECTION**

1. What are the strengths of your business that have been most instrumental to the success you have achieved? How might those success drivers inadvertently become traps that could constrain future growth?

2. How aligned are the operators and the innovators in your business? Would you say that both groups share an "operational innovation" mindset?

3. Is your organization innovating product delivery tools as well as comprehensive and integrated process improvements?

#### **CURIOSITY DIRECTED INWARD**

While many people have offered their opinions concerning the differences between an invention and an innovation, I have always favored the view that an invention is a new creation and an innovation is a new solution that attracts a customer. In essence, innovation is an applied and marketable phenomenon. It involves taking an invention and/or an existing product or service and improving on it in a way that makes it more valuable to those you serve. Often leaders have a robust appetite for customer-facing innovation, but at Starbucks, equal attention is directed to improvements that add value to the lives of partners. At the forefront of this innovation is curiosity and a willingness to ask about and listen to the ideas and concerns of your people.

While Starbucks leaders have a long history of surveying partners, they intensified their efforts as part of the company's transformational agenda. Specifically, the leaders engaged in a 30-minute comprehensive interview approach to supplement the company's routine closed-ended 10-minute survey. That more intensive survey was geared to get to the core of the partner experience and involved a qualitative dialogue that asked probing questions. Given the size of the Starbucks workforce, involving partners in a survey that takes three times as long as the ordinary format requires a sizable investment. This was particularly true when the first wave of the survey produced a 91 percent response rate from the more than 100,000 U.S. partners. The survey also required substantial time to process, given the hundreds of thousands of open-ended comments that it garnered. Later, Starbucks rolled out the detailed survey in international markets and achieved a similar 90 percent response rate. Those responses were used to guide leadership efforts to better understand partner needs and innovate improvements in offerings that were important to partner groups, such as Starbucks U (discussed in Chapter 5).

Howard Schultz describes one such partner-focused innovation by noting, "We just did something in China that I think is one of the most innovative things we have ever done in our history—and it had nothing to do with the customer.... Think about an Annual Meeting of Shareholders; we had a similar meeting with partners and their parents in Beijing and Shanghai, and we had about 90 percent participation." From Howard's perspective, the benefit of this novel approach (meeting with the parents of Chinese partners) reflects the company's ability to weave Starbucks connection–based values into a family-centric event reflecting cultural and local relevance.

#### **RELEVANCE AND RISK**

By definition, the key to innovation is relevance to the audience. However, seeking relevance is not for the faint of heart or the risk-averse. At the same time, the pursuit of relevance is not a reckless pursuit. In fact, it is often a combination of small iterative improvements mixed with calculated bold—hopefully game-changing—moves. Many of Starbucks game-changing efforts have been discussed in previous chapters. They include the significant investments needed to create VIA, Blonde, Verismo, the Starbucks mobile app, and the partnership with Square. Similarly, they can be seen in the courage and capital involved in acquiring Tazo, La Boulange, Evolution Fresh, and Teavana.

While talking about relevant innovation, Howard Schultz best described the role of calculated risk and bold moves by noting, "The future of our company is based on having the kind of curiosity that is linked to the DNA of the entrepreneurial endeavors that we have had for 40 years. And that curiosity has to anticipate and understand what is coming and what will be relevant. Then you have to make a big bet." As an example of a "big bet," Howard mentioned the company's willingness to enter the instant coffee market with VIA. In essence, Starbucks leadership decided to enter a more than $17 billion category that had experienced virtually no innovation in 50 years and that was dominated primarily by a single company. Howard adds, "We decided to take the premium franchise of Starbucks and go down a road that has been linked to the bowels of quality. We had enough insight, curiosity, courage, and confidence that we cracked the code on quality by leveraging technology. We were willing to make a big bet, take a big swing, and demonstrate to our people and our customers that we had the wherewithal to take the road less traveled because this is who we are."

In the context of that "insight, curiosity, courage, and confidence," Howard is quick to caution that no company can make a large number of big bets in a year. He believes that each one has to be "highly calculated and supported. There has to be a vested interest by the leaders of the company that we are united because we have to convince an organization to follow us and give them a reason why they should do so. You have to ask and answer the question in the affirmative, 'What is in it for them for doing this?'"

By achieving alignment at the leadership level and then considering the impact of innovative changes on those who will be asked to implement them, Starbucks creates a culture of risk tolerance. Katie Seawell, vice president, Espresso and Brewed Coffee at Starbucks, notes, "What I love about this company is we're not afraid to explore new ideas. It is scary pursuing Blonde or VIA, or going into juices, but you need to be willing to take your brand and product into new spaces. If you don't, you run the risk of becoming dated, and customers and partners alike will lose interest in you as competitors claim the white space filled with new products and ideas."

While the next "big thing" or "big risk" is an essential part of business leadership, Starbucks attempts to balance a sense of urgency with due diligence. While recognizing Starbucks as being among the Top 25 Most Innovative Companies in _Fast Company_ magazine, innovation author Jon Gertner describes Starbucks balancing act between urgency and prudence by pointing out that Howard Schultz (as Steve Jobs was at Apple) is "still the company's main instigator—has a kernel of an idea.... He then activates a team, even inviting members over to his house for pizza, if that helps to create a stir of urgency. Ideas at Starbucks are supposed to undergo a rigorous review process and 6 to 12 months in the company pipeline. Sometimes, too—as was the case of Blonde (18 months in development) or VIA instant (about 20 years)—it can take far longer." In other cases, such as launching an in-store campaign to sell wristbands in support of a Starbucks job-creation program called Create Jobs for USA (which will be discussed in Chapter 11), the process of innovation and launch was compressed to a brisk 30 days.

Overall brand innovation at Starbucks is a by-product of listening to the voice of the stakeholder, careful new idea evaluation, a timely development cycle, and a careful test-marketing phase. Troy Alstead, Starbucks chief financial officer and chief administrative officer, notes, "We've become much better at taking ideas, exploring their viability, making adjustments, and turning those ideas into profits. Part of that comes from learning as a result of our past mistakes and limiting the scope of new idea tests. One such example of an unsuccessful launch was our Sorbetto product."

Starbucks test-marketed Sorbetto™ iced beverage in a few select stores north of Seattle in the spring of 2008, and by the summer of that year had engaged in a slightly broader test market throughout Los Angeles and Orange County in southern California. Melody Overton, who writes a popular Starbucks blog titled StarbucksMelody.com (which garners approximately 55,000 unique visitors and 90,000 monthly page views), suggests that Sorbetto's failure was not a function of taste. She states, "It was absolutely delicious. Lots of people liked it." Melody goes on to highlight factors that probably led to Sorbetto's demise. Her list includes the timing of the product's release relative to both the U.S. recession and the closing of Starbucks stores. Melody viewed Sorbetto as ambiguously falling somewhere between beverage and dessert, and she noted, "The machines required to make the beverage in the store were a terrible problem. They were incredibly labor-intensive to clean. They took up a lot of precious counter space. They looked like a big Slurpee machine which created a very poor 7-11 type image for Starbucks. All in all, it just didn't add up."

While Sorbetto was not a commercial success for Starbucks, Troy Alstead suggests that the way in which the launch was handled reflects the maturation of leadership: "Sorbetto shows how our innovation strategy continues to evolve. For example, we only provided the product to some of our stores, and we were quick to reverse course when it did not make financial sense to pursue. That is different from prior years, where we would broadly launch an unsuccessful product like Chantico™ and leave it in the market for a year." Chantico was a thick, sweet, hot, drinking chocolate of a type that could be found in European cafés. Starbucks launched the product nationally in January of 2005, describing it as a "drinkable dessert." At launch, Starbucks leaders predicted that Chantico would produce a handful of beverage line extensions; however, it was removed from Starbucks stores around January 2006. Failed product tests are never a desirable outcome, but leaders who successfully drive innovation learn how to manage the speed and scope with which those products are presented to and removed from the marketplace.

#### **THE EVER-MOVING RELEVANCE TARGET**

John Kotter, a former professor at the Harvard Business School and author of _Leading Change: An Action Plan from the World's Foremost Expert on Business Leadership_ , confirms what many leaders experience every day, namely, that the "rate of change in the world today is going up. It's going up fast, and it's affecting organizations in a huge way.... New companies spring up seemingly overnight. Products and services that were revolutionary two years ago are rendered obsolete if they don't adapt to market changes fast enough." Throughout this book, you've been exposed to many ways in which Starbucks leaders attempt to stay ahead of the obsolescence curve. For the purpose of discussion here, let's look at how Starbucks leaders approach innovation through food and beverage experimentation, new concept designs, and technological advances both inside and outside of the Starbucks store.

##### **_Food and Beverage Experimentation_**

From its inception, Starbucks has had a conflicted history with food delivery. In 1998, Starbucks test-marketed a full-service restaurant concept that it called Café Starbucks. Three Café Starbucks had opened in the Seattle area by the fall of 1998, serving items prepared on-site such as chicken pot pie and meatloaf. Roseanne Harper, writing at the time for _Restaurant News_ , noted, "The Café Starbucks concept includes a wait staff, seating for up to 65, and a menu that covers all dayparts beginning with full breakfasts. In addition to a repertoire of espresso-based drinks, Café Starbucks serves wine and beer."

Also in 1998, Starbucks leaders were testing a brand concept, Circadia, in San Francisco, California. Mark Gimein described Circadia in _Fortune_ magazine by noting, "Surrounded by San Francisco's pricey new loft apartments, [Circadia] resurrects the feel of the 1960s coffee shops of Greenwich Village.... Circadia may be the start of a bigger chain and a testbed of concepts for Starbucks' flagship store." Mark went on to describe Circadia as a drop-in office for prospective San Francisco entrepreneurs, complete with high-speed Internet (which required a credit card swipe for use) and a well-equipped conference room that could be rented for $50 per hour. According to Mark, the menu at Circadia included "salads, sandwiches, and 'nosh plates.'... Circa-dia's full bar features the usual and the creative." While neither Café Starbucks nor Circadia proved to be a successful venture, they reflect the long history of the brand's exploration of food and noncoffee beverages.

As discussed in Chapter 3, Howard Schultz kept prepared food items out of the morning Starbucks lineup until he could be sure that the smell of food (particularly burnt cheese) did not overwhelm the aroma of brewed coffee. By 2008, not only had Starbucks leaders found ways to allow coffee and warmed foods to coexist in the Starbucks store, but they had also championed healthier "grab-and-go" and "right-sized" food options. Erin Zimmer, national managing editor for _Serious Eats_ , noted, "Starbucks pitched a new game plan... a 'healthier' breakfast line-up with fewer calories and more protein."

Continuing in the direction of fewer calories and ready-to-eat options, in 2011, as part of the company's fortieth-anniversary celebration, Starbucks leaders introduced eight managed-portion desserts and eight Bistro Boxes (four snack-sized and four entrée portions). The dessert items, referred to as Starbucks Petites, included Peanut Butter Mini Cupcakes, Red Velvet Whoopie Pies, Lemon Sweet Squares, and Cake Pops. Each of these mini-desserts was less than 200 calories. The initial Bistro Box lineup included items such as Chipotle Chicken Wraps, Sesame Noodles, Tuna Salad, as well as Chicken and Hummus. All Bistro Box items were created to be less than 500 calories, and the specific items just listed were less than 400 calories. Over time, the lineup of mini-desserts and Bistro Boxes changes, but the focus remains on creating flavorful options that offer convenience and managed portion sizes.

Starbucks strategic approach to food led Christine Hall, a 66-year-old Virginia woman, to gain media attention when she reported that she had adhered to what has now been called the "Starbucks Diet." Over a period of more than two years, Christine had gone from 190 to 115 pounds by eating almost exclusively at Starbucks. On an average day, Christine purportedly would have black coffee and a cup of oatmeal for breakfast. At lunch and dinner, she would have either a Bistro Box or a panini sandwich.

As part of the continuing evolution of Starbucks food items, Starbucks purchased Bay Bread LLC, a bakery company with 20 La Boulange stores across the San Francisco Bay area, for $100 million in 2012. Upon making the acquisition, Cliff Burrows, Starbucks president, Americas, indicated, "It's a superb opportunity to bring high-quality food into Starbucks," and when talking about expansion, stated that Starbucks "will take it one store at a time. Wherever opportunity takes us." Once experimentation is engaged in or an acquisition is made, leaders must truly have the patience and the discipline to allow brands to move in the direction of their optimal success.

##### **_New Concepts_**

Consistent with this chapter's title, Starbucks leaders did not abandon their values or turn their back on their core competencies in pursuit of the changes needed as part of the company's Transformation Agenda. However, some observers have expressed concern over the speed and magnitude of Starbucks leaders' appetite for innovation. For example, some commentators sounded an alarm over the possibility that alcohol would become a prominent feature in all Starbucks stores, and headlines like "Latte or Lager" proliferated when the leaders at Starbucks incorporated alcohol sparingly and strategically through an emerging concept called Starbucks Evenings. Stores that provide Starbucks Evenings offer the traditional Starbucks items throughout the day and evening, but add a menu of wine, beer, and small plates after 4 p.m. By late 2012, only five Starbucks Evenings stores had opened in and around Seattle, Washington; five more were in the Chicago, Illinois, area; four were open in and near Atlanta, Georgia; two could be found in Los Angeles, California; and one was open in Portland, Oregon. Starbucks Evenings stores are designed as neighborhood meeting spots. The Starbucks website shares the value proposition behind the Starbucks Evenings concept by suggesting that it gives customers who already love Starbucks during the day even more reasons to love the brand at night. According to the Starbucks website, "Sometimes you just want a glass of wine and a delicious bite to eat without going to a bar or making a restaurant reservation.... Drop in after work, with friends, after yoga, by yourself, after a long day or after a great day. The food is amazing. The wine selection is simple and smart. The chairs are just as comfortable as they are in the morning." From the standpoint of food, Starbucks Evenings locations offer items such as truffle macaroni and cheese, bacon-wrapped dates with balsamic glaze, artichoke and goat cheese flatbread, and chocolate fondue. Rather than seeing the Starbucks Evenings concept as a ubiquitous strategy to drive traffic during the evening hours, the leadership is exploring a targeted approach by making the option available only in neighborhoods where the leaders believe that Starbucks Evenings will be an excellent fit.

In a similar vein, Starbucks leaders launched a dramatically varied walk-up/drive-up store concept, the first of which was opened in Denver, Colorado, in late 2012. Mark Wilson, writing in fastcodesign.com, describes this concept by noting, "Starbucks opened a store unlike any before it. There are no leather chairs or free power outlets. In fact, there's no space for the customer at all. Starbucks has reimagined the coffee hut as a 'modern modular,' LEED® certified drive-thru and walk-up shop. The building was constructed in a factory and delivered from a truck, but its facade is clad in gorgeous old Wyoming snow fencing. As diminutive as the shop may be, its designer wants drivers to pass by and ask 'What is that?' only to conclude that, oh, 'it's art.'"

**New modular store concept, Denver, Colorado, USA.**

This concept store addresses sustainable building objectives (which will be discussed in more detail in Chapter 11), while also achieving local relevance in a low-cost, easily scalable option. The walk-up/drive-up takes only 500 feet of retail space and can accommodate five baristas and all the equipment necessary to deliver the full Starbucks menu.

According to Chris Carr, executive vice president, U.S. Retail Stores, every emerging concept, whether it is Starbucks Evenings, the walk-up/drive-up store, or an idea that is just beginning to surface in the Starbucks innovation pipeline, must be "analyzed through the three filters of our retail operating model: partner, customer, and business. We have established the operational discipline to ask ourselves: Does it make sense for our partners? Does it make sense for our customers? Does it make sense for our business? When we are testing any new initiative, we hold ourselves accountable to ensure that our innovative solution will successfully pass all three filters. If the test does not deliver on behalf of our partners, customers, and business, we have developed the discipline to walk away." Innovation is only as good as the mechanisms an organization has to interpret the success or viability of the concepts. At Starbucks, leaders have clearly defined the criteria by which innovation should be advanced or curtailed.

**REFLECTION ON CONNECTION**

1. Are you willing to make potentially game-changing big bets? How would you rate your ability to drive innovation from the standpoint of your insight, curiosity, courage, and confidence?

2. What innovation risks are you presently taking? What are the risks you incur from not taking your brand into a new space?

3. When it comes to exploring innovative ideas, do you ask if the proposed solution makes sense for your customer, your business, and your staff? What other filters (for example, cost, ease of implementation, or likely reward) do you apply when you are evaluating the viability of an idea?

##### **_Technological Advances for In- and Out-of-Store Experiences_**

In Chapter 8, we looked at how Starbucks leaders have deployed technology to enhance the customer connection. From the perspective of innovation, technology is also being advanced to create forward-looking product delivery options and experience enhancements. From the standpoint of new delivery approaches, imagine having your favorite coffee beverages prepared just for you—by a vending machine. The first prototypes for this technology were presented through the Seattle's Best Coffee brand.

As you recall, Seattle's Best Coffee is the Seattle-based coffee company that Starbucks purchased in 2003. Chris Bruzzo, senior vice president, Channel Brand Management, highlights the overall strategy behind the Seattle's Best Coffee repositioning. Chris notes, "We've struggled at times clarifying the role of Seattle's Best Coffee within our brand family. That brand is now focused on being the on-ramp to premium coffee for individuals whose lifestyle might not presently connect with the Starbucks brand. We are positioning ourselves to serve the 107 million adults in the United States with median household incomes around $50,000. For most of these people, time is precious and their coffee rituals are tied to their vehicles and/or linked to convenience and value. They're on their way to work, and they're getting their coffee at convenience stores, gas stations, or quick service restaurants like Subway and Burger King."

Given the target consumer for Seattle's Best Coffee, the brand is innovating in the direction of product positioning at convenience or QSR settings, as well as creating franchised delivery models and the Seattle's Best Coffee vending machine. In keeping with this strategy, leaders at Seattle's Best Coffee announced a franchise Drive Thru model in 2012. Melissa Allison, _Seattle Times_ business reporter, noted, "In Seattle's Best Coffee's latest divergence from corporate parent Starbucks, every new location will be a 523-square-foot Drive Thru-only café.... The chain expects to open thousands of little red stores from which baristas will dispense brewed coffee, sweet flavored lattes, handheld pies and breakfast sandwiches.... If all goes according to plan, the tiny cafés will be situated mostly in empty suburban spaces.... The stores will be owned by franchisees who can afford multiple locations, with launch costs at the low end of Seattle's Best current startup range of $265,000 for a kiosk."

**Seattle's Best Coffee Rubi kiosk.**

If 523 feet of space is too much for coffee delivery, how about a 9-square-foot retail "on-the-go" footprint? Leaders at Seattle's Best Coffee have worked with Coinstar Inc. (the company associated with Red-box DVD kiosks) to create a vending option called the Rubi kiosk that grinds and brews a 12-or 16-ounce cup of premium coffee and other beverages in just about a minute. According to Bill Mikulka, Rubi's general manager, "The coffee market is enormous... [and] is very much about convenience, quality and value. We've built a platform that can be in arm's length of desire." In the spirit of affordability and value, Rubi kiosks serve fresh-brewed coffee with prices starting at just $1 per cup.

Other technology explorations at Starbucks are looking to enhance the quality of the coffeehouse experience. One such example is the wireless charging spots with Duracell Powermats. As someone who has used Starbucks stores as a location for crafting the words of my books, I have often faced the challenge of finding an available power outlet for my laptop computer. In an effort to decrease the power source search, Starbucks leaders have placed inductive charging technology in some of its tabletops in select Boston, Massachusetts, locations. The purpose of this effort is to assess how customers respond to emerging charging technologies in the context of their overall utility in the café experience.

#### **A VIRTUAL LEARNING LAB**

It would be impossible to provide an in-depth review of all the product, service delivery, and experience enhancement innovations that are currently being explored at Starbucks. Such innovations take forms as diverse as a relationship with the National History Museum in the United Kingdom to offer My Starbucks Rewards members the opportunity to receive two-for-one deals and priority access to the annual Christmas ice rink near the museum. Additionally, technological innovation can take the form of a pop-up screen for computer users in Starbucks stores in Switzerland and Austria, asking them to rate the quality of their beverage so that instant service recovery can occur, if needed.

Ultimately, Starbucks benefits from a leadership team that maintains the passion for entrepreneurship that led to the company's meteoric rise. That passion was reawakened during the push for the brand's survival during the 2008–2009 time frame. The leaders have tightened up their operational discipline and diversified their delivery platforms. Howard Schultz encapsulated the necessity of innovation at Starbucks, and probably for your business as well, when he told a London British Forum, "Any company, small or large, consumer or otherwise, that is going to embrace the status quo as an operating principle is just going to be dead.... The need for constant innovation and pushing forward has never been greater than it is today. Every company must have the ability and the discipline to really be curious and look around the corners [to] see things and anticipate things that other people don't see. But, that is not enough. You must then have the courage to go after those things. Not to bet the company on them, but execute [that] kind of courage." If you had to reduce the Starbucks model of innovation down to a sentence it would simply be the following:

Mix curiosity, courage, and discipline in a tireless pursuit of the ever-changing needs of your people, your customers, and the profitability of your business.

Sounds like a solid formula for any leader who wants to "honor the past but not be trapped in it."

  Complacency and inertia are challenges to innovation for successful brands.

  A great deal of long-term business success is associated with innovations in operational excellence and efficiency.

  Alignment among leaders is essential to innovation. Innovators and operators must share a common vision.

  An invention is a new creation. An innovation is a new creation that attracts a customer.

  By definition, innovation must be relevant to your identified audience.

  When making potentially game-changing big bets, leaders must demonstrate insight, curiosity, courage, and confidence.

  If you're unwilling to take your brand into a new space, people will lose interest in it as others bring forward new products and new ideas.

  In order to turn ideas into profits effectively, leaders must be willing to make mistakes and learn from them.

  Innovation should be filtered through three questions: Does it make sense for your customers? Does it make sense for your business? Does it make sense for your staff?

  If you embrace the status quo as an operating principle, your business is likely to die.

  Great corporate leaders must have the ability and the discipline to look around the corners to see and anticipate things that other people can't see.

###
**Taking the Long View: Building Success That Lasts**

_You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement_.

WOODROW WILSON

What are your primary responsibilities as a leader? Are they to drive profitability, maximize the potential of your people, and strengthen your brand equity? In their book _A Leader's Legacy_ , James Kouzes and Barry Posner suggest that true leadership "brings with it a responsibility to do something of significance that makes families, communities, work organizations, nations, the environment and the world better places than they are today." While Kouzes and Posner's words might seem like lofty and untenable platitudes, the leaders at Starbucks view themselves as being responsible for more than business success. In fact, Howard Schultz integrates the broader social good with the overall viability of Starbucks business by noting, "Since Starbucks earliest days, I have believed in a strong link between our company's performance, our values, and the impact we have on the communities where we do business. This interdependence is at the heart of our mission.... Such interdependence is also right for our business, especially in the times we now live. Consumers have long rewarded brands with their loyalty when they feel a company's mission and aspirations align with their own."

In fact, at Starbucks, the leadership's aspirations regarding social responsibility are defined in one of the company's guiding principles, that involving neighborhoods. That principle reads:

**Our Neighborhood**

Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action—bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility—and our potential for good—is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead.

Throughout this chapter, we will look at just a few of the socially responsible areas where Starbucks sets "the new standard" and "leads." For our purposes, we will look specifically at behaviors leadership demonstrates in the course of setting goals, taking action, and measuring progress in the areas of environmental stewardship, ethical sourcing, community development, and job creation.

#### **ENVIRONMENTAL STEWARDSHIP**

If you were to Google the phrase "saddling future generations," you'd come up with more than 356,000 results. Most of these references apply to the perceived shortcomings of political leaders globally who borrow money to pay for present-day services and leave the repayment of those loans to future generations of taxpayers. While this behavior is expedient for a politician's reelection, many critics see it as myopic and irresponsible social policy. The parallel in business is a leader who achieves short-term profitability at the expense of long-term sustainability. Such a leader might consume large quantities of finite raw materials and "saddle future generations" of leaders with a supply shortfall. For example, leaders in agribusiness and commercial fishing have been accused of short-term profit taking in the form of overfarming or overfishing.

At Starbucks, leaders not only consider the short-term impact of the resources they consume, but also look for ways of doing business that decrease consumption over the near and long term. Additionally, these leaders seek to drive initiatives that will help influence other organizations to consider responsible stewardship of finite resources. This impact on other organizations is particularly evident in the areas of sustainable building design, the recyclability of Starbucks cups, and manufacturing processes (for example, the environmentally friendly changes to the Starbucks cup sleeve).

##### **_Sustainable Building Design_**

While I have spent time talking about culturally relevant building design (such as the Bank store in Amsterdam) and designs that offer new delivery platforms (such as the walk-up/drive-up concept in Denver, Colorado), Arthur Rubinfeld, chief creative officer for Starbucks and president, Global Innovation and Evolution Fresh Retail, indicates that the galvanizing and energizing force among Starbucks store designers is "a stake we put in the ground around 2008, when we announced our goal to lead the world in global, sustainable retail building practices in company-owned stores worldwide. Environmental considerations have long been a part of our company, but in 2008, we claimed a specific aspiration and shifted our role to not only be stewards but responsible educators. We are building stores with sustainable products by utilizing metal, wood, and stone/organics, as well as recyclable and recycled materials. As importantly, we are making sustainability more visible so people around the world might consider an environmental lifestyle. We're educating consumers about water conservation, energy conservation, and we have taken a leadership position when it comes to eco-conscious stores. There is immense satisfaction in inspiring others."

One highly visual example of the sustainable store design can be found in a Starbucks concept store referred to as the Reclamation Drive Thru, located in Tukwila, Washington.

**Reclamation Drive Thru, Tukwila, Washington, USA.**

Anthony Perez, senior manager, Global Store Design, was responsible for the project and shares the eco-conscious nature of its design: "Shipping containers source our coffees and teas from around the world. But many end up in scrap yards once they reach their average 20-year lifespan. Reclamation Drive Thru was inspired by a desire to help keep items used throughout our supply chain, like old shipping containers, out of the waste stream. The result: a 450-square-foot Drive Thru and walk-up store made from four end-of-life-cycle shipping containers. One small 20-foot container holds garbage, recycling, and storage, but other than that, the whole store is contained within the shells of four containers that have been reclaimed, refurnished, renewed, and revived. And it works!... This small project came at a perfect time here at Starbucks as we challenge ourselves to deliver LEED certified stores across the U.S."

LEED certification refers to meeting Leadership in Energy and Environmental Design criteria. If these criteria are met, the result is a voluntary third-party verification by the U.S. Green Building Council, indicating that the building has been designed and constructed and is being operated in an ecologically sound manner. It is an approach to creating a built environment that conserves water and energy, reduces greenhouse emissions, decreases waste sent to landfills, and increases occupants' health and safety. Many business leaders have passed on remodeling or building physical spaces that meet LEED standards because they fear that building costs will be considerably higher. However, the Natural Resource Defense Council suggests, "Green building skeptics sometimes argue that it's difficult or even impossible to build green without paying a big cost premium. But real-world examples show that you can complete a LEED certified green building project for an average of 2 percent more in upfront costs, and sometimes even below standard market construction costs. Plus, any extra first costs you pay can be recovered through faster lease-up rates, rental premiums and increased market valuation."

Responsible management of capital expenditures is important, and when it comes to Starbucks stores, so are responsible sustainability efforts. Jim Hanna, director, Environmental Impact at Starbucks, notes, "Around 75 percent of our controllable environmental footprint comes from our retail operations.... For us to have any credibility as a responsible company in this arena, we had to tackle our stores first."

Ben Packard, former vice president, Global Responsibility, puts Starbucks leadership position on LEED in perspective by noting, "We have been working with the organization responsible for LEED certification, the U.S. Green Building Council, since 2001. Rather than setting our own standards on sustainable buildings and then going out to validate our effort, we knew it would be important to have a trust mark conferred by an independent certifying agency. LEED criteria were designed for office buildings and not retail spaces, so I became involved as chair of the retail development committee at the U.S. Green Building Council to work with other retail industry and environmental leaders in making appropriate adjustments to the criteria. Once those retail standards were established, we pursued LEED certification aggressively."

In a Starbucks LEED certified store, some energy- and water-saving elements might be noticeable by customers. These would include items like LED lightbulbs; energy-efficient equipment such as icemakers, dishwashers, or blenders; low-flow faucets; and dual-flush toilets. Non-customer-facing energy-efficient, water-saving efforts would include energy management systems, which have shown reductions of 20 percent in heating, ventilation, and air-conditioning (HVAC) energy consumption; a water filtration system that produces 50 percent less wastewater than prior systems, and a sanitizing sink that saves a substantial quantity of fresh water while adhering to all applicable health standards.

To have an interactive virtual tour of a LEED certified Starbucks store, please go to <http://tinyurl.com/orvk49d>.

Each year Starbucks publishes a corporate social responsibility report that serves as a report card on the company's progress toward social and environmental goals. In 2011, for example, the report validated that the company was "on track" to meet its goal of having all its company-owned new buildings make their way through the lengthy process of becoming LEED certified, noting that 75 percent of new company-owned stores had, in a year, already achieved LEED certification status.

The lessons learned from Starbucks journey to LEED include the importance of setting ambitious sustainability goals; seeking third-party criteria to validate your achievement of those goals; playing a role in refining these criteria for your industry, if necessary; executing against those goals; and transparently reporting your progress toward your objectives. In a smaller business setting, you may wish to access tool kits provided by the Office of Small Business Programs at the U.S. Environmental Protection Agency (an example of which can be found at <http://tinyurl.com/m7tl7td>).

In addition to receiving recognition like the Green Building Design Award from Global Green USA and a 2012 Good Design Is Good Business Award conferred by _Architectural Record_ for the company's efforts toward LEED certifications, Starbucks has also been acknowledged for its overall accomplishments in energy conservation and its reliance on renewable energy. It has been recognized as a Green Power Leadership Award winner by the Environmental Protection Agency, since Starbucks is a top U.S. purchaser of renewable energy. For example, in 2011, Starbucks purchased more than 421 million kilowatt-hours of green energy through Green-e® certified renewable energy credits. Those wind-generated electricity purchases powered more than 50 percent of Starbucks U.S. company-owned stores. The company has set goals of reducing its energy use by 25 percent from 2008 levels and having 100 percent of its electricity consumption generated through renewable energy by 2015.

Merging innovation with efforts to reduce energy consumption, Starbucks has teamed up with the Bonneville Power Administration and a collective of public utilities in the northwestern United States to explore whether changes in human behavior can result in substantial energy savings. Instead of relying solely on energy-saving technology, Starbucks leaders will challenge store partners to compete with partners in other stores to see who can create the greatest energy reductions. The leaders at Starbucks are taking responsibility for short-term energy efficiency and long-term environmental stability. In the process, they are leading others in the pursuit of more sustainable business practices. This leadership position could not be more evident than in the area of recycling.

##### **_Bringing Materials Back for a Sequel_**

Just as Starbucks leaders worked with the U.S. Green Building Council to establish LEED criteria for retail buildings, so too have company leaders collaborated with other experts and leaders in the area of recycling to create a solution that decreases the waste associated with Starbucks cups. As I was completing my previous book about the company, Starbucks was poised to launch the industry's first hot beverage paper cup with 10 percent postconsumer recycled fiber. By demonstrating the safety of the recycled content in its cups, Starbucks had been able to encourage the U.S. Food and Drug Administration to change its position prohibiting the use of postconsumer recycled content in paper products that came in contact with food.

While the use of postconsumer recycled content in cups was an important step, it did not mean that the cups themselves were necessarily recyclable. This was problematic for the leaders at Starbucks, who had set a goal of ensuring that 100 percent of their cups would be reusable or recyclable by 2015. Ben Packard, former vice president, Global Responsibility, notes, "Our cups are made of paper, but that paper is covered with a polymer. This means in cities where the recycling market will take that material, the cup is recyclable. In other cities, the polymer makes it nonrecyclable. This type of variability prompted us to begin hosting a meeting in 2009 which we call the Cup Summit."

The Cup Summit has continued to grow annually and brings together individuals from all areas of the plastic and paper cup value chain. These stakeholders include raw material suppliers, government officials, beverage and retail businesses, cup manufacturers, nongovernmental organizations, recyclers, and academic experts from institutions like MIT. According to Ben, "Initially, we thought our solution would come from changing materials, but we were encouraged to challenge all assumptions and map every aspect of a cup's journey. As such, we literally had a map from tree to garbage dump on which we outlined all the things that would have to change and how we would need to go about effecting those changes." Because of the knowledge gained through the Cup Summits, the leaders at Starbucks have already implemented recycling in a number of U.S. markets by developing close relationships with the leaders of various municipalities. The company has also initiated recycling pilot projects across the United States and collaborated with Canadian and U.S. paper mills to explore compatibility and ways to drive demand for cups with postconsumer content.

Jim Hanna, director, Environmental Impact, notes that Starbucks is committed to the recyclable cup issue because it is good for the environment and because it is important to customers. He offers, "Our footprint is most affected by our built environment as well as the energy and other resources that go into running our stores, but when we talk to our customers and other stakeholders, they are asking about our progress on the recyclability of our cups. The Starbucks cup is a touchable, tangible, visible icon of the company, and it symbolizes our environmental performance." When an environmental issue is salient to your customers, it has to rise on your project priority list.

A similar iconic and tangible aspect of the Starbucks cup experience is the cup sleeve. In 1997, Starbucks introduced the sleeve made of corrugated paper in an effort to reduce the waste that occurred when customers requested that their hot beverage be double cupped. The sleeve offered an insulating layer between the customer's hand and the Starbucks cup, with the added benefit that it could be constructed with postconsumer recycled fiber, since the sleeve never made contact with the coffee. At the time it was launched, 60 percent of the composition of the sleeve came from this recycled material.

The sleeve was initially intended to be an interim solution as Starbucks leaders researched alternative strategies to alter the thermal properties of the company's cups. In the end, it was determined that the sleeve was the most viable option—thus, it continues to be used today. Matt Cook, president of LDP Manufacturing, the supplier that provides the cup sleeves, suggests that the leadership at Starbucks pushed his company to improve the sleeve: "Starbucks leaders essentially asked us, 'What does the next generation of a hot cup sleeve look like? Is it possible to create a product that has less material, increases recycled content, and offers the same or even superior thermal insulation?' I can't express to you the magnitude of that challenge, but we worked with Hinkle Corporation on the chemistry around the internal adhesives and ultimately produced a groundbreaking technology. It is the new hot cup sleeve, which Starbucks calls the EarthSleeve™." Without compromising its thermal properties, the new sleeve uses 35 percent less paper and is made from 85 percent postconsumer recycled fiber (a 25-percentage-point increase from its predecessor). Certifying organizations have determined the sleeve to be fully compostable, and Western Michigan University has determined it to be repulpable. With nearly 3 billion cup sleeves produced in 2011 alone, Starbucks calculations suggest that the EarthSleeve™ will save more than 100,000 trees.

While cups and sleeves are high profile, most of Starbucks recycling efforts are not customer-facing. Many initiatives involve things like syrup bottles, milk jugs, and cardboard boxes. However, the leaders at Starbucks are never content with those behind-the-counter efforts. They understand that sustainability is not something that is done as a marketing or publicity effort; it is an authentic commitment to the future viability of businesses and to future generations of customers. While smaller business owners aren't likely to be able to support recycling research, they can take simple steps like looking for a printing company that uses recycled paper or seeking out vendors that supply environmentally friendly products. In the end, it is not enough to talk about sustainability. True leadership requires a willingness to invest in the long-term health of one's business and active collaboration with others, out of a genuine sense of responsibility.

**REFLECTION ON CONNECTION**

1. How are you ensuring that your leadership decisions are not "saddling future generations" of leaders with sustainability challenges?

2. Where have you not only responsibly managed energy-efficiency, recycling, or green building issues for your business, but also partnered with other leaders to advance these issues in your industry?

3. What are the most salient customer-facing and non-customer-facing environmental issues you are addressing?

#### **CARING ABOUT THE PEOPLE THAT BRING PRODUCTS TO MARKET**

In Chapter 2, I discussed C.A.F.E. Practices, Starbucks commitment to the success and sustainability of suppliers in its coffees' countries of origin. I also noted that Starbucks had worked with Conservation International in the creation of these practices so that the needs of coffee farmers would be met. To that end, the leadership has set out three specific farmer-related sourcing objectives:

• "Ensure 100% of our coffee is ethically sourced by 2015."

• "Invest in farmers and their communities by increasing farmer loans to $20 million by 2015."

• "Improve farmers' access to carbon markets, helping them generate additional income while protecting the environment."

By 2011, Starbucks was on track with each of these objectives, as 86 percent of its coffee was ethically sourced under C.A.F.E. Practices, $14.7 million in loan commitments had been made to farmers, and programs in Mexico and Indonesia were paving the way for more farmers to have access to carbon markets and environmental protection.

Starbucks has a massive supply chain challenge that extends beyond coffee farmers. At the store level alone, it requires more than 83,000 deliveries a week to enable its stores to operate when a partner opens the door in the morning. The supply chain must also address the future growth and expansion of the business across products, categories, and channels. In many ways, the Starbucks brand rests on whether the supply chain can take ideas and create a physical manifestation of them in the marketplace. Despite those challenges, the leaders at Starbucks must ensure that their suppliers are diverse and that they are committed to business ethics and humane operations. Starbucks leaders understand that they can outsource physical activity, but they cannot outsource responsibility for the quality of their products or the way people are treated in the creation of those products.

An example of Starbucks willingness to take strong but respectful actions when its suppliers' behaviors are suspect occurred when workplace safety allegations were made concerning a supplier's U.S.-based manufacturing plant. According to Kelly Goodejohn, director, Ethical Sourcing, "In that case, we sent a message to plant management saying, 'Over the short term, we're going to stop doing business with you, but we want to understand what's happening in your facility and then want to talk about capacity building and remediation.'" After Starbucks notified the manufacturer, the leaders had a third-party monitoring company with whom Starbucks works globally go into the manufacturer's facility and conduct a three-day, in-person review. In addition to direct observations and meetings with plant leadership, the evaluation team spoke directly with employees in the plant.

In cases where third-party evaluations are required, Starbucks leaders hope those evaluations will result in verifiable remediation of the problem areas and allow for the maintenance of the supplier relationship. If that is not possible, those supplier relationships will be terminated. Kelly notes, "We recognize that the amount of money we spend with suppliers is significant and, as such, we have a responsibility to make sure that our values permeate throughout our supply chain. That is not an easy task because you're dealing with a wide array of cultures and different corporate priorities. But we tie the importance of ethical sourcing back to the fact that taking care of your people and your community produces positive business results." As Starbucks demonstrates a positive connection between humane treatment of workers and strong business growth, Starbucks suppliers are also demonstrating similar behavior for subcontractors and suppliers. In essence, being a humane and responsible company is good for business.

#### **UPPING THE COMMUNITY PARTNERSHIP**

The leaders at Starbucks have a long history of working on issues of employment opportunity, leadership development, and economic growth. For example, in 1998, Starbucks worked with former National Basketball Association star Earvin "Magic" Johnson through his Johnson Development Corporation in a joint venture, referred to as Urban Coffee Opportunities, to build Starbucks stores in underserved urban neighborhoods. Magic, who sold his stake in the 105 stores involved in the joint venture back to Starbucks in 2010, noted, "Through our partnership with Starbucks, we were able to serve as an economic catalyst in urban cities through the creation of new jobs."

By 2011, Starbucks had begun making a transition from Urban Coffee Opportunities to a new model for community stores in the Harlem neighborhood in New York and in Los Angeles's Crenshaw community. That pilot approach was designed to take financial contributions from those stores and share them directly with a community-building organization in each of those regions. In announcing the new community store model, Howard Schultz noted, "Starbucks is partnering with two organizations doing heroic work to address the economic, social and education challenges in their communities.... These two partnerships are intended to help us learn how our company can successfully join with change-making community organizations in a localized, coordinated and replicable way." Through these initial coordinated efforts, Starbucks shared approximately $245,000 with the two community organizations in the first year of operations. Based on the success of the initial community stores, Starbucks leaders announced that they were expanding the program to Houston, Texas, by contributing funds based on the performance of a newly remodeled Gulfgate Center Mall store to the Association for the Advancement of Mexican Americans. On a smaller scale, leaders can simply look for ways to support community activities through service organizations, schools, and community-based nonprofits. These types of opportunities forge reciprocal win/win relationships leading to business success and the overall health of the communities served.

##### **_Stewardship in Foundation Form_**

The Starbucks Foundation, which was created in 1997 with the purchase price from Howard's first book, _Pour Your Heart Into It_ , has served as a launchpad for many of Starbucks community development projects, starting with a focus on literacy programs in the United States and Canada. Over the years, the foundation has broadened its efforts globally. At present, the Starbucks Foundation supports community development projects in coffee-, tea-, and cocoa-growing regions. These projects include such things as improving water sanitation, increasing health and nutrition, and providing microcredit and agricultural training. The Starbucks Foundation also has become involved with Ethos Water, a company started in 2001 with the simple mission, "help children get clean water." Ethos Water, which is now a Starbucks subsidiary, has made more than $7 million in grants in support of that mission, with 5 cents from every bottle of Ethos Water purchased being dedicated to clean water efforts. The Starbucks Foundation also administers community service grants to nonprofit organizations and provides funds in the form of matching grants to organizations in which local Starbucks partners actively invest their own time and money.

Since there is not enough space in this book to dive deeply into all the projects and programs supported by the Starbucks Foundation, let's look at a couple of initiatives that address the primary themes of education and leadership development. For example, the Starbucks Foundation established the Starbucks China Education Project. The project, which began in 2005, builds on the strong cultural values concerning formal education that are found throughout China. In support of this project, Starbucks committed $5 million (approximately RMB 40 million) to learning programs in China through a U.S. nonprofit organization called Give2Asia. Funds from the project are used in China to train teachers in rural areas, support scholarships for teaching college students, and aid teachers as well as students who were affected by the 2008 Sichuan earthquake.

The Starbucks Foundation is also committed to youth leadership training globally through the Youth Leadership Grants program. Leaders at Starbucks reported in 2012 that "there are more than 1.2 billion 15 to 24 year olds, the largest global cohort of young people in history. Unfortunately, a growing number of these young people are disengaged and unemployed, often referred to as NEET (not engaged in employment, education, or training). The Starbucks Foundation is interested in supporting organizations that equip young people ages 15 to 24 years old." Specifically, the Starbucks Foundation is providing Youth Leadership Grants to international organizations that assist young people in developing skills in business savvy, social conscience, and collaborative communication.

Starbucks commitment to maximizing the employability of youth goes beyond the grants extended through the Starbucks Foundation. For example, Blair Taylor was the CEO of the Los Angeles Urban League when he approached Howard Schultz with a set of concerns and a request. Specifically, Blair shared that he told Howard, "Kids in urban schools are not getting the experiential learning that kids in suburban schools receive. They're not going away to Europe on their summer vacation or touring the Hamptons. They don't get the opportunity to see outside of their neighborhoods." Furthermore, Blair suggested to Howard "that urban school kids from inner-city schools and poor rural schools are keeping up pretty well with their suburban counterparts during the school year, but a gap emerges as a result of the differences in the experiences they have over the summer months."

Blair advised Howard that, because of this, he wanted to take a delegation of 20 to 30 kids from Crenshaw High School, a low-performing high school in the Los Angeles Unified School System, to China in the summer of 2011. In order to make this trip a reality, Blair had to line up three corporate partners. Blair's rationale for the trip to China was to give students from this inner-city Los Angeles school a view into the twenty-first-century global economy. According to Blair, Howard was the first business leader to jump in and support the effort. Blair stewarded a contingent of Crenshaw students and teachers in meetings with Chinese business leaders, entrepreneurs, and students from the number one high school in China. According to Blair, "We toured Shanghai, Beijing, and Tianjin. We rode the speed bullet train that travels at 200 miles an hour and got to see things that were life-changing for these kids. Most of these Crenshaw students had never been outside of Los Angeles County; 90 percent of them had never been on an airplane; some of them had never even seen the ocean, although they live 5 to 8 miles away." At the end of the trip, Blair asked the students in his delegation why they thought they had met with premier high school students in China. According to Blair, "One young man raised his hand and said, 'Because one day those kids are going to be running China.' Then the young man paused and said, 'And one day we are going to be running the United States, and we need to know each other.' When these kids came back, they looked at themselves as world ambassadors and future world leaders—not as kids from a low-performing school." In the next year, Blair Taylor left his position as CEO of the Los Angeles Urban League and became the chief community officer at Starbucks, helping the brand continue to provide unique opportunities to raise the expectations and skills of young people.

Starbucks efforts to promote ethical sourcing, global improvements in children's access to clean water, education grants, and support of youth leadership initiatives all share a common thread. Each effort reflects a belief that a business must leverage its size and prosperity for good. I suspect that your customers will become increasingly aware of the environmental track record of business leaders and their concern for their suppliers and the communities they serve. Those efforts are likely to be an important consideration for a growing number of consumers. Socially conscious decisions will probably result not only in short-term sales success, but also in a brighter long-term future. Leaders must develop a perspective that considers the well-being of future generations—many members of whom may become employees or consumers.

**REFLECTION ON CONNECTION**

1. Have you set ethical sourcing guidelines and objectives?

2. How would you handle a supplier against which workplace safety allegations are leveled? Do you have an established process for evaluating, remediating, and, if necessary, severing relationships with suppliers who are not transparent or do not honor the human rights of those they hire?

3. Do your social responsibility initiatives go beyond grants and involve the active participation of your people? Have you identified key social giving targets such as clean water, education, and leadership to maximize the impact of your efforts?

#### **JOB CREATION**

Abraham Lincoln offered sage advice to leaders when he said, "Be sure you put your feet in the right place, then stand firm." However, like much wise counsel, Lincoln's words are easier understood than followed. Throughout 2011, Howard Schultz put his feet in a number of bold places by writing a memo to partners titled "Leading Through Uncertain Times" and an open letter to Americans that was printed as a full-page ad in publications like the _New York Times_. Howard essentially challenged readers to take swift action and stand firm for increased business involvement in job creation and decreased partisan gridlock in the U.S. Congress.

Specifically, Howard noted, "Let's tell our government leaders to put partisanship aside and to speak truthfully about the challenges we face. Let's ask our business leaders to create more job opportunities for the American economy. And as citizens, let's all get more involved. Please, don't be a bystander. Understand that we have a shared responsibility in solving our nation's problems. We can't wait for Washington. At Starbucks, we are trying to live up to our responsibility by increasing our local community service and helping to finance small-business job creation with Create Jobs for USA. Our company is far from perfect, and we know we can do more for America. But we need your help. We need your voice." Howard asked readers to share their input on blogs, offer inspiring photos on Pinterest, and provide innovative ideas on Facebook. Howard also asked readers to include the hashtag #indivisible in their posts so that Starbucks could collect and amplify the shared ideas.

In addition to taking out an advertisement and facilitating online innovation and idea sharing, Howard Schultz encouraged campaign donors to withhold funding from either political party "until the Congress and the president return to Washington and deliver a fiscally disciplined long-term debt and deficit plan to the American people." More than 100 CEOs from major U.S. companies and scores of other contributors heeded Howard's call in an effort to get government officials to focus on debt reduction and job creation. At the same time, Starbucks was in full swing with its Create Jobs for USA program.

To launch Create Jobs for USA in November 2011, the Starbucks Foundation donated $5 million to support community development financial institutions (CDFIs) through the Opportunity Finance Network, a national network of CDFIs that invest in opportunities to benefit low-income, low-wealth, and other disadvantaged communities in the United States. Columnist Joe Nocera, writing in the _New York Times_ , explains, "It didn't take long for Starbucks to find the perfect financial partner.... Most, but not all, CDFIs are nonprofit, and their loan default rates are extremely low.... Opportunity Finance Network acts as an umbrella group to the best of them."

Starbucks then created and made available a red, white, and blue wristband embossed with the word _INDIVISIBLE_ for those who chose to make an in-store or online contribution of at least $5 to support Create Jobs for USA; 100 percent of the donations went directly to Opportunity Finance Network to support community lending across the country. In essence, Starbucks sought to create greater access to credit for small business owners in order to stimulate job creation and economic growth. The Create Jobs for USA program not only leveraged the participation of Starbucks customers but also amplified the power of capital. Joe Nocera adds, "Here is the most beautiful part about the whole arrangement. The donations to Create Jobs for USA will not be loaned to the CDFIs. They will be turned into capital... that equity can be leveraged 7 to 1... if 10 million Starbucks customers donate $5, that will support $350 million worth of lending. That's real money."

In June 2012, Starbucks expanded contribution opportunities for Create Jobs for USA by creating, selling, and donating a portion of the proceeds from an artisanal INDIVISIBLE ceramic mug and other INDIVISIBLE items such as whole bean coffee and merchandise. The mug was produced at one of two surviving potteries in East Liverpool, Ohio, a town that was once the ceramic capital of the United States. Ulrich Honighausen, the owner of Hausenware, a tableware company based in Sonoma County, California, and the supplier of the INDIVISIBLE mug, noted, "I am a U.S. citizen raising three children in this country, and for years I've wanted to make ceramics in the United States. A week after I heard Howard first talk about job creation in the United States, I was at a housewares conference and started asking people where could I make ceramics domestically. When Starbucks officially launched their Create Jobs for USA program, I thought I had to do my part to help create jobs in America, and that led me to contract with a small factory in East Liverpool. I was so inspired by what I saw in Ohio—the craftsmanship, need, and opportunities there—that I started another factory in the area which will compete in a more automated way against imports."

For a more detailed exploration of East Liverpool, Ohio, and the INDIVISIBLE mug, please go to <http://tinyurl.com/cmzr7ds> or point your QR reader to:

By April of 2012, Howard shared the initial success of Create Jobs for USA with CBS News: "We're getting money in the hands of [CDFIs], (who then) lend it to small businesses, create jobs in start-ups and existing businesses. In fact, 80 percent of the money we've raised has already been (given) out. And we can document with great transparency where the money's going and the jobs that are being created."

An example of the benefits from funding through the Starbucks jobs program is Gelato Fiasco. In 2007, Josh Davis was 25 years old when he and Bruno Tropeano, his 24-year-old business partner, opened a Gelato Fiasco gelateria in Brunswick, Maine. Because of their success in Brunswick, a town of approximately 23,000 people, Josh and Bruno had their sights set on an expansion into Maine's largest city, Portland, approximately 25 minutes to the south. Josh and Bruno found an optimal location for their new store, but they had to make a decision quickly to secure the 10-year lease. A call to their bank gave Bruno and Josh sufficient assurances of funding to lead them to sign their lease agreement. Unfortunately, after the lease was signed, their bank and several other lenders denied their loan requests.

As a last resort, Josh and Bruno went to a CDFI supported by the Create Jobs for USA program and received a $140,000 loan, allowing them to expand and add 10 new employees (full- and part-time) to their 21-person staff. Josh notes, "Starbucks turned what was going to be a truly unmitigated disaster into a real success story." Not only did Gelato Fiasco open in Portland, but the new Gelato Fiasco store was located approximately a block away from a busy Starbucks store. Oh, by the way, the Portland Gelato Fiasco serves coffee. So what was Starbucks response to a neighbor/competitor that it had supported? According to Josh, "The staff at Starbucks actually posted an article about our business in their store. Even though we were setting up shop a block away, they acted out of abundance and not competition."

Josh and Bruno were grateful for the trust placed in them and decided to take that gratitude and "pay it forward." To that end, they created a gelato flavor for their wholesale business (which distributes gelato to supermarkets throughout Maine and New England) and directed a portion of the revenues from that flavor back to the Create Jobs for USA program. According to Josh, "The motto of the city of Portland, Maine, is 'Resurgam,' which means 'I will rise again,' and we thought that motto applied well to our situation, so we named our special commissioned flavor Sweet Resurgam and gave $1 per pint back to the Create Jobs for USA program."

Few business leaders make a public call to fellow business leaders and politicians to set aside selfish differences and act in the greater good. Even fewer refocus themselves to partner with customers to generate solutions that produce tangible economic benefits, some of which might be perceived as competitive in nature. While many of Howard Schultz's actions may be outside the scope of what is achievable for you as a leader, Howard serves as a reminder to all of us that we can do more than complain about social challenges—we can (and, moreover, we have a responsibility to) be a force for constructive change.

  Leadership carries with it a responsibility to make the world a better place than you find it today.

  There is typically a strong interdependence between a company's performance, its values, and the impact it has on the communities it serves.

  When it comes to sustainability, it is important that you set ambitious goals; seek third-party criteria to validate your achievement of those goals; play a role in refining those criteria for your industry, if necessary; execute against those goals; and transparently report your progress toward your objectives.

  When an environmental issue is salient to your customers, it has to rise higher on your project priority list.

  Sustainability is not something that is done for marketing or publicity purposes; it is an authentic commitment to the future viability of your business and to future generations of customers.

  It is not enough to talk about sustainability; true leadership requires a willingness to invest in the long-term health of your business and to actively collaborate with others out of a genuine sense of responsibility.

  Being a humane and responsible company is good for business.

  Leaders must develop a perspective that considers the well-being of future generations—many members of whom may be employees or customers.

  As a leader, it is essential (in the words of Lincoln) that you put your feet in the right place, then stand firm.

  You can do more than complain about social challenges—you can (and, moreover, you have a responsibility to) be a force for constructive change.

###
**Forging a Real Lifestyle Connection**

Take a moment and think about your ideal customers. Now imagine them waking up in the morning and using one of your products in their homes. On their way to work, they stop by your store, check in on Foursquare, open your app, and purchase an item with mobile payment. At the office, they take a break and encounter your products or go online to check their Facebook page and read a post of yours in their feed. During the afternoon, they sign up to participate with your team in a community improvement project on their day off. They invite their friends to participate in that event with them. They take pictures as they help their community and post those images on Instagram, Twitter, and Facebook. They use your products at the event. They stop at the supermarket on their way home, and your offerings are on their shopping list. Okay, it's time to come back to reality.

It is important to remember that Starbucks started out as a single store and that anything is possible if we take the lessons learned from Starbucks as a nudge to think about how we can innovate and expand our products, services, social media tools, technologies, and channels. The leaders at Starbucks also demonstrate what is possible when you foster product passion, teach your people the importance of human connections, seek operational excellence and efficiency, and engage in a never-ending pursuit of relevance.

Howard Schultz puts it this way: "Any consumer brand today—whether Starbucks or a product like Tide—... [must] create relevancy in all aspects of your customers' lives.... The price of admission is not good enough if your relevancy and market position is only where the product is sold. We said to ourselves that we have to be as relevant socially and digitally as we are when the customer is inside our four walls... companies that don't understand [that] are going to [be] left behind."

Traditionally, marketers talk about lifestyle brands as those that connect with customers' personal identity. They are brands that "promote a lifestyle" customers value or to which they aspire. Starbucks is certainly a business that has all the traditional aspects of lifestyle branding, as its leaders have stewarded the brand to authentically project an image of product passion, concern for the human connection, and community values. However, Starbucks leaders have also taken their value proposition up a level to something I refer to as an "advanced lifestyle" brand. Not only does Starbucks "project a lifestyle," but it enters the lifestyle of its customers.

Typically, Starbucks builds its connection with customers through its primary well-distributed channel: Starbucks retail stores. In fact, some research suggests that 80 percent of U.S. citizens live within 20 miles of a Starbucks store, and that the farthest anyone would have to travel to get to a Starbucks company-owned store is 140 miles (the study did not include licensed stores, so the distance may be even shorter). Once that connection is forged through the store channel, the leaders at Starbucks have positioned their brand to meet their customer on the go, whether that be on a mountaintop with VIA, in a health food store with Evolution Fresh juice, on a train in Switzerland, or through a mobile app in Beijing. Aimee Johnson, vice president, Digital Commerce, Loyalty and Content, notes, "We are committed to understanding our in-store customers and connecting to them in ways that fit both where and who they are!"

A proliferation of your brand certainly has risk. Reuben Gregg Brewer, director of digital content at Value Line, cautions that there are "material risks to Starbucks recent expansion efforts. While going global is a great idea, moving outside of one's niche can, and often has, proven disastrous. Time and again new concepts in the quick service space flame out after coming to market.... Starbucks' efforts could, indeed, result in a lack of focus.... Moving into additional distribution channels, Starbucks' could risk oversaturation with its core brand and all of the others it has just added."

Many partners with whom I have spoken report having confidence in Starbucks future based on the ability of the leadership to adapt and transform to changing customer needs. This confidence is not limited to those within Starbucks. Jim Cramer, bestselling author and television host of the popular CNBC program _Mad Money_ , noted after the release of the Verismo system in 2012, "I am going with Schultz—not against him—because it has been a horrendous bet to go against Schultz in either the first or the second iteration and I think it will be a horrendous bet once again.... Schultz has primed Starbucks for a third round of growth and you don't want to be caught outside looking in." From my vantage point, success always hinges on high-quality products, provided the way customers want them, offered in a caring environment that builds connections. As long as Starbucks—or any business, for that matter—is achieving those objectives, customers will offer it their sustained support. While I imagine the leaders at Starbucks will continue to guide their brand wherever the opportunities and customers take them, I am certain that they will remind partners that the ultimate future of the brand depends on connecting in "uplifting moments."

These moments are like those provided by Starbucks barista Daniel Rowe. Daniel had a relationship with a regular customer, Kelly Dietrich. On most occasions, Kelly would also order a Tall Nonfat Latte for his wife. As Daniel shares, "One day Kelly up-sized his wife's nonfat latte to a grande. I figured she might need a little extra that day, so I wrote 'Hope your day gets better' on her cup."

Kelly's wife, Gini Dietrich, founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communication firm, and coauthor of _Marketing in the Round_ , notes, "The fact that the barista at Starbucks knew I was in for a long day because I ordered a larger drink was pretty incredible. I took a picture of the cup and uploaded [it] to Facebook, and essentially I thought that would be the end of our interaction. To my surprise, about a month later, my husband came home with another personalized cup from Barista Dan, which asked if I was real."

Gini checked "maybe" on her cup and added, "It depends on your definition of real." Dan had never met Gini, but for months they had made a very "real" connection through Gini's husband and messages sent back and forth a couple of times a week on Starbucks cups. Gini expanded her relationship with Dan through her Facebook network, taking pictures of each cup and asking her friends to vote on how she should answer each inquiry. Gini reported that she experienced sadness when she received a cup that mentioned that Dan was going to be leaving Starbucks in a month: "I made a point of stopping by to meet and say goodbye to Dan on his last day at Starbucks, as he was going to pursue his pastry career at the Trump Tower. I think Dan epitomizes the best of Starbucks, particularly in his sustained efforts to maintain our unique and special connection and to really care about my husband and me."

Dan notes, "I worked for Starbucks for six years, and they encouraged me to grow and develop. I gained interpersonal and management skills that will help me run a kitchen. They taught me what it means to be customer-focused. I am extremely pleased that Gini took the time to meet me. I really didn't think I was doing anything special; I was just playing my part in Starbucks culture by connecting personally—even if her person wasn't ever physically available."

Need I say more? Let me leave you with one question:

## **Bibliography**

### **CHAPTER 1**

" _Entrepreneur_ magazine ranks the company among the ten 'most trusted' businesses": Paula Andruss, "Secrets of the 10 Most-Trusted Brands," _Entrepreneur_ , March 20, 2012, <http://www.entrepreneur.com/article/223125>.

" _Fortune_ magazine places it among the 'most admired' global brands": "World's Most Admired Companies," _Fortune_ , March 21, 2011, <http://money.cnn.com/magazines/fortune/mostadmired/2011/full_list>/.

"U.S. president Barack Obama placed a call to the chief executive officer of Starbucks, Howard Schultz, because of Howard's leadership on job creation": David A. Kaplan, "Howard Schultz Brews Strong Coffee at Starbucks," _Fortune_ , November 17, 2011, <http://management.fortune.cnn.com/2011/11/17/starbucks-howard-schultz-business-person-year>/.

" _Fortune_ magazine has named Howard Schultz as businessperson of the year": Richard McGill Murphy, "2011 Businessperson of the Year," _Fortune_ , November 17, 2011.

Joseph A. Michelli, _The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary_ (New York: McGraw-Hill, 2006).

"While our financial results are clearly being impacted by reduced frequency to our U.S. stores": Howard Schultz, "Financial Release: Starbucks Reports Second Quarter Fiscal 2008 Results and Announces Long-Term Financial Targets for 2009 to 2011," Starbucks Investor Relations, April 30, 2008, http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-newsArticle&ID=1137657&highlight.

Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"Adherence to these seven bold moves has resulted in desired financial outcomes, as evidenced by 13 consecutive quarters of global comparable store sales growth greater than 5%.": Information as of Q2FY13 furnished by Starbucks, Q2FY13 Earnings Transcript.

"The number of formal bankruptcy filings in the 12 months ending June 2010... increased by 10%... and the year over year increase between 08 and 09 was 50%": Dun & Bradstreet, "D&B U.S. Business Trends Report," October 2010, <http://www.dnb.com/content/dam/english/economic-and-industry-insight/us_business_trends_2010_10.pdf>.

"Good management is largely a matter of love. Or if you're uncomfortable with that word, call it caring, because proper management involves caring for people, not manipulating them": James A. Autry, _Love and Profit: The Art of Caring Leadership_ (New York: Avon Books, Inc., 1991).

"Great brands always make an emotional connection with the intended audience": Leonard L. Berry, _Discovering the Soul of Service: The Nine Drivers of Sustainable Business Success_ (New York: Free Press, 1999).

"The City Council called for hearings and solutions": Petula Dvorak, "Encounter with a Homeless Man Touches a Virginia Starbucks Manager": _Washington Post_ , June 18, 2012, <http://articles.washingtonpost.com/2012-06-18/local/35460526_1_homeless-population-long-term-homelessness-dominic>.

### **CHAPTER 2**

"Steve Chou, the founder of Bumblebee Linens, reports that his online store went from zero earnings to more than $100,000 profit in a single year": Steve Chou, "Why You Don't Have to Love What You Sell when Starting an Online Store," mywifequitherjob.com, <http://mywifequitherjob.com/why-you-dont-have-to-love-what-you-sell>/.

"Not passionate about shoes at all": Joseph A. Michelli, _The Zappos Experience: 5 Principles to Inspire, Engage, and WOW_ (New York: McGraw-Hill, 2012).

"Tony has reported he owns three pair": Justin Fenner, "You'll Never Guess How Many Shoes Zappos' CEO Owns," _Styleite.com_ (blog), November 17, 2010, <http://www.styleite.com/media/tony-hsieh-three-shoes>/.

"Passionate about customer service and company culture": Valerie Khoo, "The Celebrity CEO: Zappos's Tony Hsieh," theage.com.au, February 17, 2012, <http://m.theage.com.au/small-business/managing/blogs/enterprise/the-celebrity-ceo-zapposs-tony-hsieh-20120216-1ta85.html>.

"Passion is the indefinable something that creates and builds interest and excitement on the part of the customer": Troy Harrison, "Sales Without Passion Isâ€|Well, It Isn't Sales," _salesforcesolutions.net_ (blog), 2013, <http://www.salesforcesolutions.net/blog/hotsheets/sales-without-passion-isâ€|well-it-isn't-sales>.

"As he described in his book _Onward_ , he gained an enriched awareness of the 'magic' of coffee": Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"To inspire and nurture the human spirit—one person, one cup and one neighborhood at a time": Our Starbucks Mission Statement, <http://www.starbucks.com/about-us/company-information/mission-statement>.

"Our Coffee. It has always been, and will always be, about quality": Our Starbucks Mission Statement, <http://www.starbucks.com/about-us/company-information/mission-statement>.

"Pouring espresso is an art, one that requires the barista to care about the quality of the beverage": Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"As events which communicate and reinforce desired performance and values": S. Chris Edmonds, "Use Social Rituals to Reinforce Your Desired Culture," www.drivingresultsthroughculture.com, December 20, 2010, <http://drivingresultsthroughculture.com/?p=871>.

"When I was first learning about coffee three years ago at a Starbucks in Connecticut, I tasted Caffè Verona®": "Ratatouille Taught Me How to Taste Coffee," _www.coffeeandthecity.com_ (blog), January 17, 2011, <http://www.coffeeandthecity.com/2011/01/ratatouille-taught-me-how-to-taste.html>.

"Rewards can perform a weird sort of behavioral alchemy: They can transform an interesting task into a drudge": Daniel H. Pink, _Drive: The Surprising Truth About What Motivates Us_ (New York: River-head Books, 2009).

"Jim Collins... asserts that visionary companies are led by individuals": Jim Collins, "Aligning Action and Values," www.jimcollins.com, June 2000, <http://www.jimcollins.com/article_topics/articles/aligning-action.html>.

"Were a dangerous enemy in the battle to transform the company": Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"I am in the process of becoming a Coffee Master": Paul Quinn, Starbucks community, <http://community.starbucks.com/message/6853#6853>.

### **CHAPTER 3**

"Starbucks is at its best when we are creating enduring relationships and personal connections": Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"Transformation Agenda includes... re-igniting our emotional attachment with our customers by restoring the connection our customers have with you, our coffee, our brand, and our stores": Howard Schultz, "Transformation Agenda Communication #1," star bucks.tekgroup.com, <http://starbucks.tekgroup.com/article_print.cfm?article_id=76>.

"Our Customers. When we are fully engaged": Our Starbucks Mission Statement, <http://www.starbucks.com/about-us/company-information/mission-statement>.

"Consumer data, consistently reflected in studies such as the American Express Global Customer Service Barometer, validate the perspective that customer service is chaotic, unpredictable, and in decline": "2012 Global Customer Service Barometer: Findings in the United States," a research report prepared for American Express, Echo, about.americanexpress.com, <http://about.americanexpress.com/news/docs/2012x/AXP_2012GCSB_US.pdf>.

"Memorable experiences": B. Joseph Pine II and James H. Gilmore, _The Experience Economy: Work Is Theater and Every Business a Stage_ (Boston: Harvard Business School Press, 1999).

"McDonald's very business model seeks a highly cookie-cutter approach": John Shook, "A Lean 'Teachable Moment': Starbucks in the Wall Street Journal," Lean Enterprise Institute, August 7, 2009, <http://www.lean.org/shook/displayobject.cfm?o=1085>.

"The goal is to make as many things as possible routine so that the barista can spend just a few more": John Shook, "A Lean 'Teachable Moment': Starbucks in the Wall Street Journal," Lean Enterprise Institute, August 7, 2009, <http://www.lean.org/shook/displayobject.cfm?o=1085>.

"For companies looking to make an emotional connection with consumers": Nick Chiles, "Corporations Use Music to Make Emotional Connection to Consumers," _Atlanta Black Star_ , July 26, 2012, <http://atlantablackstar.com/2012/07/26/corporations-use-music-to-make-emotional-connection-to-consumers>/.

"As part of its commitment to evolve and enhance the Customer Experience with innovative": "Starbucks Acquires Evolution Fresh to Establish National Retail and Grocery Health and Wellness Brand," news.starbucks.com, November 10, 2011, <http://news.starbucks.com/article_display.cfm?article_id=587>.

"Our intent is to build a national health and wellness brand leveraging our scale, resources and premium product expertise": "Starbucks Acquires Evolution Fresh to Establish National Retail and Grocery Health and Wellness Brand," news.starbucks.com, November 10, 2011, <http://news.starbucks.com/article_display.cfm?article_id=587>.

"Evolution Fresh is Starbucks newest addition to health food": Emily K., yelp.com, July 30, 2012, <http://www.yelp.com/filtered_reviews/666xh85KxFjcBVFqsTQy0w?fsid=r8JwQGC9dQ2YFYcbr0g3bg>.

"Tazo, the Oregon company that once aspired to be the Starbucks of teas, has been bought out": "Company News: Starbucks Acquires Tazo, a Tea Retailer in Oregon," _New York Times_ , January 13, 1999, <http://www.nytimes.com/1999/01/13/business/company-news-starbucks-acquires-tazo-a-tea-retailer-in-oregon.html>.

"Starbucks built Tazo from an $8.1 million purchase price in 1999": Lisa Baertlein, "Starbucks Plans to Open Tazo Tea Store This Year," Reuters.com, June 20, 2012, <http://www.reuters.com/article/2012/06/20/us-starbucks-tea-idUSBRE85J17620120620>.

"Into a brand with more than $1.4 billion in sales": Kelly Blessing, "Starbucks to Open Tazo Tea Store," Bloomberg.com, June 20, 2012, <http://www.bloomberg.com/news/2012-06-20/starbucks-to-open-tazo-tea-store.html>.

### **CHAPTER 4**

"It is our belief that social justice begins at home": The Learning Network, "Jan. 5, 1914: Henry Ford Implements the $5-a-Day Wage," _New York Times_ , January 5, 2012, <http://learning.blogs.nytimes.com/2012/01/05/jan-5-1914-henry-ford-implements-5-a-day-wage>/.

"This crisis of trust in our basic institutions is so troubling precisely because the lack of trust": Dov Seidman, "The Case for Ethical Leadership," _Academy of Management Executive_ 18, no. 2, 2004, <http://home.sandiego.edu/~pavett/docs/gsba532/ethical_leadership.pdf>.

"The results were dismal. Over two-thirds (71%) of the Americans polled": Dov Seidman, "The Case for Ethical Leadership," _Academy of Management Executive_ 18, no. 2, 2004, <http://home.sandiego.edu/~pavett/docs/gsba532/ethical_leadership.pdf>.

"Reflecting back on your high school or college coursework, you may recall that Maslow's 1943 paper 'A Theory of Human Motivation'": A. H. Maslow, "A Theory of Human Motivation," _Psychological Review_ 50, 1943, 370–396.

"Are you competent?": Ed O'Boyle, "B2B Customers Have Feelings Too," _Gallup Business Journal_ , May 14, 2009, <http://businessjournal.gallup.com/content/118339/b2b-customers-feelings.aspx>.

"A detailed exploration of the 11 questions that Gallup used in the CE-11 can be found in my book _The New Gold Standard_ ": Joseph A. Michelli, _The New Gold Standard: 5 Leadership Principles for Creating a Legendary Customer Experience Courtesy of The Ritz-Carlton Hotel Company_ (New York: McGraw-Hill, 2008).

"Virtue has been, is, and always will be its own reward": Dov Seidman, "The Case for Ethical Leadership," _Academy of Management Executive_ 18, no. 2, 2004, <http://home.sandiego.edu/~pavett/docs/gsba532/ethical_leadership.pdf>.

"Significant change was about to occur, and our people would want to know what it meant for them and their jobs": Howard Schultz and Joanne Gordon, _Onward: How Starbucks Fought for Its Life Without Losing Its Soul_ (New York: Rodale, 2011).

"People are not a company's most important asset": Ira A. Jackson and Jane Nelson, "Values-Driven Performance: Seven Strategies for Delivering Profits with Principles," quoted from a speech by Adrian Levy, founder of RLG International, March 2001, _Ivey Business Journal_ , November/December 2004, <http://www.humanresourcesoncall.ca/coach/coach_quotes.htm>.

"Watson Wyatt shows that total return to shareholders in high-trust organizations": Steven M. R. Covey, _The Speed of Trust: The One Thing That Changes Everything_ (New York: Free Press, 2008).

"But would Starbucks really replace _anything_? To find out": John Hargrave, "The Starbucks Prank: Will Starbucks Really Return Anything?," Zug.com, August 24, 2009, <http://www.zug.com/live/82273/The-Starbucks-Return-Prank-Will-Starbucks-Really-Return-ANYTHING.html>.

"Psychologists Daniel Kahneman and Amos Tversky began a revolution in economics by focusing on the role of emotional factors in decision making": David Laibson and Richard Zeckhauser, "Amos Tversky and the Ascent of Behavioral Economics," _Journal of Risk and Uncertainty_ 16, no. 1, April 1998, 7–47, <http://link.springer.com/article/10.1023%2FA%3A1007717224343-page-1>.

"A brand you recommend to friends wholeheartedly, even evangelically": Kate Newlin, _Passion Brands: Why Some Brands Are Just Gotta Have, Drive All Night For, and Tell All Your Friends About_ (New York: Prometheus Books, 2009).

### **CHAPTER 5**

"For the past two decades, Starbucks has been one of the only retailers with a stock program that includes part-time hourly partners": Howard Schultz, internal memo to partners, 2011. This memo was provided by Starbucks.

"In 2012, 28% of all firms that offer health benefits offer them to part-time workers": "2012 Employer Health Benefits Survey," Kaiser Family Foundation/Health Research & Educational Trust (HRET), 2012, www.kff.org/insurance/ehbs091112nr.cfm.

"I can also say in all seriousness that I owe Starbucks my life": Barista-Berry, _blogs.starbucks.com_ , March 29, 2011, <http://blogs.starbucks.com/blogs/customer/archive/2011/03/29/onward.aspx>.

"Originally, this article was going to be 'Why I love Starbucks.' As a former barista": Caitlin Muir, "33 Companies That Can Save You from College Debt," _collegeplus.org_ (blog), <http://www.collegeplus.org/blog/33-companies-that-can-save-you-from-college-debt>.

"In response to the question 'My organization recognizes excellence,' the organizations that scored in the lowest fourth overall": Adrian Gostick and Chester Elton, _The Carrot Principle: How the Best Managers Use Recognition to Engage Their People, Retain Talent, and Accelerate Performance_ (New York: Free Press, 2009).

"Organizations with highly engaged employees achieve seven times greater 5-year TSR": "The Impact of Employee Engagement," Kenexa Research Institute, 2008, <http://www.kenexa.com/getattachment/8c36e336-3935-4406-8b7b-777f1afaa57d/The-Impact-of-Employee-Engagement.aspx>.

"By increasing employees' engagement levels, organizations can expect an increase in performance of up to 20 percentile points": "Driving Performance and Retention Through Employee Engagement," Corporate Executive Board, mckpeople.com.au, 2004, <http://www.mckpeople.com.au/SiteMedia/w3svc161/Uploads/Documents/760af459-93b3-43c7-b52a-2a74e984c1a0.pdf>.

"While other fast-food retailers lost staff at rates as high as 400% a year, Starbucks' turnover was a relatively low 65%": Andrew Lowery (quoting Richard Lofthouse, a writer for _CNBC Business_ ), "The Changing Landscape in the Restaurant Industry," _Restaurant Industry 1.0_ (blog), November 19, 2012, <http://restaurantindustryblog.wordpress.com/2012/11/19/the-changing-landscape-in-the-restaurant-industry>/.

"Reached onto the counter and patted my hand, extending her sympathy and telling me the drinks were on them": "BetterBefore," _blogs.starbucks.com_ , March 31, 2011, <http://blogs.starbucks.com/blogs/customer/archive/2011/03/29/onward.aspx>.

### **CHAPTER 6**

"Some people might like being called by their first name, but I think many will be indifferent, and some might feel awkward": Vanessa Barford, "Will You Tell Starbucks Your Name?," _BBC News Magazine_ , March 14, 2012, <http://www.bbc.co.uk/news/magazine-17356957>.

"We all want to be recognized for our loyal patronage.... Starbucks is a company that others look to as a model": Ron Lieber, "The Card-Carrying Starbucks Fan," _New York Times_ , June 7, 2008, <http://www.nytimes.com/2008/06/07/business/yourmoney/07money.html?pagewanted=all>.

"In April 2012, nearly 60,000 Starbucks partners and customers, local organizations, and community members provided more than 700,000 individual community service acts that made a difference in more than 34 countries": "Community Service: Every Starbucks Store Is a Part of a Community, and We're Committed to Strengthening Neighborhoods Wherever We Do Business," starbucks.com, <http://www.starbucks.com/responsibility/community/community-service>.

"One additional example that had reach both within the United States and across international borders was an alliance forged between Starbucks leadership and the HandsOn Network": "Starbucks I'm In! Campaign," handsonnetwork.org, <http://www.handsonnetwork.org/starbucks>.

"The chic interior, comfortable lounge chairs, and upbeat music are not only differentiators that set Starbucks apart from the competition": Helen H. Wang, "Five Things Starbucks Did to Get China Right," _Forbes_ , August 10, 2012, <http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/1>/.

"Today is the day!... We stopped by our favorite neighborhood Starbucks and there... low and behold... the Mother Ship... Red Cup Day": Chrissy, "Starbucks Red Cup Day Is the Happiest Day of the Year," _thymeinmygarden.com_ (blog), November 2, 2010, <http://www.thymeinmygarden.com/starbucks-red-cup-day-is-the-happiest-day-of-the-year>/.

"During the past 10 days, sweaty queues of up to 50 people have formed outside an old colonial building in downtown Mumbai": Shymantha Asokan, "India's First Starbucks Branches Draw Long Queues," guardian.co.uk, October 29, 2012, <http://www.guardian.co.uk/world/2012/oct/29/india-first-starbucks-long-queues>.

"As in the US before Starbucks came along, there are few places in Latin America": Pan Kwan Yuk, "Starbucks in LatAm: Selling Ice to Eskimos?," _blogs.ft.com_ , June 21, 2012, <http://blogs.ft.com/beyond-brics/2012/06/21/starbucks-in-latam-selling-ice-to-eskimos/#axzz2Ab61xixC>.

"With high-store margins and low-store penetration": Kim Peterson, "Starbucks' Next Growth Area: Asia," _MSN Money_ , August 13, 2012, <http://money.msn.com/investment-advice/article-2.aspx?post=53fc5012-8606-4deb-b1e6-adf22572a73d>.

### **CHAPTER 7**

"The root cause was baked into our early decision where we didn't build these products based on a deep study of the countries": Chris Beier and Daniel Wolfman, "Intuit's Scott Cook on Failed Global Expansion: 'We Should've Known Better,'" _Inc.com_ , <http://www.inc.com/chris-beier-and-daniel-wolfman/intuit-quicken-scott-cook-global-expansion-failed.html>.

"In recent years, anthropological studies have built a strong empirical case.... [that] consumers often appropriate the meanings of global brands to their own ends": Craig J. Thompson and Zeynep Arsel, "The Starbucks Brandscape and Consumers' (Anticorporate) Experiences of Glocalization," _Journal of Consumer Research_ 31, 2004, <http://zeyneparsel.files.wordpress.com/2010/06/thompson-arsel-jcr.pdf>.

"Hiring people locally who can go in and understand the customer cold and design what the solutions should be": Chris Beier and Daniel Wolfman, "Intuit's Scott Cook on Failed Global Expansion: 'We Should've Known Better,'" _Inc.com_ , <http://www.inc.com/chris-beier-and-daniel-wolfman/intuit-quicken-scott-cook-global-expansion-failed.html>.

"[India] is a very complex market to enter. At one point we thought we could come here alone and we overestimated the complexity": Sonali Krishna, "India's Coffee Market Competition Is Ferocious: Howard Schultz, Starbucks," _Economic Times_ , October 25, 2012, <http://articles.economictimes.indiatimes.com/2012-10-25/news/34729911_1_starbucks-howard-schultz-tatas>.

"Are bringing an unparalleled experience to India customers": Mark J. Miller, "Starbucks Expands to India with Mumbai Flagship Opening," brandchannel.com, October 19, 2012, <http://www.brandchannel.com/home/post/2012/10/19/Starbucks-Opens-India-Store-101912.aspx>.

"Location of this Starbucks is somehow characteristic, as it stands on the main approach to the Dazaifu Tenmangu": Kengo Kuma and Associates, "Starbucks Coffee at Dazaifu Tenman-gū," _Dezeen.com_ , February 23, 2012, <http://www.dezeen.com/2012/02/23/starbucks-coffee-at-dazaifu-tenman-gu-by-kengo-kuma-and-associates>/.

"Shortly thereafter, a headline in the London _Telegraph_ read, 'Starbucks' UK sales boosted by extra shot of espresso'": Nathalie Thomas, "Starbucks' UK Sales Boosted by Extra Shot of Espresso" _Telegraph_ (London), April 26, 2012, <http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9229791/Starbucks-UK-sales-boosted-by-extra-shot-of-espresso.html>.

"Its origins are still a subject of debate, but the first printed reference to the phrase 'location, location, location' appears to be a real estate advertisement in the _Chicago Tribune_ in 1926": William Safire, "Location, Location, Location," On Language, _New York Times_ , June 26, 2009, <http://www.nytimes.com/2009/06/28/magazine/28FOB-onlanguage-t.html?_r=0>.

"Aiming at the young urban Chinese demographic, and store locations are comfortable and offer a social setting—a welcome break from cramped apartments": Moe Nawaz, "'Starbucks-China' Plans to Open 8,000 Branches," mastermindcoach.com, <http://www.mastermindcoach.com/business-ideas/starbucks-china-plans-to-open-8000-branches>/.

"Liz Muller, a Dutch-born designer and Starbucks concept design director, worked with 35 craftsmen and artists to make the underground store locally relevant and sustainable": Dave, "Starbucks 'the Bank' Concept Store in Amsterdam," _Contemporist_ , March 6, 2012, <http://www.contemporist.com/2012/03/06/starbucks-the-bank-concept-store-in-amsterdam>/.

"All of the displays and materials and design are from the Netherlands.... The space is designed to encourage interaction": Qaalfa Dibeehi, "The Destination Starbucks—a Concept Customer Experience," _beyondphilosophy.com_ (blog), September 5, 2012, <http://www.beyondphilosophy.com/blog/destination-starbucks-concept-customer-experience>.

"China is not one homogeneous market": Helen H. Wang, "Five Things Starbucks Did to Get China Right," _Forbes_ , August 10, 2012, <http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/2>/.

"The Starbucks offerings were my focus during my visit (three in one weekend, in fact)": Nicole Mancini, "Frappes, Lattes, & Liquid Gold: Starbucks Opens in Disney's California Adventure," DIS Unplugged, August 11, 2012, <http://www.disunplugged.com/2012/08/11/frappes-lattes-liquid-gold-starbucks-opens-in-disneys-california-adventure>/.

### **CHAPTER 8**

"In a 2012 _Time_ magazine survey, people were forced to choose one item to take to work: their wallet, their lunch, or their mobile device": _Time_ Mobility Poll, in cooperation with QUALCOMM, "Poll Results," August 2012, <http://www.qualcomm.com/media/documents/time-mobility-poll-cooperation-qualcomm>.

Joseph A. Michelli, _The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary_ (New York: McGraw-Hill, 2006).

"Starbucks was selected by _Forbes_ as one of the top 20 innovation companies in 2011": "The World's Most Innovative Companies," _Forbes_ , <http://www.forbes.com/special-features/innovative-companies-list.html>.

"Recognized by General Sentiment's QSR MediaMatch report in 2012 as having the highest impact value": "Starbucks Named Top QSR in Media Impact Value," _QSR_ , June 13, 2012, <http://www.qsrmagazine.com/news/starbucks-named-top-qsr-media-impact-value>.

"Because of its openness and seamless approach, Square at Starbucks is better positioned than any other technology to become": Marcus Wohlsen, "Square Launches at Starbucks—You Think You Won't Use It, but You Will," _WIRED.com_ , November 8, 2012, <http://www.wired.com/business/2012/11/square-launches-at-starbucks/all>/.

"Using game-type mechanics in non-game businesses to increase efficiency, customer loyalty and engagement": Amish Shah, "The Art and Science of Gamification," _ipadbiz.ulitzer.com_ , August 2, 2012, <http://ipadbiz.ulitzer.com/node/2323173>.

"Checking out Starbucks Twitter page, it's visible that most of the tweets are directed at": Kylie Jane Wakefield, "How Twitter Helps Starbucks Brew Up an Excellent Customer Experience," _contently.com_ (blog), February 23, 2012, <http://contently.com/blog/2012/02/23/starbucks-twitter-strategy>/.

"Starbucks is constantly expanding its content channels and exploring new formats to connect with its customers": Matt Wesson, "How to Use Content to Raise the Bar for Branding," Content Marketing Institute, July 12, 2012, <http://contentmarketinginstitute.com/2012/07/content-raises-the-bar-for-branding>/.

"To achieve this successful social media engagement, Starbucks focused its Web page, Facebook page and television advertisements": "Starbucks Rates Number 1 in Study of Most Socially Engaged Companies by Research Firm PhaseOne," PhaseOne, March 28, 2012, <http://www.phaseone.net/news/starbucks-rates-number-1-in-study-of-most-socially-engaged-companies-by-research-firm-phaseone>/.

"Where traditional companies push out messages and products, these companies pull customers in. Instead of treating customers as passive targets": Mark Bonchek, "How Top Brands Pull Customers into Orbit," _Harvard Business Review Blog Network_ , March 5, 2012, <http://blogs.hbr.org/cs/2012/03/how_top_brands_pull_customers.html>.

"For me, consumer-initiated ads are the future of advertising, not only on Facebook, but across other social networks too": Dave Williams, "How to Work Your Facebook Following," _blog.cream global.com_ , February 23, 2012, <http://blog.creamglobal.com/right_brain_left_brain/2012/02/how-to-work-your-facebook-following.html>.

### **CHAPTER 9**

"Due in large part to Howard Schultz's careful nurturing and development of the Starbucks Experience, the company has been able to leverage its increasingly strong brand": Ranjay Gulati, Sarah Huffman, and Gary Neilson, "The Barista Principle: Starbucks and the Rise of Relational Capital," _Strategy+Business_ , no. 28, <http://www.auburn.edu/outreach/ecdi/documents/wfd_barista_principal.pdf>.

"I am not sure people today even know we are roasting coffee": "Starbucks Chairman Says Trouble May Be Brewing," Media and Marketing, _Wall Street Journal_ , February 24, 2007, <http://online.wsj.com/article/SB117225247561617457.html>.

"Starbucks captures only a small portion of the $100 billion coffee, tea, and ready-to-drink beverage market globally": Robert Lillegard, "How to Win in Retail," _QSR_ , July 2012, <http://www.qsrmagazine.com/growth/how-win-retail>.

"The key is choosing a partner.... Everybody thinks most licenses succeed—it's absolutely the opposite": As quoted in Robert Lillegard, "How to Win in Retail," _QSR_ , July 2012, <http://www.qsrmagazine.com/growth/how-win-retail>.

"Even long-standing relationships can grow sour. Starbucks and Kraft had a very ugly public split in 2011 after the coffee giant claimed that the distributor wasn't doing enough": Robert Lillegard, "How to Win in Retail," _QSR_ , July 2012, <http://www.qsrmagazine.com/growth/how-win-retail>.

"Starbucks is positioning VIA against its own fresh brewed coffee, challenging people to see if they can taste the difference": Steve Tobak, "Starbucks Via: How to Blow a Turnaround," _CBS Money Watch_ , September 30, 2009, <http://www.cbsnews.com/8301-505125_162-28242944/starbucks-via-how-to-blow-a-turnaround>/.

"Through their collaboration, Starbucks is the exclusive licensed super-premium brand for GMCR's traditional Keurig and Vue brewers": "Starbucks Corporation and Green Mountain Coffee Roasters, Inc. Enter into Strategic Manufacturing, Marketing, Distribution and Sales Relationship," news.Starbucks.com, March 10, 2011, <http://news.starbucks.com/article_display.cfm?article_id=504>.

"A 2012 Reuters survey suggests that about 10 percent of the world's workforce works from home": Patricia Reaney, "About One in Five Workers Worldwide Telecommute: Poll," Reuters, January 24, 2012, <http://www.reuters.com/article/2012/01/24/us-telecommuting-idUSTRE80N1IL20120124>.

"We announced that Starbucks will introduce an instant coffee, providing our customers with great tasting Starbucks coffee, anywhere and anytime": Howard Schultz, "Staying Real in an Instant," _Huffington Post_ , February 17, 2009, <http://www.huffingtonpost.com/howard-schultz/staying-real-in-an-instan_b_167381.html>.

"I know some will question our decision, and I understand this reaction. Expectations from brands like Starbucks are high": Howard Schultz, "Staying Real in an Instant," _Huffington Post_ , February 17, 2009, <http://www.huffingtonpost.com/howard-schultz/staying-real-in-an-instan_b_167381.html>.

"Sampling is a time proven method for facilitating consumer trial. Starbucks having ultimate control in their own stores orchestrated sampling customers with free VIA coffee": Domenick Celentano, "Most Memorable New Product Launches Part 2," foodbeverage.about.com, February 2009, <http://foodbeverage.about.com/od/Food_Entreprenur_Spotlight/a/Most-Memorable-N>.

"You just can't get away from the fact that social media in food [promotion] is powerful and Starbucks being marketing geniuses know this": Domenick Celentano, "Most Memorable New Product Launches Part 2," foodbeverage.about.com, February 2009, <http://foodbeverage.about.com/od/Food_Entreprenur_Spotlight/a/Most-Memorable-N>.

"The fourth possible peril is this: A combination of brand fatigue (too much Starbucks distributed through too many market channels) and unbundling the beverage from the iconic ritual": Jane Genova, "Starbucks: Humbled in the Grocery Aisle?," _beta.fool.com_ (blog), March 28, 2012, <http://beta.fool.com/janegenova/2012/03/28/starbucks-humbled-grocery-aisle/3185>.

### **CHAPTER 10**

"Fundamental assumptions that did not allow top management to adjust to new market realities": Andrea Nagy Smith, "What Was Polaroid Thinking?," _Yale Insights_ , November 2009, <http://qn.som.yale.edu/content/what-was-polaroid-thinking>.

"In 'the early stages of growth,' 'the second inning of a nine-inning game,'": Joseph A. Michelli, _The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary_ (New York: McGraw-Hill, 2006).

"Drippler.com, an electronic gadget news source, reported a substantial rise in site visitors in 2012": "iPod and Other MP3 Player Sales Fade as iPhones, Androids and Other Smartphones Take Over as the Digital Music Players of Choice," PR Web, February 29, 2012, <http://www.prweb.com/releases/gadgets/iphone/prweb9236591.htm>.

"Starbucks no longer seems to perceive its future as depending on an ability to clone its essential store concept ad infinitum": Jon Gertner, "For Infusing a Steady Stream of New Ideas to Revive its Business," _Fast Company_ , 2012, <http://www.fastcompany.com/most-innovative-companies/2012/starbucks>.

"Design will allow Starbucks baristas to handcraft espresso beverages more efficiently and consistently": "Fact Sheet: New Milk Steaming Pitcher," news.starbucks.com, March 6, 2012, <http://news.starbucks.com/article_display.cfm?article_id=627>.

"Implementing mobile pay in the Drive Thru took a few more considerations than it did inside the store. For one, we needed something that would allow": Dana K., "The Starbucks App Is Now Drive Thru Friendly!," _starbucks.com/blog_ , March 26, 2012, <http://www.starbucks.com/blog/the-starbucks-app-is-now-drive-thru-friendly-/1172>.

"We just did something in China that I think is one of the most innovative things we have ever done in our history": "Howard Schultz on Global Reach and Local Relevance at Starbucks: An Interview with the CEO," _BCG Perspectives_ , October 17, 2012, https://www.bcgperspectives.com/content/videos/leadership_management_two_speed_economy_howard_schultz_global_reach_and_local_relevance/.

"Still the company's main instigator—has a kernel of an idea.... He then activates": Jon Gertner, "For Infusing a Steady Stream of New Ideas to Revive its Business," _Fast Company_ , 2012, <http://www.fastcompany.com/most-innovative-companies/2012/starbucks>.

"It was absolutely delicious. Lots of people liked it.": Melody Overton, "Starbucks Sorbetto: The 2008 Delicious Test Product That Didn't Make It (A Piece of Starbucks History)," _starbucksmelody.com_ (blog), October 20, 2010, <http://www.starbucksmelody.com/2010/10/20/starbucks-sorbetto-the-2008-delicious-test-product-that-didnt-make-it-a-piece-of-starbucks-history>/.

"Rate of change in the world today is going up. It's going up fast, and it's affecting organizations in a huge way": John Kotter, "Can You Handle an Exponential Rate of Change?," _Forbes_ , July 19, 2011, <http://www.forbes.com/sites/johnkotter/2011/07/19/can-you-handle-an-exponential-rate-of-change>/.

"The Café Starbucks concept includes a wait staff, seating for up to 65, and a menu that covers all dayparts beginning with full breakfasts": Roseanne Harper, "Starbucks Percolates Its Third Full-Service Restaurant," _Supermarket News_ , November 30, 1998, <http://supermarketnews.com/archive/starbucks-percolates-its-third-full-service-restaurant>.

"Surrounded by San Francisco's pricey new loft apartments, [Circadia] resurrects the feel of the 1960s coffee shops of Greenwich Village": Mark Gimein, "Behind Starbucks' New Venture: Beans, Beatniks, and Booze," _Fortune_ , May 15, 2000, <http://money.cnn.com/magazines/fortune/fortune_archive/2000/05/15/279773/index.htm>.

"Starbucks pitched a new game plan... a healthier breakfast line-up with fewer calories and more protein": Erin Zimmer, "Starbucks Introduces a New Line of 'Healthier' Breakfast Foods," _Serious Eats_ , September 4, 2008, <http://www.seriouseats.com/2008/09/starbucks-new-healthy-breakfast-options.html>.

"Starbucks Diet": "Woman Claims She Lost 75 Pounds on 'Starbucks Diet,'" _New York Daily News_ , September 17, 2012, <http://articles.nydailynews.com/2012-09-17/news/33907123_1_diet-starbucks-woman-claims>.

"Sometimes you just want a glass of wine and a delicious bite to eat": "Starbucks Evenings," Starbucks.com, <http://www.starbucks.com/coffeehouse/starbucks-stores/starbucks-evenings>.

"Starbucks opened a store unlike any before it. There are no leather chairs or free power outlets": Mark Wilson, "An Experimental New Starbucks Store: Tiny, Portable, and Hyper Local," _Fast Company Design_ , <http://www.fastcodesign.com/1670889/an-experimental-new-starbucks-store-tiny-portable-and-hyper-local#1>.

"In Seattle's Best Coffee's latest divergence from corporate parent Starbucks": Melissa Allison, "Seattle's Best Coffee Plans Thousands of Drive Thru-Only Cafés," _Seattle Times_ , November 13, 2012, <http://seattletimes.com/html/businesstechnology/2019676822_seattles bestxml.html>.

"Any company, small or large, consumer or otherwise, that is going to embrace the status quo": Howard Schultz, "Innovation," You Tube.com, May 16, 2011, <http://www.youtube.com/watch?v=ll-64gNuT3E>.

### **CHAPTER 11**

James Kouzes and Barry Posner, _A Leader's Legacy_ (Hoboken, NJ: John Wiley & Sons, 2006).

"Since Starbucks earliest days, I have believed in a strong link between our company's performance, our values, and the impact": Howard Schultz, "2012 Global Responsibility Report, Message from Howard Schultz," Starbucks.com, 2012, <http://www.starbucks.com/responsibility/global-report/leadership-letter>.

"Green building skeptics sometimes argue that it's difficult or even impossible to build green without paying a big cost premium": Natural Resources Defense Council, "Fact Sheets: How Much Does Green Building Really Cost?," <http://www.nrdc.org/buildinggreen/factsheets/cost.asp>.

Green Building Design Award: Bonnie Christian, "Global Green USA Honors Adrian Grenier, Starbucks with Sustainable Design Awards," _Huffington Post_ , November 15, 2011, <http://www.huffingtonpost.com/2011/11/15/global-green-usa-adrian-grenier_n_1095304.html>.

2012 Good Design Is Good Business Award: Linda Lentz, "2012 Good Design Is Good Business Award Winners," _Architectural Record_ , April 23, 2012, <http://archrecord.construction.com/news/2012/04/2012-Good-Design-is-Good-Business-Award-Winners.asp>.

Green Power Leadership Award winner: "Starbucks Listed on EPA's Top 50 Green Organizations," FastCasual.com, April 24, 2012, <http://www.fastcasual.com/article/193480/Starbucks-listed-on-EPA-s-Top-50-green-organizations>.

"Without compromising its thermal properties, the new sleeve uses 35 percent less paper and is made from 85 percent postconsumer recycled fiber: "New Starbucks EarthSleeve™ Blends Performance with Environmental Sensibility," news.starbucks.com, July 19, 2012, <http://news.starbucks.com/article_display.cfm?article_id=681>.

"Ensure 100% of our coffee is ethically sourced by 2015": "Starbucks Global Responsibility Report: Goals and Progress 2011," <http://globalassets.starbucks.com/assets/c007fb25782442ac8283b154364c1016.pdf>.

"Through our partnership with Starbucks, we were able to serve as an economic catalyst in urban cities through the creation of new jobs": "Starbucks Acquires Remaining Interest in Magic Johnson Enterprises' Urban Coffee Opportunities (UCO)," news.starbucks.com, October 21, 2010, <http://news.starbucks.com/article_display.cfm?article_id=452>.

"Starbucks is partnering with two organizations doing heroic work": "Starbucks Announces Store Partnership Model with Community Organizations in Harlem and Los Angeles," news.starbucks.com, October 4, 2011, <http://news.starbucks.com/article_display.cfm?article_id=574>.

Howard Schultz and Dori Jones Yang, _Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time_ (New York: Hyperion, 1997).

"Ethos Water, which is now a Starbucks subsidiary, has made more than $7 million in grants in support of that mission": "2012 Global Responsibility Report: Year in Review," starbucks.com.

"There are more than 1.2 billion 15 to 24 year olds, the largest global cohort of young people in history": "Youth Leadership Grants," star bucks.com, <http://www.starbucks.com/responsibility/community/youth-action/grant>.

"Let's tell our government leaders to put partisanship aside and to speak truthfully about the challenges we face": Howard Schultz, "An Open Letter: How Can America Win This Election?," star bucks.com, June 29, 2012, <http://www.starbucks.com/blog/an-open-letter-how-can-america-win-this-election/1207>.

"Until the Congress and the president return to Washington and deliver a fiscally disciplined long-term debt and deficit plan to the American people": Cameron Joseph, "100 CEOs Promise No Campaign Contributions," _The Hill_ (blog), August 25, 2011, <http://the hill.com/blogs/ballot-box/presidential-races/178211-100-ceos-promise-no-campaign-contributions>.

"It didn't take long for Starbucks to find the perfect financial partner": Joe Nocera, "We Can All Become Job Creators," _New York Times_ , October 17, 2011, <http://www.nytimes.com/2011/10/18/opinion/nocera-we-can-all-become-job-creators.html?_r=0>.

"We're getting money in the hands of [CDFIs], (who then) lend it to small businesses, create jobs in start-ups and existing businesses": "Starbucks CEO Touts Program to Create U.S. Jobs," _CBSNews.com_ , April 3, 2012, <http://www.cbsnews.com/8301-505268_162-57408557/starbucks-ceo-touts-program-to-create-u.s-jobs>/.

### **CHAPTER 12**

"Any consumer brand today—whether Starbucks or a product like Tide—[must] create relevancy": John Gertner, "Starbucks CEO Howard Schultz on Connecting With Customers Everyday, All Day," _Fast Company_ , November 26, 2012, <http://www.fastcompany.com/3003147/starbucks-ceo-howard-schultz-connecting-customers-everyday-all-day>.

"Material risks to Starbucks recent expansion efforts. While going global is a great idea, moving outside of one's niche": Reuben Gregg Brewer, "The Good and Bad of the Cool Caffeine Store's Expansion," _Motley Fool Blog Network_ , November 20, 2012, <http://beta.fool.com/reubengbrewer/2012/11/20/the-good-and-bad-of-the-cool-caffeine-stores-expan/16903>/.

"I am going with Schultz—not against him—because it has been a horrendous bet to go against Schultz": Drew Sandholm, "Starbucks CEO Draws Comparison to Steve Jobs," Mad Money w/Jim Cramer, _CNBC_ , September 20, 2012, <http://www.cnbc.com/id/49111861>.

Much of the content of this book emerged from face-to-face meetings, telephone interviews, and other forms of support involving Starbucks partners. These partners include, but are not limited to:

Adam Brotman, Adam Novsam, Aimee Johnson, Al Griggs, Alex Wheeler, Alisa Martinez, Alison Edwards, Andrea Bader, Andrew Linneman, Anna Konopke, Annie Young-Scrivner, Anthony Perez, Arthur Rubinfeld, Barbara McMaster, Belinda Wong, Ben Packard, Blair Taylor, Brad Anderson, Brad Nelson, Brett Buchanan, Carlos Jimenez, Carol Wise, Carolina Morales, Catherine Chu, Cecilia Carter, Cecilia DeFranco, Cecile Hudon, Charles Cain, Charles Douglas III, Chris Bruzzo, Chris Carr, Christina McPherson, Christina Ryan Foster, Clarice Turner, Cliff Burrows, Corey duBrowa, Corey Lindberg, Craig Russell, Curt Garner, D. Major Cohen, Dan Berger, Dan Kassa, Diana Barnes, Diana Kelly, Dirk Nickolaus, Dub Hay, Elisha Trombley, Emma Evans, Ernst Florian, Feng Bao, Frank Wubben, Gabe Wiborg, Gina Woods, Heidi Durham, Heidi Peiper, Howard Schultz, Janeen Simmons, Jean-Marie Shields, Jenny Cui, Jim Hanna, Jim Olson, Joe Young, John Culver, Juan Rivers, Kalen Holmes, Katie McMahan, Kaycee Kiesz, Kelly Goodejohn, Kevin Petrisko, Kimberlee Sherman, Kris Engskov, Laura Baker, Linda Mills, Lionel Sussman, Lisa Passé, Lissa Law, Liz Muller, Maggie Jantzen, Marthalee Galeota, Megan Adams, Meredith Bell, Michelle Bonam, Michelle Gass, Mick James, Mike Peck, Paula Boggs, Peter Gibbons, Rebecca Alexander, Rich Nelsen, Rob Naylor, Rob Porcarelli, Rob Sopkin, Rodney Hines, Ruth Anderson, Ryan Hudson, Samantha Yarwood, Sandra Bucher, Shao Wei, Stacy Speicher, Stephen Gillett, Tam Marpoe, Thom Breslin, Thomas Mayer, Tina Olsson Schulz, Tom Barr, Troy Alstead, Valerie O'Neil, Virgil Jones, Vivek Varma, and Wang Bin Wolf.

## **Index**

_Please note that index links point to page beginnings from the print edition. Locations are approximate in e-readers, and you may need to page down one or more times after clicking a link to get to the indexed material_.

Access Alliance Network, ,

Adaptability, ,

Allen, Fred,

Allison, Melissa,

Alstead, Troy, , –210, ,

Americas region, –136. _See also_ Burrows, Cliff

Anderson, Brad, –32

Anderson, Ruth,

Applicants, –15

Appreciation, –120

Architecture, –141

Aristotle,

Armed Forces Network, ,

Arsel, Zeynep,

Artistry,

Asokan, Shymantha, –129

Attention,

to innovation, differentiation, and relationship strengthening, –118

to names, –116

Autry, James,

Bader, Andrea,

the Bank, –149

Bay Bread LLC,

Bean Stock, –89

Ben & Jerry's,

Berry, Leonard, –6

Bistro Box, –220

Black Partner Network,

Bonchek, Mark,

Bonneville Power Administration, –236

Brand Love Curve, –81

Brand passion, , –83

Breslin, Thom, ,

Brewer, Reuben Gregg,

Brotman, Adam, –164, –171, –175

on benefits of social media,

Bruzzo, Chris, –168,

Burrows, Cliff, , , ,

on innovation, –202

Business-to-business connection, –189

C.A.F.E. Practices. _See_ Coffee and Farmer Equity Practices

Café Starbucks, –219

Caffè Verona, –198

Cain, Charles,

Canada,

Caring Unites Partners (CUP) Fund, –95

Carr, Chris,

Celebration ritual, –22

Celentano, Domenick, , –197

Chantico™,

Cherish and Challenge Your Legacy (business principle), . _See also_ Innovation; Social responsibility

connecting points, –228, –252

_Chicago Tribune_ ,

Chiles, Nick,

China and Asia Pacific Rim region, , –136, , , , . _See also_ Culver, John

China Club Network,

China Education Project,

Chou, Steve,

Circadia,

City University program,

Clinton, Bill,

Clover® brewing system, ,

Co-creation with customers movement,

Coffee Ambassadors, , ,

Coffee and Farmer Equity Practices (C.A.F.E. Practices), –24,

Coffee education,

Coffee Masters, , –29, –34

Coffee Passport, –22

Coffee-tasting ritual, –22

Collins, Jim,

Comfort, –127

Commerce, –166

Communication, ,

ritual, –24

Community, –124

development financial institutions,

development projects,

partnership, –243

table,

Comp effect, –31

Competency, ,

Connection. _See also_ Mobilize the Connection

business-to-business, –189

emotional, , , –82

farmer-partner, –24

forging,

human,

lifestyle, –258

social media and, –170

technology and, –179

Conservation International,

Consistency, –77

Consumer

behavior, –82

trust,

Consumer packaged goods, –182,

risks and payoffs, –203

Cook, Matt,

Cook, Scott, ,

Corio, Kay,

Couzens, James,

Covey, Stephen M. R.,

Create Jobs for USA program, , –251

Crenshaw High School,

CRM. _See_ Customer relationship management

Cross-functional teams, –75

Cui, Jenny,

Cultural relativism, , –134, –152. _See also_ Local relevance

connecting points, –153

Culver, John, , ,

on partnerships,

CUP Fund. _See_ Caring Unites Partners Fund

Cup Summit, –237

Curiosity, –214

Customer engagement, –8, , ,

through design,

hierarchy, –68

pride and,

social media and, , –173

Customer experience, –38, , –189

co-created, –54

enhancements, –48

evolving, –51

Customer relationship management (CRM), –160

Customers

complaints, –79

cross-channel, –199

loyalty rewards, –120,

motives of,

product passion and, –34, –68

Davis, Josh, –251

Dazaifutenmangu Ometesando store, –142

Decentralization, –137

Design, , –49

local relevance and, –142

sustainable building, –236

_Dezeen_ magazine, –142

Diamandis, Peter,

Dibeehi, Qaalfa,

Diderot, Denis,

Dietrich, Gini, –257

Dietrich, Kelly, –257

Differentiation, –118

Digital advertising, –175

Digital strategy, –166. _See also_ Social media

team, –175

Dills, Carrie,

Donald, Jim,

Donne, John,

Dorsey, Jack,

Douglas, Charles, III,

Drive Thru, –212, –224, , –233

Dvorak, Petula,

East Liverpool,

Edmonds, S. Chris,

Education development, –247

Efficiency, –213

Einstein, Albert,

Elton, Chester, –102

E-mails, , ,

EMEA. _See_ Europe, Middle East and Africa

Emotional connections, , , –82

Empathy, –101

Employee, , . _See also_ Partner

part-time, , –106

Energy use, –236

Engskov, Kris,

_Entrepreneur_ magazine,

Environment, –47. _See also_ Design

comfort of, –127

Environmental stewardship, –239

Ethical sourcing, –24, ,

Ethos Water,

Europe, Middle East and Africa (EMEA) region, –136. _See also_ Gass, Michelle

Evolution Fresh™ stores, –57,

Experience. _See also_ Customer experience; Starbucks Experience

branded,

connecting points, –60

creators, –39

guiding delivery of, –42

immersive, –26

platform to build on, –59

Experimentation, –220

Expertise, –30

Facebook, –169, –174, –197, –257

Fair trade, –17

Farmers,

partner-, connection, –24

sourcing objectives,

_Fast Company_ magazine, –122

"For Whom the Bell Tolls" (Donne),

Ford, Henry,

_Fortune_ magazine,

France, –146

Fredericksburg, Virginia, –8

Future Roast 401 (k) program,

Gallup Corporation, –68

Gamification strategies, –166

Garner, Curt, , –177

Gass, Michelle, –100, –112

names and, –114,

on regional strategy development, –136

Gates, Bill,

Gelato Fiasco gelateria, –251

Genova, Jane,

Gertner, Jon, ,

Gilmore, James H.,

Gimein, Mark,

Global Month of Service, –123

Goodejohn, Kelly, –24,

Gostick, Adrian, –102

Green Mountain Coffee Roasters, –191

Green Mountain's Vue™,

Growth and development. _See also specific development initiatives_

investments, –93, –108

rates, –209

70/20/10 approach,

Gulati, Ranjay, –182

Hackley, Chris,

Hall, Christine,

HandsOn Network, –124

Hanna, Jim, –234,

Hansberry, Jeff,

Hardijzer, Hazel,

Hargrave, John,

Harper, Roseanne, –219

Harrison, Troy,

Hay, Dub, ,

Health-care benefits, –71, –91,

Higgins, Alli, –42,

Hite, Morris,

Home, –192

Honighausen, Ulrich,

Hora Del Café Network, ,

Hsieh, Tony,

Hubbard, Elbert,

Hudon, Cecile, ,

Huffman, Sarah, –182

Humility,

"I'm In!" campaign, –124

Immersion program, –101

Immersive experience, –26

Impact value,

India, –129,

Indivisible, –249

Infographic,

Innovation, –118,

challenges to, –208

connecting points, –228

curiosity and, –214

efficient, –213

energy reduction and, –236

ever-moving relevance target and, –227

experimentation and, –220

for local relevance, –144

model,

new concepts and, –224

product offerings and, –202

product relevance and, –218

technological advances and, –226

Insurance. _See_ Health-care benefits

Integrity, , –69,

during challenging times, –74

love and, –83

in product delivery, –76

in service recovery, –79

Intuit, –134,

iPhone, –161

Japan, –142

Joachim, Karen,

Job creation, , –251

Johnson, Aimee, , –255

Johnson, Earvin "Magic,"

Johnson Development Corporation,

Jones, Virgil, , –99

Kahneman, Daniel,

Kelly, Diana, –8

Keurig Incorporated, –191

Kiesz, Kaycee, , –97

Kimoto, Tisha,

Knowledge, –18

Kotter, John,

Kouzes, James,

Lady Gaga,

Latin America, –130

Leadership, , –230, . _See also_ Schultz, Howard

alignment, –216

benchmark, –5

development, –247

holistic approach to, –8

immersion programs for, –101

legacy,

love and, –6

regional,

Lean transformation process, ,

LEED® certification, –235

Levy, Adrian,

Licensing agreement, ,

Lieber, Ron,

Lifestyle connection, –258

Lillegard, Robert,

Lincoln, Abraham,

Lindberg, Corey,

LinkedIn,

Linnemann, Andrew, ,

Listening, –101

tours,

Local relevance, , –152

choice and, –146

decentralization and revitalization for, –137

design and, –142

experimentation and, –149

innovation for, –144

location and, –148

partnerships for, –139

sensitivities and, –151

"Location, location, location,"

Logo, –45

Love, –6, –83

Love to Be Loved (business principle), . _See also_ Trust; _specific supporting elements_

connecting points, –84,

Loyalty/CRM/ targeted database, –166

Mancini, Nicole,

Market conditions,

Market expansion, –134. _See also_ Local relevance

international, –130, ,

Maslow, Abraham, –66

Mastery, –30. _See also_ Coffee Masters

McDonald's, –47

McMahon, Katie,

McMaster, Barbara, ,

Merchandise, –185

Mikulka, Bill,

Mini-desserts, –220

Mishra, Karen, –118

Mobile pay, –163

Mobilize the Connection (business principle), –157. _See also_ Product offerings; Technology

connecting points, –180, –204

Modular store concept, –223

Morales, Carolina,

Morality, –70

Muan Jai® blends,

Muir, Caitlin, –92

Muller, Liz,

Music,

My Starbucks Idea website, –54, ,

My Starbucks Rewards™, ,

Names, –116

Nawaz, Moe,

Naylor, Rob,

Need. _See_ Universal needs

Neighborhoods,

Neilson, Gary, –182

Nelsen, Rich,

Netherlands, –149

New concepts, –224

New hires, –18, –21,

Newlin, Kate,

Nickolaus, Dirk,

Nightingale, Earl,

Nocera, Joe, –249

Obama, Barack,

Occupy Wall Street, –64

Olsen, Tracy, –127

O'Neil, Valerie, ,

On-the-go solutions, –197

_Onward: How Starbucks Fought for Its Life without Losing Its Soul_ (Schultz), , ,

Origin Experience, –26

Packaging, –198

Packard, Ben, , –237

Paradigm shifts, –209

Partner Access Alliance Network,

Partner engagement,

growth and development investments and, –93, –108

listening and, –101

partner-to-, –95,

value of, –107

Partners, , , , , –71. _See also_ New hires; _specific benefits_

farmers-, connection, –24

return on investment in, –107

reward and recognition programs, –104

trust,

uniting, –97

well-being, –91

Partnerships, –152, –188,

community, –243

local, –139

Part-time employees, , –106

Passion, , , . _See also_ Product passion

brand, , –83

Schultz on transference of, –13

Peck, Mike, –45

Perez, Anthony, –233

Performance standards,

Petrisko, Kevin, , –75

PhaseOne, –171

Pike Place® Roast,

Pine, B. Joseph,

Pink, Daniel,

Pinterest, ,

Place model, –159, . _See also specific places_

Point of Sale (POS) system, , –177

Polaroid Corporation, –208

POS. _See_ Point of Sale

Posner, Barry,

Pride,

Pride Alliance Network,

Product, –146, . _See also_ Relevance

delivery, –76

tests, –76

Product offerings,

business-to-business connection and, –189

connecting points, –204

cross-channel customers and, –199

home, –192

innovation in, –202

in-store, –185

on-the-go, –197

risks and payoffs of, –203

workplace, –194

Product passion, –13

through celebration ritual, –22

through communication ritual, –24

connecting points on, –35

customers and, –34, –68

through immersive experiences, –26

through knowledge, –18

mastery and, –30

strategy consistent with, –33

Project Dominic,

Quinn, Paul, –34

Reach for Common Ground (business principle), . _See also_ Cultural relativism; Universalism

connecting points, –132, –153

Reclamation Drive Thru, –233

Recommendations, –77

Recycling, –239

Red cups, –126

Regional leadership,

Relational capital, –183

Relational strategies,

Relationship strengthening, –118

Relevance, –217. _See also_ Local relevance

ever-moving target, –227

Revitalization, –137

Reward and recognition programs

customer, –120,

partner, –104

Risk, –218

product offerings and, –203

Rituals, –24, . _See also specific rituals and ritual types_

Robbins, Tom,

Robertson, Graham, –81,

Rowe, Daniel, –257

Rubi kiosk, –226

Rubinfeld, Arthur, –49, ,

Russell, Craig,

Satisfaction, ,

Savor and Elevate (business principle), . _See also_ Experience; Product passion

connecting points, –35, –60

Schultz, Howard, –5, , , –72, , , –230, –255

on artistry,

Bean Stock and, –88

on comp effect, –31

on customer experience,

e-mail to Donald,

on health-care benefits, –90,

on Indian market,

on innovation,

on job creation, –250

on on-the-go solutions, –195

on social responsibility, –65

Starbucks Foundation and, –246

on storytelling,

on technology, ,

on transference of passion, –13

Seating areas, –50

Seattle's Best Coffee, –225

Seawell, Katie,

Seidman, Dov, ,

Sensory factors, ,

integration of key,

Service

recovery, –79

vision, –42

Shah, Amish,

Shareholder value,

Sherman, Kimberlee, –141

Shields, Jean-Marie,

Shook, John, –47

Simphony,

Site selection, –148

Sleeve, –239

Smith, Andrea Nagy,

Smith, Barbara,

Social media, –169, –197. _See also specific social media_

benefits of, –175

success in, –173

Social responsibility, –65, ,

during challenging times, –74

community partnership and, –243

connecting points, –252

environmental stewardship and, –239

job creation and, –251

report, –235

stewardship in foundation form, –247

supply chain and, –242

Sopkin, Rob,

Sorbetto™,

Sowell, Thomas,

Speicher, Stacy, –59

Square Inc., –163, , –179

Square Wallet,

Starbucks® Blonde Espresso Roast,

Starbucks® Blonde Roast, –32

Starbucks Card, , , –163

mobile app, –161, , ,

Starbucks Digital Network,

Starbucks® Espresso Roast,

Starbucks Evenings,

Starbucks Experience, , , ,

Starbucks Foundation, –247,

Starbucks ice cream,

Starbucks Interactive Cup® brewer,

Starbucks Partner Networks, –97

Starbucks Refreshers,

Starbucks® Thanksgiving Blend,

Starbucks U, –93

Steaming pitcher, –211

Stewardship, –247

environmental, –239

Stibel, Gary,

Stock benefits, –71

Store Walk Thru,

Storytelling, –24

Strategy, . _See also_ Digital strategy

gamification, –166

product-based, –33

regional development, –136

site selection, –148

Strayer University program,

Supply chain, –242

Sustainable building design, –236

Tassimo system,

Taste profiles,

Tata Coffee Group, –129,

Taylor, Blair, –246

Tazo® tea stores, , –58,

Tea,

Team Spirit of Starbucks Award,

Teavana, –201

Technology, , –159. _See also_ Digital strategy

advances in, –226

connecting points, –180

mission served by, –179

packaging and, –198

"A Theory of Human Motivation" (Maslow), –66

Thompson, Craig,

_Time_ magazine,

Toback, Steve, –190

Tolmen, Jeremy,

Training, , , –40. _See also_ New hires

for consistency, –77

service recovery, –79

Transformation Agenda, –5, ,

Transparency, –17,

Tropeano, Bruno, –251

Trust, , –68, . _See also_ Integrity

connecting points, –84

consumer,

Turner, Clarice, , , –212

Turnover, –106

Tversky, Amos,

Twitter, –168,

United Kingdom, ,

Universal needs, –130

appreciation, –120

attention, –118

comfort and variety, –127

community, –124

Universalism, –112,

connecting points, –132

Urban Coffee Opportunities,

U.S. Green Building Council, –234

Variety, –127

Vending machines, –226

Verismo system,

VIA® Ready Brew, , , –190, –195

Taste Challenge, –197

Virtual learning lab, –227

Vote.Give.Grow,

Wakefield, Kylie Jane,

Walk-up/drive-up, –224

Walt Disney Corporation, –152

Wang, Helen, ,

Web and mobile channels, –166. _See also specific channels_

Wei, Shao, –95

Wesson, Matt,

Wheeler, Alex, –169, ,

Wi-Fi availability,

Williams, Dave, –174

Wilson, Mark,

Wilson, Woodrow, ,

Wireless Application and Mobile Media,

Wohlsen, Marcus,

Wolf, Wang Bin,

Women's Development Network,

Wong, Belinda,

Workplace, –194

Wubben, Frank, , –194

Wyatt, Watson,

Yarwood, Samantha, ,

Young, Joe,

Young-Scrivner, Annie, , –185, –198

Youth Leadership Grants program, –245

Yuk, Pan Kwan,

Zappos,

Zimmer, Erin,

## **About the Author**

Dr. Joseph Michelli helps companies and organizations develop leaders, engage employees, elevate human experiences, master service skills, and innovate relevant solutions.

To achieve these measurable outcomes, Dr. Michelli provides:

Keynote speeches

Workshop presentations

Panel facilitation

Leadership retreats

Customer experience audits

Daylong and extended customer experience– and leadership-focused consulting services

Dr. Michelli is the chief experience officer of the Michelli Experience, where he has dedicated his career to helping leaders achieve loyalty-building customer experiences and dynamic workplace cultures. In addition to writing the book you are holding, Dr. Michelli is a _New York Times, Wall Street Journal, USA Today_ , and _BusinessWeek_ bestselling author who has also written:

_The Zappos Experience: 5 Principles to Inspire, Engage, and WOW_

_Prescription for Excellence: Leadership Lessons for Creating a World-Class Customer Experience from UCLA Health System_

_The New Gold Standard: 5 Leadership Principles for Creating a Legendary Customer Experience Courtesy of The Ritz-Carlton Hotel Company_ , and

_The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary_

In addition, Dr. Michelli and John Yokoyama, the owner of the World Famous Pike Place Fish Market in Seattle, Washington, coauthored _When Fish Fly: Lessons for Creating a Vital and Energized Workplace_.

For more information on how Dr. Michelli can present at your event, provide training resources, or help you with your products, your people, or your customers' experience, please visit www.josephmichelli.com.

Dr. Michelli is eager to help you _lead the Starbucks way_. He can be reached through his website, by e-mail at josephm @josephmichelli.com, or by calling either (734) 697-5078 or (888) 711-4900 (toll free within the United States).

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