How Starbucks engages tens of thousands of customers to innovate products and store experiences

The post explores how Starbucks has embraced open innovation in product development and rolling out new in-store experiences

Starbucks is the world’s largest coffee house chain, with over 28,000 stores, serving 100,000+ customers weekly and has annual revenues of 23B and a market cap of over 82B USD [1].

During the financial crisis, at the annual shareholder meeting, Howard Schultz, then CEO and president of Starbucks announced a 6 point transformation agenda to offer innovative and differentiated customer experience [2]. One such initiative included launching an online community, MyStarbucksIdea.com to engage directly with the customers and get their inputs in defining the company’s future course. The website allowed individual to share ideas for Starbucks, vote on ideas and show progress on idea implementation [2].

Importance of open innovation to Starbucks

Customer experience and product quality are the two key success factor for any restaurant or coffee shop. With millions of customers globally, to maintain/ improve on customer experience Starbucks needs to constantly engage with the customer to ensure it evolves according to their needs. Increasingly with global expansion at the core of its growth strategy, it is quintessential to tailor product and customer service to local markets.

The competition in the coffee business is intensifying and Starbucks is not just facing increased competition from traditional coffee shops such as Tim Hortons and Dunkin Donuts but fast food restaurant such as McDonalds are now expanding their coffee portfolio. Another potential threat to the fundamental core business is the increased adoption of espresso machines and capsules, as these machines or other such technological innovations become cheaper, smarter and are able to mimic coffee brewed by the best barista, coffee shops in general could lose large customers.

Launch of MyStarbucksIdea.com

Open innovation forums like MyStarbucksIdea.com allows Starbucks to engage with and ultimately create engaged customers. By involving customers in refining products and store experiences, the company successfully taps into the brain power of millions of it’s diverse customer. As of December 2016, the website had received over 150K product, 55k experience and 30k involvement ideas [3]. In its first 5 years of the program, the company had implemented 277 ideas, these included digital awards on the Starbucks card and free in-store Wi-Fi. Additionally through this initiatives customers helped introduce new flavors such as skinny beverages, hazelnut macchiato and pumpkin spice flavored coffee [4]. Having an inventory of over 200,000 ideas, which continues to grow, the management is sitting on a gold mine of short-term tactical or long-term strategic initiatives.

Last year, Starbucks eliminated the community aspects of MyStarbucksIdea.com, hence now consumers do not have complete visibility of the inventory of ideas, which ones are in progress and can no longer vote on the best ideas [5]. The website is now only to share your ideas with company and domain was changed to ideas.starbucks.com [6]. I believe this was done because over the years the ideas became repetitive, and customers misused commenting features. Another factor for this could be that some initiatives may gather a lot popularity among customers, for instance accepting Crypto but not feasible to implement – which might upset the community. Ultimately the goal is still to gather ideas and listen to customers, the old website was more engaging and partially gamified the experience. Ultimately, I believe the management will continue to harness the collective power of the community to identity disruptive ideas in the short to medium term.

How Starbucks can further embrace open innovation  

Getting ideas from customers has allowed Starbucks to innovate and roll out new products, improve in store experience and kept the customers engaged. I would recommend the management execute three initiatives to ensure it innovates ahead of the curve. Firstly they should continue to listen to the voice of customers and implement the best ideas. As Starbucks’ strategy is now shifting towards growth in China, [1] rolling out similar initiatives in China and other growth markets will allow it to offer tailored experiences to its local customers. Secondly, localizing flavors is quintessential. Having lived in Qatar and UAE, the overwhelming drink of choice in the country is Karak, a traditional South Asian tea, yet despite being in the Middle East for more than a decade, Starbucks has not introduced a Karak drink. I would urge Starbucks to introduce more local flavours in each geography. Lastly, having 200k plus Baristas, Starbucks could incentivize employees to share one new idea a month and the individual with the best idea could get recognition just like an employee of the month.

I believe Starbucks is well positioned to continue to innovate but have two key concerns. First, as espresso machines become more efficient and cheaper, does it pose significant threats to Starbucks’ business model– should Starbucks look to invest in self-service  coffee machines and capsule flavors?  Second does Starbucks adapts products appropriately to international markets and does the franchising model inhibit it from investing resources to localize flavors?

 

[800 words]

 

[1] Starbucks. 2018 Investor Presentation. [https://s22.q4cdn.com/869488222/files/doc_presentations/2018/SbuxAMoS2018_Master.pdf], accessed November 2018 2011

[2] “Starbucks Unveils New Strategic Initiatives To Transform and Innovate the Customer Experience,” Business Wire, March 19, 2008, [https://www.businesswire.com/news/home/20080319006060/en/Starbucks-Unveils-New-Strategic-Initiatives-Transform-Innovate], accessed November 2018.

[3] Starbucks. “MyStarbucksIdea.” https://web.archive.org/web/20161213150404/http://mystarbucksidea.force.com/apex/ideaHome, accessed November 2018.

[4] “Starbucks Celebrates Five-Year Anniversary of My Starbucks Idea,” Business Wire, March 19, 2008, [https://www.businesswire.com/news/home/20130328006372/en/Starbucks-Celebrates-Five-Year-Anniversary-Starbucks-Idea], accessed November 2018.

[5] Melody, “Starbucks nixes the MyStarbucksIdea community: You can still submit ideas (blog), Starbucks Melody May 31, 2017, [http://www.starbucksmelody.com/2017/05/31/starbucks-nixes-mystarbucksidea-community-can-still-submit-ideas/], accessed November 2018

[6] Starbucks. “Submit your idea.” https://ideas.starbucks.com/index, accessed November 2018.

[Featured Image] Starbucks. “Submit your idea.” https://ideas.starbucks.com/index, accessed November 2018.

Previous:

Can machine learning solve the cyber security threat?

Next:

Turning Big Data into Clean Electrons at NextEra

10 thoughts on “How Starbucks engages tens of thousands of customers to innovate products and store experiences

  1. I think you nicely show the importance of user input for Starbucks, as well as the amount of idea generation they have encouraged so far. Beyond your initiative ideas, I would also add bringing modern “comment cards” (e.g., iPads with a simple user interface) where customers can share ideas in-store. I think the in-store element is important because I would assume the majority of customer ideas, or at least ideas related to experience, happen in the store, and giving customers an easy way to share those ideas there should get more contribution than making them leave the store and remember to enter the idea at home (or even needing to pull up a website on their phone).

  2. Very interesting article to read – crowd-sourcing ideas to fuel innovation has often been a trait of the food and beverage industry. Lays ran (or still runs?) a similar program to source flavors for its product line. Ultimately however, I feel more than fueling true innovation, it is more a marketing gimmick that introduces more complexity in the supply chain than actual sustainable products. I do agree with the point made about using crowd-sourcing to enter a new market though – this will allow for greater adaptability to a portfolio that hasn’t entrenched itself in a new market yet.
    Open innovation unlocks it’s true potential when used to solve problems faced by organizations (identifying flavors/drinks to stay relevant in the market doesn’t qualify for me). I absolutely love the idea to source process improvement ideas from the baristas though. It is quite similar in vein to the Toyota practice and embodies kaizen in a truly modern day format.

  3. Well written! I love the point you make about getting ideas from customers when expanding into new markets. I’m going to use that one going forward. The one thing I worry about with open innovation is you tend to hear only from the extreme users and risk being swayed by a vocal minority and alienating the silent majority.

    In regards to the rise of expresso machines, I think Starbucks should continue to provide a great experience for customers in store that a home expresso machine can’t match. They could still (and I believe do) sell K-cups with their brand which gives there customer a seamless experience if they don’t have time to come in store. I do believe Starbucks could do better adapting to local cultures. I contrast it with Mcdonalds who does offer local food and is still quite successful. It seems Starbucks almost always holds the same menu. Plus, for travelers, it would be great to pop into a Starbucks while traveling and having the choice of the usual or something local that I could trust will be good quality with the Starbucks brand.

  4. Reading this article makes me ask myself whether in order for the open innovation to be successful, the process needs to include the execution/realization phase as well. Starbucks’ endeavor in this domain appears to be limited to the crowdsourcing of ideas. This may be the reason why people put out ideas that were popular but unrealistic/difficult to implement. In the software space, a full cycle of open innovation is easier to execute, because it can be done remotely by anyone with coding skills and access to a computer. In hardware/service sphere, this appears to be nearly impossible to do. Spread of additive manufacturing could enable individuals to own production capability and enable end-to-end innovation cycle, but if this were to happen, the need for large corporations to manufacture products may decrease.

  5. Thank you for the great read! I had no idea that Starbucks used open innovation to source ideas through MyStarbucksIdea.com. This write-up left me with one question and one reaction to your question about investing in self-service machines.

    Question: Given the lack of transparency on the mystarbucksidea.com, I would love to better understand how Starbucks actually sorts through the data and chooses which comments or suggestions are worth pursuing. Is there an entire team that goes through these comments/questions? It feels like this might be a good opportunity to use machine learning / natural language processing to sort through and gain insights from the thousands of comments.

    Separately, I feel strongly that Starbucks should NOT invest in self-service machines. I was not sure if you meant self-service machines in the stores or at home, but I think both would be destructive to the Starbucks brand. Starbucks is highly focused on providing excellent service, and the self-service machines would completely go against this brand mission as these machines do not involve any human interaction.

  6. Thanks for sharing, this was a very interesting read.

    Regarding the changes made to the open innovation platform in the past years, the removal of the community aspect gives me pause. First, the removal reduces customers’ incentives to share ideas as there is no social validation for their suggestions. Second, Starbucks now has to incur the cost of going through tens of thousands ideas to determine which ones should be implemented; whereas before it could rely on customers to vote for free.

    Also, answering your question about international markets, I do not believe franchising is the issue in adapting products for local needs/preferences. I believe that Starbucks is in fact not interested in fully adapting to local needs in order to maintain a global consistent experience in what they do best; Starbucks would not be able to compete with the best local shops in their court, e.g., Karak in Middle East, or specialty teas in China.

  7. This is a fantastic piece exploring the ways familiar brands can incorporate open innovation into their business strategy. I particularly liked the way the author explained how open innovation can be used to facilitate Starbucks’ efforts in global expansion, by offering locals the opportunity and agency to shape the menu and customer experience to their own geography. One question I had was whether this sort of product-based open innovation was narrowly targeting consumers as opposed to other entities in the business environment- such as consultants, suppliers or providers of other services? I would think that those most motivated to introduce innovative suggestions would be those who stand to benefit from potential partnerships or supply deal. Could Starbucks create a separate channel for those looking to reform other aspects of their business model- such as catered events, grocery products or equipment sales?

    To address your questions, I do not think that the development of Espresso machines is a new development or one that poses a meaningful threat to Starbucks business model. I would also not recommend the adoption of self-service machines in Starbucks stores as it undermines the experience of those that choose to wait on line for in-person service. However, if Starbucks wanted to add vending-machine like coffee dispensers in places that were otherwise unserved, I think that could potentially be an interesting opportunity.

  8. As a Starbucks loyalist, this article was a good read!
    While Starbucks is certainly quite experimental with its flavors and drinks, I question the extent to which it should adapt its offerings to local markets. As a consumer, one of the biggest value propositions that Starbucks offers me is consistency. No matter where I am in the world, I can walk into a Starbucks knowing exactly what I’ll get. To me, that standardization of flavors and to some extent, store experience, across locations is key! That being said, I do agree that it’s worth adding a few additional items to the menu that are customized to local tastes. For example, in India, Starbucks did not enjoy rapid expansion since a large chunk of the population drinks tea instead of coffee. In such a case, it’s probably worth expanding their Teavana menu to accommodate local preferences.

  9. Great read, thanks for sharing! I think this is a great way for Starbucks to not only help generate product development ideas, but also further engage its customers and create stronger relationships / affiliations with the brand. However, I think Starbucks is making a mistake by completely eliminating the “community” aspect of this feature. While I understand how certain aspects were counterproductive to the feature, I think having customers vote on the best ideas is something they should still offer. I believe this can actually further inform the company of which ideas would be best / most popular among consumers and further inform Starbucks on how to proceed / where to focus its efforts and resources with respect to product development. Additionally, it could create further engagement by customers who don’t necessarily have their own ideas to share; if this voting feature still existed, customers could still engage with the brand.

  10. Fantastic piece. Clearly you were up against the word limit (800!) The issue of Starbucks taking down the social aspect of the website is interesting – do you think there was anything nefarious there? If the ideas were too good, would Starbucks worry that competitors also have access to the highest “rated” ideas? This brings up an interesting question around the legality of ownership of open innovation, which I would value your perspective on, given the insightful nature of this piece.

Leave a comment