I love Starbucks! Their product selection, store design and customer service is structured to make people like me feel good. Their loyalty program is rich and I love paying with my mobile phone app. I also enjoy the chitchat with baristas who willingly create drinks that meet the “high maintenance” needs of customers like me.
Given my love affair with Starbucks and all the data I know they have on their best customers, I was surprised to learn that Starbucks decided to not offer their 20-year, traditional eggnog latte for Holiday Season 2014. With the exception of Pacific Northwest stores (as I understand it), Starbucks chose to replace the eggnog latte with another seasonal coffee drink.
For what is probably a small-volume, seasonal drink with, I imagine, an equally small audience, Starbucks was surprised by the furor that this decision created. Websites were built. Starbuck’s “My Starbucks Idea” forum exploded. Twitter was flooded. Facebook filled with loyal consumers threatening boycotts and demanding “Bring Eggnog Latte Back”.
How could Starbucks have missed the mark so dramatically, especially during the critical holiday season?
I’m obviously not a Starbucks insider, but let me hypothesize from a data-driven perspective. Most likely, Starbucks fell prey to the same sort of analysis mistakes that retailers commonly make when they attempt to optimize their product assortment.
Product analysis without customer analysis doesn’t work!
Here’s the trick. If you examine a product like the eggnog latte, you may very well see declining sales volume year-over-year and increasing costs. The increased costs probably come from the rising price of eggnog as well as the waste of eggnog spoilage. If you examine the product only by sales and cost measures, then the conclusion is inevitable – you should replace the eggnog latte with some higher-growth, lower-cost, greater-profit alternative.
But here’s what this narrow analysis of exclusively product costs and sales volume misses: That frequent purchasers of eggnog lattes were likely Starbuck’s best customers. They purchased the eggnog latte as a relatively small share of their total purchases during the year, but probably a pretty high share of their purchases during the holiday season. It was also an emotional purchase steeped in holiday tradition.
Guess what happens if you cancel that beloved eggnog latte? Your best customers “blow up.”
You see, the value of any specific product is actually NOT the value of the product by itself. It is the value of the customers who purchase that product. If you take away a desired product, your customers may go elsewhere to get it, and they may not come back.
Suddenly you find yourself facing the customer acquisition dictum: for every one best customer lost, you need 10 to 15 average customers to replace those sales. And that math never works. As retailers roll along during this holiday season, it will be interesting to see which retailers have “optimize their product assortment” and which retailers have “optimized the value of their best customers.”
When you can’t find your favorite product at your favorite store, you will know the answer.
In my next post, I will talk about how you can figure out which products are so critical to your best customers and what to do about it.