Archive for longtail

Extra Post #3 – “What’s Up with Starbucks?”

Posted in Extra Posts, Uncategorized with tags , , on April 14, 2009 by Dave T
Starbucks

Starbucks

I will admit that I’m addicted to Starbucks.  Well, I was addicted to the once-upon-a-time Wall Street darling.  Starbucks, at one point, was one of America’s great growth stories from the late 90’s to as recently as the early 2000’s.   In less than 20 years, Starbucks grew from 100 coffee shops to over 12,000, and a record 2,000 stores opening in 2006 alone.  At one point, Starbucks had the brand equity most companies would die for. 

Typically, a company’s growth is a good thing.  However, many in the business community have quietly implied it was this explosive growth that has led to Starbucks’ demise.  Even the company’s CEO, Howard Schultz, himself admitted in a leaked internal document that for Starbucks, there are limits to growth.  Schultz pointed out that the company’s own growth strategy had posed problems.

“Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.”  – Howard Schultz

My, have times changed.  It seems the wheels started to fall off around the time of Schultz’ comments in 2007, following closely by the company’s announcement in mid-2008 that it was closing 600 stores and cutting 7% of its workforce.   Given its sales slump, Starbucks attempted countless efforts to diversify beyond the coffee cup – in an effort to lure new customers with ideas of grandeur.  Starbucks launched initiatives into pop culture, breakfast options, and most recently, VIA instant coffee.  Excuse me…instant coffee?  What happened to the “Starbucks Experience,” Mr. Schultz?

Which leads me to my final point – the customer service.  I remember around the time when my infatuation with Starbucks began in 2003, the customer service, or “experience” was impeccable.  Today, I’m greeted by grumpy “barista’s” who act as if they’re doing ME a favor, long lines with no sense of urgency from the barista, and my personal favorite – running out of coffee.  A coffee shop running out of coffee?  And, I’m not talking about running out during peak business hours!  And, I’m also not talking about this happening every once in awhile, but multiple times in 1 week.  This isn’t how the “Starbucks Experience” used to be…

Recognizing this, Starbucks closed all stores nationwide for several hours in 2008 to “re-train” their staff to guarantee complete customer satisfaction.   What a great marketing ploy that was, since in my opinion, they will need more of these “training sessions” to fix the broken business model.  If Dunkin’ Donuts, McDonalds or Caribou don’t give Starbucks its death sentence, Starbucks itself will with this “improved” customer service just might. 

I’m not quite at the point to sign up for the “I Hate Starbucks” blog, but I am a regular of this nifty little website giving me non-Starbucks alternativesChris Anderson would certainly love this site – the mom and pop’s not hoping for the big hit, but rather working to thrive in a niche market.  Certainly, not the strategy of Starbucks.

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Response #5 – “The Long Tail”

Posted in Social Media Course with tags , , , on February 24, 2009 by Dave T

The Long Tail

“Less is More!”  You don’t hear that line everyday…

If you have not read “The Long Tail,” it’s a must-read for any business professional.  The premise of the book goes against every macroeconomic principle of supply and demand.  It theorizes that demand follows supply, and several times throughout the book, discusses the business model of Walmart and Sears, to name a few.  In Walmart’s case, everyone knows that they built their reputation on offering many versions of a product at low prices.  For example, Walmart’s music industry has about 60,000 tracks – tracks of the most popular music, or “hits.”  But, we all know that there are many, many more tracks out there.  What about a customer who wants something that was produced 20 years ago and still has somewhat of a loyal following?  Well, they would log onto Rhapsody or iTunes, who houses well over 1M tracks for would-be customers.   The model for these types of businesses is based on the idea of “the biggest money is in the smallest sales,” according to venture capitalist and former music industry consultant Kevin Laws.   The new growth market consists not only of Walmart’s model, but also that of the model of companies like Rhapsody, Netflix and Amazon – all offering products you cannot find anywhere by on the Internet.   According to the Long Tail, 45% of Rhapsody’s sales, 25% of Netflix’s, and 30% of Amazon’s total sales come from products not available in the largest offline stores. 

The above is a (long) example of the long tail.  Generally speaking, the long tail is essentially a bell curve, with the head of the curve on the verticle axis at the far left exemplifying large “hits”, and as the curve comes down it “tails” along the demand horizontal axis, exemplifying “niches,” or a large amount of small “hits.”  The idea is that there is an infinite amount of “niches” in society (i.e. music), but all collectively at times outnumber the “hits.”  The birth of the Internet gave way to this unlimited selection in cyberspace, and this unlimited selection is revealing  what consumers actually want.   The ultimate test is how do companies reduce the costs of reaching those niches.  Because, if the cost is minimal, the profits will be maximal. 

In today’s world, you can see The Long Tail all around you online.  From iTunes to Netflix, Google to eBay to Amazon.  The Long Tail is working all around us – on Facebook and mySpace – enabling today’s generations to go beyond the mainstream and reach the niches where their interests lay.  Today’s generations are all about “against the norm” and “out of the mainstream.”  This has enabled the Long Tail theory to flourish.