We are in a Recession – so why are Customers Spending More at Starbucks?

 By John I. Todor, Ph.D., author of Get with it! The Hands-on Guide to Using Web 2.0 in Your Business (www.thewhetstoneedge.com).

 

Unemployment is up, the stock market is down, and people are worried about their financial future. It seems there are daily reports about just how far sales have dropped compared to last year. Over the Thanksgiving sale-a-thon, retailers report that people bought but they primarily bought items that were highly discounted, eroding their profit margins.

 

Yesterday, Geezeo released their latest Main Street Spending Index. Here’s what caught my eye. Starbucks customers are spending 36% more than they were a year ago. What’s more, if you look at the month to month trends, there was no systematic decline associated with the deepening recession.

 

Starbucks customers now average 3.7 visits per month compared to 2.9 visits in November of 2007. Customers are also spending more per visit—an average of $5.92 per visit in 2007 has risen to $6.36 in 2008.

 

We are in a recession, if you follow the often heard logic; customers are expected to cut back on non-essentials and switch to lower priced brands. Well, Starbucks doesn’t qualify in either case and they are not having big “Sales.”

 

What is going on? The simple answer is that customers scrimp on items that don’t deliver an emotionally gratifying experience to be able to splurge on ones that do. This is not new. Before the recession there were thriving Starbucks stores in low-income neighborhoods. But why the increase?

 

We are human and a critical part of our being is managing our emotional welfare. The recession has raised the levels of anxiety, stress, confusion and uncertainty in most people and no one likes being in any of these states. Starbucks is not $6.32 worth of coffee; it is a small personal indulgence that leads to temporary but worthwhile emotional lift. The experience is positive and under our control.

 

Bully for Starbucks you say, but what about companies like mine that sell consumer electronics, groceries, cars etc? Well, your customers are human and have emotional needs that are exacerbated by the recession. Help them deal with these emotional needs, help them gain a sense of control and give them a relationship that supports them.

 

I realize that these are high-level and abstract statements that some will find hard to apply to their business or industry. There is help. One source that deals directly with the recession is The Importance of the Customer Experience in a Down Economy. This is an 84 page report published and made available free by Ogilvy’s Customer Futures Group. In the report, 18 internationally known thought leaders provide sage insights and advice on the topic. As the editor, I highly recommend this publication.

 

A second source of strategic and tactical help is my book Addicted Customers: How to Get Them Hooked on Your Company. This book was written before the recession but what it provides is actionable insights into the psychological principles that lead to emotionally compelling customer experiences. It also discusses business practices that put these principles into action. Of course, I think it is a great book but moreover, the concepts and ideas are extremely relevant to buyer-seller relationships is tough economic times

Comments

[John I. Todor, Ph.D.]

C.B.

I think one of the outcomes of the current recession will be a sharper focus on the economics of what matters. "What matters" will be defined by individuals and will be less materialistic and more experiential. This will require a dramatic change in current business practices.

John

[C.B. Whittemore]

John, I love the points that you make. And, although the Geezeo index speaks loudly, it's really important to hammer home the 'why' behind the numbers. Customer Experience matters now more than ever. Thank you and Happy Holidays!

[John I. Todor, Ph.D.]

Jim,

Thanks for your comment. We are definitely in agreement. The emotional experience customer have goes far beyond the product. In fact, one could say that customer often put use product in a much broader context to extract value. Some companies recognize that the broader context matter and attempt to facilitate the experience even though it might take their product off center stage.

To their detriment, too few companies can break from product-narcissism.

John

[jim blann]

I agree with your thoughts re Starbucks but would add that a big part of the emotional connection/benefit comes from things like bantering with the staff, the warmth of the space, the ability to relax and not feel pressured to vacate the space...i.e., the customer experience with Starbucks goes way beyond the product itself.