Starbucks Sunday

Found myself with a few minutes space this afternoon inside a Starbucks here in Singapore’s famous Orchard Road. I have written before about the coolness of being able to hit a free WiFi service here Wireless@SG, which is run by SingTel.

A bit of a different experience this time compared to last. A huge coffee lounge, seating about 40 or so patrons, a large proportion sucking down the free WiFi also. Certainly the bandwidth has suffered, which raises an interesting question in light of AT&T’s announcement that it was offering free WiFi for iPhone users at Starbucks outlets in the United States (where people still have to pay for a regular hit of the Interweb goodness).

The question I want to pose is, “when “freemium” or any kind of free model is used as a competitive differentiator, what happens when quality begins to suffer?”

A lot of people will put up with lousy service if something is free. Look at the free email services like Hotmail, Gmail and Yahoo! Mail for example. If it wasn’t free, people would switch in droves if the quality suffered.

But let’s look again at the Starbucks example. They have put a lot of emphasis on their free AT&T wireless service in the US as a differentiator. When the equality of AT&T’s service suffers, so does the brand image and customer satisfaction of Starbucks. They have intrinsically linked the services of one company as a key competitive advantage over rivals.  This can be a scary proposition.

As a competitive intelligence practitioner I’d look at this as a strength and a potential weakness. Strength in that Starbucks has a great new service. One that many people would want to use. But a weakness in so far that as Starbucks attracts customers whose satisfaction is predominately driven by the quality of Internet connection, rather than the quality of the product (coffee!).

Here’s an example:

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Imagine as in the case of Starbucks in Singapore that I have no end of choices to where I get my wifi Internet fix. It’s free in most shopping malls. I want to get a coffee AND access to the Internet, but Starbucks is too full for it’s network node.  I have many alternatives and not that much satisfaction. I’m now a switcher. I’m going to head to a smaller coffee lounge, still get access – but without my double-shot caramel vente latte. There’s a real risk of me never coming back.

Another, worse alternative is the one in the US. Same scenario – but if I’m looking for a wireless AT&T hotspot for free there is nowhere else but Starbucks to get it from. If the service is bad and my alternatives are low I am a captive. You know those. Heavily negative. The ones who post on forums and blogs and tell of their terrible experience.

Of course it works the other way. Get great service in any of those two scenarios and you have a contented customer, or an advocate. Someone who will tell friends about their positive experience.

The key thing to remember is that both of these scenarios have nothing to do with Starbucks’ core competency – the coffee.

In our roles, often the areas that are competitive blind spots are those where our company relies on suppliers or partners to create a large degree of the value customers receive. Keep that in mind when you’re next doing your internal appraisals or SWOT analyses. 

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