Nov 8, 2019
Six months ago, I did my
behavioral economics analysis of Costco, which has zoomed into the
11th most downloaded episode of this podcast. My analysis of Apple
Card is right above it, so we can say they share the 10th spot.
Today, I’m doing another behavioral analysis of a business:
It’s not a coincidence that we
are getting into Starbucks right around the holiday season. They
have definitely done some things very right when it comes to the
holidays…and I will touch on the controversy they’ve seen as well.
In the episode we will talk about featured drinks, red cups,
nostalgia, pricing strategy, scarcity…and a whole lot
If you’ve been listening for a
while, you know I love Starbucks. Not just for their chai tea
lattes and marshmallow dream bars, or because I live in Seattle…but
because of the amazing things they have done as a company to shape
the world we live in today.
Starbucks is a dynamic and large
company with a plethora of examples I could have chosen to talk
There isn’t time for everything.
Instead, I have picked some of my favorite pieces for the episode –
ones I think you will find valuable and interesting and be able to
apply to your own business (whatever that may be). Whether you work
for a global business like Starbucks, are a solopreneur or an
academic or somewhere in between…you can learn from the smart
things the company has done and how they have understood human
In the episode, we will dig into
their star rewards program, as well as featured drinks and products
– from PSL to the Unicorn Frappuccino, as well as the coveted red
cups (which just launched a couple days ago by the time this comes
out), the personality and overall brand choices in their logo,
locations and on social media and, of course, pricing.
- [04:31] Without the original
brand and pricing, Starbucks would be just another coffee
- [05:04] It really is an amazing
feat when you think about the commoditized industry Starbucks was
facing before it launched its first store.
- [06:04] One of the big aspects
Starbucks had to overcome was the pricing anchor. The first number
you hear (or a standard price) is the anchor, and the brain adjusts
from that to determine what is reasonable.
- [07:02] The way we act is
driven by our subconscious, and when you ask a logical question to
the conscious, it doesn’t answer in a way that reflects true
- [07:19] To justify a higher
price, Starbucks needed to invent a new category.
- [07:59] This wasn’t just about
coffee – it was creating community…a “third place” – an experience
that was something more.
- [08:21] Functional fixedness:
when all you have is a hammer, everything looks like a
- [08:48] When you look at what
everyone else is doing, herding will keep you stuck.
- [09:01] Howard Schultz and
Starbucks took a step back, got out of their own way, and created a
new category which changed the conversation about
- [09:12] Asking good questions
can help you get there.
- [10:01] Ask questions that
aren’t about what everyone else is doing. Don't get stuck in the
herding or the anchors. Instead, it is about looking to what could
be, and asking “How might we?” or “Why?”
- [10:07] For your business, look
at all the things you do because everyone else does. Is that
serving you well? What would make your customers excited?
- [10:29] Price is never about
price. It's about all the things that come to for the price.
Starbucks is a fantastic example of that.
- [10:56] Studies about wine show
that people get more enjoyment from drinking wine that is more
- [11:37] When you can break free
from the herd and make it about something more, your business can
reap benefits beyond what you even imagine.
- [12:13] Starbucks changed the
game with all of their drink options. The first drink they made
famous was the Frappuccino.
- [13:38] The brain gets what it
expects. If you expect Frappuccinos to be delicious and you get
something similar by a different name, it won't be as
- [14:46] Starbucks started the
original pumpkin spice latte or PSL. The limited nature triggers
scarcity and loss aversion.
- [15:53] For scarcity to be a
value in your business, you actually have to take something
- [18:43] Starbucks is constantly
testing, and they're not afraid to have something popular only
available for a limited time.
- [19:20] The new thing that
started this week is the red cups. Keeping traditions alive is
something that Starbucks does amazingly well.
- [20:03] For many, the red cup
has become part of a tradition on holidays. When you become a
lifestyle brand, you bear the responsibility of becoming a part of
- [21:34] Starbucks had a set of
filters that every brand aspect had to pass through. These included
being handcrafted, artistic, sophisticated, human, and
- [23:46] Taking the time to stop
and evaluate what is really going on is important.
- [25:11] When you think about
the value of the brand, it's about the overall experience with the
brand at its core.
- [26:33] Your business should
learn to watch the trends. What is going on that is cool and
interesting and that everyone is talking about, and how would it
look if you were to incorporate that into your
- [28:00] Star rewards are one of
the smartest things Starbucks could have done for their business.
In many ways, this built upon the wildly popular “treat receipt”
where you can get a discount when you buy a second item after 2pm
- [29:06] The star rewards model
is built to create habits for users and increase
- [34:03] Star rewards are a
smart balance of loss aversion, scarcity, relativity, habits, and
more. All executed through a series of experiments to see what is
bringing the most value to the company and its
- [34:42] Don't get sucked into
your brain’s natural tendency to herd. Just because everyone else
is doing something one way, doesn’t mean it is RIGHT to do
- [34:59] Take a step back and
think bigger. Look to the future and the possibilities.
- [35:11] Scarcity is a powerful
tool when used correctly. Especially when paired with loss aversion
to help people choose your product.
- [36:05] Making your brand a
habit is about more than caffeine and sugar. Starbucks puts effort
into getting more customers to choose them more often for more
- [37:59] Next week, we are
digging into the concept of time pressure.
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