Starbucks Database Marketing

It wasn't that long ago that marketers lauded Starbucks, praising decisions like selling CDs and the like.

And then things happened. The business posts a quarterly loss for the first time in sixteen years, and the critics get to have their day while the marketing fans shy away.

Folks who work in Database Marketing departments like to diagnose the reasons why a business is struggling, from a customer standpoint. And when a brand is in Retention Mode, like Starbucks is, folks might look at a very simple set of metrics.

A typical dashboard might look at customers who shopped in a Starbucks store in June, measuring how likely the customers were to repurchase in July. The dashboard compares 2008 performance to similar customers in 2007. Of course, ninety percent of folks tell you "you don't capture every single customer, what about all of those customers paying with cash, customers you cannot track?" Those pundits would rather you do nothing than at least gaining some insight. I vote for gaining some insight.

This is what the a dashboard might look like within a specific market (the data are not representative of Starbucks, and are only presented for illustrative purposes).

	Jul-08	Jul-07	----Change
June Households	10,000	10,500	-4.8%
Repurchase Rate	0.782	0.831	-5.9%
Total Buyers	7,820	8,726	-10.4%
Orders per Buyer	8.341	8.492	-1.8%
Items per Order	1.243	1.184	5.0%
Price per Item	3.894	3.790	2.7%
Average Order Value	4.840	4.487	7.9%
Total Volume	$315,713	$332,500	-5.0%
All Other Buyers	3,941	4,782	-17.6%
Orders per Buyer	3.743	3.593	4.2%
Items per Order	1.143	1.074	6.4%
Price per Item	3.631	3.504	3.6%
Average Order Value	4.150	3.763	10.3%
Total Volume	$61,221	$64,660	-5.3%

Assuming you're able to capture the performance of some customers, you get the opportunity to get some level of insight. In this hypothetical case, June customers are less likely to visit the store, but are buying more items and spending more. This kind of simulates the "less traffic" situation you hear about.

Other customers exhibit a similar trend.

More often than not, pundits rip database marketers for making conclusions about customer behavior when not every transaction can be measured. Always remember to clearly state the limitations in the data being presented, but always remember that it is better to present something than to hide behind the crutch that you're not tracking cash customers. And web analytics pros --- you fall into the same boat!!

In no way am I saying that Starbucks does this ... I'm just using their brand for illustrative purposes.

Another tip --- when closing stores, you make strategic choices based on the customer base supporting stores. For instance, given two stores that are equally unprofitable, you kill the store that competes with more stores in the same geographic area. That's kind of a "duh", but, the data exists to make these kind of insights, so you may as well use the data to your advantage. Back in the day at Eddie Bauer, we evaluated every store based on estimated cannibalization rates --- understanding how each store was impacted by neighboring stores.

Retail Is Struggling

J.C. Penney merges marketing and merchandising functions across online/retail channels, then cuts 100 - 200 jobs. I'll bet that the 100 - 200 people who lost their jobs aren't big fans of multichannel integration.

Ann Taylor lets go of 13% of their corporate staff, 180 jobs amid a tepid retail environment. In addition, 117 stores will be closed.

Talbots to shut down 78 kids and mens stores. Sure this is old news, but it is reflective of what could be a widespread problem in 2008. This economic downturn could weed-out a lot of over-assorted retail square footage.

Eddie Bauer cuts 16% of its corporate staff, even as sales improved in Q4.

Home Depot cuts 500 corporate jobs, 10% of the corporate staff. Assume these are $75,000 a year jobs (including benefits). Take the $210,000,000 that former CEO Robert Nardelli garnered as part of his golden parachute, divide it by $75,000, and you are able to keep these 500 folks gainfully employed for another five years.

Dell plans to close 140 shopping mall kiosks.

Starbucks will close 100 underperforming stores.

If you are a retail real estate executive, you have to be wondering who the retailers are that will line up for the store locations made available by the great recession of 2008?

Old Navy updates their logo, and elects to move away from families, now focusing on a fashion-based twenty-something target audience.

Trees rejoice as USPS volume drops by 3% in Q1-2008.