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The Starbucks Effect in a Subscription Economy

I was at the ServiceSource headquarters in San Francisco last week when the afternoon “I need caffeine or I’ll lose it” feeling hit. You know what I’m talking about.

As I found myself wending my way on autopilot towards the closest Starbucks, I stopped for a moment to ponder why I keep on returning to a coffee chain in a city that’s known for having some pretty incredible coffee.  As I took my place in a long line of other people feeling that same afternoon slump, it hit me.

Starbucks has perfected their business model to not only retain loyal customers, but also leverage cross-sell and up-sell opportunities. They apply basic principles with a customer-centric focus to ensure that customers keep coming back, thus providing Starbucks with a high profit recurring revenue stream.  How?

  • Starbucks is consistent
  • Consistency leads to trust
  • Trust leads to cross-sell and up-sell

No matter what city, state, or country I’m in, the product quality consistent, as is the price, even the atmosphere. After delivering time and time again exactly what I expect, Starbucks has won over my trust. I feel at ease stepping outside my caffeinated comfort zone when the barista suggests I try the vanilla latte instead of my usual order. Maybe I’ll be really adventurous and get the seasonal pumpkin spiced latte… ok, probably not going that far. Along with trust leading to cross-sell of other products, it can also lead to up-sell. I love the coffee, so why not upgrade to the venti? While you’re at it, let’s throw in a muffin.

Starbucks of subscriptions and recurring revenue
Without fail, Starbucks probably gets at least $5 of recurring revenue from me every day – and that number seems to be slowly creeping upwards.  Heck, I hardly worry about it because I have the auto-load feature on my Starbucks app.  Now, let’s step back from this analogy and look how these basic principles can be applied for a successful subscription based model and recurring revenue business.  The recipe is actually quite simple.

First, having a predictable experience is crucial for gaining not only trusting, but also creating loyal customers over time. Loyal customers are the lifeblood of a subscription economy. The recurring revenue obtained from loyal customers on average account for 30-40% of tech-enabled companies’ revenue and 50% of profit.

If you apply Starbucks’ methods to your own business, when it comes time to renew a service contract or subscription, customers will without hesitation because they know they’ll be delivered the same high quality results every time.

Finally, the renewals business is one that’s high-touch. You need a dedicated sales team ready to take action as subscriptions creep towards expiration. People that know the product inside and out as well as their customers’ buying patterns so they’ll know which additional products or upgrades would be best for each customer – just like the barista who was able to sell me a flavoured version of my usual purchase.

So the next time you’re standing in line for coffee, think about how your customer experience not only keeps you coming back on a recurring basis, but also introduces you to new products. Who knows, maybe you’ll decide to throw in a muffin.



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