Pulling the plug at Starbucks

This summer I added the Starbucks app to my phone and can now pay for lattes with it. This has had the unfortunate consequence of driving home just how much my family can spend on over-priced coffee as I now get multiple emails per week as the card paired with my phone gets reloaded. So far, it has been easier to just pay then take on two kids who are getting out of day camp and want a treat before heading home.

What does this have to do with operations? It all comes back to why Starbucks is so expensive. Frances Frei in her great article “The Four Things a Service Business Must Get Right” (HBR, Apr 2008) gives Starbucks as an example of a firm that has built around a clever funding mechanism. Anyone can sell you a cup of coffee; Starbucks offers you a third place with nice music, WiFi, and leather seats. All that has to be paid for but you can’t price it directly. Therefore, you get overpriced lattes.

But there is a complication: Starbucks cannot regulate consumption of its various amenities. One latte can buy a lot of WiFi, which gets us to this nugget from NPR (Lingering Laptop Users Wear Out Starbucks Welcome, Aug 9):

Starbucks wants its seating back. Some coffee shops in New York have started blocking their electrical outlets. They want to set a time limit on customers with laptops. Starbucks offers WiFi access and some customers complain they can never find a seat because students, freelance workers and others sit there all day.

CNET has a little bit more information (Has Starbucks had enough of laptop loungers?, Aug 3):

However, one perhaps even more insider view comes from a poster with the prophetic handle “Can’t please everyone.” He or she explains that they are an 8-year Starbucks veteran and that some people should get a life, rather than a light on their laptop.

“Can’t please everyone writes”: “Covering outlets is not a company wide or even regionally accepted practice. In certain extreme circumstances, where management have exhausted other avenues of resolution, stores have covered their outlets because people do abuse the ‘welcoming’ nature of Starbucks.”

While at pains to declare that Starbucks doesn’t want to penalize those who are married to their laptops, he or she adds: “In parts of NYC, you can find a Starbucks on every other corner, but rest assured there is a contingent group that set up shop charging their phones, computer, secondary devices and try to take every free thing they can.”

Essentially (and shockingly) it seems that some New Yorkers are simply unreasonable halfwits.

Indeed “Can’t please everyone” explains that the laptop loungers are the first to whine if one of Starbucks’ free items–like the perfect room temperature for their delicate natures, for example–is suddenly not available.

Perhaps this is inevitable. Starbucks offers a bundled service whose constituent parts have varying appeal to different customers. My post-camp kids generally don’t want to hang out too long after getting their sugary drink. I am overpaying for the coffee because I am not consuming the WiFi. On the other hand, other customers value parts of the bundle way more than the charge for the latte.  Hence, they camp out at Starbucks rather than go to an Internet cafe. That inherently is the problem with bundled pricing: It will appeal most to customers who are expensive to serve. Covering outlets is a relatively subtle way of reining in this behavior.