Starbucks, the master of turning a commodity into an experience, discovered that their experience was becoming commoditized. As the coffee business crossed the chasm and Starbucks asserted itself as the king of “third place”, it didn’t take long for market forces to take notice. Everyone from donuts to burgers were moving in to capture a piece of the Starbucks empire offering fancy lattes to pair nicely with a Big Mac. Commoditization and saturation can weigh heavily on a major player in a mature market, so dramatic action is required to stay at the head of the pack.
So, Starbucks did this…
Nine blocks from the first store, Starbucks opened the Starbucks Reserve Roastery as a quintessential case in innovation. The 15,000 square foot store, large enough to hold 12 typical stores, provides an immersive experience under a new, premium brand: Starbucks Reserve. The location serves as a shrine to the very best in coffee by providing an environment filled with education and coffee-based entertainment while gaining permission to reach even deeper into consumer’s wallet.
With a nod to Willy Wonka, patrons engage in a full sensory, end-to-end experience:
- The smell of coffee hits you immediately upon walking into a massive space of activity and energy.
- Imagery surrounds the store providing insight into the coffee process as well as education on how and where a particular “micro-lot” batch of coffee bean was farmed.
- The observation deck provides a view into the diligence and care demonstrated by the Starbucks Master Roasters as they move the high-quality product through the roasting process.
- The sound of rattling roasted coffee beans moving through pneumatic transfer tubes (copper pipes) to the main bar for the barista’s craftsmanship.
- Finally, sitting down at the coffee experience bar to taste some of the finest coffee from anywhere in the world.
There are few experiences that provide the consumer with entertaining transparency into the supply chain and delivery of a final product at the end. Other experiences, like Build-A-Bear, carry a similar premium price tag. It’s no secret that areas of wealth management are being commoditized forcing advisors to rethink how to best position their business. Insights from Starbucks Reserve Roastery provide keys to repositioning for wealth management success.
Strategic segmentation. WAIT! Don’t roll your eyes and close this page.
Although this topic receives its fair share of coverage, many advisors believe that they’re effective at segmentation, when in fact, they’re not. Too many advisors use the wrong metrics and view segmentation as a one-and-done task. Two key metrics, revenue and age, should drive the segmentation process.
These two quantitative metrics provide key insights into the complexity of wealth, cost structure implications, and the trajectory of revenue. Larger revenue clients likely have more complex wealth needs, which requires additional services/resources (expense to the business). Older clients are likely withdrawing from their portfolio, creating a negative trajectory on future revenue. By using revenue and age as the key segmentation metrics, the business is anchoring decision-making on indicators that impact both the current and future state of business with an eye toward the risk/return.
At the very core, Starbucks re-engineered their segmentation methodology in response to market forces by launching Starbucks Reserve, the new upmarket brand. The dynamic state of wealth management requires advisors to conduct strategic segmentation on an ongoing basis, ideally every two to three years. As the average age of the advisor increases, the average age of their client base likely follows: aging advisors have aging clients. As a result, most advisors with an average age in the mid to late-50s need to be mindful of the tipping point where they have more clients in the decumulation phase than accumulation phase. At this tipping point, all things equal, the enterprise is in a declining revenue state. Conducting regular segment audits can shine a light on these potential challenges and provide an opportunity to course-correct.
Experiential Learning = Value
There is a direct correlation between the consumer’s perception of value and their corresponding knowledge of the offering. If the consumer doesn’t appreciate the craftmanship and care that goes into a $10 Gin-Barrel Aged Cold Brew & Tonic, then it’s just an expensive, over-priced coffee in a loud, bougie environment. An experience is only as good as the application to the user’s perception of value.
In an era of commodization, wealth managers need to push creative boundaries to stand out from the crowd. Proper segmentation provides a clear path to delivering an experience that provides impact, while maintaining economic balance for the firm. Although client events and client experiences aren’t new to the wealth management industry, there are two camps: creative and not-creative.
Hosting a large group in a large room with a presenter on an investment-topic lacks the creativity to deliver much more than just another evening out. Stretching the creative boundaries of client engagement can reinforce the advisor’s commitment through a unique lens that strengthens the client relationship. The more that you know about your clients, the bigger the opportunity to deliver creative value that lasts. As the wealth management industry evolves, unique experiences focused on on relationship depth can provide an advantage that can withstand competitive threats.
Need a boost on your business?
Are you in search of a new catalyst to transform your business? Do you need to stretch your creative boundaries to explore new avenues for growth? This fall, GvG17 is partnering with the Museum of Pop Culture (MoPOP) to deliver an experiential workshop for financial advisors seeking to create scale, design unique client experiences, and drive advocacy. The curriculum will feature a proven transformational framework, while leveraging MoPOP’s largest exhibit in the museum history, Marvel: Universe of Super Heroes. Immerse yourself in a creative environment to push your business to new level. Stay tuned for more details!
Monday Morning Joe