A recent Businessweek article featuring Starbucks CEO Howard Schultz should be required reading for REALTORS. Its main point – that the Starbucks that told its employees “do anything you feel like” has finally met the cold reality of customer expectations. With sales dropping and stores closing, the Seattle-based giant has had to wake up and smell the coffee. Gone are the boom years, when Starbucks opened a store a week, hired “partners” not employees, and left it up to them to “organically” figure out how to pour coffee and make customers happy. Turns out that was a stupid business model. Not unlike another industry that was only profitable during a credit boom.
When credit was cheap, customers would drink anything, as long as it was chic. Much like the housing business, much of it has turned out to be lukewarm. Today $4 cups of coffee alone can’t capture enough customers, no matter what the “experience” is like in the store. Moreover, many stores’ experience isn’t all that great, exactly because it has been left to untrained people with no specific process. Again, not unlike the real estate industry that hires recently licensed “agents,” sticks them on the phones or at open houses, and wonders why so few customers are converted into deals.
Starbucks, at least, is learning to grow up. Critically, it is learning that process matters. Much like the dot-coms eventully learned that profits matter, Starbucks has to become more than just image-centric. Consumers desire consistency of outcomes and dependable value – which only comes from managing people operating sound performace processes. All of which parallels the real estate brokerage business that’s learning it has outgrown the mom-and-pop model, even with big websites and electronic lock boxes, where anything and anyone goes…
Not, says the consumer, any longer.
Ironically, most REALTORS earn about the same as Starbucks coffee shop employees. After taxes and without Starbuck’s basic benefits like health insurance, vacation and stock options, 75% of REALTORS actually fare worse. As for the customer, with plenty of alternatives, it turns out both industries require more than just a “people business” operating model that both tradionally mouthed.
Customer value means more than just nice people. And that’s where both industries have much to learn about process.
Starbucks started out there, but 16,000 stores later found that without specific production processes and active managers, they lost control of the “experience.” REALTORS also used to control the experience, mostly when they had tight control of information; with their strangle-hold gone, agent-personality alone just isn’t enough to sustain customer loyalty in the future.
And less than 30% of customers use the same REALTOR again the second time to sell their home. Or third. Or fourth.
Both industries are grappling with this change: The need to create business models that go beyond the truism that it’s all about people. It may be true; but it’s not enough. For consumers, good people, high service and honest relationships are the beginning of the value equation. Consistent outcomes, understandable processes and reasonably determined fees must also factor into any service business proposition. When these things remains uncertain for millions of transactions annually, it’s no wonder either industry faces challenges when consumers are watching their spending more closely.
The parallels are perfect. Starbucks was renowned for being the place where “… most of its existence was fast-growing and free-flowing, a place where the experience was everything. A place where the boss led by instinct, where authenticity was what counted.” This is the very model of most struggling (and failing) real estate companies today, who have left their success up to managers who work from the gut, and agents who wheel-and-deal the experience mostly with the customer’s dreams and money. The focus – and marketing – is about the “experience” rather than the actual outcomes.
And customers won’t buy that any more. Not, at least, without a discount. And neither industry can afford a price cut.
Most of the Starbucks experience was created by the customers, not the company. The “sit and sip on sofas” experience depended entirely upon which other customers were in the shop at the time, not the employees interacting with the customer. Employees could barely keep up with the long lines – because their process was too “free flowing” it took 8 minutes to pour a cup of coffee. No time left to create experience, really. And once the grunge-group youth hit their credit card limits, the only customers left making the experience were soccer-moms trailing kindergarden kids and retirees. The experience changed because it was completely out of the control of the company. And Starbucks core-customer, the Gen X buyer, simply decided it wasn’t the experience they wanted any longer.
Just like today’s real estate office.
When the customer experience changed, all that was left was competition on price and service. Starbucks’ Gen X customers decided to just buy cheaper coffee, once all the seats in the shop were occupied by kids and grandparents. It was no longer their ‘scene’ so the drive-through at Dunkin Donuts was an equivalent substitute: Long lines, poor service and no desire to sit around with those customers either, but half the price.
The same lesson is being learned at real estate companies. Their customers are left questioning the price, since the experience is so unpredictable. Core Gen X buyers and broke Baby Boomer sellers are suddenly asking why it costs $36,000 to sell a $600,000 home, as much as they paid for the Honda hybrid. Neither offers their loyalty automatically any more, certainly not to the bank-owned agents who won’t call you back, even after you put a full-price offer in on their foreclosure. And forget about Gen Y buyers getting an agent to communicate by text messages. If you want them to leave a voice mail, Gen Y is going to go look at FSBO’s by themselves. At least they don’t have to pay a commission for a bad experience.
When customer start to give up – walking out of the coffee shop or waiting for an agent to text them back – the writing is on the wall. Perhaps that’s why Starbucks’ CEO also said, “We got swept up,” Schultz says. “We stopped asking: How can we do better? We had a sense of entitlement. And I’m here to tell you that’s over.” Is anyone saying that in real estate brokerage? Maybe, but certainly not loudly. While Starbucks seems to have understood that process matters, the real estate industry can’t seem to get the message. Too much recruiting still claims it’s “all about the agents.” Too few companies even know how many customer inquiries go un-answered each day. Even those with the best technology aren’t making the process changes necessary – to training, management and quality controls – to get customers to come back regularly.
Instead, customers are walking away, while agents are still preening in the mirror. While Starbucks is learning how to pour a cup of coffee all over again, too many REALTORS are just waiting for their entitlement days to return again.
The bad news is that too few will be around to see them return; The good news is that at least Starbucks will still be hiring.