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From Commodity to Transformation: How Selling Coffee Points the Way to the Future of Healthcare Delivery and Why it is So Hard to Get Right
In his 2006 book The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary, Joseph A. Michelli outlines how Starbucks takes a service (preparing coffee) and turns into an experience, a transformation that has not been without struggles and has proven difficult to maintain over time.
In the book, Michelli outlines the hierarchy of sales, showing that the highest margins are from those sales based on experience, using coffee as an example:
Commodity: Coffee beans.
Product: Coffee sold in the grocery store.
Service: Someone pours the coffee for you.
Experience: Going to get coffee becomes something special.
The market sets the prices of commodities. There is little you can do to charge more and you are left to try to move them around as inexpensively as possible. For products, the competition from the other 17 brands of coffee sitting on the shelf next to you mean the margins are razor-thin. Services can have a higher price, even though it costs more to deliver.
When I worked at the Great American Cookie Company in the mall as a teen, a full pot of coffee cost us 20 cents. We sold each cup for 40 cents, and it was our highest margin item. When you add in the experience, however, it allows you to sell coffee, not for a dollar or less, but for $3.45.
Starbucks does many things to move from a service to an experience. From the moment you walk in, there is the rich smell of a coffee house. The different types of drink have special names, and even the sizes are given special labels. When you order, a staffer asks your name, calls you by it, and adds it to your cup. If you are a regular, they know you and treat you, as one would expect from a small-town owner, rather than an international chain. You feel like a friend of the family.
The point Michelli makes is that people are willing to pay for the value of an experience that far exceeds the taste of the coffee. These days, many other outlets have good coffee. McDonald’s is one of them, but unless you are a youngster you are unlikely to be seeking a McDonald’s experience.
Disney World is another great example of the experience instead of the service. Disney charges families for the experience, far more than the services. In effect, Disney is selling memories of a great time. When Walt Disney created his first amusement park his mission was to “make people happy.” They have been consistently able to do that for decades. And they have been able to charge well for it.
In the old world of “Fee-for-Service” health care has been in a service model. That puts it into the category of McDonald’s is in from above. Services have been atomized into procedures, events, and things done to the patients. Often, processes are based on what works best for the system, and not the patients (or even the providers for that matter). The experience for patients and providers has been miserable.
Right now, Health Care providers are looking at the overall outcomes, including the patient experience. I believe this is the right direction, but I think experience, as hard as it is to achieve and maintain, is not the end goal. What the patients as customers want is nothing less than a use of products, services, and experiences that lead to transformations of their lives, a return to the fullest, least restrictive lives possible.
Providing that transformation requires success with the delivery of quality services and exceptional experience. That then becomes the new basic floor. Success in healthcare will be built on that foundation. Providers and employees at every level must be focused on the customers, their experiences, and invested in the effects of what they do, from the doctors to the cleaning staff.
Everyone is part of the transformation team, and that includes the customers and their families. Process need to support people and data needs to drive the process for the customers, as much as for the providers.
Transformation will be the most difficult thing to provide. It will require constant monitoring and change. Each department, and sometimes each customer will require individualized solutions. Technology must be used to provide the customization needed, just as it does with cell phones. When it is our turn to consume healthcare, all of us yearn to be seen as unique individuals. All of us are seeking transformation from sickness to wellness.
It is time for healthcare providers to deliver.
Originally Published at TalkForward.com. © 2018 Bryan G. Stephens
Published in Culture
Great piece.
One of the most interesting moves in recent history was CVS buying AETNA. The proposed model was to utilize their network of stores to set up community health centers that provide basic services. The perfect confluence of economies of scale and services. If they put the focus on the experience of the customer, no more long waits in the waiting room or traveling to three different locations for tests, it could be a real game changer.
The other interesting development I’ve seen is the leveraging of the internet to deliver services of certain kinds of medical care. I was diagnosed with sleep apnea using an internet service that sent me a testing kit, arranged for it to be delivered, collected and the data collected. Received a video conference with a doctor who wrote me a prescription and 3 weeks later I had my CPAP machine. All for less than the cost of one trip to my GP. Amazing stuff and a beautiful user experience.
How did you find out about this?
I love the idea of biofeedback. I’m hoping there is development in technology that allows us to monitor our bodies effortlessly. Most of the application has been directed to diabetes and blood sugar monitoring, but I’d love to see something that can be used for obesity and diet and the hormonal mess involved in weight loss.
An ad on Denis Prager’s radio show.
I anticipate more health maintenance being done over the internet or via remote clinics. A lot of the time, people want to ask a doctor to determine if something is serious or not. Being able to get that advice is often crucial, but it is quite expensive to visit a doctor for something that might not be serious.
I know I regularly send secure email to my doctor via MyChart.
Great piece!
One thing that needs to be accounted for is the customer who is not looking for an “experience” per se, but who simply wants to conduct a transaction and go.
As an example, I recently set up a laptop with Windows Ten. I promise not to get off on a tangent about how much I hate it. Ooops, I guess I just did, promise broken. MAN! Anyway, after a fresh install, a screen popped up, and some digital tramp named “Cortana” introduced “herself” as the “person” who was going to step me through the process. I did not want this. I wanted to go directly to the desktop, and start introducing the settings I wanted, but NOOOOOO . . .
Luckily I had the audio muted, but there were subtitles. Cortana forced me to get a Microsoft account (which I have subsequently deleted), then had me input information one step at a time. Although I entered my real name, I used a dummy birthday—no point handing that into out. I fourced me to set up my email using something opther than outlook, and Edge instead of Internet Explorer 11. Once I went through every tiny step, I got to my desktop and killed Cortana. Finally I could go through, install Outlook for e-mail, make IE11 my default internet explorer, and turn off every feature I know I’ll never use.
Okay, that was overkill. My point is I want my health care to be just like going to Jiffy Lube, not Starbucks or an Apple Store. However, when I go on a cruise, I definitely want the experience (although checking in and disembarking are where I’m back in “just get it done” mode).
Wished I knew why I’m so wordy today . . .
Interesting piece. @imfine – You might wanna weigh in on this…
The point of an experience is to provide the one the customer wants. A challenge with Healthcare is that it cannot be Starbucks and do just one experience. It has to be Starbucks, and Caribou Coffee, and McDonalds. At the end of the day, you want your healthcare to transform you from sick to well. And if you land in the hospital, I imagine you want your experience to be more like a cruise, and less like Jiffy Lube.
It’s an interesting concept, but I think the problem I have is that an experience becomes less special if I do it all the time.
For example, when I was young when we would travel I wanted to go to McDonald’s because there wasn’t one in our town. Then we got one, and there wasn’t as much desire to go there anymore.
That is true to some degree, yet people keep going to Starbucks. So, even if it is not novel and special, it is better than coffee experience at QT.
Just so you know, Windows 10 has “mandatory” telemetry, the soul of Cortana, that Microsoft goes to great lengths to keep active. This article seems to have current information on how to shut it down. Yes, you must edit your registry.
I have only been to a Starbucks once. I go to McDonald’s and get a senior coffee for 50 cents.
First, ditch the bureaucracy-term “health-care provider”. Call Doctors and Nurses and Pharmacists and Physicians’ Assistants by their correct titles.
I always fear editing my registry. But yes, I see it must be done . . .
This makes both our points. Competition in the marketplace provides the experience—or lack thereof—the customer wants.
Maybe I should call the lack of an “experience” a minimalist experience . . .
Given the relative cost and duration of these experiences, I might prefer the Jiffy Lube. Then again, I did have a car self destruct a few days after going to Jiffy Lube so… maybe not that exactly.
Seriously though, good post. When my wife and I needed a specialist, the first clinic we went to had a staff that wasn’t supportive and didn’t return calls, and the doctor had all the personality of a file cabinet and the empathy of a dead fish. We then went to a clinic out in Colorado where the staff was incredible. (The doctor still didn’t have much personality but made up for it by being hyper-competent.) They definitely transformed it from a service to an experience (at least as much as is possible with medical procedures). Needless to say we were much happier with the second clinic.
That is a bit cumbersome, since there are so many types of providers. Everyone from the janitor to the CEO has the job of providing the healthcare transformation.
I am sorry Bryan, but I think you should not be writing articles about health care in the USA until you are a care provider, or been a long term patient, inside that system.
Also to make sense of what somebody states about healthcare, it is necessary to know the region that the writer lives in. Many aspects of health care are codified at the state level, such as number of RN’s per patient population, so until that regional difference is emphasized, I don’t know how much of a conversation it is possible to have.
And RushBabe49 is indeed providing a starting point.
Oh and by the way, the reason that Starbucks can charge what they like is that everyone knows the quality of Starbucks coffee. When I used to travel, I gave up on mom and pop cafes for my morning java. Often the caffeine per ounce of coffee was marginal in those places. If I needed a morning jolt, Starbucks was where I headed.
I make Chock full o’Nuts at home. An ex-girlfriend thought it was one of the best. For me, it works, no need to switch. As for outside the house, I like whatever I can get. If there’s a McDonalds near a Starbucks and I only want coffee? I’m going for Mickey-Dees . . .
I don’t know what I did to offend you, but as a Therapist I have no problem with being called a provider as part of the team. Over 25 years, I worked from the bottom as a case manager all the way to CEO. I grew up with a nurse for a mother and my father being a doctor as well. Deliverd over 5000 babies.
I know what I am talking about.
Just to say: WooHoo, Bryan! Keep the great thoughts comin’…. Hoping you’re feeling better, too…
Let’s not go crazy here.
It will be. Currently, the system runs on standardized procedures and treating each individual as the same (as much as possible) while individualizing things such as pronouns and terminology.
Another hurdle is the idea of thinking of patients as customers. This is how healthcare has declined. We treat patients like customers, but they aren’t. They are not just people receiving services. Healthcare is a service unlike others. We cannot treat people like a Starbucks because what each person wants and needs is different. Giving them what they ask for (dilaudid!) is often the very thing that they do not need. Customer satisfaction is not the name of the game.
Is it important for people to have a good experience? Yes. But HCAHPS is actively destroying healthcare by linking payment to satisfaction and it turns out that patients often do not know what is best for them.
That’s a ridiculous restriction on anyone’s right to have and express their opinion. Especially when one particular class of people, us taxpayers, are getting [expletive] by the health care system.
Direct primary care + catastrophic should be legalized, yesterday.
Uhm, yes they are. They may be paying too indirectly to behave like customers, but they certainly are paying for products and services.
Healthcare professionals always pitch their part of the economy as special, cause people die, you know. Well, you’re not that special. People need food to live, and while more heavily regulated than I like, it’s still delivered to the public by vast networks of private businesses. The poorest get some help paying, but they can’t buy caviar with an EBT card. People need shelter to survive in all but the most climatically benign spots in our fair country (and even those are prone to hurricanes), but housing is produced almost exclusively by private construction companies. Yeah, again, lots of government interference, but the general public still has to pay to purchase or rent, and they have to choose what they can afford. Welfare queens aren’t living in Mar-a-Lago on somebody else’s dime.
A customer who can’t pay for a date out at a five-star restaurant can’t expect to be as satisfied with their home-cooked Hamburger Helper. Customer satisfaction should be — I would say must be — the name of the game, but only when the customer is paying for premium services.
The only way to get patients to know what is best for them is to make them choose their treatments, knowing what they will cost. Some will need help from family and friends to navigate the complexity, but navigate it they must. There is no other way out of our society’s infinite demand for health care. And nobody is morally entitled to enslave others to provide artificial life extension.
-10. She called me fat. Well not in so many words, but she said I need to go on a diet and monitor my blood sugar. Same thing, right? Fat shaming is a micro-aggression. She should be fired.
On a serious note, sometimes medical staff make abhorrent decisions. I was told to stop nursing my newborn because it was interfering with formula feeds to raise his blood sugar… yet colostrum is quite effective at balancing blood sugars. Because he desaturated on bottle feeds, he was sent to the NICU for a week (wouldn’t have happened if they had let me breastfeed from the beginning).
Worst experience ever. And I do question if they knew what was best. Longest week of my life.
I was very careful to say that healthcare providers do not always know what is best. Also, I’m sorry for your experience. That’s terrible.
My point was more that if we simply gave people what they wanted, there would be more dilaudid for everyone, more antibiotic resistance, more people with permanent disability… Healthcare isn’t just about what people *want*.
Phil Turmel added this:
And that is one aspect of today’s modern medical flowchart that doesn’t exist. For a patient to have a full choice – not just what the options are through that clinic or doctor and those protocols. A full discussion of how there may be different treatments than what the particular doctor you have would offer. Just talking to local cancer survivors, many of whom have survived terminal cancers due to moving to Calif and getting CBD oil treatment, I realized what a shabby system we have in place.
As the day a person is told they have a serious illness, often there is no psychological safety net. In Europe, it would go like this: “Hey you have cancer: it is a really good thing this clinic has social workers you can talk to.” No such support system in place in the USA. The same day the patient is told of their cancer, they’ re also given the day their treatment will start, or the day their surgery should be scheduled. No one says anything about getting a second opinion.
Second part in Part II
Part II:
@philturmel @therightnurse
Though Phil Turmel seems gravely concerned that somewhere someone is getting more than they should — this is an attitude I don’t understand. In the USA, we all pay significantly more than people in all other industrialized nations. Add up all the monies given the Big Insurers, and that $$ that also comes from out of our pocket, and we pay so much more, with less satisfactory results. Our military obligations and what not actually fulfill all the monies that the people in Germany need to have a health care system subsidized and affordable for everyone. (Same with Israel, BTW.) Mark Steyn mentions that as simply the cost of doing business. And it seems fine with Steyn, as long as none of us “socialists” start thinking that what works in Germany, or Israel, should ever be considered a possibility here.