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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
I’m not going to address your clearly strongly felt bits about the meaning of healthcare. There’s simply no point.
But I will address this: some people pick based on comfort rather than cost. For example: it is more comfortable to get physical therapy at home after a stroke. Unfortunately, people do better in Acute Rehab facilities where they can get 3+ hours of therapy a day. It’s not comfortable, it isn’t fun, and being in a facility sucks.
But the outcomes for almost everyone support going there. The cheaper option is home health physical therapy. The less uncomfortable option is home health.
The people who choose it over Acute Rehab often end up hurting themselves long term. Do they know that? Do they choose that based on the cost? Do they learn what is best for them? Seeing repeat offenders, I’m going to say no. There are a hell of a lot of people who choose stupid treatments (and yes, I’m calling them stupid) because they *feel* that it is better than whatever the actual medical standard is.
The only way to get patients to understand what is best is to educate them on the long term consequences and cost. If they understand, they can choose lesser care. But don’t pin it on the folks in healthcare as if we have them over a barrel.
At any time, people are allowed to leave against medical advice, refuse treatment, or go back to their naturopath for a more comfortable and customer-friendly option.
I agree. Systems change is needed. Helping the customer understand outcomes is better. Mindless surveys are not how you should measure. What I am advocating is going to take the time to engage. Too much of what providers have to do gets in the way of care.
Healthcare is not a service, it is a promise of transformation. I can guarrentee you that the majority of people who go to the Cleavland Clinic or Mayo Clinic feel that they are getting that transformation.
In the end, the customer is going to take cost into account when he makes his call. It is all about trade-offs. I see that as a liberty thing. If, as providers, we cannot sell the trade offs, shame on us.
Not in our current system they won’t.
There are plenty of cases where cost is still a factor. It sure effects what care the poor get, such as what meds they are going to take. And RN has the example of recovery care that shows exactly how people take cost into account.
Where cost is all on the customer, such as plastic surgery, people tend to report a great experience that leads up to their transformation. That is what market forces get you. If they can do it, the rest of the system can.
There are plenty of stories of providers connecting with customers despite the broken system. Despite all the issues, there are ways to improve. Moving managers from the outdated concept of “boss” to “coach” is a concept who’s time is well overdue. (Hmmm, sounds like a good topic on its own).
Dear God I am so glad my career in medicine is nearly done. We’ve been dealing with the idiot MBAs since the 90s using the Disneyland model in medicine. A visit to the ER is never going to be a trip to Disneyland.
No it won’t be. A Trip to the ER is something we all want to avoid. That does not mean the providers should ignore making the expereince as great as possible. And those people are still seeking a transformation.
I do think the system struggles to support either.
I worked 25 years in a community mental health. The system could be unfriendly to say the least. However, I had many examples where I was able to make the experience for the customer better. It was never a trip to Disney, but it did not count for nothing.
Using the toilet is being built into the picture.
More.
I loathe going to Disneyland. Why can’t they hold conferences some other place?
Health insurance costs $13,000 a year for my family. I’ll pass on turning it into a more expensive “experience” thank you.
Experience doesn’t have to mean more expensive. McDonalds gives you a different experience to a traditional restaurant. That experience is valuable to its customers primarily because of speed and price.
Indeed.
In fact, doing a better job to coaching employees can end up lowering overall costs of delivery.
Apparently.
And why shouldn’t they be allowed to prioritize comfort? Because it screws up the cost basis for socialized medicine? Embarrasses the providers whose stats suffer for it?
So what? Some people don’t care about the long term, and getting in their way as they self-destruct is pointless — it just pisses them off and makes them pressure their politicians for more regulation.
It seems we violently agree.
I wasn’t pinning it on all folks in healthcare. Just the one(s) who want to not treat the patient as a customer.
As they should be. The problem is that they aren’t made to pay for the consequences of their poor decisions. By pay, I mean literally paying for the additional health care they will need when their chosen path doesn’t work out. For that to happen, they have to be the customer.
I find it hard to envision how a company will do more and charge less.
Ask Walmart or Amazon or McDonalds or…
Interested in your thoughts on the disappearance of independent family practices, in part thanks to folks using rediclinics more. Seems very much like folks are choosing lower cost over the “experience.”
And playgrounds for kids to not be required to sit still and eat their food!
I think the ACA and other medical regulations had a bigger impact on this than before.
My visit to my PCP or my kid’s doctor doesn’t really have any different of a feel than my going to a clinic or the After Hours Peds.
If anything, I have a lesser wait time for the same care.
But the impact of regulations on the other things in family care drove my PCP out of independent practice into a shared hospital network.
#Soviet
The ACA is a bunch of lies to force single payer. Why in the hell couldn’t the GOP get ready for Collins and Murkowski to vote Forward Comrade! I hate these people.
Companies do this all the time.
The experience the customer wants will be different for different customers, and there probably should be different providers to address them. An article in the WSJ a couple of years ago described an effort by Dunkin Donuts to raise their average “transaction price” to be closer to that of Starbucks. But Dunkin found out that their customers were very different from Starbucks customers, and wanted an “experience” entirely different from what Starbucks provided. The Dunkin customer wanted the ordering process to be simple, wanted the coffee to be delivered to his or her hand quickly, and wanted the control of putting in his or her own milk, creamer, sugar, etc. For Dunkin to try to emulate the Starbucks experience would have gone against the desired experience of the Dunkin customer.
If we had more market at work in medical care, we could choose the experience we want. I should be able to choose whether I want my medical care in an office in which I am certain to see a particular physician, or line up for the “next available physician.” For my periodic check-ups on my replaced knee to confirm that the knee parts are still where they should be, I am very happy with the Physician’s Assistant – no need to pay for (or wait for) the surgeon himself. On the other hand, I go out of my way to go to a primary care physician who is always prompt so that a visit involves very little time in his office.
And in the medical world we have laser eye surgery. For the most part, such procedures are paid for by the patient (not with insurance). We have seen over 20 years dramatic improvements in the procedures (and the patient “experience”) at the same time that costs have gone down. [I recognize that much of medical care differs from laser eye surgery, but it’s an example that shows that the market can work in medical care. My understanding is that only a small portion of medical care is emergency; most is repetitive (chronic) or planned in advance (my knee replacement), so there is time for comparison shopping and evaluation of options and alternatives.]
In terms for poor experience with going to the MD office, I think third party payment is mostly to blame. There is too much for the providers to do in order to get paid under fee for service model. The new population based models are designed for large systems. The government is driving the changes. They always like more big players that are easy to deal with, than many small providers. Many concierge doctors have waiting lists. I am not sure people are unwilling to pay as much as they are unable to pay after spending over ten grand a year to buy health insurance. They want to get their money back, so to speak.
I would also say, that urgent care clinics may provide more of what the customer wants. Why spend hours to be worked in with a doctor who does not even know me, when I can walk in someplace, get my prescription and go home? I just had to go into see a doctor, talk to him for 2 minutes in order to get an order for PT. A phone call would have worked, except he would not get paid that way.
The government and third party payments totally distort the market.
“OK, so, we can do this today”, is what my wife was told when she went to get her evaluation. Boom.
This is the new Lake Forest (Illinois) Hospital. I think they’re going for the Disney experience. Fancy buildings just make me cringe at how big the bill would be to pay for all those unnecessary accoutrements.
The right environment can improve healing. I’d rather be treated amid beauty than ugly.
Ok for minor colds, boo boos etc. A terrible way to deal with most chronic long term illness. Continuity of care is critical and we have lost it in a big way. I get patient in the Urgent Care with chronic problems , not sure of what their diagnosis is, and frequently not sure what meds they are taking or why they are taking them. It’s a recipe for disaster.
Nope, even more like Jiffy Lube. Patch me up and get me out!
I should have added a cruise is something you want to experience. A stay in the hospital is not.
Yeah. Hospital I worked in Wisconsin had the oldest ER in town. It was a pit. So during the hospital renovation, planned in three phases, phase 1 was a new lobby with an atrium, marble, a grand piano and a chic coffee shop ( and of course lots of nice new office’s). And a new parking structure.
Second was new radiology department and cath lab ($$$$). Last was the ER and the ICU’s. I used to laugh when they came down and lectured us how the “ER is the part of the hospital that interfaces the most with the community”…
Not in a business that is highly regulated.