Starbucks burned by aggressive pricing automation

Starbucks software rolled out a price increase weeks before it was supposed to

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Credit: Thinkstock

When Starbucks announced this month that its software had rolled out a price increase weeks before it was supposed to, it exposed how easily such a mistake can happen. That's a critical lesson for all of retail.

Let's start with how Starbucks described this incident. "On July 12, Starbucks is planning a small price increase on select beverages. Unfortunately, that price adjustment was prematurely entered into the point of sale systems in our U.S. company-operated stores. As a result, some customers were charged incorrectly. The maximum any customer could have been overcharged is 30 cents per beverage," Starbucks said. "The error has been corrected and we sincerely apologize to our customers for the inconvenience. If a customer believes this mistake impacted the price of their beverage, we encourage them to please contact Starbucks Customer Service at 1-800-782-7282, and we will gladly make this right."

If there's one thing Starbucks customers love more than price increases, it's surprise price increases that they have to notice. Starbucks' response is less than optimal, too. If someone walked into a Starbucks and paid for a drink with cash and walked out, OK, for them, having to call customer service to "make this right" is reasonable. But what about loyalty customers who paid for the Starbucks app? Why isn't the chain automatically crediting all of those shoppers? It certainly has the ability to do so. No, it's counting on most customers not bothering.

This is actually a lost opportunity. If Starbucks automatically credited back everyone it could — loyalty and app users — this incident would have cemented in the minds of customers another great advantage of using the Starbucks mobile and loyalty systems, such as being alerted during a food recall. Instead, it is putting the onus on the shoppers to make the effort to make this right.

By the way, Starbucks' second error was being vague about "make this right." Is it refunding the amount of the price increase or insisting that it be a credit for a future purchase? I sincerely hope Starbucks won't use a pricing glitch as a future sales opportunity, but it's hard to draw any other conclusion.

It's not hard to read into the statement's reference to "prematurely entered" and conclude that Starbucks is suggesting that this was human error. But was it? These systems are typically designed for price changes to be programmed and then not launched until the desired date. Did a Starbucks employee or contractor instruct the software to make the price live too early or did the software ignore its instructions and launch prematurely? (You WordPress users in the audience have certainly seen your fair share of delayed launches not actually delaying.)

Another interesting phrasing in this Starbucks statement: "As a result, some customers were charged incorrectly." Does that mean that these changes were not universal? Did it only impact specific geographies? Or did it merely mean that not all products were subject to price increases?

This gets us back into transparency issues. Why didn't the statement list all of the products at issue and say what the old and new prices were? That way, people who may typically get those products could have the heads up to check and they'd know what they should have been charged.

This all seems to be the chain making it as challenging as possible for those customers who paid a premature price increase to get their money back. This move is not merely underhanded, but it could undermine the overall reputation of Starbucks. Is a 30-cent-per-beverage price increase really worth it?

Now for the opposite perspective. All of these concerns notwithstanding, the July 12 date was entirely under Starbucks' control. When the glitch happened, it could have simply chosen to make the price changes immediate, thereby making this a very different situation. No need to refund any money. It's absolutely common for chains to increase prices without announcing it.

So from that perspective, Starbucks deserves kudos (albeit limited kudos) for declaring this a glitch and offering any refunds (correction: unspecified making-this-right efforts) at all.

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