Tesla is the new Starbucks

Making the common uncommon

There are few companies that manage to define a market, and even fewer that manage to re-define a market. Consider two companies that have turned necessities into luxury products with powerful brand equity: Starbucks and Tesla.

Starbucks developed a masstige product in a previously commoditized category. Morning commuters went from 50 cents Styrofoam cups to $5 shmancy coffees as part of their daily routines. Tesla is carving out a similar growth path by redefining the electric vehicle (EV) market and the automotive industry more broadly. Tesla introduced luxury to a product category previously seen as an R&D experiment. Over the last decade, EVs have gone from virtually non-existent to widespread, with roughly 1.2 million on the road in the U.S. — and a big chunk of those are Teslas. The two companies are on a similar trajectory, and for similar reasons.

The parallel paths of Starbucks and Tesla

Starbucks and Tesla are on track to achieving similar market share in the U.S. Tesla announced in their Q4 earnings call that they expect to sell over 500,000 vehicle in 2020. This 50% bump in year-on-year global fleet growth will position Tesla to gain market share of the U.S. EV market comparable to Starbucks’ share of the U.S. coffee market.

Source: Statista, EEI, MBA in the City analysis

How are these two companies landing in such similar places? It has to do with the two key strategies they share:

  1. Delivering superior user experience
  2. Establishing strong economic moats

With these two cornerstones, both companies are not only leading their categories, but also positioning themselves for long-term success. But don’t take my word for it. Let’s look at the facts and figures that are proving out their strategies.

1. Superior user experience

Starbucks and Tesla have each created superior user experiences that are entwined with their brand identities — in large part because those experiences departed from what was seen as possible in their markets.

Starbucks has defined the category of quality coffee by created a seamless, pleasant customer journey. From app orders to friendly baristas calling your name, the familiarity of a Starbucks PSL has a tug that brings in customers in Hawaiian Septembers. (I speak from experience). Starbucks’ category-defining success has been proven out by their dominance in the premium coffee market. As artisanal “hipster coffee” shops have sprouted up, consumers can find a multi-sensory coffee experience within walking distance in any U.S. urban center. Now I can get oat milk flat whites with a dusting of cinnamon just about anywhere in the Big Apple. Yet even as boutique cafes have emerged across NYC, many people still go to Starbucks, because they are reliable. As an early mover in premium coffee, Starbucks effectively defined what people expect and want.

Similarly, Tesla has shaped what people want in an EV. The Model S was the first to prove that electric vehicles could offer speed and range, creating brand cache and infrastructure that other companies, like GM and Ford, are unlikely to catch up to. Tesla is also positioned to grow brand loyalty because they perform as well as leading sports cars and are easier to maintain, creating an overall better user experience. EVs have fewer moving parts, so less things can break. For example, an Audi A5 costs almost 7x as much to maintain as a Tesla Model 3.

Compelling user experiences for both companies have resulted in significant earned media. Tesla’s sports models have earned the EV spotlight, with the most media notoriety of any car company, despite having zero marketing spend. Starbucks, in a similar vein, has steadily decreased marketing spend over the last decade. They don’t need the marketing, because both brands have become synonymous with their categories.

But what is to stop either company from losing market share to “me too” competitors, I hear you ask? The answer is economic moats.

2. Strong economic moats

An economic moat refers to a business’ ability to maintain competitive advantages that protect its long-term profits and market share from competitors. The critical mass and vertical integration of both Starbucks and Tesla have created operating efficiencies and economies of scale — both significant economic moats.

Starbucks boasts vertical integration from bean to cup. They work directly with nearly 300,000 coffee growers around the world to ensure quality and flavor standards, as well as sustainability. Full vertical integration makes their supply chain less susceptible to disruptions. Its automated supply chain monitoring also enables responsiveness to operational changes — ensuring that their 31,000+ stores globally are never short on supply. With this scale and integration, Starbucks has even left Dunkin’ in the dust.

Tesla is also vertically integrated. They recently doubled down on a piece of the supply chain that will drive (pun intended) the most critical competitive edge an EV can have: battery life. Tesla’s bleeding edge in-house battery technology will soon halve the number of charging station trips needed. These swift advances are likely a result of their Maxwell Technologies and HiBar Systems acquisitions in 2019. In its latest battery patent, Tesla noted that some battery formulas “doubled the number of cycles (or recharges) the battery could take while keeping the same 95 percent capacity retention.”

Tesla customers are willing to pay for this quality guarantee. While other electric vehicle manufacturers worry about losing tax credits, Tesla unit sale remain largely unaffected. Tesla hit their max tax credit qualification of 200,000 vehicle sales in 2018 — but this did not dampen 2019 sales. Tesla remains as dominant in its category as Starbucks is.

What can we learn from Tesla and Starbucks?

  • Customer experience and quality are huge differentiators in consumer categories with historically low performance.
  • Raising the customer experience and quality bar for a common product (like transportation or caffeine) can create foundational brand equity and drive market dominance that is hard to displace.
  • Providing exceptional experience will drive your NPS, and you will have a highly defensible market position.
  • Economic moats cement the victories of customer loyalty and turn them into sustainable businesses.

New Yorkers are crazy, at least according to social psychologists

Emergency!

Last Sunday, at Delancey and Norfolk in the Lower East Side, an SUV ran over a pedestrian, trapping her underneath the vehicle. A dozen men ran over, gathered around one side, lifted the two ton vehicle, and dragged the victim out. Psychologists would predict that in most instances bystanders would remain just that. Yet the opposite happened here. Why were New Yorkers’ behaviors so counter to predictions?

The Psychology of emergencies

Most emergencies that affect only a single person in a large crowd are subject to bystander effect and aversiveness. Bystander effect, or bystander apathy, is a social psychological claim that individuals are less likely to help a victim when other people are present. In fact, the greater the number of bystanders, the less likely it is that anyone will help. Think of the accident where you wondered if anyone had called 911. Aversiveness is how unpleasant a stimulus is. Psychologists predict that the worse the accident, the more distracting it will be. Think of all the rubbernecking that occurs near traffic accidents. Yet neither bystander effect nor aversiveness occurred in the scenario above. And this may be because of some particular countervailing psychological forces at play.

Why New Yorkers help

A cynic might say that all the good Samaritans in the video where fit young men who were excited that their diligent workout regimen had finally paid off – they had a moment to shine! But I think there was something deeper going on.

I think there is a group cohesiveness that comes with being a New Yorker. We have a silent agreement collectively that we want our city to be full people with hustle and who love the place we live in. If something breaks our flow, we step in to correct it. I’ve been a part of these moments. I watched someone’s moving boxes spill across a crosswalk in a busy downtown intersection. Feeling alarmed for the girl and mildly horrified that these belongings would block rush hour traffic, I rushed to move some to the sidewalk, and everyone around me did the same. The road was cleared before the light turned green, and we all went on our way. Daniel Odescalchi shared similar stories in “The accessibility of NYC hearts: The view from my wheelchair“.

It also isn’t surprising to me that everyone immediately disbursed from the SUV scene, without waiting around for an emergency responder. I suspect that New Yorkers experience less intense emotional arousal in emergencies. We see so much craziness on the streets and subways, that we are more accustomed to disengaging and moving on to what, for most people, is out of the ordinary.

Keep it a secret between you and me, New Yorkers are actually nice. And resilient. We as New Yorkers have a shared sense of what is right that we can all fluidly work towards for our people and our city.