Starbucks Rebuttal: “Average price of our latte is $3.25.” I was pretty excited when fellow Daily Fix blogger Paul Barsch forwarded me a copy of an article from the February 9th Wall Street Journal, “Starbucks Plays Common Joe.” (Thanks very much, Paul!)
In my post of February 3rd, “McDonald’s: Taking the Snobbery Out?“, I pointed to a recent McD’s ad that poked fun at upscale coffee houses and their “somewhat arty” clienteles and asking Daily Fix readers what their take was. By asking a few pointed questions and making a few pointed comments during the discussion, many weighed in with diverse POVs. Loved it. Thanks to all the great input from everybody who chimed in.
One of the questions I had–and still have–concerns the economy and what impact a lingering downturn is going to have on premium brands–including Starbucks. It appears I’m not alone in this. The WSJ article notes that there is an aggressive campaign on now–a first move–to “counter the widespread perception that Starbucks is the home of the $4 cup of coffee.”
“The Seattle-based company is training its baristas to tell customers that the average price of a Starbucks beverage is less than $3, and that 90% of Starbucks drinks cost under $4,” states the article. And how about this quote from Starbucks EVP Marketing and Category, Michelle Gass: “There have been others that have been propagating the myth of the $4 latte, and that is not true”, adding that the average price of a Starbucks latte is $3.25. “We have got to correct the misperceptions that are out there.”
This is about more than countering the effect of McD’s advertising and billboard campaign. It’s all about repositioning Starbucks to alter perception. . .and let’s remember what Tom Peters was famous for saying. “Perception is reality.” It’s all about a new strategy.
WSJ: “To retrench, Starbucks last year began shutting hundreds of weak outlets and cutting thousands of jobs. As the economy worsened, executives began plotting a new strategy to portray the company as offering value.”
WSJ: “The move shows how premium brands are trying to reposition themselves for a prolonged economic downturn. “I strongly believe we are going to be in this environment for years, ” Howard Schultz, chief executive at Starbucks, said in an interview. “It is a reset of both economic and social behavior.”
I could not agree more. Past consumer habits and their underlying psychology are now going through a paradigm shift. This is real and I believe it will be lasting.
Questions:
* As the recession takes hold and deepens; as consumers retrench and the economy contracts, what are the lessons marketers need to learn quickly and adapt to?
* Do you agree that “overconsumption” is now a dirty word? What kinds of “little treats” do you give to yourself in lieu of expensive luxuries?
* What do you think of brands like Starbucks repositioning themselves to meet the new needs/desires of consumers? Will it work? Why? Why not?
I’d love to hear from you.
a) marketers need to learn the value of money and this doesn’t mean the lowest price but the best ratio price/quality. There will always be money for a product with high perception.
b) overconsumption is a dirty concept. We have to retool our consumption in order to grant a future to the world. It is no longer a mean of saving the economy but to understand that the world is limited as well as the resources. This economy downturn is an opportunity not to be missed. Stop selling more. Sell better.
c) Starbucks lost its appeal years ago and cannot stand with prices perceived as too high. Will it work? To establish the correct perception between price and quality you need to have a soul. This is no longer the case of Starbucks.
Ted,
Companies need to quickly learn to focus on their core competencies and core users. Essentially, they need to focus on what made them special in the first place. After Sbux created the better coffee category they shifted focus from their core competencies/users to milk the cash cow they had created. Now they need to refocus.
Overconsumption has become a soiled word but that shouldn’t affect Sbux. If anything it should help them. Overconsumption is about buying lots and lots of cheap things. At the end of the day you’ve consumed a lot but have nothing to show for it. By buying the highest quality items a person can afford they end up with quality items at the end instead of a pile of stuff that was ok new and worthless used.
Sbux needs to have a top-down strategy first to deal with and then change the publics perception of the company. Answers like “it’s only 3.25″ are bad. It would be better to counter the McD premise with something like “X millions of Americans drink starbucks each year and I can’t believe that McDonald’s has the nerve to make fun of hard working Americans by calling them fake artsy imposters, by calling them liars, when they’re just trying to get a GOOD cup of coffee.” Get that message out, that McD is insensitive/mean/etc, then hit out with a sympathy campaign, something like: We know times are tough but you need coffee that tastes like coffee …. we’ve discounted our packaged coffee and we’ve got this new instant coffee to help you save money …. when you need a little break with friends we’ll still be here, come on in and we’ll make you a fresh cup.
dave
Ted,
I agree with Gianadrea. The luster is off Starbucks, and I don’t like it. Last week, I canceled my Starbucks card and am now looking for a different local brand to spend my money.
As I’ve said here before, I drank Starbucks because it was unique in flavor and branding. No more. It has succumbed to lowering prices and dumbing down its brand message.
Remember, Starbucks was never meant as coffee for the masses. It was designed and created for those seeking a robust and flavorful coffee. In my mind, Starbucks has abandoned its mission and its most loyal customers. As a result, I don’t believe Starbucks profits will increase, although its revenues might stabalize and even grow.
The lesson to be learned isn’t to lower prices to appeal to the masses, no matter the economy. The lesson learned is that if you are to be special, growth must be controlled and value must never be compromised. As a wise marketer once said, if your product is for everyone, it isn’t for anyone.
Welcome back, Gianandrea. You’ve hit on something here: there has to be a valid ratio of price to value in consumers’ minds. BTW: Tom Peters is famous for saying: “Perception is reality”. Agreed that in today’s economy, “overconsumption” and “excess” are now dirty words, for a number of reasons. Lastly, the perception Starbucks had created for itself, that is its brand image, has been tinkered with to the point that, as you stated, they seem to have lost their soul for most of their loyal fan base. We’ll see how the company’s latest efforts work or don’t work for them.
Thanks for opining, Gianandrea. Your insights are always appreciated.
Dave,
You’ve said so many great things here, that I find myself smiling. Starbucks got away from its core and lost its way. Right! The company needs to take the reins and define “overconsumption” in a strong way. Brilliant! How about countering McDonald’s strategy with your idea for a campaign? Wow–Sbux ought to consider hiring you as a marketer. Excellent, Dave. Thanks for adding so much to my post!
“The lesson to be learned isn’t to lower prices to appeal to the masses, no matter the economy. The lesson learned is that if you are to be special, growth must be controlled and value must never be compromised. As a wise marketer once said, if your product is for everyone, it isn’t for anyone.”
Couldn’t have said it better, Lewis. Gianandrea and Dave have made some terrific observations here.
When companies develop unique identities for their products or services and find the formula for success, why do they then deviate from the very things that brought them their unique niche and success? Why?
Thanks, Lewis, for reminding us about this.
Remember when Starbucks was about the experience more than the coffee? Come in, sit down, read, relax, converse with others.
This attracted a unique segment of the population…coffee aficionados (snobs?)
Losing that point of differentiation by opening smaller locations with limited seating (wooden chairs!) meant Starbucks had to compete on compete on product and price.
When it comes to coffee, taste is a tough battle. Some like it mild and sweet, others like it full bodied and straight. Most don’t care…it’s about quick convenience.
Having it ‘your way’ is still a strength of Starbucks – but making it quick forces them into more direct competition with McDonald’s and Dunkin Donuts.
Now it’s about price and speed and convenient access. And how will Starbucks stay above the fray? What are the unique differentiators?
Oh, I forgot to add…I am one of those aficionados so the ’snob’ remark was a poor attempt at self deprecation.
Guess I should have had my java jolt before hitting POST.
Starbucks still seems focused on tactical responses to really serious strategic problems.
Giandrea had a good point that often “offering low prices” and “offering good value” are used interchangeably, when they really shouldn’t be. From the WSJ article, it doesn’t sound like Starbucks is going this route yet (i.e., dropping prices). Offering meal deals, as the company even points out, puts them at competitive parity–it’s not exactly a breakthrough “value” offering either.
So the question is, what is Starbucks going to do in the way of offering value?
I think Dave talked about core competencies, and Starbucks has plenty. Could one of those (e.g., the experience)–provide a value?
What about the trend towards “affordable luxuries?” Could that be a value?
I do think companies need to find ways to refresh their brand and bring new and different customers in–it’s part of organic growth. But to Lewis’ point, they need to do it in away that does NOT jeopardize the relationship with existing customers or their brand equity.
You’ve hit on another aspect of Starbucks that is important, Pat. When the brand was at its height, it was all about romancing the coffee bean, wasn’t it? Patrons watched their baristas craft custom-made coffee beverages to their exact specifications. When that went by the wayside in favor of speed, higher production rates and pushing for more profits, much was lost for SBux constituents. Howard Schultz cited that problem himself in a highly publicized and discussed memo to company management on his return. Great point, Pat. Thanks for opining.
Kevin,
Underlying strategy is a major component of successful marketing, as you aptly point out. It does look like Starbucks is all over the map without a major strategy in place; probably in response to rapidly changing competitive conditions? I’m not sure. Only insiders know why. But as Pat pointed out, in getting away from delivering the “experience” its customers expect, Starbucks has eroded its brand value.
Speaking of “affordable luxuries”–which is an excellent point, BTW–take a look at one of the lead articles in USA Today: “Americans reach for small luxuries amid sour economy” for some good insights. http://www.usatoday.com/life/lifestyle/2009-02-23-recession-comforts_N.htm.
I am proud to have contributed to this in a small way: http://www.usatoday.com/printedition/life/20090224/comforts24_va.art.htm
As Dave said in essence, what’s better? One more luxurious consumable or many lesser ones?
Thanks for your strong insights, Kevin, as always.
Starbucks used to portray themselves as the ‘third location’. Home, work, Starbucks. They’ve lost sight of that. It’s not about the price, it’s about the experience. People go to Starbucks to relax and enjoy themselves – price be damned. If Starbucks had half a brain they’d run ads “$2 for coffee thrown at you by a pimply faced kid who cares less about who you are only so you can sit with the other people yelling at their kids and woofing down a burger, or you can relax and enjoy your coffee with a trained barrista that remembers your name and what you drink.”
McDonald’s is just coffee, but Starbucks is an experience.
But they won’t… they’ll succumb to the lower price justification… which even Wal-Mart has learned you cannot compete with forever. People want a better experience, not cheaper coffee.
Music Meister,
“People want a better experience, not cheaper coffee.” True. Starbucks brand loyalists want the experience, and as many have pointed out on this post and my earlier one on this issue, that is sorely lacking in many of Starbucks’ locations these days. Less than loyal customers, or those who have been hard hit by the economy, may very well purchase cheaper coffee, however. That means, they’ll necessarily go elsewhere for their Java fixes. But what about the idea Dave and Kevin have both put forth that more is not necessarily better and coffee is still an affordable luxury?
There are some good ideas here.
Thanks for weighing in, MusicMeister. Your POV about this echoes with this audience.
So much comes to mind as I think about the defensive position Starbucks seems to be taking. First – it’s not necessary. If they just stand firm in who they are and who they serve they will find that the people willing to pay 4 bucks, or $3.25, for a cup of coffee will likely still be willing to pay that EVEN if McDonalds offers a cheaper price. I think of the option I have of paying $28 or $108 for a pair of jeans and while I can’t even imagine paying $108, I know that there are people who do…that’s why those $108 jeans are there.
Secondly, I shudder to think that they might go so far as lowering the price of their beverage! If they did that I could imagine being as completely irritated at them as I am at the oil industry and the corner gas station whose price has NO link in my mind to the purpose it serves in my life. Really, if the price of a cup of Starbucks coffee is WORTH $3.25 then leave the price there. If it isn’t worth that…then you’ve been raping me for years and now I’m mad!
Organizations need to believe in their brand. Stand behind it. Shout about it and make business adjustments to allow the brand to remain pure. The brand will persevere if the organization behind the brand will believe in it.
Tawnya,
Cheapening products by lowering prices on a perceived quality brand can have a very detrimental effect, as you point out. I believe what Starbucks is trying to do is to dispel the notion that its pricing is outlandishly high; not lower its prices. By stating their lattes average around $3.25 and their basic coffees under $3.00, they hope to counter that notion. This is a response to competitors’ advertising in some cases and general public perception in others.
By adding Via, their new instant coffee at lower prices into the mix, this will probably cause Starbucks even more problems in regard to the value vs price issue. What about that, Daily Fix readers? Any comments about that?
Thank you for adding your thoughts, Tawnya. I’m sure many who have read this post and your comments understand your point of view perfectly.
Ted, thanks for your warm welcome.I agree with Kevin and with you about affordable luxury. BTW this is the approach chosen by the big luxury groups, such as LMVH and PPR, which were making more than half of their revenue from wallet, key-rings, etc. the small affordable luxury. So maybe these groups can live through the economic downturn better than if they were concentrated only on big money.We all need some comfort in these days and this is the place where Starbuck should place itself: getting something that make you feel better is worth a little more money. I don’t know if grabbing a coffee at McDonalds can give you any or the same comfort.
Starbucks was built on the premise that the experience was the value. At the time they came onto the scene coffee competition was Dunkin Donuts and gas stations. Starbucks were smart. They didn’t offer coffee. They offered up ambiance and designer drinks. The customer bought it!
Then Starbucks threw in drive through windows. Many stores are too small, dank and tiny to sit in. Where’s the user experience now?
I lived in Europe most of the past 20 years and find they both taste like…..
McDonald’s makes a decent enough cappuccino, using the same quality output machines as Starbucks, and for a lot less than Starbucks, and is generally speaking more accessible and convenient than Starbucks.
Considering ’size for size’ McDonald’s statement is absolutely correct. Otherwise Starbucks would be suing wouldn’t they.
If anyone accepts the Starbucks subterfuge of holding up their smaller serving sizes at less than the McDonald’s claim, then these are either blind holdouts to brand loyalty or just easily placated in general. i.e. They still buy it.
Starbucks had better come up with a snappier comeback line, and even more importantly, a better strategy.
“Small affordable luxury” is a theme that does seem to resonate. Interesting observations about LMVH and PPR, Gianandrea. Luxury leather brand Coach has seen a major slide in sales and profits on our side of the Atlantic. They also offer small leather goods and might want to consider doing what these other luxury brands are doing.
Small comforts are needed by everybody these days. And as you point out, consumers have to decide for themselves about how much those small luxuries are worth to them.
Thanks, Gianandrea. I truly enjoy conversing with you.
Thanks, David, for sharing your views on this issue. I’ve always maintained that coffee and coffee preferences elicit some pretty strong opinions. Starbucks was all about the experience. A number of things have occurred that have diluted that for the customer. You’re right: a new strategy is in order. As I said, but perhaps not as clearly as I should have, Starbucks seems to be reacting to the marketplace rather than being proactive as it used to do. Question: what is the right strategy for Starbucks? A little luxury for quality beverages at a fair price? Anyone?
Thanks very much, David, for weighing in. I appreciate it.
Starbucks could take the bait and repurpose the comparison ad approach to something that makes their pricing seem small. Or, they could restate their value in a different way, which is where the “affordable luxury” moniker works for me. Still, I think their problems are bigger than that. Why, oh why, was it ever a good idea to have fourteen – count ‘em, fourteen – Starbucks in our town of 50,000!? I think they suffer as much from overexposure, overpricing, underdelivering and just plain so-what-ness that develops when small boutiques go huge.
A new challenge presents a new opportunity for a new plan. Hope they get it in time.
Hi Michelle,
Thank you for raising a couple of points that needed to be brought out in this discussion. First: 14 Starbucks in a town of 50,000? Won’t that kind of saturation make Starbucks seem more banal and less desirable to its target audience? You’ve got to wonder. . .
The perception of “overexposure, overpricing, underdelivering and just plain so-what-ness that develops when small boutiques go huge” hits a nerve. First, anytime consumers think brands are over-priced as they under-deliver, it’s usually the kiss of death. Second, the rapid development of Starbucks did make the chain hard to manage. It’s hard to maintain those aspects that made a superstar retailer out of a small group of stores when adding thousands of new outlets in a short period of time. Great point. From everything I’ve been reading, Starbucks does need a new strategy–and fast–if they’re going to survive. Like you, I wish them well in this endeavor.
Thanks for weighing in, Michelle.
Ted: only coffee (and maybe social media) can generate this much dialog online!
I wonder if a “Starbucks Monster User” would consider buying coffee at McDonalds. I wonder if a “SBUX casual user” would. And I wonder what % of SBUX’s customer base is comprised of these two made-up clusters. My guess is that if you’re a SBUX customer, the idea of buying coffee at McD’s is unthinkable – that these two customer bases never mix.
If I’m right, then they should ignore the billboards and concentrate on meeting the needs of the clusters that matter.
If I’m wrong, tell me and I’ll think of something else. But I’d wager $3.25 on being right here.
Stephen,
Thanks for your insights. Ain’t it the truth about coffee eliciting strong opinions and passions, though? As I’ve stated before, hard core Starbucks brand adherents would rather die than switch. No question. Still, there are long-time loyal fans like Lewis Green who are no longer happy with what the brand has become, and if you’ll notice on an earlier comment he posted, he’s switching. I do believe many folks aren’t as committed and try many other options out there. Many others are simply looking to get their coffee fix more cheaply given recent economic circumstances. If McD’s didn’t smell an opportunity to grab some low-hanging fruit out there, they wouldn’t bother with this kind of marketing campaign.
Thanks, Stephen, for weighing in. You’ve always got important things to say and great ways of saying them.
I find it interesting that Starbucks has come out with an instant coffee line to be sold in stores. Wow.
I think they are recognizing that while there are hard core specialty drink consumers, many people will look to a good old fashioned cup of Joe but cannot quite stomach the instant coffees that are currently on the market.
Me, I will keep making coffee at home with trips to my local coffee shop and an occasional trip to Starbucks, too.
Ted,
You know how to pick a great topic; I don’t think enough can be said about McDonald’s or Starbucks. Both have been responsible for brilliant marketing campaigns, as well as a few flops (remember McSoup?). I think Dave’s response is right on the mark. This is the time for Starbucks to refresh its focus on its original brand image. It is hard enough that their two greatest competitors are McDonald’s and Nestle; an attempt at being a price leader against either of these two would be a debacle regardless of the state of the economy.
Ted,
You know how to pick a great topic; I don’t think enough can be said about McDonald’s or Starbucks. Both have been responsible for brilliant marketing campaigns, as well as a few flops (remember McSoup?). I think Dave’s response is right on the mark. This is the time for Starbucks to refresh its focus on its core competencies. It is hard enough that their two greatest competitors are McDonald’s and Nestle; an attempt at being a price leader against either of these two would be a debacle regardless of the state of the economy.
“Me, I will keep making coffee at home with trips to my local coffee shop and an occasional trip to Starbucks, too.”
Many are on the same page you are, Neil. They plan to make their own coffee at home and occasionally treat themselves at Starbucks or another nice coffee shop. Or they will try McD’s, Dunkin Donuts or other less expensive brews to economize.
Has anyone out there tried Via yet? If so, what’s the verdict on it? Good? Fair? Not good? I’d like to hear from you.
Thanks, Neil, for checking in on this topic.
Motyka,
Thanks for sharing your POV with us. I appreciate your kind words, too. You’re so right that new product intros and marketing campaigns, well-executed or not, can be total flops, great successes or something in-between. Only time bears out what those will be. You’ve echoed what many others have said: getting away from core competencies and a brand image that have made companies successful, usually spells big problems. Getting back on track is a challenge as it is, but making a number of missteps certainly doesn’t help.
Thanks, Motyka, for weighing in with your insights.
Whether it is the local coffee shop or some place else, I have always been the house coffee and a snack kind of person.
While there will always be many who stay with their favorite specialty drink at their favorite place, the biggest change we are likely to see is more simple coffee. Obviously, Joe is cheaper and provides less profit per customer, which hammers places that rely on expensive drinks.
This is why the marketing campaign by McD’s still does confuse me. Are people really going to flock from Starbucks to McD’s to save a few cents on their lattes? I find that very hard to believe.
Those who are that price conscious are going to switch to coffee no matter where they get it. Lattes are not like gasoline where people are going to shop all over the place to save a few cents per latte.
I do not see how this campaign by McD’s could possibly pay off but maybe I am wrong. They will sell a few extra specialty drinks but the increase will be at the margins. It hardly seems worth the effort. I just do not understand why McD’s is not focusing on other things right now?
There is definitely a high opportunity cost of McD’s spending these marketing dollars trying to steal a few latte drinkers from Starbucks. Every dollar they spend on this Quixotic quest is a dollar *not* spent on more profitable efforts.
Many have pointed out on this post and on past ones, as you have, Neil, that strong Starbucks brand adherents are not likely to switch to other brands. However, there are lots of folks out there who aren’t so attached and might be wooed away to try other brands? Whether those brands are McDonald’s coffees or lattes; Dunkin Donuts or other more sophisticated brands. . .
McD’s may also be trying to capitalize on the fact it has considerable traffic already in its stores. Why not try to build more sales on its coffee/coffee drinks for more of its existing customers? By telling the world that a latte doesn’t have to cost four bucks, maybe McD’s is trying to capture some business that might go elsewhere for a caffeine fix?
And why not entice customers in during non-meal times to just get a cup of Joe or try out a new latte instead of going somewhere else? While McD’s latest campaigns have been very tongue in cheek and pointed where Starbucks is concerned, is it the entire story? I wonder. . .
If there were not a high opportunity cost then I would agree with “why not?”
But McD’s marketing budget is limited just like any company’s budget is limited. Trying to steal some latte customers from Starbucks, etc., during a recession seems a less than optimal use of resources.
Will McD’s publicize how this is working out? I could be completely wrong and customers are lining up for lattes — as opposed to inexpensive food and regular coffee — as we speak.
Very valid points, Neil. Ones that have been raised before, as well. As you point out: it would be great to know whether McD’s is able to pull in new customers due to its expanding coffee drink choices. Will they just be able to increase business to their regular customer base? Will they add more sales and profit dollars during off-peak meal times? I’ll bet we can find out in a couple of months’ time. Company press releases and statements, case studies, etc, ought to divulge some telling information. Stay tuned.
Thanks, Neil, for offering a very valid POV.
Yes, I look forward to being proven wrong. I don’t particularly need to be right.
God speed to McD’s in their quest…
I don’t know about you guys (and gals) but Starbucks is very expensive coffee here in Malaysia. Over here, we pay RM1.00 for a regular cup of coffee (not Starbucks) and RM10 minimum for a cup of Starbucks coffee! I am not a coffee fan but really, aren’t the prices a bit too ridiculous? And the snob appeal is there I suppose. To be seen drinking coffee/tea at Starbucks, relaxing with your book or laptop is THE lifestyle. Frankly I think Starbucks in Asia is way overpriced. Yet, Asians still love Starbucks.
Krista,
Until the global financial meltdown of the past fall, things were booming in parts of Asia. Asians were becoming very westernized in the sense of becoming more materialistic. They were eager to spend money on luxury and “lifestyle” products in a big way. Since the current economic situation is global, I expect the acquisitions pace has slowed down in your part of the world, as well.
What price is a cup of coffee, even very good coffee, worth? I suspect you’re about to find that out in Malaysia too, Krista. Thanks for weighing in on this; it’s always terrific to hear from folks in other parts of the world.
Hey there,
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I echo the sentiment of a lot of the other comments about Starbucks, but, have you tried the McDonalds espresso? It sucks. It’s horrible. So you have an interesting marketing campaign that leads you to a bad product. I call that a disaster.
Jerry,
You’ve raised a good point. . .to that I’ll say this: one person’s dislike when it comes to coffee, espresso or latte is another person’s nectar. We all like different things. You are right in this regard: for those who try McD’s new beverages and find them distasteful, they aren’t likely to be lured in with future new product intros. For those who do like them, however, the opposite is true.
Great insight, Jerry. I appreciate your comments.
Why is McDonald’s campaign having NO EFFECT on me? Why am I still stopping every morning at Starbucks for a Grande SCL 2= (If you don’t know what that is, consider yourself a nube) with the reduced fat turkey bacon sandwich? I’ll tell you why.
Every morning for 2 minutes I’m the most important person in the place. They recognize me, remember my drink and always have a smile that isn’t glued in place.
Their baristas are knowledgeable, friendly, and seem to be happy to see me. (contrast this to the blank cow-eyed expression on the acne pocked face of your average MickyD worker)
I’ve never been asked: “you want fries with that?”
There is no 27 foot high jungle gym with 38 miniature wailing banshees swarming over it at the other end of the room, so my business meetings are conducted to the sounds of jazz, and the gentle tones of muted conversation.
I stopped drinking coffee dispensed from big machines a long time ago. “Wheres the SCL 2= button?”
For these reasons, when I need a weekend mini-retreat, I find myself at Starbucks, certainly not at McD’s
And lastly, HAVE YOU TASTED THE SWILL AT MCDONALD’S???? Of course you couldn’t charge $4 for it! They shouldn’t charge one dollar for it.
Now, I do admit, I live in the Pacific Northwest, and the Starbucks experience which is the norm here, may not be the norm elsewhere. I’ve noticed a definite decline in magic the further you get from the Emerald City, in the Windy City for instance, my Starbucks experiences were decidedly different. (My inside contact at Starbucks says that this was because I was actually at a licensed store, instead of a company store, but still)
The bottom line is that, while funny (and they are), the McDonald’s campain is only going to draw people who don’t really like coffee, don’t care about the rest of the experience and only care about price.
He also said in an interview the other day where the head of the UK spoke after that he thinks the UK is heading into depression and anarchy. To which the minister said, Mr. Shultz’s company is tanking in the UK but that should in no way mean we are. We are not. He is trying to push his bad luck on all of us.
Starbucks has made the classic mistakes… too big too fast, trying to sell records in it’s stores, has had employees attempt to form a union in the last year, along with twenty other failing ventures of theirs related to poor decision making… oh yea and letting their product slip so bad in quality that they closed every store one day last year to teach people how to make coffee. Don’t confuse bad business with bad economy. Starbucks has a bad business model, the economy will turn around, already is. Starbucks may best be remembered in Wikipedia, or just be a sub-brand of someone that buys the name. It’s time to change the coffee grounds.
Hi Brett,
You’re definitely a brand advocate when it comes to Starbucks as many other ardent consumers are.
You’re quite right to state that you have many good reasons for feeling as you do. Eventually, you do share this insight as well: ” I’ve noticed a definite decline in magic the further you get from the Emerald City, in the Windy City for instance, my Starbucks experiences were decidedly different. (My inside contact at Starbucks says that this was because I was actually at a licensed store, instead of a company store, but still)” Therein lies one of Starbuck’s problems, right? So not everyone feels as you do. Every consumer decides for himself or herself what constitutes value for their money. . .and it’s different for all of us. As you say, our own experiences with brands determine much of how we feel. Thanks for opining, Brett.
There’s wisdom in this statement of yours, Walter:
“Don’t confuse bad business with bad economy.” I agree that businesses lose ground and totally fail, in some instances, if they pursue bad business practices. However, the current downturn in the economy is worse than the usual ones. Many people are quite scared right now, so I think this is having a larger impact than it might otherwise have. . .but that’s just one person’s opinion.
Thanks for making us think about this more, Walter. I appreciate it.
For what it’s worth, at $3.25 plus tax, plus a tip, it’s a $4 cup of coffee.
Who is Starbucks trying to kid?
Ted,
Thanks for the kind words. We covered these types of companies, diversifying from their core to capitalize on success, in great detail a couple years back in b-school. So I am pretty familiar with their cases.
I wanted to touch on “small affordable luxury” from Gianandrea’s post and your response. I think the most important thing to remember is that this concept is dependant on the original consumer. This is the discrepancy between LVMH and Coach.
LVMH (Moët Hennessy * Louis Vuitton) purchases are fashion/style based and typically do not represent a large portion of the customers discretionary income even if purchases are made frequently. As the economy slows these buyers would feel bad if they showed up every couple of weeks with a new $1500 bag while their friends may have lost their jobs/life savings. A $300 wallet or key chain is a significant step down over the typical purchase and might be a “small affordable (and discrete) luxury”.
Coach customers, on the other hand, are buying aspirationally having saved up, or decided to go into debt, for the purchase. All of a sudden a $50 luxury really isn’t affordable and certainly not as necessary as other things …. food, rent, etc.
So the reason for the differences, I think, is more due to their original target markets and positioning than States vs. Europe. Coach might be able to bring back customers by pitching smaller wares but I think the real opportunity is for LVMH …. They should poach Coach customers with a “buy quality, buy it for life” style campaign.
I am currently looking for new marketing opportunities but I hear it rains 9 months out of the year in Seattle.
Dave
Dave,
I live in Portland, OR, and I will say it is cloudy 9-months of the year in the Pacific Northwest. Maybe that is why we like our coffee so much.
It is not actually raining every day during those 9-months.
Not everyone likes it who lives here and some flee the clouds and rain but I love the Pacific Northwest.
Pepperfire: Good point. Thanks for the observation.
Dave: I believe you’re right. Louis Vuitton is a luxury line that has a totally different clientele than Coach. The very wealthy who purchase LV are relatively unaffected by economic downturns, whereas the people who purchase Coach products in this country, probably are. It is an aspirational brand. While I still think Coach might do well to promote its smaller wares, or preach the quality of the rest of its line to customers, it probably wasn’t the best comparison. I will add this, though: I do not see the Coach customer trading up to Vuitton. That represents a huge leap, not only in quality, but in price. That’s where we differ in our opinions.
Loved the observation at the end of your comments, Dave. Funny! Thanks for adding more great stuff to the conversation!
Well Ted, in reference to Dave’s last line, I have heard that one a million times.
The honest truth is that we in the Pacific Northwest also love the fact that the weather here is not for everyone. If it were all sun and palm trees it would become absolutely over crowded and unliveable here in about a minute.
As it stands, there is a fairly brisk population growth and vibrancy here but not quite overwhelming. The growth here has created a vibrant culture and lots of energy here, while the weather has acted as a bit of a damper. It is a good balance.
Neil,
I’ve had the pleasure of visiting clients in the Pacific NW. . .and I also count some of the wonderful designers up there as friends. It’s a wonderful part of the country. You have every right to love living there.
BTW, Ted, your two posts on coffee and competition there have been a couple of the most spirited discussions I have seen on this blog so far. Good work!
I had no idea people, including myself, had such strong feelings about coffee. I just drink it every morning and some afternoons and did not realize I had strong opinions on the topic until it came up.
Thanks, Neil. You’re very kind. I appreciate it. I think I’ve mentioned, on more than one occasion, that blog posts about coffee seem to elicit some very strong opinions and passions. . .from everyone including me. Must be that we’re all just over-caffeinated, huh?