Starbucks reported today that their earnings rose to 24 cents a share from 16 cents and bested the expectations analysts who were seeking per-share earnings of 19 cents. What’s at the heart of this positive news for Starbucks?
According to the Wall Street Journal article, the profit was “aided by cost cuts.” (Starbucks Swings to Profit, Aided by Cost Cuts – WSJ, 7/22/09) Well, I submit that the article my be more aptly phrased as “Aided by Marketing.” Marketing appears to have played a significant role in helping Starbucks hold their own against an economy that’s running from even the smallest luxuries en masse, competitors that are offering cheaper “me too” products in the specialty coffee department and the general ‘cocooning’ behavior that’s keeping Americans at home and out of their favorite ‘third places.’
Mr. Schultz said the company has benefited from its own marketing campaign, which has included print ads and communication with consumers using social media Web sites. Last week Starbucks became the most popular brand page on Facebook with more than 3.5 million fans.
In fact, I would argue their are four elements in the marketing equation that have contributed to their “resurgence” in the last year:
- Starbucks’ crowd sourcing of consumer ideas via their My Starbucks Idea site – With thousands of ideas submitted, thousands more votes on this ideas that followed, and a few actual innovations that have made it into stores that have provided genuine benefit to Starbucks consumers, this is one of the things that has kept me personally loyal to the brand
- Their intelligent use of data through the Starbucks cards and the vast email database – While Starbucks didn’t really have much of a “loyalty” program to speak or until the Gold Card (yes, I have one), they’ve built a great email database that they’ve used as recently as this week with the “free pasty with a drink purchase and this email” campaign. One only had to look at the sheer volume of empty pastry containers and the large stack of emails at my local Starbucks to see the email is a steady staple in their marketing plan that’s working for them.
- Starbucks made waves with social media - They currently have the largest Facebook group (3.5 million users) of any of their competitors.
- Finally, Starbucks has stuck to their knitting using traditional marketing - Using vehicles like print ads and (seemingly) more prolific and effective in-store marketing, while integrating them into the overall digital strategy to reach customers at all ends of the spectrum, Starbucks has truly “met people in their medium” to ensure that no customer is left behind.
More to the point, even competition has helped Starbucks to carve out a stronger position in the coffee market.
In recent months, Starbucks has faced increased competition from rivals including McDonald’s Corp. and 7-Eleven. McDonald’s recently launched a national marketing campaign behind its McCafe specialty coffee drinks.
Rather than hurt Starbucks, Mr. Schultz said the added attention has helped his chain. “It appears that the various marketing campaigns, and all the media coverage about coffee, has created unprecedented awareness for the coffee category overall, and has actually had a positive result on Starbucks business,” he told analysts.
While I admit, this is a complete outsider’s view of the situation, I submit that as a daily customer, who better to see the effects of their marketing that us! I further submit that Starbucks’ marketing efforts have done as much for them, maybe more, than any of the cost-cutting and operational efficiency plays that they’ve made over the past year.
This story illustrates what marketers all over the country know and Schultz said it himself in the article when he said “No company can save themselves to prosperity.” Exactly! Prosperity comes from being competitive, engaging in smart marketing, crafting a holistic strategy and a driving that strategy to execution. Me, I’ll take marketing over cost cutting any day!
Boy-oh-boy, I have many opinions about this. As both a former insider… and as an outsider (with a window to the inside).
There has been a shift by the company to do more traditional marketing… but traditional marketing is non-traditional for Starbucks. Marketing was always grassroots for the brand. “Our storefront is our billboard” Howard would say on a regular basis.
Starbucks has started to swim in the waters with the fast food players – but won’t be able to keep up with those sharks. That’s not the kind of brand Starbucks is… They don’t have that kind of budget. McDonald’s spends more to promote the limited offering of their McRib than Starbucks has to spend in a year.
Starbucks has cut their field marketing team to have money to spend on traditional media…. But, it was that local team that helped make the stores relevant to the neighborhoods they served. Will mass-media (being big) hurt being locally relevant (acting small).
The economy picking up in the US is also helping out.
Finally… closing underperforming stores (that they over aggressively opened in the first place) is helping sales to be more favorable.
Starbucks is such an interesting case study… It’ll be interesting to see what happens next.
Paul,
I figured that you would comment!
I’m very interested in your thoughts on how “cost cutting” vs. marketing fits the sbux culture. Which is more “like them?”
Also, I had heard that they cut field marketing (though I didn’t have as much inside insight as you), but do you feel that their social media endeavors to engage more local advocates might, in some way, help them to make up some of the ground that was lost with the field marketing folks?
Nice post, Dana. On the face of it, it looks as though Sbux generated profits due to a number of measures. Closing a number of lower performing retail units certainly helped. Taking a marketing page from the fast food chains and using a blend of traditional and online media outlets also played a part, I’m sure. It seems Sbux has been floundering for some time, and that maybe they’ve come to the realization their past marketing strategy needs to be relegated to the past once and for all. They’ve changed. The consumer has changed. IT’s important to recognize that. Sbux repositioning calls for new strategy, as well as new tactics. Let’s hope they get it right because as you pointed out, cost cutting will take them just so far.
Ted,
You’re right on. In fact, I heard the ‘cost cutting headline’ reported almost verbatim on the radio this AM and cringed a bit thinking “yeah…there’s more to it that that” – their current position and status was borne of a multi-dimensional approach to the situation at hand. That said, to give so much credit to ‘cost cutting’ still seems short-sighted.
Resurgence? Yes, profit is up (thanks to cost cutting initiatives) but other telltale signs are down … way down.
Customer traffic is down 4.0% from the same time last year. Comp sales are down 5.0% from last year. And, average ticket is down 2% from last year.
If all the traditional advertising schedules and social media activities were truly delivering results at Starbucks … customer traffic counts, comp sales numbers, and average ticket figures wouldn’t be trending so downward.
John,
Good point. You’ll notice that “resurgence” was in quotes in the original article. I see what you’re saying, but from the reports I read last year, and based on the way my sbux stock was trending, the “resurgence”, from my perspective, is that they didn’t fall much, much further, and that they have taken steps to make up ground lately.
To me, it’s like when Armstrong had a “resurgence” on a climb in stage that closed a 30 second gap over 2K, but in the overall scheme of things, he’s moving further back in the GC…
Dana, I really love the quote “Me, I’ll take marketing over cost cutting any day!”. It’s a mantra sort of to me. It’s the difference between being focused on short term rather than long term.