Archive for June, 2008

The “Bucks” Ends Here…

June 10, 2008

One of the core principles of our 5 Laws at Marketing 2.0 Win is the Law of Process = Chaos. What this principle says is in simple terms is that process in the service of strategy is a good thing, however if it is the driver or central organizing principle of a company’s marketing or in this case public face, take care, take very good care.

We can see this playing out on a grande scale right in front of our eyes with coffee giant Starbucks. After an incredible run of phenomenal growth on a global scale, we see the symptoms… declining stock price and unhappy investors clamoring for relief, bringing visionary Howard Schultz back into the CEO role at the company. His self proclaimed goal… to help the company get back to its core… the coffee/community experience that in today’s Starbucks’ corporatized environment seems lost.

How? Howard himself gave us a couple of examples… of this disconnection: fresh-locked packaging, where you can’t smell the product anymore. And “goof proof” espresso machines. Machines that make it simple and fast to “build” a specialty drink, while put a wall between the customer and barrista and taking the artistry out of the drink making process.

I agree with that these are customer disconnects. But do they disconnect with the brand that Starbucks is?, enough so, so as to flatten sales in existing stores, like we have seen with Wal Mart, Dell and others?

In this case I am going to argue the answer is NO. The issue is not a brand conflict here.

Yes, these changes matter to some degree… but they are fixable and incremental issues, touch points that need to be aligned, indeed, but not a commodity-busting strategy that they really need to fix the problem.

You can see this in action in the Got a Great Idea/Tell Us, community function that now is front and center on their web site. I love the concept. Surrender control and open up the floor for your customers to offer their insights and then respond back, with action.

Some popular customer generated ideas… Free WiFi, a Loyalty card (buy 10/get one free) and others are incremental ideas… and sound hardly new or radical. My advice… implement them. However, don’t expect they will turn the tide.

The real issue is that the Starbucks concept is now approaching the mature phase of the product lifecycle, as these ideas so clearly demonstrate. The reality is that the Starbuck’s concept is now a commodity, which in fact the company with its “goof proof” drink making process helped bring about. This means that price, lower price and greater non-differentiated competition are the business drivers.

Look at it this way. MacDonald’s is now rolling out espresso/specialty drinks. Dunkin Donuts, one of the big winners in the Starbuck’s phenomenon, has been offering these lower cost specialty drinks for the past couple of years. Soon enough it seems every fast food chain will offer them. So now what?

Let’s take a closer look at Dunkin Donuts, because here is where the solution lay. At the outset, I admit it, I am a Starbuck’s regular. It is not my favorite, but with locations it seems at every corner nationwide, Starbucks delivers a consistent and premium product that meets my expectations almost every time.

Last week I offered to make the office coffee run, and one of my colleagues ordered not a Starbuck’s but a Dunkin Donuts coffee, medium vanilla. It was then that my mind was blown.

We know that Dunkin is not a premium coffee but a more everyday product, a blend I am told of Arabica and other less expensive coffees. It is a lower wholesale cost, more generic product. But when I saw the price for the cup at Dunkin which was $1.79 or in essence $.10 less that a similar size Starbuck’s, I was floored… generic product at a premium price! The folks at Dunkin must be smiling all the way to the bank! Thank you Starbuck’s!!!

So Starbuck’s is in an interesting position… its premium product is being attacked by generic products and commoditized… forced to concede on price or lose customers, because as we know, you can get a specialty drink anywhere… for less!

What is Starbucks to do?

Howard Schultz, if you read this… incremental, process-oriented activities focused on your existing customers are good but in fact cannibalizing, because these kinds of activities are pulling revenues from your existing audience. I will argue that the way forward in this case is to reposition Starbucks and counterattack to build market share.

In other words, Loyalty is important, but it comes at a cost and won’t drive growth. Look at it this way, “free WiFi” and “buy 10 get one free” are tactics and I will argue not nearly enough. Nor is “watch the barrista” or “smell the coffee.” Although appropriate, these tactics do not a growth strategy make.

Just as Dunkin and others offer what we can argue is an inferior product at a better price thanks to you, Starbucks now needs to execute a jujitsu strategy and show consumers in simple and clear terms the added value of their premium product over the competition. This is a classic re-positioning strategy.

So… ladies and gentlemen, the drum roll please… time for the Pepsi… ooops, the Starbuck’s challenge. Put your product up against the competition in “blind” tastings and build a campaign around it… Wow! This really is better!

As it stands, an espresso is an espresso is an espresso, and it will stay that way until Starbucks does something about it. That time, I will argue, especially if I was an investor and I am not, is NOW. And by doing so, the company can carve out MacD’s and Dunkin customers who in fact are ready to appreciate the difference premium makes. The key is to connect the dots positioning wise and make it clear to them what this difference is where the rubber meets the road, and for Starbucks that is in what is a better tasting cup of coffee every time.

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