The “Bucks” Ends Here…

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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2 Responses to “The “Bucks” Ends Here…”

  1. Bill Says:

    The problem with that strategy is that Dunkin’ Donuts, particulalry, and even McDOnald’s coffees always beat STarbucks in blind taste tests.

    BUX has you fooled. They use inferior, cheap beans and over roast them so you cannpt taste the harsh flavor of the original bean without confusing it with the roasted “burnt” taste frequently cited by consumers.

    Dunkin’ Donuts coffee, on the other hand, is a milder roast that allows the bean’s actual flavor to be tasted, as opposed to a roast effect. Dunkin’ Donus actually has a superior product, not an inferior one. BUX has just managed to outmaneuver the competition with its marketing: charge more for an inferior product and have consumers self identfy themselves for beuing overcharged as a result of the logo and the “experience” of buying it. Brilliant, really.

    I’m not sure that BUX wants to change anything about that core deception.

  2. Sterling Says:

    I can’t fully agree with Marketing2Win’s post.

    I have been a Starbucks customer for 20 years now (People call me Mr. Starbucks lol -amazing how time flies too) and I am a Marketing and Branding Specialist. Back in 2001 I created the Disney Membership loyalty rewards program that Disney never fully listened to me and capitalized upon. Starbucks built its brand by giving people “An experience” which is absolutely missing at Dunkin and MacDs – and Starbucks may have forgotten its original formula of success.

    Twelve years ago I bought Howard Schultz’s book “Pouring From The Heart, How I built Starbucks One cup of Coffee at a time” and was so impressed with Howard’s story of his father and his passion to create a company for everyone. I bought 25 copies and handed them out to my do-workers to inspire them and I knew that all of the profits went to a charity for book reading and I was excited about Starbuck’s future.

    That being said, Starbucks also lets too many concepts and great ideas fall through the cracks or takes too long to act. A friend of mine was a Starbucks district Manager for Starbucks in Los Angeles and we used to meet and drink our favorite iced blended coffee drink at a place called Coffee Bean, Tea & Leaf near UCLA and I told her that I loved the Ice Blended and wished that Starbucks had such a drink. When she went to work for Starbucks she passionately tried for Three years before they finally listened to her and the rest is history. The Frappucino is a 2 plus billion dollar business for Starbucks and my friend (long since lost touch with her about ten years ago and forgot her name) went through so much grief, hostility at times and resistance for what is one of Starbucks’ greatest successes to date.

    For instance I contacted the corporate offices last year to let them now about amazing and revolutionary “Green” Building technologies that are revolutionizing the world that I have been working on in Branding and decided to have ownership in as well because of their fantastic benefits to mankind.

    Our energy technologies can reduce Starbucks energy up to 60% per store!

    Our building technologies can be used to build a complete 5,000 square foot (Huge by Starbucks standards) Starbucks in less than 30 days that are highly energy efficient, further reduce energy consumption and have been tested to withstand 9.9 Earthquakes, Tornadoes, Hurricanes and much more.

    Our water extraction technology with a filtering system can extract water out of the air that Starbucks can use for their stores and build water tanks in to the walls of some Starbucks where permissible and in to free-standing.

    We have a zero-point energy system that can take almost every Starbucks completely off the grid and even sell energy back to the local grids.

    – As part of my proposal I offered a Global Launch of my foundation The Gold Eagles SOAR! along with a global event campaign to brand Starbucks as a Global Green community Center and I got passed on to the Charity division and am basically dismissed and told that Starbucks does not have funds for my organization. Lame and they would not respond to me after that. Just decided now that I have to be persistent.

    I tried to get them to connect me with the Starbucks real estate development department but to no avail.

    Starbucks has become too far out of reach at the corporate level for sure and I have seen that translated down to the store level because what used to make Starbucks so unique and different in Guest experience and Customer appreciation has been lost by the almighty need to increase stockholder value as required by law. Such is the life of a publicly traded company. Maybe Howard will read this and contact me at goldeaglesgreen@yahoo.com

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