Sometimes business decisions defy reason. And marketing decisions don’t even make the tiniest bit of sense to a marketing hobbyist. I’ve got to tell you that this move by SBUX to sell shorts for $1 each (with free refills, no less), seems like a dumb move. Maybe someone from Starbucks can tell me I am wrong. Here’s what I think:
In the stare-down between Starbucks and McDonalds, Starbucks just blinked. It’s like the nerd challenging the linebacker to a fist fight. And the linebacker running away.Here’s the deal with McDonalds putting coffee bars or whatever they call them in their stores; they are going to make money off the people that went in there for a greasy Egg McMuffin (and I’m not hating…love them, just don’t really eat them). But the idea that they could be taking any kind of market share away from Starbucks? Well, that is just silly. Why? Because it’s about the experience. And the McDonalds experience and the Starbucks experience have very little in common.I go to McDonalds when I am hungover or am in a town in the middle of nowhere. This really makes me more of a Starbucks customer than a McDonalds customer. So McDonalds is obviously selling to their established customer base and driving up prices for their coffee by branding it as more of a premium product. OK, fine. Not really hurting Starbucks much. So I can’t imagine that Starbucks needed to go down-market with their coffee.
And for the Starbucks customer that’s likely to over-think things a bit more than the next, a $1 cup of Starbucks coffee makes me ask this: “if you can sell it to me for $1 now, how badly were you ripping me off before?” Technically, I guess coffee is a commodity, but SBUX positioned themselves as the upscale coffee retailer. I know that as they have become more ubiquitous there has been some back-sliding on the whole high-end vibe, especially as mom-and-pop retailers have come on the scene with more of an individual personality. Anyway, selling that coffee for $1 places Starbucks closer to Folgers then the smaller stores/chains that are stealing away their business. Again, this could be a strategy but it’s a little inconsistent with how SBUX has branded themselves.And by the way, Folger’s isn’t bad. For some reason, the Folgers at my grandparents house always tasted great.
I would imagine that there’s some kind of POS up-sell play that could be going on here. Get them in for the $1 cup, ask them if they want syrup, maybe they’ll buy a muffin, etc. I mean, maybe it’s all really about selling muffins. And while that could potentially (and still this is a bit of a stretch) build a new customer base, the damage to the brand image could out-weigh the potential benefit. This seems like a very short term strategy. Is Starbucks hard-up for cash?
In my opinion (as a consumer…I just play a marketer on my blog), Starbucks is about 3 things: ubiquity, customer experience and brand (the third potentially being mostly about the first two). As far as the ubiquity, it is what it is and the $1 cup of java isn’t going to change that. Personally, I go to Starbucks when it’s nearby but prefer Peet’s or Victors (our local place). I don’t have to drive out of my way to go to SBUX to get my $1 coffee because they are already everywhere. What gains are made in bringing new customers in may be to the detriment of the existing customers and so I’m going to call customer experience a mild loss. Brand is where they really mess this up. Am I feeling the same way about Starbucks knowing that they are going down-market? Not so much. Will my grande,nonfat, sugar free vanilla latte taste the same? Yeah, probably. But as I drink it, I’ll be wondering if I paid by the word.
Is there some target market out there that I don’t understand? The people that want to buy coffee is crispy white cups with brown sleeves but will only pay $1 for it? Will that person actually drive into a Starbucks and wait in line instead of making coffee at home? Or sucking up the free coffee at work like we do? Do these people want the SBUX experience so much? And does it dilute the experience for the people that have to wait in longer lines? Has this ever been about price before? Do you want ALL customers? I’m not sure. And I’m not judging. Working from home, I’m all about brewing my own. It’s just that on some level, it becomes more expensive to acquire new customers and so competing on price under those circumstances is confusing. Seems to me that you do that when you have established competitors with little perceived product differentiation. Isn’t Starbucks already the 500 pound gorilla? Can’t they diversify their business instead and sell something like pony rides?
So what it’s really got me wondering is whether this is Starbucks worrying about the economy. Have you heard all the talk about a recession lately? Interest rates, NYSE, etc. I’ve been through it before though at the time nobody knew what Starbucks was and my coffee came from AM/PM (you know the kind of coffee where you are acutely aware that it was made out of some kind of bean, you just aren’t sure what kind). It makes me think about all of the discussions about the Millenials and I have to wonder if the $1 Starbucks coffee to them (having never really experienced a real recession) feels like a sign of the apocalypse.