Our beloved Brew.

Our beloved Brew.
R.I.P. Big guy.

Thursday, July 16, 2009

The Decline of Starbucks

I'll try to keep this short and sweet rather attempt to detail the long and illustrious history of Starbucks that has been so well documented elsewhere.

A client made the observation the other day that he considered Starbucks to be a model brand because it established a value proposition and market leadership position while completely avoiding the typical trappings of retail competitive pricing.

This led to an interesting conversation since I couldn't have disagreed more with my client's position. Undeniably, Starbucks is a brilliant brand. I often use examples of Starbucks to illustrate points in my various workshops and speaking engagements. My usual references emphasis the various facets of its unique positioning, powerful brand, and the enormous growth the company achieved without having relied on consumer advertising, which most people consider a cornerstone of brand building. But I will leave that aspect of my opinions for another time.

While I am a fan (but not a customer) of Starbucks, I believe its market strategy has its flaws. To suggest that Starbucks avoided pricing as a cornerstone of its brand positioning ignores the recent and rather rapid decline of the company stock over the past couple of years. Dunkin' Donuts, and McDonald's have landed severe body blows to Starbucks in the battle for premium coffee supremacy by being "more affordable" and a better value than the industry leader. The situation grew so severe that the company founder came out of retirement to replace the CEO and rescue the enterprise.

In designing and adopting a positioning centered on self indulgence, meant to justify premium prices (some would say highly overpriced), the company has absolutely declared a brand centered around price.

My client argued that the current economy and consumer belt-tightening have more to do with Starbucks' decline, and while there might be some truth to that, if we were just talking about a sales decline, I might agree. But I believe market share has definitely, and perhaps permanently shifted to the lower cost alternatives. If the Starbucks' value proposition was genuinely based on something other than premium pricing, the decline in sales and market share would not have been so rapid or so severe. At no time did Starbucks' customers, or the public fail to recognize this was an expensive/overpriced cup of Joe. In flush times, people were more accepting, but make no mistake, the rub was always there.

Starbucks greatest challenge is ahead. Once this economy shows signs of recovery how will it explain what I believe will be a continued decline in its business? Once people have altered their behaviors, it is very hard to win them back. Starbucks is yet another example in the marketplace of how consumer behaviors, based on little more than instant self-gratification will erode.

One of my favorite expressions (I think it comes from Tom Peters) is: "Every condition necessary for your best customer to leave you is in place and moving full steam ahead." The challenge of any management team is to forestall that exit by adapting while still keeping the brand authentic, relevant and consistent.