Starbucks Taking a Shortcut Into The Commoditization Trap

Posted by Doug Davidoff

Aug 15, 2008 1:54:38 PM

Growth is tough. As the saying goes, "the higher you go, the greater the fall." It's no secret that Starbucks has been struggling to re-capture it's momentum and buzz for awhile.  I've avoided using Starbucks' challenges for far too many others were highlighting them, and frankly it felt to easy to pick on them. Their most recent promotion, however, has given me no choice.

For those not familiar, here is Starbucks' offer: If you buy a drink in the morning and you keep your receipt, you can come back after two in the afternoon and get any cold drink for $2. When a premium offering starts discounting - it's danger. You don't see the Four Seasons offering "stay 3 nights, get the 4th free."

Much has been written about how Starbucks has lost in special place with customers. It got so bad that Howard Schultz has to come out of de facto retirement to run the company. Schultz promised to bring the company back to its roots and to its core values. He did some nice things - I like the the changes they've been making to the store and the fact that they were willing to retrench (by closing stores) in an effort to solidify the foundation.  I even started saying to some people that Starbucks may do what Apple did - lose their uniqueness and get it back. Now I no longer think so.

I understand that Starbucks needs to get sales back, I understand they need growth to sell their turnaround story to Wall Street. However, discounting is almost always a shortcut to tighter margins. Even more so when you claim to be a premium brand.

A better - albeit much more difficult - approach would have been to focus on making the Starbucks experience one worthy of coming back to.

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Topics: B2B Sales Strategy