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November 16, 2007

Starbucks Television Advertising

Sbux_tv_2

UPDATE: Click here to watch one of the Starbucks Holiday commercials.

What?
On a conference call with Wall Street analysts, Starbucks Coffee revealed fewer customers are visiting its stores and that year-over-year sales are stagnant. The company reported a 1.0% drop in customer traffic as compared to the same period last year and despite two price increases, same store sales increased only 4.0% from the year prior.

In response, Starbucks announced a three-point plan to reverse their sluggish financial numbers. First, the company will attempt to sharpen its store-level operations to better deliver the “Starbucks Experience” customers have come to expect. Second, the company will focus on introducing new beverages that are more innovative and more appealing to customers. Third, Starbucks will launch a national television advertising campaign in hopes of driving new customers into its stores as well as getting current customers to visit more often.


So What?
Since being a publicly traded company, Starbucks has never experienced a reduction in customer visits. Remarkably, they have always had more customers visiting its stores … until now. This is uncharted territory for Starbucks. And Starbucks is concerned.

Additionally, for nearly a decade, year-over-year sales at Starbucks have been very strong—anywhere from 7.0% to 13.0%. So the current trend where comp sales are stagnate in the low single-digits is quite alarming for Starbucks.

For many companies, the answer to the question of, “Sales are down and customer counts are falling, what should we do?” is to spend marketing dollars on creating a television-heavy advertising campaign. That hasn’t been the answer at Starbucks.

Starbucks has always followed the unconventional strategy of using its in-store experience as its main marketing tool. Everything about the Starbucks experience marketed the Starbucks business: the coffee in the iconic white logo cup, the personal interaction between a customer and a Starbucks barista, the in-store decor, the music playing overhead, the welcoming smell of the coffee, and the feeling customers had during their Starbucks “moment.”

As noted in the conference call, Starbucks will continue down the unconventional path of spending marketing dollars to improve the customer’s in-store experience through better store operations and more appealing beverages.

But now, the company has also decided to follow the more conventional path to arresting declining sales through launching a television advertising campaign. According to Ad Age, we can expect to see three Holiday-focused animated 30-second spots running on select cable channels and network television channels.

This dramatic change in marketing strategy goes to show us how seriously the company is taking the soft comp sales and declining transaction comps. Starbucks is willing to risk its go-to-market strategy by spending significant monies on television ads to lure customers during the Holiday season.

To this marketer, it’s a little foolish to spend advertising dollars on television during the Holiday season without going all-out. I doubt Starbucks is putting mega-millions behind this television push. With so many retailers spending mega-millions on television advertising during the Holiday shopping season, the limited advertising spend from Starbucks is sure to get lost in all the ad clutter. Plus, I get the feeling these commercials will be go hard on pushing the relevance of the Starbucks brand during the Holidays and go very soft on selling specific products.

A smarter spend for Starbucks would be to go all-out during the Spring/Summer months and use television advertising to promote their promotion-friendly Frappuccino blended beverages. Starbucks has always treated their Frappuccino drinks as being more promotional than their other coffee drinks. For years, Starbucks has done regional radio, billboard, and print advertising to support their Frappuccino portfolio. They’ve come to believe this advertising push positively impacts sales and drives in new customers.

So why doesn’t Starbucks wait until the Spring/Summer months to go all-out with national television advertising? With sales already sluggish and customer traffic trending downward, the company doesn’t want to get too far behind their FY’08 sales goals. Keep in mind, Starbucks will generate around 25% of its 2008 sales during the six-weeks of Holiday. If the company falls behind early in hitting sales targets, 2008 could be a very rough year.

I believe this national television advertising push is a sign Starbucks is desperate to drive sales. Desperate enough to turn its back on the marketing strategy that has made Starbucks what it is today.


What Now?
We all get to sit back, watch the television commercials, and watch to see what impact this new marketing direction has on the Starbucks business and the Starbucks brand.
Want More?
Consider reading the What Must Starbucks Do? Manifesto. In April, I, along with a handful of other Starbucks customers, published a manifesto loaded with ideas on what Starbucks must do to reclaim its uniqueness, to better connect with customers, and to become the coffee company it once was. Read it again. Or, read it for the first time. >> MORE <<

If your appetite for mulling over Starbucks strategies is insatiable, you should review the series of posts Paul Williams and I did earlier this year. In this series of back-and-forth posts, we talked strategies, tactics, and shared some insider knowledge based upon our combined 19-years of marketing experience at Starbucks. Start here and work your way backward. Or, start here and work your way forward.

And of course, Jim Romenesko's Starbucks Gossip blog is all over this.

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Comments

John,
Do you believe this TV buy is a move to satisfy the share holders and the board? To show that they are doing "something" to increase clients?

Not sure if getting away from the core is a smart move..your thoughts? Also does starbucks have numbers on retention of clients?

Look forward to your response,
Robert
http://4wallmarketing.blogspot.com/

It seems to me that the problem has been that Starbucks has relied on their "experience." I do not mean that this is a poor marketing tool, it is excellent and it is getting a message across, it just doesn't seem to be the message today that it was 8 years ago or even 4 years ago for that matter.
I go to A LOT of Starbucks, hey my blog is called "Coffee With Chris." At all of the "newer" stores that I enter I do not experience the same thing that I do in the older stores. The new stores seem to have placed a high value on the "drive-thru" customer and have sacrificed the in store experience to add the window on the side of the building.

The product (the experience) has changed.

Robert ... interesting idea that this aggressive advertising move is to ease concerns of shareholders. Throwing money at an advertising campaign may help some shareholder believe the company is doing something NOW to reverse the sluggish sales and negative customer traffic trend.

However, I think SBUX shareholders are smart enough to realize that layering on tv ads isn't the solution. It's a quick and easy tactic to implement, but not THE solution.

I think the solution goes back to points #1 and #2 of their three-point plan -- (1) improve store-level operations to deliver better customer experiences, and (2) more appealing coffee drinks.

In my humble opinion and I'm not a Starbucks drinker...I think they've ruined the exclusivity of the brand experience. You can buy Starbucks at any local grocery store. There is no experience like that. They should have made fewer sales over the years but stuck to the instore experience because that's what makes them different and better.

I totally agree with Robert. For some time, Starbucks has kept everything in front of them. However, it surprises me that this new reality is unexpected. The product cycle for the Starbucks brand has lasted much longer than the norm in the market. So, why wouldn't things slow down for them. Maybe they were just as surprised by their growth than everyone else was in the market.

Scott and Kenyatta ... you bring up the valid point that ubiquity has changed the marketing game for Starbucks. (They have 15,000 locations around the world in 41 countries. Whoa.)

Starbucks has always followed the maxim of BE EVERYWHERE CUSTOMERS EXPECT YOU TO BE. That meant being on United Airlines ... being in Airports ... being in Grocery Stores ... being next door to another Starbucks ... being found in Convenience Stores (bottled Frappuccino) ... being Global ... being everywhere customers expect them to be.

Being everywhere brought on ubiquity which brings about unremarkablity. How can a business remain unique when its so easy to access it?

All this reminds me of a great quote from the founder of Geek Squad, "Advertising is a tax for having an unremarkable product."

Starbucks decommoditized coffee and by being everywhere customers expect them to be, they made getting a cup of Starbucks coffee very convenient. By being so convenient, Starbucks has, in a way, re-commoditized coffee. Re-commoditized coffee to the extent that Starbucks is no longer remarkable. Which could be the reason why the company feels the need to do television advertising.

Yea, that's just what I said, only I didn't use the word "ubiquity"...ah, er, where's my dictionary?

They have a very strong brand, and they're trying to reinforce that.

If you look at the coffee industry, people are probably NOT drinking less coffee, or making fewer trips: they're just buying it somewhere else. Starbucks is just trying to have an even greater share of mind with those people drinking coffee.

The bigger issue is that I believe Starbucks made a commodity out of their product. It's not as "cool" to drink Starbucks, it's not a luxury for many people, but just an additional cost.

If I can get the same benefit (functionally) from Dunkin Donuts, or even McDonalds, why bother paying $4 bucks for a coffee at Starbucks?

They've lost some emotional connection (again, due to the company trying to achieve efficiencies in the way the business is run) and they need to go back to the basics.

McDonalds did it, and I'm glad they're aware of the in-store experience/operational issue they have and that they are willing to address it within the next year.

Some smart people have already touched on this, but is it possible that Starbucks might just be going out of fashion?

Isn't there something distinctly 90's about Starbucks? Is is possible that their shops and decor and in-store experience, once exciting and modern, has started to look faded, frumpy and boring?

In fact it's not just Starbucks, many smaller coffee retailers copied the Starbucks approach so, not only do the same old Starbucks stores bore us, but the copy-cat competitor stores add to this effect too.

I actually think it's a great opportunity now for a new (or re-invented) player to come into the market and excite us about coffee again. Maybe by offering a simpler 'menu' of more 'authentic' tasting coffee drinks.

Maybe Starbacks give us the direction to the future what will come or it will be in a few month over. Greetings, Niki

Well I like the offers of Starbuck specially the blueberry cake :-). If I can do more then sitting comfortable and eaten my blueberry cake, listen to Music, surfing, ... it is wellcommed. Nice blog, Erik

The nice thing from Starbucks is that you cn go to NewYork or Bangkok or Vienna and you will get the same good quality. But Entertainment is extra to pay. Regards, Chris

I think this winter's advertising move might just give them the support they need. During the winter is when coffee is highly marketable. A good jump in sales might give them the mommentum to continue further advertising pushes in the spring and summer.

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