Starbuck’s $1 Cup of Joe
The less remarkable a product is, the more that price becomes a factor. This is now evident as Starbuck’s coffee becomes ubiquitous. There was a time when Starbuck’s made me passionate about coffee when they first came to Los Angeles nearly 20 years ago. I often credit this passion for coffee as leading to my passion for food and wine. Anybody who knows me can attest to the importance of these three things in my life. But I have long since abandoned as my coffee purveyor of choice as the product has become less, well, remarkable.
John Moore, who honed his marketing skills while working at Starbuck’s, takes issue with the problem them as they choose to lower their prices:
Starbucks CEO Howard Schultz once said, “Our marketing will emphasize quality and service, not price.” He’s now doing something different.
In a bigger shift in marketing strategy than spending millions on national television advertising, Starbucks is now selling short-sized cups of brewed coffee for a $1.00 and offering free refills at Seattle-area locations. (Reuters link | WSJ link)
Oh My! That is a MAJOR shift in strategy for Starbucks. Here’s why…
“Starbucks fiercely protects its pricing power because it knows a low-price strategy is the quickest pathway to commoditizing and marginalizing coffee back to being, well, just coffee. It also knows if it lowers prices, it will have a hard time ever raising them again. Most important of all, Starbucks knows higher prices bring them healthier profit margins, which fuel the cozy experience customers enjoy. By ever deciding to run itself as a priced-to-sell retailer, Starbucks would be admitting it no longer values a unique product or a unique customer experience. Seth Godin, author of Purple Cow, goes one step further, saying that a low-price strategy is “the last refuge of a…marketer who is out of great ideas.” The folks at Starbucks are too smart, too savvy, and too creative to fall for the low-price trap. And if they ever did, Starbucks as we know it—Starbucks as a forward-thinking company—would cease to exist.” SOURCE
Those words were written in TRIBAL KNOWLEDGE, my love story to a company that shaped how I approach marketing. In my eight-years there, we, Starbucks marketers, would have never considered promoting a $1 Cup o’Joe to increase sales. Instead, we would have used of a combination of these ideas to solve for Starbucks problems.
A “cheap coffee strategy” … Oh My! is right; because, a low-price strategy is indeed the quickest pathway to commoditizing and marginalizing coffee back to being, well, just coffee.
