Starbucks Seeks Jolt From Another Mass Tactic

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4/21/08 1:09 PM

Starbucks Seeks Jolt From Another Mass Tactic

Coupons Follow Close Behind Free Samples

By Emily Bryson York Published: April 21, 2008 LOS ANGELES () -- Howard Schultz insists he's returning Starbucks to its roots, but he's doing it with mass-marketing tactics once anathema to the original brand.

Starbucks' coffee coupons are not normal for the brand.

The company is estimated to have nearly doubled its marketing spending to $100 million, and last week it began an aggressive coupon program unlike anything in its history, raising questions about its turnaround strategy. "I think it's desperation," Robert Passikoff, president of Brand Keys. "There was a time that they didn't need to coupon."

The coffee chain distributed coupons good for free tall-size coffees every Wednesday through May 28 in USA Today, The Washington Post and several other markets Starbucks declined to reveal. Last week it also passed out coupons in New York City good for a free cup of coffee.

"We know not everyone could make it to the big event last Tuesday [a free giveaway for its new blend], so this was a way to welcome them into the stores over the course of several weeks to taste the coffee for themselves," Starbucks spokeswoman Bridget Baker said. She declined to say if the giveaway is the biggest or longest-running the company has done.



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But former Starbucks marketing executive John Moore, writer of blog Brand Autopsy, described the coupon effort as more prolonged than anything the company has done before. "The reason for that is they haven't had to," he said.

Looking like the rest Given that the coupon push comes only a few months after Starbucks' first major broadcast-advertising blitz during the holidays, the java giant -- always hailed as an example of a brand built on smart experiential marketing and word-of-mouth -- is starting to look a lot more like a traditional advertiser. Starbucks spent $68 million in measured media last year, up from $38 million in 2006, according to TNS Media Intelligence, and RBC Capital Markets analyst Larry Miller estimates the company's overall marketing will hit between $90 million and $100 million this year, up from $50 million to $70 million a few years ago.

The company is negotiating a complicated turnaround following a year in which its stock price fell by half and same-store sales flattened. Starbucks has since stopped reporting same-store sales.

Mr. Moore said the coffee promotion, as well as full-page ads in newspapers such as The Wall Street Journal, are targeted at men, a group known for drinking brewed coffee rather than shelling out for a Venti skinny vanilla latte.

Analyst Mr. Miller estimated the company's spending at about 1% of sales but said it would need to reach 4% of sales before Wall Street expected much of a return on the investment. He added that Starbucks remains deft at creating media feeding frenzies, thereby getting the most impressions for the smallest cash outlay. Still, the coupon effort strikes at the heart of the investment community's biggest concern about the brand: its pricing power.

"Any time you discount, you impair your pricing power," Mr. Miller said. And while many companies, such as McDonald's, are getting promotional, Starbucks is doing it in a "somewhat secretive way," he said.

Subtlety "They don't want to call too much attention to the fact that they're losing brand-pricing power," he said. "If they were going to discount lattes in a very public sense, it would be very difficult for them to restore pricing power in better times when the brand is better and the economy is better."

Author and blogger Seth Godin said the beauty of coupons is that people who use them are the people who like them. "On the other hand, if we're going to say, 'No one goes to Starbucks anymore; it's too crowded,' they end up with a doughnut strategy. You lose the core and get left with fluffy stuff on the outside that fades away pretty fast," he said.

Some, however, defended the strategy. Larry Light, former chief marketing officer at McDonald's, said sampling over a period of time can be much more effective than one-time giveaways.

"The first time somebody tries something new in package goods, we call it trial. The second time is retrial, and the third time is a repeat purchase. So just getting someone to try something once and hoping they will repeat is not as effective," he said.

McDonald's offered "Free Coffee Mondays" in the Chicago area during its premium-coffee rollout, which



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increased trial, and coffee sales ultimately soared. Mr. Light said the principle is the same, even if Starbucks is using newspapers rather than broadcast TV as a conduit.

Human brands "No brand follows a steady, straight line in terms of sales, profits and brand loyalty. Brands are ultimately human," said Scott Bedbury, a former marketing executive at Starbucks. "This is a brand revitalization in the face of a difficult economic period that doesn't look like it's abating anytime soon."

Moreover, while Starbucks has people talking, their attitudes don't seem to be shifting. YouGovPolimetrix, an organization that surveys 5,000 consumers about brand attributes daily, has found that while Starbucks' recent media stunts have increased the buzz around the brand, the perception of quality has continued to decline. The quality measure has fallen 30% since February to 25 from 31.

"With the widely publicized closure for training in February, Starbucks may have increased consumers' expectations for improved quality," said Ted Marzilli, senior VP-brand group at YouGovPolimetrix. "It looks like consumers' experiences since the promotion have not matched their increased expectations."

Starbucks customers: Buy us a coffee sometime

It turns out the Starbucks customer does want free coffee -- served with a little intellectual stimulation.

Among the most frequent ideas on My Starbucks Idea, the consumer-response blog the company started last month, are a punch card for earning free beverages, free birthday coffee, an extra shot when you buy a Venti and free Wi-Fi. Is a pattern emerging?

Starbucks customers want loyalty cards.

"What they want is for Starbucks to buy them coffee for the loyalty they're showing," said RBC Capital Markets analyst Larry Miller. "I see very few customers looking for lower cost. They say, 'You should buy me a free coffee on my 10th visit,' 'You should have a loyalty card.'"

Mr. Miller said he sees the loyalty card as one of Starbucks' best opportunities. "They've got 5 million people holding the card; they don't know who they are. They should know about the people holding the card and [customize] promotions: Buy cups of coffee on the card or say, 'Today it's customer appreciation for [you],'" he said.

My Starbucks Idea, launched March 19, had 89,000 unique visitors in the last 12 days of the month. ComScore spokesman Andrew Lipsman said it's unusual for a website launched so late in the month to even register on the company's report.



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The most popular idea on the site -- by a 9,000-vote margin, with about 60,000 votes -- is for Starbucks to promote "conversation" at its coffeehouses.

"One way of doing this would be to use the power of media and wireless new media in particular to foster a sense of conversation about the arts, current events, etc.," wrote user Conniemx. "In other words, to stimulate Starbucks patrons that wish to interact as part of a 21st-century 'cafe society' such as they have in Europe traditionally -- people gathering together to discuss the arts, world events and culture."

The writer pointed to "The Alcove With Mark Molaro," a New York-based web series in which the host interviews authors and documentarians. Recent guests include author Jonathan Schell and Greil Marcus, a well-known rock critic. The program has a very serious bent. Mr. Molaro's tagline, for instance, is "Great minds think differently."

The moderator of My Starbucks Idea said the company has reached out to Mr. Molaro and discussions are under way. "We'll let you know if there's a way for 'The Alcove' and SBUX to work together."

Mr. Molaro didn't respond to e-mails for comment.

Some ideas on the site have moved beyond review to "coming soon." Customers with registered Starbucks cards and AT&T Wireless accounts will be eligible for free wireless for a few hours -- although the company announced that plan before the site was up and running. The Starbucks card must have been used within 30 days to be considered "active."

Also on the way: splash sticks. One customer wrote in to say that it would be nice to have something to plug up the hole in her coffee lid, as her car console was covered in coffee stains.

"As a result of your feedback about spills out of the sip hole, we have been testing splash sticks in limited markets to gauge customer interest (sounds like some of you have seen them)," wrote sbx_GRTL on the site. "Based on an overwhelmingly positive customer and partner response, we are rolling out splash sticks nationwide this week."

Not everyone is a winner at My Starbucks Idea, though. Some notions are nixed, such as forming a separate line for regular joes who just want a cup of coffee, for instance.

"Most of our stores are not designed to make it work," wrote sbx_*kjg. "Ultimately, the added complexity caused by the two lines was not beneficial enough to make this concept a customer-service standard."

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