Strategy To Save Starbucks

Have you noticed a change at Starbucks?

We already know the story - company looses its focus and expands into categories it has no business being in, and market punishes it by taking away the business. Starbucks board has wisely decided to put their faith once again in their chairman and chief entrepreneur, Howard Schultz who was responsible for the franchise becoming a household name. Well, Mr. Schultz talked to Maria Bartiromo from Business Week, and you can read it here. From marketing perspective, Starbucks is doing a few things right. But a few more need to be done. Here are my suggestions on this matter.

Problem: Brand dilution: If Starbucks stands for coffee and a community ambiance, get rid of all that crap in the stores. You want to sell music, fine. But lets not have that get in the way of a great coffee experience. You want a community like feel, offer free internet and people will stay longer. You want to sell a few t-shirts? Fine, sell them. But put a limit to it. You are Starbucks, not Walmart.

Brand dilution is a serious issue for Starbucks and just removing the horrible stench of grease is the first step in the right direction, but more needs to be done.

Problem: Product Innovation: Starbucks was known for coming up with creative product lines. Of course its not possible to come up with an altogether new product like frappucinno, but its possible to keep coming up with good coffee! Lets hope Pike's Peak is just a start of this trend. Starbucks needs to add newer coffees to the menu, and not newer chachkas they are selling at the counter.

Problem: High Price: When times are going great, no one minds spending a little extra for a good cup of joe. With looming recession critics have complained that Starbucks products are priced way too high for average Joe to afford. And Starbucks has responded with Pike's Peak - a new coffee at a lower price point. Big mistake in my opinion for this is an admission that Starbucks prices are high. And Starbucks is in danger of having Pike's Peak cannibalize the high priced coffee on the menu! After all, no one is going to go for a cup of French Roast, and then add a cup of Pike's peak to their order because its cheap. Rather, they will want to try the new cheaper coffee and stick with it if they like it.

A better strategy would have been to offer a few specials during certain times of the day to drive business in. Have a breakfast "happy hour" or two. This would have helped in two ways.

One, at the time when most people are searching for a cup of coffee, this "discounting" of beverages becomes an incentive for them to come into Starbucks - in other words, it increases the traffic.

And two, it takes away customers from the competitors like MacDonald’s and Dunkin Donuts, thus adding new customers to the roster. Mr. Schultz doesn't believe that he is loosing customers to MacDonald’s, and perhaps he is right. But this strategy brings in customers who may have been interested in Starbucks but are no longer coming there because they can get satisfactory coffee at MacDonald’s.

The breakfast "happy hour" strategy is an easy fix for a recessionary economy because it helps the customer over come this temporary price hurdle. Its good for Starbucks because while its revenue per cup might go down, its overall revenue will stay the same or go up on the shoulders of all those new customers who will come in.

There, those are my two cents on the matter.
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