Starbucks Muddled Marketing Messages

Yesterday's Wall Street Journal carried a rather surprising article about Starbucks. It seems they have actually been offering some marketing promotions as long ago as last summer, wherein the purchase of a morning coffee led to a discount on an afternoon beverage purchase.

Who knew? As I noted in this post from last April, CEO Howard Schultz and his marketing chief, Michelle Gass, seemed rather confused about what was ailing their firm. They thought it was only their own strategies, and not competition. Somehow, Dunkin' Donuts' and McDonalds' explicit targeting of premium coffee drinkers escaped Schultz' and Gass' notices.

I was amazed to read in yesterday's piece that prices between Starbucks and its two main competitors, McDonalds and Dunkin' Donuts, have narrowed. That, in some instances, on a per-ounce basis, Starbucks is actually less expensive than Dunkin'.

Further, in a total about-face from removing food from their menu, Starbucks is now offering a food-and-coffee combo at a discount. But when asked about simply cutting coffee prices, Gass replied,

"Today, no. But never say never."

I guess the food reversal proves this out. But what I wonder is whether Schultz, Gass and their colleagues actually have any sort of larger marketing and product strategy in mind? Or are they just making these tactics up as they go along?

My own guess is the latter. How could they have reversed on providing food if they had done research and looked at their own customer buying information in the first place? It's not the sort of misstep you typically make if you are a data-driven marketer.

But it does smack of a sort of image- and mission-oriented marketing and business philosophy for which Howard Schultz is well known.

Unfortunately, that sort of business focus can lead to tragic mistakes, as market, customer and competitive realities are tuned out, in favor of 'the mission.'

I suppose a shareholder could be grateful that, as the nearby chart indicates, the company's equity price has pretty much tracked the S&P500 Index for the past six months. After all, this must have been a rocky period for the coffee giant, what with consumer luxury spending declining.

The question would seem to be, though, can Starbucks really manage to breakout above the index, and for a long time- several years? Because if it can't, then it has simply become another fallen star whose prospects for consistent, profitable growth are gone, and for whom competition and a saturated market spell mediocrity for the foreseeable future.

Sad to say, statistics and Schumpeterian dynamics suggest that it will be the latter.