Backwards is the new Forwards

It’s getting ugly out there. And no, I don’t mean the political battle between Obama and Clinton; I mean the coffee battle between Starbucks and Dunkin' Donuts.

Starbucks has had a troubling year. After a decade of sensational buzz and near constant growth, things have cooled off for the coffee pioneer. This in not untypical and far from surprising since no brand can sustain rapid growth forever. There is always a limit to how much coffee people will drink, sneakers they will wear, hamburgers they will eat or insurance they will buy.

But when growth rates level off, Wall Street screams and management panics. As a result, many companies opt for expansion in an attempt to maintain growth. This tends to have the reverse effect. Instead of fueling growth, expansion undermines the meaning and focus of the brand. Authenticity, quality and the customer experience are frequently damaged. Sales and customer loyality decline.

Sound familiar? It should. It is exactly what has happened at Starbucks. After a decade of growth, same-store sales declined, the stock plummeted and competition heated up. The Street has screamed for action to reheat growth. Starbucks responded by adding more stores and more products to sell. In the last few years Starbucks has been busy adding merchandise, music and ramping up food sales with things like hot egg sandwiches.

But instead of fueling growth, the expansion has damaged the Starbucks brand by degrading the experience, damaging its authenticity and diminishing its quality.

Now what? Backwards is the new forwards. Bringing back the leader who knows the brand, understands the brand and loves the brand better than anybody else in the world is the new trend. Dell brought back Michael Dell. Schwab brought back Charles Schwab. Apple brought back Steve Jobs.

At Starbucks, that fanatical leader is Howard Schultz. Schultz came back and reclaimed his CEO title last month after ousting James Donald, a former grocery executive. (Why they had a grocery executive running Starbucks is beyond me. Groceries are one of the worst industries for branding and focus. Apart from Whole Foods, most grocery chains are a mess.)

To bring back the buzz Schultz has already made several bold and brave decisions. Valentine’s Day 2007, the now famous Schultz memo was “leaked.” In it Schultz bemoaned the watering down of the Starbucks experience. Setting the stage for a brand revamp that has finally arrived.

With Schultz firmly back in control, Starbucks is back to basics. Starbucks is back to coffee. Starbucks is back to baristas. And Starbucks is back to the celebration of coffee, the essence of the brand.

In the last month, Starbucks has cut 600 jobs, is closing 100 underperforming stores, is slowing U.S. growth and is finally getting rid of those foul-smelling hot egg sandwiches. At the same time they are accelerating international store openings which still represents enormous growth potential for the brand.

The piece de resistance of the Schultz master plan was the brilliant three-hour closing of all 7,100 U.S. stores on Tuesday for barista reeducation of all 135,000 employees. It was a public testament to of Starbucks’ renewed focus on coffee and quality.

Was it necessary to close every store on the same day at the same time to educate workers? Certainly, not. Was it a brilliant PR move? Absolutely.

The closing of Starbucks was national news. Celebrities who normally get out of bed around 2 pm were scrambling for their 4 pm “morning” cup of joe. The few bucks Starbucks lost in sales that afternoon was more than compensated by the massive PR coverage. It sent a message to consumers, investors, and most importantly, employees that Schultz was back and that Starbucks the king of coffee would defend its coffee crown with tenacity.

A minor blip in this story is the Dunkin’ Donuts move of offering 99-cent lattes during the Starbucks shut-down. In an attempt to take some of the wind out of the sails of Starbucks and ride the coattails of the publicity, Dunkin’ had a real opportunity to make a mark. But half-price drinks are hardly a reason to celebrate. My Mom won’t leave the house to go shopping unless she has several 50%-off coupons in her purse. They are a dime a dozen these days.

What Dunkin should have done is FREE! Offering desperate Starbucks fans a free trial drink would have caused a commotion and resulted in a meaningful PR story for the brand. Too bad they are not as brave as Schultz; you know Howard would have done that in a heartbeat.

Comments

[one pot]

hey laura.

just stumbled upon your blog - great work - love your thoughts above - i have been learning a great deal about starbucks of late since i landed the opportunity to travel with a mid-sized artisinal roaster (caffe vita) on their source trips. guatemala, brazil, indonesia, etc.

we just got back from ethiopia - a country that has been a thorn in the starbucks crown for the last couple of years - and found myself ina hysterical situation:
it was two days after the starbucks retraining - and caffe vita did what dunkin should have - they gave away coffee at their 5 locations for free and got tons of juicy press around the globe - but the funny thing was that here i was with vita in ethiopia and we walked into the starbuck's knock off "khaldi's coffee" that sbucks is in the process of trying to sue or threaten in some way and right in the middle of the khaldi flagship stote are 40 employees in the middle of a mass training - we filmed the entire episode and i will let you know when i get the youtube clip together - it was brilliant timing. best, m.

[Mario Sanchez]

Laura:

Thanks for this great post. Companies will never be able to live up to unrealistic expectations of eternal growth, however, only a few will have the guts and the vision to cut their losses, change course and go back to basics.

[Laura Ries]

Contrary to your assumptions, I am not a supporter of any political candidate. Anyone who knows me, my blog or my books instantly will tell you that.

I am an expert in branding. And in terms of branding, Obama is doing a good job. He has stuck to one word "change", he is likable, charismatic and a brilliant speaker.

Like it or not personality and likability play an extremely important role in winning elections. Experience and knowledge don't always win the day. It is nothing new, look back to Kennedy/Nixon. Kennedy was much more likeable. Television made looking right for the job even important.

The red phone ad was not effective for Clinton, because Clinton is not like Mondale, she doesn't have the decades of experience and grey hair.

Saying she was first lady and that counts is stretching the truth. Obama is very much like Gary Heart (without the womanizing). But Gary Heart was defeated. Perhaps Obama will be too.

A red phone commercial with the right visuals could be very effective against Obama, but Clinton doesn't have the experience to pull it off. McCain would be much more effective with that message.

[A G]

Ok Laura, just saw you on Fox news (dont ask me why I was watching the OReiley show in the first place). You were DISGUSTINGly biased - the question was not to pitch for your favorite candidate (guess who), but to evaluate the three ads. Honestly, the red phone might be derivative in form, but that never stopped an ad from being effective. It only needs to be unique & distinctive in its category (and Mondale is NOT in the same 'category' or competing for attention with Hillary and Barack).
And no, you do NOT need long laundry lists of specifics. In any communication, the benefit is the ONLY imperative. RTB is a only necessary when there is a need to increase convincingness. And since most Democrats already believe that Clinton is the better commander-in-chief, believability is not the issue - recall is. And this ad definitely drives recall.

In fact, Obama's retaliatory ad is confused in tonality. The red phone ad is on an emotional platform, and they set it up well, but then go to 'judgement' and on-screen text. This slows down the heart rate of the reader/viewer, and so totally deflates the emotional undertones. In a question such as national security, we all know so well how emotional reaction trumps any amount of rationality. The best way to retaliate would've been on Obama's old statements, on how the country is now less safe because of the Iraq war/war on terror, not more.

[Phil Darby]

The back-to-basics phenomenon is nothing new, neither is what fuels it. Its about entrepreneurs and what drives them, the way they work and their weaknesses as well as their strengths.

Its simple. Entepreneurs are successful because they don't follow the rules that we lesser mortals have created to help us limp through life. In fact, in my experience they really don't even understand there are rules.

Entrepreneurs work on instinct and its uncanny just how on-the-ball they can be. Its as though they are a stage or two ahead (or maybe its a few behind) in the evolutionary process and because of this they respond instinctively. Just like Kevin Roberts discusses in his Lovemarks philosophy - its almost primal.

This is why so many entrepreneurs are college drop-outs or failed in school. They are like a fish out of water in an environmenmt that is designed for the rest of us.

In the UK we witnessed this primal entrepreneurial instinct thing when Phil Harris (Now Lord Harris of Peckham) in response to pressure from investors, brought in a bunch of senior managers to help him run his Queensway retail carpet empire (The biggest in the UK). I mentioned him in another context on my blog in a post about CRM, but briefly ...

The new directors decided that it wasn't possible or appropriate to run a business of that size in a competitive environment on instinct and ended up proving that what they really meant was that THEY couldn't run one on instinct!

Phil sold the business to them and they went broke within six months by which time he had built ... yes, you are ahead of me ... the biggest retail carpet can in the UK, CarpetRight, which is now the biggest in Europe.

He did enlist a few invrestors to help him, but I guess he chose them more wisely second time around and is now buying them out anyway (in fact he may have done so already).

The entrepreneurial weakness though - and I have witnessed this too - is that while instinct is what drives an entrepreneur, beyond a certain scale, you can't DO everything yourself and you need to have trusted managers around who are able to implement for you and be your eyes and ears. A lot of enrepreneurs fail because they build the empire before they realise this and then find they have, sort of, painted themselves into a corner. It takes a long time and/or a great deal of luck to build a management team that can operate this way. Doing it retrospectively is an almost impossible feat.

[Textwrapper]

It would have worked. Image-conscious people jonesing for coffee in the relatively upscale ambiance of Starbucks, would have had the perfect excuse to try Dunkin' Donuts. Once there, they would have adjusted. DD would have a pleasant, nostalgically '70s atmosphere, and the new customer wouldn't hesitate to return.

[Geoff Dillon]

I agree that Dunkin should have gone "free" here.

When you are playing the low price/mass market game, there will always be those who think your product is inferior. Giving them a reason to try you while the competition is taking the afternoon off (literally) can help alter that perception, and the tie in to the Starbucks closing would have gone a long way towards ensuring people viewed the giveaway as a one time, "special event", not part of an ongoing discounting binge.

(disclaimer - I've never had a latte at either chain so I can't vouch for which is actually better).

While we're on the topic of coffee wars, there's an interesting one "brewing" here in Canada where the market leader Tim Horton's is dealing with an interesting marketing challenge posed when a competitor hijacked their most popular promotion.

I've posted on it over at my blog:

http://geoffdillon.typepad.com/the_marketing_blender/2008/03/when-the-compet.html

[Stan Dubin]

Another example of meteoric growth is Apple. Going back a number of years, it started with the Mac, then the iPod, then billions of downloads from their iTunes store, and then the iPhone. Renting movies could be huge.

But Wall Street wasn't happy with a 5% increase over the previous year and the stock loses almost half of its value despite the obvious strength of the company.

Though Apple is still an incredibly healthy company, I wonder if too much diversification has cost them in the stock market if not directly in overall revenue/profits.

[Chris Houchens]

I agree it was a PR/media stunt. And it may have even been some intense reinforcement to show consumers that "hey it does taste better on Wed a.m.!" or to make drinkers remember that absence makes the caffine addiction grow fonder.

But I will be interested when some anon barista posts what went on during the training. These employees have been so systemized that surely they know how the machines work. I would hope that some time during the great 2008 blackout (or cream&sugar-out) was spent on customer relationship training.

[Eric Karjaluoto]

Hi Laura,

Good post. It's interesting, we were chatting about just this situation last summer on ideasonideas.

http://www.ideasonideas.com/2007/07/starbucks-growth-paradox/

Cheers!

Eric

[Aki Kuwabara]

Having heard not too long ago that Starbucks has tried/planned to offer 99-cent drinks to fend off competition from Dunkin and McDonalds, I can see that the company is making a smart turnaround. Schultz knows better than to compete with Dunkins' and McDonalds' game of offering cheap coffees. From its logo to high end coffee and cozy store interior, the unique "experience" beyond just grabbing a cup of joe is what made Starbucks dominant in the coffee industry.

[Laura Ries]

Free works for a very limited time for a new product. The Dunkin' example was just a promotion to take advantage of the PR generated by the Starbucks closings.

High-Low pricing in general is very damaging to a brand. It teaches the consumer that the low price is the real price and the high price is the rip-off price.

A limited free promotion is good for a product that many people would like to try. Look how successful free samples at Costco are. Much better than $1 off coupons. It gets people involved and interested. But doesn't degrade the price.

Note that Starbucks NEVER has a sale. Even with the pre-paid cards there is no discount. Smart move.

Couponing is like crack cocaine, very additive and very damaging to the brain.

[Paul Dushkind]

I don't think people think that the product is no good so they have to give it away. If the product is priced low day in and day out, that's different.

The classic sales curve of a promotion—say, buy one, get one free at Burger King or McDonald's—is that sales will spike during the promotion, then dip to below normal for a short time after, then level off at slightly higher than they were before the promotion. Hopefully. Sometimes I understand that sales remain slightly *below* the baseline.

I wonder if people perceive of Dunkin Donuts as covering for Starbucks during those few hours. IOW, Dunkin Donuts was helping out Starbucks, not just helping out Starbucks' regular customers.

[Johnny]

Is tryvertising (free samples) a good move? I'm thinking maybe people think the product is not very valuable. What do you think?