Is Starbucks still the "third place"?

Starbucks uses the catch phrase “third place” to promote the ambiance of their stores, indicating that “there is home, there is work, and there is Starbucks”. There are two Starbucks coffeeshops near my place in Cambridge. Recently a friend of mine suggested to drink coffee together at a new local coffeehouse around the corner, the “Boston Common”, which is supposed to be much cozier than anything around. What happened to Starbucks? Aren’t they supposed to be the “third place”, everybody’s favorite hang-out? Well, at least in this area the answer would be a clear “no”. Many Starbucks stores have become fast-paced, to-go places, not any different from the Dunkin Donuts from across the street, with doors opening every other second and baristas becoming stressed out in rush hours.

Did Starbucks lose its focus? I believe yes. The major challenge for a powerhouse brand like Starbucks is how to deal with growth. It needs to grow while staying somewhat small; become a global corporation while staying locally relevant.
Let’s have a look back. In 2001, Starbucks sought to become more appealing to the mass market. Research proved that for new customers Starbucks was somewhat “slow”. Young urban professionals want to grab a cup of coffee and rush out again as quickly as possible. Starbucks therefore decided to invest $ 40,000,000 to improve service speed by supporting baristas with more staff.

For me, it appears as if this move contributed to attracting customers that should actually be left to go to Dunkin Donuts. If the doors of the stores keep opening every other second, and if stressed out customers rush in and out to get a quick cup of coffee, Starbucks jeopardizes everything that makes it strong: the loyal customers that come there every day to enjoy this notion of the “third place”. Very often when doing the calculations in such cases, a decrease in customer lifetime value of the loyal base might mean a much higher loss of profitability than to let go of a coffee drinking segment. And when this customer group does not fit Starbucks’ brand mantra anyway, the long-term viability needs be ensured at all cost.

As described in earlier posts, the stretching of its brand into categories such as instant coffee falls into the same category: a pursuit of quick incremental profit that is likely to lead to devaluing the brand in the long-term. Another interesting post was published recently on brand autopsy, discussing that it is the taste that made the brand stand out and grow - trying to appeal to all consumers with weaker alternatives has not helped the brand.

What might have been an alternative? There is a famous saying that goes: “never change a winning horse”. In the role of Starbucks’ CMO, I would have taken the $40,000,000 and kept investing in the stores’ atmosphere as well as a further market penetration with new stores, especially increasing the number of stores in highly busy areas could be a promising strategy to cater to the high demand while ensuring that the atmosphere of the “third place” remains in place.

Francesco Wesel
www.francescowesel.com
www.brandnewtimes.blogspot.com

Lessons from Marketing during Economic Turmoil and why Hyundai became Marketer of the Year

It is a pleasure to open a newspaper these days and realize that the media finally spreads more optimism for the times ahead. Is the end of the recession the start of golden times for us marketers? Well, it depends on the point of view.

Undoubtedly, the prevalent reaction of most companies to the uncertain times has been to slash the marketing budget. On the other hand, media sellers would often argue that it’s a big opportunity to spend more and grab market share. Consequently, two companies within the same category can approach these times in two different ways. Take the airline industry in Europe. Easy Jet would be drawn towards a more conservative stance, approaching the situation with more care by trying to save costs wherever possible. Others, such as Ryan Air, would argue that they love recessions because it is a golden opportunity to have a higher share-of-voice and be heard in a marketplace of weak competitors.

Who’s right? It is difficult to say, as it depends on many circumstances and takes some time to tell. For me, the answer lies somewhere in the middle - the companies that see risk and opportunity in times of economic turmoil’s are the winners. The only way to counteract a CEO who wants to “cut costs across the board” is to prove that marketing is actually what creates sales. Accountability for our marketing actions, projections on how they might affect ROI is more important than ever. And, in fact, many brands have succeeded in getting out of the recession much stronger than they were before.

Take Hyundai. What made them the marketer of the year for 2009 (Advertising Age) and gave them a sales increase of almost 40%? In my opinion there are two factors involved:

First of all, it has courageously continued to invest in marketing, while most other automobile brands have cut down on marketing expense. When looking at the car ads from the 60s and 70s, I wonder what happened to the business. This used to be an industry of dreams, of big ideas and emotions. In times like these, the industry needs marketers that don’t fall into panic mode, but show confidence to continue telling their brand stories and wheather the storm. Today, too many automobile brands still operate upon the “launch and leave” strategy, a symptom that has contributed to the fall of GM. They spend billions to develop and launch a new model, but then do not invest to transform them into strong brands through sustainable promotion support. And with a declining market share, it is difficult to give the vast product portfolio the attention that is so desperately needed. Hyundai, on the other hand, seems to build their brands similar to the Toyota of long ago- offering good value cars with a lot of marketing exposure. The new Genesis, which was promoted during the Super Bowl, can serve as an example.

Secondly, Hyundai applied what is the most fundamental rule of marketing: to understand the mind of the consumer. While most automobile companies desperately used sales promotions such as the “0% APR”, Hyundai said: “buy a car from us, and if you lose your job within one year, we will let you return it”. The message was clear, showed an empathy that resonates with consumers and systematically removed fear to strengthen their brand. The problem has not been the cars, but the anxiety of the consumer. People who fear losing their job simply are reluctant to make a big purchase. In these times, Hyundai was the automobile brand to grasp consumer psychology and could gain incredible momentum through the famous first mover advantage.

Some would argue that in spite of these short-term sales boosts, the brand still hasn’t established a concrete image in the mind of the consumer to ensure long-term viability. Undoubtedly, there are many instances where Hyundai doesn’t succeed, but that’s another discussion. In any case, the Hyundai example shows that no matter how turbulent times are, there will always be opportunities for companies which continue coming up with consumer-centric marketing programs that hit the mark.

Francesco Wesel
www.francescowesel.com
www.brandnewtimes.blogspot.com

Is the iPad a Trend or Fad? The success of any new product is still determined by meeting customers' needs and wants.

Yesterday Steve Jobs stated that one iPad is selling every three seconds - so the iPad is finally getting into the hands of people. Is it just the initial hype, the coolness factor that creates the sales or can we indeed expect long-term sustainable growth of the iPad? I contemplated these questions which made me then curious to investigate it a bit more, watching Steve Job’s initial key note speech on the iPad introduction and rereading some of last months’ articles.

The buzz and publicity prior to the official launch have once more been enormous – the iPad received consistent coverage in major newspapers, journals, magazines and trade press. Similarly, the iPad has been one of the hottest discussion topics in the blogosphere, social media and online forums. After such a hype and product mystification it did not come as a surprise that the die-hard customers again lined up in front of the New York Apple stores four days prior to the store’s launch. Undoubtedly, Apple has done a great job of making use of all PR opportunities before stepping in with follow-up above-the-line communication, which is now seen in great abundance. Only a solid publicity platform can give a product like the iPad the necessary credentials in people’s mind to get it off the ground.

On the other hand, a threat stems from the strong initial hype and rapid decline in publicity after the iPad launch. Apple definitely has to make sure that the interest in the “new category” is a trend rather than a fad. In general, too much PR can be as bad as too little PR, meaning that brands which take off to rapidly can decline just as fast. Those are fads, which rise one day and appear the next day. When signs of a fad evolve, the company should slow down. Trends, on the other hand, rise more slowly and are more long-lasting. We will see how the coolness of the iPad can be sustained over time.

What other factors can decide upon the success or failure of the product? Steve Jobs highlighted in his key note speech that the iPad opens a new category between the Mac book and iPod. My marketing gurus Ries & Trout stated as one of their “immutable laws of marketing” that the so-called “law of the category” indicates that one of the basic issues in marketing is creating a category to be first in- “It's better to be first than it is to be better.”

I just wonder is this really the case for the iPad? The design is undoubtedly revolutionary and the bigger interface makes it possible to play games and read books in a way that has not been possible before. The appeal to people might stem from the unique experience of media consumption. As Steve Jobs proclaimed the iPad as a "groundbreaking" device that will change the way people interact with the web. Similar to the iPhone, the iPad also carries the convenience factor of combining many functions into one device.

However, whether the iPad indeed succeeded in opening a new category altogether in terms of its functionality remains questionable. It can be that none of the functions is pioneering. According to many of blogosphere voices, the iPad isn’t the first, but more like a larger version of the Apple products that have been on the market for years. The first portable and convenient touch screen technological product to play movies, handle email, and featured Apple apps has been the iPhone. It would have some aspects of everything, but not enough of one thing. According to one blogger's article “The iPod is an MP3 Player. The iPhone is a cell phone. And, the iPad is a Video-game-playing-movie-watching-media-tainment-eReader-and-tablet, with access to apps”. In that respect, it can be argued that the iPad suffers from lack of focus, purpose, and identity.

Is the hype of the iPad a fad or a trend? Perhaps the iPad will go a similar path as the iPhone: there seems to be no concrete need, but once the product is adopted, customers might not imagine a life without it anymore. The iPad’s development will be interesting to follow for us marketers because it deals with the fundament of consumer behaviour- the juggling of people’s needs and wants. Apple might be creating a device to address the needs that consumers are possibly still unaware of, and create new needs that still do not exist in the market. Because the product is innovative, many people might fail to imagine its purpose, or even that their behaviour itself might change as the iPad evolves. People tend to shiver away from a product to which they have to adapt, because they are creatures of habit. It would mean changing the way they live their lives, which most people do not want to do overnight.

From that perspective, the iPad is hoping to fill a space not yet satisfied, one that people still might not fully grasp to date. The success of the iPad would indeed depend upon whether the market will change some of their deeply incarnated consumer behaviors to some extent. The critical questions will remain: will people indeed change their behavior- or could it be outside their comfort zone? Would the avid book reader in the long term give up their paper versions to read from a screen, and would people indeed type longer documents on a touch screen? And finally, are customers willing to invest significantly into a device that only combines the functions of other devices they already possess?

Francesco Wesel
www.francescowesel.com
www.brandnewtimes.blogspot.com

Favorite Brands

As I will soon graduate with a Masters degree in Integrated Marketing Communication, my job search has now officially started – A common interview question is to name examples of favorite brands. There are so many, but top-of-mind my answer would be Starbucks, Trader Joe's, and Harley Davidson- not so much because I am an evangelist customer of these brands, but because I admire what they stand for and what they have achieved.

Starbucks has redefined the coffee business and shows the value a strong brand can have, turning a commodity such as coffee into a true experience. Along with the notion of the “third place”, the brand has successfully managed to align itself with people’s aspirations to achieve an emotional balance in life. A large part of its loyal customer base cannot imagine a day without Starbucks anymore. The fact that Starbucks became a global powerhouse brand without any advertising at all illustrates that with a great product, word-of-mouth is the most powerful marketing tool. However, in a previous post, I also highlighted my dislike for Starbucks jump on the bandwagon of trying to become everything to everybody.

Trader Joe’s - When coming to the US in September 2008 directly after almost one year in Asia, the average American supermarket represented one of the biggest cultural shocks to me- enormous in size, dozens of products in each category and price promotions everywhere. No matter how supermarkets have looked like in the past, they drifted away from being well differentiated brands towards commodities. What is the difference between Shaw’s, Food Master and Stop & Shop? I have no idea, but a similarity must be that they seem to spend 99% of their promotional budget on attracting the worst customer base imaginable- the cherry pickers who come in there only to go hunting for the special offers of the week. They have trained us to be like that. Abroad,I used to enter my supermarket and buy the brands I have been loyal to ever since, but now my primary attention when choosing a supermarket goes to price and proximity.

In this environment my respect goes to Trader Joe’s. When going there a few months ago for the first time in my life, I figured out how much they are standing out from the average retail jungle. It is price stable, offers a different shopping experience and true brand value. The retail concept is unique, as products do not need to pay for slotting fees or promotions, but only have to pass the taste test, get in and perform. As a result, people are drawn to the great products rather than the price tags. The differences also become obvious when comparing the online presence between supermarkets: Trader Joe’s web site tells a truly unique story; giving an insight into the brand world of the company. Shaw’s homepage, on the other hand, consists to 90% of the latest coupons and saving strategies. Trader Joe’s effort to establish clear points-of-difference in such a market environment is therefore highly exemplary.

Harley Davidson – Even though I would never get a Harley myself, Harley Davidson is one of my favorite brands for two reasons. First of all, Harley has built a powerful brand through a narrow focus- they truly own the word of “big motorcycle” in the mind of the consumer. When the lightweight Japanese bikes or fashion bikes like Ducati arrived in America, Harley ignored them. Most companies would have followed the GM or Ford approach to expand the brand into new, trendy categories in pursuit of short-term growth, while wearing down the brand until it now longer stands for something in the long run.

Secondly, the Harley business concept highlights the value of a loyal customer base for a brand. Like no other company, Harley Davidson succeeded in engaging its customers meaningfully by building a powerful community around its brand - the Harley Owners Group - whose name seems to perfectly incorporate the brand essence (HOG = big motorcycles). As only Harley owners can log in to the site (members.hog.com) and events are organized only for them, the brand offers a strong sense of exclusivity, value and prestige. As a result, Harley owners might be the biggest evangelist consumer base a brand has ever managed to create. The popularity of Harley tattoos and apparel exemplifies how the most loyal customers have been transformed into powerful word-of-mouth machines.

Francesco Wesel
Integrated Marketing Communication
www.francescowesel.com

BMW MINI and Sales Promotion

In the NY Times article “Marshmallows and Public Policy” David Brooks describes a research project about the consequences of instant gratification. Children are offered the option between having one marshmallow immediately or two if they wait for a while first. It was the latter group that performed significantly better in their life later on. The article thus discusses the fundamental role of self-control and delayed gratification for a person’s favorable development and success.

At the same token, it can be argued that these values are of fundamental importance for the victory of any brand- often short-term gains must be sacrificed for long-term viability. While often being evaluated on quick results- often in quarterly reports- maintaining self-control is therefore the biggest challenge of the CMO. This need becomes particularly relevant regarding the concepts of brand extensions as well as sales promotions. I recently worked on a college project about the BMW Mini and would like to apply this concept to this example.

The need to engage in sales promotion remains the biggest threat for the long-term proposition of marketing. Already during introduction the average car brand faces the risk of falling into this trap. There are overlapping categories and hundreds of models- too many to conveniently fit into the mind of a consumer. The two major American car manufacturers- GM and Ford- try to launch every car model imaginable, eliminating the importance of well-differentiated brand in the decision making process. The cluttered environment resembles the dilemma of an average CPG brand in a retail store, resulting in the need to attract the attention of the increasingly price-conscious consumer. In that context, as it turned out, it was the need of instant gratification of GM that led to its decline. More than 55% of Automobile ads in Print were for Sales Promotion during 2008. The consumer is getting used to the rebates and increasingly wouldn’t even consider purchasing a car at full price.

Fortunately, upon its introduction in2001, the Mini could avoid these startup problems. First of all, by opening up a new car category, the consumer did not yet have a precise price frame of reference. More emphasis has been placed on the brand, while the Mini marketing did its best to maintain it like that. And secondly, selling predominantly through its own dealerships provides control as well as the possibility to abstain from any sort of trade oriented sales promotion. The initial sales objectives have been set intentionally low at 20,000 units for the first year, so that sales promotion efforts became superfluous. The company did not want to over saturate the US market and rather establish an aura of exclusivity through scarcity- a dream for all CMOs to live up to their sublime aspiration to delay gratification.

Nevertheless, as a result of the maturing market environment as well as the influence of the recession on new car purchases, the Mini is currently reaching a slowdown of it rapid growth. Sales promotion suddenly becomes a viable option again, due the requirement of defending market share and reaching new markets. In the past, the company had a unique approach: market to the owners, not potential mini buyers, hoping that a strengthened community would itself go out and proselytize others to the brand. However, in these times further incentives to attract nonusers could be essential to keep sales figures up- sales promotion as classical acceleration tool. It is hereby important to not risk any of equity. Mini needs to carefully complement the promotional efforts into its Marketing communication program and brand mantra in order to achieve franchise-building effects. For current drivers and prospects, to strengthen its community and provided incentives, Mini could for instance continue organizing contests and sweepstakes with prices such as a mini road trip through England and France. For prospective buyers, with regard to the economic situation, promoting leasing fares could be powerful to provide incentives. Value adding premiums such as offering a classy British-style navigation system in cars or unexpected service supplements also seem imaginable.

To sum up, with marketing being a long-term proposition, brand managers often are severely challenged to exert delayed gratification in their programs. Ever changing, uncontrollable market environments sometimes require to slightly deviate from their natural stance to practice self-control, but- when exerted with care- even short-term promotional programs can keep the dream of building brand equity alive.

Francesco Wesel
Integrated Marketing Communication
www.francescowesel.com