More coffee marketing babble...

I find the challenge facing Starbucks to be fascinating. Declining sales, slowing growth of stores, and slumping stock prices.

Starbucks has approached these challenges with basically an eye towards marketing:
1) New products - a new line of espresso and single cup machines are on the way; a new energy drink is on the way; new health drinks are being tested; a new coffee blend that will be standard in all stores
2) Customer experience - retraining of their baristas; grinding beans in the store so stores smell like coffee; reducing store introductions to avoid being "McDonalds" of the coffee world (too late)
3) Rebuild customer loyalty - a new frequent user card is being introduced

Essentially, Starbucks is fighting to again become the "local" coffee shop. The real interesting thing is that they have a huge leg up on the competition with built in loyal following that I firmly believe Starbucks could only turn off by hitting them with sticks as they enter... maybe not even then. Of course the local coffee shop has huge advantages as well: they are underdog (never under estimate the power of being the underdog, just ask John McCain), they are often higher quality, and they are usually run by friendly, nice, folks who are engaged in the community. They may not be able to compete with Starbucks on marketing power, but they sure as hell can compete on the customer experience.

How much does your cup of coffee cost?

I recently "met" a local sustainable coffee writer and she has an excellent article on the cost of a cup of coffee. I have always approached coffee from basically two perspectives: where is it from and how fresh it is. In actuality, both are essentially the same basic question - how's it taste? This guideline has rarely steered me wrong (particularly since I can get coffee at the peak of freshness... oh and hey, so can you!) I've been fortunate enough that I don't concern myself with price as much as I do with the taste of it. But I recognize that there are many who do not (or can not) approach coffee with such a disregard for cost, and that's where my "professional side" kicks in (who knew I even had a professional side?!?).

As a marketing expert in my other life, I recognize that the price of coffee, while affected by variable and fixed costs obviously, is also driven by your perceptions of the product. What I mean by that is there is a point at which coffee becomes too cheap. If I offered you a pound of coffee for $4, yeah, some would jump on it, but many would look at me like I had a third head wondering, what the h kind of dirt coffee am I trying to push for four bucks a pound?! (interesting side note, I would lose money at $4/lb, so don't even bother to ask) But there is also a point at which coffee becomes too expensive. Even I wince when I shell out what amounts to about $65-70 for a pound of coffee. At that price, it BETTER be damn good and damn fresh coffee... (don't worry it almost alway is).

So, the optimal price for my coffee is somewhere between $4 and $70. There are a lot of statistical tools for figuring out that sweet spot, but I won't bore you with that...

The real question posed is: Why, then, is the cheap, unsustainable coffee still so much in demand? Wouldn't the price alone make people question the quality of the coffee? Well, yes and no. I doubt many folks are buying Folgers or Eight O'Clock coffee because they think it has outstanding freshness or unsurpassed flavor. But the Folgers and Eight O'Clock brands do have value to some people, and the convenience factor is huge (note that by convenience I'm not referring coffee shops... still just talking about the pound of roasted coffee). They are located everywhere you look and that, people will pay for. Plus the power of brands should not be underestimated - people are loyal to brands for a reason and those perceptions (right or wrong) will drive a lot of demand. I could spend hours writing about branding at this point, but don't worry I won't.

As I've always said, a fresh pound of RR coffee will ruin your tastebuds for your regular brand no matter what the price... Again, its a quality that people pay for.

Big Dave!

Photo credit to shine_dorydevlin Thank you!