Starbucks Gets It

Starbucks has been of the favorite targets in the financial press recently.  It seems like every other there is a new story of doom and gloom for this once high-flying brand.  While the overall numbers aren’t good right now, the problem is that most of the people writing these articles aren’t paying attention to what’s happening where the real action is – in the stores.

We get asked a lot about the best strategies for pricing during a downturn.  There are two pieces of advice that we repeat over and over.  1.)  Don’t discount your high-end products.  Instead continue to innovate and keep your prices up.  2.)  Focus on making the low end of your offerings more affordable.

Here is what Starbucks had done in the last several weeks.  They introduced a new protein smoothie, the Vivano.  The Vivano comes with the usual Starbucks premium price and can easily run higher when the caffeine addicted start adding shots of espresso.  I don’t know how sales have been but I can tell you if they asked me to design the perfect afternoon drink, I don’t think that I could improve with what they already have.

Speaking of the afternoon, Starbucks has also been paying attention to making coffee more affordable – but without lowering their prices.  How?  They are using a form of peak load pricing.  Here is how it works.  If you buy a drink the morning (when 65% off all coffee is consumed) save your receipt.  You can use that receipt to get an iced grande drink of your choice for $2.00.  The catch?  The deal is only good after 2:00 PM.  Why after 2:00?  Because there is another peak in comsumption right after the lunch hour.  As a result the financial downside for this deal is almost zero.  Sure some people will hold off on that afternoon cuppa to save a few bucks but for the most part this deal should create incremental demand and contribution dollars at a time when stores are not busy.

It make take a while before these sorts of innovations have a significant impact on Starbucks’ financial performance but these are the moves of a savvy marketer (and pricer) and they will pay off.