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Back before Starbucks, most on-the-go coffee choices sucked. Starbucks tasted a lot better, offered fancy-schmancy cappuccinos and, well, seemed a small daily luxury a lot of people where willing to spend an additional $3 on.  Life’s too short to drink lousy coffee and all that.

Even though espresso-made specialty drinks aren’t really in the same category as regular brewed coffee (and, frankly, Starbucks brewed coffee is not particularly tasty, IMHO) the public had been exposed to something better and was willing to divert coffee dollars to specialty drinks.

mcdonalds_billboardThen McDonalds unleashed their own premium brewed coffee (which really is pretty tasty) and a line of cappuccinos and other specialty coffee drinks, with Burger King and several other fast food chains following suit. The choice is no longer between paying $4 for something that tastes good or suffering with crap coffee.  Now you can pay $1 (or nothing on Fridays) and walk away with a pretty good cuppa joe.

Is it any wonder that Starbucks closed lots of stores, implemented lots of cost-cutting strategies, restructured their prices, and came out with a more budget-friendly line of instant coffee in order to stay relevant, attractive, and competitive?

3 Business and Marketing Lessons to take away from this:

1. As people’s options change, so do their buying habits. When was the last time you looked at your customers options and made sure yours compared favorably to the competition?  When was the last time you thought about offering up a new option?  Bundled services, un-bundled services, leasing, pay-by-the-hour, etc.

Examples:

  • Saturn took a merely OK car and made it a success simply by offering an alternative buying experience.
  • There’s an HVAC company doing quite well simply by allowing customers to lease HVAC systems (with maintenance and replacement baked into the lease payment) rather than buying them.
  • One Hour Heating and Air Conditioning gave people the option of not waiting at home all day for the HVAC guy and people took that option in droves.
  • My wife’s photography business offers customers a flat fee and they get the digital files and printing at cost, rather than making the majority of her money on prints.  It has been very successful for her.

Want to grab new customers?  How about making them an offer they haven’t seen before…

2. Competitive landscape determines options.  Often times, you don’t have to be the very first to offer something or do something.  You just have to be the first in your local area or industry.  Cappuccinos and specialty coffee drinks weren’t new creations of Starbucks. But as Starbucks expanded, they were often the first to offer them in a franchised, wine-bar-without-the-wine atmosphere for their given location or town.

For the local business this has both an upside and a downside: the upside is your ability to import successes from other towns, states, nations, and especially to import strategies from other industries.  The downside is that the internet and the global marketplace often provide people with lots of options. If you’re competing against the internet, you need to face up to that and work that into your business strategy. As Tolkien tells us, “It does not do to leave a live dragon out of your calculations, if you live near him.”

3. Categories don’t define perceived options. Before Starbucks no one would have guessed that you could get someone to pay $4 for a cup of coffee. But Starbucks wasn’t selling coffee, they were selling cappuccinos – they just managed to steel a lot of coffee business in the process.  And while the jump from cappuccinos to coffee, from $4 to $1 isn’t that big, the principle remains the same: you are likely competing for dollars with businesses far outside your category.  When it comes time to buy Christmas presents for the kids, bikes and sports equipment and toys and video games and books and trips are all competing for the same dollars.

This is especially true if you’re selling a premium or near-luxury product.  In order to trade up somewhere, I generally have to trade down somewhere else. Convince me your product or service is the place where I should spend my “trading-up” dollars.

Finally, never discount the age-old option of doing nothing.  I could buy a new 27-inch iMac, or I could do nothing and be happy with the my current Mac laptop.  I could go on a vacation, or enjoy a staycation instead.  As an advertiser, doing nothing is often your biggest competition, and yet, many copywriters ignore this competitor entirely.

And that’s all for me – I’m off to get a free coffee at Burger King ; )

Comments

  1. Brian Killian on 11.22.2010

    At least Starbucks coffee isn’t as bad as Tim Hortons which I’m mostly stuck with in Canada.

  2. Jeff on 11.22.2010

    Yeah, but Tim Hortons has those Walnut Bars, mmmm ; )

    Actually, I hate to say it, but I’m not a huge fan of Starbucks’ brewed coffee. Their espresso drinks are nice, but the brewed coffee is roasted too dark and brewed a bit too strong for my tastes. Leads to a very bitter cup, IMHO.

    If you check around, I bet there are a couple of places in your home town that roast coffee. Best bet is to pick up a pound of fresh roasted beans, grind your own coffee, and brew it to taste. I’ve been doing that lately and have been more than happy with the results.

    – Jeff

  3. Jason on 12.08.2010

    One note, GM says that Saturn was never profitable so I don’t think you could call it a success. Maybe Hyundai would be a better example.

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