Starbucks faces first sales decline; launches first TV ad to perk up business-by Eli

The world's most dominant coffee retailer/brand is feeling the crunch facing many companies/products and services US wide these days. Sales are declining as consumers have to make choices between small luxuries and paying upwards of $4.00 a gallon at the pump.

This decline is the first in Starbucks' history and is getting alot of negative media attention for the previously high flying company who has opened thousands of stores including ones directly across the street from each other to make it easier for loyalists to quickly stop in for a latte on the way to work.

At the same time this announcement was made, Starbucks also had another first. They launched their first television ad campaign called "Pass the Cheer" an animated piece that promotes their holiday brew and the benefits of sharing during the holiday season. The campaign is designed to be a reminder to current customers and build awareness among prospects.

Critics have weighed in saying this is a significant indication that Starbucks' brand is weakening not only because of the country's economic woes but also because the brand has been over-developed and faces stiff competition from a variety of sources including McDonald's who has aggressively entered the gourmet coffee segment.

To offset this decline fellow brand experts say Starbucks should drop their prices to increase sales among current customers and lure new consumers to try the brand believing premium prices are undermining its growth potential.

I disagree.

Starbucks built its brand on an experience; giving consumers a small luxury to enjoy while taking some time out of their busy lives. They charge a premium price for a top quality product offered within this unique environment and consumers were readily willing to pay for this brand experience.

Dropping prices would undermine the Starbucks' brand essence and their entire reason for being. When companies resort to competing on price when that has not been part of their original brand strategy they reduce themselves and their brand to a commodity status that is difficult to change back. They diminish their brand value and their brand promise no longer resonates because price becomes the key decision element. Consumers may benefit in the short term but lose a valuable brand in the long term.

If anything, Starbucks should create unique rewards for their most loyal customers in these difficult times. These rewards could be monetary or lifestyle or product oriented but should enhance the Starbucks brand and remind consumers why the brand is special and an important part of their lives.

I also feel there is another factor undermining Starbucks growth currently. The company has expanded into a variety of side businesses--selling and promoting movies and music for example--that has taken away from their focus on the core product. The in-store experience has changed. Service is less efficient and pleasant than it used to be. The stores are dirty.  The seating areas are congested with computer users who take up tables for four for themselves for hours at a time (creating a small office) with little regard for others trolling for space to enjoy their coffee and sandwich for a few minutes.  The experience has deteriorated and needs to be refreshed and evolved. This is what great brands do to not only survive changes in a marketplace but also to stay the dominant player in that marketplace. Starbucks needs to go back to branding basics now.

Watching out for you everyday.

Eli