Starbucks STILL trying to fix their image

In another attempt to fight their way back out of the red and into the black, Starbucks is making another big mistake.

They are going to try and fix an image problem with advertising, instead of fixing the cause of the image problem.

To me, Starbucks isn't special. I don't like their brew. I do like their white mocha. I don't like the fact that I can't get free wifi at a Starbucks. But I can at many locally owned shops.

This is from FT.com:

Starbucks reveals long-term ad campaign

By Jonathan Birchall in New York

Published: April 30 2009 03:00 | Last updated: April 30 2009 03:00

Starbucks, the coffee company that built its business on word-of-mouth recommendations, is to reveal “a long term, multi-million dollar” advertising campaign in the US, as it seeks to combat perceptions that its products are over-priced.

Howard Schultz, chief executive, said the campaign would “define the fact of what's true and what’s not”.

The campaign would use television and newspaper advertising as well as in-store materials and digital content, and will, says Mr Schultz, be focused on “the quality, value, and the values that Starbucks offers”.

“We’re doing a very good job of starting to demystify the fact that Starbucks coffee does not cost $4 as people are charging us with ... and you’ll see us communicate that in the campaign,” he said.

Since Mr Schultz resumed the position as chief executive early last year, the company has sought to improve its reputation for “value” amid the current recession, while trying to maintain its brand image as a premium customer experience.

This has included introducing discounted “paired” combinations of food and coffee earlier in the year, and plans for a large iced-coffee costing less than $2.

Mr Schultz said the company’s research indicated the new “value focused” offerings had improved customers’ perception of the value of its products.

“We would give ourselves pretty good marks for entering the space of value and doing it our way, and at the same time maintaining the pricing power of the company,” he said.

Competitors, including both McDonald’s and Dunkin’ Donuts, have sought to win customers from Starbucks over the past year with enhanced offerings of speciality expresso-based coffees at lower prices.

Mr Schultz argued that customers who opted for fast-food locations “know that they are compromising and I know that's going to play well for us in the future”.

News of the advertising push came as the retailer said worldwide comparable sales fell by 8 per cent during its second quarter, following last year’s 9 per cent drop, owing to a 5 per cent decline in the number of customer visits and a 3 per cent decline in average transactions.

Net sales fell 7.6 per cent to $2.3bn, while net earnings fell 77 per cent to $25m, or 3 cents a share, owing in part to the affect of $152.1m of restructuring charges mostly linked to closing more than 600 outlets.

However, the company said it was encouraged by the stabilisation of its operating margins, and said it was making “good progress” towards its goal of cutting costs this year by $500m.

It plans to have closed more than 1,000 stores by the end of the year.

Mr Schultz said he was very pleased with the recent launch of Starbucks’ new Via instant coffee in New York, Seattle, Chicago and London.

Copyright The Financial Times Limited 2009

Sphere: Related Content