On Tuesday Starbucks launched a nationwide promotion to boost its business during slow afternoons. The company is offering $2 Grande-sized cold beverages after 2 pm to people who bought something in the morning.
There are three things about this innovative approach that we like:
- It's creative and focuses on a non-consuming occasion: Starbucks is focusing on a non-consuming time of the day. The Job of "provide me with an afternoon treat and break from work" competes with snacks in the office, a walk outside, or a call to a friend on your cell phone, not just the Dunkin' Donuts next door
- It's relatively low-risk and easy to implement: Having people bring a receipt back in the afternoon for a discounted beverage is a less risky strategy then putting lots of money into new product development and equipment (which Starbucks did with their breakfast sandwiches and special ovens). The marketing costs are insignificant because they are focused on existing customers who walk through the door; this is less costly than attracting brand new customers through expensive television and radio advertisements
- It started with a small experiment: This particular promotion started on a small scale in three cities (Seattle, Miami, and Chicago) before going national
While we overall like the approach, we hope that Starbucks explicitly laid out the assumptions underpinning the success of this promotion and is keeping track of them, namely:
- Customers will change their behavior and come back to a Starbucks the very same day for a cold (probably more calorie-laden) beverage
- Customers remember to use coupons and like to use coupons; there is no stigma associated with bringing back your receipt as a coupon at Starbucks
- Baristas will consistently tell people about the offer (this just reminds me of the “save 10 percent on your purchase credit card offers,” which I decline before the salesperson can even finish their sentence)
- The offer will create positive (not negative) buzz for Starbucks
- The promotion will grow the volume of business in both the morning and the afternoon, and neither group will be turned off by the long lines
The most important assumption in the list above is that neither the morning or afternoon group of customers is turned off by the long lines. Starbucks was not built as a volume business. How does a business built on “the Italian coffee house experience” manage the transition to meeting growth through volume? Could this be the start of a conscious shift in the Starbucks strategy from providing high-priced treats in a delightful experience to a lower-priced, higher volume business? What do you think? We’ll be looking to see how this pans out.
