Four Bucks Is Dumb

A downside of my career is that I see the inside of an airplane more than I care to. The upside is that I like what I do when I get off the plane. Each trip enriches my thinking. Maybe it’s the change of scenery that makes me notice things. Today my work took me to one of my favorite cities, Seattle. I noticed a billboard that made me think. It said “four bucks is dumb.” Next to the tag line are the golden arches.

McDonald’s went right to the home town of the coffee house to say the rules of the game are changing. Through the recession, Starbucks became the poster child of excess. While trying to help a renter make a decision on an apartment that was $75 above their price range, I compared the difference in price to their daily Starbucks coffee habit. I’m sure I’m not the only one who has tried this approach and succeeded. It is a fine illustration of lining up priorities and checking in to make certain you are spending your money on things that really matter in life such as your home and not your daily caffeine jolt.

I recently read that Howard Schultz, CEO of Starbucks, came out of retirement to help Starbucks through this time of change. And, it was seeing this billboard that made him understand consumer behavior was changing so rapidly that it was time for Starbucks to seek answers. Yet he compared this to flying an airplane without instruments. You see Starbucks invented and mass marketed the modern coffee house. They did this for many years without competition. And now, responding the opportunity in a down economy, another major brand known for value was on the attack.

Two years ago, Starbucks was being forced to the middle of the market by the low end products that McDonald’s and Dunkin Doughnuts offers and the high end independent coffeehouse. Starbucks feels the middle is the worst place for their brand. They decided to not let people define them and get back in control of their own destiny.

In the middle of the market is a tough place to be. There will be a better product and people to pay more for that product. And then there is the low end provider who sacrifices something to give the lowest price. But the middle guy has to compete with both ends of the scale: convincing the high end buyer that they don’t have to pay more for quality, and the low end buyer that they should pay more for your product. This makes for a very tricky marketing plan. It is essential you define who you are and how you can sell it.

As our industry continues on the path of recovery, define your road map by knowing how you will compete and make the most of your market position.