Starbucks Not Taking McD's Bait

The timing is perfect for this type of advertising and will resonate with many consumers. When the economy was good, it wasn't hard to justify being a little extravagant on your coffee purchases. But the mood of the country has changed and most likely will get worse before it gets better. McDonald's is perfectly positioned in this contest and should make some big gains at Starbucks' expense before the economy improves.

Art Williams, Retail Marketing Consultant/Analyst, Independent

Starbucks represents a premium brand and needs to be careful about getting into a name-calling contest about who offers the best price. Their image is built on the store experience, not just the taste of their coffee. However, they are facing two threats right now: More legitimate competition and softness in discretionary spending. It becomes even more important to explain what makes a cup of Starbucks coffee worth the premium, but it also becomes more important to develop value strategies without diminishing the company's brand position.

Richard Seesel, Principal, Retailing In Focus LLC

This is the perfect time for McDonald's to launch this campaign. I know that in the supermarket business, the best place to get new business fast is to attack the highest sales per square foot stores of the weakest competitors. If I were McDonald's, I would put signs up near the highest volume Starbucks locations. My personal opinion is that Starbucks is not fighting back because they have nothing to fight back with. McDonald's offers a similar product at a price Starbucks cannot match. Just the way Aldi and Walmart offer groceries at prices often lower than their competitors' cost.

Starbucks cannot and will not compete on price. Their confusing and complicated loyalty card does not seem to be working. So Starbucks' only weapon is ambiance. However, I'm seeing McDonald's now offering couches, fireplaces, and free WiFi. Now we are seeing Starbucks locations going dark while McDonald's is thriving in a down economy. Starbucks has to decide if they want to sell 99 cent, no-strings-attached coffee or close stores and wait out the economy.

David Livingston, Principal, DJL Research

With the economy the way it is, consumers are rethinking purchases that used to be made unconsciously, such as picking up a coffee/latte/espresso/etc from Starbucks every morning. For some time now they have been doing the math, and McDonald's is smartly recognizing this opportunity.

Likewise, Starbucks is smart and focusing on their brand and not getting dragged in to a battle they can't win (i.e., price).

The reality is that there are core loyalists that are immune to these activities...it's the ones that are up for grabs that make this interesting for MCD.

Phil Rubin, CEO, rDialogue

While both Starbucks and McDonald's are selling coffee drinks, the offering and target markets are quite different. McDonald's offers an economical coffee drink that consumers can get quickly from a drive-through window. In contrast, Starbucks traditionally has offered an experience--an opportunity to take a break in a comfortable environment--just the thing that consumers need in these challenging economic times. McDonald's may peel off the price-oriented Starbucks' customers, but McDonald's is much less of a threat to Starbucks' core customers who savor the wider assortment of coffee drinks, the quality of the drinks, and the relaxing experience.

Barton A. Weitz, Professor, Exec. Dir. - Miller Center for Retailing Education and Research, University of Florida

Starbucks represents a premium brand, both in terms of its product and its overall consumer experience. While it needs to monitor what competitors are doing, it needs to be careful about directly responding.

Starbucks recently took steps to reinforce its brand. By refreshing the interior of its stores, offering different beverages and returning the in-store focus to coffee, they worked to improve overall customer experience.

I keep hearing reports that Starbucks sales are down, but where I live in Los Angeles, the Starbucks seem to be as crowded as they were one and two years ago. Perhaps recession impacted consumers are willing to pay a few cents more for a luxury coffee experience.

Max Goldberg, Founding Partner, The Radical Clarity Group

Coffee wars are like football games. When one team gets into the "red zone" they are supposed to score. And that seems like what McDonald's is trying to do today. The economy now favors McD, its pricing and convenience; those still able to afford a fashionable experience opt for Starbucks but that's all Starbucks has to fight back with. The appropriate bottom line seems to be "Four Bucks is Dumb"...and in your face.

Gene Hoffman, President/CEO, Corporate Strategies International

I'm lovin' it!

Dr. Stephen Needel, Managing Partner, Advanced Simulations

Memo to McDonald's and to the general public: Starbucks' pricing isn't just for the coffee alone. Starbucks is a different experience than McDonald's on a very different level for a different type of customer. Yes, admittedly there is definitely some crossover for the price-conscious consumer that doesn't need an adult atmosphere, ambiance, a nice place to work and socialize, and who doesn't mind the smell of burgers, fries, and ketchup with their morning or afternoon latte.

David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

Just as McDonald's has promoted itself as a gathering place for kids, Starbucks is a gathering place for adults. McDonald's is not likely to become a substitute location for adults. Those who go through the drive-through at Starbucks may switch to a McDonald's for lower-priced coffee; consumers who can't afford the luxury of their Starbucks on a regular basis may switch to McDonald's. Starbucks' business will decline but it won't be eliminated because there are many loyal consumers who will continue to pay for the coffee they want at Starbucks.

Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I agree that the current economic environment makes a comparison campaign more viable. I also agree that Starbucks' position is that it is selling far more that the product--it is selling a very different purchase experience.

However, more and more of Starbucks coffee is being sold through their drive-up windows and/or being carried out the door. Once the customer leaves the store (or doesn't enter it as the case may be) the value of the experience declines and the product itself becomes paramount. McDonald's campaign is designed to induce trial, betting that its price/value equation will win over Starbucks' customers.

Steve Montgomery, President, b2b Solutions, LLC

Even if the occasional McDonald's puts in a sofa and a fireplace, I can't imagine McD's changing its business model to accommodate anything but fast, fast food, fast coffee: "Move along out of that sofa, ma'am. You've been there 20 minutes." Especially at 99 cents for a latte.

Starbucks, on the other hand, is the conference room to Consultant Nation and countless nonprofit committees. It's the study carrel of choice for college and grad students--even high-schoolers. And the 20-minute respite from chaos that can happen only when we've dropped Kid 1 off at one place, Kid 2 off at another and are going to have to start the pickup round after that respite comes to a screeching halt.

Starbucks cannot compete on price--that would be suicide. As it is, they probably need more ways to monetize the square footage they're devoting to delivering the very real, very valuable services I just listed. Especially if they have to cede some portion of the quick-stop, morning-rush cup to price competitors.

What I would do in their shoes is start reminding folks why Starbucks is different. I would do some advertising--something Starbucks has resisted in the past--but focus the message on Consultant Nation, Nonprofit Nation and Student Nation. One possible concept: tell the stories of successful startups and charities that were born in a Starbucks. Or tell the stories of groups meeting in Starbucks now and what their dreams are--and give the audience a chance to contribute. Bottom line: McDonald's coffee may get you to the office. Starbucks coffee powers the ideas that change the world.

Mary Baum, Chairman, Mary Baum Creative Services

Starbucks should contract its footprint and hold on to its premium brand and experience. When consumers feel they have more stability, they will opt in back to Starbucks more often. I'm not a huge Starbucks fan (the coffee) but I am even less of a fan of the idea of the ambiance of fries, ketchup and family frenzy (NOT!!!) when I want a "latte break" of any kind.

Anne Howe, Founder, Anne Howe Associates

Shades of the old "cola wars."

I saw a taste comparison commercial from Dunkin' Donuts the other night, and it reminded me of the Pepsi Challenge ads of yore. So coffee is at least a three-way fight among national brands. There are a few local contenders too.

As I see it, the battle will hinge on two factors: the consumption experience and the product itself. McD and Dunkin' both offer a great cuppa joe, but I'm not inclined to hang out in either place. Starbucks has become a little too precious for an everyday habit, but it's a haven when I'm on the road.

For the price of three lattes, I can (and do) buy three pounds of top quality beans at Costco, which I grind and brew at home most mornings. Sipping that first mug in my bathrobe--that's a consumption experience I can really enjoy.

James Tenser, Principal, VSN Strategies

Starbucks was already feeling the pinch of the recession, even before McD's nose-thumbing.

I think McD's messaging is analogous to the recent presidential campaign tactics. McCain was running a negative campaign. Obama took the high road, with (at least a bit) fewer smears. The results of the election in part, show that Americans are ready for an emotionally higher level of engagement. Reminding consumers of their fear and financial limits isn't a winning tactic.

Liz Crawford, President, Crawford Consulting

The Starbucks Brand is more than just coffee. Same applies to the McDonald's Brand.

The comparison will only help reinforce to the McDonald's costumer that they are getting a great deal. Starbucks' core consumer will not be moved by comparison ads. Regardless of the economy, the bottom line is that they both offer very different consumer experiences.

It's like comparing the new Hyundai Azera to a Mercedes; it works for the Hyundai, but does nothing for the Mercedes.

Carlos Arámbula, Managing Partner, Arámbula-Phillips Communications, Inc.

Maybe it's true that McD's is rubbing Starbucks nose in their low prices, but it seems everyone is assuming McD's is marketing to Starbucks customer and not to its own. Comparison is a valid marketing tactic and McD's may be using it to compel their $1.29 coffee customer to trial a Latte with their breakfast sandwich. It's really all about McD's margin per order. I can't believe that many of McD's core or even marginal customers are a bit confused about why it's more expensive at Starbucks.

Starbucks should stay the course and focus on the customer experience while delivering a perfect product every time. Their core customer will appreciate it every time and come back as often as they feel like it's worth it and they're worth it.

Sid Raisch, President, Horticultural Advantage

Carlos is right. The issue is much bigger than coffee. It is about the brands and what they stand for. If Starbucks were to take the bait, they would be denigrating their brand. Just consider the aroma in a Starbucks versus that of a McDonald's. Aroma is part of the experience. Even subconsciously, it matters to some and not others. How about the background sounds? Even subconsciously, it matters to some and not others. We can continue through this list, but the point is made. It is not just about the coffee. The people who are paying a premium for Starbucks are paying for the brand and what it means.

While I can't comment on the consistency of the coffee at McDonald's, I can at Dunkin' Donuts. There is none. I am not surprised that they can win in a taste test. But, I would be surprised is that same brew ever makes it to their stores. The variation I find at Dunkin' Donuts is unbelievable. It ranges from acceptable to burned or watery. Don't make a bet on the coffee at Dunkin' Donuts.

Starbucks is on the right track. Their promotional activity is directed at their best customers. It includes ease of pay to discounts on all purchases to free WiFi. Yes, Starbucks is more expensive, but sometimes in hard times, spending an extra dollar and treating oneself is one of the few satisfactions we can afford.

Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

It's a pointless effort in my book. Does McD's think they're going to convert Starbucks users to their inferior product with jokes and insults? Reminds me of the insults and stabs thrown around by the politicians all year (to no avail). Two different customers entirely.

But, if McDonald's is trying to reinforce their users' choice...then it could be effective. But, in either case, increased revenues will not be a result of semi-slanderous advertising.

Lee Peterson, EVP Creative Services, WD Partners

I'm glad someone made the cola wars comparison above. This is what trailing brands do--try to pick on the big guy. Surely Mickey D's has years of experience from being picked on, so I wouldn't be surprised to see them mine that experience more in the near future.

Jonathan Marek, Senior Vice President, Applied Predictive Technologies

The fact is, McDonald's coffee still is not that great, and their weird obsession with adding the cream and sugar for you behind the counter, using their pre-measured dispensers, is just so McDonald's. If they feel that you should not make your own coffee to taste, and they can do it better for you, they are taking away the whole coffee experience, and creating a simple commodity.

And that is why Starbucks will always be the leader when it comes to coffee. Sure it may be dumb to spend $4.00 on a cup of coffee, but if I can spend $4.00, log on to my computer, listen to music for awhile, and not be bothered with a mop always being switched around me feet on linoleum tile, I will happily pay the money!

Joel Warady, Chief Marketing Officer, Enjoy Life Foods

Among the better parts of the Starbucks experience: the articulate and capable folks behind the counter. At McDonald's the folks behind the counter are often terrified of their customers. You'd be terrified too if you were learning on the job and your chances of survival beyond 6 months was less than 50%. But the McDonald's coffee pr and advertising is great. They're pushing a 90% gross margin product. Would their owners want anything less?

Mark Lilien, Consultant, Retail Technology Group