Branding Strategy Insider

How Will Starbucks Strike Back?

I think Howard Schultz blinked. It's understandable -- when McDonald's runs ads that say, "four dollars is dumb," it's bound to piss him off. I'll be watching for the ads to see how he's responding.

BUT, I think he's missing the real value in the Starbucks proposition: He pioneered the "third space" notion -- gotta go to work; gotta go home; Starbucks is the "green room" for both venues.

First up: Anyone who has ordered a cup of coffee at a McDonald's or Dunkin' Donuts knows they don't want you to linger there -- and you don't want to. Their model is the old one -- turn those tables, move 'em in and out, fast.

Starbucks is the place you go and feel it's perfectly okay to linger. That's a tremendous value -- particularly as people get laid off and need a place to go (rather than hanging out at home in their bathrobes) to work on their resume, see people, wait for the interview or decompress after it.

I think Starbucks ought to be talking about that welcoming part of the brand DNA, that and then too, there's the less consumer-centric bits that still add up to a terrific brand personality, i.e. the professionalization of the barista -- and the company's values in terms of health care and stock options for part-time workers, free trade coffee, all that.

Starbucks shouldn't be competing on price with McD's. Eeck.

Sponsored By: Brand Aid

Three Telltale Signs of an Agency's Ineptitude

Like many business school professors, I often find the things I teach in the classroom contrast with the things I experience in the boardroom. Last week provided me with the latest in a long line of contradictory experiences.

In the classroom, my MBAs are coming to the end of their Marketing communications class. The group work for this class will culminate in the students pitching competitively against each other and in front of a real client. So, I ended the session by listing three concepts that they should not even consider using in their pitch because they would instantly signal a lack of expertise and strategic naivety.

Throughout the week, I was also working for a client and helping them to select a new advertising agency. Lo and behold, all three of the concepts I had counselled my students against were prominently on display in all the pitches I witnessed.

First up is Maslow's Hierarchy of Needs. Back in 1943, when Abraham Maslow published 'A theory of human motivation' in the Psychological Review, he was probably unaware that the central model of his thesis would one day grace thousands of PowerPoint charts. However, his claim that human beings must first fulfil basic physiological needs, such as water and shelter, before they can be motivated by higher goals such as safety, friendship and eventually truth has proven to be a stalwart of many tired, old presentations.

The fact that there is no evidence to support Maslow's contentions, and that plenty of experimental psychology suggests his theory is wildly wrong, is neither here nor there. He sounds foreign and therefore clever, and big words such as 'hierarchy' imply some form of scientific rigour. If you are walking into a client pitch with nothing more than a first in history from Oxbridge and a dodgy big idea, you'll take what you can.

Brand Work is No Job for Ad Agencies

The world of marketing has evolved, and today the companies that supply marketing communications and brand strategy are very different. There was a time when ad agencies were also the chief brand builders for their clients. It was called the 20th century. But that era is over and even big and brilliant agencies are no longer qualified to work on brand strategy.

Ad agencies should do what it says on their tin - be agents for the creation of advertising - and accept that the strategy work that feeds their creativity will be devised elsewhere and without their involvement.

As brand has become more central to the success of most major clients, it has moved further away from the core competencies of advertising agencies.

Niall FitzGerald identified this separation while he was chief executive officer at Unilever. Eleven years ago, he gave the keynote speech to the European Association of Advertising Agencies and noted the 'alarming discrepancy developing between what our brands are going to need and what contemporary agencies are good at'. His prediction has proved to be accurate.

Today, brand strategy requires a fundamental knowledge of business operations, finances, employees and internal culture - subjects most ad agencies, which often struggle even to understand how their clients make money, are ignorant of.

Starbucks: A Falling Star?

It looks like things are tightening up in Latte Land. The economy and competition are making Starbucks' glorious run a lot more difficult to sustain.

The first sign of trouble came from the stock market. Starbucks' share price has been cut in half in the last year after more than a decade of nearly continuous growth.

The next sign was the firing of its CEO who is to be replaced by the man who built the business from just four stores, Howard Schultz. Now it has 15,000 locations in 43 countries. What Schultz is learning is that the bigger you are, the harder it is to manage. He promoted rapid growth and he now has to clean up the problems he fostered by probably building far too many stores.

On the competitive front, Dunkin Donuts and now McDonald's are threatening to take more and more business by offering a good cup of coffee at considerably less than those $3 to $4 a cup that you pay at Starbucks.

I find it interesting that Schultz is not too concerned about competition. He feels that the problem is with Starbucks itself and all he needs is to fix it. In many ways he is right but I'm not sure that he is focused on the right problem.

Second Guessing Second Life

We have been deluged recently with stories about the amazing virtual world of Second Life and the brave opportunities it creates for brands. It is hard to believe, but it has been little more than a year since the first major brand, US retailer American Apparel, opened its doors for virtual business on the site. The store sold virtual American Apparel clothing designed to be worn by the avatars that users create to populate Second Life.

American Apparel was soon joined by other brands. In October 2006, Starwood, the owner of hotel brands such as Westin and Sheraton, premiered its Aloft hotel brand on Second Life. Starwood saw its virtual hotel as a way of generating early customer insights about its venture long before any of the hotels opened.

A month later, Pontiac, the US car-maker, launched Motorati Island. According to Mark-Hans Richer, marketing director at Pontiac, it was designed to 'empower the car community in Second Life and develop with them in a unique and meaningful manner'. From April, Second Life boasted the ultimate marketing patronage when Coke launched a 'virtual thirst pavilion', where visitors could compete to create a virtual vending machine selling not Coke, but, according to the firm's website, 'the essence of Coca-Cola: refreshment, joy, unity, experience'.

It all sounds pretty amazing, until you visit Second Life.

2007 in Review: A Year of Maestros and Muppets

So that was 2007. As usual, there were a host of marketing mistakes and a few moments of genius. Let's celebrate the latter first, as they are rare gems.

My first pick is AG Lafley, chief executive of Procter & Gamble, and still the world's greatest marketer. Another stellar year for him saw P&G continue to grow profits and share price while reducing the number of brands in its portfolio. Lafley is the antidote to the financially oriented chief executives on this side of the pond. He came from marketing, and has driven P&G forward with a simple message of focus on customers and innovation around their needs. He's no slouch when it comes to organisational issues, either: the mission of absorbing the 30,000 employees and 50,000 product codes that came with the acquisition of Gillette is complete, one year ahead of schedule.

My next pick is Robert Polet, the chief executive of the Gucci group. No one expected the former Unilever executive to be able to walk into the world of luxury branding and be so successful so quickly. But by introducing leaner production systems and encouraging the great house of Gucci and its other luxury stablemates to incorporate consumer insights into their strategies, Polet is proving phenomenally successful.

When Brands Lose Their Way: Guinness

The moment when a brand crashes and that when it starts to leave the rails are rarely the same.

In the case of Guinness, for example, there is a decade separating the period when the brand began to deviate from its correct path and the spectacular explosion of misplaced excess we witnessed earlier this month, with its 'Tipping point' TV ad.

Guinness began to leave the rails in 1999 with its wildly popular 'Surfer' campaign. It won a slew of awards and helped the brand to win a Clio in 2001 as the global Advertiser of the Year. The advertising prizes have continued, most recently with a European Epica Award in 2005 for 'noitulovE', a campaign in which three men drinking Guinness are transported back through time.

By any measure, Guinness has had a hugely successful decade when it comes to generating short promotional films. But it has also suffered the worst sales slump in its British history. You can take the Diageo line and blame this on the smoking ban and changing tastes, or you can opt for an alternative explanation: the prize-winning ads are ineffective and the main reason that this great brand is struggling.

The Death of Supremacy

A few weeks ago, about 40 Christian evangelical leaders met in Salt Lake City to discuss a branding dilemma.They believe it’s in the best interest of brand USA to nominate a social conservative to lead their Republican Party into the upcoming elections. The problem is that they’ve given up on authentically principled conservatives, like Mike Huckabee and Sam Brownback, because they’re too far behind in the polls. To have any chance of beating the amoral Democrats, they’ll have to support a morally deficient front runner, like the thrice-married, pro-choice, gay-friendly Giuliani.

It appears that evangelicals are confused, and not simply about how to vote. They’re stuck in the age of supremacy, believing that behavior is best influenced through a patriarchal approach. They see the Government as the father, which must create and enforce policy that will ultimately shape the conduct of its children. They hope to grow a strong, socially conservative brand America from the top-down, through edict and control. It reminds me of the antediluvian thinking of many of today’s business leaders: brand growth through controlled rhetoric.

Behavior as Communication

In his 1971 book Silent Messages, Dr. Albert Mehrabian revealed the importance of the verbal, vocal and visual elements on communications believability. The verbal cues - what was actually being said - were dominant only seven percent of the time, the vocal 38 percent of the time, and the visual cues were the primary carrier of trust and believability, a whopping 55 percent of the time. Communications experts subsequently grabbed those insights and played up the fact that human beings are primarily visual creatures. And that’s true. But it totally misses the good doctor’s point.

What Mehrabian’s research really tells us is that people are persuaded primarily by behavior.

Marketing Excellence Formula

Can you name the best marketing company in the world? It is a very difficult question. Too often we confuse big revenues, innovative products, famous brands or remarkable ad campaigns with marketing excellence. Don't get me wrong: all of the above are wonderful corporate assets, but they do not necessarily denote marketing excellence.

A truly great marketing organisation displays excellence in all fields of our discipline. And that is why I have no hesitation in telling you that Procter & Gamble is the single greatest marketing company in the world.

A short seven years ago P&G was the last company you would associate with marketing excellence. Half of its leading brands were losing market share, employee morale was at an all-time low, and a once powerful marketing function had been decimated by a disastrous restructuring.

But the recruitment of a new chief executive - AG Lafley, himself a talented marketer - and the promotion of James Stengel to the post of chief marketing officer a year later has transformed the once ailing FMCG giant and propelled it into the vanguard of marketing practice.

Take market research. P&G recognised that it was awash with too much quantitative analysis that only served to stifle consumer insight. In response it has radically revised its research architecture, first by installing observational methods such as ethnography at its core, and then using these insights to drive its quantitative analyses.

US: Dropping the Ball on Green Issues

Greetings from LA, where I am working on a major consulting assignment.

The contrast in climates between the cold, wind-battered island that I left behind and the calm, sunny skies of California could not be more pronounced. Even more striking, however, is the contrast between the US approach to climate change and the one I am accustomed to in Britain.

It's hard to avoid the issue in the UK. Switch on the TV and you are confronted with numerous features about the topic. Parliament is regularly debating the nation's response to climate change and most of our major brands are beginning to alter their approaches to respond to the issues too.

Tesco is the latest to take action; the retailer is to discount energy-efficient products, reduce its reliance on air freight and install wind turbines on top of its stores as part of a £500m green initiative announced earlier this year.

Here in the US, however, the climate-change debate is significantly less developed. The government is almost silent on the issue and most major companies are extremely reticent about confronting global warming.

This past January in Detroit, Van E Jolissaint, chief economist at Chrysler, made headlines with some comments he made at a recent automotive conference.