Coffee, Community, and Consumers in Complicated Times

M Coffee at Half Moon Bay from Half Moon Bay Review April 2009

As predicted, with the uncertain economic conditions and drooping retail sales, more and more marketing and business articles are focusing on the possible shift in consumer attitudes – the new frugality (simple is good), the suddenly cautious luxury market, and the joys of hanging out together at home. All of these “modes” are probably a reflection of some real behaviors and attitudes among Americans, but let’s take a look at one segment and consider whether these shifts really amount to something that marketing and development needs to consider today.

So, today, let’s start with coffee: before we were using the “r” word at all, there were some red flags signaling that Starbucks expected world domination was hitting its Waterloo. Dunkin Donuts and McDonalds were taking advantage of oversaturation and pricing issues to promote their own coffee, packaged in that perfect slot between “cheap” and "cool.” After all, Starbucks’ success was based on the experience of the space, the coffee, the brand, as much as it was about a really good cup of coffee. As price becomes more of an issue, customers can see the writing on the billboard (for in fact, McDonald’s has seriously steeped up its outdoor advertising to focus on the McLattes and other drinks that compete directly with Starbucks: the price wars campaign in December has moved toward showing the coffee itself in attractive photos).

If, for Starbucks, the brand focus shifts from ambiance towards value, it becomes a dangerous game of seesaw for a chain that is as much about the overall package as the item being sold. This is less so for McDs, which can make it up in other ways if this gamble fails – after all, they are a hamburger shop, despite the coffee, salad, healthy meals, you-name-it advertising. Unfortunately, for a coffee chain, it’s all about the coffee. Interestingly, the Washington Post reports that Starbucks is betting on major revenue from international sales of Via – that’s right: instant coffee (the ultimate downscale coffee beverage to most Americans).

But let's compare: many areas report that local coffee shop sales are not down -- from State College PA to Pueblo NM, to Seattle (that’s right: Starbucks’ old home location!) local coffee shops seem to be doing okay (with the caveat that there are more stores closing or not doing well in areas that are generally hardest hit by unemployment and the housing slump). Part of the reason is that these shops do more than sell coffee – food accounts for a large percentage of their sales (something Starbucks is recently considering expanding) as well as ground or whole bean coffee to take home. Finally, the significance of social and communal interaction in a local place. Interestingly, the Seattle Times reports that people who’ve been downsized in corporate jobs are opening small businesses like coffee shops. Despite worries about regular sales (and that two year startup time where profits are nonexistent), the equipment and leasing costs are low right now, making it possible for some who might not have attempted this at another time to give it a go. Despite the ways in which Starbucks has become a McDonald’s-like symbol of the homogenization of culture, one thing that’s been well documented is the ways in which the coffee chain has actually spurred on the development of competing local businesses. Capitalism occasionally works the way it was intended.

What’s important to note here is that people’s spending habits are driven as much by social as economic needs. Consider how a coffee shop – whether it’s the Panera in the strip mall at the center of town, the Dunkin Donuts near campus, or the funky locally run place – actually does become Oldenburg’s “third place,” where those who have lost their jobs, are searching for new ones, or need a cheap place for a meeting for the price of a cup of coffee. These sites provide community, something that isn’t driven by budgetary considerations.

Consider this: one of the Starbucks slated for closure is in the Oak Park neighborhood in Sacramento. Locals (including a cinema owner whose site depends on the coffee shop traffic and celebrity mayor Kevin Johnson) are campaigning to keep the store open. Mayor Johnson said he personally called Starbucks CEO Howard Schultz and asked that the coffee chain keep its investment in the neighborhood's revitalization.

Ironically, in March, CEO Schultz announced that, rather than pulling back, they are expanding in Eastern Europe and China, along with 140 new stores in the US. This week, despite a community petition and phone calls from Oak Park activists, the corporate offices announced that it was closing the store (along with 400 others in the US) to “help its bottom line.”

Some would argue that it’s not good priorities to fight for a high-priced coffee shop in an area of town that boasts high rates of homelessness, unemployment, and few jobs: indeed, perhaps it’s not what the community and politicians should be doing with their time. But if Shultz is serious about making Starbucks an investment in local environments, the great good place rather than the only alternative, they might consider it a form of brand-building: a bit more consistency and goodwill in the overall policies would put the foam back in the latte.

Niche Marketing: Tailoring the Goods as Well as the Pitch

Many of the posts on this blog have talked about segmented markets, core customers from specific demographics, and good marketing design that speaks to the right audience. Smart companies develop or streamline their products for the needs of that key group, often with good PR that travels over and beyond the dream demographic. But sometimes companies have to be pushed to recognize that they’re missing out on potential sales. Ten years ago the Wall Street Journal noted that some companies were beginning to notice that people with disabilities were an important market with some disposable income. According to Suzanne Robitaille, approximately 54 million adults-- one in five Americans -- have a physical or mental disability. She argues that “People with disabilities have a combined income of more than a trillion dollars -- and are willing to spend it on products and technologies that make their lives more productive…Brands that ignore the needs of this group relinquish an opportunity to reach this growing demographic.”

Indeed, American Airlines just announced that it will run a contest for advertisements featuring people with disabilities, promoting both its own efforts to create services that are accessible while highlighting other companies too. The winners receive free advertising on the airline's in-flight network.

As new technologies make access to a wider world possible for everyone, creating devices that are user-friendly for people with physical challenges has not been as much of a high priority as it could be. And that represents a loss of core customers. Recently, the state of Massachusetts and the National Federation for the Blind, (which successfully sued Target) went after Apple for the inaccessibility of iTunes products. In response, Apple will rework iTunes U, the college and university online course content section of the iTunes music store and make it "fully accessible to the blind" by the end of the year. At the same time, as Robitaille points out in her ablebody blog, Apple has produced some assisted technologies, such as an iPhone app that provides a talking email keyboard and another that uploads glucose readings from connected blood glucose to the iPhone, which allows diabetes patients to track blood sugar levels over the course of the day. While creating specialty products for a niche market is a tried and true formula, technology companies also need to face the fact that their main products may be used by different groups in profoundly different ways. The product itself -- as well as the pitch -- needs to take that into account. For example, many of the applications designed for people with disabilities are also more user-friendly for older consumers who might find regular interfaces difficult to navigate.

For a positive example, note the marketing news about Panasonic's Toughbook laptops which have "carved out a niche among people who use computers under the most trying circumstances -- think utility linemen, the military, construction workers -- but in this age of belt-tightening, marketing executives with the brand are thinking the brand's durability message may play to a wider audience." The success of designing and then selling to that specific market has encouraged Panasonic to create a multi-platform campaign of television, web-based, print, and out-of-home ads that considers how other users might also want a more resiliant laptop. The new campaign, which carries the theme "Toughbooks for a tough world,” is being promoted in airports and on shows like "CNN in the Morning" to capture the business traveler who might not realize the advantages of a more resilient product. In the same way that sportswear and hiking gear morphs into business and street wear, the "tested under extreme circumstances" approach entices users from a slightly different occupational group. Indeed, I suspect Panasonic has not yet exploited the full extent of its crossover from successful niche sales to larger markets. One of its Toughbooks is geared towards doctors -- another group that can appear authoritative or innovative to "regular" consumers. Toughbook provides the "first fully-rugged mobile clinical assistant (MCA), will be one of its many mobile healthcare solutions innovative engineering, resulting from its own proprietary global healthcare industry research and Intel’s mobile clinical assistant (MCA) reference design. The device improves workflow and eases clinical loads for doctors and nurses, helping healthcare organizations maximize efficiency and reduce errors... [It] is a secure and intuitive platform for barcode medication administration (BCMA), vitals capture and electronic medical records (EMR) capture and review." Given the popularity of hospital-based on television, philanthropic work in the field by Doctors without Borders, and concerns about emergency medical response in disasters, Panasonic might also consider how to promote its product even more.

Change is not always good

Orange juice giant Tropicana has recently been taking some flack for redesigning the packaging on what was, essentially, already a successfully functioning brand and look. Pepsico, its parent company, recently announced that after less than two months of the new design, it will return to its original packaging due to customer complaints. Consumers said that the new look (which replaces the now iconic orange with a straw for a more abstracted glass of juice) made Tropicana blend in with generic brands on the shelf and presented problems when hurried shoppers tried to distinguish between the varieties such as “no pulp,” and “extra calcium.” At a time when private label brands are surging and an item already has a strong brand image and core customer base, this definitely wasn’t a great move (especially when the volume of complaints was not that huge, but they were from people who labeled themselves as long time brand users).

Interestingly, the actual packaging differences are not enormous: the color scheme, the single color item emphasis, and the logo offer some carry-over from the original design.

But perhaps the marketing folks at Pepsico misunderstood the power of its original design in relation to the place Tropicana holds in its customers’ brand memory. You would think they’d have learned their lesson with the recent trouncing of its parent company for re-vamping the Pepsi logo to be more in sync with the Obama “O” and piggybacked off of its message of hope and, well, change. While the change brought media attention to the brand, it wasn’t the kind that marketers had in mind.

Another recent change that’s also been universally disliked by users is the new Facebook interface. While logo changes are mostly for cosmetic and visual appeal, the complaints about the new Facebook, while not reducing its phenomenal growth in any way, means that users will have to adapt in more interactive ways. Interestingly enough, the petition against the new Facebook, signed by almost two million people, is of course, hosted on the Facebook site itself. The COO of the company talked about the interface as an evolving platform, always in the works and that they are interested in taking users’ concerns into consideration with each new iteration. While not a perfect incorporation of consumer feedback, it’s probably the right tack to the take for this kind of product.

Some manufacturers have gone one step further and gotten customers more deeply involved in the actual package design process. Stoneyfield Farms redesigned its yogurt packaging and logo--- although they’ve already finished getting input and made a choice based on it, still asking its online community to rate the various choices. Their online poll is a bit stilted, but it has the nice feature of allowing survey respondents to invent their own answers and then have those answers integrated into future version of the survey. Not only does this give the brand more of a transparent image with its core customers, it fits with the overall presentation of the company as engaging a larger community of consumers who buy Stoneyfield as part of a commitment to a particular lifestyle and set of values. Perhaps if Pepsico had paid more attention to those kinds of sociometrics, the desire for change would not have hit them quite so hard.