Starbucks won't slug it out in ad wars

When Market share is as tight as in the coffee industry, or growth shows signs of decreasing, companies are more concerned about their competition. This can be seen in Dunkin' Donuts, and not a usual competitor with Starbucks, McDonalds, are both running negative ads against Starbucks. Downgrading the quality of its product and its pricing strategies



Coffee chain says it'll take high road

By ANDREA JAMES
P-I REPORTER

McDonald's has erected a billboard in sight of Starbucks headquarters declaring, "four bucks is dumb."

If Dunkin' Donuts' taste test commercials were the schoolyard equivalent of blowing spitballs at the coffee giant from afar, then the latest from McDonald's is like pulling a wedgie. Starbucks employees driving northbound can see the billboard on their way into the city.

Another billboard slogan jabs, "large is the new grande." The two phrases are displayed on 140 billboards in Western Washington, some of them near Starbucks cafes.

"The billboard placement was done because we picked high visibility locations," said Alan Finkelstein, who owns four McDonald's in King County. "We really wanted to point out that ordering an espresso at McDonald's is quick and simple. Small, medium and large. It's easy."

Earlier this year, McDonald's started unsnobbycoffee.com to promote the launch of espresso drinks in the Seattle market.

Will Starbucks respond in kind? Unlikely.

While the coffee wars received much media and Wall Street trumpeting this year, Starbucks has been mostly silent, maintaining that its customer base is different.

Starbucks could fire back that not all of its coffee costs four bucks, or that extra cents help pay for health care for baristas. (A 12-ounce cup of brew starts at $1.40 at Starbucks, a penny more than the average McDonald's brew price. A small McDonald's latte costs $1.99 compared with $2.45 to $3.15 at Starbucks.)

Instead, it is fighting back in a more subtle way. Executives have hinted that Starbucks is taking the high road.

"We get a lot of questions on the competition and that everyone seems to be picking on Starbucks through their advertising and try to reposition Starbucks as expensive or snobby, and, boy, when is Starbucks going to start advertising and join in that coffee conversation?" Starbucks Chief Marketing Officer Terry Davenport told investors last week in New York.

"We're not going to get into that conversation. We're not going to get sucked into the, 'My coffee is better than your coffee,' price point type of coffee conversation. We're going to play at a much higher level."

Starbucks is relatively new to the advertising game after two decades of building its brand on word of mouth. However, armed with newly hired advertising agency BBDO New York, Starbucks placed two commercials recently. One, which ran during the "Saturday Night Live" show before Election Day, advertised that Starbucks would give out free coffee Nov. 4.

The second ran on the heavily traveled Wednesday before Thanksgiving, on the Weather Channel and CNN, to let customers know that Starbucks would be donating portions of coffee sales to help African AIDS victims.

The coffee giant also is turning to cheaper modes of advertising via YouTube, Facebook and Twitter.

During an interview that aired this week with CBS anchor Katie Couric, Starbucks Chief Executive Howard Schultz made clear his feelings about one of the rivals.

"I think the way we deal with that is not to respond to something that's that frivolous," he said. "Are you going to say to your friend, 'Let's go meet at Dunkin' Donuts?' Are you going to say that?"

He pointed out the "Saturday Night Live" advertisement as a success. "We had an amazing response to that. Amazing."

More insight into how Starbucks' top brass really feels about McDonald's and Dunkin' can be found in ousted Chief Executive Jim Donald's severance agreement, in which he was prohibited from working for either competitor, but was permitted to work for Burger King.

Even though Starbucks won't play along publicly, it's still fun to pick on the company, said consumer anthropologist Robbie Blinkoff, who studies consumer reaction to the financial crisis.

"It's even more fun now with the economy," Blinkoff said. "I'm back and forth about my love, hate with Starbucks. I love to hate them."

A new type of consumer, more conscientious, less vain, is emerging. Fewer will be "slaves" to Starbucks, he said.

"We're going to come out with a new identity. It doesn't mean that people won't go in and buy a Starbucks cup of coffee, but they'll know why they're buying it again. It's more like a reboot."

The advertising campaigns against Starbucks signal a shift in the rules, especially when a corporate behemoth such as Oak Brook, Ill.-based McDonald's goes after a company half its size.

The commonly held wisdom that attack ads are an underdog's game no longer applies, said Emily Bryson York, a Chicago-based food reporter for Advertising Age.

Attack ads are popular right now: Mac vs. PC. Campbell's vs. Progresso. Dunkin' vs. Starbucks.

"A big part of this is the economy and marketers feeling like the economy is in horrible shape, people have fewer discretionary dollars and you have to sharpen your elbows," York said.

McDonald's is trying to build up its coffee credibility.

"That at least seems to be why they're going after the Seattle market so aggressively," York said. "The thing about these comparative campaigns is you have to hammer away at them for a long time. You can't just hit someone and then run away. You have to have a lot of marketing dollars to put behind it and that's something that McDonald's could theoretically do."

It's unclear whether McDonald's will take its "four bucks is dumb" campaign national. Nationwide, 4,000 out of 13,000 McDonald's restaurants sell espresso and the number is growing. Out of the 190 McDonald's in Western Washington, 155 sell espresso.

"We see ourselves as trying to enter a new category and steal as much of the breakfast and coffee share as we can garner," said Kelly Hoyman, Northwest region marketing director for McDonald's.

The fact that "four bucks" sort of rhymes with "Starbucks" is not on purpose, said John Livengood, executive creative director at DDB Seattle, McDonald's advertising agency.

"The idea is, in a billboard, you got three or four seconds to capture people's attention," he said. "You're trying to be as short and sweet and as pithy as possible."

No matter what McDonald's does, Starbucks is likely to stay on its own message, and surgically pick advertising spots that promote social responsibility.

Says Starbucks chief marketer Davenport: "The answer to how we're going to respond to the competition is we're not going to respond. We're going to keep doing what we do and we're going to keep doing it our way."

Change, everywhere

Detecting some Obama brand spillover in the marketing of smoothies in South Africa:



Anyone else know of any other ad campaigns that use the Obama brand of change?

80% Of Consumers Won't Buy A Car From A Company That Files Bankruptcy

At first I didn't really think this article had anything to do with our international marketing class, in fact I started reading it to keep up with the news on the auto industry. But this does speak to our class in the way of branding, especially internationally. If one of the Big Three goes bankrupt, what will that do to its branding? Or to its loyal customers? Will they not receive their full term of warranties? Will it make them an inferior brand domestically, or internationally? It is all really interesting stuff. If GM, Chrysler or less likely Ford file for bankruptcy what will their marketing be like abroad, will they stick to their original branding, reliable, built ford tough, or will they have to come up with new ad campaigns? And lastly this would mean a great market capitalization by auto manufactures like Toyota, who can come into the market (where 80% of people don't buy cars from bankrupt people, see study below), would this mean they would mass market even more to get their name out, say they are more reliable? While they will have no problem directly comparing brands in the US, some countries are not comfortable with that kind of competition. So how can they say they are more reliable than the Big Three in countries like China or Japan?

Vociferous southern Senators like Richard Shelby and Bob Corker made it clear during the auto industry hearings yesterday that they would very much like to see Detroit automakers go bankrupt, without mentioning how it would benefit the heavily subsidized foreign automakers in their right-to-work states.

As I watched cable news following the hearings, people appeared preaching Corker's gospel of Chapter 11 as a way to make them "financially viable," including Robert Reich (video). Nobody seemed to think that consumers will have any problem buying cars from a company that has filed for bankruptcy.

MSNBC analyst Chrystia Freeman: "I think the carmakers are using a lot of scare tactics, trying to play chicken with the politicians. We heard it with Phil Lebeau actually -- 'oh, well no one will buy cars from a company that's in bankruptcy.' I don't think that's proven."

Really?

A recent study from automotive market research firm CNW surveyed 6000 people intending to buy a new car within six months, and discovered that more than 80 percent of them would switch brands if the vehicle they wanted came from an automaker that went bankrupt. Breaking it down by company, Americans were more likely to abandon domestic automakers than foreign ones, with Chrysler faring the worst -- a full 91 percent of buyers wouldn't take home an Auburn Hills product if the company went bankrupt. Ford and GM didn't do much better, with 80 percent of those surveyed saying they would jump ship if things went south.

Freeman went on to say that foreign automakers are doing quite well in the US, actually, it's only the domestic automakers who can't be competitive because of their "legacy costs." In fact, as Marcy Wheeler notes, sales are down across the board -- and Ford's are holding better than those of Toyota, Honda, Nissan, Hyundai, and Kia. In fact, Ford doesn't require a bridge loan, and isn't asking for one -- they may have enough cash to weather the storm, but are requesting a line of credit as a backstop should things get worse. Common sense would inform most people that if this turns out to be the case, foreign automakers will not be immune, either.

The fact that the Detroit automakers are in a cash flow crunch, and that getting rid of legacy costs would do almost nothing to ameliorate that, doesn't seem to have occurred to her.

Did she pick up Richard Shelby's talking points in the green room by accident?

As former Wall Street GM analyst Ron Glanz said recently, an American made car is already selling for $4000 less than the exact same car made by a Japanese manufacturer would, expressly because of bad product legacy and fear that the manufacturer will go bankrupt. It's a PR problem that can't be overcome simply by waving your arms and shouting "no, no, really, Chapter 11 bankruptcy. . . it's just financial reorganization."

The danger here is, if they're wrong -- and all the evidence is that these "experts" are terribly, terribly wrong -- they're dooming US automakers to a hole they may never be able to dig themselves out of.

One in ten jobs in the US is directly tied to the auto industry. The stakes here are high. It shouldn't be too much to ask that people do a little research before climbing on cable news an making outrageous and demonstrably false claims.

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Boeing Jet Faces Delays in the Wake of Walkout

Follow up on the Boeing case study we did in class:

Boeing Co. may further delay first deliveries of its flagship 787 Dreamliner by at least six months to account for the recent strike by union machinists and other snags.

According to people familiar with the situation, Boeing officials are expected to announce later this month that first deliveries of the fuel-efficient jet might not occur until summer 2010, more than two years after the jet was originally scheduled to enter service. Boeing's most recent schedule called for initial deliveries in the third quarter of 2009.

In recent days, these people said, Boeing has been meeting with suppliers and partners on ...

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Global Retailing and Media

The use of media streams is essential to successfully marketing products in other countries. Over the last decade, digital media has played a major role in marketing products abroad. The use of the internet has allowed companies to market products, and make advertisements over the internet that can be seen all over the world at the same time. There are some marketing executives that believe that digital media is the wave of the future, and print media will slowly die out as the world becomes more dependent on technology. I believe that print media is still a very useful marketing tool, and will always be relevant when marketing a product. I have researched the pros and cons of using digital media and print media as part of a companies marketing strategy to expose itself in new and foreign markets.

Digital Media

The internet has given companies the ability to market products everywhere in the world. It is very effective and cost efficient. The use of pop-up advertisements and spam mail on the web has allowed companies to do mass advertisements, and lead huge marketing efforts over the web. Advances in consumer technology has allowed for people to stream videos onto their cell phones as well as shop for products on their cell phones. With the heavy use of social networking websites like Facebook and MySpace companies can advertise to millions of consumers across the world. The simple fact that the internet can allow consumers in rural areas to purchase products, when otherwise they would not have access to buy it; is an example of why the use of internet by global retailing companies is only going to increase.

Advertising and marketing on the internet is cost efficient, but not always effective. Internet users do not always click on pop-up advertisements or open spam mail. In fact most people feel that spam and pop-up advertisements ruin there web surfing experiencing, thus the multitude of software programs to eliminate spam from one’s inbox and pop-up blocking applications. The over use of the web for advertisements sometimes has a negative affect on the response someone will have to the advertisement. They sometimes will simply just ignore, or quickly click out of online advertisements.

Print Media

Print media is highly effective when marketing a product abroad, specifically outdoor advertisements. Whether someone is using a metro system and sees a striking ad, or driving in a city and sees a huge billboard advertising some product; the outdoor use of print media is extremely eye catching. Companies that use this technique, which is rather popular in the Europe, can increase the visibility of their products or brand to large audiences. With the use of outdoor advertisements, people are more inclined to stop, look, and/or read the advertisement. Print Media is costly in the form of newspaper and magazine ads but outdoor media is relatively cheap and it works for the company all day, every day. The cost of billboard advertising ranges from about $700 to $2,500 a month. That sounds like a good sum of money, but a full-page ad running for one day in a major newspaper costs about the same. The Outdoor Advertising Association of America estimates that U.S. businesses spent more than $5.5 billion on outdoor advertising in 2003.

Outdoor print media does have its drawbacks. Outdoor print media is subject to the elements which could damage signage. Outdoor media is also much harder to change than a digital media advertisement. Outdoor media can also be subject to vandalism and graffiti. Print media also cannot reach as wide of an audience as an internet ad could.


Global retailing companies, should focus on both print media (outdoor) and digital media. Depending on how digital a particular market is, will determine how heavily a company should use digital advertisements. The use of outdoor advertisements will be generally based on the availability of high traffic areas to place outdoor advertisements. Both are great ways to market a product abroad, and are necessary for global retailing companies to succeed abroad.

Gas Prices Affecting Consumer Spending

In September of 2008 gas prices were down 13%, and since then gas prices have continued to go down. However, the gas prices were so high in July and August, that consumers had very little income to spend on goods, and the economy continued to slow. Consumers no longer had the available income to spend on foreign imports, like clothes, watches, and electronics. As gas prices dropped, retail sales increased. Sales for clothing went up 3.3% after August. Consumers now have more disposable income to spend on goods again. This means that foreign imports will see an increased sales and growth, as long as gas prices continue to drop and stay low. Because the U.S. economy is so large, when the average American consumers can no longer afford to buy foreign imports, it affects global retailing.

Since, the drop in gas prices women clothing is one of the sectors that is doing well. This is because consumers have more money to spend, and designers have changed styles to adjust to the hard economic times and added more grays and duller tones to their respective fall and winter lines. Chain retailers like Target and J.C. Penny are experiencing growth in sales due to the drop in gas prices. Consumer electronics sales also were boosted with the relatively sudden drop in gas prices.

It is clear that when gas prices are so high that consumers have to cut spending, global retailing will take a hit. This would also be the case if any other necessary amenity such as, natural gas (heating), electricity, or water were to see severe spikes in prices. However, gas prices are low again, and consumers have more cash to spend on luxury items. This could not have happened at a better time seeing that the holidays (Christmas, Chanukah, and Kwanza) are around the corner. Retailers expect huge increases from holiday sales in 2007.

Global Retailing Trends

The global retailing trends suggest that, the continued growth and market penetration of the largest retailers is having a major macro-economic impact. The rising competition among these major retail players is forcing prices down and allowing the price conscious consumer to have more power as a consumer. Global retailing trends also suggest that the recent mergers and acquisitions activity by the major players in global retailing has produced significant movement in the ranks beyond the top 10 retailers. However, sales growth would generally create huge expenses. Earnings for companies that were involved with a merger or an acquisition were hit hard by integration and conversion costs, and companies have struggled to extract maximum value from their acquisitions. In terms of global retailing it is important to note that food-related retail stores still heavily outnumber other types of retailers. According to Deliotte, “nearly 60 percent of the Top 250, and 9 of the top 10 retailers, sell food, with most operating a variety of formats including supermarkets, hypermarkets/supercenters, hard discount stores, cash & carry/warehouse clubs, and convenience stores.”

After analyzing these trends one can deduce that the global economy is rich place for retailers to do business. With the increase in activity in the global economy retailers can expect to see more global distributing channels form as well as current channels becoming more efficient. Finally consumers can expect to see lower prices around the globe with all of the competition that is taking place in the global market. The competition from all of the retailing companies will drive prices down and give consumers more bang for their buck.

Sports, Sponsorships and International Business Marketing

Sports play a unique a role when it comes to international marketing. Sports are played in most countries throughout the world d and in the most developed countries sports can be used a marketing tools for companies to market their product or services abroad. Sport teams, sport leagues, stadiums, and major sporting events are all great places for international exposure. Many companies will pay millions of dollars to become global sponsors of the Olympics. Roughly a dozen multinational corporations such as Coca-Cola, Lenovo, McDonald's and Samsung paid as much as $U.S. 100 million each to be global sponsors of the Beijing Olympics. The reason why companies are willing to pay such large amounts of money to become sponsors or major international sporting events like the Olympics or the World Cup, is because the international exposure their company will get around the world. The Olympics or the World Cup could be the platform a company needs to introduce its product or services in a variety of international markets. It is common for companies interested in entering the U.K. market to try garner a sponsorship deal from one of the major soccer clubs. Sponsoring an event or sports team can become a financially sound investment and can help ease the barriers to entry in certain markets. It is easy to see how sport related companies like Addidas and Nike benefit fro m sponsoring an international sports team or event, but non sport related companies that link themselves to sports benefit as well. In 2005, Deutsche Bank continued its previous co-title sponsorship of the Deutsche Bank-SAP Open and became the exclusive title sponsor. The event will be renamed "Deutsche Bank Player's Championship of Europe". Title sponsorships of a sporting event are great ways to market abroad. The Royal Bank of Scotland is also a sponsor of the British Open. Last year, during the British Open, the Royal Bank of Scotland tried to appeal to American consumers with their commercials starring American golf legend Jack Nicklaus.

Earlier in the year, there was a case study on Clif Bar and how they should enter the Australian market. My suggestion would be to sponsor a major sports team in Australia, such a rugby team. The exposure Clif Bar would receive from a popular sports team endorsing its product as a healthy organic sports bar, would help position the product in the Australian market. Athletic consumers would put Clif Bar on their radar as well as consumers that were interested in organic products. Companies in a position like Clif Bar, should always try to sponsor a sports team or league in the foreign market they which to enter. Sponsoring a team in a foreign market that you which to enter, can serve as a litmus test to gauge the amount interest and “buzz” that your product or service made with out really committing any of the companies services long term.

Obama's Affect on International Business

In the coming months a new president will take office and an old president will leave the white house. As George Bush leaves, his administration will take with them their policies on the war, taxes, and most importantly (as it pertains to International Business) their policies on outsourcing. Outsourcing is a necessary part of the global economy. For companies to produce cheaper and cut costs, they will find cheaper resources in other countries. Resources that companies generally outsource for are materials, services, and labor. When a company outsources there are positive effects and negative effects. The company will see more profits by cutting costs. The company will be able to price their product more competitively and sometimes create a better, higher quality product. The negative effect of outsourcing is the loss of jobs. When a GM closes a plant in Michigan and opens one in Mexico, 10,000 Mexicans might have a new job, but 10,000 Americans are out of a job. Barack Obama is highly opposed to this scenario. He believes that American based companies need to stop outsourcing jobs to other countries. Barack Obama will most likely place punitive taxes on American companies that plan on outsourcing their labor to other countries. Obama will also most likely provide tax cuts to American companies that keep jobs in America.

Under the George Bush administration, the American steel companies have just about disappeared due to the cheaper Japanese steel and the lack of trade barriers imposed by President Bush. When Barack Obama assumes office, he will most likely impose tariffs on foreign imports that pose a significant challenge to American businesses. Obama will most likely use other form of trade barriers to make it harder and more expensive for foreign companies to import their products.

In the Boeing vs. Air Bus case, the underlying issue was who was going to receive the new U.S. government contract to build some new military aircraft. The case is still in the federal courts. If John McCain was elected president, Air Bus would have been most likely awarded the government contract. However, Barack Obama will be the next president; he will most likely award the contract to Boeing. Under Obama’s presidency there will definitely be some changes to how American companies do business abroad, and how foreign companies due business in America.

Lousy Marketing -- Not Lousy Cars -- Killed Detroit

Long before the CEOs of the Big Three hopped aboard their private jets, they presided over the biggest marketing failure in American history.

Many miles ago, long before Detroit started losing billions a month, it lost something even more important: its roadmap to the American unconscious.

So while we've heard all the arguments for the impending demise, it's high time we took Detroit's slow-motion suicide for what it is: a marketing failure, probably the biggest one in history. It takes years of monumental incompetence to squander the biggest, deepest love affair the American consumer has ever had.

I wasn't surprised when Detroit's million-dollar men cranked up their corporate jets on Friday, popping warm nuts while strategizing about how to land some cold cash.

That 360-horsepower blunder--which may very well have sealed the fate of the Big Three--capped off decades of marketing incompetence.

Car companies have so many levels of creative approval that even a crash dummy would have trouble surviving the process.

The image destruction started when their brands began to exhibit the worst kind of corporatist behavior, summoning up dark memories of the tobacco industry. They battled against every safety initiative, starting with mandatory seat belts. They tried to beat back higher CAFE standards. They lobbied against electric cars and alternative fuel.

As consumers were increasingly making purchase decisions based on the practices of the company behind the product, the domestic auto industry became a loathsome choice.

Detroit's bad actions hurt it with a huge part of the market--the more than 30 million people in Richard Florida's "Creative Class" who work with ideas, live in urban areas, and are more progressive. Even the more traditional consumers who stuck with American cars felt abandoned.

The jerks running the companies didn't help. Your CEO is a marketing statement, and in an era of visionary leaders celebrated by the media--other than Lee Iacocca, who retired in 1979--the guys running the show were overcompensated, colorless zeroes.

From 1974 through 2000, GM was piloted by Tom Murphy, Roger Smith, Bob Stempel, and John Smith, failures whose names are recalled only as poster guys for deck-chair rearrangement.

As these weak-kneed leaders came under pressure for their practices and products, they turned psychologically inward. It all culminated with Michael Moore's Roger and Me in 1989, a national display of corporate paranoia. An industry whose birthright was independence came to represent villainous bureaucracy.

And in a colossal marketing mistake that scraped away any chance for individuality, Detroit's legions of PR firms continued to let its brands be bundled as the Big Three. Can you imagine Apple permitting itself to be bundled with Dell and HP this way?

Ironically, though, as its reputation plummeted, Detroit's cars actually improved. The Detroit Free Press notes that Consumer Reports recently found that "Ford's reliability is now on par with good Japanese automakers." And J.D. Power ranked Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac, and Lincoln brands' overall quality as high or higher than that of Acura, Audi, BMW, Honda, Nissan, and Volvo.

This is an epic advertising failure, attributable to Detroit's stubbornness and arrogance. The Big Three kept working with a small group of the biggest and most boring ad agencies, refusing, until recently, to work with anyone who didn't have car experience. Leo Burnett has worked with GM since the 1930s; J. Walter Thompson has worked with Ford for more than 60 years.

I've worked in advertising for a while--thankfully, never on a car account. And I will tell you that it's well-known in the industry that working with Detroit is torture. The Big Three's demand for mediocrity is legendary. They have formulaic rules--the "running shot" of the car has to be a certain length in every commercial--and they have so many levels of creative approval that even a crash dummy would have trouble surviving the process intact.

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