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Starbucks Method to Restructuring YOUR Finances
| February 10, 2009 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Starbucks has been struggling recently
The Starbucks’ brand is based on people willingly paying premium prices for coffee; however, as the economic outlook became grimmer, consumer spending declined, and competition intensified amongst fast-food chains. Consequently, the coffee giant has suffered some big financial blows recently. For example,same store sells decline by 9% for the first fiscal quarter, and they have plans to close 300 stores and to eliminate up to 6,700 jobs in fiscal year 2009.
Image Credit: andrew martin
These cost-cutting maneuvers will only go so far, as their real problem appears to be their pricey image. In fact, their $4 latte is symbolic of the over-indulgences of yesterday, and consumers of all walks of life are reducing unnecessary purchases .
Plans to fix Starbucks “pricey” image problems
The somewhat intuitive solution is for the coffee giant to change its image from being so unnecessarily expensive. Starbucks hopes to achieve this with a new “pairing” program. This allows consumers to get a latte with coffee cake or drip coffee with hot sandwich for $3.95. Functionally, this is Starbucks parlay into the value menu zone although they refuse to call it that presumably because they wish to preserve some of the status associated with their brand. The new program will be marketed as “Hello to a New Day.”
The somewhat intuitive solution is for the coffee giant to change its image from being so unnecessarily expensive. Starbucks hopes to achieve this with a new “pairing” program. This allows consumers to get a latte with coffee cake or drip coffee with hot sandwich for $3.95. Functionally, this is Starbucks parlay into the value menu zone although they refuse to call it that presumably because they wish to preserve some of the status associated with their brand. The new program will be marketed as “Hello to a New Day.”
You may wonder why Starbucks wont just lower their prices, which is what most industry experts expect to happen soon anyway. A spokesperson for the company response is “Today, no. But never say never.”
Many premium brands now want to be associated with “value”
Starbucks is the latest example of how premium brands are trying to reposition themselves for a prolonged economic downturn. No matter whether you are looking at advertisements for Target, Quiznos, or even Saks Fifth Avenue, much of advertising now emphasizes the great value the products or services have. This shift in marketing focus is the result of a reset of both economic and social behavior. As the world lost 40% of its wealth, many are eschewing luxury brands in favor of lower-priced items that make more financial sense.
Starbucks is the latest example of how premium brands are trying to reposition themselves for a prolonged economic downturn. No matter whether you are looking at advertisements for Target, Quiznos, or even Saks Fifth Avenue, much of advertising now emphasizes the great value the products or services have. This shift in marketing focus is the result of a reset of both economic and social behavior. As the world lost 40% of its wealth, many are eschewing luxury brands in favor of lower-priced items that make more financial sense.
Lessons from Starbucks
Perhaps there are some things to learn from Starbucks repositioning.
- Take stock of your long-term economic growth (of course this assumes that everyone in your household who desires to work is employed). One thing that was interesting about Starbucks new plan is that they used the numbers (fiscal statements) to dictate the change. They realized that the current economy did not support their existing business model, so they changed their model accordingly. It would behoove many (people and companies) to follow suit. One of the easiest ways to achieve this is to look at YOUR financial statements (i.e. balance sheets, income statements). Are you becoming more profitable? If not, is there something that needs to change (increased income or decreased expenses)? If nothing can be changed at the present, at least you are not ignorant of your financial state, and hopefully the awareness will temper the natural desire to spend when funds are not available.
- Perform competitive market analysis. Lately, competition from fast food chains (i.e. McDonald’s) has been fierce for Starbucks. In a thinly veiled slight (against Starbucks presumably), McDonald’s took out an billboard saying $4 coffee is stupid. Starbucks realized that they were losing business while value-oriented fast food chains (i.e. McDonald’s) have been thriving. Rather than continuing to lose ground, Starbucks decided to part ways with a bad strategy even though the move is something that CEO Howard Schultz vowed he would never do. We should also consider how we stack up financially to ourpeers who are managing their finances well. Given our incomes, ages, and family commitments, we should assess whether we are measuring up financially or falling behind. Of course, just because you are doing as well as people around you doesn’t mean your analysis is complete. Birds of a feather flock together and go to the same destination. Carefully consider what level you should be reaching given your resources. Know what you can realistically achieve, and begin to make changes to achieve it.
- Innovate. Although Starbucks didn’t really innovate because other food chains have been using the value-menu strategy for years, Starbucks did make changes that were new to their company and radically different from their existing model. It may be necessary to shake things up financially for you to achieve your long-term financial goals. It may be reconsidering your investment goals, tinkering with your budget, temporarily delivering pizza, etc. It important to stay fresh with respect to your wealth journey. It is quite possible that a very small change can yield big rewards. I will never forget one book that I read that has made me thousands over the years. The book was only $10 dollars and is still one of the best investments I ever made by far. Never underestimate small innovative steps, for it is a small rudder that can change the direction for a large ship.
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Starbucks is certainly needing to look at its business model.