One of the things that makes business cycles fascinating is the changes to the status quo that come from big economic changes. Since this is the biggest change of our lifetimes, we will see all kind of ideas turned on top of their heads during this downturn.
In recent history, the prizes have gone to brands that could position themselves more up-market. Brands like Target have become cultural and commercial icons by riding the wave of mass affluence as they took the most mundane products upscale.
The poster child of mass affluence though has to be Starbucks. This is a global business that was built on letting anyone live the life of the wealthy for a few minutes at least with their morning cup of coffee. I have witnessed this first hand by lining up with call centers workers in the Philippines at midnight at the local Starbucks in Manila where I spent a great deal of time. These really great individuals were often the first in their families to graduate from universities and have real 'office' jobs. Going to Starbucks on breaks and carrying the famous cup around was a way tangible way of demonstrating to themselves and the world around them that they were on their way in the world.
Now Starbucks is really struggling. The WSJ has an article today talking about how Starbucks is trying to take some of the luxury cachet out of their brand. In tight times, people don't want to feel like they are being wasteful with unnecessary luxuries. The upscale brand positioning of Starbucks has become a anchor weighing the company down and creating openings for Dunkin' Donuts and McDonald's.
One of the more interesting pieces in the article is a reference to a December study in Chicago that showed Starbucks to be cheaper than Dunkin' Donuts for some drinks on a price per ounce basis. The company's executives admit that they have a 'disconnect between the company's actual prices and consumers' perception of those prices.'
In response, Starbucks is somewhat desperately trying to move their brand into more of a value positioning without cutting prices. Most notably, they have introduced their own version of extra value meals where they package a hot beverage and breakfast for $3.95.
Starbucks is such a strong brand that it is hard to imagine this strategy actually working, and it's easy to see it ruining its entire franchise. At the same time, that is a long term worry, and in business and life the long term only matters if you can survive the short term.
Most business people are familiar with the concept of economies of scale where unit costs decrease as production increases. The opposite of this is a concept called diseconomies of scale where unit costs increase as production increases as a company gets too big and bureaucratic and starts stepping on its own toes.
What we have going on with a lot of affluent brands today is the marketing equivalent of diseconomies of scale where the brands need to flee their upscale positioning they have polished for decades in many cases. I don't know what to call this phenomenon - maybe 'brand tarnishing.' With the potential long term value destruction in the name of short term survival though, it is not for the timid.
For a humorous version of the challenge of up-market brands check out Tom Fishburne's recent cartoon.