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What We Can Learn About Direct Marketing From Starbucks

We’ve all been there.  Standing in line at a Starbucks in the midst of your morning commute, face lit with the steady glow of your timeline or sports scores as you catch up on last night’s events.  You take a quick glance up to see how much longer you need to wait for your grande Americana when you notice a person with the same shirt or shoes or bag as you.  Sometimes it’s all three.  Okay, maybe everyone just likes that same print J. Crew shirt… probably just a coincidence but if you take a good look around, you’ll actually notice that the people in line are all slight variations of yourself: morning commuting, young to middle-aged business professionals who aren’t afraid to spend $6 on a morning coffee (and obviously have impeccable taste in clothing).  You are mistaken if you think that the likeness of your fellow patrons is a coincidence. Starbucks does a lot of things well but one of their major strengths shows in a complex geo-segmentation strategy that targets store openings around households or workplaces with a  very specific demographic in mind.  A demographic that is going to pay the higher price for a cup of joe and feel good about that coffee’s tie to terms like free trade, ethical, green and, of course, responsibility.  The two cornerstone elements of Starbucks success are 1.) the company’s ability to build a very recognizable identity around its target consumers and 2.) knowing where their target consumers are heavily concentrated and setting up store locations accordingly.

coffeeNow that we’re all thinking about how much we spend on coffee annually, let’s concentrate on how we can bring Starbucks success through targeting to the direct response world through a basic concept.  You might say that the coffee peddling and direct response business models are too different for comparison but let’s boil this down to a basic point that can be applied universally: invest where it makes sense.  I think it’s very clear that the online/mobile space gives us some of the most granular and dynamic means of reaching a target audience (which Starbucks also is using creatively specifically through mobile), but what about the print aspect for a direct response client?  Traditional DR approach to print advertising is to pay low and get as much as you can for your rate.  While this might make sense for a new company that is using media saturation to also gain brand recognition, this may not be the best approach for an established company to spend its marketing dollars.  Chances are, a good deal of the media that is being purchased and placed at lower remnant rates is not performing up to standard but is being masked by over-performance in other areas.  When a certain geographic segment does not perform well, there is likely a reason whether it be competitive, age range vs product offered, HH income, credit worthiness, etc. and there is a high likelihood that these areas will continue to under-perform.  Even if a campaign performs at an acceptable ROI, there is always room for improvement if money is spent in the places that make sense and right-sized according to the return.  As an example, Starbucks has one location on seemingly every corner of New York City and one location in the state of Wyoming because, again, they are spending money on opening locations in areas that make sense.  Successful direct marketing cannot be a one size fits all approach and one needs to understand the true value that media is pulling from the marketplace and how to take advantage of strengths of certain geographic/demographic makeup vs others.

Since coffee is still on everyone’s mind, let’s use yet another Starbucks reference to show how we can best optimize our media and we’ll use mail marketing as an example.  You are a direct response retailer that can serve nationwide.  Your current strategy is to pay pennies per piece for remnant on page in shared mail and receive as much media as possible for the allotted budget.  You find that there are some areas that are producing no results, some areas that are efficient but bring low value transactions, areas that are efficient that bring in high value transactions, and other areas that are over-performing in all aspects.  Overall, your campaign performs to expectations but there is a lot more you can get out of the media if you vary your spend according to segment performance.  To start, areas that don’t work should be suppressed, freeing up budget to spend elsewhere.  All of the other areas will receive a different measurement of spend which we’ll link to Starbucks sizing: tall, grande, venti.  Let’s assume you’re spending “grande” money in all areas without any differentiation.  For the areas that are working but bring low transactional value, you can likely downgrade the media that you are running to get a better return (like inside pages positions at lower CPM) and this will now become your “tall” order which frees up even more money because you were previously spending more for less return.  For areas that are an acceptable efficiency and bring higher transactional value, you probably want to continue to run in these areas and maintain spend and this will continue to be your “grande” order.  For the areas that are over-performing from all aspects, you would probably want to see if you can get more out of the geographic segments.  You may look to upgrade to a larger ad or direct mail piece to get higher response and more volume which then become your “venti” order and higher marketing cost can be paid with savings in other segments.  At the end of the day, you’ve spent the same budget but reallocated according to the strength of the geographies and can produce a vast improvement to the volume and value associated with transactions coming through the door.  Grande isn’t right for everyone and this becomes the print media application of spending where it makes sense.

Of course, there are countless ways that we can learn from Starbucks like how much sugar can be spilt on the condiment area before someone decides to do something about it or how many people can really hook up to a single WiFi before the internet breaks but when looking at the success that customer and geographic targeting has brought to the coffee giant, there’s something about that which can’t go unnoticed even if you pass 50 a day on your way to work.

Vice President, Analytics

Phil Sitilides

1 Comment

  1. Kim

    I really enjoyed this article. Very smart!

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