• by Karlene Lukovitz  @KLmarketdaily, May 1, 2009

Starbucks has launched an integrated marketing campaign to counter the coffee competition from McDonald's and Dunkin' Donuts and their claims that Starbucks' brews are overpriced.

The multimillion-dollar campaign focuses on the quality and value of Starbucks coffee, the unique experience, and the values (such as sustainability and fair trade practices) that have "built the brand from the beginning."

The marketing will span both traditional and non-traditional channels supporting all of the brand's distribution points, take a "long-term, story telling" approach and build over time, Starbucks SVP, Marketing Terry Davenport reports in his blog, MyStarbucksIdea.

The campaign's nearly all-text print ads carry messages such as: "Beware of a cheaper cup of coffee. It comes with a price;" "If your coffee isn't perfect, we'll make it over. If it's still not perfect, make sure you're in a Starbucks," and "This is what coffee tastes like when you pour your heart into it." All bear the advertising tagline: "It's not just coffee. It's Starbucks," and an image of a Starbucks cup.

Dennis Lombardi, EVP of foodservice strategies for retail and foodservice consulting firm WD Partners, notes that ads with copy longer than "a sound bite" risk lowering readership, and that it will be interesting to see if consumers view the ads as educational or somewhat obvious. "People understand that value is more than price, and the Starbucks consumer has a more sophisticated profile -- or at least they like to think they do," he says.

"But it's of course true of all advertising that it will appeal to some and not to others," Lombardi continues. "The point is that Starbucks is trying something, and that's to be applauded." The "real test of the company will be how fast they can appropriately respond to the results" once the campaign is rolling, he adds.

The campaign launched with a full-page ad in the business section of Sunday's New York Times. Seattle Times business writer Melissa Allison noted that Starbucks has long advertised its environmental and other global responsibility efforts in the Times, and "although terms of the advertising are not disclosed, it might get a discount or other deal in exchange for putting that paper on top of its cafes' news racks." That, she speculated, might partially explain how Starbucks is doing this major campaign without upping its marketing costs, as was reported by CFO Troy Alstead in last week's fiscal Q2 analyst conference call.

Simultaneous with its quality message, the chain is conducting market tests of somewhat lower prices on some items, such as tall lattes and grande iced coffees (the latter priced at under $2 for a 16-ounce size), and offerings such as its economical new Via instant coffee. Slightly higher prices are being tested on other, "more complex" beverages, CEO Howard Schultz said during the financials call. Schultz maintained that speculation that Starbucks is losing market share to competitors has been "grossly exaggerated."

The company reported a 77% loss in profit for the quarter to $25 million, but its profit of 16 cents per share slightly exceeded analysts' expectations. Sales declined by 7.6%, to $2.3 billion. The company closed 600 stores last year, and in January announced 300 more closings and layoffs of 6,700 employees. This year, it will end up with just 20 new stores, compared to the more than 1,400 it had planned before the economy hit the skids. The company reported that it exceeded its cost-cutting goal of $100 million for the second quarter by $20 million.

"I don't think Starbucks, or for that matter many other consumer companies, have been dragging their heels," says Lombardi. "The economic change happened very quickly, and I think Starbucks has responded appropriately and realistically."