Two events occurred during the past few months that are important to marketers: WalMart, known for a focus on discount pricing experienced a share tumble of 5% after they lowered their full-year sales forecast. However, Starbucks, known for its unabashedly high prices decided to raise its prices higher and consumers have decided to keep on paying.
What is behind these events? Customer alignment… or not.
Starbucks knows coffee. They also know the high-end coffee consumer. And, they have been laser-focused in developing a clear perception of their brand that is understood and embraced by its target audience.
Walmart had that – and then they decided to change – and lost it. As a retailer the company knew retail better than many of its discount-priced competitors. They also knew their lower end, bargain-shopping consumers. But then they took on trying to become a Grocery and trying to become a Pharmacy. And, in trying to capture a larger share of market, the company has actually lost.
Starbucks, Known for Being a High-End Brand with High Prices is Winning
Why does Starbucks work? It’s simple; consumers understand the perceived value. The company does not waiver from its core perception. No matter where or how they buy it, consumers know what they’ll get from the Starbucks brand (no matter how much they have to pay for it.)
On its brand equity, Starbucks CEO Howard Schultz noted, “The success of Starbucks demonstrates the fact we have built an emotional connection with our customers. I think we have a competitive advantage over classic brands in that every day we get to touch and interact with our customers directly.”
Schultz went on to discuss the value of the Starbucks brand, “Tell your story, refusing to let others define you. Use authentic experiences to inspire. Stick to your values, they are your foundation.”
When other companies are looking for ways to lower prices to lure customers, Starbucks has opened even higher priced luxury Roastery stores, where customers can get a more rarefied (and expensive) offering of coffees.
Caffeinated consumers have helped the company to achieve record revenues in 4Q2015 of $4.9 billion with double-digit percentage gains over the previous year.
WalMart Trying To Be All Things To All People is Losing
WalMart has always been the “Blue Light” special company. And, when they stuck to what they were good at, they prospered. Consumers understood the “home-spun” low-priced brand and knew that they’d find a selection of bargains when they walked through the door to say hello to the store “greeter.”
But then the “greeters” went away along with the “down home” friendly feel and groceries and pharmacies showed up. And now, the company’s strategy is one of transition. It is taking on not only competition in its own retail industry, but now also taking on many other industries. In the immediate transition process this new strategy is proving to be an uphill undertaking.
Though Walmart is blaming lower margins in its pharmacy business , for a part of their recent troubles, the company has no plans to change even though its counterpart Target recently threw in the pharmacy towel, announcing that it was selling off its pharmacies to CVS.
When asked about the company’s recent decline, Chief Executive Officer Doug McMillon noted that they are working towards the future, “What we’re talking about is how we transform the company…We have got to get the company positioned to serve the customer in the long term.”
TakeAways:
1. Consumers have many choices, so they need to believe that your brand understands them and is there to meet their needs.
2. If perception of your brand is blurred, targeted messaging is not possible because there is no differentiating value proposition.
3. Consumers want their voices heard and they will pay more for a buying experience they perceive to be specifically built around their “wants.”
Generally, you get one chance to make a first impression with consumers. And then subsequent marketing efforts reinforce that perception and cultivate value around it. Knowing what consumers want from your brand and ensuring that you consistently meet or exceed those expectations pays off handsomely in customer retention and healthy profit margins.
Looking at the heart of perceived customer value is absolutely essential for understanding experience; and what you’ve described – expectations – is perfect code for “what is truly important”.
The differences you’ve identified for Starbucks and WalMart have a strong emotional and memory core. From an emotional view, the WalMart experience is pretty passive and superficial (to the degree that it’s positive), dominated by price. Their brand message reinforces the ‘price above all’ theme. WalMart is starting to feel like ghosts of retailing past – Jamesway, Value City, Bradlee’s, Filene’s Basement, Ames, Crazy Eddie, Korvette, etc. All were victims of price-based marketing. Kohl’s, just a bit more upscale, seems to be on a similar path, closing a bunch of stores because of poor performance.
Starbuck’s, conversely, is the embodiment of your point #3. If customers perceive emotional and personalized value, they will be drawn to the experience again and again and be inclined to pay more to get it..
Terrific points Michael.
Time and history have proven that if the major brand attraction is price, over time that becomes a tenuous way to hold on to customers.
There will always be a new player who offers something cheaper. At that point loyalty to the previous company disappears.