Prime Group

I sit in a Washington DC office directly across the street from a Juan Valdez retail store, the first foray into US retailing for the National Federation of Coffee Growers of Colombia , a wholesaler gone retail in an effort to capture some portion of the “upstream” profit margins of its wholesale customers, namely Starbucks.

As a coffee addict whose only true loyalty is to a decent cup of coffee, proximity matters more than brand. That said, I’m vaguely familiar with the Juan Valdez brand and assumed, based on those perceptions that the coffee would cross the “decent” threshold. Combine that with the proximity and I could become a regular. So far so good on the value of a brand.

Not so fast. The store has had a “Coming Soon” sign for an interminable time, especially given the 300 square foot space. What were they doing in there? I’m sure any number of construction, contractual or bureaucratic delays are to blame but the point is, I couldn’t help but also wonder if maybe they were reevaluating the entire decision. During this idle time, the inconspicuousness of the Juan Valdez and mule icon also started to weigh on me. It didn’t help that the signage uses a cursive font making the “l” and “d” look like a “b” – Juan Vablez.

I got past the”b” and lack of Juan and his mule when opening day arrived. I walked in for my midmorning cup and was greeted, or rather met, or more accurately, stared at by 7 employees behind the counter. Seven employees standing almost literally on top of one another and none of them, not one, seemed happy to there. Let me cite Mitchell Speiser, a restaurant and food analyst with Lehman Brothers to make the rest of my point.

“There’s so much more to it,” said Mitchell J. Speiser, a restaurant and food service analyst at Lehman Brothers, about the federation’s plans. “It’s site location; it’s branding. It’s the right management team. It’s hiring the right people. Just on paper, having real Colombian coffee and creating a retail shop around it, they do win the authenticity factor, but it takes a lot more than that to create a successful brand and a successful retail chain.”

Truer words have never been spoken and on the hiring front I would be willing to bet at least two of the seven quit after 30 days and another one to two are fired within 90 days. Here is food for thought – why not hire half as many people, pay them 150% and include performance bonuses?

Things usually go better when there is a successful business plan that includes smart branding. A brand in search of a business plan is a recipe for driving traffic to Starbucks.

So, did Apple know it would be dropping the iPhone price and simply elect to maximize profit from the early adopters (Diffusion of Innovation, Wikipedia) or was it a market based reaction to demand falling short of expectations? Maybe it was both - a hope that the $599 was the “right”? price point with a Plan B at the ready if it wasn’t. Regardless, this is one example among countless of dynamic pricing based on segment or individual consumer level differences. In this case, and many others, the segment paying the highest price tends to be the most loyal, least price sensitive Apple customers who had to have the iPhone. (Confession, I’m one of the “suckers”? who bought at $599 but read on to find out why I don’t feel too bad about it)

Does a (product or corporate) brand run a risk of using dynamic pricing, especially when the most loyal often pay the most – e.g. long-time 7 day subscribers to newspapers have always subsidized the fickle churners? Does such a brand run the risk of a perceived sense of unfairness or lack of “reciprocal loyalty”? trumping hard won brand equity? There is ample market research to suggest (Journal Consumer Research (Grewal et al. 2004) consumers do consider differential pricing unfair if it is based on the buyer’s identification (e.g. new customer). And since the internet has made this type of information increasingly accessible it would stand to reason that the level of dissatisfaction is on the rise. However, there are mitigating factors and Steve Jobs, in his open letter to the “dissatisfied”? identifies, knowingly or otherwise, at least three.

One is time. If a buyer thinks the cost difference is more a function of time then buyer identification it is more acceptable. The difference between the $599 buyers and the $399 buyers could be “early adopter”? versus “Christmas shoppers”? but it could also be a function of time. If the difference is attributed, at least partially, to the different time period of purchase then perceived unfairness is mitigated.

Another closely related mitigating factor is past experience. It’s probably fair to say early adopter iPhone buyers have previous technology purchasing experiences and recognize that technology prices tend to go down not up. Again, if past experiences support the price differential then it can further mitigate a sense of unfairness. Reputation also matters and a company (like Apple) with a sterling reputation and brand can weather the perceived unfairness of dynamic pricing better than those without it.

If the Democrats wake up on November 8 having seized control of one or both houses of Congress, it will be for one reason – they had the better message. This is ironic, since throughout the campaign Democrats have been accused of having no message. That is wrong. Their message is: “We’re not them.”

What their critics really mean is that the Democrats have no program, which is true enough. But, in politics, if you’re the “out” party, you don’t need a program to have a message.

Politics in this country is a binary system – all zeros and ones, and voters get to pick one or the other. This keeps it easy – a good thing because voters have more interesting things on their minds – like their kids’ soccer games or who’s getting thrown off the island next week.

It has become a political cliché to say that elections are about the future. Not really. Elections are about the past – did you like it enough to continue it, or are you willing to risk the unknown? In that sense, voters in this midterm election face a dilemma. Most like their own congressman or senator enough to return him or her to office. But most are sufficiently disgusted with the status quo to want a new Congress – which can only happen with new congressmen.

Democrats understand this dilemma and have crafted their message accordingly. They’re not George W. Bush, Dick Cheney, Donald Rumsfeld, Mark Foley, or Jack Abramoff. Forget that none of those folks is on a ballot. If you don’t want more of the same, vote for something different. Vote Democratic. This may be remembered as the “election of ‘49″ – not 1949, but ‘94 in reverse. In 1994, after 40 years of control of the House, the Democrats were tossed out resoundingly by the voters who had finally had enough. Newt Gingrich got a lot of credit for this because he had crafted the Republican “Contract with America,” which helped galvanize his party’s case. But, in all likelihood, the “revolution of ’94″ would have occurred with or without Newt’s contract.

This year, the Democrats have offered no such clear-cut alternative policy. But they have understood the importance – in politics, as in business or life – of a clear, simple, unified message. And, they’ve had the courage of their non-convictions – refusing to be bullied into taking unnecessary stands by frustrated Republicans or high-minded media.

Is a “throw the bums out” election good for the country It is tempting to say the country is voting for a “pig in a poke,” but the fact is that voters seldom know in advance what a new President will do, much less a new Congress.

Will a Democratic Congress end the war in Iraq, refocus the war on terror, repeal tax cuts for the wealthy, and rid the Congress of sexual predators? Probably not. But it would restore political balance and accountability in Washington, and that’s no small matter. That’s why “we’re not them” is not only an effective message, it’s an important one.

Starbucks’ chairman Howard Schultz recently told his top executives that they may be “watering down the Starbucks experience [and] soul.”? If the Starbucks “experience”? and “soul”? have anything to do with coffee, Schultz may be right that books, CDs, movies, stuffed animals, and egg, bacon, and cheese sandwiches distract from that soulful experience. What’s fascinating to me is how Starbucks has managed to display this diffused branding in the most public of places – on its coffee cups.

Starbucks’ cups, of course, were never just containers. They are also large, sorry, grande billboards. On one side is the ubiquitous Starbucks’ logo – the wavy-haired, large-breasted woman in the green circle. But the real branding begins round back where, on my particular cup today, a musician named Dan Zanes envisions in “The Way I See It #193″? a “21st Century America where families, friends, and neighbors gather together at the end of each day… to tell stories and jokes, to sing and dance with wild abandon.”?

This is a branding hat trick. First, Starbucks endorses open speech and wants to connect their customers with the trendsetters of today. Second, there’s Zanes, who is, presumably, cool (which I have to take on faith because he exists only in the world of Starbucks, not iTunes). Third, if you do want to hear Zanes’ music, you are told to go to “Starbucks Hear Music”? on XM Satellite Radio. More cool. By now, Starbucks is already way too cool for me.

But, wait, this cup overflows with even more branding. The cup also tells us that it is “made with 10% post-consumer recycled fiber.”? I’m not sure what that means. Post-consumer is a little scary, even apocalyptic sounding. The fiber part is, hopefully, not nutritional information. Anyway, this reminds us that Starbucks is not only cool, but also responsible. Cool and responsible is a little oxymoronic, but the company seems to pull it off. So, at this point, Starbucks has done as much branding as can be done on a single cup – even a grande one.

Now, it’s the lawyers’ turn. Lest anyone think that Starbucks’ actually endorses Zanes’ zany vision, we are told that “this is the author’s opinion, not necessarily that of Starbucks.”? Are there really lawyers in Seattle who think I’d sue the company just for endorsing a silly, utopian idea? I know our judicial system is messed up, but I can’t imagine that suit would go very far, even in “21st Century America.”? However, if while reading Zanes’ world view I spill scalding coffee on my crotch, I damn well would sue. But that’s covered, too. The cup warns, “Careful, the beverage you are about to enjoy is extremely hot.”? In other words, you won’t enjoy it in your lap.

You’ve got to hand it to Starbucks. It has carefully parceled out the real estate on its cups to the branding department, the music promotion department, the legal department, and the department of silly ideas. Cool, very cool.