You know you've become a cultural phenomenon when they name a sociological effect after you.
In the case of Starbucks, the pioneer in high-end coffee and street corner third places, their pricey espresso concoctions--costing an average of $3 per--gave rise to the so-called "latte effect" of incremental discretionary spending. Do without the $3 a day habit, financial advisors held, and you'd save a bundle over the course of a year. Spawning that sort of pop phenomenon is not what Starbucks had in mind. Letting it cure into folklore was their big mistake.
I am sure there are numerous economic theories governing the utility of a cup of joe. Who is to say that the pure enjoyment or cognitive boost from a hot foamy beverage doesn't yield productivity or other tangible benefits? I don't know. And who is to say that the thousand bucks saved on a year of lattes wouldn't be just as easily squandered on the NASDAQ--in less time than it takes a barrista to throw down a double mocha? What I do know is that Starbucks should have seen the latte effect as a genuine threat and should have done something about the percolating paradigm.
Over time, the message that a stop in Starbucks should be a sometime thing has caught on, putting pressure on the mermaid's ability to grow. Bad news for a for a company opening five new shops a day somewhere in the world.
Today, word dripped out that Starbucks would be experimenting with a $1 cup of brew and perhaps a free refill scheme. I don't think Dunkin' Donuts is wetting themselves with worry, but the move says that Starbucks needs to back track a bit. It is a risky move--price competition is a slippery slope. And, when it's a buck, it's a buck, no matter how elastic the costs become. It will be hard to get the same buzz with a $1.20 cup of Americano in two years. Besides, it is never a good idea to turn your core business into a loss leader. But I digress.
My real issue is not with matters of economics or pop culture, but rather the cautionary tale of letting untoward information live on uncontested on the Internet or anywhere else today. Leave an untruth or unattractive comment--or questionable economic law--go unaddressed for more than three months and it becomes a de facto truth in this day and age.
Remember the old three-second rule--retrieve dropped food from the ground in less than three seconds and it is still cool to eat? Well, we now have a three-month rule. Ignore a piece of FUD on the Internet for more than three months and it will stick forever, maybe even reshape reality. I call that the Starbucks Effect.
Tom:
I think Starbucks is in a pretty enviable position -- they finally have so much share of wallet that *not* buying your daily latte could probably fund a vacation. Or a college fund. Or maybe solar panels, depending on your daily habit.
I don't see this particular jab as a negative. It's a validation of their success. I'm sure most brands wish they had this problem.
Thanks!
Posted by: Stephen Denny | January 24, 2008 at 10:14 AM