Starbucks says more discounts, promotions coming

LOS ANGELES Fri Aug 29, 2008 2:45am EDT

A Starbucks coffee cup sits on a table in New York July 3, 2008. REUTERS/Chip East

A Starbucks coffee cup sits on a table in New York July 3, 2008.

Credit: Reuters/Chip East

LOS ANGELES (Reuters) - Starbucks Corp (SBUX.O) will roll out more promotions such as free product coupons to perk up its flagging U.S. coffee sales, even as it holds off on wide price cuts, a top marketing executive said.

The Seattle-based chain, famous for its pricey lattes, is planning to use more special deals, including discounts during certain days or seasons and limited offers for free food and drink when new products roll out.

"Customers can anticipate that we will continue to look for fun ways to offer value," Brad Stevens, Starbucks' vice president of customer relationship management, told Reuters in an interview.

For the first time in its nearly 40-year history, Starbucks has fallen victim to a U.S. economic downturn and is fighting to reverse domestic declines. The company has launched a turnaround effort that includes closing 600 poorly performing stores, shuffling management and cutting jobs.

The focus on value is a new one for Starbucks, which built its business selling premium-priced specialty coffee drinks and until only very recently had been able to raise prices with little resistance from customers.

But times have changed.

Howard Schultz, Starbucks' chief executive who returned at the beginning of the year, has shifted gears. While he once described Starbucks as recession-proof, Schultz now stresses the company is sensitive to customers' need to save a buck as gas and food prices skyrocket.

Starbucks shares have lost more than a one-fifth of their value so far this year and it recently posted its first quarterly net loss in 16 years as a publicly traded company due to restructuring charges.

JUST AS GOOD AS LOWER PRICES?

Starbucks has said it will not raise prices in its upcoming fiscal year ending September 2009. It also has no plans to cut the price of its products, which include espresso drinks and other specialty beverages that can cost between $3 to $5 -- an expensive habit for customers seeking their daily fix.

"In the discussions that I am in, that is not on the table," Stevens said when asked if the company plans to lower prices.

Still, some outside marketing consultants and consumers have said Starbucks should consider lowering prices U.S. economic weakness persists.

But frequent discounts and promotions may have a similar effect as cutting prices in the eyes of consumers and, potentially, investors.

"Dollar value is important to (customers), no doubt," said Stevens. "The whole notion of recognition and a sense of being acknowledged by Starbucks for their commitment to the brand is very important to them."

Starbucks employees handed out free product coupons when the new Vivanno smoothies were launched in July. The company's current "Treat Receipt" promotion offers $2 cold drinks in the afternoon to people who bring in the receipt from the purchase of their morning coffee.

The chain is beefing up its Starbucks Card Reward program. Starbucks Card users, who enjoy freebies such as two hours of daily Wi-Fi, already have received special discounts and limited-time free products during introduction periods.

Stevens said his team is experimenting with more ideas.

The company is running a "Gold Card" pilot program in Denver and Vancouver with card users who have signed up. The test program includes a friends and family discount, as well as a promotion that gives free drinks on birthdays or another special day designated by card holders.

A very small group of testers from those two cities are also trying out a program that would give card holders a complimentary beverage after they buy 10 drinks with their Gold Card.

Eventually, Stevens said the company wants to offer a customized card that may include the member's name or photo.

(Editing by Andre Grenon)

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