| Starbucks needs a new CFO. That's a Chief Focus Officer to keep this specialty retailer on course. You may recall that it was just a couple of months ago when Starbucks shut down to retrain its front line staff on how to get back to the basics and how to make a new kind of coffee drink. The picture was rosy and the focus was on the core business. That was then. This is now: Starbucks reported a 28% drop in profits last quarter and the picture looks bleak. To combat the economic downturn and what CEO Howard Schultz calls a "real reduction in consumers' discretionary spending," the company is rolling out an array of non-coffee beverages. Soon you will be able to add high-energy drinks and smoothies to go with your lattes.
While we might argue the causes of the Starbucks problems, the economy and consumer confidence are being shaken and this affects every business worldwide. I won't dwell on the state of the economy and all the political posturing taking place in this election year. My focus as CFO of the Monday Morning AH-ha! is on you when I'm not focusing on our clients.
I have never believed that marketing executives are very good at math, but today it's time to review the basic laws of arithmetic. You don't need a calculator and Excel won't help. Americans are cutting back on a wide variety of discretionary purchases, conserving their cash for necessary spending. Ronald Regan promoted the idea of the "trickle down effect." I propose we call it RIPPLE MATH.
What happens when real estate prices plunge and homeowners can't borrow against the depressed value of their homes? Spending decreases. What happens when banks grow tighter with their dollars in a period of uncertainty? Families run up against credit limits and spending decreases. What happens when families are forced to live within their means? Spending decreases. What happens when companies lay off workers or cut working hours? Spending decreases. And what happens when non-optional purchases increase like health care utilities and gasoline? Spending decreases.
Ripple math is fundamental. REAL DISPOSABLE INCOME HAS BEEN SQUEEZED. That's a paradigm marketers have not had to face for a couple of decades. For the new MBAs in the marketing department, there probably were no case studies that prepared them for ripple math. Most of us have never faced what one economist calls "stall-speed growth." Simply explained, there is a sharp slowdown in domestic demand while inventories have been growing and exports have been increasing due to a weak dollar.
The Marketing Implications
This is not an economic dissertation but a demonstration that marketing has to be driven by an understanding of ripple math because it's real today. The marketing CFO needs to conserve scarce marketing resources and channel them toward the areas of the business that are most vulnerable. It's very important to understand that ripple math is dynamic. There are new ripples every day and they are usually overlapping. This week's AH-ha! challenge is to channel your customers' shrinking disposable income to your brands. The primary focus has to be on your customers. For this to happen, you have to track each customer's individual pattern shifts to determine what the chief vulnerability is, and how to turn it into a positive for your brand.
Remember our Sixth Star strategy. It begins and ends with each customer. The Sixth Star focus is building database driven, marketing focused initiatives that build organic growth for a brand. The Sixth Star strategy allows marketing to specifically target your customers who have stopped shopping, have reduced their spending, or have changed their mix of products or services they are buying from you.
Every change, however small, adds to the ripples. The CFO needs to develop a tactical plan that addresses the ripples and the vulnerability associated with them. It's not brain surgery. It's about staying connected and rewarding on-going patronage, which is equally as important as providing good service and service with a smile.
Marketing cannot make the ripples disappear. But marketing can smooth them by applying the Sixth Star tactics. Starbucks management has focused on the economy. It neglected to mention how McDonald's and others have made significant gains in the premium coffee business. Its strategy is to expand the product mix. Time alone will tell if that strategy will be successful; I'm skeptical.
I will never be skeptical of a marketing initiative that stays focused on strengthening the business' core asset – the customer. Call it loyalty, call it relationships, call it engagement. It does not matter what you call it as long as you do it.
This week, call your CFO team together and review your numbers. No, not your P & Ls. Let the other CFO do that. You should spend this week focusing on where your vulnerabilities are in your customer base and develop a Sixth Star strategy that will smooth the ripples in your math.
Have a great week.
|
