Posted by: Chris | April 15, 2008

McDonald’s Erroneous Battle of the Wallet

McDonald’s again took a stab at Starbucks by offering free lattes in Seattle last Friday. Mickey-D’s has also launched a website that offers coffee drinking average “Joes” an alternative to Starbucks’ “snobby” coffee.

I still contend that price point is not the appropriate battleground in this war. With price-positioning as its primary thrust, McDonald’s cannot compete with Starbucks any more than it can compete with General Electric or the Gap. Starbucks and McDonald’s are not merely different brands-they are, in a broad (read: “marketing”) sense, different industries. This is not to say that McDonald’s should discontinue the practice of serving high quality coffee-of course they should provide a good product, just as most other companies attempt to do (why weren’t they serving the good stuff before??) . But to draw a line in the sand with a coffee stirrer is not McDonald’s most damaging offensive.

Initiating a price-war is to say that Starbucks’ success is merely a function of the coffee it serves, which is a gross oversimplification. Sure, the coffee is usually great (despite recent criticism from a guy at Consumer Reports), but the “products” Starbucks provides that contribute to its incredible success will never be found at a McDonald’s-and that’s OK, because McDonald’s has found enormous success in the milieu it has created for itself.

Without going into detail about the lights, noises, sounds, and smells unique to Starbucks, it is the Starbucks experience that positions it into a different industry than that of McDonald’s. This experience necessarily includes Starbucks’ “tall,” “grande,” and “venti” designations, which a few find to be quite vexing, and it includes exclusive pricing.

My only concern is that Starbucks looks to be cow-towing to those deterred by their exclusive pricing by offering $1 shorts. Strolling down Price War Road will only lead to commoditization, and that never benefits anyone-business or consumer. David Kiley from Businessweek’s Brand New Day accurately blogs, “If Starbucks is going to hold on to its place in the brandscape, it needs to remain unmistakably Starbucks.” This includes the higher price and the tricky cup size names that separate it from The Low-Priced, Fast-Food Industry.

What do you think about this battle? Is McDonald’s right and they’re simply the only company with enough cash to challenge Starbucks? Or is their reasoning fundamentally flawed?

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