Shortage Marketing

Supply turmoil at Starbucks - needs Category Marketing

Demand outstripping supply means you have to go into inventory management mode for Category Managers, and Shortage Marketing mode for your business and brand’s well-being. A prime current example is Starbucks’ Teavana tea shortages.

In December 2012 Starbucks acquired Teavana for $620 millions US dollars. Starbucks transitioned from Tazo to Teavana teas shortly after the acquisition. Now two years later, as early as November 2014 tea shortages and supply chain issues have plagued their offering.

Teavana change-over not seamless

Teavana change-over not Spotless

Of itself, this is not striking. Firms undergo supply chain challenges all the time. Forecasting demand is a very inaccurate science/art. Done poorly, there can be wild oversupply or undersupply issues. Fashion retail is rife with fast paced supply challenges as the clothing changes seasonally – even monthly. Sales, store blowouts, double discounts, BOGO offer (Buy One Get One free), and other promotions are the popular tools to contend with excess inventory. Ultimately unsold inventory then goes to discount outlets selling the remains at deep discounts.

Excess demand can be equally challenging for a business. Anecdotally, since November 80%-90% of the Starbucks I have visited have been sold out of the Pineapple Kona Pop Herbal tea, 50% out of Peach Tranquility, and about 30% out of ordinary Green Tea! A marketing challenge for anyone concerned with branding.

What has Starbucks done right?

Fortunately, the reason for the tea shortages has been communicated to Starbucks’ staff. When asked, staff at various locations knew enough to tell me about the shortages which were due to the transition and acquisition. Reasonable communication to front line staff done – check.

A basic element of Category Brand Management is to shift the customer demand to a similar offering which IS available. On this note, I would largely conclude this as a miss. Savvier barrista’s and cashiers suggested alternatives they had in stock. In roughly a third of the cases, the attendee made no effort to suggest another tea. During this shortage, a smart maneuver is to create a quick and easy script that all customer facing employees would know to redirect to an available tea – and talk up that alternative. Many tea drinkers will accept the alternative.

After several months of shortages, at one location I was offered a samplers of the Oprah Cinnamon Chai Tea Latte. Shortly after sampling, I noticed an email advertiser recommending the new flavour with a compelling social cause promotional. With each purchase Starbucks will make a donation to support youth educational opportunities. Feel good while buying up, and drinking my latte – nice marketing choice.

It is a stretch to think that a herbal tea drinker will want to substitute with a Latte specialty tea instead, but this is a great substitution example of savvy brand management in tight supply times. Make sure customers are presented with your brand’s alternatives. Better yet, create marketing focus and drive demand toward the substitute products you have on hand. Half marks for a stretch, and late execution of a substitution strategy.

Brand Erosion

Starbucks’ brand is a promise of a quality, relaxed, and reliable experience. It is a premium brand and appropriately charges a premium price for its services (and products). Part of this brand promise is that I can get my coffee or tea any way I want it, catered to my liking. Just think of any variation of orders including Tall, Grande, or Vente followed by soy, extra foam, solo, decaf, double caramel shots, extra drizzle …. Customer expectations are that the coffee or tea they want will always be available when they want it, and how they want it. For that promise they are willing to pay a premium for this luxury, experience and reassurance called Starbucks.

Not a big deal, right? After all it is just one tea or coffee – right? That would be multiplied across all of Canada, or North America, or across all their markets. Then it becomes an important and sizeable risk. That premium brand position is what all competitors are vying to usurp. The longer and more widespread the category shortage, the more likely customers will start turning to Second Cup, Timothy’s, Coffee Culture and other franchises, or independent coffee houses, instead. Worse yet, Starbucks’ may start to become known for sarcastic comments about having any of a million variations of coffee, and ONE tea.

So, what to do from a marketing perspective?

Shortage Actions

1 – Communication is Key

Make sure that your employees, especially the front line, are informed about the challenges. Ensure they understand the causes, what actions are being taken to fix the situation, the expected timeframe for a resolution, and what alternatives are available immediately or in the short term. This relieves some front line stress and is appreciated by customers. Make sure the front line knows the key points to stress and how to do so.

Customers loyal to a brand are willing to put up with the occasional challenge. The best bet is to keep them in the loop, so they feel their interests are being addressed by the brand. Going out of your way to help fix the problem, and make the customer feel appreciated and accommodated – may even enhance the brand experience after the issue is resolved.

2 – Provide Alternatives

Part of a humble and straight forward communication is to have alternatives. Make sure the front line knows how to reposition the other teas which are close substitutes. For example, when asked for the Teavana Pineapple Kona Pop Herbal which is not available – offer the Youthberry tea as a good alternative, or Teavana Passion Tango (if available). Most customers will be somewhat irked, but appreciate the pro-active alternative suggestion.

3 – Find Close Alternatives

Management needs to step in on this one to source another offering that is close to the one customer are requesting. This may include swallowing one’s pride, to go back to Tazo to source a similar tea – for a short run. There would be a great brand enhancing story of the company’s client commitment pushing it to bend over backwards to satisfy the customer needs!

4 – Promote Alternatives

During a supply shortage efforts should be doubled on promoting the supply which is available. A Starbucks email and web campaigns should focus customer attention on Passion Tango as the ‘flavour of the month’, or a refreshing alternative to your regular tea.

On-premise ads could be deployed to focus attention on specifically well stocked specialty teas like Passion Tango mentioned above. Again the key is to gently and pro-actively shift client attention to the key offering and products that are on hand. An extremely important cautionary note is to ensure that additional stock of the alternative is brought in, as not to also run out of inventory of that product. This is an embarrassment that could truly damage the brand image in the eyes of the customer.

Starbucks alternative Chai Latte Offer

Starbucks’ Oprah Cinnamon Chai Tea Latte Offer

5 – Sell Up

Starbucks has done a good job selling customers up to the Oprah Cinnamon Chai Latte. This good work shifts attention away from the supply constrained products and may result in an increase in revenue and gross margins (given that the upsell is to a more expensive and margin rich alternative). Best case is that a group of customer may become permanently switched to the more expensive alternative.

6 – Promotional Offer

Either widespread or selectively offer a “thank you for your patience” discount or double-points offer for trying one of the alternative products that are in-stock. For most retailers or B2B firms, a widespread offering would be the most practical solution. Starbucks has the option of being selective, by specifically targeting its regular tea drinking clients, or its high volume tea drinking clients – through the Starbucks App, or Starbucks cards (with associated permission based email addresses). Being selective both reduces the overall cost of a promotional discount, and makes the client feel distinguished. Again, done proactivity could turn a brand shortfall into a brand-enhancer.

7 – Own it

Organisations are often amazingly unwilling to apologize for their errors. There is a fear that this could hurt the bottom line, or that it will erode their proud brand. Naturally, if errors are too frequent, then it will and SHOULD erode at the brand. However, a brand’s willingness to come clean, and sincerely apologize for a rare miss – will actually gain customer loyalty, in most cases.

Starbucks – there is still an opportunity to own-it. Even after the supply is corrected, a marketing celebration with a good humored apology – will still endear the brand to your customers.

Marketing IS Business

Starbucks is a great brand. This post is meant to take an example of a premium brand error, to study what has been done and what should have been done to remedy the situation. Unfortunately, in this case Category or Marketing ownership needed to preside to stop any brand erosion resulting from this shortfall.

Marketing does not stop as soon as the customer walks into a location, and it does not stop when a salesperson takes on the prospective customer. Marketing is the brand defender. This means being engaged in all elements of a business – when a crisis arises. It means driving solutions, like the seven suggested above, to fix or help manage the challenges.

Starbucks – you have a bit of homework to do. I still love you, but might check out a Second Cup before my next meeting downtown. By the way, let me know if you need a good Category Brand Manager… I can help you there ;-).

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