One of the biggest surprises is Apple’s success despite the economic environment. Despite smaller wallets, consumers are still managing to pay for relatively expensive iPods and iPhones which sometimes require expensive AT&T data plans. This supports Millward Brown’s analysis that the top brands are striving. This may be because consumers are looking for the most value for their money. They may sacrifice going to Starbucks for a month and make their coffee at home so that they can afford a new iPhone.

According to the report:

“Customers are not holding their breath during this economic volatility. They are adjusting their coping strategies, while remaining determined to purchase brands that contribute to the pleasure, quality, purpose, and security of their lives.”

One of the biggest questions companies want to know, is whether the recession will cause a lasting change in the way consumers buy. One noticable change is the avoidance of conspicuous consumption as people try not to appear insensitive or greedy. Luxury brands still grew 10% in value, although this can be largely accounted for by growth in demand in China.

“Consumers are not in the mood for greed. And greed is not required for success. Once we are on the other side of the economic slowdown, consumer spending will pick up. But perhaps slowly, as people internalize the lessons of our recent boom and bust history. They will want quality, intelligently created, well-designed products. But they may not want one in every color.”

The study suggests that even when money is tight, consumers will still spend on the strongest brands. Consumers know what they can expect from strong brands and are still willing to pay premiums for this assurance. The exception are brands that are perceived as unnecessary luxuries like a trip to Disneyland or a 4 dollar coffee.

I once jokingly made the comment, “Starbucks is going to become the McDonald’s of coffee”. I don’t think that is too far from the truth now based on recent events. Starbucks recently started promoting “value meals”, a breakfast sandwich and a small latte for $3.95. They also started selling the instant coffee packets called Via for 3 for about $3. This may be part of a strategy to grow sales in response to the economic recession, but at what point does it become commoditization of the brand? You can now get a cup of coffee for less than a dollar, if you buy the Via instant coffee and mix it yourself. Has Starbucks lost sight of their vision to bring the experience of a Italian coffee house to the masses, and sacrificed it to maximize sales? I would argue that Starbucks has been on this path for some time, ever since they replaced hand ground coffee with automatic espresso machines and started with the drive-throughs which made their service more convenient but took away from the experience. That was the turning point where it because less about the Star and more about Bucks. However when you focus too strongly on the bottom line and not enough on customer experience, the brand starts to die and you start looking more like a commodity.

Has Starbucks become a value brand like a WalMart or a McDonald’s? This may not be such a bad strategy when you consider the millions of Americans who have become accustomed (or addicted) to picking up a cup of coffee at the drive through on the way to work. Having a prepared cup of coffee every morning has become more of a need than a want. Starbucks will probably have tons of customers who need their services for many years to come. But, when you sacrifice the quality associated with your brand by becoming ubiquitous or selling your product in a powdered form, you open yourself up to be easily substituted. Is Starbucks that much better than the corner espresso stand where the barista still knows your name? If a Starbucks clone, such as a Caribou Coffee or a Tully’s is convenient, will people still go the extra mile to have Starbucks? One of the major problems with a value focus, rather than a brand focus, is that $4 dollar coffee is rarely a value. Now it’s McDonald’s that is trying to be different from Starbucks with a recent billboard that read “4 Bucks is Dumb”.

Photo by Robert Couse Baker