CHICAGO (AdAge.com) -- Starbucks chief marketer Terry Davenport has a big job these days. The embattled coffee chain is looking for ways to offer value without discounts that would degrade the brand and market without pandering, all while fighting off the onslaught that is McDonald's McCafe. Mr. Davenport, a former KFC marketer, joined Starbucks in 2006. Several promotions culminated in his scoring the CMO spot about a year ago. Since then, he points to a few recent successes, including solid sales of the company's loyalty cards, a strong response to its get-out-the-vote offer and encouraging results for Via instant coffee.
But many hurdles lie ahead. The chain has been posting negative same-store sales for over a year, and many analysts expect McDonald's initial McCafe push, which began last month, to significantly dent Starbucks sales, if only initially. In the most recent quarter, Starbucks reported same-store sales down 8% and earnings down 77%, primarily due to restructuring charges.
Still, thanks to a strong, year-old relationship with its agency, BBDO New York, Starbucks is more visible than ever while keeping marketing spending relatively constant. According to TNS Media Intelligence, Starbucks spent about $28 million in measured media during 2008. It began its first concerted branding campaign last month, with a series of newspaper ads. The work makes Starbucks' case for its prices, including health care for its employees, relationships with coffee farmers and its dedication to sustainability.
Starbucks also now runs one-time TV ads in high-profile shows such as "Saturday Night Live," or quick hits on news networks such as CNN, which then drive traffic online.
The marketer made more waves this week with the sponsorship of MSNBC morning news program "Morning Joe." A natural partnership, Mr. Davenport said, it will include occasional references to the chain's environmental activism or efforts in volunteerism.
Mr. Davenport, 51, reports to Michelle Gas, exec VP-marketing and category, and also works closely with CEO Howard Schultz, a man he describes as one of the most respected marketing minds in the business, and someone who rolls up his sleeves and gets involved in messaging.
In an interview with Ad Age, Mr. Davenport explained why McCafe will be good for Starbucks, because the Golden Arches are paying to educate the mass market in a way Starbucks has never been able to.
Ad Age: Starbucks is facing attacks on a variety of fronts, from fast-food companies with enormous ad budgets, to superpremium local and regional coffee chains that are quicker and nimbler. What about that is most troubling?
Mr. Davenport: The obvious brand-guy answer is that we absolutely will not allow ourselves to be squeezed into the middle of those two groups. On the mass side, we know from research over the years that there are still a lot of people who drink coffee every day but don't understand the difference between a cappuccino, a mocha and a latte. But we never had hundreds of millions of dollars to do that education. The fact that there are people spending money and having that conversation, we think it will benefit the entire category, and we'll get our fair share. If people get into the category, get comfortable and want to trade up to a premium, higher-quality version, we're in a great position to capture some of those.
Ad Age: How has your strategy changed during the recession?
Mr. Davenport: Early on, we got to a point of view that this is not just some temporary speed bump we have to manage through, but a seismic shift that has happened in consumer consciousness, and consumer spending habits aren't just going to return to what they once were. And as to how Starbucks and "your Starbucks occasion" stays relevant to that consumer mind-set, there are two things: the emotional part to our brand that's bigger than just that cup of coffee -- it's an emotional connection -- and now more than ever it's that sense of community, something in life can connect you to something larger.
Ad Age: How are you measuring ROI these days?
Mr. Davenport: We're probably more focused than ever on store-level transactions and the number of people who walk into every store every day. Probably more than ever we're focused on what it takes to bring people into our stores and keep their frequency at a time when they're having to make some tough budgeting choices.
Ad Age: Are you involved with pricing decisions?
Mr. Davenport: Pricing decisions are very much a part of the marketing mix. We're aware that now more than ever pricing can't be a blunt instrument, and as you look at pricing, it's got to be in the consumer construct. You'll probably continue to see us do in-store tests of a lot of ways to bring value to core customers.
Ad Age: Starbucks began its first true branding campaign last month. Why did you choose newspapers?
Mr. Davenport: We started working with BBDO in October or November of last year, and one of the things on our joint to-do list was to find a way to get our stories out there in a way that both our existing customers would recognize and that would speak to the employees and partners and give them a sense of pride, and that's clearly happened. We're exceedingly pleased with it to date. If you're going to look at a quick ROI, and if one of the ways you gauge that is the visibility and kind of talk it's getting. ... We've had a huge return on that investment.
Ad Age: You managed to launch a major campaign just days before McDonald's McCafé blitz began. Was that planned?
Mr. Davenport: We didn't move it up or back based on anybody else's schedule. It's about coffee, and launching in the middle of the summer wouldn't have been the right time. Before the weather turned hot we feel like we got it out there in the right time, and we felt really comfortable with it.
Ad Age: How do online communities, and the energy around the Starbucks brand, affect your media and marketing plans?
Mr. Davenport: Starbucks is not just a product, it is an idea. The idea is that sense of community and conversation that can happen over a great cup of coffee. That's why our brand has such relevance in that space. Customers and employees are looking for the truth behind what their company stands for and want to get behind brands that share certain values. When we go out and have good traction with Facebook, it's because of those types of messages.
Ad Age: Can you give an example?
Mr. Davenport: Take how we communicate our value-pairing message. It's very important to our value strategy. It's been very successful at the store level, but that's why we communicate that at the store level. A tie-in with Facebook on value pairings isn't something you're necessarily going to run out and share with your friends. But learning that Starbucks has a tie-in with Red and that on World AIDS Day we'll contribute a nickel for every beverage we sell -- for people in the Red community, that's big news, and they'll pass it on to their friends.
Ad Age: How's it going with the new agency?
Mr. Davenport: We work exceedingly closely with BBDO and in a very short time feel like we're all part of one team, and that includes Howard. Howard and Michelle are very involved with formation of strategy, down to getting our voice correct, and in this day and age, you need an agency that's willing to roll up their sleeves and get involved with you and learn about your brand and bring creative solutions that are brand-appropriate.