Issue: Time Warner Inks Agreement with BitTorrent
Commentary by: David

Time Warner today announced a deal with BitTorrent to sell video content over the Internet using BitTorrent technology. Here is the story from Forbes.com.

BitTorrent, for those who do not remember its earlier incarnation as a prime target for the anti-piracy movement is the invention of Bram Cohen. It is a clever method of distributing very large streams of data by using peer-to-peer connections rather than direct delivery (at least that is the best technical description you will get in this advertising blog. Try here for more technical details.)

This is big news for technologists and content providers because Bittorrent promises significantly faster delivery times than conventional file transfer options. In fact, a movie could be downloaded in this manner in as little as 10 minutes (although most will take longer).

But the announcement is much more important because of the unmistakeable signs it provides that at least someone in the motion picture industry is waking up to reality. This advertising blog has been very critical of the industry for inadequately addressing the challenges and opportunities of the Internet and the implications of piracy. We have previously suggested that distributing movies more widely in more formats earlier and for a lower price might actually expand the size of the industry rather than shrinking it. We bemoaned the possibility that Hollywood was going the way of the music industry and copyright-protecting itself into irrelevance.

Fortunately, Time Warner is proving us wrong with this significant deal with Bittorrent. We like it much better than the Movielink deal because it allows for simultaneous release of online movies with DVDs but at a lower price. It will also allow you to burn a playable DVD from the Internet. The pricing issue is a key one because without a lower price for Internet-delivered movies there is no market. The lower price creates the opportunity to build a strong market for movies on the web which may be complementary to the Theater and DVD markets. It also decreases the barrier to viewers who may want to watch a movie in multiple formats - from the big screen to DVD to laptop viewing. Most importantly, though, it is a step towards acknowledging that the Internet has a major role to play in content distribution and that it cannot be treated as clone of other distribution channels.

Issue: Philips Files for a patent on a device to prevent ad-skipping
Commentary by: David

If you are reading this advertising blog, the chances are that you have already read all about the controversy surrounding Philips application for a patent on a television that would make it impossible to fast-forward or channel surf during ads, even with a digital video recorder. [You can find the facts here.] For the record we agree with the opinion of Steve Hall at Adrants, Catharine Taylor at AdFreak and Chris Thilk at Adjab - it is a bad idea. The horse has left the barn when it comes to controlling consumer behavior and coercive devices will never be accepted into the market.

More surprising than the story itself is the source. Not a press release, not leaked information from a company insider about near-term marketing plans, not even a careless comment by a senior executive at an industry dinner (remember the stir caused when Carnival Cruise CEO Robert Dickinson calling the murder of a George Smith aboard a Royal Caribbean ship ‘entertainment’ and a ‘non-event’ at a Miami conference).

All Philips did was to file for a patent. Now they have most of the blogging world in a lather. And unfortunately for Philips, this has led to a swarm of mainstream media reports and a consumer reaction against Philips.

All of this over a patent filing.

Did the Philips CMO approve the patent filing? Not likely. Did the U.S. PR agency for Philips advise on whether such a filing was wise? We doubt it. More than likely, there was a single marketing person - perhaps a product director for new products working with a team of European scientists who thought it would be wise to seek patent protection for this technology even though commercialization plans had not yet been developed or debated.

The actions of these few people, relatively obscure and insignificant from the viewpoint of the Philips shareholders could possibly have a material effect on the stock price if this story hits the mainstream media.

The real question here is - what does that mean for your company?

Our suggestion is to treat everything that leaves your office as a part of the brand - and realize that it may ultimately reflect on the brand. An angry letter to a supplier, the denial of a consumer claim, filings in a lawsuit, musings of the CEO - these things all reflect on your brand.

There will be mistakes. If your company has more people than you can know personally, there is bound to be miscommunication and different interpretations of brand strategy. When you make a mistake, however, make sure you know how to spot it and how to correct it. A couple of questions to ask yourself:

1. Do You Know When Someone is Blogging Your Company? Does your company have someone responsible for tagging Technorati, Bloglines, Google Blog search and watching key blogs for mentions of your company?
2. Can You Respond Quickly? A quick, professional response that is not defensive and understands the viewpoint of the consumer is the key to managing a blogsphere crisis.
3. Do You Have Good Advisors? Do you work with a PR or Crisis Management Agency that understands the online world and how best to react to a quickly escalating problem?
4. How Do You Prevent Mistakes? Do you have a committee that includes senior managers, brand experts, PR people, regulatory, legal and scientific advisors who screen anything that can potentially reach the consumer?

Just a few thoughts as you watch this Philips story unfold.

UPDATE: Here is the statement Philips released as pressure on this story mounted.  Our take is that it will not defuse the story:

We developed a system where the viewer can choose, at the beginning of a movie, to either watch the movie without ads, or watch the movie with ads. It is up to the viewer to take this decision, and up to the broadcaster to offer the various services.

Commentary by: David
Issue: The Burger King to star in Halo-type video Games

Advertising Age reports today that in addition to stalking BK consumers, winning log-rolling championships and romancing Brooke Burke, the Burger King (as incarnated by Crispin Porter) will soon be starring in a video game. This story was broken by Kotaku.com and confirmed by AdAge.

Our quick take? Great idea, terrible brand. While we sympathize with the desire to create more engagement around the brand, we believe that engagement is not useful unless it builds the brand equity. What builds brand equity? Talking about some crazy stunts that the brand mascot has pulled? Possibly - but only if those stunts link to something unique, ownable and relevant about the brand. We do not see how getting shot up - or shooting people up will build the Burger King brand.

Why is Burger King doing this? They have mistaken effect for cause. The big consumers at fast food restaurants are young single adult males. They are hugely profitable for these restaurants. There is no argument here. But this is an EFFECT, not a CAUSE. These men are loyal to these restaurants because they built their loyalty as children. The loyalty was created by a family experience. In revisiting these restaurants and overconsuming they seek to recapture the sense of belonging that they lose once they are pushed out of the familial nest and before they build their own family.

Trying to win over these consumers as adults is foolish and may be largely futile. At best, fast-food chains risk turning them into value consumers, loyal to whichever chain offers the best discounts. At worst they will alienate the families that provide their future heavy consumers.

We applaud the marriage of video games and brands. Video games have been unjustly neglected by a marketing community which does not understand them or the gamer. But this is a bad move for Burger King. Parents will not appreciate seeing the Burger King in yet another very adult role - one even worse than the role of Stalker he has been playing on TV for the past year. And they may turn away from Burger King as a result.

Issue: Major Studios Allow Movies to be distributed online
Commentary by: David

This week, Movielink llc. began selling movies online that can be digitally downloaded to a computer. This sounds like a huge step forward. Unfortunately, it is not.

As AdAge notes, the service has a lot of restrictions. For one thing, the movies are not easily viewable on a television (they can be burned on a DVD, but the DVD cannot be played in a DVD player, only on a computer), meaning that most viewers will be restricted to their much smaller computer screens. This makes the service more appealing to business travellers who lug around laptop computers and use them for entertainment as well as work.

More problematic is pricing for the movies which has been set at a premium $20 - $30 per film release. The pricing decision reveals the underlying intentions of the movie studios including Sony, NBC Universal, Warner Brothers, Paramount and Twentieth Century Fox. They seek to bury online films, not to advance them. There is no other explanation to account for premium-pricing a product which has lower distribution costs and less utility than existing formats. New releases on DVD can be had for $15 for many films and these can be played either in a DVD player or computer and stored indefinitely. For the time being, the new technology is less convenient even without the artificial dvd-burning restriction because of the slow download times (movies will take an hour or more to download on broadband connections) and huge disk space required for storage. Beyond this, there is no provision to make these movies viewable on portable platforms like video iPods or Sony PSP.

What we have is an industry introducing a new technology in a way that will make it as undesirable as possible. In what convoluted world does this make sense? The Wall Street Journal hints at the answer, suggesting that this may be part of a legal and regulatory strategy on the part of the motion picture industry. To block legislation that might make distributing films easier over the Internet or prevail in ilegal download cases, the Journal suggests that this deal with Movielink prevents the studios from being accused of simply being afraid of new technology.

One way to stop a speeding train is to shut down the engine. Another is to put a slower train on the track ahead of it. iTunes has demonstrated that if executed properly, there is a huge potential demand for video content delivered over the Internet. $1.99 may not be a bargain price for shows that can be viewed or recorded for free on television, but it strikes many consumers as a fair price for convenience. The Movielink solution (no criticism here to Movielink, a startup company that would undoubtedly have been happy to offer cheaper or less restricted movies online but had to meet studio demands) on the other hand charges a premium for a less useful product.

The real reason for this, of course, is that the movie industry is taking marketing lessons not from the innovative technology sector but from the moribund music industry. Instead of realizing that Internet-delivered movies have the ability to provide a huge boost to the industry even if they ultimately bring margins down, they resist and cling to the past. This is not the first time for this industry. The motion picture studios were fierce critics of the VCR, contending that it would destroy the moviegoing experience. Instead, the VCR had the effect of increasing moviegoing.

Nobody in this young and notoriously undertrained industry’s marketing groups seems to understand that the Internet may be the worlds best sampling vehicle for digitally-deliverable content. The ability to identify and target micromarkets on the Internet could allow filmmaking to flourish in a manner that we have not seen since the invention of motion pictures. But it seems like the vision - and the visionaries - are long dead.

Issue: What Becomes of Advertising as Web Video Becomes Mainstream?
Commentary by: David

AdAge reported yesterday that ABC will release hit shows including Lost, Desperate Housewives and others on its website. These videos will be advertising supported. Disney CEO Bob Iger noted that the advertising on the web video would not necessarily be the same as on the network broadcasts. He did not specify whether the video would be downloadable or streaming.

It is hard to imagine that just twelve months ago, conventional wisdom held that whatever the future, network television was thriving. Then AdAge pubished “The Chaos Scenario” by Bob Garfield which suggested that the network model was about to explode and the wreckage could be messier than people expected. Shortly after, Procter & Gamble, the pack-leader amongst CPG companies announced that they would be moving a significant portion of their network television budget to other vehicles. Then when Apple released the video iPod and started selling new episodes of Lost and Desperate Housewives for $1.99 the day after they aired and Google and Yahoo almost immediately joined the effort, all hell broke loose.

There are two big unanswered question in the middle of all of this chaos. First is the question of whether this diffusion of media will kill network television or boost it. It is not impossible that the effect of video coming online will do for network television what the VCR did for Hollywood: promote it. But it could also fracture the viewing audience enough that networks will no longer be able to survive on the conventional advertising-supported revenue model.

The second question is what the role will be for advertisers with online video. There are a couple of possibilities:

1. The iTunes Model - In this model, advertisers get cut out as there is a direct payment made to the content provider through iTunes.
2. Online Video with Commercials - What ABC has announced is a literal translation of the current network model online, with commercials placed in the video.
3. Other advertising model - Sponsored video, linked promotions, click-able product placements and other solutions to-be-devised.

Of course, we wonder what will grow to be the big new idea in option #3. As advertisers, option #1 is not at all appealing - it cuts us out of the equation entirely. On the other hand, we are not at all certain that a direct translation of the network television model with TV-like spots running during the web video will work for online content. So the question is what are the options, and how are they being created?

It will be a fascinating next twelve months as we see the continuation of chaos and hopefully the emergence of some order. One thing is for certain: our viewing habits are about to change.

NOTE:
This Advertising Blog is actually putting our money where our mouth is on this question. We are co-sponsoring a conference in New York on April 25th with the Business Development Institute. If you think you have an important opinion or contribution, let us know.

Issue: Wal-Mart Adds Second Stories
Commentary By: David

The Wall Street Journal reported yesterday that Wal-Mart has added a second or third level in at least 20 of its stores in markets where expensive or tight retail space has constrained the overall store footprint.

Is this a big story? In the larger sense, no. Wal-Mart operates 3,900 stores in the United States alone. The Wal-Street Journal bases its coverage on the fact that it shows a shift in Wal-Mart’s strategy, a willingness to veer from the ‘cookie-cutter’ strategy that has fueled its growth over the past two decades.

This advertising blog sees something deeper in this decision, a small but important signal for a larger shift in the retailer’s relationship to the world. (We have not called this a metaphor because we think it is more than a metaphor. See commentary here on the American Press Institute Morph blog on when a metaphor is not just a metaphor.)

What these baby steps onto the second floor tell us about Wal-Mart is simple: Wal-Mart is becoming a Department Store. It is not the second floors that did this. It is many other things, which culminated in this slight but revealing move by Wal-Mart. But we sniff blood in the air and are willing to risk ridicule by suggesting that Wal-Mart has seen its greatest days.

Could we possibly be arguing that the greatest retailer and largest (and second most valuable after Toyota) company in the world is headed the way of the dinosaur, eight-track tape and lava lamps?

Well, not exactly. Department Stores are not exactly dead as our friends at Bloomingdales, Macy’s, Nieman Marcus and others will undoubtely tell us in the next few hours. But they are also not relevant for the majority of consumers and have more or less retreated to a niche. Even part of that niche - as anchors of the suburban shopping mall - has retreated as big box retailers like Home Depot are being chosen to anchor new malls.

In fact, news was broken in the New York/NJ region this week when it was announced that an old mall would reopen with a Home Depot and - yes, you guessed it - a Wal-Mart would be the new anchors.

So what exactly is happening to Wal-Mart? We had an interesting conversation with Paul Nunes at Accenture (who is the author of Mass Affluence: 7 New Rules of Marketing to Today’s Consumers) on this issue. He suggested that Wal-Mart very successfully ‘rolled-up’ a lot of independent stores who catered to an important niche of middle class consumers. Now that Wal-Mart dominates that niche it is confounded in its growth by a demographic shift which has significantly expanded the number of households with incomes over $70,000. And Wal-Mart is not positioned to serve these households because both their needs and their shopping paradigm are very different from the one that exists at Wal-Mart.

Even worse, Wal-Mart’s chief rival Target has spent a decade carefully positioning themselves to serve this expanding demographic segment - and more importantly the greatly expanding psychographic population who carry the same attitudes as this new luxury-seekers. “Design for all” is the touchstone of Target’s movement on this front (see our commentary on this trend here.)

So why is the second story news significant? Because it shows that Wal-Mart has literally reached the physical boundaries of its market segment. Which should be fine, except that Wal-Mart is a publicly traded company. Public companies cannot exist fruitfully without revenue growth. Were it private, Wal-Mart could cease domestic expansion efforts and shift all of its focus on serving the emerging needs of its core audience. Instead, it is moving more and more places, and confusing its core consumers in the process.

There was a strong signal of this trend in November on Black Friday, when Wal-Mart used ‘door busters’ and strong promotional pricing to attempt to boost sales (see our commentary here). Wal-Mart had lost volume in 2004 by attempting to hold prices through the promotional holiday period. The problem is that Wal-Mart is an ‘everyday low price’ (EDLP) retailer. And Wal-Mart has huge brand equity invested in the concept that it always has the lowest prices. So predictably, the move caused confusion, failed to generate significant sales and resulted in bad publicity when consumers were trampled (see our post-Black Friday commentary here.)

Wal-Mart’s appearance as an anchor store in shopping malls is telling, too. This is higher-priced real estate and will ultimately affect Wal-Mart’s ability to compete on price.

The last and possibly the worst sign for the Arkansas giant was when they promoted John Fleming to the post of Chief Marketing Officer. Fleming is a 19-year veteran of - guess where? - Target. And, not surprisingly, once put in the drivers seat after a stint running the marginal online property Wal-Mart.com, Fleming sought to put an old stamp on his new business (read an interview where he discusses this here). Under Fleming, Wal-Mart suddenly decided to advertise in Vogue (read our commentary here) and engage in all other manner of Target-like positioning and maneuvers. You can’t really blame Fleming - marketers are a lot like commercial artists and if they’ve been working in one style for nearly two decades there is a pretty good chance that they are wedded to it.

All of this has been a disaster for Wal-Mart. It muddies the formerly crystal-clear brand positioning and confuses the core consumer. Al Ries or Jack Trout would undoubtedly accuse Wal-Mart of trying to broaden its appeal while in the process undercutting its claim to expertise, which is the foundation of the brand positioning. If Wal-Mart does not stand for low prices, it stands for nothing.

So in the world of real-estate, a few second stories for Wal-Mart is a small story. But in the brand world, it is one more sign that a great American icon is lost. And the prospects for regaining its path are dim.

Issue: MRI Brain Scans and Super Bowl Advertising
Commentary by: David

As we were watching the Super Bowl with snacks and friends, others were having a - well let’s just say more involved experience.

A scientist at UCLA, Marco Iacoboni, has apparently conducted brain scans of men and women watching Super Bowl advertising (click here to get the whole story). Thanks to Steve Hall at Adrants for catching this one, by the way.

Since learning of this last week and reading about it we have been puzzling over it. The craft of marketing as it stands today is somewhat of a social science. Many of its disciplines don’t yield themselves to precise measurement in the way that finance does. On the other hand, we are always trying to measure what we do and have the belief that better research can improve what we do.

The idea of brain scanning is appealing because it might seem to answer the longstanding issue of whether advertising is effective. Measuring the brain to see which centers fire when they are watching advertising could indeed give us a truer picture of how people actually react to advertising.

However, we are some ways from being convinced that we would want to make any financial decisions based on this technique at the moment. We may know, for instance, that the FedEx commercial fires up centers associated with fear and asocial reactions. But does that mean that people will not remember the commercial when they are afraid that a package they are sending might not arrive there in time? If women seem to react (their ‘mirror neutron’ fires) when they saw the Bud Office ad in spite of the seeming disconnect, will they actually buy Budweiser? Will the theoretical empathy result in brand purchase?

This Advertising Blog has nobody with the science background to evaluate these claims. But we do find them interesting. If anyone can start matching immediate brain response to long-term buying behavior in statistically significant numbers of consumers then marketing as we know it will change dramatically.

Commentary By: David
Issue: Pricing and Counterfeit Designer Goods

In December, we commented on the relationship between designer goods and knockoffs. (Click here to read the commentary.) Our basic point was that the traditional relationship of counterfeits to authentic designer goods was probably beneficial for most brands. Seeing cheap, poor imitations of high-end products sitting on street corners enhanced their desirability to consumers who could afford the real thing. We noted however, that as many designers have been shifting the production of their authentic luxury items to China, the knockoffs have improved in quality to the point where experts may have trouble telling the difference.

This comment has generated some controversy - and opened a question we did not answer. That question was validated - in an offhand way - in a Wall Street Journal article today entitled As the Luxury Industry Goes Global, Knock-Off Merchants Follow by Alessandra Galloni. Galloni quotes Kris Buckner, president of Investigative Consultants, testifying before the U.S. Senate as saying, “A counterfeiter can sell counterfeit handbags and make as much money as someone selling cocaine.”

Why is selling counterfeits as profitable as selling cocaine? Because the margins for genuine luxury items are so astronomical that counterfeits made identically and sold for significantly less money can still be extremely profitable.

The question is - what is the right margin for designer goods? What paradigm can we construct to decide how to price luxury items?

This is not a simple question. Part of what a designer is selling, after all, is exclusivity. By lowering costs, luxury goods makers have made a sound business decision. But they are caught in a bind - if they lower price as their cost declines, they risk eroding the exclusivity of the brand. And in pure economic terms the price they are charging should not change because the item is just as valuable to the consumers who are buying it.

The problem is that classic calculations of brand value ignore the possible of near-perfect counterfeits. When the markup between the distributed cost of a product and the retail price to the consumer is one hundred times or more, there is huge incentive for counterfeits. By moving production to China, luxury goods manufacturers increased the incentive for counterfeiters by putting the production technology for their items in the same geography as their counterfeit production facilities. Getting a perfect knockoff became a labor issue (instead of having to reverse-engineer a Louis Vuitton bag, just hire away a line manager or an engineer from their plant) instead of a manufacturing challenge.

Knockoffs will always be cheaper because their distribution system is cheaper. The question is, how do you avoid creating a market for products that cannot be distinguished from your own? This is a serious issue. It is one thing to have consumers sporting around cheap designer back that anyone who owns the real thing can spot as a fake. It is quite another when almost no one can tell the difference.

Lots of evidence shows that consumers will pay more for an authentic brand they trust than an exact replica. A trip to any drug store shows that Tylenol sells for 2-3 times the cost of generic acetaminophen. This is true for most store brands versus national brands and has held constant over many years. We would suggest that luxury goods should not sell for more than 2 - 3 times the price of identically produced knock-offs. Remember that we are not talking about cheap imitations here - this rule would not mean that a Patek Phillipe should sell for twice the price of a rip-off with a $0.27 Chinese quartz movement inside. But it does apply to those Louis Vuitton bags that sell for hundreds of times their manufactured cost and ten times the price of identical knockoffs. There is also value in service, and consumers may pay an additional premium for being able to purchase luxury items in an exclusive environment. But if that premium is priced too high the end result will still be more identical counterfeit items - and erosion of the brand.

How, then, can luxury goods manufacturers possibly hope to maintain exclusivity? Our calculations would suggest that brands should dramatically lower prices. But as we noted earlier, lower prices are a problem in themselves as they deprive affluent consumers of exclusivity by allowing access to a much broader group of consumers.

The luxury goods industry seems to have forgotten that their valuable brands were grown not simply through better design but with better quality. At a time when machine manufacturing processes produced inferior results, luxury brands were handmade. They used sturdier fastenings, better materials and more expensive fabrics.

Now that technology has made this all a lot cheaper to deliver, luxury marketers must deliver more value to maintain their price points. The materials need to get more exclusive, the manufacturing process needs to be unique and the ‘feel’ must be different. U.S. currency is a great example of this. Treasury agents realize that their best defense against counterfeits is to make sure that ordinary consumers can tell the difference between real and fake dollar bills. So they guard the supply of paper that produce the dollar (so most fakes are caught because they ‘feel’ different). As that protection erodes they embed colored fibers and watermarks that are unique. Luxury goods manufactures need to similarly ensure that their goods look and feel different.

It is incredible to think that luxury goods manufacturers believe they can preserve their franchises through legal enforcement. The law will not protect them when their markups have gotten far out of line. Only by improving the quality and real luxury of these goods will they secure their franchises. The days when unique designs would sustain a business are long gone. Just stop into an H&M and you’ll see why.

Commentary by: David
Issue: New McDonald’s Ad Campaign

Kate MacArthur reports in AdAge today that McDonalds is launching a new ad campaign that in some ways emulates “the King” campaign from Burger King via Crispin, Porter + Bogusky. The ads will feature the plastic Ronald McDonald statues that are found in the restaurants. They will show consumers interacting with these icons.

A McDonald’s spokesman says that the idea is to, “share how our customers relate to the world’s most famous clown and the bond they have with our brand.” They are reminiscent of the McDonald’s spots of years ago that tug at your heartstrings.” The chain says that this campaign will continue and build on the “I’m lovin’ it” theme and will use the music associated with these spots. Up to 10 different spots will air on event-oriented programming including the Torino Olympic games.

This campaign will be an important one for McDonald’s as it marks two important transitions: the first work from TWBA/Chiat/Day in the U.S. for McDonalds and the first new campaign produced under Mary Dillon, the new McDonald’s CMO who has moved over from Quaker Oats.

This advertising blog cannot review advertising before it is seen. Nevertheless, we have some significant strategic concerns with the direction of this campaign. Neither we nor the U.S. consumer were fans of the Burger King campaign (see our review and links to the USA Today advertising preference survey here.) And we have been similarly queasy about the Quaker campaign featuring a statue version of the Quaker from the Quaker Oats box.

What’s the problem here? Why shouldn’t an iconic brand like McDonald’s show off its mascot and (as the company claims), ‘the world’s most famous clown’?

The problem is not the mascot but the presentation. Using objects that are inanimate or semi-animate (as with the Burger King - a real person wearing a plastic head) changes and distorts the relationship between the consumer and the brand.

This is most disturbing in the Burger King spots, where the Burger King stands at the intersection between friend and stalker and never once appears in the setting of the restaurants. The McDonalds spots should be tamer - with Ronald McDonald simply a statue and within the restaurant. Yet the underlying message is complex. If Ronald McDonald represents the relationship that children have with the restaurant, why have him as an immobile statue? And why waste brand equity and air time on building an icon that doesn’t necessarily have benefits for children.

McDonalds is right to focus its advertising efforts on the family. When it has pitched its message to adults, it has failed (see our review of a recent campaign along these lines here.) At its core, McDonalds has the simplicity, dependability and repetitiveness that is most attractive to children or young adults who have grown up with McDonalds. So focusing on families is the smartest way to guard this core audience.

It is still possible that McDonalds can so elegantly execute this campaign that it does not smack of stalking or creepy idol worship as in the Burger King or Quaker campaigns. But the line it thin and it is not clear what McDonalds gains from focusing on plastic statues when the family-friendly experience of McDonalds is what needs to be reinforced.

Commentary by: David
Subject: Starbucks expands drive-through service

The Wall Street Journal reported on Friday that Starbucks is greatly expanding its use of drive-through service windows as it penetrates deeper into the suburbs. The article mentions, but does not address the question of whether this is good branding for the Seattle-based chain.

Our opinion is that this is a mistake for Starbucks from a branding standpoint. This is a tricky argument to make, however, as Starbucks has extended its brand in ways that this Advertising Blog would not have endorsed in the past with great success. The move into ice-cream and trolley service in particular seemed to us far from the “Starbucks experience” that is so central to the brand. Consumers, however, appear to have taken these extension as reminders of the core experience rather than a substitution for it.

Why shouldn’t Starbucks have drive-throughs? Because for Starbucks the goal of the brand should be inclusion, not ubiquity. Starbucks should want to bring people together around coffee and to create environments where everyone feels welcome. Starbucks should be less concerned about whether every consumer in America is drinking Starbucks at every coffee opportunity. And Wall Street should be pushing Starbucks less in this direction. Why? Because as investors and marketers, we want to see Starbucks retain the ability to charge a premium price for a great cup of coffee. The more ubiquitous that Starbucks becomes the harder it will for Starbucks to be a ‘treat’ or a ’special moment’ in the day. A larger company with lower profits is not an ideal situation for anyone.

Drive-throughs (like most designed elements of suburbs) reinforce anti-social behavior. They cater to cars, not to people. They disintermediate buyer from seller. They insulate us from our communities and neighbors. The Starbucks experience is the antithesis of this. While it is an individual moment (somewhat similar to the original Coca-Cola positioning “The Pause that Refreshes”), it is also a shared moment. Starbuck’s without atmosphere is no more than a brand of premium coffee. The drivethrough could in some small way contribute to the decline of an outstanding brand.