Starbucks marketing escapes the prisoner’s dilemma

Howard-Schultz 2011-04-12 photoby Adam-Bielawski

“In the first 30 years of our company, we spent more money on training than marketing”

 

These are the words of Howard Schultz, Starbucks chief executive.

Starbucks has grown from a few hundred stores in the early 1980s to nearly 19,000 today, yet this phenomenal growth has come without spending huge amounts on marketing. These figures show the huge difference in their media spend compared to their competitors (source: Ad Age, Jan 1 2007)

Starbucks have managed to avoid a classic prisoner’s dilemma. If one company starts to spend money on marketing then they may improve their market share. But their competitors will then respond by spending more and bring their market shares back up to their original positions. All that has happened is their market shares have stayed about the same but their costs have increased. They may grow the market a bit through their combined spending but profitability will still probably be down.

This is a prisoner’s dilemma because whatever your competitors do you are always better off spending money on marketing, but if everyone spends money on marketing then everyone is worse off. If your competitors spend nothing then you can take advantage by spending money on marketing, if they spend money they you need to spend it to keep up.

Starbucks avoided the prisoner’s dilemma by beating their competitors without spending money on marketing. They did this through providing a great customer experience and relying on word-of-mouth from their loyal customers. They realised that there is a wider game than just how many dollars you throw at media; they avoided the dilemma by playing a different game.

Learn more about Starbucks marketing here.

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