Tuesday, September 25, 2007

50 Million Feebies? Not Good.

Why would you give away one of the most popular items available today? Maybe it is the only way to get people into your stores?

From Oct. 2 to Nov. 7, Starbucks (SBUX) more than 10,000 U.S. stores will hand out about 1.5 million "Song of the Day" cards each day. The cards can be redeemed at Apple's (APPL) online iTunes Store.

Thirty-seven artists with featured songs include Paul McCartney and Joni Mitchell - the first two to sign on with Starbucks' Hear Music label - along with Joss Stone, Dave Matthews, John Mayer, Annie Lennox and Band of Horses.

Starbucks and Apple recently announced they will allow users of Apple's iPhone and new iPod Touch to directly download songs playing in a Starbucks to their iPods. A Starbucks icon will light up on the iPhone or Touch whenever a user is within range of a Starbucks shop's Wi-Fi signal. Great, but, why give it away?

Why is this bad news? If you are the #1 coffee chain and are going into business with a company that has a product essentially in a category of one, why give it away? The very first thing that comes to my mind is that Starbucks has seen further deterioration of already anemic store traffic. There ought to be a natural curiosity of the new service that would cause an increase in traffic as people come in to check it out without cutting 99 cents of what they make on a cup of coffee. Unless, unless, traffic has fallen so much recently that Starbucks is in fear of an earnings miss and is pulling out all the stops to generate whatever revenue it can for the quarter.

Starbucks is already on record saying "meeting the high end of earnings expectations will be challenging" and this action illustrates that it just might be more challenging than they are even admitting.

Both Apple and Starbucks rarely give anything away, for Starbucks to do it now smells a little like desperation.


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