As consumers face ongoing financial pressure, the case for brand marketing remains strong – even for the most ubiquitous brands in the world. Coffee giant Starbucks has announced plans to up its investment in upper-funnel marketing activity, including investing in linear TV. The company discussed the plans in its earnings call for the latest quarter, which it calls Q1 fiscal 2025, when revenue was flat compared with the previous year.
The “Back to Starbucks” strategy marks a shift from short-term sales promotions to longer-term brand building, following a 4 percent decline in store sales during the quarter. The company added that holiday promotions garnered “lower-than-expected performance” at the end of 2024.
Starbucks has reduced the frequency of its discount offers, resulting in 40 percent fewer discounted sales in Q1 compared to the year before. The brand is reallocating those budgets from its discount activity into broader marketing efforts, including a new US campaign designed to “reintroduce the brand to a broader customer audience.”
“What we’re definitely doing right now is switching the dollars out of discounting into what I would call working dollars for the brands and the brand experience,” said Starbucks CEO Brian Niccol. “We just broke a new ad over the weekend, highlighting, I think, a key point of difference for Starbucks, which is centred on this connection that our baristas and our Green Apron partners have with our customers.”
Niccol suggested the strategy is designed to foster brand loyalty, which will see returns on those reallocated ad dollars in the form of in-store sales.
“You’re going to continue to see us use these dollars to turn it into working dollars to drive toward a brand commitment but then also an experience commitment where hopefully, every time you come into a Starbucks, not only do you get your coffee or your drink but you also get this connection,” he said.
A marketing blend
As part of the strategy, Starbucks is upping its overall marketing budget, having spent around $600 million in 2024.
During Q1, promotional spend, which includes marketing and discounts, remained flat versus the previous year. But Starbucks CFO Rachel Ruggeri said the company is increasing its marketing spend as a percentage of revenue. The proportion of marketing spend will almost double, according to Ruggeri, although combined with the reduction in discounts the increase is reportedly neutral to the overall business.
As part of that increase in working media, the business is looking to linear TV – a channel renowned for building brands, even as linear TV viewing declines in the US. “We dialed up our marketing communication, including linear TV media as part of our priority to reintroduce Starbucks to the world,” said Ruggeri.
The comments echoed Brian Niccol’s statements in the company’s previous earnings call, when the CEO announced a pivot away from an overreliance on registered loyalty card holders and towards reaching potential new customers via TV.
But promotions and loyalty card holders remain important to the coffee chain, Ruggeri said on Tuesday’s call, in tandem with broadening the customer base through its media spend.
“We’re looking for a combination,” she said. “Our Rewards customers continue to be incredibly important. But we’ve seen value as we speak to all of our customers. And as we’ve shifted out of discounts into more broad-based marketing, that’s helped us reach a broader base of customers, which this quarter, even though we’re early in the turnaround, we saw good signs of progress.”
