Starbucks announcement that it will close 600 stores in the US is a long-overdue admission that there are limits to growth.

In February 2007, a leaked internal memo written by founder Howard Schultz showed that he recognized the problem that his own growth strategy had created: “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.” Starbucks tried to add value through innovation, offering wi-fi service, creating and selling its own music. More recently, Starbucks attempted to put the focus back on coffee, revitalizing the quality of its standard beverages. But none of these moves addressed the fundamental problem: Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special. Either you have to cut price (and that implies a commensurate cut in the cost structure) or you have to cut distribution to restore the exclusivity of the brand. Expect the 600 store closings to be the first of a series of downsizing announcements. Sometimes, in the world of marketing, less is more.

Schultz sought, admirably, to bring good coffee and the Italian coffee house experience to the American mass market. Wall Street bought into the vision of Starbucks as the “third place” after home and work. New store openings and new product launches fueled the stock price. But sooner or later chasing quarterly earnings growth targets undermined the Starbucks brand in three ways.

First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority. To grow, Starbucks increasingly appealed to grab and go customers for whom service meant speed of order delivery rather than recognition by and conversation with a barista. Starbucks introduced new store formats like Express to try to cater to this second segment without undermining the first. But many Starbucks veterans have now switched to Peets, Caribou and other more exclusive brands.

Second, Starbucks introduced many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists. They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks. With over half of customers customizing their drinks, baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.

Third, opening new stores and launching a blizzard of new products create only superficial growth. Such strategies take top management’s eye off of improving same store sales year-on-year. This is the heavy lifting of retailing, where a local store manager has to earn brand loyalty and increase purchase frequency in his neighborhood one customer at a time. That store manager’s efforts are undercut when additional stores are opened nearby. Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale.

None of this need have happened if Starbucks had stayed private and grown at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging. Tiffany faces a similar problem. That’s why many luxury brands like Prada remain family businesses or are controlled by private investors. They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities.

When driving these days, do you look at the prices every time you pass a gas station? Do you notice yourself paying more attention to the prices of everything you buy? You are not alone. Consumers everywhere are more price aware. People who've been indifferent to price increases for years are suddenly amazed at what things now cost. How can marketers cope not just with inflation but with consumer sticker shock?

1. Understand Your Customers. There are at least four ways in which customers can respond to higher gas prices: downgrade from premium to regular; take fewer trips by car, consolidate errands, switch to public transportation; take the same number of trips but reduce the miles driven per trip by, for example, vacationing closer to home; drive more economically and less aggressively to improve miles per gallon; and buy a specific dollar amount of gas rather than filling up every time, even though this may mean more visits to the pump. Some consumers may even trade in (at a loss) the SUV for a hybrid, an example of how price inflation on one product can cause demand shifts in a second, related, category.

2. Invest in Market Research. You must discard your existing customer segmentation assumptions and segment consumers around product usage behavior and price sensitivity. You must get out into the marketplace yourself and talk to consumers directly to understand their pain points and how they are changing attitudes and behaviors in response to price inflation. You must then quantify these shifts and develop product and pricing strategies that balance the need to maintain both profitability and market share.

3. Redefine Value. Customers buying soft drinks can think about price in three ways: the absolute cost per can or bottle, the cost per ounce, and, less common in this category, the monthly consumption cost. Customers short on cash will focus much more on the absolute price. They'll go for the 99 cent soft drink rather than the $1.29 container with 50% more volume. To motivate cash-poor consumers, marketers must reverse engineer products and packaging to hit key retail price points. This may mean downsizing package sizes, something the candy industry always does in response to inflation.

4. Use Promotions. If you've always passed through raw material price increases to the end consumer, you don't necessarily need to change that policy. However, lagging competitors in passing on price increases can have the same effect as a temporary price promotion. More customers than usual will be looking out for price promotions, but don’t give away the store to those who don’t need the discount, and cut prices not across the board but only on items selected as your inflation-busters. For cash poor consumers, these promotions should hit the key price points on small pack sizes. For cash rich consumers, encourage multi-unit purchases ahead of the inevitable next price increase.

5. Unbundle. Customers who previously welcomed the convenience of buying product, options, and services rolled into one may now ask for a detailed price breakdown. Make it easy for your more price-sensitive customers to better cherry-pick the options and services that they truly need by giving them an unbundled menu of options.

6. Monitor Trade Terms. Beware of powerful distributors paying you more slowly than they turn the inventory they buy from you. In an inflationary environment, they're making money on the float by stretching their payables. Manage your inventory on a last-in, first-out basis to insure that increases in your realized selling prices do not trail the increases in your input costs.

7. Increase Relevance. You need to persuade customers to cut back their expenditures on other products, not on yours. In tough times, consumers more than ever need and deserve the occasional treat. So, if you are Haagen Dazs, tell the consumer to substitute private label peas for the name brand but to not forego the comfort of curling up on the sofa with a tub of her favorite ice cream. Strong brands can hold consumer loyalty while increasing retail price points. Weaker brands risk private label and generic substitution.

Clearly, not all marketers are equally affected by price inflation. Commodities like gasoline, where the manufacturer adds little value before the product reaches the end consumer, are more vulnerable, while sales of the most exclusive global luxury brands hold up pretty well regardless of price. Especially challenged are marketers of goods and services for which consumers don’t necessarily understand the input costs: decorative candles, for example, are highly sensitive to oil prices and the purchases are discretionary. The key here is to educate the consumer, apologize for the uncontrollable price increases, give price-sensitive consumers some promotional options, and reemphasize product benefits.

This post is drawn from an article that appeared first in The Washington Times on Sunday, May 10. For more detail, see Greater Good: How Good Marketing Makes For Better Democracy by John Quelch and Katherine Jocz (Harvard Business Press 2008).

Choice sells, in politics and in the supermarket. Distinct choices on the shelf attract our attention to a product category, engage and involve us, and increase the chances that we’ll make a purchase. In other words, choice drives consumption.

The same is true of the political marketplace. With no incumbent running in the United States, the unprecedented turnouts in primary states reflect the genuine choice that voters see on the ballot. The level of choice and the uncertainty about who will prevail has fueled heavy media coverage and grassroots activism that add to voter interest.

Choice and uncertainty also spawn fierce competition. The result of the winner-take-all political system is that politicians trailing in the polls become more desperate as the day of reckoning approaches. They flood the airwaves with negative ads, especially in closely fought states like Pennsylvania and Indiana where the margin of victory was as important as who wins.

Negative ads ask us to vote against someone rather than for someone. This lesser-of-two-evils approach to political marketing inevitably breeds cynicism and sometimes backfires but it often works against new candidates who haven’t yet locked down their supporters firmly enough to withstand the barrage. And, with no prospect of another debate to score points, and with Obama trying to stay positive and clinging to the moral high ground by staying positive, the underdog Clinton campaign will remain relentless in its advertising attacks on Obama.

Here are the four types of negative advertisements we've seen from the Clinton campaign:

"Fear appeal" ads, such as the 3am phone call, designed to worry voters about Obama’s lack of experience.

Guilt-by-association ads that include footage of Pastor Wright.

The roll-your-own ads that exploit gaffes or contradictions using the candidate’s own words.

Finally, there is the occasional policy comparison ad that contrasts the two candidates’ points of view. But, with minimal policy differences separating Clinton and Obama, the emphasis is inevitably on character and emotion, experience versus change.

In the Republican race, the better-known John McCain used negative ads effectively to bury the better financed Mitt Romney in Florida. These negative ads were complimented by positive ads burnishing McCain’s record. The ads ran in the final days before the Florida primary, leaving Romney little time to respond. Finally, McCain used high profile surrogates such as Governor Crist to reinforce concerns about his opponent.

Unlike politicians, companies hardly ever run negative ads. Pepsi ads don’t tear down Coke; they build the brand image of Pepsi. Why? Because a tit-for-tat war of words would turn off consumers of both brands. And sales growth, not just market share, is what puts money in shareholders’ pockets.

As the market leader, Coke would never give the underdog Pepsi the benefit of a mention in its ads. For its part, Pepsi would worry that negative ads against Coke would say more to consumers about the character of Pepsi than Coke. And when Pepsi did famously “challenge” Coke twenty years ago, it was with blindfolded consumers choosing between two unlabeled samples, as close as you could get to a scientific test.

The Coke and Pepsi formulas are different and they appeal to different consumers but they are what they are. A Pepsi today is the same as a Pepsi tomorrow. A Pepsi in Boston is the same as a Pepsi in LA. Political brands, on the other hand, are works in progress and consistency is not always their strong suit. Nor, based on past evidence, is their ability to deliver on the brand promise, once elected. So, no matter how many voters are turned off, no matter how much ammunition they provide the Republicans in the general election, negative ads will rule the airwaves until the Democrats select their nominee.

Normally, the Olympic Games are a positive force in marketing. Worldwide marketing expenditures increase as official sponsors and unofficial free-riders attach themselves to the Olympic logo, to particular sports, national teams or individual athletes. Global brands, in particular, see the Olympics and World Cup soccer as the two most important international sporting events; brand linkage to these events can boost brand awareness, preference and sales over competitors who cannot afford the global sponsorship prices set by the International Olympic Committee.

This year, however, concerns over the Chinese government's role in Tibet, Sudan and other alleged human rights abuses threaten to derail its plans to stage the Olympics as China’s coming out party. Tight security in Beijing may take some of the fun out of the Games, not just for the sports fans and athletes but also for the sponsors.

Take Lenovo, for example. The fourth largest personal computer manufacturer in the world is the first and only Chinese company to be a global sponsor of an Olympics. Lenovo's investment in the Games is around $100 million. The company paid millions, along with Samsung and Coca-Cola, to sponsor the torch relay. Lenovo’s sponsorship will doubtless reinforce its brand preference rankings in China. However, around the world, Lenovo hardly wishes to be known as the Chinese PC company that consumers find convenient to boycott.

Here are some trends I'm seeing among sponsoring companies:

First-time sponsors have a lot more to lose than long-term investors.
Lenovo, as a first-time global sponsor whose future depends heavily on success this year, has much more at stake than veteran Olympics sponsors such as Coca-Cola, Visa and McDonald’s. These companies are long-term investors in the Olympics; if Beijing fails to realize earlier commercial expectations, London in 2012 can make up for it. Around the world, the veteran sponsors may be careful not to over-identify with Beijing. They will emphasize sponsorships of national athletes and national teams rather than focus on the Olympic rings. But, in China, the Western multinationals will pursue a much more aggressive strategy. They will build goodwill for their brands by creating China-specific advertising and promotion programs that tap Chinese pride in hosting the Games.

"Two-faced" approaches.
Those companies that are not global sponsors of the Games will also take a two-faced approach, supporting the Games in China while being disinclined to associate with them in North American and European markets. Given the prominence of China as a supplier and customer, it is unlikely that we will witness grandstanding boycotts of the Games by any company. Most consumers around the world do not let their political views affect their purchase decisions. However, we are likely to see websites promoting boycotts of Chinese brands such as Haier, TCL and Lenovo.

Late campaign purchasing as a safety hedge.
The International Olympic Committee continues to argue that the Games and the aspirations and achievements of individual athletes should be independent of politics. The reality is that the Chinese government has always intended to use the Games to its political advantage and that further escalations of violence in Tibet could diminish public support and lead to national team and individual athlete boycotts, as occurred in Moscow following the Soviet Union's invasion of Afghanistan. As a result, marketers are not over-committing funds to Olympics-related brand advertising and promotions and the normal Olympics year advertising boost may be less than expected. Instead of long-term preset media advertising buys, many companies are planning short-term promotional bursts that they can activate as late as July and August if all appears to be in place for a successful, trouble-free Games.

Accounting for almost 30% of world GDP, the United States is the world’s largest and most demanding market for almost everything from oil to microprocessors to premium coffee. Companies around the world aspire to do business in the US, or at least with US companies in their home markets. By doing so, they learn much about the latest management practices, they can be closer to the cutting edge of innovation, and they can boost their reputations by supplying well-known US firms.

The market size of the US makes it important target but, in addition, foreign companies often feel they have to crack the US market in order to gain respect. No CEO can lead a global company if that company does not have a strong presence in the USA.

So how do you penetrate the US market? The annals of business are littered with foreign companies that have never quite succeeded in the USA. But here are four companies that have managed to crack the US market. Each carries a special lesson.

1. Royal Bank of Scotland. This company built up a strong retail market share in the US, not under the RBS brand, but through a series of acquisitions of regional (not national) banks. RBS is adding value for its shareholders by letting these banks retain their individual brand identities, by focusing on improving back office efficiencies and by having the highly respected CEO of one of the acquired entities lead the combined US organization. Meanwhile, RBS is building its B2B brand with institutional clients on Wall Street.

2. IKEA. IKEA offers a furniture retailing value proposition and experience unparalleled in the US market. IKEA’s location selection expertise and their established global supply chains enable them to offer exceptional category-killer prices that are further keys to success.

3. ING. The Dutch bank converted its weakness (no retail branches in the US) into a strength. Following a successful Canadian market test, ING gave its entrepreneurial general manager the green light to offer retail banking services to US consumers but exclusively on an on-line basis. Taking advantage of its low no-bricks-and-mortar cost structure, ING was able to offer generous rates on certificates of deposit. Just four years on, ING is the third-largest holder of consumer CD investments in the US.

4. Dyson. The British home appliance maker earned a break when it managed to get a Best Buy buyer to take one of its vacuum cleaners home to test. The buyer was impressed. Fortunately for Dyson, Best Buy became the first US retailer to stock Dyson vacuum cleaners--other US retailers invariably follow Best Buy’s lead. Electronics retailing in the US is concentrated (10 chains control 60% of the market) and tough to penetrate. But Dyson could not have succeeded had its products not been superior to other vacuum cleaners already in US stores.

A current case, well worth watching, is the effort of Tesco, the British retailer, to enter the US market with the new Fresh & Easy chain of discount grocery stores. Avoiding geographies where Wal-Mart is entrenched, Tesco has so far opened 50 stores in the growth markets of California, Nevada and Arizona. The question is whether Tesco’s assortment and value proposition will be appreciated by enough consumers fast enough for weekly store sales to reach profitable levels. Stay tuned.

In soccer, it’s axiomatic that controlling midfield is critical to success. The team that controls midfield dictates the pace of play, gives its forwards and defenders more time to set up their plays and breaks up attacks by the opposing team’s front line.

In business, it’s not fashionable to concentrate on midfield. Focus, we are told, is essential. But you either have to be a specialist niche provider of premium-priced products tailored to a particular customer segment, or you have to shoot for scale, using low prices and volume purchasing to attract a mass market and drive down your cost structure. Midfield has been characterized as a “ditch” populated by companies with lower returns on investment than those pursuing the first two strategies. The woes of once great retailers like Sears Roebuck are cited as evidence.

But midfield is critical. It represents the middle of the market, to which one end of the market aspires to trade up and the other end of the market may have to (for economic reasons) or decide to (for lifestyle reasons) to trade down. General Motors and Ford used to control midfield in the US auto market with the Chevrolet Malibu and the Ford Taurus. Nowadays, the Toyota Camry controls midfield. That control is critical to Toyota’s product line strategy.

It’s not that Toyota only sells in the middle market. Far from it. They sell to all segments (except the luxury segment which they address with Lexus). But midfield is where the Bell-curve distribution of auto buyers by price of car reaches its peak. Sales of midfield product are a bellwether for dealers and consumers alike. The other products in the line – and their relative prices – hinge on the midfield entry.

A company controls midfield by fielding a complete product line that includes backs and forwards. In its supermarkets, Tesco, the successful UK retailer, offers consumers three options – good, better and best - in most high turnover product categories. In addition, Tesco, doesn’t just sell groceries through one-size-fits-all supermarkets. Recognizing the need to shape as well as respond to an increasingly segmented market, Tesco reaches its consumers through at least seven different store formats, from convenient Tesco Express outlets at one end of the spectrum to full assortment hypermarkets at the other. But, within all its stores, Tesco implements the same merchandising principles: Better, Simpler, Cheaper.

The question arises: Can a company control midfield by playing only in midfield? The answer is “yes” but only if there is a precise and persuasive value proposition. Until three years ago, Charles Schwab had lost its way. The former king of discount brokerage had let its cost structure drift upwards and its prices had been undercut by Ameritrade and E*trade. Research identified a large middle market of investors, bruised by the end of the dot com bubble, in need of more advice and brand assurance than Vanguard and Fidelity provided but without enough investable assets to be important to Merrill Lynch. The successful “Talk to Chuck” campaign appealed to this group, presenting Charles Schwab as an approachable partner serving the best interests of investors. Charles Schwab’s asset growth over the past two years has topped the industry charts.

Midfield is a moving target. If Charles Schwab serves its customers well, their assets will grow to the point that they’ll need more sophisticated services and advice. To control midfield, companies like Charles Schwab must stay consistent in their positioning but also respond to the evolving needs of their existing customers with new products and services. Very careful cost and service tradeoffs are required of companies that continue to dominate the middle ground.

Nowhere is controlling midfield more important than politics. With just two mainstream political parties evenly balanced, the winner is invariably the party that appeals best to “middle class values” and “middle America” and that captures a majority of the independents in the middle. The middle may not be as clearcut or exciting as the left or the right. It is a fuzzy zone that requires constant compromise. Yet midfield is where the votes are.

Do you agree that controlling midfield is a viable strategy? Can you think of other success stories?