Fox News ran an AP story this morning about Starbucks’ new incentive. The incentive basically states that if you buy a Starbucks beverage in the morning, then you can bring your receipt back after 2PM and get another beverage for $2. That’s about 50% off the normal price of a Starbucks beverage.

This promotion comes on the heels of numerous other price promotions and the recent move to shutter a number of locations nationwide. According to the article:

Robert W. Baird analyst David Tarantino said in an interview that the company’s push to boost traffic in the afternoon isn’t surprising since the chain has said its afternoon business has seen some weakness.

But he said whether the iced drinks promotion will work in the long term to boost traffic and make spend-wary consumers buy more Starbucks is anyone’s guess.

“Certainly a discounting approach could lead to a better perception of value in the short run but the longer-term question remains — at the regular everyday price point, would the consumer still see Starbucks as offering the right value for them?” Tarantino asked. “That remains uncertain.”

Tarantino is right- how effective this is going to be is anyone’s guess. Starbucks blames a healthy portion of their recent weakness on consumer spending, gas prices, and a faltering economy. And some of that might ring true. However, the National Coffee Association revealed in their 2008 report on trends that daily gourmet coffee consumption is up 3% over last year and that the average number of cups per day is up this year for the third year in a row. So, one can deduce that consumers are, in fact, buying and drinking gourmet coffee.

Just not at Starbucks. At least, not as much as in years past. Why?

As always, a number of reasons are probably in play. Competition may be up. Spending may be down. Yada, yada, yada…

That being said, however, I can’t ignore the possibility that Starbucks has diluted its brand. When there’s one on every corner, what is so special about them? The brand reaches a point of saturation. When that happens, new and/or local coffee shops can become the “happening” venue for coffee aficionados. The little guys…the underdogs.

After all, when a brand becomes so mainstream, it loses both its right and its credibility to make a statement about how unique I am as an individual.

As the table above shows, integrated brands maintain premium prices even in the long term. Starbucks has lost its right to be called a trendsetter…and now they’re being forced to price their product at the market average. Meanwhile, the mom & pop trendsetters are still charging- and getting- $4 per cup.  Somewhere, somehow…Starbucks has lost some integral piece of its brand.

It’s an easy pit to fall into…come on, who among us wouldn’t want to have a store on every corner in America? If only we could remember the little rule about scarcity…we want what we can’t have…we want what the other guy doesn’t have because it sets us apart as unique.  It’s the crossroads of the ego and the id.  And, it’s a story as old as Eve and the apple.

Deep down, every consumer would love to be the black sheep…the rebel…the trendsetter. So, when brand supply goes off the charts, it stops suggesting that its consumers are unique, and begins to reek of mainstream.  And, thus, brand demand begins to dissipate as consumers trot off through the garden in search of the next forbidden fruit.

So, the moral of this story is simple: if you want longevity, then create scarcity…give them just enough to stay hungry. Not too much, not too little…just right. Keep them coming back for more. Don’t give away all the milk…or you’ll be one lonely cow.

…or, something like that.