What Retailers Can Learn from Starbucks' PSL

Rise of the PSL: Why seasonal products work

When it comes to seasonal products, no one does it better than Starbuck's with its pumpkin spice latte, but seasonal products aren't without risk.

The pumpkin spice latte is back at Starbucks (NASDAQ:SBUX), but you better get your fill now since it’s only going to be around for the next three months.

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The PSL made its debut 10 years ago and has gained a cult following along the lines of McDonalds’s (NYSE:MCD) McRib or Just Born’s Peeps and has become the coffee chain’s most popular seasonal beverage.

“We were looking for something that could signify the start to the autumn season,” says Starbucks representative Alisa Martinez. “Once we created a drink we were happy with, we launched it in a few select markets because we weren’t sure if customers were going to like the idea of pumpkin in their drink, but it was overwhelmingly popular and here we are today with fans clamoring for it each year.”

The company says it has sold more than 200 million orders of the drink in the last 10 years, and there are more than 3,000 PSL-related tweets a day.

Seasonal offerings can help retailers drum up business -- especially in a weak consumer-spending environment.

“Seasonal products are an excellent form of push marketing -- it pushes consumers into a store,” says Marianne Bickle, director for the Center of Retail at the University of South Carolina. “These products are a plus-one item. When consumers buy a first product, that covers the rent, that second seasonal product, that is the profit.”

Putting a deadline on a product’s availability can also nudge a hesitant buyer to the checkout line. “Retailers need to stick to a deadline so consumers feel the pressure that they have to buy it now,” says Bickle. “We know that consumers are seasonal and price sensitive, they know another sale will come in the next week or so, but will this pumpkin muffin still be available?”

She adds that for most retailers, seasonal items can be big revenue generators, making up a big part of the all-important fourth-quarter sales numbers. “During the end of the year, seasonal products can be retailers’ life lines and many of them rely on this quarter's numbers to help carry their balance sheets.”

Doing Seasonal Right

With consumers still clutching their wallets, they’re going to need a reason to shop, says retail expert Kristen Bentz, CEO of Talented Blonde.

“Retailers need to have a call of action and remind people they need to shop. That is why we have seen the creation of White Sales, Black Friday and seasonal products, all these fake holidays bring people into stores.”

Products and promotions surrounding the end-of-the-year holiday shopping season have already hit shelves and airwaves, but Phibbs says retailers shouldn’t overlook the most best seasonal shopping season: Halloween.

“Every retailer should log onto this one, there is no religion or different customs associated with it, it’s just a big party and it has legs for adults and kids. In terms of seasonal spending, Thanksgiving is minor and Christmas can be big for some retailers, but Halloween can be a big revenue driver.”

Retailers looking to get in on the season trend should make sure to do their research before picking products. “Just having new stuff out isn’t going to cut it,” says Phibbs. “Know how you are going to present to customers, get specific about your target customer, and know how you will get rid of it at the end of the season.”

He points to Williams-Sonoma (NYSE:WSM) and Crate & Barrel as retailers who “best know how to stock, market and sell their seasonal products.”

Certain regional retailers might stand to benefit the most from seasonal offerings. “Here in Phoenix, we have two seasons: hot and hotter,” says Bentz. “If you are in these regions, you need to give customers seasonal cues to tell them it’s time to decorate for fall or winter since you don’t have those crisp mornings to trigger that idea.”

Risks to Retailers

Starbucks might have been hesitant on how its customers were going to react to the pumpkin spice latte, but Stephen Hoch, a marketing professor at the Wharton School of the University of Pennsylvania, says the company really wasn’t taking that big of a risk.

“It’s a low-commitment seasonal product since they don’t really have to hold inventory beside some pumpkin flavoring, they already have to have the coffee and the milk, they are just adding the syrup to its line up.”

Retail lives and dies by one question, according to Phibbs: what’s new? “We like a retailer when we feel like there is something new being offered when we go in. Seasonal products give customers the illusion of choice, even if they aren’t buying the product, and that creates repeat customers.”

But filling shelves with products with a limited life span is not without risk. “As any toy retailer will tell you, when a product dies, it dies hard, and there’s nothing you can do at that point to get rid of an item,” says Phibbs.

Hoch adds that for most retailers, seasonal products are “a total dud and money loser” since they aren’t able to sell the inventory before the item becomes passe.

“Here’s what happens: a retailer buys a seasonal product for $1, tries to sell it for $2, and then when the deadline is a couple weeks away, they panic and mark it down by one-third, then when the deadline passes, they are going to have to mark it down even more so they don’t have to store inventory and they haven’t really made a lot of money.”

So, why do retailers take the risk?

“Everyone else is doing it, no one wants to look like a scrooge,” he says.

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