Howard Schultz, the venerable founder and chief brand architect of Starbucks, fears that the company’s brand is being “commoditized.” Mr. Schultz questioned whether Starbucks’ drive for growth and efficiency has diluted that experience. In a February 14th memo, he warned company executives that the chain may be diluting its brand and making itself more vulnerable to competition from other coffee shops and fast-food chains. The nearly 800-word memo questioned whether Starbucks’ automatic espresso machines, new store designs and elimination of some in-store coffee grinding may have compromised the “romance and theatre” of a visit.
Some analysts who follow Starbucks indicate that threats to the brand are misplaced, arguing instead that Schultz’s memo was a rallying cry for his managers, not an edict to slow down. “The memo was a call on the company’s culture without financial implications of slower store growth, higher capital spending, or increased operating expenses,” said J.P. Morgan analyst John Ivankoe.
Starbucks has said it plans to open 2,400 stores this year. In the last ten years, the company has grown to more than 13,100 stores from some 1,100. It is THE dominant player within the specialty coffee retail store space.
The concern comes as Starbucks faces intensified competition from McDonald’s Corp., which has upgraded its coffee, and has partnered with Green Mountain Coffee Roasters to market organic and Fair Trade-certified coffees. Dunkin’ Brands Inc.’s Dunkin’ Donuts now sells espresso drinks and is plotting a nationwide expansion. In recent years, as both those fast-food chains have added Starbucks-like touches, Starbucks has become more like a fast-food chain, adding drive-through windows, hot food and promotions for movies on its lattes.
Starbucks Corp. built its broad appeal on what Chairman Howard Schultz labeled an “experience,” including baristas who are on a first name basis with customers and an atmosphere that entices patrons to linger for hours. That experience has enabled the coffee chain to charge the premium prices that fuel its robust earnings growth. Starbucks’ steady sales and earnings growth have made the company’s shares soar since it went public in 1992.
However, Starbucks no longer scoops fresh whole bean coffee from bins, losing the aroma which used to be a trademark of Starbucks stores. In order to achieve consistency, Starbucks stores have used the same design, furniture and “look and feel.” Mr. Schultz wrote that “stores no longer have the soul of the past….Some people even call our stores sterile, cookie cutter,” he wrote. Mr. Schultz recognizes that competitors are able to offer a unique advantage relative to the sameness of Starbucks. Has the brand lost its way on the road to growth?
What We Can Learn from Starbucks
What can we learn from Starbucks about developing and more importantly, maintaining a brand? Starbucks had choices to make throughout its brand development. The company went through a branding blitz in the mid 90’s: serving Starbucks on all United Airline flights; producing Double Black Stout with Redhook Ale Brewery, Inc. (Fall 1995); marketing Starbucks Frappuccino in supermarkets with Pepsi-Cola Co. (Summer 1995); six flavors of Starbucks Ice Cream with Dreyer’s Grand Ice Cream (Spring 1996); and opening retail stores internationally.
While it was seductive to serve branded coffee to 100 million United Airlines passengers per year, the decision turned Starbucks coffee from a unique “experience” to a ubiquitous, mass beverage. Like Coca-Cola’s aspirations for Coke, Starbucks’ lattes are frequently “within arm’s reach of desire.” Starbucks has difficulty controlling in-cup product quality, brand presentation, and the subtle explanations of their dark-roasted coffee made from beans originating in exotic locations. There is an inflection point for many brands at which growth sacrifices positioning. In the case of Starbucks, the brand may no longer stand for that flavorful waft of coffee aroma in a warm, inviting “third place,” and the best cup of coffee one could find anywhere.
Most marketers understand the relationship between consumers and brands is held together by trust. In a world where products and brands are moving at an accelerating pace toward commodity status, those companies that have a brand people trust are able to grow profits and market share.
Branding is the process of creating, nurturing and sustaining a beneficial, mutually rewarding relationship with customers. The brand makes an implicit promise to the consumer. This is what allows the brand to create a unique position in the marketplace and in the minds of consumers.
Starbucks has created a solid brand image, and “owns” the specialty coffee shop segment. However, they have not nurtured and sustained the brand sufficiently over time to avoid dilution. More importantly, competitors have filled the void and are offering compelling reasons for consumers to defect from Starbucks.
The Small Business Advantage
Small businesses are in an excellent position to create this trust with consumers. They have direct contact with their customers on a regular basis, and can control the customer experience. Starbucks has less and less influence on consumers as the brand becomes more ubiquitous (on airplanes, in grocery stores, offices).
Creating, nurturing and sustaining relationships are where small businesses outshine larger competitors. They create a special bond with their customers which large brands have lost in their “commoditization.”
Each time we touch the consumer (verbal or nonverbal) we are communicating our brand. This includes the way we answer the telephone, product packaging, pre-sale service, post-sale support, product quality, on-time delivery, and the execution of promotions. Due to its growth and pressure to achieve financial results, Starbucks no longer has the ability to “touch” its consumers outside of those in their stores. Like most consumer packaged goods companies, they rely on the retailers and foodservice providers (such as United Airlines flight attendants) who serve their products to consumers.
We have learned from Starbucks that nurturing a brand and building trust as a brand grows is paramount to sustaining customer loyalty. All activities that communicate a brand lead to building trust and confidence with consumers. Both large and small brands must have the discipline to manage their brand actively, continually reinforcing the brand’s positioning and differentiation. Small businesses – unlike Starbucks which has lost much of its control over the brand – are better able to leverage their ability to communicate and reinforce their unique positioning. This will build long-term, sustainable relationships that are mutually beneficial to the consumer and the brand owner. Fear complacency.