Starbucks Coffee Brand Strategy

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‘The Way I See It’: Customer Association and the Success of the Branding Strategy of Starbucks’ Coffee

Introduction

Maintaining an effective brand image is a challenging task, where a company needs to maintain the sense of momentum without losing a sense of continuity (Cagan and Vogel, 2001). The power of the Starbucks brand is exceptionally strong and has been imitated by numerous related and unrelated products and companies around the world (Knapp, 1999: 199). The expansion of Starbucks from just a small coffee provider into a global brand was swift and effective (Schultz and Yang, 1997). Behind this global explosion lay the concept of a Starbucks brand, one which bombarded the customer on all five senses from the smell of the coffee, the modern artwork on the walls to the contemporary music soundtrack and polished pinewood tables (Bedbury and Fenichell, 2003: 107). By February 2008, however, the brand had suffered 40% decline in share price and owing to the current recession is being forced into a programme of store closures (Smales, 2008). Several reasons lay behind this, such as the success of rival coffee houses, the saturation of some areas with Starbucks coffeehouses and the decline in consumer spending at a time of economic hardship. However, this decline in sales was not simply due to exogenous factors: it represented the decline in the brand’s effectiveness. For the first time, the Starbucks brand has been forced onto the back foot. In many previous examples of a strong brand suffering a decline in sales, brands often suffer because the company fails to take stock of the associative aspects of branding – the elements added by the customer to the brand or product based upon their own experiences (Ries, 2004: 196). A company cannot control what the consumer associates with the brand, it can only point them in the right direction. This research will therefore aim to investigate if the Starbucks decline resulted from a failure of strategy that led to negative associations being made with the brand. It is important to see how close the feedback loop is kept in Starbucks, in the extent to which the company tracks and reinforces customer perception of the brand. Put simply, this research will aim therefore to examine the extent to which what Starbucks wants customers to think of them is matched by what customers really think of them. Though sounding simple, it represents a vital part of the branding exercise that can sometimes be overlooked by some, often very popular and successful, companies.

Research objectives

To examine and analyse the branding methods used by Starbucks that created the hugely successful global company

To conduct primary research to establish the associations with the Starbucks brand made by a plethora of consumers, from actual Starbucks customers to a more random sampling to glean a general perception of the associations of Starbucks.

To establish whether the brand of Starbucks has been watered down and lost its brand impact, or whether it simply face increased competition from imitators and a weak global economy.

To analyse the extent to which attempts being made to find a new avenues for development for Starbucks seem like based on an effective appraisal of the strengths and weaknesses of the brand.

Background

The first Starbucks opened in Seattle in 1971 (Michelli, 2006: 2). Originally only set up to roast and sell beans, the first significant step towards their development into a global brand began when Howard Schultz was appointed director of marketing in 1982. On a trip to Milan, Italy, Schultz encountered European Coffee bar culture and aimed to attempt to associate psychosocial meaning of coffee to the stores (Schultz and Yang, 1997). However, this was initially rejected and Schultz thus founded his own chain called Il Giornale. In 1987 Starbucks was sold to Schultz who, after renaming all his Il Giornale stores Starbucks, began its initial period of expansion (Clark, 2007). By 1992, Starbucks had grown to 165 coffeehouses and their first store outside North America was opened in Japan in 1996. After a acquiring a number of other coffeehouse chains, Starbucks expanded quickly and after being initially floated on the stock market in 1992, expanded by 5,000% by 2006 (Michelli, 2006: 3). Schultz retired as managing director in 2000 but returned in 2008 to attempt to return the chain to its initial philosophy and success, claiming that the brand had become diluted and blaming store ‘cannibalisation’ where the fast expansion had resulted in too many stores in some areas. On 1st July 2008, the company announced it was to sell 600 outlets and in the same month the company cut approximately a thousand jobs (Smales, 2008). In January 2009, 300 more stores were announced to close.

Schult’s innovation to the branding was to see an opportunity to ‘transform the traditional American coffee experience from the ordinary to the extraordinary’ (Michelli, 2006: 2). ‘The true size of the Starbucks brand is more subjective than quantifiable,’ (Knapp, 1999: 197). A key component of the Starbucks identity has been the rigid focus on establishing brand loyalty through customer experience (‘one cup at a time’) rather than through aggressive marketing and advertisement. Schultz argues that in the 1990s, Starbucks spent more money on training than on advertising (Schultz and Yang, 1999). The construction of the Starbucks brand took account of the fact that brands tend to absorb all associations around it and therefore was constructed from the very basic aspects of staff training to create a friendly atmosphere to the decor on the walls. It does not franchise its stores in order to maintain full control (Michelli, 2006). It was seen as a company philosophy, not simply a marketing exercise and as such pervaded all departments, each employee, and every aspect of design. For example, Starbucks coffee machines are fixed at a lower level and on the counter allowing the coffee server to maintain eye contact with the customer rather than turning their back on them (Schultz and Yang, 1997). This holistic philosophy was vital for establishing Starbucks as a significant and fundamental coffee retailer. It represented a heightened awareness of brand environmentalism before it had become more mainstream (Bedbury and Fenichelli, 2006: 111). The company even banned smoking from its stores long before smoking bans developed in North America and Europe, simply in order to maintain the aroma of freshly roasted coffee and avoid any inadvertent negative associations of their brand (Michelli, 2006). Starbucks attempts to offer not just an especially well-brewed cup of coffee, but to reinforce their expertise as researchers, purveyors and professionals in providing the perfect cup of coffee for the customer (Bedbury and Fenichell, 2006: 108). Schultz’s attempted to not only transfer the taste of freshly roasted coffee, but to transfer the entire welcoming social experience from Mediterranean culture to North America and beyond. The astonishing success of the experiment means such branding was evidently enormously successful. However, the plight Starbucks has found itself in the last two years suggests that such innovative thinking may well have lost its momentum and a question mark now hangs over its potential for future success. It is not certain if the brand needs more or less innovation: whether changes made in the last decade has made the customer lose sight of the original benefits of the brand (as Schultz maintains), or whether, in fact, the original idea only had a limited mileage. It has been maintained that the company expanded too quickly in a period of global economic health and thus finds itself stranded when faced with a global economic downturn. However, it is not simply that it expanded too quickly – if it could maintain the market it developed, it would likely find the level of expansion more sustainable than it appears. For a company which became an enormous global brand in a very short space of time through an innovative form of thinking, Starbucks now faces significant challenges to maintain and reinforce its dominance of the coffeehouse industry.

Literature Review

A fundamental question of this research is essentially: what has gone wrong with the Starbucks brand? Has negative customer association taken place, or has the positive brand image undergone a dilution and lost its original impact? Branding encompasses more than simply semiotics and imagery, and embraces a plethora of media and psychology (Ries, 2004: 7). Put simply, a product is something which a company sells but a brand is something which a customer buys. Although the history of branding seems relatively short, emerging as a conscious objective in the Nineteenth Century, elements of association can be seen in the Port of Portugal or tea from China from at least the Seventeenth Century. However, branding exercises became an obsessive form of marketing in the mid to late Nineteenth Century, resulting in some of the most longstanding brand-names such as Cadbury, Schwepps, Bovril and Oxo. Branding became very significant after 1869 when Heinz offered successful pickles that were then trusted and enjoyed by consumers, eventually becoming the brand itself. One a brand loyalty has been secured, consumers seem to be reticent to avoid developing and switching loyalties; a factor pointed out in the Heinz slogan ‘Beanz Meanz Heinz’ (Rooney, 1995). Where many identical products existed, attempts were made to increase the value to the consumer. A number of techniques were developed for this method, and many brands were reinforced through sponsorship of expeditions such as Robert Scott’s Antarctic expeditions, were the photographs showing intrepid explorers munching on Cadburys proved to be an important new avenue for reinforcing a brand (Cubitt and Warren, 2000: 118). A strong brand can anticipate longevity in the marketplace: in 1923 the brand leaders in motorcycles and soft drinks were Harley Davidson and Coca Cola and so it is today (Kathman, 2002: 27).

Branding is traditionally seen as receiving its first definition in a memorandum issued by the firm Proctor and Gamble in Cincinnati in 1931 (Kathman, 2002: 25). This articulated the basic principles of brand management as research, development and communication. Branding received a boost by the development of large-scale supermarkets where similar products would be displayed next to each other meaning the package no longer similar encased the product, it had now to sell it. Manufacturers gradually began to develop the principles of creating the image of a brand from visual means. Contemporaneously, Louis Cheskin developed the ‘Principle of Sensation Transference’ which demonstrated that consumers tend to assign expectations and associations of products based on the design, shape, colours of the packages of a product (Ries, 2004). This increased the role of the designer in product development to one selling a product in addition to simply a practical solution. This was exacerbated by the increase of self-select environments in the retail environment. At the core of a branding exercise lies the product itself. This can be surrounded by a primary mantel of branding, the packaging, name, and ways in which the product is presented. The outer mantel is the warranty, the delivery credit, after-sales service and other factors that can augment the product beyond its initial use (Ries, 2004). Almost anything can be branded and it is seen as comprising four main factors: the attributes, benefits, values and the personality. Different brands can focus on different aspects, such as a banking service focusing on the values provided by the product. The characteristic of a strong brand is that it offers significant financial and perceptual benefits, is consistent and focuses on quality and uses a full marketing mix to consolidate performance and position. As Schmitt (2000: 165) notes, ‘products are no longer bundles of functional characteristics, but a means to provide and enhance a user’s experience… consumers want to be stimulated, entertained, educated and challenged.’

The theoretical perspective of branding has undergone resurgence in recent years. Rather than being understood simply as a ‘name, term, sign, symbol, or a design’ or simply a ‘major issue in product strategy,’ (Kotler, 2000: 396, 404), brands have become holistic and sophisticated entities (Keller, 2003). For Kapferer (1997), the brand is simply seen as a sign that uncovers the qualities of the product. Whereas branding traditionally was under the control of the marketing department, the strategy now appears to be much more than this, to the extent of being seen as representing not only the product but the company philosophy (Aaker and Joachmisthaler, 2000). Recent contributions to the literature have included Aaker and Joachmisthaler (2000) who posit the theory of brand leadership model as one which embraces notions of strategy rather than the traditional model of tactics (Urde, 2003). They see the building of branding as encompassing the four challenges: organizational, brand architecture, brand identity and position and brand building. An alternative model is provided by Davis (2000) which sees the brand as an asset. He defines this as a fiscal approach, which attempts to build the ‘meaning of the brand, communicating it internally and externally’ (Davis, 2000: 12). This conception of a brand is one which fits the Starbucks model well, from its staff training to its corporate philosophy, the company sees its brand as having a tangible meaning rather than simply a means to sell a product (Michelli, 2006). This ‘corporate branding’ has received attention also by Aaker (2004) and Schultz and Hatch (2003).

The theoretical and analytical debate of branding in the literature has tended to lag behind the practical success of branding strategies, and so it appears Starbucks’ company philosophy was developed ahead of its theoretical articulation. Starbucks is often used in marketing and business textbooks as a clear example of a successful brand (Knapp, 1999: 199). Given that a brand’s success results in imitation and further theoretical and strategic articulation, it would seem paramount that if the Starbucks example of what can be dubbed a successful ‘holistic’ brand is to be retained, then it would be a significant and important contribution to the debate to establish ‘what has gone wrong’ with what was a runaway success story of effective branding in the 1990s. If the success of this branding strategy is to be imitated then the potential for its longevity should be established. Put simply, are people just bored of Starbucks now the novelty has worn off and there are a plethora of imitators, or can this be seen simply as a ‘blip’ for a brand which holds the potential to be around for as long as Heinz?

Rationale for study

This study in partial fulfilment of the degree will contribute to the branding debate by investigating and analysing a vital aspect of the Starbucks’ brand. Brand strategy can only manipulate customer’s associations and emotions with regard to a product so far, and a feedback loop is essential to ensure that the intended associations are made by the customers (Aaker and Joachmisthaler, 2000). Furthermore, it will contribute to an understanding of the coffeehouse industry and the extent to which the Starbucks phenomenon shows signs of longevity as with other brands.

Resources Required

No extraordinary resources will be required for this study beyond a PC, photocopier and time. The fiscal resources required will be kept minimal.

Methodology

A questionnaire research strategy will be devised in order to ensure a stratified sample. Extremely short questionnaires will be used to establish the associations of Starbucks with a number of individuals. This will be semi-structured questionnaires where it is anticipated that the responses can be graded and coded according to positive or negative associations. A number of research locations will be considered in order to establish the most effective spread of respondents. For example, Starbucks customers will be used in order to provide an index of responses (it can be presumed associations will be largely positive) and then respondents sought from locations where their relationship with Starbucks cannot be seen as being unduly effected by any environmental or temporal variables.

Research Design

Using a short questionnaire such as this means the research will sit between a quantitative form of collecting data and a qualitative in that the results will be analysed using quantitative techniques but little guidance is provided to frame the questions. This means time will need be spent coding the responses and entering them into a spreadsheet program such as Excel. An important dimension of the research strategy includes establishing the sampling procedure. At least part of this research will come from asking individuals in the street, and the location of the researcher and the time at which the research is carried out are all likely to have an effect on the results. The importance of this factor is not just in asking ‘the average man on the street’ but establishing as wide a sweep as possible to examine the associations not just with product users (coffee drinkers) but to examine the effectiveness of the Starbucks brand in maintaining an association with all individuals. A negative response is therefore as important in this case as a positive response and the questionnaire must be carefully structured to ensure that even non-coffee drinkers can consider what they associate with Starbucks. By conducting this research using a variety of media and a variety of locations, it is hoped the potential exists to compare and contrast the different samples, but also to build up as wide a picture of the public perception of the Starbucks brand in the UK as a whole. This can then be compared to the Starbucks brand as represented in Schultz and Yang (1999) and its corporate literature such as ‘The Green Apron Book,’ their website and publicity material, and analyses made in the secondary literature. It is important to recognise that this, in itself, does not signify the success or the failure of a brand, but it may offer some clues into the downturn experienced by the Starbucks brand.

Ethical Issues

It is vital, of course, to receive the consent of the individuals who will respond to the questionnaire. Although each respondent may be given a code, no identifying data will be taken. Unlike brand strategists, the researcher is at great pains not to affect the way in which the customer might view Starbucks and so it is vital to ensure that the respondents are aware that the researcher does not in any way represent the company. It would, however, be courteous to liaise with a Starbucks’ coffeehouse, particularly if attempts will be made to secure a sample of bona fide Starbucks customers, and attempts will be made to ensure that attention is paid to copyright and intellectual property. Contact will be made with Starbucks, informing them of the intentions of this research and requesting any further information that may come in useful but for reasons of independence it would be prudent to maintain a respectable distance from the company itself. Most data regarding the company will be taken from publicly-available sources and published works and confidentiality issues will not pose a problem in this case.

Anticipated Problems and Solutions

The construction of the questionnaire is likely to represent on of the most time-consuming aspects of this study and attempts will be made to ensure that ‘test drafts’ are used and enough time is maintained to make effective evaluations and revisions to the content. Furthermore, establishing a suitable sampling technique is liable to be a difficult task and the number of respondents is likely to vary depending on time of day, day of week and other factors that might make establishing a firm unbiased empirical foundation difficult. Great pains must be taken to ensure that as many respondents are sought as possible, and the temptation to tend to approach those who might appear to the researcher to proffer the greatest likelihood of answering questions is avoided. However, this is a key factor in Social Science research and one that is always difficult to sidestep – even if a more anonymous data collection method was used, the respondents would tend to be self-selecting (Crouch and Housden, 2003: 138). Selecting suitable locations to conduct the research is important and the relationship of the researcher’s location to any Starbucks (or other) coffeehouses must be carefully and fully considered as factors that might well have an effect on results. However, it is this researcher’s opinion that the greater the number of respondents and the greater the number of locations and methods of data collection, the greater the likelihood that any random bias will tend to balance itself out as long as no systematic selection factors are at work.

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