Table of content:
4. Brand portrait
4.1 Business strategy
4.2 Brand portfolio
4.3 Brand characteristics
4.4 Starbucks in the market
5. Problems of Starbucks and their solutions
5.1 Lost focus and incorrect decisions
5.2 Increased competition
5.3 Aggressive expansion strategy
Starbucks is a globally active and successful brand that provides not only highest quality coffee, but also outstanding service. The first Starbucks opened in 1971 in Seattle as a whole coffee-bean retailing store (Keller 2008:305). The entrepreneurs Jerry Baldwin, Gordon Bowker and Zev Siegl founded their enterprise even though there was a decline in coffee quality and therefore coffee consumption in the USA (Keller 2008:305). Their ‘mission’ was to bring back high quality coffee to Seattle. They had a unique concept of selling only the finest whole-bean coffee and coffee brewing equipment (Keller 2008:305).
In 1982 Howard Schultz joined the company and inspired by a trip to Italy he started with a reinvention of the company. His mission was to expand the company in reach and scope and he also started to transform Starbucks from a coffee-beans retailer towards a ‘café business’. He increased the quality control of the coffee served at the store by training employees, so they were much more experienced than their colleagues at other coffeehouses (Keller 2008:306).
Starbucks developed not only the vision of expanding in Northern America, but to open more than 10,500 stores in North America, Latin America, The Pacific Rim, Europe, and the Middle East (Keller 2008:305).
In 2005 Starbucks welcomed around 35 million visitors each week generating revenues of $6.4 billion (Keller 2008:305 and 325).
Over time Starbucks engaged in joint ventures with for example Kraft, Pepsi, Dryer’s and Capitol Records. They also had licensed partnerships with businesses like United Airlines, ITT Sheraton or Host Marriott, which contribute enormously to an increased brand awareness and an extended brand portfolio (Keller 2008:305).
But times were not always as promising as in the beginning for Starbucks. Increased competition, lose of focus or its aggressive expansion created among others problems for the company.
This project assignment shall provide some insights into the problems Starbucks has to face today, why they occurred and how they might be solved. More specifically this project focuses on the question: why have customer difficulties perceiving values added by Starbucks?
The question that is going to be answered throughout this assignment is why customers have difficulties perceiving values added by Starbucks? This question is chosen as customers are the most important factor for every service provider. Also Starbucks claims that its customers (and employees) are crucial for the success of the brand (Keller 2008:309). Without customers there is anyone that can be served and therefore no income and no business can be generated. It is especially important for a brand like Starbucks that is operating with a ‘mainstream’ product (coffee – Keller 2008:318) to reinvent itself and to provide added values that customers can perceive. As the problem formulation states it there is reasoning to doubt that customers can perceive values added by Starbucks in the moment.
To become able to analyse this problem it is necessary to provide an overview about what brands are and how they are created. Furthermore an overview about the process of customers choosing brands will be provided. Some last theoretical considerations shall help to evaluate how brands behave when competing with other brands or commodities.
After the theoretical background is provided a first ‘pre-analysis’ gives an insight about how Starbucks could develop into an internationally acting and very successful brand. In the following main analysis three main problems that make it difficult for customers to perceive the brand values provided by Starbucks will be discussed. Those problems are the lost focus, increased competition and Starbucks aggressive expansion strategy. Not only the reasons for those problems will be discussed, but also ways to solve them will be given.
In the concluding chapter of this assignment a personal reflection towards the Starbucks brand and its future will be given.
The sources for this brand analysis are all secondary. Most of the theoretical input is given by de Chernatory & McDonald (2008), while other marketing researchers are also taken for input (e.g. Neumeier 2006).
In relation to the Starbucks case this analysis relies on the information provided by Keller (2008).
3. Theory chapter
Before I can answer my problem formulation I need to clarify what a brand is and which aspects make it special. Afterwards I will have a look on Starbucks as a brand in general, before I analyse problems the brand experiences in relation to the value added. In the end of my analysis I will show some possibilities how those problems might be solved and in my conclusion I will give a personal evaluation of the Starbucks brand and its future.
A brand is not something that can be defined easily. What counts as a brand is strongly dependent on personal views and values. What is a brand for one person in one specific situation must not be a brand for another person in the same situation. According to Kotler et al. (2006:911) a brand consists of various elements that help to identify a product or a service and help to differentiate it from competitor products and services. Those elements include names, terms, signs, symbols and designs or a specific mixture of those elements. De Chernatory & McDonald (2008:25) define a successful brand as an identifiable product, service, person or place. Buyer or user perceive it as relevant and see the added values as the best match for their needs. To be successful a brand furthermore has to sustain those added values in competition. By implementing a coherent marketing strategy successful brands can be created. Therefore all elements of the marketing mix should be used (de Chernatory & McDonald 2008:21). Branding is a cost-effective way to get and sustain a loyal customer base, which can help to gain the highest possible return on investment (de Chernatory & McDonald 2008:22).
Hudson (2008:98) explains branding as ‘a method of establishing a distinctive identity for a product based on competitive differentiation from other products’.
So all together it can be said that a brand needs to have something special on it that customer value. It needs to differentiate itself from competitors and customers must perceive it as relevant.
Brand image is defined as ‘the set of beliefs a consumer holds about a particular brand’ (Kotler et al. 2006:911). The image is seen as an important tool towards differentiation, which helps consumers to differentiate between competing offers that look the same, as they may perceive differences based on the company or brand image (Kotler et al. 2006:287).
What differentiates a brand from a commodity can be summed up as ‘added values’ (de Chernatory & McDonald 2008:14). The brand product consists of the core product, the basic and tangible features that can be imitated easily, and the product surround, the combination of added values like images, services, styling or support, which makes the brand product unique:
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(de Chernatory & McDonald 2008:16)
Brand equity is another important aspect for understanding brands. According to Yoo et al. (2000 cited in de Pelsemacker et al. 2007:51) it is a measure for the value of a brand. It is related to the added value as well that differentiates a brand from competing brands and commodities. Berry (2000 cited in de Chernatory & McDonald 2008:237) describes different ways to create brand equity. In his opinion it is still most important to be different from competitors. He also pointed on the ‘own fame’ of the company that needs to be determined in order to transfer the brand message to the customer. Another way is to create an emotional connection and/or to internalize the brand. Successful brands again use a mixture of these ways to create a brand equity that cannot be copied by competitors.
An overview about the most important characteristics of successful brands is provided by Keller (2000 cited in de Chernatory & McDonald 2008:352ff.). The delivery of customer welcomed benefits was already mentioned. Furthermore it is important to stay relevant, price according to consumers’ perception of the value offered and position effectively. He also claims consistency, a sensible brand portfolio hierarchy and co-ordinated support as essential factors. It is also important to understand what the brand means to consumers and to provide proper and long-term support. As a last point Keller mentions the monitoring of sources of brand equity. The following analysis will show which of these aspects Starbucks satisfies and which are neglected by the company. This should help to understand why Starbucks is such a successful brand, but also give some hints about the problems the company experiences in the last years.
Competitive advantage can be achieved in various ways. De Chernatory & McDonald (2008:321/323) differentiate between cost-driven and value-added brands. In the case of a cost-driven brand the customer decides to buy the brand as it is less expensive than comparable substitutes with the same benefits. A value-added advantage indicates that the brand has some specific benefits that competitors do not have and therefore customers decide to buy this brand and even are willing to pay a price premium.
On a strategic basis brands can be categorized related to their costs and value-added advantage (de Chernatory & McDonald 2008:330ff.). A commodity brand has high costs and low value-added advantages – it is weak in comparison to the other categories. Benefits brands in contrast have high costs, but can generate a high value-added advantage. Productivity brands are relatively weak as well, but stronger than commodity brands. They have low costs and also low value-added advantages. The strongest brands are power brands, which have not only low costs, but can also profit from high value-added advantages.
To achieve competitive advantage different sources like in-bound or out-bound logistics, operations, marketing and sales, or service can be used (de Chernatory & McDonald 2008:333).
When competing with other brands and commodities, the strength of a brand can be measured by the ‘price premium’. It reflects the value of a brand compared to a commodity as it expresses the additional amount of money customers are willing to pay for the values added by the brand. It also indicates that brands are less price sensitive than competitors (de Chernatory & McDonald 2008:447).
When marketers want to design a brand they need to keep it simple, keep it pure, and keep it different from competitors (Neumeier 2006:32/3). Differentiation helps us to filter the vast amount of information we are confronted with in our daily lives (Neumeier 2006:34). Sight as one of our most important senses helps us to notice contrasts and thereby recognizing differences (Neumeier 2006:34/5).
Brands can fulfil different functions for a company like a simple sign of ownership, a differentiation device, a functional device, a symbolic device, a risk reducer, a shorthand device, a legal device or a strategic device (de Chernatory & McDonald 2008:41-49). According to de Chernatory & McDonald (2008:320) successful companies mostly concentrate on brands as strategic devices. That means they engage in research about the brand, its position and its future to protect it and achieve the desired return on investment (de Chernatory & McDonald 2008:49).
Understanding how consumers choose brands is one of the most important tasks when creating a brand. According to Sheth et al. (1991 cited in de Chernatory & McDonald 2008:139/140) defines different categories of values that can influence customers’ behaviour. Applied in reality it can help understanding what customer value in a specific situation and thereby provide the most appropriate set of values for the brand company. He differentiates between functional, social, emotional, epistemic and conditional values, which are unequally important in different purchase situations.
De Chernatory & McDonald (2008:141) state not only the importance of understanding how consumers perceive the brand as the object of their attitudes, but also the need to discover the subjective brand with its own set of attributes.
Love and passion, self-concept connection, commitment, intimacy, partner qualities or nostalgic attachments are attributes that contribute to a good relationship between the brand and its customers (de Chernatory & McDonald 2008:144).
Brand loyalty is another aspect that shall be discussed here briefly. This concept is related to the loyalty of customer towards a particular brand. Repeat customers present a concrete source of income, but according to Ehrenberg (1993 cited in de Chernatory & McDonald 2008:86) the best consumer for a brand are its competitors’ customers that buy the product occasionally. He also stated that bigger brands are bought more frequently than smaller brands and in his opinion loyal customers as frequent buyer are the least valuable.