Sunday, 2 August 2009

Putting the star and bucks back in Starbucks - Starbucks trial brand strategy

Coffee is a regular topic of conversation in The Marketing Eye office. Normally it’s an argument about whose turn it is to make the next one, but now, for a short time at least, we can claim a professional interest.

Recent reports have revealed that Starbucks is planning to open 3 unbranded coffee shops in its home town of Seattle. We are told that each of the new shops will be unique and tailored to the community in which it is situated. One of the test outlets will feature poetry readings and live music and there will be alcohol on offer and free Wi-Fi. The address of the cafe will be used in the branding, for example one is to be called 15th Avenue Coffee and Tea. Most importantly, there will be no Starbucks branding.

Lambasted by the conspiracy theorists as stealth marketing, the Starbucks experiment is a fascinating case-study in brand life-cycles and brand strategy.

Globally ubiquitous, the Starbucks brand is a phenomenon. Since expanding out of Seattle in the 1990’s, it has re-defined the coffee market and become synonymous with the boom years and globalisation. The signs are, however, that Starbucks might now have reached its peak. Last year’s results showed a heavy decline on previous years and in April, Starbucks reported a further 77% fall in quarterly profits.

The reverse can’t be blamed entirely on the recession as the evidence is that, even with less money in our pockets, there is still plenty of coffee being drunk. The Starbucks star has definitely lost its sparkle. We shouldn’t be surprised, therefore, that returning CEO Howard Schultz is looking for new ways to invigorate Starbucks' performance and return it to growth. The brand has got too big too quickly and is in need of re-invention.

Tailoring a product to the needs and wants of the market goes back to the basic principles of good marketing. The ‘one-size-fits-all’ Starbucks’ model needs modifying and evolving. People have grown tired of the homogeneous outlet and its mass produced product. As consumers, we know that a far more satisfying experience is found in the local coffee shop where a bespoke and lovingly produced beverage is mixed with a genuine appreciation of our custom. Schultz recognizes that Starbucks must present itself as a neighbourhood coffee shop instead of the corporate conglomerate that it has become.

Management Today said: “The move is interesting because it’s essentially a reaction against the kind of bland, ubiquitous corporatism with which Starbucks has become synonymous to many people. It’s basically admitting that some customers are now put off by well-known popular brands and are more inclined to favour smaller local ones instead”.

Opinion on Twitter is divided:
@karentoms said: “How cruel, I'd be gutted to find I'd been inadvertently lulled into Starbucks”, whereas, @
bellakatz posted:” Interesting idea. I kinda like it”. @danielmarino summed up most people’s views with his simple: “questionable, but very interesting” comment.

The chief concern seems to be about honesty. @jeremyrandall said: “Unbranded shops feel like subterfuge. How about unique cafes/names, but keep a small Starbucks logo, so it doesn't seem like trickery?”

Starbucks will do well to heed this tweet of wisdom. Adopting and implementing a local marketing strategy under the umbrella brand would be seen as a much more open approach.

As we have said in previous posts, there is no reason why a business shouldn’t operate two or more brands and even allow the brands to compete against each other.

A different brand for a different market is not a new concept: Toyota does it with Lexus: Donna Karen does it with DKNY and there are many more examples. The important point is that there is something different in the customer experience and the customer promise. The early evidence is that this is the intention with the new Starbucks brand, but the strategy will unfurl if it can’t be maintained. The organisation will undoubtedly want to leverage the efficiencies of its larger operation, for example in purchasing. If that also extends to recruitment and training, one wonders how different the customer experience can really be. Same coffee, same staff, same processes - will we essentially be left with only a change in decor?

To work, the change must go deep into the core values. As The Community Room posted on its blog: “Starbucks needs to whole heartedly handover its stores to the community.... How many people would love to host something in these pieces of real estate? Let customers run everything and change the emphasis, so it’s honestly about the local community”.

Starbucks will be faced with some fascinating dilemmas if the new stores out-perform the branded ones: What is the future of the corporate brand? How does it achieve economies of scale in a brand with unlimited physical iterations? How does it become welcomed and not isolated by the communities it wants to be part of?

The authors of brand and marketing text books around the world wait with bated breath.


Rob said...

Thought I'd read your full post, since you were kind enough to stop by Semantic Argument and leave a comment on mine. Again, I agree with most of what you've written here. We agree that Starbucks has gotten the situational analysis right. They're in trouble, and creating a sub-brand that feels less corporate and mass produced is one solution--a perfectly reasonable one.

But as a brand strategist, their decision to give each new store a different name and endorse them with "Inspired by Starbucks" is the where they've gone astray, if only slightly. In this way, the new stores are not like Lexus (also, a minor correction: Lexus is a Toyota brand; Honda's luxury line is Acura). Where Lexus was free to generate its own reputation (i.e. brand equity), any transference of equity between these stores will have to occur indirectly, by way of the Starbucks parent brand. Creating a consistent sub-brand, like "A Starbucks LocalBrew," even if it was only used as an endorsement, would've meant more direct associations between the new stores. I also think this would've helped prevent the perception of deceptiveness. I suppose I'd be more enthusiastic about a move along these lines.

The rest of my concerns are around implementation, and I think you share these concerns. Already, 15th Ave E seems to have missed some opportunities to be a "truly" local establishment with the support of a global corporation. Instead, it feels like a global corporation with a local mask on. Success will depend on changing that impression quickly and lastingly.

The Marketing Eye said...

Rob, Thanks for the comment and the correction on Lexus. Oops.

The whole debate is a fascinating one.

As I see it, the theory is that without the endorsement, there wouldn’t be any transference of equity. The individual stores will be free to generate their own equity, each as a brand in their own right. This is only different from the Lexus example is in terms of scale.

In practice, consumers will work the link out for themselves. There is a limit to how many different iterations of stores Starbucks will be able to manage and, even with lots of local autonomy, costs will drive a need to seek economies through bulk buying. Repetition will soon creep in. The new stores will display the attributes of a common brand, even without any physical clues.

I agree with and like the way you express the goal of a truly local establishment with the support of a global corporation turning into the risk of a global corporation with a local mask on. There is definitely a thesis in this for somebody oneday.

Rick said...

"who’s turn it is"

Surely you mean "whose turn it is"?

The Marketing Eye said...

Rick - you are indeed correct. The change has been made.