Marketing – Destroying Starbuck’s Brand Value

Excerpted from: “Starbucks: How Growth Destroyed Brand Value” by Prof. John Quelch, HBS Online / BusinessWeek Online

Founder and CEO Howard Schultz had a great concept, and it worked for a while. But too many new stores and diverse products changed the experience … Schultz recognized (that) … “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.”

(Now) Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special. Either you have to cut price (and that implies a commensurate cut in the cost structure) or you have to cut distribution to restore the exclusivity of the brand … Sometimes, in the world of marketing, less is more … Growth targets undermined the Starbucks brand in three ways.

First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority. To grow, Starbucks increasingly appealed to grab and go customers for whom service meant speed of order delivery rather than recognition by and conversation with a barista … many Starbucks veterans have now switched to Peets, Caribou and other more exclusive brands.

Second, Starbucks introduced many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists. They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks. With over half of customers customizing their drinks, baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.

Third, opening new stores and launching a blizzard of new products create only superficial growth … Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale.

None of this need have happened if Starbucks had stayed private and grown at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging. Tiffany faces a similar problem. That’s why many luxury brands like Prada remain family businesses or are controlled by private investors. They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities. ”

* * * * *

Ken’s Take:

1. Nice synopsis of Starbuck’s current position and challenges.

2. The issue is strategic discipline — not private vs. public ownership.

3. Eventually, you run out of folks who are willing (and able) to shell out $5 for a cup of coffee that keeps losing taste tests to both Mickey D and Dunkin’ Donuts. And, as budgets tighten, brand panache starts to look like wateful spending.

4. Things are likely to go from bad to worse as stores close and Barista “partners” confront job insecutity — so much for kumbaya.

5. Still, you have to hand it to these guys for their spectacular run.

* * * * *

Note: Prof. Quelch wrote a series of cases on Black & Decker marketing, including the classic “B&D Brand Transition”

Source: BusinessWeek Online / Harvard Business Online,
July 9, 2008         For full article:

Thanks to MSB-MBA alum Suhrud Atre for the heads-up on the article

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One Response to “Marketing – Destroying Starbuck’s Brand Value”

  1. Tim Rueb Says:

    Good Post. I’m not sure on the location expansion part of your point, but I suppose that if you consider the experience of being in a coffee shop as part of your brand, then I guess it works also. I just think the ‘experience’ is a very difficult thing to defend from competitors so I don’t mind the change into smaller venues and the grab and go. I would simply have branded those franchises differently and stated they ‘sold Starbucks here’ as a key element.

    I go back to Ries’ 22 Immutable Laws of Branding. Basically, they got caught up in the Law of Expansion, in the power of the brand is inversely proportional to its scope.

    They also got caught up in the Law of Extensions, the easiest way to destroy a brand is to put its name on everything.

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