Starbucks: Managing a High

Growth Brand

To inspire and nurture the human spirit— one person,

one cup, and one neighbourhood at a time

Arpitaa Kharbanda
Girish Mittal
Kishlay Seth
Seemant Prakash
Vikas Malhotra
An Overview
 Starbucks Corporation is an international coffee and  coffeehouse chain based
in Seattle

 Starbucks is the largest coffeehouse company in the world with 16,120 stores in

49 countries, including around 11,000 in the United States, followed by nearly
1,000 in Canada and more than 800 in Japan

 35million customers a week

 Joint ventures with Pepsi, Kraft, Dryer’s and Capitol Records – went into
consumer products division to complement café business

 Licensing partnerships with ITT Sheraton, Host Marriot – added to the Starbucks
brand

 Most impressive high growth brands of 1990s and early 21st century
 The Starbucks growth story can be divided in
three phases:
 Stage 1-Development of a strong brand ,
foundation for future growth.
 Stage 2- 1990’s-2000 : Rapid growth ; loosing
focus; short term decisions
 Stage 3- 2000 Onwards : Feeling ripples of past
decisions ; coming back on track
Analysis
Stage 1-Development of a strong brand , foundation for future
growth.

• Entered market when coffee consumption was on decline.

• 1971 -Jerry Baldwin, Zev Siegel, and Gordon Bowker opened a store
called “Starbucks Coffee, Tea, and Spice” in Seattle

• They concept of store dedicated to selling only finest quality bean was
unique which was earlier obtained only through catalogs of European
companies.

• Core attribute– Quality . Provide best ingredient and brewing equipment.

• 1982- Howard Schultz comes to company.

 Developing the brand identity – “ The Starbuck
Experience”:

●
Keep this name familiar to Seattleites
●
Easily memorable
Name: Starbucks ●
Required developing and associating the
“Experience “with name

●
Added image of mermaid in wood cutting
style to reflect name.
Logo ●
Updated to appear more contemporary.
●
Color changed from brown to green.
 Evolution of the logo..

Pre 1987 logo Giornale logo 1987 – 1992 1992 till date
 ●
Redesigned to echo romantic atmosphere of
Italian bars – Elegance of European coffeehouses.
Store ambience ●
Wooden fixtures, vibrant greens – bold,
mysterious, romantic –with casual American
warmth.

●
See, touch, hear, smell
Highest quality of ●
“Personal treat”
everything ●
“Third Place” –social gathering spot
between home and workplace
 The core of the firm was developed on the following
frame:

Developing the core value

High quality - Innovation – Product and

Sourcing from best. support functions , Employee focus –
Innovation to maintain infrastructure and Training program,
product quality . This process. E.g. Roasting
was further developed and packaging plant,
treatment as Customer
to flexibility in quality advanced computer ‘partners’, “experience”
i.e. taking customer information system, compensation and
feedback - Flavor lock bags, vacuum
packaging system
benefit packages
customization
 First phase of expansion in key markets- Chicago, Los
Angeles, New York, Washington D.C.

 All stores to be owned and operated by company instead of

franchising.

 Focus on word of mouth publicity campaigns to generate buzz

before the brand arrived in new market.

 Marketing strategy of “hub” and spread to “spoke” markets.

 Affordability

●
Filled the gap between family and work – “Third place” ●
Redefined affordability.
●
Convinced customer to pay premium prices by educating about experience,
●
The employee training enabled them to educate customers
quality and service.
about “quality” in coffee products ●
Developing brand loyalty by quality and innovation enabled consumer price
●
Defined the Starbucks experience. sensitivity for this commoditized product

Availability Awareness

Cluttering in prime locations to maximize market

Leverages their size and location
●
●
share and highest serving potential. No space for
competitors to enter. strategy by word of mouth promotion
 Stage 2- 1990’s-2000 : Rapid growth ; loosing focus;
short term decisions
 Joint Ventures and Partnership: Enter into partnership with
firms having same commitment to equality and people.

Host Marriot ●

●
Concession stands in airports
Larger group of potential customers - air travelers
Difficult to maintain quality of service
Partnership, 1991
●

●
Did not reflect “starbuck experience” the theme on which the brand was build

United Airlines ●

●
Advantage of generating awareness
Installed more effective filtering device in aircraft brewing equipment
Helped develop future loyal customer since people had more time to leisure the
Partnership, 1996
●

coffee

Retail and Service ●

Nordstrom, ITT/Sherton, Westin, Holland America Cruiseline, Barnes & Noble and
Albertson’s to build brand awareness.
This excessive presence and visibility of brand across varied stores only meant that

Partnership
●

Starbuck was loosing its reputation of premium exclusive lifestyle brand .

 Launched Frappuccino in 1997.

 Dryer’s joint venture with Starbuck – 6 coffee ice cream flavors

marketed under Starbuck name.

 Introducing Starbuck packaged whole coffee bean to be marketed

and distributed by Kraft to reach mass market.

 Environmental Concern:
› Starbucks partnership with Environmental agencies like Alliance for Environmental
Innovation to develop less wasteful carryout coffee cup in 1996

› 1999, with Conservation International offered shade grown Mexican coffee.

› 2000, agreed to offer Fair trade certified coffee

› Starbuck Foundation charity efforts

 Acquisitions:
› 1998, London based Seattle coffee Company to establish foothold in the
growing British coffee market.

› 1999, Acquired Pasqua Coffee Company to saturate California markets,

similar to their previous strategy.

 1999, Launch of Joe magazine. Creating a original , warm

and conversational lifestyle magazine.

 1999, Tries to catch up with internet boom. Obsolete

investment in Living.com, chat site, cooking.com etc.
Stage 3- 2000 Onwards : Feeling ripples of past decisions ; coming
back on track
• Previous decisions were not sustainable:

Sales 1999 sales slow down significantly. Same store revenue growth flattened

Starbucks Ice cream Initial high growth tapered considerably

Frappuccino Fails to meet sales expectation.

Joe Magazine 2000, sales falter and project is axed

• Loss of focus (need was flexible quality- Customization) gave

opportunity to competitors to develop.

• Competitors broadened their experience. Starbuck remained as a

extension of city life.
• Competitors:
Caribou Coffee : New experience – stores designed to resemble
ski lodges and rustic mountain cabins.

Dunkin Donuts: Introduced cappuccino and latte in many stores,

combination of speed, consistency and lower prices

McDonald’s and Burger King: Food chain heavyweights developed

bean blends. Driven by low cost and speed.

• Rapid expansion of Starbucks in multiple countries simultaneously.

1998, Japan-26, Singapore- 6, Taiwan- 6 etc.

• Europe was not a market to enter. Their setting was taken from
Italian coffee house which was existing in those countries at lower
cost. Thus problems faced in London, Germany etc.
 Starbuck goes back to basics. Strengthen the core product, coffee.

 New Frappuccino flavors, introduction of chilled espresso drink

DoubleShot. New products were success and enabled them to
maintain market share.

 Offering lunch items , sandwiches etc transition from coffee only

joint to a coffee with snacks joint.

 Innovation in support function: The value cards

 Purchase of retail Hear Music in 1999. Unrelated diversification into

a industry in which they had no experience.

 However developing music suitable for their ambience added to the

brand and its exclusivity.
 Entering into coffee liqueur was against their mission itself. It
gave them a wrong image in front of social conscious
customers.

 The idea to promote film could have helped develop brand if

the film had been selected properly.

 Promoting a children film “Akeelah” does not fit its image and
although it lead to immediate sales this further adds to brand
confusion.

 The coffee Master certification program brings back focus on

employee and developing their competency to serve customer.
Summary and recommendation
 What was the brand built on ?

 Quality of products and service which induced word-of-mouth “advertising” .

 The rapid growth strategy had itself created the fundamental

problem –Store no longer reflect the soul as in past and “third
place” concept.

 Today Starbuck stands as mass brand attempting to command

premium price for an experience it no more delivers.
 How it lost focus

Early target customers who valued the relaxing atmosphere over a quality cup of
1
coffee felt disenchanted
To grow, Starbuck went for customer who valued speed-mass market.
The target group was lost in these attempts.

Starbucks introduced too many new products to broaden its appeal.

These new products undercut the integrity of the Starbucks brand for coffee purists
The brand experience declined
2
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

Opening new stores and launching a blizzard of new unrelated products create only
superficial growth
Focus on improving same store sales lost. The core values of service, customer knowledge
3
through trained employee could not be maintained.
 There are two options with the firm- Either they cut price and
become a mass market product or they reduce stores to restore the
exclusivity of the brand.

 They can stay small, exclusive and premium-priced by limiting

their distribution to selected stores in the major international
cities.

 At the same time Starbuck needs to understand that it cannot

continue charging premium prices when competitors like
McDonalds, Dunkin etc are offering much cheaper option
specially in current time of recession.
Q1. What were the keys for success for
Starbucks in building the brand? What were its
brand value ? What were its source of equity?
• The brand was built to fulfill existing gap in U.S market: Lack of high quality coffee
store.

• The name, logo and the ambience of Starbucks were all developed to represent bold,
mysterious and romantic.

• They employee were developed to communicate the quality they offered to the
customer:
Customer Delivery Mode
Experience
See Romantic atmosphere of Italian coffee bars, rich brown
wooden fixtures
Hear The music being played, The help ,knowledge provided
by “Barista”
Taste Best quality coffee and coffee maker to maintain the taste
Smell The aroma of coffee as a non-verbal signal

• Brand Value –a “home” feeling and rich sensory experience, a comfortable social
gathering spot , a “Third place” between home and workplace.
 The source of equity was the best quality of coffee
and most importantly the personalized experience
given by the highly trained employee at a Starbuck
store.
Q2. How do you evaluate Starbucks growth
strategy? Are there things you would have done
differently? How would you evaluate its
partnership? How do you know whether its good
or bad?
 Starbucks uncontrolled growth was short term and led to brand
dilution.

 Starbuck at airport, airlines, stores, drive through etc could

bring immediate sales but could not deliver the store
experience on which the brand was developed.

 Need was to focus on support functions- The music, aroma,

visual etc and concentrate on individual store sales.
Q3. What does it take to make a world class
global brand? Can Starbucks become one?
What hurdles must it overcome? In terms of
American market what do you see as
Starbucks’ biggest challenges?
Characteristics of a global brand:
 Quality signal

 The same positioning worldwide. This provides a combination of functional product quality
and innovation with emotional appeal. Think Coca-Cola and Disney.

 A focus on a single product category. Think Nokia and Intel.

 The company name is the brand name. All marketing dollars are concentrated on that one
brand. Think GE and IBM.

 Access to the global village. Consuming the brand equals membership in a global club. Think
IBM's "solutions for a small planet.“

 Social responsibility. Consumers expect global brands to lead on corporate social

responsibility, leveraging their technology to solve the world's problems. Think Nestlé and
clean water.

 Global Myth. Consumers look to global brands as symbols of cultural ideals. They use brands
to create an imagined global identity that they share with like-minded people. 
 Starbucks can definitely be a global brand
› It must continue to maintain its distinctive identity even as it
expands worldwide

› Obvious hurdles to Starbucks growth are:

 Lack of focus on quality and innovation in its core offering

 Same positioning worldwide
 An attempt to capture other consumers: those who seek convenience and
speed
 As they expand to new locations across the world they must

 Creating a strong presence and a distinctive identity

 Solving the local value equation through product and pricing strategies
 Adapting products and services to meet local needs and tastes
 In American market: Starbucks challengers are:

 Chains that are diversifying to quality coffee eg

McDonalds

› Starbucks will have to resist the brunt of Loss of certain

consumers to chains like McCafes and Dunkin Donuts

› These consumers are likely to be more interested in a

transactional experience even at Starbucks (i.e. the quick
morning coffee vs. the drawn-out coffee date or after-work
snack).
Q4. Evaluate Starbucks move into non-coffee
areas like credit card , music and film. Are
these natural extension of the Starbucks brand
or the company gone too far in creating a
“lifestyle” brand? Where should Starbucks go
next?
 Store value cards could attract more customers to Starbuck stores
where the actual experience was delivered.

 Not only did it provide convenience but also attracted more

customers to its stores.

 The decision of secondary leverage via promoting film would

have been appropriate if the films were selected. The film
“Akeelah” did not reflect the brand image.

 Music ,books etc could have been outsourced instead of wasting

resources on two industries having completely different set of
competitors and resource requirement.

 Producing music on theme of love, romance etc however would

enable it to strengthen its brand association.
Q5. Do you agree with Starbuck’s international
expansion? Should the company continue its
aggressive expansion plan? Are there markets
Starbucks cannot expand?
 Starbucks entered different markets simultaneously de to
which made maintaining the same standards across all stores
difficult.

 Europe market did not offer scope for Starbuck to expand

since their offering was already available in form of well
established European brands at much lower prices.

 Asian markets have majority of emerging markets .

Disposable income is increasing and people are more open
to Western lifestyle compared to Europe.

 This gives Starbucks a better opportunity to grow in

selective Asian metropolitans by cluttering of stores.
Q6. Who represents the biggest threat to
Starbucks? Direct competitors in the coffee
market, such as Dunkin’ Donuts? Chains like
McDonald’s that are expanding their coffee
quality? Panera Bread and other locations that
might be the new “third place”?
A Comparison
S. No Competitors POPs PODs

1 Supermarkets Value, Image Convenience,

high quality, taste
2 Fast food chains, Taste Service, Quality,
convenience stores Product quality,
experience

3 Local Café’s Taste Service, Quality,

Product quality
 The biggest threat to Starbucks is from those who are able
to compete against them on ‘coffee’, ‘third place’
experience

• Different demographic profile: Starbucks: 18- to 29-year-olds,35-44

yr olds, college grads, people with annual incomes of $75,000 or
more a year.

Dunkin Donuts:  
• Dunkin' Donuts serves, millions of blue-collar workers with scrumptious,
made-that-morning donuts in several varieties. Not many options of coffee.

• No hurry-up and move on sentiment at Starbucks like in DD

• Competitors serving the same coffee market- largely different propositions

 McDonalds: Chains
› Moving from coffee as an accompaniment to beverage destination:
president, Mc Donalds USA

› Speed, Convenience, the value that customers get without quality

comprise -- a formidable player.

› Mc Café will not replace Starbucks

 Different consumer base: The consumers who are seeking the
ambience and the customization that Starbucks offers will not go to
McCafes
 Starbucks, on the other hand, focuses on the “experiential”. 

› Mc Café: cannot bring either that amount of customerization ( speed

and convenience ) nor can they get that experience

› They might be able to pull few transactional consumers though

 Panera bread: third place
› Offers free WiFi compared to Starbucks
› Experience is not the same
› Ambience and coffee - not comparable to Starbucks

 As long as Starbucks is able to retain its core of

quality coffee and ‘third place’ experience.
› Difficult for competitors to break in
› Some overlapping clientele, they each present a different
qualitative experience with a strong and loyal following
and that is unlikely to significantly change.
Dunkin
donuts snipe
at starbucks
Decaf
decision with
a creative
print ad that
includes this
brilliant
line, "We
don't work
around our
schedule,
we work
around
yours."
Q7. How much are customers willing to pay for
the Starbucks Experience? Can the company
continue to raise prices on its coffees and
drinks? Is there a market for $400+ coffee
makers?
 Due to its poor growth strategy Starbucks today stands as a mass
brand attempting to charge premium price for experience which is
no longer special.

 It is highly unlikely that it would be able to bring back customers

from Dunkin donuts and McDonald’s just on basis of experience
while still maintaining the premium price.

› Has to work on its core offering of coffee and flexibility towards

customer demands and its overall experience

 These firms are also maintaining good quality at much lower

prices(apx 1/3 of Starbucks) which is more appropriate for current
needs of U.S customer.
Thank you