Starbucks fascinates me as a case study; it went from a highly lauded case study on how to run a business to a case study on what not to do. So what happened? The answer is pretty simple: Starbucks ignored the heart and soul of their brand, forcing themselves to compete in everyone else’s space instead of occupying a unique place in the hearts and minds of their customers.
With Il Giornale and later the buying out of Starbucks, Howard Schultz sought to provide the Italian barista experience to American consumers and invited them inside the doors to the third place (a place aside from the office and the home where they could sit down and spend time). Schultz built a ritual around the barista making each drink by hand, and with the third place reconnecting with the coffee house tradition. (Who wanted to sit in a Dunkin’ Donuts and read for a few hours?).
The Starbucks brand was about providing a place where people could self-actualize and gain esteem for participating; the logo became a symbol for like minded individuals who indulged in something beyond the in-and-out coffee at McDonald’s or Dunkin’ Donuts.
And then they screwed it up starting with the Frappuccino. Schultz was initially against the idea of the Frappuccino but when he saw profits rise after a testing, he changed his mind. The Frappuccino itself wasn’t a bad idea for the Starbucks brand (it allowed for more beverage customization and identity seeking), but it initiated a chain of profit chasing. Schultz was against the drive-through window, but profits rose and he changed his mind.
And eventually, the baristas handcrafting the espresso drinks that were at the core of the business were replaced by button-pushers in the name of efficiency. Starbucks entered the fast food game, and forced itself to compete on equal level with other fast-food coffee producers, The saliency of its unique offering started to whither.
And when they realized they were hurting, they came up with a brilliant strategy: offer any iced graande beverage for $2 in the afternoon to anyone showing a receipt from a drink purchased earlier in the day. All right, it wasn’t brilliant, it was pretty stupid, but they thought it was a game changer: VP of customer relationship management Brad Stevens said, “I think we’ve hit the nail on the head.”
With this promotion Starbucks decided not only to compete on efficiency but also to compete on price. Competition on price is a surefire downfall and customer-loyalty killer for almost any business as it forces entrance into a rat race and doesn’t allow a unique space to be occupied in the hearts and minds of the customers—a key of branding (Wal-mart excluded, but price is central to their brand soul).
Starbucks has dug itself a pretty deep hole. The only way out is to stop focusing on tactic after tactic in hopes that one will catch on and instead focus on reconnecting with the soul of their business and their customers’ human needs.
Tags: brand · Branding · Business · coffee · schultz · starbucks2 Comments
Starbucks also became too focused on growing it’s stock price. The market was used to seeing market-beating returns year over year (usually 20% annual returns). Once a corporation focuses exclusively on growth, a demise is sure to follow.
“The Frappuccino itself wasn’t a bad idea for the Starbucks brand (it allowed for more beverage customization and identity seeking), but it initiated a chain of profit chasing.” To me the tail started to wag the dog. Startbucks got stuck and did not know how to grow. They focused on drivers of choice and forgot all about the drivers of differentiation.