UNIVERSITY OF WORCESTER

Starbucks Branding Strategy

BUSM3411 Brand Development and Corporate Identity]
By Alexandra Sanchez-Havard 12/14/2011

Table of Contents

1 2

Introduction Brand Positioning 2.1 2.2 2.3 2.4 2.5

3 4

Target Market.............................................................................................................. 4 Product ........................................................................................................................ 5 Packaging ..................................................................................................................... 6 Distribution.................................................................................................................. 7 Pricing .......................................................................................................................... 7

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Brand Architecture 3.1 3.2

Brand-Product Matrix ................................................................................................. 8 Brand Extension ........................................................................................................ 10

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References

Introduction

The Starbucks Corporation has been the most successful coffee chain in the world over the last three decades. According to Interbrands Global Brand Value survey 2011, Starbucks Brand Value was 3,663 ($m) and is ranked at Number 4 of the best global brands in the Restaurant Sector worldwide. The Starbucks Brand has gained a strong acceptance and value in consumers perception over 11 years. Starbucks knows that to ensure continued growth and popularity in the future they must leverage its brand value across all sales channels. As Brand value is based in part on consumers perceptions on a variety of subjective qualities, the company believes that it is of highest importance to consider every incident that could damage the companys reputation when going public and reduce brand value, even if those are single, detached incidents - for example, contaminated food scare. Consumer demand could reduce significantly if the company fails to preserve their reputation for quality products, or if they are perceived to act in an unethical or socially irresponsible manner. A failure to deliver a consistent, positive consumer experience in each market segment could be very damaging for the Starbucks brand (Starbucks Annual Report 2011). Moreover, the company is facing a strong increase in competition and consequently the challenge is to maintain a sustainable market advantage, to stay on the top! This requires constantly improvements in the companys branding strategy and focusing on innovation. Only recently the company has introduced a new branding strategy, by changing their Logo and reinforcing its place as a neighbourhood institution, which I am going to explain deeper, further on in this assignment. To enable a company to meet its agreed objectives it must have a forward thinking Brand Strategy, an ongoing, flexible plan for the systematic development of the brand. The strategy should be rooted in the brand's vision and driven by the principles of differentiation and sustained consumer appeal. The brand strategy should influence the total operation of a business to ensure consistent brand behaviours and brand experiences

(Brandchannel.com). The goal of branding strategies is to maximize brand equity across all the different brands and products. A companys branding strategy specifies which brand elements it can source from to apply across its range of products. Branding strategy is
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crucial, its the driving force by which the company can help consumers understand its products and services and organize them in their mind (Keller, p.433). To examine a companys branding strategy we need to understand how its brand is structured within its portfolio by looking at their Brand Architecture. To begin with, we are going to look at Starbucks current brand positioning, the place in a consumers mind. In other words, what consumers think when they hear or see the Starbucks brand? Subsequently I will be able to identify the companys current Brand Architecture and possible issues that might arise by implementing a poor branding strategy. Lastly I am going to look at some of the marketing Strategies Starbucks has used to enhance the Value of its brand.

Brand Positioning

Brand Positioning is the place in consumers mind that a company wants its brand to be the benefit it wants a person to associate with its brand. A strong brand position means the brand has a unique, credible, sustainable and valued place in customers mind (Shimp). Starbucks does not only stands for premium coffee, but also for the place, where people want to hang out besides their first place (home) and their second place (work). Thats why Starbucks focus so much on offering its customers a range of entertainment products, like music, books and wireless internet. All this is part of creating an air of comfort, relaxation, exclusivity and familiarity which attracts customers to stay longer in their coffee shops. Starbucks deals with brand positioning by continuously aligning itself to its customers. They position themselves by appealing to their target markets needs.

2.1

Target Market

Starbucks primary target market is men and women between 25 and 40. They account for almost half (49 percent) of its total business. Those customers tend to be people with
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relatively high income, professional careers and a focus on social welfare. Originally when Starbucks began they targeted the young college students, with slightly higher than average income levels. Now that the company has matured and expanded they have realized, that they are able to target specific neighbourhoods and social classes. Starbucks is among the highest priced coffee drinks and now considered a "luxury" coffee maker. Different customers are more willing to pay for luxury good now than ever. Through Starbucks aggressive expansion techniques they have now begun targeting almost every demographic. Starbucks specialty coffee drinks make around 75 percent of their sales, but an increasing amount of its business is centred on selling whole bean coffees and merchandise. This provides consumers with the opportunity to take the Starbucks experience home. Starbucks also offer coffee beans and merchandise via online shopping and through supermarkets, through the Starbucks family of coffee, including Starbucks brand, Seattles Best and Starbucks VIA (Smallbusiness).

2.2

Product

Starbucks has positioned itself as a premium product in the coffee industry. By creating a high standard, introducing innovative products and providing excellent service they have successfully achieved this goal. Nevertheless, the company was aware of the fact that coffee is a perishable product and the risk associated with getting it wrong. Thats why they place a great emphasis on quality control and monitored each and every step of coffee production. In their company profile they promise that all of their coffee is grown under the highest standards of quality, using ethical sourcing practices and sending their own coffee buyers personally to travel to the coffee farms in Latin America, Africa and Asia to select the highest quality arabica beans. Nowadays, Starbucks product-mix has expanded from 30 varieties of whole bean coffees to eco-friendly cappuccino, coffee makers, and other Starbucks paraphernalia. To keep up with the competition the company has also extended its product range beyond coffee and tea to pastries, sandwiches, salads, ice-creams, liquor, water and more. Starbucks also offers seasonal products, such as strawberry and cream Frappuccino in the summer and gingerbread latte at Christmas.
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Starbucks has a reputation for ground breaking innovative. They are always focusing on new product development and creativity. However, they have experienced failures in some of their innovations. For example, several years ago, Starbucks attempted to enter the magazine business and failed very quickly. Before Starbucks invented Frappuccino, they introduced a carbonated drink that also failed. Howard Schultz, Starbucks CEO claims that that innovation and an entrepreneurial spirit still lives in the fabric of the company. While many of these attempts failed, he credits the spirit of the company to continue to push the limits and create huge commercial successes. With its new branding strategy it is clear that the coffeehouse is open to experiment with new products and in new markets. Starbucks has realized the importance of going forwards and making innovations in technology. For example, Starbucks has identified that wireless internet would be a great asset to its coffee shops. With thousands of locations, Starbucks owns a network that can be leveraged. Starbucks plans to roll out new internet based products in stores ranging from online TV to music download services.

2.3

Packaging

Since end of 2010, Starbucks has begun to construct all new company-owned stores worldwide under the LEED (Leadership in Energy and Environmental Design) green building program, reducing the environmental footprint (Starbucks Shared Planet). Starbucks has been continually making efforts to produce cups that are more eco-friendly. In 2006, they introduced a paper cup that contained 10 percent post-consumer recycled fiber, and last year it switched from the standard PET cold cups to polypropylene cold cups, which use significantly less plastic and reduce greenhouse gas emissions during manufacturing by 45 percent. Starbucks goal is to have all of its cups 100 percent recyclable by 2012. To help achieve this goal the company is recruiting the packaging and recycling industries (Sam Ochs, QSR Magazine).

2.4

Distribution

As part of its international strategy, Starbucks intends to seize opportunities to move beyond retail stores. Extending its profitable global consumer products group allows them to reach more customers in more places that will allow them to grow the business at an accelerated pace around the world. There remains a big opportunity in the evolution of their distribution structure and with an increasing variety of offerings in the grocery channel. Starbucks is adding to the product mix by offering new licensing agreements for its products with a number of other companies. Generally, the main purpose of creating the licensing agreements is to improve distribution and production methods of Starbucks products. The agreement with Pepsi-Cola Company to produce and distribute bottled Starbucks products in grocery and warehouse club stores is an excellent example of this type of licensing agreement.

2.5

Pricing

Starbucks has succeeded in perusing its customers to buy pricey espresso drinks. As a highend spectrum among retail chains, they are able to offer expensive premium coffee. However since the start of the recession, its pricing strategy has been questioned recently. With Seattles Best Coffee, the company is offering a more value coffee. Nevertheless Starbucks had to announce a price raise due to the increasing price of coffee beans, dairy and other raw material. Coffee is sold in different sizes so that the customer can choose according to their budget. Unlike the coffee, tea prices arent based on the size, instead its based on the number of tea bags, since water is pretty cheap in non-bottle form.

Brand Architecture

The Architecture of a brand shows how an organization structures and names the brands within its portfolio. It helps minimize customer confusion by laying out the product structure in a way that makes it easy for customers to find what they are looking for and to understand what the company has to offer (Prophet). As with the recession, consumers spending behaviour has changed and customers have become more opinionated, savvy and connected. In particular, the internet has made it possible for customers to access information about any products they are interested in. Therefore, it is of great importance to develop an accurate brand architecture and portfolio management system. A well managed portfolio represents the interrelation of the brands within an organisation. Getting it right or wrong affects the financial value of customer relationships. A company will benefit, on a number of levels, by fully understanding brand architecture, identifying the best and most valuable arrangement for products and services, and making demonstrable progress towards it (Interbrand 2011). Those brands that demonstrate transparency, integrity and authenticity are most likely to build successful long-term relationships with their customers. The following strategic tool brand-product matrix (brand portfolio) will help to characterize and formulate branding strategies by defining the relationship among brands and products.

3.1

Brand-Product Matrix

The brand-product matrix is a graphical representation of all the brands and products sold by a firm (Keller). The rows of the matrix demonstrate the relationships between the companys brands and products (brand-product relationship), and thus the extension strategy of the firm. The columns represent the relationships between the products and the brands (product-brand relationships) of the company, and form the brand portfolio (the set of all Brands and Brand Lines that an organisation offers for sale to buyers in a particular category) strategy of the firm (Keller). The aim is to maximize market coverage and minimize brand overlap through the effective creation, implementation, and management of multiple
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brands within a company. It serves as an inward-facing tool for the organization to ensure that their brands are effectively targeting all key segments within the marketplace, working together to maximize sales rather than competing against one another for their customers attention (Prophet). Starbucks is using a portfolio of brands to reach a more diverse set of consumer without sacrificing the integrity of their core brand (Ben Wise). In addition to its flagship Starbucks brand, its current Brand Portfolio consists of Tazo Tea, Seattles Best Coffee, and Starbucks VIA Ready Brew (Starbucks Annual Report).

Brand Product Matrix (Starbucks)

Starbucks Coffee Whole Bean Coffee Bold Extra Bold Medium Tea Lattes Chai Tea Latte Awake Tea Latte Earl Grey Tea Latte Ready Brewed Coffee Breakfast Blend (mild) House Blend (medium) Italian Roast (extra Bold) Espresso Beverages Classic Latte Classic Mocha Caramel Mocha Espresso Beverages Caf Latte Cappuccino Americano Brewed Teas Earl Grey Brewed Tea Passion Brewed Tea Refresh Brewed Tea Flavoured Coffee Iced Caramel Vanilla Mocha Iced Lattes (in a can) Iced Latte Iced Vanilla Latte Iced Mocha Frappuccino Beverages Caramel Frappuccino Caf Vanilla Frappucino Cinnamon Dolce Creme Iced Teas Iced Awake Tea Latte Iced Chai Tea Latte Iced Green Tea Latte

Tazo Tea

Starbucks VIA Ready Brew

Seattless Coffee

Best

Tea Beverages Iced Tea Chai Tea

With Seattles Best Coffee brand, the company wants to target a different segment of the market place. This action is designed to protect the position of Starbucks brand home away from home, the coffee giant is selling Seattles Best coffee through fast food chains like Burger King and others. Seattle's Best Coffee is generally cheaper than that of its parent brand, and is marketed as more of a working class coffee compared to the premium Starbucks coffee. Starbucks hopes to grow Seattles Best into a billion-dollar business by expanding it to fast-food channels, convenience stores, drive-through restaurants and even vending machines (Adweek). Our endgame is to bring our great coffee everywhere," says Michelle Gass, president of Seattles Best Coffee in the TIME Business Magazine. Nevertheless, there is the risk of cannibalization. The risk that Seattles Best Brand could take over and Starbucks would lose its main position to be seen as a premium Coffee
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retailer that offers its customers a third place away from home. Further on, associating Starbucks with a product sold from vending machines could also damage the brand's upscale image. Coffee sold from Vending-machines are most found in factories and cantinas, they have been regarded as a last resort. Starbucks has to be extremely careful with the brand extension of Seattles Best Coffee.

3.2

Brand Extension

Since the nineties the Starbucks has been constantly extending its product and brand lines. Recently the company has made some significant changes to its Brand identity. They have changed their Logo by removing the word Starbucks and simplifying the Logo. This obviously will have an impact on its brand portfolio which we can already see with Starbucks decision in experimenting with Alcohol products. The company wants to think beyond coffee says Howard Schultz in its Starbucks Website. He also explains that the new brand identity is supposed to give Starbucks the freedom and flexibility to explore innovations and new channels of distribution that will keep them in step with their current customers and build strong connections with new customers (Starbucks). Starbucks is planning to manage its expansion into new product categories and business models. They want to diversify and therefore they need a mark that doesnt tie it to just coffee shops. The company has already tried its hand at the music distribution, ice creams, and sandwiches and now it wants to try entering into a new market by selling beer and wine. I think its pretty clear that it wants to explore other business models. Removing the coffee anchor from the mark allows them to do that. On the other hand, this might not have been necessary to be done because Starbucks could have created this new logo for its corporate entity the overarching, umbrella Starbucks brand and kept the name Starbucks without the logo. This would have given them the freedom to apply the new mark to non-coffee business concepts without having to worry about associating itself solely with coffee. This doesnt take in to consideration the savings to be made from not having to redo every sign in the world, reprint every menu and every cup, change all of the websites and collateral, etc.
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Before making the decision to extend a brand into a new product or service category, Starbuck has bear in mind what the brand stands for, what people associate it with and what its personality is. Then it has to identify if these qualities will be beneficial or problematic in the new product. They need to determine what the new product or service category will do for the brands identity. The ideal picture would be to draw in wider consumer group, enhancing its perception and broadening its appeal. However the opposite could also happen. This decision could over broaden Starbucks appeal making them into a brand for all but losing them their title as the leaders of coffee shop experiences.

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REFERENCES

Brandchannel.com. Brandcarriers-glossery [online]. Available from: http://www.brandchannel.com/education_glossary.asp [Accessed 22nd November 2011]

Ben Wise on Branding (19th February 2010). Starbucks Benefits From a Portfolio of Brands. [online] Available from: http://www.benwise.ca/starbucks-benefits-from-a-portfolio-ofbrands/ [Accessed 24th November]
Gregory, Sean (25th May 2010). Starbucks Hits McDonalds with Seattles Best [online]. Time Business. Available from:

http://www.time.com/time/business/article/0,8599,1990813,00.html#ixzz1g8pBB7Pz
[Accessed 24th November 2011]

Interbrand. Best Global Brands 2011.[online] Available from: http://www.interbrand.com/en/best-global- brands/BGB-Interactive-Charts.aspx [Accessed 22nd November 2011] Nasdaq Stock Market. United States Securities and exchange commission (Form 10-K). [online] Available from: http://secfilings.nasdaq.com/edgar_conv_html%2f2011%2f11%2f18%2f0001193125-11317175.html#D232803D10K_HTM_TOC [Accessed 22nd November 2011] Ochs, Sam (2011) How Starbucks is changing packaging [Online]. Available from: http://www2.qsrmagazine.com/articles/features/134/starbucks-1.phtml [Accessed 6th December 2011] OFarrell, Rene (2011) Who is Starbucks target audience [online]. Chrone. Available from: http://smallbusiness.chron.com/starbucks-target-audience-10553.html [Accessed 24th November 2011]

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Prophet (2011). Brand Portfolio and Brand Architecture in Single Brand Companies.[Online] Available from: http://www.prophet.com/thinking/view/196-brand-portfolio-and-brandarchitecture-in-single-brand-companies [Accessed 22nd November 2011] Starbucks Corporation. (2011c) Company Profile [Online]. Available from: http://globalassets.starbucks.com/assets/aboutus-companyprofile-q1-2011-final-3-8-11.pdf Starbucks Shared Planet (2008). Our Responsability [Online]. Available from: http://www.starbucks.com/assets/fy08-gr-report.pdf [Accessed 6th December 2011] [Accessed 6th December 2011] Schultz, Howard. (5th January 2011). Looking forward to Starbucks next chapter [online]. Starbuck Corporation. Available from: http://www.starbucks.com/blog/looking-forward-tostarbucks-next-chapter [Accessed 24th November 2011] Wong, Elaine (h May 2010). Why Starbucks Rebranded Seattles Best Coffee [online]. Adweek. Available from: http://www.adweek.com/news/advertising-branding/whystarbucks-rebranded-seattles-best-coffee-107377?pn=1 [Accessed 24th November 2010)

Textbooks

Keller, K.L. (2008) Strategic Brand Management: Building, Measuring, and Managing Brand Equity. 3rd edition. Upper Saddle River, New Jersey, Pearson Education Kotler, P. and Bliemel, F. (1999) Marketing Management. 9th edition. Schaeffer-Poeschel Verlag Stuttgart Shimp, A.T. (2007) Integrated Marketing Communications in Advertising and Promotion. 8th edition. South-Western, Cengage Learning

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