Branding strategies of Starbucks

By | March 15, 2013

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1.        Describe the core product that Starbucks offers?

 

1.1    Basic concepts

 

Product, which is the first of the famous marketing four Ps, refers to the features and benefits of what companies have to sell (products or services, or a mixture of both of them). A product offers tangible or intangible benefits that individuals or organizations are willing to pay for or reward in another way to acquire, view, use or consume to meet their wants and needs (Gray, A. R. & Gray, T. 2000, p. 53). In term of the product form, the product concept could take the form of physical goods, services, experiences, events, places, properties, organizations, information and ideas (Kotler, Shalowitz & Stevens 2010). And according to David H. Bangs and Mark Henricks (2005, p. 130) there are a number of issues related to the product strategies and how to define the product offering of a company, one of the priorities is to break out the core product from the actual product.

 

Figure 1 The five product levels concept

Source: Kolter and Keller 2006, p. 372

 

Kotler (1999) elaborate the concept of product by proposing that the offering a company must think about is in five different product levels as the figure above illustrates:

 

Core Benefit: the fundamental need or want that consumers satisfy by consuming the product or service

 

Generic Product: a version of the product containing only those attributes or characteristics absolutely necessary for it to function

 

Expected Product: the set of attributes or characteristics that buyers normally expect and agree to when they purchase a product

 

Augmented Product: inclusion of additional features, benefits, attributes or related services that serve to differentiate the product from its competitors

 

Potential Product: all the augmentations and transformations a product might undergo in the future (provenmodels.com 2011)

 

These five level of product concept are not separated and they are actually interrelated and each product level can not exist on its own, in the following we will focus on the core product of the company Starbuck and the augmented product to see how they together and keep the Starbuck business more competitive in the market and earn the premium profits. 

 

1.2    Core products that Starbucks offers

 

1.2.1            Coffee drink

 

Having a coffee drink are the fundamental and basic reason that the majority of the customers may think of when they make up their mind to spend some time in the Starbucks shops. Therefore, the coffee drink is the core product that Starbucks provides though there are additional features and services that are attached to the coffee drink that make the coffee drinking become an excellent customer experiences. Starbucks has been investing greatly in its core product which supports its core business. According to Donald F. Kuratko & Richard M. Hodgetts (2009, p. 86) Starbucks had begun its own initiative with Conservation International to develop CAFÉ standards – environmental and social guidelines for Starbucks’ growers – that will result in Starbucks paying higher prices when the policies are followed. And it also invests efforts to ensure that the core product is secured by protecting the land around the locations where the coffee is grown.

 

1.3    Augmented products that Starbucks offers

 

1.3.1            WiFi access

 

As mentioned above augmented product refers to the inclusion of additional features, benefits, attributes or related services that serve to differentiate the product from its competitors (provenmodels.com 2011), for Starbucks, it provide a number of customer oriented services to increase the value and attractiveness of the core products offers to the customers. One additional service is the WiFi access which is provided in the many of the Starbucks shops as a courtesy to the customers and use the WiFi connection as a way to attract the customers especially those young customers who could not be disconnected from their social world (Habraken 2006, p. 213).

 

1.3.2            The Starbucks card

 

Another supplementary service offered by the Starbucks is the Starbucks card by using which customers could buy coffee without taking out cash and also there would be reward points accumulated with the increase of the consumptions. In 2001, the company introduced the Starbucks Card with success. Today, there are already more than 160 million Starbucks Cards circulating and in the fiscal year of 2007, the company hit 1 billion US dollar in sale being loaded on the cards. It is believed that the Starbucks card reinforces customer loyalty by making them card-carrying members and more likely to pass by a competitor’s store (Bussing-Burks 2009, p. 53). There are also a lot more services, functions and features provided to the customers though some of them the customers may not be able or willing to know, but what could be enjoyed by them is excellent coffee drinking experiences which is unique in customers’ mind.

 

2.        Describe what is brand

 

2.1    Concept of branding

 

According to Louis E. Boone and David L. Kurtz (2010, p. 379) marketers recognize the powerful influence products and product lines have on customer behavior and they work to create strong identities for their product and protect them. Branding is the process of creating that identity. A brand is a name, term, sign, symbol, design, or some combination that identify the products of one company while differentiating these products from competitors’ offerings. Another definition given by Rita Clifton and Sameena Ahmad (2009) from the perspective of the customers is that brand refers to customers’ and others’ beliefs and expectations about products and services sold under a specific trade mark or about the company which provides them. A related standard term for this definition is the brand equity although in corporate or business-to-business context, the old fashioned term reputation is almost synonymous. Below we will continue to use the example of Starbucks to explain the key considerations and key benefits for the companies to have a good brand (the branding of Starbucks is obviously good enough). The brand statement of Starbucks which is an overall identity for the company is simple as this: A great coffee experience (Cooke 2008, p. 90).

 

2.2    Key considerations of branding of Starbucks

 

2.2.1            Provider of a premium coffee drinking experience

 

One key consideration of branding is positioning. According to Roman G. Hiebing and Scott W. Cooper (1997) positioning is the basis for all of your communications – branding, advertising, promotions, packaging, sales force and the way the services and products are delivered to the hands of the customers. Starbucks does everything to protect its poisoning as a provider of a premium coffee drinking experience in the industry. For example, according to Nawal K. Taneja (2005, p. 184) when Starbucks negotiated a contract with its main supplier the Costco Wholesale Corporation (Costco) there were two key considerations: the first consideration is whether there would be any brand issues given that Costco was a discounter and Starbucks was a provider of a premium coffee drinking experiences for its customers; the second consideration is that instead of negotiating the lowest price from the supplier, the strategy was changed to how the two companies can work to satisfy their mutual customers and enhance their mutual value.

 

2.2.2            Global quality consistency

 

It is obvious that Starbucks has created a powerful brand name. One key reason is the granted global quality consistency as people know that a Starbucks store will provide an identical product, whether that Starbucks is in Seattle, New York or Tokyo, such product quality and taste consistency is helpful for Starbucks to build up a global consistent image that are accepted by the majority of the customers (Boyes & Melvin 2008, p. 226). And the achievement of the global quality consistency is ensured by the standard operation procedures in term of how each coffee should be made and the detailed procedures to be followed.

 

2.3    Key benefits of branding of Starbucks

 

2.3.1            More certainty

 

The specialty coffee industry in which the Starbucks operates has high uncertainty and difficult conditions because the supply exceeds the demand and also a high degree and competition from not only the industry inside but also from the threat of the substitutes since customers would choose any way of satisfying their needs in other ways. As in the case of Starbuck, with a strong brand which cultivates stable customer base, customers would have a strong desire for the routine and habitual purchasing behaviors of the Starbucks products rather than choosing a newly emerged brand. This could be understood as the benefit of the customer loyalty as well as the benefits of a well established brand. This could be understood in the shoes of the customers as unique identification, the branding, is not only significant to marketers but also benefit buyers in way that customers could organizing future behaviors (if problems are encountered the source can be re-contacted: if satisfied, favorable attitudes can direct future decisions) (Weitz & Wensley 2002, p. 21). Since customers have the successful and excellent purchasing and consuming experience they would be more willing to come again because it save the cost of looking for an alternative.

 

2.3.2            Easier market penetration

 

Another benefit of having a strong brand is that it helps assist the market penetration into the new markets. For example, Starbuck has achieved great success by rapidly penetrate into the market. With full ownership of stores in southern, central and western China as part of the broader strategy to build China as the second home market outside of the U.S., the strong brand of Starbucks allows the company to accelerate growth as the company already looks to achieve our goal of having 1,500 stores across the country by 2015 according to John Culver, president of Starbucks Coffee International (wordpress.com 2012). 

 

2.3.3            Lowered cost

 

As mentioned above, since customers have the successful and excellent purchasing and consuming experience they would be more willing to come again because it saves the cost of looking for an alternative, therefore branding speeds up the buying process and makes repeat purchases easier by reducing the searching time and effort, and let’s get back to the perspective of the company, because many customers already know well about the company’s offering in term of services and products, it save the company a great deal of money to customers into the buying decisions. What it could do is to keep a reminding role in the marketing and the thus could help save up costs.

 

2.3.4            Better credit rating and a better perceived destination of investment

 

Referring to a study by Friedler and Subrahmanyam (2002) that showed that the perceived quality of brands and brand familiarity influence investment decisions, therefore we can see that another major advantage of having a strong brand is that it would help attract investment from the investors, in addition, the credit rating agencies would also give a better rating to the company’s corporate bond provided that the company has a premium brand in the market which increase the possibility of profit generation. And with a better credit rating, the cost of issuing debt would be relatively controlled and reduced. In this perspective, a better branding could also assists a company to be in a better position in the financial and capital market.  

 

3.        How does Starbucks differentiate it’s brand from the competitors and build brand loyalty among the consumers around the world

 

3.1    Concept of differentiation strategy

 

According to Robert F. Lusch and Stephen L. Vargo (2006, p. 168) differentiation strategy refers to a business leveraging its skills and resources to differentiate its product offering from its competitors’ products offering to achieve a defensible position of competitive differentiation advantage in the market place. The differentiation strategy is proposed in Michael E. Porter’s generic strategy (1980), based on two strategic dimensions: strategic scope and strategic strength, Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage: cost leadership, differentiation strategy and segmentation strategy. And it is claimed that a company must make a choice between these three generic strategies or else it would be “stuck in the middle” and suffer from below average performance (Porter 1980, p.40). As mentioned above, Starbucks has positioned itself as the provider of a premium coffee drinking experience, therefore it need to differentiate its product from the competitors in order to make its product unique and valuable to the customers.

 

3.2    Cultural code: Deliver the right cultural expression

 

According to Douglas Holt and Douglas Cameron (2010), Starbucks worked because it got the cultural expression right – sophistication conveyed by the right ideology, myth, and cultural codes to resonate with the new cultural – capital cohort in 1990s American. When a prospect waled in the door and placed an order, she was engulfed in a very accessible artisanal – cosmopolitan experience that made her feel more sophisticated than if she had bought a coffee from a competitor. The expression was right because Starbucks nailed the ideology, myth and cultural codes. If it had failed to execute on any of these components, the entire expression would have been sabotaged. Such cultural expression is very critical as it is critical to help the customers to differentiate a brand from the others since unique culture is something that could not be copied as formula could be copied and standard procedures could be followed but culture could not be explicitly explain nor to mention how it could be followed by the competitors.

 

Also there is a combination of ideas and passion among the employees. As proposed by Paul Temporal (2000) that staffs are called partners and receive stock options in Starbucks plus a great deal of training. Everyone is taught to think like a marketer and to understand that everyone owns the brand. Therefore, though the company’s outlets have been spreading all over the world, the culture consistency to treat the staff well with considerate mind does not change and motivate the employee to work better which influences the customers as well.

 

3.3    Brand extensions: moving into branded merchandise

 

Brand extension could be defined as the usage of well known brand names for the new product introduction (Aaker & Keller 1990). With the raise of the Starbucks, the company has used this world famous brand to introduce the new product lines which in return will help differentiate the brand from the rest of the competitors since the provided new products has attached values to the brand. For example, Starbucks has pursued ad hoc brand extensions by moving beyond coffee beverages and beans into the selected Starbucks branded merchandise (toys, kitchenware, books, and even magazine publishing at one point), Starbucks entertainment and Starbucks Ice Cream. But these selected industries and products are in adjacent or compatible categories with the core products, the coffee drink, therefore, the provision of them help the company to add value to the core products and differentiate within the market.

 

3.4    Cobranding strategy

 

Since the 1990s, the world witnessed the surge of cobranded and affinity cards, which matched up a credit card company with a retailer to offer discounts for using the card. Starbuck also had once partnered Bank One to release a cobranded card that offers holders rewards at the specialty coffee retailer (Shore 2004, p. 186). On the other hand, another example is Starbucks’ extending its label to liqueur in a partnership with whisky maker Jim Beam in term of cobranding as an innovative way to increase the purchases from the existing customers who consume coffee liqueurs at a rate far higher than the general public (Chiaravalle & Schenck 2007, p. 271). The most important benefit of using a cobranding is that it increases the aggregate value of the two brands and also contributes to the differentiation of the Starbucks brand in the industry.

 

3.5    Use of the social media

 

As the new report states, with more than 700,000 Twitter followers and almost 5.5 million Facebook fans, Starbucks is clearly doing something right, notes Ayelet Noff [1]on a post on The Next Web.com blog. The brand’s secret, Noff argues, is its blend of content, engagement and tools that allow customers to become a part of the coffee company’s innovation and planning process. “Combined together, these elements create a social-media plan that works beautifully,” Noff writes (Employerbrandingonline.com 2010). As social media has become a trend that is increasingly welcome by the people in the nowadays especially with the emergence of the smart mobile phone such as the Iphone and so on which provide instant social connection to via the free and powerful internet access.

 

3.6    A large market share: rapid expansion

 

Starbuck has an incredibly rapid expansion, its strategy is to increase the market share in existing markets and to pen stores in new markets, and the company has an ambitious goal for expanding the open on average 720 stores annually in the last 20 years. Starbucks not only operates in its own stores, but also licenses its business. Furthermore the company acquires several competitors, incorporate joint ventures, or take business alliances to expand quickly. As if 2008, the company already made its coffee to global product by operating more than 14,000 stores in 42 countries (Pham-Gia 2008, p. 20). By rapid expansion, the Starbuck has established itself as the market leader in the market and such leading position will further help the brand to be felt more premiums to the customers and thus become differentiated compared to the offering by the competitors.

 

3.7    High business ethics: Building a sustainable supply chain

 

For a number of years passing by, Starbucks has instituted a new purchasing philosophy because the company has adopted a high business ethics standard not only for its business but also for the farmers and for the customers. By adopting a poisoning strategy to be a provider of a premium coffee drinking experience, the company managed to rationalize the high pricing which is due to the high cost as the company persuades the customers to buy the coffee with higher price which gives the company a potential force for positive reform in every part of the supply chain to provide green unroasted coffee and quality roasted coffee (Griseri & Seppala 2010, p. 398). By keeping a building a sustainable supply chain and adhering to the high ethical standard, the company would be able to differentiate with other competitors, and with the increased awareness of environmental protection and continual development and harmony with the nature. Such good social image’s value would be immeasurable though it may not be converted into direct profit making immediately.

 

 

Reference

 

Aaker, D. A. & Keller, K. L. 1990. Consumer evaluations of brand extensions. Journal of Marketing, 54, 1. 27 – 41

 

Bangs, D. H. & Henricks, M. 2005, Business plans made easy. New York: Entrepreneur Press. p. 130

 

Boone, L. E. & Kurtz, D. L. 2010, Contemporary Marketing. Natorp Boulevard Mason, OH: South Western Cengage Learning. p. 379

 

Boyes, W. & Melvin, M. 2008, Microeconomics. Natorp Boulevard Mason, OH: South Western Cengage Learning. p. 226

 

Bussing-Burks, M. 2009, Starbucks. Santa Barbara, California: ABC – CLIO. p. 53

 

Chiaravalle, B. & Schenck, B. F. 2007, Branding for Dummies. River St, Hoboken, NJ: John & Wiley Publishing, Inc. p. 271

 

Clifton, R. & Ahmad, S. 2009. Brands and Branding. New Jersey: John Wiley & Sons.

 

Cooke, P. 2008, Branding Faith: Why Some Churches and Non-Profits Make a Difference and Others’ don’t. California: Regal. p. 90

 

Employerbrandingonline.com 2010. The Starbucks formula for social media success. Accessed on 8th Jan 2012 [online] available: http://www.employerbrandingonline.com/articles/social-media/198-the-starbucks-formula-for-social-media-success-.html

 

Friedler, L. & Subrahmanyam, A. 2002. Brand perception and the market for common stock. Los Angeles: Anderson School of Management.

 

Gray, A. R. & Gray, T. 2000, Studies in Economics and Business: Marketing. Chicago: Heinemann Educational Publishers. p. 53

 

Griseri, P. & Seppala, N. 2010, Business Ethics. Singapore: Cengage Learning EMEA. p. 398

 

Habraken, J. W. 2006, Home Wireless Networking in a Snap. New York: Sams Publishing. p. 213

 

Hiebing, R. G. & Cooper, S. W. 1997. How to write a successful marketing plan: a disciplined and comprehensive. New York: NTC Business Books

 

Holt, D. & Cameron, D. 2010. Cultural Strategy. New York: Oxford University Press, Inc.

 

Kolter, P. & Keller, K. L. 2006, Marketing Management, 12th ed, Upper Saddle River, NJ: Prentice – Hall, p. 372

 

Kotler, P., Shalowitz, J. & Stevens, R. J. 2010. Strategic Marketing For Health Care Organizations: Building A Customer-driven health system. New Jersey: John Wiley & Sons.

 

Kotler, P. 1999. Marketing management. Englewood Cliffs, NJ: Prentice Hall.

 

Kuratko, D. F. & Hodgetts, R. M. 2009, Entrepreneurship: Theory, Process, and Practice. Natorp Boulevard Mason: South-western Cengage Learning. p. 86

 

Lusch, R. F. & Vargo, S. L. 2006, The service-dominant logic of marketing: dialog, debate, and directions. New York: M. E. Sharpe, Inc. p. 168

 

Pham-Gia, K. 2008, Marketing Strategy of ‘Starbucks Coffe’. Germany: GRIN Verlag. p. 20

 

Porter, M. E. 1980, Competitive Strategy: Techniques for Analysing Industries and Competitor, New York: Free Press

 

Provenmodels.com 2011. Five product levels. Accessed on 8th Jan 2012 [online] available: http://www.provenmodels.com/16

 

Shore, K. 2004, The Vault college career bible, New York: Vault Inc. p. 186

 

Taneja, N. K. 2005, Fasten your seatbelt: the passenger is flying the plane. Aldershot, Hampshire GU: Ashgate Publishing Limited. p. 184

 

Temporal, P. 2000. Branding in Asia. The creation, development and management of Asian Brands for the Global market, Singpore: John Wiley & Sons, (Asia) Pte. Ltd.

 

Weitz, B. A. & Wensley, R. 2002, Handbook of Marketing. London: SAGE Publications. p. 21

 

WordPress.com 2012. Coffee Giants Target China’s Yunnan Plantations. Accessed on 8th Jan 2012 [online] available: http://chinabevnews.wordpress.com/category/starbucks-china/



[1] The founder and CEO of Blonde 2.0 , a New Media PR agency helping brands create brand awareness and increase social engagement

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