Starbucks hits a brand wall

Howard Schultz is coming back to Starbucks, and not a moment too soon. Starbucks, one of the great brands of our time, has seemingly hit a brand wall, with no second act in sight. While the brand may have reinvented the coffee house on a global scale, and developed a distinct coffee customer and a coffee culture, the brand’s glory days appear to be mostly in the past. Does the opening of another Starbucks excite anyone in 2008?

The brand wall

Companies hit a brand wall when their brand runs out of vision and no longer advances the customer. A brand vision contains a new context of customer opportunity; a company has it when it can see the future through its customers’ eyes. Without brand vision, the brand often devolves into symbols, gestures, theatrics, decoration and self-centered fluff. These superficial measures are intended to corral and contain customers, while hiding reality from them. But, no one is fooled.

Generally, value-based brands avoid the problem of a brand wall.

The Wall Street brand trap

In recent years Starbucks has also been caught in what I like to call “the Wall Street brand trap.” This is a condition that can cause severe brand distortion unless management relentlessly innovates and stays a step or two ahead of investment analysts. It usually happens like this: Wall Street demands robust profit growth quarter over quarter. This typically pushes brands away from innovating with (seemingly risky) high quality products and services toward (surefire) rapid expansion at the lowest common denominator (10,000 Starbucks outlets and counting). It also steers a brand away from customer-focused innovation and toward higher levels of operating efficiencies, in order to wring those mandated profits from additional units produced. In effect, the brand is redirected from being a customer platform to being a stylized sales stimulant for a profit platform.

From coffee house to soda fountain

In the case of Starbucks, the famed Starbucks barista is gradually morphed into a transaction jockey. The coffee house model gives way to an easier-to-grow soda fountain model. The Starbucks brand is reduced to formulaic packaging and retailing with sugar ascendant, closer to a Baskin Robbins than the authentic, local coffee houses of its inspiration.

In many cases, the more the brand works for Wall Street, the less it works for customers, eventually hitting the brand wall. The business underperforms its brand. In that sense, the recent troubles at Starbucks are not that different from what has happened at Gap.

Creating customers for competitors

One sign that Starbucks is losing brand traction is that it’s now creating boatloads of customers for its competitors. Local coffee shops—who were supposed to flee in terror when a Starbucks opened nearby—are now doing great business by locating near an existing Starbucks. The local shops can match (or top) Starbucks in coffee quality, and can offer a combination of authenticity, coolness and community that Starbucks can’t seem to match.

Starbucks as market catalyst—for local shops

If Starbucks does not solve its brand problem, it may go down in history as a high-flying market catalyst that created a huge market for better coffee and social coffee consumption, but then like a catalyst vanished from the scene, ultimately leaving local shops to give people what they want.

From the Slate article cited above:

When Starbucks opens a store next to a mom and pop, it creates a sort of coffee nexus where people can go whenever they think “coffee.” Local consumers might have a formative experience with a Java Chip Frappuccino, but chances are they’ll branch out to the cheaper, less crowded, and often higher-quality independent cafe later on. So when Starbucks blitzed Omaha with six new stores in 2002, for instance, business at all coffeehouses in town immediately went up as much as 25 percent.

The local brand advantage

In the long run, the mom and pop coffee shops may be the real winners as local brands with authentic cultural context and community roots, where customer innovation can flourish. Such shops can be unique, idiosyncratic, rich in character, thematic, intense, pub-like in their social scene, deliriously inconsistent, and otherwise brand-rich in specialized customer contexts that Starbucks, as a regimented megabrand, can’t readily touch.

Great coffees have great character. So do great coffee houses.

Is Starbucks a brand of monetization?

The danger that Starbucks faces is that instead of being a brand of culture, conversation and community, it may well become a just another brand of monetization, where every drink is a carefully calculated pour, and where customers are effectively cell-mates in a spreadsheet, tracked and targeted down to the last sip. Tracking and targeting then becomes the operative customer experience. Customers can sense this deathly ambiance when they enter the door, and will eventually head for more engaging places.

More marketing makes Starbucks more vulnerable

Howard Schultz described some of the brand challenges facing Starbucks in a memo famously leaked one year ago. What he described as the “commoditization of the Starbucks experience,” and “the commoditization of our brand” were mainly the result of Starbucks own marketing approach, and how it had begun to treat Starbucks customers as commodities. (The only way a brand can become “commoditized” is when a company treats its customers as passive commodities.)

A brand approach to business (as opposed to a marketing one) doesn’t run these risks. It is predicated on creating customers and growing them ways that add value back to the business, decreasing risk and facilitating organic change. These days, more marketing only makes Starbucks more vulnerable.

What the Starbucks brand might do

Here are a few quick thoughts on what the Starbucks brand might do to move beyond its current brand impasse.

It’s time to renew the Starbucks brand. As we’ve discussed many times, a brand is not a static essence” that’s plastered to the surface of an organization and then broadcast to customers. A brand is a strategy for getting things done, primarily growing the customers that will grow the business. For Starbucks, such a brand renewal requires a re-thinking of its business model, and the role its customers should play in growing the business.

Don’t position Starbucks as a destination. It’s really a customer platform, a springboard for customers to be more and to do more. Reconstitute the Starbucks “place” as an enabler, as a means more than an “end.”

Starbucks is really in the customer opportunity business. There’s money to be made in brewing opportunities for customers. Caffeine is a great activator. Leverage it.

When you create a customer, you create a culture.Creating a customer” is a vastly more powerful (and potent) process than merely “making a sale.” Starbucks is a value transfer station where the core Starbucks values of living life to the fullest should be flowing as profusely as French Roast and Frappuccino. In matters cultural, Starbucks is expected to lead.

Build out the Starbucks brand chain. For Starbucks, just selling tasty coffee in clean, ubiquitous shops isn’t enough. McDonald’s and others can do that—with decent coffee, too. It’s doubtful, though, that Mickey D could ever match a structured Starbucks brand chain.

Curb the impulse to pump in manufactured theatrics. This includes stage props, magic, “cast members” and jah-stick atmospherics. These are signs of brand decay. Instead, create a place that generates brand experience directly from customers, via multi-level brand interactions. In other words, Starbucks doesn’t need to put on an act to amuse an audience. It needs to create high performance customers.

Starbucks needs to become interesting. Starbucks could learn from Flickr, which has a clever category called “interestingness.” There is very little “interestingness” in a Starbucks, except for the people who go there. Unfortunately, the interesting customers are often drawn to the local shops, where interesting things do happen.

Photo: midweekpost — Flickr
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3 Responses to “Starbucks hits a brand wall”

  1. steve Says:

    excellent points

    The only thing I like about Starbucks is that it encouraged local coffee shops to get much better and develop real personalities.

    I was going through my wallet the other day and noticed a $25 gift card someone had given me to Starbucks — expired. I remember getting it and wondering why I would even go into one of their places even for free coffee. The music is annoying, the coffee isn’t that good, it is too loud to carry on a conversation, and the wifi isn’t free. Nothing of interest to me.

    Smaller shops and places like Panara Bread are much better values to me.

    I certainly wouldn’t take a client to a Starbucks…

  2. Brian Phipps Says:

    My main complaint is that Starbucks itself just isn’t very interesting anymore. Once it lost its novelty, the local shops were quick to catch up.

  3. Marobella Says:

    Great points. My thought is they’ve moved from wood to laminate in the effort to 30,000 shops.

    http://brandsoapbox.typepad.com/marobella/2007/12/what-will-starb.html

    Thanks for the great post.

    Paul