Brands Create Customers

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.

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