Professional Documents
Culture Documents
(Branding through the third place and what Starbucks found there)
Phillip Freiberg
MEDC 5300
Webster University
Thailand
0
Introduction: Starbucks Coffee Company
[T]he Starbucks name and image connect with millions of consumers around the globe. It was
one of the fastest-growing brands in a Business Week survey of the top 100 global brands
published August 5 [2002]. Its stock, including four splits, has soared more than 2,200% over the
past decade, surpassing Wal-Mart, General Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in
total return. Even in a down economy, Starbucks store traffic has risen between 6% and 8% a
year. Weekly 20 million people buy a cup of coffee at a Starbucks, while a typical customer stops
by 18 times a month; no American retailer has a higher frequency of customer visits. Sales have
climbed an average of 20% a year since the company went public. Perhaps even more notable is
the fact that Starbucks has managed to generate its revenues with virtually no marketing,
spending just 1% of its annual revenues on advertising. (Retailers usually spend 10% or so of
revenues on ads.) The Starbucks marketing strategy is not one commonly seen in many
businesses today. What is the secret of its success? Finding this SECRET will enable us to give
The Seattle Corporation is a market leader in specialty coffee opening three to four new
stores a day (Tice,2003). Starbucks operates through Total stores: 17,651(as of July 1, 2012) in
62 countries, hoping China to be one day the largest market outside the U.S. Starbucks revenues
(2009 Annual Report) is highly dependent on the financial performance of its US operating
segment and increasingly dependent on the success of its International(Starbucks Canada, Japan
Founded in 1985 Starbucks Corporation trades on the NASDAQ as SBUX and according to
2009 Annual Report, Starbucks is offering a wide variety of regular and decaffeinated coffee
beverages, a broad selection of Italian-style espresso beverages, cold blended beverages, iced
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shaken refreshment beverages, a selection of premium teas and packaged roasted whole bean
coffees. To stay ahead of competition Starbucks has also started offering healthy food choices,
like new products with whole grains and other wholesome ingredients. To get a foothold in the
$21 billion global instant coffee category Starbucks (2009 Annual Report) in the fiscal 2009,
Starbucks launched VIA Ready Brew. Starbucks serves 40 million loyal customers that
frequent the store five to eighteen times per month (Theodore, 2002).
Starbucks also has a Global Consumer Products Group, a segment that includes packaged coffee
and tea, and other branded products sold worldwide through channels such as grocery stores,
warehouse clubs and convenience stores, and US foodservice accounts (2009 Annual Report).
An agreement with PepsiCo Inc. brought a bottled version of Starbucks Frappuccino (a cold,
Since going public the company has been growing phenomenally, at some point opening six or
seven new stores a day1 trying to balance the notion of luxurious get- together place, at the same
time allowing cannibalization of sales. The companys 25-year goal is to become an enduring,
great company with the most recognized and respected brand in the world, known for inspiring
Despite these astonishing figures Clark (2007) writes that Starbucks worldwide explosion
wasn't fueled by coffee; it was the way they sold it. But how is it being done?
Undoubtedly Starbucks has developed an emotional attachment with its customers and restoring
the connections with its customers who have with Starbucks coffee, its brand, people and with its
1
The Seattle times April 1, 2007
2
non-threatening gathering spot [s] [. . .] outside of work and home according to Ray Oldenburg (1989)
2
stores. It has been noted by that The Starbucks brandscape3 extends beyond its corporate
basis: rather, it is a diffuse and loosely coupled network of coffee shops of various sizes, serving
diverse marketing niches. All inevitably occupy a competitive space that has been mapped by
dimensions of Starbucks servicescape and the cultural discourses that imbue a heightened
Starbucks with its host of stores on every corner of every city has clearly become the third
realm of satisfaction and social cohesion beyond the portals of home and work an essential
element of the good life (Oldenburg, 1989). Therefore it would be rather erroneous to think that
Starbucks cafes are attracting customers by coffee alone. Perhaps coffee is just an excuse to
come to Starbucks that is becom[ing] America's version of the British pub. (Clark, 2007). Clark
calls coffee a social glue. In his book Pour Your Heart Into It (1997) Starbucks visionary
Howard Schultz writes that Starbucks is an oasis . . . a small escape during a day when many
In the fragmented and individuated age of postmodern consumer culture, a nostalgic view of
community has become a highly commercialized trope through which consumers are able to
(Thompson, and Arsel, 2004). In its plight to be exactly what people yearned for in a cafe,
Starbucks relied on focus groups that in a near dream state were describing that they craved a
sense of relaxation, warmth, and luxury. The coffee wasn't the pointthe feel of the place was
3
John Sherry (1998, p. 112) advances an anthropological view of the brandscape that places considerably
more emphasis on consumers active constructions of meaning: The brandscape is a material and symbolic
environment that consumers build with marketplace products, images, and messages, that they invest with local
meaning, and whose totemic significance largely shapes the adaptation consumers make to the modern
world. Brandscaping is one of the ways consumption is actively produced by consumers.
3
(Clark, 2007). Bearing this in mind, words of Howard Behar, one of Schultzs senior
management team, obtain a new meaning. Were not filling bellies, were filling souls
( Rippin, 2007). We would take something old and tired and common coffee and weave a
sense of romance and community around it. We would rediscover the mystique and charm that
had swirled around coffee throughout the centuries. We would enchant customers with an
This understanding of deep human needs led to the creation of the Starbucks cafes the way we
(Lyons, 2005) that are easily distinguishable from the independent coffeehouses.
Not only did Starbucks gather the prodigal human family in its parishes for the partaking of the
communion of a the narcotic, coffee, it has also gave overworked people a sense of mystique,
wonder and love. Success of a western society model comes at a price to its members. They are
in a constant movement between stressful and politically correct work place and home which
although connected to Facebook is incredibly lonely. Our ancestors had more social interaction
when they sat in pubs, taverns, churches and Masonic lodges. Ruzich( 2008) rightfully observes
that Starbucks may have become Americas living room, but capitalism, with its attendant
grandiose scale Starbucks has revived ritual and connoisseurship in a society that is slowly
killing rituals and is marginalizing all that is not mundane. As the prodigy behind the Starbucks
success, Schultz describes (1997) : What we had to do was unlock the romance and mystery of
coffee, firsthand, in coffee bars. The Italians understood the personal relationship that people
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We had a vision, to create an atmosphere in our stores that drew people in and gave them a
sense of wonder and romance in the midst of their harried lives (Schultz and Yang, 1997).
marginalized or denied.
IMC
Any enterprise, that is aiming at giving people a sense of surreal, be it a church, a tarot reading
parlor or a Disneyland, is using a special vernacular to emphasize that sense of mystique and the
crowds uniqueness. If you carefully study the language used at Starbucks you will understand
that Starbucks aims to seduce us with comfort, romance us with relationships (Ruzich, 2008).
Asking its customers to to find their favorite cup by color, ingredients and the name, Starbucks
encourages its customers to view their drinks as extensions of their personalities, as ways of
Speaking about coffee Schultz and Yang (1997) indicate that Starbucks turns this routine drink
into something very interesting, by using the same lingo one would use describing a wine.
Starbucks recounts the story of the coffee harvest, roasting and brewing, thus engaging
customers on the emotional level. Can customers discuss harvests, origins, and tasting notes
Schultz (1997) recounts, we realized that our stores had a deeper resonance and were offering
benefits as seductive as the coffee itself . . . . Just having the chance to order a drink as exotic as
an espresso macchiato adds a spark of romance to an otherwise unremarkable day.In the world
of fast food and cynicism Starbucks capitalized on three manifestations of love: self-love,
5
Building its global brand Starbucks did not want to attract jut anybody. It wanted to attract
customers who could afford to pay whatever it charged for this experience- an upscale third-
place ambiance on a global scale (Schmitt ,1999). Starbucks started opening its stores in busy
financial areas thus clearly demonstrating who its customers were - the urban professional
middle classes, working in financial service industries and related fields (Updike, 1987). These
people had education, culture, needed a place for meetings and required makeshift offices. But
Being drawn to the Starbucks culture, these customers at the same time helped to define and
refine it- when others saw them through stores large windows, holding white cups bearing the
green logo. Starbucks customers were intended to become its biggest advertising vehicle. A
study by Pendergrast (1999) revealed that the company spent less than $10 million on
advertising in its first twenty-five years. Obviously some other mode of advertising has been
working, and working well. Jim Donald, Starbucks president and chief executive officer
concludes: Customers tend to patronize a business that is like them ( Corkery, 2005). Middle
and upper middle class enjoying Starbucks are doing so with ease, for they are given an
indulgence4 for being rich and self-indulgent. Every time you purchase Starbucks Fair Trade
Blend, youre also making a difference, helping to improve the lives of the farmers who grow it
(Starbucks and Fair Trade, 2002). David Brooks, author of Bobos in Paradise (2000) writes:
the educated elites are expected to practice one-downmanship. Bobos5 guiltily acknowledge
our privileges but surround ourselves with artifacts from the less privileged. Its not that were
hypocrites. Its just that were seeking balance. Affluent, were trying not to become
4
Merriam Webster: remission of part or all of the temporal and especially purgatorial punishment that according to
Roman Catholicism is due for sins whose eternal punishment has been remitted and whose guilt has been pardoned
(as through the sacrament of reconciliation)
5
Americas new educated elite, or bobos, a term mixing bohemians with bourgeois
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materialists. On many other levels Starbucks acts as a company that is very concerned what
image it is projecting through its product. Every time you order your coffee to go, it is served in
a cup made of 10 percent post-consumer recycled fiber. Napkins are Earth friendly as well. Thus
the guilt of polluting the environment is eliminated from the mind that should rather concentrate
Chanel strategy
Schultz and Yang (1997) explain: Every Starbucks store is carefully designed to enhance the
quality of everything the customers see, touch, hear, smell or taste. All sensory signals have to
appeal to the same high standards. The artwork, the music, the aromas, the surfaces all have to
send the same subliminal message as the flavor of the coffee: Everything here is best of class .
While designed as a place of tranquility and epitome of opulence Starbucks stores are
landscapes of leisure (Smith, 1993) where intellectuals can engage in what intellectuals are best
at: conversations, contemplation and reading. If you forgot to bring your own reading material
the New York Times is conveniently located just next to you. Internet connection is just a
payment away. Sherry (1995) argues that historically coffee shops have been linked to
intellectual engagement and cultural enrichment. Lyons (2005) indicates that first trading on
New Yorks Wall Street took place in coffee shops, and that French revolution fermented in
Parisian cafes. Schultz and Yang (1997) claim that Starbucks sees itself as the inheritor of the
European coffeehouse tradition, with all of its connotations of art, literature and progressive
ideals. Coffee and coffeehouses have been a meaningful part of community life for centuries, in
Europe as well as in America. They have been associated with political upheaval, writers
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POP & POD
Today coffee is served in virtually all restaurants, Starbucks risks losing the dominance of being
the only third place. Recent US survey reveals a perceptual map of how consumers view the
quality of the social atmosphere and the quality of the coffee across four restaurants that offer
high-end coffee. It turns out that consumers prefer Starbucks coffee only slightly to the coffee of
McDonalds, Dunkin Donuts, and Panera Bread. Additionally, consumers view coffee at these
competing specialty coffee retailers to be rather homogeneous in quality. As for the quality of the
social atmosphere, however, there is greater stratification among the different retailers. The
social atmosphere at McDonalds is preferred least, followed by Dunkin Donuts, and finally
Starbucks is not in competition, therefore, with the coffee of its competitors; rather, it is in
competition with the in-store environment of its competitors. The battle among these restaurants
is for the consumers time. If consumers find a better third place among Starbucks competitors
and can obtain what they perceive to be a decent cup of little to offer.
In August The New York Times reported (Miller, 2009) that without any prior announcement,
Starbucks stores in several [US] cities started charging up to 30 cents more( 8%) for some
understand, our customers do have some price sensitivity. But this is not their only deciding
factor. They think the service we provide and the values that Starbucks represents are more
important. According Kenneth Davids, editor of Coffee Review (Miller, 2009) a company with
legions of loyal customers and an unmistakable brand, Starbucks, is safe raising the prices of
specialty drinks because they are where the company best differentiates itself.
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Given that McDonalds is capturing some of the consumers less interested in the premium that
Starbucks offers, then the consumers left out for Starbucks are the consumers willing to pay
more (Miller, 2009). In his private memo, published by the Wall Street Journal Schultz
(2007) wrote to the company management competitors of all kinds, small and large coffee
companies, fast food operators, and mom and pops, to position themselves in a way that creates
awareness, trial and loyalty of people who previously have been Starbucks customers. This must
be eradicated.
At the same time do not be nave that Starbucks will let anybody to snatch its market share. The
increase in specialty drinks was coupled with a decrease in regular coffee. Starbucks
song of love, however, is set to the tune of power: the power of capitalism, the power of
caffeine addiction, the powerful lure of the third place, and the power of persuasive
appeals
(Ruzich, 2008). In 2010 Starbucks reported (Farrell, 2010) its 2009 revenue growth, attributing it
to 4% increase in sales in the same stores during a comparable period the previous year.
Obviously those who prophesied that the new prices would bring the apocalypse for Goliath
Starbucks, failed to recognize the extent of inelasticity of demand not only for the specialty
drinks no one can replicate, but above all - for the Starbucks third place experience that is
irreplaceable thus far. People are charged for coffee, but are paying for the experience.
Our culture shapes our inner needs into wants, that we are ever looking to satisfy. As Starbucks
sells comfort in the uncomfortable world, under the pretext of the last socially acceptable
addiction (Schwartz and Yang, 1997), it has clearly identified what many have overlooked, and
is filling the niche one cup at a time. In the near foreseen future a demand for products of the
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brands that can correctly identify human needs and satisfy consumer wants will continue to be
In the summer of 2007, its customer traffic declined for the first time since Starbucks went
public. By the end of its fiscal 2008, Starbucks stock, had declined by over fifty percent.6
Global Recession couldnt have had a worse timing for Starbucks. In 2008 people have cut down
on luxury purchases, pushing the revenues and profits of Starbucks over the cliff altogether.
In January 2008, Starbucks invited its founder Howard Schultz to head the company again for
the next 10 years. Schultz emphasized improving the state of business through better training,
tools and products; renewing our attention to store-level economics and operating efficiency;
reigniting our emotional attachment with customers; and realigning Starbucks organization for
Schultz had to lay off 1000 employees. At the same time the company did not cut the medical
insurance, it provides to its US partners. Many other companies did not dream of doing the
same thing even during the best of times. Schultz also closed 800 stores in US, and decided to
bring the company back from what he called the watering of the Starbucks experience and
commoditization of our brand in his 2007 memo to then CEO Jim Donald. Thus Starbucks had
too slow down the company at the same time bringing its share price back up.
The situation has gradually improved. The company managed to remove $580 million in costs
from the business in fiscal 2009. It has reduced its short term debt to zero, due to strong cash
6
The new York times May 25, 2010
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flow in 2009. More customers visited its stores and spent more in 2009, and in 2010 Starbucks
Conclusion
In my opinion the continued economic turbulence has accentuated the internal disaccord and as a
consequence has awaken Starbucks to face the reality: customers will abandon the brand that
abandoned itself. An economist Cowen points out, that for a brand like Starbucks, familiarity and
ubiquity are deadly7. Schultz decision to close unprofitable stores and axe some clutter
merchandise is absolutely right. Starbucks strategy to cut costs via controlling growth and
Starbucks has also started advertising to bring back those who have converted to other brands.
Since Sawbucks is very vulnerable to the lowering of the traffic through the stores it should re-
evaluate the reasons that prompt people to stop at Starbucks. Some suggest that people will
be less inclined to seek out Starbucks. Coffee purveyors that are more convenient (like
McDonald's or 7-Eleven) or are perceived as higher fidelity (independent coffee shops or smaller
chains) will have an easier time competing against Starbucks than they used to.
The company has to remember that it sells comfort in the uncomfortable world, under the pretext
Reporting its 2009 revenue growth, Starbucks attributed it to 4% increase in sales in the same
stores during a comparable period last year, even though last August The New York Times
reported (Miller, 2009) that without any prior announcement, Starbucks stores in several [US]
cities started charging up to 30 cents more( 8%) for some specialty beverages.
7
Adapted from Trade-Off: Why Some Things Catch On, and Others Don't, by Kevin Maney, published this
month by Broadway Books. Copyright 2009 by Kevin Maney.
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Obviously if Starbucks will be able to properly refocus its attention to its core competency, i.e.
provider of third place experience, as it has done for so many years, and exercise controlled
growth, reinvesting its revenues into its core competency inelasticity of demand for its products
will continue bringing it steady revenues. Perhaps not as high as it is use to, due to strong
competition in the US market, competition that did not exist until it has shown how to turn coffee
into gold. Starbucks the whole world to conquer, it should just remember one thing-one cup at a
time.
12
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15
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Adapted from Trade-Off: Why Some Things Catch On, and Others Don't, by Kevin Maney,
published this
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17
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Oxford.
Brooks, David. Bobos in Paradise: The New Upper Class and How They
Corkery, M. (2005), Leadership (a special report); a special effort: Starbucks is reaching out to
people
with disabilities both as employees and as customers, Wall Street Journal, November 14, p.
R8.
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18
re-reading the Starbucks story. critical perspectives on international business Vol. 3 No. 2, 2007
pp. 136-149
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Plans to Find Out. The New York Times. Retrieved on February 13, 2010 from world wide
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20