Starbucks: Maintaining a Clear Position

CASE DESCRIPTION The primary subject matters of this case are Marketing and Branding. Secondary issues examined include brand equity and brand positioning. This case has a difficulty level of three (appropriate for junior level courses or higher). This case is designed to be taught in one and one half class hours and is expected to require four hours of outside preparation by students. CASE SYNOPSIS When Starbucks originated in Seattle, Washington in 1971 as a purveyor of dark roasted coffee beans and coffee merchandise, its founding owners didn't anticipate the extraordinary brand evolution to come. Under the direction of Howard Schultz, who became sole proprietor in 1987, Starbucks transformed into a beverage provider that mirrored the experience of Italian coffee houses including espresso drinks, and elegant camaraderie. This strategy, as part of Starbucks' brand positioning as the consumer's "Third Place" to spend his/her time between home and work, ignited a period of extraordinary expansion. By the 1990s, however, Starbucks had begun offering specialty coffee-based drinks (such as its trademarked Frappuccino[R] drinks, etc.) through mass retail stores. The company also licensed Sodexho to operate Starbucks on naval bases that, despite being traditional Starbucks stores, served a wide variety of other products including pastries, sandwiches, salads, and various merchandise. As higher-end competitors began serving gourmet coffees, Starbucks reacted by increasing its product offerings. By 2005, many Starbucks locations offered a variety of pastries, deserts, and lunch items. Additionally, many Starbucks had begun offering customers drive-through service. Each of these new additions (both the food and the drive-through additions) was successful in increasing immediate sales and profits and, therefore, in pleasing Starbucks investors. In 2007, Starbucks executives received a memo from Schultz expressing significant concerns that Starbucks was weakening its brand image with these ongoing modifications. Questions arose regarding a decision-making bias towards brand extensions that increased profitability in the short-term, but that threatened Starbucks' long-term brand equity. By 2008, Starbucks executives worried about the company's financial declines. The authors have received positive responses from upper level undergraduate students and from graduate students in analyzing this case. Invariably, students' affinity for or against Starbucks' products increases their interest in the case and their satisfaction in the analysis. INTRODUCTION In early 2008, mixed emotions swirled among the executives of Starbucks. In light of the company's plummeting stock price, Howard Schultz' memo from the previous year seemed almost prophetic. Starbucks had been enjoying the benefits of a relatively new concept: offering breakfast, lunch, and other food items outside of the traditional offerings of coffee, pastries, muffins, and biscotti that had become the Starbucks Experience. Through strong initial sales this newly implemented strategy had begun offering positive returns very quickly. Schultz, the company's founder and current chairman, commented, however that "over the past ten years, in order to achieve growth, . we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of the brand. Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. " (See Appendix 5 for entire quote.) ORIGINS OF AN AMERICAN ICON Jerry Baldwin, Gordon Bowker, and Zev Siegel opened the original Starbucks (a precursor to Schultz' subsequent company that took the same name) in 1971 after having frequently visited Peet's Coffee and Tea in Berkeley, California. …