Is Starbucks still the "third place"?

Starbucks uses the catch phrase “third place” to promote the ambiance of their stores, indicating that “there is home, there is work, and there is Starbucks”. There are two Starbucks coffeeshops near my place in Cambridge. Recently a friend of mine suggested to drink coffee together at a new local coffeehouse around the corner, the “Boston Common”, which is supposed to be much cozier than anything around. What happened to Starbucks? Aren’t they supposed to be the “third place”, everybody’s favorite hang-out? Well, at least in this area the answer would be a clear “no”. Many Starbucks stores have become fast-paced, to-go places, not any different from the Dunkin Donuts from across the street, with doors opening every other second and baristas becoming stressed out in rush hours.

Did Starbucks lose its focus? I believe yes. The major challenge for a powerhouse brand like Starbucks is how to deal with growth. It needs to grow while staying somewhat small; become a global corporation while staying locally relevant.
Let’s have a look back. In 2001, Starbucks sought to become more appealing to the mass market. Research proved that for new customers Starbucks was somewhat “slow”. Young urban professionals want to grab a cup of coffee and rush out again as quickly as possible. Starbucks therefore decided to invest $ 40,000,000 to improve service speed by supporting baristas with more staff.

For me, it appears as if this move contributed to attracting customers that should actually be left to go to Dunkin Donuts. If the doors of the stores keep opening every other second, and if stressed out customers rush in and out to get a quick cup of coffee, Starbucks jeopardizes everything that makes it strong: the loyal customers that come there every day to enjoy this notion of the “third place”. Very often when doing the calculations in such cases, a decrease in customer lifetime value of the loyal base might mean a much higher loss of profitability than to let go of a coffee drinking segment. And when this customer group does not fit Starbucks’ brand mantra anyway, the long-term viability needs be ensured at all cost.

As described in earlier posts, the stretching of its brand into categories such as instant coffee falls into the same category: a pursuit of quick incremental profit that is likely to lead to devaluing the brand in the long-term. Another interesting post was published recently on brand autopsy, discussing that it is the taste that made the brand stand out and grow - trying to appeal to all consumers with weaker alternatives has not helped the brand.

What might have been an alternative? There is a famous saying that goes: “never change a winning horse”. In the role of Starbucks’ CMO, I would have taken the $40,000,000 and kept investing in the stores’ atmosphere as well as a further market penetration with new stores, especially increasing the number of stores in highly busy areas could be a promising strategy to cater to the high demand while ensuring that the atmosphere of the “third place” remains in place.

Francesco Wesel
www.francescowesel.com
www.brandnewtimes.blogspot.com

Record low in voter turnout for EU elections- what Bruxelle can learn from Marketers

During the first election in 1979, 63% of the people still voted in the EU parliamentary elections; last week we have reached a record low turnout of only 43% - a clear sign of a weakening trust in the institutional government. What are the reasons? Already years ago – before the eastern enlargement to add 10 Eastern European countries to the EU core of 15- the debates circled around whether the EU will be able to sustain all the growth initiatives at once. “Integration vs Enlargement” were the key words in the argument. In many ways- I wondered- the political move resembles the characteristics of a typical brand extension. And while a brand manager would have argued that the EU and its prospective new members are not ready for an extension, politicians in Bruxelle chose the opposite. Let’s enlarge first, and then take care of making the system work, especially bringing the EU closer to the people.

When looking at certain brand categories such as vodka with Absolute (Sweden), Finlandia (Finland) or Smirnoff (Russia), it becomes obvious that not only for an international organization -like the EU brand- countries can be powerful symbols of brand association. Take a careful look at a Louis Vuitton watch, and you’ll note that it is ‘Swiss Made’. Switzerland’s legendary watch- and clock-making history seems fundamental for Louis Vuitton to keep its perceived quality during the transfer phase, just as Louis Vuitton’s migration into the shoe business was associated with the claim ‘Made in Italy’, because it is the well-known origin of elegant shoes. Louis Vuitton higlighted its decade-old strategy of using country-of-origin as part of its a branding strategy. The key for the succes of these extensions seems to have been that the consumer was able to believe that the core values surrounding the mother brand sit comfortably with the newly introduced product. This match between the original EU values and its new member states has not been very prevalent until today- as it became obvious in the preface to the Iraq war, for instance. There are few brand links beyond the EU logo.

In the marketing world, some corporate names (such as Kraft, GE or Ford) are on so many products that they lack strong specific associations. Their value then is primarily to provide feelings of recognition and perceived quality. However, the EU brand also did not seem to be well established at the time in the mind of its people at this stage. Only if the original EU 15 brand associations were very strong, transfer of negative associations (of the new members) to original brand (the EU core) would be less likely.

Because this was not the case, the extension not only dramatically watered down the key asset and brand name of the EU in its original setting, but also in the new context- the voter turnout was the lowest in Eastern Europe, with some countries only reaching around 20%.

To return to the initial question: From a brand manager’ point of view, was it wrong to enlarge the EU rather than integrating its core first? Probably yes. While the political implications are complex, a brand manager would have criticized the EU for another strong reason: the extension has not been supported by communication to transport the EU core values to the new members and enhance the brand image altogether. Mental associations that are shared, are strong, shared by many and affect consumer behavior should have been promoted strongly. Only that way, the enthusiasm and trust in the institutions can be substantially leveraged, in order to ensure a solid operational basis to the EU functioning through the mandate of the people in the long run. Branding and politics do not exclude each other. The Obama election campaign can serve as a great example for this endeavor. Change - and Positioning - You Can Believe in.

Francesco Wesel MA
Integrated Marketing Communication
www.francescowesel.com
www.brandnewtimes.blogspot.com

„Reinvention of GM“- why not earlier? The filing for bankruptcy of GM can serve as a future case study of big time branding failures.

While the media landscape generally traces the General Motors disaster back to tangible factors such as the failure to build cars of contemporary taste (small and fuel-efficient) or too high labour costs (aren’t they even higher in Germany?), one view is generally neglected: the failure to build brands, rather than merely automobiles.

Once upon a time, GM successfully catered to the needs and wants of the American car buyer: well distinguished sub brands that made it possible, and desirable, for customers to easily upgrade their style, changing to other brands within its portfolio. You could start by a smaller model such as a Pontiac and, in line with the notion of the American dream, just get a Cadillac once your in your career skyrockets - no need to end your love affair with Detroit. In their book “the 22 immutable laws of marketing”, Ries and Trout argue that the law of the category indicates that every category will divide into smaller subcategories, requiring that every brand shall be treated with caution in order not to lose focus. GM started with a single model, then divided into eight sub brands (Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab, Saturn) which then line-extended in pursuit of gains in (short term) market share. Cadillac, for instance, has diluted the power of its “luxury” brand with low-end models such as the Cimarron or the Catera. All of GMs sub brands ended up going after everything- while ultimately standing for nothing. They jeopardized and lost the most valuable asset they could have: their position in the mind of the consumer. For instance, what is the most advertised GM brand, Chevrolet today? The answer would be quite difficult: It is “a large, small, cheap, expensive automobile or truck”, as Al Ries notes in the Ries Report. None of the new models could be nurtured in a way to have a strong and distinctive positioning but rather gave room to a vast, confusing overall brand architecture. GM provides a vivid example of teh risk of a so called house of brands strategy: Over time their once uniquely positioned brands became more and more similar. In a bid to increase efficiency, the company came to sell essentially the same car under different brand names. As a result, GM brands not only lost its meaning, but also competed with each other, the company became forced to divide the resources, and the portfolio lost ground to the competition

Interestingly, Ford realized this flaw earlier and cut their portfolio from 97 models to merely 40 within the last two years, in order to gain more brand focus and synergize with the 80/20 rule- that 20% of their products account for 80% of the gross profit anyway. Consequently, Ford did not have to go on government life support, which could be viewed as one of the major reasons for its (relative) success during the last months. GM, on the other hand, had its back broken by the acceptance of the bailout money. In a category that is so much determined by brand image and emotional touch points, nobody wants to buy from a ailing automobile manufacturer. Hence, the loss of equity resulting from the bailout is worth much more than the actual money itself. And the indirect consequences of the crisis are even more severe: government and the public have taken the legitimacy of the company’s only solution to the crisis: marketing and communication. With everyone of the former management still present (except Wagoner of course) and without the possibility to market effectively, making over the corporate image and ultimately driving more people to buy its brand seems virtually impossible. The perception of the brand in the consumer's mind seems too much damaged. Interestingly, GM now at least chose to jump on the band wagon of a more focused brand portfolio through the reinvention of GM- less brands with more focus. However, whether the company can rise from the dead with this measure remains highly questionable. Even generally futile marketing moves are worthless, when not timed accurately.

Francesco Wesel MA
Integrated Marketing Communication
www.francescowesel.com
www.brandnewtimes.blogspot.com