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The Power of Good Branding

Updated on August 13, 2014

Starbuck's Coffee Place

Howard Schultz

The story of Starbucks’ CEO, Howard Schultz, is much like the story of Tony Montana in the movie Scarface, except for all the drugs and murders, of course. In addition, whereas Tony Montana got gunned down by police in the movie’s final scene, Starbucks’ CEO seems to be enjoy a happy ending, for now at least.

Captivated by coffee culture in Milan back in the 1980’s, Schultz ventured on a successful coffee shop startup which he dubbed: Il Giornale. After several years of success, he was able to buy Starbucks, at the time isolated to Seattle. The year was 1986. He rebranded his coffee bars with the Starbucks name, and by the end of 1991, Starbucks had more than 116 stores and nearly $60 million in sales.

In 1997, Schultz published a book called: "Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time." It tells the story of Schultz’s rags to riches climb to the top, and became a New York Times bestseller.

The book’s scope covers not merely the economic elements of Starbuck’s rise, but also Schultz’s personal struggles in early life. Growing up in federally-subsidized housing, the family was barely making ends meet. In High school, Howard realized how the public perceived his economic status. He writes:

Once I asked out a girl from a different part of New York. I remember how her father's face dropped in stages as he asked:

"Where do you live?"

"We live in Brooklyn," I answered.

"Where?"

"Canarsie."

"Where?"

"Bayview Projects."

"Oh."

There was an unspoken judgment about me in his reaction, and it irked me to see it.

He accredits his early success to a football scholarship he got to attend Northern Michigan University, and claims that without that scholarship, he sees no other way he would have been able to get out of the projects. And the rest is history.

“I wanted to blend coffee with romance,” writes Schultz. By combining the expertise of the original Starbucks staff with his vision of the cozy environment which coffeehouses ought to have, he went from one triumph to the next.

Starbucks Corporation

SBUX in NASDAQ

From its IPO in 1992, Starbucks experienced a steady increase in stock price for a good decade before plummeting in 2006. The question is: ‘what happened?’

Well, it lost its leader, for one thing. In 2000, Schultz stepped down from the CEO position and began pursuing other interests, such as the Seattle Supersonics NBA team which he bought for $250 million. Orin Smith did a fair job between 2000 and 2005, but when Jim Donald took over in 2005, an overly-aggressive globalization campaign went sour fast.

The plan was 40,000 stores worldwide, but when the stock price plummeted, some re-strategizing was called for. Schultz finally reclaimed the helm in January 2008. He was forced to slash 4,000 jobs and 800 stores, and the stock price kept coming down until November. But when it did come back up, it went up, up, and away.

Between 2009 and 2014, SBUX has moved from 20 to 80 dollars per share. This success can be attributed to several factors, particularly great branding, and well-planned expansion to new markets.

Great Branding

Hand-picked by Schultz himself, Marketing Genius Stanley Hainsworth joined Starbucks in 1994. Coming from Nike and Lego, Hainsworth’s expertise was on the importance of staying loyal to the brand’s story and image in every point where product meets consumer. In a recent interview, he was quoted saying: “Every brand has a story, whether it's the founder's story or the brand's reason for being. Some brands have never told their story well, or have lost their story.”

In the case of Starbucks, Schultz’s life story has been interlinked with the story of the company even before it launched IPO in 1992. In the eyes of consumers and investors worldwide, Howard’s story is incredibly inspirational and with Starbucks’ recent announcement to offer free education to all employees, Schultz’s influence is apparent in every corner of the organization.

Keith Wyche visits FOX News to discuss Starbucks

Hainsworth, who stepped down as Starbuck’s vice president global creative in 2008, also played a big part in pitching Starbucks as a “third place.” The idea was to emphasize the coziness of branches, and amp up the homey factor through attention to little details. According to Hainsworth: “It was a very conscious attribute of the brand all along and impacted every decision about the experience: who the furniture was chosen for, what artwork would be on the walls, what music was going to be played, and how it would be played.”

Starbucks in Asia

The Next Challenge: Asian Expansion

There is no greater sign that the Cold War is over than seeing a company as Western as Starbucks entering the Vietnamese market. BBC has recently expressed doubts about the company’s decision to open three new branches in Hanoi, Vietnam’s capital. The report cited low average wages and an already crowded market of coffee shops. BBC analysts do, however, admit to high turnouts on opening day.

BBC News - Starbucks eyes Vietnam expansion

Regardless of BBC’s anxieties, Starbucks seems to have learned its lesson from its previous experience of overly-zealous expansionism. This time around, the company is playing it smart. New branches have been opened all across Europe and Asia, with each branch specifically tailored to the needs, and tastes, of the local communities.

Among Starbuck’s globalization techniques is the practice of sending its top baristas to train and oversee the hiring of new employees in new branches. In addition, thorough preliminary research is done about the new communities before the stores are launched. In China, Starbucks has partnered with Beijing Mei Da coffee company, Uni-President Enterprises, and the Hong Kong-based Maxim’s Caterers, each partner an expert in specific regions of the most populous and diverse country in the world. By understanding the complexity and variation of new markets, Starbucks plans to maximize profits, and indeed it has. Starbucks’ operating margin in the China/Asia Pacific region is 35 percent, significantly higher than 9 percent in Europe and 24 percent in the Americas.

Other factors which may affect future profits in Asia are Chinese government regulations, which some claim will become harsher on foreign businesses as China becomes less dependent on external economies.

Starbucks Frapuccino

The Bright Future

With Howard Schultz as commander in chief, and his head in the game, Starbucks continues to innovate with the times. As political barriers continue to break down, most analysts agree that the forces of globalization will continue to increase trade and provide fertile soil for brands which seek to expand. Investors take notes: through strong marketing, attention to detail, and strategies which put customers and employees at the center of its focus, Starbucks seems to have great potential in the coming decade.

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    • OritNathanMahalal profile image
      Author

      Orit Nathan Mahalal 3 years ago from Cyprus

      I think that a bigpart of the success is due to the fact they were the first to recognize the big market potential in cozy and homely coffee places and still no one is able to brand its coffee business so well as they do! But the greatest thing is that competitors can learn and copy and eventually improve and try to climb the success stairs to the top!

    • JoeyCarbone profile image

      JoeyCarbone 3 years ago

      It really doesn't make sense , competitors needs to climb harder to fight in the same market like Starbucks.

      And the price of same product needs to be higher or a bit lower in order to compete.

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