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International Marketing and Management Essay

1. Preface
As the neo-classic theory, the information model (McCracken, 2005) within advertising is based on the idea of homo economicus – the rational human being or the rational consumer. According to this theory the consumers evaluate products on a rational basis and buy the goods which are assessed to optimise their self-interest. Thus the cultural context surrounding the good is not taken into account when planning a branding strategy. This indicates that the consumer at any given time will select a product on the basis of an objective evaluation upon the good’s utility regardless of any other factors. However, how does the information model explain that that the consumer’s actions deviate from what is dictated in the theory and hence that the consumer does not always act rational?

Consumers buying patterns and decision making seem to be controlled by other factors than rational evaluations and hence the information model appears to face limitations when trying to give explanation to why expensive branded goods are chosen rather than similar goods without brand value – choices, which are inherently irrational. So what triggers the consumer to make these choices? And if the consumers based their consumption on rationality would some luxury goods not battle to survive in the market place? Therefore, when looking into the specialty coffee1 market it could be argued that the similar cheaper coffee product now supplied by fast food chains such as McDonald’s or Dunkin Donuts, would easily substitute a product such as coffee from Starbucks Corporation2?

However, it seems like the consumers act less rationally than predicted by the neo-classic economic theory and thus base their consumption choices on other factors than for instance price – it is not rational to buy a tall latté in Starbucks when a product with similar product-property can be bought in McDonald’s for less than half the price, but nevertheless numerous consumers do buy their latte at Starbucks. Then it is arguable that the quality and taste were what differentiated the Starbucks latte from the McDonald’s latte, which would justify the more expensive purchase.

But according to specialists the price premium of coffee at Starbucks cannot be justified anymore (Schwaner-Albright, 2008) again indicating that something other than pure information is controlling consumers buying decisions. McCracken (2005) explains these irrational choices with the so-called transformation model, the counterpart of the information model, which operates within another paradigm not explaining consumer choices on the basis of information but on the basis of consumers being surrounded by culture – culture which affects the consumption patterns and that products possess intangible benefits or meanings which can be transferred from the products to the consumer, meanings which the consumers need to construct their identity. For this

Speciality coffee: “Sometimes called “gourmet” or “premium” coffee, Specialty Coffees are made from exceptional beans grown only in ideal coffee-producing climates. They tend to feature distinctive flavours, which are shaped by the unique characteristics of the soil that produces them” (SCAA, 2008)

Starbucks Corporation will be referred to as Starbucks in the rest of the thesis.

Ea Elisabeth Finn Nielsen & Tina Holm Mortensen | The Story of Starbucks

reason rational choices are not always made – brands possess intangible meanings which results in consumers making irrational choices based on emotions and feelings and which to some degree may explain the success of the Starbucks until now.

2. Problem Area
Investigating the state and direction of Starbucks leaves one with the impression of a very successful company – it is an almost unbelievable success story about the coffee chain and a brand which changed the Americans’ coffee and café culture. Since 1987, when this success story took its departure, Starbucks has attained immense growth results.

The coffee shop chain has been growing with more that 20% a year (Bonamici & Fortune, 2004) and in five years the chain almost tripled the number of stores worldwide, from 5,886 in 2002 to 15,011 in 2007 (Harrer, 2008) resulting in an almost global omnipresence (Starbucks, 2008a). Thus, Starbucks is developing rapidly which is reflected in the fact that the chain until last year opens approximately five new stores a day worldwide. According to the corporation, the intention is to let this development continue and the plan is to add approximately 6,500 stores to the total store count by the end of 2011 (Starbucks, 2008b)

However, in the media, Starbucks is criticised for this rapid growth and analysts do not seem to doubt that the expansion objective of a total number of 40,000 stores is to stretch the expansion too far, as it is estimated that it might be difficult to maintain a profitable turnover in the long run (Nocera, 2008). Furthermore, if continuing this fast, some analysts expect that the corporation eventually will destroy what they have built up and what have become to be known as their unique characteristics. Hence, analysts believe that Starbucks have lost focus and track of the Starbucks Experience3 which has always been the cornerstone of the corporation (Nocera, 2008).

These statements are particularly interesting as Starbucks’ growth rate seems to have been slowing down the past year (Starbucks, 2008d). To this, it is seen how Starbucks is not able to meet the expectations of the market, which is reflected in dropping stock prices in particular, and in the fact that Starbucks struggles to retain the same costumer traffic as before. Starbucks believes that increasing competition from quick-service restaurants, which have started offering coffee and the decrease in the American economy, are the main explanations for Starbucks’ inferior results (Starbucks, 2008c). Naturally, it cannot be rejected that some of Starbucks’ decline is connected to the US economic slowdown as the tendency is seen across the industry, but comparing Starbucks’ stock prices to the overall index, Starbucks has experienced a steeper fall the past year (Factiva, 2008).

Therefore, the decline may have other explanations. Although Starbucks is far from economic crisis at this moment, it can be argued that potential crisis are lurking. Starbucks strives to provide customers with a special and theatrical experience in a comfortable and inviting environment when buying their coffee beverage. This is referred to as “The Starbucks Experience” which will be elaborated on later as the experience comprises of many different factors.

Ea Elisabeth Finn Nielsen & Tina Holm Mortensen | The Story of Starbucks

Extending the knowledge of the Starbucks Corporation, there is no doubt that the future is challenging to Starbucks, especially since it has been presumed that the golden days of Starbucks is over (Gilbert in Nocera, 2008). In this context, it is essential to be aware of the growing tendency of customers deselecting Starbucks deliberately and especially the growing number of customers actually avoiding Starbucks (Thompson et al., 2006; Thompson and Arsel, 2004). The growing number of customers dissociating themselves from Starbucks, expressing their negative attitudes towards the corporation, cannot be ignored as they can be seen as an expression of Starbucks struggling with the trustworthiness of their brand.

2.1 Branding as the Root Cause
Due to the growing dissociation from Starbucks and the questioning of their narratives, we argue that branding can be at the root of the problems Starbucks is facing currently. Thus, Starbucks’ approach to their branding is questioned. The dissociation from Starbucks can furthermore be understood as an expression of Starbucks not delivering what the consumer of today demands – thereby arguing that the Starbucks brand struggles in corresponding with the cultural desires in society.

The purpose of the thesis is therefore to investigate how Starbucks has handled their branding and hence narratives. In relation to branding we have come across Holt (2004) and McCracken (1986; 2005) who both take a cultural approach to branding and thus focus on the importance of brands relating to the cultural context. Holt (2004) and McCracken’s (1986; 2005) theories analyse brands attached with meanings which consumers adopt when they buy the brand, thereby the brand’s meanings and values are transferred to the consumer’s identity.

Thus, these brands can be characterised as identity brands. Starbucks is identified to be such an identity brand, seeing that customers apply the meanings of Starbucks’ brand in creating themselves (Thompson et al., 2006). Therefore, branding is about creating narratives which correspond with the desired image of the consumers. This requires an understanding of the historical and cultural context. The point is that if the narratives are not continuously related to the changing cultural context, hence the desires of the consumers, the brand will be in trouble as the narratives lose their trustworthiness (Holt, 2004).

Based on Holt’s (2004) theory about iconic brands, it can additionally be argued that Starbucks has reached iconic status as they achieved to become a symbol representing the desires of consumer culture when they entered the market. They were able to comply with the subcultural desires of that time, exemplified by the “bobo-culture”, which will be elaborated on later (Thompson et al., 2006). This may leave one with the impression that Starbucks has pioneered in applying a cultural branding strategy. However, this does not seem to be the case since it is suggested that they do not change in line with the context yet, time after time, they intimate that they pursue an emotional branding strategy (Schultz & Yang, 1997; Michelli, 2006). Consumers’ doubt in Starbucks’ trustworthiness indicates conflicts in the image of Starbucks, and furthermore that the narratives do not correspond with the identity that consumers desire.

Ea Elisabeth Finn Nielsen & Tina Holm Mortensen | The Story of Starbucks

McCracken (2006) points out that all trends and concepts emerging as cultural innovations over time will be perceived as an ordinary standard; hence they lose what made them distinctive and interesting in the beginning, as well as their initial novelty value This is furthermore an interesting approach to Starbucks’ decline as it may be the case that Starbucks has difficulty in retaining the same position in the mind of the consumers seeing that the concept of specialty coffee might now be perceived as a mainstream concept.

The cultural branding approach complies with and overcomes the shortcomings of emotional branding (Holt, 2004) which will be outlined as the branding strategy of Starbucks in the Literature Review. Therefore, the following Literature Review will serve as a justifying foundation for applying a cultural branding approach to the understanding of the Starbucks brand.

3. Literature Review

The Starbucks corporation has been discussed in various articles, books, and TV shows and it seems that a large amount of writers have an opinion about the company which they wish to express in one way or another. However, only few articles and books have taken the discussion and analysis about the famous company to an academic level, and quite a few of these apply Starbucks as a case example and hence are not focussed on Starbucks alone. In the following review, we will outline the tendencies towards Starbucks’ branding. We have chosen to include academic research, consultancy work, and more descriptive analyses.

We are aware of the fact that in the case of the consultancy literature, it appears to be weaker in its argumentation due to the fact that it is not based on thorough research. However, since only a little literature analyses Starbucks on an academic level, consultancy literature is included to give a more comprehensive image of the branding of Starbucks as it is found to provide a useful insight into how Starbucks have gone about their branding – knowledge which can be applied later in the thesis. Academic research includes, among others, Thompson and Arsel (2004), Thompson et al. (2006), Lyons (2005), Rindova in Lerpold et al. (2007).

We define consultancy books as literature written with the purpose of giving the business-world’s suggestions on how to go about branding by applying Starbucks as a prime example. In the Literature Review, they are represented by Michelli (2007) and Scott Bedbury (2002). Lastly, there has been identified descriptive literature upon Starbucks’ branding. This is mainly written by Koehn (2001), Pendergrast (2001) and Luttinger and Dicum (2006), who include Starbucks in the historical context of the specialty coffee sector’s development.

In general, it can be argued that the literature found shows an agreement in that Starbucks’ branding strategy is emotional, though some only imply this implicitly. We attempt to identify

Ea Elisabeth Finn Nielsen & Tina Holm Mortensen | The Story of Starbucks

gaps in the existing literature on which to base our argumentation of choosing a cultural branding approach. Moreover, most of the literature is written with the purpose of explaining Starbucks’ current troubles – therefore the gaps identified should not be seen as a criticism towards the existing literature as it has not been its purpose to analyse Starbucks from a cultural and contextual approach. Moreover, all texts have been composed before the crisis of Starbucks and therefore it seems logical that Starbucks’ poorer performance has not been investigated. Nevertheless, the fact is that only few authors have taken Starbucks’ lack of cultural branding up for evaluation and we will apply knowledge from these authors as foundation for the further research.

3.1 A Holistic Approach Michelli (2007) describes through an internal analysis of the corporation how Starbucks revolutionised the coffee industry, gained high growth rates, and success worldwide. Michelli (2007) points out that the company has followed five principles, and that these have lead directly to their success. The principles are all focused on how the company can differentiate from other coffee shops and, through the principles, create a special coffee experience for the customer. The key to this special experience is to create a connection between the partner4 and the customer and through this connection create a relation that emotionally attaches the customer to the brand.

Michelli (2007) does not intend to describe the branding strategy of the company, and the purpose of his book is not to demonstrate the branding of Starbucks, but to develop a generic framework for success by indicating that any company can gain success applying the five principles. However, we argue that Michelli (2007) through the book, although maybe not consciously describes the branding of Starbucks, and that the five principles described in sum, constitute the branding strategy, or at least part of it. Implicitly, it can be argued that the strategy Michelli (2007) is describing is an emotional branding strategy as it is evident that emotions are the pivotal point of the strategy, and thus that the goal is to create an emotional relationship with the customers through the five principles.

Thereby, focus seems so be shifted from a product benefit-driven approach to an emotional appeal (Roberts, 2004 in Thompson et al., 2006). What also seems clear is that the five principles shall not be deviated from. This indicates a consistency that is in line with the thoughts of emotional branding. Hence, the principles should be kept consistent in all the brand activities of the company over time.

Michelli’s (2007) focus is predominantly internal. It is the CEO, managers, and partners who, from a top-down perspective, deliver the five principles and hence the brand to the customer. As mentioned before, the key is to connect with the customer and create a relationship, which according

Onward …
P.S. Everything that we do, from this point on (from the most simple and basic), matters. Master the fundamentals. Experience Starbucks


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