Personal Relationships Translate: Sharing the Love from People to Products
Advertising moves people toward goods; merchandising moves goods toward people.
MORRIS HITE
When personal relationships are created between employees and customers and strengthened through the use of technology, brands are given permission to transfer those emotional connections to new product offerings. Starbucks is an example of how to take in-store person-to-person connections and leverage them into consumer packaged goods (CPG) categories such as Starbucks VIA® Ready Brew (individual servings of instant coffee), Starbucks ready-to-drink beverages, bulk-packaged coffee and tea, and other Tazo and Starbucks-owned branded products that are served by foodservice providers. In a case study on relational capital (translating human connections into marketable value), Ranjay Gulati, Sarah Huffman, and Gary Neilson suggest that Starbucks has earned a license to sell consumer packaged goods: “Due in large part to Howard Schultz’s careful nurturing and development of the Starbucks Experience, the company has been able to leverage its increasingly strong brand through a variety of alliances to sell Starbucks coffee and develop new products with the Starbucks name. The goal in establishing these relationships has been to continue to develop the brand outside the company’s retail stores in order to reach customers through multiple points of contact …”
That having been said, many people are surprised to find that Starbucks started out in the bulk-goods business, not the brewed coffee business. The original Starbucks store dark-roasted small batches of coffee beans and sold them to in-store customers, by mail order, and to local restaurateurs. In essence, Starbucks began as a consumer packaged goods business. Leaders later strategically positioned the company as a global service experience business, delivering brewed coffee and espresso-based drinks. While the leaders built the brand into the global giant that it is through the store-based connection (the third place), they have more recently mobilized the connection to move into customers’ homes (the first place) and offices (the second place). Because of the success, connection, and love they’ve forged in the Starbucks stores, the leaders have also developed a substantial market selling in the business-to-business space. In addition, the leadership has fostered new product innovation that serves consumers’ mobile lifestyles.
Throughout this chapter, we will examine how Starbucks deploys a multichannel approach to product creation, launch, and delivery. We will explore innovation in both coffee and adjacent categories, and also look at how Starbucks positions its products to be used where customers want them—and not necessarily requiring customers to come into a Starbucks-branded location. This chapter is designed to help you see how Starbucks innovates relevant product offerings in new categories through either strategic business alliances, innovation, or acquisitions. It is intended to help you take your existing connection with customers and extend it into their highly mobile lifestyles.
While most customers look at a Starbucks store as a place to grab a cup of coffee or to share a conversation while enjoying a beverage or food item, each store also has a limited amount of prime merchandising space available. As you will recall from Chapter 2, in the mid-2000s, Starbucks store managers became so concerned with their year-over-year comps that the merchandise shelves in Starbucks stores were filled with non-coffee-related products. This prompted Howard Schultz (who was functioning as the chief global strategist for Starbucks at the time) to write an e-mail memo to then–chief executive officer Jim Donald, with copies to the Starbucks senior leadership team, on February 14, 2007. That e-mail, which somehow was leaked to the media, was titled “The Commoditization of the Starbucks Experience.” In it, among other things, Howard wrote, “I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.”
Merchandising in Starbucks stores has certainly changed since Howard crafted his cautionary memo. In my nearest Starbucks store in St. Petersburg, Florida, and probably in a store close to you, there are normally two seven-feet-tall by four-feet-wide displays with seven shelves of merchandise in each. This merchandise usually includes the Bodum French Press pots that Howard wanted to see in 2007. In addition, the shelves contain various hot and cold Starbucks-logoed mugs and cups, canisters of full-leaf Tazo tea, boxes of Tazo tea bags, and Starbucks VIA instant coffee and tea packages. These shelving units are supplemented by four or five wicker baskets that sit in containers on the floor and typically hold various coffee blends and occasionally packaged food items like potato chips or gourmet popcorn. Complementing these baskets are packaged food and beverage items in or around the display case, including Starbucks Refreshers™ beverages, Evolution Fresh juices, milk products, fruit cups, yogurt cups, Starbucks ready-to-drink beverages, Ethos® water (a Starbucks subsidiary), and Starbucks branded nuts and fruit snacks. At various locations around the café, there are specialty merchandise tables displaying items like the Starbucks at-home espresso brewing machine, the Verismo® system by Starbucks, and espresso and milk pods used in that machine.
The presence of coffee-related items in Starbucks stores is congruent with a broader business strategy that includes diversifying the company’s sales mix well beyond the products that baristas handcraft for customers. This enhancement of Starbucks consumer goods follows a path that has been successfully traveled by foodservice brands like Ben & Jerry’s ice cream, which was once a small ice cream store in Vermont and is now a powerful brand that is owned by Unilever. Ben & Jerry’s now operates a vast global network of ice cream shops and enjoys widespread distribution of its packaged ice cream in supermarkets and convenience stores. Jeff Hansberry, president, Starbucks Channel Development and Emerging Brands, notes, “Starbucks captures only a small portion of the $100 billion coffee, tea, and ready-to-drink beverage market globally…. We are working to build a greater share of that global opportunity with our [consumer packaged goods] business by growing across channels, categories, and countries where our products are sold.”
Annie Young-Scrivner, president, Starbucks Canada and former global chief marketing officer and president of Tazo, places the scope of this retail opportunity in the context of the four Starbucks location models: “We really want to make sure we’re earning the connection with the customers no matter where they are. Our future is based on selling coffee and related products for customers to use at home, at work, in our stores, and on the go. We have great opportunities for gaining market share and expanding our business out through consumer channels that stretch well beyond our vast store footprint.” The evolution of this Starbucks channel strategy offers lessons for us all—namely, define an initial channel of delivery, master execution in that channel, then direct your efforts more broadly to other channels of distribution that meet your customers’ needs wherever they are. As you look at your business, how are you performing on the “four-place” model that Starbucks uses? Are you engaging your customers with your products, services, or communications in their home, at their work, in your building, and at all the places in between? To achieve this breadth of presence in its customers’ lives, Starbucks must rely upon and serve the needs of other businesses that wish to either sell or distribute its products. Given this reliance on other business entities, let’s take a moment to understand the business-to-business side of Starbucks.
Starbucks is not exclusively a business-to-customer (B2C) company. In reality, the company engages in several types of business-to-business (B2B) relationships that support an ever-widening sales mix. Most notably, these include foodservice customers, licensed stores, and joint-venture partnerships.
On the foodservice side, Starbucks offers training, marketing, and merchandising expertise along with equipment and a portfolio of beverage products (including brewed coffee, hot and cold espresso-based drinks, syrups, cocoa, and Tazo tea) to business customers in retail settings such as fine dining, travel, recreation, universities, government offices, lodging, and health-care facilities. In addition, Starbucks sources companies’ internal beverage needs, including those for cafeterias, public spaces, meetings, and catering. When you attend a conference and the break station has a sign that says we “proudly brew” Starbucks coffee or when you see Starbucks coffee being served at a restaurant at which you are dining, you are experiencing the Starbucks brand extension into the foodservice space.
In the case of licensed stores, businesses like Kroger, Vons, and Safeway (large supermarket chains) own, staff, and operate the physical store or kiosk locations under a Starbucks-approved license. In addition to a strong licensed store position in supermarkets (a favorable affinity placement for leveraging sales into supermarket aisles), licensed stores are also frequently located in airports, general merchandise retailers like Target and Meijer, and other compatible settings.
In some cases, Starbucks goes beyond a licensing agreement to a full-fledged joint-venture alliance with a distribution partner. In fact, Starbucks longstanding relationship with other companies in consumer goods began in 1994 with its North American Coffee Partnership agreement, which involved collaboration with PepsiCo North America. Through this agreement, Pepsi manufactures, markets, and distributes ready-to-drink coffee beverages in a joint-venture arrangement. Currently these ready-to-drink beverages carry either the Starbucks or the Seattle’s Best Coffee brand. (Seattle’s Best Coffee is a company that started roasting coffee on a Seattle pier in 1970. It was a rival company that Starbucks purchased in 2003.) Specific coffee beverages made available through this joint venture include Starbucks® bottled Frappuccino® coffee drinks, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy+Coffee drinks, Starbucks® Iced Coffee, Starbucks Discoveries, Iced Café Favorites, and Starbucks Refreshers.
In these joint-venture arrangements, Starbucks leadership must ensure that both parties are carrying out their responsibilities in a reciprocal relationship where both companies gain from the other’s efforts. In Chapter 7, we discussed how choosing the right collaborative business partner is critical to success in new markets, particularly international ones. Similarly, partner selection is of great importance when it comes to extending the breadth of your offerings. Gary Stibel, founder and CEO of the New England Consulting Group, notes, “The key is choosing a partner…. Everybody thinks most licenses succeed—it’s absolutely the opposite. The vast majority of all licensing arrangements or attempts to enter [consumer packaged goods] by restaurants fail.” To appreciate the complexity of the challenge of CPG licensing, food and travel writer Robert Lillegard notes, “Even long-standing relationships can grow sour. Starbucks and Kraft had a very ugly public split in 2011 after the coffee giant claimed that the distributor wasn’t doing enough to promote its products.” Robert adds that Kraft sought to enjoin the 13-year partnership from dissolving, “but was ultimately unsuccessful. Now the two companies compete for shelf space, with Kraft’s Gevalia and Maxwell House going up against Starbucks’ offerings.” The Kraft relationship notwithstanding, Starbucks leaders have enjoyed strong licensed and joint-venture partnership arrangements, largely because of the way Starbucks leaders perceive themselves as serving their business partners.
Whether it is selling through a foodservice customer, a Starbucks licensed store, or a joint-venture partner, Starbucks leaders expect business-to-business service experiences to reflect Starbucks mission and values while producing strong connections and relationships like those forged in the café environment. Starbucks seeks to provide solutions and partnerships that improve outcomes by connecting with and anticipating the needs of business customers. Beyond products, Starbucks leaders want the company’s business customers to experience personalized care based on a deep understanding of where their business is going and the goals they wish to realize from working with Starbucks. In essence, business customers should enjoy a Starbucks Experience marked by personalized attention and a commitment to a lasting relationship.
For Starbucks, serving business customers and business partners takes on added significance for brand equity. Andrew Linnemann, vice president, Green Coffee Quality and Engagement at Starbucks, notes, “When a customer is served in a licensed store, for example, our name is on the cup. We need to care for our business customers and select our business partners carefully because their actions reflect on the way Starbucks is perceived through the customers they serve. When it comes to licensed store partners and joint-venture partners, we are looking to not only understand their operational competencies but we want to know who they are as a company and a culture. Do they share and demonstrate similar values as us? We will walk away from a licensee or joint-venture partner if it’s not the right fit.”
In the mind of the end consumer, a Starbucks is a Starbucks, whether it is a licensed store in an airport or a company-owned store down the street. From the perspective of the leadership, the service experience at Starbucks should be uplifting, personal, and relationship-focused, whether a Starbucks partner is serving a customer in a Starbucks store or a Target employee is serving Starbucks products to a customer in a Target location. In the end, a business is not buildings or brand names; it is a collection of people who should share like-minded objectives. While the delivery of a business-to-business experience has to vary based on the needs of the business being served, this is equally true for the delivery of experiences to individuals.
Ultimately, the principles that define great customer experiences are extremely similar, no matter whether your customer is an individual consumer or a group of individuals from different departments within a business. With the right partners in place and a rich understanding that the needs of your business partners have similarities to those of your individual customers, you should be positioned to present your offerings to connect with your customers across all settings. For Starbucks, a key strategic opportunity exists in serving customers in their first place—their homes.
REFLECTION ON CONNECTION
1. With whom do you partner to magnify the scope of the customers you can serve?
2. Do you view business partners as customers of your business? How do you see your relationship with your partners affecting your service to your end customers or to those that they serve?
3. Have you earned a “license to sell” other services or products to your customers through the strength of the connections that you form in the delivery of your current slate of offerings?
While it initially partnered to distribute its packaged coffee products, Starbucks has taken over the manufacturing, distribution, and sale of those items, and the leaders at Starbucks continue to innovate ways to place their coffee products in settings other than their stores. This has led critics to warn that Starbucks is grabbing for profit in mass retail in a way that will compromise its in-store sales. For example, when Starbucks launched its single-serve instant coffee product VIA in 2009, Steve Toback, managing partner of Invisor Consulting, noted, “Starbucks is positioning VIA against its own fresh brewed coffee, challenging people to see if they can taste the difference. So, why should customers pay a premium for Starbucks fresh brewed coffee when they can get VIA for a buck a cup? If the campaign is successful, won’t VIA potentially cannibalize fresh brewed coffee sales?” While these outsiders’ concerns are reasonable, Starbucks leaders have not experienced cannibalization and in fact have grown sales by combining in-store and in-home coffee options. Ultimately, the leaders’ ability to see and seize opportunities across channels is what drove the decision to expand the company’s offerings. The decision emerged largely from the leadership’s acute sensitivity to the different need states and rituals that surround coffee consumption. Some customers may visit Starbucks regularly for their morning coffee, but still have times when they want to make high-quality coffee at home. Similarly, some might have a morning ritual in which they routinely make coffee at home, but also stop at a Starbucks store during a morning break. In essence, coffee consumption is not a zero-sum game where customers choose to either brew at home or go into a Starbucks store, and this is something of which the leadership team was acutely aware.
Because of the complexities and the dynamic nature of the consumer packaged goods marketplace, Starbucks leaders are constantly facing tactical challenges. For example, Starbucks worked with a competitor, Green Mountain Coffee Roasters (GMCR), to craft a partial partnership. GMCR, a Vermont-based specialty coffee company, acquired Keurig Incorporated in 2006. Keurig is the market leader in single-cup brewing machines for the consumer market. The Keurig machines offer ease of coffee brewing by requiring coffee drinkers to simply place a mug under the brewing mechanism, add water to a reservoir, insert a single-serving coffee packet (referred to as a K-Cup pack), and push a button. Through the acquisition of Keurig, GMCR positioned itself as the exclusive supplier of K-Cup packs. In addition to providing its own coffee brand, GMCR purchased the Quebec-based coffee company Van Houtte and added K-Cup packs with the Van Houtte name. Other brands like Newman’s Own and Folgers have entered into licensing agreements with GMCR for manufacturing and distribution of their coffees in K-Cup packs for use in Keurig brewing systems.
So what could Starbucks do in terms of positioning its products in K-Cups? Starbucks had previously endorsed the Tassimo coffee brewer (which is a direct competitor to Keurig) and sourced coffee in a different single-serving format (t-discs) needed for use in the Tassimo system. Given the termination of Starbucks agreement with Kraft Foods Inc., the Tassimo system, which was created by Kraft, was less integrated into Starbucks existing distribution system. Many coffee consumer analysts speculated on the course Starbucks would take with its historic rival GMCR and the Keurig system. Some suggested that Starbucks would acquire GMCR; others indicated that Starbucks would create its own alternative to both Tassimo and Keurig. But in March 2011, Starbucks and GMCR announced a K-Cup agreement. Since that time, Starbucks has expanded its license with GMCR to include products for Green Mountain’s Vue™ brewer (which is a newer system that produces stronger, hotter, and larger beverages). Through their collaboration, Starbucks is the exclusive licensed super-premium brand for GMCR’s traditional Keurig and Vue brewers. In addition, GMCR distributes Starbucks K-Cups and Starbucks Vue packets to department, specialty, and mass retail stores. In discussing the decision to engage with GMCR, Andrew Linnemann, vice president, Green Coffee Quality and Engagement, notes, “In the United States, the growth of the coffee sector has been refueled by single-cup brewing systems, and it makes sense to offer our highest-quality coffee to those looking to enjoy the convenience and consistency of delivery through their Keurig.” Imagine that one of your competitors creates a platform on which you can sell your goods. You know that selling on that platform will be good for you from a distribution standpoint, but will also fuel the strength of your competitor. What would you do? While Starbucks has found a way to collaborate with GMCR, that does not imply that healthy competition has ended.
In 2012, Starbucks released a home-brewing single-serve system. The Starbucks brewer creates not only drip coffee drinks, but espresso and latte beverages as well. The Verismo system features Swiss-engineered high-pressure technology to create Starbucks-quality drinks through the use of milk and coffee pods. From the perspective of Starbucks leaders, Verismo offered a variety of important opportunities for customers and for Starbucks. These included such things as (1) an at-home brewed coffee option, with an adjustable high-pressure system specific to your drink selection, (2) an opportunity to release a product that goes beyond brewed coffee and also creates Starbucks signature espresso beverages, and (3) a chance to create a proprietary coffee-brewing platform for Starbucks that fits nicely as a merchandise item in Starbucks stores. The tactical decisions made in the highly competitive coffee brewer world demonstrate key lessons for leaders. Specifically, leadership requires skill in collaboratively positioning products in the context of competitors’ proprietary delivery systems while constantly innovating proprietary delivery systems of their own through strategic relationships with manufacturing and distribution partners.
A 2012 Reuters survey suggests that about 10 percent of the world’s workforce works from home. The remainder may find themselves at the mercy of the oft-maligned world of office coffee. Through the years, companies like Starbucks have been elevating the experience of the office coffee brewer and providing solutions to meet their customers at work. Companies with between 20 and 50 employees can select a Starbucks coffee service that provides brewing equipment, ground Starbucks coffee, and regular service. Additional items like Tazo tea, napkins, and cups are also available. Larger companies can enjoy the same coffee service or upgrade their brewing system to the Starbucks Interactive Cup® brewer, which grinds and brews individual cups or carafes of coffee with the push of a button. To see the Starbucks Interactive Cup brewer demo, go to http://tinyurl.com/bovsqhm or point your QR reader here:
The success of Starbucks efforts to win the second place can be demonstrated through examples such as an alliance between Starbucks and Selecta. Selecta, Europe’s largest vending services company, is working with Starbucks in Switzerland to deliver three solutions to address the needs of businesses of all sizes. These brewing/dispensing options range from small table-top products to large integrated coffee corners. Selecta provides its customers with a swath of Starbucks products, including Vanilla Latte, Espresso, Doppio Espresso, Cappuccino, Café Crème, Caffè Latte, Chai Tea Latte, Latte Macchiato, Espresso Macchiato, and Hot Chocolate, and a variety of Tazo teas, including Calm™, China Green Tips, Earl Grey, English Breakfast, and Refresh™.
According to Frank Wubben, managing director, Starbucks Switzerland and Austria, “I met the CEO of Selecta and we created the vision of how the two market leaders in coffee, Selecta in office coffee and Starbucks in retail, could bond together to build an exciting office customer proposition through Starbucks coffee. In about 5 months’ time, we were able to develop our scalable office coffee concept. For me, the most important part is customers who come to our stores will have the opportunity to enjoy their favorite beverage at their office desk. Conversely, people who have not entered our stores may now do so thanks to the quality of Starbucks coffee they are enjoying at work.” The leaders are banking on the fact that, rather than detracting from the in-store Starbucks connection, a product must be available in the context of both a customer’s work and home life. This availability increases customer contact with the product and embeds it more deeply into the customer’s rituals, lifestyle, and identity.
While much of life is experienced at home or at work, Starbucks has created product offerings for the grab-and-go speed at which many of us live. Whether it was testing Drive Thrus in California in 1994, collaborating with Pepsi to manufacture bottled Frappuccino beverages in 1996, or the arduous process of creating VIA, the instant single-serving coffee product that was launched in 2009, Starbucks has been constantly looking to make its products available to customers so that they can enjoy a high-quality beverage wherever they go. Howard Schultz explained VIA to Starbucks partners by noting, “We announced that Starbucks will introduce an instant coffee, providing our customers with great tasting Starbucks coffee, anywhere and anytime. Not surprisingly, this news raised some eyebrows, and some cynics are asking, ‘Why go instant, Starbucks?’ There are numerous logical reasons: the significant size of the instant coffee market …; the increasing mobility of consumers (imagine a cup of Starbucks VIA Ready Brew on a mountaintop); and, regardless of our ubiquity, that customers continue to tell us they want more Starbucks, and more ways and opportunities to enjoy it.”
Beyond market trends, Howard also emphasized the importance of sustaining the company’s core values and innovating dynamic solutions that respond to the changing needs of customers irrespective of the inevitable criticism: “I know some will question our decision, and I understand this reaction. Expectations from brands like Starbucks are high, and interaction with our brand is very personal. Yet in spite of those high expectations (or perhaps because of them), we are confident we can disrupt and reinvent the instant coffee category—introducing quality coupled with value. I believe that Starbucks VIA Ready Brew is just that—and the proof is in the cup.”
The proof is not only in the Starbucks cup, but in the profitability of products like VIA, which had global sales of $100 million in its first 10 months. That represented approximately 30 percent of the $330 million premium single-serving (or pod) category. Domenick Celentano, an entrepreneurial food executive, chose Starbucks VIA as one of the “most memorable new product launches” based largely on how effectively Starbucks partners sampled the product in stores and across channels (in-store and supermarket), as well as how effectively the leadership embedded the product launch through social media strategies like those discussed in Chapter 8. As far as sampling is concerned, Domenick notes, “Sampling is a time proven method for facilitating consumer trial. Starbucks having ultimate control in their own stores orchestrated sampling customers with free VIA coffee. To control their sampling effort they waited to introduce the product in grocery stores until sometime in 2010. Even though they were not in retail groceries initially, they used the brand presence of their regular line of coffee and dispatched baristas to retailers such as Safeway and Target stores to give out VIA samples to shoppers.”
Annie Young-Scrivner, president, Starbucks Canada, echoes Domenick’s view concerning sampling. Talking about the rollout of Starbucks Blonde Roast, Starbucks light roast coffee, Annie notes, “What is different here than at other consumer package companies is our sheer ability to drive awareness and trial in a very cost-effective way. So as an example, after two weeks we had exceptional awareness on Starbucks Blonde Roast, which is incredible.” Annie suggests that those extraordinary levels of awareness are achieved with an absolute spending rate that is only 10 percent of what competitors often need to spend to achieve similar results. She explains, “We have been able to efficiently gain awareness and trial due to the excitement and enthusiasm of our fantastic 200,000 partners across the globe who engage nearly 70 million consumers every single week. In order for other CPG companies to get a trial, they typically have to go through a third-party grocery sampling or a dry sampling. We, however, can get a fresh cup of coffee right in front of our customers as they walk through the door and create excitement around the new product launch, while also soliciting helpful feedback.” By training Starbucks partners in how to sample new products, collect feedback, and share it with the leadership, Starbucks has a distinct in-store advantage. In the case of VIA, as Domenick Celentano noted, Starbucks baristas were then deployed in the shopping aisles of Target and Safeway. This approach demonstrates the genius of leveraging human assets to maximize effectiveness in cross-channel efforts. Once baristas had mastered sampling VIA in the Starbucks store environment, the expertise and the overall acumen of those baristas was used to drive the product’s success across channels.
From the perspective of integration with social media and cross-channel promotion, Domenick observes, “You just can’t get away from the fact that social media in food [promotion] is powerful and Starbucks being marketing geniuses know this…. Social media gave them viral publicity and very little cost to the company…. They promoted their VIA Taste Challenge through Facebook driving people into their stores comparing VIA against freshly brewed Starbucks coffee. The Facebook promotion offered a free coffee in-store for trying.” Using social media to drive customers into your business so that your people can enrich the connection and engage increased customer awareness, trial, and product adoption—that sounds like a formula for success, doesn’t it?
In addition to the cross-channel promotions mentioned previously, Starbucks has explored and engaged both low- and high-tech ways to drive customers from one channel to the next. On the low-tech side of the equation, Starbucks has provided customers with a free in-store tall coffee when they bring in an empty one-pound. bag of coffee beans purchased outside of a Starbucks store (such items had a coupon that was not present on coffee bean packages purchased in Starbucks stores). Similarly, early in the launch of the Verismo system, purchasers were provided with a Gold-level membership in the My Starbucks Rewards program, which ordinarily would have required the customer to buy 42 beverages before receiving special loyalty rewards on in-store beverages and food.
On the higher-tech side of integration, Starbucks is working with some supermarkets and other distributors to enable purchases of Starbucks bulk coffee or related Starbucks consumer products to count toward loyalty rewards on the Starbucks Card and is exploring packaging materials that will interface with the Starbucks mobile app. Annie Young-Scrivner shares how technology and Starbucks packaging have merged: “Caffè Verona is one of our dark roast coffees and we actually call it our coffee of love. On Caffè Verona bags we have placed a QR code that links to stories of the coffee. One such example is of a couple’s engagement story. The man had a first date with his girlfriend at Starbucks and later proposed to her in a forest that he staged to look like a Starbucks. He took pictures of the engagement scene and posted them on Facebook. We found that couple and asked if we could re-create his engagement experience and make the story available through a QR code on our bags. So if you’re in the supermarket aisle or drinking your coffee at home, you can click on the Caffè Verona bag and experience a true love story about our customers and Starbucks. That’s an example of how we seek to share our story, leverage technology, and engage with customers across channels. It is our effort to reach for the magical.” Since you may not have that particular Starbucks bag available, you can experience that story by directing your browser to http://tinyurl.com/clu9bmm or using your QR reader here:
Suffice it say that Starbucks leadership is perpetually seeking magic and exploring synergies that will encourage customers or give them incentives to widen the array of Starbucks products that they purchase or consume and the settings in which they purchase and consume them. Often the magic can be achieved in rather subtle ways, including simple e-mails like one I received announcing that I would receive a holiday Starbucks Card if I bought three qualifying Starbucks or Tazo products. The e-mail depicted consumer products and indicated that qualifying products had to be purchased outside of a Starbucks store. Redemption required the original grocery register receipt and the universal product code (UPC) from the qualifying products’ packaging.
Starbucks and Tazo holiday e-mail promotion.
REFLECTION ON CONNECTION
1. Have you outlined the key contact points you have with customers? Have you identified strategic opportunities that might enable you to connect with and serve your customers in more settings?
2. What methods do you use to drive awareness, trial, and product adoption cost-effectively? How can you allow customers to sample your services or products?
3. How are you encouraging your customers to experience the breadth of your product or service offerings, so that they are not siloed into one channel of your deliverables?
In Chapter 3, I shared how Starbucks leaders tactically moved into adjacent beverage categories through the acquisition of Tazo and Evolution Fresh. In that chapter, we focused specifically on how those products allowed Starbucks to migrate the brand’s core competency of creating in-store experiences onto other product platforms. Through those types of acquisitions, combined with non-coffee-based innovation, Starbucks has also been able to strengthen its consumer packaged goods footprint. For example, bottled Evolution Fresh juices include flavors in four categories:
• Fruit (organic orange, pomegranate, and so on)
• Greens and vegetables (a wide array, including essential vegetables and vital greens)
• Refreshment (organic ginger limeade, pineapple coconut water, and so on)
• Smoothies (apple berry fiber smoothie, protein power smoothie, super greens smoothie, and more)
These beverages are being made available through select Starbucks stores in the United States. Both Evolution Fresh and Tazo are becoming more prominent consumer brands through their presence in grocery stores like Whole Foods, Albertsons, Ralphs, Vons, and Gelson’s. In fact, to accommodate the demand for Evolution Fresh juices, Starbucks has had to expand from its original 72,000-square-foot manufacturing facility in San Bernardino, California, to a 260,000-square-foot building in Rancho Cucamonga, California.
Not only has Starbucks opened the Tazo Tea store concept mentioned in Chapter 3, but in late 2012, Starbucks also purchased Teavana. Teavana has more than 300 company-owned stores and reaches customers globally through its website, www.teavana.com. As the name implies, Teavana is positioned as the “heaven of tea” and is a specialty retailer that caters to newcomers to the world of tea as well as tea connoisseurs, offering more than 100 varieties of premium loose-leaf teas, crafted teaware, and other merchandise associated with tea. While the full strategic value of the acquisition has yet to be realized, Teavana creates for Starbucks a ready-made distribution channel (given Teavana’s existing store network in prominent high-traffic areas like shopping malls) and the opportunity to serve a broader base of consumers.
Starbucks has also expanded its retail opportunities through pure innovation, particularly when it comes to products like Starbucks Refreshers, a drink made with Green Coffee Extract that fits into the “energy drink” category as opposed to the “coffee” category. In announcing the launch of Refreshers in 2012, Annie Young-Scrivner, president, Starbucks Canada, suggests the importance of Starbucks entry into the energy drink sector by stating, “The energy category is the fastest-growing category within measured CPG channels at $8 billion, up 16 percent over the last year. The launch of Starbucks Refreshers beverages continues to support our growth strategy to innovate with new products, enter new categories, and expand into new channels of distribution.”
Starbucks Refreshers come in three forms: handcrafted in-store beverages, canned sparkling beverages, and a VIA single-serve instant option. The essence of Refreshers across these three presentation formats is a blend of fruit juice and Green Coffee Extract. Cliff Burrows, president, Starbucks Americas, emphasizes the importance of the innovative component of Starbucks Refreshers by noting, “Innovation is at the core of everything we do…. The introduction of Starbucks Refreshers beverage platform, featuring Green Coffee Extract, is an innovative extension of the coffee market and is the perfect solution for customers looking for a boost of natural energy and thirst-quenching, delicious refreshment.” Extending the coffee market into tea, juice, and energy drinks certainly affords more opportunities to grow the brand through both café/beverage service environments and shelf space in retail establishments, but as with all strategic decisions, there are both risks and rewards.
Jane Genova, a member of the Motley Fool Blog Network, eloquently identifies four key risks of Starbucks expanded consumer packaged goods approach. From Jane’s perspective, these challenges include competition with established consumer packaged goods brands, competition from private-label discount brands, projections of flat packaged coffee sales, and “the fourth possible peril is this: A combination of brand fatigue (too much Starbucks distributed through too many market channels) and unbundling the beverage from the iconic ritual of carrying it around in a cup with the green logo and the cardboard wrapper.” Certainly Jane raises an important question about brand fatigue and the presentation of products outside of the familiar relationship forged with customers; however, Starbucks has invested a great deal in the creation of the primary relationship with customers in the retail store environment and has created a global demand for its product offerings. Rather than people becoming tired of the brand, the company finds ways to broaden its opportunities to engage customers and expand the places where it can do so. Thus, Jane’s concerns are addressed by Starbucks diversification beyond packaged coffee sales and by the return on investment generated by Starbucks channel strategy.
In 2012, Starbucks grocery revenues were growing almost three times as fast as its in-store sales. Currently, Starbucks is still deriving most of its revenue from its retail stores. However, operating revenue for fiscal year 2011 reflects that the packaged goods business was 32 percent of global revenue and 19 percent of its U.S. business. Bill Smead, portfolio manager at Smead Capital Management Inc., notes, “The company’s real value and growth potential lies in its brand…. They sell water, milk, and coffee beans at boiling temperatures. Warren Buffett says the best companies buy a commodity and sell a brand.”
Starbucks leaders definitely buy commodities, build connections, and then mobilize those connections to further strengthen the Starbucks brand. As reflected in earlier chapters, the leaders at Starbucks begin with their passion for their commodities and their people. From there, the leaders steward relationships (connections) between partners and customers. Once those connections are made, Starbucks leaders build even greater brand strength by leveraging technology and constantly exploring ways to provide wider sets of offerings in more areas of a consumer’s life. In the end, the leaders elevate products to the status of brands and then leverage brand strength to deliver more products that are designed to ultimately create even greater brand equity.
When personal relationships are created between employees and customers and strengthened through technology, brands are given permission to transfer those emotional connections to new product offerings.
To achieve a maximum presence in your customers’ lives, you may have to serve the needs of other businesses in order to get them to sell or distribute your products.
The central decision in brand expansion is the degree to which your company owns the infrastructure through which you are growing your brand and the degree to which you can control versus influence those you entrust with maintaining your brand standards.
A business is not buildings or brand names; it is a collection of people who should share like-minded objectives.
The principles that define great customer experiences are extremely similar no matter whether your customer is an individual consumer or a group of individuals from different departments within a business.
Leadership in the world of consumer packaged goods requires skill in collaboratively positioning your products in the context of competitors’ proprietary delivery systems and constantly innovating proprietary delivery systems of your own through strategic relationships with manufacturing and distribution partners.
When it comes to new product introduction, social media is an important tool for driving your customers’ awareness, trial, and product adoption.
Forward-thinking leaders find ways to encourage customers or give them incentives to widen the array of products that they purchase and consume and expand the settings in which they purchase and consume them.
According to Warren Buffett, the best companies buy a commodity and sell a brand.
