Howard Shultz's Strategy for Dealing with the McDonald's and Dunkin' Donuts Threat

There must be nearly as many definitions of what a brand is as there are people who offer one, but one world comes through probably more often than any other: promise.

However, if one starts with the premise that a brand is a personality – and there is good reason to believe so, based on recent brain research indicating how the mind/brain complex processes a brand – then calling a brand a promise is like defining you by the word smart. Smart you may be, but that hardly defines you as a personality.

I favor the definition offered recently by a client that I cited in this space last week: “Our brand is everything we do.” Is that not a robust way of describing a personality? Are you not the sum total of all you do? All you dream, perceive, think and do?

Howard Shultz views his Starbucks that way. The Starbuck’s brand is not coffee. It’s not even the taste of coffee, or the taste plus smell of coffee. Starbuck’s is the sum total of the customer’s experience. Shultz shaped one of the most amazing stories in marketing history based on that idea – that definition of a brand.

The Starbucks brand definition includes one of the most generous employee benefits plans around. It was the first company to offer liberal healthcare benefits to employees working less than half time.

The Starbucks brand definition includes its intentional efforts to save small family farms and improve the quality of life of people in agricultural villages around the world. It enters into multi-year fixed price contracts with coffee bean growers, thus relieving them of gut-wrenching angst over volatile commodity markets. In exchange for price stability, growers contractually commit to devoting as much as 10% of their revenues to help meet such local community needs as schools, healthcare and housing.

The Starbucks brand definition includes its humanistic devotion to needs of people in every core stakeholder group. It informs employees of a higher purpose to thier efforts, thereby engendering an infectious niceness that makes a customer's day perhaps a little brighter.

And, not least of all, Starbucks brand definition does include the sensuous qualia of the product, to be sure, but also the ambiance of the stores in which people buy and imbibe the product. Nothing in what you see in a Starbucks is just incidental. Everything within the compass of the human eye and ear is deliberately where it is in the manner that it is.

Skilled observers study customers' behavior in the store from the time they enter until their last step out the door. They study body language responses to the environment and seek ways to accommodate customers' natural ambulatory and sensual rhythms rather than trying to conform customer behavior to some designer's concept of how customers should behave.

Shultz’s famous leaked email was about his deep concern that Starbucks management had lost connection with the brand’s personality. In the interest of revenue growth, additions were made to the list of products to be sold that bore no relationship to the brand’s essence. For example, breakfast foods were introduced that diminished the warm, comforting aroma of freshly brewed coffee. Now, as of April 1, breakfast eats will be eliminated from Starbucks shelves.

Shultz wisely knows that a brand’s essence cannot be copied. There is not enough money in the entire world sufficient for turning a Pepsi into a Coca-Cola. Now that Dunkin’ Donuts and McDonald’s are nipping at the weakened Starbucks heals, Shultz wants to take Starbucks back to its spiritual roots as an extraordinarily sensuous coffee-based delight in a setting where people come to meet for social and business reasons – the third place, in Shultz’s words. Neither Dunkin' Donuts nor McDonald's can copy Starbucks' expression of this idea.

I believe that despite some probable short-term disruptions in revenue patterns that Wall Street won’t like, Shultz’s strategy for dealing with McDonald’s and Dunkin’ Donuts as well as thousands of long tail competitors across the land is a correct strategy that will in the long run pay off for everyone – investors included.

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Comments

[Geoff Dillon]

I like your observation - "There must be nearly as many definitions of what a brand is as there are people who offer one."

So true.

And yes, I tend to agree that a brand is the sum total of the customer experience.

What I find interesting is that so many companies fail to realize that their brand is actually their number 1 asset. As you noted in the case of Starbucks, it always seems to be the first thing a company is willing to tinker with to drive short term revenue when pressure from the street or shareholders mounts.

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