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The Barista Principle

Strategy+Business has an extensive article on the rise of Starbucks titled "The Barista Principle." It puts in perspective the scope of what Starbucks has achieved:

At a time of rising perceptions of parity across most product and service categories throughout the developed world, Starbucks had managed to take one of the world's oldest commodities and turn it into a differentiated, lasting, value-laden brand. Moreover, the company had done this without relying on some of brand marketing's most venerable tools, including an extensive advertising and promotions budget. Over a 20-year period, Starbucks spent approximately $20 million total on advertising, an average of $1 million per year; in contrast, according to a 2001 Business Week analysis of the top 100 brands, Proctor & Gamble Company's Pampers brand -- which ranked 92, four places below Starbucks, on the list -- spends $30 million annually on advertising.
The obvious question to ask is how they pulled this off. The authors propose their own answer:
How did a small Seattle company turn itself into a global synonym for java and joe? The answer, we believe, lies with an ingredient as central to Starbucks's business as the premium coffee beans it roasts: Relationships. "Starbucks starts and ends with core values [and] the core values emanate from and around relationships with people," says Anne McGonigle, the company's vice president for special projects...

Keeping the customer's desires and expectations firmly in mind is a tactic characteristic of successful companies, our research found. More than two-thirds of the top-quartile firms we surveyed devote primary organizational focus to meeting customer expectations and extending long-term customer relationships. This is a much higher percentage than we found among bottom-quartile companies, which are far more focused on cutting costs and shedding underperforming assets.

The article is a good one, and is recommended, but I think the authors missed both positives and negatives.

On the positive side, Starbucks has done a brilliant job of creating its own language. Tall, grande, and venti have replaced small, medium, and large. Not everyone is happy with this, but in creating its own trademarked ordering system, Starbucks builds customer loyalty. If the competing coffee house uses different terminology that that to which you're accustomed, it's one more reason not to go there.

On the negative side, I think the authors give Starbucks a pass on their licensing deals. They write:

On the surface, there is, as [Starbucks founder Howard] Schultz noted in his book, an "inherent contradiction" between the company's close control of the Starbucks retail store experience and the licensing of the brand. Compromised quality is always a risk.

The company's solution is to carefully select partners based on their reputation and commitment to quality, and to gauge their willingness to train their employees the Starbucks way.

Sure they do. Have you ordered Starbucks coffee at an airport location recently? Starbucks' airport stores are operated by HMS Host, the largest airport concessionaire in the US, and it shows. Peter King, the best writer on American football working today, regularly writes brief notes about his Starbucks experiences in his weekly "Monday Morning Quarterback" columns. Over the last few seasons, his comments have consistently become more and more negative. Consider this from his 18 December 2000 column:

I am sick of the inconsistency of Starbucks. You pay $3.65 for a grande hazelnut latte and you'd expect the same quality from drink to drink. You get a wide disparity. A couple more bad ones, and I'm going to throw open my office window and yell: "I'm mad as hell and I'm not gonna take it anymore!"
I've seen the same sort of thing at O'Hare more times than I care to mention -- so much so that I've given up on airport-based Starbucks locations.

In the end, Starbucks has done gotten right vastly more things than they have gotten wrong. For much of the world, they have de-commoditized a basic staple, which is an amazing achievement in and of itself. That they have done so while spending only $1 million per year on advertising is nothing short of spectacular.

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