2.1 Overview
The Starbucks brand has become one of the most famous as well as most love brand in the world in any industry. It had literally moved beyond the walls of its existing stores, offices as well as roasting and production plants (Knapp, 1999). Progressively more, people all over the place come into contact with, experience or at least have heard about the brand of Starbucks. It has easily become the brand success story during the 1990s (Knapp, 1999). The company had renewed quest for quality coffee by offering fresh coffee that is different from the idea of canned coffee like the General Foods, Procter & Gamble, Nestlé and Jacobs (Pendergrast, 1999). In accordance to the main focus of this study i.e. Starbucks’ brand equity and its impact to brand loyalty towards consumer behavior, this chapter discusses related issues concerning consumer behavior, branding and strategic practices of Starbucks. Aside from this, the information concerning the background of the company was included as well.
2.2 Background of the Company
In 1971, the first Starbucks was opened. The brand name was from the classic of Herman Melville, Moby Dick that tackles about the whaling industry during the 19th century. The reason the owner chose the said name is due to the fact that the seafaring name is appropriate for the store that imports the world’s finest coffees for the cold as well as thirsty people of Seattle (Starbucks History, 2010). It was owned and being managed by three friends named Jerry Baldwin, Zev Siegl and Gordon Bowker that shares the same passion about coffee. The said business started by selling fresh-roasted gourmet coffee beans and brewing and roasting accessories (Garza, 2010).
In 1982, Howard Schultz had joined Starbucks. He visited Milan in order to observe to the different espresso bars and applied it to the company. The said ideas of Schultz had helped the company to become one of the most well known coffee bars in Seattle, making them coffee-crazy (Starbucks History, 2010). Schultz had applied the idea of community gathering places that is like the coffee houses in the Italy in the US (Garza, 2010). In 1983, he recreated the vision of the company by selling espresso by the cup (Garza, 2010). But the owner of the company did not use the idea of Schultz to the fullest due to budget constraints and lack of trust to their product that is why Schultz established and opened his own coffee house that was named after the largest newspaper in Italy, the Il Giornale or The Daily. The said store had been a big hit, serving 700 customers a day and selling 300% more than that of the Starbucks locations (Garza, 2010).
Maybe it is really Schulz destiny to become part of the Starbucks, because in 1987, the owners of the Starbucks Coffee Company had decided to sell their business, together with the name for $3.7 million, and eventually, Schultz had brought it with the help of his investors. The logo of the company had also changed from the bare-breasted mermaid to a more acceptable, in addition to that the company name had been changed from Il Giornale to Starbucks, and finally, changed the existing six roasting shop of Starbucks into a more stylish and relaxed coffee house (Garza, 2010).
All in all, in 1990’s the company had expanded by going beyond Seattle and eventually throughout the US. During the said decade, the company had become the first companies to offer stock options to its part-time employees and had become a publicly traded company (Starbucks Corporation, 2008).
As if today, the company is considered as the America’s leading brand in terms of retailing and roasting of coffees. The said company had also become the icon of success during the 1990s and there have been more than 8 million of people who are visiting Starbucks locations each week (Knapp 1999). It had evolved into a brand empire from 1988’s 100 workers and 11 stores up to more than 3,000 stores and 40,000 employees (Haig, 2004)
2.3 Starbucks’ Branding and Consumer Buying Behaviour
Understanding the behaviours of the consumers shall move along with the understanding of their expectations and needs and their purchasing trend. Several internal and external factors impact the consumer buying decision, making the consumer buying process multifaceted (Lamb, McDaniel & Hair, 2008, p. 146). As such, the factors that influence the purchasing decision of Hong Kong people is manifested in various stages of consumer buying behaviour and the type of buying behaviour Hong Kong people conform into. Like any other commodity, the purchase of coffee also depends with several influences and factors that affect the consumption behaviour (Pride et al, 2008, p. 429 and Stockford, 2008).
Daviron & Ponte (2005, p. 75) noted that coffee consumption tends to increase as income rises and for this reason the coffee is considered mature due to the low level of growth of consumption. Also, the price elasticity of coffee consumption is also low with coffee demand that varies significantly only at times of large variation in the prices of coffee. Although the growth of world coffee consumption by volume has slowed down compared to other commodities, dynamic markets such as China and South East Asian countries are continuously growing especially in countries that are traditionally tea-drinkers.
In the case of Starbucks Coffee, the consumer behavior was mostly encouraged because of its excellent brand and branding strategy. Actually, a brand according to Goodyear, (1996) is a name, term, sign, symbol or design or a combination of theory intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. Brand identifies the seller or maker. A brand is essentially a seller's promise to deliver a specific set of features, benefit and services consistent to the buyers. Goodyear (1996) suggested six stages of brand concepts and images. According to Goodyear, brand passes through certain stages:
Stage I: as unbranded goods
Stage 2: as Brand as reference
Stage 3: Brand as personality
Stage 4: Brand as Icon
Stage 5: Brand as company
Stage 6: Brand as policy
On the other hand, Kotler (2003) stated that brand convey up to six levels of meaning such as
· Attributing - Suggest features of the product or brand
· Benefit - Function & emotional benefit i.e. durable and expensive
· Values - High performance, safety, security, efficient service
· Culture - European hospitality
· Personality - no nonsense boss, a home
· User - family living
With this and in accordance to the case of Starbucks Coffee, it was identified that brand and branding strategies of a certain organisation play significant role in the buying behaviour of it consumers. As seen in the studies made by Anurit et al (1999), Fullerton (2005) and Stern (2000) it seems that the context of buyer behaviour as research topics becomes well-known in the diverse fields of consumer science in recent years. Actually, buyer behaviour as indicated in the paper of Schiffman & Kanuk (2004, p.8), buyer behaviour was defined as a behaviour or activities that a buyer engage in when choosing, buying, and using or consuming products and services so as to satisfy their needs and desires. Basically, these activities involve emotional and mental processes, aside from physical actions.
As stated in the paper of Mullen & Johnson (1990 p.16), the value of buyer behaviour is deeply rooted in the marketing strategy. All decisions concerned in creating an effective marketing mix for a product or service depends on thorough knowledge of the consumers/buyers who encompass the target market. Determining the buyer behaviour can actually help business administrators foresee responses to changes in the marketing mix, or verify whether new products/services are likely to be accepted.
Understanding buyer behaviour is one of the more difficult tasks facing every business owner. The complexity arises from understanding the needs of buyers. But differences despite, buyers do share opinions, attitudes, desires and reactions at different times.
As defined by Wilkie (1994), buyer behaviour is “the activities that people engage in when selecting, purchasing, and using products and services so as to satisfy needs and desires” (14). Wilkie (1994) also added that: “…such activities involve mental and emotional processes, in addition to physical actions” (p. 14). In common standpoint, buyer behaviour studies individual(s), group(s) or organization(s) in accordance to the behaviour in buying, using and disposing of products and services which are usually accounted to their decision processes. As seen in the papers of Anurit et al (1999), Fullerton (2005) and Stern (2000) which are all about buyer behaviours, it shows investigations of buyers' actions, as well as the motives for those behaviours. In order to completely comprehend the wide field of consumer behaviour, Wilkie (1994) acknowledged its microscopic and macroscopic viewpoints. Buyer behaviour in a macro level perspective classifies business administrators to gaze for demographic changes as well as the buyer’s beliefs, values and practices which involve their relations with the economic market. For the time being, the micro level perspective indicates buyer behaviour concentrated on human behaviour and the stimulus underlying these behaviours.
2.3.1 Advertising
Owing to needs, consumers face tension states and advertising play significant role. When they are cognizant of the advertised products and services capable of satisfying their needs, then they have wants. Buyers try to assess the expected outcomes of product purchases, including risks. Cues and drives are stimuli for purchase actions. When a purchase decision is made the product may prove satisfactory, in which case a problem is solved. On the other hand, the product may not prove to be satisfactory, or the decision may be made not to purchase, in which case no solution has been reached and the need is unsatisfied. The successful completion of the cycle that moves from needs to drives to wants to purchases and finally, perhaps, to need satisfaction, involves both behaviour necessary to make the purchase instrumental behaviour and consumption behaviour.
As illustrated in the paper of Wyatt (1999), advertising is along with the external factors that engage in the buying experience of people. The person’s daily exposure to all the diverse kinds of media makes it available and suitable for them to be familiar with the existence of the newest or hottest product/service in the marketplace. With the aid of advertisement, buyers are engaged in buying experience. As a part of their buyer behaviour encouragement, there are internal measurements that are going on within the restrictions of the human nature. In the study of Kim et al (2002), the behaviour of buyers in relation to the medium shows expressive development (p. 481). They argued that the essentials of advertising and the manner of presentation significantly affect the concept and emotions, culture and other human features of a certain setting. Aside from this, advertising gives to the progress of changes in association to the active behaviour and uniqueness of the buyer.
The efficiency of the advertisement to be utilised can be measured by the level of accomplishment being reached in beating the desired goal to create changes on the buyers’ attitudes and behaviours after the experience to the advertisement. Presentation of these changes are noticed by the buyer’s heightened awareness to the services or products, profitability and increase in sales, target market base growth, and encouraging feedbacks from the buyers and public agreement increase with the advertisement significance. In addition, the materialization of globalization and digital age in most business industries in the world created way to the advance improvements of all the facets related to management and marketing techniques like advertising for buyers. In spite of the extraordinary disadvantages of such when being used, every company and management should manage and rule the best and beneficial ways presented. Thus every decision to accomplish by any business organisation must be directed to the benefit of the entire industry. With the accurate approach and planned strategies, market dominance, competitive edge, eventual growth and success are not actually far at hand.
2.3.2 Branding
Factors other than economic ones are significant determinants of buyer behaviour. Certainly, less than optimal economic decisions are often made by buyers. These may result from incomplete information, lack of insights, and imperfect knowledge of the consequences of various actions, as well as from psychological and sociological forces. Behavioural scientists, in assessing consumer behaviour, have been greatly interested in the role of habit, impulse, and drives in buyer selections and decision making. There are many situations in which each consumer choice does not involve a new decision process but becomes rather habitual. Reliance on habit is especially evident in many purchases of convenience products. Here the expectations are based on past experience and learning, and circumvent the decision process. However, in situations involving important decisions, where there is less experience available, buyers will go through a more intensive process of information gathering and decision making. Where incentives are strong enough and the expectations are high or great, the buyer does not act habitually and is willing to put some effort into solving his consumption problems. As shown in the paper of Laforet, & Saunders (2005), there are so much focus with regards to the importance of brand management in an progressively scrappy media market and the incredible force of the Internet on conventional media such as those in business firms in order to create significant impact to buyer behaviour. Fundamentally, the substantial internet growth and broadband distribution systems continuous development of its have altered the competition rules in many media industries that were previously being distorted by the influx of more competitors, for instance multi-channel video programmers, and the beginning of new technologies, like the digital television.
Many scholars such as Close, Finney, Lacey, & Sneath, (2006); Chan-Olmsted, (2002); and Asher, (1997) have shown far-reaching lists of the tactical value of the Internet. These scholars argued that the Internet permits a business to way in global markets, decreases marketing costs, offers mass customisation, makes strong business associations with a better channel coordination degree, proffers keen communication with various publics to recover corporate image, expands business intelligence, and progresses customer communication and service. Furthermore, the Internet value appears to respite largely on its potentials to perform communication and marketing purposes better than conventional media and marketing systems.
Customarily, business organisations have been extremely product-focused, with less focus on brand uniqueness. For business organisations, different line of products and services, marketing commotion was frequently extend across, with little consideration specified to creating a merging or lasting distinctiveness in the minds of buyers. As stated previously, a number of leading business marketers have begun to reassess the significance of branding in business and business markets with regards to buyer behaviour. Simultaneously, they have predicted the vital link that must be sustained between the business branding strategy and its total strategies. Regularly this has directed to restating the association among divisional, corporate and product-level brands. Such transformations have imperative allusions for the tasks and errands of those who are charged with management of brand identity (Asher, 1997).
In the 2002 study A Question about Brands, one of the most important characteristics that distinguished best-practice organisations from sponsors was the amount to which the partners had articulated a concise, clear and convincing statement of the brand’s necessary value scheme or promise.
A key test facing branding organisations is how to plan a dependable, logical, and convincing brand uniqueness using an increasing list of offline and online transmission tools. Different business organisations are faced with synchronizing brand meaning across diverse communication purposes and spots (public relations, advertising, sales literature, trade exhibits, online attempts, etc.) and should guarantee that messages from diverse stages and divisions depict the brand suitably and constantly (Asher, 1997). Progressively, intelligent marketers are not halting at communicating the brand’s attributes and values only to prospects and buyers. Somewhat, they distinguish the significance of internal brand communication in buyer behaviour.
2.4 Starbucks’ Strategies
2.4.1 Il Giornale Acquisition of Starbucks
One of the primary and most important strategies that had been made by the Starbucks is the Li Giornale acquisition of Starbucks. The said acquisition had been the most important strategies that had been decided and made by Schultz. The said acquisition had helped the Il Giornale to gain the name as well as the stores and different processes of the Starbucks, which Schultz believe that has a great future in terms of coffee and restaurant business. It had helped them to enter the two categories of the industries which is the coffee house and the roaster or the maker of the coffee. It is also a great factor for the Il Giornale due to the fact that the Starbucks had already build an impression and positive image to their customers by offering quality coffee and information about it. The experience and knowledge of the employees are also important matter. This is due to the fact that those baristas had already create certain connection between the coffee and the customers, thus it can affect to the sales and overall performance of the company.
Due to the endeavor and effort of Schultz, he had been able to combine the operations and processes of Starbucks and Il Giornale and re-branded everything back to Starbucks in order to recreate the brand into something better (Starbucks History, 2010).
2.4.2 Franchising
Franchising is one of the strategies that the company did not use or practice. This is even franchising is one of the most used strategies in order to expand the sales and the size of the company. Starbucks doesn’t franchise, at least not in the traditional sense. The company retains the total control over their growth and look for logical, appropriate partners with whom to attract new customers. In the book, Pour Your Heart Into It of Schultz, he stated that franchising is almost a forbidden word at the company. The reason behind the said action is that they considered franchisees as middlemen who would stand between the company and the customers. Thus, the company chosen to prepare all of their workers on their own as well as function on their own stores in order to make sure that each and every cup of coffee that they are going to sell to the customers is the real thing (cited in Knapp 1996). In general, the primary reason of the company in prohibiting franchising in their system is due to the quality control. The company believes that if they have the full control over their stores in each and every location, they will be able to maintain the quality of their products, therefore maintaining the image of their company.
Another important factor that is connected to the said reason is the introduction of the Starbucks Coffee to the United Airlines in 1998, on the domestic flights, together with the Ben & Jerry’s Ice Cream and the Eli’s Cheesecake. The airline had used said brands in order to redefine its dining experience. On the other hand, the said partnership had not become successful in the long run, because the customers are complaining about the quality of the airline version of all of the said products. The most important part is that, customers are complaining about the quality of the Starbucks Coffee, due to the fact that the coffee that is being offered in the airline is nothing compared to the real coffee of the Starbucks (Parasa & Kwansa 2002).
2.4.3 Being Everywhere Approach
Starbucks is most likely best recognized for not following the traditional retail wisdom. It frequently breaks the retail law about placing stores so closely that they steal parts of each other’s sales. For instance, in Chicago, the company has its over 100 shops, and many of them are positioned in the same street. Marshall Fields even has two branches in the same store; the first one is placed in the lower level, whereas the other is situated on the first floor (Guffey 2006).
The said strategy of the company is called the Being Everywhere Approach. The said approach had become an advantage to the part of the company due to the fact that grouped storefronts of the company has acted as a billboard, that eventually helped the company to save cost or money for advertisements. In general, the huge number of the company’s store can create image awareness to the part of the customers (Guffey, 2006).
2.4.4 Listening to the Voice of Customers
At first, this strategy was one of those strategies that were not implemented by the company. This is due to the fact that the management believes that their opinion is what matters most. With connection to the said aspect, Starbucks was not used in offering skim or not fat milk, because the Schultz believe that its combination with their coffee was not that good. That is why the company, primarily Schultz stands in their decision not to offer the said type of coffee in their menu. Fortunately, Schultz had observed one customer who gone to another store when he found out that they are not offering the non-fat milk with their coffee. The said event had served as an eye opener for Schultz to follow the demand of the customers in order to meet their tastes and preferences, therefore helping the company to be patronized by their customers.
2.5 International Expansion
Store expansion is one of the most used strategies of the company. In just one year, from 1992 to 1993, the company had been able to develop its three-year geographic expansion plan. The said plan caters to the different favorable location in different part of the US. The company targeted different metropolitan cities in the said country. The growth of the company had grown in steady manner and in 2002; the new stores of the company had been able to gain revenue of $1.2 million that is far from 1990’s $427,000 and 1995’s $700,000. The said growth of the company was the result of the growing popularity of the coffee that the store is offering.
In order to handle their strategy of international expansion, the company had set their Starbucks Coffee International. The said subsidiary was done in order to coordinate or arrange the different overseas expansion and eventually start to build the brand image of Starbucks globally, with the use of license. The target of the company was to build 10,000 stores in 60 different countries. The company had also entered in Paris, France in 2004 (Boone & Kurtz, 2006)
As the result of the said strategy, the company had already established their 280 soverseas store in 1999 and a total of 1,200 in 2006. The company is already operating in different places such as: Zurich, Vienna, Jakarta, Berlin, Middle East, Mexico, Greece and Puerto Rico (Boone & Kurtz, 2006). The company is also operating in Germany, Japan, Switzerland, Spain, Central and South America, Indonesia, Austria and Philippines (Spector, 2005). It also helped the company to increase its value in more than 2,200% during the last decade (Boone & Kurtz, 2006).
2.6 Store Design and Ambiance
In 1991, the company had decided to have their very own team of architects and designers that will cater to the store design of the company in every part of the world. The primary role of the team is to make sure that each store conveys the right image as well as character. The company did not set their architectural standard that is why different stores have their different size. In 1995, the company had established their theme of a store of a future. The design of the store of the company focuses on four stages of the growth of the coffee in order to maintain the main characteristics of their products.
Another aspect that was done by the company is the processes and rules that they are implementing inside the store. They had prohibited their customers and partners to smoke, and partners to wear perfume while inside the store in order to maintain the aroma of the coffee. They are also covering the other food that they offering in order to maintain the aroma of coffee.
The primary reason of the company in doing the said strategy is to make their place comfortable and relaxing that will help the customer to unwind, therefore, motivating and inspiring them to go back to the store.
2.7 Starbucks Card
The company wants the convenience of their customers that’s why they offer the Starbucks Card. It is an electronic debit card that lets the customer to buy online or in retail store, minus the hassle of cash and plastics (Boone & Kurtz 2006). It also offers the customers some handy gifts from the company for their loyalty. Another advantage of the card is that it facilitates the customers to track their purchase histories at the store. The said card comes with fixed spending amounts that the consumer can add as much as they want with the use of the Internet, phone and even in the company’s stores (Prahalad 2004).
In addition to the said strategy, the company had also added the Duetto Visa Card in 2003. It is the first prepaid cash card in order to double as a charge card. The said card was the product between the partnership of the company, Bank One as well as the Visa USA. It is a combination of prepaid debit card with the Visa charge card, which that customer can use in order to purchase at the Starbucks. For every dollar that the Visa card charges, the cardholder will earn a point in their account in the Starbucks, and called as the Duetto Dollars. The accumulated Duetto Dollars can be exchanged for different products of Starbucks. In addition to that, customers are also given the option to give the Duetto Dollar to charity. In general, there are about 20% of the sales of the company, who uses the card (Spector 2005).
2.8 Competitive Advantage
One of the important competitive advantages of the company is their brand name. The brand name of the company had already established a semi-cult that drives their customers to go back to their stores. The evidence of the said ability of the company are those customers who are patronizing their different products that are considered as one of the extended product line such as the mugs, t-shirts, CDs and the likes. Another thing is that, the supply chain of the company is properly managed from the suppliers who can be considered as loyal to the company due to the continuous effort of the company to them, the employees who are receiving many benefits and other related aspects from the company, as well as the customers who are satisfied with the product as well as the service of the company.
Another important characteristic of the company is their marketing strategy. The company is one of the companies who are not spending that much in their advertisement and related aspect, because the company is using the power-of-mouth as their primary marketing strategy.
Another important aspect of the company is their Corporate Social Responsibility. Corporate social responsibility is also considered as competitive advantage nowadays due to its impact and appeal to the possible market or customers. The CSR of the company didn’t only focus on the external community and organizations but mainly focus on the important entity in their supply chain, primarily, their employees and suppliers. The strong connectivity of the supply chain is an important factor due to the fact that each and every entities and processes that are involved in it are important in the overall performance of the company as well as it will affect the final output of the company.
Innovation is another important competitive advantage of the company, their ability to offer something new to their customers is one of the strategies in order to maintain the interest of the customers and make them excited for the coming new product in the menu.
2.9 Strategic Concerns
The primary focus of the company with regards to their strong relationship strategy with their suppliers and employees is to offer their customers with high quality coffee and other products, together with the good service from their employees.
Global expansion or domination of the company in the global coffee industry in the world is another important aspect of the strategic concern. Global expansion will help the company to gain more sales as well as it will help to improve and increase the size of the company. By doing the said strategy, the company will be able to serve more customers that will be helped by their high-quality coffee.
With the connection to the corporate social responsibility of the company, with the continuous expansion of the company, globally and locally, they will be able to help many unemployed individual to work for them and gain skills, knowledge as well as money that can help them to support their daily living. They will also be able to continue their support to the global communities that are suffering from poverty and other calamities with the help of their partners and their customers.
The company is also focusing on extending their product line that will also help them to increase their sales as well use it as part of their marketing strategy that will serve as vital leaflets and will support the power-of-mouth. They are also focusing on targeting new market by offering different product such as the frapuccino that was the result of the partnership between the company and the PepsiCo.
The use of the Internet is another of the strategy of the company in order to get connected to their customers even away, physically at their stores. With the use of the Internet, their Starbucks card, as well as the launching of the Starbucks website that offers the store locator, the primary reason or factor that had affected their strategy is to offer their customers the convenience. The company mainly focuses on what the customer needs and wants.
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