Reference no: EM133378419

"Chapter Preview

After examining customer value-driven marketing strategy, we now take a deeper look at the marketing mix: the tactical tools that marketers use to implement their strategies, engage customers, and deliver superior customer value. In this and the next chapter, we study how companies develop and manage products, services, and brands. Then, in the chapters that follow, we look at pricing, distribution, and marketing communication tools. The product and brand are usually the first and most basic marketing consideration. We start with a seemingly simple question: What is a product? As it turns out, the answer is not so simple.

To dig a little deeper into the question of "What is a product?," we begin by looking at Starbucks, the world's leading coffee brewer and one of the planet's best-known brands. Starbucks makes and sells good premium coffee products. But to its customers, the Starbucks "product" is much, much more than that. Starbucks's enormous success results from engaging customers and creating value for them throughout the entire coffee-drinking experience. At its core, Starbucks doesn't sell just coffee, it sells the "Starbucks Experience."

STARBUCKS: Delivering the "Starbucks Experience"

More than 30 years ago, Howard Schultz began transforming the coffee industry by bringing a European-style coffeehouse to America. He believed that people needed to slow down-to "smell the coffee" and to enjoy life a little more. The result was Starbucks, a retail coffee chain designed around a whole new strategy for engaging customers and creating customer value.

Starbucks didn't sell just coffee, it sold the "Starbucks Experience"-"an uplifting experience that enriches people's lives one moment, one human being, one extraordinary cup of coffee at a time." Starbucks gave customers what it calls a "third place"-a place away from home and away from work. At Starbucks, the smells, the sound of beans grinding, and watching baristas blend and brew the brand's specialty coffees all became as much or more a part of the customer experience as the coffee itself.

Over the next two decades, customers flocked to Starbucks cafés and the company's sales and profits rose like steam off a mug of hot java. However, Starbucks's enormous success drew a host of competitors. It seemed that every rival-from independent coffeehouses to fast-food restaurants-was peddling its own brand of premium coffee.

To maintain its phenomenal growth in the increasingly overcaffeinated marketplace, Starbucks brewed up an ambitious growth strategy. It opened new stores at a breakneck pace, seemingly everywhere. For example, one three-block stretch in Chicago contained six of the trendy coffee bars. In New York City, there were two Starbucks in one Macy's store. In fact, cramming so many stores so close together caused one satirical publication to run this headline: "A New Starbucks Opens in the Restroom of Existing Starbucks." The company also blanketed the country with Starbucks kiosks and coffee stands in everything from Target stores and supermarkets to hotel lobbies. And service businesses from airlines to car dealerships proclaimed: "We proudly serve Starbucks coffee."

The more Starbucks grew, however, the more it drifted away from the core mission and values that had made the brand so successful. The company's almost obsessive focus on growth for growth's sake began to take a toll on the prized Starbucks Experience. Far from its roots as a warm and intimate coffeehouse, Starbucks began to evolve into more of a caffeine filling station. More and more, the premium brand found itself competing with the likes of-gasp!-McDonald's for many of the same customers.

Founder Howard Schultz, who had stepped down as CEO in 2000, expressed concern. In a 2007 memo to Starbucks management, Schultz lamented that the company's push for growth had "led to the watering down of the Starbucks Experience" and that Starbucks was "losing its soul." Schultz was right that something was wrong. By early 2008, when Schultz reassumed his role as Starbucks president and CEO, the company found itself in hot water. For the first time ever, the average number of transactions per U.S. store declined, and same-store sales growth slowed. Within just the previous two years, Starbucks's stock had tumbled nearly 80 percent. According to one analyst, "The financial vultures circled. Obituaries were drafted."

Instead of presiding over the brand's demise, however, Schultz reacted quickly to restore its luster. He cooled the pace of Starbucks's growth, closed underperforming locations, and replaced most of the company's top executives. Most important, Schultz laid plans to refocus the company on giving customers the authentic Starbucks Experience. "As we grew rapidly and had phenomenal success," Shultz announced, "we started to lose sight of our focus on the customer and our commitment to continually and creatively enhance the Starbucks Experience." Starbucks needed to shift its focus back to customers-to "reignite the [brand's] emotional attachment with customers."

To emphasize the point, at a cost of $30 million, Schultz transported 10,000 Starbucks store managers to New Orleans for a morale-building reorientation. A short time later, Starbucks dramatically closed all of its U.S. locations for three hours to conduct nationwide employee training on the basics of producing satisfying customer experiences.

More than just coffee, Starbucks sells the "Starbucks Experience," one that enriches people's lives one moment, one human being, one extraordinary cup of coffee at a time."

Andrew Aitchison/Alamy Stock Photo

The iconic Starbucks brand is about a lot more than just making good coffee. At its core, Starbucks doesn't sell just coffee. It sells the Starbucks Experience. "Life happens over coffee."

Those early actions began a process of continual renewal by which Starbucks has reignited the Starbucks customer experience through new products, innovative store formats, and new platforms for engaging customers. Beyond improving its signature coffee products, Starbucks developed new products that take the Starbucks Experience into new areas. For example, it developed or acquired various beverage brands that it sells throughout the Starbucks chain, including Teavana (bottled craft iced teas), Evolution Fresh (cold-pressed fruit and vegetable juices), and Starbucks Refreshers (lightly caffeinated real fruit juice beverages). The chain also broadened its premium food options. It now offers everything from hot breakfast entrees to sandwiches and paninis, protein boxes and bowls, and yogurts and fruits.

The company is also rolling out new store formats, such as the high-end Starbucks Reserve Roasteries-part café, part shrine, and part working roaster. Think of it as the Starbucks Experience on steroids. "We designed the Roastery as the pinnacle experience around all-things-coffee, and there is nothing else like it in the world," says Kevin Johnson, Starbucks's current CEO. The ultimate expression of the Starbucks Experience, these flagship stores are rolling out slowly and only in the world's most cosmopolitan cities, including Shanghai, Milan, New York, Tokyo, and Chicago. In other areas, Starbucks has opened 170 Starbucks Reserve Bars, smaller-scale, more intimate roasteries described as "perfect places to pick up Starbucks Reserve whole bean coffee, enjoy a handcrafted Starbucks Reserve beverage, and chat with a barista about all things coffee."

Beyond employee training, new products, and innovative store formats, Starbucks has extended the Starbucks Experience well beyond its stores through digital and mobile platforms. Its highly successful Starbucks Rewards mobile app lets members order ahead, pay, earn rewards, and learn about new products and special offers. Starbucks thinks of its app as "a direct, real-time, personalized, two-way digital relationship with its customers." In China, Starbucks has opened its first virtual store, letting some 670 million active users place orders, receive delivery, and earn rewards through a common app interface.

Today, Starbucks remains devoutly committed to delivering the one-of-a-kind Starbucks Experience, making it one of the world's most iconic and valuable brands. Sales and profits are perking strongly. Every week, 350,000 Starbucks employees extend the Starbucks Experience to 91 million customers in nearly 30,000 stores in 78 countries. In the past four years, Starbucks's customer count and annual revenues have grown by 50 percent, and profits have doubled.

The moral of the Starbucks story: The iconic Starbucks "product" is about a lot more than just making good coffee. It's about engaging customers and consistently delivering the full-blown Starbucks Experience. "It's not just about ringing a register and performing a task," says Schultz, now chairman emeritus at Starbucks. "It's also about creating an emotional, enduring relationship and connection with our ... customers. At our core, we celebrate the interaction between us and our customers through the coffee experience. Life happens over coffee."1

As the Starbucks story shows, in their quest to create customer relationships, marketers must build and manage products and brands that connect with customers. This chapter begins with a deceptively simple question: What is a product? After addressing this question, we look at ways to classify products in consumer and business markets. Then we discuss the important decisions that marketers make regarding individual products, product lines, and product mixes. Next, we examine the characteristics and marketing requirements of a special form of product-services. Finally, we look into the critically important issue of how marketers build and manage product and service brands."

1. How and how deeply do customers relate to the Starbucks brand? If you are a fan of Starbucks, how does their brand experience feel to you?

2. How does this chapter-opening Starbucks story relate to what comes later in the chapter?