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CEO Insider

How Starbucks Changed the Brand Game to Dominate the Coffee Market

For over 3,000 years, starting with the ancient Greeks, virtually all businesses have been competing the same way: by “branding.” They create and differentiate their brand from rivals with lots of advertising and promotions. Many business professionals believe that branding is the only and best way to compete.

That’s a myth. Branding is neither the only nor the best way to compete. The world’s leading companies like Amazon, Apple, and Tesla and emerging players like Peloton, Halo Top, and Seedlip have a secret formula for success. These and other “Transcender” companies do not play the traditional brand game that every other company plays; they create their own game, rise above their rivals, and force competitors to play by their rules.

Starbucks is the archetype for this approach. Starbucks became the dominant coffee chain in the world not by branding, but by changing the game. By tapping into the same strategy—which I’ll share with you here, by showing you exactly what Starbucks did and why it was so successful—your company can become the dominant force in your industry.

The Creation of a New Space

During its initial 16 years, Starbucks tried to win by playing the brand game. Co-founders Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in Seattle’s historic Pike Place Market in 1971. The founders tried to differentiate the brand based on its high-quality roasted coffee beans and brews. But the coffee chain was not winning. It was only adding one store per year.

In 1987, Howard Shultz bought the company and immediately changed Starbucks’ branded coffee game to “The Third Place” between home and work in America. The goal was to become the place where people would stop and linger on the way to work or stop and linger at Starbucks on the way home—every single day.

Starbucks has built an empire on the strength of “competitive creation,” which simply refers to creating a totally new market space. Starbucks became the dominant coffee chain in the world by literally—and figuratively—creating a new space between home and work. In short, Starbucks changed the game from coffee to the coffee shop. It competes as the place to go, relax, enjoy time with friends or take time for yourself. It wants to be the place everyone wants to spend time in daily, no matter who they are or where they live.

As one Starbucks’ store manager described it, “We want to provide all the comforts of your home and office. You can sit in a nice chair, talk on your phone, look out the window, surf the web…oh, and drink coffee too.” Notice that she mentioned “drink coffee” last. In essence, traditional coffee shops want their customers to “grab a cup of coffee.” Starbucks wants its customers to grab a comfortable chair.

Agenda Alignment is Key

Starbucks’ “agenda” or game is “The Third Place between home and work in America.” But it’s not enough to just say that. Their product positioning—in this case, their stores—needs to represent that agenda, that so-called Third Place.

Starbucks maintains its dominance because it aligns all its strategies, actions, activities, and measures to push that overarching agenda. For example, their stores—all 31,000 of them, spread across 80 countries—are strategically placed in heavily frequented corporate and suburban areas. It is not unusual to see two Starbucks on opposite sides of a highway—one for on the way to work, one for on the way home.

Along with convenient locations, Starbucks also designs its stores to be welcoming, warm hangouts with comfortable chairs and couches, hospitable baristas, free Wi-Fi, a selective music playlist, and a stress-free, casual vibe. Their stores are intentionally larger than other coffee shops, as well, so that people have plenty of space to spread out and do their work or hang out with friends, clients, or colleagues.

And it keeps going. Starbucks leverages artificial intelligence and many other cutting-edge technologies to personalize and enhance “The Third Place Experience” in the front and back of the store. Starbucks uses machine learning to anticipate customers’ preferences whether they are in-store, in their car, or on their Starbucks app. Why? Because to continually deliver on their core agenda, they seek to provide a transcendent store experience.

Transcend the Competition

Starbucks didn’t achieve its success by following the traditional brand/marketing game. For example, the company does not leverage brand advertising nearly as much as its rivals. Its primary competitor Dunkin’ Donuts typically spends twice as much in the US on advertising as Starbucks, yet Starbucks typically generates three times the coffee sales.

When McDonald’s and other rivals attacked Starbucks in 2008 using traditional advertisements targeting its premium, high-priced coffees, Starbucks’ Chief Marketing Officer Terry Davenport told analysts, “We are not going to get sucked into the ‘My coffee is better than your coffee’ price point conversation. We are going to play at a much higher level. We’re going to keep doing what we do, and we’re going to keep doing it our way.”

In other words, by refusing to play the conventional coffee brand game, and instead focusing solely on playing their own game, Starbucks transcended its competitors and catapulted to the top of the coffee industry. For 20 years after changing the game, Starbucks went from adding one store per year to nearly four stores per day.

In my consulting engagements, I have seen many times that when companies switch from a traditional brand game to a Transcender agenda game, they often experience a quantum leap in their competitive measures, including huge increases in sales, market share, or—in this case—number of coffee shops. And the good news is, when your business creates and plays it own game and aligns its organization to it, chances are high your company can enjoy similar success.

The following is adapted from the new book Brands Don’t Win by Stan Bernard. For more advice on how to transcend your competition (no matter what industry you’re in), you can find Brands Don’t Win on Amazon.

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CEOWORLD magazine - Latest - CEO Insider - How Starbucks Changed the Brand Game to Dominate the Coffee Market
Stan Bernard
Stan Bernard, MD, MBA, is an internationally recognized, award-winning global competition consultant, keynote speaker, and published author. He is the president of Bernard Associates, LLC, and the creator of the Transcender System. A former senior fellow at the Wharton School of Business, Dr. Bernard has been a consultant to leading businesses around the world for nearly four decades, working with more than 150 companies across six continents.

Stan Bernard is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn. For more information, visit the author’s website.