Online Extra: Starbucks: Keeping the Brew Hot

The coffee chain took some uncoventional steps to build its brand. As it becomes an international player, the pressure to keep innovating will be intense

When it comes to creating and nurturing a brand, Starbucks consistently rewrites the rules. And its creativity in doing so goes a long way in explaining how the Seattle-based coffee roaster scored the biggest percentage gain among the top 100 global brands as ranked by BusinessWeek and brand consultancy Interbrand Corp. Many brands declined this year as the cooling economy clouded growth prospects in many industries. But the Starbucks brand jumped a stunning 32% to $1.76 billion in value, from $1.33 billion the prior year. It's ranked No. 88 on the list.

As Starbucks Chairman Howard Schultz explains it, the equity of a brand is more about investing in the employees who will embody that brand to consumers, rather than in traditional tools like advertising, promotion, and the like. Imprinting a culture and value system onto employees can spur a passion that, in turn, builds trust and loyalty among customers. "If we want to exceed the trust of our customers, then we first have to build trust with our people," Schultz says. "Brand has to start with the culture and naturally extend to our customers."

EXPERIENCE BEATS ADS. Given that philosophy, conventional advertising has been of no real significance to the growth of the Starbucks brand. Rather, it has been the store experience that has defined the brand. Obviously, that begins with the quality and intense flavor of the coffee. But equally influential are the store design and ambiance as well as the recruitment and training of the "baristas," the counter staff whom Schultz regards as his brand ambassadors.

In the 20 years that Starbucks has grown from 18 retail coffee shops to more than 4,400 today, it has spent maybe $20 million on traditional advertising, Schultz says. What advertising there has been -- primarily outdoor ads on bus shelters and the like -- has tended to feature a picture of the product and focus on simple benefits like refreshment.

Instead of plowing millions into image-building campaigns, Starbucks has chosen to spend its money on employee benefits. Starbucks was one of the first companies to offer part-time employees equity and health benefits. "Our brand is based on the experience that we control in our stores," Schultz says. "When a company can create a relevant, emotional, and intimate experience" it builds trust with the customer.

The result is that Starbucks has come to represent the "third place" (after home and work) where people gather, Schultz says. "We have benefited by the fact that our stores are reliable, safe, and consistent, where people can take a break," he notes. That wasn't necessarily the plan when Schultz first moved the coffee roaster into retail stores, but it evolved that way through customer demand. This has given the brand tremendous value, he says. Through coffee, which is a universal drink, Schultz says Starbucks has created a universal language. "We couldn't have created that through traditional advertising," he contends.

GLOBAL VISTAS. That's not to say Starbucks will have a smooth ride as it grows into a global company. One issue will be how to keep the coffee retailer relevant among younger consumers who might be inclined to avoid their parents' favorite coffee hangout. Another will be how Starbucks can attain global scale without losing this intimate connection with its customers. The brand's ubiquity already has made it a standard punchline for comedians, in the way that McDonald's has been in decades past. Will that ultimately undermine the brand?

Advertising may be able to play a greater role here by reinforcing Starbucks' "message about the passion, care, and integrity of the coffee," Schultz says. However, he acknowledges: "It's very challenging to get big and stay small." Still, Schultz insists that great brands and companies have been able to straddle this fragile fence: To remain focused on the core business while trying to create new opportunities for customers.

Since Schultz first jolted many Americans' taste buds with espresso coffee, Starbucks has every intention to expand its brand and its taste for new and unconventional ideas. Just don't expect it to be another McDonald's.

By Stanley Holmes in Seattle

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