Why Starbucks Lost its Mojo
Where did Starbucks run off the rails? Probably the day it decided to go public.
The demands of investors to expand and grow undercut the delicate ingredients that had made Starbucks a mega-success in the first place, argues Harvard Business School marketing professor John Quelch in a recent post, How Starbucks' Growth Destroyed Brand Value.
The company tried to generate additional revenue by offering CDs, wi-fi, and a breakfast menu. It opened a ton of new stores. But in the process, Starbucks diluted its unique customer experience like a slug of milk undercuts the rich flavor of Colombia Nariño Supremo (author's opinion). The original core of customers that had contributed to its success felt alienated.
If you needed further proof that Starbucks was turning into a commodity, look no further than McDonald's announcement that it was creating its own Starbucks like stores.
"Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special." Quelch writes. "Either you have to cut price (and that implies a commensurate cut in the cost structure) or you have to cut distribution to restore the exclusivity of the brand."
Howard Schultz, a founder who has returned to lead the company, appears to be pursuing alternative #2, judging by news the company will be closing 600 outlets and up to 12,000 jobs.
Do Premium Brands Scale?
IPOs are not necessarily dangerous to a growing company's continued prosperity, of course. But Quelch's point is that enterprises that build their business as a premium brand can have incredible difficulty scaling their "specialness" to meet the quarterly growth demands from investors.
"That's why many luxury brands like Prada remain family businesses or are controlled by private investors," he writes. "They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities."
Can you think of other examples of premium brands undone by their own success?
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