Starbucks chief executive Howard Schultz on marketing

LONDON - Howard Schultz is the man who took a three-store coffee-shop chain in a provincial US city and turned it into a global phenomenon. Marketing has never been very high on the agenda for the Starbucks presid­ent, chief exec­utive and chairman, but this is all about to change as the brand gears up to fight growing competition.

Howard Schultz: chief executive of Starbucks
Howard Schultz: chief executive of Starbucks

Schultz was in London as part of a European tour to promote his comp­any's support for African Aids relief through its pre-pay RED card. Speak­ing to a standing-room-only crowd at the Marketing Society, he took the opportunity to celebrate its results for the past three months: it has posted a 4% growth in total sales and a 200% rise in profits, to $353m.

The figures mark one of the great business turnarounds of the past dec­ade, which was catalysed by Schultz's decision in 2008 to resume the roles of chief executive and president, relinqu­ished by him in 2005.

The 56-year-old was polite and eng­aging, showing none of the swagger one might expect from a success­ful US business leader. He sounded almost proud when admitting that he had no relevant qualifications when he took over marketing at Starbucks in 1982.

His assertion that the coffee chain's brand ‘has not been defined by trad­itional advertising or marketing, but, quintessentially, by experience' could have disappointed his audience, had it not been balanced with an acknow­ledge­ment that Starbucks now needs to bolster its activity in these areas.

The brand is a relative latecomer to TV advertising - the first UK campaign debuted only last year. Press ads push­ing its reward card are currently run­ning in UK national papers, using a pun on the phrase ‘daily grind'. Star­bucks' avowed aim now is to become a leader in the digital space, taking advantage of its 5.1m followers on Facebook.

Schultz on marketing

Were you consciously trying to build a brand when you bought Starbucks?
I have no business degree and hadn't taken a marketing course in my life before joining Starbucks, so the word ‘brand' would not have been part of my vocabulary.

We raised $3.8m to acquire Star­bucks in August 1987. [Back then] it was 100 people in 11 stores. The aim wasn't to build a brand, but to build a different kind of company.

Even then it was a different kind of business model - to achieve a balance between responsibility and social conscience. The first thing we did in 1988 was to provide health insurance for every employee and equity in the form of stock options.

The feeling was that we couldn't build an enduring ‘brand' so to speak - that wasn't a word we used then - by exceeding the experience of our customers, without exceeding the expectations of our people first.

How has Starbucks fared in the recession?
Unfortunately we seem to have been a leading indicator of the recession. Our business really suffered very early on [in terms of] compression of traffic and average takings. I made some comments on a tele­vision show a year ago, which Lord Mandelson didn't appreciate [they evinced a four-letter word response from the UK business secretary], about European economies and specifically the United Kingdom. However, I was refer­ring to Western Europe. Spain and Greece are in deep trouble.

The UK has been incredibly resilient - much more so than I thought - but I don't think we should be misled by the UK's growth of 0.1% [in the past quart­er] and I don't think we should be mis­led in the US. We're far off from being out of the woods yet. Unemployment in the US is 10.5% and it's going to get higher before it gets lower. We've had some good results but we're not taking that for granted.

How do you use marketing as a way of dealing with competitors McDonald's and Dunkin' Donuts?
We created an industry that did not exist. For 15 years as a public company, we pretty much did not have a comp­etitor. Now, all of sudden, we have a plethora of companies trying to steal market share, small and large. One of the things that would be very danger­ous for us would be to allow any comp­any outside of ourselves to define who we are. So I think we have to be more market­ing-driven and invest in ad­ver­tising for the first time. In the first 30 years of our company, we spent more money on training than marketing.

Which one channel will take precedence?

I think social media is a natural exten­sion of our brand because we want to do things that are unexpected, and to speak to all sorts of people who are engaged in social media. It's tough to measure but there is an incremental benefit to sales.

What's more important - global or regional marketing?
In the early days, we found customers in newly added countries wanted the authentic Starbucks experience - they didn't want it watered down or refined by local issues. Today, because of the size and scale and ubiquity of the company, it's more important for us to demonstrate local relevance and a higher respect for local communities. If you look at the London store that's opened on Conduit Street, that is a reflection of [our] fresh [store] design and the way in which we are going to move forward.

How do you strike a balance between customer experience and marketing?
Because we have the benefit of our retail stores, that experience is always going to define the brand. The external marketing we are going to do will be complementary to that core exper­ience, but it will never be the primary way we build awareness and create trial.

The competitive advantage we have is that our people bring that experience to life everyday and build that emotion­al connection with the customers. Ad­ver­t­ising can't replace that, but we want to reinforce it and make sure we redef­ine ourselves and not let any other company or enterprise define us.

Are the unbranded Starbucks stores in Seattle an admission of brand overexposure?

We've opened two stores that didn't have the Starbucks name attached to them, calling them after the streets in which they are located. Both say ‘inspired by Starbucks'. It wasn't so much that we were trying to hide the brand, but trying to do things in those stores that we did not feel were appropriate for Starbucks.

We are [for instance] selling alcohol in those stores and testing to see if it's dilutive of the brand, to the experience and what it does in terms of revenue. Also whether it's something we want to do on a going-forward basis. We are also experimenting on other things, so those stores will be a labor­atory for Starbucks.

Looking back on your time at Starbucks, are there things that you would do differently?
We went public in June 1992 and at the time it was absolutely the right decision. [However], I've always asked myself, what would have happened if we'd not gone public then - what if we'd waited 10 more years? We would have been a different type of company.

The public nature of Starbucks [Schultz still owns a 5% share] has made us a better company because of the issues you deal with as a public enterprise, but it does have a tremen­dous weight.

In the last few years that weight hasn't been positive because of the way that Wall Street responds. Its mentality is not just short-termist, [but] public companies are not built for the long term. Unless you're Google.

Why does Starbucks insist on calling a small coffee ‘Tall'?
There were times when we felt we wanted our own language - the words ‘small' and ‘large' felt, at the time, pede­strian. It seems to have worked. At times people think we are a little too arrogant [but] we didn't want to take ourselves too seriously.

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