A research conducted as a part of the masters course at University of Strathclyde.. Case Company: Starbucks.

1.
MIM-­‐
Brodie
Branding
Starbucks
in
India
Module:
Doing
Business
Abroad
Submitted
by
Vishal
Gholap
Submission
deadline:
11th
March
2011
Submitted
to
Dr.
Tim
Andrews
Number
of
Words:
3534

2. Branding
Starbucks
in
India
2011
Table of Contents
1. Introduction ................................................................................................................................. 3
2. Literature Review: ...................................................................................................................... 3
2.1. The concept of Branding: ..................................................................................................... 3
2.2. India: market background and consumer behaviour ............................................................ 4
2.3. Brand: Starbucks .................................................................................................................. 5
3. Implications: ............................................................................................................................... 8
3.1. Compatibility: Starbucks and India:..................................................................................... 8
3.1.1 External Branding: .......................................................................................................... 8
3.1.2. Internal Branding: .......................................................................................................... 9
3.2. The way forward for Starbucks: ......................................................................................... 10
4. Conclusion: ............................................................................................................................... 11
References: ................................................................................................................................ 12
Appendix 1: ............................................................................................................................... 15
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Starbucks
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2011
1.
Introduction
Starbucks is set to mark its presence in the Indian café business with the strategic alliance with
Tata Coffee Limited in January 2011. India is said to have space for 5400 cafés (Chaudhary,
Jayaraman, and Bailay, 2010). India is a complex market due to the diversity across the nation.
Thus it is necessary for Starbucks to look into some of its standard practices and make changes
to suit the market. As Starbucks is a late entrant, along with the market entry and expansion
strategies it should also focus on the adjustments it should make in the branding strategy. Thus, a
need to assess Starbucks as a brand and the market dynamics is raised. This assessment will
enable a brand manager to determine the viability of Starbucks’ existing branding strategy in
India. The main objective of this report is to determine the extent to which Starbucks should
adapt itself for the market. The report also gauges the actions of other brands in India and the
steps Starbucks should take in order to have a good start in the market. This report provides an
understanding of the branding concept, India-as a market and the Starbucks brand. With a
foundation of these concepts, we evaluate the branding strategies of existing café businesses in
India and then make recommendation for Starbucks.
2.
Literature
Review:
2.1.
The
concept
of
Branding:
Sometimes product and brands are mistaken to be the same. But there exists a vast difference
between a product and a brand. “A product is anything that can be offered to a market for
attention, acquisition, use or consumption that might satisfy a need or want” (Kellar 2008).
Whereas “ A brand is a name, term, sign or symbol, design or any combination of these which is
intended to identify goods or services of one seller or group of sellers, and to differentiate them
from those of competitors (Kellar, 2008). Philip Kotler (1996) states that “a brand name
represents the totality of product image, company image and corporate identity”. Brands are
made up of the hardware element (colour, logo, design, etc.) and also the software element image
i.e. the identity of a brand. The software element is based on the perceptions that are built up
among the employees and the customers of the company. Thus, Tai and Chew define “brand as
an Idea that you own in Customers’ Minds”. There are other definitions of a brand comprising of
the name, term, logo, alphabets, sign or symbol, features of the product, perceptions of the
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Starbucks
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India
2011
customer and employees, promises made by the company, differentiating feature from other
products.
Brand is one of the strategic assets which give a competitive edge to the company in the longer
run. Companies adopt two different ways of branding strategies – product branding and
corporate branding. (Kapferer, 2008) In product branding the visibility of the product in itself is
given more importance. It stands independent without any association with the makers of the
product. Any kind of positive and negative effect on the product brand will not influence the
other product brands owned by the company. On the other hand, sometimes company uses the
same corporate brand for all the products it offers to the market. The risk of brand contamination
to other brands is higher with company branding. By devising a efficient strategy to build a
perception in the consumer’s minds , brands contribute towards minimizing functional, physical,
financial, social, psychological and time risks (also see Appendix 1). (Kellar 2008)
Brands are often accompanied by mantras. These mantras build up a connection between the
“heart and soul” of the brand and its market position. Example- Brand: Nike; Mantra: Just do it.
These mantras make up the perception aspect that is associated with the brand. Effective
communication of the mantras can lead to a solid brand. This flow of communication has to be
both internal as well as external. External branding to the consumers is seen as the most
important factor in the entire branding strategy. But internal branding makes sure that the
organisation is parallel to the perceived characteristics of the brand in the market. Thus, the
employees of the organisation should be motivated to represent the brand through their work
attitude and by being updated with the deep understanding of the brand. Internalisation of the
brand is very essential in service oriented organisations. “The brand experience in a service
sector is totally driven by what happens at the point of sale.” (KAPFERER, 2008) A brand can
be successfully internalised only if the employees of the organisation deeply understand the
brand values, accept them as their own and live the brand.
2.2.
India:
market
background
and
consumer
behaviour
India and China form the largest human population base on the planet. The governments in these
countries have been taking steps to satisfy the needs of this population thus leading their
economies to higher growth prospects. Thus, today, all the companies want to associate
themselves with these emerging economies and reap the benefits of their unsaturated markets.
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Starbucks
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India
2011
India has been a colony of the British for a very long time. Thus, the lifestyle of people in some
regions is closely related to today’s UK culture. With globalization the world has come closer
and thus there has been a great cultural influence from the western countries. In the past, India
was considered as a reserved nation, but it is now emerging out of this protectionist phase
(Kapferer, 2008).
“India has her own concept of time for absorbing change” (Coyler, 2006). Thus, it becomes
necessary for brands to enter the market at the most appropriate time. Also, it is essential that
these brands invest comparatively more time in creating a favorable consumer base. Kellogg’s
failed in its attempt to change the breakfast habit of the Indian market by introducing them to the
American breakfast (Coyler, 2006). A Global brand like Coca-Cola had to break its principles in
India. Coca-Cola advertisements, traditionally, never featured a movie star, but only an ad
campaign with Bollywood movie star gave immense visibility to Coca-cola (Kellar, 2008). The
Indian market very strongly associates brands to the celebrities and personalities that promote
them. Thus, understanding the psychology of the Indian consumer is critical for a brand to make
an impact.
India primarily has been a tea-drinking nation. As per Euromontior (March 2009), 85% of the tea
produced in India is consumed within the nation. But the consumption of coffee has been
increasing in the past few years. Along with the growing middle class segment of the market,
India also has some extremely rich consumers that demand for western products with a local
flavour. In the northern, eastern and western regions of India, out of home coffee consumption is
gaining popularity. In urban India, the concept of Italian style corner coffee bars has been
successful in attracting the youth. Barista Lavassa, Café Coffee Day and Mochas are some of the
popular brands that are known for the café services they offer. (Euromonitor, 2010)
2.3.
Brand:
Starbucks
Starbucks started as a coffee retail chain and now is known for its cafés. It promises to offer a
rich experience to the customer and is not just another coffee selling chain. Starbucks’ mission
is “to inspire and nurture the human spirit- one person, one cup and one neighbourhood at a time”
(Starbucks Corp., 2011). In each of its 15,000 outlets across 50 countries, Starbucks aspires to
establish itself as a place after home and office and terms itself as the next neighbourhood where
people can drop by to have a cup of coffee and chat with their family and friends (Starbucks
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Starbucks
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India
2011
Corp., 2011). Most of the Starbucks outlets maintain the romantic ambience of an Italian coffee
bar (Kellar, 2008). Apart from coffee, Starbucks also serves range of pastries, tea (Tazo) and
other refreshing drinks (Starbucks Corp., 2010). Starbucks outlets also sells CDs, books, credit
cards & coffee brewing appliances and in 2006 Starbucks entered in the film business by
partnering with Lions Gate. (Kellar, 2008)
Certain coffee brands like Sumatra served at Starbucks outlet have gained popularity but
Starbucks as a brand continues to be stronger compared to its individual offerings. Howard
Schultz, Chairman, President and Chief Executive Officer – Starbucks Corporation believes that
“they are not in the business of coffee serving people, but of people serving coffee” (Kapferer,
2008). This belief comes from the top management and is accepted and implemented at the store
level to create a soothing and pleasant experience for the consumers.
Starbucks is based on its radical innovations in coffee retail chains and has been the market
leader in United States. This reputation makes it easier for Starbucks to launch itself in other
markets (Kapferer, 2008). Though cultural differences in the new market call for extra efforts in
the branding strategy concerning the diversity, market niche, change & contradictions, naming,
colour and symbols (Wheeler, 2006). In the UK, Starbucks is seen as an ethical brand and
known for the fair treatment it offers to its suppliers. (Marketing, 2008)The branding strategy of
Starbucks is controlled centrally from Seattle headquarters to avoid the risk of compromising
with its image and nurture healthy growth.
Starbucks believes that there is a direct relationship between the financial performance and the
manner in which the customers are treated. Thus, human resource activities to improve partner
(term used for employees in Starbucks) relations with the company hold high importance.
(Flamholtz, 2001) During the years 1993 to 2003; to establish a strong market presence
Starbucks had increased its advertising budget to gain brand visibility (refer table 1 below).
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Starbucks
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India
2011
Table 1:
But today, Starbucks does not rely on advertising to promote its brand. The then president
Howard Behar and other executives realized the importance of the needs of the consumer and
promoted the idea of implementing a consumer focused model rather than the product focused
one. This move gave a boost to Schultz’s vision of Starbucks being a personal treat (Kellar,
2008). Instead it invests in training ‘partners’ – term used for employees in Starbucks ,
architecture, the sensory contact, touch and other similar aspects which build the overall
environment of the distribution outlet (Kapferer, 2008). To develop a strong bond between its
‘partners’ (employees) and the company values, Starbucks prints mission statements on the
business cards. (Weber, 2005) It also engages its employees in ‘First impression’ a 24-hour paid
training program in any new store opened in North America.
(Weber, 2005)
Recently there has been an overhaul in its brand logo. The earlier
logo of Starbucks consisted of the two-tailed mermaid (siren) and
‘Starbucks coffee’ written around the siren. Starbucks is no longer
just a coffee retailer. Along with the café business it has entered into
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Starbucks
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India
2011
distribution of music CDs, credit cards and brewing equipment. Thus to exemplify this
diversification, Starbucks has decided to drop its name from the brand logo. The traditional green
colour in the logo continues to remain the same which strongly appeals the consumers.
(Knowledge@Wharton, 2011)
3.
Implications:
3.1.
Compatibility:
Starbucks
and
India:
It has been a long wait for Starbucks to initiate its operations in India. Other fast food chains like
McDonalds and Pizza Hut had entered India in the early 2000s. These brands faced many
difficulties in the initial stages (Haig, 2006). In January 2011, Starbucks entered into a strategic
alliance with Tata Coffee Limited for sourcing of Arabica coffee beans and also in setting up of
Starbucks retail stores and cafés (Starbucks Coffee Company and Tata Coffee Limited, 2011).
The Tata group of Companies is considered to be one of the most socially responsible business
houses in India. A strategic alliance with a company of such a stature provides Starbucks with a
head start in developing both the internal as well as the external branding strategy.
3.1.1
External
Branding:
Barista Lavazza and Café Coffee Day are two of the major competitors of Starbucks in India.
Lavazza, the Italian coffee retailer entered India in 2007 by acquiring the Barista Coffee Shop
chain. Barista Lavazza aims at offering a truly Italian café experience to the Indian consumers.
After the acquisition of Barista, Lavazza did not change the brand name because Barista as a
brand was well established in the Indian market. Barista had a pan India presence and due to its
existing brand equity of Barista, it was not difficult for Lavazza to fortify its position in the
market. The visibility gained by Barista Lavazza is mainly by word of mouth. Also it associates
itself with different events organized by premium educational institutes and other corporate
houses.
The first outlet of Café Coffee Day was established in 1996. Café Coffee Day’s mission is “to be
the best Cafe chain by offering a world class coffee experience at affordable prices” (Café
Coffee day, 2011). Cafe Coffee Day has gained visibility in the Indian market because it invests
huge sums on advertising. Café Coffee Day promises to offer a pleasant coffee drinking
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Starbucks
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India
2011
experience at an affordable cost. With this low cost model Café Coffee Day is in a position to
drive the market towards itself and give compete with Barista Lavazza.
Starbucks does have some awareness among young generation of India, despite not being
physically present in the market. This awareness is because of the era of globalization and the
continued influence of western culture in the east. Also Indian students who have spent some
years in western countries are aware of Starbucks. Starbucks has to subtly cash-in on this
awareness and build on it to establish itself in the Indian market.
3.1.2.
Internal
Branding:
Sherry Robert has analysed the Starbucks culture based on Hofstede’s model of Cultural analysis.
A comparison of the cultures in India and Starbucks with respect to Hofstede’s model (four
dimensions) will give an understanding of the acceptance of internal branding strategy of
Starbucks in India. India is highly power distant (Hofstede, 2010). A high level of power
distance suggests that there is a high level of inequality of power and wealth among the people
(Mead and Andrews, 2009). The hierarchical structure in Starbucks is loosely arranged in order
to motivate flow of ideas within the company (Glowa, 2001). Starbucks has also launched a blog
which motivates the consumers to suggest innovative ideas of making coffee and other related
beverages. Thus, with a low level of power distance in its organizational culture, Starbucks
might find it difficult to create a satisfying tier of employees at the managerial level.
Indian culture is not bound by many rules and regulations that aim at controlling the unexpected
events that might occur in the future. Likewise, Starbucks, in its journey since 1961, has forayed
in businesses other than its core coffee retailing business without the attitude of controlling the
unknown (Kapferer, 2008) and thus showing low need to avoid uncertainty.
Starbucks is headquartered at Seattle in United States of America. US ranks high on Hofstede’s
scale for individualism whereas Starbucks mission statement exhibits the importance of team
work, as it forms a very important factor in delivering an enriching experience to the consumers.
(Starbucks Corp., 2010) For, Starbucks it will not be difficult to cultivate a culture of teamwork
among its employees as India is a highly collectivist nation.
According to Hofstede’s model India is a masculine culture. In India, even today, differences
exist in roles taken up by men and women. Starbucks considers all its employees to be equal and
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Starbucks
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India
2011
does not differentiate among men and women (Glowa, 2001; Robert, nd). Starbucks’ culture and
the culture of India are closely related except for the dimension of power distance. Overall it can
be said that Starbuck will not find it difficult to develop a good brand image within the
organization, among the employees.
Global brands like Starbucks, McDonalds, etc are seen as instruments of imperialism to
culture.(Izberk-Bilgin) With their business these brands threaten the food habits of the local
people. Sometimes, too much advertising of the western way(s) of drinking coffee or any other
western habit can be seen in the negative manner by the consumers.
3.2.
The
way
forward
for
Starbucks:
The analysis of the internal culture of Starbucks and the Indian culture is not different in many
aspects. This compatibility between cultures does not guarantee an extra-ordinary experience to
every consumer that enters a Starbucks outlet. India is the second most populous nation in the
world and houses approximately a billion people belonging to different sub-cultures, languages,
geographies, tradition, habits and socio-cultural behaviour (Coyler, 2006). To successful build
the desired perception in the consumer’s mind about Starbucks it will be critical to understand
the market psychology.
Firstly, in India the trend of outdoor drinking coffee has started emerging now. Competitors such
as Café Coffee Day have already captured major share of the market with around 1000 stores
across the country. Café Coffee day plans to have setup 1000 more stores by the end of 2014
(Chaudhary, Jayaraman, and Bailay, 2010). In such a scenario, Starbucks cannot solely depend
on its principle of creating visibility through word-of-mouth. For an organization in service
industry the most effective channel for marketing is through word-of-mouth. But, it will be
recommended for Starbucks to advertise extensively in order to gain visibility and create
awareness about its presence.
Starbucks has maintained its image as the “third place” after home and office, where people can
relax, feel comfortable and have a cup of coffee. Barista Lavazza also promises a similar
atmosphere to the consumers. In an attempt to provide an enriching experience to the consumers,
Starbucks will have to develop a competitive yet affordable pricing strategy. With a premium
price for the offerings, Starbucks can target only the elite class of people in selected cities. Also,
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Starbucks
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2011
it will be difficult for Starbucks to convert the youth from Café Coffee Day to the Starbucks
experience due to higher prices. Thus, Starbucks initially should establish its outlets in premium
locations of the metropolitan cities and aim at the working class executives in the early age who
have high disposable income and engage with friends at cafés, lounges and other places.
Most of the users in India, eye for products that are customised as per the local demands. Fast
food chains like McDonalds and Dominos failed to understand this market sentiment. Only after
these fast food chains introduced Indianised food items, they started experiencing growth in their
business. Thus, Starbucks should also consider this aspect and be open towards tailoring some of
its beverages as per the requirements that arise in the market. Also to avoid itself from being
misunderstood as a culture imperialist, Starbucks should get involved in different CSR activities
as it does in China. Only by doing this, it can gain the confidence of the consumer and maintain a
socially healthy brand name.
Starbucks should continue with the same fundamentals of work force management as the
workforce is the main driver of the entire process of service delivery. All the new employees in
the company must be trained about core values and mission of the company. Printed material
such as small diaries and printed coffee mugs can be distributed among them. Also the tradition
of printing mission statements on the business card must be continued. Training initiatives such
as “first impression” should also be carried out so that the new employees understand the
business, service and their role in the company. This will also enable the communication of the
organizational values to the suppliers and other external stakeholders. The employees should also
be trained for the soft skills essential to make the experience for the consumer memorable. The
aesthetic features of the cafés play a very important role in creating the ambience of the café.
Thus, acute attention must be put in the conceptualization of the designs of the cafés.
Starbucks should also utilize the TATA brand name which has a long tradition in the Indian
market and is seen as a respectable and trustworthy brand. Any association with TATA will
definitely give Starbucks a head start in the race to gain market share.
4.
Conclusion:
There is a huge market for Starbucks in India in the café business. The presence of strong
competitors who already have a head start require Starbucks to make a difference with its brand
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value. In the global scenario, the brand consistency evokes a set of values and perceptions that
are built towards the brand. (Bengtsson and Venkataraman, nd) Starbucks is a global brand and
thus it would not be appropriate for Starbucks to undergo a brand makeover for India. Its’ culture
has evolved over a period of time with the experience it gained from operations in 50 different
countries (markets). This experience has enabled Starbucks to adopt values that are in alignment
with the culture in some eastern countries like India. Starbucks should continue exercising some
initiatives such as ‘first impression’ in markets like India to build an efficient workforce that can
deliver the promise of the ‘third place’ to the customer. The evaluation of the brand Starbucks
and its compatibility with the Indian culture is favourable. In addition, Starbucks should also
invest more in advertising and mass marketing, so that it can optimise its visibility and awareness.
Its association with Tata Coffee limited also gives it an opportunity to create and gain trust of the
Indian consumer.
References:
Bengtsson, A. and Venkatraman, M. (nd) The Global Brand’s Meaning Mélange: Seeking Home
Abroad through Global Brands. Advances in Consumer Research – North American Conference.
North America. Association of Consumer Research
Café Coffee Day (2011) Company & Mission. [www] http://www.cafecoffeeday.com/company-
mission.php?mnid=3&lmids=3 (7th March 2011)
Chaudhary, D. and Jayaraman, P. and Bailay, R. (2010) Coffee chains line up to cater to India's
youth [www] http://www.indiacoffee.org/newsview.php?newsid=68 (4th March 2011)
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Starbucks
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2011
Colyer, E. (2006) India: A hot brand climate. [www]
th
http://www.brandchannel.com/features_effect.asp?pf_id=316 (5 March 2011)
Euromonitor International (March 2009) India: Country Pulse. [www]
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Euromonitor International (February 2010) India: Country Pulse. [www]
http://www.portal.euromonitor.com/Portal/DocumentView.aspx (5th March 2011)
Flamholtz, E. (2001) Corporate Culture and the bottom line European Management Journal. Vol.
19 (No. 3). 2001. pp. 268 – 275
Glowa, T. (2001) Examining Starbucks utilizing the 7s method and less than perfect information.
[www] http://www.ncResearch.com. (8th March 2011)
Haig, M. (2006) Brand Failures. 1st edition. United States: Kogan Page Limited.
Hofstede, G. (2011) Greet HofstedeTM Cultural Dimensions: India [www] http://www.geert-
hofstede.com/hofstede_india.shtml (5th March 2011)
Izberk-Bilgin, E. (2008) When Starbucks Meets Turkish Coffee: Cultural Imperialism and
Islamism as ‘Other’ Discourses of Consumer Resistance. Advances in Consumer Research. Vol.
35. 2008.
Weber, G. (2005) Preserving the Starbucks Counter Culture. Work force Management, February
2005, pp. 28-34
Kapferer, J.N (2008) The New Strategic Brand Management. 4th edition. Great Britain: Kogan
Page Limited.
Kellar, K.L (2008) Brands and Brand Management, in, David Parker. Strategic Brand
Management: Building, Measuring and Managing Brand Equity. United States: Pearson Prentice
Hall. pp. 1-46
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Kellar, K.L (2008) Managing Brands over Geographic Boundaries and Market Segments, in,
David Parker. Strategic Brand Management: Building, Measuring and Managing Brand Equity.
United States: Pearson Prentice Hall. Pp. 1-46
Kellar, K.L (2008) Starbucks: Managing a High Growth Brand, in, Jeff Shelsted. Best Practice
Cases in Branding. United States: Pearson Prentice Hall. pp. 305 – 328
Knowledge@Wharton (February 2011) Logo Overhaul: Will Customers Still Answer the Siren
Call of Starbucks? [www] http://knowledge.wharton.upenn.edu/article.cfm?articleid=
2703 (8th March 2011)
Marketing (2008) Coffee retail: Starbucks: the brand we love to hate. pp. 24. [www]
http://find.galegroup.com/gps/infomark.do?&contentSet=IACDocuments&type=retrieve&tabID
=T003&prodId=IPS&docId=A177358536&source=gale&srcprod=GBFM&userGroupName=st_
itw&version=1.0 (8th March 2011)
Mead, R. and Andrews, T (2009) International anagement. 4th edition. Great Britain: John
Willedy and Sons, Ltd.
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http://starbucks.co.uk/about-us/company-information/mission-statement (6th March 2011)
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heritage (6th March)
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http://assets.starbucks.co.uk/assets/sobc-english-2010.pdf (6th March 2011)
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Wheeler, A (2006) Designing Brand Identity. 1st edition. United States: John Wiley & Sons, Inc.
Appendix
1:
By creating a perception in the consumers’ mind, a brand reduces the exposure of the product to
different risks such as:
1. Functional risks: any failure in the performance of the product.
2. Physical and psychological risks: if there is any threat to the physical and/or psychological
well being or health of the user.
3. Financial risk: enables premium pricing for premium brands, thus generating more revenue
and profits.
4. Social risk: any embarrassment caused by the ownership of the product.
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Reference: K. Kellar (2008), What is a Brand, in, David Parker, Strategic Brand Management,
United States: Pearson Prentice Hall, pp. 1 – 46.
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