On line extensions and Starbucks Via26 May
I was a Starbucks addict during my MBA year in Madrid — there were a couple of Starbucks coffee shops next to IE Business School, so myself and my MBA colleagues often spent hours there, drinking coffee and analyzing business cases.
The coffee we drank was, well, normal, freshly brewed coffee, Starbucks style. It was much more expensive than the usually excellent cafe con leche served at madrileño cofee shops. But at Starbucks, we could sit in a smoke-free environment, and nobody kicked us out for hanging out there for several hours in a row, so it was okay to pay a premium for the coffee.
After graduation, I moved from Madrid to Brussels, where there’s no Starbucks (although I think they’ve just opened one shop at the Brussels airport). What reminded me about the brand was a recent explosion of articles in the news, mostly related to the launch of an instant coffee brand, called Starbucks Via. It was launched in the March 2009 in the UK and created a lot of buzz around it, and a great deal of (often negative) analysis by marketing experts.
Most of the criticism is about Starbucks downgrading its brand by introducing a product – instant coffee — whose quality is perceived as low, no matter the brand association.
Line extensions like launch of Starbucks Via are a way to break into new segments while capitalizing on the strength of the existing “mother” brand. Line extensions occur when a company “introduces additional items in a given product category under the same brand name, such as new flavours, forms, colours, ingredients or package sizes.” (Principles of Marketing, P. Kotler, 2002, p. 478). Reasoning behind introducing a line extension can be often quite complex, and purposes can be various, too.
In case of Starbucks Via, the reasons may be these:
- Starbucks’s wish to tap into the UK market where instant coffee doesn’t have a negative stigma and is consumed by many;
- Adapting to the recession: offering people instant Starbucks experiences at home, for a price that is lower than a regular cup of latte served at a Starbucks shop.
The main advantages of introducing Starbucks Via:
- Introducing a new instant coffee brand in the nation (UK) that is used to drinking instant coffee seems like a good idea. I am not sure though that launching Starbucks Via also in the US follows the same logic (unless I’ve somehow missed the fact that Americans are fans of instant coffee), and I doubt it will be very successful there.
- Offering a lower-priced product in the same product category is a much better way of surviving the recession and staying profitable than lowering prices of your high-end products and trashing your overall brand. (I wrote about this in my article Recession and Luxury Brands: the end of fun? warning luxury brands about long-terms effects of short-term price drops). Unfortunately, this is something I understand Starbucks has started doing in response to criticisms that their coffees are too expensive — dropping prices of some of their core “lattes”. Obviously, dropping a price of a cup of coffee by a couple of cents is not the same as dropping the price of a luxury bag by several hundreds of dollars, but continuous price cuts could turn Starbucks coffee into Dunkin Donuts coffee, and this is not the direction that the brand should be taking.
The biggest challenge that Starbucks is facing with its Via launch is probably this: how to make Via popular, but not too popular, so that it doesn’t cannibalize the coffee brewed and served at Starbucks shops. To me, Starbucks is all about slow, meditative coffee-sipping experiences. If the company manages to incorporate an element of “experience”, “relaxation” and the aspect of “hanging out” into its instant coffee, while concentrating on markets that are used to instant coffee consumption, it will probably have some success with its instant Starbucks Via brand.
Got another example of line extensions? Post a comment!
Related posts:
3 Responses to “On line extensions and Starbucks Via”
Leave a Reply
Olga: Thanks for you comment on my blog and I enjoyed reading your take on the VIA launch.
I’d read that VIA was a pet project of Howard Schultz who was interested in the technical challenge of making an instant coffee taste as good as a cup of ground coffee. I actually think that he succeeded more or less in this mission but now what?
As you say, VIA might do OK in the UK or other instant coffee markets but, even in the UK, its extreme price difference vs. other instant coffees is likely to be a barrier.I actually see it more as an opportunity for Nescafe–VIA will make its higher priced product look cheap by comparison.
I’ve written about VIA a couple of times on my blog for those interested:
1) The VIA taste test: Is it as good as they say? http://tinyurl.com/c727xf
2)Competitive reactions to VIA launch: http://tinyurl.com/kwd48l
Hi Martin, thanks a lot for your comment and the links. Very much appreciated! cheers, Olga
Babe, the very question we discussed with my group about food spots was about the turnover to time ratio. It should me more or less the same to be profitable – slow consumptions means price skimming, fast food means low prices. How much to skim and how low is low is the question of profitability.
As to instant coffee for Starbucks, for me it is veeeery questionable. Well, it seems reasonable to UK market, but I doubt on Russia (the public here is too posh to drink it), Spain (high coffee consumption culture).
But as you know, the answer if it is a good case or wrong we’ll see, and after that we can explain everything.
As to line extention, i like the example of russian stationary goods distributor, who started the brand for corporate stationary service program. Initially the brand was about catalogue, then they added the manual for corp. business and now they included stationary goods (archive folders, glue, correction tape, clips).
One more example – norwegian company SWIX – 1948 – ski waxes (a division of chemical concern), 1954 – ski poles (acquisition), 1980 – garments and accessories (to visualise brand).