Starbucks license

As reported in various media, Starbucks signed a license with Nestle for its off-trade / retail business generating US§ 1.8 bn in sales.

Nestle will pay $7.1bn for the rights to sell Starbucks.

The license only applies to Starbucks’ packaged products and doesn’t include ready-to-drink coffee, tea or juices.

Starbucks will receive the cash payment plus revenue from product sales and royalties.

Co-Branding Coffee and -Machines

The global coffee market is huge and became more interesting lately.
Illy can be credited for pursuing a strict premium strategy.
Sturbucks charged four and more dollars per serving, when traditional marketers were still asking one dollar. That brand premium must have played a role, when Krueger took the Starbucks license for coffee capsules. And Nespresso changed the landscape too.    
Now Cuisinart, manufacturer of coffeemakers and other culinary appliances, announced a joint venture with Illy, to develop a new line of espresso machines.

The collection, co-branded Cuisinart for illy, will feature illy’s proprietary iperEspresso capsule system.
The Cuisinart for illy product line is scheduled to debut by the first quarter of 2013 at Cuisinart and illy’s retail channels, department and specialty stores, and online.

Already in 2011, German coffee machine manufacturer WMF took a brand license from Baldessarini.

Of course, there have been other brand licenses before. And not all succeeded. For example, you do not hear, see or read a lot about Davidoff coffee anymore. A license held by German coffee giant Tchibo. The product cannot be blamed, that was excellent.

Starbucks Coffee Capsules

According to media reports, the German Krueger GmbH took a license from Starbucks.

The license is for coffee capsules, the machines will be provided by Starbucks. The license is global.

Krueger is the European leader in instant products and is active in the USA and Asia too.

It is an interesting license. Hardly any brand successfully demands a price for coffee per gram like Starbucks. And in terms of brand recognition Starbucks might even beat current market leader Nespresso. At least in the USA.

For Starbucks the license means another step away from freshly brewed coffee. From service to DIY.

Pitfalls of Brand Extension Strategies

With new brands failing at rates more than 90% in many categories, and the demand for top-line growth as relentless as ever, it’s no wonder that managers turn to brand extensions in their search for salvation.

Coke got it fabulously wrong with New Coke but got it right when they pioneered the now ubiquitous “FridgePack.”

The unassailable logic usually employs some combination of the following:
faster speed to market, better return on equity of existing brands and the ability to target known segments; utilization of existing production and distribution infrastructure; minimization of risk of huge losses from a total failure; and defending the established brand from competitive assault.

And yet, not only are most brand extensions failures in their own right, but they often leave collateral damage to the original “golden goose.”

Our research suggests following some proven principles for success to avoid the well-trod road to ruin. We’ll look first at some of the patterns of failure and push beyond to find firm footing for successful brand extensions.

Of course, brand destruction borne of brand extension doesn’t happen spontaneously. Marketers often make key, but avoidable, mistakes when extending a brand.

Mistaking a marketplace “void” for a customer “need.”
How many customers would object to more features, new benefits, increased performance or fresh uses? Better is better, so who would argue with more? And that’s just the external reinforcement; ask around inside the organization where developers are always eager to build “new and improved” and advertising folks are already brainstorming a launch campaign.

But what happens all too often?
Actually, we didn’t need to look beyond the experience of one of the co-authors of this article, Scott Cook, who presided over the princely failure of Quicken’s Financial Planner. And, as with many brand-extension failures, this was no half-baked effort.

Research confirmed a large market of consumers conscious of their inadequate financial planning. Competitive assessments reinforced the suitable positioning of Intuit’s Quicken brand. Developers produced and tested a world-class product; then, based on in-market learning from V1, produced a substantially improved V2. The entire multiyear effort was a total flop.

So what went wrong?
Simple as it sounds, many folks weren’t doing comprehensive financial planning for a reason: They didn’t want to. They were not prioritizing this as a critical “job” to complete.

What’s the lesson?
Watch your customers, don’t ask them.
Where are they struggling to find adequate solutions?
Build a brand to perform that “job,” and it’s more than likely that many customers will hire your brand.

Coke got it fabulously wrong with New Coke but got it right when they pioneered the now ubiquitous “FridgePack.” Observational research revealed that consumers were likely to consume more – and therefore buy more – if a cold can was at hand. Make it easier to keep ’em cold, and sure enough, sales increase.

Sometimes, out of fear of alienating potential customers, marketers fail to design solutions to specific jobs and push only vaguely differentiated products into increasingly cacophonous marketplaces.

Example? Look in your driveway.
Odds are no brand really aligned with your precise need but one offered financing terms or a promotional giveaway that swung the tide. This from some of the most experienced marketing firms in the world.

One of the drivers of “fear of focus” is its evil twin, the “seduction of large numbers.” Because big companies need big markets to have a proportional impact, they often screen out ideas with uncertain target markets.

The problem: Most markets that are verifiably large are also verifiably occupied. “If we can just get 10% of that billion-dollar market, we’ve got a $100 million brand,” the thinking goes, and it often leads to price-based competition and cheapened brands. Great brand extensions create significant markets, they don’t enter them.

Kodak got it wrong when they dove into the alkaline battery business.
They got it right with the FunSaver and EasyShare cameras.

Why is it that established leaders with the resources, incentives and market expertise to succeed regularly fail to anticipate new customer needs when it comes to extending into new product segments?

What we have found is that the very models – both mental models and business models – that fuel success along one performance trajectory often blind managers to emerging opportunities.

Consider Microsoft.
With the most powerful software brand in the world, the company was enviably positioned to take leadership positions in emerging technology and software segments.

Yet, ask any “Microsoftie” and they will confirm that Microsoft has long survived as a “developer-driven” rather than a “sales-driven” (read: product-driven vs. need-driven)
organization. Taking nothing from their dominance of PC operating systems and desktop software, Microsoft has either missed or misfired in a number of hot new markets:
Internet portals (where Yahoo got the lion’s share); PDAs (Palm); wireless e-mail (RIM/Blackberry); online search (Google); music downloads (iPod); Internet commerce (Amazon and eBay); utility software (Norton); financial software (TurboTax, Quickbooks and Quicken) and gaming (Sony PlayStation and Nintendo).

Microsoft’s mental model was so rooted in past successes that they either

  1. missed emerging consumer trends – browsers, search, gaming and music – or
  2. tried to solve new needs with old solutions – PDAs and wireless e-mail, where attempts to stuff a PC onto a pocket-sized device have failed convincingly and repeatedly.

There are really only two ways to extend brands without destroying them.

Both start with a fundamental principle that was best articulated by the great Harvard marketing professor Theodore Levitt:

“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

The marketer’s task, then, is to understand what jobs periodically arise in customers’ lives and to design products and services that customers can then hire to do that job.

If you’re lucky, you’ve got a strong purpose brand to begin with.
A purpose brand is one that consumers tightly associate with the job they perform. Many of today’s strongest brands – Crest, Starbucks, Kleenex, eBay and Kodak, to name a few – started out as purpose brands.

A clear purpose brand is like a two-sided compass.
One side guides customers to the right products. The other side guides the company’s product designers, marketers and advertisers as they develop and market improved and new versions
of their products. A good purpose brand clarifies which features and functions are relevant to the job and which potential improvements will prove irrelevant.

There are two ways marketers can extend a purpose brand without eroding its value.

Different products, same job.
They can develop different products that address a common job.
If a company chooses this path, it can do so without concern that the extension will compromise what the brand does. For example, Sony’s portable CD player, although a different product
than its original Walkman branded radio and cassette players, was positioned on the same job (the help-me-escape-the-chaos-in-my-world job). So the new product caused the Walkman brand to pop even more instinctively into customers’ minds when they needed to get that job
done. Had Sony not been asleep at the switch, a Walkman-branded MP3 player would have further enhanced this purpose brand. It might even have kept Apple’s iPod purpose brand from preempting that job.

Different job, new product.
The other way to extend a brand without eroding its value is to identify new, related jobs and create new purpose brands that benefit from the “endorser” quality of the original brand. An established brand can provide valuable endorsements where the brand extension is perceived to be relevant.

That said, an established brand is a “subject expert” not a “know all.”
When Michael Jordan endorses a basketball shoe, consumers get it.
When McDonald’s tries pizza, consumers don’t.

In some cases, it can be as simple as adding a second word to its brand architecture – a purpose brand alongside the endorser brand. Different jobs demand different purpose brands. Marriott International’s executives followed this principle when they sought to leverage the Marriott brand to address different jobs for which a hotel might be hired. Marriott had built its hotel brand around full-service facilities that were good to hire for large meetings. When it decided to extend its brand to other types of hotels, it adopted a two-word brand architecture that appended to the Marriott endorsement a purpose brand for each of the different jobs its new hotel chains were intended to do.

Individual business travelers who need to hire a clean, quiet place to get work done in the evening can hire Courtyard by Marriott – the hotel designed by business travelers for business travelers. Longer-term travelers can hire Residence Inn by Marriott’s, and so on.
Even though these hotels were not constructed and decorated to the same premium standard as full-service Marriott hotels, the new chains actually reinforce the endorser qualities of the
Marriott brand because they do the jobs well that they are hired to do.

For another example, study Church & Dwight’s dominant Arm & Hammer Baking Soda. Looking for growth, the company invested in observational research of their customers and found them using the product for myriad deodorizing and disinfecting jobs.

Further analysis revealed attitudinal insights:
Consumers trusted Arm & Hammer to provide “natural,” “strong,” “pure,” “reliable” answers to household chores.
Today, the iconic “orange box” accounts for less than 10% of sales.
The Arm & Hammer endorser supports strong purpose brands in carpet cleaning, toothpaste, laundry detergent, pet deodorizer, pool-cleaning chemicals and more.

Executives are charged with generating profitable growth.
And, rightly, they believe brands are the vehicles for meeting their growth and profit targets.
By carefully protecting your brand – first, do no harm – and understanding what jobs your customers need to get done, you’ll be on track to build purposeful products and achieve
genuine innovation.

Apple tops list of fastest growing brands

Apple, creator of the iPod, is the fastest growing brand in the world, with internet brands Google, Amazon, Yahoo! and eBay following close behind, pushing notoriously powerful brands like Coca-Cola off the list.

According to marketing consultants Vivaldi Partners and Forbes, Apple has managed to increase its brand value by 38% in the last four years — largely thanks to the ubiquity of its portable music device iPod.

Handheld email and phone device Blackberry and internet search engine Google tied in second place with 36% growth, putting websites Amazon and Yahoo! in fourth and fifth place respectively with 35% and 33%.

Power brands like Coca-Cola and McDonald’s, which typically spend the most on advertising, did not even make it into the top 20.

Sports giant Nike came in 16th place while Japanese car marque Toyota, with the highest brand value of $25.8bn, came in 17th place.

The report describes the growth brands as having “outperformed their peers in their respective markets during the past four years and are likely to continue to do so into the future”.

The Next Generation of Growth Brands is based on compound annual growth rate in brand value between 2001 and 2005.

Brand Value Increase

  1. Apple 38%
  2. Blackberry 36%
  3. Google 36%
  4. Amazon 35%
  5. Yahoo! 33%
  6. eBay 31%
  7. Red Bull 31%
  8. Starbucks 24%
  9. Pixar 23%
  10. Coach 22%