Branding and Starbucks' New Logo

Starbucks recently decided to modify their well-known logo, dropping the Starbucks Coffee border, enlarging the emblematic siren/mermaid, and making it all Starbucks green.  They're attempting to "modernize" the image and allow for the possibility of introducing non-coffee items in the future under the Starbucks brand as well as providing more emphasis on the fact that their products can be found in supermarkets and other settings besides its own retail stores.
Source: CNN Money, courtesy of Starbucks

There has been a backlash from some Starbucks aficionados as some are hesitant to change, especially when it has remained the same for the past 20 years.  Some like the new design, though, and the backlash is nothing compared to Gap's similar decision a few months ago, wherein they eventually stripped the new logo and reverted back to their original.  In the case of Gap, however, they completed abandoned their brand with the new logo, in my mind.  It was terrible business decision although some speculate it was publicity stunt to simply gain attention and the new logo was never intended to be adopted - to which Gap denies this conspiracy theory. 

Source: CNN Money
Gap's stock performance up to the date of the logo unveiling was down 12% for the year.   A week later, they announced they were dropping it, and its stock has been up 21% since that point through 1/5/2011 (GPS is down a whopping 8% today, by the way).  Obviously, its reversion back to its old logo isn't necessarily why the stock has performed well (correlation and causation are not nearly the same), especially considering competitors like Abercrombie, Urban Outfitters, and J Crew are up similarly over the same period (although American Eagle hasn't been so fortunate).  However, it's always a good thing when you get consumers to think about your brand and its identity (assuming it has been a positive one).  Perhaps bringing the possibility of the change to the forefront in the minds of many individuals, Gap consumers sought to seek out the brand again once it symbolically rededicated itself to its core principles.  While the backlash may have hurt sentiment from a managerial and marketing confidence standpoint, simply getting into the discussion again does seem to reap positive rewards.

Gap's main downfall in the logo decision, in my opinion, was attempting to almost rebuke their old identity.  Changing the font, the color of the font, and the style completely seemed to disregard its existing brand rather then building upon it for the future.  They abandoned the classic identity and thus would potentially alienate existing consumers.  If you have a decently strong brand following, that's the worst thing you can do.

Some argue that the "Starbucks Coffee" text amounted to millions of dollars in free advertising as consumers walk around with drinks in hand - while true, the new logo is readily identifiable (perhaps moreso due to the enlarging of the image) to their intended audience so I don't think the "losing free advertising" argument holds that much water.  Starbucks really doesn't advertise through any paid means (print, TV, etc.) and they don't need to because of the army of consumers that walk around with their easily recognizable products in hand.  Some firms branding is not dependent on being plastered on TV and billboards - much like Five Guys has recently exploded despite not advertising.  Five Guys delivers a product that fulfills a niche - all natural thick Idaho potato french fries and all-beef patties made to order that satisfies the gap in the marketplace between super fast-food fries and burgers and more upscale sit-down restaurants.  They have simply found the neglected niche, made a good product, and delivered results.

Starbucks new logo is similar to Gatorade dropping the full "Gatorade" text on the lighting bolt. Gatorade now simply has a "G" with the lightning bolt, sticking to their identifiable past with the lightning bolt with a simpler G identifying the brand.  (Although I'm not too sure about their branding themselves as "G" when talking about the product in ads - it's a simply a letter, but that's another topic all together as it's unrelated to the logo change).  Starbucks likewise stays true to their roots with the same stylized mermaid, in the same green color, while expanding their markets to possible non-coffee ventures, enlarging the image further to make it even more visible (since there is no longer a border taking up space).  I think the new Starbucks logo will stick for these reasons unlike the Gap one.  Whether the logo change is better than leaving it alone from a business standpoint is certainly up for debate and only time will tell if it stands the test of public scrutiny.


This post isn't investing-related exactly, but relates to business and company branding and marketing.  Obviously, such decisions can have an impact of stock price and public perception so I thought it'd be interesting to mention it.  Plus, I never promised all posts would be directly about investing.  While I still think the vast majority of individual investors are best served by investing in low-cost index funds, those with the desire or inclination to augment their holdings with individual stocks need to pay attention to company reputation, which is certainly affected by branding.  

A company's brand is perhaps its most valuable commodity.  While it certainly must provide a product or service consumers desire - and Starbucks did that by revolutionizing the American coffee house and offering items previously unheard of to the American consumer - the reputation of the brand propels a good business with a good product into a great business.  If Nike all of a sudden developed a new line of Air Jordans that had a defective sole that wore out in less than a month, it would still sell like hotcakes initially simply due to the Nike and Air Jordan brands.  Nike has widespread appeal to their intended (widespread) demographic and have developed a product that has consistently exceeded consumers' expectations.  It also has a "cool" factor, which doesn't hurt one bit.  Based on this historical data, consumers assume the brand will continue to deliver exceptional results.  Eventually, however, a poor product will catch up to the brand and its reputation would subsequently suffer.  That's why maintaining a positive reputation is essential to a good business model as it delivers repeat customers and referrals.

On this note, if you do intend to choose individual companies to invest in, not only must they have a product that others desire, but having a good brand and reputation is key to continued financial and stock price success.  That's why I encourage people to seek "best of breed" companies.  If you're interested in a particular sector - say fast-food industry - one must not only look at the financial statements and valuation metrics, but its general perception among the intended demographic.  If McDonald's and Burger King had the same fundamentals, I'd rather own MCD - its brand is simply stronger at this point in time in my mind.

While I'm certainly not a marketing or advertising expert, I find such business decisions intriguing, and if you invest in individual companies, you probably want to pay attention to how the company is perceived by its intended clients.  I want to emphasize that last point.  A company like McDonald's needs to market its brand to appeal to the masses, in particular to demographics where fast-food consumers are more readily available.  On the other hand, while public perception of a company like Goldman Sachs can have an effect on its stock price, its financial well-being and long-term stock price will definitely be more affected by its financial bottom line and perception of the firm from its more high-rolling clientele.  Goldman Sachs doesn't need to appeal to a 17-year old making minimum wage. 

Of course, a logo is not the only marketing and branding a company does.  But its importance cannot be understated as it's truly the identifier of the firm.  Starbucks gets a ridiculous amount of free advertising simply by consumers being on-to-go with a cup saying "Starbucks Coffee" on the side.  While removing the company name gets rid of this free by-name advertising, the Starbucks mermaid/siren has become so ubiquitous and well-known that Starbucks can pull it off without any adverse affects, in my opinion.   Much like Nike's swoosh - it has a simply elegance where the name is not needed.  People just know the swoosh and that leads to even more allure perhaps.

On a somewhat different topic, I recall an engineering dean talking about reputational surveys and rankings.  She was saying that Georgia Tech could essentially eliminate half of its labs and faculty and people would still rank it highly because of its perceived level of historical excellence over the long-term.  While cutting corners might eventually cost Georgia Tech its reputation as an engineering powerhouse, in the short-term administrators and students would give it the benefit of the doubt due to its established brand.   Brand significance spans beyond the corporate marketing world.

A company's reputation and brand is perhaps its most significant commodity to continued success and growth.  While quantitatively analyzing such a variable proves extremely difficult, I thought it would be an interesting topic to explore in this post.  While financials of a company tell an important story, the public perception of the firm cannot be overemphasized.  If a firm has a bad quarter, but perhaps its due to the recession or in a cyclical sector, as long as its brand is widely recognizable or positioned in such a manner to become that way, I would select it over another competitor all else being equal. 

There is no substitute for a positive reputation and brand.  Building one is key for a company's long-term success.

15 comments:

  1. There'll always be a backlash when you change something. Doesn't necessarily mean that the public is right! Take apple for example - they changed their multi-colored logo, there was a backlash, but Apple stuck to its guns and people accepted the new logo. The same goes for the iPad, Mac's flat keyboard when it was first introduced, firewire...

    I actually liked Gap's new logo. People have a short memory.

    ReplyDelete
  2. Thanks for the comment. I agree with you that people don't like change and the public isn't nearly always right. After a short adjustment period, I'm sure people will welcome in open arms the new Starbucks logo. And life will go on as normal. Consumers definitely mocked the iPad name, comparing it to a feminine hygiene product ad nauseum, but now iPad has entered the English lexicon and the initial apprehension is a distant memory.

    However, there definitely are some major marketing and branding blunders that certainly do cost companies market share. I thought the new Gap logo was okay, but really was a "starting over" effort, which perhaps would alienate some of its most loyal consumers. If they wanted to create a new identity then I guess that's the way to do it, but they should have stuck to what makes them recognizable.

    For the most recent example I can think of a poor change, look no further than Tropicana. They kept the exact same product but simply developed new packaging. It was an unmitigated disaster. I mean, this is just orange juice! Consumers know what it is and they know the Tropicana brand, but they were so dismayed at the look, they stopped buying it. They made it generic looking, like a private label grocery store made from concentrate brand. I personally liked the blunder from a personal perspective because Tropicana orange juice went on major sale as they tried to get rid of the inventory with the new packaging as quickly as possible in my local grocery store. Tropicana completely abandoned their signature "orange with a straw in it" look and became just another unrecognizable brand. A look can be quite important, especially with packaged goods.

    Apple and Starbucks, on the other hand, have updated their logos but still made them recognizable to consumers. I think that is a key difference. The brand and logo should distinguish yourself from competitors and be readily identifiable - if it does that and your product is something people want to buy, results will ultimately be positive and the backlash from the change will be short-lived and soon forgotten. Apple's new logo has obviously served it well and it was a good business decision in the end. I, too, expect the same with Starbucks. At least, that's my take on it.

    Cheers!

    ReplyDelete
  3. A professionally crafted professional logo design is one of the greatest blessings for a company; whether it is big or small. It gives them an identity of their own and makes them different from others.

    ReplyDelete
  4. Branding is important. I'm a double major in finance and advertising, and when I'm not busy trying to kill myself with work I'm studying the relation of time to "simplicity" of brands. In a world where it's difficult to create a single name company or website, logos are important.

    You can see large and competitive brands like retail and professional organizations. Or you can see smaller niches like hiking blogs or different fan club communities.


    I remember reading this study where children as young as five couldn't remember material they learned in their previous year of schooling, but they could remember logos like McDonalds, Kellogg's, Hasbro, etc. While it might be a sad description of society (an anecdotal opinion, admittedly), it also demonstrates that branding and rebranding works.

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  9. Starbucks model is now very old. The real problem with Starbucks Is that consumers think of the company as nothing more than a upscale coffee shop. That was fine when everyone was willing to pay 5 Dollars for a cup of gourmet coffee' But now MCdonald's along with seven eleven among many others are entering the gourmet coffee business and selling that same cup of coffee for just 2 or 3 dollars.

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  13. Starbucks model is currently earliest pens. The important issue having Starbucks Is actually that people consider the company while just the upscale cafe. Which was fine as soon as everyone was happy to pay out 5 Bucks for the mug associated with gourmet yacon syrup coffee' But today MCdonald's in conjunction with more effective 12 between many more are usually going into the actual gourmet gourmet coffee company as well as advertising that same walk for just two or three us dollars.

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