Thinking about Starbucks recently – reminds me of a theory I have on how brand extensions can work. It’s much easier for a premium brand to extend "downscale" and retain its core/prestige than it is for a mass market brand to reposition itself as upscale.
I recalled this after reading a couple of interesting mentions about Starbucks. The first was a post on Laura Ries’s "Origin of Brands" blog, discussing the SBUX distribution of Laurie Berkner DVDs. The other was a news article about increased presence in New England and Northeastern grocery stores. Reminded me of their kiosks popping up in airports and highway rest areas. Taking a quick look at their FY05 10-K, 85% of revenue was derived from company-operated retail, the core of the brand. These business model extensions appear to be successful as the company reports consistent margin and ROE growth since 2002.
It seems pretty clear that Starbucks should be a brand to emulate when considering business model expansion; they continue to grow their "core of coolness" (own stores) while monetizing the brand through licensing and alternate retail outlets. So why isn’t anyone crying "foul" or "sell out?" Because the moves make sense and allow them to successfully retain their premium brand while enjoying mass market distribution.
Brands RARELY succeed trying to claw their way upscale. More on that some other time.