Starbucks: How a Topless Mermaid Changed Our Morning Beverage

With over 35,000 stores across 80 countries, Starbucks coffee is one of the world’s most significant cultural fixtures.

Their famous cup featuring a topless mermaid rests in the hands of nearly 38 million Americans a month. Yes, that’s 38 million.

In the 1970s, most Americans enjoyed inexpensive, poor-quality coffee brewed at home. In 1971, Starbucks founders Jerry Baldwin, Gordon Bowker, and Zev Siegl sought to change that.

Initially, they only sold coffee Peet’s gourmet coffee beans. While this was profitable, the founders knew they needed to shift. In 1982, Starbucks began selling brewed coffee.

Terry Heckler, a friend of Bowker’s, encouraged the founders to create a list of words that start with “st” to find a firm name. The group remembered “Starbuck,” the name of a character in Moby Dick. Of the title, Bowker said, “I, of course, jumped to Melville’s first mate [named Starbuck] in Moby-Dick. But Moby-Dick didn’t have anything to do with Starbucks directly; it was only coincidental that the sound seemed to make sense.”

The small team met Howard Schultz when he walked into one of their stores. He struck up a conversation with employees and loved their coffee. The team brought on Howard Schultz as the director of operations and marketing later in 1982.

Schultz had visited Italy the following summer and was captivated by Italian coffee shop culture. He says, “In each shop I visited I began to see the same people and interactions, and it dawned on me what these coffee bars had created.” Schultz knew he wanted to “unlock the romance and mystery of coffee, firsthand, in coffee bars.” In 1987, he purchased the company from its founders.

Schultz saw an opportunity to grow Starbucks: He expanded the company, opening locations in Vancouver and Chicago. By 1989, 46 locations spread across the Western half of the U.S.

In June 1992, Starbucks did a 12% IPO. By then, the company had an annual revenue of $73 million, valued at $271 million. The IPO raised $25 million. Two years later,  Starbucks had doubled its number of locations.

Starbucks acquired The Coffee Connection in 1994. With it, they gained the right to make and sell the “Frappuccino.” The frappuccino debuted in 1995. Today, it’s among the most popular of Starbucks’ offerings.

Under Schultz’s guidance, Starbucks continued acquiring its competitors. In 1999, they purchased Pasqua Coffee. In 2003, they bought Seattle’s Best Coffee. Of the expansion, one customer said, "Starbucks is taking over the whole world.”

Luckily for Starbucks, that was the plan.

Starbucks executives began looking across the ocean for more opportunities. In 1996, the firm announced its move across the ocean to Japan. Over the coming years, Starbucks will develop its internationalization strategy, expanding into China, Europe, and Australia. Today, their growth strategy is legendary.

One of Starbucks’s key competencies is its ability to take and respond to customer feedback. The company is agile, recognizing the value of keeping loyal customers happy. Jumping onto the digital bandwagon, they launched their “My Starbucks Idea” website in 2008. The site collected suggestions and feedback from Starbucks customers; other customers could vote on recommendations.

Starbucks was hit hard by the 2008 financial crisis. CEO Schultz said, “We seem to have been a leading indicator of the recession. Our business really suffered very early on [in terms of] compression of traffic and average takings.” That July, they announced the close of 600 underperforming stores and the cut of 1,000 non-retail positions.

Starbucks’s internationalization plan hit major hurdles in global markets. In 2000, the company opened its first store in Australia. Over the next eight years, the firm opened 86 more locations. Their rapid expansion plan proved to be their Achilles heel. Though coffee was already popular in Australia, Starbucks was an acquired taste. Starbucks didn’t allow time for consumers to develop an appetite for the brand.

Following the recession, the firm’s success snowballed. Executives employed a digital marketing campaign and leveraged their famous app to grow their customer base.

However, in 2022, the company faced instability. Employees took up strikes across the U.S., citing long hours and poor compensation. Laxman Narasimhan replaced short-tim CEO, Kevin Johnson.

In response, Narasimhan told employees he would “work in stores for a half day each month…To keep us close to the culture, our customers, and our challenges and opportunities.”

As former CEO Schultz says, “Starbucks represents something beyond a cup of coffee.” Starbucks has 35 billion in yearly revenue (up 11% from 2022). The firm occupies 33.2% of the market share for Coffee and Snack shops.

With an average 11% profit margin, 74% of the company’s revenue comes from beverages. The rest comes from food and retail purchases.

Starbucks’s marketing strategy isn’t unique, though no less brilliant. The firm caters to a highly segmented customer base of high-income millennials and Gen-Z. Starbucks invests strongly in social media marketing, and successfully so: In 2024, the company was among the top 3 most followed brands on Instagram.

Relatively high pricing firmly positions them among their competitors, Nespresso, Dunkin Donuts, and Peet’s Coffee.

Starbucks invests in product management to create value. They constantly launch new limited-edition products to build urgency in their customers. Starbucks trademarks beverage names and slogans to maintain its competitive advantage.

Starbucks’s USP is its brand recognition and personalization. Their cups are iconic, and customer’s names are written on each.

Here’s what we can learn from Starbucks about marketing, digitization, and keeping employees happy.

Lessons

Employ highly segmented marketing tactics to beat the competition. Schultz, the former CEO, said, “There were times when we felt we wanted our own language - the words ‘small' and ‘large' felt, at the time, pede­strian. It seems to have worked.” Starbucks enjoys 33% of the market share for Coffee and Snack shops, so it’s safe to say he was right. Starbucks’s industry is volatile, proven by the firm’s wavering success amid the 2008 recession. With a substantial threat of substitutes and competitors, Starbucks’s recognizability and loyal customer base is no small feat. I highly admire the firm’s marketing tactics: As Schultz says, Starbucks “has not been defined by trad­itional advertising or marketing, but, quintessentially, by experience.” Starbucks locations are conveniently located in upper-middle-class neighborhoods and areas to appeal to their target audience. Their stores are designed with wooden furnishings and stainless steel to evoke a modern vibe. Starbucks knows what its customers are missing—a nice, neutral space for community building. Free Wi-Fi and muzak appeal to students and professionals who will likely spend a few hours there. Starbucks knows what customers want—exclusivity, community, and good quality. Highly trained Starbucks employees provide customers with a personalized experience—writing customers’ names on cups creates a connection, which is the tip of the iceberg. Of this tactic, Schultz said, “Starbucks is not an advertiser; people think we are a great marketing company, but in fact we spend very little money on marketing and more money on training our people than advertising.”

Offer consumers a variety of purchasing options, or invent them yourself.  According to Barron’s, “Starbucks identified the smartphone revolution years before most bricks-and-mortar firms.” Starbucks has been called a “tech company, " citing their app and website integrations.” In 2009, the firm launched its mobile app. The app’s pre-order feature allows customers to skip long lines. Starbucks’ app usage rate is 25%,  much higher than other brands. Kevin Johnson, the former CEO, said, “Our digital channels convenience has proven successful in driving demand.” It boasts 30 million users, giving Starbucks insight into customer buying habits. Integrating tech allows Starbucks to catch shifts in consumer behavior. Not only that, but it boosts sales. Starbucks says, “digitally engaged customers purchase 2 to 3 times as many products as those that are not digitally engaged.” New CEO Laxman Narasimhan said of consumer habits, “We are witnessing a seismic change in consumer behavior. That change is being brought about by technology and the access people have to information.”

Take responsibility for company (and personal) mistakes. Starbucks’s accountability is one to admire. Following failures in Australian and Israeli markets, the firm quickly adapted its globalization strategy, outfitting it with a combined localization approach. Of their adaptability, former CEO Schultz said, “In life, you can blame a lot of people, and you can wallow in self-pity, or you can pick yourself up and say, ‘Listen, I have to be responsible for myself.’” When Starbucks moved to Japan, they collaborated with local designers to curate a store vibe that matched consumer tastes. Schultz says, “I think my whole life, because of where I came from, I had a fear of failure.” Adapting and taking accountability staves failure and breeds growth, covering up mistakes. Starbucks’ accountability trickles down into its individual stores. Tell a barista you ordered your drink without cream, and they’ll apologize and fix it immediately. Former CEO Kevin John said, “[it’s] clear accountability, leveraging analytics, and data [that] help inform the decisions we make, it’s been working for us.”

Prioritize people, and invest in your employees more so than your competition. One thing I enormously admire about Starbucks’s new CEO is his approach to people. When CEO Narasimhan joined the firm’s C-suite in 2022, he was quick to don a green apron. He underwent 40 hours of barista training and worked front-of-house at multiple locations. Since the company’s founding, executives have prioritized “a different kind of business model— to achieve a balance between responsibility and social conscience. The first thing we did in 1988 was provide health insurance for every employee and equity in stock options.” Starbucks’s compensation packages are well above the industry average, and all hourly employees working more than 20 hours a week qualify for benefits. According to a 2023 Benefit Index analysis, Starbucks provides its hourly employees with more valuable benefits than any other 50 firms studied. During the COVID-19 pandemic, other companies cut HR costs. On the other hand, Starbucks enhanced employee training and offered courses that could be exchanged for college credit. Competitors can replicate products but can’t replicate Starbucks’ partner loyalty and fantastic customer service. This tactic is one I strongly admire: Happy employees mean happy customers. Starbucks aims to build “a meaningful relationship with people not only about the coffee.”

Use a strategic approach to guide growth. “If Vancouver did not succeed as Starbucks from '87 on, our entire international business, which is now thousands of stores and a significant amount of growth and profit, may not have existed.” Starbucks had under 100 stores at the beginning of the 1990s. In 2000, they had over 3,500 stores worldwide. Over just ten years, the firm expanded globally into Japan, Malaysia, the UK, China, and Australia. In the 90s and 2000s, the firm used acquisition and brand recognition to gain business in international markets. However, this strategy isn’t without its pitfalls. The former CEO says, “I think growth covers up mistakes.” The firm didn’t account for cultural preferences in Australia, causing its business model to fall flat. In Israel, overconfidence killed Starbucks’ launch. Executives learned their lesson. This is the most important thing to learn from Starbucks–never be afraid to shift your approach. In recent years, the company has used a localization strategy to accommodate the preferences of its international audience. Of the strategy, Schultz says, “China traditionally has been a tea-drinking country, but we turned them into coffee drinkers.”

Operate like a bank, and invest capital wisely. Starbucks’ genius app operates like a banking tool. Customers add funds to their accounts using gift cards, payment cards, or Apple Pay. Then, the currency sits in Starbucks’ hands until the consumer purchases. In-app purchases gain the consumer ‘stars’ they can use to discount future purchases, incentivizing them to use it more frequently. Starbucks’ app holds nearly $2 billion in cash. If it were a bank, it would be larger than 90% of those in the U.S. based on size. The firm earns a $164 million profit from unused gift cards used on the app. The unused cash is interest-free capital for the firm. They can reinvest in employee training, R&D, or marketing. According to Schultz, ​​“If you want to build a great enterprise, you have to have the courage to dream great dreams. If you dream small dreams, you may succeed in building something small. For many people, that is enough. But if you want to achieve widespread impact and lasting value, be bold.”

Videos

• Starbucks: Howard Schultz–A look into Starbucks’ rise to success.
• How Starbucks Became An $80B Business–CNBC examines Starbucks’s business success.
• The Starbucks IPO with Dan Levitan—Podcast discussing Starbucks’s IPO and rise to prominence.
• Starbucks: The First 50 Years–Details Starbucks’ early success.
• Why Starbucks Operates Like a Bank | WSJ The Economics Of—WSJ details Starbucks’ financial competencies.
• The Starbucks Business Model - Starbucks Company Breakdown–A look at Starbucks’ company history and overview.
• The Man Behind Starbucks Reveals How He Changed the World–Starbucks CEO’s interview with Bloomberg.

Suggested Readings

• Starbucks: Fortune 500—Details Starbucks’s important financial data.
• Starbucks: The Early Years—A look at Starbucks’s early business practices.
• Americans Wake Up and Smell the Coffee—NYT interviews Starbucks’s CEO and details coffee consumption in the U.S.
• Starbucks lets customers have their say—Starbucks’s customer service strategy.
• With Stunning New Stores, Starbucks Has a New Design Strategy: Act Local–Starbucks’s localization strategy.
• Starbucks chief executive Howard Schultz on marketing–The brand’s shifting marketing strategy.
• Howard Schultz and Starbucks: 25 moments to remember–The firm’s self-published history of its founding.
• Why Starbucks Failed in Israel—Starbucks’s shifting business strategy and important learning experiences.
• Starbucks: Howard Schultz vs. Howard Schultz—An in-depth look at Starbucks’s CEO’s philosophy.
• How a Topless Mermaid Made the Starbucks Cup an Icon—The brand’s business history.
• Starbucks Case Analysis—An academic look at the brand’s business strategies
• How Starbucks Has Gone Digital—MIT interviews Starbucks CIO and CDO.
• Starbucks Marketing Analysis—An in-depth look at the brand’s marketing toolbox.
• How Starbucks missed the mark in Australia—A look at important lessons learned by Starbucks’s failed launch.

Book Recommendations

• Starbucked: A Double Tall Tale of Caffeine, Commerce, and Culture—Details the brand’s rise to prominence.
• Onward: How Starbucks Fought for Its Life Without Losing Its Soul—Former CEO discusses Starbucks’s success.
• The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary—Authors decode Starbucks’s business practices.
• Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time—Former CEO details Starbucks’s recipe for success.