Ken Lombard and Anne Saunders, Starbucks

Long after all the artists have left the stage, the past year in music will go down as the period in which moody Cold play got the critical raves (and the girl), emo band Death Cab for Curie got its due (and its cameo on The O.C.) and Green Day got political (along with all those VMAs). But another unlikely entity also deserves a full-stadium cigarette lighter saline: This is the year Starbucks Coffee pulled a Nigel Tufnel and cranked its musical amplitude up to "11." High-profile releases by Ray Charles (Genius Loves Company, a CD of duets), Bob Dylan (Live at the Gaslight 1962, an exclusive live set) Alanis Morissette (a 10th anniversary, all-acoustic version of Jagged Little Pill), along with the coffee chain's exclusive distribution deals and stealth marketing plan are leading many to say that Starbucks is modifying the model of how music is sold.Even art imprint dedicated to new acts has done what few labels could, as evidenced remarkably by this summer's release of female rock band Antigone Rising's from the Ground Up. Through an exclusive deal with Lava Records, 85,000 units (per SoundScan) sold across its coffee counters, an unheard-of number for a relatively unknown band. Such has been Starbucks' impact on a generally moribund music business.Behind all these eclectic aural offerings are Ken Lombard, president of Starbucks Entertainment, and Anne Saunders, 44, svp-marketing for North America. Lombard, 50, and his entertainment team works closely with Saunders' marketing unit, which is responsible for relaying all of Starbucks messages with a minimum of traditional advertising. The team has coalesced something remarkable: a selective, yet no-pressure record club that has both enhanced the all-important Starbucks "experience" and created a must-have CD retail environment even as traditional music industry gatekeepers have been steadily losing the ears of music fans."We've stepped into a void in the music industry," Saunders said. "We've added to the retail availability of CDs, and it's kind of new news for the industry."Beyond its pr and real estate prowess, Starbucks' capacity to find audiences for new and different voices means it is filling an even greater void, proving that respect for customers' tastes can move the cultural needle where homogenized radio can't. It has become a new kind of DJ, a trustworthy one. Which is why some people are screaming that Starbucks is all but reinventing the disc.too much hype? Perhaps. Take a step back and the brand's opportunities and influence in the entertainment arena become more apparent. What emerges is not a coffee company slinging songs on the side but a real reinvention of how consumers sample and buy music.Jack Anderson, CEO of Seattle design firm Hornall Anderson, a friend and client of Starbucks founder Howard Schultz since 1991, had that impressed upon him at dinner with Schultz about a year ago."I asked Howard, 'What really gets you up in the morning?' and he said, 'What's got me so excited about right now is entertainment,'" Anderson recalled. "At the time--and I think it's still the case--Howard was sitting on the Dreamworks board, and he's around people in entertainment and music and he enjoys that. He was very excited about the potential of where Starbucks could take music or entertainment. This is their first step in the water, but it's not a trivial endeavor for these guys."Richard Gay, svp-strategy and business operations for VH1, gives the chain high marks for its efforts so far. "How smart they've been in getting into music. They didn't say, 'We're a retailer, let's do what Wal-Mart and Best Buy do.' They said, 'We're a different type of retailer, one with recurring traffic,' so the plan was built around what already works for their loyal consumers. They found their own niche."Despite more than 7,000 stores in the U.S. (4,748 of them company-owned, the remainder licensed) and 9,600 international locations, Starbucks' music business in itself will never pose a serious threat to, say, Universal Music or Virgin Megastores--although it should be noted that the coffee company has moved 775,000 units of Charles' Genius Loves Company and 190,000 of Jagged Little Pill Acoustic. Instead, the brand architects see themselves as complementing the coffeehouse experience, not as music moguls."I think there's been a lot of restraint, which is great," said Scott Bedbury, the company's CMO from 1995-98 and founder of brand development consultancy Brandstream, Seattle. He recalled a period in the late '90s when Starbucks was flirting, perhaps misguidedly, with the idea of carrying a lot of merchandise, from perk paraphernalia to polenta. But Starbucks managed to winnow those ideas down to its basic brand essence of workaday escape and enabler of quality time--and its adult alternative music selections fit that to a tee. "The coffeehouse should be about that oasis," he said.Of course, the brew is not totally new for Starbucks, which began its phenomenal growth on Schultz' vision of a retail brand in which look, smell, sound and feel communicate as much, if not more, than any marketing tactic. Schultz' famous epiphany during a 1982 trip to Italy when visiting its leisurely cafes and his subsequent purchase of the local Seattle retailer seeded a concept that was fairly alien to the U.S.: a relaxed coffeehouse/salon in which quiet introspection is as welcome as conversation and where the sense of community is as strong as the espresso.Schultz purchased a brand that had already made aural ambience a big part of its appeal. As early as the mid-1980s, word spread around Seattle that the manager at the University Village store, Timothy Jones, had a knack for creating and playing awesome mixtapes. Customers responded, often asking the names of artists who performed particular tunes. Word of this homegrown talent spread and Starbucks promoted Jones to program the entire chain's musical menu. In 1994, with Starbucks building its distinct elan across the country, he asked, "Why don't we market our own CD or tape?"As Starbucks began its ascent onto every American intersection, so did the company's musical philosophy. Evolving Jones' carefully crafted comps, the company teamed with Blue Note Records for a Starbucks-branded Blue Note Blend CD that played and sold in stores and ultimately served as a model for other retailers, notably The Gap, which were quick to create their own "lifestyle" CDs. The partnership spun many more discs as Starbucks dabbled in diverse genres with titles such as Mambo Mia, Baroque Blend and Care Cubana.Collaborations with individual artists came next. The Opus Collections line, billed as "our favorite songs by essential artists," has been dedicated to acts such as Sly & the Family Stone, Etta James, Louis Armstrong, Frank Sinatra, Otis Redding and Miles Davis, while the Artists Choice sub-brand lets musicians serve as song selectors (Elvis Costello picked song-smiths ranging from Randy Newman to Rilo Kiley on his disc). The Debut line is dedicated to breaking emerging acts, such as Antigone Rising."Starbucks is tapped into providing what their customer wants, and they are very trusting of its recommendations--they'll even buy bands they've never heard of before," said Man Miller, co-owner/publisher of indie music mag Filter and co-owner of Filter Creative Group.Perhaps its biggest step into music came in 1999, when Starbucks acquired Hear Music, a five-unit chain with a reputation as a trusted music source and cool place to shop. It has since become the muse for Starbucks' artistic release, retail and distribution efforts.The label also stands for "the voice of music at Starbucks" and graces everything from its branded CDs to its XM Satellite Radio station. It has expanded the retail concept of Hear Music's Santa Monica store--where customers can burn and buy CDs along with their coffee--to 40 Hear Music media bars in Seattle and Austin, Texas, with plans to spread out to Miami and San Antonio by year's end. While the stores are not intended to replace the Starbucks model, they serve as an incubator for musical notes that could be relayed to the chain."Starbucks is a minor player in this--I can't see myself saying, 'I need to buy a CD' and running down to my local Starbucks, and I don't see them as a threat to iTunes or anything," said Christopher Ireland, principal at Cheskin Research, Redwood Shores, Calif. "But it's a logical add-on, an artifact of the Starbucks experience."Music is but one of several evolving products that fall under the marketing purview of Saunders, who began working for the company's interactive division in the summer of 2001 and went on to helm the Starbucks reloadable cash card, and its wireless initiative. Its new brews like Green Tea Frappuccino, Starbucks coffee liqueur or Ethos water--whose profits help build clean water systems in developing countries--all have one thing in common: They are imbued with the notion of discovery that is at the heart of the brand. "We think we're providing something interesting for people who continue to come in," said Saunders.Lombard, who formed urban development company Johnson Development Corporation in 1992 with partner Earvin Magic Johnson, joined Starbucks in the spring of 2004--just in time to orchestrate a major project in the company's cascading musical portfolio, Ray Charles' Genius Loves Company. The August 2004 release was Starbucks' first note in a stepped-up music strategy in which the brand took on the role of facilitator, distributor and marketer along with label Concord Records."When we were looking for someone to take the helm of a new division, Ken was a natural choice," said Saunders.About a month after Lombard took on the ambitious project, Ray Charles died. "Literally, we were in a marketing meeting discussing how we were all going to come together for this project when we heard Ray had passed," he recalled. Charles had been sick, so the label had contingency plans in place. The team took a moment to pause, but soon moved forward with what everyone felt they owed to Charles and released his final recording. The CD went platinum in less than two months and won eight Grammys along with the coffee customers' seal of approval: 30% of the discs sold at Starbucks outlets."With Ray Charles, we were watching our customers' reaction, whether they would give us permission to go beyond coffee," Lombard said.Over the past 18 months, the entertainment department has delivered 40 musical offerings from Beck (Guero) to early Dylan, and grown from 18 employees to a team of 61 music lovers with industry experience and what Lombard defined as "a laser focus on putting together the music strategy." His key players include Timothy Jones (manager-compilations/programming), the one-time manager whose mixtapes sparked the brand's musical conscience, Don MacKinnon (v-p-music/entertainment), one of Hear Music's founders, and Geoff Cotrill (vp-entertainment/sales & marketing), a Coca-Cola vet."Ken and his team all sing from the same song sheet," said Gay from VH1, which supported the Alanis Morissette and Antigone Rising releases with complementary programming on the network."The way we market music is much like how we've approached our entire business," Saunders said. "Community events are important to our customers. We think that's a better way to create a lasting relationship than with a 30-second ad. Music is very similar: We support it in our stores, at music festivals, things that are more experiential and meaningful."Much has been written about Starbucks' floor space and how it can be used more effectively in off-peak dayparts. About 70% of transactions occur before 10 a.m., when customers spend less than five minutes in stores, while the remaining 30% happen after 10 and last 20 minutes or longer on average.While these slower hours and longer visits present better sampling opportunities, "we don't think of music so much as [a driver] for other dayparts--the music is still relatively new at Starbucks, and the people buying music are customers who are coming in to buy coffee," she said. "But we think as people become more aware that we offer it, we can become a destination where people go to buy music."Rather than experiment to discover what works and sells best, Starbucks' diverse portfolio of music illustrates how the brand is positioning itself long term to its core Gen X and boomer consumers. These patrons, Saunders said, find themselves somewhat baffled and intimidated by their current music retail options, in which, arguably, 1% of labels' artists are marketed down their throats. As for the remaining 99% of potential audio jewels, the traditional music store's strategy seems to be file 'em all and let Todd sort 'em out."They aren't necessarily going to go to a record store or a Best Buy to get music, but they're already buying coffee each morning," said Filter's Miller. And hell, since they're there and maybe even paying with plastic to perk up, why not just add a Ray Charles or Sheryl Crow CD to the tally while they're at it?Frequency is also a factor, as the chain's most loyal fans visit 18 times a month. "One thing we realized early on was the fact that we have a unique set of assets that could provide a solution to [the challenge of] retail distribution," Lombard said, "and part of those assets is the 34 million people that come in to Starbucks each week."The simple-sounding goal: to combine a breadth of selection with convenience. "Where do you learn about music today, and where do you go to buy it?" Saunders said. "We have music playing overhead all the time, and people have come to trust the editorial voice we have. We like to think of Hear Music as a friend recommending music, whether it's a new band or [a classic artist]."While it will reach out to younger consumers entering the fold, it has a knack for listening to the musical experiences its customer covets. And it ain't--right now, at least--Mrs. Kevin Federline."We feel our customers have spoken very loudly. They want to go beyond Top 40 and limited formats," Lombard said. "It's critical that we provide very unique music opportunities they can't get anywhere else." An Etta James fan, Lombard listens to new music each day to stay in touch.Traditional music labels, retailers and artists are struggling in this era of marketing over artistry, monopoly over competition, burning over buying. Mp3 downloads, MySpace-type communities and retail partnerships--a la Starbucks and Alanis, but also Garth Brooks and Wal-Mart, the Rolling Stones and Best Buy--are emerging as alternative means to distribute tunes.The music store of the future will not be a store, per se, because it won't be able to justify its square footage. Instead, it will be composed of many smaller models. Consolidate their power and add in the rise of self-publishing and digital purchase and delivery from Amazon to iTunes and you've got a landscape shifting too quickly for traditional models to remain entrenched.With lattes and coffeehouse ambience its core business, Starbucks can avoid the doldrums plaguing the music industry. A host of other brands--from Pottery Barn to Heineken--are taking a page from its play-book and moonlighting as music marketers.In a recent Cheskin study, Starbucks ranked No. 6 among 50 global brands on "brand extendibility," defined as how much latitude consumers give it to stretch to new markets. Would consumers flock to buy tickets at a Starbucks' Web portal or attend concerts at branded venues? Will they one day listen to Hear Music tunes on Starbucks-siren-logoed Mp3 players?"I think they could move toward doing some live stuff--the goal is to find venues where music can be performed," Bedbury said. "Who's to say Starbucks can't also sell tickets, perhaps through a Web site? Whatever they do, it won't slow down the process--coffee is a quick experience."Saunders isn't sure patrons would, say, queue up for Queens of the Stone Age seats while their 'ccinos get frapped, but music will remain a hot prospect. "Other parts of our business have extended to other stores and channels, so we can't see why music wouldn't have legs outside our stores."Lombard's title--president of entertainment, not just music--absolutely hints of more to come. But he's in no rush to define the brand; he'll let his audience do it."We are convinced that in five years we would have transformed the way that individuals will explore, discover, personalize and buy music," Lombard said, "and we're working hard at executing the first phase of our strategy. "We've achieved success so far, but we'll continue to monitor what our customers tell us--we'll learn from them [how we should program] our CDs and our Wi-Fi network. This is a work in progress."Photograph by Rick Dahms

Brand Marketing

Ken Lombard and Anne Saunders, Starbucks

Becky Ebenkamp

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Becky Ebenkamp