Case Study: Starbucks

1

Strategic Marketing Planning of

Starbucks Coffee® A Case Study

Angelito Estrada Christian Angeles

Presented by

2

Strategic Marketing Planning of

Starbucks Coffee A Case Study

STARBUCKS HISTORY 03

The name was inspired by Herman Melville’s classic novel Moby Dick’s first mate.

This name and the mermaid logo were inspired by the love of the sea, from Starbucks original location in Seattle Washington in the heart of Pike Place Market.

Three friends, Jerry Baldwin, Zev Siegl, and Gordon Bowker, who all had a passion for fresh coffee.

1971 Starbucks opens first store in Seattle’s Pike Place Market.

History 04

1982 Howard Schultz joins Starbucks as director of retail operations and marketing. Starbucks begins providing coffee to fine restaurants and espresso bars. 1983 Howard travels to Italy, where he’s impressed with the popularity of espresso bars in Milan. He sees the potential to develop a similar coffeehouse culture in Seattle. 1984 Howard convinces the founders of Starbucks to test the coffeehouse concept in downtown Seattle, where the first Starbucks® Caffè Latte is served. This successful experiment is the genesis for a company that Schultz founds in 1985. 1985 Howard founds Il Giornale, offering brewed coffee and espresso beverages made from Starbucks® coffee beans. 1987 Il Giornale acquires Starbucks assets with the backing of local investors and changes its name to Starbucks Corporation. Opens in Chicago and Vancouver, Canada. Total stores*: 17

05

1991 Becomes the first privately owned U.S. company to offer a stock option program

that includes part-time employees.

Opens first licensed airport store at Seattle’s Sea-Tac International Airport. Total stores: 116 1992 Completes initial public offering (IPO), with common stock being traded on the NASDAQ National Market under the trading symbol SBUX. Total stores: 165 1993 Opens roasting plant in Kent, Wash. Announces first two-for-one stock split. Total stores: 272 1996 Begins selling bottled Frappuccino® coffee drink through North American Coffee Partnership (Starbucks and Pepsi-Cola North America). Opens stores in: Japan (first store outside of North America) and Singapore. Total stores: 1,015

History

06

1997 Establishes The Starbucks Foundation, benefiting local literacy programs.

Opens stores in: the Philippines. Total stores: 1,412 1998 Acquires Tazo, a tea company based in Portland, Ore. Extends the Starbucks brand into grocery channels across the U.S. Launches Starbucks.com. Opens stores in: Malaysia, New Zealand, Taiwan, Thailand and U.K. Total stores: 1,886 1999 Partners with Conservation International to promote sustainable coffee-growing practices. Acquires Hear Music, a San Francisco–based music company. Announces third two-for-one stock split. Opens stores in: China, Kuwait, Lebanon and South Korea. Total stores: 2,498

History

http://starbucks.com/

Starbucks Mission 07

"To inspire and nurture the

human spirit - One person, One

cup, and One Neighborhood at

a time."

Starbucks Vision 08

“Establish Starbucks as the

most recognized and respected

brand in the world."

Starbucks’ Six Principles 09

•Provide a great work environment and treat each others with respect and dignity.

•Embrace diversity as an essential component in the way they do business.

•Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of their coffee.

•Develop enthusiastically satisfied customers all of the time.

•Contribute positively to their communities and their environment.

•Recognize that profitability is essential to their future success.

Starbucks’ Unconventional Marketing Strategy 010

Perfect Cup of Coffee- Emphasis on product quality. Their coffee, even though priced slightly more expensive than expected, is notorious for satisfying customers with its rich, delicious taste and aroma. Third Place- Creating this unique and relaxing “experience” and “atmosphere” for people to go to between home and work has been very important for the company as they realized that this is one of the strongest concepts attached to the company, to which customers have been strongly attracted.

Starbucks chose an unconventional marketing strategy that may be unique and seldom-tried, that will most perfectly match the concept that the company wants to portray.


Customer Satisfaction –From the entrance to the store to the very last drop of their coffees, it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience. Creating a Starbucks Community- The Starbucks marketing strategy has even expanded to create a community around their brand. On their website, individuals are encouraged to express their experiences with Starbucks history, and the company strives to “personally” join in the discussions. Smart Partnerships-Starbucks Coffee Company has been known to create strategic partnerships that demonstrate the fact that another way to grow your business is to partner smart.


Innovation- Through the years, they’ve added different flavors to their coffee, more food on their menu, and even became one of the first to offer internet capability in their stores. Brand Marketing- The Starbucks marketing strategy has always focused on “word-of-mouth” advertising and letting the high quality of their products and services speak for themselves.

Starbucks Expansion Strategy 013

•Establish hubs in large major cities •Ensure city is able to support 20 or more locations in the hub within the first two years •Once hub is blanketed, open more stores in smaller city areas around the region •Implement zone managers to oversee the development process of each hub

STARBUCKS MARKET ANALYSIS 014

SWOT analysis

SWOT Analysis

Internal factors

External factors

Strengths

Weaknesses

Opportunities

Threats

Strengths 016

Global recognition

Quality products

Profitable organization

Strong financial foundation

Visionary leader

Its goal is to become a ‘third place’ within its consumers lives.

Offers free ‘wifi’ connection

Comfortable ambiance

Brand Image 017

Focuses on consistency in delivering positive consumer experience stresses the point about

consumer visits to its cafes being an experience

Four store designs—one for each of the four stages of coffee making: growing, roasting, brewing, and aroma—each with its own color combinations, lighting scheme, and component materials

They create a consistent, inviting, stimulating environment that evokes the passion for coffee

Every barista hired for a retail job in a Starbucks store received at least 24 hours training in the first two to four weeks. The training included classes on coffee history, drink preparation, coffee knowledge (four hours), customer service (four hours), and retail skills, plus a four-hour workshop called "Brewing the Perfect Cup.“

Quality and keeping all aspects consist is of main concern

EX: Customers who order one pound of beans must be given exactly that—not .995 pounds or 1.1 pounds; never let coffee sit in the pot more than 20 minutes; always compensate dissatisfied customers with a Starbucks coupon that entitles them to a free drink.

Weaknesses 018

High price

Importing roasted coffee

Known only for coffee

Excessive focus

Employees report to two division heads

Increasing shareholders dilutes their interest

They have expanded too quickly, and have already saturated the US market

They do not allow smoking in their stores, alienating some of their customers

Opportunities 019

New Market Opportunities Internationally, especially in

European and Latin American markets

New Products:

Health drinks

Organic drinks

Energy drinks

Kid focused drinks

More bottled drinks sold in stores- Expand on distribution

Form partnerships with other coffee companies- widen market

U.S. job creation-

Accept donations at CreateJobsforUSA.org and Starbucks cafes in

the United States

Threats 02

0

The coffee market is saturated

Cost of coffee beans is expected to rise in the near future

Supermarkets threaten whole bean sales

Farmers might switch from coffee to vegetable crops

High competition from Japanese competitors

Consumers trend toward more healthful fare

Threats 021

The Threat of New Entry :

McDonald's came into direct competition with Starbucks when it

upgraded its coffee in 2006

As a result, the average number of customers visiting a Starbucks

store declined from an estimated 460 in 2005 to just above 400 in

2007

With the launch of McCafe in 2008, the competition between the

two chains intensified further.

Smaller privately owned coffee houses

Other coffee shops like Dunkin Donut, Figarro and Coffee Bean

Threats 02

2

Bargaining Power of Buyers:

Force of the buyer’s bargaining power is proportional to the ability of buyers

to force down prices

differentiation involved in the specialty coffee industry and the lack of

differentiation in the basic coffee industry

Image Threat:

Anti-Starbucks Groups:

National Gun Victims Action Council (NGAC)

Unions

Petition for Good Jobs at Starbucks

Increased pay

Unique Strategy 02

3

To capture key locations and open stores in close proximity to each other is

unique strategy for Starbucks

ensures that licensed store that don’t meet set achievements are closed down

Clustering its stores in one area helped Starbucks quickly achieve market dominance. With over 20 million regular customers per week

Spends less than 1% of its annual revenues on advertising- Starbucks strategy relies on word of mouth advertising.

Engaging in smart joint ventures with the right companies:

-Pepsi-Cola Co.

- New products: Hot sandwiches, new drinks, coffee liqueurs, instant coffee

Industry PEST Analysis

02

4

Political Influences State & Local government controls

Economic Influences

Changes in disposable income could influence purchase levels

Social Influences

Consumer preferences could shift from coffee to other beverages

Technological Influences

Use of technology can improve operational efficiencies

Competitors 02

5

7-Eleven Dunkin Donuts McDonald's Green Mountain Coffee Roasters Coffee Bean and Tea Leaf Costa Coffee Peet's Coffee and Tea Caribou Coffee Second Cup Kraft Procter & Gamble Nestlé

Boston Matrix 02

6

Boston Matrix 02

7

Above is the Boston Matrix. It shows the cash cows as the regular Starbucks line of Coffee’s, Latte’s and Frappuccino’s found at nearly every location. These are stable products that account for the bulk of sales. A potential star is the International locations, which hold less financial risk and open doors for innovation and stability. Question marks are the recently added VIA instant coffee to be expanding to grocery stores and convenient stores. Current products like this such as the dog, pre-bottle Frappuccino’s account for a tiny fraction of sales. Another question mark is the oft forgotten sub-brand Seattle’s Best. The company will be revamping this brand and its future is unknown. The following is Porter’s Generic Competitive strategy. Shown is Starbucks as a whole in the differentiation strategy as they provide a high quality coffee and unique experience in the convenience of a large volume of locations, which separates them from their competition. VIA, the new instant coffee line is straddling differentiation and low cost- leadership. While it will be a low cost and convenient alternative to Starbucks regular coffee, it is still unique from other products in the market. The in-store gifts and brewing utensils are in the focused differentiation category as they cater to the coffee lover, and are unique items found only in the Starbucks stores.

Competitive Advantage 02

8

The above is Porter’s Generic Competitive strategy. Shown is Starbucks as a whole in the differentiation strategy as they provide a high quality coffee and unique experience in the convenience of a large volume of locations, which separates them from their competition. VIA, the new instant coffee line is straddling differentiation and low cost- leadership. While it will be a low cost and convenient alternative to Starbucks regular coffee, it is still unique from other products in the market. The in-store gifts and brewing utensils are in the focused differentiation category as they cater to the coffee lover, and are unique items found only in the Starbucks stores.

Porter’s 5 Forces 02

9

Porter’s 5 Forces 03

0

Above are Porters 5 Forces and their level of threat to Starbucks. The bargaining power of suppliers is high because of the natural resources needed to create their ingredients and Starbucks believes in finding fair-trade and high quality beans, often from other countries These specifications limit the number of suppliers. The threat of new entrants is medium in that the coffee market is changing. The need for ambiance and a place to share is losing edge to the on-the-go alternatives, and should a new entrant comes along with a different business model there is room for threat. However, Starbucks is the household name. Industry competitors is on the rise because of McDonalds creating the McCafe line. Peets have increased presence as well. Threat of substitutes is low, because coffee is always going to be a desired drink and pastime of choice.

Alternative Action 031

There are alternative actions Starbucks can take to secure its competitive advantage it has upheld for so long. Below is the current value curve for Starbucks and its most relevant competitors Peets, and the McCafe Line.


2


3

MC Donalds shows a similar curve, but lower in all levels. The one item that truly separates the two is the reputation Starbucks has in the coffee industry unlike McDonalds. The rest is similar, which shows a threat to Starbucks becoming part of a red ocean. Peets have an opposing curve, which could be a threat but their lack of volume, and brand recognition limits them from competition. My suggestions for the Four Action framework would be to create more customization by al- lowing users create new flavors and drinks above and beyond the options they have now. This would incorporate with the other creation of online user experience. Users could go on to the online Starbucks interface and have complete control to create their own drink, order online, find the nearest Starbucks and receive directions. Users could post their favorite drink combination and others could vote on it. Also involved in user experience could be mobile apps, putting in drink orders, finder etc. to enhance the Starbucks brand in the new digital era and to create a blue ocean for the coffee experience.

DEMOGRAPHICS 03

4

Perceptual Mapping for McCafé, Starbucks and Dunkin’ Donuts 03

5

Starbucks Today

36

• $15 billion chain coffee business

•Total net revenues increased 10% to 2.8 billion

•EPS increased 21% to $0.34 in Q2 FY11 compared to $0.28 in Q210‘ s 16,706 Starbucks stores in the world located in more than 50

countries

Number of Starbucks’ stores world wide

Starbucks around the Globe

STARBUCKS EXPERIENCE - 4 P’s

Product – What Starbucks can provide for me?

03

8

Tangible Product

Coffee, coffee bean, tea, food, cold drinks (milk, water, juice), tea, bottle , mug , music and seasonal products

Core Product: services provided in store Coffee, considerable service, relieved atmosphere, decoration , Wi-Fi connection Augmented Product: intangible service Interaction with customers

Tangible Product

Tangible Product

Coffee, coffee bean, tea, food, cold drinks (milk, water, juice), tea, bottle , mug , music and seasonal products

Core product

Core Product: services provided in store Coffee, considerable service, relieved atmosphere, decoration , Wi-Fi connection

Augmented Product

Augmented Product: intangible service Interaction with customers

Placement

Coffee store

Supermarket, restaurants and bakeries

Online store

High price and high quality Price = cost + profit 1 + 1 > 2 Perceived-value pricing strategy

Price Price

44

PROMOTION: COMMITMENT TO THE WORLD

“We always figured that putting people before

products just made good common sense.”

Sales Advertisement Merchandising Social media Corporate Social Responsibility

Sales

Changing prices Free coffee in determinate period Receipt as coupon Online coupon

Cards

Special offer in website (buy 2 and get 1 free / special discounts)

Merchandising

Social Media

Corporate Social Responsibility(CSR)

Green Stores: Building greener stores

Purchased renewable energy

Greener Cups: The quest for the 100% recyclable cup

Starbucks in the Philippines

December 4, 1997, the Philippines had its first taste of the Starbucks Experience with its very first branch at the 6750 Ayala Building in Makati City. Starbucks has since won the hearts of the Filipinos. The opening of the 6750 Ayala store marked an important milestone in our history – the Philippines became the third market to open outside North America. The tradition of warm hospitality, constant need for connection, and love for coffee – these are the qualities that make Starbucks Coffee and the Filipino people a great culture fit.

Future Action

51

CONCLUSION

Starbucks success is achieved through a few factors. Outstanding Quality of the coffee brewed Excellent service provided at the stores Fast growth of new stores all around the world

These factors not only have increased the sales but also the reputation among the coffee lovers. Starbucks encounters aggressive competition in all areas of its business activity. The market for each of their business segments are characterized by vigorous competition among major corporations with long established positions and a large number of new and rapidly growing firms. Anyway, as Starbucks have a good financial capacity with good strategies; it can overcome all the competitors to shine high as the first class coffee purveyor

Questions / Comments

53

Angelito Estrada

Business

Case Study: Starbucks