Case Study - Marketing - Starbucks (Brewing a Worldwide Experience)

Starbucks CoffeeStarbucks Coffee

Agida * Dantes * de Leon * Estanislao * Agida * Dantes * de Leon * Estanislao * Lope * RonquilloLope * Ronquillo

Topics for DiscussionTopics for Discussion

History/BackgroundHistory/Background Market SummaryMarket Summary Marketing StrategiesMarketing Strategies

Product Levels and Classification Product Levels and Classification Brand and Customer Equity, Brand and Customer Equity, Brand Positioning, etc.Brand Positioning, etc.

SWOT Analysis/ Porter’s 5SWOT Analysis/ Porter’s 5 RecommendationRecommendation

HistoryHistory

1971 1971 Jerry Baldwin, Gordon Bowker, and Zev Siegl opened Jerry Baldwin, Gordon Bowker, and Zev Siegl opened

operations in Seattle's Pike Place Markets operations in Seattle's Pike Place Markets aimed to provide coffee beans and equipment to a aimed to provide coffee beans and equipment to a

number of restaurants and surrounding barsnumber of restaurants and surrounding bars

19821982 recruited Howard Schultz as its marketing director who recruited Howard Schultz as its marketing director who

led the marketing and retail efforts of Starbucksled the marketing and retail efforts of Starbucks Schultz realized that Starbucks’ future was not in Schultz realized that Starbucks’ future was not in

retailing coffee beans and equipment but in serving retailing coffee beans and equipment but in serving freshly brewed coffee by the cup in its own coffeehousesfreshly brewed coffee by the cup in its own coffeehouses

19871987 Schultz became president of Starbucks CorporationSchultz became president of Starbucks Corporation designed the store to “enhance the quality of everything designed the store to “enhance the quality of everything

the customers see, touch, hear, smell or taste”the customers see, touch, hear, smell or taste”

HistoryHistory

1990s1990s took further steps forward with expansion of the Seattle took further steps forward with expansion of the Seattle

headquarters and an increase in resources with the opening of headquarters and an increase in resources with the opening of a new roasting plant a new roasting plant

20002000 3,300 stores were already opened, 3,300 stores were already opened, ventured into countries ranging from England to Australia and a ventured into countries ranging from England to Australia and a

website was created to keep up operations with the latest website was created to keep up operations with the latest technology technology

20052005 Fortune’s “Top 100 Companies to Work For”Fortune’s “Top 100 Companies to Work For”

20072007 Fortune’s most innovative companyFortune’s most innovative company BusinessWeek’s 10BusinessWeek’s 10thth of the “Top 25 Companies Providing of the “Top 25 Companies Providing

Superior Customer ServiceSuperior Customer Service

Market SummaryMarket Summary

Target MarketsTarget Markets

Early stages: “affluent, well-educated, white-Early stages: “affluent, well-educated, white-collar patrons (skewed female) between the collar patrons (skewed female) between the ages of 25 and 44ages of 25 and 44

Over time new target market: “younger, less Over time new target market: “younger, less well-educated, and those in a lower income well-educated, and those in a lower income bracket than the more established customers”bracket than the more established customers” (but original target market has not disappeared)(but original target market has not disappeared)

Market SummaryMarket Summary

Market Demographics Market Demographics (2002 Data)(2002 Data)

Geographics Geographics Southeast US: 1 store for every 110,000 people. Southeast US: 1 store for every 110,000 people. Pacific Northwest: 1 store for every 20,000 peoplePacific Northwest: 1 store for every 20,000 people Company was far from reaching existing markets.Company was far from reaching existing markets. Internationally, Starbucks operated 300 company-owned Internationally, Starbucks operated 300 company-owned

stores in UK, Australia, and Thailand. stores in UK, Australia, and Thailand. 900 licensed stores were operating in Asia, Europe, 900 licensed stores were operating in Asia, Europe,

Middle East, Africa, and Latin America.Middle East, Africa, and Latin America.

DemographicsDemographics Young, affluent, tech-savvy customers, Internet-usersYoung, affluent, tech-savvy customers, Internet-users People combining work and a coffee breakPeople combining work and a coffee break Most frequent customers: 18 visits/month, Typical Most frequent customers: 18 visits/month, Typical

customer: 5 visits/monthcustomer: 5 visits/month Customers 45% female, 55% maleCustomers 45% female, 55% male

Market SummaryMarket Summary Market NeedsMarket Needs

Starbucks wants to create an experience for their customers Starbucks wants to create an experience for their customers that combinethat combine their on-the-go schedule, as well as a place to their on-the-go schedule, as well as a place to relax. relax.

A place where peopleA place where people come for the coffee, but stay for the come for the coffee, but stay for the ambience ambience

Product AssortmentProduct Assortment brewed coffee, espresso traditions and favorites, cold brewed coffee, espresso traditions and favorites, cold

beverages, coffee alternatives, frappuccinos, and the sale of beverages, coffee alternatives, frappuccinos, and the sale of whole beans.whole beans.

AccessibilityAccessibility 10,000 retail stores10,000 retail stores 4,200 franchised stores in shopping malls and airports.4,200 franchised stores in shopping malls and airports. Starbucks coffee brands marketed through grocery stores in the Starbucks coffee brands marketed through grocery stores in the

form of beans and even ice cream flavors.form of beans and even ice cream flavors. Customer ServiceCustomer Service

Employees are referred to as “partners.” Employees are referred to as “partners.” “ “Partner satisfaction leads to customer satisfaction” - Howard Partner satisfaction leads to customer satisfaction” - Howard

SchultzSchultz

Market SummaryMarket Summary Market TrendsMarket Trends

Total U.S. Retail Coffee Market (both in-home and out-of-Total U.S. Retail Coffee Market (both in-home and out-of-homehome consumption):consumption):

Market Forecast/GrowthMarket Forecast/Growth

Number of specialty coffee drinkers has becomeNumber of specialty coffee drinkers has become the the market’s biggest growth.market’s biggest growth.

In US alone, one-third of all coffee consumption takes place In US alone, one-third of all coffee consumption takes place outsideoutside of the home and in places such as offices, of the home and in places such as offices, restaurants, and coffee shopsrestaurants, and coffee shops

Marketing StrategyMarketing Strategy

“To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time” – Starbucks Coffee

“Starbucks is committed to a role of environmental leadership in all facets of our business.” – Starbucks Environmental Mission Statement

The Starbucks Mission StatementThe Starbucks Mission Statement

“Third Place”

Gourmet Coffee

CustomerSatisfaction

Freebies

GreenStarbucks Community

Customization

Convenience

Marketing StrategyMarketing StrategyProduct Levels: Customer Value HierarchyProduct Levels: Customer Value Hierarchy

Product ClassificationProduct Classification

Starbucks Coffee as a whole is Starbucks Coffee as a whole is in the service industryin the service industry

Specifically, Starbucks Coffee’s Specifically, Starbucks Coffee’s service mix is a hybrid- offering service mix is a hybrid- offering consists of equal parts goods consists of equal parts goods and servicesand services

Actual products offered are Actual products offered are tangible, non-durable and tangible, non-durable and specialty consumer goodsspecialty consumer goods


Product differentiation marketingProduct differentiation marketing

FORM/STYLE FORM/STYLE - change of logo - change of logo - paper cup vs. mugs, design changes depending on - paper cup vs. mugs, design changes depending on season season - sizes (tall, grande, venti, etc.) - sizes (tall, grande, venti, etc.)

FEATURES FEATURES - introduction of healthy options (non-fat milk, 'lite' - introduction of healthy options (non-fat milk, 'lite' options, sugar substitutes, tea) options, sugar substitutes, tea) - diversifying into other types of drinks like juices and - diversifying into other types of drinks like juices and teas teas - constant introduction of new coffee blends/mixes - constant introduction of new coffee blends/mixes and cycles products depending on season and cycles products depending on season (anticipated Christmas drinks) (anticipated Christmas drinks)

PERFORMANCE QUALITY PERFORMANCE QUALITY - targeted superior quality (It's not just coffee, it's - targeted superior quality (It's not just coffee, it's gourmet - the perfect cup of coffee)gourmet - the perfect cup of coffee)

CONFORMANCE QUALITY CONFORMANCE QUALITY - same blend everywhere. You can go to any - same blend everywhere. You can go to any Starbucks around the world and get the same Starbucks around the world and get the same Caramel Macchiato taste. Caramel Macchiato taste.



Service differentiation marketingService differentiation marketing

PLACE PLACE - place to relax: Italian inspired, low lighting, soft - place to relax: Italian inspired, low lighting, soft music, lines are never long (since long lines project music, lines are never long (since long lines project being busy = stress) being busy = stress)

PEOPLE PEOPLE - baristas are well trained about their products - baristas are well trained about their products - responsive and attentive - small talks with - responsive and attentive - small talks with customers, attends to customer's every whim customers, attends to customer's every whim (specification in products) (specification in products) - even security personnel are courteous - even security personnel are courteous - monitors customer satisfaction - monitors customer satisfaction - more frequent customers get even better service - more frequent customers get even better service (know by name, usual order, etc)(know by name, usual order, etc)

ORDERING EASEORDERING EASE - nothing special in the system per se but you can - nothing special in the system per se but you can order ANYTHING the way YOU WANT IT order ANYTHING the way YOU WANT IT



Service differentiation marketingService differentiation marketing continued..continued..

DELIVERY DELIVERY - whole process of lining up, ordering, delivery - whole process of lining up, ordering, delivery does not take more than 5 minutes does not take more than 5 minutes

CUSTOMER TRAINING CUSTOMER TRAINING - seminar offerings on how to enjoy brewed - seminar offerings on how to enjoy brewed coffee at home using Starbucks beans and coffee at home using Starbucks beans and equipment equipment - every cup has instruction not to drink the - every cup has instruction not to drink the coffee immediately and that part of the coffee immediately and that part of the experience is to let the aroma feed your senses experience is to let the aroma feed your senses

MAINTENANCE & REPAIR MAINTENANCE & REPAIR - on the spot return/exchange of coffee if it does - on the spot return/exchange of coffee if it does not conform to what you were used to not conform to what you were used to - no smoking inside the shop to retain aroma of - no smoking inside the shop to retain aroma of coffee coffee



Brand EquityBrand Equity

Added value endowed on Added value endowed on products and servicesproducts and services

Reflected in the way consumers Reflected in the way consumers think, feel, and act with respect think, feel, and act with respect to the brand, as well as in the to the brand, as well as in the prices, market share and prices, market share and profitability the brand commands profitability the brand commands for the firmfor the firm


Customer-based Brand EquityCustomer-based Brand Equity Three Key IngredientsThree Key Ingredients

Differences in Consumer responseDifferences in Consumer response

Brand KnowledgeBrand Knowledge

Perceptions, Preferences and BehaviorPerceptions, Preferences and Behavior

Building a strong brand ensuring the Building a strong brand ensuring the customers have the right type of customers have the right type of experiences with products, services experiences with products, services and their marketing programs to and their marketing programs to create the desired brand knowledgecreate the desired brand knowledge


•Earthen Brown to Earthen Brown to GreenGreen•Blend of Italian elegance Blend of Italian elegance and American Informalityand American Informality


STARBUCKS™ SHARED PLANET™You and Starbucks. It’s bigger than coffee.

Geography is a flavor.™

Discover the finest coffee in the world.

Customer EquityCustomer Equity

The sum of lifetime values of its The sum of lifetime values of its customerscustomers

CRM to produce high customer CRM to produce high customer equityequity

Acquisition, retention and cross-Acquisition, retention and cross-sellingselling

The company sees a direct link between The company sees a direct link between customer satisfaction and customer loyalty.customer satisfaction and customer loyalty.

The company believes that employee/partner The company believes that employee/partner satisfaction leads to customer satisfaction satisfaction leads to customer satisfaction

• • Voted onto Voted onto FortuneFortune’s Top 100 Places to Work’s Top 100 Places to Work • • Employee satisfaction remains consistently Employee satisfaction remains consistently

around 80-90%.around 80-90%. • • Turnover rate is 70%, one of the lowest in the Turnover rate is 70%, one of the lowest in the

industryindustry • • Focuses on manager stability in order to Focuses on manager stability in order to

decrease employee turnover, but also to help decrease employee turnover, but also to help recognize regular customers and provide recognize regular customers and provide personalized servicespersonalized services

Customer ServiceCustomer Service

Employees are trained to connect with customers Employees are trained to connect with customers and focus on “customer intimacy.”and focus on “customer intimacy.”

• • Greet customers with a smile.Greet customers with a smile. • • Enthusiastically welcome customers into the store.Enthusiastically welcome customers into the store.

• • Establish eye contact.Establish eye contact.• • Try to remember customers’ names and orders if Try to remember customers’ names and orders if they are frequent customers.they are frequent customers.

““Just Say Yes” policy, in order to keep the customer Just Say Yes” policy, in order to keep the customer happy, which may go beyond store ruleshappy, which may go beyond store rulesExample: Example:

Always compensate dissatisfied customers Always compensate dissatisfied customers with a Starbucks coupon entitling them to a free with a Starbucks coupon entitling them to a free drinkdrink

Give a customer a free refill if he/she spills Give a customer a free refill if he/she spills their drink.their drink.



““We don’t want to sell coffee; we We don’t want to sell coffee; we want to sell a relaxed 15 want to sell a relaxed 15 minutes”minutes”

Starbucks - Top 10 among the Starbucks - Top 10 among the top 25 companies providing top 25 companies providing superior customer service – superior customer service – BusinessWeek BusinessWeek

The process by which marketers try The process by which marketers try to create an image or identity in the to create an image or identity in the minds of their market for its product, minds of their market for its product, brand or organizationbrand or organization

Positioning involves the process of Positioning involves the process of defining the market in which the defining the market in which the product or brand will compete, product or brand will compete, identify attributes that the define the identify attributes that the define the product, collecting information from product, collecting information from customer about their perception, customer about their perception, determine target market’s preferred determine target market’s preferred combination of attributes and then combination of attributes and then position.position.

PositioningPositioning

PositioningPositioning Store AmbienceStore Ambience

• • Goal: To make customers want to lingerGoal: To make customers want to linger• • Social Appeal—Offer a sense of community, Social Appeal—Offer a sense of community, a place where people can come togethera place where people can come together

Physical layoutPhysical layout• • Seating areas to encourage loungingSeating areas to encourage lounging• • Appear upscale yet invitingAppear upscale yet inviting

AromasAromas• • Smoking is banned in all storesSmoking is banned in all stores• • Employees are asked to refrain from wearing Employees are asked to refrain from wearing perfumes or colognes, and prepared foods are perfumes or colognes, and prepared foods are kept covered so customers would only smell kept covered so customers would only smell coffee aromas.coffee aromas.

SoundsSounds• • Play soothing CDs that are also for salePlay soothing CDs that are also for sale• • Often offer live musicOften offer live music

SWOTSWOT

StrengthsStrengths The company is good at taking The company is good at taking

advantage of opportunities.advantage of opportunities. Starbucks is very profitable and has a Starbucks is very profitable and has a

strong financial base, therefore allowing strong financial base, therefore allowing the company to undertake new business the company to undertake new business ventures.ventures.

The company is internationally The company is internationally recognized and has a global presence.recognized and has a global presence.

Respected employerRespected employer Strong ethical values and mission Strong ethical values and mission

statementstatement Disciplined innovatorDisciplined innovator Clusters company unitsClusters company units

SWOTSWOT

WeaknessesWeaknesses Reliance on beverage innovationReliance on beverage innovation More than 75% of the company’s stores More than 75% of the company’s stores

are in the USA (DataMonitor).are in the USA (DataMonitor). Dependent on the retail of coffee, which Dependent on the retail of coffee, which

could make them slow to diversify into could make them slow to diversify into other divisions if the need should ariseother divisions if the need should arise

Problems in some international Problems in some international operationsoperations

SWOTSWOT

OpportunitiesOpportunities Opportunities for revenue growth by Opportunities for revenue growth by

expanding its global operationsexpanding its global operations Co-branding with other manufacturers of Co-branding with other manufacturers of

food and drinks and brand franchising to food and drinks and brand franchising to manufacturers of other goods and manufacturers of other goods and servicesservices

Growth in coffee markets: Starbucks Growth in coffee markets: Starbucks has a market share of over 40% of the has a market share of over 40% of the special coffee market (DataMonitor). special coffee market (DataMonitor). Therefore growth in this category would Therefore growth in this category would result in considerable opportunities for result in considerable opportunities for further growth and expansion in the near further growth and expansion in the near future.future.

SWOTSWOT

ThreatsThreats Coffee may not stay in favor with Coffee may not stay in favor with

customers, and another type of customers, and another type of beverage or leisure activity could beverage or leisure activity could replace it.replace it.

Rises in the costs of dairy products Rises in the costs of dairy products could affect the company’s margins.could affect the company’s margins.

CompetitionCompetition Volatile nature of the coffee marketVolatile nature of the coffee market Slowing U.S. retail salesSlowing U.S. retail sales

Porter’s Five ForcesPorter’s Five Forces

Starbucks has few major competitors, and the competition has Starbucks has few major competitors, and the competition has nowhere Starbucks' volume of operations. nowhere Starbucks' volume of operations. •Starbucks is the leading retailer, roaster and brand of specialty Starbucks is the leading retailer, roaster and brand of specialty coffee in the world. coffee in the world. •Smaller competitors, however, pose potential threats to the Smaller competitors, however, pose potential threats to the company. Competitors are selling similar products, including company. Competitors are selling similar products, including specialty coffees as well as high quality foods. specialty coffees as well as high quality foods. •In this slowing market, competition is high. In this slowing market, competition is high.


•There is a large threat of substitute products in a food and drink There is a large threat of substitute products in a food and drink industry. industry. •Starbucks has created an image, and has differentiated so that many Starbucks has created an image, and has differentiated so that many of their substitute products are part of the company. From personal of their substitute products are part of the company. From personal experience, we know that there is an enormous selection of coffees and experience, we know that there is an enormous selection of coffees and a number of other products at a Starbucks' coffee shop.a number of other products at a Starbucks' coffee shop.

Ex: At a Starbucks coffee shop, a customer can drink coffee and Ex: At a Starbucks coffee shop, a customer can drink coffee and eat a pastry while his friend drinks tea and another drinks juice. eat a pastry while his friend drinks tea and another drinks juice.

•One of their key attributes to success is innovation. Starbucks is One of their key attributes to success is innovation. Starbucks is constantly innovating and showing strong product differentiation in their constantly innovating and showing strong product differentiation in their industry. industry. •The industry however is following Starbucks' lead. The industry however is following Starbucks' lead.

•Five months after Starbucks introduced a prepaid Starbucks debit Five months after Starbucks introduced a prepaid Starbucks debit card, Seattle's Best launched its version of it. This industry card, Seattle's Best launched its version of it. This industry differentiation is a threat to potential entrants. differentiation is a threat to potential entrants.

•Statistics have shown the industry to be slowing down, therefore Statistics have shown the industry to be slowing down, therefore making competition high and the threat of new entrants lowmaking competition high and the threat of new entrants low


•Customers will face no switching costs in switching premium coffee Customers will face no switching costs in switching premium coffee suppliers from Starbucks, to, for example, Seattle's Best. suppliers from Starbucks, to, for example, Seattle's Best. •Another threat to Starbucks is that their customers have the ability to Another threat to Starbucks is that their customers have the ability to brew their own coffee. Starbucks has tried to offset this threat by brew their own coffee. Starbucks has tried to offset this threat by offering Preferred Office Coffee Providers, which uses Starbucks offering Preferred Office Coffee Providers, which uses Starbucks ingredients.ingredients.• Starbucks customers have some bargaining power in the industry but Starbucks customers have some bargaining power in the industry but they try to minimize it in many ways. For one, by giving the customers a they try to minimize it in many ways. For one, by giving the customers a homey feel . homey feel .


•The quality of coffee sought by Starbucks is very high. The quality of coffee sought by Starbucks is very high. •Guidelines: Quality baselines, social conditions, environmental Guidelines: Quality baselines, social conditions, environmental concerns, and economic issues. concerns, and economic issues.

•Only suppliers who can meet Starbucks' coffee standards will be able Only suppliers who can meet Starbucks' coffee standards will be able to supply the giant company to supply the giant company •Starbucks is paying a premium of up to ten cents per pound of coffee Starbucks is paying a premium of up to ten cents per pound of coffee to vendors based on how well their coffee meets Starbucks' standards to vendors based on how well their coffee meets Starbucks' standards • Starbucks has a degree of control over its suppliers in an industry Starbucks has a degree of control over its suppliers in an industry where it is possible for suppliers of premium coffees to have an where it is possible for suppliers of premium coffees to have an enormous amount of bargaining power.enormous amount of bargaining power.

Source: Starbucks.com


Marketing RecommendationsMarketing Recommendations Continue the 50-50 Partnerships Continue the 50-50 Partnerships

(Owned Stores and Licensed Stores)(Owned Stores and Licensed Stores) Expand in countries wherein there is Expand in countries wherein there is

a high urban population, countries a high urban population, countries that are growing economies, that are growing economies, countries wherein there is an countries wherein there is an increase in coffee consumptionincrease in coffee consumption

Some store improvementsSome store improvements Charging stations for cellphones, mp3 Charging stations for cellphones, mp3

player, laptopsplayer, laptops Valet parkingValet parking ““Taxi light” especially for late night Taxi light” especially for late night

clientsclients

Marketing RecommendationsMarketing Recommendations To elicit the same customer response all To elicit the same customer response all

over the world, ENSURE QUALITY over the world, ENSURE QUALITY PRODUCT/SERVICEPRODUCT/SERVICE Continue to develop and maintain strong Continue to develop and maintain strong

relationships with their suppliers to ensure high-relationships with their suppliers to ensure high-quality Arabica beansquality Arabica beans

Continue to invest in their baristas’ training Continue to invest in their baristas’ training whom they also consider as their partnerswhom they also consider as their partners

These will differentiate them from competitors These will differentiate them from competitors and will ensure that value is createdand will ensure that value is created

Doing things the way they always have ( for Doing things the way they always have ( for example they did not alter their smoke free example they did not alter their smoke free coffee shop despite the love for cigarettes of coffee shop despite the love for cigarettes of Japanese men ) Japanese men )

Marketing RecommendationsMarketing Recommendations Starbucks should be known as a company that is Starbucks should be known as a company that is

LARGE ENOUGH TO BE ABLE TO DELIVER THE LARGE ENOUGH TO BE ABLE TO DELIVER THE FINEST COFFEE to Customers Around the World, FINEST COFFEE to Customers Around the World, but at the same SMALL ENOUGH TO MAINTAIN but at the same SMALL ENOUGH TO MAINTAIN PERSONAL RELATIONSHIPS with its Customers.PERSONAL RELATIONSHIPS with its Customers. Some superior companies are so large that they can Some superior companies are so large that they can

easily disregard the “small” customers.easily disregard the “small” customers. In contrast, small companies (such as the new In contrast, small companies (such as the new

entrants in the specialty coffee industry) are better entrants in the specialty coffee industry) are better able to customize relationships with their customers.able to customize relationships with their customers.

Conduct extensive focus groups and quantitative Conduct extensive focus groups and quantitative market research market research

Basically, Starbucks should just maintain its Basically, Starbucks should just maintain its marketing strategy. marketing strategy.

Be more child friendly. Have a homey play area and Be more child friendly. Have a homey play area and offer a line of fruit juices and milk shakes. Most of offer a line of fruit juices and milk shakes. Most of the young loyal customers have grown families over the young loyal customers have grown families over the years. This is a way for the whole family to feel the years. This is a way for the whole family to feel the Starbucks experience.the Starbucks experience.

Marketing RecommendationsMarketing Recommendations Furthermore, it is also recommended that Starbucks Furthermore, it is also recommended that Starbucks consider implementing a marketing strategy apart from consider implementing a marketing strategy apart from alliances that does not solely rely on brand awareness, alliances that does not solely rely on brand awareness, reputation, and word of mouth. reputation, and word of mouth.

TV and radio advertising may be considered to ensure TV and radio advertising may be considered to ensure and restate the company’s dominance in the and restate the company’s dominance in the diversification focus of specialty coffee.diversification focus of specialty coffee.

As part of their social marketing efforts, and since As part of their social marketing efforts, and since they are now catering to middle class strata, Starbucks they are now catering to middle class strata, Starbucks may offer some economic package during these tough may offer some economic package during these tough economic times (i.e.”lower priced coffee”, “buy 2 take economic times (i.e.”lower priced coffee”, “buy 2 take 1”, “free refills”, etc). This does not have to be a long-1”, “free refills”, etc). This does not have to be a long-term strategy, but merely an expression of “care and term strategy, but merely an expression of “care and support” to the company’s customer base. support” to the company’s customer base.

Thank You!!!Thank You!!!

Case Study - Marketing - Starbucks (Brewing a Worldwide Experience)

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