CASE STUDY : StarbucksSubmitted byAjal.A.J

Starbucks Timeline

Howard Schultz joins Starbucks as Dir. of Retail

Schultz founded II Giomale offering brewed coffee & espresso beverages w/ Starbucks coffee beans

84 Starbucks locations

676 Starbucks locations & Starbucks Intl formed

2,292 Starbucks locations

1st Starbucks location in Seattle

Schultz tests new coffee bar concept

II Giomale acquires Starbucks assets

Changes name to Starbucks Corp.

272 Starbucks locations

1,886 Starbucks locations

Joint venture w/ Magic Johnson

Launch Starbucks .com

6,604 Starbucks locations

Acquired Seattle’s Best Coffee Co.

1982 1985

1971

1990

1987 1998

2000

1993

1995

20031984

Jim Donald hold President and Chief Executive Officer .

The operating profit of the company during fiscal 2004 was $610 million, an increase of 43.7% over fiscal 2003.

Chairman Howard Schultz resumed his roles as President and Chief Executive Officer

2005

2004 2006 2008Rival Diedrich Coffee announced that it would sell most of its company-owned retail stores to Starbucks

Launches Starbucks® Bottled Frappuccino® Coffee Drinks in China through International Coffee Partnership with PepsiCo

2007

Timeline Contd..

Where does the problem lie?

1. Lacked a Strategic Marketing Group

2. Changing Perception

3. Unsatisfied Customers

4. Increasing Competition

1. Lacked a Strategic Marketing Group

• No Chief Marketing Officer

• Marketing Department functioned as three different groups :

Market Research Group

Category Group

Marketing Group

2.Changing Perception

3.Dissatisfied Customers

• Starbucks was not meeting expectations in terms of Customer Satisfaction and there was a direct link between Satisfaction and Customer Loyalty

4.Increasing Competition (1)

• Though Starbucks is still a dominating chain but its hold on coffee has loosened.

• Facing Competition not from newcomers but from older coffee chains that have increasing customer loyalty.

• Another threat are the established food chains that have altered their focus to incorporate the rising trend of coffee.

Increasing Competition (2)

1. Dunkin Donuts: Complementary pairing of Coffee & Donuts.

2. Peet’s Coffee & Tea: Focus on Quality Coffee & Strategic Positioning of Stores nearby to Starbucks locations.

3. Caribou Coffee: Differentiate themselves on the basis of Store Environment.

Strategies for Managing Demand Side

• Pricing- Starbucks has been able to accomplish with its pricing strategy : “ focus on profit, not on sale” and “low pricing would erode the perception of quality”

• Reservation - Starbucks launched Starbucks Express, customers can pre-order and prepay for beverages and pastries by phone or website. “Just call or click”

• Service – Starbucks hear music, Starbuck’s card, wireless internet.

Branding Strategyo “Live coffees” mantra - to keeping the national coffee culture alive.o Creating an “experience” around the consumption of coffee

Three components to this experiencing branding strategy:

First, coffee itself – offering the highest-quality coffee in the world, coffee standards by controlling the supply chain as possible and the distribution to retail stores Second, service – customer intimacyThird, atmosphere. To make customers want to stay. Based on human spirit, a sense of community, the need for people to come together.

Channels - Broad distribution strategy

Want to reach customers where they work, travel, shop, and dine Good Location: Company-operated stores located in high-traffic, high-visibility settings Product mixed tended to vary depending on a store’s size and locationnon-company-operated retail channels, food-service accounts, domestic retail store licenses

Strategies for Managing Supply Side

• Part time employees- Starbucks had lowest employee income rate of any restaurant or fast-food company but Starbucks offering health insurance and modest stock options to part-timers.

• Increased consumer participation- Starbucks does a nice job of encouraging this through its integrated marketing communications efforts. For example– has questionnaires in its stores urging

customers to send in feedback about their experiences.

• The company's efforts to greatly increase its sphere of strategic interest by its joint ventures with Pepsi and Dreyer's, its move to sell coffee in supermarkets, and the possibility of marketing fruit-juice drinks and candy under the Starbucks label representedIn order to sustain the company's growth and make Starbucks a strong global brand, that the company had to challenge the status quo, be innovative, take risks, and alter its vision of who it was, what it did, and where it was headed.

• Facilities for future expansion

SERVICE DIFFERENTIATION

INNOVATIVE FEATURE :• STARBUCKS EXPRESS

Customer can pre-ordder and prepay for beverages and pastries via phone or on website.

• STARBUCKS CARDPrepaid card, priced from $5 to $500, that offered to cuts transaction times.

• HIGH SPEED WIRELESS INTERNET SERVICE

STARBUCKS’S CHALLENGES

How to maintain growth and keep growing

– Cannibalizations: one challenge lies on its own dominance – with Starbucks in every corner of a street there is likelihood of cannibalization of sales from existing locations. Starbucks closed 600 underperforming locations in 2008. This seems to be an admission that cannibalization seems to be a major challenge.

– Quality :premium coffee quality with local taste, there’s some specific coffee drinking market that Starbucks still left open.

STARBUCKS’S CHALLENGES• Prices: as a high-end coffee, Starbuck has a substantial price

premium, should have a more reasonable price strategy to face with harsh competition of others like Mc coffee.

• Economic situation: The company relies on consumer discretionary spending to drive sales. Consequently, a major economic change can have a large impact on revenues. Eg: With the global economic recession of 2008-2009, potential customers have less money and are more likely to forgo a $4 specialty coffee in favor of a cheaper alternative.

• Target demographics-yuppie, teens: Starbucks targets a higher-income crowd of the young and college-educated, a group that tends toward higher luxury-consumption levels. Although this focus allows the company to maintain high profit margins, it also puts Starbucks at greater risk from a shift in consumer spending habit.

STARBUCKS’S CHALLENGES• Being a Global responsibility corporation:

– Environment: In October 2008, Starbucks was report wasting 23.4 million litres of water a day by leaving a tap constantly running for rinsing utensils, 10% used cup in the US is not recycle, what about hundred million cups served over the world?

– Health Concerns: Consumers’ awareness of their health rise the concern of obesity with dairy, sugar and caffeine product, may caused some “would-be” Starbucks customers to turn to their health options.

– Labor relation: should improve working conditions and others benefits for employee

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Who are they? Psychographically Demographically Geographically

What are their current needs? Personal needs and usage occasions

Why Buy (Brand)? (Essence of the brand) Product line 1 Product line 2…

How do we communicate the “why”? For the brand? By product line?

TargetNeeds

TargetMessage

TargetValue

TargetConsumer How

aligned is

your brand?

Aligning the Marketing Value Chain

SWOT Analysis

Strengths

• The Brand Starbucks• Strong Financial Base• Large number of locations• 3rd Party Tie-Ups• Growth through Innovation• Respected employer

Weaknesses

• Undisciplined Marketing• Inflexible Pricing• Does not tailor its branches according to

location

Opportunities

• Tie-ups with other established businesses• Developing international business• Diversification into other drinks

Threats

• New Entrants

• Competitive rivalry

• Substitution

• Bargaining power of Customers

Recommendations For Improvement

1. Implement Employee Branding:– Employees are motivated with more incentive to perform

and innovate– Lower employee turnover rates– Positive reinforcement which leads to higher feelings of

job satisfaction– Let them feel they are not just employees but rather as

professional ‘baristas’2. Prevent Self-Cannibalism:

– Stores must be strategically located

3. Improve Corporate Social Responsibility– Help farmers have a sustainable livelihood– Improve the life and living conditions of the farmers

who plants cocoa by help building rural infrastructures such as schools, irrigation systems, roads and houses for the farmers.

4. Pricing Strategy– Starbucks should consider the general demand and

work a price reduction strategy into the Company's overall pricing strategies.

– Price reduction strategies may include a rebate or coupon promotion program as the increase in sales will offset the costs of these price reduction programs.

5. Neglected Customers– Starbucks should also consider researching into

the tea specialty drinks market. Tea drinks will increase popularity because their perceived value of healthy benefits.

– Starbucks may need to review its company policies to see if updates are needed to address different consumer relation situations.

CONCLUSION• FACTORS CAN LEAD TO SUCCESS OF STRABUCKS

IN THE FUTURE

• INNOVATION

• BUY, SELL AND USE ENVIRONMENTALLY FRIENDLY PRODUCTS

• MEET SATISFY OF CUSTOMER WITH FASTER AND CONVINIENT

• IMPROVE FACILITIES OF STALL

Questions &

Discussion