STARBUCKS COFFEE

Presented by:Chinmaya VashishthDebendra RoutDewal JindalKapil DagaKapil SinglaKaran SoodPranjal Mehrotra

STARBUCKS COFFEE

We’re not in the coffee business serving people…

We’re in the people business serving coffee.

-Howard Behar, Director of Retail Operations

Agenda

• History and Business growth strategy• Problem Identification• Starbucks and Market research• SWOT analysis• Recommendation • Future prospect and conclusion

STARBUCKS: THE HISTORY

• The original Starbucks store was started by Zeiv Siegl, Jerry Baldwin and Gordon Bowker

in 1971

• It was opened as a store that sold whole beans and premium-priced coffee beverages

• Howard Schultz’s joined with Starbucks in 1982 and his idea was to create a chain of

coffee houses with a product differentiation of specialty “live coffee”, service or

customer intimacy with an “experience”, and an atmosphere of a “third place” to add to

their work and home alternatives.

• The stores targeted selling their coffee primarily to affluent, well educated, white-collar

patrons between the ages of 25 and 44.

• In 1992 Howard Schultz , after opening Starbucks 140 stores, took the company public

and by the end of 2002 Starbucks had opened more than 5000 stores across the globe.

MARKET SHARE ACROSS USA

PRODUCT MIX

• The company spent minimal dollars on advertising to promote a brand concept , still achieving phenomenal sales figures

• The majority of sales came from coffee based and other beverages and the rest from food items and whole bean coffee sales.

Product Mix with % sales Other- 15% Revenue Source

SALES FIGURES

STARBUCKS: THE SUCCESS

• ‘Live Coffee’ Mantra• Highest quality coffee offered • Control the supply chain- Work with the

growers, oversee the roasting and control the distribution

• Continuous product innovation

Where does the problem lie?

• Lacked a Strategic Marketing Group

• Changing Perception

• Unsatisfied Customers

• Increasing Competition

Lacked a Strategic Marketing Group

• No Chief Marketing Officer

• Marketing Department functioned as three different groups :

Market Research Group

Category Group

Marketing Group

Changing Perception

2000 20010

10

20

30

40

50

60

70

53

61

48

55

Starbucks cares primarily about making MoneyStarbucks cares primarily about building more Stores

Dissatisfied Customers

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

1.1

4.4

8.3

Customer Life (Years)

UnsatisfiedSatisfiedHighly Satisfied

Increasing Competition

• 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

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.

Marketing Concepts Visited

• Market Research/Survey• Importance of Findings Action Impact

• Customer Values• What as an organization we are doing for customers?

• Customer Satisfaction/Loyalty• What does the customer perceive of our values and to what extent he/she is thrilled about it?

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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

STARBUCKS and Market ResearchStrong Proactive culture @ STARBUCKS

Market Research Findings Action Impact

Survey of Starbucks customer Not Meeting Customer Expectations

Need to invest $40 million for additional labour hours per week

Bottom line to be impacted in short run however this is to be treated as customer investment

Starbucks brand image had some rough edges

Need to clearly communicate the values to customer instead of just growth plans

Customer Retention and addition of new customers

Evolving customer base (younger, less educated and lower income bracket)

Additional complimentary servicves to be introduced

Change in perception of Brand to be corrected

Customer Behaviour - Frequency of visits

Most Frequent - 18 and typical 5 times a month NA NA

Ranking of Key attributes in

Creating Customer Satisfaction Speed of Service

Customer to be served in 3 minutes - this is how STARBUCKS customers defined 'excellent service' as defined in a market survey

Need additional labour hours - additional cost, long term benefit

Introduction of Stored Value Cards

In 1 year - 6 million cards issued. $160 million in activation and reloads. Reduced transaction timesCollection of all kinds of customer data

New Service Experiment - Drive Throughs in less than 10% stores

Nearly 50% of business in those stores

Cleanliness - 83 % Continue to focus on cleanliness

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

Recommendations1. Strategies to Renew Starbucks Brand Name

(a) Advertising and Promotion:Market there brand more aggressively in order to convince people that Starbucks serves coffee that is superior to other coffee and beverages.

(b) Product Differentiation: Starbucks should work on differentiating its coffee. Theyshould invest in extensive research and development effortsto develop new flavors, blends or even roast fusions.

(c) Coffee Variety and Quality Control: In catering to different consumer preferences, Starbucks needs to increase its variety of coffee offered. Starbucks needs to ensure that the coffee offered is of the highest quality.

2) Strategies to Build and Retain Customer Loyalty

a) Privilege Card and Rewards Program:

Having a non distinct rewards program provides no ‐incentive for coffee drinkers to choose Starbucks over other its competitors.

b) Starbucks Drive Through: ‐

• Although Starbucks’ strategy has been to open as many stores as possible, most of its stores are mid sized. As a ‐result Starbucks loses potential customers.

• Starbucks has already started implementing drive ‐throughs around the country, and there is potential for them to expand.

Recommendations

Strategies towards Cost Efficiency• Effective Store Expansion Decisions

– Restrict its expansion in US– Explore and Expand in new markets

Life-cycle model of coffee consumption

Latin America

Development Growth Maturity Decline

Europe

Asia

USA

Latin America

Strategies towards Future Growth

• Expansion into the Corporate Market•Ineffective Starbucks’s expansion strategy in the past•Mini Starbuck’s Stores•Focus on Health Drinks•Huge Infrastructure and Reach

CONCLUSION

• Invest $40 million to increase man-hour, however with certain guidelines

• Innovative Product Vs. Quick/Pleasant Sales• Strong need for diversification

Questions