Starbucks Cofee Company:

Transformation and RenewalLucia Veronica Denis Senwayo (2B4047)

The curent report discusses the 7Ps (Product, Price, Place, Promotion, People, Process

and Phisycal evidence) of Starbucks and future recommendation for Starbucks

regarding the desirable 7Ps.

Product

To be a premium product in the coffee trade, Starbucks had to position itself at high

standards by introducing innovative products and providing excellent service

combined with unquestionable experience.

The company started with espresso and cappuccino cofee. In order to improve speed

and efficiency on its products, Starbucks came up with three major, consumer-

responsive strategic innovations: the MastrenaTM espresso maker, Clover® Brewing

System, and Pike Place® Roast coffee. Because the machine ground each espresso

shot to order, baristas could offer customers a higher level of customization than

automatic espresso makers allowed and it encouraged eye contact and conversation.

The Clover® was an innovative coffee machine designed to elevate the quality of

standard brewed coffee to French pressed.

However, these initiatives were not enough to guarantee sustained profitability. Going

forward, Starbucks introduced Frappuccino beverages and later, One of the most

important innovations was the September 2009 launch of Starbucks VIA® Ready

Brew instant coffee. It was the most successful product introduction ever, indicating

Starbucks willingness to invest in innovation, and take risks that will expand its reach

and keep it relevant across consumer markets.

Identifying customer specific needs, Starbucks introduced its own single-cup coffee

machine, the Verismo® system, which used a proprietary milk pod to make lattes in

addition to espresso beverages and brewed coffee. Additionally, Starbucks expanded

its product mix by horizontal integration: (i) it set out to develop a line of ready-to-eat

Greek Yogurt products; (ii) Trying to attract tea drinkers Starbucks introduced Tazo

Tea, acquired Teavana tea with different range of tea such as Starbucks ®ChaiLatte;

(iii) by acquiring a boulange bakery, Starbucks extended its product mix to food

offering.

To sum up, in a very competitive world, the future of Starbucks depends on its ability

to innovate its product and meet costumers demand. So, adaptability and product

innovation became crucial elements of Starbucks success.

Price

The value perceived by costumer and the quality of the product determines the price.

Starbucks delivers high value to the consumers by using high quality beans, training

their partners to delivery unique quality service e better costumer experience. So, by

offering premium coffee beverage and experience, that costumer could not find

anywhere else, Starbucks could charge the highest price in the market (comparing to

competitors such as McDonalds, Dunkin Donuts).

Basically the foundations of Starbucks pricing strategy were based on the costs

needed by the company to recover the minimum price and costumer’s perceived value

of the offering set a maximum price. The price charged competitors took less in

account, because of costumer loyalty to high quality service provided by Starbucks.

However, when the crisis rose and Starbucks profitability declined and in order to

keep the competitive edge, the company also began to offer less expensive coffee. For

example, the line of packaged Seattle’s Best Coffee® represented a less expensive

alternative to Starbucks, the company priced the product lower than Starbucks-brand

beans, but higher than the industry’s conventional brands.

The future Starbucks pricing strategy depends on the company ability to provide high

quality services and better costumer experience, along with product innovation.

Differently from the past, when Starbucks had fewer competitors, the company has to

consider the prices charged by competitors, promote constant discount to consumers

and introduce new products with affordable prices.

Place (Distribution Channel)

The United States is the largest Starbucks market with 10,684 stores, by 2007,

roughly two-thirds of the company’s total outlets. In many large U.S. cities there

were multiple Starbucks locations within a few blocks of each other. The nationwide

average was less than half as dense: one store for every 30,000 people. Outlets can be

found in various large chains. Their primary goal is to locate them in highly visible

locations and opened them in clusters.

Starbucks has expanded its services to outside of U.S. In 1995, Starbucks operated

677 stores across both the US and Canada. In 1996, Starbucks opened its first store

outside of North America in Tokyo, Japan.30 From 2000 to 2007, the total number of

international outlets rose from 502 stores to 4,327. Growth spanned continents, with

stores opening in Asia, Europe, the Middle East, Africa, and the Americas.

Starbucks is into direct supply channel (sells direct to consumer). This has been

allowed the company to keep a personal relationship with the customer, family and

friendly environment. Starbucks achieved this position by investing heavily on

training their partners- ensuring and aiming high on customer satisfaction.

The future strategy of Starbucks should aim to increase the number of stores

worldwide, especially in emerging countries, trough franchisee. Franchisees are cost

effective and allow fast growth. The successful example of China and India (to

capture national culture and habits) should be always considered.

Promotion

At begging Starbucks did not dedicate much time to strategic promotions activities,

especially social media.

When Schultz returned as CEO in 2008, he recognized that Starbucks lagged behind

its peers in the digital space. The company had only a basic informational website,

and virtually no company-directed presence on social media. Starbucks needed to get

in the game, and quick. So, from 2008 many actions were introduced:

• Starbucks started a community website, My Starbucks Idea, designed to

collect suggestions from costumes. The company also placed cards on store

counters reading, “Have an idea for us?”

• Starbucks reward, the program’s benefits included free beverages, refills, and

custom extras such as soymilk and flavored syrups.

• Starbucks also rolled out its in-store digital network in late 2010. The

company collaborated with Yahoo!, as well as publishers, music companies,

and news providers including the Wall Street Journal and New York Times to

grant customers free access to premium content via Starbucks Wi-Fi.

• Starbucks introduced Cards, aiming its valued customers to promote its

products. Rewards programs and mobile payments.

• Starbucks expanded its social media presence beyond Facebook and Twitter to

include Instagram, Pinterest and Google+.

Relationship with costumers is the key point of Starbucks value core creation.

However, the number of costumers has been increasing that the ability to baristas

develop relationship with costumers became a huge task. So, to keep its mission

intact, Starbucks can utilize social media as useful channel to connect with costumers,

for example by giving feedback to costumers in tweeter, by collecting costumers ideas

in website and interacting with costumers in Facebook. Additionally, emphasizing in

discounts and seasonal special offering may lead to costumer brand loyalty.

People

Starbucks is the world’s highest-quality, ethically sourced coffee beans; baristas with

health-care coverage and stock in the company; farmers who are treated fairly and

humanely; a mission to treat all people with respect and dignity; and passionate coffee

experts whose knowledge about coffee cannot be matched by any other coffee

company.

Starbucks employees are treated as partners because they share common goals and

mutual success, as it realizes that “happy customers” start with “happy staff”.

Starbucks prioritize training its partners. Starbucks encourage diversity and equal

treatment (diversity within the company, diversity of customers, partners and

everyone Starbucks interacts with).

To deepen customers’ emotional attachment to Starbucks was prioritize by the

company. From personal relationships with baristas, to featured seasonal offerings, to

the stores’ aroma, the Starbucks Experience was integral to attracting new customers

and sustaining their loyalty.

In future, Starbucks should keep emphasizing on skilled partners and the

characteristics of Starbucks service should be: ready to be everywhere, active and

getting the things fast, customer-oriented, open-minded and friendly.

Process

• Starbucks does its best to improve the process and quality of service. Work

and performance of employees play important role in service quality.

• Reengineering of Starbucks organizational structure (operations, supply chain,

and IT capabilities), cutting costs, increasing efficiency, and improving

customer service, was crucial to the company survive from the crisis.

• The company specialty operations include licensed retail stores in more than

40 countries and food service in US (boulangerie).

• Transparency, business skills, discipline, training and experience are crucial at

Starbucks.

• Website and social media plays important role.

Starbucks takes care about their customers not to be stressed in the queue. In order to

improve efficiency, Starbucks should introduce new payment services, online

ordering system.

Physical evidence

Physical evidence is crucial to build customer relationship, people perceive things

much better when they can experience them, thus everything customers could see and

touch forms the perception of the company and everything it does.

• Starbucks provides customers the best experience, so that they get costumers

loyalty. Customers pay not just for cup of coffee or tea, but also for overall

enjoying their time. The cleanness and friendly environment are some

examples

• Starbucks partners share their passion, pride and knowledge of Starbucks

offerings and mission with customers every day, over every order.

• By introducing new products, such as Starbucks VIA® Ready Brew instant

coffee, they could leverage consumer-responsive innovations.

• Starbucks provide product information trough website and social media.

• Custom made cup of beverage

I would recommend to emphasis on training, so that partners can keep providing

better costumer experience, by showing passion to their workplace and service.

Adapting to costumers trend demand may play a significant role in physical evidence.

Physical evidence

Physical evidence is crucial to build customer relationship, people perceive things

much better when they can experience them, thus everything customers could see and

touch forms the perception of the company and everything it does.

• Starbucks provides customers the best experience, so that they get costumers

loyalty. Customers pay not just for cup of coffee or tea, but also for overall

enjoying their time. The cleanness and friendly environment are some

examples

• Starbucks partners share their passion, pride and knowledge of Starbucks

offerings and mission with customers every day, over every order.

• By introducing new products, such as Starbucks VIA® Ready Brew instant

coffee, they could leverage consumer-responsive innovations.

• Starbucks provide product information trough website and social media.

• Custom made cup of beverage

I would recommend to emphasis on training, so that partners can keep providing

better costumer experience, by showing passion to their workplace and service.

Adapting to costumers trend demand may play a significant role in physical evidence.