Starbucks: Beyond Just Coffee

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Starbucks Beyond Just Coffee

• MBA 560 Marketing Management
• Dr. Kathleen M. Dominick
• July 26, 2005
• Brent Baker
• Bethany MacDuff
• Abhi Singh
• Jun Zhang

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Starbucks A Brief Introduction

• Starbucks Coffee Company was founded in 1971 by
  three businessmen in Seattle

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Intro contd

• The Starbucks Coffee Company grew slowly but by
  1981 had 4 retail stores and a roasting plant
  that sold whole bean coffee in Seattle only. By
  1983 the marketing manager had a vision of
  re-creating the magic and romance behind the
  Italian coffee bar and wanted to test out the
  concept of selling espresso by the cup. When
  Starbucks Coffee opened its 6th store in downtown
  Seattle, the idea had become a hit. Within 2
  months the new store was serving over 700
  customers a day and it was selling 3 times more
  than the whole bean locations.

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Intro contd

• In 1987, the owners of Starbucks Coffee Company
  decided to sell their coffee business along with
  the name to a group of local investors for 3.7
  million. The new investors were told that they
  would open 125 Starbucks coffee stores in the
  next five years. Starting from a base of 17
  stores in 1987, the company expanded rapidly to
  Vancouver, Portland and Chicago. By 1991
  Starbucks had expanded into the mail-order
  catalogue business, licensed airport stores and
  expanded further into the state of California.

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Intro contd

• In 1992 the company went public and after the
  initial public offering, Starbucks continued to
  grow at a phenomenal pace that no one had ever
  seen in the coffee world before. By 1997 the
  number of Starbucks Coffee stores grew tenfold,
  with locations in the US, Japan and Singapore.
  Starbucks initiated several successful product
  and brand extensions including offering coffee on
  United Airlines flights. They also began selling
  premium teas through its Tazo Tea Company and
  offering people the option to purchase starbucks
  coffee online to enjoy at home. They began
  distributing whole bean and ground coffee to
  supermarkets through an agreement with Kraft
  Foods. They also produced premium coffee ice
  cream with Dreyers. Starbucks even sold CDs in
  its retail stores.

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Intro contd

• Starbucks began turning its name into a household
  word not through advertising but through word of
  mouth. In fiscal 2004, Starbucks opened a record
  1,344 stores worldwide. The once small regional
  roaster, Starbucks Coffee Company, now has more
  than 9,000 locations in 34 countries serving over
  20 million customers a week
• Starbucks mission statement is Establish
  Starbucks as the premier purveyor of the finest
  coffee in the world while maintaining our
  uncompromising principles while we grow.

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Key Success Factors

• Emotional Connections
• extension of peoples front porchan emotional
  experience
• People want to be a part of something that they
  can believe in
• Want to be associated with a product that they
  can rely on
• Companies that are serving these emotional needs
  of customers will standout
• Different than just selling a cup of coffee -
  they have an emotional relationship with customers

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Key Success Factors contd

• Focus on the Customer
• Starbucks is not in the coffee business serving
  people. Starbucks is in the people business
  serving coffee.
• Gets Employees involved
• Servant Leadership - leaders focus on creating
  a shared vision for all employees
• Fosters interdepence, honesty, empathy and
  managing with respect
• Owned and operated by company/employees, not
  franchise
• Act as one organization, not functional silos,
  and learn from each other
• A Third Place Experience Provider
• Represents a place between work and home, to
  relax, meet friends, and enjoy a great cup of
  coffee

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Key Success Factors contd

• The Need for Speed
• For years, Starbucks has been focused on reducing
  customer wait time
• 64 of Americans say they pick a restaurant based
  on how much time they have
• Starbucks implemented many innovations to speed
  up the process
• Average yearly volume has increased by nearly
  200,000 from 1999
• On average, it takes about 3 mins. less to
  complete an order today versus 5 yrs. ago
• Floater has also increased efficiency - directs
  behind-the-scenes traffic
• Customers like the effect - it doesnt feel like
  theyre waiting in line (well choreographed)

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Key Success Factors contd

• Wireless Connection
• All from the comfort of your favorite cozy chair
• Allows quick and easy access to e-mail, files, or
  the Net
• Get work done in coffeehouse comfort.
• Starbucks Website offers a free day pass for
  T-Mobile HotSpot service account
• What you need A wireless card, notebook computer
  or Pocket PC

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Key Success Factors contd

• Market Dominance
• The Best Real Estate Locations
• So many Starbucks are located near dry cleaners
  /video stores
• take advantage of work traffic
• Avoid locating stores in close proximity to fast
  food chains (attract less affluent customers)
• Maximum Density
• New high is in Manhattan - 169 stores within a
  5-mile radius
• 10-year expansion was complete (2001)
• "Starbucks is now available within 500 feet of
  anywhere. Our customers expect a high level of
  service and quick transactions, combined with the
  convenience of multiple locations.
• "I sneeze, and I end up in Starbucks. I jump,
  there's a Starbucks. I trip and land in
  Starbucks. I want to move into a Starbucks."

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Key Success Factors contd

• Starbucks Creative Group
• Dedicated to passionately expressing the essence
  of Starbucks brand at every customer touch-point
• Napkins, paper cups, in-store posters, t-shirts,
  etc
• Reasons for Group Success
• They live the brand success in articulating the
  brand so well
• Thats our ongoing challenge here, to avoid
  being mundane, to continue to find the excitement
  in the product. As long as we keep delivering
  that surprise to our customers, well be
  successful - both commercially and creatively.
• In-source before Out-source
• Flat Hierarchy

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Key Success Factors contd

• Mass Customization
• Every customer is unique
• Individually customize goods/services to create a
  unique experience for customers
• Customers are showing that they will pay much
  more for the entire experience
• Benefits
• Improve sales, customer loyalty, and retention
• Turns a good into a service and a service into a
  memorable experience.
• We have shifted from a goods economy (coffee
  beans in a can) to a service economy (hot coffee
  at a diner) to an experience economy (coffee sold
  in a special mug, in comfortable surroundings -
  Starbucks)
• Differentiation from competitors known for
  being the company giving customers exactly what
  they want

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Vulnerabilities and watch out

• Foreign Policy
• Donations to the War
• Starbucks donated 50,000 lbs. of coffee to US
  Troops in Iraq
• sparked some intense debate

• Fair Trade
• The worlds biggest coffee retailer purchases one
  percent of all coffee on the globe, but less than
  one percent of that is fair-trade
• Companies Milk Policies
• if activists get Starbucks to surrender and
  dump all food that includes bio- ingredients, the
  really big fish. In other words, aim at a
  high-profile company like Starbucks that is
  vulnerable to challenges to its reputation for
  being socially responsible.

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Vulnerabilities and Watch out

• Employees Union
• Exploitation to third world Farmers

• Major Inventory deficit because of china
• Coffee growers quitting the business
• Imbalance in production

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Vulnerabilities and Watch out

• Voice Marketing
• -Abandon the Personality
• Hear Music Media Bars
• venture has been very disappointing
• few customers listen to music only 1 CD burned
• Cyber Attack
• an impending online attack from the Organic
  Consumers Association, a group devoted to
  eliminating all genetically engineered food.
• Misuse of Broadband
• Slower Speed
• Streaming Popup

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Vulnerabilities contd

• International Competition
• Marketing Cornucopia
• Starbucks is beginning to define themselves too
  broadly
• Much more than a coffee store - we are an
  alternative distribution
• Fall into the trap of trying to be all things to
  all people
• results in consumers no longer being able to
  relate to what made the company remarkable in the
  first place
• should stick with defining themselves as a Third
  Place experience provider

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Vulnerabilities contd
VS.

• Watch out for Rising Competition
• Dunkin Doughnuts 2 mins 4 secs for a small
  vanilla skim latte (2.16) 2 mins 55 sec for
  the same order (3.69)
• DD management teams new strategy to be faster,
  cheaper and more user-friendly
• theres a market to be tapped - younger audience
  that cant afford Starbucks prices
• One price-sensitive college student was quoted as
  saying, Dunkin Doughnuts is economically
  beneficial to meI dont want a 5 cup of coffee
  if I can get a 1 cup of coffee.

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Recommendations for the Future

• Social Gathering Environment
• Expand Internationally
• Keep pace with Technology
• Product Placement
• Augment streams of revenue
• Drive Thru
• Keep it an Experience

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Social Gathering Environment

• Partner with meetup.com
• Target market is people between 18 and 35,
  single, educated, politically and socially
  conscious.
• Middle class, upper Middles, Upper lowers,
  working class
• Establish an alternative social gathering to bars
  

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Expand Internationally

• Bring Starbucks culture internationally and make
  coffee drinking a social event
• Starbucks has 9000 stores worldwide, 2,573 stores
  in 34 countries outside US
• Long term goal is to have 30,000 stores worldwide
• Understand culture of each country before
  beginning sales operations
• Market the top 10-15 economic class

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Expand Internationally China

• 250 million Chinese approaching middle class, and
  millions of newly affluent status-conscious youth
• Chinas social networking was a niche market
• Entered Chinese Market in 1999 and brought coffee
  to a country of tea drinkers
• Over 300 stores currently exist in China

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Expand Internationally India

• India has the potential for 5000 stores in the
  next 5 years
• Government regulations differ in India
• US stores are company owned
• India requires joint venture with local players

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Keep Pace with Technology

• Keep moving forward technologically
• Wi-Fi Internet access with T-Mobile and HP
  partnerships
• In store music CD Burning
• Internet kiosks check email, send instant
  message, business services like ms office ftp and
  telnet
• POS Systems
• Self Service
• Movie Times and Ticket Sales

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Product Placement

• Consumers are time conscious
• Tivo allows commercials to be skipped
• E.T, The Apprentice, Nascar
• Youve Got Mail
• Tv, Internet, magazines, Movies, Video Games,
  Broadway, Sporting Events

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Augment Streams of Revenue

• Expand variety of products offered and market
  this change
• Tea, cold beverages, gourmet deli, chocolate,
  pastries, ice cream.
• Eat lunch with quality and ambience
• Add Starbucks label to other products like ice
  cream, credit cards, Hershey Park

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Drive Thru

• Add drive thru service
• Save time and hassle for customers
• Market Research needs to verify wants
• Test Market it first before expanding
• Challenge is to keep it an experience and not
  lose core principle

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Keep it an Experience

• This is its strength and peoples perception of
  it.

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Conclusion

• Starbucks produces gourmet coffee and is a social
  experience and this needs to be marketed to the
  targeted consumers
• It needs to stay focused on the customer to
  ensure continued success and ward off constant
  threats
• It needs to capitalize on opportunities like
  expanding internationally and creating additional
  revenue streams