Starbucks Business And Marketing Plan Marketing Essay

What was once a small coffee shop opened by Gerald Baldwin, Gordon Bowker, and Ziev Siegl in 1971, Starbucks Coffee Company has grown into the number one specialty coffee retailer. With over 10,000 coffee shops in more than 30 countries, of which 4,200 are licensed and franchised and 6,000 are owned, the company’s main objective is to establish Starbucks as the “most recognized and respected brand in the world,” (Moon) .

Currently, Starbucks is relying on retail expansion, product innovation, and service innovation to achieve a long-term goal once set by current chairman Howard Schultz:

“The idea was to create a chain of coffeehouses that would becomeAmerica’s “third place.” At the time, most Americans had two places in their lives – home and work. But I believed that people needed another place, a place where they could go to relax and enjoy others, or just be by themselves. I envisioned a place that would be separate from home or work, a place that would mean different things to different people,” (Moon).

By working toward this goal, Starbucks wants to open new stores in both new and existing markets, expand their product development process, and cater to customers ‘needs to eventually improve their financial position and dominate market share.

Market Summary

Target Markets

In the early stages of development for Starbucks, Schultz identified their target market as “affluent, well-educated, white-collar patrons (skewed female) between the ages of 25 and 44,” (Moon).

Over time, market research teams have recognized the new target market as “younger, less well-educated, and in a lower income bracket than their more established customers,” (Moon).

Market Demographics

Geographic’s (Moon)

Data from 2002 showed that in the Southeast there was only one store for every 110,000 people. whereas in the Pacific Northwest. There was one store for every 20,000 people. Hence, the company was far from reaching existing markets.

International plans showed Starbucks was operating in over 30Company-owned stores in the United Kingdom, Australia, and Thailand. Also, 900 licensed stores were operating in Asia, Europe, the Middle East, Africa, and Latin America.

Demographics

Young, affluent, tech-savvy customers (Hoovers) a 1999 estimate showed that 70% of customers were internet users, and today the estimate has exceeded 90% (Hoovers).

Moms with strollers (Hoovers)

People combining work and a coffee break (Hoovers)

The most frequent customer’s average 18 visits per month, whereas the typical customer visits five times per month (Moon).

Market Needs

Starbucks wants to create an experience for their customers that combine their on-the-go schedule, as well as a place to relax. Senior vice president of administration in North America Christine Day explains that, “people come here for the coffee, but ambience is what makes them want to stay,”

Selection

Starbucks menu contains brewed coffee, espresso traditions and favourites, cold beverages, coffee alternatives, frappuccinos, and the sale of whole beans.

Accessibility

Starbucks operates over 10,000 retail stores. Most of the 4,200 franchised stores are located in shopping malls and airports. Starbucks coffee brands are also marketed through grocery stores in the form of beans and even ice cream flavours.

Customer Service

Starbucks employees are referred to as “partners.” As of 2002, Starbucks employed 60,000 partners worldwide, 50,000 of those in the United States. From the beginning when Howard Schultz took

Over Starbucks, he believed, “Partner satisfaction leads to customer satisfaction,” (Moon).

Competitive Pricing

Starbucks brand coffee sold in grocery stores are similar to these prices found in the cafes.

Market Forecast (Moon)

Over the next few years, an estimate for the U.S. retail coffee market expects specialty coffee to have a compound annual growth rate (CAGR) between 9%-10%.

Starbucks was also estimated in 2002 to grow at a CAGR of about 20% top-line revenue growth.

As of 2002, coffee consumption had risen with more than half of the population (about 109 million people) drinking coffee every day, and an additional 52 million drinking coffee on occasion.

PEST Analysis

Political Influences

Relationships between coffee producing nations and US

State & Local government controls

Economic Influences

Constant demand for food and beverages

Changes in disposable income could influence purchase levels

Social Influences

Consumer preferences could shift from coffee to other beverages

Technological Influences

Use of technology can improve operational efficiencies

Market Growth

Reports show in 2002, the number of specialty coffee drinkers has become the market’s biggest growth.

An estimated one-third of all U.S. coffee consumption takes place outside of the home and in places such as offices, restaurants, and coffee shops (Moon).

SWOT Analysis

Strengths

The company is good at taking advantage of opportunities.

Starbucks is very profitable and has a strong financial base, therefore allowing the company to undertake new business ventures.

Revenue increased to $5294.2 million in 2004, a 29.9% increase from 2003 (Data Monitor)

Profits increased to $610 million in 2004, a 43.7% increase from 2003.

Net earnings increased 46% (SWOT).

The company is internationally recognized and has a global presence.

Their reputation is one of fine products and services.

Almost 9,000 cafes in almost 40 countries (SWOT)

Widespread brand recognition, which in turn becomes brand Preference, and ideally eventually brand loyalty.

Strong customer base

Clusters company units

Expands business with the continuing growth of the coffee market, especially in areas where the company is already well established, and groups stores in an area, therefore able to dominate the region.

Leads to considerable financial reward without suffering from cannibalism (Data Monitor).

Focus on opening stores that have convenient access for pedestrian and drivers

Helps the company capture an increasing share of the coffee market

Weaknesses

Reliance on beverage innovation

Vulnerable to the possibility that their innovation may falter over time

Company growth is mostly driven by beverage innovation.

If U.S. store growth decreases, stock is lowered in value.

Diminishing return from beverage innovation would have an adverse effect (Data Monitor).

More than 75% of the company’s stores are in the USA (Data Monitor).

May need to look for an assortment of countries in which to open more shops in order to spread business risk

85% of revenue is from its domestic US market (Data Monitor).

Has high international brand recognition and should look to generate a greater proportion of revenue from outside the USA

Would suffer greatly if U.S. stores underperformed because of economic conditions or increased levels of competition

Dependent on the retail of coffee, this could make them slow to diversify into other divisions if the need should arise.

Employee efficiency is poor.

Lower revenue per employee ($71,544-fiscal 2004) compared to the

Industry average ($110,841) (Data Monitor)

Lower income per employee ($5,294) compared to the industry average ($9,500) (Data Monitor).

Lower Return on Equity than peers

Company’s 5 year average ROE (13.65%) have been lower than the

Industry average (15.09%) (Data Monitor).

Need to effectively manage its finances to ensure that returns are at par of higher than industry average.

Problems in some international operations

Problems of expansion: A number of openings are failing to be

Successful.

Japanese operations: The Company has experienced some same-stores sluggishness.

Closures of stores in Israel and Tel Aviv: Hurts growth prospects in the region

Opportunities

In 2004, created a CD-burning service where customers can create their own music CD

Opportunities for revenue growth by expanding its global operations

New markets for coffee are beginning to emerge; for example, in Indian and the Pacific Rim (SWOT).

Targeting 15,000 international stores in the next few years

Expansion potential questionable in Brazil, India, and Russia

China could be one of the largest markets, and therefore the company will focus on Beijing and Shanghai.

Large urban population

Rising economy

Increase in coffee consumption

Co-branding with other manufacturers of food and drinks and brand franchising to manufacturers of other goods and services

Creates loyalty for Starbucks brand

Recently signed agreement with Jim Beam Brands to develop and market a Starbucks-branded coffee liqueur drink (Data Monitor), which has strong revenue potential because:

Liqueurs represent $4-5 billion opportunity (Data Monitor).

Liqueurs with coffee represent a considerable segment of the Liqueur market.

There is a significant overlap between consumers of liqueurs and consumers loyal to the Starbucks brand (Data Monitor).

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

Threats

Coffee may not stay in favour with customers, and another type of beverage or leisure activity could replace it.

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

Competition

Competitive coffee shops

Copy cat brands

Restaurants

Street carts

Competition could enter the market at any time.

The U.S. specialty coffee market continues to grow, and an

Increasing number of firms is looking to enter.

At any time, a company with greater financial, marketing, and

Operating resources could enter the market and compete directly with Starbucks.

Volatile nature of the coffee market

Multiple factors, including weather, political, and economic conditions for example, can potentially negatively affect the company’s business.

Green coffee prices may be affected due to agreements establishing export quotas or restricting global coffee supplies.

Slowing U.S. retail sales

Domestic retail accounts for about 75% of the company’s revenue growth and an even greater proportion of profit growth (Data Monitor).

If current U.S. store growth continues, saturation levels within the

North American division may be reached within five years. Before

Reaching this point, US retail sales growth will slow significantly

(Data Monitor)

Competition

Competition comes in several forms:

Independent/Local coffee shops

Social and inclusive

Diverse and intellectual

Artsy and funky, typically cozy and very welcoming

Liberal and free-spirited

Lingering encouraged

Particularly appealing to younger coffee house customers

Wide variety of beverages/food

Appeals to the non-traditional crowd

Franchise/Large Companies

Generally well-recognized names (McDonald’s, Krispy Kreme, Dunkin’ Donuts, etc.)

More convenient and accessible

Easy access in and out

Appeals to the more mainstream coffee drinkers

Services (Company)

Starbucks purchases roasts of the highest quality of whole bean coffees.

Fresh and rich brewed Italian espresso

Offers pastries and other appetizing confections

Sells coffee-related accessories (mugs, coffee makers, cups, espresso, etc.)

Expanded sales into supermarkets of whole bean coffee

Introduction the widely popular drink, Frappuccinos, to the public

Strives for satisfied customers and a welcoming environment

Works to have highest standards of excellence in way of business

Offers newspapers and other reading material, popular music, and Internet

access (provided by T-Mobile)

Keys to Success (Company)

Rapidly expand retail operations

Growth in its specialty sales and other operations

Selectively pursue opportunities to leverage the Starbucks brand through the

introduction of new products

Continue to be widely available and welcoming

Maintain reputation for having specialty and gourmet coffee

Make customers feel welcome with friendly service

Critical Issues (Moon)

Must increase customer satisfaction through improvements to service

Friendlier and more attentive staff

Faster and more efficient service

Increase in personal treatment (remember customer’s name and order)

More knowledgeable staff

Better overall service

Offer better prices/incentive programs

Free cups after “x” number of visits

Reduction of price

Offer promotions, sales to increase customer satisfaction

OTHER

Offer better quality and variety of products

Improve atmosphere (friendly, welcoming)

Reaching out to community through involvement and awareness

More stores and convenient locations

Other critical issues Starbucks is criticized for and must be aware of are:

Clustering

Driving out independents

Loss of diversity

Its policy toward farming communities in developing countries

Fair trade

Many of these issues are vital for Starbucks to improve their

Customers’ satisfaction (Simmons).

Critical Issues

Marketing Strategy

Starbucks Mission Statement (Company)

“Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.

The following six guiding principles will help us measure the appropriateness of our decisions:

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting, and delivery of our fresh coffee o Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.”

Environmental Mission Statement (Company)

“Starbucks is committed to a role of environmental leadership in all facets of our business.

We fulfil this mission by a commitment to:

Understanding of environmental issues and sharing information with our partners.

Developing innovative and flexible solutions to bring about change.

Striving to buy, sell, and use environmentally friendly products.

Recognizing that fiscal responsibility is essential to our environmental future.

Instilling environmental responsibility as a corporate value.

Measuring and monitoring our progress for each project.

Encouraging all partners to share in our mission.”

Other points of importance to Starbucks:

“Building customer loyalty around cappuccinos, lattes, and other fancy beverages,” (Overshot).

Want to create a sense of community

Want to create a memorable experience for a customer that inspires the customer to return often, as well as to tell a friend

Striving to become the most recognized and respected brand in the world

Putting people before products (Company)

What a Starbucks store should be: “An authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments” (Thompson).

Marketing Objectives

To create a Starbucks experience that makes people come for the coffee, stay for the ambience and environment, and return for the connection

To build an image separate from smaller coffee chains

To clearly communicate the values and commitments of the Starbucks business to their customers, instead of only growth plans publicized in the media

Financial Objectives

Have each store reach a $20,000 weekly sales level

Open new stores with lower store-opening costs (about $315,000 per store on average).

Target Marketing

Based on a sample of Starbucks’ 2002 customer base, the attitudes toward the brand were:

The chart shows that the new customers have a poorer attitude toward Starbucks in every category than the existing customers.

The new customer type that needs attention is:

45% female, 55% male

Average age of 36

37% have a college degree

Average income is $65,000

Drink an average of 15 cups of coffee per week

Store Expansion Strategy

Target areas with favourable demographic profiles, as well as areas that can be serviced and supported by the company’s operations infrastructure.

For each targeted area, select a large city to serve as a focal point.

Goal of each focal city: Open 20 or more stores in that city in the first two years.

Once stores cover the city, open additional stores in smaller, surrounding areas in the region.

With this plan, the company had only closed 2 of the 1,500 sites it had opened between 1992 and 1997.

Stores must be custom-designed.

The company does not buy freestanding structures, and therefore each store is a different shape and size.

Most stores range in size from 1,000 to 1,500 square feet.

Most stores are located in high-trafficked, high-visibility areas, such as:

Office buildings

Downtown and suburban retail centres

Airport terminals

University campuses

Busy neighbourhood shopping areas convenient to pedestrian traffic

International expansion

As of 2004, the company operated over 300 company-owned stores in the United Kingdom, Australia, and Thailand, as well as 900 licensed stores in Asia, Europe, the Middle East, Africa, and Latin America.

Goal: Have 15,000 international stores

Other things to consider:

Kiosks

Drive-through windows

Positioning

Store Ambience

Goal: To make customers want to linger

Social Appeal-Offer a sense of community, a place where people can come together

Physical layout

Seating areas to encourage lounging

Appear upscale yet inviting

Aromas

Smoking is banned in all stores

Employees are asked to refrain from wearing perfumes or colognes, and prepared foods are kept covered so customers would only smell coffee aromas.

Sounds

Play soothing CDs that are also for sale

Often offer live music

Customer Service

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

The company believes that employee satisfaction leads to customer satisfaction (Moon).

Voted onto Fortune’s Top 100 Places to Work

Employee satisfaction remains consistently around 80-90%.

Turnover rate is 70%, one of the lowest in the industry

Focuses on manager stability in order to decrease employee turnover, but also to help recognize regular customers and provide personalized services

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

Greet customers with a smile.

Enthusiastically welcome customers into the store.

Establish eye contact.

Try to remember customers’ names and orders if they are frequent customers.

“Just Say Yes” policy, in order to keep the customer happy, which may go beyond store rules

Example: Always compensate dissatisfied customers with a Starbucks coupon entitling them to a free drink

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

Advertising-The Company spends very little on advertising and depends on word-of-mouth promotion.

Involvement in the Community

Contributing positively to surrounding communities is one of Starbucks’ guiding principles in the company’s mission statement.

Howard Schultz had the plan to “build a company with soul (Student).

Starbucks has been the largest corporate contributor in North America to CARE, a worldwide relief and development organization to help Third World countries where Starbucks purchases its coffee supplies.

The company has an Environmental Committee that looks for ways to reduce, reuse, and recycle waste, as well as contribute to local community environmental efforts.

The company donated almost $200,000 to literacy improvement efforts (Student).

Starbucks has many community building programs to “contribute positively to the communities where our partners (employees) and customers live, work, and play” (Corporate).

“As part of Starbucks ongoing commitment to share the comfort of coffee during times of crisis, the company continues to demonstrate our support of the men and women serving in the U.S. military overseas” (Company).

The Starbucks Foundation (Company)

Established in 1997 by Howard Schultz

Inspired by Schultz’s childhood experiences and those of other inner city children

Dedicated to creating hope, discovery, and opportunity in the communities of Starbucks

Marketing Mix

Marketing Research

Schultz wanted to use research in order for Starbucks to challenge the status quo, be more innovative and take bigger risks.

Examples of questions he asked were :

What could Starbucks do to make its stores an even more elegant “third place” that welcomed, rewarded, and surprised customers?

What new products and new experiences could the company provide that would uniquely belong to or be associated with Starbucks?

What could coffee be – besides being hot or liquid?

How could Starbucks reach people who were not coffee drinkers?

What strategic paths should Starbucks pursue to achieve its objective of becoming the most recognized and respected brand of coffee in the world?

At the retail stores, a pamphlet is available for customers to share their thoughts about their Starbucks experience.

Starbucks uses “Customer Snapshots,” similar to mystery shoppers, to evaluate partner performance in the retail stores (Moon).

The four basic service evaluations include:

Service – Did the register partner verbally greet the customer? Did the partners make eye contact with the customer? Say thank you?

Cleanliness – Was the store clean? The counters? The tables? The restrooms?

Product Quality – Was the order filled accurately? Was the temperature of the drink within range? Was the beverage properly presented?

Speed of Service – How long did the customer have to wait? The company’s goal was to serve a customer within three minutes, from back-of-the-line to drink-in-hand.

Customer Snapshot Scores (North American Stores)

Product

 Starbucks product-mix expanded from 30 varieties of whole bean coffees to eco-friendly cappuccino, coffee makers, and other Starbuck paraphernalia. Its product offerings have also expanded beyond pastries and coffee to oatmeal, smoothes, and wraps to keep up with the competition and satisfy more customer needs.

The company has also been constantly introducing new products, such as “Instant via Ready” and “Full Leaf Tazo Tea Lattes” and “Tazo Tea Infusions”. The Instant via Ready is an instant coffee that the company claims is indistinguishable from its regular brewed coffee (Jargon). Full Leaf Tazo Tea Lattes and Tazo Tea Infusions are the company’s new tea offerings through which it hopes to attract tea drinkers (Edwards). The company also offers Starbucks coffee and cappuccino makers for consumers who wish to replace their existing home coffee makers.

Price

Starbucks products are priced higher due to perceived upscale image attached to its brand. The company also began to offer $1 bottomless 8 oz. cup of coffee, with unlimited refills that cost approximately 50 cents less than any other Starbucks products. The company is also implementing “value strategies” that would emphasize more on inexpensive coffee products rather being perceived as unaffordable to price-skittish consumers. For example, the company introduced $3.95 “breakfast pairings,” including popular breakfast items paired with a coffee, and highlights $2 brewed coffees instead of the more expensive specialty drinks (Jennings).

Place

 As stated earlier, Starbucks can be found in any neighbourhood where there is a perceived high traffic for its stores. Starbucks outlets can also be found in-store of various large chains including Barnes & Noble and Target. Their locations are extremely conducive for individuals that are on the go and for those who enjoy reading or listening to music. Starbucks has also been recently testing “stealth outlets”, where the store is named after the street it is located on. The new stores attempt to “localize” Starbucks stores with no Starbucks logo on any of the products being offered there, and instead have the specific street address as the brand name (Allison).

Promotion

Starbucks has implemented numerous promotions to reach its target markets. Promotions are listed as follows:

• One of the promotions that Starbucks has used is the Starbucks Card. Starbucks Card is an initiative that offers customers the opportunity to promote company’s products through a referral system. When a customer purchases a gift card, it not only shows brand loyalty, but it also provides the company with free advertising, and brings in new customers. Starbucks also provides a card for corporate sales, which are used for extrinsic rewards to show employee appreciation for a job well done, or a gift to client or a vendor. 

• Coffee services delivered to offices without coffee size restrictions.

• Appealing to a diverse customer base by offering international teas and coffees to accommodate those customers that want a taste from home or for locals that enjoy tea.

• Using philanthropy as a means for promotion – Starbucks contributes to several non-profit organizations as a way to improve brand image and awareness in local communities.

Controls

Problems and Solutions

In 2002, our fellow associates, including Christine Day, recognized that customer service needed to be improved upon, and one idea to conquer this problem was to invest $40 million annually in 4,500 stores.

By adding almost $9,000 to each store, this would allow an additional 20 hours of labour per week.

Day said, “The idea is to improve speed-of-service and thereby increase customer satisfaction.”

According to a survey of customers, 65% believed fast service was a key attribute to their satisfaction.

In the past when we thought of adding more labour hours to our retail stores, we decided against it due to the struggling economy, especially since labour was already our biggest expense.

Another option instead of increasing labour hours is to increase the efficiency of the partners that we currently employ. We removed the no value- added tasks, simplified the production process, and manipulated the store layout to take better advantage of store space.

Additionally, we installed an automatic espresso machine that was faster, reduced waste, and improved consistency while still fulfilling our customer’s needs. We want to continually implement the use of these machines in more of our stores.

Furthermore, we want to add more drive-thru lanes to our stores. In doing so, we can still serve our customers who want a taste of Starbucks on-the go.

Marketing Organizations

Although we have been considered one of the world’s most effective marketing organizations, we lack a strategic marketing group (Moon).

Instead, we have smaller divisions (Moon):

Market research group – gathered and analyzed market data

Category group – developed new products and managed the menu

Marketing group – developed quarterly promotional plans

However, we need to find a way to get these divisions to collaborate so information about market and customer trends is not overlooked like it has been in the past and we can make better decisions about driving our business in the future.

In 1995, a “Stores of the Future” project team was formed (Student).

Their goal was to come up with the next generation of Starbucks stores to be debuted in 1996.

Schultz communicated with the team and envisioned the retail stores to look and feel like, “an authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments.”

The team researched the art and literature of coffee throughout the ages, studied coffee-growing and coffee-making techniques, and looked at how our retail stores have already evolved in terms of design, logos, colours, and mood.

The team decided upon four store layout designs:

A store for each stage of coffee making: growing, roasting, brewing, and aroma.

Each store had its own colour combinations, lighting scheme, and component materials.

Also, the stores adapted to the environment, whether the store was downtown or on a college campus, for example.

Recommendations For Improvement

Revamp the employee reward system

Tighten focus on creating the “Third

Place” environment

Focus profitability measures on profitable

sales, not just reduction in staffing

References

“Company, The.” Starbucks”. .Received by 8may, 2010

“Corporate Social Responsibility”. Starbucks Coffee. . Starbucks Corporation. 4