Case Study: Starbucks

1. 1
Strategic Marketing Planning of
Starbucks Coffee®
A Case Study
Angelito Estrada Christian Angeles
Presented by

2. 2
Strategic Marketing Planning of
Starbucks Coffee
A Case Study

3. STARBUCKS HISTORY 03
The name was inspired by Herman
Melville’s classic novel Moby Dick’s
first mate.
This name and the mermaid logo were
inspired by the love of the sea, from
Starbucks original location in Seattle
Washington in the heart of Pike Place
Market.
Three friends, Jerry Baldwin, Zev Siegl,
and Gordon Bowker, who all had a
passion for fresh coffee.
1971 Starbucks opens first store in
Seattle’s Pike Place Market.

4. History
04
1982 Howard Schultz joins Starbucks as director of retail operations and
marketing. Starbucks begins providing coffee to fine restaurants and espresso
bars.
1983 Howard travels to Italy, where he’s impressed with the popularity of
espresso bars in Milan. He sees the potential to develop a similar coffeehouse
culture in Seattle.
1984 Howard convinces the founders of Starbucks to test the coffeehouse
concept in downtown Seattle, where the first Starbucks® Caffè Latte is served.
This successful experiment is the genesis for a company that Schultz founds in
1985.
1985 Howard founds Il Giornale, offering brewed coffee and espresso
beverages made from Starbucks® coffee beans.
1987 Il Giornale acquires Starbucks assets with the backing of
local investors and changes its name to Starbucks Corporation.
Opens in Chicago and Vancouver, Canada.
Total stores*: 17

5. 05
1991 Becomes the first privately owned U.S. company to offer a stock option program
that includes part-time employees.
Opens first licensed airport store at Seattle’s Sea-Tac International Airport.
Total stores: 116

1992 Completes initial public offering (IPO), with common stock being traded on the
NASDAQ National Market under the trading symbol SBUX.
Total stores: 165

1993 Opens roasting plant in Kent, Wash.
Announces first two-for-one stock split.
Total stores: 272

1996 Begins selling bottled Frappuccino® coffee drink through North American Coffee
Partnership (Starbucks and Pepsi-Cola North America).
Opens stores in: Japan (first store outside of North America) and Singapore.
Total stores: 1,015


History

6. 06

1997 Establishes The Starbucks Foundation, benefiting local literacy programs.
Opens stores in: the Philippines.
Total stores: 1,412

1998 Acquires Tazo, a tea company based in Portland, Ore.
Extends the Starbucks brand into grocery channels across the U.S.
Launches Starbucks.com.
Opens stores in: Malaysia, New Zealand, Taiwan, Thailand and U.K.
Total stores: 1,886

1999 Partners with Conservation International to promote sustainable coffee-growing
practices.
Acquires Hear Music, a San Francisco–based music company.
Announces third two-for-one stock split.
Opens stores in: China, Kuwait, Lebanon and South Korea. Total stores: 2,498

History

7. Starbucks Mission 07
"To inspire and nurture the
human spirit - One person, One
cup, and One Neighborhood at
a time."

8. Starbucks Vision 08
“Establish Starbucks as the
most recognized and respected
brand in the world."

9. Starbucks’ Six Principles 09
•Provide a great work environment and treat each others with
respect and dignity.
•Embrace diversity as an essential component in the way they do
business.
•Apply the highest standards of excellence to the purchasing,
roasting and fresh delivery of their coffee.
•Develop enthusiastically satisfied customers all of the time.
•Contribute positively to their communities and their environment.
•Recognize that profitability is essential to their future success.

10. Starbucks’ Unconventional Marketing Strategy 010
Perfect Cup of Coffee- Emphasis on product quality. Their coffee, even though
priced slightly more expensive than expected, is notorious for satisfying customers
with its rich, delicious taste and aroma.

Third Place- Creating this unique and relaxing “experience” and “atmosphere” for
people to go to between home and work has been very important for the company
as they realized that this is one of the strongest concepts attached to the company,
to which customers have been strongly attracted.
Starbucks chose an unconventional marketing strategy that may be
unique and seldom-tried, that will most perfectly match the concept
that the company wants to portray.

11. Starbucks’ Unconventional Marketing Strategy 011
Customer Satisfaction –From the entrance to the store to the very
last drop of their coffees, it is a must that customers feel the
uniqueness of enjoying their Starbucks coffee experience.

Creating a Starbucks Community- The Starbucks marketing strategy
has even expanded to create a community around their brand. On
their website, individuals are encouraged to express their
experiences with Starbucks history, and the company strives to
“personally” join in the discussions.

Smart Partnerships-Starbucks Coffee Company has been known to
create strategic partnerships that demonstrate the fact that another
way to grow your business is to partner smart.

12. Starbucks’ Unconventional Marketing Strategy 012
Innovation- Through the years, they’ve added different
flavors to their coffee, more food on their menu, and even
became one of the first to offer internet capability in their
stores.

Brand Marketing- The Starbucks marketing strategy has
always focused on “word-of-mouth” advertising and letting
the high quality of their products and services speak for
themselves.

13. Starbucks Expansion Strategy 013
•Establish hubs in large major cities

•Ensure city is able to support 20 or more locations in the
hub within the first two years

•Once hub is blanketed, open more stores in smaller city
areas around the region

•Implement zone managers to oversee the development
process of each hub

14. STARBUCKS MARKET ANALYSIS 014
SWOT analysis

15. SWOT Analysis
Internal factors
External factors
Strengths
Weaknesses
Opportunities
Threats

16. Strengths
016
Global recognition
Quality products
Profitable organization
Strong financial foundation
Visionary leader
Its goal is to become a ‘third place’ within its consumers lives.
 Offers free ‘wifi’ connection
Comfortable ambiance

17. Brand Image
017
 Focuses on consistency in delivering positive consumer experience stresses the point about
consumer visits to its cafes being an experience
Four store designs—one for each of the four stages of coffee making: growing, roasting, brewing,
and aroma—each with its own color combinations, lighting scheme, and component materials
They create a consistent, inviting, stimulating environment that evokes the passion for coffee
Every barista hired for a retail job in a Starbucks store received at least 24 hours training in the first
two to four weeks. The training included classes on coffee history, drink preparation, coffee
knowledge (four hours), customer service (four hours), and retail skills, plus a four-hour workshop
called "Brewing the Perfect Cup.“
Quality and keeping all aspects consist is of main concern
EX: Customers who order one pound of beans must be given exactly that—not .995 pounds or 1.1 pounds;
never let coffee sit in the pot more than 20 minutes; always compensate dissatisfied customers with a
Starbucks coupon that entitles them to a free drink.

18. Weaknesses
018


High price
Importing roasted coffee
Known only for coffee
Excessive focus
 Employees report to two division heads
 Increasing shareholders dilutes their interest
 They have expanded too quickly, and have already saturated the US
market
 They do not allow smoking in their stores, alienating some of their
customers

19. Opportunities 019
New Market Opportunities Internationally, especially in
European and Latin American markets
New Products:
Health drinks
Organic drinks
Energy drinks
Kid focused drinks
More bottled drinks sold in stores- Expand on distribution
Form partnerships with other coffee companies- widen market
U.S. job creation-
Accept donations at CreateJobsforUSA.org and Starbucks cafes in
the United States

20. Threats
02
0
The coffee market is saturated
 Cost of coffee beans is expected to rise in the near future
 Supermarkets threaten whole bean sales
 Farmers might switch from coffee to vegetable crops
 High competition from Japanese competitors
 Consumers trend toward more healthful fare

21. Threats 021
The Threat of New Entry :
McDonald's came into direct competition with Starbucks when it
upgraded its coffee in 2006
As a result, the average number of customers visiting a Starbucks
store declined from an estimated 460 in 2005 to just above 400 in
2007
With the launch of McCafe in 2008, the competition between the
two chains intensified further.
Smaller privately owned coffee houses
Other coffee shops like Dunkin Donut, Figarro and Coffee Bean

22. Threats
02
2
Bargaining Power of Buyers:
Force of the buyer’s bargaining power is proportional to the ability of buyers
to force down prices
differentiation involved in the specialty coffee industry and the lack of
differentiation in the basic coffee industry
Image Threat:
Anti-Starbucks Groups:
National Gun Victims Action Council (NGAC)
Unions
Petition for Good Jobs at Starbucks
Increased pay

23. Unique Strategy
02
3
To capture key locations and open stores in close proximity to each other is
unique strategy for Starbucks
ensures that licensed store that don’t meet set achievements are closed
down
Clustering its stores in one area helped Starbucks quickly achieve market
dominance. With over 20 million regular customers per week
Spends less than 1% of its annual revenues on advertising- Starbucks strategy
relies on word of mouth advertising.
Engaging in smart joint ventures with the right companies:
-Pepsi-Cola Co.
- New products: Hot sandwiches, new drinks, coffee liqueurs, instant
coffee

24. Industry PEST Analysis

02
4
Political Influences
State & Local government controls

Economic Influences
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

25. Competitors
02
5
7-Eleven
Dunkin Donuts
McDonald's
Green Mountain Coffee Roasters
Coffee Bean and Tea Leaf
Costa Coffee
Peet's Coffee and Tea
Caribou Coffee
Second Cup
 Kraft
 Procter & Gamble
 Nestlé

26. Boston Matrix
02
6

27. Boston Matrix
02
7
Above is the Boston Matrix. It shows the cash cows as the regular Starbucks line of
Coffee’s, Latte’s and Frappuccino’s found at nearly every location. These are stable
products that account for the bulk of sales. A potential star is the International locations,
which hold less financial risk and open doors for innovation and stability. Question
marks are the recently added VIA instant coffee to be expanding to grocery stores and
convenient stores. Current products like this such as the dog, pre-bottle Frappuccino’s
account for a tiny fraction of sales. Another question mark is the oft forgotten sub-brand
Seattle’s Best. The company will be revamping this brand and its future is unknown.
The following is Porter’s Generic Competitive strategy. Shown is Starbucks as a whole in
the differentiation strategy as they provide a high quality coffee and unique experience
in the convenience of a large volume of locations, which separates them from their
competition. VIA, the new instant coffee line is straddling differentiation and low cost-
leadership. While it will be a low cost and convenient alternative to Starbucks regular
coffee, it is still unique from other products in the market. The in-store gifts and brewing
utensils are in the focused differentiation category as they cater to the coffee lover, and
are unique items found only in the Starbucks stores.

28. Competitive Advantage
02
8
The above is Porter’s Generic Competitive strategy. Shown is Starbucks as a whole in
the differentiation strategy as they provide a high quality coffee and unique experience
in the convenience of a large volume of locations, which separates them from their
competition. VIA, the new instant coffee line is straddling differentiation and low cost-
leadership. While it will be a low cost and convenient alternative to Starbucks regular
coffee, it is still unique from other products in the market. The in-store gifts and
brewing utensils are in the focused differentiation category as they cater to the coffee
lover, and are unique items found only in the Starbucks stores.

29. Porter’s 5 Forces
02
9

30. Porter’s 5 Forces
03
0
Above are Porters 5 Forces and their level of threat to Starbucks. The bargaining power
of suppliers is high because of the natural resources needed to create their ingredients
and Starbucks believes in finding fair-trade and high quality beans, often from other
countries These specifications limit the number of suppliers. The threat of new entrants
is medium in that the coffee market is changing. The need for ambiance and a place to
share is losing edge to the on-the-go alternatives, and should a new entrant comes
along with a different business model there is room for threat. However, Starbucks is the
household name. Industry competitors is on the rise because of McDonalds creating the
McCafe line. Peets have increased presence as well. Threat of substitutes is low, because
coffee is always going to be a desired drink and pastime of choice.

31. Alternative Action 031
There are alternative actions Starbucks can take to secure its competitive
advantage it has upheld for so long. Below is the current value curve for
Starbucks and its most relevant competitors Peets, and the McCafe Line.

32. Alternative Action
03
2

33. Alternative Action
03
3
MC Donalds shows a similar curve, but lower in all levels. The one item that
truly separates the two is the reputation Starbucks has in the coffee
industry unlike McDonalds. The rest is similar, which shows a threat to
Starbucks becoming part of a red ocean. Peets have an opposing curve,
which could be a threat but their lack of volume, and brand recognition
limits them from competition. My suggestions for the Four Action
framework would be to create more customization by al- lowing users
create new flavors and drinks above and beyond the options they have
now. This would incorporate with the other creation of online user
experience. Users could go on to the online Starbucks interface and have
complete control to create their own drink, order online, find the nearest
Starbucks and receive directions. Users could post their favorite drink
combination and others could vote on it. Also involved in user experience
could be mobile apps, putting in drink orders, finder etc. to enhance the
Starbucks brand in the new digital era and to create a blue ocean for the
coffee experience.

34. DEMOGRAPHICS
03
4

35. Perceptual Mapping for McCafé, Starbucks and Dunkin’ Donuts
03
5

36. Starbucks Today
36
• $15 billion chain coffee business

•Total net revenues increased 10% to 2.8 billion

•EPS increased 21% to $0.34 in Q2 FY11 compared to $0.28 in Q210‘
s 16,706 Starbucks stores in the world located in more than 50
countries

Number of Starbucks’ stores world wide
Starbucks around the Globe

37. STARBUCKS EXPERIENCE - 4 P’s

38. Product – What Starbucks can provide for me?

03
8
Tangible Product
Coffee, coffee bean, tea, food, cold
drinks (milk, water, juice), tea, bottle ,
mug , music and seasonal products

Core Product: services provided in store
Coffee, considerable service, relieved
atmosphere, decoration , Wi-Fi
connection

Augmented Product: intangible service
Interaction with customers

39. Tangible Product
Tangible Product
Coffee, coffee bean, tea, food,
cold drinks (milk, water, juice), tea,
bottle , mug , music and seasonal
products

40. Core product
Core Product:
services provided in
store
Coffee, considerable
service, relieved
atmosphere,
decoration , Wi-Fi
connection

41. Augmented Product
Augmented Product:
intangible service
Interaction with
customers

42. Placement

 Coffee store

 Supermarket, restaurants
and bakeries

 Online store

43.  High price and high quality

 Price = cost + profit

 1 + 1 > 2

 Perceived-value pricing strategy

Price Price

44. 44
PROMOTION: COMMITMENT TO THE WORLD

45. “We always figured that putting people before
products just made good common sense.”
Sales

Advertisement

 Merchandising

 Social media

 Corporate Social Responsibility

46. Sales
 Changing prices

 Free coffee in determinate period

 Receipt as coupon

 Online coupon

 Cards

 Special offer in website (buy 2 and get 1 free / special discounts)

47. Merchandising

48. Social Media

49. Corporate Social Responsibility(CSR)
 Green Stores: Building
greener stores

 Purchased renewable
energy

 Greener Cups: The
quest for the 100%
recyclable cup

50. Starbucks in the Philippines
December 4, 1997, the Philippines had its first taste of the Starbucks Experience with its very
first branch at the 6750 Ayala Building in Makati City. Starbucks has since won the hearts of
the Filipinos.
The opening of the 6750 Ayala store marked an important milestone in our history – the
Philippines became the third market to open outside North America.
The tradition of warm hospitality, constant need for connection, and love for coffee – these
are the qualities that make Starbucks Coffee and the Filipino people a great culture fit.

51. Future Action
51

52. CONCLUSION
Starbucks success is achieved through a few factors.
Outstanding Quality of the coffee brewed
Excellent service provided at the stores
Fast growth of new stores all around the world

These factors not only have increased the sales but also the reputation among
the coffee lovers. Starbucks encounters aggressive competition in all areas of
its business activity. The market for each of their business segments are
characterized by vigorous competition among major corporations with long
established positions and a large number of new and rapidly growing firms.

Anyway, as Starbucks have a good financial capacity with good strategies; it
can overcome all the competitors to shine high as the first class coffee
purveyor

53. Questions / Comments
53

54. Angelito Estrada