Marketing Case Study: Starbucks

Background
Since its inception in 1971, Starbucks® has been committed to ethically sourcing and roasting the highest quality Arabica coffee in the world.  Today, the company boasts just over 17,000 stores in 50 countries.   Our mission is to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

While our primary product is coffee, Starbucks also emphasizes a social commitment to “put people before products.”  Part of commitment involves creating an enjoyable “coffee experience” whether the consumer is at home or in one of our hundreds of locations.  Our Partners (employees) are at the heart of the Starbucks experience, thus we strive to treat our partners with respect and dignity.  Starbucks has built a solid foundation on a direct and open relationship we share with our Partners and the legacy to provide them with a positive workplace.

Problem
Recently Starbucks® has encountered several setbacks that have caused the company to reconsider some of our initial strategies.  There is growing concern from the general public over the “exorbitant cost of a cup of coffee”, which in turn makes the company aware of how this may affect our favorable reputation in the marketplace. The continued recession has caused customers to cut back on the average number of transactions they have made with Starbucks, as well as the amount they spend on our products, which has led the company to close more than 600 U.S. Starbucks locations..  In addition, other unlikely competitors, such as McDonald’s, Dunkin’ Donuts, and 7 Eleven have emerged as industry strongholds, gaining some market share from the lower end of our target market.

  • Strengths – Starbucks has created a need for specialty coffee drinks within a target market that spans age, gender, social class, and economic earnings. Starbucks is known as a premier purveyor of the finest coffee in the world.  We have maintained uncompromising principles in order to establish a mainstream product (available in the general public) with an environmental focus, “Starbucks is committed to a role of environmental leadership in all facets of business.”  Our customers enjoy quality service, an inviting atmosphere and an exceptional cup of coffee.  Our Partners consistently name us one of the top 100 places to work for in Fortune magazine.
  • Weaknesses – Recently Starbucks has introduced a lunch menu that has delivered marginal result within our target market giving the perception that the brand is suffering from an identity crisis (are we a coffee shop or a lunch stop?).  There has some inconsistency in the delivery of our product due to the disappointing partnership agreement with Kraft intended to distribute our products in grocery stores nationwide.  Due to the natural complacency that comes with the long-term growth of a company, our customers have also begun to raise concerns over our commitment to continue making innovations the environment because many of our recycling and conservation efforts go on “behind the counter”.
  • Opportunities – We are challenged to maintain a positive relationship with our customers by continuing to provide excellent coffee, with some lower price point options, in order to serve their budget needs.  If we continue to move forward with the European café concept in the US, and provide a variety of food menu options to the consumer, we need to realign our brand position in order to communicate the value of the concept.  We can strengthen our involvement within each of our local communities by sourcing a portion of our coffees direct from local farmers (provided there is a viable source in that particular market).  Starbucks will continue to focus on international expansion, as diversification will mitigate balanced, healthy growth for the company.
  • Threats – With the severe contraction of our economy, consumers have modified their restaurant choices from “casual dining” to more affordable, “fast casual” selections.  With the addition of lunch options to our menu, we are now forced to compete with a greater number of brands, in the “fast casual” category, than the company would by just selling coffee alone (most of whom are more established in the category).  Not only have we seen unlikely competition from Dunkin Donuts, McDonald’s and 7-Eleven, but we will also directly compete with reputable fast casual brands such as Panera, Einstein Bros. Bagels, Chipotle, Qdoba, etc.  It is compulsory to maintain top of mind awareness through constant interaction with our customers outside of the store environment.

Option #1
Offer lunch pairings for food and drink.  Use sidewalk/sandwich boards to market the daily pairing to our customers.  Also remind the consumer at point-of-sale about the daily pairing when they are placing their order.

Pros – the lunch pairings demonstrate our commitment to the new brand position that we Starbucks offers a local neighborhood setting for a European café experience.  Since launching our breakfast pairings in 2009, we have seen positive response from our customers through sales tracking.

Cons – this adds cost for in-store marketing materials, as well as responsibility on our Partners to effectively communicate the pairings to our customers.  We also want to protect our brand image so that customers do not view Starbucks as a “fast food” option that only offers “value meals”.

Option #2
Many of our US markets have an abundance of local coffee farmers and/or roasters.  Starbucks will partner with one of the local farmers to not only provide a budget conscious coffee selection, but one that is also unique to each market.

Pros – demonstrates our commitment for community involvement by investing financially in the community through the local coffee source.  Because the preference for a variety of coffee flavors varies from market to market, this gives us the opportunity to show we understand the variance by community.

Cons – added cost to procure a local vendor in each market, as well as timely negotiations to provide their coffee under the Starbucks name.  Price point must be at or lower than what the farmer could distribute the product for on their own.

Recommendation and Rationale
Based on the various costs and operation challenges for each proposed solution, I would recommend Option #2.  Starbucks has seen tremendous financial recovery in 2010, thus we are poised with an opportunity to meet the concerns of our customers to provide a lower cost option for coffee, as well as deepen our commitment to stay connected with our customers and our community.  Not only has Starbucks made a commitment to break the contraction of the economic cycle we are in by accelerating hiring, the money saved from foregoing political campaign contributions will be better invested in our the overall growth of our industry.


References

Flynn, Laurie, “Starbucks Reports 77% Earnings Decline”, NYTimes.com, April 29, 2009, Retrieved from: http://www.nytimes.com/2009/04/30/business/30sbux.html

Reimer, Marcus, “Starbucks-Kraft Dispute Percolates on Market Share”, TheStreet.com, January 24, 2011, Retrieved from: http://www.thestreet.com/story/10983371/starbucks-kraft-dispute-percolates-on-market-share.html

Schultz, Howard, “Letters from Howard”, UpwardSpiral2011, September 1-2, 2011

Sherman, Erik, “Is Starbucks in Danger of Losing Focus – and Market Share?” Thursday, February 15, 2007, Retrieved from: http://www.eriksherman.com/bizblast/2007/02/is-starbucks-in-danger-of-losing-focus.html

Starbucks, “Our Company Profile”, Starbucks.com, July 2011

Starbucks, “Starbucks Company Recognition”, Starbucks.com, 2011

Starbucks, “Facts about Starbucks and our Partners”, Starbucks.com, Retrieved from: http://news.starbucks.com/article_print.cfm?article_id=225

Starbucks, Fiscal 2009 Annual Report

Starbucks, Fiscal 2010 Annual Report

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