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

Marketing Case Study: Amazon.com

BACKGROUND
In 1994 Jeff Bezos left his job as Vice-president of the Wall Street firm D.E Shaw to begin forming a business plan that would become Amazon.com. Amazon.com debuted on the web in 1995 as one of the first web retailers. In the late 1990s, he expanded it through acquisitions until today it is a powerhouse on the web.  Amazon.com has been a publically traded company since 1997 and they posted our first profit in 2001.

Amazon.com’s primary product was book retailing.  The company began with only 2000 titles available in the first year.  After that, Bezos worked with web developers to make the website easy and user friendly for new internet users, as well as seasoned internet professionals.  Within four months of starting operations, Amazon.com became a very popular site.  Our mission is to “seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers.”  Amazon.com continually focuses on quality and the user-end experience.  Additional web features such as gift wrapping and offering customers purchase suggestions have added to their experience.

Since 1995, Amazon.com has grown our book inventory to include more than 1.5 million titles and we have diversified our offerings outside the realm of books to include music, food, electronics, etc. Amazon.com recently entered the e-book market in 2000 when there was little interest in e-book readers, but the market took off in 2009-2010.  E-book readers topped $500 million in revenue last year in the US market and the company currently sells more e-books that traditional books.

PROBLEM
Recently, several of Amazon’s competitors have launched subscription services for e-books which has prompted the company to consider an exclusive subscription service for the Kindle, similar in concept to NetFlix and Amazon Prime for instant access to movies and TV shows online.  The challenge we are faced with is to develop a simple pricing structure and process for our patrons to check out their books and return them as efficiently as possible.  Because Amazon.com is lagging behind our competition with this product launch, we need to endeavor to create a service that is the most cost-effective and technologically advanced for our patrons as possible.

  • Strengths: Compared to our competition we offer more e-book options than any other web retailer.  We continuously strive to make the experience of using the Kindle “magical” for our clients through Amazon’s WhisperSync technology so that are able to easily access their library from any device, stored notes, page markers, etc.  We continually strive to create avenues for new authors to publish themselves and make this content readily available to our readers.  In addition, the Kindle has helped lower our carbon imprint because we are leading the way to create less waste with e-book technology.
  • Weaknesses: Our customers and shareholders are concerned that we have lost our inventive spirit as the company grows because other web retailers have managed to provide their users with a subscription service before Amazon.com.  Instant access to a web database would not be seamless for owners of older versions of the Kindle and some customers would prefer a monthly versus an annual fee.  In addition, publishing executives are not enthusiastic about the concept.  Their concern is that it could lower the value of books and strain their relationships with the other retailers that sell their books.
  • Opportunities:  With the launch of our four new Kindle products this week, many of our users will now have Wi-Fi access, an MP3 and Cloud drive built into their equipment, making it easier to download and use books as they see fit.  The technology we are using, in conjunction with our campaign to borrow books from local libraries, and download to their Kindle now gives us a platform to provide the same accessibility to those who want to pay for the service for access to the Amazon.com Library.
  • Threats: Barnes and Noble is predicting to steal some of our market share with their Nook, but currently does not offer an e-book subscription service to their readers.  Booksfree.com and Bookswim.com both offer their users limited e-book downloads and mostly provide their customers a subscription service to offline books.  24Symbols recently launched a similar application for the iPad, but only offer their users access to public domain books – no premium bestsellers.

COMPETITIVE ANALYSIS
Following is a breakdown of the current subscription availability and access fees by our competitors:

Competitor* Access Fee # of Items Available Products
24Symbols Free 1 at a time public domain e-books with advertising content
$14/month 1 at a time public domain e-books with no advertising content
$28/3 months 1 at a time public domain e-books with no advertising content
$82/year 1 at a time public domain e-books with no advertising content
Books Free** $14.49/month 2 at a time paperback books only
$27.49/month 2 at a time audiobooks only
$30.49/month 3 at a time 1 audiobook and 2 paperbacks
Books4Free Free ala carte e-books by non-published authors only
BookSwim $23.95/month 3 at a time hardcover new releases and paperbacks
$29.95/month 5 at a time hardcover new releases and paperbacks
$35.95/month 7 at a time hardcover new releases and paperbacks
$59.95/month 11 at a time hardcover new releases and paperbacks
*All competitors offer unlimited reading, no due dates, no late fees and no shipping costs.
**BooksFree.com offers their patrons a multitude of plans, for sake of space only the top 3 options have been listed here.
The site also offers users an ala carte feature starting at $5.99 in which no membership is required.

PROPOSAL
Two alternatives for an Amazon Kindle subscription service have been presented below.  Keeping in line with our competition, our customers will have unlimited reading, no due dates or late fees, and be able to cancel at any time with either option (alternative #2 offers no shipping costs).  All prices listed are for annual subscriptions.  However, customers will be given the option to be billed in monthly installments if they store credit or debit card on file at Amazon.com.  As part of their membership benefits, subscribers will have the option to buy any of the e-books they enjoyed reading at 20% off the Kindle Store™ cost, after they have borrowed the e-book, so that it can be downloaded to the Kindle and accessible when the reader is not on the Internet.

Marketing efforts will entail creating a dedicated area on the Amazon.com website (similar to Amazon Prime) where customers can get information about the subscription plans and sign up for the plan of their choice.  Current subscribers will also be able to access their rental queue and manage their account from this site area.  Advertising will consist of an email campaign to our current subscriber database dedicated to updating them with the exciting news about the new subscription service, a well as utilizing all social marketing media to notify our fans on Facebook™ and Twitter™.  Separate social network pages will be created for the service where subscribers can share reviews of books with other users and notify their friends as to what books they have borrowed, etc.  Public Relations will alert the media with news of the launch of our new services  Finally, our current SEO media campaigns will be updated to include optimizing our metatags and keywords to enhance our positioning on all search engines.  This should create the lowest increase to our advertising budget.

ALTERNATIVE  #1:  BorrowKindle™
Provide an annual subscription service, known as BorrowKindle™, that allows customers access to the entire Amazon-for-Kindle library.  The following price points will be available to our patrons for an annual subscription:

$55/year or $4.99 a month for 1 e-book at a time

$95/year or $7.99 a month for 2 e-books at a time

$235/year or $19.99 a month for 5 e-books at a time

Pros – Gives our customers tiered options for the occasional to the avid reader.  By only offering e-books, we continue our commitment through Amazon and Our Planet to lower our carbon imprint by eliminating waste through the printing and shipping process.  Our users will have instant access to many popular titles with our new Kindle products that include Wi-Fi capability.

Cons – Readers will have to wait for new release to be approved by publishers for the Kindle before they are able to access the e-book.  Kindle users with later models will not be able to access the subscription services.  Risk dip in e-book sales once subscription service is launched.  Revenue structure proposed may need to be adjusted to close a possible gap in revenue based on more recent data.

ALTERNATIVE  #2: BorrowAmazon™
Provide an annual subscription service, known as BorrowAmazon™, that allows customers access to the entire Amazon-for-Kindle library.  The following price points will be available to our patrons for an annual subscription:

$155/year or $12.99 a month for 1 e-book and 1 hard/paperback book at a time

$190/year or $15.99 a month for 2 e-books and 1 hard/paperback book at a time

$260/year or $21.99 a month for 4 e-books 2 hard/paperback books at a time

Pros – Gives our customers tiered options for the occasional to the avid reader.  Our users will have instant access to many popular titles with our new Kindle products that include Wi-Fi capability.  If a book is not yet available on the Kindle, our readers won’t miss out on new releases because they will be able to have the book shipped to them within 4-7 business days.

Cons – Kindle users with later models will not be able to access the e-book subscription service.  Risk dip in e-book sales once subscription service is launched.  Revenue structure proposed is higher for the customer than Alternative #1.  By offering book rentals, we create a larger carbon imprint through increased packaging and shipping, as well as increased hard cost and operations management to Amazon.com for shipping hard/paperback books.

RECOMMENDATION
Alternative #1 gives us the fastest option to launch our new subscription service.  Alternative #2 will take more time to set up the infrastructure and manpower to ship out actual books.  In addition, Alternative #1 will allow Amazon.com to test the viability of a subscription service with our customers, track feedback and work out any glitches in the technology before offering our customers Alternative #2 which comes at a greater hard cost to Amazon.  I recommend we begin our subscription service launch with BorrowKindle™.


REFERENCES

www.24symbols.com

www.amazon.com Kindle e-Book Store

Amazon.com Media Hotline, “Introducing the All-New Kindle Family: Four New Kindles, Four Amazing Price Points”, Amazon.com, Inc, September 28, 2011, Seattle, WA

Amazon.com Media Hotline, “Kindle Books Now Available at over 11,000 Local Libraries”, Amazon.com, Inc., September 21, 2011, Seattle, WA

Bezos, Jeffrey P., 2010 Shareholder Letter, Amazon.com, Inc. Seattle, WA

www.booksfree.com
www.booksforfree.com
www.bookswim.com

Damouni, Nadia, “Amazon in talks to launch digital book library – WSJ”, Reuters, India, September 12, 2011, Retrieved from: http://online.wsj.com/article/SB10001424053111904265504576565040210224696.html, Republished on: http://in.reuters.com/article/2011/09/12/idINIndia-59289220110912

Zee, “Amazon reportedly in talks to launch a Netflix for books”, The Next Web Insider, September 11, 2011, Retrieved from: http://thenextweb.com/insider/2011/09/11/amazon-reportedly-in-talks-to-launch-a-netflix-for-books/

Zee, “Spotify for books, 24Symbols gets a slick iPad app”, The Next Web Apps, Retrieved from: http://thenextweb.com/apps/2011/07/28/spotify-for-books-24symbols-gets-a-slick-ipad-app/