Starbucks analysis

I’m trying to study for my Marketing course and I need some help to understand this question.

A STARBUCKS JUGGERNAUT

Good marketing requires practitioners to understand customer needs, wants, and demands. Marketing requires concentration and creativity, close attention and open-mindedness, as well as careful analysis and the courage to take risks. Howard Schultz, CEO of Starbucks, once said, “We cannot be content with the status quo. Any business today that embraces the status quo as an operating principle is going to be on a death march.”

Starbucks’ march is clearly going in the opposite direction. It recently reported its highest shareholder return in 10 years, and reported record revenues of $19.2 billion. Indeed, it is working to achieve its mission: “To inspire and nurture the human spirit—one person, one cup and one neighbourhood at a time.”

International Expansion

Part of the reason for these increased sales has been Starbucks’ continued pursuit of growth and expansion. Along with finding new locations in its home market, recent international expansions have spread the brand to Colombia, Turkey, India, and Norway. Accordingly, the number of stores worldwide has grown to more than 22,519 in 68 countries, demonstrating its commitment to getting better, rather than resting on its laurels (or tea leaves).

Such expansion requires flexibility to make sure the marketing plan matches the market. Generally, Starbucks actively avoids any franchise agreements. It wants to own all its stores to ensure consistency and quality. But that strict preference has not worked well in Europe, where it discovered it needed some help to access smaller markets. Although it no longer offers franchises in the United Kingdom, at last count nine franchisees in the United Kingdom owned 45 Starbucks stores. In nations with strict laws regarding foreign ownership of business, such as India and China, Starbucks enters into joint venture partnerships, to make sure it can access these massive and growing markets.

Yet Starbucks is well aware of the damage done in the mid-2000s, when it expanded so rapidly and indiscriminately that customers started rejecting the chain as too ubiquitous—too much,

everywhere they turned. The company slumped during that period, suffering from a weakened reputation, negative press, and consumer complaints about quality.

Let’s look at how Starbucks is managing its marketing mix, or the 4Ps, as it moves forward.

Product Innovation

Growth for the corporation also comes about through introducing new product lines. For Starbucks, the purchase of Teavana should do for tea what has already been done for coffee—turn it into a pleasurable, happy experience that people can treat themselves to on a daily basis. Teavana stores offer more than 100 flavours, including non-traditional names such as Slimful Chocolate Decadence Oolong, Cococaramel Sea Salt, Yunnan Golden Pu-Erh, and Spice of Life. Tea sales grew by 17 percent last year. Starbucks plans to expand the Teavana brand in Europe, as well as in China and other Asia–Pacific countries. And in 2016, Starbucks rolled out an Evenings Menu at three Toronto locations that allows consumers to purchase alcoholic beverages such as wine, beer, and cider.

Of course, this is not to suggest that Starbucks has never erred in its marketing decisions. Even the best marketers are prone to stumbling sometimes. When Starbucks sought to expand its line of breakfast foods, consumers found the offerings bland and unappealing. The food often took too long to prepare, especially for busy baristas during the morning rush. But part of the success of the chain is its ability to learn from its mistakes. When Starbucks purchased La Boulange Café and Bakery for $100 million, it tasked the chain’s founder, Pascal Rigo, with laying out a specific plan for adding to the pastries in its display cases. Rigo had multiple tasks to complete before his croissants and muffins would make it into Starbucks. He had to find a way to fit freezers into every single Starbucks store (not an easy task in tiny shops, where space is at a premium). He had to define a training plan to help baristas learn how and when to suggest and sell the pastries. And he needed to identify or create local bakeries that could be trusted to make the products consistently and on time and supply them to each store.

These tasks were part of the marketing plan; without establishing a good supply, Starbucks would not allow the foods into its well designed, appealing stores. But by paying attention to the detail and thinking creatively, Rigo and Starbucks found a way to make La Boulange pastries an appealing addition to Starbucks stores.

Promotion Innovations

Starbucks is leveraging the promotion P as well by developing thoughtful campaigns that reflect currency and the image and corporate personality that it wishes to portray. It often promotes new products with “buy one, get one free” offers. Its rewards program, although dramatically revised in the spring of 2016, continues to bring loyal customers back to its stores. The rewards program allows Starbucks to track customer purchases, capturing buying history and preferences. It also allows the company to create personalized offers and make unique recommendations for customers. Promotions are also tied into the use of the Starbucks app to

make payment fast and easy, or the Mobile Order & Pay app, which lets customers order ahead and bypass the line on arrival.

Pricing

From its inception, Starbucks has charged premium prices. With relatively few specialty coffeehouses at the time, it stood out as being unique in many markets. Most North Americans had never tasted freshly ground espresso, let alone cappuccinos or lattes. They certainly hadn’t experienced the warm, inviting, and relaxing atmosphere in which they could sit and visit with friends or do some reading or work. The personalized exchange customers had with a barista was also unusual.

Even after it experienced intense competition from McDonald’s, Tim Hortons®, and independent coffeehouses; rapid expansion both domestically and internationally; and a backto-its-roots change of strategy that reflects quality products and superior service, it still commands a premium price. Moving into the future, Starbucks is counting on the increased use of payment via smartphone apps, prepaid cards, and credit cards to take away some of the sting of its relatively high prices.

Improvements to the Supply Chain

As the La Boulange example shows, Starbucks has learned the importance of a consistent supply of products, part of the place P. The supply chain is critical to any good marketing effort, another lesson that Starbucks seemingly has learned the hard way. When it first chose to distribute ground coffee and beans through grocery stores, it turned to an existing consumer packaged-goods company, Kraft, for help. The partnership was not successful and ultimately fell apart.

In particular, Starbucks alleged that Kraft was not doing enough to market and promote its branded goods. In demonstrating its ability to pay attention to changes in its situation, Starbucks also contended that the partnership was limiting its marketing capacities. For example, the agreement required that it produce only single-serve coffee pods that fit Kraft’s Tassimo system. This left Starbucks unable to compete for the segment of consumers who had purchased other systems. The company now has a partnership with Keurig Green Mountain to supply Starbucks K-cup pods.

By securing greater control over its distribution, Starbucks also can more rapidly and effectively implement new strategies for its consumer packaged-goods business. This sector is a strong focus for Starbucks, which hopes to sell more packaged goods through additional channels, such as hotels and restaurants, as well as grocery stores.

Commitment to Sustainability

Like Tim Hortons®, Starbucks is also committed to sustainability. It launched the Sustainable Coffee Challenge along with Conservation International and other organizations to work toward making coffee a sustainable agricultural product. Its “One Tree for Every Bag” program demonstrates a commitment to ethical sourcing. Through this program, Starbucks can scale support to farmers in need. For example, this year it will donate 20 million rust-resistant coffee tree seedlings.

These aspects of Starbucks’ strategy highlight how marketing can lead to success. But they also demonstrate that the coffee chain’s success was not predestined or guaranteed. In its past marketing efforts, Starbucks has made plenty of missteps, and likely will do so again. The goal, for Starbucks and for any great marketer, is to make sure that the value for customers is sufficient to overcome any stumbles, and then to work harder to avoid them.

Questions

1. How does Starbucks create and provide value for customers? (3 points) 2. Why can Starbucks charge so much more for a latte compare to chains like Tim Hortons? (2 points) 3. What sorts of expansions seem most likely to benefit Starbucks in the future? Which seem riskiest? (2 points) 4. Based on what you have just read, what is one of Starbucks’ marketing objectives and what else would you recommend that Starbucks do to achieve this objective? (3)

Marking Rubric Excellent (9-10) Clearly answers all questions with support and justification Answers include creative solutions and thorough explanation Responses are free of grammatical errors and fit in 2 pages or less

Good (7-8) Answers questions but lacks clarity or supporting evidence Answers include creative solutions and explanation Responses have some grammatical errors or do not follow required format

OK or less (6 and below) Does not clearly answer questions Answers lack creative solutions Answers have many spelling errors and/or grammatical mistakes