Starbucks Business Case Study

Economy

Nihat Canak

Starbucks Business Case Study

Scholarly Research Paper

Western Carolina University Cullowhee.

„Starbucks Coffee Company“ Assignment 1

Marketing Management & Mature Consumers

Nihat Canak 07/13/2006

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Index of contents

1 What is Starbucks’ product?.........................................................................................1 2 What changes in society have helped Starbucks be successful?.................................1 3 What strategic factors account for Starbucks’ success in developing brand equity? ..................................................................................................................2 4 What opportunities and threats face Starbucks? ........................................................3 5 What are the advantages of the Starbucks Card to the company and to customers?.......................................................................................................................4 6 What should Starbucks do to continue growing its revenues and earnings?..........................................................................................................................4 7 Evaluate Starbucks’ mission statement and guiding principles. What do they suggest about the company?..................................................................................5 Bibliography..........................................................................................................................6

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1

What is Starbucks’ product?

Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, coffee-related accessories and equipment, a selection of premium teas and a line of compact discs, primarily through company-operated retail stores. Starbucks also sells coffee and tea products and licenses its trademark through other channels and the company produces and sells bottled Frappuccino coffee drinks and Starbucks DoubleShot espresso drink and a line of ice creams.

Concluding, Starbucks is able to sell in some respects emotions and experiences. This is basically what every marketing try to realize and to measure. By providing a unique atmosphere, the customers enjoy the time they spend in the stores. The interior design and the smell of coffee are the most important aspects that support the company’s storeconcept.

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What changes in society have helped Starbucks be successful?

There are several changes in society that helped Starbucks getting succesful. In my opinion, the most important change of the last two, three decades (time of operation of Starbucks) is the change of economics. Starbucks strategy comprises to locate its stores at special places such as urban areas, the first floor of blocks of offices, and entrances of the underground. These places, of course, get the more crowded the better the economic situation is.

In addition, the development of information technology and related media is another aspect. On the one hand, it helps the company to reach new customers and on the other hand the company encompasses multiple music and technology based initiatives designed to appeal to new and existing Starbucks customers.

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Among these initiatives are strategic marketing and co-branding arrangements, such as the 24-hour Starbucks Hear Music TM digital music channel 75 available to all Satellite Radio subscribers,

and the availability of wireless broadband Internet service in company-operated retail stores located in the United States and Canada. Additionally, the entertainment business includes Starbucks Hear Music's innovative partnerships with other music labels for the production, marketing and distribution of both exclusive and nonexclusive music, music programming for Starbucks stores worldwide, and CD sales through the company's website. Furthermore, a more abstract change is the way of life in the “modern world”. People are more often outside having their day by day issues. Because of this hecticness a “to go coffee” seems to be beneficial for busy people.

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What strategic factors account for Starbucks’ success in developing brand equity?

Specialty

Operations

strive

to

develop

the

company's

brand

outside

the

company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop and dine by establishing relationships with prominent third parties that share the company's values and commitment to quality. These relationships take various forms, including licensing arrangements, foodservice accounts and other initiatives related to the company's core businesses. The company plans to continue rapid expansion of its retail operations to grow its Specialty Operations and to selectively pursue other opportunities to leverage the Starbucks brand through the introduction of new products and the development of new channels of distribution. The company also locates retail stores in select rural and off- highway locations to serve a broader array of customers outside major metropolitan markets and to expand brand awareness.

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What opportunities and threats face Starbucks?

Starbucks most important opportunity for expanding its retail business is to increase its market share in existing markets primarily by opening additional stores and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. There are still multiple markets in countries with metropolitan areas that Starbucks has to enter. The company still has the chance to take advantage of the first mover in these locations.

There are several threats that face Starbucks. The company's financial performance is highly dependent on its United States operating segment, which comprised 84% of consolidated total net revenues in fiscal 2005. Any substantial or sustained decline in these operations could materially adversely affect the company's business and financial results.

Furthermore, Starbucks believes it has built an excellent reputation globally for the quality of its products, for delivery of a consistently positive consumer experience and for its corporate social responsibility programs. Consumer demand for the company's products and its brand equity could diminish significantly if Starbucks fails to preserve the quality of its products, is perceived to act in an unethical or socially irresponsible manner or fails to deliver a consistently positive consumer experience in each of its markets.

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What are the advantages of the Starbucks Card to the company and to customers?

The Starbucks card program has been widely accepted by millions of consumers throughout the United States for its convenience and speed of transactions, and, like other Starbucks merchandise, makes a great gift. Starbucks fully-integrated card system allows consumers to make purchases and reload funds on existing cards at any of the company's locations throughout the country.

The advantage for Stabucks is obvious. First, it is a great tool to generate customer loyalty. Second, The company requests or requires customers seeking the issuance of the card to provide a usually minimal amount of identifying or demographic data, such as name and address. Application forms entail agreements by Starbucks concerning customer privacy, typically non-disclosure of non-aggregate data about customers. The company uses aggregate data internally as part of its marketing research.

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What should Starbucks do to continue growing its revenues and earnings?

The company's long-term goal is to open approximately 15,000 Starbucks stores in the United States and at least 15,000 stores in International markets. Starbucks expects annual total net revenue growth of approximately 20% and annual earnings per share growth of approximately 20-25% for the next three to five year period. Effectively managing growth on this scale is challenging, particularly as Starbucks expands into new markets internationally. The company needs to ensure a consistent supply of high quality raw materials, to hire sufficient numbers of key employees to meet the company's growth targets, to maintain an effective system of internal controls for a globally dispersed enterprise and to train employees worldwide to deliver a consistently high quality product and customer experience. Achieving the company's growth targets is also dependent on its ability to open more new stores in the current year as well as future years than it opened in prior years.

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7

Evaluate Starbucks’ mission statement and guiding principles. What do they suggest about the company?

Starbucks mission is to be the premier purveyor of the finest coffee in the world. Coffee is a semi-luxury and that is why the company wants to ensure a high quality of the products it offers.

For Starbucks, the quality aspect seems to be one of the most important and crucial factors for its success. Therefore, the company tries to communicate this “philosophy” to all levels of its hierarchy, from high-end managers to cashiers. The company trains its employees worldwide

to deliver a consistently high quality product and customer experience. The company knows that to deliver an “enjoyable” time in the stores it has to provide premiumproducts through friendly employees. The company’s mission statement, guiding principles, and philosophy make me suggest that Starbucks wants to position itself as a "third place'' between home and work where people can gather together for human connection.

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Bibliography 1. Marketing Management: Knowledge and Skills by J. Paul Peter, Jr, James H Donnelly, and Jr, James Donnelly 2. http://www.starbucks.com/default.asp 3. Annual Report 2005 4. http://en.wikipedia.org/wiki/Main_Page

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