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3923360-Starbucks-Marketing

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3923360-Starbucks-Marketing

    “We aren’t in the coffee business, serving people.

    We are in the people business, serving coffee”

    Howard Schultz, Starbucks Chairman and Chief Global Strategist

    Fortune Magazine, Vol. 149 No. 2

    Title: Starbucks: “The Non-Coffee Treat”

    P.V. Sundar Balakrishnan Submit To:

    Completed By:

    Matthew Carmean Julie Anstett Julia Toochette Partner Partner Partner

Joel Ennis Joey Eaton Trang P. Huynh

    Partner Partner Partner

    Table of Contents

    TABLE OF CONTENTS .............................................................................................................................................. 2 EXECUTIVE SUMMARY ........................................................................................................................................... 3 MANAGERIAL PROBLEM ........................................................................................................................................ 4 SITUATION ANALYSIS ............................................................................................................................................. 4

    Company ................................................................................................................................................................. 4

    Customer ................................................................................................................................................................. 4

    Competitor .............................................................................................................................................................. 5

    Complementors........................................................................................................................................................ 5 STRATEGY (STP) ....................................................................................................................................................... 5

    Segmentation ........................................................................................................................................................... 5

    Target ...................................................................................................................................................................... 5 PRODUCT LIFE CYCLE ............................................................................................................................................ 6

    Introductory Stage.................................................................................................................................................... 6

    Growth Stage ........................................................................................................................................................... 6

    Maturity Stage ......................................................................................................................................................... 7

    Decline Stage ........................................................................................................................................................... 7 IMPLEMENTATION PLAN AND RECOMMENDATION ...................................................................................... 7

    Product .................................................................................................................................................................... 7

    Price ........................................................................................................................................................................ 7

    Place (Distribution) .................................................................................................................................................. 8

    Promotion ................................................................................................................................................................ 8 APPENDIX ................................................................................................................................................................... 9

    Starbucks: “The Non-Coffee Treat” 2

Executive Summary

    Starbucks is the leading retailer and roaster for brand specialty coffee in the world. It has over 7,500 stores located worldwide. As Starbucks continues to expand, it will encounter all sorts of new product markets, with new and demanding customers for unique and appealing products. Starbucks has begun by introducing an extension of the Frappuccino line targeted to the non-coffee drinker. Entering this new market, Starbucks faces many challenges from having to compete to retain brand recognition of its primary products, yet increase awareness of its new product line. Our analysis and research of the market have resulted in keys findings as follows:

     The new Frappuccino blended beverages, also known as the Summer Drink flavors will help

    Starbucks reposition itself in the developing non-coffee iced-beverage market; Starbucks will

    also need to enhance the product perception to maintain the perceived high quality.

    Customers of this segment are sensitive to taste and quality of food product and nutritional

    data.

     With this new line extension, Starbucks will be facing many new competitors such as Jamba

    Juice, Orange Julius and other local non-coffee iced-beverage providers. Special care must be

    implemented to maintain Brand equity for it’s primary product, and not become to diversified

    the current customers seek alternatives.

     Based on our research, we found that the married couples age 25-54 with children to be the

    primary potential target market.

     Additionally, we have concluded generating awareness about the product via a Web

    Campaign would be highly advisable. A Secondary approach would be Network TV or Print

    Media such as magazines, journals, and newspapers.

Starbucks: “The Non-Coffee Treat” 3

Managerial Problem

     Starbucks strategic goal is to increase market share of the non-coffee drinker; they have begun by introducing an extension of a product line targeted to this segment. To ensure market growth, Starbucks has repositioned one of its current products, the Frappuccino line, this product has been extended to include 3 new flavors; Double Chocolate Chip Crème, Vanilla Bean Crème, and Strawberries & Crème, introduced throughout the summer months. Faced with the challenge of entering a new competitive market Starbucks must compete to retain brand recognition of its primary products, yet increase awareness of its new product line.

    Situation Analysis

    Company

     Starbucks is the leading retailer for roaster and brand specialty coffee in the world (See Figure

     1).It has over 7,500 stores, which are located in the United States, Canada, Europe, Asia and the

    1Middle East. Besides high quality coffee drinks, Starbucks sells bottled coffee drinks, such as Frappuccino? and Starbucks DoubleShot?.

     Starbucks revenue is growing by 20% a year and is opening approximately three stores every day. Starbucks is capable of managing its successful operations by having steady market growth. It achieved this by financing through their cash flow instead of franchising, selling stock or increasing

    2their financial leverage. Its strategy to success is “blanket an area completely.” This approach is to “cuts down on delivery and management costs, shortens customer lines at individual stores, and

    3increases foot traffic for all the stores in an area,” that gives Starbucks a competitive advantage.

    Customer

     At first only yuppies went to Starbucks, but now it attracts a much wider demographic of customers including people of different ethnic backgrounds and ages. Today, Starbucks has the striking

    3 number of 25 million people visitors in its stores each week.This success is due to the combination of

    high quality drinks and friendly environment with good music, comfortable chairs, and good services. This creates the “Starbucks experience” which customers can relate to that lead to brand loyalty. In addition, Starbucks needs to deal with customers’ cultural preferences in all its worldwide locations to

     1 Sewer, Andy, “Hot Starbucks to Go” Fortune Magazine” January 26, 2004 p.74 2 Sewer, Andy, Hot Starbucks to Go Fortune Magazine” January 26, 2004 p.70 3 Source: “Market Share Reporter an Annual Complication of Reported Market Share Data on Companies, Product, and services 2004.”and “Market Share Reporter an Annual Complication of Reported Market Share Data on Companies, Product, and services

    2003.” Robert S. Lazich, Editor. Thomson Gale, 2003

    Starbucks: “The Non-Coffee Treat” 4

maintain customers’ loyalty. (See Figure 2) Also see Figure 3 for influences on the consumer purchase

    decision process.

    Competitor

     To ensure further market growth and be competitive, Starbucks is developing new products for non-coffee drinkers. Starbucks provides its current customers and attracts new customers not only with quality products but also with varieties flavors that customers’ desire (See Figure 3).

     Starbucks’ two largest competitors are Dunkin’ Donuts and Krispy Kreme, both are national

    5 Other competitors chains. These companies use aggressive price-cutting, up to 20%, for their drinks.are small local coffeehouses, and other coffee brands like Tully’s and Pete’s Coffee. Their direct competitors for the new product line are Orange Julius, Jamba Juice, fast food chains such as McDonald’s and Burger King, and other small coffee alternative providers.

    Complementors

    7 Starbucks recently teamed up with Bank One to offer the Starbucks Card Duetto Visa.This is

    a stored-value card and traditional credit card. Starbucks has also introduced a T-Mobile Hotspot

    8service which allows the Starbucks customer to have access to wireless internet for a fee. Offering

    more services like the Visa card, wireless internet and customized CD will add more value to the Starbucks experience and help draw more customers to Starbucks which will lead to higher revenues.

    Strategy (STP)

    Segmentation

     One dimension of segmentation will be demographics (age and household status). We have selected married couples age 25 54 with children to be our primary target market. According to our data in figure 5, we found that these households spend more than other households on non-alcoholic beverages away from home. We also like this segment because the children can consume the coffee-free Frappuccino as well. We expect such events as parents buying the child a Frappuccino as a treat for a soccer game victory, or on a family trip to the beach. We anticipate the exciting summertime experience, will remain in the child’s mind and will influence their purchase decisions as they mature. (See Figure 10)

    Target

    Points of Difference:

     Starbucks cannot expect to grow by offering the same products as its competitors. Starbucks must offer “points of difference” that will make customers want to come to Starbucks rather than Starbucks: “The Non-Coffee Treat” 5

    competitors. The “points of difference” that make Starbucks new Frappuccinos distinctive relative to competitors fall into four important areas:

     Brand Experience: At Starbucks you aren’t just drinking a beverage, but are undertaking in an

    emotional experience by the surroundings.

     Brand Quality: Starbucks has been recognized for exceeding expectations by the quality of their

    products and their service. This is what will create their loyal customers.

     Perceived Health: People that are active are perceived to be healthier then those not active.

    According to our survey, Figure 6, aside from the coffee, Starbucks is perceived as a healthy

    establishment, which makes the new coffee-free Frappuccinos appear healthy as well. Convenient Access: Starbucks is everywhere and easily accessible. In many locations Starbucks

    offers drive-thru windows, which are more convenient then its competitors.

    Positioning

     Starbucks products always have been perceived with a prestigious image. With their high quality products, unique tastes, friendly environment, conveniences, customers are willing to pay a premium price for its products. As Starbucks extends their product line with the new Frappuccino flavors, it faced against competitors like Jamba Juice. Therefore, to retain a position in the customers’ minds as high quality, Starbucks needs to enhance its position by making it appear as nutritional. This can be achieved by lowering the calories or by adding real fruit to the product. As the product’s nutritional and taste increase, their perceive quality will also increase. Offering a more quality product for the same price will help increase sales and enable them to be more competitive in the customers mind.

    Product Life Cycle

     The summer drinks are currently in the introductory stage of the product life cycle. Refer to Figure 4. The summer drinks are currently in the life cycle in reference to where we hope it will be in seasons/years to come.

    Introductory Stage

     During this stage we expect to have slow sales growth and low profits but are optimistic for the growth stage to increase both. The introductory stage is simply being used as an introduction to these new flavors of the Frappaccino drink.

    Growth Stage

    Starbucks: “The Non-Coffee Treat” 6

     As the summer draws near we expect sales to rapidly increase. Due to the timing of the hot weather and the promotion effectiveness we expect to see an increase in sales. With the new-segmented market hearing about the new “non-coffee” beverages sales are bound to grow due to

    curious consumers and their wants to be in some way affiliated with the Starbucks brand. Maturity Stage

     The maturity stage will be reached near the end of summer and beginning of fall of the first year. As the product is consumed and referred to as the “Summer Drink” sales will eventually slow and reach maturity. We recommend selling these flavors year round making them available to those who still desire to consume them. We do not see sales increasing from summer through winter. Decline Stage

     This stage is expected to come every year in late fall and proceed through winter and mid spring. Due to the environmental change, the weather, and the promotional aspect of the “summer drink” sales will surely decline during this period. As shown in Figure 4 we expect throughout the coming years to see sales progress and gain more market share every year.

    Implementation Plan and Recommendation

    Product

     Starbucks is known for providing superior products and services. Consumers have enjoyed the experience they encounter at Starbucks, and now for those who seek a high quality non-coffee drink can enjoy the same experience. By introducing these new summer drinks, Starbucks will enjoy an entirely new segment to market its products to. When looking at the sales revenues for the summer drinks it is important to consider that some of the existing customers will inevitably cross over and begin consuming the new drinks. In the end, the expansion of the product line is a wise decision because of the ease of adoption to Starbucks reputation for quality as well as the low cost of implementation.

    Price

     The main competitor to the new summer drinks is Jamba Juice with its smoothies. Comparatively, Starbucks summer drinks are priced significantly lower. In addition to low comparative price, the perceived benefits for consuming a Starbucks drink are quite high for most consumers. Therefore, when a customer does a value analysis and divides perceived benefits by the price, the resulting value for the customer is quite high. With the price of the summer drinks being Starbucks: “The Non-Coffee Treat” 7

    lower than it competitors, its price sensitivity is low. However, over time as consumers adopt the product they may become aware of other products and therefore the price sensitivity will increase overtime. The delicate balancing act is to manage the price of the drink low enough to gain market share while still preserving Starbucks’ prestigious image.

    Place (Distribution)

     Starbucks distributes its New Frappuccino Blended Beverages directly to customers through its own retail stores. Currently these new Frappuccino flavors are only available in North American Stores. With numerous locations, it will be convenient for customers to buy these new Frappuccino products. These new Frappuccino flavors are available year round. Due to the demand and appeal of the products, revenue from this product will fluctuate as the seasons change.

    Promotion

     The easiest methods for promoting the latest summer drinks are by internal advertisements within its retail stores, such as posters, new product signage, and other internal means. However, this type of promotion will have the least amount of effect on gaining more market share of non-coffee drinkers. Therefore we have done analysis of other mediums for promotion; the top 3 mediums of

    4. After advertising, according to figures from 2000, include Newspaper, Network TV, and Spot TVreviewing the goal of increasing awareness of the product to attract people to the retail locations we recommend using a medium that today is in direct competition to the TV, website marketing. Starbucks has historically avoided advertisements on TV, due to attempts that had reduced the brand image, furthermore the cost to do TV spots is far greater then by websites, this is not to say they should not do TV spots, but we recommend they avoid head-to-head marketing with competitors such as McDonalds, and other Fast-food chains.

    Starbucks has determined that most of its targeted customers consider themselves relatively technology savvy via the computer. An increasing number of companies are using the World Wide Web to communicate and after considerable review, we highly recommend a web campaign aimed to increase awareness of the Summer Drinks. Websites that are highly reputable or that can be partnered with will be the most successful in generating awareness. See Figure 9.

    TV Commercials may also be done, however we do not recommend during the introduction stage. During Growth would be far more effective. See Figure 11.

     4 Krishnamurthy, Sandeep, E-Commerce Management: Text and Cases P. 169 source: Advertising Age,

    http://AdAge.com

    Starbucks: “The Non-Coffee Treat” 8

Appendix

    Figure 1

    TOP GROUND DECAFFEINATED COFFEE BRANDS, 2002

    30

    25Folgers20Maxwell House

    15Starbucks

    Folgers Coffee Singles10

    Millstone5

    0

Based on sales for the year ending November 3, 2002 Starbucks is in third place among top ground decaffeinated coffee

    brands with a 7.8 percent market share. This is an increase of 2.6 percent compared to its market share in 2001.

    TOP GROUND COFFEE BRANDS, 2002

    Folgers25

    Maxwell House20

    Folgers Coffee House15

    10Maxwell House Master Blend

    5Starbucks

    0Hills Brothers

Based on sales for the year ending November 3, 2002 Starbucks is in fifth place among top ground coffee brands with a

    market share of 6.66% and $109.2 millions in sales.

    TOP WHOLE BEAN COFFEE BRANDS, 2002

    35

    30

    25Eight O'Clock

    Starbucks20

    Folgers Select 15

    Millstone10

    5

    0

    Starbucks: “The Non-Coffee Treat” 9

     Starbucks falls among four top whole bean coffee brands and has a 21.7% market share of the whole bean category this 5places the company in second place after Eight O’clock. In 2001 Starbucks had only 19.1%

Figure 2

    CULTURAL INFLUENCE ON THE CONSUMERS BEHAVIOR DIFFERENCE

    90

    80

    70

    60Percentage of customer that spend50time in coffeehouses40Percentage of customers that buy30coffee to go20

    10

    0

    USAEurope

    By increasing its market share worldwide Starbucks needs to deal with cultural issues. For instance, in Europe 85% of coffee customers like to spend time in coffeehouses, in the USA this number is only 14%, the remaining 86% prefer to have their coffee to go. Starbucks 6needs to consider new ways to increase foreign markets. One way is by adopting its menu and service to segment markets.

Figure 3

    FLAVOR PREFERENCE SURVEY

    45

    40

    35

    30Strawberry25Chocolate20Vanilla15

    10

    5

    0

To create its 2004 summer drinks Starbucks sponsored a survey during which it was revealed the degree of flavor

    preferences. This survey shows that Americans most enjoy the taste of chocolate (41%), strawberry (29%), and vanilla

     5 Source: “Starbucks Steaming Ahead with Aggressive Expansion plans” by Jake Batsell. The Seattle Times. March

    28,2004. Retrieved on April 25, 2004 From http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document 6 Source: “Starbucks Steaming Ahead with Aggressive Expansion plans” by Jake Batsell. The Seattle Times. March 28,2004. Retrieved on April 25, 2004 From <http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document>

    Starbucks: “The Non-Coffee Treat” 10

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