“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: Submit To: Completed By:

Starbucks: “The Non-Coffee Treat” P.V. Sundar Balakrishnan

Matthew Carmean Partner

Julie Anstett Partner

Julia Toochette Partner

Joel Ennis Partner

Joey Eaton Partner

Trang P. Huynh Partner

..................................................................................4 SITUATION ANALYSIS................................................................................................................................................................................................................... 6 Maturity Stage ............................................................................................................................................................ 7 Place (Distribution)................................................................................................................................................................................................................................................................................. 5 PRODUCT LIFE CYCLE...........2 EXECUTIVE SUMMARY......................................................................................................................................................................................................................................................................................................... 5 Target............................................................................................................ 5 Complementors..........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................14 PLACE................................................................................................................................................................................................................................................... 5 STRATEGY (STP)........................................8 PRICE.................................6 Introductory Stage...................................................................................... 7 IMPLEMENTATION PLAN AND RECOMMENDATION ..................................................................................... 7 Decline Stage.................................................................................................................................................................... 8 APPENDIX...................................................7 Product....................................................................................................................................................................................................5 Segmentation..........................................................................................................................................................................................................................14 PROMOTION ............. 4 Customer ....................................................................................................................................................................................................................................3 MANAGERIAL PROBLEM.................................................................................................................................................... 4 Competitor ...................................................................................................4 Company ..............................................................................................................................................................................Table of Contents TABLE OF CONTENTS................................................................................................... 7 Price.......................................................................................................................................................................................................................................................................... 8 Promotion...................................................................................................................................................... 6 Growth Stage..............................................................................................14 Starbucks: “The Non-Coffee Treat” 2 ..........................................................

yet increase awareness of its new product line. Starbucks will also need to enhance the product perception to maintain the perceived high quality. we have concluded generating awareness about the product via a Web Campaign would be highly advisable.500 stores located worldwide. Starbucks will be facing many new competitors such as Jamba Juice. Starbucks: “The Non-Coffee Treat” 3 . It has over 7. • With this new line extension. Orange Julius and other local non-coffee iced-beverage providers. also known as the Summer Drink flavors will help Starbucks reposition itself in the developing non-coffee iced-beverage market. • Additionally. Starbucks faces many challenges from having to compete to retain brand recognition of its primary products. we found that the married couples age 25-54 with children to be the primary potential target market. Starbucks has begun by introducing an extension of the Frappuccino line targeted to the non-coffee drinker. Our analysis and research of the market have resulted in keys findings as follows: • The new Frappuccino blended beverages. journals. Entering this new market. Special care must be implemented to maintain Brand equity for it’s primary product. A Secondary approach would be Network TV or Print Media such as magazines. • Based on our research. and not become to diversified the current customers seek alternatives. it will encounter all sorts of new product markets. with new and demanding customers for unique and appealing products. As Starbucks continues to expand.Executive Summary Starbucks is the leading retailer and roaster for brand specialty coffee in the world. Customers of this segment are sensitive to taste and quality of food product and nutritional data. and newspapers.

and services 2004. Thomson Gale. Vanilla Bean Crème. such as Frappuccino® and Starbucks DoubleShot™. Product. and services 2003.74 Sewer. this product has been extended to include 3 new flavors. the Frappuccino line.” that gives Starbucks a competitive advantage. Europe. Editor. yet increase awareness of its new product line. It achieved this by financing through their cash flow instead of franchising.3 Customer At first only yuppies went to Starbucks. Situation Analysis Company Starbucks is the leading retailer for roaster and brand specialty coffee in the world (See Figure 1). Starbucks is capable of managing its successful operations by having steady market growth. but now it attracts a much wider demographic of customers including people of different ethnic backgrounds and ages. This success is due to the combination of high quality drinks and friendly environment with good music. In addition. Asia and the Middle East1. selling stock or increasing their financial leverage2. they have begun by introducing an extension of a product line targeted to this segment. and good services. Faced with the challenge of entering a new competitive market Starbucks must compete to retain brand recognition of its primary products. comfortable chairs.” Robert S. Starbucks needs to deal with 1 2 3 Sewer. Its strategy to success is “blanket an area completely.70 Source: “Market Share Reporter an Annual Complication of Reported Market Share Data on Companies. Double Chocolate Chip Crème. and Strawberries & Crème. introduced throughout the summer months.” This approach is to “cuts down on delivery and management costs. “Hot Starbucks to Go” Fortune Magazine” January 26. Starbucks sells bottled coffee drinks.500 stores. This creates the “Starbucks experience” which customers can relate to that lead to brand loyalty. Starbucks has the striking number of 25 million people visitors in its stores each week3. Product. Canada. and increases foot traffic for all the stores in an area. Andy. shortens customer lines at individual stores. 2004 p. Andy. 2004 p. Besides high quality coffee drinks. 2003 Starbucks: “The Non-Coffee Treat” 4 .Managerial Problem Starbucks strategic goal is to increase market share of the non-coffee drinker. Today. Starbucks revenue is growing by 20% a year and is opening approximately three stores every day. Starbucks has repositioned one of its current products. To ensure market growth.”and “Market Share Reporter an Annual Complication of Reported Market Share Data on Companies. “Hot Starbucks to Go” Fortune Magazine” January 26. Lazich. It has over 7. which are located in the United States.

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. for their drinks. Strategy (STP) Segmentation One dimension of segmentation will be demographics (age and household status). We also like this segment because the children can consume the coffee-free Frappuccino as well. Starbucks must offer “points of difference” that will make customers want to come to Starbucks rather than competitors. or on a family trip to the beach. and other small coffee alternative providers. Starbucks: “The Non-Coffee Treat” 5 . We anticipate the exciting summertime experience. According to our data in figure 5. These companies use aggressive price-cutting. Their direct competitors for the new product line are Orange Julius. (See Figure 2) Also see Figure 3 for influences on the consumer purchase decision process. Jamba Juice.customers’ cultural preferences in all its worldwide locations to maintain customers’ loyalty. both are national chains. will remain in the child’s mind and will influence their purchase decisions as they mature. 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). we found that these households spend more than other households on non-alcoholic beverages away from home. fast food chains such as McDonald’s and Burger King.8 Offering more services like the Visa card. Complementors Starbucks recently teamed up with Bank One to offer the Starbucks Card Duetto Visa. (See Figure 10) Target Points of Difference: Starbucks cannot expect to grow by offering the same products as its competitors. We have selected married couples age 25 – 54 with children to be our primary target market.5 Other competitors are small local coffeehouses. We expect such events as parents buying the child a Frappuccino as a treat for a soccer game victory. Starbucks’ two largest competitors are Dunkin’ Donuts and Krispy Kreme. up to 20%. Competitor To ensure further market growth and be competitive. Starbucks has also introduced a T-Mobile Hotspot service which allows the Starbucks customer to have access to wireless internet for a fee. and other coffee brands like Tully’s and Pete’s Coffee.7 This is a stored-value card and traditional credit card. Starbucks is developing new products for noncoffee drinkers.

The introductory stage is simply being used as an introduction to these new flavors of the Frappaccino drink. 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. conveniences. As Starbucks extends their product line with the new Frappuccino flavors.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. to retain a position in the customers’ minds as high quality. According to our survey. Positioning Starbucks products always have been perceived with a prestigious image. it faced against competitors like Jamba Juice. Refer to Figure 4. Product Life Cycle The summer drinks are currently in the introductory stage of the product life cycle. This can be achieved by lowering the calories or by adding real fruit to the product. The summer drinks are currently in the life cycle in reference to where we hope it will be in seasons/years to come. customers are willing to pay a premium price for its products. Figure 6. unique tastes. aside from the coffee. which are more convenient then its competitors. Offering a more quality product for the same price will help increase sales and enable them to be more competitive in the customers mind. As the product’s nutritional and taste increase. Brand Quality: Starbucks has been recognized for exceeding expectations by the quality of their products and their service. their perceive quality will also increase. In many locations Starbucks offers drive-thru windows. This is what will create their loyal customers. friendly environment. With the new-segmented market Starbucks: “The Non-Coffee Treat” 6 . Perceived Health: People that are active are perceived to be healthier then those not active. but are undertaking in an emotional experience by the surroundings. With their high quality products. Due to the timing of the hot weather and the promotion effectiveness we expect to see an increase in sales. Starbucks needs to enhance its position by making it appear as nutritional. • Convenient Access: Starbucks is everywhere and easily accessible. which makes the new coffee-free Frappuccinos appear healthy as well. Starbucks is perceived as a healthy establishment. Therefore. Growth Stage As the summer draws near we expect sales to rapidly increase.

However. Due to the environmental change. over time as consumers adopt the product they may become aware of other products and therefore the price sensitivity will increase overtime. and now for those who seek a high quality non-coffee drink can enjoy the same experience. As shown in Figure 4 we expect throughout the coming years to see sales progress and gain more market share every year. Consumers have enjoyed the experience they encounter at Starbucks. With the price of the summer drinks being lower than it competitors. the weather. We do not see sales increasing from summer through winter. Maturity Stage The maturity stage will be reached near the end of summer and beginning of fall of the first year.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. 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. In the end. As the product is consumed and referred to as the “Summer Drink” sales will eventually slow and reach maturity. The delicate balancing act is to manage the price of the drink low enough to gain market share while still preserving Starbucks’ prestigious image. and the promotional aspect of the “summer drink” sales will surely decline during this period. Price The main competitor to the new summer drinks is Jamba Juice with its smoothies. Implementation Plan and Recommendation Product Starbucks is known for providing superior products and services. when a customer does a value analysis and divides perceived benefits by the price. the resulting value for the customer is quite high. We recommend selling these flavors year round making them available to those who still desire to consume them. Comparatively. Decline Stage This stage is expected to come every year in late fall and proceed through winter and mid spring. Therefore. Starbucks will enjoy an entirely new segment to market its products to. the perceived benefits for consuming a Starbucks drink are quite high for most consumers. Starbucks summer drinks are priced significantly lower. its price sensitivity is low. By introducing these new summer drinks. Starbucks: “The Non-Coffee Treat” 7 . In addition to low comparative price. 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.

These new Frappuccino flavors are available year round. After reviewing 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. new product signage. furthermore the cost to do TV spots is far greater then by websites. revenue from this product will fluctuate as the seasons change. however we do not recommend during the introduction stage. and Spot TV4. With numerous locations. this type of promotion will have the least amount of effect on gaining more market share of non-coffee drinkers. such as posters. and other internal means. according to figures from 2000. it will be convenient for customers to buy these new Frappuccino products. See Figure 11. E-Commerce Management: Text and Cases P. Appendix Figure 1 TOP GROUND DECAFFEINATED COFFEE BRANDS. http://AdAge. 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. TV Commercials may also be done. include Newspaper. due to attempts that had reduced the brand image. Currently these new Frappuccino flavors are only available in North American Stores. Network TV. and other Fast-food chains. Starbucks has historically avoided advertisements on TV. we highly recommend a web campaign aimed to increase awareness of the Summer Drinks. 2002 4 Krishnamurthy. 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. Due to the demand and appeal of the products. Promotion The easiest methods for promoting the latest summer drinks are by internal advertisements within its retail stores. Sandeep. During Growth would be far more effective.com Starbucks: “The Non-Coffee Treat” 8 . website marketing. the top 3 mediums of advertising. Therefore we have done analysis of other mediums for promotion. However. See Figure 9. Websites that are highly reputable or that can be partnered with will be the most successful in generating awareness.Place (Distribution) Starbucks distributes its New Frappuccino Blended Beverages directly to customers through its own retail stores. 169 source: Advertising Age.

8 percent market share. 2002 35 30 25 20 15 10 5 0 Eight O'Clock Starbucks Folgers Select Millstone Starbucks: “The Non-Coffee Treat” 9 .2 millions in sales.66% and $109. TOP GROUND COFFEE BRANDS. 2002 Starbucks is in fifth place among top ground coffee brands with a market share of 6.6 percent compared to its market share in 2001. TOP WHOLE BEAN COFFEE BRANDS.30 25 20 15 10 5 0 Folgers Maxw ell House Starbucks Folgers Coffee Singles Millstone Based on sales for the year ending November 3. 2002 Starbucks is in third place among top ground decaffeinated coffee brands with a 7. 2002 25 20 15 10 5 0 Folgers Maxwell House Folgers Coffee House Maxwell House M aster Blend Starbucks Hills Brothers Based on sales for the year ending November 3. This is an increase of 2.

pl?document 6 Source: “Starbucks Steaming Ahead with Aggressive Expansion plans” by Jake Batsell.Starbucks falls among four top whole bean coffee brands and has a 21. the remaining 86% prefer to have their coffee to go. Strawberry Chocolate Vanilla 5 Source: “Starbucks Steaming Ahead with Aggressive Expansion plans” by Jake Batsell.pl?document> Starbucks: “The Non-Coffee Treat” 10 . March 28. This survey shows that Americans most enjoy the taste of chocolate (41%). and vanilla (28%).1%5 Figure 2 CULTURAL INFLUENCE ON THE CONSUMERS BEHAVIOR DIFFERENCE 90 80 70 60 50 40 30 20 10 0 USA Europe Percentage of customer that spend time in coffeehouses Percentage of customers that buy coffee to go By increasing its market share worldwide Starbucks needs to deal with cultural issues. in Europe 85% of coffee customers like to spend time in coffeehouses. As a result.com/cgi-bin/PrintStory. Starbucks needs to consider new ways to increase foreign markets. March 28. in the USA this number is only 14%. For instance. 2004 From http://seattletimes.6 Figure 3 FLAVOR PREFERENCE SURVEY 45 40 35 30 25 20 15 10 5 0 To create its 2004 summer drinks Starbucks sponsored a survey during which it was revealed the degree of flavor preferences. Retrieved on April 25. 2004 From <http://seattletimes. The Seattle Times.nwsource. strawberry (29%).nwsource.7% market share of the whole bean category this places the company in second place after Eight O’clock. Retrieved on April 25.2004. The Seattle Times.2004.com/cgi-bin/PrintStory. One way is by adopting its menu and service to segment markets. In 2001 Starbucks had only 19.

60% 2.84 single person 101. 2003.55 7 under 25 25 .90% 28. Married couples.34 35 .64 65 .adp?id=2004022 > 8 Household Spending.7 192. in thousands Non-Alcoholic total consumer beverages away units from home 158.44 45 -54 55 . Strawberries & Crème Frappuccino. Ed.Starbucks for 2004 developed new drinks: Java Chip Frappuccino.74 75+ 6.com/business/article.39 188.00% under 25 25 .50% 20. in thousands Non-Alcoholic beverages away from home total married couples 191.83 232.77 Married couples. by household type Non-Alcoholic beverages away from home Total married Married couples.66 147.50% 23.aol. “On April 23. 7 Figure 4 Summer Drink Frappuccino Life Cycle Sales Spring Summer Fall Winter 2004 = Current Progress in Product life Cycle Spring Summer Fall Winter 2005 Spring Summer Fall Winter 2006 Figure 58 Percentage of total annual spending on non-alcoholic beverages away from home. including Strawberries &Cream Frappuccino(R) blended cream. Starbucks introduces five new Frappuccino(R) blended beverage flavor. by age.60% 5.80% 5.74 75+ 136.80% 11. 2004 at < http://aolsvc.44 45 -54 55 .28 144. New Strategist Publications.90% Average annual spending of consumer units on non-alcoholic beverages away from home.” Retrieved on April 22. single parent at no children with children least one child 135. Nov.20% 17. by household type.40% Average annual spending on non-alcoholic beverages away from home. Married couples.90% 38. by age Non-Alcoholic total consumer beverages away units from home 100.34 35 . Double Chocolate Chip Frappuccino.3 206.41 Percentage of total annual spending on non-alcoholic beverages away from home.news.14 83. 8th Edition.64 65 . Single parent at Single person couples no children with children least one child 62.20% 18.94 38. and Café Vanilla Frappuccino.76 “Business Wire. Starbucks: “The Non-Coffee Treat” 11 .

We also conclude married couples with children at home spend more than other household types when going out for non-alcoholic beverages. an ongoing.00 Purchase Cycle 4 3 5 6 3 Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 $5. Figure 7 Average Customer Expense & Visits per Week Customer Expenditure $3.74 Forecasted customer life (years) 20 Lifetime profit $5594. Sixteen random individuals were asked.This information is based on unpublished data collected by the Bureau of Labor Statistics’ Consumer Expenditure Survey. Store operating expenses.58 discount rate *Gross Margin figured using most recent 13 weeks ended March 28th 2004.2 Gross Margin 21.80 Net present value of future cash flows using 10. According to this survey we conclude that America’s view Starbucks as a healthy establishment.50 $5. do you view Starbucks as a healthy establishment? Yes: No: 12 4 This survey was taken on the streets of Seattle around Pike Place Market.0% $2381. nationwide survey of household spending. and four answered no. That number was then subtracted from total net revenues and the answer was then divided by total net revenues9. With this data we have decided to target the segment of married couples ages 25 – 54 with children at home.3%* Annual contribution from exchange (53) $279.50 $8. and other operating expenses. Figure 6 Small Random Survey Besides the coffee aspect.10kwizard.com/filing.00 $6. 9 Retrieved on May 10. Cost of goods sold was figured by adding Cost of sales. From this data we have found that when going out for nonalcoholic beverages householders spanning the ages of 25 – 54 spend the most overall.90 Average Expenditure 4.2 Average visits per customer per week Starbucks Customer Lifetime Value Average expenditure per visit $5.90 Purchase cycle in weeks 4. “Besides the coffee aspect do you view Starbucks as a healthy establishment.50 $6.” twelve answered yes.php? repo=tenk&ipage=2775907&doc=1&num=3&total=35&count=0&source=518 Starbucks: “The Non-Coffee Treat” 12 . 2004 from: http://ir.

net/starbucks Figure 10 – Influences on Consumer Purchase Decision Process Starbucks: “The Non-Coffee Treat” 13 .Figure 8 Repositioning of New Frappuccino Product Perceptual Map Price High Jamba Juice Orange Julius Italian Soda Bubble Tea Starbucks Perceived Quality Low Milk Shake Perceived Quality High Slurpees Soda Price Low Perceptual map reflects how the new Frappuccino products perceived quality relative to its price. Starbucks can request more advertisements be placed on websites during the hotter days of the year. and how customers perceives the Frappuccino compared with other non-coffee competitors. This would include marketing on websites where more non-coffee drinkers surf then coffee drinkers surf. For example. Content Targeting: Involves delivering ads based on the content of a website or interest category chosen by a consumer. Figure 2 Example of Summer Drink Banner Ad http://www. To increase it perceived quality and increase sale. Starbuck should move to a more desirable position by enhance the nutritional side of the product while attempting to maintain the same price level.carmean. Figure 9 Ad Marketing Campaign Purpose: Brand-Building device that improves product awareness Behavioral Targeting: Delivering ads based on how and when a visitor uses the web.

Starbucks Commercial Starbucks: “The Non-Coffee Treat” 14 . Word of mouth – A friend mentions how great the new Frappuccino flavors are. notice Starbucks when tired or thirsty. plush velvet chairs. Family Parents go to Starbucks when child matures will remember the experience. fast-paced Marketing mix influences Product Coffee products and Starbucks experience. funky décor. Social surroundings People reading. Temporal effects In a hurry. unique light fixture and comfortable atmosphere. Attitude Favorable attitude toward Starbucks experience. Place Everywhere. relaxed surrounding. interviews and articles in newspapers and magazines. drive-thru and quick ready to eat pastry. Belief You will always receive good coffee and service Lifestyle Busy. Figure 11 . Short on cash? Use Starbucks card. Promotion In-store advertisements. advertising and display of posters ↓ Alternative evaluation: Other acceptable brands of coffee drinks ↓ Purchase decision: Assessment of receiving value for given price ↓ Postpurchase behavior: Satisfaction from product and experience Sociocultural influences Personal influence Opinion leaders – Important associates drink Starbucks coffee you want to too.Psychological influences: Motivation Physiological need Personality Compliant . need of energy caffeine ↓ Information search: Friend’s relatives. you don’t have to go far to find a Consumer purchase decision process Problem recognition: Feeling thirsty. Social class Middle to upper class business associates and college students. just sitting drinking coffee. Physical surrounding Jazzy and relaxing music. Antecedent states Tired? Get coffee. Price More expensive than average coffeehouses. Reference groups Membership group such as college students or business associates. doing homework.prefer known brand names Perception Selective exposure. Situational influences Purchase task Want an energizer boost and a good experience.

Titles appear briefly over the people suggesting the “self image” of the drinker. and Strawberry – Bold.Table 1 Starbucks Commercial Layout– Simulates an individual walking through the Pikes Place market and observing other people carrying Starbucks drinks and enthusiastically enjoying them. Summer. This could be a very strong but clean prestige image commercial. The consumer clearly understands this summer you can enjoy yourself at Starbucks. The audio has a nice fresh beat that can easily be found in the “Experience” at a Starbucks location. The observer then ends finding the Starbucks and the scene ends with a zoom in on the logo. Enjoy. Starbucks. Chocolate – Romantic. The wording is simple yet clear. Starbucks: “The Non-Coffee Treat” 15 . The Starbucks old logo then fades out into the new one and an image of a new summer product comes in. Vanilla – Stylish.