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To inspire and nurture the human spirit³ one person, one cup, and one neighbourhood at a time
Arpitaa Kharbanda Girish Mittal Kishlay Seth Seemant Prakash Vikas Malhotra
Starbucks Corporation is an international and coffeehouse chain based in Seattle
Starbucks is the largest coffeehouse company in the world with 16,120 stores in 49 countries, including around 11,000 in the United States, followed by nearly 1,000 in Canada and more than 800 in Japan 35million customers a week Joint ventures with Pepsi, Kraft, Dryer·s and Capitol Records ² went into consumer products division to complement café business Licensing partnerships with ITT Sheraton, Host Marriot ² added to the Starbucks brand Most impressive high growth brands of 1990s and early 21st century
Starbucks growth story can be divided in three phases: Stage 1-Development of a strong brand , foundation for future growth. Stage 2- 1990·s-2000 : Rapid growth ; loosing focus; short term decisions Stage 3- 2000 Onwards : Feeling ripples of past decisions ; coming back on track
Stage 1-Development of a strong brand , foundation for future growth.
Entered market when coffee consumption was on decline. 1971 -Jerry Baldwin, Zev Siegel, and Gordon Bowker opened a store called ´Starbucks Coffee, Tea, and Spiceµ in Seattle They concept of store dedicated to selling only finest quality bean was unique which was earlier obtained only through catalogs of European companies. Core attribute² Quality . Provide best ingredient and brewing equipment. 1982- Howard Schultz comes to company.
. Color changed from brown to green. Developing the brand identity ² ´ The Starbuck Experienceµ: Keep this name familiar to Seattleites Easily memorable Required developing and associating the ´Experience ´with name Name: Starbucks Logo Added image of mermaid in wood cutting style to reflect name. Updated to appear more contemporary.
Evolution of the logo.. Pre 1987 logo Giornale logo 1987 ± 1992 1992 till date .
hear. Wooden fixtures. vibrant greens ² bold. touch.Store ambience Redesigned to echo romantic atmosphere of Italian bars ² Elegance of European coffeehouses. mysterious. romantic ²with casual American warmth. Highest quality of everything See. smell ´Personal treatµ ´Third Placeµ ²social gathering spot between home and workplace .
E. Innovation to maintain product quality . advanced computer information system.e.The core of the firm was developed on the following frame: High quality .customization Innovation ² Product and support functions . vacuum packaging system Employee focus ² Training program. Flavor lock bags. taking customer feedback . This was further developed to flexibility in quality i. compensation and benefit packages Developing the core value Customer ´experienceµ . Roasting and packaging plant.g. treatment as ¶partners·.Sourcing from best. infrastructure and process.
First phase of expansion in key markets. Focus on word of mouth publicity campaigns to generate buzz before the brand arrived in new market. All stores to be owned and operated by company instead of franchising. Los Angeles. New York.C.Chicago. . Marketing strategy of ´hubµ and spread to ´spokeµ markets. Washington D.
No space for competitors to enter. Affordability Redefined affordability.Acceptability Filled the gap between family and work ² ´Third placeµ The employee training enabled them to educate customers about ´qualityµ in coffee products Defined the Starbucks experience. Developing brand loyalty by quality and innovation enabled consumer price sensitivity for this commoditized product Availability Cluttering in prime locations to maximize market share and highest serving potential. quality and service. Awareness Leverages their size and location strategy by word of mouth promotion . Convinced customer to pay premium prices by educating about experience.
This excessive presence and visibility of brand across varied stores only meant that Starbuck was loosing its reputation of premium exclusive lifestyle brand . . loosing focus. Concession stands in airports Larger group of potential customers . Barnes & Noble and Albertson·s to build brand awareness. Holland America Cruiseline. 1991 Advantage of generating awareness United Airlines Installed more effective filtering device in aircraft brewing equipment Partnership.1990·s-2000 : Rapid growth . Helped develop future loyal customer since people had more time to 1996 leisure the coffee Retail and Service Partnership Nordstrom.air travelers Difficult to maintain quality of service Did not reflect ´starbuck experienceµ the theme on which the brand was build Host Marriot Partnership. ITT/Sherton. short term decisions Joint Ventures and Partnership: Enter into partnership with firms having same commitment to equality and people. Westin.Stage 2.
Dryer·s joint venture with Starbuck ² 6 coffee ice cream flavors marketed under Starbuck name. Launched Frappuccino in 1997. Environmental Concern: ¾ Starbucks partnership with Environmental agencies like Alliance for Environmental Innovation to develop less wasteful carryout coffee cup in 1996 ¾ 1999. agreed to offer Fair trade certified coffee ¾ Starbuck Foundation charity efforts . Introducing Starbuck packaged whole coffee bean to be marketed and distributed by Kraft to reach mass market. with Conservation International offered shade grown Mexican coffee. ¾ 2000.
warm and conversational lifestyle magazine. . Obsolete investment in Living. ¾ 1999. similar to their previous strategy.com. London based Seattle coffee Company to establish foothold in the growing British coffee market. Launch of Joe magazine. cooking. Creating a original . Tries to catch up with internet boom. chat site.com etc. Acquired Pasqua Coffee Company to saturate California markets. 1999. 1999. Acquisitions: ¾ 1998.
Competitors broadened their experience. sales falter and project is axed Starbucks Ice cream Frappuccino Joe Magazine Loss of focus (need was flexible quality. coming back on track Previous decisions were not sustainable: Sales 1999 sales slow down significantly.Stage 3. .Customization) gave opportunity to competitors to develop.2000 Onwards : Feeling ripples of past decisions . 2000. Same store revenue growth flattened Initial high growth tapered considerably Fails to meet sales expectation. Starbuck remained as a extension of city life.
Japan-26. consistency and lower prices McDonald·s and Burger King: Food chain heavyweights developed bean blends. Europe was not a market to enter. Driven by low cost and speed. Taiwan6 etc. Their setting was taken from Italian coffee house which was existing in those countries at lower cost. Singapore. Germany etc. Thus problems faced in London. Competitors: Caribou Coffee : New experience ² stores designed to resemble ski lodges and rustic mountain cabins. combination of speed. . Rapid expansion of Starbucks in multiple countries simultaneously.6. 1998. Dunkin Donuts: Introduced cappuccino and latte in many stores.
introduction of chilled espresso drink DoubleShot. Unrelated diversification into a industry in which they had no experience. . coffee. Offering lunch items . New Frappuccino flavors. Starbuck goes back to basics. New products were success and enabled them to maintain market share. sandwiches etc transition from coffee only joint to a coffee with snacks joint. However developing music suitable for their ambience added to the brand and its exclusivity. Strengthen the core product. Innovation in support function: The value cards Purchase of retail Hear Music in 1999.
. Promoting a children film ´Akeelahµ does not fit its image and although it lead to immediate sales this further adds to brand confusion. Entering into coffee liqueur was against their mission itself. The idea to promote film could have helped develop brand if the film had been selected properly. It gave them a wrong image in front of social conscious customers. The coffee Master certification program brings back focus on employee and developing their competency to serve customer.
Summary and recommendation What was the brand built on ? x Quality of products and service which induced word-of-mouth ´advertisingµ . . The rapid growth strategy had itself created the fundamental problem ²Store no longer reflect the soul as in past and ´third placeµ concept. Today Starbuck stands as mass brand attempting to command premium price for an experience it no more delivers.
Starbucks introduced too many new products to broaden its appeal. The target group was lost in these attempts. The core values of service. . These new products undercut the integrity of the Starbucks brand for coffee purists The brand experience declined price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald's and Dunkin Donuts improved their coffee offerings at much lower prices Opening new stores and launching a blizzard of new unrelated products create only superficial growth 2 3 Focus on improving same store sales lost. How it lost focus Early target customers who valued the relaxing atmosphere over a quality cup of coffee felt disenchanted 1 To grow. customer knowledge through trained employee could not be maintained. Starbuck went for customer who valued speedmass market.
They can stay small. exclusive and premium-priced by limiting their distribution to selected stores in the major international cities. At the same time Starbuck needs to understand that it cannot continue charging premium prices when competitors like McDonalds. Dunkin etc are offering much cheaper option specially in current time of recession. There are two options with the firm. .Either they cut price and become a mass market product or they reduce stores to restore the exclusivity of the brand.
What were the keys for success for Starbucks in building the brand? What were its brand value ? What were its source of equity? .Q1.
They employee were developed to communicate the quality they offered to the customer: Customer Experience See Hear Taste Smell Delivery Mode Romantic atmosphere of Italian coffee bars. rich brown wooden fixtures The music being played. mysterious and romantic. The name. a ´Third placeµ between home and workplace.knowledge provided by ´Baristaµ Best quality coffee and coffee maker to maintain the taste The aroma of coffee as a non-verbal signal Brand Value ²a ´homeµ feeling and rich sensory experience. The brand was built to fulfill existing gap in U. a comfortable social gathering spot .S market: Lack of high quality coffee store. The help . . logo and the ambience of Starbucks were all developed to represent bold.
The source of equity was the best quality of coffee and most importantly the personalized experience given by the highly trained employee at a Starbuck store. .
How do you evaluate Starbucks growth strategy? Are there things you would have done differently? How would you evaluate its partnership? How do you know whether its good or bad? bad? .Q2.
airlines. . aroma. visual etc and concentrate on individual store sales. Starbucks uncontrolled growth was short term and led to brand dilution. drive through etc could bring immediate sales but could not deliver the store experience on which the brand was developed. stores. Need was to focus on support functions.The music. Starbuck at airport.
Q3. What does it take to make a world class global brand? Can Starbucks become one? What hurdles must it overcome? In terms of American market what do you see as Starbucks· biggest challenges? .
They use brands to create an imagined global identity that they share with like-minded people. Access to the global village. Think Nestlé and clean water. Consuming the brand equals membership in a global club. Consumers look to global brands as symbols of cultural ideals.Characteristics of a global brand: brand: Quality signal The same positioning worldwide.´ Social responsibility. All marketing dollars are concentrated on that one brand. Think GE and IBM. Global Myth. A focus on a single product category. leveraging their technology to solve the world's problems. Think Nokia and Intel. Think Coca-Cola and Disney. Think IBM's "solutions for a small planet. Consumers expect global brands to lead on corporate social responsibility. This provides a combination of functional product quality and innovation with emotional appeal. . The company name is the brand name.
Starbucks can definitely be a global brand ¾ It must continue to maintain its distinctive identity even as it expands worldwide ¾ Obvious hurdles to Starbucks growth are: x Lack of focus on quality and innovation in its core offering x Same positioning worldwide x An attempt to capture other consumers: those who seek convenience and speed x As they expand to new locations across the world they must x Creating a strong presence and a distinctive identity x Solving the local value equation through product and pricing strategies x Adapting products and services to meet local needs and tastes .
the drawn-out coffee date or after-work snack). . the quick morning coffee vs.e. In American market: Starbucks challengers are: Chains that are diversifying to quality coffee eg McDonalds ¾ Starbucks will have to resist the brunt of Loss of certain consumers to chains like McCafes and Dunkin Donuts ¾ These consumers are likely to be more interested in a transactional experience even at Starbucks (i.
Evaluate Starbucks move into nonnoncoffee areas like credit card .Q4. Are these natural extension of the Starbucks brand or the company gone too far in creating a ´lifestyleµ brand? Where should Starbucks go next? . music and film.
. The decision of secondary leverage via promoting film would have been appropriate if the films were selected. romance etc however would enable it to strengthen its brand association. Producing music on theme of love. Not only did it provide convenience but also attracted more customers to its stores.books etc could have been outsourced instead of wasting resources on two industries having completely different set of competitors and resource requirement. The film ´Akeelahµ did not reflect the brand image. Music . Store value cards could attract more customers to Starbuck stores where the actual experience was delivered.
Q5. Do you agree with Starbuck·s international expansion? Should the company continue its aggressive expansion plan? Are there markets Starbucks cannot expand? .
. This gives Starbucks a better opportunity to grow in selective Asian metropolitans by cluttering of stores. Disposable income is increasing and people are more open to Western lifestyle compared to Europe. Europe market did not offer scope for Starbuck to expand since their offering was already available in form of well established European brands at much lower prices. Asian markets have majority of emerging markets . Starbucks entered different markets simultaneously de to which made maintaining the same standards across all stores difficult.
Who represents the biggest threat to Starbucks? Direct competitors in the coffee market.Q6. such as Dunkin· Donuts? Chains like McDonald·s that are expanding their coffee quality? Panera Bread and other locations that might be the new ´third placeµ? .
experience Service. Product quality 2 Fast food chains. taste Service. high quality. Quality. Product quality.A Comparison S. Image PODs Convenience. Quality. convenience stores Taste 3 Local Café·s Taste . No 1 Competitors Supermarkets POPs Value.
Dunkin Donuts: Dunkin' Donuts serves. made-that-morning donuts in several varieties. No hurry-up and move on sentiment at Starbucks like in DD Competitors serving the same coffee market. Not many options of coffee.35-44 yr olds.largely different propositions Different demographic profile: Starbucks: 18.000 or more a year. people with annual incomes of $75.to 29-year- . college grads. millions of blue-collar workers with scrumptious. The biggest threat to Starbucks is from those who are able to compete against them on ¶coffee·. ¶third place· experience olds.
on the other hand. focuses on the ´experientialµ. McDonalds: Chains ¾ Moving from coffee as an accompaniment to beverage destination: president.a formidable player. ¾ Mc Café will not replace Starbucks x Different consumer base: The consumers who are seeking the ambience and the customization that Starbucks offers will not go to McCafes x Starbucks. Convenience. the value that customers get without quality comprise -. Mc Donalds USA ¾ Speed. ¾ Mc Café: cannot bring either that amount of customerization ( speed and convenience ) nor can they get that experience ¾ They might be able to pull few transactional consumers though .
Panera bread: third place ¾ Offers free WiFi compared to Starbucks ¾ Experience is not the same ¾ Ambience and coffee . . ¾ Difficult for competitors to break in ¾ Some overlapping clientele. they each present a different qualitative experience with a strong and loyal following and that is unlikely to significantly change.not comparable to Starbucks As long as Starbucks is able to retain its core of quality coffee and ¶third place· experience.
we work around yours. "We don't work around our schedule.Dunkin donuts snipe at starbucks Decaf decision with a creative print ad that includes this brilliant line." .
How much are customers willing to pay for the Starbucks Experience? Can the company continue to raise prices on its coffees and drinks? Is there a market for $400+ coffee makers? 400+ .Q7.
S customer. It is highly unlikely that it would be able to bring back customers from Dunkin donuts and McDonald·s just on basis of experience while still maintaining the premium price. ¾ Has to work on its core offering of coffee and flexibility towards customer demands and its overall experience These firms are also maintaining good quality at much lower prices(apx 1/3 of Starbucks) which is more appropriate for current needs of U. Due to its poor growth strategy Starbucks today stands as a mass brand attempting to charge premium price for experience which is no longer special. .
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