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Marketing Strategy

Marketing Strategy

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Marketing strategy studying the Starbucks Marketing Strategy you will be able to apply the principle of success that

worked for them in a big way. The history of Starbucks and its expansion give this company the respect of being a model for other businesses to look up to. Why not take full advantage of this icon? From only one store more than 30 years ago in Seattle to its still growing empire today with thousands of outlets in the United States and in foreign countries, the Starbucks Coffee Company is no doubt a wellknown success story all over the world. The fact that it started as a small business enterprise that was able to continuously multiply over the years can be a huge motivation for small businesses anywhere in the world. Many business schools have studied the Starbucks marketing strategy and the business, itself, and have tried to detail why such techniques have worked for this company. Many points can be attributed to the success of this innovative company from the holistically slanted Starbucks Mission Statement to the environmentally conscious Starbucks Corporate Social Responsibilty statement. But one thing is certain, if Starbucks comes up with a new viral marketing campaign - others companies should start taking notes. Uniquely Starbucks Coffee Company The Starbucks marketing strategy is not one commonly seen in many businesses today. Did you ever realize that it¶s rare (if not none) for you to find a Starbucks ad in a billboard, ad space, newspaper or poster in places where you can expect to see advertisements for most other establishments, even huge ones like McDonalds? Now, Starbucks Coffee Company didn¶t just go for unconventional marketing strategies for the fun of it. They thought real hard about promoting their company, and have decided that Starbucks is more likely to benefit if it employed unconventional strategies (see viral marketing examples to see how others do "unconventional" successfully) that may be unique and seldom-tried, but most perfectly matched the concept that the company wanted to portray. Points to Learn from the Starbucks Marketing Strategy Every business can learn from another, especially if a particular business is one that has displayed tremendous success over the years. The Starbucks Corporation and its successful marketing strategies are definitely something that anyone interested in business can learn about. What sort of techniques did the company use, and how were these able to reach out and attract millions of people worldwide? Some of their best strategies are outlined below. y ³Perfect Cup of Coffee´ ± Starbucks history has shown that they place a huge emphasis on product quality. Their coffee, even if priced slightly more expensive than expected, is notorious for satisfying customers with its rich, delicious taste and aroma. ³Third Place´ ± From the very beginning, the Starbucks marketing strategy has focused on creating the ³third place´ for everyone to go to between home and work. Creating this unique and relaxing ³experience´ and ³atmosphere´ for people has been very important for the company as


On their website. The article is entitled. Nevertheless. it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience. This fact is enough to realize that there can be much to learn from what this company has achieved to the benefit of many small businesses. ³Brand Marketing´ ± The Starbucks marketing strategy has always focused on ³word-of-mouth´ advertising and letting the high quality of their products and services speak for themselves. The definition of viral marketing speaks to this new word of mouth that Starbucks has run with. Over the years. and even became one of the firsts to offer internet capability in their stores. Starbucks Coffee Company knows the answer to the question. y ³Innovation´ ± Through the years. Without a doubt. the Starbucks Coffee Company has been known to think up creative and innovative ideas to add to their products or services. more food on their menu. y ³Customer Satisfaction´ ± Customer satisfaction is a very important issue with Starbucks. y ³Smart Partnerships´ ± Starbucks Coffee Company has been known to create strategic partnerships that demonstrate the fact that another way to grow your business is to partner smart. ³Learning from Starbucks: 10 Lessons for Small Businesses´. For years. and made their own. the Starbucks Corporation has greatly increased sales just by using this strategy." ³Creating a Starbucks Community´ ± The Starbucks marketing strategy has even expanded to create a community around their brand. y y Starbucks Coffee Company and Marketing It is clear that the company has created greatly individualized marketing techniques to fit the promotion of the Starbucks brand as it applies to the unique concept it was built on. individuals are encouraged to express their experiences with Starbucks history. From entrance to the store to the very last drop of their coffees.com.they have realized that this is one of the strongest concepts attached to the company. and the company strives to ³personally´ join in the discussions. . the Starbucks¶ marketing strategy has led the company to its current success. Isabel Isidro. "Why is customer service important. managing editor of PowerHomeBiz. to which customers have been strongly attracted. this has been uniquely Starbucks. and it has played a huge part in making Starbucks Coffee Company a success. ³Starbucks¶ New Marketing Strategy: Advertising Like Everyone Else´. But Adelino de Almeida wrote a blog article named. This technique was cleverly pointed out by Webolutions: The Strategic Marketing Agency in their ³Starbucks Marketing Observations´ article. They¶ve added different flavors to their coffee. has written an excellent article that outlines what small businesses can learn from Starbucks. Read his article and the discussion it has created to find out what this might mean for the company. where he discusses how the Starbucks marketing strategy may try to finally follow everyone else¶s marketing.

500 sites it had opened. In 1994. leather chairs. In 1995. building lobbies. With the capital afforded it by being a public company. The Specialty Coffee Association of America predicted that the number of coffee cafés in the United States would rise from 500 in 1992 to 10. Starbucks' reputation reached new markets even before stores opened. Starbucks created zone vice presidents to direct the development of each region and to implant the Starbucks culture in the newly opened stores. high-visibility locations. To oversee the expansion process. Starting in 1991. rather. This was partly due to the growing reputation of the Starbucks brand. Starbucks' success helped specialty coffee products begin to catch on across the United States. university campus areas. Competitors. The Store Expansion Strategy In 1992 and 1993 Starbucks developed a three-year geographic expansion strategy that targeted areas which not only had favorable demographic profiles but which also could be serviced and supported by the company's operations infrastructure. downtown and suburban retail centers. existing stores continued to post year-toyear gains in sales (see Exhibit 1). Once stores blanketed the hub.000 by 1999. surrounding "spoke" areas in the region. Starbucks had notable success in identifying top retailing sites for its stores.000 to 1. and lots of ambience were created to serve as flagship stores in high-traffic. Special seating areas were added to help make Starbucks a place where customers could meet and chat or simply enjoy a peaceful interlude in their day. and other public places. Starbucks selected a large city to serve as a "hub". the company began to create its own in-house team of architects and designers to ensure that each store would convey the right image and character. each space was leased in an existing structure and thus each store differed in size and shape. Starbucks accelerated the expansion of its store network (see Exhibit 1). Real Estate. All of the new zone vice presidents Starbucks recruited came with extensive operating and marketing experience in chain-store retailing. began to spring up in many locations. Most stores ranged in size from 1. The company had the best real estate team in the coffee-bar industry and a sophisticated system that enabled it to identify not only the most attractive individual city blocks but also the exact store location that was best.000 in 1990. new stores generated an average of $700. Moreover. teams of professionals were located in hub cities to support the goal of opening 20 or more stores in the hub in the first two years. Only a select few were in suburban malls. or busy neighborhood shopping areas convenient to pedestrian foot traffic. some imitating the Starbucks model. For each targeted region. couches. then additional stores were opened in smaller. While similar materials and furnishings were used to keep the look consistent and expenses reasonable. Store Planning. airport terminals. In more and more instances. newspapers.500 square feet and were located in office buildings. and Construction Schultz formed a headquarters group to create a store development process based on a six-month opening schedule. no two stores ended up being exactly alike. Grand Cafés with fireplaces. The company also experimented with drive-through windows in locations where speed and convenience were important to customers and with kiosks in supermarkets. The company's site location track record was so good that as of 1997 it had closed only 2 of the 1. Store Design. Stores had to be custom-designed because the company didn't buy real estate and build its own freestanding structures like McDonald's or Wal-Mart did.000 in revenue in their first year. Starbucks' store launches grew steadily more successful.Starbucks Becomes a Public Company Starbucks' initial public offering (IPO) of common stock in June 1992 turned into one of the most successful IPOs of the year (see Exhibit 3 for the performance of the company's stock price since the IPO). Starbucks began to experiment with a broader range of store formats. far more than the average of $427. .

In late 1996. All this cut store-opening costs significantly and reduced store development time from 24 to 18 weeks. But as the company's profitability improved and its balance sheet strengthened." and a broad selection of Italianstyle espresso drinks. colors. and consolidated work under those contractors who displayed good cost-control practices. And the whole store layout was developed on a computer. studied coffee-growing and coffee-making techniques. a selection of fresh pastries and other food items. A "stores of the future" project team was formed in 1995 to raise Starbucks' store design to a still higher level and come up with the next generation of Starbucks stores. Product Line Starbucks stores offered a choice of regular or decaffeinated coffee beverages. neighborhood shopping areas). Exhibit 7. netting $161 million from the sale of convertible debentures for use in its capital construction program. the company centralized buying.000 per store on average). and component materials. which had reached an undesirably high $350. a third place for people to congregate beyond work or the home. and Exhibit 8 present Starbucks' income statement and balance sheet data for recent years.To better reduce average store-opening costs. with software that allowed the costs to be estimated as the design evolved. Schultz's opposition to debt as a legitimate financing vehicle softened. customers could choose from a wide selection of fresh-roasted whole-bean coffees (which could be ground on the premises and carried home in distinctive packages). a special "coffee of the day." The team researched the art and literature of coffee throughout the ages. a store-within-a-store for supermarkets or office-building lobbies. juices. a place that welcomed people and rewarded them for coming. and mood. The retail operations group outlined exactly the minimum amount of equipment each core store needed. packed with protein. developed standard contracts and fixed fees for certain items. and aroma²each with its own color combinations. Power Frappuccino²a version of the company's popular Frappuccino blended beverage. The company also introduced two ministore formats using the same styles and finishes: the brevebar. sodas. a comforting refuge that provided a sense of community. Starbucks began opening new stores based on one of the four templates. so that standard items could be ordered in volume from vendors at 20 to 30 percent discounts. brewing. In 1997. a self-contained 8-square-foot space that could be moved from spot to spot. Schultz and Olsen met with the team early on to present their vision for what a Starbucks store should be like²"an authentic coffee experience that conveyed the artistry of espresso making. and formats that allowed sales in locations Starbucks could otherwise not consider. teas. Modular designs for display cases were developed. lower store-opening costs (about $315. and vitamins²was tested in several markets during 1997. In addition. the company introduced its Starbucks Barista home espresso machine featuring a new portafilter system that accommodated both ground coffee and Starbucks' new ready-to-use espresso pods. another promising new product being tested for possible rollout in . then delivered just in time to the store site either from company warehouses or the vendor. carbohydrates. and the doppio. and coffeerelated hardware and equipment. college campuses. and looked at how Starbucks stores had already evolved in terms of design. a place to think and imagine. Management believed the project accomplished three objectives: better store designs. Starbucks avoided debt and financed new stores entirely with equity capital. In 1996 the company completed its second debt offering. Exhibit 6. roasting. a spot where people could gather and talk over a great cup of coffee. logos. Within each of the four basic store templates. Starbucks could vary the materials and details to adapt to different store sizes and settings (downtown buildings. The team came up with four store designs²one for each of the four stages of coffee making: growing. lighting scheme.000 in 1995. For a number of years. and a layout that could accommodate both fast service and quiet moments.

exotic spices. Smaller stores and kiosks typically sold a full line of coffee beverages. coffee-making equipment. . the music. and a few hardware items. The Starbucks CDs. Starbucks banned smoking and asked employees to refrain from wearing perfumes or colognes. that signaled the company's passion for coffee. Starbucks was recognized for its sensitivity to neighborhood conservation with the Scenic America's award for excellent design and "sensitive reuse of spaces within cities. the company began selling special jazz and blues CDs. and milk. In recent years. and other accessories. the banners. inviting. Colorful banners and posters were used to keep the look of Starbucks stores fresh and in keeping with seasons and holidays. and new experiences for customers that belonged exclusively to Starbucks.1998 was Chai Tea Lattè. teas. Starbucks also sold Oprah's Book Club selections. and 8 percent coffee-related products and equipment. Larger stores carried a greater variety of whole coffee beans. Store Ambience Starbucks management looked upon each store as a billboard for the company and as a contributor to building the company's brand and image. Each detail was scrutinized to enhance the mood and ambience of the store. and surprise. the artwork. and the aromas all blended to create a consistent. coffee mugs." The company went to great lengths to make sure the store fixtures. Research that involved looking through two years of comment cards turned up hundreds asking Starbucks to sell the music it played in its stores. The company was constantly engaged in efforts to develop new ideas. a limited selection of whole-bean coffees. He had gotten compliments from customers wanting to buy the music they heard and suggested to senior executives that there was a market for the company's music tapes. the colors. proved a significant addition to the company's product line. created from the Capitol Records library. the merchandise displays. Company designers came up with artwork for commuter mugs and Tshirts in different cities that was in keeping with each city's personality (peach-shaped coffee mugs for Atlanta. stimulating environment that evoked the romance of coffee. Schultz and other senior executives drummed in the importance of always being open to re-inventing the Starbucks experience. coffee grinders. filters. storage containers. a combination of black tea. new products. depending on the size and location of each outlet. 15 percent whole-bean coffees. Prepared foods were kept covered so customers would smell coffee only. 16 percent food items. Some of the CDs were specifically collections designed to tie in with new blends of coffee that the company was promoting. The idea for selling the CDs originated with a Starbucks store manager who had worked in the music industry and selected the new "tape of the month" Starbucks played as background in its stores. to make sure everything signaled "best of class" and that it reflected the personality of the community and the neighborhood." To try to keep the coffee aromas in the stores pure. which in some cases were special compilations that had been put together for Starbucks to use as store background music. and that rewarded customers with ceremony. pictures of Paul Revere for Boston and the Statue of Liberty for New York). The company's retail sales mix was roughly 61 percent coffee beverages. gourmet food items. stories. the profits of which were donated to a literacy fund supported by the Starbucks Foundation. The thesis was "Everything matters. honey. The product mix in each store varied.

to 23-second) shots of espresso. who had an MBA from Harvard and 13 years' experience at Deloitte and Touche. specialty sales. covering not only the information imparted to baristas but also the details of store operations. every espresso shot not pulled within 23 seconds must be tossed. the company used "mystery shoppers" who posed as customers and rated each location on a number of criteria. Beverage preparation occupied even more training time. and culture. sell an $875 home espresso machine. and retail skills. learning to pull perfect (18. We want people who enjoy what they're doing and for whom work is an extension of themselves. Each time Starbucks opened stores in a new market. Everyone was drilled in the Star Skills. steaming milk." Baristas were trained in using the cash register. it undertook a major recruiting effort. drink preparation. There were sessions on how to clean the milk wand on the espresso machine. . The training included classes on coffee history. And there were rules to be memorized: milk must be steamed to at least 150 degrees Fahrenheit but never more than 170 degrees. store supervision. three guidelines for on-the-job interpersonal relations: (1) maintain and enhance self-esteem. finance. principles. plus a four-hour workshop called "Brewing the Perfect Cup. information systems. practices and procedures as set forth in the company's operating manual. principles. We're looking for a diverse workforce. Starbucks' vice president for human resources used some simple guidelines in screening candidates for new positions: "We want passionate people who love coffee . weighing beans. and the basics of managing people. and the average age was 26. and information systems. 85 percent had some education beyond high school. never let coffee sit in the pot more than 20 minutes. Building a Top Management Team Schultz continued to strengthen Starbucks' top management team. and Orin Smith²contributed the most to defining and shaping the company's values. It sent a Star team of experienced managers and baristas from existing stores to the area to lead the store-opening . Eight to 10 weeks before opening. Employee Training Accommodating fast growth also meant putting in systems to recruit. and affixing labels on the package exactly one-half inch over the Starbucks logo. memorizing the recipes of all the different drinks.To make sure that Starbucks' stores measured up to standards. The four key executives during the company's formative years²Howard Schultz. Orin Smith. holding the bag in a way that keeps air from being trapped inside. was brought in as chief financial officer in 1990 and then was promoted to president and chief operating officer in 1994. and learning how to make drinks to customer specifications. Their training went much deeper. always compensate dissatisfied customers with a Starbucks coupon that entitles them to a free drink. and train baristas and store managers. customer service (four hours). make eye contact with customers. One of their major objectives was to ingrain the company's values. Every partner/barista hired for a retail job in a Starbucks store received at least 24 hours training in the first two to four weeks. explain the Italian drink names to customers. and culture and to impart their knowledge about coffee and their passion about Starbucks. human resources.995 pounds or 1. capturing the beans without spilling them on the floor. Starbucks' trainers were all store managers and district managers with on-site experience. customers who order one pound of beans must be given exactly that²not . Schultz also took care to add people to Starbucks' board of directors who had experience growing a retail chain and who could add valuable perspectives. opening the bag properly. and take personal responsibility for the cleanliness of the coffee bins. additional executives were added in marketing. and (3) ask for help. Howard Behar. involving such activities as grinding the beans. hiring people with extensive experience in managing and expanding retail chains. which reflects our community. hire.1 pounds."16 Some 80 percent of Starbucks employees were white. coffee knowledge (four hours). (2) listen and acknowledge. . practicing making the different drinks. As the company grew. Dave Olsen. the company placed ads to hire baristas and begin their training. Management trainees attended classes for 8 to 12 weeks.

was dedicated to supplying the company's mail-order business. built in 1989 and originally thought to be big enough to supply the company's needs for the next 10 years. The company's smallest plant. In 1998. Starbucks entered into fixed-price purchase commitments in order to secure an adequate supply of quality green coffee beans and to limit its exposure to fluctuating coffee prices in upcoming periods. Pennsylvania. He traveled regularly to coffeeproducing countries²Colombia. learning their names and their favorite drinks. Bonding with Customers About 5 million customers per week were patronizing Starbucks stores in early 1998. personally spearheaded Starbucks' efforts to secure top-notch coffee beans to supply the company's growing needs. just south of Seattle. Java²building relationships with growers and exporters. Yemen. Baristas became familiar with regular customers. Nonetheless. Although most coffee was purchased in the commodity market²coffee was the world's second largest traded commodity²coffee of the quality sought by Starbucks was usually purchased on a negotiated basis at a substantial premium above commodity coffees. the company purchased coffee futures contracts to provide price protection. Christine Nagy. Starbucks' standards were so exacting that roasters tested the color of the beans in a blood-cell analyzer and discarded the entire batch if the reading wasn't on target. a . Each batch was roasted in a powerful gas oven for 12 to 15 minutes. In 1993. sniffing the aromas. the company began construction of an $11 million roasting facility in York. Coffee prices were subject to considerable volatility due to weather. spending perhaps $50 monthly.effort and to conduct one-on-one training following the company's formal classes and basic orientation sessions at the Starbucks Coffee School in San Francisco. as well as agreements establishing export quotas or efforts on the part of the International Coffee Organization and the Association of Coffee Producing Countries to restrict coffee supplies. Reporting to Olsen was a group that created and tested new blends of beans from different sources. that could be expanded to 1 million square feet to supply stores east of the Mississippi. Dave Olsen checked coffee samples from the roasting process. coming in daily. Costa Rica. Guatemala. Product Supply Dave Olsen. and recording his observations in a logbook. Sulawesi. its output mainly was being used to supply stores west of the Mississippi. checking on agricultural conditions and crop yields. economic. Indonesia. and political conditions in the growing countries. Stores did about half of their business by 11 am. tasting sample cups. Loyal customers patronized a Starbucks store 15 to 20 times a month. Starbucks had three roasting plants. Roasting Coffee Beans Starbucks considered the roasting of its coffee beans to be an art form. Ethiopia. Sumatra. New Guinea. Antigua. Kenya. Papua New Guinea. Some customers were Starbucks fanatics. there had been occasions in years past when unexpected jumps in coffee prices had put a squeeze on the company's margins and necessitated an increase in the prices of its beverages and beans sold at retail. when he wasn't traveling in search of coffee supplies.000-square-foot plant was opened in Kent. using both smell and hearing. On a daily basis. Highly trained and experienced roasting personnel monitored the process. When satisfactory fixed-price commitments were not available. In 1994. depending on supply and demand at the time of purchase. Starbucks' senior vice president for coffee. a 305. Washington. to judge when the beans were perfectly done²coffee beans make a popping sound when ready. and searching out varieties and sources that would meet Starbucks' exacting standards of quality and flavor.

featuring such flavors as Dark Roast Espresso Swirl. by July. . roughly 2 percent of total revenues. she told the reporter. the partnership held together because of the good working relationship that evolved between Howard Schultz and Pepsi's senior executives. sales of this division were about $21. "They just [said. A special business gift-giving catalog was mailed to business accounts during the 1997 Christmas holiday season. a lightly flavored carbonated coffee drink. some consumers liked it and some hated it.000 mail-order customers were signed up to receive monthly deliveries of Starbucks coffee as of late 1997.'" Mail Order Sales Starbucks published a mail-order catalog that was distributed six times a year and that offered coffee. Starbucks management believed that the market for Frappuccino would ultimately exceed $1 billion. "Why not develop a bottled version of Frappuccino?"18 Starbucks had come up with the new cold coffee drink it called Frappuccino in the summer of 1995. hit supermarket shelves in April 1996.field director for Oracle Corporation in Palo Alto.2 million. almost 50. two new low-fat flavors were added to complement the original six flavors. California. candies and pastries. at a meeting to discuss the future of Mazagran. In 1997. Cold coffee products had generally met with very poor market reception. Howard Schultz saw this as a major paradigm shift with the potential to cause Starbucks business to evolve in heretofore unimaginable directions.] 'We need a Christine here. Despite the clash of cultures and the different motivations of the two partners. with plans to begin wider distribution. it's a daily necessity or I start getting withdrawals. Pepsi executives were enthusiastic. In 1997. Starbucks worked with Seattle's Redhook Ale Brewery to create Double Black Stout. Schultz was hoping the partners would hit on a new product to exploit a good-tasting coffee extract that had been developed by Starbucks' recently appointed director of research and development. Nonetheless. Sales of Frappuccino reached $125 million in 1997 and achieved national supermarket penetration of 80 percent. In October 1995 Starbucks partnered with Dreyer's Grand Ice Cream to supply coffee extract for a new line of coffee ice cream made and distributed by Dreyer's under the Starbucks brand."17 Her standard order was a custom drink: a decaf grande nonfat no-whip no-foam extra-cocoa mocha. told a Wall Street Journal reporter. was a failure. The joint venture's first new product. Starbucks coffee-flavored ice cream was the top-selling superpremium brand in the coffee segment. JavaChip. Mazagran. and it had proved to be a big hot-weather seller. and Caffe Almond Fudge.marketed in southern California. "For me. along with two flavors of ice cream bars. when the baristas saw her come through the door. PepsiCo and Starbucks entered into a joint venture arrangement to create new coffee-related products for mass distribution through Pepsi channels. After months of experimentation. the joint venture product research team came up with a shelf-stable version of Frappuccino that tasted quite good. Joint Ventures In 1994. he thought it was time to look for ways to move Starbucks out into more mainstream markets. While people were willing to try it the first time. when test. Biscotti Bliss. Also in 1995. Then Schultz. the response was overwhelming. all were well received in the marketplace. repeat sales proved disappointing. and select coffee-making equipment and accessories. In September 1996. with sales running 10 times over projections and 70 percent repeat business. The new line. where there was an $8 billion market for ready-to-drink coffee-based beverages. Additional new ice cream products were planned for 1998. Vanilla MochaChip. suggested. after months of meetings and experimentation. partly because the Starbucks name was on the label. the partnership invested in three bottling facilities to make Frappuccino. including cold coffee drinks in a bottle or can. Sales were projected to reach $500 million in 1998. It was tested in West Coast supermarkets in the summer of 1996. The company also had an electronic store on the Internet. Starbucks management believed that its direct-response marketing effort helped pave the way for retail expansion into new markets and reinforced brand recognition in existing markets. except in Japan. a stout beer with a shot of Starbucks coffee extract in it.

In fiscal 1997. United Airlines and Starbucks came up with a way to handle quality control on some 500-plus planes with varying equipment. Starbucks received a license fee and a royalty on sales at these locations and supplied the coffee for resale in the licensed locations. Office Products gave Starbucks the opportunity to provide its coffee to workers in 1. Going into 1998. and it had an agreement with Aramark Food and Services to put Starbucks stores on university campuses and other locations operated by Aramark. The company had an agreement with Marriott Host International that allowed Host to operate Starbucks retail stores in airport locations. In addition. hospitals. and all managers and employees who worked in these stores received the same training given to Starbucks managers and store employees.2 percent of total revenues. The company and its licensees had plans to open as many as 40 stores in the Pacific Rim by the end of September 1998. International Expansion In markets outside the continental United States (including Hawaii). 7 in Hawaii. airlines. In 1995. a regional carrier based in Seattle. Starbucks' strategy was to license a reputable and capable local company with retailing know-how in the target host country to develop and operate new Starbucks stores. All licensed stores had to follow Starbucks' detailed operating procedures. equal to 12. SCI had 12 retail stores in Tokyo.5 million business offices. The licensee in Taiwan foresaw a potential of 200 stores in that country alone. to orchestrate overseas expansion and begin to build the Starbucks brand name globally via licensees. The potential of locating stores in Europe and Latin America was being explored. to operate coffee bars in Barnes & Noble bookstores.6 million. Starbucks was a joint venture partner in the stores outside the continental Untied States. After seven months of negotiation and discussion over coffee-making procedures.Licensed Stores and Specialty Sales In recent years Starbucks had begun entering into a limited number of licensing agreements for store locations in areas where it did not have ability to locate its own outlets. . Starbucks created a new subsidiary. and in Costco warehouse club stores. and Starbucks became the coffee supplier to the 20 million passengers flying United each year. and select retailers. the specialty sales division generated sales of $117. 6 in Singapore.S. and to offer coffee service at some Wells Fargo Bank locations in California. a Toronto book retailer with sites throughout Canada. and 1 in the Philippines. Starbucks Coffee International (SCI). A 1997 agreement with U. Howard Behar was president of SCI. country clubs. universities. hotels. Starbucks began selling its coffees in Chapters. Starbucks entered into negotiations with United Airlines to have Starbucks coffee served on all United flights. Most recently. Starbucks also had a specialty sales group that provided its coffee products to restaurants. Agreements had been signed with licensees to begin opening stores in Taiwan and Korea in 1998. There was much internal debate at Starbucks about whether such a move made sense for Starbucks and the possible damage to the integrity of the Starbucks brand if the quality of the coffee served did not measure up. Starbucks made arrangements to supply an exclusive coffee blend to Nordstrom's for sale only in Nordstrom stores. In some cases. One of the early users of Starbucks coffee was Horizon Airlines. business offices.

Employees were encouraged to recommend and apply for grants from the Starbucks Foundation to benefit local community literacy organizations. Second Cup.000 reward for information leading to the arrest of the murderer(s) and announced it would reopen the store in early 1998 and donate all future net proceeds of that store to a Starbucks Memorial Fund that would make annual grants to local groups working to reduce violence and aid the victims of violent crimes. orchestrated mainly through the Starbucks Foundation.000 specialty coffee outlets in the United States. consisting of store managers from all regions. and proceeds from store-opening benefits. set up in 1997. The company had donated almost $200.C. The company's annual report listed nearly 100 community organizations which Starbucks and its employees had supported in 1997 alone. numerous restaurants were picking up on the growing popularity of specialty coffees and had installed machines to serve espresso. On the Fourth of July weekend in 1997. and other coffee drinks to their customers. with stores located primarily in malls throughout the United States.000 to literacy improvement efforts. using the profits from store sales of Oprah's Book Club selections. maybe more. and T-shirts were offered in the company's mail-order catalog. there were an estimated 8. education. backpacks. Starbucks stores participated regularly in local charitable projects of one kind or another. Competitors Going into 1997. Second Cup owned Gloria Jeans. was less than one-third its size. Procter & Gamble (the owner of the Folger's brand). Starbucks offered a $100. . three Starbucks employees were murdered in the company's store in the Georgetown area of Washington. Starbucks had an Environmental Committee that looked for ways to reduce. No other rival had as many as 250 stores. small-scale coffee growers in Guatemala increase their income by improving the quality of their crops and their market access. the company's first-year grant of $75. The company also faced competition from nationwide coffee manufacturers such as Kraft General Foods (the parent of Maxwell House). Starbucks was the largest corporate contributor in North America to CARE. D. In addition. Because many consumers were accustomed to purchasing their coffee supplies at supermarkets. which distributed their coffees through supermarkets. donating drinks. a portion of the price on all sales was donated to CARE. lattè. Observers believed there was room in the category for two or three national players. and humanitarian aid programs in most of the Third World countries where Starbucks purchased its coffee supplies. Starbucks stores also featured CARE in promotions and had organized concerts with Kenny G and Mary Chapin Carpenter to benefit CARE. books. Starbucks began making annual corporate contributions to CARE when it became profitable in 1991. There were also a number of specialty coffee companies that sold whole-bean coffees in supermarkets. as well as contribute to local community environmental efforts. it was easy for them to substitute these products for Starbucks. CARE samplers of coffee and CARE-related mugs. Java Centrale. most notably New World Coffee. a franchisor of specialty coffees. Starbucks' closest competitor. cappuccino. reuse. Coffee Station. Observers expected many of the local and regional chains to merge in efforts to get bigger and better position themselves as an alternative to Starbucks. and Nestlé. Coffee People. and recycle waste. a Canadian franchisor with stores primarily in Canada.Corporate Responsibility Howard Schultz's effort to "build a company with soul" included a broad-based program of corporate responsibility. In 1995 Starbucks began a program to improve the conditions of workers in coffee-growing countries. but there were at least 20 small local and regional chains that aspired to grow into rivals of Starbucks.000 went to fund a new processing facility and set up a loan program for a producer cooperative. In 1997. establishing a code of conduct for its growers and providing financial assistance for agricultural improvement projects. There was also a Green Team. a worldwide relief and development organization that sponsored health. Starbucks formed an alliance with Appropriate Technology International to help poor. Starbucks' success was prompting a number of ambitious rivals to scale up their expansion plans. and Caribou Coffee. In addition.

The company was. The Future Industry analysts in 1998 saw Starbucks as being well on its way to becoming the Nike or Coca-Cola of the specialty coffee segment.000 stores in operation by the year 2000. Supermarket sales were test-marketed in over 500 stores in Chicago in the summer of 1997. Starbucks had spent very little money on advertising. The company started rolling out supermarket sales of its coffees in 10 major metropolitan areas in the spring of 1998. The company's most immediate objective was to have 2. Also on the new-product front was an apple cider made exclusively for Starbucks by Nantucket Nectars. its move to sell coffee in supermarkets.html October 11. the company was selling chocolate bars and other candy. elegant packaging. It was the only company with anything close to national market coverage. Two-thirds of all coffee was sold in supermarkets. engaged in a growing effort to extend the Starbucks brand and penetrate new markets. Starbucks coffee sold in supermarkets featured distinctive. and developing specialty and mail-order sales. preferring instead to build the brand cup by cup with customers and depend on word-of-mouth and the appeal of its storefronts. Its longer range objective was to become the most recognized and respected brand of coffee in the world. and alter its vision of who it was. And. The company was also said to be testing "light roast" coffee blends for those customers who found its current offerings too strong. and the possibility of marketing fruit-juice drinks and candy under the Starbucks label represented an ongoing drive on Schultz's part to continually reinvent the way Starbucks did business.Building the Starbucks Brand So far. Jim Ailing. Product freshness was guaranteed by Starbucks' FlavorLock packaging.com/business/management/thompson/11e/case/starbucks-2. and the price per pound paralleled the prices in Starbucks' retail stores. The company's efforts to greatly increase its sphere of strategic interest via its joint ventures with Pepsi and Dreyer's. Plus. prominent positions in grocery aisles. rewarded. In order to sustain the company's growth and make Starbucks a strong global brand. Starbucks quietly test-marketed four 20 percent fruit-juice beverages in one market. Starbucks hired Nestlé veteran. partnering with licensees. Starbucks had recently begun selling its coffees in supermarkets. In November 1997. in the summer of 1997. 2010 . venturing into ice cream with Dreyer's and into Frappuccino with Pepsi. In addition to expanding internationally. as senior vice president of grocery operations to direct Starbucks' supermarket sales effort. and the same premium quality as that sold in its own stores.mhhe. and had plans to bring candy production in-house if sales went well enough. Under his guidance. what it did. Schultz believed that the company had to challenge the status quo. be innovative. take risks. however. and where it was headed. Management believed that the tests confirmed the appeal of offering Starbucks coffee to existing customers in convenient supermarket locations while at the same time introducing new customers to its products. and surprised customers? What new products and new experiences could the company provide that would uniquely belong to or be associated with Starbucks? What could coffee be²besides being hot or liquid? How could Starbucks reach people who were not coffee drinkers? What strategic paths should Starbucks pursue to achieve its objective of becoming the most recognized and respected brand of coffee in the world? ( http://www. and at least one contained caffeine. management was posing a number of fundamental strategic questions: What could Starbucks do to make its stores an even more elegant "third place" that welcomed.19 The single-serve bottled drinks were priced around $2.

the restaurant chain expects to achieve a full return on investment for these projects in a few years. Department of Energy (DOE) releases an energy-savings guide to help quick-service restaurants reduce their energy use by 50 percent. Starbucks is part of a growing trend by retailers to reduce their impact on the environment despite the initial cost premium for their efforts.300 retail locations have enrolled in the U. Some of the energy-efficiency measures include the following: ±Ultra-efficient cooking appliances that reduced kitchen exhaust air flow .-ft. Starbucks will build or renovate 10 test stores around the world as part of the test program. according to The Washington Post. Starbucks strategy calls for 50 percent of its energy to come from renewable sources and to achieve LEED certification for all of its ³ground-up´ sites worldwide. building model was analyzed across all U.´ However.S. Starbucks continues to move ahead with plans to make the restaurant chain¶s stores environmentally friendly. compared with 900 for all of last year.Starbucks Moves Ahead with µGreen¶ Strategy despite Cost As the U. ³Technical Support Document: 50% Energy Savings for Quick-Service Restaurants´ (PDF). reports The Washington Post. The company is one of several working with USGBC on a new certification program that offers operators the option of pursuing the designation for multiple properties at once. to determine the energy savings provided by the energy-efficiency measures. reports The Washington Post. About 1. The guide. PNNL used EnergyPlus.500-sq. and represent about eight percent of all 6. The report also provides an estimate of the incremental first costs and simple payback years. which were divided into 16 representative climate cities.S. The prototype 2. the DOE and its Pacific Northwest National Laboratory (PNNL) have released a technical report that provides recommendations on how to achieve up to 50 percent energy savings in quick-service restaurants.000 buildings that are LEED certified. an energy simulation program. The 50 percent goal covers the reduction of site energy use in all eight U. Green Buildings Council¶s Leadership in Energy and Environmental Design (LEED) certification program through September. To help restaurants reduce their energy consumption.S. climate zones. climate zones. Starbucks would not reveal to the newspaper how much the green retrofits cost other than noting ³it has been pricey. provides a number of energy-efficiency measures that cut energy use in quick-service restaurants by up to 50 percent compared to a baseline standard in less than five years.S.

for instance) and the remaining 2% from a decrease in average value per transaction. Green Building Council to develop and publish the free design guides. same store sales in the U. According to an article written by Claire Cain Miller in the New York Times. customers who continued to patronize Starbucks spent the same amount on each visit. prices are rising by 30 cents (8%). the Illuminating Engineering Society. were down by 6%.com/2010/10/11/starbucks-moves-ahead-with-green-strategydespite-cost/ New pricing strategy of starbuks Starbucks recently announced a revamped pricing structure. Starbucks is also increasing the prices of its higher-end more complex drinks including Frappuccinos and caramel macchiatos. Paradoxically. This strategy makes sense: the struggling economy dictates discounts and McDonald s brewed coffees and lattes are stealing price sensitive customers. For . So why raise prices right now when demand is waning? Some speculate that Starbucks is trying to make the most profit from its devoted customers who are hooked on its products. and building designers how to achieve above-code energy performance for buildings using existing technologies available today. and high-performance window glazing The DOE says the 50 percent savings report will provide the foundation for the next series of Advanced Energy Design Guides (AEDGs). as well as offering promotions on iced drinks. the coffee purveyor is also redesigning its menu to feature lower priced brewed coffees. in September. Refrigerating and Air-Conditioning Engineers (ASHRAE) works in collaboration with DOE. for the most part. In Starbucks recent quarterly earnings release (third quarter ending June 28).S. cool roofs.environmentalleader. In other words. There is some justification for this price increase. The DOE has published guides in several categories for commercial buildings. http://www. In some cases. Prices for many of its popular (read: lowerend) products such as brewed coffees and lattes are headed downwards. Broken down. For example. its specialty drinks are in the cash cow phase of the Boston Consulting Group s Growth Share Matrix.S. and the U. A spokesperson claims that this is the first time in Starbucks history that prices have been reduced.±An optimized HVAC system configuration to better utilize a dedicated outdoor air system and runaround coil loop heat recovery ±Efficient exterior and interior lighting with dimming controls in the dining room ±Enhanced insulation. of which there is less competition from rivals. DOE and its National Renewable Energy Laboratory (NREL) released two technical reports that provide recommendations on how to achieve 50 percent energy savings in new and existing large office buildings and large hospitals. 4% of this decline was due to fewer transactions (customers defecting to McDonald s. The American Society of Heating. engineers. Thus. the American Institute of Architects. which are ³how-to´ guides that show architects.

The Value of Authority Starbucks' pricing strategy has a lot to do with how it positions itself as an authority on coffee.htm Starbucks Pricing Strategy by Renee O'Farrell. Quality Starbucks sets its prices on a simple idea: high value at moderate cost. consumers are willing to pay extra without even having tried the products because they associate the Starbucks name with high quality. What are the chances that macchiatos will experience a growth surge in the future? With rivals (including McDonald s and Dunkin Donuts) stealing share from Starbucks lower-end products and concerns about the growth of its highly differentiated premium coffee drinks. Differentiation Starbucks also spends a lot of time and energy differentiating itself from the competition. when Starbucks introduces new products at higher prices. the general recommendation is to reduce investments and simply harvest profits from current demand. All successful products have their heyday of strong growth and then eventually reach a point where demand remains constant or decreases. You can see this in the design of its coffee shops. Thus. Starbucks makes sure to keep current on the latest technology. http://www. Starbucks offers a combination of quality.com/pricing-strategy-blog/starbucks-new-pricing-strategy-beginning. . A company s pricing strategy can be a good indicator of its future growth potential.products in this cash cow phase. the music played there and the types of products it sells. authority and relative value. Quality is key.5 and Wal-Mart s is 15). Starbucks has to maintain strict quality controls in its coffee sourcing as well as in its customer service and peripheral products to justify its costs. As an individual company. the general strategy is to take the money and run.pricingforprofit. remember when CB radios and radar detectors were the rage? When a product reaches the cash cow stage of its lifecycle. After all. they are more likely to pay a higher cost. Starbucks was one of the first companies to adopt location-based promotions and mobile payments. allowing the company to charge premium prices. For example. More than just a high-priced coffee shop. it controls several times more market share than any of its competitors. Demand Media Starbucks is the leader of the coffee market. often times being the first to introduce the newest advancements to its customers. such as coffeebrewing equipment and jazz CDs. GE s p/e ratio is 10. When people feel like they are getting a good deal for their money. what s the growth driver that justifies Starbucks current price to earnings ratio of 59? This high p/e ratio indicates that investors feel the company has higher potential growth opportunities than the average company (in contrast.

Relative Value Starbucks also uses relative pricing.html .chron. It offers premium items. like its espresso drinks or its Starbucks brand whole-bean coffees sold in grocery stores. http://smallbusiness. While the risk exists that more customers will choose the lower-priced items. by offering higher-priced items along side lower-cost alternatives.com/starbucks-pricing-strategy-10544. like its drip coffees or its Seattle¶s Best line. Starbucks is justifying the higher price through comparison. along side lower-cost items.

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