Starbucks POA

MBE 8165: Marketing Concepts

Daniel Quinn

February 20, 2010

 Starbucks must choose whether to concentrate its promotional and marketing efforts

toward their more traditional customers that have been loyal to them for many years or move

resources towards servicing a newer demographic that has begun to migrate towards the

Starbucks chain. The senior management at Starbucks must consider the long-term implications

of their strategies including the long-term fiscal contributions of both demographic subgroups as

well as the overall value the chain wants to present to the marketplace. Due to the loyalty of the

traditional consumer base and their ability and willingness to pay a premium for premium coffee,

Starbucks should direct their marketing efforts toward customers that have been faithful to the

brand over several years by instituting customer loyalty programs designed to incentivize long-

term commitment to Starbucks and their values.

Starbucks has almost single-handedly altered the fabric of American culture by

introducing the café as a “third-place” for the average American to relax and enjoy the company

of others. By shifting this social dynamic, Starbucks effectively elevated its brand in the minds

of consumers and moved premium coffee into the mainstream. However, this shift towards the

mainstream has brought along a younger, less affluent demographic that is less willing to pay for

what they perceive as a premium product. Therefore, Starbucks must consider which customer

profile to market towards to continue the impressive growth they have demonstrated through the

late 90s and early 2000s. In considering which consumers to focus on, Starbucks must

concentrate on two important customer characteristics: consumer demographics and customer

satisfaction levels. Both of these categorizations provide important insight into the minds and

habits of Starbucks consumers and also provide a key subset of customers to target future

marketing efforts toward to maximize earnings.

 The traditional Starbucks customers have been middle-aged, affluent, highly educated

individuals who valued personal service and premium coffees. These customers tend to visit

more often and spend more per transaction at their local Starbucks. Traditionally, these

consumers are very loyal and have been frequenting the same store for many years. Conversely,

coinciding with the introduction of blended coffee and non-coffee drinks, Starbucks has recently

begun attracting a younger, less affluent consumer base that value speedy service, convenience,

and lower prices. These two consumer groups have two different value propositions that

Starbucks must consider when positioning their product going forward. Established customers

(those that have been visiting for 5 years) have a much higher overall opinion of Starbucks than

customers that have just recently begun visiting Starbucks (44% vs. 25%). Also, customers that

have been frequenting Starbuck for greater than 5 years are more willing to pay a premium for

the premium coffee offered at Starbucks than the more inexperienced customer (32% vs. 8%).

By targeting their sales promotions and marketing initiatives towards this more established

customer base, Starbucks will be more likely to retain its premium image and less likely to have

to compete on prices. They will continue to be able to compete on the values of community and

social facilitation that they have benefited from so greatly in the past. If resources were directed

and capturing the newer demographic, Starbucks would have to make great sacrifices in regards

to abandoning some of the core values that have allowed them to flourish since their inception.

Another important point to consider is the overall satisfaction of the customers at

Starbucks. It would be logical to consider that customers that rate themselves as “highly

satisfied” by the Starbucks chain would likely be the same customers that have been visiting

Starbucks loyally for the greatest time frame. Therefore, one can equate overall satisfaction

levels with brand loyalty. Considering this correlation, Starbucks must look at the overall
contributions each subset of customers bring in regards to financial impact on the Starbucks

bottom line. On average, customers that rate themselves as “highly satisfied” (aka loyal

customers) visit their local Starbucks more often, spend more money at each visit, and return for

longer durations than customers that rate themselves as merely “satisfied” or worse,

“unsatisfied”. Highly satisfied customers, on average, spend $3,169.67 over the course of their

Starbucks experience as opposed to satisfied customers ($921.78). Customers that rate

themselves as “unsatisfied” are likely to contribute only $199.74 in sales over their Starbucks

experience. These “highly satisfied” customers tend to visit more than 8 times per month.

Although accounting for only 21% of all Starbucks customers, these few are responsible for 62%

of all transactions with an average ticket price 57 cents higher than “satisfied” or “unsatisfied”

customers. Targeting these customers will not only generate higher revenues that the less

satisfied, less loyal customer base but will also allow Starbucks to retain its core differentiation

points from the competition.

A possible promotional program that Starbucks can implement to target these brand loyal

customers is the introduction of a consumer rewards program. A logical possibility is to

introduce a program that is tied to the already successful stored-value cards. This program

would allow Starbucks to “reward” its customers for loyalty with a free beverage after a pre-

specified number of purchases. Linking the purchases to the SVCs would drive the use of these

cards and will lead to a more efficient service. This may have an ancillary effect of reducing

service times. This program could satisfy several customer value points for Starbucks including

creating value for the 65% of customers that rate fast service as highlight important as well as the

31% of customers that stated offering better promotion/incentive programs would make them

feel more valued.

 Customers that have exhibited loyalty to Starbucks clearly have demonstrated their desire

for a premium coffee brand that offers a relaxing atmosphere that allows them to “escape” the

confines of their home and office. Also, they have also demonstrated their willingness to pay a

premium for the service and value Starbucks provides to them. By focusing future promotional

efforts on these customers, Starbucks is sure to retain its core values while maximizing their

profits in the long-term. Providing these customers with a value-program that will allow them

feel valued as a loyal customer will only help cement the personal relationships the baristas have

with these customers.