STARBUCKS

BRAND INVENTORY

GROUP 6:
JAMES KIM
ANDREW FRIEDMAN
SARA SCHEPP

1
INTRODUCTION

Starbucks Corporation is a leading retailer of specialty coffee that was formed in 1985. Starbucks

sells a variety of coffee, espresso, and blended beverages, food items, whole bean coffees and coffee-

related accessories through its retail stores and licensing agreements. The purpose of this Brand Inventory

is to analyze the state of the Starbucks brand in terms of its target market, positioning, pricing strategy and

marketing communications, to ascertain the environmental factors and industry influences impacting

Starbucks, to investigate the strengths, weaknesses, opportunities, and threats to the Starbucks

organization, and to identify the challenges facing Starbucks in the short and long term future.

SECTION ONE: SITUATION ANALYSIS

There are scores of external factors that may potentially influence the success of Starbucks. As

the firm continues to expand its operations and expand its portfolio globally, the external forces affecting

the brand both proliferate and grow in their magnitude of influence. These external factors range from

environmental influences like social, economic, technological and regulatory aspects to industry influences

like competitor actions and entrance of new substitutes.

ENVIRONMENT

Starbucks has been involved in corporate social responsibility (CSR) initiatives since the early

1990s, when it joined with CARE, a non-profit group, to fight global poverty. In recent years, the brand has

committed to supporting causes consistent with its mission: fair wages for suppliers, ecologically

progressive practices and packaging, and education. But this commitment, which executives maintain is

consistent with the Starbucks mission and brand associations, has attracted its fair share of controversy.

When the government of Ethiopia attempted to use local intellectual property regulations to gain leverage

over the company’s compensation and supply-chain, Starbucks faced outrage over its reticence to

acquiesce. The critiques reflected misinformation – a fact that frustrated corporate executives and posed a

2
potential threat to brand equity. The response to this and similar incidents was to take a more proactive

approach to the management of social risks; using a combination of marketing communications and social

networking. To this end, the company posted a rumor dispensary site and subsequently, in 2007, launched

MyStarbucksIdea.com to establish a dialogue with its consumers, suppliers, and other stakeholders. Still,

the unavoidable risks stemming from outside advocacy groups and the variables associated with producer

and distributor conduct will continue to influence the company’s success for the foreseeable future.

Collectively, the global financial crisis and the great recession in the United States have dealt a

devastating blow to the income of consumers and the availability of credit. For a premium brand portfolio

spread across discretionary categories, there could nary be worse news. Starbucks stores are dependent

on the disposable income of consumers in communities filled with low-cost alternatives. Lagging sales to

customers from across the socio-economic spectrum and subterranean consumer confidence have

adversely affected the financial success of stores –particularly in the U.S. Potentially compounding the

adversity, the collapse of the housing market in the states may have long-term ramifications for storefront

efficacy and customer traffic. Starbucks’ expansion, particularly in CPG, foodservice and international retail

presence, is imperative to the company’s continued growth. But with sagging retail sales and formidable

low-cost competitors gaining traction, the brand will have to thread the needle to avoid the perils of attrition.

Starbucks continues to embrace developing technologies as a means of streamlining operations,

enhancing its retail consumer experience, and engaging stakeholders. Advances in technology have

enabled Starbucks to simplify and accelerate key processes, from making espresso to expediting credit

card micro-transactions (<$25). Partnering with AT&T and Apple, Starbucks now offers customers Wi-Fi in

its stores and free iTunes downloads with purchases. Starbucks and others have also launched iPhone

(and potentially iPad) apps to capture the unique motivations associated with the mobile web interface.

The development of micro-dosing and off-premises brewing technologies may influence Starbucks’

marketing of home brewing products and the value propositions associated with its Foodservice division.
3
INDUSTRY

Starbucks operates in the restaurants sub-industry that purchases and roasts whole bean coffees

and sells them through company-operated and licensed retail stores. The company operates in three

business segments: United States (US), International, and Consumer Product Groups (CPG). The CPG

segment includes packaged coffee and tea, ready-to-drink beverages, and Starbucks VIA Ready Brew

(VIA). The International segment operates in 40 countries. Starbucks and its CPG segment compete

directly with many well-known coffee establishments and their brands. In the restaurant industry, Starbucks

competes directly with McDonald’s, Caribou Coffee, Dunkin Donuts, Einstein Bagels and Panera Bread. In

the CPG segment Starbucks competes directly with Folgers, Maxwell House, Nescafé, Keurig and energy

drinks such as Red Bull. Due to low barrier of market entry into the coffee-based restaurants sub-industry,

Starbucks is consistently experiencing threats from substitutable products and services from existing

competitors. Starbucks, along with other coffee retailers, are also subject to high volatility in the supply and

price of coffee. Suppliers have made attempts to shift the balance of power in their favor but coffee

retailers have employed tactics like wholly owned-subsidiaries and fixed-price commitments to ensure an

equitable price is paid to coffee producers while maintaining some level of certainty in the cost in the future.

ORGANIZATION

Starbucks Company’s objective is to establish itself as one of the most recognized and respected

brands in the world. To achieve this goal, Starbucks has invested in its retailers to provide each customer a

unique Starbucks Experience, a place beyond home and work, which is centered on excellent customer

service and cleanly retail environment. According to the 2008 Annual Report, the Company plans to

continue disciplined expansion of its retail operations, to grow its specialty operations and to selectively

pursue other opportunities by introducing new products and developing new channels of distribution.

Starbucks strengths include its high brand awareness and extremely loyal customer base, its

reputation for high quality products, and its symbolic value as a sign of status and affluence. Starbucks
4
weaknesses stem from their premium pricing strategy and dependency on the U.S. market, which are both

being negatively impacted by economic strife. Starbucks potential weakness in their food menu and

pairings could also serve as an opportunity for Starbucks to differentiate from other coffee retailers.

Starbucks also has opportunities in the instant coffee segment (launch of Starbucks VIA), the single cup (k-

cup) segment, and the flavored coffee segment. Finally, Starbucks is encountering many threats including

shrinking customer disposable income, declining customer traffic, and expanded product offerings and

availability from lower-priced competitors. Starbucks SWOT analysis is summarized in Appendix A.

SECTION TWO: BRAND INVENTORY

Starbucks generally targets individuals in the affluent and well-educated segment. With higher

disposable incomes, these individuals tend to have lower price-sensitivity, which matches well with

Starbucks premium pricing strategy. In addition to appealing to individuals desiring a luxury lifestyle,

Starbucks also targets customers that are environmentally conscious with their Shared Planet and

(Starbucks) RED campaigns. Starbucks has also realized the importance of looking for new opportunities

as portions of their target market have been hurt by less favorable economic conditions. Starbucks has

employed a smart strategy that uses only certain brands to target customers outside this general target

market as to not damage the Starbucks brand image. For example, Seattle’s Best Coffee brand targets

less affluent consumers that are more price conscious.

Starbucks product portfolio can be grouped into four main categories: beverages, food, coffee-

making equipment/other merchandise, and whole bean coffees. See Appendix B for a detailed list of

Starbucks products. Beverages offerings, accounting for the majority of retail revenues, include traditional

brewed coffee, espresso, Frappucino, and chocolate beverages, Tazo teas, Vivanno smoothies, and kid’s

drinks. Starbucks has expanded its food selection (just less than 20% of retail revenues in 2008), now

including bakery items, fruit & snack plates, hot breakfast items, salads, sandwiches, ice cream and yogurt

5
parfaits. Accounting for the remaining retail revenues were coffee-making equipment, flavored syrups,

drink ware (mugs, tumblers, etc.), Starbucks Entertainment (CDs), Starbucks gear (clothing, hats, etc.), and

Starbucks Card gift cards.i In 2009, Starbucks launched its new instant coffee product, Starbucks VIA,

available in Colombian and Italian Roast flavors, with coordinating merchandise items.

Starbucks expansive list of brands (and associated products) prompted us to use the Brand

Relationship Spectrum model as a basis for analyzing Starbucks’ brand architecture. Starbucks brand

placements along the spectrum indicate a mix of different brand applications from the master brand, to sub-

brands, to endorsed brands, to somewhat disconnected brands (see appendix C for a graphical example).

Starbucks sub-brands would be those that bear the name Starbucks and have a clear tie in to the master

brand (i.e. Starbucks Frappucino, Starbucks Doubleshot, Starbucks Entertainment, etc.). Starbucks VIA

may also fall into this category, though the balance between the master brand and sub-brand appears to be

tipped a bit more towards the sub-brand than the other Starbucks sub-brands. Starbucks endorsed brands

would be those that bear the Starbucks logo, but have a distinct brand name of their own. Many Starbucks

endorsed brands are part of their whole bean coffee line (i.e. Pike Place Roast, Guatemala Casi Cielo,

Horizon Blend, etc.). Finally, there are brands that are somewhat disconnected from the Starbucks master

brand. For example, Tazo teas are sold in Starbucks retail establishments, but the packaging does not

bear the Starbucks name or logo. Even more disconnected is the Seattle’s Best Coffee brand, from which

Starbucks has purposefully disassociated itself.

Starbucks has positioned itself as a premium brand offering quality coffee products as part of The

Starbucks Experience, which according to Starbucks’ Annual Report is “a third place beyond home and

work, is built upon superior customer service as well as clean and well-maintained Company-operated retail

stores that reflect the personalities of the communities in which they operate, thereby building a high

degree of customer loyalty.” Starbucks has established solid points of parity, which are the benefits or

attributes that the Starbucks brand shares with its competitors. These serve as minimum requirements for
6
consumer consideration. Starbucks’ points of parity would include an offering of basic coffee products, a

basic set of bakery items, and convenient locations. Points of difference are the benefits or attributes that

consumers associate with the Starbucks brand that they do not find in competitive brands. Starbucks

points of difference would include the high quality of their coffee products relative to competitors, the

extensive variety of beverage items that can be customized to any consumers’ liking, the value of the brand

as a symbol of affluence and social status, the soothing ambiance in Starbucks locations, and Starbucks

commitment to environmentally friendly actions and social causes (i.e. Starbucks RED, Starbucks Shared

Planet). Building on these points of difference, Starbucks can continue to strengthen its brand equity.

Starbucks pricing strategy is consistent with its premium positioning. Starbucks prices its drinks

well above what most establishments charge for the same products. Interestingly, in late 2009 Starbucks

actually raised prices on specialty drinks despite the economic conditions. Prices on some basic

beverages (brewed coffee, lattes, etc.) were lowered slightly. According to Kenneth Davids, editor of

Coffee Review, “Starbucks is safe raising the prices of specialty drinks because they are where the

company best differentiates itself.”ii The challenge for Starbucks in the pricing arena is to walk the thin line

between maintaining its status as a premium brand, while retaining price-sensitive customers who can

purchase less-expensive coffee at competitors. Starbucks has found it especially difficult to do this with

McDonald’s introduction of McCafe espresso drinks at lower price points. Starbucks pricing strategy for

certain brands in its portfolio does vary from this general premium strategy. The Seattle’s Best Coffee

pricing strategy has been aimed at more price conscious consumers. According to a February, 2010 press

release, Seattle’s Best Coffee will be offered in numerous Burger King locations. Starbucks is able to

protect its premium brand status, yet capture revenues from a growing segment, by utilizing its Seattle’s

Best Coffee brand in this price-sensitive sector.

The multi-tiered approach reflected by Starbucks’ distribution strategy is a function of the

complexities associated with global cross-segment operations. According to the Starbucks Annual Report,
7
Starbucks’ objective is to “reach customers where they work, travel, shop, and dine.” The prominent

channel of distribution is Starbucks’ owned retail stores. As of 2009, there were some 13,000 Starbucks

retail stores worldwide. However, not every customer occasion can be serviced by a Starbucks-owned

retail outlet, so Starbucks uses a variety of specialty operations augment their company-owned stores.

Starbucks licenses retail outlets in areas where they cannot or choose not to secure their own stores. In

North America, Starbucks partners with Kraft Foods, PepsiCo and Unilever for the marketing, promotion

and distribution of its branded goods (CPG) in grocery, warehouse and convenience stores. Starbucks

also sells a variety of products to institutional foodservice companies like SYSCO and US Foodservice that

service business and industry, education, healthcare, office coffee distributors, hotels, restaurants, airlines

and other retailers. These licensing and distribution agreements with entities worldwide, which strategically

extend the reach of Starbucks brands. Among those the recently announced licensing agreement between

the Seattle’s Best Coffee brand and Burger King for distribution in its restaurants.

Starbucks has recently reinvigorated its multi-channel consumer marketing strategy. A leader in

corporate social media engagement, the brand has very strong followings on Facebook and Twitter, and

leverages these contacts to reinforce its image and drive traffic to its websites. Starbucks has attempted to

engage stakeholders in what the company claims is an unfiltered dialogue on MyStarbucksIdea.com.

In 2007, responding to declining sales, Starbucks launched the first television advertisements in

the company’s history. By 2009, the company had begun a relationship with MSNBC’s “Morning Joe,” a

politically charged morning show anchored by former Republican Congressman Joe Scarborough. While

the aptness of the wordplay is unmistakable, the endorsed branding of a cable news show carries with it

obvious inherent risks. As previously mentioned, Starbucks’ public relations strategy has grown beyond

traditional media and investor relations to include two critical initiatives: mystarbucksidea.com and its rumor

response site, “Myths and Facts.” Together these programs seek to engage stakeholders and aggressively

dispel misleading or false information circulating about the corporation and its brands.
8
 The majority of Starbucks’ recent marketing and financial triumphs, however, are credited by

analysts and insiders alike to the company’s interactive marketing push into existing social networks. Since

retaking the helm two years ago, Schultz and co. have re-established the Starbucks brand and revived its

fiscal promise in part by tactfully reaching out to consumers on Facebook and Twitter. The successful

marketing ‘tact,’ argues Starbucks brass, is that the company’s digital marketing initiatives have not been

focused on marketing. In a February 2010 interview with Advertising Age, the VP of Brand Content and

Online, Chris Bruzzo, explained that the company’s interactive strategy “was not [built as] a marketing

channel, but as a consumer-relationship channel.”iii Given the consequences suffered by companies as the

results of ill-conceived interactive campaigns in the past, the non-marketing orientation of Starbucks’ social

media efforts – the approach that is intended to distinguish it from its corporate peers -- could not be more

important to both Starbucks’ digital and its physical futures. The stakes being what they are, the ability to

inform and affect the development of positive consumer perceptions of the Starbucks brand and its

marketing communications campaigns will rely on the company’s ability to maintain its hard-won credibility

with consumers and journalists.

SECTION THREE: CHALLENGES

Starbucks biggest short term challenge is to overcome the economic factors that exist from The

Great Recession. Starbucks branded products and services are discretionary expenses. Consumers have

become increasingly sensitive to price and therefore may be open to downgrading to a substitutable

product that exclusively provides the satisfaction of lower price point. To exacerbate the situation, lower-

priced brands like McDonald’s McCafe have increased their product presence and marketing spend. To

increase the competitive barrier of substitution, Starbucks must enhance the utility that consumer would

gain by purchasing its Starbucks branded products and services. Focusing on effective and effortless

delivery of the Starbucks Experience through CPG and retail outlets would limit the threats of price wars.

9
 In the long term, Starbucks needs to focus its hard work on effortlessly delivering the Starbucks

Experience and synchronizing its brands’ association with its growth plan. To achieve this growth plan of

becoming the place to enjoy premium café experience, Starbucks should consider moving away from

exclusively associating with coffee and leveraging its premium CPG food segment to further enhance the

experience of enjoying the high quality coffee.

CONCLUSION

Starbucks’ future success depends on the company’s ability to fend off external threats from the

recessionary economy and increased pressure from suppliers, to minimize customer losses to lower-priced

coffee retailers without sacrificing the Starbucks brand image, to continue to build customer equity through

consistent positioning and marketing communications, and to take advantage of the growth opportunity for

Starbucks VIA both domestically and internationally.

10
APPENDIX A:

Starbucks SWOT Analysis

Strengths
 Dominant presence in specialty coffee category
 High brand awareness
 Symbolic of status and affluence
 Very high loyalty among core customers
 Consumer -recognized high quality standards (particularly in the
coffee and espresso segment)
 Expansive variety of innovative and authentic products
 Distinctive product name
 Ability to deploy locally inspired atmosphere and decoration at
Starbucks store
Weaknesses
 Premium pricing in a tough economic environment
 Disconnect between the “Starbucks Experience” and the CPG
products and services sold through other retailers
 Weak pairings of food with Starbucks coffee
 Strong dependence on the U.S. market
 Numerous real estate holdings in markets with declining values

Opportunities Threats
 Instant -coffee segment  Shrinking disposable income among customer segments due to
 “K-cup”segment economic conditions
 Flavored coffee segment  McDonald’s, Dunkin Donuts, and Burger King are a threat in
 More relevant food pairings (i.e. desserts) terms of targeting more price conscious consumers
 High quality food items  Caribou Coffee, Alterra , and Tim Hortons are a threat in terms of
innovative beverages in a similar price segment
 Panera Bread and Einstein Bagels are a threat in terms using
their core competency of food to lure in customers also looking for
coffee beverages
 New products from other coffee industry CPG companies:
Folgers, Maxwell House, Nescafé , and Keurig
 ConsumerProducts (other): Häagen -Dazs (premium ice cream),
Red Bull (energy drinks)

APPENDIX B:

Starbucks Product Portfolio

11
APPENDIX C:

Starbucks Brand Architecture

Starbucks
(Corp)

Sub Brands Not Connected Brands

Starbucks Starbucks Starbucks Seattle’s

Tazo Tea
VIA Doubleshot Frappucino Best Coffee

Starbucks Vivanno (STARBUCKS)

Entertainment Smoothie RED

Endorsed Brands

Pike Place Daily Horizon

Roast Blend

Guatemala Africa Numerous

Casi Cielo Kitamu Others

12
REFERENCES:
i
Starbucks Annual 2008 Report
ii
“Will the Hard-Core Starbucks Customer Pay More? The Chain Plans to Find Out”, Claire Cain Miller,
Published: August 20, 2009, http://www.nytimes.com/2009/08/21/business/21sbux.html.
iii
“Starbucks Gets Its Business Brewing Again With Social Media,” Emily Bryson York, Published February 22,
2010, Advertising Age, http://adage.com/digitalalist10/article?article_id=142202.

13