Phase II

MKTG361, Sage
March 3rd, 2021

Team 22
AnnMarie Mascetti
Shreyas Khandekar
Benjamin McDaniel
Alyssa Hepworth
Diego Sternard
Introduction
The second phase of this project is intended to illustrate a more in-depth understanding of our data and
analytics provided in phase one. In the following pages, our team will be providing an industry overview,
provided services, a SWOT analysis/target segmentation, and a competitive analysis regarding the
industry in which Starbucks resides.

Company & Industry Description

Starbucks is a world-wide coffeehouse chain and company that started out as a small coffee bean supply
store in Seattle’s Pike Place Market in 1971 by Jerry Baldwin, Gordon Bowker, and Zev Siegl. A short
twenty two years later, Starbucks went public and implemented over 165 locations around the country
due to the progressive actions of one of their chairmans, Howard Schulz. When the company wanted to
work on its US expansion, they prioritized their relationships with foreign countries to evidently start an
empire that would forever change coffee culture. Once Starbucks launched in China, they were aware of
the prevalent tea-drinking culture and the desire for trendy spots common in Western culture. Therefore,
they decided to hold back on advertising and instead shift their focus to delivering a trendy and social
environment rather than to disturb the tea-industry. “Many U.S. firms have either failed to get into China,
like Facebook and Netflix, or have been pushed out of China, like Uber and Google” (Mullen & Kapur,
2016). As a result, this is a tremendous achievement for Starbucks and the company currently has a
market capitalization of almost $90 billion. In addition, there are about 31,000 store locations in over 65
countries and its high-visibility and high-traffic locations have brought them immense success. Overall,
their digital efforts in terms of mobile orders and delivery services, variety of food and drink options,
comfortable environments for people to work at, and the benefits of their loyalty programs have played a
significant role in the company’s growth as well, with statistics of an 8.81% growth rate in the past year.

Starbucks is the prime leader in the coffee industry and it prides itself on their ability to adapt to many
different cultures, execute distinctive strategies, and overall commit long-term to build brand loyalty.
Their top competitors include Dunkin’ Donuts, Folgers, McDonalds and other small hole-in-the-wall
coffee shops. Starbucks has progressively experienced an increase in brand loyalty over the years due to
its efficient marketing strategies. With a strong target market of young adults, certain seasonal and
speciality drinks such as the “pink drink” or “pumpkin spice latte” bring the company great success
during different seasons and their exciting new cup designs play a huge role in this achievement. Not only
is having a clear vision for a company’s future is important, but Starbucks has drawn an emotional
connection with its customers for plenty of purposes. Starbucks has created a feeling of excitement for
customers to receive their daily dose of caffeine which has fundamentally developed such a close knit
community for its consumers.

SWOTT Analysis
Competitors
Some of Starbucks’ largest competitors are Dunkin Donuts, McDonalds, Dutch Bros, etc. Dunkin Donuts
and McDonald's share a common advantage over Starbucks- their lower prices. Dutch Bros specifically
holds a unique advantage of having more innovation when it comes to new and trendy beverage products.
Starbucks does have a secret menu and some items have been featured on TikTok. Since TikTok’s
audience is limited, most people are not aware of the variety of drinks we can prepare. However,
Starbucks has the highest profits due to their higher costs, which has led to our overall higher market
share percentage and profit margin.
Strengths and Weaknesses
At Starbucks, we strive to provide high quality and ethically sourced coffee products. We pride ourselves
on supplying our consumers with the highest quality and ethically sourced coffee products.
When a customer purchases a coffee with us, not only do we strive to provide them with luxurious coffee,
but we also desire to establish a great overall customer experience with our customers by encouraging
them to use our Starbucks locations as a place to gather and work. We plan to maintain our brands well-
respected reputation of providing a home-like ambiance with sustainable and exotic coffee products.

In contrast, due to our products being sourced from exotic locations, our overall product costs are high.
By providing these high quality products, we have narrowed our target market to who can afford our
coffee prices. It is recommended to observe our product costs in comparison to our profit in order to
debate whether we have the ability to lower prices to broaden our target market. To expand our audience
further, it is important to increase profit and engage the younger consumers by providing a wider range of
innovative drinks.

Opportunities and Threats

As mentioned in Figure 3, a benefit to having globally sourced products is that we have an extensive
opportunity for international expansion. Our coffee is primarily sourced from Latin America, Africa, and
Asia (Starbucks Coffee Origins, 2021). Since our supply chain already originated in these areas, we have
potential to expand locations in the areas at a decreased cost of production and imports. We also have the
potential for growth in business diversification if we are able to successfully produce new products and
introduce them to these new markets that we currently do not operate in.

Since most of our successful locations are North America, we encounter a potential threat of depending
on global imports from these foreign countries. If a natural disaster were to occur at any of these
locations, our company could face potential profit loss and product scarcity if we lose access to our
supply. Moving forward, it would be in Starbucks’ best interest to source their products from more
reliable sources.

Trends
Social media has become a crucial part of navigating our sales during this pandemic. To establish
customer satisfaction and a relationship with our customers, we have used our smart phone app to provide
our customers with rewards programs and trendy in-app features like our Spotify Shazam. Our spotify
shazam allows our customers to identify the music playing inside of our various Starbucks locations.
Where our rewards program honors our loyal customers by giving them discounts based on the frequency
of their purchases. This encourages our customers to visit and enjoy our locations in a frequent manner.
Our app has also led us to a more successful transition into the pandemic by offering contactless pay and
pick up to ensure our customers’ safety is our top priority.

Target Market/Segmentation
Starbucks operates in the Snack and Nonalcoholic Beverage Bars industry whose NAICS code is 722515.
We identified the three primary market segments that Starbucks targets to be young professionals with
high incomes, students from affluent families, and at home consumers. The Market segmentation table
(Figure 1) shows the potential size of our market segments. In our segmentation, we chose urban
populations, households with income higher than $150 thousand, and coffee enthusiasts as they have
shown a much higher affinity towards coffee retail chains like Starbucks as compared to other outlets
(Bryant, 2020). For example, by cross tabulating coffee enthusiasm with retailers shopped for coffee
(Figure 4) we found that 56% of coffee enthusiasts prefer purchasing from coffee houses as opposed to
only 36% of non-coffee enthusiasts (Bryant, 2020).

Competitive Analysis
Competitive landscape
When analyzing the competitive landscape of the Snack and Nonalcoholic Beverage Bars industry, there
are various factors to take into consideration that affect the trends and perceptions of Starbucks and its
competitors. First of all, this industry is made up of two keystone competitors, Starbucks and Dunkin
Donuts, which creates a high intensity in competition due to the high market share of these competitors
and their near-equal ability to drive industry trends. According to statista.com, Starbucks and Dunkin
make up the market with respective shares of 40% and 26% (Lock, 2020). When it comes to predicting
consumer behavior, it is crucial to stay knowledgeable of consumer disposable income, as our product is
not a necessity and it is rather a leisure product. These are the main predictors of our competitive
landscape and illustrate there is a need for constant innovation in order to stay ahead of our competitors.

Direct Competitor
Dunkin, formerly known as Dunkin Donuts, is indubitably our number one competitor as stated above.
Any market share remaining that is not accounted for by Starbucks or Dunkin is made up of other, less
popular destinations for coffee such as Mcdonalds or Krispy Kreme (Lock, 2020). Starbucks has been
able to maintain this competitive edge over our competitor due to our excellence in cleanliness inside our
stores, premium coffee products, and a great relationship status with our suppliers and customers. We
have also been able to geographically diversify our company by expanding to over 60 countries. When
comparing the two main competitors, it is clear that Dunkin is attempting to take on a typical fast-food
aesthetic inside their stores while Starbucks portrays a sense of cleanliness and low-tone aesthetics.
Though Starbucks is still leading with different communicative marketing goals, Dunkin has since proven
a worthy opponent for Starbucks forcing us to maintain a competitive advantage in order to remain leader
of the industry.

Top Three Marketing Problems

The first challenge that Starbucks faces is how consumers perceive starbucks. According to a 2020 study,
65% of US consumers try to buy from local stores and companies whenever possible (Topper, 2020).
Starbucks locations have always tried to create an atmosphere similar to independent coffee shops. This
can be seen in the interior design of starbucks locations, which has many chairs, tables, and other
furniture that encourages customers to stay at the store and enjoy their drink. However, more must be
done in order to appeal to consumers who mostly buy locally.

Another challenge that Starbucks faces is the rapid forced adaptation from COVID-19. The pandemic has
created many sudden changes everyones’ lives, and this has forced most companies to change their
strategies and behaviors in order to adapt. According to a survey, 42% of coffee drinkers prefer drinking
prepared coffee in the morning (Topper,
2020), however having coffee made by a restaurant that frequently is not possible during the pandemic.
This has forced Starbucks and other coffee restaurants to focus more on subscriptions, coffee products
that can be bought in grocery stores and prepared at home, and other methods that can avoid physical
contact.

One final challenge that Starbucks faces is its increased price in comparison to other competitors. For an
example, a small iced coffee from Starbucks costs 2.25 (Store Holiday Hours, 2020), while the same item
from Dunkin Donuts costs 2.09 (Menuism, n.d.). Starbucks justifies this price by using higher quality
materials for its coffee and food, however the increased price can alienate potential consumers who want
to buy Starbucks coffee more frequently, but cannot afford to.

Summary & Conclusion

Due to Starbucks’ amount of worthy competitors, it is important for our company to expand their target
market and range of products in order to broaden our audience and success of advertisements. Our
research has shown that the marketing issues of Starbucks include customers perceiving Starbucks as a
large corporation and supporting independent local companies as a result, the rapid changes from
COVID-19, and the increased price for Starbucks products in comparison to competitors. Moving forward
we suggest that Starbucks plans to expand their product line and lower overall product costs in order to
expand our target market.
 Attachments
Figure 1: Target Market Chart

Figure 2: Problems & Solutions

Problem(s) Solution 1 Solution 2 Solution 3 Recommended Contingency

Solution Solution

Starbucks is not Marketing directly Directing more Accepting that

appealing to towards this consumer assets into investing money to
consumers who segment by methods that are change the opinions
prefer local and advertising its “99 more convenient of this consumer
independent ethically sourced for customers, base may not be
companies despite coffee” statistic. such as Grubhub worth it.
attempts. and UberEats.

Challenges from Creating a Advertising Encourage the use of

COVID-19, which subscription service Starbucks apps such as
include forced that allows customers products that can Grubhub and
changes in company to have ground coffee, be bought in UberEats through
behavior. K-cups, and other grocery stores advertisements or
kinds of coffee sent to more, to deals such as “get
their doors to make on communicate that one iced coffee half
their own. customers have off when using
that option Grubhub.”
available.

Increased price in Communicate the Advertise Send coupons

comparison to reason for the price discounts and through email and
competitors. increase to customers, deals for mail to lower income
explaining that customers that areas.
Starbucks uses will reach these
premium materials. potential
customers.
Figure 3: SWOT Analysis Chart

Strengths:
● Invests in sustainable coffee products
● High quality products
● Value overall customer experience/satisfaction
● Our coffee is ethically resourced
● Strong brand image

Weaknesses:
● High pricing narrows target market
● Lack of innovation for new products
● Generalized standards for most products

Opportunities:
● Investing in international sustainable coffee communities
● Global expansion
● Opportunities for growth in business diversification

Threats:
● High competition from cheaper alternatives (Dunkin Donuts, McDonalds
McCafe)
● Global import dependency
● Competition for low-cost coffee supply chain/seller

Trends:
● Contactless pay and pick-up to accommodate for the coronavirus
pandemic
● App rewards & trendy benefits
Figure 4: - Coffee Enthusiasts and Retailers purchased Cross Tabulation

Source: Lightspeed/Mintel
Fieldwork: April 2020
View databook online: Coffee and RTD Coffee: Incl Impact of COVID-19 - US - July 2020
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