Amanda Miner and Paige Sweet

MKT 302

Professor Pirouz

March 26, 2021

Starbucks Case Analysis from a 2021 Perspective

Starbucks was not always a powerhouse of a brand. In 1971, it started as a small coffee

shop in Seattle's Pike Place Market. In 2002, Starbucks had established itself as a dominant

specialty-coffee brand in North America. Since then, Starbucks has become a brand that has

turned coffee drinking into an experience. A case study written in 2003 by Youngme Moon and

John Quelch outlines strategies and issues that faced Starbucks in 2003. It is interesting to

reexamine Starbucks' issues and strategies from a 2021 perspective.

Issues that Faced Starbucks:

Understanding whether or not the customer is satisfied is fundamental not only for the

bottom line but also for a brand's reputation. Starbucks was going on its 12th consecutive year of

5% store sales growth. When sales are steadily increasing for so long, it may be hard to realize

that there are still improvements. Nonetheless, Starbucks cannot continue growing without

innovating or improving. Starbucks may be the lead in the market now, but they could quickly be

surpassed without improving on what they are already doing.

In 2002, Starbucks' founder and chairman, Howard Schultz, established Starbucks as

"recession-proof." Christine Day, the senior vice president of administration, disagreed.

According to the data, Starbucks was not leaving their customers satisfied. They were posed with

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questions like: What does excellent customer service consist of? If Starbucks changed what they

were doing to make customers more satisfied, would it impact sales and profitability?

Along with determining what makes their customers satisfied, Starbucks would also need

a strategic marketing group. Despite being a brand that is regarded as one of the most effective at

marketing, the Starbucks marketing team functioned in three different groups. One group

gathered and analyzed data, another developed new products, and the final produced the

quarterly promotional plans. This structure is not efficient. It does lead to the execution of goals,

sound decision-making, or collaboration. It is hard enough to ensure all team members are on the

same page and even harder to ensure multiple teams are on the same page.

The final issue that Starbucks faced was determining the method of measuring service

performance. Their existing system gathered data through monthly status reports and

self-reported checklists. Both of these metrics created data that could be biased because it is the

Starbucks itself reporting. Starbucks had to find a way to gather data that was not self-reported.

They launched a "Customer Snapshot" program that would send a mystery shopper into a store

and rate it based on four criteria. This program decreased wait times and increased service,

quality, and cleanliness. Although this program had positive results, it still had its flaws. Instead

of having good service and being clean just not to get caught, stores would have to create a

pattern of doing things right. In other words, stores would have to do well, not just for the sake of

getting caught.

Understanding the Market:

When Starbucks opened in 1972, they sold whole arabica coffee beans to a very niche

customer group. In 1982, Shultz joined the team and wanted to change the American coffee

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culture to align with Italian culture. In the 1990s, the company was able to grow to compete with

small coffee chains. The first coffee clientele from when the company started being public was

skeptical that this was a profitable business model.

In 2002 Starbucks business model was established as one of the best models for coffee

chains. The most profitable products started as whole beans and changed to beverages.

Additionally, they expanded from in-store products to having branded products in hotels and

airplanes. By expanding the chain of products, they have expanded and can now reach a wider

customer group.

Many of the customers have found themselves aligned with the Starbucks mantra of "live

coffee." Many customers do not go to Starbucks for just coffee, but they also come for the

atmosphere and the hedonic values of how coffee makes one feel, an example is the atmosphere

and how that people feel that Starbucks is a place that they can enjoy themselves. Starbucks has

focused on these things so that they can grow their company and so that they become the premier

brand of coffee. Starbucks is much more preferable for the older traditional consumers because it

is available on the run, accessible, and consistent. Starbucks had seen a rise of younger

consumers due to a mix of new products and brand awareness. The company grew awareness by

expanding the company to more urban areas and have stores on nearly every street corner.

Competitor Analysis and Segmentation:

Starbucks, when competing against other independent coffee chains, which had

traditionally been the direct competitors, they now had things that made them fill a completely

different niche. When looking at the company, they have grown to be a corporate competitor, but

the products they were sold are similar to the products sold at the independent coffee realtors.

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Many of the assumptions that consumers have about the Starbucks brand are that they focus on

growing the company by building more stores and growth rather than making each of their

consumers feel unique. This is a problem for the company because, as a part of their mission

statement, they want the atmosphere of coffee to be unique and welcoming.

Many of the competitors who were entering the market tried to differentiate themselves

from Starbucks to fill a different niche in the market. Starbucks continued to grow because the

consumers felt the company delivered highly personalized service. When Starbucks had a strong

increase of growth, year after year it allowed the company to compete against the biggest

national chain, Dunkin’ Donuts. Starbucks has worked to have the atmosphere and the feeling of

an independent coffee shop while having the comfort and familiarity of a national chain.

Industry Analysis:

Starbucks is part of the retail coffee market. It serves consumers, in the home, in food

service, and in grocery stores. The market also consists of both in-home and out-of-home coffee

consumption. It is important to note that the retail coffee market is highly fragmented. It consists

of specialty coffeehouses, restaurants, delis, kiosks, street carts, grocery and convenience stores,

and vending machines. In 2000, the retail coffee market was worth $21 billion, and it is

estimated to grow by a half-billion each year.

Despite being part of such a large market, Starbucks has found its niche; the specialty

coffee category. This category consists of espresso, cappuccino, latte, café mocha,

iced/ice-blended coffee, gourmet coffee, and blended coffee. When compared to traditional

coffee, the specialty coffee market share has steadily increased every year.

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 Starbucks has a unique position in the market; it serves its customers both in the home

and out of the home. The in-home specialty coffee is estimated to be worth $3.2 billion, and

Starbucks does 4% of that business. While the at-home market share seems massive, the

out-of-home market share is presently growing. An estimated one-third of all U.S. coffee

consumption takes place outside of the home. This consumption takes place in coffee shops,

offices, restaurants. In 2002, the market share of coffee shops alone was estimated to be a $5

billion business. Starbucks owned an estimated 5% share.

Recommendations:

Starbucks has issues that should be addressed so that the company can grow and be

successful. Different strategies can be implemented to help Starbucks to enhance its premier

coffee experience.

An example of something that they can do to grow their business is to evolve the

marketing strategy. The company has incorporated marketing into every aspect, but they do not

have one group of people working towards the overall strategy. If Starbucks creates a strategic

marketing team, they will have one consistent vision for the whole company. The company has

three teams that focus on marketing, and they have a research department that collected data for

the company, yet the company was not great at using the data to make decisions.

Along with establishing a strategic marketing group, Starbucks should implement a

customer rewards program. A customer rewards program would create a relationship with the

customer that would lead to increased customer loyalty. Starbucks could make their customers

feel valued and welcome with a rewards program. This rewards program could be in the form of

an application. According to a survey in 2002, 19% of customers said they would feel more

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valued if they received a free cup of coffee after a certain number of visits. Additionally, 4%

would feel more valued if they were remembered by name or by order. An incentive program

would help the servers get to know their customers better and, therefore, would make them feel

more valued as a customer.

Finally, when training their employees, Starbucks should focus on the attributes that lead

to customer satisfaction. Wait time, service, quality, and cleanliness are all things that Starbucks

currently focuses on. According to a survey done in 2002, the top attributes that lead to customer

satisfaction are a clean store, convenient location, being valued as a customer, and being served

by a friendly staff. In terms of customer satisfaction which is an issue that faced Starbucks, wait

time and quality of coffee may not be as crucial as it was once thought. Wait time and coffee

quality are still important to strive for. However, to increase customer satisfaction, Starbucks

should focus on having a clean store, convenient location, valuing their customer, and

maintaining a friendly staff.