This action might not be possible to undo. Are you sure you want to continue?
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
Nevertheless." ³Creating a Starbucks Community´ ± The Starbucks marketing strategy has even expanded to create a community around their brand. managing editor of PowerHomeBiz. 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. the Starbucks¶ marketing strategy has led the company to its current success. This technique was cleverly pointed out by Webolutions: The Strategic Marketing Agency in their ³Starbucks Marketing Observations´ article. it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience. Read his article and the discussion it has created to find out what this might mean for the company. On their website. From entrance to the store to the very last drop of their coffees. But Adelino de Almeida wrote a blog article named. 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. They¶ve added different flavors to their coffee. the Starbucks Corporation has greatly increased sales just by using this strategy. and made their own. 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. has written an excellent article that outlines what small businesses can learn from Starbucks. ³Starbucks¶ New Marketing Strategy: Advertising Like Everyone Else´. The definition of viral marketing speaks to this new word of mouth that Starbucks has run with. Over the years. and the company strives to ³personally´ join in the discussions. Isabel Isidro. 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. For years. ³Learning from Starbucks: 10 Lessons for Small Businesses´. "Why is customer service important. and even became one of the firsts to offer internet capability in their stores.they have realized that this is one of the strongest concepts attached to the company. . where he discusses how the Starbucks marketing strategy may try to finally follow everyone else¶s marketing. y ³Customer Satisfaction´ ± Customer satisfaction is a very important issue with Starbucks. the Starbucks Coffee Company has been known to think up creative and innovative ideas to add to their products or services. Starbucks Coffee Company knows the answer to the question. individuals are encouraged to express their experiences with Starbucks history. this has been uniquely Starbucks. and it has played a huge part in making Starbucks Coffee Company a success. to which customers have been strongly attracted. y ³Innovation´ ± Through the years. more food on their menu.com. The article is entitled. Without a doubt.
Only a select few were in suburban malls. Starting in 1991. Once stores blanketed the hub.500 square feet and were located in office buildings. Starbucks created zone vice presidents to direct the development of each region and to implant the Starbucks culture in the newly opened stores. This was partly due to the growing reputation of the Starbucks brand. far more than the average of $427. Store Planning. high-visibility locations.500 sites it had opened. and Construction Schultz formed a headquarters group to create a store development process based on a six-month opening schedule. 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. then additional stores were opened in smaller. 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. Starbucks' store launches grew steadily more successful. The company also experimented with drive-through windows in locations where speed and convenience were important to customers and with kiosks in supermarkets. some imitating the Starbucks model. rather.000 in 1990. Starbucks' success helped specialty coffee products begin to catch on across the United States. Starbucks accelerated the expansion of its store network (see Exhibit 1). downtown and suburban retail centers. airport terminals. university campus areas. no two stores ended up being exactly alike. In 1995. Real Estate. Grand Cafés with fireplaces. To oversee the expansion process. In 1994. Store Design. The company's site location track record was so good that as of 1997 it had closed only 2 of the 1. Starbucks began to experiment with a broader range of store formats. Most stores ranged in size from 1.000 by 1999. Competitors. each space was leased in an existing structure and thus each store differed in size and shape. With the capital afforded it by being a public company. All of the new zone vice presidents Starbucks recruited came with extensive operating and marketing experience in chain-store retailing. 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. couches. or busy neighborhood shopping areas convenient to pedestrian foot traffic. The Specialty Coffee Association of America predicted that the number of coffee cafés in the United States would rise from 500 in 1992 to 10.000 in revenue in their first year. Starbucks had notable success in identifying top retailing sites for its stores. Starbucks' reputation reached new markets even before stores opened. Moreover. For each targeted region. building lobbies. began to spring up in many locations. and other public places. surrounding "spoke" areas in the region. and lots of ambience were created to serve as flagship stores in high-traffic. newspapers. 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.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).000 to 1. leather chairs. . In more and more instances. 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. Starbucks selected a large city to serve as a "hub". new stores generated an average of $700. 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. existing stores continued to post year-toyear gains in sales (see Exhibit 1). While similar materials and furnishings were used to keep the look consistent and expenses reasonable.
colors. roasting. then delivered just in time to the store site either from company warehouses or the vendor. and formats that allowed sales in locations Starbucks could otherwise not consider. And the whole store layout was developed on a computer. Product Line Starbucks stores offered a choice of regular or decaffeinated coffee beverages. developed standard contracts and fixed fees for certain items. a comforting refuge that provided a sense of community. a place to think and imagine. logos. and the doppio. Modular designs for display cases were developed. For a number of years. and looked at how Starbucks stores had already evolved in terms of design. sodas. 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. The company also introduced two ministore formats using the same styles and finishes: the brevebar. a self-contained 8-square-foot space that could be moved from spot to spot. and mood.000 in 1995. with software that allowed the costs to be estimated as the design evolved.000 per store on average). Starbucks avoided debt and financed new stores entirely with equity capital. Starbucks began opening new stores based on one of the four templates. a third place for people to congregate beyond work or the home. teas. The team came up with four store designs²one for each of the four stages of coffee making: growing. and aroma²each with its own color combinations. In late 1996. another promising new product being tested for possible rollout in . But as the company's profitability improved and its balance sheet strengthened. carbohydrates. In addition.To better reduce average store-opening costs. lower store-opening costs (about $315. Starbucks could vary the materials and details to adapt to different store sizes and settings (downtown buildings." and a broad selection of Italianstyle espresso drinks. and Exhibit 8 present Starbucks' income statement and balance sheet data for recent years. the company centralized buying. and vitamins²was tested in several markets during 1997. All this cut store-opening costs significantly and reduced store development time from 24 to 18 weeks. Within each of the four basic store templates. a store-within-a-store for supermarkets or office-building lobbies. 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 place that welcomed people and rewarded them for coming. neighborhood shopping areas). Exhibit 6. Management believed the project accomplished three objectives: better store designs. studied coffee-growing and coffee-making techniques. juices. Power Frappuccino²a version of the company's popular Frappuccino blended beverage." The team researched the art and literature of coffee throughout the ages. college campuses. packed with protein. netting $161 million from the sale of convertible debentures for use in its capital construction program. and coffeerelated hardware and equipment. 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. 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. Schultz's opposition to debt as a legitimate financing vehicle softened. brewing. and component materials. In 1997. a spot where people could gather and talk over a great cup of coffee. which had reached an undesirably high $350. lighting scheme. so that standard items could be ordered in volume from vendors at 20 to 30 percent discounts. The retail operations group outlined exactly the minimum amount of equipment each core store needed. In 1996 the company completed its second debt offering. Exhibit 7. and consolidated work under those contractors who displayed good cost-control practices. and a layout that could accommodate both fast service and quiet moments. a special "coffee of the day. a selection of fresh pastries and other food items.
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. The company's retail sales mix was roughly 61 percent coffee beverages. created from the Capitol Records library. the colors. and milk. 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. Smaller stores and kiosks typically sold a full line of coffee beverages. coffee-making equipment. 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. and other accessories. The thesis was "Everything matters. In recent years. 16 percent food items. to make sure everything signaled "best of class" and that it reflected the personality of the community and the neighborhood. the company began selling special jazz and blues CDs. and 8 percent coffee-related products and equipment. storage containers. . proved a significant addition to the company's product line. Starbucks also sold Oprah's Book Club selections. Some of the CDs were specifically collections designed to tie in with new blends of coffee that the company was promoting. a combination of black tea. depending on the size and location of each outlet. the profits of which were donated to a literacy fund supported by the Starbucks Foundation. 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 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. Schultz and other senior executives drummed in the importance of always being open to re-inventing the Starbucks experience. pictures of Paul Revere for Boston and the Statue of Liberty for New York). coffee mugs. Prepared foods were kept covered so customers would smell coffee only. stories. 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. gourmet food items. and new experiences for customers that belonged exclusively to Starbucks. Larger stores carried a greater variety of whole coffee beans. new products. coffee grinders. that signaled the company's passion for coffee. Each detail was scrutinized to enhance the mood and ambience of the store. The Starbucks CDs. stimulating environment that evoked the romance of coffee. The company was constantly engaged in efforts to develop new ideas. a limited selection of whole-bean coffees. the banners. honey. and surprise. teas. exotic spices. 15 percent whole-bean coffees. filters. and the aromas all blended to create a consistent. and a few hardware items. Colorful banners and posters were used to keep the look of Starbucks stores fresh and in keeping with seasons and holidays. 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. the music. The product mix in each store varied.1998 was Chai Tea Lattè." To try to keep the coffee aromas in the stores pure. inviting. the artwork. Starbucks banned smoking and asked employees to refrain from wearing perfumes or colognes.
drink preparation. practicing making the different drinks. involving such activities as grinding the beans. information systems.to 23-second) shots of espresso. plus a four-hour workshop called "Brewing the Perfect Cup. Each time Starbucks opened stores in a new market. and culture. opening the bag properly. As the company grew. steaming milk. Building a Top Management Team Schultz continued to strengthen Starbucks' top management team. explain the Italian drink names to customers. make eye contact with customers. Starbucks' vice president for human resources used some simple guidelines in screening candidates for new positions: "We want passionate people who love coffee . . Employee Training Accommodating fast growth also meant putting in systems to recruit. and take personal responsibility for the cleanliness of the coffee bins. Beverage preparation occupied even more training time. hire. principles. additional executives were added in marketing. And there were rules to be memorized: milk must be steamed to at least 150 degrees Fahrenheit but never more than 170 degrees. coffee knowledge (four hours). Dave Olsen.To make sure that Starbucks' stores measured up to standards. 85 percent had some education beyond high school. capturing the beans without spilling them on the floor. weighing beans. three guidelines for on-the-job interpersonal relations: (1) maintain and enhance self-esteem. (2) listen and acknowledge. 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. and affixing labels on the package exactly one-half inch over the Starbucks logo. and (3) ask for help." Baristas were trained in using the cash register. practices and procedures as set forth in the company's operating manual. We want people who enjoy what they're doing and for whom work is an extension of themselves. and learning how to make drinks to customer specifications. The four key executives during the company's formative years²Howard Schultz. specialty sales. human resources. and retail skills. One of their major objectives was to ingrain the company's values. customers who order one pound of beans must be given exactly that²not . Howard Behar. Eight to 10 weeks before opening. and culture and to impart their knowledge about coffee and their passion about Starbucks. Management trainees attended classes for 8 to 12 weeks. the company placed ads to hire baristas and begin their training. every espresso shot not pulled within 23 seconds must be tossed. who had an MBA from Harvard and 13 years' experience at Deloitte and Touche. finance.995 pounds or 1. and information systems. and train baristas and store managers. There were sessions on how to clean the milk wand on the espresso machine. and the basics of managing people. always compensate dissatisfied customers with a Starbucks coupon that entitles them to a free drink. never let coffee sit in the pot more than 20 minutes. Everyone was drilled in the Star Skills. principles. was brought in as chief financial officer in 1990 and then was promoted to president and chief operating officer in 1994.1 pounds. learning to pull perfect (18. which reflects our community."16 Some 80 percent of Starbucks employees were white. hiring people with extensive experience in managing and expanding retail chains. Starbucks' trainers were all store managers and district managers with on-site experience. It sent a Star team of experienced managers and baristas from existing stores to the area to lead the store-opening . the company used "mystery shoppers" who posed as customers and rated each location on a number of criteria. sell an $875 home espresso machine. We're looking for a diverse workforce. holding the bag in a way that keeps air from being trapped inside. and Orin Smith²contributed the most to defining and shaping the company's values. Their training went much deeper. store supervision. it undertook a major recruiting effort. covering not only the information imparted to baristas but also the details of store operations. customer service (four hours). The training included classes on coffee history. . Orin Smith. and the average age was 26. memorizing the recipes of all the different drinks. 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.
Product Supply Dave Olsen. when he wasn't traveling in search of coffee supplies.000-square-foot plant was opened in Kent. its output mainly was being used to supply stores west of the Mississippi. Pennsylvania. Indonesia. just south of Seattle. Sulawesi. On a daily basis. Highly trained and experienced roasting personnel monitored the process. Kenya. tasting sample cups. that could be expanded to 1 million square feet to supply stores east of the Mississippi. a . Christine Nagy.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. The company's smallest plant. 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. Baristas became familiar with regular customers. Costa Rica. Roasting Coffee Beans Starbucks considered the roasting of its coffee beans to be an art form. and political conditions in the growing countries. When satisfactory fixed-price commitments were not available. Coffee prices were subject to considerable volatility due to weather. He traveled regularly to coffeeproducing countries²Colombia. Java²building relationships with growers and exporters. Antigua. using both smell and hearing. the company began construction of an $11 million roasting facility in York. built in 1989 and originally thought to be big enough to supply the company's needs for the next 10 years. personally spearheaded Starbucks' efforts to secure top-notch coffee beans to supply the company's growing needs. Dave Olsen checked coffee samples from the roasting process. coming in daily. 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. Guatemala. spending perhaps $50 monthly. depending on supply and demand at the time of purchase. and recording his observations in a logbook. 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. to judge when the beans were perfectly done²coffee beans make a popping sound when ready. the company purchased coffee futures contracts to provide price protection. Starbucks had three roasting plants. learning their names and their favorite drinks. Stores did about half of their business by 11 am. Reporting to Olsen was a group that created and tested new blends of beans from different sources. 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. Ethiopia. Starbucks' senior vice president for coffee. Papua New Guinea. economic. Nonetheless. New Guinea. sniffing the aromas. Sumatra. Yemen. Bonding with Customers About 5 million customers per week were patronizing Starbucks stores in early 1998. checking on agricultural conditions and crop yields. In 1998. Loyal customers patronized a Starbucks store 15 to 20 times a month. was dedicated to supplying the company's mail-order business. a 305. Some customers were Starbucks fanatics. Washington. In 1994. Each batch was roasted in a powerful gas oven for 12 to 15 minutes. In 1993. 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. and searching out varieties and sources that would meet Starbucks' exacting standards of quality and flavor.
"They just [said. he thought it was time to look for ways to move Starbucks out into more mainstream markets. Biscotti Bliss. In 1997.field director for Oracle Corporation in Palo Alto. was a failure. a stout beer with a shot of Starbucks coffee extract in it. California. the partnership invested in three bottling facilities to make Frappuccino. In 1997. Additional new ice cream products were planned for 1998. by July. repeat sales proved disappointing. with plans to begin wider distribution. the joint venture product research team came up with a shelf-stable version of Frappuccino that tasted quite good. Joint Ventures In 1994. Mazagran. In September 1996. 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. JavaChip. along with two flavors of ice cream bars. it's a daily necessity or I start getting withdrawals. including cold coffee drinks in a bottle or can. told a Wall Street Journal reporter. Despite the clash of cultures and the different motivations of the two partners. 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. The company also had an electronic store on the Internet. two new low-fat flavors were added to complement the original six flavors. "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. PepsiCo and Starbucks entered into a joint venture arrangement to create new coffee-related products for mass distribution through Pepsi channels. and select coffee-making equipment and accessories.marketed in southern California. Starbucks coffee-flavored ice cream was the top-selling superpremium brand in the coffee segment. the response was overwhelming. at a meeting to discuss the future of Mazagran. "For me. hit supermarket shelves in April 1996. 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.000 mail-order customers were signed up to receive monthly deliveries of Starbucks coffee as of late 1997. .2 million. While people were willing to try it the first time. After months of experimentation. Vanilla MochaChip. when the baristas saw her come through the door. It was tested in West Coast supermarkets in the summer of 1996. when test. roughly 2 percent of total revenues. The new line. The joint venture's first new product. the partnership held together because of the good working relationship that evolved between Howard Schultz and Pepsi's senior executives. Sales were projected to reach $500 million in 1998. Howard Schultz saw this as a major paradigm shift with the potential to cause Starbucks business to evolve in heretofore unimaginable directions. some consumers liked it and some hated it. and Caffe Almond Fudge. where there was an $8 billion market for ready-to-drink coffee-based beverages.'" Mail Order Sales Starbucks published a mail-order catalog that was distributed six times a year and that offered coffee. Nonetheless. almost 50. Also in 1995. after months of meetings and experimentation.] 'We need a Christine here. with sales running 10 times over projections and 70 percent repeat business. Starbucks worked with Seattle's Redhook Ale Brewery to create Double Black Stout. she told the reporter. Pepsi executives were enthusiastic. A special business gift-giving catalog was mailed to business accounts during the 1997 Christmas holiday season. sales of this division were about $21. partly because the Starbucks name was on the label. Then Schultz. Cold coffee products had generally met with very poor market reception."17 Her standard order was a custom drink: a decaf grande nonfat no-whip no-foam extra-cocoa mocha. suggested. Starbucks management believed that the market for Frappuccino would ultimately exceed $1 billion. featuring such flavors as Dark Roast Espresso Swirl. and it had proved to be a big hot-weather seller. candies and pastries. Sales of Frappuccino reached $125 million in 1997 and achieved national supermarket penetration of 80 percent. a lightly flavored carbonated coffee drink. except in Japan. all were well received in the marketplace.
and select retailers. and in Costco warehouse club stores. and all managers and employees who worked in these stores received the same training given to Starbucks managers and store employees. . Going into 1998. hotels. The potential of locating stores in Europe and Latin America was being explored. the specialty sales division generated sales of $117.2 percent of total revenues. universities. Starbucks was a joint venture partner in the stores outside the continental Untied States. 6 in Singapore. Starbucks began selling its coffees in Chapters. 7 in Hawaii. SCI had 12 retail stores in Tokyo.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.5 million business offices. A 1997 agreement with U. International Expansion In markets outside the continental United States (including Hawaii). Agreements had been signed with licensees to begin opening stores in Taiwan and Korea in 1998. In some cases. 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. The licensee in Taiwan foresaw a potential of 200 stores in that country alone. The company had an agreement with Marriott Host International that allowed Host to operate Starbucks retail stores in airport locations. Starbucks Coffee International (SCI). country clubs. and Starbucks became the coffee supplier to the 20 million passengers flying United each year.S. Starbucks made arrangements to supply an exclusive coffee blend to Nordstrom's for sale only in Nordstrom stores. to orchestrate overseas expansion and begin to build the Starbucks brand name globally via licensees. hospitals. Office Products gave Starbucks the opportunity to provide its coffee to workers in 1. 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. to operate coffee bars in Barnes & Noble bookstores. All licensed stores had to follow Starbucks' detailed operating procedures. In fiscal 1997. Most recently. a regional carrier based in Seattle. and 1 in the Philippines. United Airlines and Starbucks came up with a way to handle quality control on some 500-plus planes with varying equipment. Starbucks also had a specialty sales group that provided its coffee products to restaurants. In addition. Starbucks entered into negotiations with United Airlines to have Starbucks coffee served on all United flights. One of the early users of Starbucks coffee was Horizon Airlines. equal to 12. After seven months of negotiation and discussion over coffee-making procedures. The company and its licensees had plans to open as many as 40 stores in the Pacific Rim by the end of September 1998. In 1995. airlines.6 million. Starbucks created a new subsidiary. and to offer coffee service at some Wells Fargo Bank locations in California. and it had an agreement with Aramark Food and Services to put Starbucks stores on university campuses and other locations operated by Aramark. a Toronto book retailer with sites throughout Canada. business offices. Starbucks received a license fee and a royalty on sales at these locations and supplied the coffee for resale in the licensed locations. Howard Behar was president of SCI.
There were also a number of specialty coffee companies that sold whole-bean coffees in supermarkets. Coffee People. lattè.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. books. In addition. small-scale coffee growers in Guatemala increase their income by improving the quality of their crops and their market access. CARE samplers of coffee and CARE-related mugs. 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. consisting of store managers from all regions. In addition. Starbucks' success was prompting a number of ambitious rivals to scale up their expansion plans. a portion of the price on all sales was donated to CARE. and Caribou Coffee. Procter & Gamble (the owner of the Folger's brand). Starbucks had an Environmental Committee that looked for ways to reduce. No other rival had as many as 250 stores.C. There was also a Green Team. education. Second Cup.Corporate Responsibility Howard Schultz's effort to "build a company with soul" included a broad-based program of corporate responsibility. and Nestlé. On the Fourth of July weekend in 1997. D. Java Centrale. and proceeds from store-opening benefits. Starbucks was the largest corporate contributor in North America to CARE. Starbucks stores also featured CARE in promotions and had organized concerts with Kenny G and Mary Chapin Carpenter to benefit CARE. Starbucks stores participated regularly in local charitable projects of one kind or another.000 went to fund a new processing facility and set up a loan program for a producer cooperative. reuse. a Canadian franchisor with stores primarily in Canada. the company's first-year grant of $75. Employees were encouraged to recommend and apply for grants from the Starbucks Foundation to benefit local community literacy organizations. was less than one-third its size. In 1997. orchestrated mainly through the Starbucks Foundation. Starbucks began making annual corporate contributions to CARE when it became profitable in 1991. The company also faced competition from nationwide coffee manufacturers such as Kraft General Foods (the parent of Maxwell House). Because many consumers were accustomed to purchasing their coffee supplies at supermarkets.000 specialty coffee outlets in the United States. three Starbucks employees were murdered in the company's store in the Georgetown area of Washington. numerous restaurants were picking up on the growing popularity of specialty coffees and had installed machines to serve espresso. The company's annual report listed nearly 100 community organizations which Starbucks and its employees had supported in 1997 alone. and humanitarian aid programs in most of the Third World countries where Starbucks purchased its coffee supplies. which distributed their coffees through supermarkets. Coffee Station. . and T-shirts were offered in the company's mail-order catalog. a franchisor of specialty coffees. cappuccino. there were an estimated 8. backpacks. with stores located primarily in malls throughout the United States. Competitors Going into 1997. as well as contribute to local community environmental efforts. most notably New World Coffee. and other coffee drinks to their customers. donating drinks. maybe more. Observers believed there was room in the category for two or three national players. The company had donated almost $200. set up in 1997.000 to literacy improvement efforts. using the profits from store sales of Oprah's Book Club selections. In 1995 Starbucks began a program to improve the conditions of workers in coffee-growing countries. it was easy for them to substitute these products for Starbucks. establishing a code of conduct for its growers and providing financial assistance for agricultural improvement projects. Starbucks offered a $100. Second Cup owned Gloria Jeans. and recycle waste. Starbucks formed an alliance with Appropriate Technology International to help poor. a worldwide relief and development organization that sponsored health. but there were at least 20 small local and regional chains that aspired to grow into rivals of Starbucks. Starbucks' closest competitor.
com/business/management/thompson/11e/case/starbucks-2. Its longer range objective was to become the most recognized and respected brand of coffee in the world. The company started rolling out supermarket sales of its coffees in 10 major metropolitan areas in the spring of 1998.19 The single-serve bottled drinks were priced around $2. and the price per pound paralleled the prices in Starbucks' retail stores. Schultz believed that the company had to challenge the status quo. elegant packaging. be innovative. Under his guidance. The company's efforts to greatly increase its sphere of strategic interest via its joint ventures with Pepsi and Dreyer's. take risks. 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. venturing into ice cream with Dreyer's and into Frappuccino with Pepsi. Also on the new-product front was an apple cider made exclusively for Starbucks by Nantucket Nectars. as senior vice president of grocery operations to direct Starbucks' supermarket sales effort. 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. In November 1997. 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. prominent positions in grocery aisles. Starbucks coffee sold in supermarkets featured distinctive.000 stores in operation by the year 2000. what it did. 2010 . however.html October 11.mhhe. Starbucks quietly test-marketed four 20 percent fruit-juice beverages in one market. 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. its move to sell coffee in supermarkets. In order to sustain the company's growth and make Starbucks a strong global brand. Product freshness was guaranteed by Starbucks' FlavorLock packaging. and the same premium quality as that sold in its own stores. engaged in a growing effort to extend the Starbucks brand and penetrate new markets. Two-thirds of all coffee was sold in supermarkets. Jim Ailing. Starbucks hired Nestlé veteran. It was the only company with anything close to national market coverage. the company was selling chocolate bars and other candy. partnering with licensees. Plus. Starbucks had recently begun selling its coffees in supermarkets. and where it was headed.Building the Starbucks Brand So far. The company's most immediate objective was to have 2. And. and at least one contained caffeine. rewarded. The company was also said to be testing "light roast" coffee blends for those customers who found its current offerings too strong. and developing specialty and mail-order sales. and had plans to bring candy production in-house if sales went well enough. Starbucks had spent very little money on advertising. The company was. In addition to expanding internationally. and alter its vision of who it was. preferring instead to build the brand cup by cup with customers and depend on word-of-mouth and the appeal of its storefronts. 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. in the summer of 1997. Supermarket sales were test-marketed in over 500 stores in Chicago in the summer of 1997.
climate zones. 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. and represent about eight percent of all 6. compared with 900 for all of last year. The report also provides an estimate of the incremental first costs and simple payback years. reports The Washington Post.-ft. Starbucks continues to move ahead with plans to make the restaurant chain¶s stores environmentally friendly. About 1.Starbucks Moves Ahead with µGreen¶ Strategy despite Cost As the U. The prototype 2. Starbucks will build or renovate 10 test stores around the world as part of the test program. reports The Washington Post. the restaurant chain expects to achieve a full return on investment for these projects in a few years.´ However. ³Technical Support Document: 50% Energy Savings for Quick-Service Restaurants´ (PDF). The guide. which were divided into 16 representative climate cities. Starbucks would not reveal to the newspaper how much the green retrofits cost other than noting ³it has been pricey.S. 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. 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. Department of Energy (DOE) releases an energy-savings guide to help quick-service restaurants reduce their energy use by 50 percent. climate zones. Starbucks is part of a growing trend by retailers to reduce their impact on the environment despite the initial cost premium for their efforts. Green Buildings Council¶s Leadership in Energy and Environmental Design (LEED) certification program through September. building model was analyzed across all U. PNNL used EnergyPlus. 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. Some of the energy-efficiency measures include the following: ±Ultra-efficient cooking appliances that reduced kitchen exhaust air flow .S. The 50 percent goal covers the reduction of site energy use in all eight U. an energy simulation program.500-sq. To help restaurants reduce their energy consumption.300 retail locations have enrolled in the U.000 buildings that are LEED certified.S.S. according to The Washington Post. to determine the energy savings provided by the energy-efficiency measures.
This strategy makes sense: the struggling economy dictates discounts and McDonald s brewed coffees and lattes are stealing price sensitive customers. for instance) and the remaining 2% from a decrease in average value per transaction. The DOE has published guides in several categories for commercial buildings. In Starbucks recent quarterly earnings release (third quarter ending June 28). the American Institute of Architects. were down by 6%. as well as offering promotions on iced drinks. Broken down. for the most part. http://www. In other words.com/2010/10/11/starbucks-moves-ahead-with-green-strategydespite-cost/ New pricing strategy of starbuks Starbucks recently announced a revamped pricing structure.S. 4% of this decline was due to fewer transactions (customers defecting to McDonald s. in September. 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. A spokesperson claims that this is the first time in Starbucks history that prices have been reduced. and building designers how to achieve above-code energy performance for buildings using existing technologies available today. 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.environmentalleader.±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. the coffee purveyor is also redesigning its menu to feature lower priced brewed coffees.S. Starbucks is also increasing the prices of its higher-end more complex drinks including Frappuccinos and caramel macchiatos. which are ³how-to´ guides that show architects. There is some justification for this price increase. the Illuminating Engineering Society. and the U. The American Society of Heating. engineers. For . Paradoxically. According to an article written by Claire Cain Miller in the New York Times. Prices for many of its popular (read: lowerend) products such as brewed coffees and lattes are headed downwards. its specialty drinks are in the cash cow phase of the Boston Consulting Group s Growth Share Matrix. For example. In some cases. cool roofs. Green Building Council to develop and publish the free design guides. Refrigerating and Air-Conditioning Engineers (ASHRAE) works in collaboration with DOE. prices are rising by 30 cents (8%). customers who continued to patronize Starbucks spent the same amount on each visit. 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). Thus. same store sales in the U.
when Starbucks introduces new products at higher prices. You can see this in the design of its coffee shops. they are more likely to pay a higher cost.com/pricing-strategy-blog/starbucks-new-pricing-strategy-beginning. Quality is key.products in this cash cow phase. the general strategy is to take the money and run. More than just a high-priced coffee shop. All successful products have their heyday of strong growth and then eventually reach a point where demand remains constant or decreases. As an individual company. A company s pricing strategy can be a good indicator of its future growth potential.pricingforprofit. Starbucks offers a combination of quality. http://www. Thus. 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. For example. After all.htm Starbucks Pricing Strategy by Renee O'Farrell. the music played there and the types of products it sells.5 and Wal-Mart s is 15). GE s p/e ratio is 10. Quality Starbucks sets its prices on a simple idea: high value at moderate cost. The Value of Authority Starbucks' pricing strategy has a lot to do with how it positions itself as an authority on coffee. Differentiation Starbucks also spends a lot of time and energy differentiating itself from the competition. . it controls several times more market share than any of its competitors. 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. authority and relative value. 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. consumers are willing to pay extra without even having tried the products because they associate the Starbucks name with high quality. allowing the company to charge premium prices. often times being the first to introduce the newest advancements to its customers. Demand Media Starbucks is the leader of the coffee market. remember when CB radios and radar detectors were the rage? When a product reaches the cash cow stage of its lifecycle. Starbucks makes sure to keep current on the latest technology. Starbucks was one of the first companies to adopt location-based promotions and mobile payments. the general recommendation is to reduce investments and simply harvest profits from current demand. such as coffeebrewing equipment and jazz CDs.
like its drip coffees or its Seattle¶s Best line.com/starbucks-pricing-strategy-10544.Relative Value Starbucks also uses relative pricing.html . http://smallbusiness. by offering higher-priced items along side lower-cost alternatives. along side lower-cost items. like its espresso drinks or its Starbucks brand whole-bean coffees sold in grocery stores. Starbucks is justifying the higher price through comparison. It offers premium items. While the risk exists that more customers will choose the lower-priced items.chron.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.