Starbucks 09 final

F. Jallat - CFVG - 2011

Trouble Brews at Starbucks

1. When Howard Schultz launched Starbucks, who was the target market, how was Starbucks positioned and what decisions about product, price, distribution and promotion supported the positioning?

2. Wall Street and Starbucks management placed great emphasis on the company’s ability to continue its impressive growth rate. What were some of the initiatives undertaken by Starbucks and how did they fuel company growth?

3. It’s clear that, in general, the company’s growth initiatives were sound in terms of generating the growth expected by Wall Street. But which of Starbuck’s initiatives, in retrospect, were sound decisions for the brand and which were inconsistent with brand positioning?

4. What role should foreign expansion play in Starbuck’s strategy?

5. How should Starbucks define its target market and positioning after its decline in 2007?

6. Evaluate the actions taken to reinvigorate Starbucks.

Assignment QuestionsAssignment Questions

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Starbucks: Creating A Third Place

Premium Coffee

Physical Environment

Service Philosophy

Consumption Patterns

tendency to linger;

ritualistic consumption;

looking to self-indulge

Target Customer

Sophisticated, affluent coffee lover, embracing the “live coffee” lifestyle

Brand Perceptions

best coffee;

classy, upscale;

a “third place”

JC Decaux – Enjeux et développement

…de la vocation de l’entreprise

Une stratégie dédiée à

plusieurs cibles

La Méfiance

Se rapprocher de l’annonceur et rendre service

La Pollution Visuelle

Fournir un mobilier esthétique et bien

entretenu

La Citoyenneté

Intégrer le mobilier urbain dans la vie contemporaine

L’Ecologie

Respecter l’environnement et la vie dans la cité

…conjoncturels et contemporains

Une réponse adéquate aux

enjeux…

+Politiques

Garantir la qualité et la propreté de l’environnement urbain

CitoyensRéduire l’hostilité vis à vis de l’affichage publicitaire

AnnonceursProposer des supports de qualité pour maximiser l’impact des messages

The Profit Impact Equation:

Profit Impact = (Margins x Volume) – Fixed Costs

Volume = Number of Customers x Amount Purchased x Frequency of Purchase

1. Margins Variable Costs

Selling Price

2. Volume Numbers of Customers

Frequency of Visits and Amount of Purchase

3. Fixed Costs Operational Costs

Marketing Costs

The Profit Impact of Starbucks Initiatives (1)The Profit Impact of Starbucks Initiatives (1)

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Margins

Variable Costs

Better bargaining position relative to competitors

Coffee beans bought in advance through forward contracts

Increased prices of beverages (e.g. 1997)

Selling Price

Value to customers


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$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

Commodity Goods Service Experience

From Coffee Beans to In-Store Sensory Experience

Margins

Variable Costs

Better bargaining position relative to competitors

Coffee beans bought in advance through forward contracts

Increased prices of beverages (e.g. 1997)

Selling Price

Value to customers

Limited Price Competition


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The Competitive Landscape when Starbucks was Introduced

Starbucks

Dunkin’ Donuts

Corner coffee shops

Volume

Numbers of Customers

Adding customers through new locations

Increasing number of customers through store clusters

Increasing number of customers through market response, policies and procedures


Creating opportunities for incremental sales

Increasing loyalty with the Starbucks experience


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LIFE TIME VALUE CALCULATIONS

Visits/month (Ex.9)

Visits/year

$ per transaction (Ex.9)

revs/year

Unsatisfied

3.9

46.8

$3.88

$182

Satisfied

4.3

51.6

$4.06

$210

Highly Satisfied

7.2

86.4

$4.42

$382

Avg life (Ex.9)

Revs/life

Unsatisfied

1.1 years

$200

Satisfied

4.4 years

$922

Highly Satisfied

8.3 years

$3170

Difference = $28/yr Difference = $172/yr

Difference = $722 Difference = $2248

Volume

Numbers of Customers

Adding customers through new locations

Increasing number of customers through store clusters

Increasing number of customers through market response, policies and procedures


Creating opportunities for incremental sales

Increasing loyalty with the Starbucks experience Managing non-peak periods (new products and services)


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Starbucks Customer Acquisition Routes

Massive store expansion

(many more coffeehouses)

Non-coffeehouse channels

(groceries, restaurants, airplanes, etc.)

Non-coffee products

(ice cream, frappucino, etc.)

Other feeder mechanisms

(gift cards, etc.)

New Customer Acquisitions

Fixed Costs

Operational Costs

Systems and processes

Employee efficiencies

Marketing Costs

Promotion

Leveraging partnerships


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Starbucks’ Balancing Act

New Customers

Established Customers

STARBUCKS

Growth Engine

“Live Coffee” Culture, Brand authenticity

The Consumption Patterns of Established Customers vs. New Customers

Established Customers New Acquisitions

Drinking Starbucks is part of a self-indulgent ritual Drinking Starbucks is part of a pragmatic routine

A tendency to linger A tendency to be in a rush

Starbucks is a sanctuary to escape from the real world

Starbucks is a place to pass through on the way to work

Starbucks is desirable for its friendliness, its social ambience

Starbucks is desirable for its convenience

Starbucks Positioning Starbucks Positioning InconsistenciesInconsistencies

Premium Coffee

Physical Environment

Service Philosophy

STARBUCKS

Different

Consumption

Patterns

Established Customers

Sophisticated, affluent coffee lover, embracing the “live coffee” lifestyle

Different

Brand

Perceptions

New Acquisitions

Less sophisticated, in a hurry, more pragmatic

Conflicting Definitions of “Service”

Established Customers… New Acquisitions…

Want a peaceful ambiance Crowd the store, create a rushed environment

Want friendly employees Make the employees grumpy

Want their customized beverages prepared just right Put pressure on the baristas to rush

Starbucks’ Service Deterioration

Too little Experienced Labor

Baristas Have No Time to Chat

Grumpy Employees

Employee Turnover

Lots of New Customer

Acquisitions

Tendency to order Hand-Crafted Drinks

+ Desire for Customization

Long Lines

Grumpy Customers

Don’t remember me or my order

New Product Complexity

Complex orders

Leave before ordering

Don’t come back (as often)

Less of a “Third Place” attachment (diminished

brand loyalty)

Order something simple rather than complex (lower ticket value)

Costs (no significant contribution to the company’s bottom line)

Implementation

Ownership and Employee Relations (sustainable ‘uncompromised quality’?)

Site Selections (without in-depth understanding of local markets?)

Product Assortment (able to play a role of potential ‘cultural arbiter’ abroad?)

Branding Issues

Public Relations Missteps (e.g. location in the Forbidden City)

Increasing Symbol of Encroaching US Capitalism and Culture?

The Role of Foreign ExpansionThe Role of Foreign Expansion

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Starbucks’ Changing Brand Image / Positioning

Old Image… New Image…

the best quality coffee available good coffee on the run

a third place place to meet and move on

a sanctuary from the real world convenient, accessible, and consistent

Starbucks New Competitive Landscape:

Towards a ‘McDonaldization’ of the Third Place Experience?

Starbucks

Dunkin’ Donuts

Corner coffee shops

Convenient, high-quality coffee in a clean, comfortable setting

An increasing number of flavored coffee alternatives

Jim Donald’s Initiatives in 2007: Try to compete with McDonald’s or Dunkin’ Donuts rather than strenghten the differentiation of Starbucks

1$ Coffee and Free Refills (further dilute Starbucks positioning?)

National TV Advertising (advertise and remain ‘cool’?)

Howard Schultz’s Initiatives: Reevaluate the company’s strategy for the long haul?

Actions Taken to Reinvigorate the CompanyActions Taken to Reinvigorate the Company

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Competitiveness of the Company and Value Creation

VALUE

COMPETITIVENESS

PRICE

PROFITABILITY

COST

Comprehensive Value Analysis

An objective component

A symbolic component

A relational component

Recreating the Starbucks Experience

Inspiring Partners

Enhancing the Baristas’ contact with customers

Emphasizing the ‘Romance’ of Coffee

Enhancing dialog with customers

New Products

Breakfast sandwiches without the smell

New, milder coffee roasts

Smoothies

HHoowwaarrdd SScchhuullttzz’s Initiatives (1)’s Initiatives (1)

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Location Trimming US expansion

Closing of under-performing stores

Increased sales in non-Starbucks outlets

Entertainment Options

Reorganizing the entertainment segment

Moving away from movies

Enhanced Marketing Communication

Sales promotion

Advertising

HHoowwaarrdd SScchhuullttzz’s Initiatives (2)’s Initiatives (2)

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Starbucks 09 final

Business

Transcript of Starbucks 09 final