Starbucks Digital Music Case Analysis
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Transcript of Starbucks Digital Music Case Analysis
STARBUCKSENTERTAINMENTVenkat Rao, Melanie Stambaugh, Jessica Hendrawidjaja, Kyle Bartlow
OBJECTIVE
Position the Starbucks Entertainment in the global market
NPV = $3.663 Million
GOAL
OUTLINE
Situation
Analysis
Action
Financials
Conclusion
• Slowed US Sales• Cheaper competitors• Coffee focus
SITUATION – Starbucks Company
• Leader of Coffee• Leader of Culture• Strong Brand
Situation Analysis Action Financials ConclusionSTARBUCKS
COFFEE
Strength
Weakness
Opportunities
Threat
Over saturation Interest from global market
STARBUCKSCOFFEE
Strength
Weakness
Opportunities
Threat
SITUATION – Starbucks Entertainment
• Successful in US• Have relationship with artists• Large and established distribution
network through retail stores
• Localization of music preferences abroad
• Infrastructure for downloads• Buying song via iTunes doesn’t ensure
entire album purchase
• 3 types of products-global appeal, locally relevant, local artists
• Digital Music – less inventory cost, more retail space
• More time in the stores-customer experience, higher coffee sales
• Technology “cheapens” music• Negotiations of royalties• Competitors
Situation Analysis Action Financials Conclusion
Discounted of prices of mainstream artists
STARBUCKSCOFFEE
POTENTIAL STRATEGIES
Situation Analysis Action Financials Conclusion
COMPREHENSIVEMusic Strategy
MODERATEMusic Strategy
MINIMALMusic Strategy
STARBUCKSCOFFEE
POTENTIAL STRATEGIES
Situation Analysis Action Financials Conclusion
COMPREHENSIVEMusic Strategy
Music Immersion
Live Music Performances• Local artists from HearMusic
Promotion and Connection
STARBUCKSCOFFEE
POTENTIAL STRATEGIES
Situation Analysis Action Financials Conclusion
MINIMALMusic Strategy
Maintain focus on CDs• Focus on Coffee
Reduce visual impact of music
iTunes download only
STARBUCKSCOFFEE
POTENTIAL STRATEGIES
Situation Analysis Action Financials Conclusion
MODERATEMusic StrategyEnhance Starbucks
Locations• Interactive Music Display• Interactive “like/dislike”
option to personalize music preferences
Starbucks Music on the MoveMusic addition to MyStarbucks Phone Application
STARBUCKSCOFFEE
POTENTIAL STRATEGIES
Situation Analysis Action Financials Conclusion
Comprehensive Moderate Minimal
Sustained Focus on Coffee
Revenue Potential
Feasibility
Increase Customer FrequencyAlignment with Core Values
STARBUCKSCOFFEE
MODERATE STRATEGY
Situation Analysis Action Financials Conclusion
Interactive Display• Shows “Now Playing”• Shows “Recently Played”• “Like” & “Dislike” Buttons• QR picture to facilitate
mobile purchasing• Purchase option via Phone
App
STARBUCKSCOFFEE
MODERATE STRATEGY
Situation Analysis Action Financials Conclusion
Starbucks Wi-Fi• Music link on Starbucks
Homepage• Shows “Now Playing”• “Like” & “Dislike” option• Artist Recommendations• Social Media Connection
STARBUCKSCOFFEE
MODERATE STRATEGY
Situation Analysis Action Financials Conclusion
Phone Application• Addition to
MyStarbucks App• Ability to Purchase
Music• Listen to previously
downloaded Starbucks artists
Technology30%
Music35%
Starbucks Culture 25%
Coffee Consumption 10%
COUNTRY ANALYSIS
Situation Analysis Action Financials ConclusionSTARBUCKS
COFFEE
SalesPiracy
Download
WiFi Capability3G Subscribers
Download Access
STARBUCKSCOFFEE
POTENTIAL COUNTRIES
Situation Analysis Action Financials Conclusion
CountriesTechnology /
Download Access (.30)
Music Sales, Downloads and
Piracy (.35)
Coffee Consumption
(.10)
Starbucks Culture
(.25)Total
Canada 4 3 4 4 3.65
Mexico 3 3 1 2 2.55United
Kingdom 5 5 3 3 4.3
Germany 5 4 5 3 4.15
China 3 2 3 3 2.65
Japan 5 5 4 4 4.65
South Korea 5 3 4 5 4.2
Phillipines 3 1 2 2 1.95
Taiwan 4 1 2 2 2.25
Thailand 2 1 2 2 1.65
STARBUCKSCOFFEE
COUNTRY SELECTION
Situation Analysis Action Financials Conclusion
STARBUCKSCOFFEE
JAPAN - Overview
Situation Analysis Action Financials Conclusion
Population 126 millionGDP per Capita USD 34,200Starbucks stores 722Overall music sales/year USD 4.05 billionDigital music sales/year USD 972 millionMarket Geographic ± 100 million lives in
urban areaMarket Demographics Middle-upper classMarket Behavior Utilization of high
technology
STARBUCKSCOFFEE
JAPAN – Customer Profile
Situation Analysis Action Financials Conclusion
Age 35Profession Works at TSEInterest TechnologyMusical Interests Jpop, Classical, WesternWireless device of choice
iPhone
Hiro Tanaka
Local60%Micro
10%
Global30%
Music MixFocus on local taste
• Hiro yearns for a relaxing environment between work and home
• He values premium/high quality products including the food he eats and beverages he drinks
STARBUCKSCOFFEE
MARKETING PLAN - Japan
Situation Analysis Action Financials Conclusion
Mobile advertising
• 44% of Japanese consumers click on mobile ad links
In store advertising
• Place cards with logon instructions
• Music promotion info
Pick of the week promotion
• Free download of one song every week
STARBUCKSCOFFEE
HR STAFFING PLAN - Japan
Situation Analysis Action Financials Conclusion
National Director of Entertainment
Regional Music manager
Local Music Specialist
Regional Music manager
Local Music Specialist
Regional Music manager
Local Music Specialist
Regional Music manager
Local Music Specialist
STARBUCKSCOFFEE
UNITED KINGDOM - Overview
Situation Analysis Action Financials Conclusion
Population 63 millionGDP per capita USD 35,100Starbucks stores 727Overall music sales/year USD 1.574 billionDigital music sales/year USD 295 millionMarket Geographic Large cities:
London, Birmingham, Leeds & Glasgow
Market Demographics • 43% is upper-middle class
• 27% disposable income spent on food
Market Behavior Going to coffee shop as a new kind of socializing
STARBUCKSCOFFEE
U.K. – Customer Profile
Situation Analysis Action Financials Conclusion
Age 25Profession Graduate Student at London
School of EconomicsInterest Discovering new thingsMusical Interests Amy WinehouseWireless device of choice
Netbook
Jane HughesLocal20%
Micro50%
Global30%
Music MixHigh focus on individualism
• Jane yearns for a relaxing environment between school and home
• She values a good cup of coffee and is very particular on how it should be prepared
STARBUCKSCOFFEE
MARKETING PLAN – U.K.
Situation Analysis Action Financials Conclusion
Instructions on coffee sleeve
• Download access from laptop & mobile device
Starbucks gift card promo
• Users of Like or Dislike function will have a chance to win a Starbucks gift card
STARBUCKSCOFFEE
HR STAFFING PLAN – U.K.
Situation Analysis Action Financials Conclusion
National Director of
Entertainment
Regional Music manager
Local Music Specialist
Local Music Specialist
Local Music Specialist
Regional Music manager
Local Music Specialist
Local Music Specialist
Local Music Specialist
STARBUCKSCOFFEE
FINANCIAL ASSUMPTIONS
Situation Analysis Action Financials Conclusion
Beta 1.28Risk-free rate 3.46%Return on market 6.84%
K(e): 12.22%
Interest Rate (10 yr AA Corporate Bond) 6.15%
K(d): 6.15%
Total Debt Weight 11.90%Total Equity Weight 88.10%Cost of Debt 6.15%Cost of Equity 12.22%Tax Rate 40%
K: 11.06%
Cost of Equity Capital
Cost of Debt Capital
Weighted Average Cost of CapitalLaunch Progression• Year 1: 200 stores total in each country • Year 2: 300 stores total in each country• Year 3: 500 stores total in each country• Year 4: All stores in each country• Year 5: All stores in each country
SBUX Total Revenue Growth
8% per year
Specialty Sales 15% of total sales, growing by 2% points each year
Starbucks Entertainment Share of Specialty Sales
1.5% with a 30% growth rate
Japan & UK % of Total Stores
8.59%
Music Consumption 85% of purchases through download 15% of purchases of physical CDCOGS 53% for physical CDs
61% for digital downloads 59.8%Sound Station Cost $3000 per unit
STARBUCKSCOFFEE
FINANCIAL PROJECTIONS
Situation Analysis Action Financials Conclusion
2012 2013 2014 2015 2016Total Revenue 11815200.0 12760416.0 13781249.3 14883749.2 16074449.2Specialty Sales 1772280.0 2169270.7 2618437.4 3125587.3 3697123.3Japan & UK Portion of Specialty Sales 152238.9 186340.4 224923.8 268488.0 317582.9Starbucks Ent. % Share of Specialty Sales 1.50% 1.95% 2.54% 3.30% 4.28%Total Starbucks Ent. Sales 2283.6 3633.6 5701.8 8848.0 13605.7COGS 1365.6 2172.9 3409.7 5291.1 8136.2Marketing / SG&A Costs 1000.0 1000.0 1000.0 800.0 800.0In-Store Equipment Costs 60.0 90.0 150.0 0.0 0.0Tax 0.0 148.3 456.9 1102.8 1867.8Total Cash Flow -142.0 222.4 685.3 1654.1 2801.7NPV 3663.0
NPV = $3.663 Million IRR = 290%
0500
100015002000250030003500400045005000
2% 4% 8% 12%
Project NPV
SBUX Total Revenue Growth Rate
NPV
STARBUCKSCOFFEE
SENSITIVITY ANALYSIS
Situation Analysis Action Financials Conclusion
STARBUCKSCOFFEE
SENSITIVITY ANALYSIS
Situation Analysis Action Financials Conclusion
0
1000
2000
3000
4000
5000
6000
7000
0% 15% 30% 50%
Project NPV
SBUX Ent. Growth Rate
NPV
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Starbucks Sound Stations
Wi-Fi Music Page
Phone App
Stores Implementation per country
200 300 500 All stores All stores
STARBUCKSCOFFEE
TIMELINE
Situation Analysis Action Financials Conclusion
Evaluate Strategy
Physical CD Consideration
Physical CD Consideration
Physical CD Consideration
Physical CD Consideration
THANK YOU