STARBUCKS STARBUCKS

BACK TO BACK TO

BASICSBASICS

AGENDAAGENDASynoptic ViewSynoptic View

IntroductionIntroduction

Starbuck CompetitionStarbuck Competition

Problems faced Problems faced

Back to BasicBack to Basic

Q & AQ & A

ConclusionConclusion

THE STARBUCKS THE STARBUCKS STORYSTORY

• 1971- Pike Place Market as Starbucks Coffee, Tea and Spice.1971- Pike Place Market as Starbucks Coffee, Tea and Spice.

• 1980- Largest Roaster of Coffee in Washington 1980- Largest Roaster of Coffee in Washington

• 1982- Schultz Appointed as Marketing Head1982- Schultz Appointed as Marketing Head

• 1984- Schultz came up with idea of a coffee chain as a 1984- Schultz came up with idea of a coffee chain as a restaurant & served 400 customer in 1 dayrestaurant & served 400 customer in 1 day

• 1987- Schultz’s presented his idea to investor to raise fund of 1987- Schultz’s presented his idea to investor to raise fund of US$ 3.8US$ 3.8

• 1990- Rapid Expansion 165 coffee house 1990- Rapid Expansion 165 coffee house

• 1996- Opened first international outlet in Japan, Tokyo1996- Opened first international outlet in Japan, Tokyo

• 1997- Stores rose to 1400 in NA & Pacific Rim1997- Stores rose to 1400 in NA & Pacific Rim

• 1999- Bought Tazo Tea company1999- Bought Tazo Tea company

• 1999- Diversified to Music Distribution under the Hear Music 1999- Diversified to Music Distribution under the Hear Music

BrandBrand

• 2000- Number of outlets rose to 2200 and Schultz stepped down 2000- Number of outlets rose to 2200 and Schultz stepped down

as CEO and Smith took overas CEO and Smith took over

• 2001- Came into mainland Europe2001- Came into mainland Europe

• 2004- Opened on an average 1200 stores every year2004- Opened on an average 1200 stores every year

• 2005- Figure touched 1000 stores worldwide & 7300 in US2005- Figure touched 1000 stores worldwide & 7300 in US

• 2008- 15000 stores all across the globe with 29% outside US with 2008- 15000 stores all across the globe with 29% outside US with

annual revenue of $ 10 Billionannual revenue of $ 10 Billion

STARBUCKS STARBUCKS COMPETITIONCOMPETITION

MCDONALDSMCDONALDS

Sold coffee at 60-80 cents lower than StarbucksSold coffee at 60-80 cents lower than Starbucks

DUNKIN DOUGHNUTS:DUNKIN DOUGHNUTS:

Sold coffee at rates lower than StarbucksSold coffee at rates lower than Starbucks

HARD ROCK CAFEHARD ROCK CAFE

PROBLEMS BEING FACED PROBLEMS BEING FACED BY STARBUCKSBY STARBUCKS

• Rapid ExpansionRapid Expansion

• Economic DownturnEconomic Downturn

• Impersonal service Impersonal service

• High Input CostHigh Input Cost

• Image ConflictImage Conflict

• Change in LeadershipChange in Leadership

““Apart from its falling revenue in US stores, its Apart from its falling revenue in US stores, its

silver lining was that its international silver lining was that its international

revenue continued to grow”revenue continued to grow”

BACK TO THE BASICSBACK TO THE BASICS

• In Jan, 2008 Schultz replaced Donald as CEO.In Jan, 2008 Schultz replaced Donald as CEO.

• Focused on “customer experience and innovation”Focused on “customer experience and innovation”

• On Feb 26, 2008 Starbucks closed 7,100 stores in US On Feb 26, 2008 Starbucks closed 7,100 stores in US

for 3 hours, this cost the company around US$ 10 for 3 hours, this cost the company around US$ 10

millionmillion

• By end of 2008, Schultz planned to remove warm By end of 2008, Schultz planned to remove warm

breakfast sandwiches from menu.breakfast sandwiches from menu.

Transformational AgendaTransformational Agenda Five main initiatives:-

• First initiative was introduction of Mastrena, semi automatic espresso machine

• Second initiative was complete renovation of brewed coffee in store.

• Third was introduction of loyalty program that would reward registered card holders.

• Fourth was launch of mystarbucksidea.com, an online community.

• Fifth was to strengthen relationship with Conservation International (CI).

Examine the strategies that Examine the strategies that an established player can an established player can adopt in a mature market adopt in a mature market

Examine the strategies that Examine the strategies that an established player can an established player can adopt in a mature market adopt in a mature market

• SPECIALIZE / SUBNICHESPECIALIZE / SUBNICHE

• DRAMATICALLY CHANGE THE PRODUCT DRAMATICALLY CHANGE THE PRODUCT

FEATURE FEATURE

• INETRNATIONALIZE GENERALIZE/ SUPERNICHE INETRNATIONALIZE GENERALIZE/ SUPERNICHE

Challenges in marketing Challenges in marketing luxury brandsluxury brands

Challenges in marketing Challenges in marketing luxury brandsluxury brands

• PRODUCT PRODUCT

• PRICE PRICE

• PROMOTION PROMOTION

How did starbucks How did starbucks explain its plight in 2008 explain its plight in 2008

How did starbucks How did starbucks explain its plight in 2008 explain its plight in 2008

• Marketing of luxury product is a Niche product, they Marketing of luxury product is a Niche product, they have exclusive customers who are willing to pay have exclusive customers who are willing to pay premium price, so economic turndown will hardly premium price, so economic turndown will hardly affect luxury product market affect luxury product market

• Even though the upper middle class has been affected Even though the upper middle class has been affected by recession, the higher income upper class by recession, the higher income upper class maintained their loyalty towards the brands. maintained their loyalty towards the brands.

• Moreover, the luxury brands preserved their high Moreover, the luxury brands preserved their high investments at the time of recession, thus providing a investments at the time of recession, thus providing a creative leadership and protecting their image as a creative leadership and protecting their image as a luxury product.luxury product.

Where did the problem lie?

•Changing Perception

• Unsatisfied Customers

• Increasing Competition

Changing Perception

0

10

20

30

40

50

60

70

2000 2001

53

61

4855 Starbucks cares primarily

about making Money

Starbucks cares primarilyabout building moreStores

Dissatisfied Customers• Starbucks was not meeting expectations in terms of

Customer Satisfaction and there was a direct link between Satisfaction and Customer Loyalty

1.1

4.48.3

Customer Life (Years)

Unsatisfied

Satisfied

Highly Satisfied

Increasing Competition

• Though Starbucks is still a dominating chain but its hold on coffee has loosened.

• Facing Competition not from newcomers but from older coffee chains that have increasing customer loyalty.

• Another threat are the established food chains that have altered their focus to incorporate the rising trend of coffee.