Before Starbuck's existed, consumers bought canned supermarket coffee as the standard means of attaining coffee. If someone desired a more flavorful, fresher alternative, they could buy beans. Unfortunately beans sitting in a bin that may look beautiful, can actually be old, stale, and harsh.
There is another alternative; the local coffee shop. These places potentially provide the desired quality and the opportunity to mingle, but because of each shop's uniqueness, it is impossible to establish a uniform position in the customers' mind. The potential for a chain of consistent quality and atmosphere existed, but because each shop has had their own unique, loyal fan club, they have stayed independent. Staying independent was the norm until Starbucks. They expanded with, clean, spit ad polished freshly painted coffeehouses that appealed to coffee drinkers more concerned with the fare than with the need to socialize. Thus, Starbucks capitalized on developing a position in the customers mind that associated them with consistency in the quality of the product and atmosphere.
Since 1971, when Starbucks opened its first store in Seattle's Pike Place Market, consumer interest in fine coffees has increased dramatically. People once were content with canned commercial blends, but now seek fresher arrays of coffee. Starbucks has further grasped this market by stringently meeting their rigorous specifications for quality. They also buy the finest arabica coffees available on world markets, and if a bean has been in for more than a week, it is donated to charity.(Starbucks History Home Page)
With this type of attitude and discipline, Starbucks has accomplished a huge amount in growth, sales, and in developing and affinity with its customers. To illustrate, they have seen their net revenues increased 575% from 1992 to 1996. What has made this possible? The almost cult-like customer base consists of individuals that on the average make 18 visits a month, while another 10% visits twice a day.
Already with a formula for success, Starbucks current concern is to preserve their brand integrity while also focusing on in-store marketing. Maintaining their image has had Vice Pres. Mr. Bradbury rejecting joint, venture proposals such as a Starbucks boy-toy calendar and not allowing cologne on employees that could compete with the coffee aroma. Such policies may seem a bit extreme, but when the consistency of quality and atmosphere are a company's forte, everything is done to maintain and bolster it. (Advertising Age P. 44 Dec. 9,1996)
Even though Starbucks stringent policies may appear oppressive, the employees maintain high moral and loyalty as a result of a variety of employee benefits. Insurance benefits include such things as dental, health, and vision that can become available in 90 days for those partners who work 20hrs a week or more. Stock option plans exist as a means of compensation linked to performance. The goal of implementing such a plan would give partners more involvement and stake in the company. By providing such benefits, Starbucks has developed an invaluable affinity with its partners that has made them internally a success. (Starbucks Homepage)
Starbucks' success comes directly from their great use of price, promotion, product, and place. Their marketing department has led this company to very high profits. To illustrate, in the fiscal year ending September 29, 1996, their profits rose to $42.1 million, a 61% increase over the previous year. While 1996 ended up very successful, early indications reveal that the company might reach $1 billion in revenues in 1997, a 40% increase (Papiernik 4). Starbucks illustrates the importance of the marketing-mix. They have developed products to meet customers needs, and then distributed them to the places with the highest demand. Also, they have promoted their products effectively, allowing them to gain more customers. As a result, they priced their products effectively by using their brand name and image to their advantage.
Starbucks has grown from a single product, coffee, to an assortment of different types of coffees and other items. Products relating to coffee include: drip brewed, lattes with or without flavors, cappuccino, and espresso. They have created new products by joining up with some other successful companies. To illustrate, Starbucks joined up with Dreyers and created coffee ice cream, and they ventured with Red Hook Brewery in creating a "coffee-flavored double black stout" (Deverell B1). Their cold-coffee includes the very popular Frappuccino, which creates a low-fat blend of coffee and milk. One other drink is their Mazagran, a coffee-flavored cola.
The company has further expanded into material products including the following: coffee cups and mugs, coffee makers and french presses, and coffee perefenalia. This perefenalia includes thermometers, coasters, towels, post-cards, and T-shirts. One product led to another and more will likely result. While it may seem like the company is diluting away from their core competency, they actually have brought more attention to it. Each non-coffee product, like the coasters, help boost awareness of the company name even more, and that is only one reason why the company succeeds in marketing their core product.
Starbucks revenues continue to grow each year. Perhaps the biggest reason why comes from their pricing policy. Since they have established high brand recognition and loyalty through their promotions, they can price all of their products at a premium price. Customers feel that the money they spend will give them a great tasting coffee. To illustrate, Starbucks prices their eight-ounce cup of house blend coffee at $1.05, which is well above the 90 cents charged at Coffee Time and the $1 charged at Tim Horton (Deverell B1). Starbucks uses this part of the marketing mix to their advantage, and it appears that this strategy should remain successful in the future.
Starbucks differentiates themselves by using different types of promotions. They have turned coffee from just a morning beverage into a premium product. Since they led the charge, they have developed a widely recognized brand name. Yet, they have done this through non-traditional advertising (McDowell 49). They never advertise on television, yet almost everyone knows the name Starbucks. Instead, they sponsor events and use their own products to spread their name and image. They only spent $2.96 million in 1995 for advertisements in magazines and radio spots.
For their 25th anniversary, they used a 1970's theme with in-store posters and buttons with slogans like "make latte, not war," and "give beans a chance" (McDowell 49). Other sources of promotions include two full columns in the Yellow Pages. Besides this, they provide their coffee on Holland American cruise lines and United Airlines. In fact, they have their own Starbucks' CD which passengers can listen to while sipping on Starbucks (Kelley D1). Despite the fact that Starbucks spends a small amount on advertising, they still gain recognition through their great public relations and word of mouth. Their senior VP of marketing states it best when he says "We are blessed with a brand with a tremendous reputation that people like to talk about" (McDowell 49).
Starbucks distributes to a large number of stores. As of January 23, 1997, the company had a total of 1,107 stores (Heberlein D1). This included stores in the United States, Japan, and Canada. They locate many of the stores within supermarkets, such as QFC, and their large retail café outlets have also done very well. Despite the success, changes continue to occur within the stores. Currently, the company is undergoing a very large remodeling job, involving changing the main color from green to hues. According to Jeanne McKay, a company spokeswoman, Starbucks wants to "capture the four elements of coffee: earth tones for growing, fire tones for roasting and light tones for the water used in brewing and the air that carries the coffee aroma" (Moriwake E1).
The company soon plans on pushing business to the street corners with their new Doppio espresso cart. It is portable and folds neatly, allowing Starbucks the "opportunity to locate anywhere" (Kim 4). Finally, their new Breve Bar has allowed the company to locate in malls and help retail outlets when they become overloaded with customers. All of these places will help Starbucks grow even more and create more competitive threats against more coffee stores and espresso stands. Eventually, they plan on having 2,000 stores open by the year 2000 (Heberlein D1).
While many competitors try to take away profits and market share from Starbucks, only a few have come close to achieving this difficult task. Thousands of different coffee shops and stands try to keep and gain customers through various promotions and discounts. Despite this, Starbucks brand name and image has kept the company well ahead of their competition. In fact, Starbucks has actually grown substantially over the past couple of years. Their main competitors include Seattle's Best Coffee (SBC), Tully's, Tuscany, Coffee People, and Second Cup. The following charts illustrates Starbucks dominance when it comes to the amount of store locations.
Specifically, the competitors have the following number of stores: Coffee People-19 (Turnquist 1C), Tully's-22 (Carlsen 3), Tuscany-28 (Kim 1), SBC-43 (Wilson B8), Second Cup-230 (Johannsen BWRE). These competitors wane in comparison to Starbucks 1107 stores. Besides this, Starbucks sales exceed everyone by at least 100 percent. All of their success comes from a great marketing team. If Starbucks can continue to keep high brand loyalty while gaining new customers, then they should on top of the coffee world.
Surveys and Interview
A phone interview was conducted with Creative Service managers/New Store Development, Joe Cachero, regarding Starbucks new business developments for customers. His responsibilities involve creating and designing new remodeled allocations, logo design, catalogue development and new merchandising tools.
During our discussion, he mentioned that Starbucks growth involves the promotion of Starbucks merchandise, new logo design and a new store concept. He stated that many of the ideas evolved from the competition duplicating the Starbucks concept.
Currently Starbucks is developing an expanded demographic market to include neighborhoods. The store concept is a friendly coffee bar hangout with lots of seating, games, food, and live jazz. Starbucks wants to create an atmosphere for its customers to spend more time in their establishment creating a sense of belonging or loyalty to the store. This complements Starbucks reputation and devotion to excellent customer service.
To differentiate themselves from the a competition and update their image, Joe is redesigning the company logo and creating specific icons to represent different areas of the company. The largest area of growth Starbucks not only wants their to purchase their beverages but they want them to purchase coffee beans, coffee/espresso makers, accessories, and various logo items. New merchandising tools, shelving and props will make shopping more appealing in the store and a new catalogue directly mailed to potential customers will expand their merchandising market.
A survey was randomly distributed to fifteen Starbucks customers. This survey was developed to analyze Starbucks customers service and product quality. The results show that Starbucks customers are more concerned with the service received rather than the quality of the beverage. When asked, "What do like best about Starbucks?" the response was unanimous, "the quality of friendly and efficient service by Starbucks employees".
Most of the surveyed customers visit Starbucks two to three per week in a variety of locations. Customers seemed to enjoy the convenience of Starbucks locations whether it was a neighborhood attraction close to their home or a city location close to their work. In addition, favorite beverages included double shot latte, non-fat mochas, and frapachinos during warm days.
Many or the customers do not purchase merchandise or coffee beans from Starbucks. It is more convenient and fun to go to Starbucks than make coffee in your home. Going to get coffee has become a Seattle habit and form of entertainment. The actual beverage or product purchased at Starbucks was rated between "good" and "excellent" depending on what was ordered.
If I were to show these survey results to Starbucks, I would explain that service and products receive high ratings, but their merchandise could use more promotion to create a sense of need and awareness with their customers.
Post Hoc Analysis
In conclusion, Starbucks's success is a direct result of their mastery of the marketing mix. Pricing at a premium has been conducive to their high sales but was only possible because of stringent attention to other details. By placing their product where they had gotten the best reception from mail surveys, they knew there would be a market. Promotion in these areas has been due in a large part to ability of the company to convey itself as a hip and trendy place. Starbucks has been able to convey this ideal as a result of their spit polish, trendy interior, strict attention to quality, and employees compliance to norms. Finally, their product is of the utmost quality in the realm of the world coffee market making the Cadillac of coffees.
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Starbucks History Home Page 1996
Starbucks Home Page 1996
Advertising Age P. 44, Dec. 9, 1996