STARBUCKS BACK TO BASICS

AGENDA
Synoptic View

Introduction
Starbuck Competition

Problems faced
Back to Basic Q & A Conclusion

THE STARBUCKS STORY

1971- Pike Place Market as Starbucks Coffee, Tea and Spice. 1980- Largest Roaster of Coffee in Washington 1982- Schultz Appointed as Marketing Head 1984- Schultz came up with idea of a coffee chain as a restaurant & served 400 customer in 1 day 1987- Schultzs presented his idea to investor to raise fund of US$ 3.8 1990- Rapid Expansion 165 coffee house 1996- Opened first international outlet in Japan, Tokyo 1997- Stores rose to 1400 in NA & Pacific Rim 1999- Bought Tazo Tea company

 1999- Diversified to Music Distribution under the Hear Music

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

as CEO and Smith took over

2001- Came into mainland Europe 2004- Opened on an average 1200 stores every year 2005- Figure touched 1000 stores worldwide & 7300 in US 2008- 15000 stores all across the globe with 29% outside US with annual revenue of $ 10 Billion

STARBUCKS COMPETITION
MCDONALDS Sold coffee at 60-80 cents lower than Starbucks DUNKIN DOUGHNUTS: Sold coffee at rates lower than Starbucks HARD ROCK CAFE

PROBLEMS BEING FACED BY STARBUCKS

Rapid Expansion Economic Downturn

Impersonal service
High Input Cost Image Conflict Change in Leadership

Apart from its falling revenue in US stores, its

silver lining was that its international revenue continued to grow

BACK TO THE BASICS

In Jan, 2008 Schultz replaced Donald as CEO.

Focused on customer experience and innovation

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

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

10 million

By end of 2008, Schultz planned to remove warm

breakfast sandwiches from menu.

Transformational 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 an established player can adopt in a mature market
SPECIALIZE / SUBNICHE

DRAMATICALLY CHANGE THE PRODUCT

FEATURE

INETRNATIONALIZE GENERALIZE/ SUPERNICHE

Challenges in marketing luxury brands

PRODUCT

PRICE

PROMOTION

How did starbucks explain its plight in 2008

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

Even though the upper middle class has been affected by recession, the higher income upper class maintained their loyalty towards the brands. Moreover, the luxury brands preserved their high investments at the time of recession, thus providing a creative leadership and protecting their image as a luxury product.

Where did the problem lie?

Changing Perception Unsatisfied Customers

Increasing Competition

Changing Perception
70

60 50 40 30 20 10 0 2000 53 48

61

55

Starbucks cares primarily about making Money Starbucks cares primarily about building more Stores

2001

Dissatisfied Customers
Starbucks was not meeting expectations in terms of Customer Satisfaction and there was a direct link between Satisfaction and Customer Loyalty

Customer Life (Years)

1.1 Unsatisfied 4.4 8.3 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.