starbucks 09 final
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F. Jallat - CFVG - 2011
Trouble Brews at Starbucks
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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”
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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
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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 The Profit Impact of Starbucks Initiatives (1)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
The Profit Impact of Starbucks The Profit Impact of Starbucks Initiatives (2)Initiatives (2)
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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
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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
Limited Price Competition
The Profit Impact of Starbucks The Profit Impact of Starbucks Initiatives (2)Initiatives (2)
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The Competitive Landscape when Starbucks was Introduced
Starbucks
Dunkin’ Donuts
Corner coffee shops
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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
Frequency of Visits and Amount of Purchase
Creating opportunities for incremental sales
Increasing loyalty with the Starbucks experience
The Profit Impact of Starbucks The Profit Impact of Starbucks Initiatives (3)Initiatives (3)
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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
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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
Frequency of Visits and Amount of Purchase
Creating opportunities for incremental sales
Increasing loyalty with the Starbucks experience Managing non-peak periods (new products and services)
The Profit Impact of Starbucks The Profit Impact of Starbucks Initiatives (3)Initiatives (3)
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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
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Fixed Costs
Operational Costs
Systems and processes
Employee efficiencies
Marketing Costs
Promotion
Leveraging partnerships
The Profit Impact of Starbucks The Profit Impact of Starbucks Initiatives (4)Initiatives (4)
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Starbucks’ Balancing Act
New Customers
Established Customers
STARBUCKS
Growth Engine
“Live Coffee” Culture, Brand authenticity
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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
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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
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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
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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)
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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
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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
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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 Actions Taken to Reinvigorate the CompanyCompany
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Competitiveness of the Company and Value Creation
VALUE
COMPETITIVENESS
PRICE
PROFITABILITY
COST
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Comprehensive Value Analysis
An objective component
A symbolic component
A relational component
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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
Howard Schultz’s Initiatives (1)Howard Schultz’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
Howard Schultz’s Initiatives (Howard Schultz’s Initiatives (22))
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