Case Study

Starbucks Corporationis an Americancoffeecompany andcoffeehouse chain. The chain was founded inSeattle,Washingtonin 1971; it operates 23,450 locations worldwide, including 12,937 in the United States, 2,118 in China, 1,430 in Canada, 1,158 in Japan and 869 in the United Kingdom (Differences reflect growth since December 17, 2015). Starbucks locations serve hot and cold drinks, whole-bean coffee, micro-ground instant coffee knownas VIA,espresso,caffe latte, full-leafteas, Evolution Fresh juices,Frappuccinobeverages,pastries, and snacks; some offerings (including theirPumpkin Spice Latte) are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drinkware including mugs andtumblers. According to Forbes, Starbucks brand ranked 52 amongst the world's most valuable brands. The popularity of Starbucks was caused by reported high levels of customer satisfaction and loyalty.

One of the main goals of Starbucks Corp., according to Howard Schultz (current Chairman, ex CEO), is to: "Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining uncompromising principles as we grow". This Strategy has paid off; during the period of 1987 to August 2005 the number of shops increased from 17 to 9671 and since 1992 the business has shown a growth rate of 20% and a profits rate of 30%. To maintain growth, Starbucks searches for new areas in which to build hub and spoke infrastructure, where a city serves as a 'hub' and the surroundings as a 'spoke'. With this expansion the strategy is to blanket the area totally even if one shop cannibalizes another. The 'Starbucks everywhere' approach helps to cut down delivery and management costs, shorten customer lines at individual stores, and increases foot traffic for all the stores inthe area. Overall, with this clustering strategy, Starbucks can better develop a Starbucks culture in the newly opened stores. Nevertheless each site has been carefully selected; the new site has to be in a visible, accessible and high traffic location. Significant criteria for these locations are the population density, median age, education level, estimated household income and the density of local competition.

The tremendous growth of the Starbucks locations has been facilitated by the strong relationships with the real estate representatives across the USA and the other locations around the world. This strong relationship facilitates the growth for Starbucks because they franchise rather than lease all the properties. Each location maintains their existing structure and therefore has a different size and shape. This diversity means that each site has to be transformed individually. Starbucks has very high standards, with their own in-house team of architects, designers and construction managers employed to transform the site. This includes the design of each space, including layout, lighting and furnishing. To increase its reach even more, Starbucks-brand coffee, ice cream and bottled cold coffee drinks are also sold atgrocery stores. It turned out as a win-win situation for both Starbucks and grocery stores; Starbucks has more reach and exposure while grocery stores enjoy more traffic.

With customer considered as the center point of its operations, Schultz declares that "We're not just selling a cup of coffee, we are providing an experience". The Starbucks brand relies heavily on the customer experience and therefore their biggest promotion is by word of mouth and appeal of the shop fronts. The traditional advertising and promotion budget is rather small; in fact, in its first 20 years of existence only $20 million had been spent on this traditional advertising. The locations sell themselves by achieving the feel of an Italian coffee bar with each site being distinctive in size and format.

The Starbucks brand name is also perceived as reliable, safe and consistent and the stores tend to be found in high traffic locations, such as shopping centers and busy streets corners. The motto for building this ambience was 'everything matters;, so the store's fixtures, merchandise displays, colors, artwork, banners, music and aromas all create an environment that lends itself to drinking coffee. All these elements allow the customer to escape from the crowded streets and enjoy a relaxed atmosphere created by jazz or opera music in the background, good lighting and pleasant surroundings. Another very important element of the Starbucks experience is its people. The employees called "baristas" at Starbucks are the ones who can directly affect the quality of the product and are part of the customer experience in the stores. Starbucks employees are considered partners in the business.They are carefully selected, offered excellent training, generous benefits programs (health care), and a stock ownerships plan. This system pays off, reflected in the fact that the barista turnover at Starbucks is 60% compared with 140% or more for workers in the fast-food business. The advantage of this relatively low employee turnover is the saving on training costs but more importantly the baristas get familiar with the regular customers, knowing their name and preferred drinks.

Required:

Based on above material, answer the following questions:

1.How does Starbucks deliver its value proposition? Explain your answer (5 marks).

2.What philosophy does Starbucks seem to adopt towards its target markets? Explain your answer (2 marks).

3.In relation to Porter's generic competitive strategies, what strategy does Starbucks seem to apply? Explain your answer (2 marks)

4.In relation to the three categories of media available to organizations, what types of media are mostly applied by Starbucks in the case? Explain your answer (2 marks).

5.What growth strategy does Starbucks apply? Explain your answer (2 marks)

6.What type of strategic alliance does Starbucks focus on to achieve its growth objectives? Explain your answer (2 marks).

7.Based on case material only, how do you envisage Starbucks marketing efforts' impacts over consumers' buying decision process? Briefly explain your answer (5 marks)