1. F. Jallat - CFVG - 2011
Trouble Brews at
Starbucks
2. 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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3. 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”
4. 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
Citoyens
Réduire l’hostilité vis à
vis de l’affichage
publicitaire
Annonceurs
Proposer des supports de
qualité pour maximiser
l’impact des messages
5. 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 Initiatives (1)The Profit Impact of Starbucks Initiatives (1)
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6. 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 Initiatives (2)The Profit Impact of Starbucks Initiatives (2)
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10. 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 Initiatives (3)The Profit Impact of Starbucks Initiatives (3)
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11. 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
12. 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 Initiatives (3)The Profit Impact of Starbucks Initiatives (3)
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13. 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
14. Fixed Costs
Operational Costs
Systems and processes
Employee efficiencies
Marketing Costs
Promotion
Leveraging partnerships
The Profit Impact of Starbucks Initiatives (4)The Profit Impact of Starbucks Initiatives (4)
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16. 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
18. 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
19. 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)
20. 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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21. 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
22. 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
23. 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 CompanyActions Taken to Reinvigorate the Company
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24. Competitiveness of the Company
and Value Creation
VALUE
COMPETITIVENESS
PRICE
PROFITABILITY
COST
26. 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
HHoowwaarrdd SScchhuullttzz’s Initiatives (1)’s Initiatives (1)
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27. 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
HHoowwaarrdd SScchhuullttzz’s Initiatives (2)’s Initiatives (2)
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Notes de l'éditeur
Une Politique d’Elargissement La gestion stratégique de JCD s’inscrit dans une politique d’ élargissement : Consiste à élargir la cible autour du cœur de cible à partir d’une offre élargie. Et ce par deux démarches : Le complément de gamme : Concerne les attributs secondaires du produit afin de toucher des cibles périphériques pas totalement satisfaites par l’offre de base. Ex : Avoir rendu les vitrines d’abribus olfactives, tactiles… L’extension de gamme : Correspond à un accroissement de l’offre. C’est le cas de l’introduction du vélo libre service dans la gamme du mobilier urbain de JCD. II. Une Reponse adequate aux enjeux JCD doit d’abord répondre aux enjeux propres à son activité : JCD est un des grands groupes envers lesquels le public développe une méfiance , une hostilité par peur d’être instrumentalisé . JCD doit se rapprocher du citoyen pour lui proposer une offre innovante, pratique qui s’inscrit dans ses besoins quotidiens et lui rend service. A défaut, JCD va déclencher une méfiance du citoyen qui va nuire au message publicitaire propagé par l’annonceur. JCD diffuse des messages publicitaires qui participent à la pollution visuelle des villes. Afin de ne pas étouffer un citoyen exaspéré par la profusion de messages, JCD doit à la fois proposer un mobilier urbain esthétique et innovant qui embellit l’espace urbain. JCD doit ensuite répondre aux enjeux conjoncturels contemporains . La citoyenneté : Le public attend des grosses entreprises un comportement citoyen. La recherche du seul bénéfice n’est plus tolérée par le public. L’entreprise doit s’inscrire dans la vie sociétale. Ainsi, l’entreprise de traitement des déchets Veolia propose des jeux éducatifs aux enfants afin de les sensibiliser aux enjeux écologiques L’ écologie : Face à un public de plus en plus au fait des risques environnementaux, les entreprises doivent s’inscrire dans une démarche de respect de l’environnement et proposer des solutions de lutte contre le réchauffement climatique.
Consider a true commodity: the coffee bean. Coffee beans = a little more than $1 a pound (= one or two cents per cup.) Turn them into good (grind, package and sell) at 5 – 25 cents a cup. Brew the ground beans in a corner coffee shop = 50 cents to a dollar per cup. Serve that same coffee in a nice dine-in restaurant = $ 1.5 – 2 per cup. Five-star restaurants or Starbucks = $2 – 5 per cup.
