This document contains 6 questions about Starbucks' growth strategies and positioning. It provides background on how Starbucks was initially positioned as a premium coffee brand targeting affluent customers. It discusses some of Starbucks' expansion initiatives that fueled growth but may have been inconsistent with its brand image, such as foreign expansion. It also addresses how Starbucks should define its target market and positioning going forward after its decline in 2007. Finally, it evaluates actions taken by Howard Schultz to reinvigorate the company upon his return, such as recreating the Starbucks experience and emphasizing the "romance of coffee".

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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7. $6.00
$5.00
$4.00
$3.00
$2.00
$1.00
Commodity Goods Service Experience
From Coffee Beans to In-Store Sensory
Experience

8. 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 Initiatives (2)The Profit Impact of Starbucks Initiatives (2)
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9. The Competitive Landscape when Starbucks was Introduced
Starbucks
Dunkin’ Donuts
Corner coffee shops

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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15. Starbucks’ Balancing Act
New
Customers
Established
Customers
STARBUCKS
Growth
Engine
“Live Coffee”
Culture,
Brand
authenticity

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

17. Starbucks PositioningStarbucks 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

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

25. Comprehensive Value Analysis
An objective component
A symbolic component
A relational component

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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