48355878 starbucks marketing plan

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1.0 Executive Summary

2.0 Situation Analysis

Starbucks Coffee has been established as one of the most recognizable

and successful coffee brands in the world. The coffee market is drastically

changing on a daily basis and this section of the marketing plan is designed to

show where Starbucks is in this current market.

2.1 Starbucks’ Vision and Mission Statement

Mission Statement: “The mission of Starbucks is to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow”

1) Provide a great work environment and treat each other with respect

and dignity.

2) Embrace diversity as an essential component in the way we do

business.

3) Apply the highest standards of excellence to the purchasing, roasting

and fresh delivery of our coffee.

4) Develop enthusiastically satisfied customers all of the time

5) Contribute positively to our communities and our environment

6) Recognize that profitability is essential to our future success.

Vision: To inspire and nurture the human spirit – one person, one cup and one

neighborhood at a time.

Starbucks Coffee Marketing Plan 2010 1

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Objectives:

Our Coffee- It has always been, and will always be, about quality. We’re

passionate about ethically sourcing the finest coffee beans, roasting them

with great care, and improving the lives of people who grow them. We

care deeply about all of this; our work is never done.

Our Partners- We’re called partners, because it’s not just a job, it’s our

passion. Together, we embrace diversity to create a place where each of

us can be ourselves. We always treat each other with respect and dignity.

And we hold each other to that standard.

Our Customers- When we are fully engaged, we connect with, laugh

with, and uplift the lives of our customers – even if just for a few moments.

Sure, it starts with the promise of a perfectly made beverage, but our work

goes far beyond that. It’s really about human connection.

Our Stores- When our customers feel this sense of belonging, our stores

become a haven, a break from the worries outside, a place where you can

meet with friends. It’s about enjoyment at the speed of life – sometimes

slow and savored, sometimes faster. Always full of humanity.

Our Neighborhood- Every store is part of a community, and we take our

responsibility to be good neighbors seriously. We want to be invited in

wherever we do business. We can be a force for positive action – bringing

together our partners, customers, and the community to contribute every

day. Now we see that our responsibility – and our potential for good – is

even larger. The world is looking to Starbucks to set the new standard, yet

again. We will lead.

Our Shareholders- We know that as we deliver in each of these areas,

we enjoy the kind of success that rewards our shareholders. We are fully

accountable to get each of these elements right so that Starbucks – and

everyone it touches – can endure and thrive.


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2.1.1 Review of Mission Statement and Vision

Entry-level baristas at Starbucks get a full 24 hours training, which better

prepares them to stay calm and courteous in high-traffic situations. To keep

improving service, managers’ incentives are tied to the ratings they receive from

disguised Starbucks “quality assurance” agents, who visit at least three times a

quarter. In a 2009 Study by Business Weekly Starbucks ranked tenth in customer

service, top in both the food and coffee industries. The study was based upon

aggregated scores for each individual brand across the complete studies in J.D.

Power's 2008 database. To supplement the brands in J.D. Power's database,

3,000 BusinessWeek readers were surveyed and asked to nominate three

companies they felt were best and three they felt were worst at providing

customer service. More than 1,000 readers responded with 2,423 "votes" and

1,850 "complaints." Finally, Both sets of date were combined, the people and

process scores to establish the "Service Score.” Starbucks received a B+ in both

the peoples grade and the process grade and 62% of respondents said they

would definitely recommend the brand to a friend. Judging by this information,

Starbucks is meeting its customer service goals set forth in the mission

statement and the company vision.

A highly emphasized goal of Starbucks is to maintain good relations with

employees and make it a pleasant place to work. Since Starbucks began with a

single store in 1971, its overriding philosophy has been this: "Leave no one

behind." With that in mind, new employees get 24 hours of in-store training,

steeping them in information about coffee and how to meet, greet and serve

customers. Full health-care benefits (medical, dental, vision and alternative

services) are offered to all employees, including part-timers who work at least

240 hours per calendar quarter. As a result of such measures, Starbucks

employees have an 82 percent job-satisfaction rate, according to a Hewitt

Associates Starbucks Partner View Survey. This compares to a 50 percent

satisfaction rate for all employers and 74 percent for Hewitt’s "Best Place to

Work" employers.


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The company also encourages community involvement by donating $10

for each hour that an employee volunteers to a nonprofit or charitable

organization. Profits from sales of the company’s logo-emblazoned "coffee gear"

are channeled into clubs and services for employees, which include everything

from running groups and bowling leagues to quilting and book clubs. Employees

can donate an amount of their choice to a voluntary "CUP (Caring Unites

Partners) fund," which is used to provide grants to fellow employees who fall on

hard times. And every year, as part of its Earthwatch program, the company

selects a few employees to travel to coffee-producing parts of the world, where

they learn firsthand about environmental and conservation issues from the

growers. Last year two were selected; this year five are going.

In review, Starbucks is meeting all goals set forth in both the vision and

mission statement, however, this brings forth the question of whether or not that

translates into success/profit.

2.2 Major changes to the external environment of the coffee industry

Potential changes in the market include, new market entrants, changes in

the price of coffee, changes in buying habits of both the company and

consumers, and whether or not the market has become saturated through

continuous expansion.

2.2.1 New Market Entrants and Market Share Analysis

It is clear that the coffee market is rapidly growing and changing

due to new market entrants and continuous changes in consumer habits. Fierce

competition and exponential growth in the coffee segment keeps operators on

their toes, but recent years appear to have started a vibrant new chapter in

coffee’s long history.

Quick-service operators are taking advantage of the growing popularity of

coffee-based beverages by launching new products. Traditionally, Starbucks and

Dunkin’ Donuts have vied for market supremacy in the category, however, with


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the launch of McDonald’s McCafe specialty coffee line, as well as surprising

entries into the category from Coldstone Creamery, Emerald City Smoothies and

7-Eleven, the race for market share is heating up.

"We stayed away from the coffee thing for years, trying to stay on brand,"

stated Al Schriber, a partner at Emerald City Smoothies, which added a line of

hot nutrient-enriched coffees called "JavaFit" in February. In testing the coffees,

the company found that consumers were interested in a hot coffee that fit with

the brand's emphasis on healthful living, reported Nation's Restaurant News

(June 1). Whether a broader line of specialty coffee is in the company's future

remains to be seen.

Cold Stone's recently launched line of Sweet Cream Lattes is part of a

plan designed to grow the chain's average unit volume sales from $360,000 to

$500,000. "We were noticing that if a group of four came into a Cold Stone, three

might get ice cream or a shake, but the fourth would go down the street for an

ice-blended coffee," stated president Dan Beem. Mr. Beem also stated that the

coffee drinks are expected to increase the chain's overall traffic.

Since 2002, the number of coffee transactions in foodservice outlets

increased 24%, according to the NPD GROUP. The quick-service segment is the

driving force being that trend. More recent NPD surveys, however, indicate that

foodservice operators traditionally known for hamburger and donut offerings may

be gaining market share from gourmet coffeehouse chains. Looking at data from

the period January through March 2009, compared with the same period last

year, the total number of coffee servings within the quick-service segment was

estimated to total 1.4 billion. Of that, 653 million servings were reported as

specialty coffees. The number of specialty coffee transactions from hamburger

restaurants was up 61%, accounting for 10.9% of specialty coffee servings within

quick service. For the comparable period, specialty coffee transactions at

doughnut outlets were up 26%, accounting for 18.7% of servings. Meanwhile, the

number of specialty coffee servings at coffeehouse concepts declined 10% for

the same period to 49.2% of servings.


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Recent customer satisfaction surveys indicate that the perception of

quality and value for specialty coffees from hamburger restaurants is improving

as more chains have launched specialty coffee lines. Last year, Burger King

launched its Mocha BK Joe, a cold coffee drink, while Wendy’s announced in

May that it plans to launch coffee-flavored smoothies. Other quick-serve

restaurants such as Subway and Sonic have launched coffee-based drinks, as

well.

In hopes of gaining additional market share, convenience store operators

such as 7-Eleven are continuing to roll out ice-coffee and other specialty coffee

drinks. Iced-coffee has gotten so popular over the last year; it has passed iced

tea in sales as a breakfast drink, according to the NPD Group. The number of

morning meals that included iced coffee more than doubled over the past five

years from 2% in 2004to 4.6% through February 2009, reported USA Today

(June 15). Women and teenage girls are the most likely consumers to purchase

iced coffee drinks. Teen girls are 84% more likely to purchase iced coffee than

the average American, while women age 18 to 34 are 68% more likely. "This is

clearly a female drink," according to Harry Balzer of NPD.

Last year, coffee passed soft drinks to become America’s number-two

beverage after water, according to the annual National Coffee Drinking Trends

study conducted for the National Coffee Association. Experts say there’s still

room for growth. “McDonald’s getting into it is the writing on the wall,” Inman

says. “This trend hasn’t even started yet. It’s where fast food was in the 1960s.”

The rise of specialty coffee to widespread popularity mimics that of the

upgrading of many other American consumables, including wine, bread, cheese

or chocolate. In each case, once consumers tasted better quality, for many there

was no turning back.

Another factor boosting coffee’s popularity is that it’s an affordable luxury.

The best gourmet coffee sold in the U.S. today costs perhaps 32 cents a home-

brewed cup, says Ric Rhinehart, executive director of the Specialty Coffee

Association of America, or SCAA. In hard times, consumers may buy cheaper

wine, but coffee is relatively recession-proof. “You can drink specialty coffee


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anytime and not feel bad about it,” Rhinehart says. Chicago-based market

research firm Technomic reports that consumption of hot specialty coffee has

grown 14 percent in each of the past three years. Some 82 percent of American

adults are coffee drinkers, up from 79 percent in 2004. The SCAA reports the

specialty market topped $12 billion at the end of 2008. Additionally, the number

of coffee shops in the United States has grown from 1,640 in 1991 to nearly

24,000 at the end of 2008. The bulk of those, about 11,000, belong to the

Seattle-based company that coffee-watchers agree almost single-handedly

brought specialty coffee to the masses.

“Starbucks capitalized on the trend to better coffee by offering a unique

new presentation of that coffee,” Rhinehart says. “Americans weren’t used to

espresso-type drinks. We were starting to take more meals and beverages out of

the home. Starbucks was in that perfect spot of having a unique product, they

offered great value, there was a new consumer pattern…and they were

cognizant of their place in the social fabric, as a third place for people to gather.”

2.2.2 Coffee production and Pricing Trends

As opposed to futures prices, now of US 1.22 (Jan 09), average retail

prices during the mid-2000 decade (2005) averaged about US $3.20 per pound.

The United States consumes one-fifth of global coffee production - it is the

world’s largest consumer of coffee.

The U.S. Department of Agriculture's December 2006 estimate for 2006-

07 was that world coffee production had increased to 128.6 million bags, up 4.9

million bags from its June 2006 estimate. Production in 2008-09 was estimated at

13% above the 2006-07 period. Coffee production in 2008 is now estimated at

approximately 120 million bags.

World coffee exports totaled 7.75 million bags in July 2008, an increase of

1% compared with the volume of 7.67 million bags recorded in July last year.

Total exports in the first 10 months of coffee year 2008-09 (Oct-06 to Jul-07)


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were up by 13.3% from the same period last year, totaling 81.52 million bags

compared to 71.94 million bags in the prior year.

Total annual production of coffee was estimated at approximately 6.8

million tons in 2007 and was expected to grow to about 7.5 million tons during

2010. Coffee is normally shipped in bags weighing 60 kilos or about 130 pounds.

The top 5 global producing countries of coffee in 2009 are as follows:

Country Estimated Production (millions of bags)

Brazil 35Vietnam 18Columbia 12Indonesia 6Ethiopia 5

2.2.3 Changes in buying habits of both Starucks and Consumers

Starbucks initiated C.A.F.E. (Coffee and Farmer Equity) Practices to


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evaluate, recognize, and reward producers of high-quality sustainably grown

coffee. C.A.F.E. Practices is a green coffee sourcing guideline developed in

collaboration with Scientific Certification Systems (SCS), a third-party evaluation

and certification firm. C.A.F.E. Practices seeks to ensure that Starbucks’ sources

sustainably grown and processed coffee by evaluating the economic, social and

environmental aspects of coffee production against a defined set of criteria, as

detailed in the C.A.F.E. Practices Guidelines. Starbucks defines sustainability as

an economically viable model that addresses the social and environmental needs

of all the participants in the supply chain from farmer to consumer.

Starbucks bought 367 million pounds of coffee in fiscal 2009. Eighty-one

percent of that – 299 million pounds worth – from C.A.F.E. Practices approved

suppliers. Starbucks paid an average of $1.47 per pound for green coffee in

fiscal 2009.

Fair Trade Certified coffee empowers small-scale farmers organized in

cooperatives to invest in their farms and communities, protect the environment,

and develop the business skills necessary to compete in the global marketplace.

Starbucks began purchasing Fair Trade Certified coffee in 2000, helping

grow the market for Fair Trade Certified coffee in the U.S. And in 2009, increased

purchases to 40 million pounds – making Starbucks the largest purchaser of Fair

Trade Certified coffee in the world.

Coffee consumption in the United States has increased steadily since the

1960’s. Through the recent recession, coffee was essentially recession-proof.

Daily consumption of coffee beverages among consumers remained unchanged

as compared to 2009, with 56% of adults partaking. 84% of consumers have not

changed their consumption habits despite the economic environment.

2.2.4 Has Starbucks saturated the Market?


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Today, consumers enjoy having a coffee place that's right around the

corner and worth the price. Unfortunately, it is common belief that, Starbucks

took the demand of the consumer a step too far, by over saturating the market

with stores.

One of the best examples of over saturation can be found in a strip mall in

Colorado. Exactly three Starbucks locations can be found; no more than 750 ft

away from one another, and two of the three stores are only 200 ft away from

each other. By flooding the market with spots for coffee, Starbucks has been

wasting growth potential, and opting for current market optimization.

Unfortunately, the optimization is becoming wasteful and hurting the brand

image.

In a number of press releases, Howard Schultz, Chairman and Founder of

Starbucks, has mentioned the loss of original roots associated with becoming a

chain store. The focus on coffee shop ambiance was the root to Starbucks'

success, but somewhere along the line the company lost the entrepreneurial

spirit. It is not just the fact that Starbucks is now on every block that has hurt the

company; it is the loss of the entrepreneurial spirit that has affected the public

opinion. At one point in their history, Starbucks was seen as a coffee shop

dedicated to customer satisfaction. After rapid expansion and growth Starbucks

is now seen as a corporate giant concerned with one thing; profit. This problem

was quickly addressed with the return of Howard Shultz, and the effects are

starting to be noticed by the change in public opinion.

2.3 Consumer Profile and Target Market

Starbucks strategy has been to position itself as an upscale brand and

differentiate its offerings as being not just coffee products, but rather a rich

"experience". This Starbucks "experience" has been the company's selling point.

The company initially targeted young college students, social classes, and

neighborhoods that would be most receptive to the idea of buying $3 a cup of

coffee and spending time with friends at their stores. With rapid growth and

expansion, Starbucks target market expanded rapidly to include every individual


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of every age. The company targeted small towns, rural communities, ethnic

neighborhoods, highway rest stops, and even markets already saturated with

various coffee shops ("Starbucks Corp: Long-Term Growth Goal Raised To

30,000 Stores World-Wide"). What began as a niche target market eventually

came to include consumers from all facets of life.

Starbucks is often considered an affordable luxury, enabling the Company

to broaden its demographic reach in recent years. Five years ago, the typical

Starbucks customer was older, had an advanced degree and more disposable

income. Today's Starbucks customer has expanded to include a younger (13

percent 18-24 years old), more diverse (37 percent multi-cultural), and slightly

lower average income ($55,000 per year).

"We are reaching more and more new customers by introducing innovative food

and beverage products with broad appeal and by taking our stores into

increasingly diverse markets," said Jim Alling, president, Starbucks Coffee U.S.

"By connecting with customers, serving the highest quality coffee and striving to

consistently deliver legendary service, our store partners are at the core of the

Starbucks Experience."

2.3.1 Specific Consumer Profile


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Starbucks target consumer:

The target consumer is age 25 to 35 and is a college graduate. The

consumer is single and devoted to their career, which is most likely in a corporate

business setting. They work from nine to five, five days a week and spend time at

home on their work. The consumer is middle class and is more concerned with

image and status rather than price. The consumer seeks quality and

convenience. They regard relationships very important and enjoy small talk with

family and friends in a relaxed social setting.

2.4 Revenue Sources

Starbucks Corporation generates revenue both from its company-operated

retail stores and from specialty operations. From 2004 to 2008, Starbucks grew

its revenue by 14.5% CAGR, culminating in 10.4 billion in sales in 2008.

Starbucks generated double-digit percentage earnings growth since it's inception.

Through its company-operated retail coffee houses, Starbucks sells high-quality

whole bean coffee, freshly brewed coffee, premium teas, a variety of cold

blended beverages, various food/pastry items, and coffee/beverage related

equipment and accessories, as well as a line of CDs. In 2008, Starbucks


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operated 7,238 retail stores in North America and 1,979 stores internationally. Its

retail-operated stores generated 84% of its total revenue.

Third Place Experience

Starbucks’ success is due in large part to the trendsetting triumph of its

coffeehouses as an informal and convenient "third place" outside of home and

work, ideal both for informal meetings and a quiet moment away from the hubbub

of daily life. Wi-fi Internet access in all stores also makes it a place where

customers can work. Book and music events also take place at Starbucks, in

accordance with the company's goal of making each location a community center

of sorts to garner the loyalty of local customers.

Specialty Operations

Starbucks’ specialty operations segment tries to develop the company's

brand through third parties outside the traditional coffeehouse. Specialty retail

operations accounted for 16% of Starbucks’ total revenue in 2008.

• Licensed Stores: Located in places like airports and supermarkets, licensed

stores generate licensing fees and royalties as well as revenue from

Starbucks’ coffee, tea, and CDs resold in the licensed locations. In 2008,

Starbucks had 4,329 licensed stores in North America and 3,134 abroad,

accounting for 48% of Specialty Ops revenue and 8% of total revenue.

▪ Packaged Tea and Coffee: Starbucks sells its packaged coffee and tea as a

retail product at various food stores. This accounted for 21% of company's

specialty revenue and 3% of total revenue.

▪ Branded Products: Starbucks has partnerships with Pepsi and Dreyer's to

develop and distribute ready-to-drink beverages and ice creams. This

accounted for 4% of company's specialty revenue and 1% of total

revenue.

▪ Foodservices Operations: Starbucks sells its coffee to foodservice operators

like restaurants, offices, hotels, and cafes (including the Barnes and Noble


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Cafes) that operate under different licensing contracts. This segment

accounts for 25% of company's specialty revenue and 4% of total

revenue.

Other: Starbucks also has entertainment business relationships with Hear Music,

Satellite XM Radio (24-hour Starbucks Hear Music digital music channel), and

provides wireless broadband Internet service in company-operated retail stores

in U.S and Canada. Starbucks also has a credit card agreement with Chase. This

division accounts for 2% of specialty revenue and less than 1% of total revenue.

2.5 New Product Release

In March 2009, Starbucks introduced its new-technology instant coffee

packets called VIA "Ready Brew", unveiling it in New York City with subsequent

testing of the product also in Seattle, Chicago and London. The VIA flavors

Italian Roast and Colombia were then rolled out in October 2009, across the U.S.

and Canada with Starbucks stores promoting the product with a blind 'taste

challenge' of the instant versus fresh roast. The consumer test showed that many

people could not tell the difference, often preferring the instant over the fresh

brewed. Some analysts worry that by introducing instant coffee Starbucks will

devalue its own brand. The successful launch was soon followed by a Decaf


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Italian Roast, and later with a sweetened version called "iced" (even though all

VIA varieties can be made directly as an iced drink). In October 2010, Starbucks

expanded the VIA selection by introducing four new presweetened flavored

versions: Vanilla, Caramel, Cinnamon Spice and Mocha.

3.0 Competitive Analysis

“The coffee bean provides a livelihood for over 20 million people

worldwide with an estimated worldwide retail sales expected to grow by a

compounded rate of 6.9% from 2005-2010, reaching $48.2 billion by 2010,

according to the U.S. Market for Coffee and Ready-To-Drink Coffee.” Starbucks'

marketing strategy involved positioning its Starbucks outlets as a place where

consumers can spend time other than their home or work. This was done by

making each of its stores as comfortable and relaxing as possible. They want to

be known as the “third place”, home, work, and then you have Starbucks. The

coffee giant achieved these using creature comforts, such as comfortable

furniture and relaxing music. Over the past several years, Starbucks also

included offerings such as wireless internet, handicapped access, complimentary

books, and common areas for collaboration. While Starbucks stores are

positioned as locations where customers can spend time in a comfortable setting,

their product lines are positioned at the higher end in regards to prices and

quality.

3.1 Starbucks Competitors

Starbucks competitors in the coffee beverage sales include 7-Eleven,

Dunkin Donuts, BIGGBY Coffee, Caribou Coffee, McDonald's, Panera Bread,

and Einstein Bagels. Competitors such as McDonald's and Dunkin Donuts not

only have extensive menus, but also the financial resources and position to

leverage their strengths to threaten Starbucks profitability.

3.1.1 Dunkin’ Donuts

Dunkin' Donuts is an international donut and coffee retailer founded


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in 1950 in Quincy, Massachusetts by William Rosenberg. It is now headquartered

in Canton, Massachusetts. Despite originally focusing on donuts and other baked

goods, over half of Dunkin' Donuts business today is in coffee, making it more of

a competitor to Starbucks as opposed to traditional competitors Krispy

Kreme and Tim Hortons.

3.1.2 Caribou Coffee

Caribou Coffee is a specialty coffee and espresso retailer, the second

largest in the United States after Starbucks. Caribou sells gourmet coffees, teas,

and bakery goods in 415 company-owned coffeehouses in 16 states and the

District of Columbia, as well as 80 franchise locations worldwide. Caribou

Coffee’s revenue for year 2009 was 282.6 million.

3.1.3 McDonalds

McDonald’s executives came out swinging when they announced their

assault on the comfy world of coffee shops. After the success of its upgraded drip

coffee — which even managed to snag a thumbs-up from testers at Consumer

Reports earlier this year — the fast food chain known for super-size meals is

gearing up for a massive expansion into the world of lattes.

“We want to move from beverages as an accompaniment to being a

beverage destination,” Don Thompson, president of McDonald’s USA, said in a

meeting with analysts Tuesday. “Our speed, our convenience, the value that we

can afford to customers without quality comprise will make us a formidable

player.” Restaurants will offer lattes, mochas, cappuccinos and espressos with a

choice of different flavorings and milk. Industry watchers say the drinks cost

about 50 cents less than at Starbucks. McDonalds is a semi-recent competitor for

Starbucks that has evolved over the past few years. A 12-ounce cup of brew

starts at $1.40 at Starbucks, a penny more than the average McDonald's brew

price. A small McDonald's latte costs $1.99 compared with $2.45 to $3.15 at

Starbucks.

3.1.4 Others

In terms of perception, 7-Eleven and Dunkin Donuts provide coffee in a


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"no-nonsense fashion", which attracts customers who are extremely price

sensitive. Caribou Coffee's environment is similar to that of Starbucks because of

furniture, free Internet, and cozy surroundings, but their lack of market expansion

has prohibited them from gaining the notoriety Starbucks has achieved. Finally,

BIGGBY Coffee is in the middle ground where the likes of Dunkin Donuts and

Caribou Coffee separate themselves. Small independently owned coffee shops

also compete with individual locations of Starbucks, however, they do not own

enough of the market share to have a major effect on the Starbucks Brand.

3.2 Competitive Advertising

“We get a lot of questions on the competition and that everyone seems to

be picking on Starbucks through their advertising as they try to reposition

Starbucks as expensive or snobby, and, boy, when is Starbucks going to start

advertising and join in that coffee conversation?" Starbucks Chief Marketing

Officer Terry Davenport told investors in New York. "We're not going to get into

that conversation. We're not going to get sucked into the, 'My coffee is better

than your coffee,' price point type of coffee conversation. We're going to play at a

much higher level." Starbucks is relatively new to the advertising game after two

decades of building its brand on word of mouth. However, armed with newly

hired advertising agency BBDO New York, Starbucks placed two commercials

recently. One, which ran during the "Saturday Night Live" show before Election

Day, advertised that Starbucks would give out free coffee Nov. 4. The second ran

on the heavily traveled Wednesday before Thanksgiving, on the Weather

Channel and CNN, to let customers know that Starbucks would be donating

portions of coffee sales to help African AIDS victims. The coffee giant also is

turning to cheaper modes of advertising via YouTube, Facebook and Twitter.

3.3 Features, Advantages and Benefits of Starbucks

Starbucks has several features that help them continue to succeed in their

coffee segment. They have many specialty coffee selections, flavors, and variety.


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For example, ice coffees, frappuccinos, smoothies, tea, and holiday specialty

drinks in different seasons.

Advantages of Starbucks include the atmosphere that going into a

Starbucks portrays. Many people go to Starbucks for the surroundings and to

“hang out”, not just to enjoy their coffee. The employees or “baristas” have been

trained not only about the Starbucks Corporation, but about the coffee market as

a whole. Starbucks continues to higher people that enjoy there type of

surroundings and love what they do. It is an advantage to see a happy employee

who enjoys their job; it makes the consumer’s experience that more enjoyable.

Benefits of Starbucks are the free Wi-Fi service so the business

professionals can come in and work on a lunch break or in the evenings. This is

also beneficial for college students to study during finals week. Starbucks is all

about the experience and being able to provide their consumers a high quality

coffee. I believe that is also a benefit; they only provide the best coffee, which is

why they charge a higher price.

3.4 Perceptual Map of Starbucks and its Competitors (Coffee Shop Market)

The graph below illustrates customer perceptions regarding various brands:


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3.5 Marketing Mix

In order to maximize their brand awareness and establish themselves as

the most recognized and respected brand in the world and within their target

market, Starbucks implemented a well-integrated marketing program that would

utilize a marketing mix (product, price, place, and promotion) that would satisfy

the needs and wants of its target market. The four elements of marketing mix that

Starbucks utilized are as follows.

3.5.1 Product

Starbucks product-mix expanded from 30 varieties of whole bean coffees

to eco-friendly cappuccino, coffee makers, and other Starbuck paraphernalia. Its

product offerings have also expanded beyond pastries and coffee to oatmeal,

smoothies, and wraps to keep up with the competition and satisfy more customer

needs.

The company has also been constantly introducing new products, such as

"Instant via Ready" and "Full Leaf Tazo Tea Lattes" and "Tazo Tea Infusions".

The Instant via Ready is an instant coffee that the company claims is

indistinguishable from its regular brewed coffee (Jargon). Full Leaf Tazo Tea

Lattes and Tazo Tea Infusions are the company's new tea offerings through

which it hopes to attract tea drinkers. The company also offers Starbucks coffee

and cappuccino makers for consumers who wish to replace their existing home

coffee makers.

3.5.2 Price

Starbucks products are priced higher due to perceived upscale image

attached to its brand. The company also began to offer $1 bottomless 8 oz. cup

of coffee, with unlimited refills that cost approximately 50 cents less than any

other Starbucks products. The company is also implementing "value strategies"

that would emphasize more on inexpensive coffee products rather being

perceived as unaffordable to price-skittish consumers. For example, the

company introduced $3.95 "breakfast pairings," including popular breakfast items


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paired with a coffee, and highlights $2 brewed coffees instead of the more

expensive specialty drinks.

3.5.3 Place

Starbucks can be found in any neighborhood where there is a perceived

high traffic for its stores. Starbucks outlets can also be found in-store of various

large chains including Barnes & Noble and Target. Their locations are extremely

conducive for individuals that are on the go and for those who enjoy reading or

listening to music. Starbucks has also been recently testing "stealth outlets",

where the store is named after the street it is located on. The new stores attempt

to "localize" Starbucks stores with no Starbucks logo on any of the products

being offered there, and instead have the specific street address as the brand

name.

3.5.4 Promotion

Starbucks has implemented numerous promotions to reach its target

markets. Promotions are listed as follows:

• One of the promotions that Starbucks has used is the Starbucks Card.

Starbucks Card is an initiative that offers customers the opportunity to promote

company's products through a referral system. When a customer purchases a gift

card, it not only shows brand loyalty, but it also provides the company with free

advertising, and brings in new customers. Starbucks also provides a card for

corporate sales, which are used for extrinsic rewards to show employee

appreciation for a job well done, or a gift to client or a vendor.

• Coffee services delivered to offices without coffee size restrictions.

• Appealing to a diverse customer base by offering international teas and coffees

to accommodate those customers that want a taste from home or for locals that

enjoy tea.

• Using philanthropy as a means for promotion - Starbucks contributes to several

non-profit organizations as a way to improve brand image and awareness in local

communities.


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3.6 Establishing Competitive Advantage

This section will explain in detail what differentiates Starbucks from its

competitors. The evaluation will consist of analyzing the marketing concepts,

principles, and strategic tools that Starbucks utilizes in differentiating themselves.

Starbucks is a company that has differentiated itself by convincing

consumers that it is selling more than a cup of coffee. Further, their brand image

is associated with a sense of community activism. Starbucks feels that if they can

identify with customer's societal endeavors, they would be differentiating

themselves on these principles. A company's ability to adapt to changing markets

wants and needs is a key to its survival. Starbucks is a great example of a

company that has done a tremendous job in this area. The company managed to

maintain the wants and needs of the customers at the top of its list, and through

a differentiated strategy earned incredible revenues from a readily available

commodity, coffee.

Starbucks is selling an easily accessible tangible product, but has evolved

into a company that is doing much more than that. There is also a philosophy

and an image Starbucks is attempting to promote through its products. The

company is heavily involved in public relations, promoting an image of a

responsible company that has the resources to make good on its promises.

Starbucks promotes ethical sourcing, environmental stewardship, and community

involvement and goes as far grading itself on the company's website ("FY 2008

Global Responsibility Report"). The company boasts of being ethically committed

to all stakeholders in the business - from the coffee bean farmers to the issues of

climate change. Starbucks maintains that being ethical is a top priority of the

organization. Starbucks is also very much involved in community activities. The

company sent 2,000 volunteers to Louisiana to help locals get their lives back on

track after Hurricane Katrina, and in several communities laid sod, and planted

over 1000 trees ("FY 2008 Global Responsibility Report"). As one volunteer said,

"Starbucks is all about the human connection" - this statement is a powerful

representation of what the company represents. The focus on the greater good of


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the customers is what Starbucks wants to be known for. Starbucks wants its

customers, and potential customers to perceive them as a company that has a

positive impact on the world. This is one of the ways Starbucks is using

marketing concepts to strengthen its marketing strategy of a differentiator.

4.0 SWOT Analysis

4.1 Strengths

- Wide range of coffee-products sold through the company’s retail

operations

- Research and development capabilities leveraged to strengthen product

portfolio

- Operations in more than 50 countries and relationships with established

players such

- as Kraft, PepsiCo, DreyersGrand ice cream

- It is a global coffee brand built upon a reputation for fine products and

services

- The organization has strong ethical values, commitment to the

environment, and community activists.

Starbucks stores offer a wide choice of regular and decaffeinated coffee

beverages, a broad selection of Italian-style espresso beverages, cold blended

beverages, iced shaken refreshment beverages, a selection of premium teas,

and distinctively packaged roasted whole bean coffees in both US and

international markets. Furthermore, it also offers variety of fresh food items,

including healthier choice selections focusing on high-quality ingredients,

nutritional value and great flavor. Food items include pastries, prepared breakfast

and lunch sandwiches, oatmeal, and salads as well as sodas, juices and bottled

water. Additionally, Starbucks is a retailer of specialty coffee in the world.

Starbucks also sells coffee and tea products and licenses its trademark through

other channels such as licensed retail stores. Starbucks operated 8,832


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company operated stores and 7,803 licensed retail stores worldwide as of

September 2009. Such an extensive product offering enabled the company to

enhance its reach, cater to a wider customer base and meet their diverse needs

efficiently.

The core strength behind Starbucks's brand is the quality of its products.

The company has a strong research and development team which is responsible

for the technical development of food and beverage products and new

equipment. Starbucks's strong research and development capabilities enable it to

focus on relevant product innovation, expansion and leveraging of its existing

products and sales channels. For instance, in FY2009, the company launched

Starbucks VIA ready brew coffee to capture a significant share of both the $21

billion global instant coffee category and the single-serve market and further

expanding its coffee expertise and leadership in local and international markets.

Starbucks VIA is made with a proprietary, US patent-pending microgrind

technology to preserve the coffee’s taste, quality and freshness. Additionally in

September 2009, the company’s brand Seattle’s best coffee introduced “Just

Pure Flavor”, an innovation for fresh brewed coffee that offers customizable

flavor by the cup. The new flavors use no dairy, sugar or artificial sweeteners,

and add less than 50 calories to a 12 fl. oz. (5 calories) beverage.

Starbucks invests substantial amount of resources on technical research

and development activities including customary product testing and product and

process improvements. For instance, Starbucks spent approximately $6.5 million,

$7.2 million and $7.0 million during FY2009, 2008 and 2007, respectively on its

research and development activities. Starbucks's focus on quality and product

innovation help sustain the brand value of the company and introduction of new

products at regular intervals helps them to stay competitive.

Starbucks is well positioned to increase its revenues, customer’s base,

and profit margins through its expanded presence in international markets.

Starbucks currently operates in more than 50 countries.The company’s

international markets include Argentina, Australia, Austria, Brazil, Bulgaria,

Canada, China, Czech Republic, France Germany, Greece, Hong Kong,


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Indonesia, Ireland, Japan, Malaysia, Mexico, Middle East New Zealand, Peru,

Poland, Portugal, Romania, Russia, Singapore, South Korea, Spain Switzerland,

Taiwan, Thailand, Turkey and the UK.

Additionally, Starbucks also has established relationships with Kraft

Foods, the largest confectionery, food and beverage corporation in the US. For

instance, Starbucks sells its branded packaged coffees and teas in grocery and

warehouse club stores throughout the US through its licensing relationship with

Kraft Foods. Kraft Foods manages all distribution, marketing, advertising and

promotion of Starbucks products. Additionally, Starbucks also sells packaged

coffee and tea internationally both to warehouse club stores, such as Costco

Wholesale, and to grocery stores through a licensing relationship with Kraft in

Canada, the UK and other European countries.

4.2 Weaknesses

- Product recalls by Starbucks affect margins and brand image

- The organization has a strong presence in the United States of America

with more than three quarters of its cafes located in the domestic market

- Starbucks has a reputation for new product development and creativity.

However, they remain vulnerable to the possibility that their innovation

may falter over time, and product acceptance will come to a halt

eventually slowing growth.

- Higher coffee prices compared to competitors

- Downward turn in economy, people being more conscious of their

spending habits and grabbing the less expensive option, Starbucks not

being the one.

Starbucks has recalled few of its products in the recent times. For instance in

FY2009, the Consumer Product Safety Commission ordered recall of thousands

of Starbucks and Seattle's best coffee blade grinders. The recall was prompted

as the company’s grinders can fail to turn off or can turn on unexpectedly, posing

a laceration hazard to consumers. The total recalls of company products included

530,000 grinders. Additionally, the company announced a voluntary recall of

more than 12,000 glass water bottles due to the possibility of lacerations. The US


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Consumer Product Safety Commission and Health Canada claimed that while

removing or reapplying the bottle’s stopper, the bottle can shatter and cut the

consumer which strained Starbucks to recall its glass water bottles in FY2009.

Furthermore, Starbucks also recalled few of its products containing peanut butter

from its stores following an outbreak of salmonella in the US. Product recalls

such as these hurt the value of the Starbucks brand and lead to a decline in the

demand for its products.

4.3 Opportunities

- Cost reduction initiatives such as rationalizing of global retail network to

improve margins

- Entry into Europe’s ready-to-drink coffee sector and a tie-up with Arla

Foods

- Introduction of Starbucks VIA coffee essence in Japan

- Stable credit ratings strengthen stakeholder confidence

The company in FY2009 initiated a cost reduction program to improve its

margins through rationalizing its global store portfolio. For instance, during the

year, Starbucks completed the closure of nearly 1,000 company-operated stores

globally. At the end of FY2009, approximately 800 US company-operated stores,

61 stores in Australia and 41 company-operated stores in other international

markets had been closed. The remaining international store closures are

expected to be completed by the end of FY2010. Initiatives such as these helped

the company to improve its operational efficiencies through reduced cost

expenditures. For instance, through closure of company’s stores globally has led

to cost savings of $580 million in FY2009 for Starbucks, and few more closures

expected in FY2010 is likely to reduce further cost of the company which

positively impact the margins. Cost reduction initiatives and related operational

efficiency efforts such as these will significantly contribute to the margin

improvement of the Starbucks.

Starbucks announced to enter the ready-to-drink (RTD) coffee products in

Europe in January 2010. The ready-to-drink coffee category market in Europe is

valued to be $550 million. Furthermore, during the same year, the company also


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signed an agreement with Arla Foods, a leading producer and distributor of

quality milk products in Europe. Under the agreement, Arla Foods will

manufacture, distribute and market Starbucks-branded premium RTD coffee

beverages in Europe. The new relationship with Arla Foods complements

Starbucks coffee expertise and experience in the ready-to-drink coffee category.

Furthermore, extending the Starbucks brand into new distribution channels

globally is a part of the company’s long-term plans to target international growth

in key regions such as Europe. The success of Starbucks premium RTD

products in the US and Asia demonstrates strong business opportunity for the

company in European markets. The company’s decision to enter European

markets through introduction of its strong RTD coffee category products will

boost its top line and also expand its geographical reach.

After the company’s successful introduction of Starbucks VIA ready brew in

the US, UK and Canadian markets in FY2009, it launched Starbucks VIA coffee

essence in FY2010, its first premium coffee stick product in Japan, where 63% of

total coffee sold is instant. The company will sell its Starbucks VIA coffee

essence product through 870 Starbucks stores in Japan and eventually expand

distribution to include grocery shops and other retail channel. Japan is one of the

biggest market at-home coffee markets valued at $5 billion. With the body, flavor

and rich aroma expected from Starbucks coffee,

Starbucks VIA coffee essence will create a new category for coffee drinkers

looking to enjoy Starbucks quality coffee in Japan. Additionally, Japan is a key

market for Starbucks as it eyes the $23 billion instant and single serve coffee

market. The launch of Starbucks VIA coffee essence in Japan is likely to expand

Starbucks customer base besides enhancing revenues.

Starbucks has been rated well by credit rating agencies on account of

recording strong financials for FY2009. For instance, the rating agency Standard

and Poor’s Ratings Services in August 2009, revised its outlook on the Starbucks

credit ratings to stable from negative based on improved credit metrics and

stabilizing performance. It also affirmed the BBB corporate credit rating on the

company and raised the short-term rating to A-2 from A-3. Strong financial


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performance and improved cash flows were the main reason for Starbucks’s

improved ratings. The stable credits of the company increase stakeholder

confidence and also provide an opportunity to raise finances to meet any

expansion plans in the future.

4.4 Threats

- Increased minimum wages affect operating margins

- Discretionary spending negatively impact margins

- Increasing health consciousness among Americans could reduce demand

- Continued threat in the coffee competition

In recent times, tight labor markets, increased overtime, government-

mandated increases in minimum wages and a higher proportion of full-time

employees have resulted in an increase in labor costs, which could materially

impact the company's operating margins. The federal minimum wage rate in the

US, which remained at $5.15 per hour since 1997 reached $6.55 per hour in July

2008. It is expected to further rise to $7.25 an hour from July 2009. Starbucks

employed about 142,000 people in the US, as on September FY2009. Increased

labor costs could increase overall costs and affect the company's operating

margins.

As a retailer dependent upon consumer discretionary spending, Starbucks will

face an extremely challenging FY2011. All major western counties including the

US, UK, Germany, France, Italy, Spain, Japan and Australia are in the grip of

recession and are forecast to remain so through 2010. Even the key emerging

market economies are currently experiencing downturns, including China, Middle

East and Brazil. The global economic downturn has led to a severe decline in

consumer confidence. Consumers also have less money for discretionary

purchases as a result of job losses, foreclosures, bankruptcies and reduced

access to credit. A decrease in consumer confidence and the resultant curbed

consumer spending would result in decreases in customer traffic and average

value per transaction. Starbucks's business is highly sensitive to changes in

customer traffic, and the current economic downturn would put downward

pressure on the company's margins.


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Starbucks's products contain caffeine, dairy products, sugar and other active

compounds, the health effects of which are the subject of increasing public

scrutiny. It is suggested that excessive consumption of caffeine, dairy products,

sugar and other active compounds can lead to a variety of adverse health

effects. Particularly in the US, there is increasing consumer awareness of health

risks, including obesity, due in part to increasing publicity and attention from

health organizations, as well as increased consumer litigation based on alleged

adverse health impacts of consumption of various food products. Increasing

health awareness among American consumers could significantly reduce the

demand for the company's beverages and food products.

5.0 Market Research Findings

5.1 Starbucks “Board of Customers”

In September 2010, we designed a revolutionary market research plan

called the “Starbucks Board of Customers”. We decided to conduct a coffee

convention that completely analyzed every part of our operation. In order to gain

an unbiased and honest opinion, Polaris National Marketing Research Firm

conducted the convention. The convention took place in, Los Angeles, Seattle,

Phoenix, Dallas, Miami, New York, Charlotte, Atlanta, and on the Internet. The

convention provided consumers with the opportunity to taste new potential

brewing flavors, while they shared their opinion on what Starbucks needed to

change.

The results were very eye opening and what we found was that Starbucks

had lost their personal touch and had become another profit hungry corporate

machine. The following opinions are those of real Starbucks customers. The

people interviewed ranged from Starbucks fanatics, average Joes, and anti-

Starbucks activists. We looked at every survey and suggestions submitted,

(almost 500,000 surveys in total) and picked out the ones that represented what

most customers were saying.


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“Personalization is Key”

“The coffee is still as good as ever, the flaw is in the ambiance. The interior

of each Starbucks location is growing more and more placid; meaning it needs

SOUL. I recall a Starbucks in Kent, Ohio where students from the nearby

university would gather on all nights of the week to reminisce, relax, and enjoy

coziness away from school life. The employees were students as well and they

joined their classmates in discussions while still doing their job. The atmosphere

at this Starbucks was warm in the winter and vibrantly cool in the summer.

Being a college student who has recently moved to New York City, I have noticed

a slight similarity in the Starbucks locations here—the interiors are all the SAME.

It could be that the general method of Manhattan-ites is “In quick to get my coffee

and go”, but I am not always in a rush and would like some identity as a

consumer. I want to be able to say, “It’s MY Starbucks and they are MY

Baristas.” –Kristopher Patel, St. Johns University

“Just as neighborhoods are unique, stores need to be unique”

I think Starbucks can grow and maintain its core values, its soul if you will,

and allow for each store to create a unique ambiance. Neighborhoods are

different and if you want a neighborhood store, there needs to be flexibility to

adapt and customize for the consumer. Starbucks can function this way as long

as the core values are at the center of the issues. To do that, they need to get

back to their roots of being a coffee house with the smell of coffee and where

fresh, custom-made drinks are prepared the old fashioned way. That’s what

made Starbucks. –Jamey Shields, Los Angeles, California

“There are too many Starbucks”

It was OK when there were some. Not now. Just today I noticed a new

Starbucks on my work commute. Hmm, let me count the number of Starbucks

or other Starbucks-branded locations on my eight mile commute to work: there’s

one Drive-thru location, three in Albertson’s, one 24-hour Starbucks (2 blocks

from Albertson’s), one inside target, and two more standalone Starbucks within a


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4 block radius of each other and the target outpost. And there are no large office

parks on my drive! In fact only a handful of people work on this route! Clearly this

is far too many Starbucks! They are starting to be to concerned with the quantity

of stores than the quality. Every Starbucks is the same and the flooding of the

market is starting to get frustrating. –Jane-Ann Ervine, Dallas, Texas

“Slow down!!”

Everything needs to slow down at Starbucks. It’s becoming a fast food

restaurant because the employees are letting it. There needs to be more of a

welcoming in-store feeling where people can enjoy a coffee without a lineup of 30

people and employees yelling “triple skinny latte!” Perhaps offering a few select

dine-in coffee services? I know this is bold and very different, but I feel like it

reflects the luxury Starbucks is trying to convey. Having a full-service coffee

place also allows for people who go to meet up for a coffee somewhere a little

special to relax and chat without all the hustle and bustle. It’ll give a little revamp

to the image, and hopefully upgrade it a bit. –Rob Stevens, New York, New York

“Reach out to the College student and young businessman crowd”

To reach the College/Young Businessman crowd, Starbucks must do three

things:

#1) Offer free Wi-Fi. This is a no-brainer. I was going to study at a

Starbucks today but did not since they did not have free Internet.

#2) Create the next big coffee or non/coffee drink trend. Starbucks

continually tries to add to its offering, but few new drinks stick. Much of

Generation Y began their coffee addiction thanks to the cold blended

Frappuccino drink that you can now purchase anywhere. What’s the next big

drink? I think it’ll be something non-coffee. Our generation loves energy drinks—

so how can we get a similar kick in a better tasting WARM drink without coffee

flavoring. Starbucks does this well in the summer, but poorly the rest of the year,

with their only real non-coffee offering being tea and the popular Chai Latte.


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#3) Treat each store as its own entity. I don’t mean with store layout design.

Create buzz around each store if you want a local feel. Stores near college

campuses should be open 24 hours during finals week, or at least offer free drip

coffee during those weeks for anyone with a Student ID. Many small business

meetings occur at Starbucks. What are their needs? Wi-Fi, of course. But maybe

they also need to be able to reserve space to meet. Let them call in advance to

reserve a small, comfortable area in the corner for a set price. Does the area

mostly cater to families? Have toys for children to play with while the moms grab

a Chai tea, or free treats if you bring in your dog. Cater to your local crowd, and

they’ll keep coming back for more.- Eric Cassilious, ChangeThis.com

“Enhance the sense of community that used to exist at Starbucks”

The success of Starbucks rests in its ability to create a community—a place

where like-minded folks can come in and get a fantastic coffee experience. But

also, a place where customers can buy into an identity, a culture, and a

community of coffee-lovers and lingerers is the key. People can argue all day

long about how the coffee is prepared, but all functional things can be copied

over time. There was a time when carrying a Starbucks coffee cup as you walked

down the street said something very distinct and very positive about you. With

ubiquity comes an unavoidable backlash from the folks who long to be special,

different, trendy and admired. The trick now, and in the future, is for Starbucks to

figure out ways to continue to give customers the ability to be included in a

community that enhances their own self-worth. there will always be functional

things they will have to do to remain relevant—such as offering new and different

drinks, foods, music, etc. But the real way to win in the long run will be to make

the Starbucks cup cool. To carry and the Starbucks couch cool to read the

Sunday paper on. Make the Starbucks community the community with which

people want to be identified. The tastes, the scents, and the theatre—these are

now all costs of entry. The question is—can Starbucks create a ‘cool’ community

out of ubiquity? –Len Herstein, Charlotte, North Carolina


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6.0 Objectives

6.1 Expansion of specialty branch “15 th Avenue”

It could certainly pass as a stand-alone Seattle neighborhood coffee

house. There is an eclectic mixture of old wooden tables to sit at, and pictures by

local artists adorn the walls. Wine and beer are on sale, too, along with cheese

and meat plates. It feels cozy and not at all corporate. The only clue to the true

identity of 15th Avenue Coffee and Tea is the small print on the door: “inspired by

Starbucks”. For “inspired by”, read “owned and operated by”. Our goal is to

design new specialty sub-brands in order to capture more of the coffee market.

This will effectively enable us to compete with small town, individual coffee

shops, rather than being seen as a corporate entity.

The objective is to have more than 200 locations in the United States by

year 2020.

6.2 Capitalize on the in-home brewing market

To capitalize on the growing market for single cup brewers, we are going

to channel a majority of our research efforts to design a new brewer that will

allow consumers to brew a single cup of Starbucks Coffee, in their own home. By

the year 2015, we aim to have more than 15 million brewing systems in the

United States.

6.3 Launch ad campaign with a focus on in-home/on-the-go Via coffee

Over the past decade, we have not taken full advantage of the effects that

today’s advanced media can have on a company or product. Beginning in

January 2012, we plan on launching an add campaign advertising the release of

our single cup brewing systems.

6.4 Changing the focus from quantity of locations to the quality

Using the results from, Starbucks Board of Customers, we aim to increase

the quality of our existing retail locations. We also aim to slow the expansion of


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our main retail locations to 100 per fiscal year. In the year, 2020, we will conduct

another “Board of Customers” convention to measure the success of our efforts.

7.0 Strategies

7.1 Expansion of Specialty branches “15 th Avenue”

We will conduct a year of intense market research in a potential location

for a “15th Avenue” coffee shop. The Starbucks strategy for these specialty shops

is to shy away from the ‘corporate Starbucks atmosphere’ and the current

‘blanket approach’ that they are currently in. These specialty shops will not

display the Starbucks logo and many consumers will not know the business is

“inspired by Starbucks”. A significant road names each specialty coffee shop in

that area, hence the only one that is now operating is named after “15th Avenue”.

The name in itself will give the location that its in a sense of their own special,

unique coffee shop. We will produce and design a customized experience for

each location. For example, a “15th Avenue” in Texas will differ from one in New

York because of the lifestyles and demographical difference between the areas.

The locations of the “15th Avenues” won’t be that of Starbucks. Starbucks’ are

generally located in well-populated metropolitan cities. We want “15th Avenue to

be in smaller cities to portray the home town atmosphere specifically for each

location. No 15th Ave is going to be the same. Starbucks is a brand with very high

recognition that is compatible for any consumer; their stores should reflect the

same aspect as their product.


We are going to research and develop an in-home, single cup coffee brewer

that is similar to the new Keurig machine. It will be the Starbucks brand machine

and each single cup coffee cartridges will also be Starbucks brand. We believe

this will be a great success for Starbucks in the home brewing market. An


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example of a similar product being a success is the Margaretville brand named

blender. The name of the blender has high brand recognition, which has made it

a great success. Starbucks has tremendous brand recognition; that is strictly

their competitive advantage over the Keurig machine, the name says it all.

Starbucks plans to eventually phase out their espresso machine and replace it

with the Starbucks in-home brewing system. This strategy will greatly help

Starbucks compete, if not take over the in-home brewing. This will now make

them a competitor of the in-home brewers, for example Folgers.

7.3 Launch ad campaign with a focus on in-home/VIA coffee

The strategies in conducting a new ad campaign on the in-home coffee and

the new VIA instant coffee is the motto, “You can take the luxury of Starbucks to

your home.” Starbucks is known to have the best tasting coffee because they pay

a higher price for such a high quality. The high quality, luxurious coffee will now

be available in the single cup, in-home brewing machine or the VIA instant coffee

packets that have been taste tested with great success. We will have one page

ads in a handful of magazines that Starbucks has always ran in the past which

are: Rolling Stone, ESPN, Maxim, Lucky, Cosmo, US Weekly and Entertainment

Weekly. Starbucks has never done a large amount of advertising compared to

competitor, McDonalds who saturates the advertising market. There will be a

select few commercials that will be launched in the ad campaign. The

commercials will be informative of the new in-home brewing systems, (Starbucks

single cup maker & the VIA) but also focusing on the ‘bring the luxury coffee

home’ factor. The ad campaign will be a large hit towards Folgers, who is a big

leader in the in-home brewing coffee segment. Starbucks will be in every aspect

of the coffee market. Each Starbucks will have a drive threw, for the ‘grab a

coffee and go drinkers’, they will still keep the same environment throughout the

Starbucks stores, for the college student and business professional target

market, and they now will have the in-home brewing system along with a grab

and go from home instant coffee.

7.4 Starbucks change in focus – from Quantity of locations to Quality


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We felt that the continuation of openings of Starbucks on every corner was

not in Starbucks best for future profits, the quantity shouldn’t be the focus. The

focus of Starbucks is in the quality, not just the coffee, which has already been

established, but also the quality of the businesses. This strategy is more focused

on the launch of the “15th Avenue” stores. We will conduct an undercover

Starbucks board that continuously listens to the customer’s opinions throughout

the current Starbucks locations and the new “15th Avenue” locations that will be

built. We want the quality of each “15th Avenue” to be sincere. Each “15th Avenue”

will be a different experience that adapts to that location. These coffee shops will

not have a corporate feel like Starbucks tends to have. There will be large

amounts of market research done in each particular location that a store may be

desired. We want to know the location, environment, demographics, culture, and

everything that has to do with the city to be able to portray the “third place”, from

work and home, as these new “15th Avenue” coffee shops.

8.0 Tactics

8.1 Expansion of specialty branch “15 th Avenue”

In order to create an effective, customized specialty sub-brand, we are

going to expand on our 15th Avenue Coffee and Tea locations. However, we are

going to take an extremely different expansion approach than we have in the

past. We are going to open a new R&D department dedicated to developing six

different experiences customized to particular markets. For example, a 15th

Avenue in a suburb of L.A. may operate completely differently than one in

Topeka, Kansas. The goal is to do enough market research to design six

different customized experiences that we can then expand with a more personal

approach to each location. After the six experiences are established, potential

franchisees will have the option of applying to open a 15th Avenue in their town.

After an application for a franchise is submitted, the R&D department will analyze

the potential market and decide which experience would be best for that

particular location. This will enable Starbucks to start penetrating the local


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markets with a personal touch rather than the blanket approach of the past.

Allowing private owners to own and operate a 15th Avenue will allow the stores to

maintain their local, hometown, and personal environment while offering the

same great tasting coffee already produced at current Starbucks locations. The

thinking behind this approach is that the current Starbucks stores are best in the

metropolitan settings; however, lack the environment to compete in smaller, less

populated settings. This will allow Starbucks to directly compete with small town

coffee shops and create a wider platform for Starbucks to penetrate the smaller

markets.


In order to compete directly with Keurig, we plan on selling the Starbucks

Single Cup Brewers in all Starbucks retail locations, Wal-Mart, Target, and

anywhere that coffee brewers are sold. By creating our own brewers and

cartridges, we believe that we can gain a significant amount of control in the

single cup market because of the consumers desire to brew our coffee, one cup

at a time.

8.3 Launch ad campaign with a focus on in-home/on-the-go coffee

This ad campaign will focus on sending the message that you can take the

luxury and status of Starbucks coffee, wherever you go. We hope to create the

belief that having a Starbucks brewer in your home gives you a status and luxury

that other brewers do not. We want to portray a luxury that no other brewer can

provide because we believe that no other company offers coffee better than ours.

For our on the go coffee Via coffee, we would like to have an add that

shows potential customers that the coffee tastes the same as coffee brewed the

traditional way. Our main marketing focus will be to prove that you can have the

great taste of Starbucks coffee, no matter where you go.

8.4 Changing the focus from quantity of locations to the quality


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In order to accomplish this goal we are going to stop the expansion of our

current Starbucks retail stores and focus on changing the stores we have, back

to what made us so successful in the first place. To do so, we plan on

establishing regional teams to evaluate every one of our locations. After a

thorough evaluation, a report on the things we would like to emphasize and

change will be sent to the store managers. A year later a follow up evaluation will

be done and new assessments will be made as to the success of the changes

made. In the year 2020 we plan to conduct another “Board of Customers”

convention to benchmark our progress.

9.0 Financial Impact of the Marketing Plan

9.1 Income Statement (Numbers in Millions except per share items)

2010 2009 2008 2007Period End Date 10/03/2010 09/27/2009 09/28/2008 09/30/2007 10/01/2006

Period Length 53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks

Stmt Source 10-K 10-K 10-K 10-K

Stmt Source Date 11/22/2010 11/22/2010 11/22/2010 11/29/2007 11/29/2007

Stmt Update Type Updated Reclassified Reclassified Updated Reclassified

Revenue 10,707.4 9,774.6 10,383.0 9,411.5 7,786.94

Total Revenue 10,707.4 9,774.6 10,383.0 9,411.5 7,786.94

Cost of Revenue, Total 8,010.0 7,750.0 8,390.4 7,215.01 5,866.61

Gross Profit 2,697.4 2,024.6 1,992.6 2,196.48 1,920.34

Selling/General/Administrative Expenses, Total

569.5 453.0 456.0 489.25

Research & Development 0.0 0.0 0.0 0.0

Depreciation/Amortization 510.4 534.7 549.3 467.16

Interest Expense (Income), Net Operating

0.0 0.0 0.0 0.0

Unusual Expense (Income) 53.0 332.4 266.9 0.0

Other Operating Expenses, Total 293.2 264.4 330.1 294.14

Operating Income 1,419.4 562.0 503.9 1,053.95


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Interest Income (Expense), Net Non-Operating

50.3 37.0 5.2 2.42

Gain (Loss) on Sale of Assets 0.0 0.0 0.0 0.0

Other, Net 0.0 0.0 0.0 0.0

Income Before Tax 1,437.0 559.9 455.7 1,056.36

Income Tax - Total 488.7 168.4 144.0 383.73

Income After Tax 948.3 391.5 311.7 672.64

Minority Interest -2.7 -0.7 3.8 0.0

Equity In Affiliates 0.0 0.0 0.0 0.0

U.S. GAAP Adjustment 0.0 0.0 0.0 0.0

Net Income Before Extra. Items 945.6 390.8 315.5 672.64

Total Extraordinary Items0.0 0.0 0.0 0.0

Net Income 945.6 390.8 315.5 672.64

Total Adjustments to Net Income0.0 0.0 0.0 0.0

Basic Weighted Average Shares 744.4 738.7 731.5 749.8

Basic EPS Excluding Extraordinary Items 1.27 0.53 0.43 0.9

Basic EPS Including Extraordinary Items 1.27 0.53 0.43 0.9

Diluted Weighted Average Shares 764.2 745.9 741.7 770.1

Diluted EPS Excluding Extrordinary Items 1.24 0.52 0.43 0.87

Diluted EPS Including Extraordinary Items 1.24 0.52 0.43 0.87

Dividends per Share - Common Stock Primary Issue

0.36 0.0 0.0 0.0

Gross Dividends - Common Stock 267.6 0.0 0.0 0.0

Interest Expense, Supplemental 32.7 39.1 53.4 38.2

Depreciation, Supplemental 509.2 533.0 547.8 466.16

Normalized EBITDA 1,834.7 1,307.2 1,206.5 1,413.1 1,187.23

Normalized EBIT 1,324.3 772.5 657.2 945.94

Normalized Income Before Tax 1,490.0 892.3 722.6 1,056.36


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Normalized Income After Taxes 983.28 623.92 494.26 672.64

Normalized Income Available to Common 980.58 623.22 498.06 672.64

Basic Normalized EPS 1.32 0.84 0.68 0.9

Diluted Normalized EPS 1.28 0.84 0.67 0.87

Amortization of Intangibles 1.2 1.7 1.5 1.0

Income Statement: 10-Year Summary (in Millions)

Sales EBIT Depreciation Total Net Income EPS Tax Rate (%)

10/10 10,707.4 1,437.0 510.4 945.6 1.24 34.01

09/09 9,774.6 559.9 534.7 390.8 0.52 30.08

09/08 10,383.0 455.7 549.3 315.5 0.43 31.6

09/07 9,411.5 1,056.36 467.16 672.64 0.87 36.33

10/06 7,786.94 906.24 387.21 581.47 0.73 35.84

10/05 6,369.3 796.35 340.97 494.37 0.61 37.92

10/04 5,294.25 620.63 289.68 388.88 0.47 37.34

09/03 4,075.52 432.47 245.07 265.36 0.33 38.64

09/02 3,288.91 336.89 205.56 211.39 0.27 37.25

09/01 2,648.98 288.05 177.09 180.34 0.23 37.39

9.2 The financial impact of expanding “15 th Avenue”

For one brick and mortar, 15th Avenue location, at approximately 12,000

square feet, the start up cost will range from $200,000 to $375,000 depending on

the price of land. After a significant amount of market research and a review of

the first 15th Avenue in Seattle, which had 1.1 million in profit for fiscal 2009, we

believe that the average “15th Avenue” location will bring in $750,000 to

$1,000,000 in profit per year.

9.3 The financial impact of producing in home brewing division

The headquarters for our expansion will be located in Seattle,

Washington. In order to simplify the process and minimize costs we will

outsource the production of our products overseas at a cost of approximately

$44.23 per unit (includes transportation). An estimated start-up cost of the entire

in home brewing division is 125 million. We believe that in the next ten years, our


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market share will increase enough to position us as one of the top providers of

coffee brewers in the United States. This division has the potential to bring in an

estimated 300 million dollars a year.

9.4 Cost of Advertising

We would like to launch a 15 million dollar ad campaign. This includes,

hiring a marketing firm, market research, TV advertising, magazine ads, online

ads, and billboard ads.

10.0 Metrics

11.0 Contingency Plan

11.1 Expansion of Specialty branches “15 th Avenue”

We have read a few articles regarding the new 15th avenue coffee store

and they have raised the ‘What If these people are right’ questions, “15th Ave

Coffee & Tea is an experiment doomed to failure, because there's no way a

corporate coffee chain can create an authentic neighborhood coffeehouse

experience. Your favorite local coffeehouse is the product of someone's passion,

dedication, and probable borderline craziness. 15th Ave is the product of

corporate product design and development.” If this were to come true we would

need to continue our focus on the current Starbucks branches and the in-home

brewing market. If the “15th Avenue” ends up being unsuccessful a large amount

of money would be lost, but we would be able to recover through the continued

business in the existing Starbucks stores. We believe that this will be a great

addition under the Starbucks name.


“What if the Keurig coffee machine has already controlled the majority of

market share for the in-home coffee machine?” We believe that our brand

recognition will not let this occur when we enter the in-home brewing market with

our Starbucks name. If Keurig has already gained majority of the market share


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we will need to discuss alternatives ways to enter the market and conduct more

in-depth research, focus groups, on what the consumers would like to see in the

in-home brewing market. We believe market research would need to be done on

our product itself to determine what the reasoning would be for not being able to

take over the in-home brewing market; it could be the price point, advertising, or

that is may not be something the consumer really feels the need to purchase.

These are all aspects that would be considered in the ‘what if’ analysis.

11.3 Launch ad campaign with a focus on in-home/VIA coffee

“What if our ad campaign does not clearly portray the message? What if

we did not use enough advertising? What if the money spent on advertising is not

working?” If your ad campaign does not portray the message we will know this by

the number of sales after the ad launch. If sales do not increase at all within 4-6

months of the advertising launch we will need to reconnect and take a different

approach. The approach may be to focus on either just VIA or the in-home coffee

maker. Maybe the amount of information trying to portray both of the items is too

much for consumers to remember or engage in. If not enough advertising is the

case we will know this by consumers still not being aware of our product when

we conduct market research 6 months down the road after the advertising as

been launched. We would then decide to use more money into advertising, much

like competitor McDonalds does. We do not feel that a large amount of

advertising is the key to a successful coffee business, but if the lack of

knowledge is significant after months of advertising that may be our next focus.

11.4 Starbucks change in focus – from Quantity of locations to Quality

“What if the qualities of the “15th Avenue” stores are not accepted in the

selected areas?” “What if adding additional stores is the answer in creating more

revenue?” We believe that our extensive market research throughout the

locations of the stores will be sufficient enough that the coffee shops will be

openly accepted as a new aspect of their town. But, if they are not wanted or

welcomed in the community we would conduct more market research that

included several intensive focus groups to determine what would make it a better


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coffee shop for the consumers to approve of in their area. If we are not creating

profit throughout the “15th Avenue” coffee shops within 6 months to a year we will

need to reconvene and determine whether opening up more Starbucks stores is

the answer. We think the “15th Avenue” stores are going to be a great success.


48355878 starbucks marketing plan

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