COMPANY BRIEF AND MARKETING OBJECTIVES

Over the years, Starbucks has earned the reputation of a global brand, supplying not just the coffee but the rich experience
to enjoy every moment a customer spends at its outlets. Starbucks positions itself as the premium coffee specialist,
providing a ‘Third Place’ (Anonymous-a, 2007), where customers can relax, enjoy and interact. It aims to develop an
emotional connection with its customers all around the world, offering them quality, satisfaction and value.

By the end of year 2007, it has over 15000 stores in more than 40 countries (Anonymous-a, 2007). In spite of the sales as
high as $ 9.4 billion, the revenue growth rate being 21% and 2500 new stores opening (Anonymous-a, 2007), all was not
going well. Starbucks had for the first time in its history experienced the decline in the number of customers and with its
share price gone down from $35 to $18, by almost 50%. Its operating margins shrunk in the year 2006 and continue to
decrease in the year 2007 too. It lost its revenues in the favour of the competitors like McDonalds and Dunkin’ Donuts,
who were providing good quality coffee at much lower prices. Robust competition surrounds Starbucks from all sides-
specialist coffee providers, fast food restaurants as well as non-specialist coffee providers. The romance of the coffee
making started diminishing.

Although, it still remains a major player in the US market, there is an urgent need to address the issue of the degradation
of the Starbucks experience to earn customers attraction, liking and form long lasting relationships with them.
The marketing objectives of the corporation will be to regain the positive brand image and build brand loyalty by
providing the customers the differentiated store experience. Secondly, the objective would be to enhance the store sales
growth. Thirdly, to increase the market share in the international markets. Fourthly, to increase the flow of customers in
the US stores and finally, to continue introducing innovative products, not losing focus on the core product. To achieve
these marketing objectives, a thorough look into the problems and the changing internal as well as external environment
is required. The current situation and the problems are explained in detail in the following section.

PROBLEM STATEMENT

What Starbucks Company faced at the end of 2007 is no better described by anybody than its founder and current CEO
Howard Schultz. He refers to the problem as the “commoditization of the Starbucks experience” (Schulz, 2007). What
is more – adding to this is the financial repercussion – the company’s share price went down by almost half (from $35 to
$18) and for the first time the beloved Wall Street firm experienced negative growth in the fourth quarter of 2007.

Let us as consultants elaborate on the current situation. There are two aspects of the issue – financial and non-financial.
The former is quite self-explanatory as share prices are falling and growth is in negative digits. However, the latter stands
for the “commoditization of the Starbucks experience” that touches the human aspect of the problem and most probably is
the cause accountable for the financial downturn effect in the company. But what actually is the “commoditization”? It
means that Starbucks’ massive expansion and growth in the 21 st century has turned the company into one that is offering
standardized commodity (often referred as “affordable luxury”) instead of delivering a truly Italian coffee experience as it
used to do in the past.

The genuine Starbucks experience was the whole theatric show of coffee-making – from grinding and roasting to
brewing and steaming in front of the customer’s eyes whilst (s)he is enjoying a friendly conversation with the barista.
After which the client could relish in a relaxing atmosphere in comfy chairs, instrumental music surrounded by the smell
of freshly brewed coffee. Somehow the original Starbucks experience has diluted into pre-ground coffee brewed in
automated machines, introduction of cold blended beverages, no time for chat with the baristas, smell from sandwiches,
drive-through windows, less comfy furniture, popular music and hundreds of merchandise and products like movies and
even teddy bears. These factors more than ever made Starbucks closer to a fast food retailer. And as Schultz (2007) noted
the incremental decisions may seem right at the time, but the sum of them led to the dilution of the Starbucks experience.

What is going to happen with Starbucks experience? How the company itself will try to navigate the course of actions
concerning their brand? Is Starbucks Company going to turn into a real fast food retailer, go back to its original roots,
execute some actions in between or take a completely new direction in its development? There are various paths the
company could tread and before devising the alternative actions we should analyze macro and micro environment in
which Starbucks operates.

STARBUCKS SWOT ANALYSIS

STRENGTHS
 An established Global Brand name-
With more than 15000 stores operating in more than 40 countries worldwide (Anonymous-a, 2007), Starbucks has
been successful in establishing a well-recognised brand name and a global presence, which has made it synonymous
with the premium coffee. Customers are attracted towards it expecting the same quality, service and experience in any
Starbucks outlet around the world. This global coffee brand gives Starbucks the advantage of expanding to other parts
of the world with lesser costs involved in creating the brand awareness.

 Convenient Locations with High Visibility-

Starbucks store placement strategy resulted in the clusters of stores placed very near to each other. Stores opened at
every 50-100 yards help fight competition, meet the morning rushes and provide the customers a convenient, time
saving solution.

 Socially Responsible and Respectable Employer-

Starbucks have been awarded as one of the most admired companies in the United States, one of the most respectable
employers and one of the most ethical companies in the world (Anonymous-d, 2011). It has a time honoured
reputation of a Good Corporate Citizen (Anonymous-d, 2011). A positive public image helps in attracting customers
and building bonding and trust. Moreover, good relationships with its employees help Starbucks to enjoy their
continued patronage, reduced turnover rates and thus, low costs of training new Baristas. It is the biggest purchaser of
FairTrade Certified Coffee (Anonymous-e, 2010), giving fair compensation to the farmers for the coffee obtained from
them.

 Co-Branding Initiatives-
An example of this would be the partnership with Pepsi that enables Starbucks to produce innovative products and use
their extensive distribution networks and larger customer base to gain access to other markets like restaurants and
supermarkets. Starbucks and Pepsi jointly control 90% of the Ready To Drink Coffee market in the US (Anonymous-
f, 2007), which is a high growth potential market promising great opportunities.

 Access to customer data-

Starbucks have strong financial foundations enabling strong research and development in order to understand the
changing customer base, their tastes and preferences and adopt timely measures to maintain its customer loyalty and in
turn, the revenues and profits.

WEAKNESSES

 Cannibalisation due to the cluster of stores-

The close placement of stores often results in the loss of sales of one store to another. The operating costs of
underperforming and excessive stores remain high resulting in decreasing profits. Moreover, the managers of stores
without drive-thru windows often complained about losing their sales to stores offering greater access.

 High priced coffee-

Starbucks position itself as a premium coffee brand charging $ 3.50 for a cup of coffee. Its high price might lead to the
loss of customers at the hands of competitors like McDonalds and Dunkin’’ Donuts offering high quality coffee, rich
in taste but for much less.

 Licensed International Stores-

Most of its global expansion has been achieved through licensing its international outlets which has resulted in the loss
of control of operations and quality.

 Commoditization of the Starbucks Experience-

Several decisions like introduction of automated espresso machine, rapid expansion, introduction of hot breakfast
items with food odour, popular music etc. has led to the degradation of the original Starbucks experience, diluting the
brand image and driving away customers who were once willing to pay extra.

OPPORTUNITIES

 Scope of Expansion-
Although Starbucks has saturated the US market, there still lies a huge scope to expand internationally in Asian and
European countries, that have an underdeveloped coffee drinking culture. The coffee market in Brazil and China are
 expected to grow by 11.4% and 38.9% respectively during the 2007-2010 period (reference). This would also enable it
to increase its revenues in spite of the decreasing customers in its US market. The increasing coffee consumption in
Asian countries due to the influence of Western Cultures and changes in the lifestyle offers an opportunity to tap these
potential markets.

 Adopting other means of distributions like Retailing-

For reaching out to the customers and expand globally, Starbucks can enter other methods of distribution, thus, serving
a huge market base.

 Bringing back the experience-

Starbucks has a potential to change the experience in the existing outlets. Although it would require certain expenses,
but costs can be reduced by closing down the underperforming stores and staff cuts.

 Product Innovation-
New products can be introduced to increase the choice on the menu and fighting off the competition from the fast food
chains. However, this should be done without losing the focus of their core product.

 Brand Extension-
This will prove helpful in entering new markets both locally and globally and serve as an additional source of revenue,
reducing the risk of failure.

THREATS

 Demand for healthier food by health-conscious customers-

Customers are increasingly demanding healthy, natural food, high in the nutritional content. This might have
implications for several products offered by Starbucks that are high in fat.

 Competition-
Starbucks is experiencing tough competition from both, coffee specialists like Caribou Coffee and Fast food
restaurants like McDonalds offering extensive menus. Such competition too has strong brand recognition around the
world and has a reputation for offering good value for money products.

 Rising costs of dairy products, other food costs, non-food costs like fuel-
This would have an immense impact on the sales of Starbucks, since its coffee already falls in the premium segment.
More value driven and price conscious customers might switch to competitors like McDonalds offering good coffee at
much lower prices.

 No product differentiation-
Lack of innovative offerings places Starbucks in direct competition with other coffee chains. Customers would pay
high only if they experience a high quality, service and variety.

 Local Competition-Venturing into new countries often involves difficult competition from the local providers who
are long present in the market and better understand the tastes and preferences of the customers.

 Negative Brand Image – With the dilution of the Starbucks experience, deteriorating quality and service and
increasing prices, the customers express serious doubts resulting in negative publicity of the company.

PORTER’S FIVE FORCE ANALYSIS-

 Rivalry within the industry-

Starbucks faces tough competition from not just the speciality coffee shops but also other national, regional non-
specialist coffee providers, food service operators, fast food restaurants. This is mainly because of less differentiation
among the products offered. With watering down of the ambience and experience provided by Starbucks, the
customers have started going for low priced retailers offering good quality coffee. Caribou coffee, Seattle’s Best
Coffee, Costa Coffee, Coffee Bean and Tea Leaf are globally recognised specialist coffee brands and fast food outlets
such as McDonalds proving out to be a breakfast and snack destination with quality coffee, fast service and lower
prices. Dunkin’ Donuts, famous for its bakery products also offers various varieties of coffee for as low as $0.99.
 The rivalry in the industry is growing with competition coming from several types of coffee providers, varying in
sizes. Although, Starbucks still enjoys strong brand recognition and reach in the markets, its inability to serve the
customers with the ultimate coffee experience might lead to the loss of sales to these competitors.

 Threat of new entrants-

The possibility of the new entrants is low because of huge capital required in expanding nationally and internationally,
procuring high quality beans, establishing wide distribution networks, supporting good store ambience, in order to give
competition to the long established global brands of specialist coffee providers who are enjoying cost advantages
resulting from the economies of scale. The new entrants will have to locate themselves in the best locations which are
already inhabited with the competitors.

 Bargaining power of the buyers-

Starbucks serves a huge customer base that is increasingly becoming price conscious, value driven and knowledgeable
about prices and competitors. Thus, buyers exert a strong power and can easily switch to competitors seeking better
quality at reasonable prices.

 Bargaining power of the suppliers-

Increasing number of specialist coffee providers and their growing need of high quality beans has made the suppliers
stronger because now only a few suppliers meet the needs of fast growing coffee providers.

 Threat of substitute products-

Starbucks faces an indirect threat from other non-coffee products like soft drinks, teas and energy drinks. However,
these substitutes do not present a substantial threat.

Macro-Environment Analysis

 Political/Legal Environment-
With the expansion into different countries worldwide, Starbucks faces implication in respect of numerous laws, tariff,
import/export duties, tax policies, employment policies etc. Moreover, the changing import duties for the coffee beans
can also affect the costs of production. In countries like China, the government has strict regulations regarding the
foreign investments, distribution channels that should be duly complied in order to avoid prohibitions and closures.

 Economic Environment-
US economy experiences rising prices in the year 2007. Starbucks was hit by the rising prices of fuel, gas as well as
the dairy products and other food items. In the event of increasing prices, customers tend to spend more cautiously and
mostly on essential commodities. The progress of the economy remains slow giving a warning signal of recession.

 Socio-Cultural Environment-
Business corporations are expected to perform socially responsible actions and be environmental friendly at every
step. Starbucks should also indulge in fair means of obtaining coffee, serving customers and contributing to the
society. It should instil such values throughout the corporation. It is actively participating in the socially responsible
action which proves to be a great strength.
Additionally, it should take into account the diverse needs, tastes, preferences and cultures while expanding globally.
‘Think globally, Act locally’ is a sound philosophy that requires the companies to have their core brand but customize
it to the different cultural needs of various nations and regions.

 Technological Environment-
Technological developments are required to provide improved service levels to the customers. In an age of internet,
Starbucks must lower the cost of providing Wi-fi to ensure customers’ stay for longer hours. It should continuously
attempt to reduce their serving time per customer by use of better and time saving technology. It should also actively
use the platform of social networking sites and online communities on the internet, to be in close connection of its
customers.

The future environment is characterised by growing speciality coffee sales which is expected to increase by 125% over
the 2005-2010 period (Datamonitor, 2008). The disposable income in Asian countries shows an increase as compared to
the US, where growth in personal disposable income has reduced from 3.0 % in 2005 to 2.7% in 2006 and is expected to
increase at the same rate for next many years (Global Insight Inc., 2007). Moreover, there is tough competition emerging
from players of various sizes including coffee specialists, non-coffee specialist and fast- food restaurants.
Alternative Courses of Action and Evaluation of them

There is a range of possible course of actions adequate to the situation. However, in order to make our final decision,
which one could work best for Starbucks, every action plan will be described and then evaluated. In our analysis we will
be guided by predetermined set of criteria namely – 1) Ease of implementation 2) Cost of implementation 3)
Compatibility with the marketing strategy 4) Associated risks 5) Customers’ perception (brand preference, loyalty and
liking) 6) Competitive reactions. These will be framed in separate sections under PROS and CONS.

The possible alternatives as we can foresee are as follows: 1) Go back to the original Starbucks experience 2) Continue on
course with commoditization leading to a complete standardisation of the Starbucks Business model 3) Provide two
different types of services as splitting the brand into express and classic stores 4) Brand extension – provision of other
than only coffee-made beverages.

Go back to the original Starbucks experience

One of the strategies available to Starbucks to gain the former confidence and continued patronage of a loyal customer
base is to provide them with the ‘original Starbucks Experience’. The original Starbucks experience is characterised by
the recreation of the Italian coffee bars culture by making Starbucks the ‘Third Place’ (Anonymous-a, 2007), where
people could relax, socialise and enjoy the romance of coffee making. The company develops long-lasting relationships
with its customers and instils this culture in the Baristas and the management. The Baristas interact with the customers
giving them their personal attention. The layout, the furniture, the music and the ambience revolves around the rich
experience of the Italian coffee bars. The artwork of each store reflects every city’s personality. The customers hold the
place of prime importance and their needs and suggestions are well considered and incorporated in the business
operations. This strategy would help satisfy the customers by “making Starbucks what it used to be - a destination, not a
vendor” (Anonymous-c, 2008).

PROS- This strategy would help in fighting off the competition from both, the specialist coffee brands as well as the fast
food restaurants by providing the differentiated, rich experience to the customers. As long as customers perceive the
experience to be exclusive, they don’t mind paying extra premium. Thus, the company can charge slightly higher prices
than the competitors. New product innovations would be pleasantly received by the customers. A strong focus results in
efficient decision making and thus, improving the operational efficiency and the decreasing costs. A loyal customer base
can be established by increasing the emotional attachment with the customers. A strong and convincing brand image
would also help in the global expansion.

CONS- Increase in costs due to renovation of stores, installation of carpets and more comfortable furniture and training of
the Baristas to interact and socialise with the customers. Another problem might be the emerging competition from
competitors like McDonalds and Dunkin’ Donuts, which are rigorously making changes to their store ambience to make it
equivalent to Starbucks along with advantages of providing high quality but at lower prices. The risk involved in
extending the brand to other forms of beverages or food items may dilute the core brand. The customers who are seeking
only the convenience and not the experience might just switch to other competitors with faster services.

MARKETING MIX – original Italian made-coffee experience reflected in the stores’ layout, furniture, music and
ambience resembling the Italian coffee bars and facilitating social interaction, delivered through baristas who are partners
in the long term vision of the company, and are trained and made capable of interacting with the customers and forming
relationships with them, promoted though range of media to announce the new locations and new products as well as
Social Networking sites and online communities.

Continue on course with commoditization leading to a fast food retail experience

This strategy would involve a continuation of the recent decisions undertaken by the Starbucks management. This would
entail continuing on the path of expansion both, domestically and globally. We would, however, advise the company to
slow down its pace of domestic expansion in the wake of the economic crisis and the saturation of local markets.
By 2007, Starbucks has assets worth $5.34bn, and has stores numbering 15,011 out of which 10,684 are domestic and the
rest global. (anon A 2007). The management would do well to leverage current assets and lower their expansion levels for
the next 3 years. Having accumulated such vast properties in various corners of the world, Starbucks can now shift focus
to streamlining its business model to the tune of local competitors like McDonalds and Dunkin’ Donuts.
Such a strategy could include reducing existing margins per unit of every product sold at Starbucks, trying to undercut the
prices of similar products offered by McDonalds and Dunkin’ Donuts. The focus could shift to driving value through
volume of sales, leveraging the brand value of Starbucks to boost sales. The loss incurred due to reducing margins could
be offset through alternative sources such as in-store promotion contracts for music, movies and books. The company
would also try to establish tie-ups with external sources like hotels, airlines, corporate houses, movie theatres to
exclusively provide their brand of specialty coffee. Recent initiatives of diversifying the product mix would continue,
leading to Starbucks offering more variety in its food menu including, for example, the likes of specialty burgers,
readymade pastas, hot soups etc.
Mechanization of the coffee brewing process would be increased. The ease of setup due to standardized set of
requirements would enable Starbucks to have a greater global outreach through store expansions or through modes such
as licensing and franchising. Set operating routines, product formulas, store configurations and training standards can be
implemented culminating in a harmonious experience across all stores.

Pros:
A standardized business model would allow Starbucks to possess a defined pattern of operation across the country. The
increased mechanization of processes and lowering of staff levels would lead to lowered costs of operations and also
improved efficiency. The pricing of the product to either match or undercut competition would mean that Starbucks
would take on their competitors head-on. By doing so, it would expand its target market to include not only its existing
customers, but also those of its prime competitors like McDonalds and Dunkin’ Donuts. Finally, this strategy would serve
as a natural extension of the position that Starbucks currently finds itself in.

Cons:
The primary problem of adopting such a strategy would be that Starbucks would lose its distinct and traditional identity of
being a premium coffee specialist. Customers would feel alienated by the watered down experience of the brand, and the
company might risk losing existing customers who preferred Starbucks for the experience it offered. Furthermore, the
employees of Starbucks form the backbone of its experience. As mentioned before, Starbucks has been one of the most
respectable employer and one of the most ethical companies in the world.(anon d) The idea of becoming redundant due to
replacement by machines would definitely not go down well with existing employees. The company would thus, risk
estranging current employees. Disgruntled employees pose serious risks to any establishment, and Starbucks would not
want any kind of negative publicity in times where its stock prices are already on the downturn.
Another point to consider is the fact that Starbucks has traditionally kept a tight grip over its entire operational processes,
right from harvesting the raw beans to roasting to brewing. Licensing and franchising the brand to external agents would
mean a significant loss of this established control. This could lead to compromises in the quality of the product and the
experience that Starbucks prides itself upon. Franchisees and Licensees may not be as fanatical or skilled as the
management at Starbucks to preserve the essence of the experience, and though generally the experience may remain
standard to an extent, it’s the small nitty gritties that delight the customer. This might be sacrificed in the pursuit of
growth.
Marketing Mix:

The mix could be divided into coffee and fast-food category products and further expanded to books, music and movies,
videogame kiosks, new food items, newspaper promotions. There will be a standardized feel across all outlets, with easy
to maintain furniture, food counters, popular music and drive-thrus. Mechanization of processes and efficiency in
operations would be implemented for all stores and staff cuts would be implemented across the board as part of this
strategy. Pricing strategy would be aimed at undercutting competitor prices by reducing margins per product and focusing
on increasing sales volumes. Though the company will use its current store locations, due to saturation of local USA
markets it would make sense for Starbucks to expand globally.

Brand extension – provision of beverages other than coffee

Given the stiff competitive environment and the economic downturn, another alternative action we recommend is to
expand the Starbucks brand and launch alcohol as a spin-off product in order to increase and leverage the brand equity.
As mentioned previously, Starbucks positions itself as a relaxed and enjoyable “third place” and customers come there
not only to buy coffee, but also to enjoy its exclusive experience and ambience. This attributes of its brand perception
enable Starbucks to present and sell anything they want: CDs, books, even teddy bears, and of course alcohol. What’s
more, David Taylor (2004) suggests that brand extension is feasible because it is less risky and money-consuming
compared to creating a totally new brand and cheaper than close all the underperformance stores. It is different to what
Starbucks are used to do, but it is another alternative to deliver the unique experience of Starbucks.

PROS-Success brand extension enriches the connotation of Starbucks through giving consumers fresh, the innovative
brand perception and reinforce the core brand name as well as enhance brand visibility. More importantly, it provided
additional source of revenue along with established coffee line and enable Starbucks to market alcohol at significantly
lower implementation cost interns of introductory and follow up marketing strategy expenses. The potential of expanding
the market base will also encourage Starbucks to follow this strategy. Last but not least, with the positive effect on
advertising efficiencies between the parent brand and extension, this strategy reduces the risk of failure given the already
established Starbucks awareness, trust and customer knowledge.
CONS-Fuzzy brand positioning and dilution of Starbucks brand image frustrate Starbucks’ customer. Because of that the
establishment of the Starbucks brand is the process that to embed Starbucks attributes, personality and value proposition
into customer’s brains. As stated before, in the perspectives of consumer, Starbucks is the synonyms for luxury coffee.
Therefore, alcohol may spawn implications that damage the image of its original brand and lead to loss of reliability if
Starbucks cannot define itself appropriately. What we also should take into account is that it could alienate and run
opposite to Starbucks’ consumer sentiment when they were already educated by the corporate specific functions. Besides,
this action may fail due to the reason as follows: 1.Possible less brand exposure and trial because there is no enough
attention for the introduction of new product when the executives take it for granted that the spin-off effects from the
parent brand will compensate. 2. The extensions have no competitive advantage over rivals’.

4PS-To be more specific, Starbucks add alcohol in sale list of its outlets in specific time, like evening. Then Starbucks’
product mix is extended while its promotion becomes more efficient associated with original coffee promotion strategy.
Similarly, it is imperative to highlight the unique Starbucks experiences and differentiate it from other bars. Except that,
the original Starbucks logo has to remove the word “coffee” to adopt the new strategy and as well as the decoration of
outlets.

Sub-branding - provide 2 types of services splitting the brand into 2 sub-brands – “Express” and “classic” stores

This alternative represents kind of hybrid between the first two described. It will involve a brand separation into 2
designated sub-brands under the same product category (cafeterias). As till now the brand – “Starbucks” in terms of stores
is in the form of single existent store format, but this strategy suggests a diversification of the brand and splitting it into
two sub-brands. This would mean a transformation of the existing stores into two types of stores – “Starbucks Classic”
and “Starbucks Express”. On one hand, this will solve many of the existing problems concerning the brand image and the
commoditization of the brand, while on the other, it will solve the financial problems and operational issues. The existent
premises will either be converted into Classic Starbucks’ stores or Express ones. This way the company could compete in
two markets – one with its fast food retail rivals like McDonalds and Dunkin’ Donuts and the other one with specialised
coffee shops like Costa coffee or Caribou coffee. The rationale behind this is that the company would add depth to its
branding strategy and this is usually done when companies try to satisfy different customers’ needs (Elliott and Percy
2007). In this way Starbucks could fully serve the entire palette of consumers’ coffee needs. Moreover, the company will
charge different prices according to the service the customers receive – in “Classic” the prices will be a bit higher as
compared to the “Express”.

This strategy suggests that “Starbucks Classic” will stand for the genuine Starbucks experience. “Classic” stores will
provide the original Starbucks experience namely – the Italian coffee story-telling from coffee making to consuming
exquisite in every tiny detail. The coffee at these stores will not be pre-ground or brewed in automated machines but, will
be done according to the original recipe, where the customer is allowed to see every action of the barista while chatting
with him. Only complementary food products will be provided with the coffee in an attempt to provide food-free aroma in
the store. The ambience will be indicative – more comfy chairs and carpeting, relaxing instrumental music and a refine
choice of books. You would struggle not to term this experience “Classic”.

At the same time this strategy through its Express stores would enhance the take-away sales which Starbucks Company
already is recording as a huge portion of their overall sales. With a store format where fast purchase of high quality coffee
is a priority, a customer would no longer seek for a continuous conversation with the personnel, neither would have time
to see the process of coffee making. Rather would grab a quick snack and a coffee, not paying so much attention to the
ambience even if staying in. The major target group will be people in a hurry. The automated machines will be kept in
such stores, all food items as well; even a trial for optimization of the whole service process will be done. Actually, the
change will be only the addition of the word “Express”, everything else will be kept in the current condition. Opposing to
the “Classic” store where refurbishment, ambience and inventory changes will be enforced to bring back the original
Starbucks experience. Furthermore, opportunity for the licensing of this format will be very viable as standardised process
procedures will be applied in every licensed store.

PROS

Such an alternative combines all the good features of the first two options. Brand equity of Starbucks will be kept under
the classic format, as well all the market trends that have led to diversion of the originals of the brand will be still existent
under the format of express. There are possibilities for enhanced liking and brand preference as the two brand versions
will serve the different customer needs in different situations with one and the same- high quality coffee. Furthermore,
these actions are compatible with the marketing strategy keeping alive the Starbucks experience and at the same time
supporting fast-purchase market trends. Competitors’ battle will be fought on two different fronts, thus, the company will
have more possibility for growth and could enlarge its customer base. Starbucks Express could respond to the fast food
retailers with low price – as low as theirs, but at the same time with much better product and service quality. In the
specialized coffee market there is a huge potential for battle at an emotional level. And for “Classic” stores potential for
long-lasting relationships with customers exists and the company could make use of Relationship marketing.

CONS

It will take a time for the company to execute these actions of splitting the brand and for the customers to adjust and
orient themselves as to which store is for what purpose. A considerable amount of money for promotion should be
allocated but not comparable at all to what an introduction of completely new brand would require. Funds will be needed
for the transformation of the Classic stores. So, there is some financial risk in the first term of execution, as recourses will
be needed and the whole process of implementation won’t be such an easy task. In short, there are some drawbacks
concerning customer convenience, investors’ reaction to the bottom line after applying this strategy. Moreover,
competitors could act aggressively in this implementation period.

Marketing Mix

Classic – original Starbucks experience, in nice ambience, with comparatively higher price, with highly skilled and
trained personnel, refined process of the whole service delivery, in every cluster of store locations, with reliance on word-
of-mouth promotion (except the beginning when some educational campaign for recognition of the 2-store formats could
be held), some guerrilla marketing and social network promotions.

Express – fast coffee service, at comparatively lower price to compete with McDonalds and Dunkin’ Donuts, trained
personnel to work in hectic environment, standardised service process and ambience unification in every premise, stores
situated mostly in downtown or areas with high density of working people, promotion reliance almost exclusively on the
word of mouth promotions along with some guerrilla marketing and social network promotions.

Decision

Table1. Criteria of Evaluation

Criteria of evaluation Alternative Alternative Alternative Alternative

1 2 3 4
Ease of implementation Hard Easiest Hard Medium
Cost of implementation High Low High Medium
Compatibility with marketing strategy High Medium Low Best
Associated risks High Medium Highest Medium
(Balanced)
Customer perception (brand loyalty, Comparably Moderate Disputable Positive
liking and preference) Positive Positive
Competitive reactions Aggressive Highly Medium Medium
aggressive

We choose Alternative 4, not only because according to our in-depth analysis it scores the highest points at all
predetermined set of evaluation criteria, but also it will provide a tailored way to tackle the current problem. This strategy
will address both the market trends for coffee consumption on-the-go and will keep alive the established brand equity of
Starbucks at the same time. There is also some strong strategic branding theory which supports the concept of satisfying
the diversified needs of the customers through sub-branding and it appears as a desirable action for service companies
(Rahman and Areni 2010).

Implementation Plan:
Based upon our suggestion to split the Starbucks retail outlets into the two broad categories of ‘Starbucks Classic’ and
‘Starbucks Express’, the obvious question that follows is “How exactly can Starbucks implement such a step?” To begin
with, the existing logos, signage and labelling of retails stores will have to be modified according to the classification and
expected ambiance of these stores. As far as the stores themselves are concerned, Starbucks has a variety of sizes and
formats like the “Living-room-in-a-coffee-house” and the “Corners” formats. These stores are located in or near a variety
of settings, including downtown and suburban retail centres, office buildings and university campuses. Mini-outlets are
located in places like airports, sports stadiums, hotels and bookshops.

As a policy decision, many Starbucks stores were reconfigured with fewer comfy chairs and less carpeting. We suggest
converting such reconfigured stores, other smaller sized stores, as also the mini-outlets, into ‘Starbucks Express’ outlets.
Since the ‘Express’ brand focuses on efficiency and cost effectiveness, there is no real need for an extravagant store.
Maintaining the same store format would avoid a great deal of reconfiguration expenses to the company. Secondly, we
suggest that wherever there are a cluster of outlets in the same or nearby area, there should be at least one ‘Express’ outlet
to attract the related target customers and separate them from the ‘Classic’ outlets. The company already has invaluable
data of the busiest store locations and can use this information to see if an ‘Express’ outlet can be established in such
areas. In the meantime, bigger and strategically located outlets can be rebranded as ‘Starbucks Classic’ stores.
In order to recreate the traditional ‘Starbucks Experience’, these outlets would have to be reconfigured with plush seating,
jukeboxes with jazz music, minimal mechanization and low counters enabling customers to see and interact with the
Barista. The store would additionally include the traditional product extensions of customizable music CDs, a reading
corner and free Wi-Fi connectivity. Ambient lighting and soft music would ensure a relaxed atmosphere within the outlet.
In contrast, ‘Starbucks Express’ stores would focus on speed and efficiency of service and hence these outlets would have
a rather toned down store configuration without the ‘frills’ of plush seating, Wi-Fi, reading corners and other product
extensions found in the ‘Classic’ outlets. These would be replaced by popular music, provisions of microwaves and
toasters for hot food, few and standard seating provisions, and efficient machinery for optimization of service times.
Another step that could be implemented is to have a separate line for customers looking to place orders only for
beverages, especially during peak hours.

Another important differentiating factor between the two categories of outlets would be the relevant skill sets and
experience requirements of employees. ‘Express’ outlets can have relatively inexperienced employees with standard
training, since there is not much emphasis on customer interaction or skill of brewing. ‘Classic’ outlets, on the other hand,
are founded with the aim to bring back the traditional interaction between the barista and the customer. This would
require skilled and/or experienced employees capable of customer interaction with a flair for brewing coffee.
Additionally, features like remembering customer names and orders, offering freebies to regular customers, and
establishing friendly bonds with the customers would be a feature of the ‘Classic’ outlets and this again requires the
employees of such outlets to have skills and panache to handle these tasks. Thus, in terms of training, ‘Express’
employees would undergo a basic training program, while those in ‘Classic’ would undergo not only the basic, but also an
advanced training program to instil in them the necessary client-facing skills required to take on the additional customer
interaction tasks. In a way, ‘Express’ stores can also serve as a starting point for fresh employees who then graduate to
‘Classic’ stores after gaining the necessary experience and additional training.

The food and beverage menu would also have to be differentiated between stores. One of the major complaints of
customers of Starbucks was the mixture of aromas emanating from hot food and the coffee brewed within the outlets.
This diminished the whole ‘romance’ of the coffee brewing and drinking experience. Hence, though it may seem like a
tough decision, ‘Classic’ outlets would be well advised to avoid serving hot foods for most parts. The menu would then
contain all the beverage and dessert options, with a selection of cold sandwiches, wraps, fruit and snack plates and salads.
‘Express’ stores on the other hand could serve microwaveable foods, along with the other items mentioned above. Any
beverages that have long brewing times or high customization options could be avoided here.

Pricing levels would differ between the two categories of outlets. ‘Express’ outlets will typically have a low-maintenance
store design with cost efficient operations. Additionally, since these stores would be focused on take-outs, it would make
sense for them to have lower prices for products offered. These price levels would be comparable to those offered by
competitors like McDonalds and Dunkin’ Donuts. Thus, the ‘Express’ outlets would serve as an avenue to take on the
competition through an aggressive pricing strategy. On the other hand, the ‘Classic’ stores will have comparatively higher
maintenance and operational costs. Furthermore, being focused more on the ‘Starbucks Experience’, these stores will
have higher priced products (even for the same products offered as the ‘Express’ outlets) wherein the customer will be
paying a premium for the ambience and enhanced service at these outlets. The ‘Classic’ stores would thus serve as the
differentiating factor between Starbucks and its competition, especially from the quick-service restaurant sector.
A sub-branding strategy would generally require (re)educating the customers about what’s changed with Starbucks.
Hence, we would advise Starbucks to run a short campaign using mainstream media like television, print and the internet
to pass on the message about the ‘Express’ and ‘Classic’ categories of outlets. This would be supported by intra-store
cross-promotions wherein every ‘Express’ outlet would contain promotional material of ‘Classic’ outlets and vice versa.
The employees of both categories of outlets would also cross-sell the other category wherever possible. The short
advertising campaign would be followed by sustained promotions using comparatively cheaper media like online forums,
social networking sites, local events, flyer handouts and postages, and word of mouth publicity.
Store timings can be reconfigured to save costs as well. ‘Express’ outlets can shut earlier than ‘Classic’ outlets, thus
saving operational costs on staffing, lighting and maintenance. Alternatively, money saved can be offset to try and extend
store timings for ‘Classic’ outlets in busy areas.
Finally, we would advise the company to keep a balance between the ‘Classic’ and ‘Express’ outlets. While the ‘Express’
outlets would provide a great backup to the ‘Classic’ ones, the USP of Starbucks is the experience it offers. Hence, greater
emphasis should be given to establishing and maintaining the ‘Classic’ brand of outlets. A ratio of 60:40 for Classic:
Express would probably be a good fit in this case.
7. Contingency Plan

As discussed before, the probability of success of alternative 4 is actually very high in terms of the criteria evaluation and
clear segmentation of Starbucks’ market. However, we can never ignore the little risk to failure which leads to the dilution
of brand, negative word-of-mouth and the shrinkage of market share. The reasons may vary from regions, cultural
background, political environment and perception of customer with respect to this international renowned brand. What’s
more, as Schultz stated in 2007, he will restore Starbucks’ cachet as a premier brand and go back to what they do. Thus,
we suggest using alternative 1-go back to original- as the contingency plan to maintain the exclusive Starbucks
experience, and associated with tactical plans as follows:
1. Shut down unprofitable stores
2. Reduce Staff along with well training programme
3. Naturally establish positive relationship with customers and word-of–mouth in classic outlets and encourage
long-term emotional and behaviour loyalty
4. Global Expansion strategy to enlarge the market base, but Only Classic Stores, because in emerging countries,
there is increasing demand for coffee while original markets are already saturated, like USA

However, the dramatic change forces Starbucks to adjust them even they have to go back to what they used to be. The
implementation of relationship marketing will be helpful to foster positive word of mouth and maintain its leadership.

Programme Monitoring:
Strategies look good on paper, but only when they are implemented do we start realizing where the loopholes are. There
is no single strategy that works as a perfect fit for any given circumstance. It is unavoidable that every strategy slowly
evolves and adapts to changing circumstances, or outright fails and gives way to another one. Hence, it becomes
important to keep reviewing the effects of the strategy adopted at periodic intervals to make sure that it is in sync with the
objectives of the company and actually improves / solves any problem identified.
Having mapped out various alternatives, chosen the best from amongst these and established an implementation plan, we
now move forward to chart out exactly how we believe the aforementioned implementation and its corresponding results
can be monitored effectively. We have identified five factors or ‘Key Performance Indicators (KPIs)’ which we believe
can be quantified and analyzed to eventually give the management and the stakeholders a good idea of the success of the
proposed changes. The factors are: Share Price, Comparable Sales Growth, Net Earnings, Operating Margins and
Customer Satisfaction. In order to gain an effective review, we suggest that the management should have scheduled
review periods every quarter, analyzing relative changes in these five KPIs.
The Share Price would give the stakeholders an idea of the investor confidence in their company. Falling share prices was
one of the primary reasons for Starbucks’ fall from glory. An appreciating share price could only mean that the changes
are working. Comparable Sales Growth is a measurement which allows comparisons of current year’s sales to those in the
same period of the previous year’s, for stores that have been open for a year or more. Analyzing these figures for the last
few years, we observed that 2007 showed a negative growth in terms of same store sales. A reversal in these figures
would again mean that the strategy is working. Factors like sales growth, net earnings and operating margins can be
analyzed from company annual reports and it is obvious that an increase in these factors mean relative success for the
company. Finally, customer satisfaction is one of the main reasons that we suggested the formation of ‘Starbucks Classic’
stores. The abstract value of the ‘Starbucks Experience’ is difficult to quantify, but is one of the USPs that delighted
customers and kept them coming back for more. A fall in the satisfaction levels of customers ultimately led to the rest of
the financial problems. Hence, it would be a priority to regain ground on this basis. Though customer satisfaction is
difficult to objectively enumerate, we can use tools such as customer feedback forms, online community opinions and
survey questionnaires to evaluate and analyze the majority opinions of customers.
If all these factors show a relative improvement in the period following the changes then we would assume that the
changes have been a success. In the event that the above does not happen, we must make sure that any drawbacks are
identified and rectified after thorough analysis. Only continuous monitoring and restructuring can guarantee the success
of proposed strategies. In conclusion, however, it must be kept in mind that immediate changes or fluctuations are often
misleading and the management should give at least a year’s worth of time to analyze the success of these changes
appropriately.

References:
Elliott, R. and Percy, L. (2007), Strategic Brand Management, Oxford University Press, Oxford

Rahman, K. and Areni, C. S. (2010). Product line sub-branding versus company as the brand in services. Marketing
Review, 10(1), 56-67

Schultz, H. (2007), “The Commoditization of the Starbucks experience”, Internal E-mail, February 14, 2007 [online],
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Anonymous-a, 2007
http://media.corporate-ir.net/media_files/irol/99/99518/2007AR.pdf

Anonymous-c, 2008
http://blog.bradhubbard.net/2008/11/11/so-long-and-thanks-for-all-the-drugs/

Anonymous-d, 2011
http://assets.starbucks.com/assets/aboutusrecognitionfinal13111.pdf

Anonymous-e, 2010
http://www.starbucks.com/responsibility/sourcing/coffee

Anonymous-f, 2007
http://www.msnbc.msn.com/id/16455204/ns/business-retail/

Datamonitor, 2008
http://web.ebscohost.com/bsi/pdf?hid=112&sid=e2ad9b89-0400-4aac-bad4-
81bb93419de1%40sessionmgr115&vid=18

Global Insight Inc., 2007

http://web.ebscohost.com/bsi/pdf?hid=112&sid=e2ad9b89-0400-4aac-bad4-
81bb93419de1%40sessionmgr115&vid=26

Store counts by state, www.starbucks.com

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-financialHighlights

Michelli, J (2006) the Starbucks’ experience McGraw-Hill