Starbucks Coffee: A Case Study

Here is my case study of Starbucks Coffee. This is the first part of the case study.

STARBUCKS COFFEE.

Whenever people mention Starbucks, we will always think of the smell of coffee, big purple sofa, coffee in a big mug and so forth. As one of the executives of Starbucks actually said, “We’re not in a business of filling bellies; we’re in the business of filling souls.” Kotler et al (2005: p80). Starbucks emerged as one of the pioneer in premium coffee brand. First started in the United States, Starbucks now already have almost 6000 stores all over the world.

By projecting themselves as a premium coffee brand, Starbucks have to charge a high price for their coffee. And, according to economics rule, if a firm charged a high price to their products, quantity demanded will fall. However, looking at Starbucks case, even with a high price, they still managed to record large sales from their worldwide stores. Hence, we would like to know why people are willing to pay up to $3.15 for a cup of coffee when they can buy other brand of coffee for just a dollar. A coffee is supposed to be coffee and that is it. A few factors contributed to this fact really. First of all is the overall increase in people’s income. Due to an increase in the general income level, people started to spend more simply because they can afford it. And if they think they want to spend more money for a cup of coffee, so they will. Another reason for this is, when Starbucks started the coffee trend, there were this generation called “Generation X”. This mainly includes people who were born in the 60’s to 80’s. What happened was, the generation X tend to be more wealthy and educated from the previous generation. They place a high importance on social status. And by drinking premium coffee, they are actually displaying their place in the social hierarchy. Hence they are more than willing to pay three times more than the normal price for Starbucks’ coffee.

Coupled with these factors are also, Starbucks own initiative in their corporate and marketing strategy. First of all, Starbucks focus on store growth. They expanded their store from just under 1000 stores seven years ago. Now, Starbucks are serving more than 20 million customers from all over the world. Next is through the introduction of new products such as new food offerings instead of only coffee. Starbucks now are not just a typical coffee shop, but also a place where people had their breakfasts and lunches. To add to their growth, they have also ventured into the retail market. This is being done by a strategic partnership with Kraft. Under this strategic alliance, Kraft and Starbucks will co-brand their products together and both companies will gain benefits. Starbucks also went beyond retailing to other ways of reaching the market. In the US for example, Marriot operates Starbucks kiosks in more than 60 airports and several airlines serve Starbucks coffee to their passengers. Westin and Sheraton hotel offer packets of Starbucks in their rooms. And Starbucks recently signed a deal to operate coffee shops within Waterstones’ bookshop superstores. Kotler et al (2005: p81) Following the world trend, Starbucks today have their own website, where they sell not just coffee but other things like collectibles and CDs.

Not only that, they introduced new products and concepts. Starbucks again formed a strategic alliance with PepsiCo to put Starbucks logo on PepsiCo’s Frappuccino and DoubleShot espresso. They also managed to have a joint venture with Breyer’s to produce a coffee-flavoured ice cream. The company is also trying to experiment with a couple of new stores concepts such as the European-family-bistro that serves cuisine like huckleberry pancakes, oven-roasted sirloin and Mediterranean chicken breast on focaccia. Kotler et al (2005: p81) They are also trying out Circadia, a new concepts that adapted the Bohemian style with rugs and live music. While in the international market, the number of Starbucks store abroad are growing very rapidly. With 1000 stores in Asia and 600 in Europe, they are now expecting another 900 stores in Latin America by the end of the year.

REFERENCE

Philip Kotler, Veronica Wong, John Saunders and Gary Armstrong. (2005) Principles of Marketing. 4th European Edition. Pearson Education Limited, Essex.

For more information, please visit Starbucks.com

Next case study will be posted as soon as I'm done with it. Ciao ciao.