Starbucks:
Marketing Strategy Analysis
Evan Easton
June 1, 2005
Presented to Dr. Vernon Stauble
What can be learned from the past practices of Starbucks Corporation?
In the past, Starbucks has been able to maintain sales and increase growth even facing
such problems as cost fluctuations and a weakening economy. This success has been a product
of Starbucks’ business and marketing decisions. Starbucks has created not only a successful
marketing mix, but an entire business strategy mix that has enabled the corporation to soar. Such
factors that have contributed to the current success of the company include employee morale,
customer loyalty, and strategic positioning.
One of the major appeals of Starbucks is the friendly environment, which can be
attributed primarily to employee morale. According to one employee, “Working with the people
that Starbucks hires is one of my favorite aspects of the job” (“Jules”). Starbucks also offers a
wide range of benefits and flexibility to keep employees happy. The corporation has been able
to put into modern practice the classic adage; a happy worker is a productive worker. Customer
service standards in retail and service industries seem to decline daily, with many employees
demonstrating a lack of concern for the customer. Starbucks employees defy this current trend
with their enthusiasm and consideration for customer needs. Peter Murane, CEO of BrandJuice
branding consultancy, sums up Starbucks’ effective approach to customer satisfaction through
employee morale: “Everyone behind the counter was smiling… They know my drink and my
name, and they differentiate themselves based on that” (Mochari, I.). Exceptions to the rule will
always exist, but the typical Starbucks employee can be found in high spirits, ready to bend over
backwards to serve the customer. In all likelihood, the service level exhibited is a direct result of
employee job satisfaction, as demonstrated by the fact that Starbucks is listed as one of Fortune
Magazine’s 100 Best Places to Work (www.fortune.com). Starbucks has found that keeping
employees happy translates to keeping customers happy.
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It can be argued that the level of customer loyalty Starbucks is able to maintain stems
from such successful practices as the aforementioned customer service. Regardless of the cause,
the demonstrated ability of Starbucks to generate repeat-business is another powerful asset. “I
would say more than 60% of the business we get is from returning customers” (“Jules”). With
such a significant portion of business being that of returning customers, Starbucks has been able
to clearly identify those factors of its operations that contribute strongly to customer satisfaction.
According to Starbucks, this repeat-business is generated because of a combined focus on people
and product quality (www.starbucks.com). A typical Starbucks regular has a specific store that
he or she frequents, but when geographically abroad, this loyal customer will tend to seek out
another Starbucks location, rather than settle for a substitute. According to Starbucks
spokesperson Lara Wyss, “[Starbucks’] most loyal customers visit 18 times a month” (Caley,
N.). This phenomenon is likely a direct result of the satisfaction achieved from previous
experiences.
Although Starbucks’ store-location strategy has been the object of criticism and satire, it
seems to be a key factor in bringing in business. While the original source of the phrase “A
Starbucks on every corner” is unclear, the joke is becoming more of a reality as each new
location opens its doors. A store-location search of Los Angeles suburbs, provided by the
Starbucks website, can reveal more than forty stores within a ten mile radius
(www.starbucks.com). It does not take a market analyst to realize that Starbucks is saturating the
market and gaining more exposure every day. While other businesses and critics might see these
real estate practices as predatory (intended to keep out competition), customers see convenience.
“If the closest Starbucks has no available chairs, drive a mile in any direction, and you will find
one that does” (Keshishian, T.). This location strategy serves Starbucks in two ways: first, loyal
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customers will never have to look hard to find a store, and second, even non-customers are
continually in the presence of Starbucks stores, which inherently creates subconscious
association. In this way, the practiced location strategy allows Starbucks to satisfy customers
and generate new business.
Comment on the marketing strategies that you consider vital to Starbucks’ success.
Over the past few years, Starbucks has been able to use a variety of marketing strategies
to achieve profits and expansion. No single strategy sets Starbucks apart from other companies,
but rather a combination of successfully executed strategies has propelled Starbucks to the
forefront of the retail coffee market. The diverse combination of strategies and marketing mix
decisions leading to the success of Starbucks can be found in the areas of consumer relations,
store operations, and corporate decision making.
Strategies in place in the area of direct consumer relations at Starbucks have been highly
successful as demonstrated by the continual profit growth and expansion as a result of customer
satisfaction. Relationship marketing has propelled Starbucks’ success by driving home the
concept of added value. Employees interact with customers on a first-name basis, and know
what the customer will order before he or she walks through the door. This type of customer
relationship management delivers more than an over-priced cup of coffee: Starbucks is selling
satisfaction. The situational variables of each store also contribute to satisfaction through direct
customer interaction. Furniture, music, cleanliness, and ambiance do not vary to any great
degree between stores. This situational consistency creates a sense of familiarity in the mind of
the customer.
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Starbucks has made successful use of a number of marketing strategies in the area of
store operations. Because of the company’s focus on people, Starbucks has steered clear of the
strategy of division of labor. By using a shared-activity approach, Starbucks has been able to
ensure the ability of all employees to accomplish all necessary work. This has proven a valuable
asset for Starbucks as it creates convenience for the customer. Another operational strategy
benefiting Starbucks is that of pricing. Starbucks has successfully created repeat-business in
such a way that when price increases are necessary, sales do not suffer (Stauble, V.). This
indicates that demand for a cup of Starbucks’ coffee is inelastic; a fact on which Starbucks has
been able to capitalize by setting prices high enough to achieve an enormous profit margin.
Currently, the average price for a cup of Starbucks’ specialty coffee exceeds $3.00, and
customers are happy to pay.
Another successful operational strategy Starbucks has been able to implement is that of
payment options. In addition to accepting cash and credit cards, Starbucks now offers the Duetto
Visa Card, and the Starbucks Card. The Duetto Visa card is similar to any other rewards based
credit card, offering special gifts and Starbucks credit instead of airline miles. The Starbucks
Card is a prepaid card for use at Starbucks. The two can even be used simultaneously, the
Duetto Card to refill the Starbucks Card, for extra rewards. With so many forms of payment
accepted, Starbucks has dramatically increased sales potential: the Starbucks Card guarantees
customers, the Duetto Card entices customers, and accepting cash or credit conveniences
customers. In addition to customer satisfaction, this strategy gives Starbucks the added bonus of
a measurement tool for customer spending habits (Fassnacht, M.).
Marketing strategy at the corporate level has also dramatically helped boost sales and
promote growth. In recent years, Starbucks has successfully approached strategic partnering in
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two major ways: first, with Hear Music, second with T-Mobil Wireless Internet. In 1999,
Starbucks partnered with Hear Music to expand its in store product offerings as well as offer
customers a variety of easy listening, thereby enhancing the customer experience
(www.starbucks.com). Through this mutually beneficial relationship, Starbucks plays Hear
Music selections, and offers customers the convenience of purchasing Hear Music CDs on site.
T-Mobile provides another mutually beneficial relationship recently gained by Starbucks. By
offering T-Mobile Wireless Internet access in store, Starbucks further conveniences its customers
while providing T-Mobile with added business.
Identify any problems or weaknesses with the company, and offer suggestions for improvement.
While Starbucks has had a great deal of marketing success, it is important to recognize
and deal with weaknesses. Two major areas of weakness for Starbucks lie in the realms of
customers, and in-store worker relations.
In the market for gourmet coffee, there are two groups of people: those who love
Starbucks and those who hate Starbucks. Of the latter, justification is typically attributed to the
idea that Starbucks takes business from the traditional coffee house, is overexposed, overpriced,
and the company takes away from the coffee shop “culture” (www.ihatestarbucks.com). This is
a weakness for Starbucks in that the image the company has built is the very reason this segment
of the consumer market chooses to reject the organization. While this untapped market segment
is a weakness, should the consumers become aggressive, a serious threat can emerge. If the antiStarbucks crowd gains a following and hones its protest, the company can potentially suffer
severe damage. Negative publicity can deter even the most loyal customer, and Starbucks must
keep a close eye on these disgruntled citizens and pay attention to their complaints.
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The aforementioned website, www.ihatestarbucks.com, is an example of damaging
publicity that can hurt a business. The site is not merely a forum for a single individual to spout
anti-Starbucks sentiments, but a message board giving anybody the opportunity to voice their
opinion. One fact, discrediting to the site, is that anybody can write anything and post it.
However, negative publicity, even if false, can damage business. In the same respect, many
people place pro-Starbucks messages onto the board that are quickly removed by the Webmaster.
Justification for this act is given with comments such as “Post your squishy ideas somewhere
else, for example, try to find an ilovestarbucks.com website, or get off your mocha decaf booty
and make one” (www.ihatestarbucks.com). Because pro-Starbucks messages are being filtered,
it is difficult for the non-partisan researcher to develop an idea of the respective volumes of proand anti- messages. Even these discredits to the site do not obliterate the potential damage that
can be caused. Starbucks would be wise to follow the complaints of this and similar forums for
protest, and truly investigate themselves if valid areas for criticism are addressed. By dealing
with constructive criticism and addressing complaints, business can actually grow from this
weakness.
Starbucks has been publicly criticized by its own employees. Similar to the customer
scenario, a sort of two-party system has arisen: those employees who love Starbucks and those
employees who hate Starbucks. Starbucksgossip is an online message board that does not filter
the pro- and con- comments (http://starbucksgossip.typepad.com). The site is, however,
designed to attack the company. Attached to certain employee-related news articles can be
found a distinct mix of those employees who love the company, and those employees whose
sentiments are a bit less comforting. Common complaints are in the areas of necessary
availability, benefits, and having to do work to make money. It is not unreasonable for a
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company to expect employees to be available and it is surely necessary for employees to work
hard for a paycheck. Starbucks might have fallen victim to a common business problem: young
people are hired and are expected to conduct themselves in a mature manner. Many Starbucks
employees are up to the task but the disgruntled employees, who seem to be lacking in work
ethic, are quick to voice their complaints. This is a difficult situation for the company because
young people are a major segment of society willing to work for the wages offered by the coffee
service position. Starbucks has combated the issue to a certain extent by compensating
employees extremely well compared to industry standards: employees receive healthcare, stock
options, 401K, discounts, etc. (www.starbucks.com). The company should continue to offer
such compensation as it pleases a great majority of employees, and again, listen to the
complaints of unsatisfied employees, dealing appropriately with those of relevance.
Comment on the issues regarding the environment and labor.
Starbucks has recently come under fire with accusations of unethical labor and
environmental policies. The company has been accused of exploiting labor in countries paying
low wages to agricultural workers. As well, Starbucks has been accused of unethical
environmental practices, by using items such as paper cups and cardboard sleeves.
Aside from the aforementioned store-employee relations, Starbucks has been accused of
unethical labor practices in the international arena. As much of its coffee is imported from
outside the U.S., Starbucks deals with growers and pickers internationally. As is the case with
many industries dealing with overseas labor, Starbucks has been accused of promoting poor
working conditions and underpaid labor. Rather than reacting confrontationally, Starbucks dealt
with the issue in a professional way. In 1995, after being put under pressure from the
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U.S./Guatemala Labor Education Project (U.S./GLEP), Starbucks initiated a code of conduct
mandating minimum standards for the working conditions of its suppliers (www.hartfordhwp.com). Although Starbucks dealt with the issue the best it could have given the
circumstances, the fact that they waited for instigation does not reflect well ethically. Because
Starbucks was reactive on the labor issue, rather than proactive, the company’s ethical credibility
was lowered.
In 1997, Starbucks was further criticized by the same labor group, only this time,
Starbucks CEO Howard Schultz responded defensively (www.hartford-hwp.com). This type of
reaction and lack of consideration for prior commitments does not sit well with consumers, and
Starbucks can easily seal its own fate by continuing down such a path in the future. More
recently, Starbucks has reported that “by 2007 it aims to procure 60% of its coffee from farmers
who follow a strict set of environmental and labor rules called the Coffee and Farmer Equity
(C.A.F.E.)” (www.treehugger.com). This means that twelve years after the issue was first
presented, the company is “planning” to obtain little more than half its product from ethically
sound producers. This information can also be interpreted as the other 40% could possibly come
from child labor, underpaid, and overworked people. If Starbucks wishes to repair and maintain
its image, it must set its sights higher than 60%, because for every person that sees this as a
positive goal, there are certainly others that see it in a less positive light. Interestingly enough,
Starbucks has been recognized each of the past four years as one of Business Ethics 100 Best
Corporate Citizens (www.business-ethics.com).
Starbucks has also been accused of poor environmental practices by using paper cups and
cardboard sleeves (Stauble, V.). “To ensure customers' comfort, Starbucks historically used two
paper cups and currently uses a paper cup and sleeve to serve many of its hot coffee and tea
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beverages” (www.environmentaldefense.org). On this issue, Starbucks has, again, been reactive
rather than proactive; a fact that will always lower credibility. Since becoming environmentally
active, Starbucks has further adapted their practices by making cardboard sleeves optional
(customer requested), and by offering a discount to patrons who provide their own cups.
Starbucks should continue to find ways of improving their environmental actions, and in the
future, take proactive steps.
Comment on the possible strategic directions for the future, which may include international
pursuits.
Starbucks’ main focus in the future should be continued international pursuits. The
company has gained a successful following in the U.S., and would benefit to continue focus on
its already successful multi-domestic strategy. In such a pursuit, it is important for Starbucks to
recognize the difference between global and multi-domestic strategies. If Starbucks were to
pursue a global strategy in the coffee market, they would likely fail, as tastes, substitutes, and
cultures vary considerably from place to place, especially in a food and drink industry. Using a
multi-domestic, or international, strategy, Starbucks will be able to adapt its product and service
market by market. For example, in Japan and the U.K., more tea drinks would be acceptable.
The motif and ambiance of the stores will have to adapt to cultural acceptability. The company
must also recognize local loyalty to other coffee retailers and beverage shops, and pursue an
entrance strategy accordingly. In certain markets, for example, they may have to use penetration
pricing to gain market share from competitors. Starbucks already has representation in more
than thirty international markets, and would surely benefit by continued international expansion
(www.starbucks.com).
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Starbucks is currently using more media advertising than it had in the past. Recently,
more and more television commercials and billboards have sprung up, advertising new Starbucks
drinks. In the future, the company should have analysts continually monitoring the successes of
such advertising. One of the major complaints about Starbucks is the commercialization and
culture degradation of the traditional coffee house. Customers may be deterred if they feel as
though Starbucks’ advertising is becoming too overwhelming. Because the mere presence of
stores is enough promotion, Starbucks should pay careful attention as to not over advertise and
scare off the consumer.
Pricing strategy is another area in which Starbucks might be able to increase market
share. Many non-customers feel that paying so much for a cup of coffee is absurd. As such,
Starbucks might consider offering special “discount days” for certain drinks, or giving out free
samples. Such pricing activities might bring in those people who would typically steer clear of
the company on a purely price basis, and create new customers.
Supplement the case with updated insights and references.
Starbucks has come a long way from a small Seattle-based coffee shop to a highly
recognized multibillion-dollar corporation. The company currently operates in more than 35
countries with more than 8,000 company-owned and licensed domestic locations, and more than
2,500 company-owned stores, joint ventures, and licensed stores outside the U.S. These numbers
continue to grow on a daily basis as Starbucks’ profits continue to soar. Since the labor issues of
the late 1990s, Starbucks has been recognized publicly for international humanitarian efforts, and
was awarded the World Environment Center’s Gold Metal for International Corporate
Achievement in Sustainable Development in January of 2005. The company continues to expand
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its product line with recent releases such as Chantico (drinkable chocolate), and the Mint Java
Chip Frappuccino, released May 2005. Starbucks continues to make wise marketing decisions
and if the company properly analyzes future strengths, weaknesses, threats, and opportunities, it
should be able to continue its success into the future. (www.starbucks.com).
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Works Cited
Caley, N., Cultivating repeat customers will boost bottom line, Pizza Today, May 2005.
Fassnacht, M., Loyalty is about relationships, not transactions, The Wise Marketer,
February 2004
Mochari, I., Customer Service: Consumer Reports, Inc. Magazine, November 2002.
http://www.inc.com/magazine/20021101/24833.html
http://starbucksgossip.typepad.com, Accessed 29 May 2005
“Jules” (full name withheld), La Verne Starbucks Employee, Personal Interview, 30 May 2005.
Keshishian, T., Starbucks Customer, Personal Interview, 20 May 2005.
Stauble, V., Marketing Principles and Practices An Introductory Approach, Novus Publishing,
2005.
www.business-ethics.com, 100 Best Corporate Citizens, Business Ethics Magazine, 2005,
Accessed 29 May 2005.
www.environmentaldefense.org/article.cfm?contentid=3854, Starbucks Coffee Company Paper
Project, Environmental Defense, 2005, Accessed: 30 May 2005
www.fortune.com, 100 Best Companies to Work For 2005, Time Inc., 2005,
Accessed 29 May 2005.
www.hartford-hwp.com/archives/47/044.html, Starbucks Releases Code of Conduct, November
1995, Accessed: 30 May 2005
www.ihatestarbucks.com, Accessed 25 May 2005
www.starbucks.com, Starbucks Corporation, 2005, Accessed: 29 May 2005.
www.treehugger.com/files/2004/11/starbucks.php, Improved Starbucks Enviro+Labor Policies
Coming!, November 2004, Accessed: 30 May 2005
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