Professional Diploma
in Marketing (Level 6)
541 – Delivering Customer Value Through Marketing
Case Study
June and September 2013
The coffee shop market
© The Chartered Institute of Marketing 2013
Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
Delivering Customer Value through Marketing – Case Study
Important guidance notes for candidates regarding the pre-prepared analysis
The examination is designed to assess knowledge and understanding of the Delivering
Customer Value through Marketing syllabus, in the context of the relevant case study. The
examiners will be marking candidates’ scripts on the basis of the questions set. Candidates
are advised to pay particular attention to the mark allocation on the examination paper and
plan their time accordingly.
Candidates should acquaint themselves thoroughly with the case study and be prepared to
follow closely the instructions given to them on the examination day. Candidates are advised
not to waste valuable time collecting unnecessary data. The cases are based upon real-life
situations and all the information about the chosen organisation is contained within the case
study. No useful purpose will therefore be served by contacting companies in the industry
and candidates are strictly instructed not to do so as it may cause unnecessary confusion.
As in real life, anomalies may be found in the information provided within this case study.
Please state any assumptions, where necessary, when answering questions. The Chartered
Institute of Marketing is not in a position to answer queries on case data. Candidates are
tested on their overall understanding of the case and its key issues, not on minor details.
As part of the preparation for the examination, candidates will need to carry out a detailed
analysis of the case material ahead of the examination. Candidates will find that the time
available during the examination is sufficient to answer the compulsory questions, but only if
detailed analysis has been undertaken beforehand. When compiling their analysis,
candidates should only use the information found within the case, supported by their
knowledge and understanding of the syllabus.
Candidates are encouraged to use a range of analytical tools and models in order to
undertake a thorough investigation of the key aspects of the case. This will improve their
understanding of the case and the issues faced by the organisation(s) and/or industry
sectors to which it relates. Clearly, the analysis required will vary depending on the specific
case content but, as a guide, candidates should consider undertaking the following:
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analysis of the external environment using PESTEL analysis
analysis of the competitive environment using Porter’s Five Forces model
strategic review using Ansoff’s matrix and/or Porter’s generic strategies
stakeholder analysis
detailed review/analysis of each of the marketing mix elements
product/portfolio analysis (eg using product life cycle analysis, BCG (Boston Consulting
Group) matrix, GE (General Electric) matrix
SERVQUAL
SWOT analysis.
The copying of pre-prepared ‘group’ answers, including those written by consultants/tutors,
or by any third party, is strictly forbidden and will be penalised by failure. The questions will
demand analysis in the examination itself and individually composed answers are required in
order to pass.
Candidates will then need to condense their analysis into a FOUR side summary (a
maximum of four sides of A4, no smaller than font size 11. The content of tables, models or
diagrams must be in a minimum of font size 8). The analysis should be numbered for ease of
reference when answering the examination questions.
Candidates must hole-punch their analysis and staple it in the top left hand corner. They
should write their CIM membership number and examination centre name in the top right
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hand corner of each page of the analysis. It should then be attached to the answer booklet
on completion of their examination, using the treasury tag provided.
Although no marks are awarded for the analysis itself, candidates will be awarded marks for
how the analysis is used to answer the questions set. Candidates are advised not to repeat
or copy the analysis summary when answering the exam questions. It is important that
candidates refer the examiner to the analysis summary, where and when appropriate, when
answering the questions.
Candidates are only permitted to take their analysis into the examination room. Candidates
are not permitted to take in the downloaded case study or any other notes. The invigilator
will issue candidates with a new clean copy of the case study at the start of the examination
along with the question paper.
Candidates may not attach any other additional information in any format to their answer
book. Any attempt to introduce such additional material will result in the candidate’s paper
being declared null and void.
The Chartered Institute of Marketing reserves the right not to mark any submission
that does not comply with these guidelines.
Important Notice
The following data has been based on real-life organisations, but details have been changed
for assessment purposes and do not necessarily reflect current management practices of the
industries or the views and opinions of The Chartered Institute of Marketing. Figures used in
tables may differ as they have been compiled from different sources, using a range of
criteria.
Candidates are strictly instructed NOT to contact individuals or organisations mentioned in
the case study or any other organisations in the industry. Copies of the case study may be
obtained from:
The Chartered Institute of Marketing, Moor Hall, Cookham, Berkshire SL6 9QH, UK or may
be downloaded from the CIM student website www.cimlearningzone.co.uk
© The Chartered Institute of Marketing 2013. All rights reserved. This assessment, in full or
in part, cannot be reproduced, stored in a retrieval system, or transmitted in any form or by
any means, electronic, mechanical, photocopying, recording, or otherwise, without prior
written permission of The Chartered Institute of Marketing.
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
DELIVERING CUSTOMER VALUE THROUGH MARKETING
CASE STUDY
Preparation
In preparation for the examination you will need to analyse the case material provided, in
order to prepare your analysis of the company. You will be given a clean copy of the case
study on the day of the examination, but you must bring your analysis with you into the
examination. Your written analysis must not exceed FOUR A4 sides and must include your
CIM membership number on each page. The written analysis must be submitted as
appendices on completion of the examination and attached with a treasury tag to your
answer book.
Role
You are employed as a marketing consultant working in the coffee shops and coffee
products retailing industry. You have been asked to advise Starbucks on a number of
marketing related issues, including the organisation’s approach to:
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product and brand management
marketing communications
pricing
distribution and channel management
building loyalty and managing customer relationships.
In addition, you have been asked to conduct a comprehensive review of how the
organisation might need to adapt its marketing mix in order to support product launches and
campaigns to raise awareness of the brand, in addition to utilising the marketing mix to
deliver value to customers.
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Case Study: The coffee shop market
Origins of the coffee shop
Early coffee shops were open to men of all social classes and were places for conducting
business, exchanging news and reading newspapers. Lloyd’s of London, the world
renowned specialist insurance market, began in a coffee shop run by Edward Lloyd, where
underwriters of the shipping industry met to do business. Auctions in salesrooms adjacent to
coffee houses initiated the development of the great auction houses of Sotheby's and
Christie's.
London coffee houses preceded the gentlemen’s clubs of the mid-18th century, which
tended to attract a more aristocratic clientele. The temperance movement of 19th century
England established coffee houses for the working classes, as an alternative to the public
house, which served alcohol. By the 19th and 20th centuries, coffee houses were a popular
meeting point for writers and artists across Europe.
In the USA, Italians in the immigrant communities in the major cities started coffee shops in
the following locations: New York City's Little Italy and Greenwich Village, Boston's North
End, and San Francisco's North Beach. From the late 1950s, coffee houses became venues
for entertainment; both Greenwich Village and North Beach became major haunts for
bohemian and creative people.
As the youth culture of the 1960s evolved, coffee houses became linked with political action
through folk music, including stars such as Joan Baez and Bob Dylan. 1967 saw the opening
of the historic Last Exit on Brooklyn coffee house in Seattle, and the city acquired a
reputation for its countercultural coffee house scene, and the espresso format later
mainstreamed by the Starbucks chain.
The modern coffee shop marketplace
Coffee enjoys an enviable position as an ‘affordable treat’ in the minds of consumers,
protecting it even in a recession. However, coffee shop industry research suggests that in
the UK, nearly a quarter of coffee shop visitors have cut back on their expenditure in this
area in the last year, with few customers increasing their spend to offset this. For most
operators, growth is coming from outlet expansion.
Competitive pressure is also coming from non-specialists who are copying the store format,
as well as the menu offer. McDonald’s attracts many coffee shop customers through its
‘Coffee Moments’ campaign to promote all-day dining. Recently, McDonalds entered the
European market with its McCafe brand; it has not used this brand in the UK, but still holds
the position of top coffee seller in the UK. Other operators, such as Greggs in the UK, have
focused on a low-cost alternative, and represent a considerable challenge in the present
economic climate. Specialist operators are emphasising the added value they offer through
their expertise, their ability to create a dramatic show of barista skills, and their offer to
customise the product for individual tastes, embodied by Starbucks’ ‘However you want it
Frappucino Blended Beverages’ strategy.
The market for coffee, whether at home or on location, is relatively mature, so competition is
fierce, focusing on gaining market share, premiumisation (the process of moving products
up-market and differentiating them, so that higher prices can be charged), and extending
consumer spend per visit through adding new products, and by creating new occasions to
visit stores. Brand loyalty in the market is low, and although all chains work to increase
spend, customers are under pressure from static wages and rising prices. Some products,
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
such as miniatures, aim to ensure consumers can continue to enjoy the ‘treat’ whilst
controlling their spend.
Who drinks coffee?
The coffee drinking population for branded coffee shops is fairly evenly divided between the
genders, although men slightly outweigh women, with 47.8% having visited a coffee shop in
a three month period, compared to 47.1% of women. The age group that most often visits
branded coffee shops is the 25 to 34 year-old group, where research undertaken by Key
Note in 2012 shows 61% visited one within a three month period in the UK, compared with
only 27.3% of the over 65s, and 36.3% of the 55-64 age group.
Branded coffee shops are most frequented by social group A, at 75.8%, compared to only
31.7% in social group E. There appears to be no discernible pattern in terms of working
status, although 58.3% of full-time workers had visited within the three-month period.
Roughly the same proportion of the sample prefers branded coffee shops (24.9%) as those
who favour independents (24.5%). However, the same survey suggests that 66.4% worry
that there are too many branded outlets, which will damage the smaller independents
(68.2%). Recently, a rural UK town, Totnes, Devon, initiated an anti-Costa campaign. The
town already has 41 independent coffee shops and wanted to reject Costa, to prevent
becoming a ‘clone town’, with a homogenised high street.
A fairly high proportion of visitors to coffee shops (40.2% of men and 40.3% of women) feel
that the use of Rainforest Alliance and/or Fairtrade coffee is important to them. Age plays a
significant part in this, with 62.8% of the 16-19 group expressing a concern, but only 38.8%
of the 45-54 age group.
Purchasing habits
Drink-in purchases dominate the coffee shop market, but there is a growing trend to
takeaway sales, driven both by consumer spending reductions, and the expanding range of
options open to consumers. The pressure for workers to be seen to be at their desks in
straitened times may play a part in this. Loyalty, either to a brand or a particular store, is low,
with convenience proving a bigger consideration in the decision-making process. Purchasing
research suggests that the market is fairly resilient, with six out of ten customers claiming
they have not altered their habits in relation to coffee drinking despite the recession.
What the customers want
Value drives customer choice in the lower end of the market outlets. Many consumers are
keen on popular price promotions such as ‘meal deals’. However, the specialists are wary of
damaging their premium position by offering price-led promotions. Miniaturisation has proved
a better solution, as it allows the customer to choose. Customers in this sector want clearer
descriptions of the drinks, with more information about the ingredients, nutritional values, etc.
Lower calorie options hold some interest for consumers with young families, offering the
opportunity for targeted lifestyle choice products.
Research indicates that most consumers are keen to have more food options, as well as the
drinks they already enjoy, and this represents a major opportunity. Comfortable
surroundings, a welcoming atmosphere, knowledgeable staff and good service are also
important aspects of the experience that customers seek when they visit a coffee shop.
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Who sells coffee?
The market polarises between a few large operators and a very large number of smaller
operators, many with a single outlet. Rising costs of operating, from increased rents and
commodity prices, have put small operators under huge pressure; the larger chains have
benefited from economies of scale. In the UK, the market is dominated by Costa Coffee,
closely followed by Starbucks and Caffè Nero. The pattern elsewhere varies, but the key
players remain the same.
The European and worldwide market
In 2010, the number of branded coffee shops across Europe rose by 4.6% to 10,951. The
UK and the Republic of Ireland accounted for 4,645, or 42.4%, indicating the popularity of
the branded coffee shop in these markets, and, potentially, the scope for expansion of the
branded coffee shop in other European countries. Continental Europe has a more
established ‘coffee culture’ than the UK, so already has a larger base of independent coffee
shops. The UK is also more receptive to American imports than other European countries,
and has embraced the chains more readily than Europe, where the market remains quite
fragmented.
Many outlets sell coffee, and these range from sandwich shops, department stores and
service stations to hotels and vending machines. Starbucks’ direct competition comes from
small independents and coffee shop chains, such as Costa Coffee, Caffè Nero and Caffè
Ritazza. Despite the recession and cultural differences, more coffee shop chains, some from
non-specialist operators, are beginning to appear across Europe, threatening the
independents and specialist providers.
Love Coffee took over 13 of BB's Coffee & Muffins stores in 2009 to increase its store total
to 18 across the UK. It is certainly a brand to watch as the UK’s coffee market continues to
be an important element of the leisure sector.
A very recent entrant to the market (August 2012) boasts another literary name – Harris &
Hoole (characters mentioned in Samuel Pepys’ diary, written in the 17th century). A
controlling interest is held by Tesco, which already dominates British retailing, although the
two brands and their strategies will be kept apart. The select coffee chain, which prides itself
on its skilled baristas, has chosen to team up with Tesco, which will undoubtedly give Harris
& Hoole financial clout and plenty of location advantages.
The coffee drinking culture is more developed in Europe than in the UK and America, and
especially the Far East and India – and it has its own unspoken rules. In Italy, where coffee
drinking is a way of life, any milky form of coffee is drunk only in the morning, and never after
a meal. Coffee is served at drinking temperature, simply, without embellishments, and
generally drunk standing up. It is paid for at the till, before ordering from the barista. Because
coffee drinking is so embedded in life throughout Europe, independent coffee shops have
always been a feature, so the chains have made smaller headway than in the UK, USA and
some developing nations.
Coffee shops now have an annual Coffee Symposium, reporting on the market worldwide.
The latest one described the UK as the flagship in the European coffee market; across
Europe, customers in 23 countries are served in a total of 13,826 outlets, with turnover
topping €15 billion. European coffee shop numbers are forecast to reach 15,900 by 2015,
with the current 4.4% growth increasing to 4.8%.
The coffee culture march across Europe is headed by Whitbread-owned Costa Coffee,
based in the UK, which has 1,623 units, and McCafé in Germany (1,583), followed by other
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
progressive chains led by Starbucks and Caffè Nero.
As westernisation pervades East Asia, especially the People’s Republic of China (PRC), the
market for coffee shops is expanding rapidly. Costa Coffee, cites the PRC, Russia, Middle
East and India as key growth markets for the next three to five years. It is a close second in
the market to Starbucks, which has a strong presence in the Middle East, and also China,
India and Pakistan. By August 2011, Costa had 691 international stores, with 80 in India.
Starbucks, of all the chains, has achieved greatest international coverage, with outlets in 50
countries giving healthy returns, and more planned. Caffè Nero has the most limited
geographical coverage, only in the Middle East, and with no East Asian outlets to date.
The strongest growth in recent years has come from Indonesia, at +21.7% by volume,
compared to a decline in USA volume of -12.3%. Projections for store numbers show a
similarly healthy picture for Indonesia of +10.9% up to the year 2015 from a 2011 base. The
same period for the USA predicts a much less stellar performance of +1.2%. Year on year
figures indicate that in Indonesia there is a higher spend per visit than elsewhere, suggesting
that customers enjoy a treat with their coffee.
To date, only Starbucks has ventured into South America, but as Mexico’s and Brazil’s
economies (and other South American economies) grow, these will surely entice the coffee
chains. Unlike China, Russia and India, where the sector is dominated by independents,
chains seem to have made more inroads in Brazil and Mexico, where the split with
independents is almost equal.
Starbucks’ history
In 1971, Starbucks’ single store in Seattle’s historic Pike Place Market sold some of the
world’s finest fresh-roasted whole-bean coffees. The name, inspired by the novel Moby Dick,
evoked the romance of the high seas and the seafaring tradition of the early coffee traders.
In 1981, Howard Schultz (Starbucks’ Chairman, President and Chief Executive Officer) first
sampled Starbucks. He was converted, and joined the company a year later. He then
travelled to Italy and became captivated with Italian coffee bars and the romance of the
coffee experience. His vision was to bring the Italian coffee house tradition back to the
United States, and create a place in which conversation and community could thrive; an
alternative to work and home.
From the beginning, Starbucks set out to be a different kind of company, one that celebrated
coffee and the rich tradition, but that also brought a feeling of connection, high quality
service and caring. It almost singlehandedly began the process of reshaping the coffee shop
market, and now faces many copycat competitors.
The following Starbucks mission statement reflects the company’s values:
‘Our mission: to inspire and nurture the human spirit – one person, one cup, and one
neighborhood at a time’ (source: www.starbucks.com).
Starbucks is the world’s premier roaster and retailer of speciality coffee. It claims with every
cup to bring both their heritage and an exceptional experience to life.
Up until 2010, the UK arm of Starbucks, Starbucks Coffee Company UK Ltd, saw turnover
increase year on year, reaching £396.3m. However, pre-tax losses were registered every
year over the preceding five years, with a loss of £34.2m recorded in 2010. The company
began seeking franchise partners in 2012 to find sites and run stores in smaller towns,
starting in the south of England.
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By 2007, worldwide, the average number of transactions per store had fallen, and Howard
Schultz highlighted a watering down of the Starbucks’ experience and commoditisation of
the brand. He pointed to the disappearance of the in-store coffee aroma and the mass-chain
feel of the stores as downfalls. In 2008, he set about a turnaround, closing underperforming
stores, refurbishing others, going for a blanketing of key areas with a high penetration
distribution strategy. Since then, the chain has unveiled a number of successful products,
including its surprise hits Perfect Oatmeal and Via – microground and instant coffee in single
serve sachets, which is regarded as the first innovation in the instant-coffee category in
decades. In its most recent quarter, Starbucks posted an 8% gain in both US same-store
sales and global sales.
The falling transactions led to a massive brand relaunch with a new logo for March 2011, the
fourth in the company's 40-year history. The updated logo drops the words ‘Starbucks
Coffee’ from the perimeter, to facilitate expansion beyond coffee. Another reason is that its
mascot, ‘the Siren’, can be free. ‘We've allowed her to come out of the circle,’ said CEO
Howard Schultz. Dropping the wording and strengthening the siren express the renewed
confidence in the brand and its direction that Schulz sought.
The Starbucks Experience
Product/service
Starbucks’ stores continue the traditional coffee house community approach by building an
environment and a community. In addition to coffee, Starbucks offers a range of hot and cold
drinks, suitable for all ages, a selection of cosmopolitan, informal food, with all the nutritional
values explained clearly. Leisure customers are encouraged to linger by comfortable
seating, whilst those wishing to move their office to Starbucks have all the facilities they
need, including more formal furniture, daily newspapers, and Wi-Fi. Music is an important
part of the experience, with handpicked tunes in the stores – unique compilations helping
people discover their next favourite artist or recording.
Starbucks evenings extend the accepted trading hours of a traditional coffee house, as well
as drawing a different clientele – customers can unwind, grab a treat, and meet up with
friends, business people can meet, and new groups can be formed. After 4pm, in selected
stores, they offer a less formal dining solution – just a glass of wine and a bite to eat without
having to make a restaurant reservation. The offer is ‘simple, amazing food, simple and
smart wine, the same comfy chairs as in the morning, a more mellow, less hurried
atmosphere perfect for winding down and having casual conversations’.
B2B sales
For the corporate customer, Starbucks provides coffee and food for meetings, as well as
corporate cards, enabling companies to motivate, reward and appreciate their staff and
customers alike. The standard gift card is also used in the business-to-business market.
Merchandise
Starbucks offers a range of quality coffee beans for sale, with a wealth of information to add
value for the customer. The company searches origin countries for the finest coffees with
distinct flavours to delight customers; a few are deemed exceptional enough to become
Starbucks Reserve™ coffees, available for limited times at selected stores. These premium
coffees are moving Starbucks into the realms of wine tasting, and often attract a different
customer from the coffee shops. The company has also developed its own brand of coffee,
Indivisible, which embodies the company values of creating and sustaining jobs by
supporting community businesses all over the United States.
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Compilation CDs of the in-store music can be purchased in stores, allowing the customer to
take a little of the experience home, or share it with a friend.
Starbucks cards enable companies and individuals to give a token of appreciation, or a gift.
These can be co-branded, allowing the donor organisation to achieve a brand reminder too.
Cards can be exchanged for any Starbucks beverages, pastries, whole-bean coffee, coffee
presses, CDs and more. Electronic gift cards are also available, ensuring that gifts can be
given remotely as well as personally.
Place
From its American roots, Starbucks has established coffee houses all over the developed
world, and offers a mobile app which helps would-be coffee drinkers locate the nearest
outlet, with information on which stores are 24-hour, which offer Wi-Fi, as well as where to
find them. They are located on high streets in major towns, college campuses, within
bookshops, and in tourist destinations. The company is also considering expanding into
drive-through outlets as well as cafés in train stations and shopping centres. A new venture
is an outlet coffee house at an outlet shopping centre in Northern Ireland, enabling shoppers
to enjoy their coffee at up to 70% discount.
In Europe, Starbucks plans to increase its presence by opening its own coffee houses.
Starbucks’ strategy has been to saturate the market. The accepted business model is
usually to spread out the location of chain outlets so that one store does not cut the profits of
another. Typically, chains place their retail outlets in locations based on demographics,
traffic patterns and the location of competitors, as well as the location of its own stores.
However, in 2008 Starbucks deviated from this position by introducing its new strategy of
intense penetration effectively locking out other providers, or at least, making an area
unattractive to competitors. Starbucks continues to pursue this approach, but now also
targets key locations, according to priority segments, such as students.
The Starbucks approach focused on heavily increasing the footfall in one specific part of
town. This cut down on the company’s delivery and management times, and also shortened
the waiting lines for customers at each individual store and increased overall traffic. Schultz
knew that this high penetration strategy was a risk, but it was a risk he was willing to take.
Clustering its stores in one area helped Starbucks quickly achieve market dominance. With
over 20 million regular customers per week, no other American retailer can claim a higher
frequency of visiting customers.
Starbucks’ coffee houses reflect the vision that a coffee house should be a place to find
connection, and fit seamlessly within its neighbourhood, with a minimal environmental
impact. Store designs are rooted in the coffee heritage, and in the Starbucks Shared
Planet™ community involvement and environmental stewardship goals. So designs reflect
the character of a store’s surrounding neighbourhood and help reduce environmental
impacts.
As stores are built and renovated, they source materials and employ craftsmen locally and
incorporate re-used and recycled elements where possible, using the US Green Building
Council’s Leadership in Energy and Environmental Design (LEED®) certification programme
as a benchmark for success.
Each new and renovated store uses one of four design concepts that reinforce the values of
the organisation.
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Heritage coffee houses reflect the mercantile roots of the first store in Seattle’s historic
Pike Place Market with worn wood, stained concrete or tile floors, metal stools and
factory-inspired lighting. Large community tables, club chairs and wooden blinds evoke a
turn-of-the-last-century feeling.
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Artisan stores echo the industrial past of urban markets, taking inspiration from the
Modernism of the 1930s. This motif celebrates simple materials like exposed steel
beams, masonry walls, factory casement glass and hand-polished woodwork in a
creative gathering place for culture and the arts.
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Regional Modern embodies a trend-setting style that is comfortable and welcoming. It
uses bright, loft-like, light-filled spaces punctuated with regionally inspired furniture and
culturally relevant fabrics, to create a calm and contemporary respite from the clamour of
the fast-paced world.
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Concept stores are unique environments created by designers to explore innovations
within the coffee house. Starbucks calls them ‘design sandboxes’. That sense of
exploration is extended to everyone who visits, through daily coffee and tea cuppings
(like a wine tasting), artistic events and community gatherings.
In the face of its many competitors, Starbucks has also extended its offering by exploring
other channels, as indicated by the following article.
Best Coffee, Starbucks’ Seattle division, sells its coffee in kiosks around America, after
signing an agreement with Coinstar, the vending machine company. The ‘Rubi’ machines
will grind the beans, brew up and serve coffee, mochas and vanilla lattes. The company
estimates that it will sell around 10,000 cups a year from each kiosk and will attract those
who want more affordable coffee (source: http://www.thetimes.co.uk).
Pricing
Starbucks coffee is a premium product, and this is reflected in its pricing. Even during the
recession, prices have been maintained, although various ‘meal deals’ and special offers are
available to offer enhanced customer value. A cup of coffee, in a luxury ‘home from home’
environment with none of the stresses or responsibilities of home, is seen as an affordable
and justifiable treat, in a way that other, more extravagant items are not. Miniaturisation, and
vended coffee give cost-conscious customers the opportunity to enjoy the coffee at lower
prices, without compromising quality.
Promotion
Starbucks is a curiosity in the marketing world because it spends much less on traditional
advertising than other big chains, yet fares better than many. After kicking off 2012 with its
massive brand relaunch, including the new logo that signalled its intent to ‘think beyond
coffee’, the chain has been aggressive in its marketing.
Communications for Starbucks extend well beyond creating awareness. A highly integrated
campaign begins with the values and traditions of the brand to share the stories of the very
select coffee blends, and the lands and people that nurture the beans, of coffee houses
themselves, and of the customers who frequent the stores. The strong culture of Starbucks
is artfully created through the servicescape of the stores, the website, the merchandise and
the brand logo. Starbucks’ sophisticated and effective website is designed to share
information about the company values as well as the product and service it offers, and is
central to its marketing communications strategy.
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Although globally Starbucks’ 2010 spend was double that of the previous year, it was still
only $97.6m – about 1% of the chain's sales. In the first half of 2012, it allocated $14.8m for
TV out of a total of $51.8m, and its launch of ‘blonde coffee’ included national TV advertising
along with digital and social media.
It has upped its traditional marketing tactics and invested heavily in digital and social media,
helping the budget go further. Marketing initiatives in 2012 included social media efforts and
advertising for Frappuccino, which it claims has been the most engaging product on
Facebook in the last year, as well as a digital scavenger hunt featuring pop singer Lady
Gaga. The chain also promoted its 40th anniversary with, among other things,
MyStarbucksSignature, a website that lets customers create customised drinks.
Facebook is a big platform for Starbucks; in May 2011, it delivered 156 brand impressions
throughout Facebook for every one page view on its fan page. Friends of fans are an
intriguing audience for marketers; these consumers have yet to identify themselves as fans
of a given brand, so there may be a benefit in messaging them – either for brand building or
for increasing consumption. Their social proximity to fans enables them to deliver stories
about those fans’ interest and engagement with the brand. In Starbucks’ case, unpaid social
media impressions increased total online impression volume by an impressive 64%.
Starbucks has an extraordinary ability to leverage a larger fan base than most brands and
maximise its modest advertising impression volume.
Starbucks’ global fan profile is fairly young, with more than 40% of the audience younger
than 25, and 18 to 24 year-olds accounting for more than a quarter of all fans (26.5%).
Relative to the average internet user, Starbucks’ fans are entertainment-oriented and
information seekers, and engage well with the information-rich website. Starbucks is clearly
capitalising on Facebook as a global marketing channel to increase acceptance among the
younger market segments.
An unofficial fan site, Starbucksmelody.com, invites fans to share in the Starbucks
experience and gathers Starbucks memorabilia, indicating the level of loyalty and
commitment some customers feel for the brand. It is another example of the way the
integrated communications create a buzz that generates word-of-mouth publicity for
Starbucks.
Service
Offering products that customers want and providing a good experience are key forms of
Starbucks’ marketing. The company calls the customer experience ‘moments of connection’.
Those few minutes the company has with its customers can make or break how customers
feel. Listening to and engaging with customers allows Starbucks to stay very fresh on
customer needs, with the help of sites such as MyStarbucksIdea, a forum where customers
can make suggestions which also helps build loyalty and engagement.
Loyalty is hard won in the sector, but My Starbucks Rewards™ offers Gold Card members
the opportunity to receive a free handcrafted beverage after 15 purchases.
Ethical stance
Worldwide, Starbucks has a strong ethical perspective, including many initiatives to help
create jobs for the USA. Across the UK, Starbucks Youth Action invests in young people,
giving seed funding, training and backing for community projects. It also brings people
together to debate and think about youth issues – most recently at the UK Conservative and
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Professional Diploma in Marketing
Labour party conferences, where it hosted debates on whether the political parties had
abandoned young people.
Starbucks’ partners mostly live locally and are part of the community themselves, so many
store managers support local good causes which are important to the community. A UK
team recently won a Community Investment Award; five stores participated in the Macmillan
Race for Life, raising nearly £2,000 for the cancer support charity, and they supported an instore collection for the youth charity, the Prince’s Trust.
Shared Planet™ is Starbucks’ commitment to do business in ways that are good for people
and the planet. The company commits to purchasing only the highest quality, ethically
sourced and responsibly grown coffee. It strives to reduce its environmental footprint and
fight climate change. Shared Planet™ focuses on the core areas where it has the biggest
influence – ethical sourcing, environmental stewardship and community involvement. Above
all, Starbucks believes in engaging, collaborating and openly communicating with
stakeholders. Since 2001, it has produced a global responsibility report that details how it
does business responsibly.
Starbucks is committed to upholding a culture where diversity is valued and respected, and
sees diversity as integral to everything it does. The diversity strategy focuses on four areas:

partners (employees) – the company seeks out and engages partners who are as
diverse as the communities it serves

customers – it extends the Starbucks experience to all customers, recognising and
responding to their unique preferences and needs in a culturally relevant way

suppliers – it is a trusted and welcoming company for suppliers. Through its supplier
diversity programme, it works to increase its business relationships with minority- and
women-owned suppliers

communities – it supports and invests in local neighbourhoods and global communities
through strategic partnerships and economic development opportunities that deepen ties
in the communities where it does business.
Starbucks has given money towards a fund that provides long-term loans to farmers in the
developing world, allowing them to grow more coffee, cocoa and bananas. This in turn
ensures it retains its supply chain as it becomes increasingly dependent on farmers. Nestlé,
similarly, has increased its support of cocoa farmers in Ivory Coast and Ghana, in a bid to
improve crops and address a possible cocoa deficit.
With a multi-million pound advertising campaign in the UK stressing its ethical credentials,
Starbucks is emphasising Fairtrade. Since 2009, its coffee in the UK and Ireland is Fairtrade,
making it the world's biggest buyer of Fairtrade-certified coffee. In the US, the picture is
different. The Organic Consumers' Association (OCA) had to shame Starbucks through a
boycott into promising to brew a Fairtrade coffee in any of its stores. The OCA continues to
criticise the company for dragging its feet on Fairtrade on that side of the Atlantic.
Despite its stated ethical values, Starbucks comes low in the Ethical Consumer's rating
table. A US court ordered Starbucks to pay more than $100m into the accounts of its lowwage staff in California, after ruling that it had improperly required the workers to share tips
with their bosses, although the ruling was subsequently overturned on appeal.
In the UK, ethical concerns have focused on issues of tax avoidance, with some customers
turning to alternative coffee shops. The way that customers feel about Starbucks’ ethical
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
stance is demonstrated by the level of disappointment some customers felt when it was
revealed that the company had used accounting methods to reduce its payment of
corporation tax in the UK. Consumer pressure subsequently led to Starbucks agreeing to
pay the UK government a significant amount of tax over the next two years.
Starbucks international
Starbucks claims its passion for great coffee, genuine service and community connection
transcends language and culture. The first international coffee house opened in Tokyo back
in 1996, to an extraordinary response. The international growth since then has been
significant, although some markets have not seen as many Starbucks outlets as other
brands.
Future expansion plans have a strong international element, especially in the Asia Pacific
market, with plans for 1,500 PRC outlets by 2015, from the September 2011 base of 470.
Starbucks opened in ten new Chinese cities in 2011, and now has outlets in 42 PRC cities.
South Korea is targeted for 700 by 2016, from 370 in 2011. Entry into the Indian market is
somewhat late, with 2012 seeing the first opening, and the company is opening in Vietnam in
2013. Despite a relatively late entry to some Asia-Pacific markets, Starbucks has more
international coverage than other coffee chains.
Starbucks’ global success involves international partners, through whose commitment the
company delivers coffee. Choosing partners is seen as critical to its success. Partners are
selected as much on philosophy as on capability, so shared values, strategic fit, good
leadership and a strong track record are among the most important qualities.
Schultz sums up the approach to international business, ‘We remain highly respectful of the
culture and traditions of the countries in which we do business. We recognise that our
success is not an entitlement, and we must continue to earn the trust and respect of
customers every day.’
Starbucks’ first international ventures saw some consumer resistance as a result of
insufficient understanding of international culture. For example, the Chinese market was one
of the hardest markets to crack for Western companies, because of its strong tea culture.
Now Starbucks has different menus for each country, with many options among its
international offerings. At Starbucks in Japan, you can find a tiny size of beverage because
that is preferred. You can also find the special menu ‘Marshmallow Mocha’, while the ‘Mocha
Praline’ is only available in France and Spain. Starbucks in China offers traditional Chinese
fortune cookies, not sold elsewhere.
Maintaining a strong brand image, values and atmosphere through the servicescape, while
adapting to local culture in each country, could be key differentiators for its future success.
Innovation/new product development
Innovation has been a substantial part of Starbucks’ strategy since the new strategic
direction in 2008, focusing heavily on feedback from customers and a close tally of sales.
The following examples are recent product developments:

an in-store line of Bistro Boxes target consumers interested in healthier fare, offering four
varieties made from natural and ethically sourced ingredients

K-Cups single-serve offerings – Starbucks has focussed new product development
towards supermarket outlets
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Professional Diploma in Marketing

a ‘blonde’ roast, its lightest offering yet – Starbucks has attempted to capture a bigger
share of the US coffee market; the company also announced an overhaul in its
packaging

as well as planning to enter the energy drinks market with Starbucks Refreshers (a range
of fruit-juice-based drinks that contain green coffee extract made from unroasted coffee
beans), Starbucks has opened its first juice bar, called Evolution Fresh

the star of the innovation show seems to be the Verismo coffee machine, with which
Starbucks hopes to take a piece of the $3.8bn Nespresso market by delivering
Starbucks’ espresso to people’s homes

Starbucks VIA® instant and micro-ground coffee provides expertly roasted, delicious
coffee in an instant. It is marketed as the perfect solution to a rushed morning or a quick
and delicious cup for one person. Hot water is all that is needed for the taste of freshly
brewed coffee, in a selection of roasts.
The future of the coffee shop
Projections about the future for coffee shops focus on changes in the way people live and
work. Key emerging themes which may impact on the coffee shop include the rise of the
knowledge economy and telecommuting.
In many countries, there is a move away from working within offices towards more flexible
working arrangements. Coffee shops and co-working spaces are more convivial places,
where creativity can flourish. With the rise in independent contractors who have no corporate
base to flee from, the coffee shop has a great future.
In the past it made financial and commercial sense for organisations to provide their
employees with the necessary equipment (computer, printer, etc) in fixed office locations.
However, with technical advances, it is much more viable for individuals to have access to
their own technology; therefore the need for fixed office space becomes less important.
This pattern will continue to become more common as companies look to cut costs and
workers embrace mobile technology. The trend is likely to be replicated worldwide. US
freelancers and part-timers already spend hundreds of dollars a month on co-work spaces.
Changes in retail and the trend towards home-working is changing the face of city centres;
as this happens, coffee shops may need to rethink some of their locations.
The challenge for Starbucks and other coffee shops is to decide whether to embrace this
change by either encouraging people to carry out work in coffee houses or making the
environment less conducive to work.
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
Appendices
Appendices will be posted when CIM is in receipt of copyright extensions.
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Professional Diploma in Marketing:
Grade Descriptors Level 6
Grade A
This grade is given for work
that meets all of the
assessment criteria at
Diploma level to secure at
least 70% and
demonstrates a candidate’s
ability to:
Concept 30%
develop appropriate research
strategies for both primary and
secondary research
selectively identify valid and
relevant information from a wide
range of sources for the
discipline
manage own learning
independently
evidence comprehensive
knowledge and understanding of
the marketing discipline at
Diploma level
synthesise and analyse new
and/or abstract information and
data in the context of wide
ranging problems, using a range
of appropriate techniques
Grade B
This grade is given for work
that meets all of the
assessment criteria at
Diploma level to secure at
least 60% and
demonstrates a candidate’s
ability to:
produce detailed and coherent
arguments in response to well
defined and abstract problems
using relevant vocational
language
Time Management and
Presentation
10%
plan, review and
complete work within the
specified deadlines/time
allocated
produce reliable, valid and
incisive conclusions and
recommendations, based on
research findings and
analysis
an exceptional and
professional standard of
presentation, format and
tone
evaluate findings leading to
informative and reliable
conclusions and
recommendations
plan, review and
complete work within the
specified deadlines/time
allocated
produce reliable and
informative conclusions and
recommendations, based on
research findings and
analysis
a high standard of
presentation, format and
tone
express ideas persuasively
and with originality, applying
appropriate marketing
terminology and concepts
accurately
apply a wide variety of
illustrative examples to
underpin findings supported
by references to wider reading
and learning resources to
exemplify points
produce logical arguments in
response to a given brief using
vocational language correctly
express ideas clearly, applying
appropriate marketing
terminology and concepts
accurately
apply a variety of illustrative
examples to underpin findings
supported by some references
to wider reading and learning
resources to exemplify points
develop an appropriate research
strategy for both primary and
secondary research
evidence a basic
understanding and application
of key principles
evaluate findings leading to
reliable but limited
conclusions
complete work within the
specified deadlines/time
allocated
identify and select information
using a minimum number of
resources for the discipline
produce arguments in
response to a given brief using
sufficient vocational language
produce reliable but limited
conclusions and
recommendations based on
findings
acceptable presentation,
format and tone
manage own learning with
support and guidance
outline ideas and concepts
using appropriate marketing
terminology
little or no attempt to
evaluate findings
work not being completed
within the specified
deadlines/time allowed
evidence a satisfactory level of
knowledge and understanding of
the marketing discipline at
Diploma level
analyse information and data in
the context of explicitly defined
problems
This grade is given for
border line work that does
not meet enough of the
assessment criteria at
Diploma level to secure a
pass and is within the band
45-49%. This may be due
to:
evaluate findings leading to
incisive conclusions and
recommendations
identify and select valid
information from a suitable range
of relevant sources for the
discipline
analyse new and/or abstract
information and data in the
context of broadly defined
problems, using appropriate
techniques
Grade D
engage in effective debate in a
professional manner
evidencing a comprehensive
understanding and application
of key principles
evidence a sound
understanding and application
of key principles
evidence detailed knowledge
and understanding of the
marketing discipline at Diploma
level
This grade is given for work
that meets enough of the
assessment criteria at
Diploma level to secure at
least 50% and
demonstrates a candidate’s
ability to:
Evaluation 30%
develop appropriate research
strategies for both primary and
secondary research
manage own learning with
minimal guidance
Grade C
Application 30%
include some illustrative
examples to support findings
including minimum references
to wider reading and learning
resources to exemplify points
an inability to develop an
appropriate research strategy for
both primary and secondary
research
a lack of basic
understanding of key
principles and limited
application
insufficient sources of
information being used to
underpin research
insufficient and/or
inappropriate use of marketing
terminology to explain ideas
an inability to manage own
learning effectively
limited development of ideas
or concepts
repeating case material rather
than evidencing knowledge of
the marketing discipline at
Diploma level
few or no examples to support
findings
a lack of detail and argument
when analysing information for a
specified task
superficial conclusions and
recommendations which
lack depth
errors in presentation,
format and tone
Professional Diploma in Marketing
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Delivering Customer Value Through Marketing Case Study June 2013 and September 2013
Moor Hall
Cookham
Maidenhead
Berkshire, SL6 9QH, UK
Telephone: 01628 427120
Facsimile: 01628 427158
Website: www.cim.co.uk
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