Starbucks - The World’s Favorite Coffee

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Starbucks - The World's Favorite Coffee

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Christian Park & Eric Haehl

Professor Lascu

Changing Consumer Culture in a Digital World

December 12, 2014

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Table of Contents

1. Introduction pg 1-2

2. Literature Review pg 2-6

a. Purpose of study

b. Company

c. Consumer

3. Data Collection pg 6-9

4. Template pg 7

5. Quantitative Data pg 8-9

6. Data Analysis pg 10-11

7. Findings pg 11-13

8. Works Cited (Including Digital Story Telling) pg 14-19

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Digital Storytelling: (The video is also saved to your computer from presentation day!)!

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Introduction The marketing success of Starbucks is one of a kind. Within 43 years, the company managed to establish 21,600 stores worldwide, both creating and dominating the global coffee shop market (Thompson 2004). However, with tremendous advances in lifestyle expectations, consumers are getting consistently harder to please. What was considered hyper-efficient a few years ago is now regarded as slow or inadequate. What used to be hip three months ago, is now out of style. In order for companies to avoid falling behind, they must know exactly who their consumers are and how to please them. Changing business tactics at the right times and in the right ways is crucial for a company's success, even if its something as simple as coffee. For some people, Starbucks is a comfortable lounge meant for sipping vanilla lattes, enjoying free wifi, and getting caught up on work. For others, its just a quick, simple source of their daily coffee. This fusion is great for Starbucks because it appeals to larger variety of consumers. However, in order for this fusion to work, compromises that effect both types of customers have to be made. After all, it is impossible to please everyone at the same time and that is why the proper market segmentation is crucial (Parsons 2011). If Starbucks were to cater towards the more lucrative of the two customer types, it would generate a larger following and increase profits. (Parsons 2011)

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Within the past five years, the value of Starbucks stock (SBUX) has grown tremendously from $22 to around $84. Investors believe that this growth is a result of the company's increasing consumer base. However, in the last year, the stock has seemed to have reached somewhat of a plateau, indicating that its consumer base has reached full potential. This presents Starbucks with the challenge to keep its consumers constantly satisfied to maintain its position within the

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market. The purpose of this study is to provide Starbucks with research necessary for it to properly differentiate its currently undifferentiated customer base. Change is the essence of progression and Starbucks must adapt accordingly to the ever-changing market.

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With this study we will observe consumer purchase behavior at Starbucks based on whether or not customers stay or leave. This objective of this research is to determine which type of consumer is more profitable for the company. Observations will be conducted at two different Starbucks locations to ensure credibility and variety. Our sample will consist of roughly 30 men and women customers of different genders, ethnicities and ages. Collected data will be organized through the use of a template which compares the two types of consumers. This template will include factors such as, but not limited to, duration of stay, amount of items purchased, and drink size. In addition, several random customers will be interviewed about their experience and opinions towards Starbucks. These interviews will provide more open-ended, qualitative data for the investigation.

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Literature Review The purpose of this literature review is to demonstrate the importance of consumer inspired market adaption for Starbucks Coffee. There is debate about what purpose Starbucks really serves to function and who it caters towards. There is also a disparity between the monetary contribution of sit-down consumers vs. on-the-go consumers. This research will outline the general structure and composition of both the company and its consumers, enabling us to gain a clearer look into this multi-billion dollar industry.

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Company Starbucks opened its first store in 1971, selling only whole coffee beans to Seattle locals.

At the time, the company was worth around $8,000 (Tsirelman 2013). From the start, they focused primarily on quality and customer satisfaction, setting them apart from most competitors. Starbucks only purchases "top of the line" beans from areas such as South America and Asia. It send company buyers to inspect harvest quality down to the handful (Gresham 2007). Another aspect of quality is determined by the style in which Starbucks roasts their beans. "It took eight months and more than 80 different recipe and roast iterations before we landed on the exact flavor profile our customers told us they were looking for" (Dizzy 2012). One of the company's first major changes occurred after marketing director Howard Shultz discovered Milan's famous espresso bars. Shultz observed the success of such Italian coffee shops and proposed that Starbucks should include a similar manner of service. It was not until 1984 that Starbucks served its very first Caffe Late. Within five years, the company had established 54 additional stores, expanding its reach to Chicago and even Vancouver. Three years later, in 1992, the company held an initial public offering, sparking excitement among many anxious investors. Fast forward one last time to today and Starbucks now occupies 19,000 locations worldwide and has a value of roughly 15 billion dollars (Loeb 2013).

So far, Starbucks has done a great job making changes based on consumer demands. It has a solid marketing team that is capable of making sound decisions derived from consumer analysis data. The company is known primarily for its famous dark roast coffee (Martinez 2013). Roasting, within the world of coffee terminology, is a process that alters the chemical and physical properties of green colored beans to bring out flavor and functionality (Anderberg

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2013). Generally speaking, dark roasts tend to have a stronger, bolder taste while also providing its consumer with a higher level of caffeine. However, not every coffee drinker is looking for an intense caffeine fix. In fact, in a study published in "Starbucks Consumer Research 2010", " There are 54 million coffee drinkers in the US who claim that they prefer light roast coffee." In response, Starbucks released a line of coffee known as "Blonde Roast". According to Starbucks president and channel developer, Jeff Hansberry, this segment of the company is valued at roughly $1 billion in opportunity profit (Martinez 2013). The company has also made efforts to increase its market segmentation by introducing food items and diversifying its drink menu. The company recognized that their primary business hours were concentrated in the morning and as a result, experienced a hard time attracting customers throughout the rest of the day (Strom 2013). Although coffee drinks account for roughly 75% of sales, food items now contribute a solid 19% (Strom 2013).

Overall, Starbucks has obtained a level of success that most companies can only dream of. In fact, the company just celebrated its 19th consecutive quarter of record same store sales (Strauss 2014). It has also achieved an impeccable business reputation, maintaining its hip, highclass appeal regardless of its status as one of world's largest franchise chains. For many, Starbucks is more than the average coffee shop. It is a place where people go to relax, congregate, or finish up a report they've been working on. The environment has been carefully crafted to enable creativity, comfort, and social interaction. For others, Starbucks is simply a convenient cup of joe that fits right into their morning routine. Such admirable features are only made possible as a result of CEO Howard Shultz's unquenchable desire for improvement.

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Regardless of his success as CEO, Howard admitted this year that he was unimpressed by his company's "mid-single-digit same-store sales growth (Strauss 2014).

Consumer The Starbucks consumer is loyal and regular. To illustrate the consistency that the

consumers desire, more than half of consumers claim that they would find another Starbucks store to get their coffee if their first choice location was closed (Jennings 2008). Consumers today have one recurring problem with the hip and upscale coffee shop: its prices. When the company asked consumers what would increase their trips to the store, 65% percent said lower prices (Jennings 2008). To satisfy these concerns, Starbucks improved their rewards program, added new item lines including breakfast sandwiches, and created easier ways to pay with online applications (Zerillo, 2009). Consumers do not always purchase from Starbucks solely because they enjoy their coffee. It is said that some people believe it is a sign of social status and a place to see and be seen (Patterson 2010). Also, the global Starbucks consumer is a huge asset to the company. The first international Starbucks opened in Japan and now the Japanese stores are the most successful overseas market outside of North America (Patterson 2010). For its consumers, Starbucks is more than a coffee store. It offers them a place to hang out, catch up with an old friend, finish up some work, or maybe just take a break from the real world. With Starbucks expanding its selection of food and items, it attracts a larger market of consumers. It has begun to serve a bigger selection of foods, such as breakfast sandwiches, in addition to its typically smaller snack foods. Also, some stores sell coffee appliances giving people the convenience of buying their morning coffee as well as a new appliance for their kitchen counter. This creates

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another sales avenue as the consumer will hopefully brew Starbucks coffee in the convenience of their own home. Starbucks is a consumer-driven store and as a company, it listens quite well. This is why we anticipate that Starbucks will be around for a very long time. Data Collection For this study, we collected data using quantitative and qualitative techniques . We started out by conducting in-depth interviews of our peers here at the University of Richmond. Once we felt we had obtained sufficient information, we moved to an actual Starbucks location and asked customers the same set of questions. These questions gave us valuable insight as to what kind of consumers the company best attracts. We asked questions such as: "How often do you go to Starbucks?" and "When you attend Starbucks are you typically an on-the-go consumer or a sit down consumer?" In the midst of our consumer interviews, we saw an opportunity to talk to the barista that was on duty at the time. We asked him questions in attempt to learn even more about the company's consumers. We asked him questions such as: "In your opinion, what kind of consumer is most common, on-the-go, or sit down?" and "When are the biggest rushes of the day?" As for qualitative data, we created an extensive template to observe customers while we were in the store. We filled out a template for 32 individual consumers that ordered beverages or food items. We included things like, the time of day, the ethnicity of the consumer, the age of the consumer, the estimated amount of money spent, and of course, whether or not the individual was an on-the-go consumer or a sit down consumer. Our reasoning for the inclusion of these specific categories was that we wanted the see the ethnic subcultures buying behavior in action and we felt the age of the consumer was a crucial aspect of whether or not they would stay. The money category is strictly to show the monetary disparity between the two types of consumers.

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