Starbucks SWOT Analysis - Part 3 - Starbucks Essay Example
When you think of Seattle what images come to mind? - Starbucks SWOT Analysis introduction?? A pristine mountain backdrop covered in hunter green conifers? A city landscape covered by rain clouds on the edge of the Pacific Ocean? Or an urban city saturated with over 500 Starbucks coffee shops? Starbucks, originally founded in Seattle in 1971, has become the world’s largest coffeehouse company in the world and is now synonymous with Seattle, Washington. They have built their business on the strengths of customer loyalty, market saturation and satisfying customer’s expectations but now their weakness of high price points is being strategically attacked by outside competitors.
Starbucks has built customer loyalty over the ages through service, attention to detail and innovation. Originally, Starbucks began as a small whole-bean roaster who served the customer by selling coffee for the home. Howard Schultz, then Director of Retail Operations and Marketing, saw the potential to take it from a company dabbling in the retail sector to its current state. Schultz bought out Starbucks and quickly began to expand its retail business but always kept sight of the customer. Schultz built the brand off of service and truly believed that “we aren’t in the coffee business, serving people.
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We are in the people business, serving coffee. ” (Ruzich, 2008, p. 5). Starbucks has focused on servicing the customer with new and exciting premium coffees over the years. In fact, Schultz introduced the idea of the espresso to Starbuck’s line in the 1980’s after a trip to Milan, Italy. The introduction of the espresso to the United States retail market provided a service that other coffeehouses had not even begun to think of. He began to see the vision that Starbucks truly would serve people through coffee. “We realized that our stores had a deeper resonance nd were offering benefits as seductive as the coffee itself . . . . Just having the chance to order a drink as exotic as an espresso macchiato adds a spark of romance to an otherwise unremarkable day. ” (Ruzich, 2008, p. 9) Today, however, things are different. No longer does Starbucks stand alone in the world of premium drinks. They have pressure from other national and regional coffeehouses such as Peets and Caribou Coffee and they are also receiving a great deal of pressure from a new player in the game, the fast food market.
McDonald’s and Dunkin Donut’s have become active players in the premium coffee market and are actively targeting Starbucks. In 2004, Dunkin Donut’s introduced a new offering of cappuccinos and lattes in the Northeastern United States and they have some serious competitive advantages. On average, the new Dunkin’ Donut drinks cost at least 20% less than Starbucks’s offerings — and an espresso shot is just 99 cents, compared with $1. 45 at Starbucks. The Dunkin’ Donut drinks are labeled a no-nonsense “small,” “medium” and “large” as opposed to Starbucks’s “tall,” “grande” and “venti. And Dunkin’ Donuts has trained its staff to serve them quickly; the company worked with a Swiss manufacturer to develop equipment that makes a real espresso and fresh steamed milk in less than a minute. (Ball & Leung, 2004, p. 2) Dunkin Donuts has specifically targeted Starbucks premium drinks with a non-premium price significantly pointing out their over priced weakness. McDonald’s has also been attracted by the specialty coffee beverage market.
Traditionally, McDonald’s beverage array was anchored by Coca-Cola® but after data showed flat sales in the soda categories and double-digit growth in specialty coffee sales they were eager to enter. In 2008, they began launching a line of specialty drinks of lattes, mochas and the Frappe with an advertising campaign specifically directed at Starbucks. “Ads for the espresso… say you don’t get a “condescending look” for mispronouncing the size of the drink at McDonald’s — a jab at the “grande” and “venti” sizes at Starbucks. At McDonald’s, you just ask for small, medium or large. )” (Adamy, 2008, p. 2) So how does Starbuck’s maintain its supremacy in a more than ever competitive market? They drew on their strengths again and began to discover new customer expectations through innovative approaches. Starbuck’s has teamed up with companies such as AT&T, Yahoo and Hewlett Packard to offer synergies to the consumer. Starbucks and AT&T teamed up to offer free WiFi at all locations. This was a dramatic change to the previous system which was cumbersome and expensive to the end consumer.
Now, consumers are encouraged to surf the web from their local store. Starbucks also teamed up with Yahoo to create the Starbucks Digital Network where both companies will see financial opportunities by providing this service to the consumer. Customers will get free access to paid Web sites, like those of The Wall Street Journal and Zagat, free iTunes downloads and previews of not-yet-released movies and albums. They will see local content based on the coffee shop’s location, like news from Patch, AOL’s local news site, check-ins on Foursquare and neighborhood photos on Flickr.
For publishers and Web sites, the free content will serve as a marketing tool, Mr. Gillett said, letting customers sample things they might be willing to pay for later. If you have eight people sitting in a store for four hours on one cup of coffee, that’s not moving revenue, he said. However, if that same group is there for four hours on one cup of coffee and buys 14 songs, that’s sales. (Miller, 2010, p. 1) Finally, Starbucks also paired up with Hewlett Packard in 2004 to pioneer a new idea.
While waiting for your coffee or friends, why not listen to music and then have it burned to a CD for you? This was done to enhance the customers experience and as an innovative approach to boost record sales after the development of the i-Pod. Schultz said he “thinks the service will significantly add to its $4. 1 billion in annual revenue while enhancing its brand. For the music industry, still reeling from digital piracy and sharply declining sales of CDs, Starbucks could make shopping for music both legit and fun again. (Holmes, 2004, p. 1) Starbucks will continue to team up with partners to find new and inventive ways to meet customer’s service expectations. This will help build their people service while also boosting product sales. “Customer expectations have risen over the past decade. Customers throughout the supply chain expect near perfect quality, immediate responsiveness, universal availability, and continuous innovation. And they expect all this at the same or lower costs. ” (Fawcett, Ellram & Ogden, 2007, p. 95) McDonald’s and Dunkin Donuts have entered the game with a low cost approach aimed specifically at the weakness of Starbuck’s premium price model but Starbuck’s is fighting back. Starbucks can remain on top of the specialty coffee retail market by sticking to their motto of being in “the people business, serving coffee” while staving off losses of sales to lower quality products and service. Through their strengths of understanding customer expectations, they will continue to provide excellent service with innovative approaches and products.