The coffee and beverage market continues to grow significantly over the last few years although there have been a large number of great changes in the customer’s requirements and company’s strategies, projected to grow at a CAGR of 4.22% from 2020 to 2025 (Modor Intelligence 2020). Among retailers of specialty coffee-related food and merchandise, Starbucks has become the leading brand, especially in the USA which accounts for the largest revenue of this global company (Statista 2019). Starbucks has had over 32,000 stores in more than 80 markets around the world with beverages being the biggest revenue generator by product category (Starbucks 2020). This report will have a critical analysis of key drivers behind Starbucks’ success in the market, the target customer, the company’s main competitors in the USA, and how Starbucks stays competitive and positions its brand image among target customers. Lastly, based on the analysis of these factors, several recommendations will be made for the company to expand its business or maintain their lead in the next three years.
KEY DRIVERS FOR STARBUCKS’ SUCCESS
1, Customer experience
There is a wide range of reasons why Starbucks has become successful in the market. The first reason is that the company has had a good strategy for marketing. According to MartinRoll nd, Starbucks has conducted a large number of unique researches about customers, which is casual and informal chats with customers along with quantitative data research. This has become a key factor for the company to always innovate its activities for customers. On the other hand, customer experience is also the top priority of Starbucks. In the book, “Onward” written by former Starbucks President and CEO Howard Schultz talks about the success of Starbucks that success does not come from many stores or many customers and it comes from “One cup. One customer. One partner. One experience at a time”, showing the company’s respect for details and consistent customer experience across all stores around the country and in the world (Foster 2018). Positive customer experience is reported to increase the brand awareness, retain customers, promote their loyalty as well as encourage brand advocacy, especially in today’s market when customers have all the powers, not only just sellers in the market (Bordeaux 2020). Today, when the market becomes competitive and customers are more selective, it takes 12 positive comments to cover one negative comment while it costs more than 7 times to attract new customers than retaining the loyal ones (Saleh nd).
In terms of marketing and communication strategies, Starbucks has done a large number of activities to attract potential customers coming to the coffee shops. More specifically, the new target customers of Starbucks tend to be younger and less educated with lower income than the former ones. They focus on convenience rather than experiences. They are also taking the co-creation field into serious consideration (Bulbshare 2018). Starbucks was also one of the first companies to launch a website in 1998 for customers and offer WIFI in 2002 (Foster 2018). In 2011, the company started introducing to customers with its app for loyal ones to increase their numbers of times to come back to their stores. Taking advantage of the app users will help the company to incentivize brand loyalty. According to PaymentsJournal 2016, 50% to 60% of customers stated that loyalty programs and activities will make them likely to repurchase or come back to the stores more than the company does not have. Moreover, Starbucks also offers gamified Starbucks for Life and Bingo promotions for customers, which shows a high commitment to customer’s expectations, especially millennials who like to be part of the brand’s activities and interesting connections with the brand. Moreover, following the development of artificial intelligence, Starbucks Reorder Skill and the My Starbucks Barista chatbot was created to increase the customers’ experience in the app, which creates an exceptional and high-quality experience for customers (Foster 2018). On the other hand, using the app also helps customers to have a personalized experience with the brand. Starbucks’ app is not only a normal channel but also a tool to bring digitized experiences for customers, which turn into a sophisticated customer database helping the brand understand customer’s experience journey as well as customers’ preferences in order to create unique offers and discounts. Moreover, an app is also a good way for Starbucks to connect with its customers when they can understand more about the brand’s activities, history and what they want to connect with customers without spending too much time on other platforms or offline stores, especially for young people who require for fast service and convenience on online channels (Power 2020). During COVID-19, the number of people downloading the app has increased significantly with digital touch points becoming the needs for customers’ online orders and connection with the brand (WARC 2020).
Starbucks is also a pioneer in Marketing and Communication activities on social media channels. Using user-generated content and making use of content from fans and followers has helped Starbucks create a community of brand lovers and coffee lovers, turning them into brand ambassadors on social media channels including Facebook, Tiktok and Instagram (Ravi 2018). The brand also creates a large number of hashtag competitions and challenges on social media to give gifts for winners and their supportive followers (Ravi 2018). Unique content for different social media channels like Facebook or Twitter is also one of the important elements of Starbucks to attract potential customers and increase the brand image. Moreover, Starbucks is famous for replying to customers in the shortest period of time, which deletes the gap between perceived service and expected service when customers expect brands to reply in maximum of 30 minutes on online platforms (Smart Insights 2018). This has helped customers feel appreciated and be a part of the Starbucks community. Creating a community will give the brand more chances to create deeper relationships and conversations with customers, allowing them to come together around a subject of interest (Hart nd). By doing these activities, Starbucks has friendzoned its customers, building the customers’ confidence in the company, creating emotional connection with the customers, leading to an increase of customer loyalty level (Loureiro, Kaufmann & Vrontis 2012). A lot of rewards have been given to customers on social media channels in order to increase the interaction between the brand and followers when customers share or create content about Starbucks themselves (Geter nd).
In terms of service marketing, Starbucks has created a place that becomes “a place from home, where everyone can come and enjoy the high-quality coffee while being able to have good conversations with the other or groups in a relaxed environment. This came from the observation of Howard Schultz, former CEO of the company while looking at the Italian coffee shops and comparing it with other American ones. Not only does the company focus on product, but service is also one of the strongest points of Starbucks when it offers a relaxing atmosphere with friendly staff, which has come up to the right expectations of customers about the place for them to social hangouts while still enjoying high-quality service and products (McGregor 2016). In addition, the company has constantly improved its store design, elements including smells, sights, and design. More specifically, Starbucks does not expand space utilization for tables and seats with the purpose of bringing the premium experience and sense for its customers, making more space for legs in the stores, showing the brand priority of customer experience instead of space utilization (Gregory 2017). According to Witham 2009, a unique and different design for customers will make the stores and brands create genuine engagement with customers, making the brands different from its competitors in the market. Moreover, the interior design is reported to affect the customer’s mood, affecting their orders, and leading to a decrease or increase in sales of the brands (Sachdeva 2018).
4, Consistent brand image and experience
Whether customers come to any stores in any location, they can easily realize Starbucks with the same appeal and interior design. Moreover, the brand also keeps it consistent among customer’s eyes on social media, TVC, or blog articles, making them feel and look consistent along all online and offline channels.
On the other hand, Starbucks has built the image of an ethical and sustainable brand which has become the main concern of young people, especially generation Z and millennials nowadays (Petro 2020). They are willing to pay for more if the brands are showing their contribution to the society or environment problems (Curtin 2018; Bloomberg 2020). The company’s social responsibility strategy depends on three factors including community, ethical Sourcing, and the Environment (Starbucks nd). In terms of community, the company has supported its employees with tuition assistance, medical support and training to make the employees familiar with the working environment. Moreover, Starbucks also stated that it would show the diversity of the company to customers by recruiting veterans, refugees into Starbucks stores. It is reported that employee satisfaction is one of the key factors leading to high-quality and consistent services, increasing customer satisfaction and loyalty since the staff is the direct one contacting customers every day (Kozub & Crawford 2011). This has helped to build employee loyalty, one of the three important factors in business loyalty (Reich 1996).
5, Ethical image
Starbucks also became a supporter of local farmers such as C.A.F.E. practices, farmer support centers and farmer loans (Starbucks nd). In terms of ethical sourcing, they have built LEED-certified stores which help to conserve and recycle power (Starbucks nd). It is reported that 93% of customers will show brand love and preference for the ones that are willing to make great contributions to the community and environment situations (Daily 2015). More than 80% of customers will also have brand love for the company and become loyal ones as well as recommend the brand name to the others, which means they become the advocate of the brand, the highest peak of the ladder of loyalty (March & Quinton 2009). On the other hand, Starbucks is doing well in terms of donations with more than 3 million dollars contributing to the community during COVID-19 as well as “one tree for every tree” every year (Starbucks 2020; International Conservation nd). Ethical business practices are reported to have a significant impact on the purchasing decisions of customers and bring advantages to the recruitment of the company as more and more employees are taking sustainability and ethics of the company into serious consideration (Gibbons 2019; Alton 2017).
6, Location strategy
Last but not least, location strategy is also one of the important factors of Starbucks’ success. The company focuses on urban centers, when there are a large number of middle and upper-class populations, especially in populated areas, nearing customers who can afford its premium priced products. Effective location-based marketing will help to generate more business, make segmentation easier to reach and generate better return of customers (Mcintyre 2020).
The key drivers of success are also applied in other locations and countries with consistent image and brand recognition. However, in order to adapt to local preferences and customers’ different cultures and expectations in different countries, Starbucks has always innovated with the combination of the brand image and positioning with local features of its country. For example, Starbucks has also constantly updated their menu, stores design and services due to customers preferences. For example, in China, customers are in the habit of going in groups instead of going alone like other customers in other countries. Therefore, the company has designed its table settings in different ways to encourage customers to come to its stores. On the other hand, French considers Starbucks as the brand of lower quality coffee and over price.Therefore, the brand has offered ‘Viennese’ coffee and a food line which is more suitable for the local community including red fruit cake, brioche . By trying to be adaptable to the local market, the brand would have the chance to compete with other local competitors while staying consistent with the brand vision and mission.
STARBUCKS’ TARGET MARKET AND WHAT STARBUCKS’ BRAND MANES TO CUSTOMERS
At first when it was founded, Starbucks had focused on the niche market, where customers have specific requirements and problems that need to be solved. There were a significant number of American customers who struggled to find authentic coffee beans in the 1970s. Moreover, although they can do it at home, they would like to hang out with friends while still drinking authentic and healthy coffee cups. Therefore, the brand had created a place that offered both features for customers (Mohammed 2019).
As Starbucks is a premium brand, its target market mainly comes from middle class to high class. They are highly-educated professionals who would like to have a relaxing and comfortable place to enjoy themselves and enjoy high-quality drinks. They are mostly in the age of 20 to 60 with a fast-moving style and demand to have relaxation after hard-working hours. Therefore, Starbucks offer all these special features in one place in terms of service, product and interior design of the stores (Pratap 2017). For these reasons, Starbucks has positioned itself as a premium brand offering premium coffee experience where customers can sit, relax, meet friends, surf the internet and enjoy themselves if they would like to (Penmypaper nd). More specifically, people aged from 25 to 44 are the main target of Starbucks while the ones from 18 to 24 are the second target customers of this brand. Starbucks also uses geographic segmentation when its stores are often located in crowded places, near offices and schools.
Behaviors and Interests
However, recently, there have been potential target customers who are younger, less educated and prefer convenience rather than experience. Therefore, to attract this type of customers, they started installing automatic espresso machines. Moreover, this target customer is also the one who prefers healthy food and drinks since they are educated and have knowledge about their health problems as well as among the groups who read a lot and stay up on trend, especially in terms of physical and mental health. Meanwhile coffee is considered to be an unhealthy product. Therefore, the brand has offered bottled water and juice products to expand their choice preferences and increase their connection with Starbucks products, showing the brand’s willingness to listen to customers’ demands in the market (Mellinger 2019). Since this type of customer is also interested in social media and has a lot of activities on social media channels like Facebook, Instagram and Twitter, Starbucks have opened an online community with a large number of interactive programs and activities for customers to join and become a potential brand ambassador of spreading the awareness to the others. On the other hand, this type of customer is also technology adopters since they were born digital and have to rely on smartphones to make their lives easier. They are also the ones who are flexible when it comes to changes and understand the importance of innovation and adaptability. Therefore, they embrace the changes that come with growth and innovation. Starbucks has constantly updated and listened to customers’ requirements in order to update their products, services and other marketing programs to come up with customers’ expectations.
For customers, they want to come to coffee and drinking stores for more than one cup of coffee. They seek to satisfy their needs for emotional and deeper needs. They are willing to pay a premium price for the sense of pride from Starbuck’s trend and cool reputation in the market. This creates the feeling of customers that buying products and using services at Starbucks makes they feel unique and special compared to the other brands. This evokes the feeling of self-esteem and belonging. Therefore, Starbucks has created a place for customers to enjoy, read, relax, write and hang out with friends. The company has created a place with soft lighting, trendy music and worldly décor. Starbucks customers are not clearly defined by age, but by their behaviors and interests who love to connect and adapt to changes ( Racioppi et al. 2014).
Starbucks’s positioning strategies are customer-based, which means they always deliver the best customer service to their customers. The brand always holds sustainable development through keeping the employee and customer satisfied with it. The brand also positions itself in terms of product innovation with new additions to the menu. They also innovate local specialties. At Starbucks, customers are able to buy an expensive product of high-quality (tangible) while having the personalised in-store experience performed by the well-trained
employees. For example, the brand offers limited editions for drinks in Japan, which are Starbucks Japan Sakura limited-edition beverages and seasonal ingredients and flavors (Odiase 2019).
The clear and consistent positioning strategy helps the brand to stay outstanding in the market compared to other competitors as well as attract their main target customers in order to save time, cost and money. On the other hand, a clear positioning strategy also helps the other activities including services, marketing, advertising, and products follow the same concept without confusing employees and customers. Moreover, this also helps other stakeholders of the brand have a clear understanding of the brand mission and vision for effective working flow and collaboration (Janiszewska & Insch 2012).
During the last few years, the coffee competitive landscape has become intense with the entrance of both international and big names as well as local brands in the USA. Moreover, in order to reach customers’ expectations as well as requirements, each company has innovated itself in terms of products, services as well as marketing programs in order to attract and retain their customers. There are three main competitors of Starbucks in the market, including Dunkin’ Donuts, McDonald’s, Nespresso and Peets coffee (Investopedia nd).
Dunkin’ Brands is also the top eatery chain in the U.S. that specialize in coffee. The brand positions itself as a coffee seller providing donuts and food. The company also offers ast food stores in furnishings and decor, focusing on non-traditional food offered for its customers. The brand is also well known for its amazing selection of good tasting donuts with more than 50 flavours and seasonal specials all around the year. Meanwhile, while Starbucks always charges for more (sizes, ingredients and special requirements), Dunkin’ Donuts has no additional charges for its products when customers can freely add any flavor extracts such as sugar, cream, or milk (Bailoni 2016). Dunkin’ Donuts positions itself as the combination of coffee and special food chains. The brand also offers customers loyalty programs with more free and extra products and services for young customers in the next purchase.
In terms of marketing and communication activities, while Starbucks takes advantage of customer’s word of mouth to attract and retain potential ones, the brand invests heavily in traditional advertising, representing itself as a brand for all American consumers. While Starbucks focuses on the middle class to higher income, Dunkin’ Donuts concentrates on middle class, positioning itself as the brand with lowest cost provider while maintaining quality above an acceptable minimum (Investopedia nd).
While Starbucks generates over $26 billion in revenue in 2019, Dunkin’ Brands’ revenues are just under $1.5 billion (Delventhal 2020). There are a number of reasons about what Starbucks has done in order to compete with Dunkin’ Brands’. First of all, the brand has built its image as the trendy and iconic one, which is crucially important among young people, who would like to express themselves and their personalities of following the trend. This has been done through the cup packaging that makes every girl’s Instagram has to have one picture of Starbucks. Meanwhile, with the activity of offering a perfect place for studying and working as well as a customizable name in the cup of drinks, Starbucks has brought customers the sense of belonging as well as personalized experiences when they come to the Starbucks’ stores (Starbucks 2017). Since customers nowadays have the fear of missing out, offering limited editions as well as secret menus will definitely evoke their curiosity and make them feel special when they are the first ones owning Starbucks limited products in the market (Sidekick nd). Moreover, in order to stand out from the competition, Starbucks does not focus on specific days or festivals. Instead, they concentrate on small special days which are reported to give more memories for customers such as the first day of winter, the first day of college and so on (Digi Sidekick nd)
McDonald’s has been traditionally well known for its varied choice of menu in terms of fast food category with the revenue being higher than both Starbucks and Dunkin’ Donuts in 2017 (Hawley 2019). In the 2000s, the company offered flavored and iced coffees, making itself in the same competition race with Starbucks and Dunkin’ Donuts. While Starbucks offers expensive prices, limited choices of menu and developed brand image, McDonald’s, offers lower prices, convenience and a wide range of menu choices for customers (Gehrke 2019). McDonald’s brings the convenience of offering products and coffee at the same time with lower prices for customers. There are a larger number of outstanding features that McDonald’s can bring to its customers than Starbucks. First of all, the price is significantly cheaper than Starbucks’s products. Secondly, McDonald’s is much faster and more convenient to customers in terms of waiting times for customers, especially young people who prefer convenience and fast service. On the other hand, the food menu is much cheaper than Starbucks, which gives customers more choices to consider while still being able to have coffee and food at the same time. McDonald’s is also good at listening to target customers when they offer vegan foods for people as the trend of becoming vegetarian is increasing in the country significantly. Each store of the brand acts like a retailer and positions itself as a brand in the long-term strategy. McDonald’s is also doing good locally in different regions and countries in order to suit customer’s tastes and preferences. The main target customers of McDonald’s are young children, families and groups of friends, especially children who are most interested in interesting toys and delicious meals. Therefore, McDonald’s has become the place for children to have parties and young people to celebrate their special days like birthdays. Moreover, a location-based strategy is also one of the important factors contributing to the significant growth of McDonald’s when the brand consistently opens a large number of stores in crowded places around the country.
Compared to McDonald’s, Starbucks offers many advantages. Since it is a designated coffee brand, the environment is much better when Starbucks has a variety of tables and settings for customers with comfortable chairs and free wifi while still looking like a fast-food restaurant. Moreover, the brand also offers a wider range of drinking choices for customers. The most important factor that Starbucks brings to its customers is the brand iconic which has become a staple of this generation’s culture.
Neighborhood coffee stores
The biggest competitors of Starbucks are neighborhood coffee stores while still offering what Starbucks have been doing well during the last few decades. More specifically, these local shops have been doing good in terms of providing the same service and products for customers. Moreover, since Starbucks is everywhere which means customers can find them easily, the sense of high-quality coffee drinks will no longer exist in customers’ perception. This is also one of the main factors that make the company find it hard to control and ensure the brand image and consistency across all stores. Therefore, in order to compete with these neighborhood coffee stores, Starbucks has expanded its business activities by investing in Roasteries and the Reserve brand, offering upscale experiences for customers (Taylor 2017).
There are a large number of marketing challenges for Starbucks in the future. The first thing is the competitive market in the country where there are a large number of competitors who are willing to offer the same product and category with lower prices. Moreover, since Starbucks is having a large number of stores across the country, it will be difficult for the brand in order to stay consistent in terms of staff, service and products, which can weaken Starbucks’s image and authenticity. Larger numbers of Starbucks stores can lead to a decrease in customer service quality. On the other hand, the coffee market is saturated with over 2,000 roasting companies and new stores being opened every week (Pendulum 2018), which can lead to the differences of requirements for customers as well as the decrease of market share. Although customers prefer a wide range of drinks, they also consider the problems of drinking coffee which can have negative effects on their health. American customers are taking caffeine products into serious consideration since they want to stay healthy with fresh drinks (Neele 2019). Moreover, they are willing to pay for food and drinks that are supposed to be healthy with fresh and organic ingredients for themselves and their families. Therefore, Starbucks should decide their concentration as well as focus in terms of the product offered for customers so that they do not find it struggling to find suitable products for themselves. This also helps the brand stay competitive in the market where its competitors are willing to offer a wide range of drinks and foods as well as coffee at cheaper prices while still providing a suitable environment for them to hang out and relax. On the other hand, the competition does not depend on the coffee companies and brands but also other food and beverage restaurants which can bring a large number of choices for customers to choose from. Therefore, if customers choose coffees, teas and convenient snacks, Starbucks would find it hard to be the one chosen (Bush 2016).
There is a wide range of recommendations in terms of marketing strategies that Starbucks can take into serious consideration. First, the company should consider offering a larger range of products (including both food and beverages) for customers to choose from a wide range of prices for them. Moreover, since customers now are taking healthy food into serious consideration, Starbucks should be the pioneer in this sector. More specifically, Starbucks can offer healthy food and drinks for customers, especially in the coffee sector so that coffee lovers can consider it without worrying too much about their health problems if they drink it. Moreover, since Starbucks promotes premium experiences as well as private spaces for customers, private lounges should be established in order to get customers to pay an extra fee in order to have personal discussions, meetings when they do not feel to be around crowded people.
Along with the loyalty cards, Starbucks passports will be an ideal activity for customers, especially young people who like to travel all around the world. Since Starbucks stores are located worldwide, this has evoked the interest of customers when they come to other countries. They would definitely go to Starbucks stores for the passport to be stamped. This will also help the word-of-mouth marketing of the brand become more powerful with a lot of photos and comments on social media channels. Since there are not many people understanding the true soul and meanings of coffee as well as its use on a daily basis, Starbucks can organize events, exhibitions as well as online competitions and programs for customers to understand the meanings as well as build the strong connection between the brand’s missions and customers’ preferences. Especially young people nowadays who are to be around so many types of food and drinks will become the main target customers of Starbucks in the long-term strategy.
On the other hand, as Starbucks has been doing a large number of things for the community and environment, not many customers know about their activities of supporting the local community and volunteering in different social programs. Therefore, it is highly recommended for the brand to raise awareness about what they have done to achieve the sustainability missions. This can be done through interaction programs, advertising, social media channel competitions with the participation of customers so that they will have the sense of belonging and pride about the brand, increasing the brand love and trust for a long term (Melody 2015).
Moreover, with the problem of CoronaVirus as well as the lockdown, which will lead to the decrease of coming to offline stores of customers. Therefore, the company can consider changing Starbucks’ places into Starbucks’ time, showing the concern for customers and their requirements while still keeping the brand image consistent. The location-based strategy will also be turned into the daily behaviours of customers, making it become an integral part of customer’s daily lives.
In conclusion, it can be said that Starbucks has done effectively in a large number of aspects including marketing, services, technology and sustainability in order to come up to customers expectations as well as keep the strong customer relationship. The brand is also doing good at showing a clear and consistent positioning image among customers not only in the USA but all over the world with a premium image of brand, decorations, ingredients, bringing the senses of self-esteem and belonging for the customers. The competitive market of coffee in the USA is becoming more and more intensive than ever before, while Starbucks has several limitations in terms of product lines, customer service as well as the significant changes in the market. Therefore, it is highly recommended that Starbucks should promote more product and promotion strategies to attract and retain customers. This can be done through engaging activities, private setting decorations and promotion of sustainable images among customers.