How Starbucks created a new coffee culture – A Starbucks Case Study on Growth and Marketing Strategies
How was it possible to convince ordinary Americans, who routinely open 3-pound “value” cans of coffee, shovel the grounds into a paper filter, push a button, and then go about their business, to suddenly change their coffee-drinking ways? Why would they suddenly be willing to spend $2 or more per day on what used to be a convenience good? What would cause people to change personal buying habits to include $1,400 per year purchase of lattes and scones? The answer to these questions explains how Starbucks became more than a coffee shop. Starbucks had created a new coffee culture.
Starbucks began as a coffee-importing firm. Howard Schultz, an employee in the organization, toured Italy in the early 1980s. He watched with interest as crowds of city dwellers began each morning with a stop at coffee bar. Schultz tried to convince the owners of Starbucks to do something similar in the US. He was strongly rejected. Schulz quit the firm and set out on his own. The move quickly turned into a lucrative decision. Schultz raised money from variety of investors and opened a café in Seattle using name II Giornale. Success came rapidly. Schultz eventually wound up buying the original importing business and renaming his cafés “Starbucks”.
Within 15 years,Starbucks Coffee Company expanded to over 1200 retail outlets. The firm achieved this remarkable growth because of several key marketing activities. The product itself, location, employees, sourcing and effective marketing communications all worked together to help the firm prosper in a saturated marketplace. The non-chalance of major competitors was also a factor.
Until Starbucks entered the market, coffee was a rather banal commodity to most consumers. Purchase price was traditionally the primary decision variable. Starbucks needed to convince prospective buyers of the differences in its offerings. After studying the basics of coffee (flavour, acidity, and body), the company’s leadership sought the best beans in the world. Then, other aspects of the product changed, including steaming milk and brewing coffee in a plunger pot. Espresso is an acquired taste for most consumers. To build the market, Starbucks offered straight espresso along with diluted, creamy drinks. For example, caffé latte is espresso mixed with steamed milk and covered with a topping of milk foam. Other featured products are cappuccino and caffe mocha. When any one of these Starbucks products is sold, the basic ingredient, coffee, is never more than an hour old.
Location is another key ingredient in Starbucks’ success. Cafes are located on commuter routes and in other places where people can gather to socialize. Each cafe features numerous enticements, including jazz music in the background and merchandise to examine, such as stainless steel thermoses, commuter mugs, filters, natural hairbrushes for cleaning coffee grinders, and home espresso machines.
Starbucks attracts employees who enjoy coffee. They are retained through a variety of motivational programs, including buy-in options. Workers are called baristas, Italian for “bar person”. Starbucks continually encourages these baristas to provide high-quality, pleasant service to patrons. Extensive training helps ensure that they become experts in all aspects of coffee vending. The company also insists on a diverse workforce reflecting the makeup of the local community.
Starbucks holds a major advantage of sourcing. The firm is vertically integrated and relies on quality suppliers from around the world. Each region grows beans with distinct flavours for coffee connoisseurs, and Starbucks brings all of the flavours to a single location for purchases.
The most impressive aspect of Starbucks may be its marketing communications programme. The firm had to convince price-conscious buyers to shift away from old purchasing decision rules in order to convince some consumers to develop a habit that, to many, seemed like a bad one because of the caffeine involved.
To achieve these goals, Starbucks noted two primary target markets. The first was younger, grunge-dominated Generation X type inhabiting the Seattle area. Many people of this generation found coffee shops to be an alternative to the bar scene and made purchases accordingly. Coffee-shop regulars tend to hang out for longer periods of time, reading, talking, and listening to the background music. Next, the baby boom generation became a target as people in their 40s and 50s began consuming less alcohol and looking for other products with a degree of “snob appeal”. Coffee became an excellent choice. The most loyal boomer consumers can discuss coffee such as Jamican blue Mountain with as much sophistication as they used to describe wines such as Chateauneuf de Pape.
Coffee giants Maxwell House (owned by General Fools) and Folgers (owned by P&G) simply ignored the potential of Gourmet coffee. The idea of vending coffee in a café seemed so far-fetched to these firms that they did not view Starbucks as a threat, even as Seattle became known as “Laatteland”. Failing to see the growing market for whole bean coffee as a retail product led to lost market share. In 1990, gourmet coffee companies had a 13.5 percent share of the market. By 1991, the Share was up to 17.1 percent. The trend has continued through the new millennium. Today, Starbucks easily has as much name recognition and more brand loyalty compared to major competitors.
Starbucks has continued to expand through business-to-business marketing efforts based on the strengths of the company’s name. New consumers include United Airlines, the Holland America cruise line, Chicago’s Wrigley Field, and an alliance with Barnes & Noble bookstores. What started as essentially a small blip on the competitive radar is now a major force in the coffee industry. Consumers continue to happily part with extra dollars to support coffee habits that represent something far more complex than simply buying a beverage in the morning. As a result, the coffee landscape will never be the same.