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Managing High Growth Brand-Starbucks

Category Coffee, Starbucks
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Submitted To Mahbub Hossain Course: brand and product management American International University – Bangladesh (AIUB) Submitted By Khan Samara Salsabeel #07-09162-2 . | | Mr. Mahbub Hossain Course Instructor Brand and Product Management, sec-A Subject: STARBUCKS CORPORATION: Managing high growth brand. Dear Sir, We are grateful to you for giving us the chance to work on this case study.

We would also like to express gratitude to you for your gracious cooperation and valuable guidance for preparing the report. Sincerely, Khan Samara Salsabeel (07-09162-2) Sadia Rezwana (07-09013-2) Kazi Masum (08-09933-1) Mohammad Abdul Kader (08-11783-2) In 1971, Seattle entrepreneurs Jerry Baldwin, Gordon Bowker and Zev Siegl first opened Starbucks in Pike Place Market. At that time, Country’s major coffee brands were engaged in price war, therefore they were forced to use cheaper beans in their blends to reduce costs.

As a result there was a decline in coffee consumption. To harness the potential of the gourmet coffee trend in the Seattle area, the founders of Starbucks experimented with the new concept of a store dedicated to selling only the finest coffee beans and coffee brewing machines. This emphasis on quality whole-bean coffee retail was fairly unique. Starbucks placed quality as its top priority. The Starbucks management dedicated a great deal of their time and financial resources to establishing strong relationships with coffee growers from around the world.

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In 1982, Howard Schultz, current CEO of Starbucks recognized that the conservative business plans of early Starbucks management hindered the company from reaching other potential coffee lovers. Hence he transformed Starbucks from a coffee retailer into a cafe business. He had a vision of expanding the scope and reach of the Starbucks brand. In addition to selling only ‘best of class’ coffee, Starbucks worked to fill its stores with only the highest quality of everything, from coffee making equipment to the fixtures and furnishings to the music and artwork.

Each Starbucks store is carefully designed to enhance the quality of everything the customer see, touch, hear, smell or taste. The stores are designed in such a manner that it gives a warm, inviting environment essential for giving Starbucks a pleasurable coffee centered experience. The keys for success for Starbucks in building the brand are: 1. Starbucks was the first to introduce Coffee house with premium coffee to American market. 2. Consistent premium coffee. 3. It placed quality as its top priority. 4. Starbucks established strong relationships with coffee growers from around the world. . Formation of dynamic management team with highly innovative and creative employees. 6. Profitable partnerships and joint ventures with some of the nation’s strongest corporations such as Host Marriott, United Airlines, Pepsi Co, Dryers and others. Brand values of Starbucks: 1. Top priority is the quality of its products 2. Premium coffee experience 3. value simplicity over technology 4. Investing in innovation 5. Employees as partners and viewed as the most important assets of the corporation. The sources of equity of Starbucks are Brand awareness and brand image.

Brand awareness and image are collectively known as brand knowledge. Brand awareness has been established through word-of mouth, partnership and selective and fruitful location of Starbucks outlets. Brand image is established through: 1. premium coffee beans 2. brewing techniques 3. store designs, artwork and music 4. Consistently good customer service 5. Classy, romantic atmosphere with consistent store design that meets five senses. Pivotal to Starbucks high growth strategy was the carefully planned expansion of its specialty coffee stores to new markets throughout North America and eventually worldwide.

Hence geographical market expansion, joint ventures and partnerships are some of the strategies the corporation followed to grow the brand. However these strategies had both merits and demerits for Starbucks which have been discussed later in the report. There are several things which are needed for a corporation to become a world class global brand which are also discussed in the report. For Starbucks to become a world class global brand, it must overcome some major hurdles. In addition to hurdles, Starbucks has many challenges which they need to meet in terms of American market. All these are discussed in detail in the report. SI |DESCRIPTION |PAGE | |01 |Objective Of The Report |07 | |02 |Methodology of The Report |08 | |03 |Limitation Of The Report |09 | |04 |Starbucks Corporation At A Glance |11 | |05 |Success Keys For Starbucks In Building Brand |12-13 | |06 |Starbucks’ Brand Values |14 | |07 |Sources Of Equity For Starbucks |15 | |08 |Evaluation Of Starbucks’ Growth Strategy |16-18 | |09 |Starbucks’ Challenges In Becoming A World Class Brand. 19 | |10 |Recommendation |20 | |11 |Conclusion |21 | |12 |Reference/Bibliography |22 | 1. It reflects a brief description of the corporation. 2. To know the following: • Success keys for Starbucks • Starbucks’ brand values • Starbucks’ sources of equity • Starbucks’ growth strategies • Starbucks’ hurdles and challenges in becoming a world-class brand. We have collected almost all data from the case study. Moreover, we have collected data from Annual Report published by the corporation. Reference books, study materials and the internet were also of great aid for the preparation of the report.

The first and foremost limitation was the time constraints. Gathering information on various aspects of the corporation was quite difficult. This is the reason we could not go to the in depth analysis within the limited time frame. In less than a decade, Starbucks was transformed from a fledgling whole bean coffee retail chain into a globally recognized brand. In 2002, Starbucks was comprised of more than 5400 stores located throughout North America, Latin America, the Pacific Rim, Europe and the Middle East. Growth of the corporation’s coffee retail business continued at a steady pace of one store opening a day on average, and annual revenue for 2001 topped $2. 7 billion.

Moreover, joint ventures with some of the nation’s strongest corporations including Pepsi, Kraft, Dryer’s and Capitol Records, allowed Starbucks to launch a lucrative consumer product division to complement its cafe business. Licensing partnerships with other companies such as United Airlines, ITT Sheraton and Host Marriott further added to the growth of the Starbucks brand. Indeed, Starbucks rose to become one of the most impressive high growth brands in the 1990s. Despite this remarkable growth, some questioned whether Starbucks began to lose focus as the company strove to constantly reinvent itself. Critics wondered if perhaps the brand grew too quickly rapidly to remain focused on its core values and business objectives.

In less than a decade Starbucks was transformed from a fledgling whole bean coffee retail chain into a globally recognized brand. By 2002 Starbucks was comprised of more that 5400 stores located throughout North America, Latin America the Pacific Rim, Europe and the Middle East. There were some success keys which accelerated the growth of the company, some of which are given below: 1. The company had a strong and dynamic management team. The creative and highly innovative team monitored the problems of the customer and the employees. They also found out effective solutions to the problems the company encountered at different stages of its operation.

In other words, the key to the company’s success and widespread appeal among loyal customers had always been the employees, whose knowledge and dedication attracted customers to continue returning to the store. 2. joint ventures with some of the nation’s strongest corporations including Pepsi, Kraft, Dryer’s and Capitol Records, allowed Starbucks to launch a lucrative consumer product division to complement its cafe business . 3. Licensing partnerships with some other companies such as united airlines ITT Sheraton and host Marriott further added to the growth of the brand. 4. Use of improved and new technology was another key to the success of the brand. This made it easier for the company to maintain the quality of the products.

Innovations such as the FlavorLock bags prevented harmful air and moisture from seeping into the coffee thereby preserving the quality and saving the company from much more significant costs. 5. Starbucks was the first to introduce Coffee house with premium coffee to American market. 6. It placed quality as its top priority. To distinguish their coffee from the bland and tasteless store brands, Starbucks only purchased Arabica beans from a carefully selected network of suppliers across the globe, from places like Sumatra, Kenya, Ethiopia and Costa Rica. Arabica beans were selected because the bean’s chemistry is such that it can withstand high roasting temperatures, resulting in richer flavor. 7. Starbucks established strong relationships with coffee growers from around the world.

Starbucks sought vendors who sold products that would protect and even enhance the arabica’s flavor. This required the formation of partnerships across the globe with coffee brewing equipment suppliers who provided products that captured the essence of the coffee brewing tradition. The brand values of the company are given below: 1. The company placed quality at its top priority they emphasized on quality and never compromised with it. The Starbucks founders realized that if they wanted to enhance Seattle’s appreciation for fine coffee, they had to provide the best ingredients and brewing equipment to ensure that customers had the most enjoyable coffee experiences possible. 2.

Employees are viewed as the most important assets and partners of the corporation. They were adequately educated and trained to provide the best customer service. The knowledge and dedication of the employees attracted customers to continue returning to the stores. The employees played a vital role. This is because word-of-mouth publicity can only be achieved if the company continues to recruit and retain talented individuals who can lead the company to new markets and communicate Starbucks’ strong values to the communities who knew little about the brand. 3. Another brand value for Starbucks was investing in innovation. It made easier for the company to maintain the quality of the products.

Innovations such as the Flavor Lock bags prevented harmful air and moisture from seeping into the coffee thereby preserving the quality and saving the company from much more significant costs. The source of equity for Starbucks is Brand knowledge. Brand knowledge is the key to create brand equity because it creates differential effect that drives brand equity. Brand knowledge has two components: • Brand awareness • Brand image – Brand image is the impression in the consumers’ mind of a brand’s total personality. Brand awareness is again consists of: • Brand recognition – relates to consumers ability to confirm prior exposure to the brand when given the brand as a cue. • Brand recall – Relates to consumers’ ability to retrieve the brand from memory when given the product category.

Brand awareness for the company has been established through word-of mouth, new channels partnerships and selective and fruitful location for Starbucks outlets. Brand image is established through: • premium coffee beans • brewing techniques • store designs, artwork and music • Consistently good customer service • Classy, romantic atmosphere with consistent store design that meets five senses. Starbuck’s growth strategy mainly comprised of Geographical Market Expansion, Diversification and Partnerships. Pivotal to Starbuck’s high-growth strategy was the carefully planned expansion of its specialty coffee stores to new markets throughout North America and eventually worldwide.

The first phase of the Starbucks expansion strategy focused on securing a major foothold in the Pacific Northwest while experimenting in other key markets that were farther away, but had a high potential for rapid growth in cities such as Chicago, Los Angeles, San Francisco, New York and Washington, D. C. Successful expansion throughout Florida, Hawaii and Tokyo showed that fine coffee could be a hit in warmer climates as well as in the cold cities. The Starbucks management team agreed of the company’s massive expansion program by owning the operation by itself instead of pursuing franchising. This was a smart move because franchising runs the risk of a possibility of ruining the brand’s image to some extent. Other disadvantages of franchising are: • Franchisees are self-employed there may be problems in ensuring that they all adhere to the operational methods that are designed to achieve uniformity.

Failure by an individual franchisee will reflect badly on the whole franchise operation. • The franchisee may have different objectives from those of the franchisor. In the long run, they may begin to resent the control exercised by the franchisor. This may cause problems in terms of ‘policing the franchisee’ Diversification means developing new products for new markets. Some of the reasons why it is advantageous for companies like Starbucks are: • Diversification promises to be especially profitable • To avoid dependence on a single product • To strengthen existing products by synergy • To compete on all points with a rival firm • To take advantage of byproducts.

Although diversification strategy is risky, the company runs the risk of neglecting the existing products and introduces new products to new markets which are a desperate move. Starbucks diversified with new products namely • Frappuccino, a popular bottled cold coffee beverage using extracts from Starbucks famous Arabica beans. Frappuccino put the Starbucks brand into supermarkets for the first time. • In November 1999, Starbucks launched Barista Aroma thermal coffeemaker which was positioned as a ‘durable, convenient and consistent way to brew coffee. • Two new lines of proprietary products were launched in 1999: chocolates and hot cider. • Starbucks also introduced a line of coffee blends, called Milder Dimensions that aimed at capturing demand for lighter roasted coffees. Starbucks purchased Tazo Tea, an Oregon tea retailer, indicated a potential new trend for Starbucks to acquire companies as a means extending product lines. With Tazo Tea, Starbucks hoped to attract new customers who were looking alternatives to coffee. With Starbuck’s geographical market expansion proceeding at a phenomenal rate and with much success, many companies across the country began to approach Starbucks with partnership proposals. But selecting the wrong partner company or the wrong product to introduce with a partner could have devastating consequences for the brand. As a result, Starbucks entered into partnerships with companies who maintained the same commitments to quality such as Kraft, Dryer’s, Pepsi, Host Marriott, and United Airlines.

These partnership arrangements provided the company with a number of benefits given below: • Increased brand awareness • Broader range of potential customers • Exposing to new customers helped the company to cultivate stronger brand image • Partnership is a way so that consumers regard Starbucks as a world class brand. • Partnership resulted in innovative product development. • The Dryer’s joint venture with Starbucks led to the creation of six popular Starbucks coffee ice cream flavors that are marketed under the Starbucks name but produced and distributed by Dryer’s. Sales of these ice creams surpassed others such as Haagen-Dazs and increased to 54% in the year becoming the market leader. By partnering with Kraft, the second largest packaged-foods company in North America, Starbucks was able to benefit from Kraft’s extensive distribution network. The Kraft partnership also left the door open for Starbucks to explore the possibility of marketing food products with the help of Kraft’s distribution and marketing expertise. Despite of the above benefits the partnerships were providing to Starbucks, they also had problems: • There was a risk that the partner companies will not maintain the same quality, customer service and commitments because Starbucks was allowing an outside source to brew its coffee. • Staffs and bartenders may not be well trained and may not provide adequate information to customers regarding Starbucks. In case, bad tasting coffee was being served to thousands of customers, then the brand would develop a negative connotation. For the above problems, Starbucks were able to solve these problems so that Starbucks’ brand image would be harmed in the partnerships. The partnering companies were quick to remedy coffee quality problems by working with Starbucks to install more effective filtering devices in aircraft brewing equipment, and to better educate staffs of the partnering companies on how to protect on how to protect the quality of the coffee. Therefore, since Starbucks could overcome the problems, partnerships have proved to be beneficial.

To make Starbucks a world-class global brand the followings are needed: • Production and distribution (saving costs and coffee quality). • Marketing costs ( packaging and promotion ) • Power and scope ( credibility, acceptance, social status, high quality, etc ) • Consistency in brand image. • Sustainability of core competences • Uniformity ( controlling and coordination ) The hurdles which Starbucks must overcome are given below: • Consumer needs and wants in different cultures. People in different countries may have different coffee drinking behavior and coffee consumption. • Consumer response of marketing mix (attitudes and opinions). • Legal environment (different labor policies between countries). Administrative procedures. In terms of American market, Starbuck’s biggest challenges are: • Biggest threat : Dunkin’ Donuts • Increasing of direct competitors • Aggressive global marketing strategies • Focus on overseas growth and brand development Despite Starbuck’s remarkable growth, it began to lose focus as the company stove to constantly reinvent itself. The brand was growing too rapidly to remain focused on its core values and business objectives. Starbucks developed non related or other products, such as in November 1999 it launched Barista Aroma Thermal coffeemaker which was positioned as a durable, convenient and consistent way to brew coffee.

In case of this coffeemaker the problems were, it was blocking the sightline and the traditional coffee taste was being lost. Hence in this case it can be recommended for semi-automated coffee machines and designing of proper layout for the coffee machines so that the machines do not block the sightlines. It also launched non related products such as custom made CDs and other entertainment products. Although these have the advantages of increased brand awareness, improved brand image and enhanced parent brand, these products have the demerits of losing brand identity, core values and the company may end up with frustrated and confused customers.

So it can be recommended to pull out unrelated diversification and focus on being number one in the coffee business. Starbucks’ meteoric rise from a tiny local retailer to an international coffee powerhouse as one of the great success stories in American business in the last decade. The fact that Starbucks’ garnered such media and investor attention in the midst of the Information Age without an ounce of ‘tech’ in its product made this growth all the more remarkable. Incredibly, Starbucks achieved its market leader position largely without aid from advertising campaigns. Instead, the company built the brand by relying on the quality of their products and services to induce free word-of-mouth ‘advertising’ from customer to customer.

As Starbucks’ continued to push for new product innovations and business opportunities as a way to differentiate itself from its competitors, the company ran the risk of straying too far from its original focus of spreading its passion for fine coffee. The ballooning size of the corporation suggested that the quality of Starbucks’ products and services, and the strength of the company’s relationships with its most valued people, would need to be closely monitored. A larger, global Starbucks’ had to find the right balance in pursuing product- driven, people- driven, value- driven and sales- driven objectives. www. starbucks. com www. hoovers. com www. businessweek. com Strategic Brand Management, Keller, 2006 Best Practice Cases in Branding written by K. L. Keller ----------------------- STARBUCKS |BRAND & PRODUCT MANAGEMENT | Acknowledgement Executive Summary Table of Contents Objective of the Report Methodology of the Report Limitation of the report Starbucks at a glance STARBUCKSSuccess keys for Starbucks’ in brand building Brand values of Starbucks’ SRAR Sources of Equity Growth Strategies Starbucks- A Global Brand Recommendation Conclusion STARBUCKS | |STARBUCKS | [pic] References STARBUCKSssS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS STARBUCKS ----------------------- Brand & Product Management

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