Product And Pricing Decisions Starbucks

Product And Pricing Decisions Starbucks

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Starbucks entered its twenty-sixth year as the uncontested leader of the gourmet coffee market. The company had already experienced incredible growth, with sales approaching $700 million in 1996, and Schultz had plans to continue expanding, opening almost 900 new stores over the next several years. But the coming years would undoubtedly prove challenging. Competitors like The Second Cup, Seattle's Best Coffee, and Barnie's had expansion plans of their own. And many companies imitated Schultz's formula for success with the hope of beating Starbucks at its own game. The Starbucks marketing team had to be savvy to stay on top.

  The team began by extensively researching both competitors' and Starbucks' stores. They brought in hidden cameras to document how well the employees knew their coffee, and they asked customers how they felt about the products, atmosphere, service, and coffee. The insights they gained became the foundation of their strategy.

  As with all good marketing strategies, the heart of the plan was a vision of how they wanted to position Starbucks in the coffee market. In addition to remaining the quality leader, they wanted Starbucks stores to appear more like local cafes than a national chain and more like a sanctuary from daily stresses than just a take-out coffee store. Other goals included boosting stagnant sales in older stores, establishing a central focus for all Starbucks products, and developing national advertising that would convey a consistent image. Achieving these objectives required making changes in products, distribution, and promotion.'

  Over the years, Starbucks core products, coffee beans and beverages, had already undergone changes to meet customer preferences. But some merchandise, such as mugs and coffee makers, had been left untouched. Now new merchandise was planned for all stores. In addition, new food items were offered to attract customers throughout the day (because half the day's sales were typically made during the morning hours)。

  New products were targeted for grocery store distribution, including cold coffee drinks and ice cream novelties. However, the company was adamant about maintaining its identity through strict product standards. If a product wasn't fundamentally related to coffee and to Starbucks' core values, it wouldn't carry the Starbucks logo.

  The retail distribution strategy had to address additional challenges. To combat the fears of certain communities about losing their uniqueness, Starbucks began designing new stores to reflect local cultures. For example, a store in Seattle's upscale Queen Anne neighborhood has a fireplace and large chairs that invite customers to linger and relax.

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The company also began redesigning older stores (where sales had begun to level off) in order to give them a more comfortable feel. To expand its market, Starbucks rolled out a nationwide line of specialty coffees to be sold exclusively in supermarkets. The company packaged the supermarket coffee uniquely but priced this new line of coffees to match prices at company stores, keeping the brand image high while discouraging cafe customers from purchasing Starbucks at the supermarket.

  Even though product and distribution changes were important, a well-designed promotion strategy was the key to building a consistent image nationwide. Starbucks had always taken an undifferentiated approach to marketing. If a person was a coffee lover, that person was a potential Starbucks customer. And research shows that coffee lovers have an emotional tie to the beverage. It can even be a part of their self-identity. To capitalize on this, the marketing team focused on building a national campaign that didn't feel national. They wanted customers to build a personal identification with Starbucks products. So the advertisements they developed were down-to-earth and genuine, depicting Starbucks as a place to find peace in a hectic world. To counter arguments that the company is too pristine, Starbucks used ads that were somewhat unpolished, as though an art student had done them. In addition, the company began to experiment with "digital marketing" through a hip Web site that attempts to re-create the coffeehouse culture on the Internet.

  Finally, to ensure high standards of quality and maintain what Schultz believes is Starbucks' biggest point of differentiation, the company reaffirmed its commitment to its employees. All Starbucks employees receive extensive training before they set foot behind a counter. They also receive progressive compensation, including full health benefits and stock options, even for part-time employees. As Schultz says, "The only way we're going to be successful is if we have the people who are attracted to the company and who are willing to sustain the growth as owners."

  Only time will tell what the gourmet coffee market will I be like when Starbucks turns 50. But by continuing to offer' the best-quality coffee products in a comfortable environment, I and by supporting the brand through innovative promotion, I Howard Schultz expects Starbucks to remain on top of the bean hill.
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