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"Rewarding everyday moments". The Starbucks Mantra clearly implies that they are not selling just coffee. They claim to be selling the coffee experience. Their coffee bars that sell specialty coffee also gives customers an ambience where they can be themselves. Starbucks advertises themselves as the third place between home and office, where you can escape, reflect, read, chat or listen. They have become the largest player in the coffee industry and is still looking for avenues to expand themselves.
The two questions that arose in Mr.Schultz's mind captures the problem faced by Starbucks.
"Was Starbucks growing in the best way possible?"
"Was Starbucks overextending in its quest for growth?"
Options in front of Starbucks
The dilemma of Howard Schultz right now is what next?. Where does starbucks go from here? The available options in front of them are the following
1. New Specialty Sales partners: The option currently in front of starbucks is to collaborate with McDonalds who has been approaching them for this joint venture.
2. Expansion of Domestic and International retail markets: With the target of 2000 stores by year 2000, Starbucks is on an expansion mode. They are expanding into the international markets and simultaneously they are diversifying in the domestic markets also. Initiatives like Frappuccino and the Doppio cart are part of this.
3. New Products: Right now, Starbucks is not targeting the younger generation well because the youth are not avid coffee drinkers. For this purpose they could launch a range of new products like flavoured coffee which the youth prefers.
Analysis of Options
While thinking in terms of collaborating with new speciality partners, we have to take care that the brand does not get diluted. Taking the case of McDonald's specifically, there are many factors that need to be considered. Looking at the pros of the proposal, we can see that you can potentially increase the customer base through this collaboration and the brand awareness may increase among the people that come to McDonalds . It might help us in targeting the youth segment that has been proving elusive in the other campaigns. But seeing the other side of the coin, there is a possibility of brand dilution when collaborating with McDonalds because there starbucks coffee might become a secondary product. The association of coffee with burger is not a popular one as burger with coke. So there the starbucks brand will not get the desired visibility. Another point being that the type of consumers who come to McDonalds is different from those who come to Starbucks coffee bars.
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"Starbucks." 123HelpMe.com. 25 Jan 2020
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While collaborating with any new sales partners, it should be kept in mind that the collaboration doesn't require compromising any one of the brand's core strengths. Another problem that may arise in collaborating with McDonald's is with the Frappuccino Drink. As is given, this drink was marketed with the collaboration of Pepsi and McDonald's have a tie up with Coca Cola. This is a drink that is targeted towards the youth segment and if due to some disagreement in this case we are not able to market this drink in the McDonald's outlets, the whole purpose of collaboration may get defeated.
In case of expanding in the Domestic and International retail markets, the advantages of doing so will be that by doing so we will be expanding in sync with our core competence which is roasting and selling the best coffee. As the international demand is also increasing, the expansion will be fruitful. The expansion can be using a 3 pronged strategy.
1. Opening new retail outlets
2. Expanding the Doppio model
3. Expanding the mail order program.
Opening new stores in foreign markets may mean that we have to localize our customs according to the culture of the country or region. This is a trade off that anyone expanding successfully will have to make. Another thing to be kept in mind is that while expanding, the current focus on quality must not get diluted.
In case of the doppio strategy, there may be a case of decrease in brand value because we cannot justify a premium price for the espresso sold in the cart as there we are not providing any other kind of ambience or anything and the focus is on the convenience of the customer. Charging a below premium price may lessen the brand value as this Doppio cart is also associated with the Starbucks brand name and Starbucks has the image of a premium coffee. So a solution to that may be to develop a new brand for the Doppio espresso and decouple it from the Starbucks coffee brand and create sufficient brand awareness to show people that how these two brands are different.
In case of the mail order program, it can be expanded and targeted towards those customers who buy coffee from supermarkets. This will reduce the chance of them switching over to another brand as they are getting their coffee delivered at their home.
Finally considering the case of introducing new products, coming out with a line of flavoured coffee might help Starbucks to target the youth as they prefer flavoured coffee to non flavoured one. By targeting the youth through the flavoured coffee, we will be making a kind of investment in the customer, i.e, if we get a youth, brand loyal to Starbucks coffee, then we can be assured that when he stops drinking flavoured coffee and switches to other specialty coffee, he will stay with starbucks only.
After studying the pros and cons of the three options in front of Starbucks , we can see that leaving apart the suggestion of collaborating with Mc Donald's the other two options can be considered. They have to expand in the domestic and the international retail markets keeping in mind the chance for brand dilution and they should come out with new products targeted at the youth and try to "Catch them young" and make them loyal to the Starbucks brand.