!!!

!!

Starbucks - The World’s Favorite Coffee

!!!!!

Christian Park & Eric Haehl

Professor Lascu

Changing Consumer Culture in a Digital World

December 12, 2014

!!!!!!

!

Table of Contents

1. Introduction pg 1-2

2. Literature Review pg 2-6

a. Purpose of study

b. Company

c. Consumer

3. Data Collection pg 6-9

4. Template pg 7

5. Quantitative Data pg 8-9

6. Data Analysis pg 10-11

7. Findings pg 11-13

8. Works Cited (Including Digital Story Telling) pg 14-19

!!Digital Storytelling: https://www.youtube.com/watch?v=iLciHfUf3A4&feature=youtu.be

(The video is also saved to your computer from presentation day!)!

!!!

Park, Haehl 1

Introduction

The marketing success of Starbucks is one of a kind. Within 43 years, the company managed to

establish 21,600 stores worldwide, both creating and dominating the global coffee shop market

(Thompson 2004). However, with tremendous advances in lifestyle expectations, consumers are

getting consistently harder to please. What was considered hyper-efficient a few years ago is now

regarded as slow or inadequate. What used to be hip three months ago, is now out of style. In

order for companies to avoid falling behind, they must know exactly who their consumers are

and how to please them. Changing business tactics at the right times and in the right ways is

crucial for a company’s success, even if its something as simple as coffee. For some people,

Starbucks is a comfortable lounge meant for sipping vanilla lattes, enjoying free wifi, and getting

caught up on work. For others, its just a quick, simple source of their daily coffee. This fusion is

great for Starbucks because it appeals to larger variety of consumers. However, in order for this

fusion to work, compromises that effect both types of customers have to be made. After all, it is

impossible to please everyone at the same time and that is why the proper market segmentation is

crucial (Parsons 2011). If Starbucks were to cater towards the more lucrative of the two customer

types, it would generate a larger following and increase profits. (Parsons 2011)

!Within the past five years, the value of Starbucks stock (SBUX) has grown tremendously from

$22 to around $84. Investors believe that this growth is a result of the company’s increasing

consumer base. However, in the last year, the stock has seemed to have reached somewhat of a

plateau, indicating that its consumer base has reached full potential. This presents Starbucks with

the challenge to keep its consumers constantly satisfied to maintain its position within the

Park, Haehl 2

market. The purpose of this study is to provide Starbucks with research necessary for it to

properly differentiate its currently undifferentiated customer base. Change is the essence of

progression and Starbucks must adapt accordingly to the ever-changing market.

!With this study we will observe consumer purchase behavior at Starbucks based on whether or

not customers stay or leave. This objective of this research is to determine which type of

consumer is more profitable for the company. Observations will be conducted at two different

Starbucks locations to ensure credibility and variety. Our sample will consist of roughly 30 men

and women customers of different genders, ethnicities and ages. Collected data will be organized

through the use of a template which compares the two types of consumers. This template will

include factors such as, but not limited to, duration of stay, amount of items purchased, and drink

size. In addition, several random customers will be interviewed about their experience and

opinions towards Starbucks. These interviews will provide more open-ended, qualitative data for

the investigation.

!Literature Review

The purpose of this literature review is to demonstrate the importance of consumer inspired

market adaption for Starbucks Coffee. There is debate about what purpose Starbucks really

serves to function and who it caters towards. There is also a disparity between the monetary

contribution of sit-down consumers vs. on-the-go consumers. This research will outline the

general structure and composition of both the company and its consumers, enabling us to gain a

clearer look into this multi-billion dollar industry.

Park, Haehl 3

Company

Starbucks opened its first store in 1971, selling only whole coffee beans to Seattle locals.

At the time, the company was worth around $8,000 (Tsirelman 2013). From the start, they

focused primarily on quality and customer satisfaction, setting them apart from most

competitors. Starbucks only purchases “top of the line” beans from areas such as South America

and Asia. It send company buyers to inspect harvest quality down to the handful (Gresham

2007). Another aspect of quality is determined by the style in which Starbucks roasts their

beans. "It took eight months and more than 80 different recipe and roast iterations before we

landed on the exact flavor profile our customers told us they were looking for” (Dizzy 2012).

One of the company’s first major changes occurred after marketing director Howard Shultz

discovered Milan’s famous espresso bars. Shultz observed the success of such Italian coffee

shops and proposed that Starbucks should include a similar manner of service. It was not until

1984 that Starbucks served its very first Caffe Late. Within five years, the company had

established 54 additional stores, expanding its reach to Chicago and even Vancouver. Three years

later, in 1992, the company held an initial public offering, sparking excitement among many

anxious investors. Fast forward one last time to today and Starbucks now occupies 19,000

locations worldwide and has a value of roughly 15 billion dollars (Loeb 2013).

So far, Starbucks has done a great job making changes based on consumer demands. It

has a solid marketing team that is capable of making sound decisions derived from consumer

analysis data. The company is known primarily for its famous dark roast coffee (Martinez 2013).

Roasting, within the world of coffee terminology, is a process that alters the chemical and

physical properties of green colored beans to bring out flavor and functionality (Anderberg

Park, Haehl 4

2013). Generally speaking, dark roasts tend to have a stronger, bolder taste while also providing

its consumer with a higher level of caffeine. However, not every coffee drinker is looking for an

intense caffeine fix. In fact, in a study published in “Starbucks Consumer Research 2010”, “

There are 54 million coffee drinkers in the US who claim that they prefer light roast coffee.” In

response, Starbucks released a line of coffee known as “Blonde Roast”. According to Starbucks

president and channel developer, Jeff Hansberry, this segment of the company is valued at

roughly $1 billion in opportunity profit (Martinez 2013). The company has also made efforts to

increase its market segmentation by introducing food items and diversifying its drink menu. The

company recognized that their primary business hours were concentrated in the morning and as a

result, experienced a hard time attracting customers throughout the rest of the day (Strom 2013).

Although coffee drinks account for roughly 75% of sales, food items now contribute a solid 19%

(Strom 2013).

Overall, Starbucks has obtained a level of success that most companies can only dream

of. In fact, the company just celebrated its 19th consecutive quarter of record same store sales

(Strauss 2014). It has also achieved an impeccable business reputation, maintaining its hip, high-

class appeal regardless of its status as one of world’s largest franchise chains. For many,

Starbucks is more than the average coffee shop. It is a place where people go to relax,

congregate, or finish up a report they've been working on. The environment has been carefully

crafted to enable creativity, comfort, and social interaction. For others, Starbucks is simply a

convenient cup of joe that fits right into their morning routine. Such admirable features are only

made possible as a result of CEO Howard Shultz’s unquenchable desire for improvement.

Park, Haehl 5

Regardless of his success as CEO, Howard admitted this year that he was unimpressed by his

company’s “mid-single-digit same-store sales growth (Strauss 2014).

Consumer

The Starbucks consumer is loyal and regular. To illustrate the consistency that the

consumers desire, more than half of consumers claim that they would find another Starbucks

store to get their coffee if their first choice location was closed (Jennings 2008). Consumers

today have one recurring problem with the hip and upscale coffee shop: its prices. When the

company asked consumers what would increase their trips to the store, 65% percent said lower

prices (Jennings 2008). To satisfy these concerns, Starbucks improved their rewards program,

added new item lines including breakfast sandwiches, and created easier ways to pay with online

applications (Zerillo, 2009). Consumers do not always purchase from Starbucks solely because

they enjoy their coffee. It is said that some people believe it is a sign of social status and a place

to see and be seen (Patterson 2010). Also, the global Starbucks consumer is a huge asset to the

company. The first international Starbucks opened in Japan and now the Japanese stores are the

most successful overseas market outside of North America (Patterson 2010). For its consumers,

Starbucks is more than a coffee store. It offers them a place to hang out, catch up with an old

friend, finish up some work, or maybe just take a break from the real world. With Starbucks

expanding its selection of food and items, it attracts a larger market of consumers. It has begun to

serve a bigger selection of foods, such as breakfast sandwiches, in addition to its typically

smaller snack foods. Also, some stores sell coffee appliances giving people the convenience of

buying their morning coffee as well as a new appliance for their kitchen counter. This creates

Park, Haehl 6

another sales avenue as the consumer will hopefully brew Starbucks coffee in the convenience of

their own home. Starbucks is a consumer-driven store and as a company, it listens quite well.

This is why we anticipate that Starbucks will be around for a very long time.

Data Collection

For this study, we collected data using quantitative and qualitative techniques . We started out by

conducting in-depth interviews of our peers here at the University of Richmond. Once we felt we

had obtained sufficient information, we moved to an actual Starbucks location and asked

customers the same set of questions. These questions gave us valuable insight as to what kind of

consumers the company best attracts. We asked questions such as: “How often do you go to

Starbucks?” and “When you attend Starbucks are you typically an on-the-go consumer or a sit

down consumer?” In the midst of our consumer interviews, we saw an opportunity to talk to the

barista that was on duty at the time. We asked him questions in attempt to learn even more about

the company’s consumers. We asked him questions such as: “In your opinion, what kind of

consumer is most common, on-the-go, or sit down?” and “When are the biggest rushes of the

day?” As for qualitative data, we created an extensive template to observe customers while we

were in the store. We filled out a template for 32 individual consumers that ordered beverages or

food items. We included things like, the time of day, the ethnicity of the consumer, the age of the

consumer, the estimated amount of money spent, and of course, whether or not the individual

was an on-the-go consumer or a sit down consumer. Our reasoning for the inclusion of these

specific categories was that we wanted the see the ethnic subcultures buying behavior in action

and we felt the age of the consumer was a crucial aspect of whether or not they would stay. The

money category is strictly to show the monetary disparity between the two types of consumers.

Park, Haehl 7

We felt that to answer our question best we had to focus mainly on the categories of age,

ethnicity, and the total amount of money spent most. By concentrating on these 3 pieces of data

we felt we could determine which type of consumer was more lucrative for Starbucks. We

compiled all the data from the thirty-two customers observed and started analyzing it

!

Park, Haehl 8

Raw Data

Park, Haehl 8

!!!!!!

!!!!!!!!

Park, Haehl 10

Data Analysis According to our data, the ideal, most heavily targeted Starbucks consumer is a white male

between the ages of twenty to thirty years old. This customer primarily uses Starbucks as an on-

the-go venue and spends an average of $8.60 per visit. According to the interview the interview

we conducted with the Starbucks barista, the average spending price of a customer is roughly $7

to $8. This is relatively low compared to what we observed. The disparity in individual spending

was a result of what we perceived to be the “on-the-go consumer effect”. Consumers who use

Starbucks as an on-the-go venue will typically purchase a greater quantity of items to avoid the

inconvenience of wanting another beverage or food item once they’ve left the store. This minute

sense of pressure will often encourage impulse purchases. For example, imagine you are at

Starbucks waiting in line for your afternoon coffee. As you near the register, you notice the

enticing, freshly prepared pastrami sandwich strategically positioned at eye level behind the

glass. Originally, you came to Starbucks specifically for coffee, however you know that within

the hour you will inevitably be craving something to satisfy your hunger. As a result, you

purchase the sandwich on impulse to avoid the disservice of hunger. Compared to the average

individual spending of sit-down customers, our data shows that on-the-go customers only spend

a mere 30 cents more. This may not seem like much, but this price difference adds up over the

course of a full work day. To demonstrate this, we created a model using information derived

from our data.

Park, Haehl 11

As you can see from the table above, the 30 cent monetary disparity between customer types

translates to $420 over the course of a full work day. One must also take into consideration that

this model is an underestimate because we did not include factors such as rush hour times which

would normally affect revenue.

The age range and gender of the ideal customer was also a critical component of our

study to fully understand the target market. Through the interpretation of our data we found that

Starbucks’ largest consumer segment could best be described as upperclassmen college students

or young career professionals. This assumption was derived from the fact that 70% of white high

school students attend college (Casselman 2014). We used this information to conclude that these

consumers were most commonly visiting Starbucks before work, between classes, or during

break times during work.

!Findings

According to the extensive analysis of both our qualitative and quantitative data, we have

concluded that Starbucks’ on-the-go consumer segmentation pays a higher monetary contribution

to the company. There are several reasons why we believe this to be true, the first of which

would be the “on-the-go consumer effect” mentioned in our data analysis. In theory, the simple

notion of predicted inconvenience is enough to facilitate impulse purchases. The second reason

why the company’s on-the-go consumer base is more lucrative is because of the simple physical

nature of the store. There are only so many couches and seats that sit-down consumers can enjoy.

Of course, spots will inevitably open up as the day goes by but the real problem is the issue of

Park, Haehl 12

limitation. On the contrary, there are no limitations set on how long a line can be. The recognized

limitless potential of on-the-go consumers naturally brings about a higher frequency of patrons.

According the interview we conducted with the Starbucks barista, on certain days the busiest

hours will yield lines that extend to outside the store. The last reason is, of course, the difference

in monetary contribution between both customers. Our research and data manipulation has

demonstrated that even a subtle 30 cents difference can be huge in the long run.

Our original aim with this research was to obtain data necessary for Starbucks to alter its

service style in a manner that would enable it to differentiate its currently undifferentiated market

segmentation. However, we have determined that the company’s current configuration is the

reason it has reached this point of success. As of now, it maintains an innovative balance between

fast food and gourmet coffee. This multi-dimensional feel is what provides Starbucks with such a

unique reputation. Since its sit-down segmentation is still very profitable, changing the company

entirely would have potentially detrimental consequences. However, we strongly recommend

that Starbucks prioritize on its on-the-go consumer market segmentation. The company should

work to renovate its sales tactics in a manner that would improve productivity and customer

satisfaction without compromising its quality. Establishing a second line dedicated specifically

for on-the-go consumers would be a great way to do this. This simple renovation could increase

the store’s productivity by twice its current amount. Also, long lines can often serve as a

deterrent to customers short on time. The reduction of such frequent lines would serve as an

incentive for customers to shop at Starbucks. Another innovative recommended renovation for

the company would be for individual stores to prepare their most popular beverages ahead of

time, store them in a quality-preservation unit, and serve them to customers without delay.

Park, Haehl 13

Overall, the company’s entire reputation is a compilation of every individual consumer’s unique

experience. It is the small things that count

Digital Storytelling: https://www.youtube.com/watch?v=iLciHfUf3A4&feature=youtu.be

(Work Cited included below)

!The video is also saved to your computer, enjoy!

!

!!!!!!!!!!!!!

!

Park, Haehl 14

Work Cited

Dizzy, Jannet. "Starbucks Introduces New Blonde Roast Coffee." EURweb. January 5, 2012.

Accessed November 21, 2014. http://www.eurweb.com/2012/01/starbucks-introduces-new-

blonde-roast-coffee/.

Gensler, Lauren. "Starbucks Shares Tumble On Sales Lag." Forbes. October 30, 2014. Accessed

November 21, 2014. http://www.forbes.com/sites/laurengensler/2014/10/30/starbucks-shares-

tumble-on-sales-lag/.

Loeb, Walter. "Starbucks: Global Coffee Giant Has New Growth Plans." Forbes. January 31,

2013. Accessed November 21, 2014. http://www.forbes.com/sites/walterloeb/2013/01/31/

starbucks-global-coffee-giant-has-new-growth-plans/.

Lee, H., 2003. Japan: a nation of coffee lovers. Euromonitor International.

Lee, H., 2004. Coffee brews a future in China? Euromonitor International.

Burritt, C, 2007. McDonald's challenges Starbucks with cheaper lattes. Bloomberg, 11

September. <http://www.bloomberg.com/apps/news?

pid=20670001&refer&sid=a08JuUP7J6RY> (accessed 29.08.08.).

Delaney, B., 2008. Starbucks to go. Guardian, 30 July, <http://www.guardian.co.uk/

commentisfree/2008/jul/30/australia.starbucks> (accessed 29.08.08.).

BBC News, 2006. China central to Starbucks growth. BBC News, 14 February. <http://

news.bbc.co.Uk/2/hi/business/4712012.stm> (accessed 29.08.08.).

Grove, S., Fisk, R., John, J., 2000. Services as theater. In: Swartz, T., Iacobucci, D. (Eds.),

Handbook of Services Marketing and Management. Sage Publications, CA, pp. 21-35.

Park, Haehl 15

Hota, M., 2008. Starbucks: brewing more than just coffee. European Case Clearing House

(ECCC), 508-025-1.

lack and White Starbucks. Digital image. Favim, n.d. Web. 2 Dec. 2014.

Cute Starbucks Photography. Digital image. Favim, n.d. Web. 2 Dec. 2014.

Digital image. Bloximages. N.p., n.d. Web. 2 Dec. 2014.

Digital image. WN. Mediabistro, n.d. Web. 2 Dec. 2014. <http://i.ytimg.com/vi/5D-

L5yVhcc0/0.jpg>.

Dinks. Digital image. Resource 1 News, n.d. Web. 2 Dec. 2014.

Express Love. Digital image. 1pictures. Zimbio, n.d. Web. 2 Dec. 2014. <http://

www1.pictures.zimbio.com/gi/Elaine+Bradley+Style+360+Express+Love+Sponsored

+zpky-5_WO8bl.jpg>.

Farnham, Jason. Payday. Jason Farnham. N.d. MP3.

Frappe- Starbucks. Digital image. Favim, n.d. Web. 2 Dec. 2014.

Http://ww4.hdnux.com/photos/15/05/43/3430619/5/628x471.jpg. Digital image. News Times.

Hndux, n.d. Web. 2 Dec. 2014.

Johns, Jer. Vintage Starbucks, Black and White. Blue Digital image. Flickr. N.p., n.d. Web. 2

Dec. 2014.

Light Roast. Digital image. Chow Blog. N.p., n.d. Web. 2 Dec. 2014.

Martin. Digital image. Green Book Blog. N.p., n.d. Web. 2 Dec. 2014.

Mcdonald, Spencer. Digital image. Fine Art America. N.p., n.d. Web. 2 Dec. 2014.

Party Logo. Digital image. Festisite. Static, n.d. Web. 2 Dec. 2014.

Puremotions. Motivational and Inspiring Music for Success! Rec. 26 Sept. 2011. N.d. MP3.

Park, Haehl 16

Rogen Skinny. Digital image. Justjared, n.d. Web. 2 Dec. 2014.

Starbuck Storefront. Digital image. CS News. CS News, n.d. Web. 2 Dec. 2014. <http://

www.csnews.com/sites/default/files/styles/article-full/public/CSN%20Articles/

starbucks-storefront-0908.jpg?itok=X9e_32Dr>.

Starbucks. Digital image. Agogitter, n.d. Web. 2 Dec. 2014.

Starbucks. Digital image. Blogspot. N.p., n.d. Web. 2 Dec. 2014.

Starbucks Project. Digital image. Pace. Pace, n.d. Web. 2 Dec. 2014.

Starbucks Revealed. Digital image. Blog Globs, n.d. Web. 2 Dec. 2014.

Starbucks Revealed. Digital image. Techtimes. Techtimes, n.d. Web. 2 Dec. 2014. <http://

images.techtimes.com/data/images/full/17052/starbucks-new-express-stores-will-

serve-upscale-customers.jpg>.

Starbucks Tasty Combos. Digital image. Dans Papers. Dans Papers, n.d. Web. 2 Dec. 2014.

Wes Montgomery. Mr. Walker. N.d. MP3.

Fanatic, Malfoy. Starbucks Girl. Digital image. Malfoyfanatic.deviantart.com. N.p., 2008. Web.

30 Nov. 2014.

Fernandes, Thaisa. I Haven't Had My Coffee Yet. Digital image. Flickr.com. N.p., 25 Sept. 2008.

Web. 30 Nov. 2014.

Lightkey. Starbucks Logo. Digital image. IStock. N.p., 26 Nov. 2014. Web. 30 Nov. 2014.

Pelegrin, Williams. Wi-fi Sign in Starbucks. Digital image. Digitaltrends.com. N.p., 23 Oct.

2014. Web. 30 Nov. 2014.

Park, Haehl 17

Lutz, Ashley. Two Women Drinking Starbucks. Digital image. SeattlePI.com. N.p., 3 Jan. 2014.

Web. 30 Nov. 2014.

Consumer Injustice. Digital image. Citizen.org. N.p., 2014. Web. 30 Nov. 2014.

Golden, Myra. Angry Woman. Digital image. Myragolden.wordpress.com. N.p., 27 Jan. 2010.

Web. 30 Nov. 2014.

Smith, Emily K. Starbucks Drive Thru. Digital image. Dailymail.co.uk. N.p., 8 Mar. 2014. Web.

30 Nov. 2014.

Schwartz, Ariel. Starbucks vs. Mcdonalds. Digital image. Fastcompany.com. N.p., 18 May 2010.

Web. 30 Nov. 2014.

Happy Starbucks Customer. Digital image. Pixgood.com. N.p., n.d. Web. 30 Nov. 2014.

Tate, Ashley. Starbucks Loyalty. Digital image. Bigdoor.com. N.p., 11 Dec. 2013. Web. 30 Nov.

2014.

My Starbucks Rewards. Digital image. Blogs.starbucks.com. N.p., 20 Aug. 2010. Web. 30 Nov.

2014.

Starbucks Gift Cards. Digital image. Sweethopecookies.com. N.p., 24 Mar. 2013. Web. 30 Nov.

2014.

Hu, Annie. Starbucks Food Selection. Digital image. Doubleespressomachiato.blogspot.com.

N.p., 29 Oct. 2012. Web. 30 Nov. 2014.

Park, Haehl 18

Sodhi, Rajan. Starbucks Breakfast Sandwiches. Digital image. Bigmarketsmallbusineess.com.

N.p., 3 Sept. 2008. Web. 30 Nov. 2014.

Takakusaki, Saku. Crowded Starbucks in Japan. Digital image. Blog.btrax.com. N.p., 6 Aug.

2014. Web. 30 Nov. 2014.

Puppy with Starbucks. Digital image. Reddit.com. N.p., Jan. 2014. Web. 30 Nov. 2014.

Fanatic, Malfoy. Starbucks Girl. Digital image. Malfoyfanatic.deviantart.com. N.p., 2008. Web.

30 Nov. 2014.

Fernandes, Thaisa. I Haven't Had My Coffee Yet. Digital image. Flickr.com. N.p., 25 Sept. 2008.

Web. 30 Nov. 2014.

Lightkey. Starbucks Logo. Digital image. IStock. N.p., 26 Nov. 2014. Web. 30 Nov. 2014.

Pelegrin, Williams. Wi-fi Sign in Starbucks. Digital image. Digitaltrends.com. N.p., 23 Oct.

2014. Web. 30 Nov. 2014.

Lutz, Ashley. Two Women Drinking Starbucks. Digital image. SeattlePI.com. N.p., 3 Jan. 2014.

Web. 30 Nov. 2014.

Consumer Injustice. Digital image. Citizen.org. N.p., 2014. Web. 30 Nov. 2014.

Golden, Myra. Angry Woman. Digital image. Myragolden.wordpress.com. N.p., 27 Jan. 2010.

Web. 30 Nov. 2014.

Smith, Emily K. Starbucks Drive Thru. Digital image. Dailymail.co.uk. N.p., 8 Mar. 2014. Web.

30 Nov. 2014.

Park, Haehl 19

Schwartz, Ariel. Starbucks vs. Mcdonalds. Digital image. Fastcompany.com. N.p., 18 May 2010.

Web. 30 Nov. 2014.

Happy Starbucks Customer. Digital image. Pixgood.com. N.p., n.d. Web. 30 Nov. 2014.

Tate, Ashley. Starbucks Loyalty. Digital image. Bigdoor.com. N.p., 11 Dec. 2013. Web. 30 Nov.

2014.

My Starbucks Rewards. Digital image. Blogs.starbucks.com. N.p., 20 Aug. 2010. Web. 30 Nov.

2014.

Starbucks Gift Cards. Digital image. Sweethopecookies.com. N.p., 24 Mar. 2013. Web. 30 Nov.

2014.

Hu, Annie. Starbucks Food Selection. Digital image. Doubleespressomachiato.blogspot.com.

N.p., 29 Oct. 2012. Web. 30 Nov. 2014.

Sodhi, Rajan. Starbucks Breakfast Sandwiches. Digital image. Bigmarketsmallbusineess.com.

N.p., 3 Sept. 2008. Web. 30 Nov. 2014.

Takakusaki, Saku. Crowded Starbucks in Japan. Digital image. Blog.btrax.com. N.p., 6 Aug.

2014. Web. 30 Nov. 2014.

Puppy with Starbucks. Digital image. Reddit.com. N.p., Jan. 2014. Web. 30 Nov. 2014.