Starbucks Single Cup Campaign

Nick ConteEmily Fitzpatrick

Liza HoodCarolyn LenahanJanelle Scudder

Table of Contents

Executive Summary 3

Background Information 4

Situational Analysis 6

Goals & Objectives 8

SWOT Analysis 9

Market Segments 10

Strategies 12

Media Tactics 13

Budget 16

Evaluation 17

Summary 19

Appendices 20

Sources 23

2

Executive Summary

The single-cup coffee market is the fastest growing segment in the coffee

industry, Starbucks Coffee Company sees an opportunity to expand beyond their

traditional retail stores and into the single-cup coffee market. To jump start

progress within the market, Starbucks has partnered with the dominant leader in

the U.S. single-cup market, Green Mountain Coffee Roasters, Inc. Green Mountain’s

Keurig single-cup brewing system controls 80% of the market share. This

relationship gives Starbucks an incredible opportunity to enter and have immediate

success within the growing market. Last year the single-cup segment approached $2

billion and that figure is expected to almost double by the end of next year.

Starbucks believes that over time they can generate sales in excess of $1 billion

across all channels.

Starbucks target market of premium coffee drinkers has been the fastest to

adopt single-cup coffee into their routines. In order to reach these markets,

Starbucks plans to promote their new single-cup coffee product through print

advertisements in magazines and major metropolitan newspapers, social media

pages on Twitter and Facebook, the Starbucks website, and in-store promotions.

3

Background Information

Starbucks

Starbucks Coffee Company is one of the most successful and admired companies

today. They grew from a small coffee shop in Seattle, Washington 33 years ago into a

$4.1 billion international company. Starbucks promises customers on genuine

service, an inviting atmosphere, and an excellent cup of coffee. Starbucks' mission

statement is “to inspire and nurture the human spirit – one person, one cup and one

neighborhood at a time”. By doing so, they believe in serving the best coffee

possible. Starbucks Coffee Company has become an outstanding success story,

operating in more than 50 countries with 17,009 stores (as of January 2, 2011).

Starbucks is traditionally a specialty and premium coffee brand. However, Starbucks

sees potential for higher profit margins by making their product available to

consumers whenever, wherever, and however through the single-cup coffee market.

Single-Cup Coffee

The single-cup coffee market has been increasing over recent years. Single-cup

coffee machines have been introduced to the workplace and to consumers’ homes.

Many people’s lives in the 21st century are fast paced because they are constantly on

the go; therefore these machines are perfect for a quick and delicious hot beverage.

Starbucks hopes to enter into this market through the Keurig brewing machine.

Keurig “K-Cup” machines are designed to quickly brew a single cup of coffee. Keurig

systems are gaining popularity because they cater to U.S. consumers' demand for

convenience and customization. Unlike traditional drip coffee brewers, the

4

machines make one cup at a time and different users can have different brews. After

purchasing a pack of the K-Cup coffee pods, the consumer places one into the Keurig

machine, pushes the brew button and within 20-60 seconds the coffee is ready and

drips into the mug. They are especially efficient in offices, at home, or when in a

rush. Keurig is a wholly owned subsidiary of Green Mountain Coffee Roasters, Inc.,

and the K-Cups come in many teas, flavored coffee, and roast/blend options, mainly

of Green Mountain Coffee. However, Foldgers Coffee, Caribou Coffee, and Dunkin

Donuts all have or will have their coffee available through Keurig by this summer.

By partnering with Keurig, Starbucks has the ability to become a leader in the

single-cup market and pass their competitors in this segment.

5

Situational Analysis

Single serve coffee is the fastest growing market in the industry with U.S.

retail sales likely to approach 4 billion dollars in 2011. Starbucks has a stated goal

to, “extend the brand beyond our retail stores.” Starbucks is eager to grab more

business in the single serve market following its launch of VIA instant coffee in

October 2009, which accounted for 194 million dollars in sales. However, Green

Mountain Roast Coffee’s Keurig brand single serve sales were $1.19 billion in 2010

(sales include Keurig machines and K-Cup coffee pods). Keurig related revenue

accounted for 88% of Green Mountain’s overall sales and Green Mountain controls

80% of the North America single cup market. Furthermore, Starbucks VIA coffee is

instant coffee and not whole bean coffee that is roasted, ground and brewed like the

coffee offered for Keurig single-serve brewers.

Other than Starbucks VIA coffee, Starbucks was involved in the single-cup

market through a deal with Kraft Foods to develop products for its Tassimo single-

cup system. Kraft’s Tassimo product accounts for only 3% of the single-cup market.

Starbucks terminated this deal on March 1st of this year. Considering Starbucks

stated intentions to be the definite leader in the single-cup market, Starbucks made

a deal to be Keurig’s only “super-premium” K-Cup brand just nine days after the

Kraft deal was terminated. Shares of Green Mountain soared to 41% to close at

$61.71 while Starbucks’ stock rose 10% following the announcement of the deal.

Oppenheimer analyst Matthew DiFrisco called the deal "incrementally

positive" for Starbucks and joined some other analysts in raising earnings estimates

for next year: "It is an immediate low risk and low investment solution to address

6

the fast growing at-home single-serve market, in turn furthering the growth of

(Starbucks) higher margin consumer products division". Starbucks and Green

Mountain Roast Coffee plan to make Starbucks K-Cups available through Starbucks

café’s as well as food, drug, mass, club, specialty and department store retailers

throughout U.S. and Canada beginning in the fall of 2011.

7

Goals and Objectives

Goal

To extend the Starbucks brand beyond the retail stores.

Objectives

•Awareness: To have 75% of regular Starbucks customers aware of

Starbucks K-Cups before their release in the fall of 2011.

•Conviction: To have at least 80% of customers consider Starbucks K-Cup

coffee to be just as good as in store coffee by the end of the “Single Cup Challenge”.

•Action: Of the 80% of Starbucks customers who do not own a Keurig

machine, have 50% of these customers purchase a Keurig within the first year of the

release of Starbucks K-Cups.

8

SWOT Analysis

Strengths/Opportunities

• Only 20% of Starbucks customers own a Keurig (large potential for growth

within the market)

• Keurig dominates market controlling 80% of the market share.

• Premium Coffee customers have been the fastest to switch over to single-cup

brewers 

• The United States single-cup market is estimated at about $2 billion annually

and growing.

• Non-exclusive deal. Starbucks is free to explore other single-serve coffee market

opportunities

Weaknesses/Threats

• Starbucks competitors (Dunkin Donuts, Caribou coffee, and Foldgers) all are

available or will be available in K-Cups by the summer of 2011.

9

Market Segments

The Starbucks customer is a very well defined individual and the company

has done an excellent job on narrowing in on a very specific market. The average

Starbucks customer is in their early 40s with a college education and earns a $90k

income. Research has also shown that Starbucks tends to skew towards the female

consumers as well. Starbucks has also been known to serve the “urban commuter

family” a demographic described as a dual income, college educated household.

Starbucks’ most vivid consumer group is known as the “yuppies”, short for

Young Urban Professionals. These individuals are in their mid 20’s to 30’s, college

educated and are in well paid professional positions. They are described as having a

“work hard to play hard” mentality along with the idea that they “focus on making

money to fuel a lifestyle filled with expensive toys”. It has also been shown that

yuppies generally date or marry other yuppies, therefore doubling their already

high incomes.  

Yuppies are already devoted Starbucks customers, so it makes sense that

they would be interested in bringing the Starbucks experience into their own home

with the Keurig machine and Starbucks K-Cups. Yuppies also have the discretionary

income that allows them to buy somewhat high priced devices as a Keurig machine.

These hard working professionals would benefit from having the comfort and

quality of the café brewed Starbucks in their own home, but with the ease and

convenience of brewing it in their own home with a Keurig.

Another demographic Starbucks should consider marketing too would be the

baby boomer generation.  This generation is between the ages of 46 and 64,

10

representing the largest generation. While this generation was known as the “live to

work” type, the majority of them are now either entering or already in retirement.

This generation is also known to be experiencing a “well-off” or wealthy post-work

lifestyle and while many are frugal with their money, there is a large portion that

spends their hard earned money on indulgences.  This generation is also seen as a

generation who “embraces new technology” and it has been reported that, “…

boomer woman are the fastest growing group on Facebook”. It is clear that this

generation should not be passed over and could prove to be a beneficial move for

Starbucks.

This opens an interesting market segment for Starbucks as they find success

in selling Keurig machines to baby boomers. This group is an on-the-go group, and

could benefit from having their Keurig and Starbucks K-Cups. Even if they are

traveling or rushing somewhere they can still enjoy their Starbucks coffee. This

generation also embraces new technology and feels comfortable spending money on

various toys, such as the Keurig machine.

11

Strategies

After determining the goals and objectives for the campaign, Starbucks

needed to find the best available approach to reach their target markets. The

majority of the target market is made up of working professionals who rely on

professional trade magazines and newspapers for their daily source of information.

By advertising in these publications Starbucks can secure a large amount of

publicity directly to members of the Starbucks community who would be most

interested in Starbucks K-Cups. Also since the target markets are professionals,

advertising in metropolitan areas on subways and trains will prove beneficial.

Social media is the best possible way to reach both the yuppie market as well

as the baby boomers. Both market segments are heavy users of social media as a

way to stay connected with friends and family, share ideas, and promote favorite

products. By announcing Starbucks K-Cups on its Facebook and Twitter sites we can

gain mass publicity from these two groups.

Both of these market segments are already devoted consumers of Starbucks

coffee, making weekly and daily trips to get their favorite coffee. Promoting K-Cups

in Starbucks cafes will provide the best possible opportunity to encourage the

committed customers to buy into the new product. Through in-store taste tests

Starbucks can also provide proof to their consumers that the Starbucks coffee they

love will not change between store and K-Cups but will instead become more

convenient and readily accessible for them.

12

Media Tactics

The Starbucks identity is based around the concept they have created of the

“third place.” The “third place” is another location, other than home and work,

where customers can go to relax, do work, or meet with friends. Due to this homey

atmosphere, Starbucks avoids large corporate advertising campaigns in favor of a

word of mouth approach.

With the launch of the Starbucks K-cups, the corporation is trying to bring

the escape of the “third place” to both home and work with the help of the Keurig

brewer.

Print Advertising

This traditional advertising technique will be focused on subway and train

advertisements, as well as within news-based print media. The subway and train

advertisements will be present in metropolitan areas as to be visible to young

business professionals commuting to work. These advertisements are visible in the

terminals where commuters board and exit the trains, as well as being placed on the

train so riders are exposed to them throughout their commute. The news-based

print media will included publishers such as the Washington Post, New York Times,

Wall Street Journal, and Newsweek magazine. Such publishers are frequently read by

baby boomers because they depend on print media to get updated on current

events. Young business professionals also use these sources to stay current and

competitive within their business fields.

13

In-Store Promotion

To best reach our established consumer base, in-store promotion will be

utilized through the creation of the “Single-Cup Challenge”. With this challenge,

Starbucks will have Keurig single cup brewer sand K-Cups available for samples in

the Starbucks cafes, advertising Starbucks K-cups on the beverage sleeves, as well as

having a raffle for a Keurig single cup brewer. The “Single-Cup Challenge” will allow

customers to have a blind taste test of a K-Cup versus in-store brewed coffee. The

barista will record the customer’s response and inform the customer of which cup of

coffee was the K-Cup and the in-store brewed cup. This opportunity will prove to

customers that the Starbucks K-Cup will be just as delicious as an in-store brewed

cup of coffee. Having both the Keurig single cup brewers and the Starbucks K-Cups

in-stores will allow for a chance for direct purchase for the frequent cafe consumer.

This builds a stronger relationship between Starbucks and the Starbucks K-cups for

the consumer.

Starbucks will be advertising the arrival of the Starbucks K-cups on their

beverage sleeves that they provide for customers to raise awareness of the K-cups

prior to their release in the market, in addition to making their presence known

when they are for sale in stores.

In order to encourage purchase of the Keurig machine and the K-Cups,

Starbucks will have a raffle in select stores across the country. The customer will be

given the chance to fill out a form with their basic information and enter to win a

free Keurig machine with a twelve-pack of Starbucks K-Cups. On a specific day, the

winner will be announced and they will receive their prize. The idea behind this

14

tactic is to push the products and rely on the consumers’ promotion through word

of mouth.

Social Media

Social media is an integral aspect in reaching the target markets and

generating greater word of mouth for the Starbucks K-Cups. The Starbucks fan page

on Facebook will allow followers to increase their knowledge of the K-Cups and

share information on the product with their Facebook friends. Through Twitter,

Starbucks will be able to update followers on all news related to the K-Cups. The

Starbucks blog at MyStarbucksIdea.com will keep all Starbucks enthusiasts

informed about developments in relation to the partnership with Keurig and the

creation of the Starbucks K-Cups. The blog will also allow for direct feedback on the

K-Cups. All of the social media methods will keep Starbucks informed of the increase

in public’s knowledge as well as to the response to the release of the Starbucks K-

Cups.

15

Budget

For the Starbucks single-cup campaign, the budget is going to be $75 million.

Because Starbucks is releasing an entirely new product, the campaign will be

nationally promoted through print advertising, social media, and in-store

promotions.

$75 million campaign Print Advertising- 50%- Magazines- In store posters- Newspapers—Wall Street Journal, New York Times, Chicago Tribune, L.A. Times- Subway/ Train advertisements Social media 14%- Advertising- Fan pages on Facebook- Twitter account- Employees monitoring sites- Starbucks blog In-store- 35%- Single-Cup Challenge- Raffle Our salaries- <1%

16

Evaluation

Awareness: To have 75% of regular Starbucks customers aware of Starbucks

K-Cups before their release in the fall of 2011.

In order to measure the awareness of Starbucks K-Cups before their release

Starbucks’ social media will be used. One way of looking at awareness will be

through the Starbucks’ Facebook page. We will count the number of “followers” and

“likes” we receive on the Facebook page. We will also monitor the number followers

of Starbucks on their Twitter site. Lastly we will look at the activity on the Starbucks

blog concerning comments from our K-Cup posts and other related feedback.

Conviction: To have at least 80% of customers consider Starbucks K-Cup

coffee to be just as good as in store coffee by the end of the “Single-Cup

Challenge.”

In order the measure conviction we will monitor the Single-Cup Challenge

results of whether or not Starbucks customers believed the coffee brewed in

Starbucks is just as good as the coffee brewed using the K-Cups. After administering

the challenge we will record the customers’ responses. By the end of the challenge

we will tabulate and reveal the final results.

Action: Of the 80% of Starbucks customers who do not own a Keurig machine,

have 50% of these customers purchase a Keurig within the first year of the

release of Starbucks K-Cups.

17

One way to monitor the Keurig machine sales to Starbucks customers is by

selling them in Starbucks cafes. This direct, in-store sale will enable us to keep an

accurate track of current Starbucks customers who now want to own a Keurig for

the purpose of using Starbucks K-Cups. We will also track sales of Keurig machines

through the Starbucks website.

18

Summary

Starbucks’ venture into the single-cup brewing system is a bold move for the

company known for their premium and specialty coffee retail chain. However, this

move is highly advantageous, with low risks and an array of available opportunities.

Starbucks’ market segments are also prime audiences to sell the single-cup system

too. Advertising in print media, social media, and in-store promotions will enable

Starbucks to reach their main demographics and push the Starbucks K-Cups. If the

strategies are done correctly, Starbucks will see immense profitability in the single-

cup system and rise to be the dominant player in the single-cup industry.

19

Appendix A

Subway Advertisement

20

Appendix B

Newspaper/Magazine Advertisement

21

Appendix C

In-Store Advertisement

22

Sources

Allison, M. (2006, October 12). Starbucks takes unique approach to marketing. The         Seattle Times. Andrejczak, M. (2011, March 23). Starbucks plots bigger move in single-serve

market. Retrieved from http://www.marketwatch.com/story/starbucks-courtesy-to- sell-single-cup-brewer-2011-03-23

Associate Press, Initials. (2011, February 18). Starbucks brews up single-cup coffee         deal. TMCnet World News, Retrieved from         http://topnews360.tmcnet.com/topics/associated         press/articles/2011/02/18/146247-starbucks-brews-up-single-cup-coffee         deal.htm Baby Boomer & Senior Marketing. (2010). (Coming of Age) Retrieved 2011 15-April

from Coming of Age Incorporated: http://www.comingofage.com/ Baby Boomers: Market Trends and Opportunities. (2010 10-November). Retrieved

2011 15-April from Affiliate Marketing – Affiliate Training, Internet         Marketing Tips: http://www.clickbankphilippines.com/2010/11/baby-        boomers-market-trends-and.html

Baertlein , L. (2011, March 10). Green mountain lands starbucks for single-serve.

Retrieved from http://www.reuters.com/article/2011/03/10/us-starbucks- greenmountain-idUSTRE72928J20110310

D'Altorio, T. (2011, April 15). The brewing single-cup coffee war. Investment U,

Retrieved from http://www.investmentu.com/2011/April/the-brewing- single-cup-coffee-war.html

        DiVita, Y. (2011 18-March). How to Market to the Baby-Boomer Demographic.         

(American Express) Retrieved 2011 15-April from American Express OPEN Forum: http://www.openforum.com/idea-        hub/topics/marketing/article/how-to-market-to-the-baby-boomer-        demographic-yvonne-divita

Hauter, A., Jiang, J., & Shikani, W. (2010 31-January). Stabucks (SBUX). Retrieved

2011 15-April from Wikinvest:         http://www.wikinvest.com/stock/Starbucks_(SBUX)

Healthfield, S. M. (2011). Yuppies. (The New York Times Company) Retrieved 2011

15-April from About.com:         http://humanresources.about.com/od/glossaryy/g/yuppies.htm

23

Lyon, E. (2010  2-March). Examining Baby Boomers: Stats, Demographics, Segments, Predictions. Retrieved 2011 15-April from Sparxoo:         http://sparxoo.com/2010/03/02/examining-baby-boomers-stats-        demographics-segments-predictions/

Mendez, J. (2006 23-October). How Starbucks Segments and Targets its Brand.         

Retrieved 2011 15-April from Optimize and Prophesize:         http://www.optimizeandprophesize.com/jonathan_mendezs_blog/2006/10 /how_starbucks_s.html

Miller, C.C. (2009, May 18). New Starbucks ads seek to recruit online fans. The New

York Times. Smith, S. E. (2011). What Are Yuppies? (B. Harris, Editor) Retrieved 2011 15-        

April from WiseGeek: http://www.wisegeek.com/what-are-yuppies.htm Starbucks corporation and green mountain coffee roasters, inc. enter into strategic

manufacturing, marketing, distribution and sales relationship. (2011, March 10). Retrieved from http://news.starbucks.com/article_display.cfm?

article_id= 504 Starbucks outlines blueprint for profitable growth at annual shareholders meeting.

(2011, March 23). Retrieved from http://news.starbucks.com/article_display.cfm?article_id= 511

Tancer, B. (2008 10-January). Brewing Battle: Starbucks vs. McDonald's. (Time)         

Retrieved 2011 15-April from Time:         http://www.time.com/time/business/article/0,8599,1702277,00.html

24