LOVELY PROFESSIONAL UNIVERSITY

School of MITTAL SCHOOL OF BUSINESS Faculty of BUSINESS AND ARTS

Name of the faculty member: Dr. Ram Krishna

Course Code: MGNM828 Course Title: Industry & Competitive

analysis
Academic Task No:01 Academic Task Title: 2
Date of Allotment: 18th May 2024 Date of Submission: 22nd May 2024
Class: MBA
Term:12 Section: Q2011
Max. Marks:30 Marks. Obtained:
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Group Members

Ayush Singhal (12010418)

Nayan Hans (12003431)

Shanu (12005797)

Raghuvansh (12019588)

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Case Study 8: Starbucks – Crafting the customer experience

Background

Starbucks Corporation has built a global brand around premium coffee and a unique customer
experience. Founded in 1971, Starbucks has expanded its presence to over 30,000 locations
worldwide, offering a variety of beverages, food items, and retail products.

Starbucks' competitive strategy focuses on creating a personalized customer experience,

product innovation, and brand loyalty. The company invests in store ambiance, customer
service, and digital initiatives to enhance the overall customer experience. Starbucks'
commitment to sustainability and ethical sourcing also strengthens its brand image.

Strategic Management Questions

1. How does Starbucks' focus on the customer experience contribute to its competitive
advantage?

2. What strategies can Starbucks implement to sustain its market position in the face of
increasing competition?

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INTRODUCTION

Starbucks Corporation was founded in 1971 by three partners—Jerry Baldwin, Zev Siegl,
and Gordon Bowker—in Seattle, Washington. Initially, Starbucks started as a single store in
Seattle's Pike Place Market, selling high-quality coffee beans and equipment. The founders
were inspired by Alfred Peet, a coffee-roasting entrepreneur, and aimed to bring premium
coffee experiences to the American market.

In 1982, Howard Schultz joined Starbucks as Director of Retail Operations and Marketing.
During a trip to Italy, Schultz was inspired by the Italian coffeehouse culture and envisioned
bringing a similar experience to the United States. Despite initial resistance, Schultz convinced
the founders to test the concept. This led to the opening of the first Starbucks café in 1984,
which introduced espresso beverages and the café experience. Schultz eventually acquired the
company in 1987, marking the beginning of Starbucks’ rapid expansion.

Starbucks’ USP lies in its ability to create a unique and personalized customer experience,
combining premium products with an inviting atmosphere. Starbucks is committed to sourcing
and roasting the highest quality Arabica coffee beans, ensuring a superior taste that sets it apart.
Customers enjoy a personalized experience, with the ability to customize their drinks to exact
preferences, fostering a sense of personalization and control. The ambiance of Starbucks stores is
designed to be a "third place" between home and work, offering a cozy and inviting environment with
comfortable seating, music, and free Wi-Fi. Friendly and knowledgeable baristas further enhance the
customer experience by often remembering regular customers' names and preferences. Additionally,
Starbucks promotes ethical sourcing practices and sustainability initiatives, which resonate with socially
conscious consumers and strengthen its brand image.

In terms of product diversification, besides traditional coffee, Starbucks offers a wide range of
beverages, including teas, Frappuccinos, smoothies, and seasonal drinks, as well as food items
like pastries, sandwiches, salads, and snacks. Additionally, Starbucks sells coffee beans,
coffee-making equipment, mugs, and merchandise both in-store and online.

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Geographically, Starbucks has expanded from its humble beginnings in Seattle to over 30,000
locations worldwide, with significant growth in markets such as China, Japan, and Europe. The
company's business ventures have also expanded, including the acquisition of Teavana in 2012
to enter the tea market, Evolution Fresh to enter the health and wellness market with premium
juices and snacks, and the launch of Starbucks Reserve stores to offer rare and exclusive coffee
blends for coffee aficionados.

Despite its premium pricing, Starbucks has managed to sustain its market position through
several strategic initiatives. Strong brand loyalty is fostered by the Starbucks Rewards program,
which incentivizes repeat purchases with personalized rewards, discounts, and exclusive offers,
and through active customer engagement on social media and feedback mechanisms.

Continuous innovation, such as regularly introducing new and seasonal products and
integrating technology through the Starbucks mobile app, enhances convenience and customer
satisfaction. The company's commitment to quality and consistency is maintained through
rigorous training programs for baristas and ethical sourcing practices, which strengthen the
brand’s image and appeal to a socially conscious demographic.

Moreover, Starbucks creates value beyond coffee by focusing on experiential marketing,

including inviting store designs, community events, and collaborations with local artists, and
by participating in various community service initiatives and programs, reinforcing its positive
image and community ties. By consistently delivering high-quality products, enhancing
customer experiences, and aligning with ethical and sustainable practices, Starbucks has
maintained its status as a premium brand and continued to thrive in a competitive market.

1. How does Starbucks' focus on the customer experience contribute to its

competitive advantage?
Starbucks' focus on customer experience is a crucial factor that contributes significantly to its
competitive advantage. This focus is realized through several key strategies:

1. High-Quality Coffee: Starbucks is committed to sourcing and roasting the highest quality
Arabica coffee beans, ensuring a superior taste. This dedication to quality not only attracts
coffee enthusiasts but also establishes the brand as a premium coffee provider, distinguishing
it from competitors who may not maintain such stringent quality standards.

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2. Personalized Experience: The ability for customers to customize their drinks to their exact
preferences creates a sense of personalization and control. This level of customization caters
to individual tastes and preferences, making customers feel valued and understood, which
fosters loyalty and repeat business.

3. Ambiance: Starbucks stores are designed to be a "third place" between home and work,
offering a cozy and inviting environment with comfortable seating, music, and free Wi-Fi. This
ambiance encourages customers to spend more time in the store, whether for socializing,
working, or relaxing, enhancing the overall customer experience and increasing the likelihood
of additional purchases.

4. Customer Service: Friendly and knowledgeable baristas play a significant role in enhancing
the customer experience. By often remembering regular customers' names and preferences,
baristas build personal connections that make customers feel welcome and appreciated,
encouraging repeat visits and brand loyalty.

5. Ethical Sourcing and Sustainability: Starbucks promotes ethical sourcing practices and
sustainability initiatives, which resonate with socially conscious consumers. The company's
commitment to these values strengthens its brand image and appeals to a demographic that
prioritizes ethical consumption. This alignment with customer values further differentiates
Starbucks from competitors who may not emphasize such practices.

Starbucks' focus on customer experience significantly enhances its competitive advantage through
several key strategies. High-quality coffee attracts discerning enthusiasts, while personalized drink
options foster customer loyalty. The inviting store ambiance encourages prolonged visits, and
exceptional customer service builds strong personal connections. Additionally, ethical sourcing and
sustainability initiatives resonate with socially conscious consumers. These elements collectively
ensure Starbucks maintains its premium brand status and retains a loyal customer base.

2. What strategies can Starbucks implement to sustain its market position in

the face of increasing competition?

Business-Level Strategies

1. Continuous Product and Menu Innovation

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Example: Plant-Based Options

Starbucks can regularly introduce new and innovative products to keep its menu fresh and
exciting. For instance, expanding its plant-based offerings by incorporating more dairy-free
milk alternatives and vegan food items can attract health-conscious and environmentally aware
consumers. This not only meets the growing demand for plant-based diets but also
differentiates Starbucks from competitors.

2. Enhanced Digital and Mobile Experiences

Example: Advanced Mobile App Features

Leveraging technology to enhance the customer experience is crucial. Starbucks can further
develop its mobile app to include features like AI-driven personalized recommendations,
augmented reality (AR) for interactive in-store experiences, and enhanced loyalty program
integrations. For example, incorporating AR to showcase coffee brewing processes or virtual
tours of coffee farms can create an engaging and educational experience for customers.

3. Focus on Community and Experiential Marketing

Example: Local Community Events and Collaborations

Creating memorable in-store experiences and engaging with local communities can reinforce
Starbucks' position as a "third place." Hosting local community events, such as open mic nights,
art exhibitions, or book clubs, and collaborating with local artists and businesses for unique in-
store displays can foster a strong sense of community and customer loyalty.

Functional-Level Strategies

1. Commitment to Sustainability and Ethical Practices

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Example: Sustainable Packaging Initiatives

Starbucks can further its commitment to sustainability by adopting more eco-friendly practices,
such as reducing single-use plastics, promoting reusable cups, and ensuring all packaging is
recyclable or compostable. Launching initiatives like a return-and-recycle program for used
coffee cups can appeal to environmentally conscious consumers and strengthen the brand's
reputation for sustainability.

2. Advanced Training and Development for Baristas

Example: Barista Excellence Programs

Ensuring high-quality service and consistency is essential for maintaining a premium brand
image. Starbucks can invest in advanced training programs for baristas, focusing on coffee
expertise, customer service, and leadership skills. Implementing a "Barista Excellence"
certification program can ensure that all employees deliver exceptional service and product
quality, enhancing the overall customer experience.

Corporate-Level Strategies

1. Strengthening Global Presence

Example: Localization Strategies in Emerging Markets

To sustain growth, Starbucks should continue to expand its global footprint, particularly in
emerging markets. Implementing localization strategies that adapt store designs, product
offerings, and marketing campaigns to local cultures and preferences can enhance relevance
and acceptance. For example, in China, Starbucks could offer more tea-based beverages and
incorporate traditional Chinese design elements into its stores.

2. Diversification into New Business Ventures

Example: Expanding into Ready-to-Drink Beverages

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Exploring new business ventures and product lines can open additional revenue streams. For
instance, Starbucks can expand its ready-to-drink (RTD) beverage line, offering products like
cold brew coffee and sparkling coffee beverages in retail stores and supermarkets. This can
capture a broader audience and increase brand visibility outside traditional café settings.