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Coffee Wars -- Why Starbucks Will Not Win


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This is a project done for my Brand Management class during junior year at Babson College. It outlines why I believe Starbucks will not win the coffee wars.

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Coffee Wars -- Why Starbucks Will Not Win

  1. 1. Starbucks“The only thing that we learn from history is that we do not learn from history.” -Hegel
  2. 2. Starbucks expands… • Starbucks expands stores rapidly • Expanded offerings
  3. 3. …and fails • Finds itself on the brink of failure • Stock price is down • Brand value declining
  4. 4. Why did it happen?• Expansion, in store numbers and offerings, did not match with starbucks based on brand management principles – Brand Identity & Personality – CVP – Brand Equity
  5. 5. Brand Identity• Product – High quality coffee for the individual who has the time and money to pay a high price for a cup of coffee they can enjoy.• Organization – Socially responsible with highly-paid and happy workers. Had a strong position in the premium coffee market that was hard to replicate or top.
  6. 6. Brand Identity• Person – Jennifer Aaker would say starbucks brand personality can be found in Sophistication (upper class coffee), Competence (reliable, intelligent baristas), and Sincerity (like your neighborhood café). – It represent camaraderie, community, bringing people together. – It represents stopping to smell the roses, or in their case, the coffee beans.
  7. 7. Brand Identity-symbol
  8. 8. CVP-Functional• Starbucks produced a cup of coffee that was at least perceived as high quality/premium.• The customer service was excellent.• Drinks were very customizable• The environment had couches, wi-fi, etc.
  9. 9. CVP-EmotionalFor this section, we decided to do somequalitative research using social media, whatfollows are some of the responses we received:
  10. 10. CVP-Emotional ”I Iike how you can hear the hustle and bustle of men and women in business getting their morningcoffees and see some of them sitting there doing work.” – Phung Pham
  11. 11. CVP-Emotional” You can relax and its more of the coffee house feel. you can enjoy your coffee.” – Phung Pham
  12. 12. CVP-Emotional” And most starbucks have this kind of loungey feel to them.” – Danielle Sandahl
  13. 13. CVP-Emotional ” Starbucks is the absolute BEST!!! My husband and I could be broke, but well scrounge up a couple ofbucks just to buy a drink...even if we have to split it. We like to call it "Christmas in a Cup". – Corie
  14. 14. CVP-Emotional ” Its very "cozy" and you feel like at home. I could stay there for hoursjust talking, reading or on my PC ". – Corie
  15. 15. CVP-EmotionalEmotionally, Starbucks provides this luxury feel.You feel like you’re treating yourself when yougo to Starbucks. It’s what they build with theenvironment, the couches, the lounge music, thecoffee mugs, the smells, the people, all of it boilsdown to selling luxury.
  16. 16. CVP-EmotionalTo echo Minoli of Ducati, Starbucks is not in thecoffee business, they are in the experiencebusiness. That experience is vital.
  17. 17. CVP - Self-ExpressiveStarbucks also allows people to expressthemselves through consuming their service. Forthis I also went to qualitative research inaddition to stuff we learned in class.
  18. 18. CVP – Self-Expressive ” I like pretending I have a busy life and somewhere to go and am European ” – Emma Pedersen
  19. 19. CVP - Self-ExpressiveStarbucks operates as a luxury for the masses.It’s more expensive than most other coffees butas a portion of income it’s relatively small. Itallows people to telegraph to the world thatthey are high-class, that they will not sacrificeon their coffee nor their enjoyment.
  20. 20. So What Went Wrong?• We believe Starbucks began a downward spiral because it ineffectively pursued an Aaker expansion strategy.• It violated it’s core, CVP, and brand personality on many levels through its actions during the expansion process.
  21. 21. Commoditization• Rapid expansion of the number of stores, first and foremost, began the process of failure. When there’s a “starbucks on every corner”, it’s hard to imagine Starbucks as the neighborhood café as opposed to a chain.
  22. 22. Commoditization• Further, the rapid expansion created a need for efficiencies. There’s few reasons to expand if you cannot reach economies of scale and greater efficiencies.
  23. 23. The movement from Marzocco manual machines toautomatic espresso machines “removed much of theromance and theatre that was in play with the use ofthe La Marzocca machines” as Howard Schultz says.
  24. 24. He further explained “This specificdecision became even more damagingwhen the height of the machines, whichare now in thousands of stores, blockedthe visual sight line the customerpreviously had to watch the drink beingmade, and for the intimate experiencewith the barista”
  25. 25. “Clearly we have had to streamline storedesign to gain efficiencies of scale and tomake sure we had the ROI on sales toinvestment ratios that would satisfy thefinancial side of our business. However,one of the results has been stores that nolonger have the soul of the past andreflect a chain of stores vs. the warmfeeling of a neighborhood store.”
  26. 26. Their Failures• Starbucks icecream –In Grocery Stores, not experiential
  27. 27. • BreakfastSandwiches –Instead of coffee, you smelt sausage
  28. 28. • Seating –Some have little to no seating
  29. 29. StarbucksStarbucks failed because they left their identity and they lost touch of the starbucks experience, the very soul ofthe brand. Their CVP was entirely out- of-whack and they paid the price
  30. 30. Howard Schultz came in on his majestic steed,sword pointed forth, proclaiming to theheavens: “Huzzah! Back to the core we must go! Charge!”
  31. 31. Yup.• He removed the coffee from the logo...revolutionary…brilliant – Ahem, sarcasm intended
  32. 32. Why?We believe it came from thequestions “Is Coffee in our core? Arewe too strongly associated withcoffee? Are we in the productattribute and product image traps?”
  33. 33. Yup.• We believe the answer to those questions is “Yup.”• “But, isn’t that good? Doesn’t that mean he recognizes that they are not in the coffee biz, but in the experience biz? Can’t they fix things now with that knowledge?”
  34. 34. Nope.The jury is still out, but their actions have not been indicative of amovement to the soul of the brand.
  35. 35. TrentaThe first factor is the introduction of the Trenta size. Intrinsically, theTrenta just felt “wrong”. Somethingabout it just struck a bad chord. So we took it to Facebook.
  36. 36. What customer do youthink they are targeting with the new Trenta sizes at Starbucks?
  37. 37. “addicts” -Sharon Tam
  38. 38. “People see the bigger sizeand think its a better value($/oz) and they are getting more for their money.” -Jill Montane
  39. 39. “People who are addictedto the coffee, and thereforeneed a big cup and get it to go. They dont care about the experience at all.” -Mike Gray
  40. 40. “People that have places to goin the morning and dont want a pussy cup of coffee or to sit around a god damn coffee shop (but are too good for dunkin coffee)-Emma Pedersen
  41. 41. “Also, what Emmasaid.” –Mike Gray
  42. 42. Value?They are targeting a value customer with the Trenta size. They aretargeting addicts, people on-the-go, people who drink coffee for coffee and not coffee for Starbucks.
  43. 43. Instant.
  44. 44. Instant.Instant. Instant Coffee. Instant coffee thatcan be made at home, out of a condimentpackage. Does that sound like a failure toyou?
  45. 45. Not yet? Let me rephrase: “Oh glorious consumer whoperceives that our in-store coffee is superior to others’ coffee and will pay higher prices, little did you know that our coffee tastes like instant coffee.”
  46. 46. Still nothing? Let me rephrase: “Here, buy this coffee for a fractionof the price, we promise it tastes justlike our in-store coffee. While you’re at it, purchase one of the same mugs we serve you with in store.”
  47. 47. A little more? Let me rephrase: “Please, by all means consume ourcoffee in a cold kitchen with appliances for company and zero of the comforts of Starbucks restaurants”
  48. 48. Not quite? One last rephrase: “Experience? I thought you just wanted a cheap, pretty okaytasting coffee that could be made quick and easy.”
  49. 49. ”It just doesnt taste thesame when you make it yourself at home.” – RubyMae from Flickr
  50. 50. There we go. Starbucks clearly has not learned it’s lesson. Trenta sizes, instant coffee, drive-thrus, noseating, higher emphasis on grocery sales. I can’t wait until they introduce “artisan” burgers and donuts, maybe a nice chicken sandwich and a Super Big Gulp. You know what would beawesome? A little in-store coffee machine where I can just pour my coffee and pay without ever speaking with a barista!
  51. 51. Oh, wait. “Starbucks is testing letting its customers pour their own coffee at some stores.Customers can pay before or after gettingtheir own drip coffee from a brewer nearthe condiment bar, the company said on its new customer-feedback website.”
  52. 52. Starbucks“The only thing that we learn from history is that we do not learn from history.” -Hegel