Starbucks Case
Starbucks Case
Starbucks Case
Conner V. Lombardi
AUTHORS Neejad T. Chidiac
Benjamin C. Record
DOI http://dx.doi.org/10.21511/im.17(2).2021.16
LICENSE This work is licensed under a Creative Commons Attribution 4.0 International
License
44 0 0
businessperspectives.org
Innovative Marketing, Volume 17, Issue 2, 2021
Starbucks coffee
BUSINESS PERSPECTIVES corporation’s marketing
LLC “СPС “Business Perspectives”
Hryhorii Skovoroda lane, 10,
Sumy, 40022, Ukraine
response to the COVID-19
www.businessperspectives.org pandemic
Abstract
The ongoing COVID-19 pandemic has a significant influence on businesses and mar-
keting strategies across the globe, including Starbucks Coffee. The COVID-19 pan-
demic has been completely novel in its unprecedented impact on the modern global-
ized economy. This in-depth analysis of this coffeehouse provides recommendations
Received on: 17th of February, 2021 that were carefully considered within the context of the current public health crisis.
Accepted on: 18th of June, 2021 The objective of this study was to systematically analyze the strategic marketing ap-
Published on: 25th of June, 2021 proach of Starbucks Coffee to generate recommendations that can not only be ap-
plied to Starbucks but marketing endeavors more broadly. A comprehensive review
© Conner V. Lombardi, Neejad T. approach was adopted beginning with a thorough situational analysis. Problems and
Chidiac, Benjamin C. Record, 2021 opportunities related to the marketing of Starbucks Coffee were investigated and rec-
ommendations were generated. All stages of the study were robustly supported with
relevant citations. Starbucks has matrixed a complex corporate structure that supports
Conner V. Lombardi, MD, MBA not only its survival but its continued development even in an increasingly dense and
Candidate, the University of Toledo competitive marketplace. While Starbucks must continue to intermittently reevaluate
College of Medicine and Life its key problems and key opportunities, especially in the approaching few financial
Sciences, United States of America. years, the company is operating with impressive effectiveness through the adversities
(Corresponding author)
of 2020 thus far. After a careful analysis, Starbucks Coffee should increase the distri-
Neejad T. Chidiac, MD, MBA bution of products that are more likely to succeed during the COVID-19 pandemic,
Candidate, the University of Toledo expand pick-up and delivery services, implement additional store locations in under-
College of Medicine and Life Sciences, developed geographic market segments, and utilize its vast array of promotional medi-
United States of America.
ums to optimize brand positioning as they approach a reopening world.
Benjamin C. Record, MD, MBA
Candidate, the University of Toledo
College of Medicine and Life Sciences, Keywords coronavirus, consumer marketing, business
United States of America. development, situational analysis
INTRODUCTION
Starbucks Coffee is an international coffeehouse that began as a single
store in Seattle’s Pike Place Market back in 1971. Founded by entre-
preneur Howard Schultz, several strategic initiatives including strong
brand creation, premium product development, and company expan-
sion to international markets were largely responsible for Starbucks
Coffee’s specialty coffee marketing strategy during the 1980s and
1990s (Koehn, 2005). As of June 30, 2019, Starbucks Coffee has expe-
rienced exponential and highly impressive growth with over 30,000
stores in over 80 markets across the globe (Starbucks stories & news,
2020). The Starbucks Coffee company mission is stated proudly on the
This is an Open Access article, corporate website: “to inspire and nurture the human spirit – one per-
distributed under the terms of the son, one cup, and one neighborhood at a time.” To begin this mar-
Creative Commons Attribution 4.0
International license, which permits keting analysis, a thorough situation analysis was conducted. During
unrestricted re-use, distribution, and this situational analysis, special consideration and attention was giv-
reproduction in any medium, provided
the original work is properly cited. en to the ongoing COVID-19 Pandemic including its financial, emo-
Conflict of interest statement: tional, and longitudinal impact on Starbucks and the coffee industry.
Author(s) reported no conflict of interest Following the situation analysis, problems and opportunities related
http://dx.doi.org/10.21511/im.17(2).2021.16 177
Innovative Marketing, Volume 17, Issue 2, 2021
to the Starbucks Coffee brand were investigated to ultimately generate and evaluate alternative market-
ing programs. Finally, the pros and cons of each alternative were considered such that a final recom-
mendation was reached.
1. LITERATURE REVIEW some degree are rarer due to the habitual nature
AND THEORETICAL BASIS of coffee consumption which is intertwined with
the biochemical nature of caffeine. Consumers
The nature of demand for the Starbucks Coffee ex- likewise make preemptive habitual consumptive
perience was first considered as part of the over- decisions about coffee brands before arriving at
arching situation analysis. As stated previously, a commercial location. There are many sources
the number of stores shopped worldwide reached of information regarding the product mix that
over 30,000 as of the summer of 2019. The ratio Starbucks Coffee offers. Additionally, given the
of company-operated stores to licensed stores success in revenue generation, it is reasonable to
within this figure is approximately 1:1 (Starbucks assume that the current awareness and knowledge
Coffee Company, 2018). More specifically, a com- levels surrounding the product mix are high. The
plete picture of the international outreach of coffeehouse offers a range of high-quality prod-
this coffeehouse is shown by analyzing the geo- ucts including over 30 blends of single-origin
graphic distribution of company-operated stores coffee, handcrafted hot and cold beverages, mer-
as reported in the Starbucks Fiscal 2018 Annual chandise such as mugs and accessories, fresh food,
Report. According to this document, the num- and tea (Greenspan, 2019). A wide array of peo-
ber of company-operated stores was 9,684 total ple from a variety of demographic backgrounds
Americas, 5,159 total China/Asia Pacific, and 490 can make a purchase decision to engage in one of
total Europe, the Middle East, and Africa (EMEA) the Starbucks Coffee products. The exception is
as of September 30, 2018. As of 2018, it is fair to as- children (pre-adolescence) who are typically cul-
sume that the degree of overt information seeking turally prohibited in Western society from con-
by consumers worldwide was significantly high, suming caffeinated coffee products. However, in
at least compared to years prior. Evidence to sup- general, the customers making the purchase de-
port this notion can be retrieved by the financial cision include millennials, which is in part driven
disclosures released in the Starbucks Fiscal 2018 by the “My Starbucks Reward” program (Fromm,
Annual Report (Starbucks Coffee Company, 2018). n.d.). Furthermore, one main demographic age
The company saw revenue growths of 7% (16.7 bil- segmentation consists of high-income individu-
lion), 38% (4.5 billion), and 9% (1.0 billion) in the als between ages 25 and 40, and another consists
Americas, China/Asia Pacific, and EMEA market of 18 to 24-year-old adults who belong to affluent
segments, respectively. Furthermore, these im- families (Haskova, 2015). The people involved in
pressive growths in revenue lend insight into the influencing the decision-maker mainly consist of
degree of brand awareness and loyalty. Brand loy- the Starbucks Coffee “partners”. Partners are the
alty is a significant factor in an industry steeped Starbucks Coffee employees “at the heart” of the
in often habitual, daily routine consumption (Han Starbucks Experience who function to prepare
et al., 2018). Starbucks inc. is an example, even be- and serve the products to consumers (Starbucks
yond the confines of the coffee industry, of aggres- stories & news, 2020). Additionally, peer and as-
sive and prioritized brand loyalty development pirant groups can influence decision-makers in
(Adams, 2018; Cierzan, 2019; Matyszczyk, 2020; their purchasing behavior.
Harris 2015). By 2007, most coffee consumers were
aware of the Starbucks Coffee brand, and mil- Given the relatively inexpensive and individual-
lions of consumers from all walks of life enjoyed ized experience with each product, it can be rea-
the offered products and experience (Koehn et al., sonably assumed that the decision to purchase an
2008). The location of both product category deci- offering from Starbucks Coffee is an individual
sions and brand decisions are mostly made before decision, rather than a group decision. The du-
traveling to the point of sale. Incidental purchas- ration of the decision process is quite impressive
es of coffee that were not premeditated at least to and speaks to the global and sustained success of
178 http://dx.doi.org/10.21511/im.17(2).2021.16
Innovative Marketing, Volume 17, Issue 2, 2021
Starbucks Coffee. A large majority of decisions to is to characterize the market into meaningfully
purchase are considerably frequent repeat deci- segmented groups. The first important metric that
sions. According to Lepore (2011), in a span of four can be used to segment the market is based on the
weeks, the average Starbucks customer visits the age of the consumer. Importantly, almost half of
store approximately 6 times. Just as startling, a loy- Starbucks Coffee’s total business comes from men
al 20% of customers visit the store approximately and women ages 25-40, which is the company’s
16 times during the same timespan (Lepore, 2011). primary market target (Rafii, 2014). According to
These statistics signify significant buyer’s interest Rafii (2014), the customers that fall within this age
in the product mix offered, and a reasonable level group tend to be “professional urbanites” with rel-
of excitement must be present to justify the fre- atively higher socioeconomic status who support
quency of store visits. Consumers of coffee prod- environmentally and socially responsible caus-
ucts, especially demographics interested in gour- es in the community. In addition to the primary
met/specialty products, often exhibit high interest, market target, another 40 percent of the total mar-
involvement, and excitement regarding purchas- ket targets young adults between the ages of 18
es. Coffee drinking has its own culture (D’Costa, and 24, many of whom are found on college cam-
2011), which its adherents eagerly participate in. puses (Rafii, 2014). Starbucks Coffee stores on col-
Consumers become infatuated with coffee due to a lege campuses are especially appealing due to their
unique combination of societal ritual and caffeine function as a place to socialize and study in addi-
dependence. In other words, consumers enjoy so- tion to purchasing an offered product. An empir-
cializing over quality coffee in a cultural ritual, ical study of Starbucks Coffee in Taiwan gathered
and at the same time physically feel the effects of research data to suggest that the company could
caffeine, which has a reinforcing effect on behav- increase market share in the region by increasing
ior as it becomes associated with actions. the targeting of male consumers under the age
of 35, as well as consumers who have an associ-
The risk of a negative purchase outcome, while ate degree and high-school diploma (Tu & Chang,
present, is relatively low. The Starbucks Fiscal 2018 2012). A second way to segment the Starbucks
Annual Report (Starbucks Coffee Company, 2018) Coffee market is based on the concept of family
states that incidents involving food and/or bever- life cycles (FLC). The traditional FLC marketing
age-borne infectious diseases, imitation, contam- strategy consists of a bachelor stage, newly mar-
ination, and mislabeling can ultimately harm the rieds, full nests, empty nests, and solitary survi-
business and damage the reputation of the global vors (Pondent, 2017). Given the target groups pre-
brand. However, the likelihood of an individual viously described, Starbucks Coffee would most
encountering one of these incidents has been and likely find success by targeting individuals in the
remains low. bachelor and newly married stages, as these cor-
respond closely to the target age groups. The third
Coffee is a rather interesting product due to the way to segment the market would be by geograph-
fact that it has practical/functional purposes as a ic location. As previously mentioned, the major-
stimulant to combat fatigue and boost alertness, ity of shops are located in the Americas (9,684),
but also improves mood when dependence has which consists of the US, Canada, and Brazil.
begun. Its psychosocial considerations are signif- The second most shops are located in China/Asia
icant due to the ritualistic nature of consumption Pacific (5,159), which consists of China, Japan,
and the culture of coffee within society. Given the and Thailand. The third geographical segment,
caffeine content in the hot and cold beverages, the EMEA, contains 490 shops 1 (Starbucks Coffee
time of consumption of the majority of Starbucks Company, 2018). The fourth way to meaningful-
Coffee’s products is during the morning and day- ly segment the market would be based on heavy
time, with lesser amounts of consumption during versus light users. It may be beneficial to tailor the
the evening and night hours (Koehn et al., 2008). Starbucks Coffee marketing program to differen-
tially target regular users, first-time users, poten-
Besides determining the who, what, when, where, tial users, and nonusers to gain a competitive ad-
why, and how of a purchase decision, another im- vantage over other companies. Product usage can
portant part of analyzing the nature of demand also be segmented into light, medium, and heavy
http://dx.doi.org/10.21511/im.17(2).2021.16 179
Innovative Marketing, Volume 17, Issue 2, 2021
levels to further stratify regular users. Lastly, the of the overarching situation analysis. Starbucks
nature of the buying process can be assessed to Coffee currently participates in a fiercely competi-
attempt to segment the market in a meaning- tive environment. According to the Annual Fiscal
ful way. Ultimately, it is important to weigh the Report, the company’s primary competitors for
pros and cons of developing a marketing strate- specialty coffee sales include specialty coffee shops
gy for each segment versus having one program offering similar experiences, quick-service restau-
that targets a heterogeneous sample of segments. rants, ready-to-drink beverages, and international
The cons, which include cost and research devel- well-established coffee companies. While it is dif-
opment among others, may outweigh the pros in ficult to suggest an exact number of competitors,
some market decisions. Overall, however, there it is safe to say that there is an exceedingly large
is evidence to support that Starbucks Coffee has number of competitors spanning across the entire
been and continues to be successful at segmenting globe. Despite the fierce competition, Starbucks
the market via certain criteria including age, geo- has prevailed as the dominant entity in the coffee
graphic location, and other demographic variables. drinking world, as they hold an impressive 40%
share of the US coffee shop market. The main
The extent of demand for the Starbucks Coffee ex- competitors that Starbucks should prioritize from
perience was considered as part of the overarching a marketing perspective include the second largest
situation analysis. The first step to determine the market leader, Dunkin’, representing a 26% share
extent of demand is to analyze the current market of the market (Brown, 2019), and the third largest
shares and selective demand trends. According in JAB Holding Company with 13%. How do these
to the Starbucks Annual Fiscal Report in 2018 three leading competitors compare in terms of fi-
(Starbucks Coffee Company, 2018), the total num- nancial resources that could be used in marketing
ber of Starbucks Coffee shares purchased totaled initiatives targeted at gaining market share? The fi-
58,506,300 at an average price per share of $52.96. nancial resources of Starbucks Coffee are certain-
Selective demand trends were impressive, with to- ly capable of funding new and existing market-
tal net revenue for the international coffeehouse ing ventures, as they were disclosed in full in the
increasing 10% to $24.7 billion in 2018 compared Annual Fiscal Report of 2018 (Starbucks Coffee
to $22.4 billion the year prior (Starbucks Coffee Company, 2018). The comprehensive income in
Company, 2018). Additionally, Starbucks Coffee 2018 attributed to Starbucks was $4,343.6 million,
demonstrated impressive upward demand trends and the total assets attributed to the company that
between 2017 and 2018. According to the Annual year totaled $24,156.4 million. Beyond revenue
Fiscal Report, the coffeehouse returned approx- and assets, cash on hand and debt-to-equity ratios
imately $8.9 billion to shareholders in 2018 via are particularly effective measures of the ability
repurchases and dividends, a figure considera- of a firm to mount expensive corporate initiatives,
bly higher than the $3.5 billion recorded in 2017. including marketing endeavors. Starbucks has
While the figures for 2018 are impressive, it is best 2.76 billion in cash on hand (Mullaney, 2020), and
to analyze the market on a segmented basis accord- a 58.1% debt-to-equity ratio (Yu, 2020) giving a
ing to the geographic distribution of Starbucks picture of robust financial health for the industry
stores, rather than on an aggregate basis. The rev- leader. Dunkin has $1.37 billion in revenue (Lock,
enue distribution for 2018 was disproportionately 2020), and an interesting debt to-to-equity ratio
distributed with the Americas with 68%, China/ of -5.28 (Dunkin utilizes a heavily leveraged, cap-
Asia Pacific with 18%, EMEA with 4%, Channel ital-light business model, and currently has nega-
Development with 9%, and Corporate/other with tive equity which makes their numbers here more
1% (Pratap, 2019). Given this unequal distribution, than a little unusual). AB brands is an outlier, in
it is beneficial to analyze the market on a segment- the sense that it is nearly totally privately owned by
ed basis as this perspective would elucidate profit the reclusive German Reimann family. The family
potential in underdeveloped market areas such as has an estimated net worth of $19 billion (Taylor
the EMEA geographic segment. & Yuan, 2019) and JAB generates an estimated $50
million in revenue (Owler, 2020). A debt to equity
The nature of competition experienced by the ratio is difficult to determine due to the opaque
Starbucks Coffee company was considered as part nature of JAB, but some information has surfaced
180 http://dx.doi.org/10.21511/im.17(2).2021.16
Innovative Marketing, Volume 17, Issue 2, 2021
that they may be using credit more aggressively to growth in sales over last year for Caribou. By play-
channel growth than in the past (Abboud, 2019). ing the role of foil to Starbucks Caribou hopes to
spark growth in the future. Regardless of different
Marketing resources and skills have developed marketing programs that could be recommended
significantly since the founding of Starbucks to Starbucks Coffee for implementation, anticipat-
Coffee. In the beginning, marketing campaigns by ed retaliatory moves by competitors may always
the coffeehouse tended to be focused on word-of- include the risks of imitation and underselling.
mouth influence that was based in the local com-
munities (Koehn et al., 2008). However, total mar- The environmental climate and conditions sur-
keting expenditures rose dramatically, especially rounding the Starbucks Coffee corporation are
in recent years. Advertising expenses alone totaled imperative to discuss within the context of a
approximately $260 million, $283 million, and situation analysis, especially given the current
$249 million in 2018, 2017, and 2016, respective- COVID-19 pandemic that has spread from Wuhan,
ly (Starbucks Coffee Company, 2018). In addition China to the rest of the world. According to the
to marketing resources, production resources are Johns Hopkins Coronavirus Resource Center
also highly developed under Starbucks Coffee. To (2020), there have been over 8,300,000 confirmed
enforce their leadership role in the quality coffee cases and 449,000 confirmed deaths worldwide as
industry, Starbucks Coffee operates nine farmer of June 18, 2020, with the United States being the
support centers, which function to promote best leading country in both of these metrics. Given
practices regarding coffee bean quality, coffee the severity of the pandemic, Starbucks Coffee
yield, and environmental sustainability (Starbucks was one of the first US chains to restrict dine-in
Coffee Company, 2018). service and convert the vast majority of its sales
to drive-through and delivery mediums (Haddon,
Although the competitive position of Starbucks 2020). In late April, Haddon (2020a) wrote that
Coffee is quite strong given the previous finan- there was a temporary period where approxi-
cial analysis, it is important to keep in mind es- mately half of Starbucks’ company-owned stores
tablished competitors have developed marketing in the US were closed. The other half remained
programs that may undermine this coffeehouse’s open, however were restricted to drive-through
market share. For example, there are a few op- and delivery services only. With the essence of
portunities for competitors to capitalize on po- the Starbucks Experience as a warm, welcoming
tential weaknesses within the Starbucks Coffee coffeehouse temporarily unavailable, it is impor-
infrastructure. Given the nature of the high price tant to keep this functional challenge in mind.
points of Starbucks product offerings, competi- Furthermore, Haddon (2020) noted that Starbucks
tors may be able to steal market share by imitat- Coffee would begin limiting partner hours to
ing the “Starbucks experience”, selling cheaper match pared-back operations as a result of the
coffee products, and targeting consumers who pandemic, reflecting the idea from top Starbucks
oppose the expansion of multinational corpora- officials that sales likely won’t bounce back to nor-
tions into international markets (Lombardo, 2019). mal figures in the United States until at least the
JAB has made interesting efforts along these lines upcoming fall season. Psychosocial and econom-
through its subsidiary brands “Peet’s Coffee” and ic considerations including consumer purchasing
“Caribou Coffee Company” as well. They have at- power, income, and morale should also be evalu-
tempted to pitch younger demographics on Peet’s ated. Given the pandemic and its negative effects
as a quirky, artisanal coffee brand that is aligned on unemployment, it is likely that consumers may
with cultural expectations of a youth movement. be more frugal with their spending. According to
(Monllos, 2018) Caribou has been positioned by its the U.S. Bureau of Labor Statistics (2020), the un-
marketers as a lovable underdog in the face of a employment rate in the United States was 14.7% in
gentrifying monthilith in the form of Starbucks. April 2020, up significantly from the 4.4% figure
Caribou hopes to undercut Starbucks by leverag- calculated just one month prior. Haddon (2020)
ing the latter’s growing reputation as a pretentious, states that Starbucks Coffee plans to close, ren-
inauthentic giant with slipping quality (Morrison, ovate, or move 400 traditional store locations in
2012). These efforts so far have resulted in a 3.4% the Americas in the next 18 months, in part due
http://dx.doi.org/10.21511/im.17(2).2021.16 181
Innovative Marketing, Volume 17, Issue 2, 2021
to the pandemic cutting company revenue by up up slightly from 2016 (Starbucks Coffee Company,
to $3.2 billion in the 3rd quarter of 2020. It is the 2018). In addition, packaged and single-serve cof-
company’s hope, alongside the hope of countless fees and tea can be considered to be in the intro-
companies across the globe, that the coronavirus duction stage of product life cycle development.
pandemic will be brought to an end so that eco- This is supported by the relatively low proportion
nomic growth and consumer spending can return of retail sales in company-owned stores in 2018, at
to normal once again. This hope is not entirely far- just 2% (Starbucks Coffee Company, 2018). Lastly,
fetched. Chinese-based Starbucks Coffee shops Starbucks Coffee is expanding its product mix by
are on track to experience same-store sales return introducing a new product line to stores: alcoholic
to growth by the end of this fiscal year, with the beverages. Alcoholic beverages, only recently intro-
US lagging slightly behind with a projected recov- duced as part of Starbucks Coffee’s new “Reserve
ery of growth sales by early fiscal 2021 (Moffat et Store”, can be considered to be in the introduction
al., 2020). Given the positive projections in the phase of development due to the novelty of the mar-
nearby future, these trends resulting from the in- ket offering. According to Neal (2018), the Reserve
ternational pandemic represent problems that are store that recently opened in late February of 2018
relatively transient in nature. contains a full bar that sells alcoholic beverages in-
cluding Italian cocktails, beer, wine, and spirits.
The stages of a product life cycle consist of prod-
uct development, introduction, growth, maturity, Common to 2018 was a relatively uniform trend of
and decline. Unique to the Starbucks Coffee prod- elevated operational expenses compared to previ-
uct mix, different products are currently residing ous years. Unfortunately, Starbucks Coffee indi-
in different stages. Most well-known of all prod- cated that there was a lower operating margin in
ucts offered, Starbucks coffee can be considered to 2018 compared to 2017, where the margin declined
be in the maturity stage, as it has been offered in to 15.7% from 18.5% (Pratap, 2019). Furthermore,
over 30 blends of specialty coffee since the compa- it was noted that total operating costs for the cof-
ny’s founding (Starbucks stories & news, 2020). In feehouse grew to $21.14 billion in 2018, approxi-
2018, beverages including coffee accounted for 74% mately 85% of total net revenue for that year and
of retail sales in company-owned stores, corrobo- up markedly from $18.64 billion in 2017. Factors
rating the claim that coffee is rightfully in a ma- such as market growth into China, higher restruc-
ture product life stage (Starbucks Coffee Company, turing and impairment costs, and growth in part-
2018). Importantly to note, cold drinks in particular ner salaries and work-related benefits all contrib-
have become highly successful in recent years. Cold uted to the higher operating expenses observed
drinks including iced coffees and lattes now ac- in the 2018 fiscal year (Pratap, 2019). Given these
count for approximately half of Starbucks Coffee’s elevated operational costs within the Starbucks
total beverage sales (Haddon, 2019). This success Coffee company in recent years, it is important to
in cold beverages may indicate a beneficial clue in recognize that the company is still quite capable of
terms of future product research and development covering the costs of supplying increased output
strategies. Given the high proportion of sales and in the form of effective marketing programs. This
market positioning, it is safe to assume that con- is evident by analyzing the comprehensive income
sumer knowledge of this product category is signif- in 2018 attributed to Starbucks Coffee ($4,343.6
icantly high. While coffee is the main product of- million), which is up significantly from the com-
fered by Starbucks Coffee company, there are other prehensive income of $2837.5 million in 2017
product lines that are offered which happen to be (Starbucks Coffee Company, 2018). In conclusion,
in different stages of development. Fresh food op- if effective marketing programs are identified and
tions that are marketed to consumers include baked developed, the cost structure of the coffeehouse
pastries, hot and cold sandwiches, salads, fruit cups, should have the means to fund these endeavors,
and oatmeal (Starbucks stories & news, 2020). Fresh despite recent increases in operational costs.
food can be considered to be in the growth stage of
product life cycle development, which is supported An effective situation analysis of Starbucks Coffee
by the fact that this product line accounted for 20% cannot be complete without a thorough discus-
of retail sales in company-owned stores in 2018, sion regarding the skills of the firm. Starbucks Inc.
182 http://dx.doi.org/10.21511/im.17(2).2021.16
Innovative Marketing, Volume 17, Issue 2, 2021
has more experience than any major competitor that Dunkin and JAB have been forced into a role
in the field in broad and aggressive marketing and of asymmetrical guerrilla warfare in attempts to
branding practices. They have a massive market- chip away at the Starbucks behemoth. Dunkin has
ing war chest and the financial health to fund am- a fiscal situation that is only comfortable for the
bitious long-term marketing projects (Geter, n.d.). most debt tolerant (Lock, 2020) and is therefore
They are a branding giant that stands out as a lead- not an immediate threat in matching Starbucks
er amongst all the largest US firms across indus- toe-to-toe in a conventional marketing war. The
tries. Starbucks likewise is pushing the technolog- JAB group is mysterious in exactly what resources
ical boundaries as a production leader in the food it has and is willing to commit to open market-
services sector. They have six centralized roasting ing conflict with Starbucks, but it has been quite
plants (Boyer, 2013) strategically located for ease creative and dynamic in maneuvering its smaller
of access to major US coffee markets. They also coffee brands around Starbucks. JAB leadership
have cutting-edge instant coffee production plants should therefore be commenced for their panache.
with the capability to produce 4,000 metric tons Additionally, some of the financial tactics em-
of instant coffee per year with manufacturing line ployed by JAB to jolt growth, including extended
flexibility by which production rates can be adjust- terms of trade (Almeida & Perez, 2018), are quite
ed upward by 50% with ease (Boyer, 2013). inspired and indicate innovative leadership.
While Starbucks has had some image issues with As previously mentioned, the financial resources
particular consumer demographics over the years of Starbucks Inc. are without equal in the entire
oftentimes associated with the effects of massive industry and will serve them well in times of open
corporate growth that has been the only significant marketing conflict. They have a very reasonable
issue that could be held against its leadership over current debt to equity ratio of 58.1% and therefore
an otherwise spectacular ascent from the obscure could take on debt up to a healthy limit of 1 or 1.15
regional enterprise into a global juggernaut astride to fund enterprises that exceed the available cash
the whole industry. The current strategic decision they have on hand. Once cash on hand has been
to shift to a more nuanced set of distribution for- exhausted loans can be taken and bonds issued.
mats has been rounding praised by critics/indus- Starbucks has a recent history of issuing bonds for
try watchers and is indicative of the robust lead- up to a billion dollars to fund various corporate
ership at Starbucks that can be relied on to imple- endeavors.
ment aggressive and bold marketing undertakings
(Bariso, 2020). The financial skills and leadership Distribution for Starbucks product offerings have
of the firm are beyond reproach. Starbucks cur- been via three main avenues: Starbucks brand-
rently has 2.76 billion in cash on hand (Mullaney, ed stores, brick and mortar retailers such as gro-
2020), 26.5 billion in revenue (Lock, 2019), and cers and convenience stores, and online retailers
a 58.1% debt-to-equity ratio (Yu, 2020), meaning (such as Amazon). There has been a small subset
that it is an enterprise built on a firm fiscal bed- of non-branded Starbucks stores, but they have
rock and prepared to properly finance ambitious not been distributing Starbucks branded products.
expansionary marketing strategies. In addition, there are variations of the Starbucks
branded stores with small kiosks embedded in
Starbucks has been committed to research and de- other retailers or facilities existing alongside full
velopment with efforts in improving production layout “traditional” Starbucks establishments. The
and growing techniques (Rochman, 2018) and new strategy of pivoting to more take-out/pick-up
also testing new distribution and consumer-fac- format locations while reducing traditional loca-
ing environments via stealth test pilot locations tions is an important trend in channel structure.
(Oppmann, 2014). Starbucks maintains a favora- Proprietary Starbucks mobile apps are adjuncts to
ble advantage over its main competitors, Dunkin in-store purchases and merely enhance conveni-
and JAB Brands, in terms of skills in the preced- ence and engagement.
ing areas. As the industry leader by a wide mar-
gin ahead of second and third place Starbucks has Starbucks already has major access to all signifi-
successfully defended their lead so voraciously cant channels of distribution, but how does prof-
http://dx.doi.org/10.21511/im.17(2).2021.16 183
Innovative Marketing, Volume 17, Issue 2, 2021
itability vary from one to the next? Purchases in tomers temporarily lost that local coffeehouse
Starbucks branded stores are the most individual- feels that they consistently return for. Though not
ly profitable commercial interaction for Starbucks the only thing that brings customers to Starbucks,
because they control all elements of the supply/ providing this well-rounded customer experience
disruption chain. Online sales and sales through was lost during the pandemic and will continue to
other physical distributors can be lucrative but be incomplete until the world completely reopens.
are less profitable due to margins imposed by the Starbucks must also thoroughly reconsider the
distributors. One might think that it would be- thought process of their customer base post-COV-
hoove a firm of Starbucks’ clout to acquire their ID-19. Will customers be as likely to enter their
own controlled online distribution channel, but busy stores after the global pandemic? Will cus-
Starbucks did have this previously and found it tomers opt for competitors offering similar prod-
untenable (Oppmann, 2014). The competition be- ucts at a cheaper price after the 2020 Coronavirus
tween online sales and sales via other physical re- Recession? Starbucks must be aware of extensive
tailers for the distribution of Starbucks products market competition and unstable environmental
is legitimate since they are both selling the same conditions as key problems for their firm.
product mix of canned/bottled beverages and
home brew coffee. Thankfully for Starbucks, their The key opportunities for Starbucks are their
branded stores have no direct channel competi- fierce R&D and, although paradoxically also list-
tion for the distribution of freshly prepared drinks. ed as a key problem, the current environmental
Therefore, it is very feasible to use all three of these conditions. As previously stated, Starbucks has
channels to simultaneously profitably drive busi- long been ahead of their closest competitors in
ness. Promotion marketing considerations may be the R&D space. Being able to stay a step ahead of
considered that are well aligned for the tradition- the competition in terms of product development,
al grocer and online distribution channels. Due growing techniques, brand awareness, and cus-
to the difference in products offered at Starbucks tomer experience have long been how Starbucks
branded stores, promotion considerations can be maintains customer loyalty. Looking ahead, espe-
custom tailored here as well without the risk of cially in the near future, a strong research and de-
promotional conflict across channels. velopment department will continue to be imper-
ative for Starbucks’ success. This ties into the idea
With a complete comprehensive situation anal- that the current environmental conditions could,
ysis, the key problems and key opportunities of alternatively, be a key opportunity for Starbucks.
Starbucks were properly identified. The key prob- Because of the current conditions surrounding the
lems for Starbucks exist in the form of competi- global pandemic, many companies are scrambling
tion and current/near-future environmental con- to analyze their current strategies and redefine
ditions. Because they operate in such a heavily their business models for a post-COVID-19 world.
saturated market, Starbucks’ largest problem and If Starbucks can utilize its strong research and de-
potential risks as a firm are related to their vast velopment abilities, they may be able to strategi-
competitors. With the large players like Dunkin’ cally place themselves in a superior position rela-
acquiring a significant chunk of the market share tive to their competitors as the world approaches a
and every family-owned coffee shop looking to full reopening. Current environmental conditions
attract Starbucks’ loyal customer base and retain are an incredibly important point for Starbucks to
their own, Starbucks must strive to remain com- consider. How they handle these challenges will
petitive as other firms seek to encroach upon their determine if the situation becomes a key opportu-
sales. In addition to the competition, Starbucks nity or a key problem for the firm.
must remain aware of the environmental condi-
tions now and in the near future. As the fallout After taking a comprehensive look at the key prob-
of the COVID-19 continues to burden compa- lems and key opportunities for Starbucks, on bal-
nies internationally, Starbucks is no exception. As ance, the situation is very favorable for Starbucks.
COVID-19 forced shutdowns of many Starbucks Starbucks has matrixed a complex corporate struc-
locations across the globe and changed the oper- ture that supports not only its survival but its con-
ating procedures of many others, Starbucks’ cus- tinued development even in an increasingly dense
184 http://dx.doi.org/10.21511/im.17(2).2021.16
Innovative Marketing, Volume 17, Issue 2, 2021
http://dx.doi.org/10.21511/im.17(2).2021.16 185
Innovative Marketing, Volume 17, Issue 2, 2021
ers that sell these products. Diversifying product amount they are willing to spend on luxury, un-
delivery is essential during these interesting times necessary goods like Starbucks’ product offerings.
because there is not a complete understanding of To combat consumers leaving for a competitor
what the post-coronavirus consumer market will with similar products at a cheaper price (Dunkin’,
look like. In terms of promotion decisions, this McDonald’s, etc.), Starbucks may wish to consider
is one of the categories that Starbucks stands to changing price decisions. A temporary lower price
gain the most from. Reconsidering the branding, level or modified price variation may lead to bet-
budget, message, and media usage make all the dif- ter customer retention in populations looking for
ference when navigating the current complex en- a cheaper alternative. In terms of customer rela-
vironment and making consumers feel comforta- tionship management decisions, Starbucks does
ble with the new post-pandemic customer experi- not have much to change. Starbucks already has
ence. Price decisions are another important factor a successful customer loyalty program in place
for Starbucks to consider in the near future. Given with Starbucks rewards. One way they could
that the global pandemic has unleashed a signif- modify their present customer relationship man-
icant financial burden on many people interna- agement in the current environment would be to
tionally due to a multitude of factors (unemploy- offer special discounts/promotions specific to the
ment, increased expenditure on childcare, etc.), post-COVID-19 consumers through the platform
many consumers may be more limited as to the of their well-developed customer loyalty program.
CONCLUSION
After careful consideration of the situation analysis, identification of problems and opportunities, and
evaluation of alternative marketing strategies, it is now pertinent to formulate a decision on the fate of
the Starbucks marketing strategy. Starbucks exists as a mature firm and, on balance, the current mar-
keting situation is very favorable. Despite setbacks from the COVID-19 global pandemic, Starbucks
has continued to grow as a firm for decades and has the strong rooting to survive well past the current
environmental conditions. Starbucks should continue its current product line and make minimal prod-
uct changes. Assuming consumers will continue to purchase their products at the existing price line/
variation, and that price changes should be minimal. Starbucks should continue its current customer
relationship management procedures. While product, price, and customer relationship management
decisions are minimal, Starbucks must take this opportunity to revisit its distribution and promotion
decisions to maximize potential in the near post-COVID-19 market. This necessitates an increase in
the intensity of distribution for products that have remained successful during the pandemic period,
and a reevaluation of the firm’s distribution to wholesalers and retailers to best fit the current environ-
mental conditions. Shortly, it may be in the best interest of the corporation to expand their pick-up and
delivery services across the Americas, China/Asia Pacific, and EMEA geographic segments to capture
consumers who are weary of any potential risk associated with interpersonal in-store interactions with
Starbucks partners and/or other consumers. Additionally, Starbucks should strongly consider bolster-
ing its brand positioning and increase store locations in underdeveloped geographic market segments,
particularly EMEA, given the disproportionate revenue distribution reported in 2018. Starbucks must
utilize its vast forms of promotional outlets (social media, branding, advertisements, etc.) to project
strength, unity, and consistency as they approach a reopening world.
AUTHOR CONTRIBUTIONS
Conceptualization: Conner V. Lombardi, Neejad T. Chidiac.
Data curation: Conner V. Lombardi.
Formal analysis: Conner V. Lombardi.
Investigation: Conner V. Lombardi, Neejad T. Chidiac.
Methodology: Conner V. Lombardi, Neejad T. Chidiac, Benjamin C. Record.
186 http://dx.doi.org/10.21511/im.17(2).2021.16
Innovative Marketing, Volume 17, Issue 2, 2021
REFERENCES
1. Abboud, L. (2019, February 13). shops-are-now-starbucks-dunkin- The Wall Street Journal. Retrieved
JAB’s appetite for deals could or-jab-brands/ June, 2020, from https://www.
lead to credit rating downgrade. wsj.com/articles/starbucks-logs-
7. Cierzan, G. (2019, September first-quarterly-sales-drop-in-
Financial Times. Retrieved June,
17). What Brands Can Learn 11-years-11588105804
2020, from https://www.ft.com/
from Starbucks’ Expansive View
content/85f9198a-2fc2-11e9-ba00- 14. Haddon, H. (2020b, June 01).
Of Customer Loyalty. Martech
0251022932c8 Starbucks Reduces Worker Hours to
Advisor. Retrieved June, 2020, from
2. Adams, P. (2018, October 03). How https://www.martechadvisor.com/ Reflect Pared-Back Operations. The
Starbucks and Cole Haan grow articles/customer-experience-2/ Wall Street Journal. Retrieved June,
brand loyalty through product what-brands-can-learn-from-star- 2020, from https://www.wsj.com/
innovation. Marketing Dive. bucks-expansive-view-of-customer- articles/starbucks-reduces-worker-
Retrieved June, 2020, from https:// loyalty/ hours-to-reflect-pared-back-opera-
www.marketingdive.com/news/ tions-11591042330
8. D’Costa, K. (2011, August 11). The
how-starbucks-and-cole-haan- 15. Haddon, H. (2020c, June 10).
Culture of Coffee Drinkers. Scientific
grow-brand-loyalty-through-pro- Coronavirus Speeds Up Starbucks
American. Retrieved June, 2020,
duct-innovation/538750/ Shift to Takeout. The Wall Street
from blogs.scientificamerican.com/
3. Almeida, I., & Perez, M. G. (2018, anthropology-in-practice/the- Journal. Retrieved June, 2020, from
January 30). Buy Now, Pay Later culture-of-coffee-drinkers/ https://www.wsj.com/articles/
Helps JAB Billionaires Build coronavirus-speeds-up-starbucks-
9. Fromm, J. (n.d.). Why Starbucks is shiftto-takeout-11591790405
Beverage Empire. Retrieved June,
Still Number One With Millennials.
2020, from https://www.bloomberg. 16. Han, H., Nguyen, H. N., Song, H.,
Millennial Marketing. Retrieved
com/news/articles/2018-01-30/ Chua, B., Lee, S., & Kim, W. (2018).
June, 2020, from http://www.mil-
buy-now-pay-later-helps-jab-bil- Drivers of brand loyalty in the chain
lennialmarketing.com/2014/02/
lionaires-build-beverage-empire coffee shop industry. International
why-starbucks-is-still-number-one-
Journal of Hospitality Management,
4. Bariso, J. (2020, June 11). Starbucks with-millennials/
72, 86-97. https://doi.org/10.1016/j.
Just Announced a Drastic Change.
10. Geter, T. (n.d.). What is Starbucks ijhm.2017.12.011
What Every Company Can Learn
Marketing Strategy? OSI Affiliate.
From It. Retrieved June, 2020, from 17. Haskova, K. (2015). Starbucks
Retrieved June, 2020, from https://
https://www.inc.com/justin-bariso/ Marketing Analysis. CRIS – Bulletin
www.osiaffiliate.com/blog/star-
starbucks-pickup-is-a-smart-covid- of the Centre for Research and
bucks-marketing-strategy/
related-adjustment.html Interdisciplinary Study. https://doi.
11. Greenspan, R. (2019, February 27). org/10.1515/cris-2015-0002
5. Boyer, K. (2013, September 20).
Starbucks Corporation’s Marketing 18. Harris, R. (2015, July 28). Why
Behind the Scenes at Starbucks
Mix (4Ps) Analysis. Panmore Starbucks is winning at loyalty.
Supply Chain Operations it’s Plan,
institute. Retrieved June, 2020, from Marketing. Retrieved June, 2020,
Source, Make & Deliver. Supply
http://panmore.com/starbucks-cof- from http://marketingmag.ca/
Chain 24/7. Retrieved June, 2020,
fee-marketing-mix-4ps-analysis brands/why-starbucks-is-winning-
from https://www.supplychain247.
com/article/behind_the_scenes_ 12. Haddon, H. (2019, October 30). at-loyalty-152974/
at_starbucks_supply_chain_opera- Starbucks Gets a Lift From Iced 19. Johns Hopkins coronavirus
tions Coffee. The Wall Street Journal. resource center. (2020). COVID-19
Retrieved June, 2020, from https:// Map. Retrieved June 18, 2020, from
6. Brown, N. (2019, October 25).
www.wsj.com/articles/starbucks- https://coronavirus.jhu.edu/map.
Nearly Four of Every Five US Coffee
posts-higher-profit-as-u-s-sales- html
Shops are Now Starbucks, Dunkin’
strengthen-11572466893
or JAB Brands. Daily News Coffee. 20. Koehn, N. F. (2005). Howard Schultz
Retrieved June, 2020, from https:// 13. Haddon, H. (2020a, April 28). and Starbucks Coffee Company.
dailycoffeenews.com/2019/10/25/ Starbucks Logs First Quarterly Boston, MA: Harvard Business
nearly-four-of-every-five-us-coffee- Same-Store Sales Drop in 11 Years. School Publishing.
http://dx.doi.org/10.21511/im.17(2).2021.16 187
Innovative Marketing, Volume 17, Issue 2, 2021
188 http://dx.doi.org/10.21511/im.17(2).2021.16