Starbucks: Reasons for Success

Introduction

As noted by such authors as Kuo (2021), company business models and strategies form the core of their commercial success. As many spheres are characterised by severe levels of rivalry between firms, even strong brands need to focus on building sustainable competitive advantage. According to Kuncoro and Suriani (2018), it can be built upon unique resources, strengths, and brand characteristics as well as the targeting and positioning choices ensuring good customer-brand fit. This may be especially significant for service-oriented firms where superior consumer experience and positive associations with the company image substantiate premium pricing and differentiation strategies (Maleyeff, 2022). This essay aims to explore the main reasons for Starbucks' success in its niche. It is achieved via the analysis of its strengths, weaknesses, positioning strategies, and brand characteristics in the following sections.

Company Background

Starbucks is a company operating in 80+ countries that was founded in 1971 (Bussing, 2021). Its range of offerings includes coffee beverages, pastries, ground coffee, bottled coffee drinks, ice cream products, and multiple other products. From an ownership standpoint, the company owns most of its coffee stores and restaurants in its areas of long-term presence. At the same time, it offers franchise agreements to entrepreneurs in many developing markets in order to minimise its internationalisation risks (Pijl et al., 2020). The key values of Starbucks include the creation of a culture of belonging and warmth welcoming every customer. This is also reflected in its mission statement implying the intention to nurture and inspire the human spirit. Within the scope of the Brand Identity Prism, these elements reflect a traditional quality-oriented brand personality and culture combined with a sincere commitment to building personal and long-term relationships with its customers (Amit and Zott, 2020). In terms of self-image and reflection, Starbucks is targeting persons interested in premium product experiences delivered in a socially responsible and ethical manner.

The company was called one of the most customer-centric socially responsible brands in the world in multiple past ratings due to a number of factors (Wei et al., 2020). On the one hand, it organises a lot of contests including multiple White Cup competitions. The winning designs were used for limited-edition products with Starbucks providing full coverage of such artistic submissions. In addition to the stimulation of user-generated content, this strategy allowed the brand to build stronger ties with its community of followers. Starbucks also posted annual updates about the careers of the winners, which was positively received by social media users and showed the genuine care of this company for its loyal customers and fans. On the other hand, this brand invested substantial resources in its corporate social responsibility initiatives covering all phases of its product development and manufacturing (Gozdan and Sudolska, 2021). They span from specialised training provided to farming households to extensive food bank donations in the markets of its presence. As thousands of producers can sell their products to Starbucks directly at Fair Trade prices and 60% of Starbucks stores support the aforementioned initiatives, this provides an explanation of the brand’s premium pricing and positioning (Grant, 2021). Since a large share of its profits is forwarded to charitable means, its fans are willing to contribute to these initiatives through their purchases in order to ‘make the world a better place’.

The following SWOT table summarises the strengths, weaknesses, opportunities, and threats that are directly related to how does starbucks measure their success.

Figure 1: SWOT

Based on: Cha and Jo (2019, p.3); Hague (2019, p.294); Hitt et al. (2019, p.192)

 

Starbucks Competitive Strategy and Unique Service Proposition

From the standpoint of Porter’s generic competitive strategies, Starbucks is adhering to the differentiation approach (Massingham, 2019). It involves the production of high-quality products that offer unique brand experiences, which excludes them from price-based rivalry in the mass-market segment. As a result, consumers develop higher levels of loyalty and have higher perceived switching costs if they have to change their preferred brands. This strategy is realised via several key elements forming the unique service proposition of Starbucks. First, the company offers highest-quality coffee products with superior taste (Collins and Kanashiro, 2021). Starbucks consumers are willing to experiment and try different offerings from its vast range since all of them will provide a premium experience. The company also provides a wide range of bottled beverages and takeaway/delivery offerings. This way, its clients can take the ‘Starbucks experience’ to their homes and brew their coffee drinks outside of company restaurants. With many supermarkets presently offering canned beverages, the analysed company utilises all available marketing channels to deliver its offerings to its prospective and existing buyers.

Second, the main business idea behind Starbucks restaurants was the concept of ‘the third place’ (Ernst and Haar, 2019). They represent a location where people can meet while not being at home or at work. Their convenient location near popular transport hubs facilitates such meetings and socialisation. At the same time, well-trained personnel members offer support and ensure superior customer service. Additionally, restaurant interiors allow people to relax and enjoy their drinks. This concept was later expanded by Evenings Stores where visitors could enjoy a special menu during evening hours (Jargon, 2018). Effectively, this transformed coffee stores focused on morning commuters and lunch break customers into semi-traditional restaurants serving various meals as well as alcoholic beverages. This concept further supported the ‘third place’ giving visitors an opportunity to stay for longer periods of time and enjoy socialisation. As Starbucks customers get used to the offerings provided by the company during any period of the day, this further strengthens the aforementioned consumer lock-in effect and brand loyalty.

Third, the Starbucks experience involves a strong corporate social responsibility statement (Fraser et al., 2021). On the one hand, the brand’s CSR strategy relies on ethical sourcing, responsible relationships with local communities, and caring for the environment. This involves volunteering services, Fair Trade initiatives support, the provision of education and training in developing countries, and direct food donations. The company also has a specialised Starbucks Coffee Academy allowing brand partners, employees, suppliers, and other stakeholders to learn how they can become more environmentally and socially responsible. On the other hand, Starbucks implements a range of measures reducing its carbon footprint and waste volumes in the regions of its presence (Laasch, 2021). They include water and energy consumption optimisations as well as the use of recyclable and biodegradable packaging. The company also seeks to engage its clients in these initiatives by offering such programmes as ‘Use Your Own Cup’. Any customer can bring their own reusable item that does not need to be purchased in-store. Moreover, this step leads to discounts and loyalty reward points even if the cup contains branded elements of other coffee stores being company competitors. This approach shows the genuine attempt of Starbucks to make the world a better place even at the expense of a small share of their immediate profits.

Fourth, Starbucks is actively embedding innovation in all of its operations while also ‘going where its customers are’ (Yang, 2020). On the one hand, it has fully adopted the digital-first and mobile-first mentality of consumers that only got stronger during the COVID-19 period. Any user can install a Starbucks app, win loyalty reward points by playing games or preload money on their account within it for future orders. From a convenience standpoint, this means that a person can order their beverage of choice for a particular time and instantly pick it up (Kotabe and Helsen, 2020). This option is equally beneficial for introverted customers feeling ill at ease with traditional orders over the counter where waiters ask them to share their name and busy individuals wanting to drink their coffee on the go. On the other hand, it is actively using emerging threats as opportunities (Jin, 2021). For example, the pandemic was deemed as the optimal time to experiment with the aforementioned pickup-only ideas. As a result, Starbucks enjoys both in-store customers interested in the full and personalised brand experience and clients willing to save time and avoid this form of contact.

 

Starbucks Segmentation, Targeting, and Positioning (STP)

In terms of segmentation, Starbucks is primarily interested in medium- and high-net-worth individuals living in urban areas (Fahy and Jobber, 2022). While they may belong to diverse age groups ranging from 22 to 60 years old, their psychographic profile usually reflects middle-class or upper-class lifestyles. They seek to differ from the rest and want to enjoy their hard-earned rest by consuming best-quality products in comfortable and relaxing environments. These consumers are also interested in promoting the greater good and caring for the environment. From a targeting standpoint, Starbucks is primarily interested in developed markets with good levels of customer purchasing capacity (Ferrell et al., 2021). Its restaurants are usually open in urban areas with good traffic. In the cases when such options are not available, it prioritises international airports and tourist attractions for opening its outlets. In terms of its positioning approach, Starbucks seeks to differ from the rest by using the differentiation strategy that is also adopted by such famous brands as Apple (Fader, 2020). Every restaurant seeks to become ‘the third place’ for consumers. This includes free Wi-Fi services, comfortable environments allowing them to spend hours in a relaxed state, and a wide range of offerings including evening menus. The ethical image of the brand is further supported by its charitable initiatives and social responsibility programmes including military veteran recruitment, helping refugees, and offering education and career opportunities to young people from disadvantaged backgrounds.

 

Conclusion

It can be summarised that Starbucks' success is ensured by a combination of brand characteristics, strengths, competitive strategies, and STP decisions (Laasch, 2021). First, the company promotes its benefits as ‘the third place’ offering a home-like experience to visitors moving between their offices and their homes (Ernst and Haar, 2019). In combination with smart location choices, this facilitates socialisation and allows customers to meet each other more conveniently. Second, Starbucks offers a wide range of products across multiple distribution channels (Fahy and Jobber, 2022). Company consumers can enjoy their beverages and pastry at restaurants or order delivery/takeaway services. Additionally, canned beverages, ice cream, snacks, ground coffee, and other products can be found at popular supermarket stores. This allows consumers to enjoy their Starbucks experience anywhere without physically visiting company restaurants. Third, the brand uses a differentiation strategy to support its premium pricing (Fader, 2020). In addition to high-quality products and unique in-store experiences, it realises many CSR initiatives. This allows its customers to feel that they support a company willing to make the world a better place. Finally, Starbucks uses innovation and flexibility to promptly adjust to any new trends and market challenges (Jin, 2021). Its introduction of digital-first and mobile-first solutions allowed it to survive the COVID-19 pandemic and win new customer categories interested in delivery and takeaway orders.

 

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