Starbucks Case Study

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Conner A

Intro to Business

3/26/2013

Case Study

Consumer Behavior in the Coffee Industry

Did you know one franchise alone dominated an entire payment-processing market in just one year? You might have heard of this giant company by the name Starbucks. Howard Schultz, CEO of Starbucks, had a significant role in the company’s growth. Starbucks has steadily dominated the coffee market and has even extended to being a 3rd home for many of its consumers.

Based in Seattle, Starbucks had significant competition when it opened its first store in the Pike Place market in Seattle, yet still managed to become superior. Starbucks used new advertising tactics and presented a unique experience for its customers, all of which was a game changer in the business world.

Starbucks was created when three friends opened a small store to sell coffee beans and roast in 1971[1]. Jerry Baldwin, Gordon Bowler and Zev Siegl opened their store in the heart of the unique open air market in downtown Seattle. Located just off the harbor, Pike place market was the optimal location and attracted many residents and tourists. After ten years of incredible growth, Jerry Baldwin hired Howard Schultz as head of management.

When Schultz first started, he slowly learned the coffee industry and helped made subtle but significant changes. For example, Schultz noticed that “first-time customers sometimes felt uneasy in the stores”[2] so he developed “customer-friendly sales skills and produced brochures that made it easy for customers to learn about fine coffees”2 Schultz had the vision of making Starbucks a coffee lounge versus a bar after being inspired by eastern traditions. Even though he did not agree with the new direction, Baldwin allowed Schultz to open one espresso bar and in 2 years, Schultz was able to buy out Baldwin and equity owners with the help of investors in 19921.

Howard Schultz initially saw the power of consumer behavior early on when he realized Starbucks began to be a social gathering mecca for people instead of just an espresso stand. When Schultz first noticed the ‘seismic change in consumer behavior,’ he adopted a free-Wi-Fi service and mobile payment service and noticed that Starbucks began to attract people as if it was a third home for coffee enthusiasts. Although he jokes about not getting rent from consumers, it allowed Starbucks to create an online-experience in their ‘3rd home’ which was unique to the coffee scene in the United States. With scheduled deliveries and privatized ad networking, Starbucks was maximizing its profits and allowing an experience for coffee enthusiasts that did not make them feel locked-into paying.

This shift in consumer behavior was in response to the cultural need for a place between home and work. As social beings, humans thrive for an excuse to hang out and socialize or participate in a community environment. This amazing experience that Starbucks supplied needed to be fine-tuned like any business plan.

Like any business, Starbucks had challenges, such as their management of spending. In an interview entitled Business Brilliant, Schultz said that too much was focused on the customer instead of the infrastructure. To improve this, Schultz developed a unique experience in the store with the paired pastry-drinks and released free Wi-Fi for customers. In addition to free-Wi-Fi, mobile payments allowed consumers to avoid lines and continue their private work in the confines of the lounge. Soon Starbucks was thriving and announced that “the opening of 150 new stores in five years significantly exceeded the 1987 business plan’s objective of 125”[3].

Like every company, Starbucks faced unique issues in their business which slowed down growth initially which in effect slowed down growth in the long run. Schultz attributed the biggest hold-back in the long run to...
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