Starbucks Business Model

Starbucks Corporation is an American company, which was founded in March 1971 by three people who met in college (Baldwin, Siegl and Bowker). Although its headquarter is based in Seattle, Washington, the company operates in more than 23,700 locations worldwide as of 2016 with more than 22 billion USD in sales.

Starbucks considers itself as a premier coffee marketer, roaster and retailer. It is well differentiated among other coffee-serving venues by the quality products they provide, and most importantly, the customer experience they create. It was not until the 1990s when Starbucks witnessed tremendous growth to become the number one coffee retailer across the US if not the world. This is because Howard Schultz, who purchased the company chain for around 4 million dollars, decided to replicate the feel he got to experience in Italian coffee shops during his trip to Italy. This trip inspired him to bring that social experience to the American society and the rest of the world later on. His marketing and business expertise detected the opportunity of utilizing the customer experience he wanted to create. As a result, he went through several strategic adjustments including adding several products to the menu, enhancing the employees’ relationship with the company and providing a comfortable and personal seating to customers.

A business model describes how a business creates a customer value, how it delivers it, and how it captures value. People today go to Starbucks not only because of the coffee, but also for the experience they can get. The unique value propositions Starbucks is offering depends on the customer segments it targets. For instances, Starbucks offers unique coffee quality drinks for coffee affection a dos. As for professionals, Starbucks offers a place between home and office, a place where a business meeting with colleague/partner can take place. Starbucks also creates an atmosphere for students and young adults to hang out, meet with their friends/classmates and even do their homework.

The main channels used by Starbucks to sell their products and services are through their own official or partner/merchandised stores in almost 70 countries. However, other channels such as supermarkets, airports ventors and hotels are being used as channels to reach more customers and increase the sales. It’s been argued that Starbucks’ vending machines have failed to deliver the Starbucks experience one can get in a store; such as chatting with the barista about life in general. But one cannot get that experience in a busy, hectic store atmosphere anyway.

Starbucks maintains a close, personal and long term relationship with all its customer segments who integrated the brand into their lifestyles. It created a sense of loyalty among members who can now use their loyalty card and mobile apps for payment. The creation of value propositions is due to the intensive key activities that are taking place within Starbucks chain. This include effective marketing communications, efficient supply chain management, intensive R&D and all other activities that are related to the maintenance of their stores. These key activities are supported by three main key resources. First, its own people (employees, suppliers, and customers) who are loyal to the company due to the way they are being treated, its brand that has proven to be one of the most valued in the world, and all the equipments, accessories, packing and bottling plants that Starbucks have.

Starbucks costs structure not only is associated with delivering coffee as a product, but also delivering a unique customer experience. In addition to raw material costs such as milk and coffee, huge portion of the costs are linked to its marketing and R&D activities, rent of stores and building, and costs associated with its own people such as salaries, health packages. However, its revenue stream comprises mainly in-store sales of coffee, pastry or accessories. Starbucks also generates revenue from its online sales of instant coffee, and merchandising agreements and partnerships worldwide.

There is no doubt that Starbucks has succeeded in utilizing the opportunities offered by emerging markets such as Mexico, Brazil, India and China; however, there still is room of potential growth in these markets. Introducing local products and tailoring services to meet local customers’ needs, tastes and lifestyles are essential factors to dominate the emerging markets. Furthermore, Starbucks should build up on the variety of products it offers (such as tea, juice and the healthy snacks) as customers tastes tend to shift towards healthier product offerings. To keep and encourage their loyal customers, Starbucks has introduced the “Starbucks mobile apps”, where one can order and pay before arriving to the store. This helps customers save time and avoid all the waiting lines. Having said that, these services are only offered in few countries including the US, Starbucks should invest in introducing similar services worldwide to maintain their relationship with their loyal customers.

In conclusion, Starbucks is not just about the coffee, but it’s about the experience created through the people, the product and the place. The coffee smell, the friendly staff, the relaxing music, the nice decor and the comfy sofas and armchairs- all contributed to a strong loyal following from Starbucks customer segments.

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