Starbucks Analysis

In the early years of Starbucks, the firm executed efficiently on a strategy that focused on the needs, wants, and perceptions of the consumer. The firm designed stores that were unique and comfortable and placed great emphasis on the interaction of Starbucks “partners” (employees) with consumers. This was evidenced by the friendly nature of many Starbucks employees and their dedication to remembering the drink orders of loyal customers. Many Starbucks are also places of great activity and energy early in the morning.

All of these factors, some more related to product delivery and some to service delivery, played a role in creating greater perceived value in the minds of consumers. There are multiple indications of this perceived value, one being the consumers’ willingness to pay high prices for a product that is readily available from many other outlets. Another illustration of the perceived value in the Starbucks experience is the number of repeat customers they receive. All customers quickly recognize how many customer drinks the employees at Starbucks already know. Even if it were a customer’s first visit to Starbucks, it is fairly likely that the employees will know what someone, in front of that customer or behind that customer in line, is drinking.

Mr. Schultz is justifiably worried about the commoditization of the Starbucks experience. When a firm has significant success and profitability while at the same time growing an existing market, they can expect many new competitors that will try to commoditize their product or service to varying degrees. While the coffee market is far from new, Starbucks reinvigorated this stagnant market. Starbucks early strategy might have been characterized as both a revision of existing products and a repositioning.

The barriers to entry for Starbucks competitors are relatively minimal and Starbucks is seeing increased competition from existing firms like Dunkin’ Donuts as well as new entrants on a national scale, like Caribou Coffee and Peet’s. There are essentially no switching costs for Starbucks customers making the commoditization of the Starbuck’s experience a serious threat.

Mr. Schultz has recognized the threat of new competition and the commoditization of the Starbucks experience. With a renewed focus on re-creating and/or strengthening the unique customer experience that Starbucks provides, we should expect Starbucks will have success in protecting their position in the market.

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