Short History of the Starbucks Company: Foundation
The video “How Starbucks Became an $80B Business” describes the marketing strategies used by Starbucks throughout its history. Nowadays the sales of Starbucks account for 57 percent of the total coffee market, but it was started from only one coffee shop in Seattle. The video tells the story of the company from the very foundation to nowadays. This paper aims to reveal the marketing strategies used by Starbucks and reflect on their effectiveness.
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Starbucks was founded in 1970 by Zev Siegl, Jerry Baldwin, and Gordon Bowker. They also hired Alfred Peet, an expert in the area of coffee-making, which allowed the creation of unique blends and flavors. In the beginning, Starbucks was a coffee shop and a roastery. There were no actual coffee drinks, as in the 70s there were no coffee-to-go shops. Thus, the market niche of coffee drinks that could be sold directly to the customers was totally unoccupied.
Thus, at the very beginning, the company was just a coffee bean store, but later, in 1984, it started to sell coffee drinks. To my mind, this was a very effective strategy, as it is much easier to start a business in a clear market than in a saturated one. Although it takes much effort to create a unique product and launch the production and marketing processes, the customers seek innovative products and concepts.
Aggressive Expansion Strategy: Keeping the Balance
In the late 80s and 90s, the company followed the strategy of aggressive expansion, increasing the number of stores. Thus, by 1990, their number reached 165, and the chain continued to grow. It proved to be very effective, and the chain has expanded to other countries. Between 2000 and 2007, the number of stores increased fourfold to over 15 thousand. The sales increased from $2 billion to $9.4 billion.
Facing the Crisis
However, in 2007, the crisis made the customers refuse the expensive coffee. The rapid growth has ceased, and the company stock price has plummeted by 50 percent. The company brought back Howard Shultz, who previously was the company’s Director of Marketing and Sales and then bought Starbucks. Shultz has changed the strategy by shutting up a number of stores and concentrating on the customer. He launched the process of instructing baristas so they would make the coffee-consuming process a genuine experience. The assortment of products was increased, as the stores started to sell sandwiches and some new kinds of coffee. This attracted the customers, and the sales started to grow. To my mind, this was an effective strategy in the situation of an economic crisis. Shultz’s decisions helped reorganize the stores in a way that they started to attract customers despite the fact that Starbucks coffee is expensive.
Nevertheless, the strategy that first proved to be effective, led to the problem of profit cannibalization. The urban markets started to be over-saturated with Starbucks stores. Thus, the number of customers per store ceased to grow despite the overall sales volume not decreasing. The customers did not have to be loyal to one store. Besides, their preferences started to change, as the trend for healthy eating made people refuse to over-sugared and high-calorie coffee. The company replied to that challenge by closing a number of stores and changing the menu, creating more light beverages. Opening a brand-new format of stores, Starbucks Reserve Roastery has become a marketing experiment. It allowed to create a luxury “halo” around Starbucks and to offer the customers a new experience and innovative recipes. This strategy seems to be effective, as it puts the brand in a higher light among consumers.
‘How Starbucks Became an $80B Business.” YouTube, uploaded by CNBC, 2021. Web.
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