This article is part of our Business Strategies series, an insight and analysis into the makeup and model of some of the world's most successful startups.
Why order a medium black coffee with two sugars when you could order a grande half-vanilla, decaf espresso heated to 100 degrees with non-fat milk and caramel-drizzle-on-top latte? After all, this is the type of beverage you could not order at your typical coffee shop, unless, of course, your local happens to be Starbucks.
Indeed, many major chains have attempted to emulate the Starbucks business model through unique varieties of opulent java, the likes of which wouldn't look out of place in Paris or Rome. But the Seattle-based coffee giant remains number one, revolutionising the coffee shop culture and bringing corporate social responsibility (CSR) to the forefront of their operations.
To explore how the one-time coffee bean merchants became an international juggernaut, we've analysed Starbucks' business strategy – a model that goes far beyond brewing and selling coffee – as well as what you, as a business owner, can learn from it.
- Founded: March 1971
- Founders: Jerry Baldwin, Zev Siegl and Gordon Bowker
- Headquarters: Seattle, WA, USA
- Current CEO: Kevin Johnson
- Global Employees: 291,000 (December 2018)
- Type: Public (Floated June 1992)
- Key Products / Services: Coffee, beverages and food
To inspire and nurture the human spirit — one person, one cup and one neighbourhood at a time.
Starbucks Mission Statement
To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.
Starbucks Vision Statement
Founded in 1971 by three college students, Starbucks – named after the chief mate inMoby Dick– began life as a coffee roasting venture, before acquiring their primary coffee bean provider, Peet's, in the early 1980s.
The business rode the wave of speciality coffee sales during this decade, expanding to six stores in the Seattle area, before selling the brand to former employee Howard Schultz – the man who would transform and define the company as we know it today.
Starbucks' Business Model
According to the Fortune 500 list of largest US corporations by revenue, Starbucks is ranked 132nd. But does the company really generate billions in revenues and profits by just selling coffee and food?
On the surface, yes. According to its corporate reports, the company makes most of its money by offering these products at its 14,000 locations and 15,000 licensed shops. However, it also maintains a dependable revenue stream by selling ready-to-drink beverages, packaged coffee, and branding rights worldwide.
The company does an excellent job of drawing in customers and – crucially – keeping them there. Each of the chain's 28,000+ branches are designed to be relaxing and welcoming, offering free Wi-Fi, appealing aesthetics and, of course, the alluring aroma of freshly brewed coffee.
Starbucks also invests a lot of money into customer service, offering in-depth training and career progression opportunities to its employees. These staff members are not only learning how to brew non-fat, iced skinny mochas with light ice; they are also training to be personable and knowledgeable about the brand. The company makes a real attempt to recruit bright, motivated individuals, offering a plethora of benefits to its baristas, including stock options and tuition. Even in an industry where staff turnover is notoriously high, Starbucks employs an intelligent and effective retention strategy.
Like all good chains, it strives for consistency, too. Whether you are in Boston or Barcelona, Starbucks aims to ensure the same brand experience for every customer.
Indeed, although the company relies primarily on coffee for its revenues, the true value of Starbucks is this sense of experience. The company is not selling just beverages; it is selling a participatory experience to its patrons. By commodifying the European cafe culture and translating it to North America in the 1980s and 1990s, Schultz created an entirely new market.
This concept has been deemed 'the Starbucks Experience', and intimates that you are not paying the company to drink their coffee; instead, you are paying to drink a coffee at Starbucks. This is central to the company's initial and maintained success, as no matter how much competitors such as McDonald's or Tim Hortons try to create a comparable atmosphere with fireplaces and lounge chairs, many consumers believe that nothing can replace the original – regardless of how the coffee tastes.
Howard Schultz | Former CEO and Chairman
No one person has arguably been more responsible for the meteoric rise of Starbucks than former CEO (and current chairman emeritus) Schultz. Hired as head of marketing and operations in 1982, the former office equipment salesman took and implemented the coffee culture he had observed on his travels to Europe, emphasising the importance of the experience as much as the coffee itself. He was also responsible for striking numerous partnership and collaboration agreements with hotels, food retailers and, most famously, bookstores, identifying the potential for Starbucks to expand and diversify beyond its own stores.
Kevin Johnson | CEO and President
Personally recruited by Schultz as his successor, Kevin Johnson has been the company's CEO since April 2017 – with shares surging by 60% during this time.
He has also advocated heavily for social change among its workforce, promoting paid parental leave for staff among other initiatives. The former COO has advanced the company's CSR strategy by partnering with various non-profit organisations while, from a corporate standpoint, he has scaled back several of Schultz's ideas (including the experimentation of Starbucks Reserve Roastery cafes that contributed to slow growth for its primary stores).
Overall, Johnson's goal is to innovate beverages, expand the brand's reach into China, and improve customer service.
Starbucks' Branding Strategy
In 2007, Starbucks spent a little over $100m on advertising. More than a decade later, it is spending closer to $300m, employing a multi-faceted brand strategy that goes beyond reminding everyone that it is still here.
It generally maintains five key branding tactics:
A Consistent Brand Experience
Starbucks invests in quality-based differentiation and customer service that has customer orientation and brand equity in mind. In other words, you know that if you spend your hard-earned money on a Starbucks product, you will have a positive experience every time.
An Ethical Brand Reputation
A long-term element of the company's brand strategy has involved employing policies that enhance its CSR initiatives. Instead of importing coffee at the cheapest possible cost, for instance, it has adhered to the principles of fair trade and embraced ethical sourcing. The Fair Trade programme supports farmers who have been certified to offer fair wages and safe working conditions, while ethical sourcing involves the importing of goods that are created and distributed in a fair, responsible, and sustainable way throughout the supply chain.
This is a vital part of the company's appeal, especially for environment-conscious millennials and Generation Z consumers.
Whether it's a cup of coffee, an iced cappuccino, a brownie, or a tote bag, the company endeavours to promote quality in everything that it sells.
Merchandising is an integral part of Starbucks' marketing strategy, as it helps to maintain customer retention and improve satisfaction. The company's iconic logo is printed on a diverse array of merchandise, such as apparel, tumblers, notebooks, and even music.
Unconventional Marketing Measures
One of the more interesting aspects of the company’s marketing strategy is its lack of conventional advertising. It has refrained from investing in television spots, billboards, and print advertising, yet still generates a hefty dose of popularity and publicity.
It has done this by investing in local communities, sponsoring hundreds of millions of dollars in college scholarships, for instance. It has also put significant emphasis on its social media outreach; on Twitter alone, it has 11.2m followers and engages with its audience through a mix of polls, customer stories, quotes, and promotions.
As far as Starbucks is concerned, if you are selling coffee, then you are a competitor. Among its primary rivals, though, are other established chains, including:
- Tim Hortons
- McDonald's (McCafe)
- Costa Coffee
Although the first three names on this list may not be primarily known for their coffee, they are still established chains that sell in-demand basic coffee at a low price. They have modelled (or remodelled) their approach to emulate Starbucks, too, evident in the impressive décor renovations that are designed to invite – and keep – more people inside their locations and boost foot traffic. Ten years ago, McDonald's was simply a fast-food burger joint; now, many consumers go there to catch up with friends or even meet with business associates over a coffee.
This isn't anecdotal, either. For example, McDonald's has invested nearly $1bn to renovate most of its Canadian locations (although the return on investment (ROI) is arguable, as same-store sales are lagging). Dunkin', meanwhile, is spending more than $100m on freshening up its locations, with revenue, operating income and earnings per share targets all being met.
Lavazza and Costa Coffee are running a similar model to Starbucks (albeit with different mission and vision statements, as well as different geographical targets), but it is the rise of these already established players that Starbucks should perhaps be most wary of.
Starbucks' Company Culture
Starbucks is a unique corporation because what you see in its stores is what you can expect at its corporate offices. The organisation aims to maintain a culture of diversity, inclusion and belonging that is ubiquitous at its coffee shops and offices. This is evident in its human resource development as it strives to adopt collaboration and communication, institute a relationship-driven approach to business, and put forward a servant leadership model. Again, this is true at both Starbucks locations and offices.
The primary challenge for the company in this regard is a practical implementation of these HR concepts among licensees and franchisees, since business partners might have their own ideas on HR management and cultural development. However, Starbucks fosters the initiative of building on desirable behaviours and attributes, with partners seeing that if these aspects are working, then why change them?
"This relatively subtle approach has far more power than an unfocused 'culture initiative', writes Paul Leinwand, a global managing director at PwC, in theHarvard Business Review. "It lets people bring their own emotional energy to an enterprise where they feel they have a stake – and thus leverages the company's culture to bring its strategic identity to life".
From the supply chain to human resources management to front-line staff, everyone shares the common goals of customers first, and premium quality products and service.
What is fascinating about Starbucks is that every company in different sectors can mirror its approach to business. By now, it is evident that the coffee giant is all about the customer experience, in a similar (albeit differently executed) way to Amazon.
This is not a coincidence. The Starbucks and the Amazons of this world have become successful through stable leadership, high-quality products and services, and innovative marketing endeavours. For Starbucks, the visionary outlook of Schultz was integral to this, but it still comes down to the premium coffee served with a smile behind the counter.
Starbucks had competitors when it started, and it has competitors now. The difference, however, is that Starbucks took – and continues to take – a different slant to its business model. Consumers not only purchased coffee, but they also bought unique beverages and sat down in a relaxing coffee shop to read, work on the next great American novel or converse with friends and family. After all, that can often be the trick for any business to stand out in a crowded market: take a unique approach to a conventional concept, or, as Schultz himself put it, represent more than just a cup of coffee.
In the meantime, if you're looking for more strategy inspiration, be sure to check out our in-depth analyses of Apple, Netflix and Uber!
Was this article helpful? What are your thoughts on the Starbucks business strategy? Let us know your thoughts in the comment section below!
What do you learn in the strategy of Starbucks? ›
Starbucks business strategy can be classified as product differentiation. Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality.What can we learn from Starbucks social media strategy? ›
Starbucks embraces all kinds of feedback and consistently engages with their customers. Their personalized replies and friendly-tone shows that they listen to and care about their customers. By being willing to take customer suggestions and ideas, they build their user's confidence in their company.What was Starbucks business strategy elaborate on your answer? ›
Their brand strategy is built around two main pillars: customer experience and quality. Starbucks has increased the perceived value of its brand by providing a unique, consistent “Starbucks experience.” As a result, customers are willing to pay a higher price for a cup of Starbucks coffee.What is there about Starbucks strategy that can lead to sustainable competitive advantage? ›
A well-built and run supply chain is the one that makes sure that a customer receives a good cup of quality coffee on time. Starbucks uses a vertically integrated supply chain controlling every step from sourcing the coffee beans to serving the cup of coffee to consumers.Why Starbucks strategy has been so successful? ›
The company has successfully built a loyal customer base due to the strategies it has set in place. Brand extensions, strategic locations, focusing highly on the customer experience, and the great ambiance have greatly impacted the success and growth of Starbucks throughout the years.What are three main marketing strategies used in Starbucks? ›
- Product: High-quality products justify the premium pricing. ...
- Price: Starbucks sells their coffee at least 25% higher than other brands. ...
- Promotion: From social media to TV to ads– the company uses various channels for marketing its products.
Use a Multi-Channel Promotional Strategy. Starbucks predominantly uses its website, social media channels and in-store displays to promote the brand and the products. It also uses sales promotions, events, direct marketing, print media, and PR in an integrated manner to multiply the impact of its promotions.What are 3 benefits a social media strategy can bring to a company? ›
Benefits of social media for business
attract customers, get customer feedback and build customer loyalty. increase your market reach, including international markets. do market research and reduce marketing costs. increase revenue by building customer networks and advertising.
Concept. Starbucks has done extraordinarily well in creating a concept where everyone can have a great experience drinking coffee in an inviting ambience. Starbucks has a customer-centric culture. They see the business from the perspective of the guest.What is the business goal of Starbucks? ›
Our mission to inspire and nurture the human spirit – one person, one cup, and one neighbourhood at a time. Today, with more than 32,000 stores in 80 countries, Starbucks is the premier roaster and retailer of specialty coffee in the world.
What is Starbucks main message? ›
In everything we do, we are always dedicated to Our Mission: to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.What is Starbucks business concept? ›
Starbucks aims at building customer loyalty through its in-store customer service. A signature retail objective of Starbucks has always been to provide customers with a unique Starbucks Experience. Service training is a key component of the value chain that helps to make its offerings unique.What is the strategy adopted by Starbucks to reach more customers? ›
Promotion. Starbucks uses a large variety of channels to market their product from social media to TV spots and ads. It's their mix of marketing media that makes their brand recognizable, and it's the consistent message that comes across every time that makes them stand out.What types of growth strategies has Starbucks used be specific? ›
Unit # Written Homework Assignment P-3-2 Starbucks has used three types of growth strategies, which are concentration strategy, vertical and the diversification strategy. Starbucks used the concentration strategy by renovating coffee, tea, juice, and bakery experience by serving cold/hot any time, and day.What makes Starbucks different from its competitors? ›
How Does Starbucks Differentiate Itself From Competitors? Starbucks differentiates itself by creating a "third home" value proposition. In addition to home and work, the company strives to have a welcoming, warm location for customers to consume their products.What model does Starbucks use to be successful? ›
The business model of Starbucks is entirely based upon the company the offer provides to its customers and architecture and networking partner for the creating, delivering and marketing value formulated from valuable revenue streams.What is Starbucks biggest opportunity? ›
Starbucks has the opportunity to develop partnerships and alliances with major firms. This would strengthen its presence and market share.Does Starbucks strategy seem to set it apart from rivals? ›
Starbucks has managed to differentiate itself from competitors by creating the unique value proposition of becoming the “third place” for customers, after home and the workplace. Purchasing a cup of coffee became an “affordable luxury” and an experience in itself.
There are generally 3 (sometimes broken into 4) Types of Business Strategies: Organizational (Corporate) Strategy. Business (Competitive) Strategy. Functional Strategy.What are Starbucks key selling points? ›
Starbucks unique selling point
The unique selling proposition for Starbucks is simple enough: “Love your beverage or let us know. We'll always make it right”. Starting off as a small coffee shop in Washington, Starbucks had a long way to go in order to become one of the most recognised brands in the world.
How marketing strategy helps business become successful? ›
A marketing strategy refers to a business's overall game plan for reaching prospective consumers and turning them into customers of their products or services. A marketing strategy contains the company's value proposition, key brand messaging, data on target customer demographics, and other high-level elements.How do business have a successful marketing strategy? ›
- Segmentation. Your existing and potential customers fall into particular groups or segments, characterised by their 'needs'. ...
- Targeting and positioning. ...
- Promotional tactics. ...
- Monitoring and evaluation. ...
- Marketing plan.
The importance of marketing for your business is that it makes the customers aware of your products or services, engages them, and helps them make the buying decision. Furthermore, a marketing plan, a part of your business plan helps in creating and maintaining demand, relevance, reputation, competition, etc.What are 3 benefits of digital marketing strategies? ›
- Global Reach. Traditional marketing is restricted by geography and creating an international marketing campaign can be hard, expensive, as well as labor-intensive. ...
- Local Reach. ...
- Lower Cost. ...
- Easy to Learn. ...
- Effective Targeting. ...
- Multiple Strategies. ...
- Multiple Content Types. ...
- Increased Engagement.
A social media strategy will help you map out a plan to stand out from the crowd, build an audience of activated and informed followers, and create an environment where you can take leads and massage them through the buying cycle, from awareness to consideration to purchase phase.How does Starbucks keep their employees motivated? ›
Gaining knowledge and being able to perform their job well is a basic intrinsic motivation. In addition, Starbucks provides performance-related payment so the more employees contribute to the business, the more they get paid, which motivates employees to work more to gain more money.What are key business objectives? ›
Business objectives are the specific, measurable results that companies hope to maintain as their organisation grows. When you create a set of business objectives, you focus on specifics. This means analysing, assessing, and understanding where you are now and where you want to be in the future.What is the Starbucks long term strategy? ›
Last week, Starbucks announced it will invest $450 million next year to enable “greater efficiency” and “reduced complexity” in its North American stores. The company also plans to add 2,000 new net stores in the U.S. by 2025, boosting its reach across cafes, pick-up, drive-thru and delivery.What is the best reason why Starbucks so popular? ›
Starbucks is popular because it provides a welcoming, ambient space to enjoy its drinks. While comparatively expensive, Starbucks' drinks offer affordable luxury from a coveted brand. The company's strategic digital strategy, limited edition drinks, and app add to its allure.What can we learn from Howard Schultz? ›
Schultz had experienced financial insecurities and helplessness in his childhood. He believes in making a difference in every way he can. Thus, he contributes in every way in giving back to the society, in whichever manner possible.
What is the overall purpose of Starbucks? ›
To inspire and nurture the human spirit - one person, one cup and one neighborhood at a time. With our partners, our coffee and our customers at our core, we live these values: Creating a culture of warmth and belonging, where everyone is welcome.What inspirational strategies implemented by Schultz at Starbucks? ›
Schultz knew he had to develop referent, expert and position power in addition to his legitimate power role as the CEO of Starbucks. He used the tactics of shared benefits, consultation and collaboration, emotional calibration and consistency to motivate his new employees.How did Howard Schultz motivate employees? ›
Schultz had motivation to develop a massive company and, more prominently, a vision of supporting his employees. He instituted new programs to support workers(opens in new tab), including health benefits for part-time workers, tuition assistance, veterans hiring and an employee stock purchase program.How did Howard Schultz make Starbucks successful? ›
The Success of Starbucks under Schultz's Leadership
Schultz's strategy was simple: focus on high-quality coffee, create an inviting atmosphere for customers, and keep prices low. This combination of quality and affordability helped Starbucks become one of the world's most popular chains.
Gaining knowledge and being able to perform their job well is a basic intrinsic motivation. In addition, Starbucks provides performance-related payment so the more employees contribute to the business, the more they get paid, which motivates employees to work more to gain more money.What is the key to Starbucks success? ›
Several key success factors exist for Starbucks, a leader in the coffee industry. They include marketing, expansion, innovation, recruitment and training, and brand/image/experience. Starbucks' initially positioned itself within the market by using high quality and large variety.