Ever wondered, what is Starbucks’ business model? Is there more to the delightful coffee experiences? Yes, there is and I will be covering that and so much more in this article. Read on!
While Starbucks has become a status symbol, I truly love the brand for the rich delicious coffee varieties on its menu. I also love the tastefully designed space in each of their stores. Starbucks has some of the most beautiful coffee shops I’ve ever seen. The brand has completely changed my conventional thinking of a coffee shop.
Starbucks’ business model involves a people-centric approach that, I believe, is what has enabled the business to establish so many stores. Starbucks has mastered the art of sustainable competitive advantage by attracting and retaining premium super spenders who not only see but also feel the value for their money.
Starbucks’ Customer Segments
The customer segmentation by Starbucks is between 25 and 50 years old with high incomes. The second segment they target is eighteen to 24 years of age including the university students and the fresh working-class who belong to richer families. Most Starbucks customers belong to the young generation who are seeking high-quality coffee options. Behavioral segmentation shows that Starbucks customers belong to the upper-middle-class customers who have the purchasing power over the products they sell.
Starbucks’ marketing strategies straddle between mass marketing and segment marketing; they’re targeting a broader public. However, they realize growth opportunities within the industry and set strategies to cater to a wider array of the market segment. Starbucks has also structured its markets by selecting the shop location for coffee lovers in affluent areas.
The coffee giant has positioned itself as a place where customers relax, gather, and interact with each other. It’s a mass-market approach designed through distinct marketing and product programs for the different segments. They use their services without compromising on quality to aggressively grow. The brand’s competition is no longer other cafes but businesses that meet and exceed higher customer expectations.
Starbucks’ Value Propositions
The business is anchored on five major values:
Starbucks constantly designs innovative products for its customers. The brand is usually finding new ways to grow and excite its customers by challenging the status quo and exploring new recipes.
Starbucks uses only high-quality beans and trained roasters to prepare them. The coffee chain does not compromise on quality and that sets them apart in the market.
The brand has understood that the 21st-century customer loves convenience. Customers can order their coffee through the app, avoiding lines at the stores. Information on all products is additionally readily available on its website.
Where it involves variety, Starbucks is the king. It offers 30 blends of coffee and they can be served in a million ways. They even have a wide range of sandwiches, pastries, tea, smoothies, and salads among others.
The company has invested largely in creating a standard look and feel for its stores, merchandise, and food and drinks in every area they operate. The Starbucks Siren logo is one of the most famous logos in the coffee industry around the world. Starbucks features a powerful brand that is dominant in all their products, also seen as a synonym of quality.
Starbucks’ Customer Relationships
Starbucks strives to provide customers with comfort and peace at their stores. Their goal remains customer satisfaction to their best ability. The company realizes that marketing involves building strong relationships with customers. Not only does one get free Wi-Fi and the chance to hang out in comfy chairs, but they supply you with cups bearing your name and never forget your order. You may also stay at a Starbucks store for hours on end without being subject to ugly looks by the management. That way, the brand has cultivated a base of loyal customers.
Going against rigorous and sophisticated customer surveys, Starbucks has chosen casual and informal chats with customers to capture the overall mood, understand their experience with the shop and gather valuable feedback. The corporate operates a website called ideas.starbucks.com, where customers can leave ideas for the corporate to expand and improve its products and customer experience, improve engagement with the community and enhance social responsibility. This permits customers to voice out questions, comments, and feedback on their opinions on Starbucks. This empowers Starbucks to progress with the assistance of customer responses, consequently resulting in a higher level of overall satisfaction.
The brand also features a sizable social media and digital presence, which has received renewed focus in recent years. This has been driven by the necessity to better engage with customers and also be visible on platforms where the target or future customers spend time online.
Starbucks also provides cards that are a part of the Starbucks Rewards Loyalty Program. These cards seem to have worked well with many customers. They have become a marketing success story, with well over eight million U.S. participants.
Starbucks’ Revenue Streams
The bulk of Starbucks’ revenue comes from the sale of beverages (around 60%), especially coffee ones. Food is the second-highest revenue source, standing for 18% of the entire revenue generated. Other revenues also come from royalty and licensing incoming, consumer-packed goods, beverage-related ingredients, server ware, and food service which accounts for 14% of the entire revenue. This includes sales from grocery stores, convenience chains, and other beverage selling places that stock Starbucks products. Packaged and single-serve coffees & teas generate rock bottom revenues, representing 8% of the entire. In simple terms, Starbucks makes money by retailing coffee, tea, food, and other ready-to-drink beverages in its company-operated or licensed stores.
Essentially, Starbucks makes most of its money from its company-operated stores: the segment makes 81.5% of total revenue ($22.4B), which is almost ten times its licensed stores’ revenue. However, it’s fair to highlight that licensed stores have shown the highest revenue growth.
Starbucks’ Key Partners
The company has formed relationships with various customers, businesses and non-profit organizations, that have helped them in creating positive change. Starbucks also extends ownership to its employees through shares. Essentially, Starbucks workers are allowed to own a stake in the company and hence the name, Starbucks Partners.
Although the pros and cons of this employee benefit and Starbucks’ motivation behind the offer were widely debated, it again defined the organization’s intent to travel against the norms.
As highlighted in the company’s annual report for 2018, Starbucks capitalizes on the expertise of its local partners and shares in their operating and store development experience.
Each of those relationships has proven to be useful as they each bring a certain set of diverse skills and expertise to the table. By fostering these relationships, Starbucks has been ready to come up with innovative ideas that help promote its ideas of ethical sourcing, community involvement, and more.
To make relationships central to their content, a number of the companies/ businesses that Starbucks has formed relationships with include:
- Abyssinian Development Corporation
- Multicultural Foodservice and Hospitality Alliance
- National Recycling Coalition
- American Red Cross
- Association of Post-Consumer Plastic Recyclers
- Business for Social Community
- Calvert Foundation
- Food Service Packaging Institute
- Coffee and Farmer Equity (CAFÉ)
These partnerships make Starbucks bigger than coffee. They position Starbucks as a forward-thinking cafe that strives for a better world. When customers buy from the brand, they’re invited to the journey and participate in making a difference.
These commitments have helped to add purpose to its brand.
Starbucks’ Cost Structure
The company’s cost structure is simple. Starbucks costs relate to production, distribution and marketing operations. These costs are structured into two; fixed and variable costs.
Fixed costs are expenses the company incurs whether they make profit or not. They include rent, taxes and insurance. For example if one store fails to make sales, they will still be required to pay store rent.
Variable costs can easily be controlled by the company. They include cost of raw materials (coffee beans, plastic cups) and labor costs (e.g. barista salaries). For example if the company decided to reduce amount of coffee in a cup, they can make latte with few coffee beans hence lowering the variable cost. The company incurs variable costs in the entire production process.
Starbucks’ historical operating costs are declining, thanks to business growth and efficient cost management.
Is Starbucks a sole proprietorship?
No. Starbucks is a public limited company with shareholders.
Does Starbucks have franchise model?
Starbucks does not franchise. Instead, the company issues licenses to operators who can adopt the brand name and menu.
Why is Starbucks not a franchise?
The company owns all its stores in order to maintain the universal Starbucks values.
How much does Starbucks make in a day?
About $61.3 million factoring in the company’s $22.39 billion in annual sales, and dividing it by the number of days in the year.
Is Starbucks considered a corporation?
Yes, its operations are independent of the owners.
Which type of business strategy is Starbucks using?
Product differentiation and a customer-centric approach.