Starbucks Coffee Company originated in 1971 as a small coffee house in SeattleWashington. Over the years, Starbucks has grown into a global company offering its exclusive brand coffees in domestic and international markets. Unfortunately in recent years, increased competition and market saturation has caused the company to re-evaluate its business strategies often leading to the closure of many of its stores in many recently expanded areas.
This business problem and optional proposal is designed to address the issues Starbucks is facing as a result of the increased competition and market saturation in the coffee industry. Using statistics to remedy the issue, Team C will develop a hypothesis to study using an appropriate sample pool as well as primary and secondary data sources. The outcome of the research will result in a final recommendation related to the problem and the hypothesis that was tested.
Subject ProblemIncreased competition and market saturation has caused Starbucks Coffee Company to reevaluate its business strategies in order to eliminate the closure of many of its stores in recentlyexpanded areas. Consumers are feeling the prices in their pocket and are mindful of the next dollar they spend.
Dependent and Independent VariablesA recent slump in sales and revenue has forced the coffee powerhouse company Starbucks to close several hundred stored over the last year and upcoming moths. The new sales plummet will be the dependent variable in our research of the independent variables and their effect of the overall sales.
When looking at Starbucks many recent events can be attributed to its sales drought such as the huge unemployment which can be defined as our independent variables. The first independent variable to consider is the over saturation of Starbucks’s locations across the country. Each Starbucks location needs a certain amount of profit to stay open, thus several locations will have to resort to closing their doors. With Starbucks popularity early on it opened the door for other competitors such as McDonald’s to serve a premium roasted ice coffee for a cheaper price. Also with the gas prices being steady and the economy trying to rebuild itself from this financial state it doesn’t seem economically to purchase a $4-$8 cup of coffee when you can get a similar product from McDonald’s or your local convenience store.
Populations of InterestsThe two populations of interest that Learning Team C will be focusing on will be the consumers for cold coffee. The cold coffee market has grown with Starbucks being on the higher end and McDonald’s cold coffee being on the lower end of the market. We will show the comparison of these two companies’ consumers and how the overall market has been effective by the economy.
Proposed Sources/Resources for Data CollectionFor a primary research source for Starbucks, data can be collected from market surveys,teleconferencing interviews, consumer questionnaires and focus group sessions by directlycontacting customers. Other information can be derived from sampling techniques and statisticalmethodologies which are documented to be 1 percent of the market profitable value. Secondaryresearch sources are in the form of data which has already been collected in preceding researchstudies. Examples include reports, press released articles, and initial market research projectsthat eventually arrive at a conclusion, governmental agency studies, and trade associations.
Sampling methods to be used in researching the two hypotheses will be in simple random sampling and cluster sampling. Samples of customers will be asked to take a survey in different regions and areas of the market. The samples will include an assortment of populations including various age, race, career and education levels.
Primary and Secondary DataPrimary resource data includes Starbucks’ mission statement that indicates “Our Commitment to Being a Deeply Responsible Company Contributing positively to our communities and environment is so important to Starbucks that it’s one of the six guiding principles of our mission statement.” (Starbucks, 2008) The effort that Starbucks exudes is a positive one and working together with each employee helps them to create the above-average approach that they are known for.
Analyzing surveys that were generated at the local Starbucks indicated that even though the price of Starbucks has rose in price, consumers are still willing to buy that product, especially when a competitor like McDonald’s sells it, as long as it bears the name Starbucks.
The observations that have been analyzed are that Starbucks is known for providing a relaxing experience which can rival those of fast food restaurants. Starbucks has been known to modify their stores to embrace the coffee experience to entice consumers from every walk of life in local communities and throughout the world.
“One of the benefits of combining primary research with secondary research is in the area of data triangulation. Data triangulation is when a piece of data, a finding, or a generalization is able to be verified with several different research methods.” (Driscoll, 2006) For example, when conducting a study on how many college students drink Starbucks coffee, results indicate that “Coffee drinking appears to be on the rise, and this might not be a fad. The Dallas Morning News recently wrote an article about a specific new trend in cold coffee. In a Sept. 4 article, staff writer Teresa Gubbins says we have a “love affair with hot coffee.”(Cooper, 2003)In this experiment, of the students interviewed, 57 percent of them reported to be coffee drinkers. Fifty-five percent had not been regular coffee consumers before college, and admitted they picked up the habit once they arrived at SMU.
Because college is such a drastic change in atmosphere, schedules, class loads and stress, many students rely upon coffee as a solution to get them through the day. “I started drinking coffee because I cannot stay awake in class without it,” sophomore Shunta Richardson said. Fifty-nine percent of students said they prefer Starbucks coffee. “I drink Starbucks coffee because there are so many stores all around the country. No matter where I go I can trust that my favorite drink will be there,” junior Tyler Torres said. “(Cooper, 2003)Using secondary data sources, it is necessary to look at what kind of future Starbucks is facing. They also need to ask themselves some questions, such as should they launch new products considering the trend of the health conscious? How will Starbucks market new products and continue to keep the price down? Starbucks must also look at the demographics of the target market to ensure the validity of concern.
Starbucks must also research and use forecasting in an effort to predict future revenue. “Forecasting long-range predictions are essential to allow sufficient time for the procurement, manufacturing, sales, finance, and other departments of a company to develop plans for possible new plants, financing, development of new products, and new methods of assembling.” (Lind, Marchal & Wathen, 2004)Sample SizeStarbucks has become a well-known company for selling the highest quality coffee beans and best tasting coffee products around the world. Starbucks was one of the first companies to realize that the real money to be made was in beverage retailing, not just coffee beans. What makes Starbucks coffee stands out from the other corporations is the roasters of Starbucks coffees are extensively trained for one year before they start the production of the coffee. Starbucks is the only competitor in the coffee market that has a recognized brand image.
Starbucks have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean coffees for their faithful coffee drinkers. Starbucks stores operated in most metropolitan areas of the United States and have a direct mail business to serve customers in every state. One of Starbucks competitors for the premium roast coffee is McDonalds which they offer a similar product for less than the cost of Starbucks. This has posed a problem for a great deal of Starbucks retailers because customers these days are very conscious of their spending habits and figure why pay the cost of Starbucks when they can get the same product from McDonalds for a lesser cost. The sample sizing consisted of a group of 100 which the first group of 50 is Starbucks customers and the other 50 were McDonald customers.
Customer surveys are one of the tools that can quantify the process and use of such tools are important to determine the need for a product and changes. The surveys can measure whether or not the marketing plan is effective, or if it needs to be repackaged and delivered in a different fashion. The initial choice of a quick, yet descriptive questionnaire is paramount to gather needed information. Starbucks and McDonalds need to identify their customers, what are they willing to pay for this product and how do they rate the premium roast coffee. For each customer at Starbucks and McDonalds every 10th customer can complete the survey and receive 10% off their next purchase.
Below would be questions that would be included in the survey for Starbucks and McDonalds customers:•How often is premium roast coffee purchased? (daily/weekly/monthly)•What is your specific age bracket? (under 18/ 18-24/ 25-44/ over 45) •Where do you make your purchases? (restaurant/grocery store/mail order)•What is the cost that you are willing to pay for premium roast coffee? (less than $2/ $2 – $4/ Over $4)•What brand of premium roast coffee do you purchase? (Starbucks/McDonalds/other competitor)As you can see statistics can play an important role when making decisions. A manager at one of these companies can reduce the unexpected, and potentially costly, variances when making business decisions. Starbucks coffee is much expensive than McDonalds but Starbucks puts time and money into their product which ultimately increases the cost. Most consumers are excited about the competition of premium roast coffee such as McDonalds because of the low cost yet faithful customers to Starbucks because of the quality. When uncertainty is reduced better conclusions can be drawn that will minimize risk and maximize profit gain.
Sample SelectionThe team examined secondary data within this business problem analysis, which can save a firm time and money by using publicly available information as well as information already in the firm’s database. If the company had already conducted research of the best markets within its regions and area of influence, the company would be smart to use this when deciding how to downsize its stores. While using secondary information is cost effective, the use of secondary data must be carefully considered and used only when applicable to the research question. Starbucks will need to gather accurate and reliable secondary information, which can either be sub-contracted out to a firm that specializes in market research or it can form an internal research team to explore opportunities which will start to present themselves as the company begins to downsize. A key concern for the validity of data is the age of the data.
All the data is sensitive to the effect of time so any action being taken by the company must account for the changing nature of the environmental landscape. One questions that Starbucks should ask its internal or external research team is, “How does the coffee market change once the Starbucks brand is not as strong as it used to be?” Another question would be, “What types of aftermath will come with coffee saturation in the fast food markets, will customers want quality over quantity?” Starbucks should use accurate, reliable and timely data in its decision-making processes going further. The company would be surprised to see that opportunities will arise even within the decrease of its stores. An example of this type of opportunity occurs when customers get tired of fast food production of coffee, Starbucks can offer extended hours at its current stores to maximize on profits.
The team used demographic data within this analysis in which data was collected from Starbucks clientele through various surveys. Although demographic data will change and cultural habits may differ from town to town, the selection of cities with a vibrant coffee drinking base improves the odds of matching consumers that prefer Starbucks premium product line versus that of McDonalds or any other new rival.
In an effort to hear from the people who matter the most, Starbucks should look to survey frequent, occasional and without a doubt new customers. When selecting age and gender criteria to survey, the team used careful consideration and attention was paid to all age groups. However, in an effort not to taint the results of this analysis, the team found that typically, pre-teens are neither decision makers, nor do they possess the spending power required for Starbucks products on a continued basis. Therefore, pre-teens were omitted from the sample.
Although the teenagers have about the same spending power as pre-teens Starbucks does offer an atmosphere and products in which the company could use in the future as an opportunity. This age group was left in the surveyed population as the team conducted its analysis. Gender was annotated as a means to direct creative marketing and capitalize on the different sexes. Although the research team was efficient in its attempts to give Starbucks the best information available, statistical testing cannot prove the viability of Starbucks’ alternate hypothesis so company executives must weigh the test results using the wealth of professional experience possessed by the Starbucks’ organization.
Corporate Social Responsibilityhttp://www.starbucks.com/aboutus/csr.aspCraving a caffeine high, SMU opens Java City on campus as coffee houses battle to attract students off the Hilltop, by Melissa Cooper, retrieved on the internet at http://media.www.smudailycampus.com/media/storage/paper949/news/2003/01/16/News/Craving.A.Caffeine.High-2273665.shtmlStarbucks Case Study (2007).