Conventional Business Model:
STARBUCKS BUSINESS MODEL
Starbucks & Vertical Integration
Howard Schultz calls Starbucks’s business model “vertical integration to the extreme,” because the company buys and roasts all its own coffee and sells it through entirely company-owned stores.
Why would Starbucks vertically integrate?
- One the negative side, you have a lot of dependencies and there is a great risk of stagnancy in a dynamic market-place.
- The more people you have working for you and the more business-units you have to manage, the higher the complexity level and the more layers are necessary in a command-structure. Therefore everything happens much slower and is also much more expensive.
Starbucks, the core-competencies is quality coffee which it sells at a premium prices. The company is immensely vertically integrated for one purpose alone, maintaining perfect quality throughout the value-chain.
Starbucks is able to ensure a constant supply of coffee beans at a cheaper price with the farms it purchased.
They do not need to depend on a distribution channel for its products to reach the market as it sells its products in its own stores.
Starbucks has successfully integrated backwards through:
- Purchase Agreements with Coffee Growers
- Company Owned Bean Roasting Plants
- Company Owned Warehousing & Distribution Facilities
- Coffee Bean Farm in Costa Rica & China
Purchase Agreements with Coffee Grower
They have agreements with grower in 3 main growing regions: Africa/Arabia, Latin America and Asia Pacific.
Starbucks is committed to 100% ethically sourced beans that come from farmers who abide by Coffee and Farmer Equity (C.A.F.E.) Practices.
In 2013, Starbucks purchased a 600 acre coffee bean farm. The new farm will facilitate with research and development to offer new hybrid coffee beans and study specific diseases that are devastating the coffee bean crops.
Roasting & Warehousing Plants
Starbucks has many plants across US and the world.
Starbucks has successfully integrated backwards through its company owned stores that sell food, drink, coffee beans, appliances and accessories.
By controlling the value-chain, you can control the experience and maintain the level of quality much better than if you are dependent on external partners.
In the world of coffee, this is an issue when dealing with suppliers in developing nations with varying standards of quality.
Based on Jim Harvey’s speech structures
Starbucks has many plants across the United States that deals with coffee beans and full leaf tea.
• In 2008, sales and traffic had begun to slip for the first time in its history as a public company
• Direct competition from Peets and Coffee Bean increased
• Cheaper alternatives from McDonalds and Dunkin Donuts
• Recession has affected customers’ willingness to spend
• Greater risks in expansion and creating new value innovation
• Continuously building a strong relationship or partnership between Starbucks and social networks
• Constantly making attractive, inspiring, memorable and interesting social media campaigns (both commercial and cause-marketing) to generate buzz to its products and website in order to attract potential customers
• Ability to spot and tackle bad publicity from bloggers or influencers promptly so it won’t compromise Starbucks’ brand reputation
• Ability to address complaints immediately and continually scan the social media environment to avoid bad issues that can go viral
• Keep using advanced social media analytics to stay ahead in the coffee business.
• Cultivate relationships with its customers both online and in-stores
• Focus on Social Media campaigns to build strong brand identity. Established Twitter handle in 2008.
• Extend customer experiences through social media.
• Cross-promote by sharing content across different social media networks such as Facebook, Twitter, Foursquare, Pinterest, Instagram, Google+ and YouTube
• Launched MyStarbucksIdea.com in July 2008 for consumers to make suggestions, ask questions, and vent their frustrations
• Introduce attractive, interesting promotion campaigns through social media to generate buzz to its products and increase traffic to its website, such as Tweet-a-Coffee gift cards, Free Pastry Day, and Barista badge
• Promote cause marketing campaigns and CSR (Corporate Social Responsibility) campaigns such as: Create Jobs for USA, Global Month of Service, Starbucks Red, and Starbucks Shared planet to build brand and corporate image.
• Partner with other companies such as Pandora to sponsor playlists
• Strive to create more personalized, friendlier, and transparent messages or conversations on Facebook and Twitter which show customers that Starbucks cares.
• Track and monitor customer sentiments (both positive and negative) in real time using advanced technology in order to improve brand quality and deliver products that customers like.
• Address online complaints immediately and constantly scan the social media environment to avoid rumors and misconceptions that can go viral.
• One of the most ‘liked’ consumer brands on Facebook with more than 36 million fans.
• One of the most searched brands on Foursquare with more than 1.8 million users.
• More than 150,000 ideas submitted through My Starbucks Idea site. Two millions votes have been cast on My Starbucks Idea site and 277 ideas have been brought to life over the past five years. These ideas helped Starbucks improve their overall brand quality, brand image, corporate image and increase sales.
• Number 33 on Facebook’s Leader Board
• Number two for all consumer brand products
• Has 6.17 million Twitter followers
• Rewards campaigns built a community of faithful online followers asking to be included on new products or company news
• Established in 1971 in Seattle, Washington
• Maintained its competitive advantage of bringing quality, bistro-style coffee choices to the masses.
• Needs to focus on its core competencies and avoid spreading themselves too thin.
• Need to create new value innovation by continuously enhancing the customer experience by investing in online content and interactivity
Social Media Analysis Questions:
How is the company branding itself?
Starbucks wants to create a perception that all Starbucks products are associated with good quality, enjoyable experience and social responsibility. Starbucks has created many creative, simple, memorable, and meaningful taglines/hashtags and images for its social responsibility, cause-marketing and commercial campaigns to create a good brand reputation. Through social responsibility and cause-marketing campaigns, Starbucks wants its customers to know that Starbucks’ social responsibility is not just merely a program or a press release. It is the way Starbucks does business every day.
What would you say is their social strategy?
Starbucks’s social strategies are:
• To actively engage and listen to their loyal and potential customers through many different types of social media
• To build ongoing conversations with their customers on a regular basis.
• To create a buzz for its products
• To increase traffic to its website
• To continually promote brand recognition and awareness
• To maintain brand loyalty
• To generate or increase sales
Starbucks uses many different types of social media to reach out to their loyal fans or followers and to stay connected with them on a regular basis. These are the social media channels that Starbucks uses:
The Starbucks Facebook page was created in 2008. In 2014, Starbucks, has approximately 36 millions fans. Using Facebook, Starbucks provides their fans an online community for open discussions where fans can openly share stories, ideas or suggestions, comments, pictures and videos. In their profile, Starbucks provides many tabs that benefits users or fans. These tabs are: locations, jobs, information, Starbucks cards, event, video, photos, and internationals. Through Facebook, Starbucks delivers its campaigns and actively engages with its fans. Fans can also build their own virtual images and share them through Facebook.
As of today, Starbucks has approximately 6.17 million followers. Starbucks engages with their followers on a daily basis by answering questions and re-tweeting what others are saying about Starbucks. Twitter followers can also receive an e-coupon for a new coffee or tea drink or build their own virtual drink and share it through Twitter.
Foursquare is a location-based social networking website for mobile devices. Foursquare allows Starbucks visitors who visit Starbucks locations to earn badges/customer rewards as well as to share their comments and current location with their social circle. Every time a customer checks in with Foursquare, Foursquare will track how many times this customer has been in a specific Starbucks location. The customer who visits a specific Starbucks location the most often becomes the “Mayor” of that specific location and gets a reward.
Starbucks has 28,972 people subscribing to Starbucks’ YouTube Channel. Starbucks videos on YouTube are not merely about their brand or products. The videos are also about coffee in general. Starbucks uses commercial videos as well as informational videos to provide information and make connections with their audiences. On their informational videos, Starbucks shows the origins of the different coffee blends, making the perfect coffee, farmer stories in Costa Rica, etc. Starbucks also introduces its history through videos, which enable people to learn more about the company and relate more to Starbucks’ brand. In order to popularize Starbucks, it allows people to embed its videos anywhere they want on any website.
e. Starbucks’ Social Network
Starbucks has its own version of a social network, which is “My Starbucks Idea.” My Starbucks Idea allows any Starbucks fan to share, vote, discuss and see ideas in order to make its services or products even better. Viewers not only can share and discuss but also see what others are suggesting and vote for those ideas. Each idea is reviewed. Viewers can make comments on any idea that has been submitted. Good ideas are launched. Some of these ideas include: getting free drinks on birthdays; getting discounts when reloading Starbucks cards; buying ten cups of coffee and getting the eleventh one free; and getting Starbucks VIP cards. In order to let viewers know the status of each idea, a check-mark or a piece of paper-mark is used. A checked-mark idea means that idea has been launched and a piece of paper-idea means that the idea is being reviewed.
Starbucks’ blog is part of My Starbucks Idea. Many Starbucks employees write on the Starbucks Blog which is called “Ideas in Action.” This blog basically talks and discusses what Starbucks will do with the ideas submitted by users on the My Starbucks Idea site.
Starbucks has more than a million followers on Google+. Starbucks posts content every few days. Many of the posts are taken from its Twitter feed and Facebook page.
Starbucks has 2,511,204 followers on Instagram. Using Instagram, Starbucks interacts with customers through the photo-sharing service.
Starbucks has 2,119 Pins on Pinterest. Starbucks uses Pinterest boards as an extension of its storefront or website. Using Pinterest, it interacts with customers through the photo-sharing capabilities.
Through all these Social Media channels, Starbucks keeps sharing useful content, responding to follower/ fan requests, answering, listening, and accepting their ideas. By doing all of these, Starbucks is able to show it genuinely cares and make their fans or followers feel that they are an important part of Starbucks.
What other business channels is the company promoting on Twitter (Facebook, blog, website)? How are they being integrated?
In 2013 Starbucks launched a “Tweet-a-Coffee” campaign on Twitter. Tweet-a-coffee is a way to send $5 Starbucks Card eGifts to Twitter friends and followers. In order for it to work, a sender must have a Starbucks account and link his/her account to Twitter. The sender then enters his/her credit card information to tweet “a coffee” $5 Starbucks gift card to friends of their choice. The “Tweet-a-Coffee” campaign program has generated more than $180,000 in purchases since it launched.