MBA Perspectives: Starbucks and the Rise of Consumer Information Superiority

Starbucks Korea.
Starbucks Korea. (Photo credit: toughkidcst)
By Christopher Lotito

Starbucks Coffee is a natural choice when you’re looking to examine the marketing of a product for which there is a lot of data and which has had a number of different marketing campaigns over time.

In 1971, when Starbucks was founded, breakfast coffee was a relatively diverse product with many market substitutes stemming from alternatives in the home or office (brewed, instant), diners on the east coast, luncheon restaurants, gas stations, and convenience stores.  All of this is still true, but through marketing efforts and changes to the product offering, Starbucks has come up with what is better referred to as a coffee-experience product which is difficult for the consumer to find in the home or office and at any other business.

A Bold Blend of Consumer Options

Coffee has continued to experience an active Shift to Product Glut and Customer Shortage over the past 3 decades.  Supermarkets and specialty markets (Whole Foods, Trader Joe’s, etc.) have ensured that consumers have far more choices of existing coffee products for home consumption than did the corner market in the 1950’s.  Additionally, more home coffee products are being invented each year with even Starbucks and Dunkin Donuts self-competing through entry into that market.  Starbucks has adequately met this challenge by providing additional services and benefits to purchasing coffee at a cafe that cannot be obtained at home (a pleasant work environment, a public meeting place, lack of need for cleanup, loyalty programs, and more).  Starbucks has addressed the product glut (especially of market substitutes) by altering their product offering to make it unique.  Diversification of Starbucks products is covered further throughout the following discussion.  To combat the problem of customer shortage, Starbucks has embraced the Shift in Generational Values and Preferences to help create more coffee drinkers and also to offer products which non-coffee drinkers will purchase (tea, hot chocolate, mocha latte, etc.).  Entire papers could and have been written about Starbucks marketing work to change the image of coffee from a working man’s drink to the beverage of hipsters, students, activists, and environmentalists.  More about this in the paragraph about the Shift in Generational Values and Preferences.

Informed Consumers; Bad Coffee Exposé

Another part of the way that Starbucks has made its fortune has been through information dominance.  The company provides properly formulated, full-strength coffee, in a variety of flavors, available at all hours, at tens of thousands of stores worldwide.  That means that the consumer can be lazy, harried, and ignorant and still get the coffee they want, everyday, wherever they happen to be, without any additional work or research on their part, and at a variety of price points ranging from highly price-sensitive to highly price-insensitive.

Take an example that actually happened to my fiance and me this past weekend: Coming back from skiing, my fiance who is a teacher wanted coffee since she was tired and she needed to do lesson planning into the evening.  We stopped at a small convenience store in Sloatsburg, NY.  I thought it looked good because it was on the way, had a homey feel, and had a sign outside indicating they’d recently gotten a new coffee supplier.  She was skeptical.  Well, she was right, we paid for brown water.  It was clear the teenaged clerks had reused the old grounds, but this is not new since this stuff happens all the time.  We ended up at Starbucks because we knew the coffee would be strong enough there and the very few times we’ve had issues, the Starbucks staff has fixed the problem free of charge.  We literally dumped out the bad roadside coffee while waiting in the Starbucks drive through line.

When I got home, I looked up the roadside coffee place on Yelp and its reviews were all terrible.  Now, we could have done that from the road and saved ourselves the trouble to begin with, but like so many consumers we were being lazy.  So even with a growing Shift in Information Power from Marketer to Consumer, Starbucks can still count on lazy and busy consumers sticking with the coffeehouse they’ve come to know and love, rather than risk bad coffee just to save a few cents.

Big Coffee Caters to Millennials 

The Shift in Generational Values and Preferences has helped Starbucks immensely since they opened in 1971.  Starbucks has arguably tied itself to the growth of the tech industry, marketing itself as an office away from home for not only business travelers, but more so for local businesspeople who either work out of their home or are simply looking for a comfortable workspace away from the office.  In following this trend, Starbucks rolled out WiFi at its locations in 2001, which has helped it to become a hub for students and workers alike.  The company has done a great deal to change the face of coffee via marketing into an all day everyday food.  Indeed it’s not uncommon to witness a line for coffee at Starbucks at 8 or 9 o’clock at night.  Starbucks has both enjoyed the benefits of these cultural shifts away from the 9-5 and classroom based study as well as done their best to cultivate that shift actively.  Their best marketing in this regard has likely not been television or print media, but rather word of mouth as a generation has learned that there is a safe, warm place that’s open late, sells coffee and sugared goods, and has WiFi that they can meet their dates, work partners, study partners, and even interviewees for a variety of jobs at.  Personally, I’ve witnessed job interviews occurring publicly in Starbucks locations (and not for Starbucks) more than once in my life and that’s saying something.  Starbucks cultivated that image as a public commons and it has played directly into the generational value shift that is still ongoing.  Given past efforts, it seems likely that Starbucks will continue to adapt into the future and will add the goods and services required to move along with generational shifts in values and preferences.  For example, in 2013 Starbucks moved its WiFi to service from Google, which is stated at 10x faster than the old system, and added free access (while at Starbucks) to magazines and newspapers via its digital network.

I have been to Starbucks where the line has been huge, the tables filled, the noise deafening, and the staff curt.  When this happens, it’s a turn-off.  I also find the Starbucks menu confusing, why can’t they just call a large a large and a small a small?  However, despite these things only once in all of my years going to Starbucks have I or the person I was with had a problem that was not adequately resolved upon request.  In the instance in question, the coffee served was too weak and the replacement coffee made by hand in front of me via a pour-over was also too weak.  I attributed this to a new and inexperienced worker, though it still was an annoying experience.  Conversely, I’ve had dozens of orders mixed up or incorrectly prepared at Fridays, Applebees, Wendys, and numerous other chain and individual eating establishments over the years.  The point is, Starbucks understands little m marketing (tactical marketing).  For all their national marketing campaigns (big M marketing), Starbucks works hard to ensure their individual baristas at the coffee shops provide excellent customer service and more importantly, know how to make a good cup of coffee.  Their loyalty program is also excellent as well.  My fiance has gotten numerous free upgrades and add-ons to her orders at Starbucks stores not because they knew her (they didn’t), not because she had a coupon (she didn’t), but I suspect because she had a Starbucks Gold Card and there is probably a secret initiative to make a big impression on gold card holders.  As of right now, Starbucks appears to have the Shift from Distinguishing Marketing from marketing down pat.

New Threats on the Horizon

In the future, the biggest threats to Starbucks market supremacy will come not from companies offering substitutes, but from companies that learn from Starbucks and diversify to enhance their products to something that Starbucks does not offer.  Any company trying to get a slice of Starbucks profits by selling good, strong coffee products at a variety of price points and with an offering of free WiFi and workspace to boot will still need to overcome the momentum of Starbucks word-of-mouth little m marketing, customer resistance to change, and the consumer’s familiarity with the Starbucks product offering.  The companies with the best chance against Starbucks will offer things like better seating for longer periods, quiet work areas, subscription programs that eliminate the need for lines and currency, computerized and Internet based ordering systems, and other things that improve upon the Starbucks product offering.  Of course, that very method is the same way Starbucks obtained market supremacy over mom-and-pops, gas stations, and fast food to begin with.

  At ChristopherLotito.Org, subscribers will find all the information they need to educate themselves and their families about the issues that effect their lives.  A Drew University graduate, Christopher Lotito is a 10 year veteran volunteer within his municipal government in Pequannock, New Jersey.  Lotito is also an accomplished local author and possesses a great depth of knowledge in both New Jersey history and flood control issues which he puts to use as an independent researcher.

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