Marketing in Action Case: Real Choices at Starbucks

Starbucks began as a local coffee bean roaster and retailer of whole bean and ground coffee, tea, and spices. From 1971, a lone store in Seattle’s Pike Place Market has grown into the largest coffeehouse company in the world. The Seattle-based Starbucks Corporation is an international coffee and coffeehouse chain with 16,635 stores in 49 countries, including 11,068 in the United States, nearly 1,000 in Canada and more than 800 in Japan. The Starbucks product selection includes drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and paninis, pastry, snacks, and items such as mugs and tumblers.

One of Starbuck’s prominent brands that suffered in the recession at the beginning of the 21st century is the Frappuc-cino™”. At its height, annual sales of this specialty drink exceeded $2 billion annually. However, sales have declined over the past few years. In 2010 the Frappuccino™ brand was estimated to represent between 15 percent and 20 percent of annual sales at Starbucks retail outlets. Dunkin’ Donuts and McDonald’s, along with many other smoothie chains are gearing up to snatch market share away from Starbucks with their own coffee drinks. Since the Frappuccino™ plays such an important role in Starbucks’ product mix, the company takes these challenges very seriously.

Frappuccino™ is a registered trademark of the Starbucks Corporation and it has been a brand for over 15 years. The blended ice beverage is a mixture of frappé and cappuccino, an Italian-style coffee with a topping of frothed milk. Starbucks sells it at the counter and also in bottles. Like the terms “Kleenex” and “Band-Aid,” the word “Frappuccino” has become almost generic and many customers think the product is also available at other coffee purveyors.

Starbucks has tried various strategies to extend the brand name. Two new Frappuccino-flavored ice creams are available on supermarket shelves. Vanilla Frappuccino Light, a bottled beverage, was created in a joint venture with PepsiCo. In addition, Starbucks globally introduced new blends, such as Black Sesame Frappuccino in China, and Red Bean Frappuccino in other Asian markets. Still other plans are in the works including new bottled versions, new “wacky” ingredients, and other products under the same brand banner.

The chain also is looking closely at a “however-you-want-it-Frappuccino” customization program at a premium price. Customization empowers the consumer to co-create value by beginning with an empty slate and personalizing the beverage with his or her own choice of milk, coffee intensity, syrup, and any optional toppings. Annie Young-Scrivner, global chief marketing officer for Starbucks, observes that one of the target markets for the Frappuccino™ is an 18- to 24-year-old woman. The customization option allows calorie-counting customers to create nonfat milk, light syrup, and no whipped cream version with only 160 calories. According to Young-Scrivner, this market is ideal for the custom-made Frappuccino™. She told the Wall Street Journal, “Millennial (otherwise known as Gen Y) are the iPod age group … accustomed to selecting exactly what they want. Now, they can choose an extra shot of espresso, no whipped cream, or a dab more caramel, for instance.”

With any product extension strategy, there are inevitable challenges. The Frappuccino has an involved preparation process and takes longer to produce than other Starbucks beverages. This may present a problem if the new program is successful. The extra time needed for baristas to customize each drink may lead to long lines, customer irritation, more complicated employee training, and slower-than-expected sales growth. Starbucks has questions to answer concerning, among other things, pricing, training, and competition.

Answer the five questions at the end of the case:

What is the decision facing Starbucks?

What factors are important in understanding this decision situation?

What are the alternatives?

What decision(s) do you recommend?

What are some ways to implement your recommendation?