Starbucks employs a concentrated targeting strategy, by inserting themselves in the gourmet coffee niche, the company can charge higher prices for their coffee. This creates higher profitably for the company because they are in this niche and people want to pay for the service. Daniel Gross, writer for Slate's “Moneybox” column, says “Starbucks must be banking on the theory that the people who buy its coffee don't just need coffee, they need Starbucks coffee.” (Gross, 2004) This creates a nice cushion for Starbucks to increase price if need be, such as the five cent price increase for coffee's and fifty cent increase for pound coffee in October of 2006, yet Starbucks can be confident that their customers will come back. (Allison, 2006) The overwhelming majority of Starbucks customers don't just want coffee, they want Starbucks coffee, and they don't mind paying for it.
Starbucks' goal is 40,000 stores, 20,000 of which are international, and 20,000 planned for the United States. Today, there are more than 12,000 stores globally and 8,800 in the United States (Reuters, 2006). California alone has more than 2000 Starbucks in the state of California and Washington has an average of 11,000 people per Starbucks. In April of 2003, Starbucks was opening more than 150 stores per day, with the purchasing of Seattle's Best Coffee and Torrefazione Italia. (Wikipedia, 2006) This enormous expansion is still continuing, with the purchase of rival coffee maker Diedrich Coffee, in September 2006. No coffee company is anywhere near Starbucks size or popularity. Just Food magazine says, “Starbucks is more than 20 times the size of its closest competitor, Caribou Coffee. If a competitor fails to emerge, Starbucks will continue growing in size until its shops begin to cannibalize their own markets, making further growth unprofitable.” (Just Foods, 2006) This is exactly where Starbucks is at. The only thing that will cease Starbucks expansion is itself. One corner in New York City has a Starbucks on every corner, and a shopping mall in Seattle has three Starbucks positioned throughout the mall. The expansion for this company is immense and will continue until the profits cease, which doesn't seem like any time soon.
Part II: Review of Marketing Performance
Starbucks and Diversification
Starbucks isn't just a one coffee store. Starbucks is known for its various types of drinks and food. Starbucks give many choices, from grande non-fat sugar-free lattes to venti extra caramel macchiato; customers have a variety of drinks to choose from. Not only that, Starbucks employs this same strategy of diversification to its food offerings. A customer can go into a Starbucks and get food items ranging from apples and chocolate to old-fashioned donuts. In fact, Starbucks has started going down the healthier track, with introductions of fruit and yogurt parfaits and salads. Marion Nestle, author of What to Eat, says, “It's hard to eat healthy at Starbucks, portions are too big, and the drinks are full of calories." (Horovitz, 2006) Starbucks saw this area of need and addressed ...