Technology Helps Starbucks Find Better Ways to Compete

Starbucks is the world’s largest specialty coffee retailer, with over 24,000 shops in 75 markets. Starbucks’s reputation rests on its high-end specialty coffees and beverages, friendly and knowledgeable servers, and customer- friendly coffee shops. This was a winning formula for many years and has en­abled Starbucks to charge premium prices for many of its items. But Starbucks has competitors, and must constantly fine-tune its business model and business strategy to keep pace with the competitive environment.

Starbucks tried online retailing and it didn’t work out. If you go to the website, you’ll see coffee, branded mugs, espresso machines, and brewing accesso­ries described online, but you will need to purchase these items from Starbucks stores, supermarkets, or Starbucks-designated retailers.

Starbucks stopped selling online in August of 2017. Starbucks man­agement believes there has been a “seismic shift” in retailing, and merchants need to create unique and immersive in-store experi­ences to survive. For Starbucks, products and services, for the most part, should not be sold online.

Instead, Starbucks is focusing on improving the in-store experience. The company rolled out a new Mercato menu of freshly-made sandwiches and salads to more than 1,000 stores in 2018 and plans to expand its line of caffeinated fruit juices (Starbucks Refreshers) and nitro-brew cold drinks. Management hopes to double food sales by 2021. Starbucks is also building high-end cafes around the world under the “Reserve” brand to draw customers willing to pay more for pre­mium coffee and pastries.

Starbucks continues to enhance the customer’s in-store experience through information technology. Each Starbucks store has a Wi-Fi network providing free wireless Internet access for customers. Many Starbucks customers are active users of smartphones. Starbucks launched a mobile ordering app for the iPhone and Android mobile devices in September 2015. The Starbucks Mobile Order & Pay app makes it fast and easy to pay for drinks and food.

Customers can place their orders on the way to Starbucks stores with Mobile Order & Pay and also tip the barista. Those ordering are told the time when their beverage will be ready. There’s no need to wait in line. The mobile app can also identify the songs playing in Starbucks stores and save them to a playlist on Spotify. The app helps Starbucks target products to customers more effectively, which could be especially important as the chain also adds more lunch items and cold drinks to its menu to draw in more customers after the morning coffee rush. Cold drinks now represent half of Starbucks’ beverage sales.

Starbucks wants U.S. customers who use its in-store Wi-Fi network to enter their email address in the first store where they get connected. The company’s software remembers the customer’s device and connects it automatically thereafter. That would give Starbucks additional email addresses that it could target with more promotions.

Sources: Julie Jargon, “Starbucks Aims for More Mobile Orders,” Wall Street Journal, March 21, 2018; Stacy Cowley, “Starbucks Closes Online Store to Focus on In-Person Experience,” New York Times, October 1, 2017; “Starbucks’ Mobile Order Push Meets Resistance From Ritual Seekers,” Reuters, March 21, 2018; and, ac­cessed March 28, 2018.

The chapter-opening diagram calls attention to important points raised by this case and this chapter. Starbucks’ business model is based on an aggres­sive product differentiation strategy, intended to emphasize the high quality of its beverages and foods, efficient and helpful customer service, and the plea­sures of purchasing and consuming these items in a Starbucks store. Starbucks is using information technology to improve its in-store customer experience. Its Mobile Order & Pay app expedites order and payment for Starbucks beverages and food, and Starbucks had to redesign its payment process to take advantage of mobile technology. The free Wi-Fi network makes Starbucks stores more in­viting to visit, linger, and consume food and beverages. The mobile app enables stores to serve more customers, and enrollment in the Wi-Fi service provides additional e-mail addresses for promotional campaigns.tarbucks illustrates some of the ways that information systems help busi­nesses compete, as well as the challenges of finding the right business strat­egy and how to use technology in that strategy. Retailing today is an extremely crowded and competitive playing field, both online and in physical brick-and- mortar stores. Even though Starbucks is the world’s leading specialty coffee retailer, it has many competitors, and it is searching for ways to keep growing its business. Customers are increasingly doing more retail shopping online, but Starbucks products do not sell well on the web. They are meant for an in-person experience. They are too experiential.

Here are some questions to think about: What is Starbucks’ business strategy? How much has technology helped Starbucks compete? Explain your answer.

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16th edition.

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