Starbucks consumer demographics and market positioning strategy

Starbucks

Business Research Methods III

Business Research Methods III- Starbucks

When providing advice to individuals how to cut costs in the currently sluggish economic environment, personal finance gurus like Suze Orman often invoke 'the latte factor,' namely the way small expenses like a latte can add up over time in a consumer's budget. Cutting down one's consumption of three-dollar lattes can seem like sensible advice but such a warning can strike fear into the heart of a company such as Starbucks. Starbucks has founded its business model on the concept selling affordable luxuries like fancy coffee drinks. The core consumer demographic of the Starbucks business is the young-to-middle-aged consumer who delights in the respite provided by a Starbucks experience. While Dunkin' Donuts and McDonald's have eked out a niche in the cost-conscious fancy coffee market, and higher-end coffee products exist, Starbucks has been successful positioning itself in the middle of the market, and draws revenue from both low and high-spending consumers as well as its demographic core.

However, individual Starbucks can have different characters and draw customers through their unique positioning -- a very convenient, fast-paced Starbucks might draw traffic from businesspeople in the morning on one Manhattan block, while a slower and more ambient franchise on the same street with a great deal of seating space might draw 'yoga moms' mid-morning. This varied clientele is one reason so many Starbucks have flourished, fighting typical business wisdom that too many chains, too close together, creates a saturated market. Starbucks at different times of day, with different store arrangements might draw different customers, even if the stores are located close together. The key is to know the demographic profile of the target consumer, to continue to foster brand loyalty even during trying economic times -- especially if the store's core consumers are young people hard-hit by unemployment and the recent recession.

Steps needed to minimize these challenges

Additional research is needed to construct a truly valid and reliable study. Firstly, to enhance the validity or truthfulness of the results of a study that attempts to paint a portrait of Starbucks customers, input from customers at different times of day must be solicited, at different days of the week. The current sampling could provide an inconsistent portrait of the store's holistic consumer base. Responses should be grouped according to what time of day the questionnaires were received from the customers, and the customers should have to turn in the survey at the store before they leave, rather than send it in. Reliability can be tested by using a larger sampling size.

General response types

The survey's questions fell into several categories. Some of the questions pertained to demographics, including age and income. Other pertained to the consumer's preferred method of going to the Starbucks, such as whether the consumer usually patronized the same Starbucks; frequency of patronization; preference for taking out beverages vs. eating in; and the usual size of the consumer's beverage. Finally, more subjective responses were requested, such as whether the store's customer service was good and the prices were fair.

Classification of findings

Findings were classified on a nominal basis, except for age and income. Because this was a small, preliminary survey, the responses and number were often merely recorded. For example, when asked 'how would you rate customer service' at Starbucks, 17 responded excellent, 3 responded good, and none responded fair. Another type of ranking would have involved ranking the customer service experience from 1-5 (excellent-poor) and averaging the frequency of different responses (for example, what numbered rankings received the greatest number of responses). However, this was not chosen, as it was feared that the difference between a 1 and a 2 might be quite subjective, and not as meaningful as subjective responses to word-based rankings such as 'excellent' or 'fair.' The responses were not ranked as ordinals, merely recorded nominally, given that the ordinal ranking was fairly self-evident. Interval scales in terms of wait time for beverages were also not used because there was a relatively narrow framework of wait times. The majority of respondents (15) waited 2-4 minutes for drinks, and the remainder (5) waited 5-8 minutes. This relatively short time period may reflect the fact that the Starbucks used for the research has been in business for a fair amount of time and has mastered efficient drink preparation. Serving drinks quickly is a crucial part of the coffee business.

Ranking age and income ordinally yielded an interesting result: 6 consumers were in the youngest (18-25) demographic, and membership in the next two categories (25-35; 35-44) was equally distributed: both groupings contained 4 respondents. The next category (45-54) was statistically insignificant in terms of difference from the previous two categories (3 customers, in total). Fewer older individuals patronized this Starbucks -- there was only a single member in the 55-64 category and 2 individuals older than 65, a statistically insignificant difference. Income levels clustered in the low-to-medium bracket, with fewer (3 individuals) making below $25,000 and the majority making $25-$50,000 (7 in total, perhaps reflecting the youthfulness of the sampling). Numbers were relatively similar in the $50-$75,000 and $75,000-$100,000 demographics (4 in total and 5 in total, respectively). Only one respondent reported an income $100,000+.

This skewing to the more youthful and slightly less affluent suggests that younger people, despite the recent recession and the higher unemployment rates amongst the young are still patronizing Starbucks. The average consumer at this particular Starbucks also tends to eat in the cafe, come 3-5 times a week and orders a medium-sized beverage. This suggests that younger people come for a social experience, perhaps during their lunch hour or before work, to save time making their own coffee, but also to grab a bit of ambiance and 'me time.' The so-called 'latte factor' cutback does not appear to be impacting this Starbucks' sales.

Conclusions

More research is needed to make this information useful. A wider demographic of consumers must be surveyed, to determine if different demographic profiles characterize the typical Starbucks customer at different times of the day. Starbucks may need to position its marketing relative to specific consumer segments and types of demand that manifest themselves over the course of the same day. However, this initial research indicates that young people continue to use the coffee chain as a popular social meeting place and have made buying rather than making coffee part of their daily routine.