Starbucks Market Analysis: Psychographic Segmentation Strategy

Introduction to Starbucks and the Specialty Coffee Market

Starbucks is a major, worldwide coffee retailer specializing in a variety of coffee blends and iced beverages, among other related products. Within the market sector where Starbucks operates, several competing companies exist, including The Coffee Bean & Tea Leaf and Caribou Coffee. Each company shares similar strategies, appeals to a similar demographic, and positions itself as the high-end of coffee-based shops and cafés. They also share a similar promise of quality ingredients and service. The difference is that while a company like Starbucks focuses on the behavior of consumers to market its product, a company like Caribou Coffee relies on the taste and quality of its product, and The Coffee Bean & Tea Leaf relies on location and ease of access.

Starbucks was selected as the primary company to analyze due to its immense popularity and success over the last decade. It has become one of the most iconic symbols of coffee, and an entire culture has developed around this famous chain. The first Starbucks opened in the 1970s, and the origins of the name come from Herman Melville's Moby Dick, a novel about the 19th-century whaling industry.

Starbucks offers more than 6,500 self-operated and licensed stores in over 38 countries outside the U.S., and 10,924 stores within the U.S. (Starbucks Coffee Company, 2011, p. 1). It all began in 1971 when the Starbucks Coffee Company formed a long-standing commitment to ethically sourcing and roasting high-quality arabica beans and brewing top-quality coffee. As of 2013, the company had reached global recognition and become the premier roaster and retailer of specialty coffee in the world. As the company states, "Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup" (Starbucks Coffee Company, 2011, p. 1). The company's stock market value as of 2013 was $51.64 billion, with 2012 revenue of $13.29 billion.

Starbucks is part of the restaurant industry, with specialization in coffee, tea, and baked goods. Starbucks is considered by some to be a fast-food franchise because the drinks and food served there are made or ready-made and available within a short time period. Like other franchises of its kind, it focuses on specialty drinks and fast service. Although it faces stiff competition from other retailers such as Dunkin' Donuts, McDonald's, and Subway, Starbucks has managed to maintain a loyal and consistent customer base.

Starbucks' History, Scale, and Industry Position

Its commitment to quality service and the removal of GMO ingredients assures customers that they are getting more for their money. Along with fast service and a broad range of products, Starbucks offers what other fast-food chains lack: free Wi-Fi and an inviting atmosphere. Like Subway and McDonald's, Starbucks has adopted a uniform look throughout all of its stores, and it has also offered franchising opportunities — though it is strict about who becomes a franchisee.

All in all, it is very difficult to remain popular in an ever-expanding market. The coffee-drinking culture has increased and expanded, with special interest in high-end coffee. People do not just want fast and tasty coffee; they also want coffee that is healthy and comes from a sustainable, fair-trade source. Like customers of all fast-food chains, Starbucks customers now demand better ingredients and expect higher standards. Starbucks has maintained and set forth high standards for its food and drinks by eliminating high-fructose corn syrup from most of its products and keeping GMO ingredients out of its baked goods.

Marketing segmentation allows marketers to group and classify their customers as well as identify the specific needs of each group with higher accuracy (Weinstein & Weinstein, 2004, p. 12). Starbucks, like Caribou Coffee and The Coffee Bean & Tea Leaf, has adopted several marketing strategies in order to gain and retain customer loyalty and satisfaction. One of the main marketing strategies Starbucks employs is psychographic segmentation. Psychographic segmentation consists of dividing consumers from a market into groups based on social class, lifestyle, or personality characteristics (Mayo, 1977, p. 34). This kind of strategy allows for appropriate allocation of resources and proper adjustment of the marketing mix.

The primary segmentation criterion Starbucks uses is psychographic segmentation. The company targets customers based on their lifestyle choices and attitudes concerning fair-trade food (Yu & Fang, 2009, pp. 1273–1285). The main group Starbucks advertises to is the "serious coffee drinker" — someone who prefers an upscale coffee market. The intended age group is 40 and above, although most of its customers are 15 and above, with a concentration in young women. The company also seeks customers with incomes of $90,000 and above, although in practice most of its customers earn around $25,000 and above.

The way Starbucks advertises to this specific group is through commercials and other promotional material that demonstrate and reflect the quality of the coffee it serves. Starbucks consistently communicates that its coffee is fair trade and highlights its dedication to providing excellent customer service with fast and well-crafted food items. New and holiday coffee blends featuring names like "Dark Roast" or "Blonde" offer customers variety and brand appeal. Ingredients and roasting techniques are also listed on the company's website, giving customers guidance on how to brew coffee at home along with products they can purchase for home use.

Psychographic Segmentation and Target Demographics

Customers who prefer companies like Starbucks also want those companies to demonstrate corporate social responsibility. Accordingly, Starbucks seeks to develop products that reflect a socially conscious attitude, including advertisements that speak directly to consumers interested in positive global change by explaining how and where coffee beans are sourced. This development began in the fall of 2013. As one industry report noted, "As the consumption of coffee increases and consumers are increasingly curious about the origins of their food, Starbucks is launching a campaign focused on the quality of its coffee beans and how and where they're sourced" (Morrison, 2013, p. 1).

In addition to focusing on a target demographic, Starbucks also aims to appeal to everyone by branding itself as a lifestyle brand and offering several products for non-coffee drinkers who still wish to be part of the Starbucks social environment. Its Frappuccino blended beverages, teas, sandwiches, and baked goods offer options for virtually anyone at various price points — from expensive specialty drinks to inexpensive items such as muffins or fruit. This STP strategy appears to be effective, encompassing serious coffee drinkers, socially conscious coffee drinkers, and non-coffee drinkers alike by accommodating their common needs and positioning the brand as a high-price, high-value offering.

The Coffee Bean & Tea Leaf is a coffee chain that produces California-based coffee. Founded by Mona and Herbert Hyman in September 1963, it has many locations both domestically and internationally, with main stores in San Francisco, Phoenix, Las Vegas, and Honolulu, as well as stores in East Asia, among other locations. Like Starbucks, Coffee Bean & Tea Leaf stores have the option of operating as franchises, which are typically found outside of California. Much of the company's international success has come from franchisees such as Victor Sassoon, who expanded the brand throughout Southeast Asia, including Singapore, Malaysia, and Vietnam.

The Coffee Bean & Tea Leaf aims to appeal to a wide demographic and accommodate the needs of current society. That is why it offers Wi-Fi internet access at virtually all company-owned and franchise stores, similar to Starbucks. The company began installing Wi-Fi units in mid-2008, offering wireless service free of charge with no registration or payment required. The company understands what customers want: convenience, quality products, and ease of access. That is also why many of its franchises are located in busy, high-traffic areas such as malls — a strategy that attracts customers in high volume through high visibility. Although The Coffee Bean & Tea Leaf is not as large as Starbucks, it maintains a healthy customer base through effective marketing strategies.

Caribou Coffee shares several similarities with Starbucks. Like Starbucks and The Coffee Bean & Tea Leaf, Caribou Coffee Company offers franchising. It also sells its own products — including whole-bean coffee and ground coffee — to supermarkets and grocery stores, and operates a website where customers can purchase products online. It also offers Keurig cups, similar to Starbucks, so that customers can brew coffee at home with ease.

Caribou Coffee may not be anywhere near as popular as the previous two companies, but it is gaining customer loyalty through product quality and ease of access to its products. Its franchise model also allows for easier expansion into markets it would otherwise find difficult to reach. In order to expand further, Caribou Coffee would benefit from greater investment in advertising and a more varied menu for non-coffee drinkers, as Starbucks has done.

Conclusion and Future Marketing Recommendations

Starbucks Coffee Company. (2011). Starbucks company profile. Retrieved from

Weinstein, A., & Weinstein, A. (2004). Handbook of market segmentation: Strategic targeting for business and technology firms. New York: Haworth Press.

Yu, H., & Fang, W. (2009). Relative impacts from product quality, service quality, and experience quality on customer perceived value and intention to shop for the coffee shop market. Total Quality Management & Business Excellence, 20(11), 1273–1285. doi:10.1080/14783360802351587