Business Proposal for Starbucks Latte and Espresso Machine

Business Proposal for Starbucks Latte and Espresso Machine

Since Howard Shultz took a trip to Italy and became captivated with Italian coffee bars in 1981, his vision to bring that tradition to the United States has spawned more than 18,000 stores in 62 countries and made Starbucks the world’s premier roaster and retailer of specialty coffee. Although best known for its warm, inviting neighborhood coffee shops where customers come for business meetings, to sit and chat, or possibly catch up on homework with their laptops connected to the internet through onsite Wi-Fi, Starbucks also commands a noticeable segment of the retail beverage market by distributing canned and bottled tea, coffee, and juice beverages to local supermarkets and convenience stores. Additionally, Starbucks distributes its bagged tea, ground coffee, and whole bean coffee to local supermarkets and specialty shops. Through strategic partnership agreements it offers coffee-making equipment manufactured by others for sale in its online store (Starbucks.com, 2014).

Starbucks has now decided it would like to enter the equipment side of the market. Starbucks plans to launch with a machine that makes lattes. While many companies manufacture cappuccino makers and espresso machines, Starbucks sees an opportunity to create a market for latte lovers with a machine that stores both milk and coffee, will grind beans, brew and press espresso, and properly mix with milk for the “perfect latte.” This machine will hold and refrigerate up to 11/2 gallons of milk. This eliminates the need to store milk in the family refrigerator and makes it available each time the customer wants a latte without having to take the milk out of the refrigerator and return it after use. Starbucks even has thought of using a takeoff of McDonald’s hot-side-hot, cold-side-cold advertising campaign.

Market Structure

Although Starbucks is the leader of the coffee market, controlling several times more market share than any competitor, it is an example of a monopolistic competitive firm. The coffee industry has many firms selling differentiated products with few barriers to entry into the market. Starbucks has differentiated itself by offering a high-quality product at moderate cost. Starbucks maintains strict quality controls. It buys from reliable sources, delivers quality customer service, and only sells peripheral equipment from quality manufacturers. This leads to people believing they are getting a good deal when they buy from Starbucks making them willing to pay a higher cost for Starbucks products. Starbucks has positioned itself as an authority on coffee which allows it to charge premium prices. Starbucks customers often are willing to pay premium prices on new Starbucks products they have not even tried because they associate the Starbucks brand with quality (Starbucks.com, 2014).

Elasticity

Based