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Like Radio, Starbucks Tries to Engage Its Core Customers

Starbucks: 'We're not home or work. We're the third place where you can have some time to yourself and get away.'

The Starbucks guy at the recent Arbitron Fly-In, held in Annapolis, Md., was really interesting, reminding me of the executive from Proctor & Gamble who addressed the group a couple of years ago.

The overarching theme from Arbitron CTO Dr. Taymoor Arshi was that all media use needs to be measured. As we’ve reported, he said that mobile infrastructure is improving and ready to deliver faster Internet access. Internet-enabled car entertainment systems will soon deliver online radio, video and games in addition to GPS. Television and Internet are converging, and audience measurement must be designed for any media, anywhere, anytime, Arshi said.

Knowledge of brand management is emerging as a key driver of successful ratings. Heavy radio users have 31 occasions of radio listening per week, or five a day, on average, according to Tripp Eldredge of Direct Marketing Results in Covington, Ky. The average heavy user spends 15 hours a week with radio. A P1 station would, therefore, win 7.5 hours. This amounts to 6% of a person’s weekly waking hours. When someone is not listening to this P1 station, what do they think of this station? This is the brand relationship. It’s the “mind share” compared to the market share, and this is what creates loyalty, according to Eldredge.

So how does a station develop the brand relationship with prime listeners?

Starbucks Director of U.S. Store Level Marketing, Bill Black, spoke to the radio program consultants about how the national coffee vendor is learning to better serve its core customers. He appeared at the podium wearing his Starbucks barista green apron.

Before his time, Starbucks did little to no market research, he said. The company knew a lot of customers were coming to the stores, but the company didn’t know anything about them, including what they were buying and how often. Now it does. Starbucks has segmented its customers into five groups:

Super Regulars visit stores 16–18 times a month.
Coffeehouse Enthusiasts (8–12 times a month)
Treat Seekers (once a week)
Basic Occasionals (once a month)
Youth Occasionals

Super Regulars are 4% of the customers and 20% of revenue. Coffee House Enthusiasts are 17% of customers and 37% of revenue. If Starbucks were to increase revenue just 5%, Coffeehouse Enthusiasts would deliver more than $150 million annually. Super Regulars would deliver another $87 million.

Super Regulars skew male, with an average salary of $93,000 per year; and 45% are not married. They spend an average of 4 minutes in the store. They spend over $1,000 in Starbucks annually and their average ticket is $4.36. Enthusiasts, in contrast, skew female, with an average salary of $85,000; 64% of this group is married. They spend some $468 annually at Starbucks and their average ticket is $4.70. They’re buying more specialty drinks whereas the Super Regulars stick to plain coffee.

Last year the away-from-home coffee market experienced its first revenue loss in years, but Starbucks maintained it share at 29%, according to Black. This is the largest share except for “other, mom and pop” coffee vendors. Starbucks niche is espresso beverages. They are outsold by McDonalds and Dunkin Donuts in brewed coffees.

The strategy is to maintain Super Regulars, which are like radio’s P1s, and to grow the Coffeehouse Enthusiast and Treat Seekers segments. In other words, sell more coffee, plus specialty drinks and food, which have a higher mark-up than plain coffee, he said. Youth Occasionals don’t have the disposable income for Starbucks, but soon will, and Starbucks expects them to move directly into the Super Regular or Coffeehouse Enthusiast groups.

Eldredge and Black agreed that it’s critical to know your core customers/listeners and what they care about so your station can build the brand relationship with them both on and off the air. That way, when they’re not listening to your station, and when they chose to listen later, they choose you.

When asked what Starbucks is doing to go after radio listeners, Black said it’s rare to see the company use radio or TV ads, their practice is to become part of an event, like the lighting of a local Christmas tree, for example. The idea, said Black is: “We’re not home or work. We’re the third place where you can have some time to yourself and get away.”

One consultant asked when Starbucks would offer free WiFi; Black said those who register for the WiFi can get free two hours of WiFi a day in a Starbucks.

A once-a-weeker, I learned I’m buying their most marked up products!