RUNNING HEAD: DIRECT AND INDIRECT CHANNEL STRATEGY COMPETITIVE

REVIEW
Direct and Indirect Channel Strategy Competitive Review

Eiad Chaer

Nexford University
DIRECT AND INDIRECT CHANNEL STRATEGY COMPETITIVE REVIEW

Let us talk about Starbucks, the coffeehouse company with the biggest revenue in the

world reaching 21 Billion dollars in 2015 (Statista Research Department, 2016).

Starbucks presents its products using mixed direct and indirect marketing channels.

Directly: Starbucks owns 31,256 stores around the world (Lock, 2019). Running and controlling

every step of the road that your products take to reach consumers have great advantages. For

example, Starbucks controls the whole consumer experience, starting at the coffee fields, and

ending in the consumers' cup.

The company adopts a consistent strategy that keeps its strong image printed in the heads

of its consumers, this consistency could only be maintained through this direct marketing

approach. For example, Starbucks commits to fair trade principles, environmental issues, and

sustainability. At the coffee fields the company’s practices manifest its strategy, Starbucks

supports small farmers by having its "Coffee and Farmer Equity Practices" that make sure

farmers are being paid fair prices and even more than the market price (Splitter, 2019).

Another example of this strategy is that the company is building more and more

renewable-energy stores in an initiative named “Starbucks Greener Stores” (Snider, 2018), a

catchy name that has more depth to it than protecting the environment. The company leverages a

competitive edge in today’s more than ever environmentally concerned world. This consistency

leads to brand recognition, customer loyalty, and allows Starbucks to control its product image.

Having its direct marketing channel allows Starbucks to do great cultural integration

which if not run by the same company could be sometimes hindered with partnerships and

complicated distributing contracts. For example, to set a solid foot in the Chinese market the

company adapted highly specified culturally conscious initiatives like the “Partner Family

Forum” (Zakkour, 2017), where the company hosts talks that the parents of the employees -who
DIRECT AND INDIRECT CHANNEL STRATEGY COMPETITIVE REVIEW

are called by Starbucks partners- can attend. A creative idea to get close to the Chinese family-

centered culture.

Also, direct marketing is fast because the product is introduced through channels that are

built by the producer for optimization of the distribution of its specific products, refer to the

appendix for a more comprehensive flowchart of Starbucks marketing channels.

However, direct marketing is not an all pink world. Cutting the middleman means you

must manage complicated distribution operations and spend on logistics and retailing. This

creates an economic burden that is sometimes too heavy for small businesses, besides, they

probably lack the experience in this field too. That is why they use indirect marketing.

Indirect marketing is a big saver of financial expenses, it also provides ready-to-use

customer interface and builds on the middleman’s experience. Indirect marketing puts the

product in the stores, where other competitors might be seizing a cut of the market.

For example, Starbucks benefits from indirect marketing to increase its part of the market

by going into other touchpoints with consumers than its stores, like supermarkets and having

distribution agreements with office coffee suppliers, hotels, and airlines (Helena, 2012). This

helps the company to reach a wider range of consumers, for example, in Germany Starbucks

entered the supermarkets’ consumer base by partnering with a local supermarket series called

REWE, where Starbucks is setting coffee shop corners (“Starbucks”, 2015). This helps to get to

consumers in their familiar environment, which makes marketing a smoother procedure.

Indirect marketing also could help to penetrate new markets with very fundamental

cultural differences, and in this case, a local partner will accelerate the cultural adaptation of the

product. Again, we see Starbucks using this method to have a steady footstep in the Chinese
DIRECT AND INDIRECT CHANNEL STRATEGY COMPETITIVE REVIEW

huge market by collaborating with Chinese partners and offering new items that appeal to the

Chinese consumer’s taste (Khaitan, 2017).

Starbucks also made a partnership with Nestlé, where the last company is responsible for

distributing Starbucks products mainly in supermarkets in the global market, this makes life

much easier for Starbucks as the bigger and more experienced global player, Nestlé, handles part

of the logistical global burden on behaving pf Starbucks (Browne, 2018), refer to the appendix

for a flowchart showing various indirect channels Starbucks uses.

In indirect marketing, issues like customer feedback and the environment the products are

introduced to consumers will be probably out of the hands of the producer, but this is a very

logical solution for small businesses at least at the beginning. The conflict between the

disturber’s interest and the producer’s, like in the case of Nestlé and Starbucks, could lead to

incoherence in delivering the product, that is why indirect marketing requires clearly defined

contracts to guarantee a smooth product delivery procedure and a feedback loop to improve the

product. Another disadvantage of indirect marketing is the long time products need to reach the

consumer, this might be dangerous in today’s fast-changing world.

Of course, a large company like Starbucks combines direct and indirect methods so

seamlessly that one could not define the thin line between the two, but what could we learn is

how to harness opportunities and have strategic planning on every method you use.
 DIRECT AND INDIRECT CHANNEL STRATEGY COMPETITIVE REVIEW

References

Browne, M. (2018, June 5). Nestlé buying rights to market Starbucks products for $7.15 billion.

Retrieved from https://www.supermarketnews.com/center-store/nestl-buying-rights-market-

starbucks-products-715-billion

Bullock, L., & Llewellyn, G. (2018, August 24). Examples of omnichannel marketing experiences

that will inspire you. Retrieved from

https://www.smartinsights.com/digital-marketing-strategy/examples-of-omnichannel-marketing-

experiences-that-will-inspire-you/

Helena, L. (2012, February 22). Starbucks' Distribution Channel. Retrieved from

http://thecoffeeteam.blogspot.com/2012/02/starbucks-distribution-channel.html

How to Create Your Winning Distribution Strategy. (n.d.). Retrieved April 17, 2020, from

https://www.stratechi.com/distribution-strategy/

Khaitan, R. (2017, July 27). 3 Reasons Behind The Success of Starbucks in China Since 1999.

Retrieved from https://frontera.net/news/asia/3-reasons-behind-the-success-of-starbucks-in-

china-since-1999/

Lock, S. (2019, November 19). Starbucks stores in the world. Retrieved from

https://www.statista.com/statistics/266465/number-of-starbucks-stores-worldwide/

Snider, M. (2018, September 13). Starbucks brews a greener plan for 10,000 environmentally

friendly stores. Retrieved from

https://eu.usatoday.com/story/money/business/2018/09/13/starbucks-greener-stores-eco-

friendly/1291573002
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Splitter, J. (2019, August 1). Coffee Farmers Are In Crisis. Starbucks Wants To Help. Retrieved

from https://www.forbes.com/sites/jennysplitter/2019/07/31/coffee-farmers-are-in-crisis-

starbucks-wants-to-help/#3f02db221c71

Starbucks opens stores in German Rewe supermarkets. (2015, October 20). Retrieved from

https://www.retaildetail.eu/en/news/fashion/starbucks-opens-stores-german-rewe-supermarkets

Statista Research Department. (2016, April 10). Coffeehouse chains: leader revenues 2015.

Retrieved from https://www.statista.com/statistics/270091/coffee-house-chains-ranked-by-

revenue/

Villasenor, S. (2019, June 4). How to Craft a Winning International Ecommerce Strategy. Retrieved

from https://www.bigcommerce.com/blog/international-ecommerce-strategy/#crawl-test-and-

learn-with-minimal-risk

Zakkour, M. (2017, August 24). Why Starbucks Succeeded In China: A Lesson For All Retailers.

Retrieved from https://www.forbes.com/sites/michaelzakkour/2017/08/24/why-starbucks-

succeeded-in-china-a-lesson-for-all-retailers/#2581dd7c7923
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Appendix
Flowchart of Starbucks’ Products Distribution Channels

Starbucks
Direct channels Undirect channels
Starbucks App
(online-to-offline Distributors
direct strategy)
(e.g. Néstle)

Other retailers
Starbucks (to serve big Supermarkets
coffee stores offices & airlines) (e.g. REWE)

Consumers