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Starbucks Entertainment: Global Delivery of Music Presented by Starbucks Entertainment Unit April 12, 2008

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Title: Starbucks Entertainment: Global Delivery of Music Presented by Starbucks Entertainment Unit April 12, 2008


1
Starbucks EntertainmentGlobal Delivery of
MusicPresented by Starbucks Entertainment
UnitApril 12, 2008
2
Overview
3
Sweet Sounds of Starbucks
m
4
Key issues
5
Changing music industry
CDs
Digital Music
Paul M. on iTunes
Norah Jones on iTunes
Paul M. CD
James Blunt CD
6
Key issues
7
Strategy matrix
Canada UK ANZ Japan UAE
Size of industry (5) 4 8 5 10 1
GDP per capita (15) 8 7 7 7 10
iTunes Store Access (25) 10 10 10 10 0
Starbucks in country (25) 9 8 6 10 2
willingness to uptake (30) 10 9 8 5 9
9.15 8.65 7.7 8.05 4.75
8
Strategy
9
Valuation of UK expansion
10
Valuation of UK expansion cont
11
Sweet Sounds of Starbucks
Projected Incremental Value
m
12
Marketing Strategies
13
Implementation
JULY 2009 Remove sales of CD in Starbucks stores
in UK Canada
JULY 2010 Introduce digital music in Australia
New Zealand
APRIL 2008 Negotiate with Apple on establishing
technology access.
AUGUST 2010 Japanselling CDs, digital music,
and the Starbucks Coffeehouse Experience
JULY 2008 Introduce digital music in UK and
Canada -Marketing campaign
14
Risk Analysis
15
Outlook
16
Q A
  • Thank You!

17
Appendices
  • Comparisons (Unfavorable nations)
  • Brazil
  • Egypt
  • Russia
  • Eastern Europe
  • Singapore
  • Saudi Arabia
  • Turkey
  • Thailand
  • Cost breakdown of CD
  • Rise of digital music
  • Financial Data
  • Financial Assumptions
  • Financials Cost of capital
  • Starbucks Entertainment
  • Mission
  • SWOT
  • Porters' Five Forces
  • Business environment
  • Stakeholder Analysis
  • What music product
  • Global map
  • Sweet Sound of Starbucks map
  • Marketing budget US
  • Marketing budget UK Canada
  • Marketing in Japan
  • Marketing budget ANZ
  • Competition in 4 Continents
  • Traditional music industry
  • Digital music industry
  • iTunes price reduction

18
Starbucks Entertainment
19
Mission
  • The re-focus of music selection in the US
    market, the introduction of digital music into
    international markets, and the tailored marketing
    strategies for different geographical regions,
    Starbucks Starbucks Entertainment will fulfill
    its goal of enhancing the Starbucks Experience
    through the music.

20
SWOT
21
Porters Five Forces
Starbucks Entertainment introducing digital music
in Starbucks stores
22
Business Environment (Trends)

23
Stakeholder Analysis
24
What music product?
25
What music product?
  • Concerns for customer preference
  • Favor mainstream or local?
  • Stay in stores or grab leave?
  • High community sense?

26
Global Presence
27
Sweet Sound of Starbucks
Phase III Introduce digital music in Australia
New Zealand
Phase II Phase out CDs , then digitalize music in
UK Canada
Phase IV Selling the Starbucks Experience to
Japan
Phase I Refine US music selection Sign up
artists with Hear Music
28
Marketing budget (US, Year 1)
Marketing Deliverables Annual Costs ()
Internet 157,500
Magazines 45,000
Newspaper 22,500
Radio 45,000
Events/Sponsorships 45,000
In-store promotions 90,000
TV advertising 45,000
TOTAL ANNUAL MARKETING BUDGET (1st Year) 450,000
29
Marketing budget (UK Canada, Year 1)
Marketing Deliverables Annual Costs ()
Internet 560,000
Magazines 160,000
Newspaper 80,000
Radio 80,000
Events/Sponsorships 160,000
In-store promotions 400,000
TV advertising 160,000
TOTAL ANNUAL MARKETING BUDGET (1st Year) 1,600,000
30
Entering Japan
31
Marketing to the Japanese market
32
Marketing budget (Japan, Year 1)
Marketing Deliverables Annual Costs ()
Internet 400,000
Magazines 100,000
Newspaper 100,000
Radio 100,000
Events/Sponsorships 400,000
In-store promotions 300,000
TV advertising 600,000
TOTAL ANNUAL MARKETING BUDGET (1st Year) 2,000,000
33
Australia New Zealand
34
Marketing budget (ANZ, Year 1)
Marketing Deliverables Annual Costs ()
Internet 210,000
Magazines 60,000
Newspaper 30,000
Radio 30,000
Events/Sponsorships 60,000
In-store promotions 150,000
TV advertising 60,000
TOTAL ANNUAL MARKETING BUDGET (1st Year) 600,000
35
Competitions in 4 continents
Regions Starbucks Grocery stores Local cafes Regional competitors
N. America Price 3.5 Quality7 Price 0.10 Quality5 Price 3 Quality8 Price 3.5 Quality8
Asia-Pacific Price 4.5 Quality 7 Price 0.10 Quality5 Price 5-10 Quality8-9 Price 3-6 Quality7
Europe Price 3.0 Quality 9 Price 0.10 Quality5 Price 2.5 Quality5-6 Price 2.5 Quality6-7
Australasian Price 4.0 Quality 7-8 Price 0.10 Quality5 Price 3.5 Quality6-7 N/A
36
Traditional music industry
Value Chain
37
Digital music industry
  • Value Chain

38
iTunes Price Reduction

Apple brand dilution Customer attraction High X
Apple brand dilution Customer attraction Low X
High Low
Price Price
39
Comparisons (Unfavorable nations)
Singapore E. Europe Saudi Arabia Thailand Egypt Turkey Russia Brazil
Size of industry (5) 1 1 1 1 1 1 4 7
GDP per capita (15) 9 7 6 3 2 4 5 4
iTunes Store Access (25) 0 0 0 0 0 0 0 0
Starbucks in country (25) 4 1 5 6 1 4 1 1
willingness to uptake (30) 3 6 1 1 5 1 2 1
3.3 3.15 2.5 2.3 2.1 1.95 1.8 1.5
40
Brazil
Brazil Brazil
Size of music industry 1.1-3.1
GDP per capita 9,700 (2007 est.)
Access to iTunes stores 0
Starbucks 53
Willingness to uptake Piracy issue
41
Egypt
Egypt Egypt
Size of music industry N/A
GDP per capita 5,400 (2007 est.)
Access to iTune stores 0
Starbucks 53
Willingness to uptake Medium
42
Russia
Russia Russia
Size of music industry 0.5-1.4
GDP per capita 11,100 24,400 (2007 est.)
Access to iTunes stores 0
Starbucks 53
Willingness to uptake Substitutes
43
Eastern Europe
Czech Republic Romania Czech Republic Romania
Size of music industry 1
GDP per capita 48,900 (2007 est.)
Access to iTunes Store 0
Starbucks 53
Willingness to uptake Improving
44
Singapore
Singapore Singapore
Size of music industry 1
GDP per capita 48,900 (2007 est.)
Access to iTunes Stores 0
Starbucks 53
Willingness to uptake Subsititutes
45
Saudi Arabia
Saudi Arabia Saudi Arabia
Size of music industry
GDP per capita 20,700 (2007 est.)
Access to iTunes Stores 0
Starbucks 59
Willingness to uptake Cultural resistance
46
Turkey
Turkey Turkey
Size of music industry N/A
GDP per capita 9,400 (2007 est.)
Access to iTunes Stores 0
Starbucks 98
Willingness to uptake Medium
47
Thailand
Thailand Thailand
Size of music industry N/A
GDP per capita 8,000 (2007 est.)
Access to iTunes Stores 0
Starbucks 115
Willingness to uptake Subsititutes
48
Cost breakdown of CD
49
Rise of digital music
  • Some 588.2 million album units sold last year,
    down 4.9, while consumers purchased 581.9
    million digital tracks -- a 65 increase from
    2005's 352.7 million sold. Nielsen SoundScan,
    which released the figures Thursday, counts a
    block of 10 tracks sold as an album.
  • (http//www.variety.com, Jan. 4, 2007)

50
Financial Data
Data
US-current Canada UK Japan ANZ
CD's sold per store per day 0.354        
CD's sold with reduced range 0.10        
Revenue per CD 5.40        
Profit margin on CD's 37 37 37 37 37
Corporate tax rate 35        
Price of download 0.99 0.97 1.56 1.49 0.99
Revenue per store (m) 0.93 0.80 0.80 0.80 0.80
stores

20 of CDs sold are from HearMusic
"Starbucks Stores Sell 2 CDs per Day 4.4M Last Year" NY Times - 18th March 2008
51
Financial Assumptions
Assumptions
Terminal growth rate 2.0 2.0 2.5 2.5 3.5
CD's
Inventory need per store 100        
inventory value as RRP 70        
Coffee

Revenue per cup 3.50 3.50 4.30 4.50 4.00
Profit margin on coffee 50 50 59 61 56
Overall additional sales 1 1 1.5 1
iTunes
Selling, general admin exp 20        
Profit margin for Hearmusic 70        
Profit margin for Hearmusic 70        
Profit margin from other labels 5 5 5 5 5
Brand sales 0.10
52
Financials Cost of Capital
Cost of capital (SB) - Use as proxy for SBE Cost of capital (SB) - Use as proxy for SBE Cost of capital (SB) - Use as proxy for SBE
Debt Long term 550,121
  Short term 710,248
  Total 1,260,369
Cost debt Long term 6.25
  Short term 5.40
  Final debt cost 5.77
Equity (Market value 30-09-07) 12,580,000
Tax   35
Risk free (5yr T-bond yield) 2.56
MRP (assumed from historic) 5
Beta (Yahoo finance) 1.15
Cost equity   8.31
E/V   90.9
D/V   9.1
Cost of capital   7.89

project risk premium   2
SBE WACC SBE WACC 10
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