Starbucks Case Study Essay
Introduction
Starbucks has a global presence around the world with functioning extremely well wherever it is present. Currently it is present in a number of countries including Australia, Austria, Beijing, Canada, France, Germany, Greece, Japan, Hawaii, Hong Kong, Malaysia, New Zealand, Peru, Shanghai, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey and United Kingdom. It has several kinds of coffee in its portfolio, which has been originated from different regions such as Latin America, Asia Pacific, Africa, Asia and other multi-region blends (Starbucks Coffee, 2007.). The success of the organization is indicated by its rapid expansion from 281 stores abroad to 1200 stores till date. Not only in the numerical value of number of stores, Starbucks has actually grown in profit size as well with earning almost 20 percent each year after going public last year. Even in a magazine like Business Week has rated Starbucks among one of the fastest growing top brands around the globe as per the research conducted. Even now, the growth is unstoppable with a Starbucks candidly stating, “We’re going to see a lot more growth’, says Jerome A. Castellini, president of Chicago based CastleArk Management, which controls about 300,000 Starbucks shares”
Scope
The scope of the project includes determining the strategy that Starbucks need to use in maintaining its presence around the globe healthily. It also needs to devise a plan to adjust to climate and culture, which is starkly different from one country to the other. Although the figure it displays in profit shows that it need not change because at times its stock price has surpassed that of huge blue chip companies like IBM, Pepsi Cola, Coca Cola, Microsoft, General Electrics and Walmart.
Limitations
Despite the extreme effort, the assignment includes certain limitations which may hurdle the way to the to complete perfection, which includes the time limitations, the monetary constraints, no official negotiations or interviews from any Starbucks official.
Background and Situational Analysis
The existence of this entity dates way 36 years back in 1971 by Howard Schultz initially opened in Seattle, Washington, Unites States of America, which happens to be its headquarter today as well. The foremost act to adjust and be accepted by the locals is to adopt a name that the domestic citizens can understand and that’s what Starbucks has done like “China, Taiwan, Hong Kong: ??? Pinyin: x?ng b? kè, ? x?ng” means star, while is a transliteration of “-bucks, South Korea: transliteration (ss ta buk ss), often used in conjunction with the English name, Japan: transliteration (su taa ba — ku su), Thailand: transliteration (sa taa bak)” (Wikipedia, n.d.).
Despite its heavy cash inflows and profit boost after going public, the coffee place is facing serious issues in its home country. Starbucks has a hefty presence in United States of America and especially in Seattle with an outlet every other corner which is canniblizing its own sales eventually at a rate of 30% per year. Because of its presence at every other corner, it actually has culminated its own growth as there isnt a margin of any making people lead to the conclusion that it has reached its height of saturation. Some critics have even stated that at most two years is what Starbucks is left with. The panic of this news stateed by the fact that Starbucks is planning to increase its global presence to even further stages by increasing the number of outlets around the globe.
There are several other ways that the organization is trying to elaborate its life such as Starbucks Coffee and The New York Times have formed a strategic alliance through which the Times will be the only national newspaper sold at company-owned outlets. In return, the Times will use its national advertising resources to promote the chain’s products and locations” (Brandweek, 2007) as it is the only method via which they can regain their sales in the home country because they have no margin to exapnd any further with the number of outelts.
Market Analysis
The market in the current years have become saturated due to its increasing opening in several states of America with Starbucks becoming a national joke because of its outlets presence at every other corner of the place. The only way to increase or maintain its sales is to increase the amount of visitors attending that outlet or switch people from other brands, which could be only done via more marketing and promotion. In the United States of America the people who started Starbucks in their teenage or adolescence are now putt off by the fact that it has become more of a designer brand than a place to enjoy a cup of coffee at. The oldest customers of Starbucks believe that they are earning of their brand name while the price is not worth their quality.
The market is in the home country is going down rapidly and therefore they need to come up with new schemes and coffee types in order to counter the untapped and lost market. It has applied the strategy of opening up more stores in the home country therefore now it needs to concentrate on its marketing and promotion rather than the pan to open up anymore of the outlets.
The counter strategy Starbucks have decided to shift more to the international market than the home country because of its declining sales in the latter part. “Starbucks Coffee — the world’s largest retailer of specialty coffee — announced last week that it was switching many of its stores in western states and New England to milk free of the controversial artificial hormone rBGH, a move experts say will further harm Monsanto’s declining sales of the hormone” (Fraser, 2007) hence indicating that international market might still hold some unforeseen and vulnerable incidents for it.
Strategy Recommendation
In order to curtail its original position and boost its sales it has to rely more on newer techniques than to just open novel outlets with the same pace. More outlets mean more employees and the employee satisfaction rate is not that high for Starbucks as well despite of high wages as compared to other fast food retailers. It needs to accommodate all the four P’s in its plan in order to gain an overall edge in the market.
The lack of attention to its marketing aspect is indicated by the expenditure it has on Marketing, which is only $30 million. Its constitutes to a minimal percentage of 1 percent to be precise and only on special occasions when they have a launch of a new product or flavors.
Product
Despite the variety presence in the number of coffee and other products available there are still bad healthy remarks associated with caffeine and junk food, which include baked material as well. Therefore in order to counter that they should come up with ways to make their product more healthy and yet tasty like their move of “attempting to eliminate hydrogenated oils from its foods for more than two years” and now “Coffee retailer Starbucks Corp. recently announced that it would remove trans fats from baked goods in half of its U.S. stores by Jan. 3, and plans to eventually cut the unhealthy fats from foods in all its stores” (Fraser, 2007).
There are several advantages attached to this act of there as “the trans fat ban applies to the items offered on Starbucks’ food menu, including doughnuts, muffins and other baked goods. Research has shown that trans fats listed on Starbucks’ ingredients labels as partially hydrogenated vegetable oil clog arteries and can trigger heart attack and stroke, as well as raise levels of “bad” LDL cholesterol” (Fraser, 2007). Hence, assuring a healthy snack along with coffee and as far as the caffeine content of the coffee goes, there are many options for the customer to choose the one that has less caffeine content than the other as there is no lack of variety for any kind of customer.
What they need to do now is to promote their healthiness and taste as per the culture of the country. They need to heavily rely on marketing along with their other strategies, as they have to set off negative sentiments like “After prolonged “caffeinism,” your body enters a state of adrenal exhaustion. Your caffeine consumption has simply pushed your adrenal glands so much that they’ve burned out. Ralph T. Golan, ND, describes this unfortunate state in his book, Herbal Defense: “Caffeine forces your glands to secrete when they don’t have much left to give, and they have to keep digging deeper and deeper, making you more and more tired over time. And over the years, it takes more and more coffee to get the same result. Some people reach the point of drinking half a dozen or more cups of coffee to get the same result and it’s barely keeping them awake. That’s severe adrenal depletion” (Veracity, 2005).
Price
Despite the long existence of Starbucks there still prevails a concept in consumers perception that it charges high because of its brand name development. Although there are some other competitors who are charging more than what Starbucks is but they need to remove this price costly association related to them. According to a research conducted “Starbucks regular coffee was 4 percent less expensive and its iced blended drinks were as much as 30 percent less expensive when compared with specialty competition” (Starbucks’ prices lower than rivals’, 2004).
However in the recent years it has been reported “Starbucks is raising its prices by about 11 cents per cup, effective Oct. 6. The company blames the increase on the higher cost of milk, rent and health insurance. It’s the first system wide increase in the U.S. since August 2000, when the chain raised prices by seven cents” (Starbucks Raising Prices, 2004). Although the price change is within a large interval but it still needs to keep it in control its prices to retain the existing customers. Or else, it would have to promote through marketing and advertisement that the prices it charges are all on market average and fair rate.
After all justification for price people still have counter arguments as “Well, if you break down the components it becomes clear that you are paying a vast premium for the heating of your milk but not the milk itself. The main ingredient is a double shot of espresso, and that costs $1.85. The Starbucks doesn’t charge for a single pump of vanilla, so that’s free. And at the sugar-and-napkins counter, you can pour all the milk into your cup that you like. So that’s free, too” (Markman, 2005).
Place
In the United States of America, Starbucks is situated in almost every other corner and yet there are still places left where it hasn’t opened a single retail outlet. Therefore it needs to plan its placement accordingly in order to spread evenly through out the country. Except the home country, it is present worldwide and is highly appreciated globally. Such as in Japan, it is growing extremely well beating its own expectations. In order to counter the lessening in sales at home, it has decided to go further abroad as “the company announced at its annual meeting last week a plan to open 1,500 new stores globally and boost total revenue by 20%” (Markman, 2004).
It expects to double its existence abroad to 10,000 outlets, which is one of the ways to counter its decreasing sales, but then it has to find a way to counter it within the home country as well. The global companies usually have a stagnant Product Life Cycle after their maturity stage which leads them to prolong their good times as their decline in one country is set off by their growth in the other, hence canceling out the effect.
Promotion
The foremost issue of this organization currently is its lack of marketing in the home country regarding the edge it has over other competing rivals. Due to its lack of interest in this particular field, it is unable to promote its advantages and counter argue it imposed disadvantages. Therefore in order to be proactive and counter the forthcoming irregularities it needs to be within the attention of the audience in order to gain their trust.
In order to gain edge over its competitors it needs to have a proactive marketing plan in focus which it needs to follow in order to be in the minds of the consumer always and not only rely on previous loyal customers and word of mouth.
The lack of their insight in the marketing arena is demonstrated by the fact that “On August 23rd Starbucks sent out an email to some of its Atlanta employees and business partners inviting them to enjoy a free coffee. The email said they could forward it to a few family and friends as well. The emails wound up being sent across the country, resulting in an influx of the coupons on a scale that Starbucks simply never anticipated. It got so big and out of control Starbucks canceled the promotion, saying that the wider-than-expected redistribution altered the intent of the promotion” (Thilk, 2006).
Although it’s reliance on word of mouth and its good will till now has been quite profitable but now since it has passed its growth stage and reach the maturity it needs to devise ways to counter the saturation that has occurred in the home country if not to its global presence.
Recommendations
In order for the organization to counter the fact of its downfall due to saturation in the home country, it needs to enhance its presence in the minds of the current, lost and potential customer to regain its prior value. One of the major issues along with marketing that it faces is its employee satisfaction and motivation level as well. “Many of Starbucks’ 140,000 employees worldwide joined the company after it began the switch to automated espresso machines in 1999, and very few remember the early days when it kept coffee in bins rather than flavor-locked packages” (Allison, 2007). Hence, they enter the organization believing that they know the organization when actually they don’t, which creates problems.
As the saying goes “When the going gets tough, the tough gets going”, Starbucks has also met the same fate, as not one things but everything is seen under a bad light. Where once people just came because of its name, now they are finding the price higher than the fair value despite other places having the same or more price. This could also be countered with the help of its marketing tactics if used intelligently that is by promoting the fairness of its price and justifying it by giving reasons.
For the placement issue, it needs to stop opening its stores at places where it is crowded but needs to focus in promoting and having more customers in the ones that are already present. The foremost issue it needs to cater is the marketing techniques.
Conclusion
In order to revive itself back in the business Starbucks immediately needs to establish a good marketing technique and counter the issues of placement, price, rumors that it is facing currently.
Bibliography
- Starbucks. (2007). Retrieved on 26 February 2007 from http://www.starbucks.com/
- Starbucks. (n.d.). Wikipedia, the free encyclopedia. Retrieved on 26 February 2007 from http://en.wikipedia.org/wiki/Starbucks_Coffee
- Brandweek. (2007). Starbucks Dumps USA Today, Inks with New York Times – Brief Article. ). Retrieved on 26 February 2007 from http://www.findarticles.com/p/articles/mi_m0BDW/is_32_41/ai_64161110
- Fraser, J. (2007). Starbucks to cut trans fats from baked goods in half of U.S. store. Retrieved on 26 February 2007 from http://www.newstarget.com/021387.html
- Fraser, J. (2007). Starbucks to cut trans fats from baked goods in half of U.S. stores Retrieved on 26 February 2007 from http://www.newstarget.com/021387.html
- Veracity, D. (2005). The hidden dangers of caffeine: How coffee causes exhaustion, fatigue and addiction. Retrieved on 26 February 2007 from http://www.newstarget.com/012352.html
- Starbucks’ prices lower than rivals. (2004). Retrieved on 26 February 2007 from http://starbucksgossip.typepad.com/_/2004/08/starbucks_price.html
- Starbucks Raising Prices. (2004). Retrieved on 26 February 2007 from http://www.consumeraffairs.com/news04/starbucks.html
- Markman, J. D. (2004). Starbucks’ genius blends community, caffeine. Retrieved on 26 February 2007 from http://moneycentral.msn.com/content/P107679.asp
- Thilk, C. (2006). Starbucks email campaign a tad too successful. Retrieved on 26 February 2007 from http://www.adjab.com/2006/09/01/starbucks-email-campaign-a-tad-too-successful/
- Allsion, M. (2007). Starbucks must find lost “soul,” Schultz says. Retrieved on 26 February 2007 from http://seattletimes.nwsource.com/html/businesstechnology/2003586922_starbucks24.html
