Starbucks

PRINCIPLES OF MANAGEMENT ASSIGNMENT 1: STARBUCKS CASE STUDY Summary The history of Starbucks starts in Seattle in 1971. Three friends, Jerry Baldwin, Zev Siegl, and Gordon Bowker, who all had a passion for fresh coffee, opened a small shop and began selling fresh-roasted, gourmet coffee beans and brewing and roasting accessories. In 1981 Howard Schultz first walked into Starbucks as a sales representative for a Swedish kitchen manufacturer. He immediately wanted to work for the company as he got so inspired by Starbucks but it took him a year to finally persuade the owners to hire him.

The owners were reluctant initially to hire Schultz because they thought his style and high energy might not blend with the existing culture of the company. However in 1982 Starbucks hired Schultz as the new head of retail operations and marketing and shortly thereafter was sent to Milan to attend an international housewares show in Italy. When he arrived, Schultz found himself infatuated with the exciting coffee culture of Italy. Schultz went to Verona and had his first caffe latte. But he observed something more important than the coffee.

The cafe customers were chatting and enjoying themselves while sipping their coffees in the elegant surroundings. That’s when Schultz was struck with an inspirational idea. “Why not create community gathering places like the great coffee house of Italy in the United States? ” However, Schultz’s idea did not go down well with Baldwin. Baldwin was not ready to get into the restaurant business nor to have anything distract him from his original plan of selling whole beans. Schultz, however, branched out on his own and opened a coffee house named after Italy’s largest newspaper, The Daily, or Il Giornale.

Two months later, the new store was serving more than 700 customers a day, and it was selling 300 percent more than the Starbucks locations. In 1987 the owners of Starbucks Coffee Company decided to sell their coffee business, along with the name for $3. 8 million. Schultz raised the money by convincing local investors of his vision. Now with over 11,000 outlets in more than 36 countries, Starbucks is the world’s number one specialty coffee retailer. Schultz philosophy: “We aren’t in the coffee business, serving people.

We’re in the people business, serving coffee” has shaped and continues to shape the company. Q1: What management skill do you think would be most important for Howard Schultz to have? Why? What skill do you think would be most important for a Starbucks store manager to have? Why? Conceptual Skill would be the most important skill for Howard Schultz to have and as we can see Schultz already had those skills. When he went to Italy and saw espresso bar it was his conceptual skills that led him to the idea of introducing coffee bars in America.

It was his conceptual skills that led him to identify the opportunity. And it is the conceptual skills that lead managers to take advantage of opportunities and oppose threats as well as make good business decisions and lead him to innovation. Human and Technical Skills would be the most important for a store manager because he is in direct contact with employees. By Human skills he is able to work well with other people individually and in a group and by technical skills he can guide people under his supervision to efficiently perform specific tasks.

Q2: How might the following management theories/approaches be useful to Starbucks: Scientific Management, Organizational Behavior, Quantitative approach, System Approach? SCIENTIFIC MANAGEMENT: It is concerned with improving the performance of individual worker and finding the best way to do particular task. Starbucks coffee producing department is the place where scientific management theory can be applicable where they can divide and distribute jobs and find out the best way of performing tasks in order to improve production efficiency.

ORGANIZATIONAL BEHAVIOUR: It is the field of study concerned with the actions or behavior of people at work. Organizational Behavior theory can be useful for Starbucks in the following ways: SYSTEM APPROACH: System can be defined as a set of interrelated components with clearly define boundaries working together to achieve an objective by performing three main functions such as input, processing and output. Using the system approach it is important for Starbucks departments to work together as one unit.

For example if the marketing and production department don’t work in collaboration with each other Starbucks as a whole organization would suffer. Also using the system approach Starbucks must be aware of the environment its working in. For example if the company opens an outlet in another country it must be aware of the government rules and regulations and also the taste and trends of society there. QUANTATIVE APPROACH: It involves applications of statistics, optimization models, information models and computer simulations to management activities. Quantative approach can be useful in the following ways: ) Price: Starbucks can judge the amount of price to be charged on a product if the price is high then no one will buy the product and if it’s low then the business won’t be able to maximize its profits. 2) Customer Preferences: It can conduct and analyze surveys about customer’s likes and dislikes. This will help the business in improving their product, services and surrounding atmosphere. 3) Sales Analysis: Starbucks can conduct sales analysis which can help them in forecasting future sales and allocate required resources and also help them in budgeting.

The three trends and issues are as follows: These skills includes Looking for Opportunities Innovation Growth Due to these skills, Starbucks has excelled and reached to the height of success. Starbucks focused on growth i. e the reason they have been able to expand to 11,000 outlets in 36 countries. They also introduced many innovations in their product line. It is mostly implicated on top line managers as they are the ones who make major business decisions. Starbucks operates in many countries; therefore it consists of diverse workforce.

So as a manager it is necessary to be well-acquainted with the diverse backgrounds of individuals in order to manage its workforce effectively. It is most applicable for the first line managers because they are the ones who are in direct contact with employees. In Starbucks black apron displaying the little “coffee master” are worn by employees who have completed the coffee master course, which shows that Starbucks conducts many programs to enhance the knowledge of workers.

This implies mostly to middle level managers as they are ones who are responsible for meeting the goals set by top level managers by managing the workforce which includes enhancing their learning and knowledge. Q4: Give examples of how Howard Schultz might perform the interpersonal roles, the informational roles, and decisional roles. Schultz, as a figurehead, can be the greeting visitor, signing legal documents. He would attend ribbon cutting ceremonies for new plants. He could be a leader responsible for motivating subordinates and staffing, training.

He could also coordinate activities of various project works. INFORMATIONAL ROLES: Schultz can perform this role by monitoring reports, holding informational meetings, making phone calls to rely information, holding board meetings, giving information to media Q5: Look at Howard Schultz philosophy of Starbucks. How will this affect the way company is managed? At first businesses used to focus on products. But with the passage of time businesses have realized that their main purpose is serving the people. Schultz philosophy has shaped and continues to shape the company.

The company is now more focused on the five C’s: community, connection, caring, committed and coffee. Now the company doesn’t only focus on producing coffee rather all its activities are now driven to provide customer satisfaction by giving them quality service and understand and meeting their needs, tastes and preferences. What mangers can learn from this case study? We as managers can learn the following from the Starbucks case study. Focus on the people Businesses traditionally used to mainly focus on their products.

Their prime objective was to manufacture mass products at low cost and hence make more profits. But now businesses have grown smart, they realize the importance of people in their business. Now companies strive to build better and long term relations with their customers by providing them with top notch services and quality products. And that is exactly what Howard Schultz philosophy reflected: “We aren’t in the coffee business, serving people. We’re in the people business, serving coffee. ” It is this philosophy of Schultz that has taken Starbucks to new heights.

We as managers of today need to realize this and shift our focus on our customers by providing them with best quality service and products which is the key for businesses to survive in today’s very competitive world and also for the company to benefit in the long run. True Entrepreneur Spirit Entrepreneurship has three main themes: Opportunity, Innovation and Growth. When Schultz walked into an espresso bar he quickly saw the opportunity because such a concept did not exist in America and if applied in America could be very successful.

We can say that Schultz was open to ideas and an opportunity seeker. We as managers need to be more open to ideas and not get stuck just on routine day to day task. We need to think out of the box and grasp on opportunities out there. If we won’t our competitors will and we can be left behind in the race. Starbucks did not get stuck with just producing simple coffee. It got innovative and launched various other products such as hot and iced espresso beverages, coffee and noncoffee blended beverages, Tazo teas, home espresso machines, premium chocolates, baked pasties, sandwiches etc.

Thus we learn it’s important to be innovative and meet the changing trends in customer’s taste and preferences otherwise business can become stagnant. Schultz started with a small chain of espresso bars but he didn’t stop there. He always looked for expansion and growth and that is the reason why Starbucks today has over 11,000 outlets in 36 countries. As managers we always need to strive for growth and expansion. Grow and expand to reach new marketplaces and new customers that will in return result in more revenue and profits for the company.

This report will analysis the strategy and business performance in the retail food sector, the company I will be analyzing is Starbucks Coffee UK, using the PESTEL. Starbucks is a multinational coffee and coffeehouse chain based in the USA. It is the largest coffeehouse company in the world. Starbucks was founded in 1970, with the first store opening that year in USA. In 1982 Howard Schultz joined the company, later going on to be the Chairman, CEO and President of the company. The first UK store of Starbucks opened in 1998.

In 2007, there were 15,011 Starbucks outlets in 42 countries, 6,793 of these being in the US. Additionally Starbucks was voted one of the top ten UK workplaces in the Financial Times 2007. In the future Starbucks aim’s to operate over 40,000 outlets worldwide. The PESTEL framework gives broad list of influences on the likely success or failure of particular strategies. It is important to analyse how environmental influences are effecting an organization in the present and in the future.

The PESTEL analysis is used as it sufficiently can be used to understand and identify the important factors that Starbucks must consider in all areas of the business and industry. PESTEL stands for: Political – current political influences and the influence of the Government Economic – business cycles, world economy and inflation Social – changes in society, lifestyle changes as well as social mobility Technological -growth of the Internet, new emerging technology and Government spending on research Environmental – ‘green issues’ and growth of environmental protection laws

Legal – Changing health and safety laws, growth of legislative constraints on companies. Employment Law – Each country that Starbucks operates in has there own varying employment laws. Many stores may offer a day of once a week, others may have a limit on the maximum number of hours an employee can work in a week and in all countries there is a variance on the national minimum wage that an employee can earn. From looking at the PESTEL analysis it can be seen that Starbucks is a strong brand, and this strength of the brand is an important factor in the future of the company.

The PESTEL analysis is mainly used to assess the future impact of environmental issues that may occur. However it only deals with the external business environment, additionally another limitation is that these environmental influences that have been expressed may be important to one company, but in turn may not be as important to another. Often it can be seen when analysing the issues using the PESTEL analysis it can be seen a merely listing al the external influences as opposed to was in which the company can improve or the strengths of the company.

For the environmental analysis to be more accurate it is important for the company to monitor and focus on the factors that most influence the industry. BSS Business Management Coursework 2 : Individual Report

Referances:

Chambers I, (1997), Business Studies, Casueway Press Johnson G, Scholes ; Whittington, (2005), Exploring Corporate Strategy, FT Prentice Hall Mullins L. J, (2004), Management and Organizational Behaviour, FT Publishing

Starbucks’ Mission and Strategic Choices: Are They in Alignment? Executive Summary This paper examines strategic management, which encompasses business decisions and actions that: define the organization’s mission and objectives, determine the most effective utilization of organizational resources, select best courses of action to meet its mission, and seek to assure the effectiveness of the organization within the environment. This case study evaluates the strategic management process, and applies those concepts to a practical case study of Starbuck’s mission statement.

This case study is presented in the format of a formal business report – prepared by a consultant and presented to the Starbucks’ Board of Directors and CEO – that provides an analysis of Starbucks’ mission and strategic choices, and a summary of the alignment of those strategies to its mission. This report is based on a critical review of the Starbuck mission statement, goals, and objectives, which is then compared against the strategic choices that Starbucks has made (e. g. product differentiation, research and development, operations) to determine how well Starbuck’s strategic choices are aligned to the company’s mission and vision. Finally, this study answers the question: Will the company continue its past success? Randy Tanner, 2009 Starbucks’ Mission and Strategic Choices: Are They in Alignment? Cover Sheet: Starbucks Corp. 2401 Utah Avenue South Seattle, WA 98134 Phone: 206-447-1575 Fax: 206-682-7570 Web Site: http://www. starbucks. com Business Plan presented to:Howard Schultz, Chairman of the Board, President, CEO Starbucks Board of Directors

Prepared by:Randy S. Tanner Statement of Purpose:Analysis of Starbucks’ Mission and Strategic Choices: Are They in Alignment? Table of Contents Executive Summary4 Background4 Company Description4 Starbucks’ Mission, Vision, Goals and Objectives. 4 Strategies. 5 Management Team. 6 Business Model. 6 Infrastructure7 Offering. 7 Revenue Model. 7 Pricing. 8 Customers. 8 Competitors. 8 Stakeholders. 8 Marketing Strategy. 9 Financials. 9 Analysis10 Company Analysis. 10 Current Marketing Mix Strategies (Product, Price, People, and Promotion). 10 Current Target Markets10

Market Analysis. 10 Competition & SWOT Analysis. 11 Competitive advantage. 12 Financial Analysis. 12 Conclusion13 Are Starbucks’ mission and strategic choices in alignment? 13 Will the company continue its past success? 13 Executive Summary Are Starbucks’ mission and strategic choices in alignment? Yes. The strategies of innovation, product differentiation, and customer experience are directly aligned with Starbucks published mission “to establish Starbucks as the premier purveyor of the finest coffee in the world,” while “inspiring and nurturing” the spirit of their customers.

Starbucks continues to apply strategies to expand its product offering in both breadth and depth. Coupled with this strategy is the expansion of alternate distribution channels to multiply the potential in increased revenues. Each offering in the product portfolio reinforces the brand name and quality experience described in the company’s vision statement. The recent focus on increasing profits in existing stores is not a shift of business strategy, but more of a symptom of business maturity – less waste equals more profit.

The corporation has tempered its original goal of market dominance by saturation – slowing its growth in new stores – to market dominance with more efficient and more profitable stores with its strategy of disciplined expansion in key markets. The strategy of using the Seattle’s Best segment, vice Starbucks to expand the base of corporate customers also supports Starbucks’s prime mission. This elevation of Seattle’s Best does not create a corporate-sponsored competitor to the nearby Starbucks stores, but does serve as an alternate distribution channel for the company’s expanded product line.

Therefore, this strategy supports the overall brand quality of Starbucks as the “premier coffee,” yet captures additional customers that do not seek the branded Starbuck experience and would likely choose one the niche competitors. This strategy can cater to a slightly different clientele – in both coffee stores and supermarkets – and increase overall corporate revenues. Will the company continue its past success? Yes. A continued emphasis on customer satisfaction, coupled with effective strategies that develop new product lines, will stimulate revenue growth and stabilize share prices.

The current vision and path summarized by Starbucks president and CEO, Howard Schultz, is a commitment to “continually improving our customer experience as the roadmap to renewed growth and increasing profitability,” with emphasis on continued application of previously successful strategies, “we will continue to innovate and differentiate, two perennial hallmarks of the Starbucks brand. ” (Starbucks Financial Releases, 2009) Background

Strategic management is “a company-wide process that includes a long-term plan of action that assists in achieving an organization’s objectives and fulfills company vision,” (course material) and is comprised of four major elements: situation analysis, strategy formulation, strategy implementation, and strategy evaluation. (Bushman, (2007) This Strategic Management process includes the following steps: (Luca, 2009) 1. Developing a Vision/Mission/Goals and Objectives 2. Analyzing the environment company (internal and external) 3.

Identifying internal Strengths and Weaknesses and external Threats and Opportunities (SWOT) 4. Articulating strategic choices at the business, functional, and corporate levels 5. Selecting a strategy or strategies, based on in-depth internal and external analyses, to accomplish vision and mission goals. These strategies may exist at several levels: business, functional, corporate, and global. Company Description According to the company’s Factsheet (2009), Starbucks was founded in 1971 in Seattle’s Pike Place Market. The original name of “Starbucks Coffee, Tea and Spices” was later changed to “Starbucks Coffee Company. As quoted from Google Finance (Starbucks Corporation, 2009), Starbucks, together with its subsidiaries, “purchases and roasts whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, complementary food items, a selection of premium teas, and coffee-related accessories and equipment, through Company-operated retail stores. Starbucks also sells coffee and tea products and licenses its trademark through other channels. Starbucks produces and sells a range of ready-to-drink beverages.

The business segments of the Company are United States, International, and Global Consumer Products Group (CPG). The CPG segment includes packaged coffee and tea sold globally through channels, such as grocery stores and operates through joint ventures and licensing arrangements with consumer products business partners. ” Starbucks’ Mission, Vision, Goals and Objectives. Mission statements are “fundamental to the survival and growth of any business,” (Analoui and Karami, 2002) and “set the direction and goal for the long term, reflecting the strategic intent. (course material) According to Germain and Cooper (1990), an appropriate mission statement serves to “promote a sense of shared expectations amongst employees and communicate a public image of the firm to important stakeholders and groups in the company’s task environment. ” Starbucks’ mission statement as stated in the corporate Factsheet (2009) is “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. The company’s stated Vision, Goals, and Objectives may be found listed as “Our Starbucks Mission” in the corporate website (The Company, 2009). This vision is expressed as “To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time. ” Some of the company’s objectives – referred to as “guiding principles” – included in that strategic vision focus on: 1. Quality of the coffee 2. Robust partnerships 3. Human connection to customers 4. Unique atmosphere of the retail stores that encourages social interaction 5. Being accepted as neighbor in the community 6.

Obligation to shareholders (long-term success and profitability) Strategies. The original focus since the company’s beginning has been on product differentiation, in both the product and the store setting. This strategy emphasizes a premium product served in a unique atmosphere. Some claimed tactics employed to execute these strategies are to: (Factsheet, 2009) • Provide a great work environment and treat each other with respect and dignity. • Embrace diversity as an essential component in the way we do business. • Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. • Contribute positively to our communities and our environment. • Recognize that profitability is essential to our future success Historical Strategies for business growth noted in the 2006 shareholder’s meeting included continued expansion of retail stores, and expansion of the company’s portfolio of unique and innovative products “to appeal to a broad consumer base. ” (Business Wire, 2006) These products included: • Premium and proprietary food offerings as a component of the Starbucks Experience. Introduction of warm breakfast items in Company-operated stores by 2008. • Joint venture with Apple to launch a Starbucks Entertainment Area on iTunes. • Introduction of a heated-on-demand vending initiative, • Expansion of its Kraft relationship to distribute Starbucks coffee into supermarkets. Recent changes to this original approach – which were in response to the recent economic downturn and drop in share prices – are aimed at retaining customers, rather than gaining new ones. According to Howard Schultz, the company’s CEO, “The issue at hand… is the cost of losing your core customer. (Adamy & Wingfield, 2009) These changes in business strategy shift the focus from market saturation with additional stores to: (Starbucks Newsroom, 2009) 1. Increasing profits in existing stores, 2. Expanding the product base, and 3. “Disciplined global store expansion in key markets. ” While continuing with the strategy of product expansion (to even include some non-food products), Starbucks has tempered its desire for continually opening new stores. This “disciplined” approach includes more niche targeting in key markets and even opening, or converting to, a Seattle’s Best vice Starbucks.

Some of the new tactics announced at the 2009 Shareholders Meeting to implement this strategy include: • A $500 million structural expense reduction to align the company’s cost structure to its current business strategy • Focused efforts to improve operational efficiencies with technology investments, and better training for store managers • Emphasizing the concepts of value and quality to the customer with selective price incentives • Launching VIA™ Ready Brew instant coffee to tap the $17 billion instant coffee market • Expanding alternate foodservice channels

Management Team. Corporate organization and key management team members include: (Reuters, 2009) Howard SchultzChairman of the Board, President, CEO Troy AlsteadChief Financial Officer, Chief Administrative Officer Arthur I. RubinfeldPresident – Global Development Martin P. ColesPresident – Starbucks Coffee International Clifford BurrowsPresident – Starbucks Coffee US Paula E. BoggsExec VP, General Counsel, Secretary Michelle GassExec VP – Marketing and Category Olden C. LeeInterim Exec VP – Partner Resources, Director Dorothy J.

KimExec VP – Global Strategy, Office of the CEO Peter D. GibbonsExec VP – Global Supply Chain Operations Culver, JohnExec VP, President – Global Consumer Products, Foodservice & Seattle’s Best Coffee Business Model. According to Osterwalder, Pigneur, & Tucci (2005), a company’s business model includes: infrastructure, offering, customers, and revenue model. 1. Infrastructure – the core capabilities and competencies, partnership network, or business alliances, and value configuration (what makes it mutually beneficial for a business and its customers). . Offering – the value of products and services offered for a specific customer segment, and how it differentiates itself from its competitors. 3. Customers – includes (1) the target audience for a business’ products and services, (2) the distribution channel used to reach the customers (includes marketing and distribution strategy), and customer relationship management. 4. Revenue model – the cost structure and revenue flows that define the company’s income. Infrastructure.

Starbucks infrastructure (sales & distribution model) began as a basic shopkeeper model[1]; brewing and serving fresh, premium quality coffee in a relaxed “neighborhood” atmosphere. This model chooses a location frequented by targeted customers, employs low-wage workers, and establishes repeat business based on customer satisfaction and ease of access. Recent strategic management emphasis is trending toward, or adapting part of the Loyalty or Service Quality model to reinforce the perceived quality of the product. Part of this model is based on the belief that it is cheaper to keep customers than gain new ones.

Offering. The Starbucks brand portfolio is marketed as premium and, therefore, is luxury goods, relying on “consumer discretionary spending to drive sales. ” (Hattery, 2009) This portfolio includes Starbucks Entertainment, Starbucks Hear Music, Tazo, Ethos water, Seattle’s Best Coffee, and Torrefazione Italia Coffee – offers a variety of products and services through its retail stores and other channels, including: • 30 blends of Coffee • Handcrafted Beverages – fresh-brewed coffee, hot and iced espresso beverages, coffee and non-coffee blended beverages, and Tazo® teas. Merchandise – home espresso machines, coffee brewers and grinders, premium chocolates, coffee mugs and accessories, and gift items. • Fresh Food – baked pastries, sandwiches, and salads. • Starbucks Entertainment – selection of music, books, and film from both emerging and established artists. • Global Consumer Products – bottled Frappuccino® beverages, Discoveries® chilled cup coffee, DoubleShot® espresso drinks, Starbucks® Iced Coffee, whole bean coffee and Tazo® teas, Starbucks™ Coffee Liqueurs, and a line of premium ice creams. • Starbucks Card – a reloadable pre-paid debit card.

Revenue Model. Starbucks’ revenue model includes its cost structure and revenue flows. Starbucks operating costs are directly influenced by fluctuations in the commodity prices (milk and coffee beans) which have risen sharply in the past. Starbucks purchases teas and primarily Arabica coffee beans directly from international markets in Costa Rica, Africa, Asian Pacific, and China. The wholesale price of coffee beans is unstable and often susceptible to dramatic price changes from a variety of weather and political events that may, or may not, affect global production.

These reactionary prices can remain elevated for several years. Coffee prices in 2008, for example, were 20% higher on average than 2007, resulting in Starbucks paying an average price of $1. 42 per pound of green (unroasted) coffee. The price of Milk futures also rose dramatically from $13 to $18 per hundredweight in March, 2007, falling only recently to $17 in September, 2009. Starbucks’ revenue flow from its company operated coffeehouses relies on discretionary consumer spending, and can be affected by negative economic conditions. In fiscal 2008, Starbucks generated $10. billion in revenue through the sale of whole bean coffee, food, equipment, and beverages. The distribution channels included both its retail stores and specialty operations. [pic] Figure 1 – Revenue Categories Company operated retail stores (7,238 stores in North America and 1,979 international) generated 84 percent of the total revenue. (Hattery, 2009) The remaining 16 percent was generated through the specialty operations segment, which is chartered to “develop the company’s brand through third parties outside the traditional coffeehouse. This segment channels, and percentage of specialty operations revenue generated, include: 1. Licensed Stores (48 percent) located in airports and supermarkets that generate licensing fees, royalties, and retail revenue from coffee, tea, and CDs. 2. Foodservices Operations (25 percent) sells Starbucks coffee to restaurants, offices, hotels, and Barnes & Noble Cafes under different licensing contracts. 3. Packaged Tea and Coffee (21 percent) sold at various food stores. 4. Branded Products (4 percent) like ready-to-drink beverages and ice creams sold through partnerships with Pepsi and Dreyer’s.

Pricing. Starbucks has maintained a premium pricing strategy for its branded premium quality coffee beans and unique customer experience. Customers. Starbucks serves approximately 50 million customers a week in its stores. The target market is defined as “young (25-to-45 years old) professional men and women, in higher income brackets with stressful lives (at work, home, or both). Most members of this target market live in the suburbs and commute to work in urban areas. ” (Holmes, Bennett, Carlisle, Dawson, 2002) Competitors. Although Starbucks maintains a “dominant position in the specialty coffeehouse market and has no single clear rival in the sector,” (Hattery, 2009) competitors include other specialty coffee shops, doughnut shops, and restaurants. The closest specialty coffeehouse competitor is Caribou Coffee, with only 415 stores, with the major competition being “dispersed among the thousands of independent or small-chain coffee shops (i. e. , Diedrich Coffee, Inc, Coffee Heaven Intl. , Autogrill S. p. A. Stumptown Coffee Roasters, Intelligentsia Coffee & Tea, Inc), and McDonalds Corp[2]. Stakeholders. Starbucks’ organizational stakeholders include both individuals and groups “who have an interest (give-and-take) relationship with the firm. ” (course material) These internal and external stakeholders of Starbucks are identified as: shareholders, employees (including board members, executives, managers, supervisors, and baristas), customers, suppliers, local communities, and global alliance partners[3] Marketing Strategy.

As described in VoteForUs (n. d. ), since the company’s inception in 1971, its marketing strategy has “ignored the traditional advertizing avenues of billboards and commercials and focused on seven fundamentals to differentiate Starbucks from other cafes. ” These fundamental areas of marketing focus are: (VoteForUs, n. d. ) 1. Perfect Cup of Coffee – an emphasis on product quality (rich, delicious taste and aroma) to support the premium pricing structure. 2. Third Place – creating the “third place” for everyone to go to between home and work.

This is another differentiation technique, aimed to create a unique and relaxing experience or atmosphere with which Starbucks could be branded. 3. Customer Satisfaction – ensure that customers feel the uniqueness of enjoying their Starbucks coffee experience. 4. Creating a Starbucks Community – this marketing strategy has even expanded to create a community around their brand. On their website, individuals are encouraged to express their experiences with Starbucks history, and the company strives to “personally” join in the discussions. 5.

Smart Partnerships – create strategic partnerships that expand business opportunities and increase sales. 6. Innovation – a strategy to continually create new products or services that support their customer base or add new customer segments. (different coffee flavors, more food on their menu, and one of the first to offer internet capability in their stores) 7. Brand Marketing – The Starbucks marketing strategy has always focused on “word-of-mouth” advertising and viral marketing, letting the high quality of their products and services speak for themselves.

Financials. Evaluating the company’s financial statements since the economic low point of May 2008 – with its first quarterly decline in profit, and 38 percent stock plunge – Starbuck’s has managed to maintain a healthy balance sheet. Consolidated company revenues for Q3 2009 were $2. 4 billion, compared to $2. 6 billion in 2008, reflecting a five percent decline in store sales. Quarterly financial sheets verify the reduction in operating income and corresponding slight increase in net profits.

With the cost realignment scheduled to be completed in 2009, operating costs are expected to drop further. Total revenues for Q2 2009 show a positive rebound with a sustained upward trend over the last two quarters. Share prices – which bottomed around $8. 00 during Dec08 through Mar09 – have stabilized around $19. 00 for the last quarter. In response to the implemented cost reduction strategies, Standard & Poor’s raised the company’s short-term debt ratings (from “A-3” to “A-2) and “revised its outlook to ’stable’ from negative,” (Ogg, 2009), reaffirming the “BBB” corporate credit rating.

According to Ogg (2009), “S&P believes that the company’s performance will continue to stabilize and that the credit metrics will continue to improve or remain at the current levels. ” Analysis Alignment in the framework of strategic management refers to the mutual agreement and enforcement of the company’s vision, mission, and goals with its business strategies. These strategies are employed to achieve and maintain a competitive advantage in the market segment, and ensure long-term profitability for the company. Company Analysis.

This company analysis focuses on three factors or issues involved in maintaining a competitive advantage. These factors and issues are: (1) current target markets, (2) current marketing mix strategies, and (3) the strengths and weaknesses of the Company. The company’s marketing mix strategies are discussed in relation to the Five P’s of Marketing. The elements of Five P’s of Marketing include product, price, place, people and promotion. (Nimetz, 2009) These factors are explored in comparison to Starbucks’ published mission, vision statements, and guiding principles. To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. • To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time. ” Current Marketing Mix Strategies (Product, Price, People, and Promotion). Starbucks built its coffee stores on the principle product of Arabica coffee beans. This product was marketed as a premium quality item that “” The pricing scheme followed the premium quality scheme, offering the customer more than a cup of coffee.

Starbucks stores became the “third place” to go to and enjoy a unique atmosphere. One new strategy that CEO Howard Schultz brought with him was the emphasis on the role of sales clerks, or Barristers who brewed and served the coffee. Specialized training for employees reinforces their role in the customer’s perceived value of the product – the unique Starbucks experience. The promotion tactics employed by Starbucks broke with traditional concepts and avoided advertising, relying on word-of-mouth or viral advertising techniques where satisfied customers willingly share with others, and promote the Starbucks experience.

This viral advertising has proven quite effective. Current Target Markets. For most Starbucks most consumers, coffee is not just coffee, but more of a ritual – a deserved reward. However, although the targeted market of professionals contains a significant percentage of higher-income professionals, the recent decrease in sales (and corresponding drop in shares) implies that they too are affected by the economic downturn and willing to reduce their “rewards. ” Market Analysis. A market analysis reviews the specific market segment being targeted, and examines the demographic and social data required to “know your customer. This required information concerning the targeted customer includes: • Who they are • Where they are • How to reach them • Identifying their needs (what justifies premium price) • Size of market • Percentage of market captured • Market growth potential Starbucks market for its coffee stores is targeted at 25- to 45-year-old professionals looking for solitude, or social interaction, without alcohol. This higher-income crowd of young, college-educated represents a group which tends toward higher luxury-consumption levels.

The failure to successfully add drive-through service to its stores clearly differentiates its clientele from McDonalds or Java Hut customers whose needs or to grab a quick caffeine jolt on the way to or from work. According to Euromonitor International Plc,[4] Starbucks has captured 52 percent of the global specialty coffee market. According to Mintel (global consumer research firm in Chicago) Starbucks controls 43 – 73% of the U. S. market share[5] in coffeehouse sales in 2005, with its closest rivals being Caribou Coffee, and Peet’s Coffee and Tea.

Competition & SWOT Analysis. The SWOT analysis identifies and evaluates a company’s internal factors (strengths and weaknesses) and external factors (opportunities, and threats). This analysis helps to focus on key issues to consider in strategic planning. The following details are an updated paraphrase of the SWOT analysis from Marketing Teacher (2007): Strengths. • Starbucks Corporation is a very profitable organization, earning in excess of $459 million in 2008. The company generated revenue of more than $10. billion in 2008, exceeding revenue for 2007. • It is a global coffee brand built upon a reputation for fine products and services with approximately 9000 cafes around the globe. • Starbucks is know as a respected employer that values its workforce, and was one of the Fortune Top 100 Companies to Work For in 2005. • The organization displays strong ethical values and an ethical mission statement that emphasizes its commitment to environmental leadership. Weaknesses. • Starbucks has a reputation for new product development and creativity.

However, they remain vulnerable to the possibility that their innovation may falter over time. • The organization has a strong presence in the U. S. with more than three quarters of their cafes located in the home market. An increased percentage of international cafes would help to spread business risk. • The organization is dependant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the need arise. Opportunities. • New products and services can be retailed in their cafes, such as Fair Trade products. The company has the opportunity to expand its global operations with the emerging markets for coffee in India and the Pacific Rim nations. • Additional co-branding with other manufacturers of food and drink can be pursued. • Capitalizing on the Seattle’s Best brand in both the retail and franchise markets could diversify revenue streams and spread business risk. • With recent economic conditions, and dwindling disposable income, Starbucks could pursue a larger market share of the home-brewed coffee market with increased advertising. Pursuing additional partnerships with manufacturers of other goods and services has potential to decrease Starbuck’s dependency on it single competitive advantage in retail coffee. Threats. • Starbucks has been branded and marketed as a luxury item, relying on the disposable income of its targeted customers. Regional, or national economic instability can be reflected quickly in revenue loss. • Future growth of the coffee market is uncertain. A change in the current fad of coffee shops would significantly impact Starbuck’s major source of revenue. • Starbucks is exposed to unpredictable cost increases in wholesale coffee and dairy products. Recent growth in the coffee house market has attracted many competitors, including copy cat brands and national restaurants that pose potential threats to Starbuck’s competitive advantage. Competitive advantage. Starbucks established an early dominance in the market segment of coffee houses, and sustains its competitive advantage[6] through differentiation[7] by capitalizing on a unique experience that offers ambiance and unusual product variety. The primary strategies employed to establish market dominance were branding, creativity, and saturation by store expansion. 1.

The branding strategies include quality product, personal service, a sense of community, and environmental responsibility. This strategy is strengthened by market and demographic analyses to slightly customize each store to the local city/community personality. 2. The creativity strategies emphasize “constantly looking for new ideas, new products, as well as new experiences for guests. ” (Thompson & Gamble, 1999) Successful products are retained while weaker products are eliminated in a continuing cycle of process improvement. 3. Although growth in the store expansion strategy has peaked, new stores are still being added.

This strategy has been modified from saturation by area concentration, to a more disciplined approach, that identifies key markets, based on market analysis that emphasizes individual store profitability. (Adamy & Wingfield, 2009) Financial Analysis. Starbucks has a solid financial status with multiple revenue streams from multiple coffee related products. A look at Starbucks Profit and Loss and Cash Flow tables[8] (shown in Table 1) reveals a slight dip in gross revenue, but a positive trend for increased net income. This is probably a result of the recent cost restructuring and emphasis on store profitability.

Future revenue streams from coffee house sales are expected to increase from a combination of stable sales and higher efficiency. Revenue streams from alternate distribution channels show a slight, but steady increase, further bolstering Starbuck’s solid financial foundation. |In Millions of USD |Jun 2009 |Mar 20099 |Dec 2008 |Sep 2008 | Jun 2008 | |Revenue |2,403. 90 |2,333. 30 |2,615. 20 |2,515. 40 |2,574. 00 | |Total Revenue |2,403. 0 |2,333. 30 |2,615. 20 |2,515. 40 |2,574. 00 | |Gross Profit |539. 10 |470. 20 |481. 80 |393. 50 |452. 60 | Total Operating Expense |2,199. 90 |2,292. 40 |2,497. 50 |2,501. 20 |2,595. 60 | |Operating Income |204. 00 |40. 90 |117. 70 |14. 20 |-21. 60 | |Income Before Tax |217. 30 |34. 90 |98. 30 |-1. 20 |-33. 20 | |Net Income |151. 50 |25. 00 |64. 30 |5. 40 |-6. 70 | |Table 1 – Quarterly Financials Conclusion Are Starbucks’ mission and strategic choices in alignment? Yes.

The strategies of innovation, product differentiation, and customer experience are directly aligned with Starbucks mission “to establish Starbucks as the premier purveyor of the finest coffee in the world,” while “inspiring and nurturing” the spirit of their customers. Starbucks continues to expand its product offering in both breadth and depth. Coupled with this strategy is the expansion of alternate distribution channels that will multiply the potential in increased revenues. Each offering in the product portfolio reinforces the brand name and quality experience described in the company’s vision statement.

The recent focus on increasing profits in existing stores is not a shift of business strategy, but more of a symptom of business maturity. Less waste equals more profit. The corporation has shifted its goal from market saturation – slowing its growth in new stores – to market dominance with more efficient and more profitable stores with its strategy of disciplined expansion in key markets. Using the Seattle’s Best segment, vice Starbucks to expand the base of customers for the greater corporate good requires close examination.

As a corporate-sponsored competitor to the nearby Starbucks stores, this strategy seems in conflict with the prime mission. However, as an alternate distribution channel for an expanded product line, this strategy supports the overall brand quality of Starbucks as the “premier coffee,” yet can capture some additional customers that do not seek the branded Starbuck experience and would likely choose one the niche competitors. Seattle’s Best can cater to a slightly different clientele – in both coffee stores and supermarkets – with a different set of customer needs, while increasing overall corporate revenues.

Will the company continue its past success? Yes. A continued emphasis on customer satisfaction, coupled with effective strategies that develop new product lines, will stimulate revenue growth and stabilize share prices. The current vision and path summarized by Starbucks president and CEO, Howard Schultz, is a commitment to “continually improving our customer experience as the roadmap to renewed growth and increasing profitability,” with emphasis on continued application of previously successful strategies, “we will continue to innovate and differentiate, two perennial hallmarks of the Starbucks brand. (Starbucks Financial Releases, 2009) References Adamy, J. & Wingfield, N. (2009). Starbucks brews new strategies to fight slump. Wall Street Journal (Europe), p. 4. Retrieved July 11, 2009, from ProQuest Newsstand. (Document ID: 1662578621). Analoui, F. and Karami, A. (2002). CEOs and development of the meaningful mission statement. Corporate Governance, 2(3), 13-20. Retrieved August 31, 2009, from ABI/INFORM Global database. (Document ID: 181714601). Bushman, M. (2007). The major elements of the strategic management process. Associated Content website.

Business and Finance. Retrieved August 31, 2009 from http://www. associatedcontent. com/article/196677/the_major_elements_of_the_strategic. html. Business Wire (2006). Starbucks Coffee Company Outlines Core Strategies to Continue Delivering Long-Term Shareholder… Retrieved August 27, 2009 from http://www. allbusiness. com/services/business-services/3918047-1. html. Factsheet (2009). Starbucks website – About Us. Retrieved August 22, 2009 from http://www. starbucks. com/aboutus/Company_Factsheet. pdf. Germain, R. and Cooper, M. (1990).

How a customer mission statement affects company performance. Industrial Marketing Management, 19(1), 47. Retrieved August 31, 2009, from ABI/INFORM Global. (Document ID: 1129254). Hattery, E. (2009). Wikinvest website. Starbucks Corporation. Retrieved September 1, 2009 from http://www. wikinvest. com/stock/Starbucks_(SBUX) Holmes, S. , Bennett, D. , Carlisle, K. , and Dawson, C. (2002). Planet Starbucks – To keep up the growth, it must go global quickly. Business Week, (3798), 100-110. Retrieved August 27, 2009, from ABI/INFORM Global. Document ID: 160883051). Marketing Teacher (2007). SWOT Analysis Starbucks. Retrieved September 24, 2009 from http://www. marketingteacher. com/SWOT/starbucks_swot. htm. Nimetz, J. (2009). The Five P’s of Marketing: Do they apply to SEM? Retrieved August 27, 2009 from http://www. searchengineguide. com/jody-nimetz/the-five-ps-of. php. Ogg, J. (2009). Starbucks Snags S&P Upgrade (SBUX). 24/7 Wall Street website. Retrieved September 1, 2009 from http://247wallst. com/2009/08/28/starbucks-snags-sp-upgrade-sbux/. Osterwalder, A. , Pigneur, Y. , & Tucci, C. 2005). Clarifying business models: Origins, present, and future of the concept. Communications of the Association for Information Systems, 16, 1. Retrieved August 28, 2009, from ABI/INFORM Global. (Document ID: 919406501). Reuters (2009). Officers and Directors for Starbucks Corporation. Retrieved August 27, 2009 from http://www. reuters. com/finance/stocks/companyOfficers? symbol=SBUX. O. Starbucks Corporation (2009). Google Finance. Retrieved August 11, 2009 from http://www. google. com/finance? q=NASDAQ%3ASBUX. Starbucks Financial Releases (2009).

Starbucks posts strong third quarter fiscal 2009 results. Starbucks website – About Us. Retrieved September 1, 2009 from http://investor. starbucks. com/phoenix. zhtml? c=99518&p=irol-newsArticle&ID=1309655&highlight=. Starbucks Newsroom (2009). Starbucks details strategy for profitable growth. Retrieved August 27, 2009 from http://news. starbucks. com/article_display. cfm? article_id=184. The Company (2009). Corporate website – About Us. Retrieved August 22, 2009 from http://www. starbucks. com/aboutus/overview. asp. Thompson, A. and Gamble, J.

Starbucks in 2004: Driving for Global Dominance Strategic Management STRA 703 Assignment Prepared by: Sherif Hendi (M1100758) Presented to: Dr. Gamal Shehata Questions Q. NO. 1 What are the key elements of Starbucks strategy as of 2004? (What is the store concept, the customer offerings and differentiators? The expansion strategy? The financial strategy? The personnel management and social responsibilities? Conduct a five forces analysis? ) Q. No. 02 What was the original strategic vision and objectives and how did they evolve? What is your opinion of Starbucks’ mission statement?

What grade would you give Howard Schultz for his job as the CEO Starbucks and why? Q. No. 3 What is your assessment of Starbucks financial performance during years 1998-2003? (Growth rates, profitability, control of major cost categories, financing, ROE, and P/E ratio? ) Q. No. 04 What were the key issues faced by Starbucks in 2004? Q. No. 05 What recommendations would you make to Howard Schultz to sustain the company growth and support strong financial performance in the years ahead? Q. NO. 1 What are the key elements of Starbucks strategy as of 2004? ANS: Key Elements of Starbucks’ Strategy

Starbucks adopted a lot of innovative strategies throughout its journey from 1971 to 2004. These strategies in brief are as follows:- * The restaurant/store concept * The offering of Innovative product line * Differentiation from competition * National and international expansion * Distribution channels (Pepsi partnership/online store/Dreyer partnership) * Efficient Financial management (Centralized Information Systems) * Capitalizing on enhancing the people element * Engaging in social responsibility programs (CARE). Competitive Advantages or Differentiators Their differentiating elements are as follows:- They were the pioneers to introduce espresso bar idea in USA * Mail order sales * Word of mouth marketing * Employee motivation strategies to attain improved employee commitment * Convenient distribution channels * Introducing chemical free cultivation process. Q. No. 02 What grade would you give Howard Schultz for the job he has done as CEO of Starbucks? Be prepared to support your answer based on how well (or not so well) he has performed the five tasks of strategic management discussed in Chapter 2. ANS: Howard Shultz gets a grade of 95% in his Strategic Management approach.

In my opinion Howard Shultz just didn’t do perfect in the area of marketing as he did not spend adequate budgets on advertising and product innovation. Last but not the least is that he did not attempt to study the environment properly while entering into new geographical areas e. g. he opened a store down street in Chicago which was not a good idea due to cold weather conditions. Other than that, he made a great task of performing all the five tasks of Strategic Management Q. No. 3 What was Howard Schultz’s original strategic vision for Starbucks? Is his present strategic vision for Starbucks different from the one he had in the 1980s?

How many times has his strategic vision changed? Is his present strategic vision likely to undergo further evolution? ANS: Howard Shultz original Strategic Vision “To establish Starbucks as the most recognized and respected brand in the world. ” Strategic Objectives * They wanted to have 15,000 stores by the year-end 2005. * They aimed to provide a great work environment and treat each other with respect and dignity. * They believed in taking on diversity as an essential component in the way they do business. * To apply the highest standards of excellence to the purchasing, roasting and fresh delivery of coffee. To develop loyal and satisfied customers all of the time. * To contribute positively to their communities and environment, and recognize that profitability is essential to future success of business. How did they evolve? At the earlier stages they promised themselves that they will not leave even a single stone unturned to make Starbucks the most recognized and respected brand in the world. Therefore, they thought that this could only be possible if they will develop these strategic objectives because these are basis to earn the respect and fame for any business. Q. No. 3

What is your assessment of Starbucks financial performance during years 1998-2003? (Growth rates, profitability, control of major cost categories, financing, ROE, and P/E ratio? ) Growth Rate| Years| 1998| 1999| 2000| 2001| 2002| 2003| Growth rate| 0| 0. 2889| 0. 29095| 0. 2164| 0. 2415| 0. 2391| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profitability| Years| 1998| 1999| 2000| 2001| 2002| 2003| Operating profit margin | 8. 34| 9. 29| 9. 4| 10. 57| 9. 6183| 10. 42| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ROE| Years| 1998| 1999| 2000| 2001| 2002| 2003| Return on equity| 8. 6| 1. 58| 8. 23| 13. 1| 18. 35| 12| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Price Per Earning Share| Years| 1998| 1999| 2000| 2001| 2002| 2003|

Price Per Earning Share| 0. 19| 0. 27| 0. 24| 0. 46| 0. 54| 0. 67| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Control of Major Cost Categories In this portion we have analyzed that how Starbucks controlled its fixed cost. If we talk about the locations, it was very expensive to purchase land and then develop it as a store, so to overcome this problem Starbucks started leasing the land for long term periods.

In our opinion, it was a quit impressive move to cut down its fixed cost. Secondly they observed that to get the license was too costly for them, so they made contracts with the partners who had license with them. Financing For the financing, Starbucks instead of taking loans preferred raising the equity. It was a better idea to generate capital because they did not have to pay any short term and long term interests against the borrowings. Q. No. 04 What were the key issues faced by Starbucks in 2004? Every company faces major challenges, even companies that are as successful as Starbucks.

Although they have an outstanding reputation, have won many awards like top sustainable retail store award and most ethical company award etc, and even give back to their community, they are still facing challenges like any other company. Following are the most obvious challenges that Starbucks is dealing with:- * Schultz was overflowing with the ideas for the company, early on he noticed that first-time customers sometimes felt uneasy in the stores because of their lack of knowledge about fine coffees and because store employees sometimes came across as a little arrogant or superior to coffee beginner. Howard Schultz when came back from Italy shared his ideas for modifying the format of Starbucks’ store with Baldwin and Gordon Bowker. But instead of winning approval for trying out some of his ideas, Schultz encountered strong resistance but after a year Schultz succeeded in winning the approval from Baldwin and Bowker. * After sometime Baldwin and Bowker again went against the ideas of Schultz so he became so frustrated and left Starbucks in late 1985 to open his own separate Espresso Bars in high-traffic down town locations. Schultz acquired Starbucks in 1987 and after the 20 months of acquiring, some employees felt unappreciated that there was a feeling of prior management had abandoned them. So, Schultz decided to make building a new relationship of mutual respect between employees and management. * Starbucks lost its money when it expanded market to Chicago because in Chicago that was the first downtown store opened on to the street rather than into the lobby of the building where it was located; in the winter months, customers were hesitant to go out in the wind and cold to acquire a cup of coffee.

It was expensive to supply fresh coffee to the Chicago stores from Seattle warehouse. * The challenge to Starbucks, in Schultz view, was how to attract, motivate, and reward store employees in a manner that would make Starbucks a company that people would want to work for and that would generate enthusiastic commitment and higher level of customer service. * A values and principles “crisis” arose at Starbucks in 1989 when customers starting requesting nonfat milk in making Cappuccinos and lattes (an espresso coffee with frothy steamed milk) So, Starbucks started selling both fat milk and nonfat milk Cappuccinos and lattes. They were facing the issue of Wi-Fi (wireless internet service) in 2002, the number of accesses was in the millions by T-Mobile; internal research showed that the average connection last approximately 45 minutes So, in October 2003, Starbucks announced that they will expand Wi-Fi capability to additional locations and would have 2700 stores equipped with wireless Internet access by year end. * They were also facing challenges from their competitors.

In 2003 there were an estimated 14000 specialty coffee outlets in the United States but they were not competent enough to exert pressure at Starbucks. Q. No. 05 What recommendations would you make to Howard Schultz to sustain the company growth and support strong financial performance in the years ahead? Recommendations After analyzing the whole case study, we became able to give few suggestions to Howard Schultz which can be handy to sustain the growth and support strong financial performance in the forthcoming years:- * He should spend more budgets on advertisement of products. He should bring innovations in his products because we saw in this case study that he was inspired by espresso bars so he imitated the whole theme of Italian espresso bars and the idea of dark roasted bean was an older one as well. * Before entering to any new geographical region he should study the market environment of that particular region as we saw that at Chicago there was an issue of cold weather and his store was at down-town-street. Furthermore, the labor rates and rents of building were higher as well. * At the stores Starbucks’ technique to teach customers about how to make coffee was not a good idea ecause it does not support their business model. Therefore, it should be avoided in future. Above elaborated things were having details about the strategies of Starbucks which drove it for the Global dominance till 2004. Starbucks is in fact the recognized and respected brand in the world and if it can overcome the shortcomings which we identified then nobody can create bother for it to be successful and there will be no point left as a mistake on its part. Reference www. starbucks. com Case Study “Starbucks in 2004: Driving for Global Dominance” written by Arthur A. Thompson, Amit J. Shah and Thomas F. Hawk.

Case I The Day That Wal-Mart Dropped the Smiley Face Retail giant wal-mart annually spends close to a half billion dollars on advertising, so the company’s decision in the first month of 2005 to run full-page ads in more than 100 newspapers was not really surprising. What was surprising was the copy in those ads, which said nothing about low-priced toasters or new music CDs. Instead, the ads featured a photo of workers in their blue Wal-Mart smocks and a letter from Wal-Mart CEO Lee Scott.

Scott’s letter was blunt and to the point: “When special interest groups and critics spread misinformation about Wal-Mart, the public deserves to hear the truth. Everyone is entitled to their own opinions about our company, but they are not entitled to make up their facts. ” Not the sort of message many would expect from a company whose television ads often feature a yellow “smiley-face” flying around a Wal-Mart store lowering prices. But it is a clear sign that Wal-Mart believes it can no longer afford to ignore several societal trends that threaten the company’s success and profitability.

Wal-Mart is the largest and most successful retailer in the world. It employs more people than any other private company in the United States (almost 1. 2 million) and has world-wide sales of over a quarter trillion dollars, more than four times that of its nearest competitor. The foundation of this impressive record is the company’s ability to keep it promise of customer-friendly service and low prices. But with success comes attention and not all of it good. Several lawsuits claim Wal-Mart shorts overtime pay and one lawsuit claimed female employees face discrimination in pay and promotions.

Wal-Mart’s expansion plans have also run into trouble, as some cities and states, citing concerns ranging from low wages, inadequate benefits, environmental damage, and harm to local economies, have passed laws to make it difficult or impossible for Wal-Mart to build its giant superstores. In response to past criticisms of its diversity policies, Wal-Mart created company-wide postings of promotional opportunities, created a new position for a director of diversity, and slashed the bonuses of managers who fail to achieve diversity hiring targets.

Scott himself stands to lose $600,000 from his annual bonus if Wal-Mart does not meet diversity goals. Recent years have also seen the CEO spend more time meeting with investors, community groups and the media. But in recent years Wal-Mart has begun to use advertising as a way of addressing criticisms that the company is not a good employer. At first, much of this advertising was “soft-sell” emphasizing happy Wal-Mart employees. The new campaign is clearly more direct: The copy seeks to address misperceptions about employee wages and benefits, noting that full-time company employees are paid an average of $ 9. 8 – substantially higher than what is required by federal law (%5. 15). The copy also notes that a majority of Wal-Mart employees said benefits were important to them when they chose to take a job at the retailer. Complementing the ads is a PR campaign in select cities using employees and press conferences. In Tampa, Florida, for example, employee Michael Martin told reporters, “I’m making more after working four years at Wal-Mart than I did after nine years at Winn-Dixie. ” Martin, a department manager, noted, “I left Winn-Dixie because I couldn’t get a promotion.

Here I got one after six months. ” Why is the company using a new approach? “For too long, others have had free rein to say things about our company that just are not true,” said lee Scott, president and chief executive office. “ Our associates [Wal-Mart speak for employees] are tired of it and we’ve decided to draw our own line in the sand. ” It is too soon to know if the campaign will succeed, although some are already skeptical. According to retail marketing consultant Jordan Zimmerman, aggressive mage campaigns like Wal-Mart’s are rare and costly.

And ads that directly address the company’s critics will not likely replace the company’s regular advertising (including the smiley face), which is not scheduled to change any time soon. But the new ads do constitute a small change in the nature of the dialogue Wal-Mart has with consumers and society. Only tie will tell if they help Wal-Mart to stay on top. Questions: 1. What is Wal-Mart doing with its latest campaign? What are the difficulties involved in such an effort? 2. A recent Advertising Age article noted that Wal-mart customers are less likely to read newspapers and more likely to watch television than the population as a whole.

Why, then did Wal-mart choose newspapers for its new campaign? 3. Analyze this Wal-Mart campaign and explain its purpose referring to the discussion in this chapter of the roles and functions of advertising. What is its primary purpose? Do you think it will be effective at accomplishing that purpose? Case II Toyota Goes after Tuners Young people with limited incomes often look for a great deal on a new car. One way to save money is to forgo options and upgrades, like a sunroof or a CD player. But when Toyota introduced its funky “Scion” brand, it considered offering a version without something most people assume comes standard: paint.

Although they ultimately decided against the idea, at one point Toyota’s plan was to sell the brand with just gray primer. Toyota wasn’t really targeting people so cheap they wouldn’t spend money on paint. Just the opposite – the car company was going after a group with money to burn, called tuners. Tuners are young car buyers who live to customize hteir cars. The trend really began among young Asian Americans, who typically bough t inexpensive Asian import cars and then spent thousands of dollars customizing them. The hobby has spread to other young people, so that today Asian Americans are a minority of tuners.

But Japanese brands remain the cars of choice among those dedicated to creating a work of art on wheels. Explaining the idea of a “no paint” option, Jim Farley, Scion general manager, says, “As much as possible, we want to give them [tuners] a black canvas. ” What does a tuner do with his car? He (or she; women make up almost 20 percent of the tuner subculture) might take a basic Honda, add a large and loud exhaust system, paint the intake manifolds, and add ride-lowering springs. Other popular add-ons are technologies that increase vehicle speed, like turbochargers, superchargers, and nitrous kits.

And there are some serious bucks involved. The Specialty Equipment Market Association estimates that auto after-market spending (spending on car accessories after the original car purchase) increased from $295 million in 1997 to 2. 3 $billion in 2002. The motivation? “ You build a car for yourself,” says one day install on Acura RSX Type-S engine into his Honda Civic. “ The satisfaction is in making it your own and knowing that nobody will ever have something that’s the same. ” The amount of money tuners spend is reason enough to attract the attention of marketers.

GM hoped to interest tuners in its Saturn Ion, Chevrolet Cavalier, and Pontiac Sunfire when it when it launched a “ Tuner Tour” of 10 National Hot Rod Association races. GM allowed young car enthusiasts to play games and enter contests for prizes, as it in turn collected names and e-mail addresses. GM’s focus on relationship marketing makes sense because tuners don’t watch a lot of TV. Both Mitsubishi and Ford believe the best way to reach them is with product placements in movies (Mitsubishi bought air time in the popular for (“2 Fast 2 Furious”).

But even companies selling products unrelated to cars are interested in the tuner lifestyle. Pepsi has hired tuners to customize some of its promotional vehicles. Which brings us full circle back to Scion, Toyota’s goal is to make the new car an immediate hit with tuners. So rather than spend a great deal of money on network television, Toyota decided to sponsor a 22-minute movie On the D. L. The movie is a comical docudrama that tells the story of a pair of musicians trying to obtain their first drivers licenses. The stars are musicians trying to obtain their first drivers licenses.

The stars are musicians from youth-oriented bands: Ahmir “Questlove” Thompson, from the Roots, and DJ King Britt, who played for the Digable Planets. The film premiered at the Tribeca film festival, after which segments were shared on peer-to-peer networks such as Kaazaa. Toyota hopes that enthusiasts will download the segments and share them with friends. Questions: 1. Why are tuners so attractive to marketers, even after accounting for their spending power? 2. Evaluate Toyota’s strategy of targeting tuners with the Scion campaign.

What are the difficulties for a large company in marketing effectively to a youth-oriented subculture? What techniques do you think companies like Toyota are using to try to understand their market? 3. Explain how “tuner” campaigns, such as those by GM and Toyota, work. Analyze these campaigns using the Facets Model to identify the effects they are designed to achieve. How would you determine if these campaigns are effective? Case III Starbucks Makes TV Less Intrusive Starbucks coffee is now sold in grocery stores but how many people realize it?

To get that message out, the well known coffee house chain needed to reach its customers nationwide with that message. Television commercials would be the obvious way to reach those people, but Starbucks’ management knew that their customers are not big fans of television commercials and resent the interruption of their favorite program. That’s why starbucks has been such an infrequent advertiser on TV. Its on-air promotional activities have been limited primarily to radio and its only previous use of TV had been support announcements on public TV. That was the problem facing Starcom’s MediaVest group.

The agency used a creative solution: It recommended a partnership with the Bravo cable network. Bravo would run four Independent Film Channel (IFC) movies on Friday nights for a month and Starbucks would buy all the commercial time surrounding the movie airings. The MediaVest team knew that Bravo’s “IFC Friday” night films would be a good way to reach the stakeholder audience because research had described that customer base as people who are up on the latest trends, like to attend live performances of the arts, are apt to see a movie during the weekend it opens, and generally are interested in cutting edge things.

Mediavest calls this customer “the attuned explorer. ” Even though Starbucks bought all the commercial time, the MediaVest team recommended letting the movies run uninterrupted. Starbucks’ advertising message was delivered in supporting Bravo promotions of the movies during each week leading up to the Friday night telecast. About 40 seconds of each 60-second preview spot showed scenes from the movie and 20 seconds promoted Starbucks s the movie sponsor. Other promotional activities were also used in support of the campaign.

One month before the movies aired, a $1 off coupon for a bag of Starbucks Coffee was sent to 3 million targeted consumers around the country, along with a viewer guide introducing the Starbucks-sponsored independent movie festival. Starbucks billboards also appeared during the movie month coinciding with the independent film industry’s annual telecast, which aired on both Bravo and IC. The innovative Bravo partnership wound up not only increasing sales of Starbucks Coffee by 15 percent for the month the campaign ran, but also increased viewership on Bravo by 33 percent.

These results led the campaign to be named a Media Plan of the year by Adweek magazine. Questions: 1. What was the problem Starbucks wanted to overcome in order to effectively advertise that its coffee brand was available in supermarkets? 2. How did the partnership work? Is there anything you could recommend that would extend the reach of this campaign? Case IV Wpp’s Owner-a British Knight with Every (Marketing) Weapon at His Disposal To the uniformed, nothing about Martin Sorrell or his company, the WPP group, may be quite what it seems.

Although he was awarded a knighthood, Sir Martin is anything but a reserved aristocrat. And while WPP is one of the four largest agency holding companies in the world, the initials actually stand for Wire & Plastic products, the British company Sorrell used to gobble up some of the world’s most famous advertising agencies. The roster of agencies now under the WPP’s wing includes industry leaders Ogivly and Mother, Burson-Marsteller, Hill & knowlton, young & Rubicam, and J. Walter Thompson, to name just a few.

Large conglomerates like WPP made frequent headlines in the 1990s, a period of great consolidation in the advertising industry. Faced with harsh economic and business realities, individual advertising agencies chose to give up independent existence in order to become parts of large communication companies that offered clients all the tools for an integrated campaign, including advertising, direct marketing, public relations, and sales promotion. In the new millennium, dealing with one (or several) of the four large holding companies, WPP Group (England), Interpublic(U.

S), Publicis Groups (France), and Omnicom (U. S), is the way the world’s biggest advertisers do business. While each of the conglomerates is led by a charismatic and dynamic individual, none appears to have an edge on Sorrell, who was described in a recent Fortune article as “…confident, witty, and a tod arrogant, talking rapidly about the future of advertising and the challenges of keeping fractious clients and ad agencies happy. ” Fortune also noted that “In an industry populated by shameless schmoozers, the 59-year-old Sorrell is in a league of his own. ”

These characteristics have served Sorrell well, In 2004 he squared off against rival Publicis Groups and its CEO, Maurice Levy, in pursuit of one of the last great independent agencies, Grey Advertising, New York. During the battle Advertising Age opined that Publicis had a big advantage because Levy and Grey chair Edward Meyer were friends and had spoken about merging in the past. In addition, both Grey and Publicis created ads for consumer giant procter & Gamble, while WPP agency Ogilvy & Mather counted P&G’s competitor Unilever among its most important clients. It is customary for agencies not to work for competing accounts. ) A Unilever spokesperson, asked for his thoughts about the possibility of working with an agency that created ads for his most important rival, suggested that “In the past, we’ve not seen it to be such a good idea. “But nobody familiar with Martin Sorrell was surprised when at the end of the day he convinced Grey to sign with WPP and persuaded Procter & Gamble to stay as well. Unlike many of his peers, Sorrell has never written a word of copy, nor has he ever penciled a print design or directed a broadcast commercial.

Sorrell’s talents are organizational and strategic; although he is an expert in the world of finance, Sir Martin cautions, “I may be a bean counter, but I’m not an accountant. ” To drive home the point he posed for WPP’s annual report surrounded by lima and pinto beans. So how does Martin Sorrell continue to win in the high-stakes agency world? His vision, developed years before most of his rivals caught on, that twenty-first-century clients would want a complete menu of marketing communication services, all of which work synergistically, is one important reason for his success.

Tenacity, energy, focus, and a willingness to do whatever is needed to win are also traits that come to mind. All these are illustrated in the story of Sorrell’s drive to land Korean giant Samsung when the company put its advertising up for review in the spring of 2004. Samsung spends almost $400 million each year supporting its brands, which is reason enough for agencies to salivate for the account. Sorrell believes that the company holds even greater appeal because of his forecast that advertising growth in the twenty-first century will come disproportionately from Asia. So Sorrell did whatever he could to attract Samsung’s attention.

Like any savvy agency head, he assigned his best people to generate creative ideas to pitch to Samsung executives. But unlike most agency heads, he didn’t stop there. After discovering that a Samsung-financed museum was having a grand opening in Seoul, Sorrell jumped on a plane and ended up being the only agency person there. Samsung executives found themselves receiving emails from Sorrell at all time of the day and night. Peter Stringham, marketing director of HSBC, a company that Sorrell landed after several years of trying, commented, “Martin can be quite persistent. He was there from the first meeting to the last.

He’d pitched to us a couple of times before and not gotten the account, but he’d had his eye on it for years. ” Needless to say, in the fall of 2004, Samsung announced it was awarding its account to WPP. In the new millennium, British knights may not wear armor, carry a crest, or rescue damsels in distress. But Sir Martin Sorrell knows how to triumph in the competitive world of advertising agencies. Questions 1. Why do large clients like Samsung wish to work with giant holding companies like WPP instead of with smaller agencies? 2. What qualities help Sorrell to be successful?

Why are these qualities so important for his company’s success? 3. Explain how Martin Sorrell wins clients and builds positive agency-client relationships. How does he see the agency’s role in marketing? Case V Boycott This! A recent ad for a Nike hiking shoe used copy that was probably intended to be humorous. The copy suggested that Nike’s shoe could help the use avoid turning into “…a drooling, misshapen non-extreme-trail-running husk of my former self, forced to roam the earth in a motorized wheelchair with my name embossed on one of those cute little license plates you get at carnivals…. Marcie Roth, an advocacy director for the National Council on Independent Living, didn’t find it funny. “Nike is trying to be sensationalist, and they’re doing it on the backs of the disabled,” thundered Roth, adding, “We won’t tolerate it. ” Nike apologized and immediately pulled the ad. But Roth announced that her group was interested in more than just an apology, because the disabled, in Roth’s words, had been “dissed. ” Nike was asked to include disabled actors in its ads and hire a greater number of disabled workers.

Otherwise, suggested Roth, Nike could expect a boycott. Boycotts are certainly one way for consumers to let advertisers know when they’ve gone too far. While some advertisers, notably Benetton, delight in creating controversy, that vast majority try to avoid the unwanted attention and possible loss of sales that a boycott might bring. Armed with this knowledge, consumers and interest groups regularly threaten boycotts and there are several Web sites that track the dozens of product boycotts that re occurring at any given time. Recently the Web site “Ethical Consumer” listed boycott of Adidas (for allegedly using kangaroo skin in the manufacture of some boots), Air France (for allegedly transporting primates), Bayer (for allegedly supporting policies favoring the use of genetically modified crops), and even entire nations (Israel, China, Morocco, and Turkey). Although Ethical Consumer’s rationales for supporting boycotts appear motivated by left-leaning or progressive concerns, conservative groups use them too.

The American Family Association, based in Tupelo, Mississippi, has sent tens of thousands of e-mails threatening boycotts to advertisers Geico, Best Buy, Foot Looker, and Finish Line. The AFA is not upset with the ads placed by these companies, but rather with the program in which the ads appear: South Park. The AFA claims its e-mail campaigns caused Lowe’s, Tyson, ConAgra, and Kellogg’s to stop placing ads in ABC’s surprise hit Desperate Housewives. Some companies resist boycott pressures. Proctor & Gamble ignored AFA pressure to stop its support for gay-friendly legislation in Cincinnati.

Subway Vice President Chris Carroll said his company ignored threatened boycotts caused by the company’s decision to run ads in a documentary that was unflattering to Democratic presidential nominee John Kerry. And then there’s Pepsi. In 2003 the brand signed hip-hop artist Ludacris to appear in a “fun-oriented” campaign, but outspoken cable show host Bill O’Reilly immediately ripped Pepsi and urged “…all responsible Americans to fight back and punish Pepsi for using a man who degrades women, who encourages substance abuse, and does all the things that hurt…the poor in our society.

I’m calling for all Americans to say, ‘Hey, Pepsi, I’m not drinking your stuff. You want to hang around with Ludacris, you do that, I’m not hanging around with you. ” A Pepsi representative appearing on O’Reilly’s show denied that the artist’s provocative lyrics (one album featured a song called “Move Bitch”) were relevant to the Pepsi campaign. But the following day Pepsi canceled the campaign. For viewers of a certain age, the entire affair was reminiscent of the controversy that erupted several years earlier when Pepsi canceled ads featuring Madonna after she appeared in a controversial music video.

But Pepsi’s decision did not mark the end of the controversy. After the announcement, Ludacris and the Hip-Hop Summit Action Network, an organization run by his producer, Russell Simmons, threatened their own boycott. Following several days of negotiations, the second boycott was called off. Ludacris would not be a spokesperson for Pepsi, but the soft-drink giant agreed to a deal to make a multi-million-dollar donation over several years to the rapper’s foundation. Questions: 1. What do you think about consumer boycotts?

Are they unhealthy attempts to infringe on the speech rights of others? Or are they a healthy sign that consumers can take action against the ethical lapses of advertisers? 2. How should a company respond to the threat of a boycott? Consider the different responses of Nike, Subway, Lowe’s, Proctor & Gamble, and Pepsi. How well do you think each of these companies reacted to boycott pressure? Did any of the companies hurt their brand because of the way they reacted to boycotts? 3. How would you review advertising ideas that you suspect are controversial and might generate a backlash?

Is it ever justified to “push the envelope” in the areas of good taste and social responsibility? How would you decide if such approaches are effective? Case VI How Advertising Works If It Walks Like the Aflac Duck You’ve probably never heard of the American Family life Assurance Co. , nor likely to be familiar with its primary service: supplemental workplace medical insurance, a type of insurance that is used by people to help cover the many loopholes and deductibles in their primary insurance coverage. Then again, if you are like 90 percent of U. S. onsumers, maybe you have heard of the company. In its advertising it calls itself “AFLAC. ” The four-year AFLAC campaign is the work of Linda Kaplan Thaler, owner of the New York agency that bears her name. Thaler’s ads are not known for their subtlety. Among her credits are the Toy’s R Us jingle “I don’t want to grow up,” and the successful campaign for Clairol Herbal Essences, featuring on “orgasmic” hair-washing experience. The Herbal Essences ads strike some as funny, others as quite possibly offensive, but sales of the product have skyrocketed to almost $700 million a year.

In many ways Thaler’s ads hearken back to the 1960s, when it was common to feature “sex, schmaltz, chirpy jingles and ‘talking’ babies and animals,” as the New York Time’s advertising columnist Stewart Elliott puts it. Industry insiders have been known to snipe at Thaler’s work, and few would describe her campaigns as “edgy. ” But as Maurice Levy, CEO of the giant advertising company Publicis, observes, “There are people who do advertising for what I call the advertising for the consumer. She is doing advertising mush more for the consumer. Thaler herself notes, “We’re doing our job when we find ways to get people to buy things. ” Thaler’s AFLAC ads, by almost any measure, are her best. Almost all feature a white duck desperately screaming “AFLAC” at people who need supplemental insurance. Unfortunately, the duck’s audience never quite seems to hear him. Most of the ads contain a fair amount of slapstick, usually at the expense of the duck, whose exasperated-sounding voice originates with former Saturday Night Live cast member Gilbert Gottfried. He’s got the right answer but nobody is listening, and that’s a situation that resonates with people,” says Kathleen Spencer, director of AFLAC’s corporate communications. “There’s also just something inherently comical about a duck. ” The campaign has been enormously successful. Since the ads first began running, brand name awareness has increased from 15 percent to 90 percent. Over the same period year-to-year sales increases have almost doubled. Dan Amos, CEO for AFLAC, believes that “our name recognition with our advertising campaign to truly help our company. In 2003 Ad Age named the commercial featuring the duck and the Amazing Kreskin (who hypnotizes a man into thinking he is a chicken) the most-recalled spot in America. But what makes the AFLAC campaign truly remarkable is how little it has cost the company. The duck has a higher Q score (a measure of a character’s familiarity and appeal) than both Ronald McDonald and the Energizer Bunny, but whereas Energizer has spent almost a billion dollars over 15 years on advertising, and McDonald’s spends almost $700 million every year, AFLAC’s ad budget is only $45 million a year.

There is no denying that Thaler’s work for AFLAC is a triumph of both effectiveness and value. Questions: 1. Some viewers don’t like the AFLAC ads. Can an ad still accomplish its intended purposes if people find it annoying? 2. The AFLAC campaign is more than four years old. In your opinion, will the campaign stay effective for the foreseeable future? 3. What makes AFLAC ads so effective? Is it something more than their entertainment value? If so, what else contributes to their success?

When entering a global market, it can be expected to overcome both controllable and uncontrollable elements. The Starbucks organization is no exception to overcome these elements when entering the global market. According to text (2011) controllable elements are attributes such as firms characteristics, type of product, pricing of product, the amount of research conducted, promotions and the channels of distribution. Uncontrollable elements effecting Starbucks are competitive structures, domestic and international, varying levels of technology and cultural differences.

Starbucks encountered revised incomes with the economic downturns of recent and it quickly realized that its gourmet product was among the first to be cut out of tightening budgets. The political, economic and cultural issues in foreign countries can be sudden and therefore, uncontrollable elements that should be taken into consideration and monitored carefully when entering into a foreign market. In addition, increasing competition is another uncontrollable element also present in foreign markets.

This competition from rival shops pulls from potential profits and increases the risk for Starbucks business development in the foreign market, like Japan. Starbucks also encountered political and economic regulations when attempting to expand to France. In France, there are strict regulations and generous labor benefits (Cateora et. al. , 2011). These uncontrollable elements make it difficult to enter the France market. However, Starbucks cannot control economic downturns, but it can choose which country’s economies they wish to do business in.

Starbucks also faces risks as it inters the global market. The most obvious risk is its limitation of products. As a specialty product, Starbucks has a very limited product selection and this also limits business growth. The biggest risk associated with this is customer boredom. In an effort to increase growth and broaden product selection, Starbucks increased its food and non-coffee items and now accounts for 16 percent of sales (Cateora et. al. , 2011). While this increase is substantial, it still left a saturated domestic market.

With domestic saturation, Starbucks desires going abroad to continue growth. With this expansion, they should focus not only on their core products but also in finding ways to improve the quality of their product and services based on the environment in which they are entering. For example, in Japan, Starbucks has a region specific canned product offered in connivance stores (Cateora et. al. , 2011). This product and location in the United Stated would be unimaginable, but in the Japan market, it is necessary.

You may also be interested in “Starbucks pricing strategy”

As Starbucks plans to continue its expansion into global markets, cultural sensitivity will be critical. While Starbucks is a definite business success story of the ages, it still has its uncertainties. As a whole, it has an intense focus on growth and continued growth. Despite disgruntled employee’s disputes, its business model calls for lots employees with low-end wages (Cateora et. al. , 2011). It is becoming a less special place for its employees, which was once one of its most prestigious and boasted qualities.

Its expansion has outgrown is its previously unheard-of employee perks and benefits. Staff complains that the pay does not come close to matching the workload it requires. Employee satisfaction is critical to not only the Starbucks product but its service and atmospherically environment. Overseas the Starbucks image is still very new and young, and to most, very cool (Cateora et. al. ,, 2011)! There is a big window of opportunity for Starbucks to improve upon this issue in global markets because the perception overseas is still very untainted.

Attracting the next generation of customers is vital to Starbucks success. As Starbucks continues to expand without dealing with this discontent, the more apt to customers feeling disconnected to the original mission of a high quality product and atmosphere. The current business model calls for lots of low-wage workers which only adds to this increasing feeling of disconnect and discontent. The biggest obstacles for Starbucks to improve business in Japan are the cultural differences and growing competition.

Competition has grown so fierce that competitors have a deceptively similar logo and product material. Starbucks needs to focus on separating themselves from the competitors. Of most recent, they have successfully done so which boarder menus and customized products to culture specific pallets (Cateora et. al. , 2011). Simple changes like smaller portion sizes and more bitter desserts have helped Starbucks to increase profitability in this foreign market.

1. Describe Starbucks entry strategy. Do you believe it was appropriate? What other types of strategy could/should they consider?

Starbucks begun its international expansion on the premise that the young professionals in Asian markets were willing to adopt to the western lifestyle as the trend have shown the increasing awareness of western consumerism. The company established the Starbucks International, which oversee all of the international expansion of the company. They entered Japan by tying up with a local company in a joint venture. They also entered other Asian countries through various strategies such as wholly owned subsidiaries and licensing agreements in the Middle East. Starbucks entry strategies were limited to the political and economic restrictions of the country they are going to enter. International markets are full of risks and how one enters the market will eventually influence the future of the company, for instance, Starbucks through a joint venture with the Japan local store was able to utilize the knowledge of its local partner in how to effectively sell their products. Each strategy has its won disadvantages and advantages, Starbucks should have examined more the future growth of the stores in the context of the entry strategy they adopted, for example, the licensing and franchising did not give much operational control after the initial set-up of the stores. Moreover, it would have been more advantageous if Starbucks considered that their stores would be identified as an American influence like that of McDonalds and should have been more culturally sensitive in terms of their product offerings.

2. A company faces a diverse set of risk in international markets.

A. What were the risks faced by Starbucks?

Coffee shops are relatively new for Asian and Middle Eastern countries. These countries enjoyed their coffee plain and usually used instant coffee than brewing it. Brewed coffee is an acquired taste and the creams and flavors are more foreign to the locals than other US brand products like clothes, cosmetics or even chocolates and chips. The risk that Starbucks had to contend with is how to develop the locals’ appreciation of their coffee beverage. Another risk is that of the volatile political situation in the countries that they expanded to, as a strong American brand, Starbucks was threatened with the difficulty of operating in a country that was against American imperialism, moreover, the company did not responded to the local demands of interests groups which actually had stronger influence locally than Starbucks. Lastly, Starbucks had to deal with the loss of qualified staff and good locations.

B. Did they understand and manage the risks?

No, they were not able to manage the risks; they even had to close most of their stores in the Middle East, as it was not feasible to operate it anymore. In the rest of the countries they expanded into, they were losing because local coffee shops begun to imitate Starbucks offerings and with local coffee drinkers who are more familiar to the local coffee blends transferred to the local shops because the price was lower than that of Starbucks. Starbucks also adopted their strategy in the US to flood the area with stores, but in foreign countries it did not made any difference.

C. Explain how Starbucks can reduce risks in its international business.

Starbucks initial entry to the market was based on the marketing of the “Starbucks experience”, the ambiance, the intimate seating, the expensive interiors and the shorter waiting time etc. This worked in the states but in the Asian market that values quality of the product they pay for and not intangible aspects of the product like the experience. Thus, Starbucks should adopt a different strategy to make their products more relevant to the consciousness of the local market. The company should also explore the possibility of using coffee beans grown locally in the region so that it would become more culturally aligned to the country’s taste.

Reference

1. “Starbucks’ International Operations” in International Management: Managing Across Borders and Cultures by Helen Deresky, 5th edition, Pearson: Prentice Hall, 2006. pp. 323-329.