Academy of Economic Studies Faculty of Business Administration in Foreign Languages

Strategic analysis of Starbucks

Team:

Ionescu Monica Istode Cristina Maxin Mihaela

Program:

Master

Coordinating professor: Ivonna Orzea

Bucharest, 2012

Table of contents

1. Introduction 1

2. General description of the company .. 1

3. Vision, mission and corporate values 2

4. Diagnosing of the strategic capability within company...6

5. Strategy development within company .. 12

6. Methods of pursuing strategies within company . 13

7. Strategy evaluation and implementing the strategy.......................................................... 14

8.

Conclusions. 18

9.

References 19

1. Introduction In modern economy, companies are the ones that ensure the needs of society. Analyzing them, we can observe that there are two categories: the ones that obtain considerable successes, which prosper and are growing continuously and then are the companies that are struggling for survival or are recording modest economic performances. In order to better understand the future direction of a company it is compulsory to know not only its present state but also its past, right from the beginning, to be aware of the factors which influenced the company over the years and which made an impact of its development. The history combined with the analysis of present state of the business and the company behind it can give a strong idea of what the future will look like, of what to expect and of what is needed to be done in order to stay on top of the game. On this note, using Porters 5 steps model, combined with SWOT and PEST analysis, but also the definition of the others element which make a business, we tried to emphasize the Starbucks way of doing business in a very competitive domain. By controlling everything, from coffee beans production to their transformation in the final product and to the employees, Starbucks is the number one seller in luxurious coffee market. Starting with a short presentation of the history of the company, in which we presented the company from its beginning to the present day, continuing with the actual products which made it famous, the vision, the core competences and other, the project is presenting the business in a complete way, which is essential in order to have a clear picture of it.

2. General description of the company The Starbucks story begins with three Seattle friends that started the company Gordon Bowker, Jerry Baldwin and Zev Siegl. Bowker was a writer, Baldwin an English teacher and Siegl a History teacher. The original name of the first store, opened in 1971, was Starbucks Coffee, Tea and Spices. Later, the name was changed to Starbucks Coffee Company. Starbucks was named after Starbuck, first mate in Herman Melvilles Moby Dick. The logo was also inspired by the sea featuring a twin-tailed siren from Greek mythology. In 1982 Haward Schultz joined the company and in 1987 he purchased it and thus the company became the market leader in selling gourmet coffee (Starbucks, 2008). The company began selling whole bean coffee and moved on to other ventures. However, as the company grew and customer taste changed, so did the company. In the 1990s Starbucks branched out to other areas in the US. Now Starbucks has coffee shops all over the US. Furthermore, people can also find Starbucks coffee in certain restaurants, offices and airports. Starbucks Coffee Company is the worlds leading brand in roasting and distributing coffee. The company owns now more than 15 000 coffee shops around the globe: it is settled in North America, Latin America, Europe, Middle-East and Asia (2010). The diversity and depth of its offer (from smooth to extra roasted coffee, African, Arabian or Latin, and muffins, cookies and sandwiches) allow them to count on an international exposure that has last for many years.
1

The current international situation for Starbucks seems to be an emerging part of their business and the reorganization of this is proved by their aim to become a leading global company through making a difference in peoples lives all around the world .This goal is quite close to being achieved as it was proved by the Starbucks current locations in international markets and the success of these ventures. The current countries in which Starbucks stores are located in are: Australia, Argentina, Austria, Brazil, Bulgaria, Canada, China, Czech Republic, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Japan, Malaysia, Mexico, New Zealand, Peru, Poland, Portugal, Philippines, Romania, Russia, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey and the United States. Overall, the aim of becoming a worldwide global brand seems to be working in favor of the company and is helping it to attract the attention of many major companies who would like to share a partnership with Starbucks. This represents good news for the company because it provides a strong basis for future development of international markets, which further strengthens the mission to become one of the leading specialty coffee retailers in the world. Starbucks had officially opened the biggest caf in Romania in 2007, as part of the plan to expand the company on the Romanian market, through an investment of 300000 Euro. Located in Bucharest Mall, the new caf is at the same time the first caf in Southeastern Europe in which it was implemented the new global design concept Regional Modern Starbucks. We chose Romania to launch the new design concept of Starbucks in this region, given the fact that Romanians have received very well our brand opening, to celebrate our success here and to give special thanks to our loyal customers here. We recognize the importance of continuous development in line with the concerns, lifestyle and values of our customers: the new coffee shop is bigger and brighter, offering Starbucks customers the experience at a new dimension. Sais Jim Brandon, Managing Director Marianopolous Coffee Company Romania, Greece, Cyprus and Bulgaria. 3. Vision, mission and corporate values

A vision statement is sometimes called a picture of your company in the future but its so much more than that . A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, "Where do we want to go?" As it was stated on the website, the company's vision is to establish Starbucks as the most recognized and respected brand in the world.' The vision is built on a foundation of the companys core values. Since it is well known that the company uses top quality products in making coffee Starbucks wants the customers to look at the company as to something that always provides the best quality. Moreover, Starbucks also wants consumers to always remember the brand and think first of this company. (Kembell, Hawks, Kembell, Perry& Olsen, 2002)

The company operations refer to selling high-quality whole bean coffees and selling them along with fresh, rich-brewed, Italian style espresso beverages, several types of pastries, coffee-related accessories and equipment. The company sells its products through a variety of channels of distribution such as a rather high number of retail stores which are constantly expanding. Starbucks also uses the internet to achieve greater recognition. A short statement was published on the official website of Starbucks at the beginning of this year regarding future actions that emphasize the vision of the company: As we look forward to Starbucks next chapter, we see a world in which we are a vital part of over 16,000 neighborhoods around the world, in more than 50 countries, forming connections with millions of customers every day in our stores, in grocery aisles, at home and at work. Starbucks will continue to offer the highest-quality coffee, but we will offer other products as well and while the integrity, quality and consistency of these products must remain true to who we are, our new brand identity will give us the freedom and flexibility to explore innovations and new channels of distribution that will keep us in step with our current customers and build strong connections with new customers. (Schultz, 2011) A mission statement is a declaration of the companys reason for being. This statement has to be clear in order to establish the objectives and the strategies of that particular organization. The mission of Starbucks is to inspire and nurture the human spirit one person, one cup and one neighborhood at a time. (Starbucks, 2011) A list of the companys principles can be found on the official website: The Coffee It has always been, and will always be, about quality. Were passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. Starbucks would never stop pursuing the perfect cup of coffee. Thus, they are against franchising so as to ensure quality standards across stores, they do not use artificially flavored coffee beans and they do not sell their coffee beans in supermarkets because that would compromise the companys legacy of fresh, dark-roasted, full-flavored coffee. The Partners Were called partners, because its not just a job, its our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard. Starbucks has a Business Ethics and Compliance program that has as an objective to protect the organizational culture and reputation of the company. The program helps the partners to make ethically correct decisions at the work place, it offers ethics trainings and its also designated to investigate possible conflicts of interest. In order to be able to achieve all this properly the company encourages all those involved to report any type of issue or concern they might have
3

regarding ethics around the company. Employees are encouraged to speak their minds without fear of retribution from upper management. Starbucks prides itself that besides making great coffee it also has a powerful culture where diversity is valued and respected. The company has a diversity strategy through which it is dedicated to offer a workplace that respects people from all backgrounds and motivates its employees to do the same with the customers: We honor the unique combination of talents, experiences and perspectives of each partner, making Starbucks success possible. As such we expect our partners to act with a spirit of kinship, tolerance and humanity toward all customers making our brand welcoming to everyone. (www.Starbucks.com, 2010) The Customers When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. Its really about human connection. Another important aspect within the company is to satisfy the customers. Employees are trained to do everything possible to achieve this goal. The theme is "just say yes" to customer requests.
The number of potential cosumers is growing continuously due to the tradition of the Romanian people of enjoying a cup of coffee and the Romanian market has not been developed enough until this moment. For a country that has already the tradition of drinking coffee, it is estimated that people would develop a coffee culture even stronger. The dinamic lifestyle that has been developing in Romania makes the investors more and more optimistic regarding the market potential . The Starbuck's product is bought in Romania, by everyone who frequently go to the mall and after shopping, they enjoy sitting over a cup of coffee or before returing home they get a coffee to go. Frequent customers are also the mall's employees who come to work iespecially in the morning,when they can add also a snack .

The Stores When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. Its about enjoyment at the speed of life sometimes slow and savored, sometimes faster. Always full of humanity. The Neighborhood Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility and our potential for good is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead. Shareholders
4

We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks and everyone it touches can endure and thrive. (www.starbucks.com, 2011) Besides the general mission Starbucks also has an environmental one. They are committed to:

Understanding the environmental issues and sharing information with the partners. Developing innovative and flexible solutions to bring about change. Striving to buy, sell and use environmentally friendly products. Recognizing that fiscal responsibility is essential to our environmental future. Instilling environmental responsibility as a corporate value. Measuring and monitoring our progress for each project. Encouraging all partners to share in our mission.

Some of the corporate values of Starbucks are: To build a company with soul To oppose franchising in order to always provide the best products To satisfy customers by all means Value the employees contribution and involvement Always offer good benefits for the employees and provide a good work environment Embrace diversity Contribute to the community and environment

The management of the company always worked to instill key values and principles in the culture of the company. In order "to build a company with soul" they were pursuing the perfect cup of coffee. This concept also included a program of corporate responsibility performed through the Starbucks Foundation, started in 1997. The company is an important contributor to CARE, a leading humanitarian organization fighting global poverty. Starbucks makes annual corporate contributions to this foundation; it offers CARE-related products and donates a portion of the sales to the foundation. Furthermore, over the years Starbucks got involved in several programs to help those from the countries that supplied the coffee beans to the company. Starbucks had an Environmental Committee that looked for ways to reduce, reuse, and recycle waste, as well as contribute to local community environmental efforts. Starbucks stores participated regularly in local charitable projects of one kind or another, donating drinks, books, and proceeds from store-opening benefits. Schultz has always opposed franchising. By doing this the company is all the time in control of the quality of its stores and products. In order to expand the number of potential customers but still keep the same quality they reached agreements to provide its products to restaurants, airlines, hotels, hospitals, business offices, universities and select retailers. Some examples of these partners are Marriott Host International to put stores in airports, Aramark Food and Services to put the Starbucks stores in university campuses, Nordstrom, bookstores
5

Barnes&Noble. Starbucks received a license fee and a royalty on sales at these locations and supplied the coffee for resale in the licensed locations. All licensed stores had to follow Starbucks' detailed operating procedures, and all managers and employees who worked in these stores received the same training given to Starbucks managers and store employees. Regarding the stores from outside the US the company created Starbucks Coffee International to oversee the expansion of the stores in foreign countries. Employees contribution is always sought. They are expected to express their opinion and are never punish for doing this. Schultz always offered high benefits to the employees because he believed that by treating them fair they will be happy and they will treat the customers well 4. Diagnosing of the strategic capability within company The objective are referred to in terms of growth in assets, growth in sales, profitability, market share, earnings per share and social responsibility. If they are clearly established, objectives provide more benefits. They provide direction, aid in evaluation, establish priorities, reduce uncertainty and minimize conflicts (David, F, 2007). Starbucks has clear, well-defined objectives helping them to achieve their goals. Starbuck's main objective is to establish itself as the most respected and recognized coffee brand in the world (Fact Sheet, 2008). The company has reached this objective and experienced great success through their competitive strategy of clustering several stores within the same community and through their distinctive competencies of roasting and selling the quality coffee while providing high quality customer service.

Another objective is to increase customer loyalty. The average customer must visit the stores at least twice a week for this goal to be attained. (Starbucks, 2008). The company needs to remain competitive. The difficulties it must overcome are attracting younger coffee drinkers and creating a core target market within the younger market (Schiling, 1996). Another long term objective is to become the preferred coffee house establishment for the market segment of people under thirties by increasing the differentiation of the products and the attractiveness to the market; in order to do that there must be an increase in this target market without detracting from older consumers and by the end of 2011 the customers under thirty should account for 35% of the total sales. (www.starbucks.com) Another very important goal is ensuring that 100% of the cups are reusable or recyclable by 2015 (Jim Hanna-director, environmental impact, April 22, 2010). We set a goal in 2008 to purchase 100 percent responsibly grown and ethically traded coffee by 2015. When we cite responsibly grown and ethically traded coffee, were referring to coffee that is third-party verified or certified, either through Coffee and Farmer Equity (C.A.F.E.) Practices, Fairtrade or another externally audited system.(J Hanna, 2010).

4.1 Porters five forces analysis Porter's five forces analysis is an important tool for analyzing an organizations industry structure in strategic processes. It helps marketers to contrast a competitive environment. I. Threat of new entrants

Basically any large company for which capital is not a problem can be a new entrant in the market. Switching costs are low because the consumers encounter virtually no costs in switching to a different provider. Only the emotional attachment can be a small indirect cost. Thus, the threat of new entrants in the industry is rather high. The companies from this industry have tried to create high barrier of entries. Barriers of entry differ from one country to another and are rather difficult to define. Some of the barriers can be expertise, reputation, innovation and product differentiation. Starbucks was in 2009 the second most admired company in the food industry according to Fortune magazine (fortune.com). The key to this success is innovation. Starbucks shows strong product differentiation in their industry. Due to this approach the entire industry is becoming more differentiated. An example of this is the case of the prepaid debit card from Starbucks. Only five months after the launch Seattles Best launched its version of the product. (hoovers.com). The companies from this industry have gained loyal customers through past advertisements, customer service, objective product differentiations and early entry into the industry. Starbucks has the strength of the "first to market". It is the first company to have entered the market in that specific segment and this makes it more difficult for others to compete to its image. Another important barrier is the companys worldwide reputation II. Threat of substitutes

There are several good substitutes for Starbucks products. For coffee these could be soda, fruit juice, beer and other alcoholic drinks. Other alternatives to coffee could be energy drinks which have increased in popularity in the past years. Furthermore, customers can choose automatic coffee machines from their work place instead of buying but these are of significantly poor quality than Starbucks. People can also make coffee at home using Senseo or Nespresso machines. This can be good quality coffee and it is cheaper than buying it from Starbucks. Starbucks sells muffins and donuts. Substitutes for them are widely available in supermarkets, bakeries and restaurants. Some examples of substitute products could be burgers, snack food, tacos. Substitutes can be also found in the particular ambience present in Starbucks coffee shops. A substitute for this can be coffee places where people can relax, chat and even work. For instance, people can choose a fast food diner, a tea shop, bars or pubs instead of a Starbucks coffee place. Starbucks strategy in trying to compete with these substitutes products is mainly to innovate and differentiate. The company has created an image, and has differentiated so that many of their substitute products are part of the company. At a Starbucks coffee shop, a customer can eat ice cream, and drink a Pepsi, while his friend drinks tea while eating a pastry.
7

III.

Bargaining power of consumers

The main customers from the specialty coffee industry are individual consumers, who dont purchase in large volumes relative to the total sales of Starbucks. However, there are a few buyers who purchase in large volumes. These large buyers are mostly multinational companies who serve Starbucks brewed coffee in their offices. However, the effects of losing one of these buyers to a competitor would not be very detrimental to a company with a large sales volume such as Starbucks. (Adamy, 2008) The most serious threat consumers can pose is to switch to a different coffee shop because they basically have no switching costs and have a large number of retailers from which they can choose. Moreover, the amount of bargaining power that can be exerted by the buyers within the specialty coffee industry has increased as a result of the availability of information regarding market variables.

IV.

Bargaining power of suppliers

In 1987, the suppliers of Starbucks were small farmers. Nowadays, many of farmers that supply the company are united by an initiative known as fair trade certified coffee. Under this initiative, companies such as Starbucks are given the opportunity to advertise their coffee as being fair trade certified. (Argenti, 2004) This initiative was designed to ensure that the coffee farmers would be fairly compensated. This increased their bargaining power over their buyers. (Argenti, 2004). Moreover, besides companies as Starbucks the farmers also supply their coffee beans to restaurants. This have made the quantity supplied to Starbucks seem less important to the farmers. With other customers to supply, the coffee farmers are less constrained by the specialty coffee industry and its specific demand. This acts to increase the bargaining power of the coffee farmers. (Lee, 2007) Therefore, the company tried to establish strong relationships with the suppliers and to work together to increase each others profitability. Suppliers of paper and plastic products such as cups and napkins have very little bargaining power due to the large amount of alternative sources Starbucks could draw from. In addition, Starbucks has formed contracts with such suppliers, giving them effectively no bargaining power. There is a higher bargaining power for suppliers of technological innovations such as automated coffee machines, latte and espresso machines. V. Competitive rivalry within the industry

Competition is steadily growing against Starbucks each year as the industry grows. Competitors look to gain an advantage by price cuts or launching a rival product. Competitors are selling similar products, including specialty coffees as well as high quality foods. In this slowing market, competition is high. It is clear that Starbucks has few major competitors, and the competition does not have Starbucks' volume of operations. Each of these companies competes based on a differentiation
8

strategy. However, small competitors may also pose potential threats to the company. Starbucks competes with a variety of smaller scale specialty coffee shops from all over the world. Larger scale competitors of Starbucks are La Brioche Dore where the concept is similar, Nespresso boutiques and other cafes and coffee chains that serve similar products, Dunkin Donuts and McDonalds. Competitors such as McDonald's and Dunkin Donuts not only have extensive menus, but they also have the financial resources and position to leverage their strengths to threaten Starbucks profitability. In the last period, In Romania, the coffee market has known a significant growth and the competition has become fierce. Consequently, besides the already known coffee shops from Romania, there appeared as competitors: Coffee Right, Cremcaffee, Turabo Caf and the chain Gloria Jeans Coffees. Furthermore, a new franchise from South Africa, founded in 2011, Manuka Caf ^Wine, which combines the concepts of coffee shop, restaurant and wine shop has entered into the market.

4.2 SWOT Analysis

We need to analyze how Starbucks performs as a company and whether or not it will continue to perform. In order to gauge this performance we look at both the companys characteristics and those of the surrounding market and see what needs to be done for the future. An excellent tool for this is the SWOT analysis. Strengths Starbucks Corporation is a very profitable corporation with wins larger than 800million dollars in 2007. Profit and income increase (the annual growth rhythm is 25%) Starbucks uses innovative strategies and efficient marketing for it image Because of its financial performances the investors trust increases and the financial position of the company strengthens. Well-recognized Brand. . Established logo, developed brand, copyrights, trademarks, website and patents Possibility of buying products such as coffee beans online Starbucks has a Business Ethics and Compliance program that has as an objective to protect the organizational culture and reputation of the company
9

By establishing relationships with well-known third parties that share their values and commitment to quality, Starbucks is able to reach customers where they work, shop, and travel. Especially in the US they provide products to restaurants, airlines, hotels, hospitals, business offices and universities To reduce the risks associated with the unpredictability of coffee price and supply, Starbucks tries to enter into long-term fixed price contracts with its suppliers to ensure an adequate supply of coffee over extended periods of time. Starbucks's organizational culture is one of innovation and creativity. This is evident through the continuous developments of new and exciting products. In November 2001, the company introduced the Starbucks Card', which is a stored-value card that can be loaded and re-loaded in denominations up to $500. Technology Innovations represent an important part of Starbucks strategy. For example, new varieties of coffee and pastries are offered each month and they also have a special service such as the ability to burn your own music CD from the sample online music you hear at the counter. The employees represent an important strength. Management understands that their employees play a major role in the growth of the company. All employees at Starbucks are referred to as "partners", no matter what job position they occupy Starbucks coffee stores and their location represent a huge strength. Starbucks successfully changed the public opinion of coffee products from a commodity to a luxury good, and in so doing, enabled an increase in price for these goods to a much higher level than would have been possible before.

Weaknesses Starbucks has less control over stores outside the US (85% of the total income are coming from America) Increasing number of competitors Several stores were closed in 2008 and 2009. This can cause the employees to be less motivated which can lead to lower customer satisfaction Lack of internal focus (too much focus on expansion) The large consumption of water The biggest weakness is the price of their products. The prices are also very inflexible in terms of location. For example, Starbucks charges the same price for their products whether you are in Los Angeles or Beijing.

10

Another weakness is that the entire business rests on the coffee industry. If coffee does turn out to be a fad, they must diversify or go out of business whereas other competitors, such as Dunkin Donuts, have investments in a variety of industries.

Opportunities Advanced technology The opportunity for the organization to stay ahead of what competition is doing by technological improvements, advancements, and innovations Starbucks can consider co-branding with other manufacturers of food and drink to offer new products (e.g. bottled coffee and ice cream beverages) Starbucks can introduce delivery channels to work place or homes in a higher number of stores Brand extension Whole bean sales in supermarkets

Threats Economic crises Competition is an important threat for the company Consumers can move toward more healthy ways and away from caffeine Because of the specialization of their industry, Starbucks is very dependent on supply factors such as the price of coffee beans, which could hurt their business As part of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain level of cannibalization of the existing stores by new stores. This cannibalization can put pressure on the stores sales growth in future periods (starbucks.com) Since Starbucks imports all the coffee beans, a threat can be if changes in import laws occur. Cultural and Political issues in foreign countries
Target of terrorism, as a symbol of free-market capitalism.

11

5. Strategy development within company When Starbucks went public in 1992, it had only 165 stores spread throughout Seattle and its neighboring states. Today, it has surpassed its 10,000 goal and is planning to expand even more. They achieved this by a great strategy: saturate the market. The accepted business model at the time was to spread out the location of chain outlets so as not to cut the profits of one store from another. Typically, stores would place their retail outlets in locations based on demographics, traffic patterns, the location of competitors as well as the location of its own stores. However, the Starbucks strategy went against that trend. CEO Howard Schultz had a different idea. He decided that the Starbucks strategy would be to blanket an area completely. Instead of worrying about stores eating up each others business, the Starbucks strategy focused on heavily increasing stores where foot traffic was high. Not only did this cut down on the companys delivery and management times, but also it shortened the waiting lines for customers at each individual store. Schultz knew that his strategy was a risk, but it was one he was willing to take. In the end, the unique Starbucks strategy paid off. Clustering its stores in one area helped Starbucks quickly achieve market dominance. With over 20 million regular customers per week, no other American retailer can claim a higher frequency of visiting customers. Even when the rest of the economy seems to be in a slump, loyal customers keep returning to Starbucks. What makes this Starbucks strategy all the more amazing is the fact that the company spends an insignificant amount of its annual revenues on advertising unlike other companies form the same industry. Instead, Starbucks relies on word of mouth advertising. They focus on creating an intimate and welcoming environment in their stores, as well as providing a great cup of coffee. Thus, customers will not only keep coming back for more, but will tell all their friends and family about it too. In addition to clustering its outlets, the company engaged in smart joint ventures with the right companies, such as their successful alliance with Pepsi-Cola Co., and rolling out fresh, new initiatives, including a new product line of hot sandwiches and breakfast food and new drinks such as coffee liqueurs. The Starbucks strategy is now also expanding online, allowing customers to pre-order and prepay for products via the Internet. Starbucks continues to rely on non-traditional means of attracting new customers because this is the Starbucks strategy. According to Schultz over-saturation is not an issue: Those who talk about saturation obviously dont understand our business strategy. (Schultz, 2004) Starbucks Coffee uses a differentiated strategy. They have positioned their product as an affordable luxury. They are not only selling high quality, fresh coffee but they are also focusing on selling to their customers the experience and the concept of a coffee bar. Starbucks strategically chooses its store locations in order to provide this experience.

12

In their marketing strategy Starbucks also includes seasonal products such as Christmas, Halloween and Easter related drinks and merchandise. The Starbucks marketing strategy is not commonly seen in many businesses today. Starbucks decided that they can benefit more by using unconventional strategies that may be unique and seldom-tried, but which can match the concept that the company wanted to portray.

Perfect Cup of Coffee Starbucks history has shown that they place a huge emphasis on product quality. Their coffee, even if more expensive, is notorious for satisfying customers with its rich, delicious taste and aroma. Third Place from the start the Starbucks marketing strategy has focused on creating the third place for everyone to go to between home and work. Creating this unique and relaxing experience and atmosphere for people has been very important for the company. Customer Satisfaction is a very important issue for Starbucks. From entrance to the store to the very last drop of their coffees, it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience. Creating a Starbucks Community The Starbucks 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 Smart Partnerships Starbucks has been known to create strategic partnerships that demonstrate the fact this is another way to grow a business. Over the years, the Starbucks Corporation has greatly increased sales just by using this strategy. Innovation Starbucks has been known to use innovative ideas for their products or services. They have added different flavors to their coffee, more food on their menu. Moreover, the company was within the firsts to offer internet capability in their stores. Brand Marketing The marketing strategy has always focused on word-of-mouth advertising by letting the high quality of their products and services speak for themselves. 6. Methods of pursuing strategies within company

The method through which the company can fulfill its strategy is to increase sales and loyalty and in doing so it is essential to meet the needs of the customers. Otherwise sales will not rise (Kotler, 2003). In 1987, Howard Shultz had a first mover advantage by being the first to capitalize on the niche consumer segment of the specialty coffee industry. He made this possible through an aggressive store expansion strategy. Starbucks targeted areas with favorable demographic profiles and those that the companys operations could support, it was blanketed in all major metropolitan cities. The costs were cut down and the customer services lines were shortened, all by using the Starbucks everywhere approach, also the foot traffic for the stores in all of these areas increased. This strategy demonstrated the feasibility of the business concept as a first mover in specialty coffees and exploited key demographic segments. Starbucks gradually worked on global expansion moving into the Asia Pacific region in 2005. Starbucks used local advertising rather than national, this was more successful and in touch with the primary method of advertising: word-of-mouth. The company advertises a lot through print
13

mediums, as Starbucks' target market tends to be educated people who do more reading than the average person. In markets outside United States, Starbucks created a new subsidiary, Starbucks Coffee International (SCI), to orchestrate overseas expansion and begin to build the Starbucks brand name globally via licensees. The strategy for SCI was to license a reputable and capable local company with retailing know-how in the target host country to develop and operate new Starbucks stores and not just to use franchising. 7. Strategy evaluation and implementing the strategy

Starbucks market share can be affected by the overall economic downturn, if management neglects to address competitors strategies with lower priced offerings as consumers are becoming more conservative in spending their income. Loss of identity and authenticity focused upon the Starbucks experience, which, if unaddressed, can result in unsatisfied customers, loss of sales, and decreased market share. Considering the economy and increasing domestic competition within the U.S., Starbucks must address their less profitable international operations. The main focus should be on whether Starbucks can continue their market share growth with rising competitors? Should they focus more on their international operations? Can they continually reinvent themselves to maintain their strong brand image in the long run? For many years, Starbucks faced almost no competition in the coffee business. It was Starbucks the luxury coffee- or coffee taken as a commodity. However, with the entry of the new competitors on the market, Starbucks is no longer the sole dominant player. These firms represent an important threat as they strive to provide premium coffee comparable to Starbucks but at a lower price. Despite that, it must be taken into consideration whether the Premium Roast Coffee in McDonalds or in Dunkin Donuts is actually comparable to that of Starbucks in terms of flavor, aroma and quality. Whether or not Starbucks coffee is better than other coffee seems to be the matter of perception rather than actual quality. Methods of implementing the strategy: 1. Strategies to Renew the Starbucks Brand Name Advertising and Promotion Starbucks needs to be more aggressive in their advertising campaigns to educate and notify the public the specialty and uniqueness of Starbucks coffee. It has to convince people that Starbucks coffee is superior to other coffees and beverages. In 2006, Starbucks allocated only $38 million on marketing, compared to $782 million allocated by their closest rival, McDonalds. Even Dunkin Donuts, which is considerably smaller than Starbucks, allocated a total of $116 million on advertising in that year. Product Differentiation Although McDonalds claims to offer premium coffee at a lower price, it would be inefficient for Starbucks to start a price war. Such a move is not favorable because Starbucks coffee is
14

supposed to be a luxury good for which people are willing to pay a premium for it. Moreover, a price war would lead to further decrease in pricing, and it will probably reach a point where it would not be profitable for both parties. Instead, Starbucks should work on differentiating its coffee. They should invest in extensive research and development efforts to develop new flavors, blends, or even roast fusions. Novelty by itself is a good advertising tool. In introducing the novel and supposedly revolutionary product developed, they should start by providing free samples for a limited period of time. If the response is good, they can then proceed to introduce the new product to all stores. Starbucks has implemented the $1 sampling strategy, however, there needs to be a followup to that strategy. Because the $1 coffee is cheap, people would tend to get that coffee more frequently during the sampling period. After certain duration, Starbucks ought to increase the price from $1 to the usual price, because by then, presumably, a large fraction of its consumers have gotten hooked to the coffee. From a behavioral economics perspective, these people would be more willing to pay the usual price because they feel that they have reaped the benefits throughout the sampling period. 2. Strategies to Build and Retain Customer Loyalty Privilege Card and Rewards Program Having a nondistinct rewards program provides no incentive for coffee drinkers to choose Starbucks over other its competitors. The Starbucks Card program offers to consumers the possibility to reload credit online, and essentially use it as a cash card at any Starbucks store. In addition, cardholders can also register online to qualify for rewards each time they use their Starbucks card. Some of the benefits include complimentary beverages after a certain number of purchases, free refills, and free syrup and milk options. Despite this sound strategy, it does not differ from other reward programs offered by its competitors. One possibility would be to cooperate with airline companies and other large retail companies and combine their rewards program with that of Starbucks. If such synergies exist, then consumers would have more incentive to choose Starbucks over other brands simply because it would be wealth maximizing. Starbucks DriveThrough Starbucks loses a portion of its customers during peak periods because most people would rather go elsewhere, such as a place with drivethrough counters like McDonalds instead of looking for a parking space. Although Starbucks strategy has been to open as many stores as possible, most of its stores are midsized. Due to this people might complain about not finding available space in the stores. It is possible that if one finds no available table in Starbucks, he will choose to go to some other place that offers reasonable coffee and a table to work or read. As a result, Starbucks loses potential customers. One possibility would be for Starbucks to increase its store space to accommodate crowds during rush hours. However, this might not be costefficient. Starbucks has already implementing drivethrough around the US. 3. Strategies towards CostEfficiency
15

Focus on the Coffee Considering the weak economy, Starbucks should also consider strategies that would reduce cost, as well as strategies that would promote growth and profit. In recent years, Starbucks has started venturing into other businesses apart from coffee. Examples include the music, film, and book marketing business. In doing so, not only are they diluting the value of their coffee, but they are also incurring large costs. By being involved in fewer businesses, cost is reduced, and all the resources can then be channeled towards improving their core product, coffee. Effective Store Expansion Decisions In 2007 Starbucks opened 1700 new stores. Considering the recession, it would be favorable for Starbucks to put a halt on its strategy to open more stores. The company should work on renewing its brand and customer base rather than opening new stores. Furthermore, the budget allocated for store expansion in the US would be put to better use for expansion in other countries that have greater growth potential, specifically China. Expanding into China would be a good opportunity for Starbucks, considering Chinas fastgrowing economy where more people are likely to splurge on luxury goods. Other countries with promising growth potential include Russia and Brazil, where the coffee market is still in its infancy stage. Coffees and coffee beverages To ensure compliance with its rigorous coffee standards, Starbucks controls its coffee purchasing, roasting and packaging, and the distribution of coffee used in its operations. Currently, Starbucks only sells its brewed coffee in its retail stores. It also provides Foodservice by selling bean and ground coffees to hospitals, office coffee distributors, hotels, restaurants, airlines and other retailers. However, the products are delivered, per contractual agreements, through SYSCO Corporations and US Foodservices distribution networks. As a result, these products are part of the Starbucks brand only in name. This represents a distancing of the product from the Starbucks brand name, and poses a risk to the Starbucks brand if the quality of coffee brewed is not as high as that made in the Starbucks stores. One strategy Starbucks can adopt that would allow them to continue their growth would be to enter the corporate market and begin directly selling brewed coffee. Starbucks and the customer There is a high demand for coffee in many businesses, both from their employees (e.g. law firms, IT businesses) and from their customers (e.g. hotels, airline executive lounges), something that Starbucks should take advantage of in order to become a prominent player in this market. Starbucks can expand its brand recognition to all of the employees and customers of the companies it serves, and also can better maintain the value of the Starbucks brand by preserving the quality of its products. One benefit of this approach is that Starbucks already has a dense network of retail stores which can be utilized as an auxiliary production and distribution network for this strategy. This allows Starbucks to oversee the quality control of the coffee and ensures a high quality product that will not damage the Starbucks brand.

16

8. Conclusions Starting with the vision and the mission, Starbucks evolved in the most recognized and respected brand of coffee in the world, and at the same time, developed and impressive human resource program for all its employees. All employees at Starbucks are referred to as "partners", no matter what job position they occupy. They are valued, motivated and have a good work environment. Starbucks believes they are in the coffee business as well as the "people development" business. They were very strict when it comes to the vision and mission of the company so, using well thought strategies, such as Basic Competitive Strategy, Marketing strategy, Strategies to Renew the Starbucks Brand Name, Strategies to Build and Retain Customer Loyalty, Strategies towards CostEfficiency and at the same time, a correct but innovative way of implementing these strategies. The strategy which made Starbucks what it is today was a very risky move: saturate the market. They focused on increasing the traffic and the satisfaction of their clients, but at the same time, this strategy allowed for decrease operational cost due to the fact that there was and still is a smaller distance between each Starbucks location. In order to reach the current development of over 15.000 location in a worldwide distribution, the business had to be designed with performance in mind, this including all the factors that could have had and influence over it; factors such as suppliers, clients, employees. The company closed fixed contracts with coffee suppliers in order to be sure that there will not be problems with the raw material of the business. At the same time, the clients of the company got a lot of attention because it is in the core values of the company to assure customers to levels of satisfaction. Beside impeccable products, customers require impeccable services, so there is a great emphasize on the training and development of the personnel. Also, there were conducted the SWOT and PEST analysis in order to have a clear idea of what the company faces and what is its current position with respect to the market and the competitors. By selling firstly quality and an unforgettable experience to their customers and then a coffee, Starbucks became the number one in its market. Although the company is specialized only in selling a coffee experience thus making it very vulnerable to the evolution of the coffee making industry, it is still pursuing an aggressive expand strategy, having planned over 10.000 new location across the world in the near future.

17

9.

References

www.starbucks.com Baye, M.R. (2009). Managerial Economics and Business Strategy (6ed.). New York, NY: McGraw-Hill Companies, Inc. Starbucks Corporation (NASDAQ) Summary (2008).Retrieved October 5, 2009 from http://www.reuters.com/finance/stocks/ratios?symbol=SBUX.OQ#growth Starbucks Corp. (SBUX) Summary (2008). Retrieved October 6, 2009 from http://finance.yahoo.com/q/is?s=SBUX&annual Starbucks Responds to Moodys Downgrade [SRMG] (2009). Retrieved October 6, 2009 from http://news.starbucks.com/article_display.cfm?article_id=220 Starbucks profit rises, shares jump [SPRSJ] (2009). Retrieved October 5, 2009 from http://money.cnn.com/2009/07/21/news/companies/starbucks_earnings.reut/index.htm Khattab, T., Aziz, E &Naguib, B. (2008).Strategic Analysis for Starbucks [SAS].Retrieved October 4, 2009 from http://www.scribd.com/doc/9913996/Starbuckstrategic-analysis-term-paper Starbucks Corporation [SC]. Retrieved October 5, 2009, from http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html Starbucks and Competitors: aggressive marketing approach [AMA] (2009). Retrieved October 5, 2009, from http://popsop.com/27138
Evan Carmichael, Starbucks Strategy. Retrieved at 10th Jan 2011 from

http://www.evancarmichael.com/Other/612/Starbucks-Strategy.html
Higbee, Liam, Ting, Tjho, Ton (2008) The future of Starbucks- An Analysis by Team Macchiato. Retrieved 9th Jan 2011 from

http://www.mcafee.cc/Classes/BEM106/Papers/2008/Starbucks.pdf
Larson Ryan (2008) Starbucks a Strategic Analysis. Retrieved 13th Jan 2011 from

http://www.nihul.biu.ac.il/_Uploads/dbsAttachedFiles/starbuck08full.pdf
Auch-Roy (2004) The Starbucks Corporation: Past, Present and Future. Retrieved 10th Jan 2011 from http://www.calarosbay.com/files/Auch-Roy_StarbucksCaseStudy.pdf

18