STARBUCKS COFFEE COMPANY 13
StarbucksCoffee Company began as a small coffee shop that was opened by GordonBowker, Ziev Siegal, and Gerald Baldwin in year 1971. The company hasgrown into several specialties coffee retailers. It has above 10,000coffee shops in over 30 nations. Over 4,200 outlets are franchisebusiness while the company owns 6,000 stores. The primary objectiveof the management is to establish this business as the most respectedand recognized brand internationally. Currently, Starbucks isdepending on product innovation, retail expansion, as well as serviceinnovation to achieve its long-term goal as set by the present chair,Howard Schultz. Initially, the idea was to develop a chain of thecoffeehouses as a “third place” for Americans because mostAmericans had only two areas in their lives work and home. It is truethat people need another place apart from home and work, a place torelax and enjoy coffee, or something else, thus the idea of “thirdplace” is quite in order. However, a “third place” may meandifferent things to various people. However, Starbucks wants to startnew stores both in existing and new markets. It also wants to expandcompany product development process, as well as to cater forcustomers’ needs to improve company’s financial situation anddominate the market share (Ferrell & Hartline, 2012).
Manypeople around the globe thrive on the morning, afternoon, and in theevening for a cup of coffee. Due to high number of coffee consumer,their industry has a lot of competitors who are competing for thesecustomers. Consumption of coffee has been there for a long time butonly recently has the competition of coffee retailers’ sprout, withcoffee sales increasing rapidly. The main competitors are McDonald’sMcCafe, Dunkin Donuts, and Starbucks. Coffee industry has continuedto grow in spite of the high cost of coffee in year 2009. The pricehas risen not because of the cost for coffee itself, but also becauseof supply chain and current economic situation in the world. Coffeeindustry is projected to continue growing for the next few years, andeven in other emerging markets (Kotler & Keller, 2009).
Theaverage number of customers who visits various Starbucks storesdecreased from the estimated 500 customers in 2011 to 450 in lastyear. This was caused by launch of the lower-priced beverages bycompetitors such as McDonald’s, and because of self-cannibalizationof the Starbucks stores. The company faces high competition fromspecialty coffee manufacturers like Caribou Coffee and Peet’sCoffee. The management believes that the long-term economicimprovement can reduce the impact of lower price competition, as wellas increase the average customer visits per day, as the companycontinues to reduce store count by closing down the under-performingstores (Kotler & Armstrong, 2006).
Fastfood chains such as McDonald’s have been causing reduction of theStarbucks’ customer segment through selling lower priced beverages.As result, McDonald has attracted the cost-conscious customersparticularly during the recessionary period. In long run, themanagement believes that a market will be created for the twobusiness models: a market for the price conscious customers andanother for those who want premium quality at slightly higher price.The customers looking for the latter market may continue to visitsStarbucks’ stores (Porter & Millar, 2005).
Manypeople are amazed to realize that the mission statement says nothing about a coffee business. The reason isthat the company sees its mission as greater than its drinks thatcontinue to expand, thrive, as well as create customer involvementsthat are exclusively Starbucks-branded internationally. StarbucksCoffee Company is to nurture and inspire a human spirit- one cup, oneperson, and one region at a moment. With the company coffee,partners, and customers at its core business, Starbucks createculture of belonging where all clients are welcome (Kotler &Armstrong, 2006).
Asthe Starbucks move forward, its objective is to advertise thecompany’s product through different marketing campaigns such asvarious outlets, social media, and in-store campaigns. Starbucks isconsidered the best specialty coffee retailer international, withover 16,000 coffee shops in 35 different nations all over the world.Each company outlet sells quality coffee beverages, food items, aswell as non-caffeinated drinks. Moreover, Starbucks offers a broadvariety of coffee, roasted coffee beans, and the tea brewingaccessories. Starbucks Company owns about 10,000 shopsinternationally, and majority of the shops are situated in America.The licensees operate over 7,400 extra units worldwide, and most ofthem are in shopping centers and airports. Starbucks sells, markets,and produces ready-to-drink on the counter bottled beverages andtheir ice cream line. The company also has Seattle’s Best Coffeebrand and Torrefazione Italian coffee brand (Kurtz, 2012).
Marketsegmentation is a resourceful strategy for companies to fulfill theirobjectives and gain profits. Segmentation is a process of dividingmarket into a meaningful, somewhat similar, as well as identifiablegroup or segment. Starbucks uses geographic segmentation that is byregion of a nation or worldwide, market density, market size, orclimate. It also uses demographic segmentation that is segmenting bygender, age, ethnic background, family life cycle, and income.Starbucks holds about 33 percent of the coffee market share in UnitedStates. The company has managed to accomplish this through cateringthe specific targeted market. Starbucks primary market target iswomen and men between ages 25 to 40 years, which accounts about 49percent of the company entire business. Customers in this range havetendency of high income as well as professional careers (Dibb &Simkin, 2006).
Thissegment grows at the rate of approximately three percent yearly.Young adults aged between 18-24 years are the second large sectionthat the Starbucks targets. This segment provided about 40 percent ofthe Starbucks’ sales, and the company strategically places itselfnear where college students hang out, write papers, meet people, anddo their studies. Starbucks appeal to this segment through growth ofinnovative ideas and technology. The young adult segment grows at therate of 4.6 percent yearly (Shankar & Carpenter 2012). The lastsegment, which is a part of the company’s targets market, is teensand children aged between 13-17 years. This segment accounts forapproximately two percent of the Starbucks’ sales although parentsfor their children buy most of the items. Starbucks targets thissegment by giving individual drinks that appeal to them. Ingeographic segmentation, Starbucks has placed a majority of itsstores and coffee shops in specific upscale locations, near campusesand colleges, as well as near offices (Lancaster & Massigham,2003).
Itis obvious that a coffee market is growing and changing because ofnew market entrants, as well as continuous changes in the consumerhabits. Aggressive competition and an exponential increase in coffeesegment keep the operators on toes, although current years seem tohave begun a vibrant new chapter in a history of coffee.Quick-service operators have taken advantage of growing popularity ofthe coffee-based beverages through launching new products.Conventionally, Dunkin Donuts and Starbucks have vied for the marketsupremacy in this category. Nevertheless, with the launch of theMcDonald’s McCafe coffee line and surprising entries in thecategory from Emerald City Smoothies, the race for gaining marketshare has increased (Doyle, 2005).
Sinceyear 2002 several coffee transactions in the foodservice outletsincreased by 24 percent according to NPD group. Quick-service segmentis driving the force in this industry. However, more current indicatethat the food service conventionally known for donut and hamburgerofferings are gaining market share from the gourmet coffeehousechains. Recent surveys on customer satisfaction show that perceptionof value and quality for specialty coffees from the hamburgerrestaurants is increasing because more chains have started specialtycoffee lines. In year 2012, Burger King launched a cold coffee drink,Mocha BK Joe while Wendy announced it planned to startcoffee-flavored smoothies. Quick-service restaurants like Sonic andSubway have launched the coffee-based beverages (Huber et al., 2001).
Inthe aim of gaining extra market share, the convenience storeoperators like 7-Eleven have steadily rolled out ice-coffee as wellas other specialty coffee drinks. The ice-coffee has become verypopular for the last few years, and it has overtaken iced tea in thesales as breakfast drink. Several morning meals including iced coffeehave doubled their growth in the last five years from 4.5 percent in2009 to 9 percent in 2013. Teenage girls and women are most likelyconsumers who purchase iced coffee drinks. Last year coffee overtookother soft drinks to become number two beverage after water. Theannual report on National Coffee Drinking Trends in Americanindicates that there is still more room for growth (Doyle, 2005).
Anotherfactor improving coffee’s popularity is the affordable luxury ofcoffee. Best gourmet coffee available in United States currently costabout 32 cents. In difficult times, consumer can buy cheap wine, butcoffee varieties are relatively recession proof. A Chicago-basedmarket research indicates that the consumption of specialty coffeehas increased by 14 percent annually for the last three years.Approximately 82 percent of United States adults are coffee drinkers.A report by American Specialty Coffee Association indicates thatspecialty market sales were $12 billion at the end of 2008. Moreover,the number of the coffee shops in United States has increased.Starbucks capitalize on a trend of providing better coffee throughoffering an exceptional new presentation of coffee drink. The companyhas started offering more beverages and meals in the internationalmarket. Starbucks is in a process of offering perfect spot forcustomer to take their products that offer great value in a newconsumer pattern (Kerin, 2002).
Technologiesand applications for the industry
Coffeebean provides about 20 million people internationally. while theestimated international retail sales was projected to grow at a rateof 6.9 percent from 2013 to 2015, reaching about $60.5 billion by2015, according to American Market for Coffee. Starbucks marketingstrategy entailed positioning the company’s outlets as a locationwhere customers can spend their time instead of their workplace orhome. It was done by ensuring that each company store is relaxing andcomfortable as possible. Star bucks want to be referred to as “thirdplace” by its customers. The company has achieved these by usingcreature comforts like relaxing music and comfortable furniture. Overthe past few years, Starbucks has included offerings like handicappedaccess, wireless internet, complimentary books, as well as commonplaces for collaboration. Although Starbucks stores are known asplaces where customers spend their time in a very comfortablesetting, the company product lines are set at a higher end in termsof quality and prices (McDonald & Dunbar, 2008).
Bakingcoffee technology has not developed in most countries for exampleChina. Starbucks has advantage of innovative coffee bean producing,as well as roasting/blending technology. The company uses internet topromote coffee culture. Starbuck also provides free WiFi services inits stores, professional training for barista, and scientificinternal database. Starbucks product mix has expanded from thirtyvarieties of entire bean the coffees to eco-friendly coffee makers,cappuccino, as well as other Starbuck paraphernalia. Starbucksproduct offerings have expanded beyond coffee and pastries tosmoothies, oatmeal, and wraps to compete with other competitors andmeet more customer needs. The company has continually introduced newproducts, like “Tazo Tea Infusions”, “Full Leaf Tazo TeaLattes”, as well as “Instant via Ready.” Instant via Ready is acoffee that is prepared instantly, and the company claims that thiscoffee is identical to regular brewed coffee. Tazo Tea Infusions andFull Leaf Tazo Tea Lattes are Starbucks’ new tea brands that thecompany has chosen to offer to attract more tea drinkers. Starbucksalso offers cappuccino makers and Starbucks coffee to consumers whowant to replace their home coffee makers (Pham-gia, 2009).
Implementationplan for improvement
Thecompany faces three main risks at its domestic region the first oneis saturated market condition. In the beginning, Starbucks startedwith seventeen coffee shops in Seattle. Currently, at Seattle, thecompany has an outlet for over 9,400 individuals, and Starbucksconsider that as an upper limit of the coffee shop saturation. Thesecond risk is a loss of customers due to fewer options available forcustomer. Thirdly, the company is facing a threat of global expansionthat poses significant risk to Starbucks (Porter, 2008). However, onefactor favors Starbuck over its competitors, which is ability to bemalleable when it comes to the issue of layout and store size. Thefactor permits Starbucks to change every individual store based onthe location, and expand to alternative territories like rest shopsand grocery stores. Despite these risks, Starbuck should use thisfactor to gain competitive factor over its competitors and performbetter. The company has continued to use traditional methods ofdistribution to sell Starbucks products to consumers. Starbuck shouldinvestigate the best way of penetrating alternate retail outlets likegrocery stores, to attract greater market share of home coffeedrinkers. Other potential locations for warehouses should be scoutedas well as considered in order to increase its market share(Lancaster & Massigham, 2003).
Starbucks,as an established global premium brand faces the challenge ofcounterfeiting on the global market. There have been several cases ofretail outlets overseas selling packed coffee with similar packingand logos. One of the strategic decisions to leverage this challengeis to establish joint ventures and alliances with other small firmsoverseas. Now that local firms in foreign markets understand theirdomestic markets quite well, it would be easier for Starbuck topursue meaningful litigation. Furthermore, the alliances would beinstrumental integrating the market share so that pricing challengesthat arise from counterfeiting problems are mitigated. Customers needto access Starbuck’s products in more convenient locations so as toreduce the incentive of selling counterfeit products by otherentities. Joint ventures and franchises not only support expansionprograms against counterfeiting, but also instrumental inunderstanding the cultural aspects of new overseas markets (Kurtz,2012). The potent strategy is set for implementation in this respectis to initiate local differentiation and responsiveness programs inother countries where Starbuck is expanding. For instance, if itbecomes necessary to start a new line of products due to culturaltastes and preferences in a host country, Starbuck would launch themto compliment the core products in intends to offer on the newmarket. Ideally differentiating products or beginning a new brand asa response to a new cultural environment is already in progress incountries such as Japan where Starbuck set its first outlets in EastAsia.
Incorporatea cost-efficiency objective in the entire expansion program- thereare many aspects of market expansion that are set for implementation.The core of these plans is the product differentiation and jointventures mentioned above. However, implementing these plans needsconsiderable investment in research and development (R &D).Insufficient research may result in problems such as tarnishing theway customers perceive the quality of Starbuck’s products andproducts failing to meet the expectations of customers. To circumventthis challenge, Starbuck can use alternative cost efficientingredients in the differentiation process and carry out thedifferentiation process in the scope of the cost efficiencyobjective.
Enhancingsupply chain efficiency in new markets through the services ofexperts is fundamental. Experts can establish unique supply chainsystems that have efficient ways of handling inventory and infusingnew technology in capacity management in accordance with the resourcebase of the specific country. In addition to an improved supplychain, further efficiency would require an operational restaurantsystem based an already-set improvement objective.
Starbuck’scorporate social responsibility (CSR) program has been one thatendears the company to the primary customer. However, a change ofstrategy is necessary to include environmental issues into the CSRprogram. Fair trade coffee promotions is the ideal strategy thatStarbuck should adopt to meet its social responsibility goals. Fairtrade coffee initiatives ensure that coffee farmers get the bestinternational prices that can sustainably meet their aspirations.Starbuck can also improve community and businesses by supportingfarmer-led initiatives such as education and farming mechanization.By being part of an entire fair price campaign, Starbuck creates asustainable primary source of coffee that is not threatened byunsustainable prices. Farmers will be motivated to produce highquality coffee and improve on their current status whenever anopportunity arises. Establishing a farmer-centered CSR strategy aimsto put Starbuck ahead competitors in terms of identifying with theprimary source of raw coffee.
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