Group 6: case X STARBUCKS: GOING GLOBAL FAST

Octawati BuntaranM987Z249

OUTLINE

• STARBUCKS’ INTRODUCTION• STARBUCKS STRATEGY ANALYSIS• HOLISTIC MARKETING OF STARBUCKS• SERVICE QUALITY MANAGEMENT• STARBUCKS SERVICE DIFFERENTIATION• STARBUCKS CHALLENGE• QUESTION AND DISCUSSION• CONCLUSION• RECOMMENDATION

Introduction Starbucks”To establish Starbucks as the premier purveyor of

the finest coffee in the world, while maintaining our uncompromising principles while we grow.”

“Ensuring the extraordinary potential of coffee is discovered ,revealed and delivered- helping to bring great pleasure to millions of people each

day”

STARBUCKS AT A GLANCE

• 12,440 stores in 37 countries.

• 2,199 stores opened in 2006 (6 stores a day).

• 145,000 baristas (waiters).• Net revenue $7.8 billion,

making an annual profit of $564 million.

Source: Starbucks 2006 Annual Report

Starbucks Timeline

Howard Schultz joins Starbucks as Dir. of Retail

Schultz founded II Giomale offering brewed coffee & espresso beverages w/ Starbucks coffee beans

84 Starbucks locations

676 Starbucks locations & Starbucks Intl formed

2,292 Starbucks locations

1st Starbucks location in Seattle

Schultz tests new coffee bar concept

II Giomale acquires Starbucks assets

Changes name to Starbucks Corp.

272 Starbucks locations

1,886 Starbucks locations

Joint venture w/ Magic Johnson

Launch Starbucks .com

6,604 Starbucks locations

Acquired Seattle’s Best Coffee Co.

1982 1985

1971

1990

1987 1998

2000

1993

1995

20031984

Starbucks Timeline

Jim Donald hold President and Chief Executive Officer .

The operating profit of the company during fiscal 2004 was $610 million, an increase of 43.7% over fiscal 2003.

Chairman Howard Schultz resumed his roles as President and Chief Executive Officer

2005

2004 2006 2008Rival Diedrich Coffee announced that it would sell most of its company-owned retail stores to Starbucks

Launches Starbucks® Bottled Frappuccino® Coffee Drinks in China through International Coffee Partnership with PepsiCo

2007

Strategies for Managing Demand Side

• Pricing- Starbucks has been able to accomplish with its pricing strategy : “ focus on profit, not on sale” and “low pricing would erode the perception of quality”

• Reservation - Starbucks launched Starbucks Express, customers can pre-order and prepay for beverages and pastries by phone or website. “Just call or click”

• Service – Starbucks hear music, Starbuck’s card, wireless internet.

Branding Strategy

o “Live coffees” mantra - to keeping the national coffee culture alive.o Creating an “experience” around the consumption of coffee Three components to this experiencing branding strategy:First, coffee itself – offering the highest-quality coffee in the world, coffee standards by controlling the supply chain as possible and the distribution to retail stores Second, service – customer intimacyThird, atmosphere. To make customers want to stay. Based on human spirit, a sense of community, the need for people to come together. Channels - Broad distribution strategyWant to reach customers where they work, travel, shop, and dine Good Location: Company-operated stores located in high-traffic, high-visibility settings Product mixed tended to vary depending on a store’s size and locationnon-company-operated retail channels, food-service accounts, domestic retail store licenses

Good Starbucks Partners All Starbucks employees were called “partners” -Most hourly-wage employees o Generous policy of giving health insurance and stock optionso High partner satisfaction rate (80% to 90%), well above the industry norm.o Lowest employee turnover rates in the industry (just 70%, compared with fast-food industry averages as high as 300%) o Lower managers turnover rates & encouraged promotion from within its own ranksDelivering on Service and good measuring service performance o Training: hard skills and soft skills o Treated as a valuable customer (75%), friendly staff (73%) and highest quality coffee (67%).o A variety of metrics, including monthly status reports and self-reported checklists. o “Customer Snapshot” measurement toolLess competition o A variety of small-scale specialty coffee chains (regionally concentrated). o independent specialty coffee shops & Donut and bagel chains

Strategies for Managing Supply Side

• Part time employees- Starbucks had lowest employee income rate of any restaurant or fast-food company but Starbucks offering health insurance and modest stock options to part-timers.

• Increased consumer participation- Starbucks does a nice job of encouraging this through its integrated marketing communications efforts. For example– has questionnaires in its stores urging

customers to send in feedback about their experiences.

• Facilities for future expansion The company's efforts to greatly increase its sphere of

strategic interest by its joint ventures with Pepsi and Dreyer's, its move to sell coffee in supermarkets, and the possibility of marketing fruit-juice drinks and candy under the Starbucks label representedIn order to sustain the company's growth and make Starbucks a strong global brand, that the company had to challenge the status quo, be innovative, take risks, and alter its vision of who it was, what it did, and where it was headed.

Holistic MarketingInternal marketing• Every partner/barista hired for a retail job in a Starbucks

store received at least 24 hours training in the first two to four weeks.

• Management trainees attended classes for 8 to 12 weeks. Their training went much deeper, covering not only the information imparted to baristas but also the details of store operations, practices and procedures as set forth in the company's operating manual, information systems, and the basics of managing people.

• One of their major objectives was to ingrain the company's values, principles, and culture and to impart their knowledge about coffee and their passion about Starbucks.

• External marketingPromotion- Starbucks usually picks one or two charities or event that reach the community it serves. For example - Free tall cup of brewed coffee to anyone who votes on election day.

Price- Starbucks represents an attractive combination of price features, high quality, good service and other attributes customers find attractive.

Service Quality Management

• STRATEGIC CONCEPT• TOP MANAGEMENT COMMITMENT

High dedicated to the companyHealth insurance and stock options for the

workers• HIGH STANDARD

High service quality standardBetter and faster delivery systemInnovative

INNOVATIVE PRODUCT

• Event• Products : Coffee beverages

Non-coffee beveragesCakes and pastrySandwichSaladEtc.

SERVICE QUALITY MANAGEMENT

• SELF SERVICE TECHNOLOGYConvenient and faster for customer

• MONITORING SERVICECustomer service : Voice of customer

SERVICE DIFFERENTIATION

INNOVATIVE FEATURE :• STARBUCKS EXPRESS

Customer can pre-ordder and prepay for beverages and pastries via phone or on website.

• STARBUCKS CARDPrepaid card, priced from $5 to $500, that offered to cuts transaction times.

• HIGH SPEED WIRELESS INTERNET SERVICE

STARBUCKS’S CHALLENGES

Going Global focuses on the risks and rewards of expanding into new

geographic and cultural markets

STARBUCKS’S CHALLENGES

How to maintain growth and keep growing

– Cannibalizations: one challenge lies on its own dominance – with Starbucks in every corner of a street there is likelihood of cannibalization of sales from existing locations. Starbucks closed 600 underperforming locations in 2008. This seems to be an admission that cannibalization seems to be a major challenge.

– Quality :premium coffee quality with local taste, there’s some specific coffee drinking market that Starbucks still left open.

STARBUCKS’S CHALLENGES• Prices: as a high-end coffee, Starbuck has a substantial price premium,

should have a more reasonable price strategy to face with harsh competition of others like Mc coffee.

• Economic situation: The company relies on consumer discretionary spending to drive sales. Consequently, a major economic change can have a large impact on revenues. Eg: With the global economic recession of 2008-2009, potential customers have less money and are more likely to forgo a $4 specialty coffee in favor of a cheaper alternative.

• Target demographics-yuppie, teens: Starbucks targets a higher-income crowd of the young and college-educated, a group that tends toward higher luxury-consumption levels. Although this focus allows the company to maintain high profit margins, it also puts Starbucks at greater risk from a shift in consumer spending habit.

STARBUCKS’S CHALLENGES• Being a Global responsibility corporation:– Environment: In October 2008, Starbucks was

report wasting 23.4 million litres of water a day by leaving a tap constantly running for rinsing utensils, 10% used cup in the US is not recycle, what about hundred million cups served over the world?

– Health Concerns: Consumers’ awareness of their health rise the concern of obesity with dairy, sugar and caffeine product, may caused some “would-be” Starbucks customers to turn to their health options.

– Labor relation: should improve working conditions and others benefits for employee

Questions &

Discussion

Questions

1. Identify the controllable and uncontrollable elements that Starbucks has encountered in entering Global Market.

2. What are the majors sources of risk facing the company and discuss potential solutions.

3. Critique Starbucks’ overall corporate strategy.4. How might Starbucks improve profitability in

Japan.

The controllable and uncontrollable elements that Starbucks has encountered in different markets

What are the major sources of risk facing the company and discuss the potential

solutions?

Three major risks at domestic region• Saturated market condition in USA.• Loosing customers, customers that grow

annoyed because fewer options are available.• The young generation (Generation X) feels

about Starbucks

What are the major sources of risk facing the company and discuss the potential solutions?

Base on the risks faced by Starbucks, the solutions we suggest are:• One of the risks that they faced in USA-the risks of market saturation can be

over come in focusing on international or global marketing. They may focus on to increase the quality of service and coffee for which they are well known.

• As they were facing ominously hostile reception from its future consumer (Generation X), they should reposition their product according to customers need, so that they find can the $3 they are paying for a cup of coffee is reasonable. They can also change their pricing strategy.

• As coffee is the core product of them to serve they should give more focus on improving the quality of coffee. They may make arrangement for some other items beside coffee as well.

• As Starbucks is going abroad to expand it business with local partners of that region there risk of Self Reference Criterion (SRC) and ethnocentrism. It can be over come through proper adjustment keeping SRC and ethnocentrism away in decision making.

Critique Starbucks overall corporate strategy

Starbucks are incurring losses for mismatch between their corporate strategies andthe customer’s expectations. Those are described below:• When Starbucks is blanketing some specific cities for dominance, still eight states

in the United States are with no Starbucks stores. Starbucks free cities are - Butte, Mont., and N.D.

• They believe that the more the outlet the more the sale. Basing on this strategy they are increasing their outlets day by day in their domestic region as well as abroad. Without satisfying the customers need, by increasing the numbers they will not be able to succeed in their mission.

• Starbucks’s target customers are the Baby boomers or older generation, it has nodifferential pricing for the Generation X or younger generation.

• Though Starbucks fully control its business in the USA, but it has franchisee outside the USA. Depending on the franchisees’ undermines the strength of Starbucks outside the USA.

Critique Starbucks overall corporate strategy (Cont’d)

• Starbucks is about to become a global company. But its spending does not match with its status. Starbucks only spends 1% of its revenue as advertisement; whereas most companies its size spend at least 10% revenue. Low spending on advertisement obstruct Starbucks’s brand building outside the USA.

• By aggressive marketing strategy they have created entry barrier for the competitors through “predatory real-estate strategy”.

• They have focused on the product concept which myopic attitude in making corporate strategy.

• Starbucks pay does not come close to match the work load of their employees that created dissatisfaction among them affecting sterling service and even the coffee itself.

• Schultz should be more cautious to various cultural and ethnic affairs. As a Chair of Starbucks and having market in Muslim dominated regions , he can not make any scathing comment against Palestinian.

How might Starbucks improve profitability in Japan?

To improve the profitability in Japan they should reposition their product and service. The Japanese are less conscious about the price. According to the present cultural trend in Japan, younger generation is inclined towards spending their time in a constructive manner. The source from internet says that the Japanese youth have very less time for their leisure. Besides sipping a cup of coffee in a coffee shop they love to learn English Language. Even they do not hesitate to spend ¥ 1,500 in an internet café just for sleeping.

How might Starbucks improve profitability in Japan? (Cont’d)

• Starbucks and its competitors in Japan are providing the same fare. As a result, competitors can easily eat up Starbucks’s share. So, Starbuck should either reduce the price or increase benefits in Japan.

• Starbucks can introduce US style online system in Japan, so that busy Japanese can provide their order in the internet.

• Starbucks can introduce various cultural campaign or entertainment campaign in Japan, so that Japanese youth feel attraction to come Starbucks. In times of economic recession extra activities are necessary to boost up sales.

So, for attracting the Japanese market in addition to coffee, arrangement of internet facility and other amenities should also be provided.

CONCLUSION• FACTORS CAN LEAD TO SUCCESS OF STRABUCKS

IN THE FUTURE• INNOVATION

• BUY, SELL AND USE ENVIRONMENTALLY FRIENDLY PRODUCTS

• MEET SATISFY OF CUSTOMER WITH FASTER AND CONVINIENT

• IMPROVE FACILITIES OF STALL

CONCLUSION (Cont’d) • Since the Company has been

concentrating on developing more blends of coffee drinks, Starbucks may have over looked the potential market of different healthy tea drinks.

• Although Starbucks maintains a top-notch management team, the Company does not seem to have a well organized consumer relations department.

Recommendations For Improvement

1. Implement Employee Branding:– Employees are motivated with more incentive to perform

and innovate– Lower employee turnover rates– Positive reinforcement which leads to higher feelings of

job satisfaction– Let them feel they are not just employees but rather as

professional ‘baristas’2. Prevent Self-Cannibalism:– Stores must be strategically located

Recommendations For Improvement3. Improve Corporate Social Responsibility– Help farmers have a sustainable livelihood– Improve the life and living conditions of the farmers

who plants cocoa by help building rural infrastructures such as schools, irrigation systems, roads and houses for the farmers.

4. Pricing Strategy– Starbucks should consider the general demand and

work a price reduction strategy into the Company's overall pricing strategies.

– Price reduction strategies may include a rebate or coupon promotion program as the increase in sales will offset the costs of these price reduction programs.

Recommendations For Improvement

5. Neglected Customers– Starbucks should also consider researching into

the tea specialty drinks market. Tea drinks will increase popularity because their perceived value of healthy benefits.

– Starbucks may need to review its company policies to see if updates are needed to address different consumer relation situations.