Starbucks in the World Business - Assignment Example

Introduction: Starbucks was formed in 1971 by three business men in United States and indulged in business of coffee beans and coffee beverages since its inception. With the passage of time, the company recorded phenomenal growth in its business operations and thus expanded its operations to Canada, Japan, United Kingdom and others etc. The company has continuously focused on offering top quality tea and coffee products so that it could entice maximum customers towards its more than 16,500 retail outlets. It is worthwhile to mention that Starbucks has adopted an innovation-centered approach so that it could differentiate itself from its competitors such as Nestle, Kraft, and McDonalds etc. The retailer also used restructuring strategy to maximise its productivity and eradicate any internal management weakness. Employees are trained, new products are developed and stores are redesigned to entice a large pool of potential customers towards its coffee houses. However, it must be noted that the global coffee retailer tends to charge higher prices, since it does not compromise over quality and brand reputation. This paper will going to discuss the marketing strategy of Starbucks and importance of its three core business segments that are US Segment, International Segment and Global Consumer Products Segment. (Company’s Annual Report, 2009) Answer# 1 US Segment: Indeed, Starbucks has so far maintained the highest number of retail coffee outlets, mostly on ownership basis, in United States which is a market of more than 300 million people. Since marketing does not aim to target every single human being and customer, therefore, the coffee retailer has established a quality criterion to meet the tastes and preferences of its US customers who are inclined to pay higher prices for better quality. It is worthwhile to mention that more than 70% sales generated in 2009 by Starbucks was from its US business segment. In addition, the company has also entered the business of Instant coffee or ready-made coffee that attracts fast food customers. The market for this coffee product in USA is estimated to be more than $700 million dollars. In 2003, Starbucks acquired its competitor namely ‘Seattle’s Best Coffee’ which today has become an active brand as it is sold in more than 25,000 Starbucks’ outlets, supermarkets, retail stores and fast food chains. The retailer also has “Specialty operations within the US include licensed retail stores and other initiatives related to the Company’s core business” (Company’s Annual Report, 2009) and Helliker 1, 2010). The retailer has established agreements and partnerships with various food chains and superstores to increase its supply chain across USA. The coffee retailer, however, was adversely affected by global recession that resulted in a closure of more than 800 outlets in United States and few other nations. This has reduced the costs of more than $600 million on Starbucks and has improved its competitiveness and cost-efficiency. The retailer has focused on offering ‘Seattle’s Best Coffee’ brand as it is highly lauded by US customers because of taste and quality. Indeed, this strategy finally proved to be successful as Starbucks recorded a 7% growth in stores sales and 5% growth in net revenues in Quarter 2 of fiscal 2010 that shows there is still immense potential in US coffee market. (Company’s Q2 Financial Release, 2010) International Segment: The international segment of Starbucks is the second largest segment that contributes nearly 19% revenue of company’s total revenue from all three segments. It must be highlighted that this International segment includes the retail coffee stores owned and operated by Starbucks as well as various ‘components of specialty operations’. International specialty operations consists of retail store licensing operations, branded products and packaged tea and coffee products in more than 35 countries, mostly developed or advance economies where consumers enjoy relatively stable purchasing power and can afford high priced top quality coffee products (Company’s Annual Report, 2009) and (Company’s Annual Report, 2008). As revealed from the Annual report 2008 and 2009, the company has specially focused on China as its most lucrative and profitable market in near, and therefore has plans to establish thousands of retail stores on both ownership, licensing and franchising agreements. Indeed, this will help reduce the costs of operation while, at the same time, attracts more customers towards Starbucks brands. “The International segment’s largest markets, based on number of Company-operated and licensed retail stores, are Canada, Japan and the UK.” (Company’s Annual Report, 2009) Sales have increased by a reasonable 6% in Quarter 2 of 2010 that shows that business scenario is relatively better compared to the most challenging 2009. (Company’s Q2 Financial Release, 2010) Global Consumer Products Group Segment: The third business segment for Starbucks is Consumer Products Group segment that contributes 7% in total revenues generated by Starbucks from its global operations. This segment is actually a result of Starbucks’ market development, product development and diversification strategies. Indeed, this initiative although has created market of “packaged coffee, tea and other branded products worldwide”, however, the revenue generated is relatively small in amount. It must be emphasised that Starbucks has developed partnerships, licensing agreements, joint ventures and new dealerships with “grocery stores, warehouse clubs, convenience stores and US fast food chains”. Indeed, US food service sector that was initially a part of US Segment is now included in this Global Consumer Products Segment. This is to clarify that Starbucks also offers food meals and other eatables besides coffee beans, beverages and tea from its own retail outlets in USA and other countries. (Company’s Annual Report, 2009) The most important advantage of this segment is that the costs are relatively lower because company does not make any staggering financial investments, which in turn increases its profitability. The growth rate is just acceptable. Sales would increase when Seattle Best Coffee would be offered to this segment. (Company’s Q2 Financial Release, 2010) Instant coffee accounts for 40 percent of coffee sales globally, making it a $17 billion industry worldwide. In the United Kingdom, according to Starbucks, 81 percent of coffee sold is instant. And Starbucks will begin selling Via in London stores on March 25. Instant coffee could be an ideal way for Starbucks to expand its brand, said David Aaker, the vice chairman of Prophet, a marketing strategy consulting firm. (Miller, 2009)   Position Map: Starbucks (S) Criteria: Price on x-axis Customer Satisfaction on y-axis Customer Segments include 1) US (U), 2) International (I) 3) Consumer Products (C) Competitors: 1) Nestle (N) 2) Kraft (K) 3) McDonalds (M) Answer# 3 Product: Starbucks has planned to market Seattle's Best Coffee in its US market because this brand has already received consumer acceptance and loyalty. Indeed, the customers who have used this above mentioned brand usually come back in future for more purchases that is an open evidence of their brand loyalty. As mentioned previously, this will be offered at more than 25,000 ‘fast-food outlets, supermarkets and coffee houses’(Helliker 1, 2010). In addition, Starbucks planned to offer ‘instant coffee’ in the brand name of ‘Via Ready Brew’ in 2009 mainly to tap coffee market of over $700 millions. As part of product development strategy, the coffee retailer also started offering food meals in its more than 4,500 US stores to lure customers with its product variety (Miller, 2009). In addition, the company also started offering ‘frappuccino’ brand in different flavors while allowed customers to choose their own commbination of ingredients according to their personal tastes and preferences. This innovation will also help retaining US customers in the long run. (Helliker 2, 2010) As far as products in Chinese market is concerned, it is worthwhile to mention that Starbucks has followed adaptation strategy to attract Chinese potential customers. It has introduced "black beverages such as Black Sesame Green Tea plus frappuccino coffee and food in China” to lure domestic customers. Indeed, the coffee giant would face competition with Nestle and Kraft that have established their reputation in the market (Tianyu, 2010). Price: The price demanded by Starbucks for its various products and coffee brands is relatively higher than industry average. It is justified to conclude that this is mostly the case in emerging economies where per capita incomes are lower compared to developed economies. Miller (2009) revealed that ‘instant coffee’ offered by Starbucks fetches “less than a dollar a cup - 12 packets cost $9.95 while an eight-ounce cup of brewed coffee in Starbucks stores costs about $1.50” (Miller, 2009). However, as far as Chinese market is concerned, the quoted prices are higher if converted in local currency because it is a developing country where most of the consumers demand products at affordable prices. Hence, Starbucks in China will attract middle-middle, upper middle and elite groups. Promotion: Although, Starbucks spends on television, print media and internet advertising, yet it has planned to market ‘custom-made frappuccino’ within its stores. In other words, the company will use a Push marketing strategy through which the sales staff employed at stores will inform customers about changes and innovations (Helliker 2, 2010). As far as Chinese market is concerned, the company will spend more on traditional informative and persuasive advertising techniques by using different media to attract customers in its emerging market with enormous potential. In addition, the coffee retailer has started improving the design and display of outlets so that it could lure customers from this refurbishment and renovation within USA.This is also a part of ‘Selling an Experience’ strategy (Company’s Annual Report, 2009). Place: Starbucks already enjoys an extensive supply chain netwok within USA mainly because it aims to increase its reach. Indeed, the company has also formed partnerships, as mentioned previously, with convenience stores, warehouse clubs, supermarkets etc. to sell its brands. In addition, the company will also offer its products through ‘drive-through kiosks, coffee carts, vending machines and mobile trucks’ for convinience of its existing customers and creating new customers. Among the foods chains that are contratced for Seattle’s Best Coffee sales, Burger King and Subway are the most feasible and lucrative options because they also enjoy a large loyal customer base (Helliker 1, 2010). More than 600 stores across USA are closed that were called as loss-making units (Sanchanta, 2010). Since, Starbucks is still a growing company in China, it has been focusing on opening new stores for convenience of customers that have an inclination towards these foreign brands. China, however, will focus on ‘second- and third-tier cities’ such as Chengdu and Chongqing where it has already opened 14 and 10 new outlets respectively to cater Chinese customers with stable purchasing power (Tianyu, 2010). If you were the Chief Marketing Officer of Starbucks, what expansion strategy would you recommend? It does NOT have to be China. This is your opportunity to use your imagination, so be creative. Answer# 4 Recommendation - Growth Strategies in the light of Ans off Matrix: It must be recalled that Starbucks has already adopted and implemented market development (offering same products to new segments), product development (offering new and innovated products to same segments) and diversification strategies (acquiring new businesses and deals / partnerships with convenience stores, supermarkets, fast food chains etc.) for business growth and expansion. In addition, the strategic planners at company have also paid special attention towards differentiation so that it could attain a clear, distinctive and unique image in the mind of its customers (Larson, 2009). However, from my research, I have concluded that company although does not compromise on quality but charges higher prices that could hamper its growth in the short run. If I were the Chief Marketing Officer of Starbucks, I would have recommended to adopt an extensive market penetration strategy (charging lower prices for our market offerings). Indeed, the economic conditions are still challenging since unemployment has increased in United States and other developed economies that in turn has reduced consumption. Moreover, this has also hampered the growth of developing economies that are dependent on advance economies for trade and exports. Therefore, it is justified to conclude that Starbucks should start offering its top quality products at affordable prices or industry competitive rates in both developing and developed economies where it has expanded its business operations. This may result in short-term sustainability and may increase sales volume. Prices can then be increased once global economy completely recovers from recession and financial crises that in turn will improve employment statistics and increase consumption / demand of products. 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(2003) “Converting the Masses: Starbucks in China” Global Policy Forum Available at http://www.globalpolicy.org/component/content/article/162/27615.html Read More