Starbucks Company - Essay Example

? Marketing Management Starbucks Assignment) Starbucks Starbucks is the largest coffeehouse chain in the world with 16120 stores and an annual income of US $ 10,383 billion. Their products vary from brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks, mugs and coffee beans. In addition, they market films, books, and music through Starbucks Entertainment division and Hear Music. The company was established in 1971 by Jerry Baldwin, Zev Siegel and Gordon Bowker. In 1981 Schultz joined the company as the head of marketing. As Thompson and Strickland (n.d.) state, in 1983, on a trip to Milan, Italy, Schultz visited a number of espresso bars and hit upon the idea of starting the same kind of coffee bars in America. Back in the US, situations were totally different. The option to drink a cup of coffee that was prepared according to the customers’ preference was not available. The available options were fast-food restaurants or gourmet cafes which were not open in the early morning hours of the day. Schultz was influenced by these three factors; absence of coffee shops in the early morning hours or extended hours of the day, the inability of the shops to prepare coffee according to the choice of customers, and people’s interest in using cafes as places of public interaction. Thus, Schultz started his own Coffee bar that allowed customers to decide the nature of the coffee to be made. Thus, in 1986, Schultz opened his coffee bar in Seattle in the name ‘Il Giornale’ and on the first day, they served 300 customers and precisely according to his observation, most of the customers came in the morning hours. Soon, he acquired the Starbucks’ name and operation. Thus, it is evident that the success of Starbucks was largely dependent on its success in identifying the opportunity and bringing into practice what they have envisioned. 2. The five forces according to Porter’s Five-force model are: a) potential entry of new competitors, b) potential development of substitute products, c) bargaining power of suppliers, d) rivalry among competing firms, and e) bargaining power of consumers. When the first force is considered, the biggest threat comes from McDonalds’ McCafe as it is easy for McDonald to add coffee services to their existing retail services. As per reports, the income from McCafe is 15% higher than the income from a regular McDonald and presently, it is the largest in Australia and New Zealand. In addition, Starbucks has something to worry as it has not started providing canned or bottled coffee; and it is clear that one who wants to save time and money will certainly go for canned or bottled coffee instead of the Starbucks mug (Strategic Management PMS 3393). When the third point is considered, one has to accept that Starbucks is victimized to this situation very often. In 2001, Starbucks was forced to buy coffee bean at a higher price as the suppliers raised the price. However, prior agreements on price will help the company overcome this problem. In machines and technology, the company will have to go for the total ownership of supplies. However, rivalry among competing firms is the most important one. Currently, there are about 14,000 coffee outlets in the US and there are many restaurants and supermarkets where coffee is cheaper than that of Starbucks. Some other important competitors are Dunkin Donuts and Krispy Kreme followed by coffee brands like Tully’s and Pete’s Coffee. In addition, their non-coffee products are threatened by brands like Orange Julius and Jamba Juice (Starbucks: “The Non-Coffee Treat”). However, as far as Starbucks retains perfection and quality, these competitors will not raise any serious threat. The last point is the bargaining power of customers. It seems that customers bargain only when alternatives are available and hence, this will not create a threat to Starbucks. In addition, its huge popularity reduces the bargaining power of the public. In fact, the situation was totally different in the early years. The number of rivals was very limited and the concept of coffee bar as a place where people can interact socially, have coffee of their choice and can save time was a totally new idea when Schultz introduced it from Italy. However, in the following years, the number of specialty coffee houses increased manifold and the current number of specialty coffee shops in the US is more than 14000. In addition, as Mintel (n.d.) points out, the coffee market in the US has experienced a growth of 157% between 2000 and 2005 and is expected to grow by 125% in the following years; moreover, new coffee shops are opening throughout the country on an everyday basis. In the beginning, the main concern was to publicise the idea of Starbucks coffee shops as different from the usual restaurants and gourmet cafes. At that time, the main target to achieve was to introduce a coffee shop culture to the society. 3. Like any other brand, Starbucks too had to take certain steps or strategic changes to survive in the competitive market. The first one was the decision to come up with non-coffee summer drink products that would attract more customers, especially kids. As a part of this, they introduced non-coffee drinks including tangerine and pomegranate flavoured drinks, Banana Frappuccino and many more. The company was forced to take this step by the fact that only 14% of the Americans prefer to spend their time in the coffeehouses. To attract the remaining 86%, it is necessary for the company to introduce more. Yet another step taken by the company is the decision to advertise its products. After many years of abstinence from advertising other than mouth-to-mouth publicity, the company has started advertising through billboards, newspapers, magazines and online sources like Twitter and Facebook. This shows a considerable shift in the company’s focus. In the past the company mainly focused on people above 25 years of age who loved to purchase premium products. However, a recent slowdown in business and poor stock market performance has made the company decide to start its television advertising. However, as most people believe, the company relied on customer evangelism for too long and one has to wait and see whether these advertisements would help the company overcome the current downturn. References Mintel. (n.d.). U. S. ‘Coffee Shops still simply too hot to handle’. Retrieved 21 Feb 2011 from http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=566 ‘Strategic Management PMS 3393’. (n.d.). Retrieved 21 Feb 2011 from http://www.scribd.com/doc/26095695/Starbucks-Case-Study Starbucks: “The Non-Coffee Treat”. (n.d.). Retrieved 21 Feb 2011 from http://www.scribd.com/doc/3923360/Starbucks-Marketing Thompson, A. A. & Strickland, A. J. (n.d.). Starbucks Corporation. McGraw Hill Companies. Retrieved 21 Feb 2011 from http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html Read More