International Business Strategy of Starbucks - Case Study Example

? Starbucks- Case Analysis Contents Contents 2 Part- A 3 Strategic Issues 3 Success Factors 3 Product diversification to segment (Explanation Using Ansoff Model) 3 Store Expansion Strategy to achieve Market Expansion (Explanation Using Different Market Entry Modes and Strategic Actions) 4 Customer Satisfaction (Both internal and External Customers) 6 Communication (Elements of Promotional Mix) 7 Part-B 9 Strategic vision 9 References 10 Bibliography 10 11 Part- A Strategic Issues After Howard Schultz became the president and CEO of Starbucks in 1987, Schultz had to identify some key strategic issues that needed to be looked after so that Starbucks can reach the pinnacle of success. After analyzing the case study the key strategic issues are believed to be market expansion, targeting new customer segments, communication and customer satisfaction (Cowan, 2005, p. 201). Success Factors Strategic actions taken by the management of the company led by Mr. Howard Schultz turned out to be the key success factors of the company. Such decision is discussed in this section. Product diversification to customer segment (Explanation Using Ansoff Model) Throughout the 90’s and the 00’s In order to target new customer segments Starbucks decided to go for product diversification. In 1994 Starbucks and PepsiCo entered in to a joint venture, which is now known as the North-American Coffee Partnership to sell product closely related to coffee in cans and bottles. Thus the Starbucks catered to a whole new customer segment. In 1998 the company allowed Kraft foods to become a licensed provider of the Starbucks ground coffees and whole bean across US. In this case Starbucks ensured product quality, while Kraft foods took care of promotion and distribution. In 2008 Starbucks struck a partnership with Apple iTunes and started providing pick of the week music card in the 7000 stores (Henry, 2008, p.131). The diversification strategy can be well explained by using the Ansoff Product grid matrix. The four key elements of the product matrix grid are market penetration, Market Development, Product Development and Diversification. Among these Starbucks went for diversification as the company launched new product in a new market. Here it may be added that although Starbucks provided new products, but the core product remained the same. Rather the company went for augmentation. This also meant that the company used concentric diversification instead of conglomerate diversification, because the company added new product s hat was similar in nature keeping the core product i.e. Coffee in mind. Store Expansion Strategy to achieve Market Expansion (Explanation Using Different Market Entry Modes and Strategic Actions) Even before becoming the President and CEO of the company Mr. Schultz had a vision to expand the business of the company. This was one of the key reasons for which Mr. Schultz bought the company. In the early 90’s the company began the geographic market expansion strategy. The management of the company decided to work on a hub and spoke model to expand the market. In this case the major cities acted as a hub. It had specialist teams of professionals located in the hub. As a number of stores opened in the hub the company decided to open additional stores in the surrounding cities. The stores in the surrounding cities were monitored by the team of professional located in the hub cities. Due to such strategies very soon the company had a blanket of retail stores in the major as well as surrounding cities of the country (Wenderoth, 2009, p. 145). In the mid 90’s as a part of the expansion strategy the company got in to licensing agreements to cover those locations where the company may not able to have own outlets. The company entered into a licensing agreement with Marriot host international hotel operates in airport locations. Once the company had established a strong store network in United States the company decided to venture internationally. There were various options available in front of the company which included strategic alliance, joint ventures, etc. But the company primarily chose licensing strategy to enter the global markets. The company decided to use local partners to hire local talents and setup marketing and distribution channels. This is mainly because the local players would have a much better idea about the demographics and customer preferences about the targeted countries than Starbucks. However, before choosing the licensed partners Starbucks ensured that the probable partners have good market reputation, appropriate financial strength, market knowledge, manpower and brand building skills. Licensing strategy also helped the company to reduce the risks of entering into a foreign market. However, that is not all the company also considered other market entry modes also as a part of the overall international market entry strategy. For example, in 2008 the company struck a strategic alliance with Suntory to start provide chilled ready to drink coffee to the people in Japan. In 2010, the company made an alliance with UK based double Arla Foods to sell coffee as well as double shot products in United Kingdom. The products were made available in different coffee retail stores including company owned retail stores in UK. One of the biggest achievements of the company has been the fact it has been able to achieve vertical integration; both forward and backward. In forward integration the firms integrate towards the channels of distribution i.e. with the channel partners or intermediaries. According the President of the company Starbucks gets coffee from 30 countries and provides coffee through company owned stores as well as other retailers (Brown, 2009, p. 163). Customer Satisfaction (Both internal and External Customers) Mr. Schultz believed that the way a company treats the employees is the way it treats the customers. Therefore he believed in both internal as well as external customers. The internal customers included the employees. As the business of the company expanded the need for quality manpower increased. Also the company had to ensure that it is able to retail talents to ensure success. Mr. Schultz beloved that the employees would be able to provide the best efforts only if the employees had adequate skills level, healthy working environment, recognition and benefits. Therefore the top management of the company decided to employ a holistic on and off job training programs. The off jobs training was quite helpful in making the employees understand about the values and culture of the company; whereas the on job training helped the employees to crystal clear understanding of the job responsibilities. Mr. Schultz also decided to introduce fringe benefit programs which included medical insurance, sick time, vision care, paid holidays, life insurance, and accidental insurances, etc. However, that is not all. Mr. Schultz believed that the employees are actually a part of the overall business and hence they are just not employees they are business partners. Therefore the employees should be actively involved in the decision making process. This led to the introduction of the employee engagement plans where the lower level employees are encouraged to take decisions even without consulting the senior level managers. In order to convert the dream of making the employees business partners under the leadership of Mr. Schultz the company introduced the employee stock option. Here the employees by choice can have a share in the company profit. This actually motivates the employees to put that extra bit harder as the employees can have a share in the company profit. Mr. Schultz always had a vision that in order to maximize the customer experience the company has to focus and improve store environment and ambience. This something Mr. Schultz had picked up during the visit to Milan. In order make his dream a reality in 1991 the company developed a team of in house architects and designers to crate the right image and aura in the stores. The Starbucks management actually viewed each store as a billboard of the company (Frank, 1964, p. 91). According to the management each store played a significant role in the branding and marketing of the company. The company started putting in a lot of effort on key factors such as artwork, color, display and position of merchandise to create an inviting atmosphere. Starbucks also banned smoking and asked employees to desist from perfumes so that customers could smell coffee only. The company tried to develop an image which is equally appealing the corporate people as well young college and school students. Also the company had put in a lot of time and money in training the store personnel. In the year 2002 the company took it to the next level. Starbucks struck a partnership with the T-mobile USA to provide internet access and digital entertainment. From 2010 Starbucks started providing free Wi-Fi access at the company operated stores (Burgemeister, 2003, p. 251). Communication (Elements of Promotional Mix) In the early days of the company Starbucks used to operate mainly locally and hence the company used to rely on word of mouth marketing only. But after Mr. Schultz became the President and a lot of thing started to change. Mr. Schultz had realized that in order to become a major global firm the company has to increase the marketing efforts. Therefore the company started investing a lot more on the promotional mix. This mainly included increased advertising costs to counter the strategic initiatives by other major food and beverage retailers like Mc Donalds. The company also stated sales promotions and Public relations initiatives (Kotler, 2001, p. 29). Part-B Strategic vision Strategic vision plays a major role in the success of a company. From the case itself it can be seen the significant upward change in the performance of Starbucks after Mr. Howard Schultz became the President of the company. Mr. Howard Schultz had a vision that Starbucks had the potential to become a major global coffee retailer. However, it is one point having a vision a totally different when it comes to the execution of the envisioned plan. It required strategic thinking on the part of the management. Mr. Howard Schultz took a strategic approach in identifying the strategic issues and dealt with the issues accordingly by having respective action pans. Mr. Howard Schultz ensured that the Starbucks develops such an organizational culture which motivates the employees to be part of the success. Also the store branding initiatives also happened to be a vision of Mr. Howard Schultz. The investment made by the company in the marketing and advertisement campaigns paid rich dividend in the gaining strategic leverage over the competitors. It was the vision of Mr. Howard Schultz that saw the scope of international expansion and his strategic planning that helped the company to operate beyond international boundaries. The success of Starbucks reflects the importance of the visionary leadership and shows how much difference a leader can make in the success of a company. References 1. Cowan, A. 2005. Risk Analysis And Evaluation. Global Professional Publishing: UK. 2. Henry, A. 2008. Understanding Strategic Management. Oxford University Press: UK. 3. Wenderoth, M. 2009. Particularities in the Marketing Mix for Service Operations, GRIN Verlag: DE. 4. Burgemeister, S. 2003. Market analysis. GRIN Verlag: DE. 5. Brown, L. 2009. Marketing and Distribution Research. Ronald Press Company: US 6. Frank, N. 1964. Market analysis: a handbook of current data sources. Scarecrow Press: US. 7. Kotler, P. 2001. Marketing Management. Prentice Hall: UK Bibliography 1. Kolb, B. 2008. Marketing Research: A Practical Approach. Sage: UK. 2. Rao, V. 2010. Handbook of Pricing Research in Marketing. Edward Elgar Publishing: India. 3. Kazmi. S. 2010. Advertising and Sales Promotion. Excel Books: India. Read More