The Starbucks Marketing Strategy - Case Study Example

Running Header: THE STARBUCKS CASE STUDY The Starbucks Case Study in Harvard Style by Introduction From its humble beginning in a downtown Seattle shop in 1982, Starbucks has now risen to become one of the largest players in the global specialty coffee industry. The company's history chronicles its ambitious goals matched with aggressive strategies. With customer satisfaction in mind, the company's operation in the early 1990s is met with huge and phenomenal success. Starbucks has ascended to become a famous customer brand, enabling it to expand to both related and unrelated industries. However, at the height of its success, the company is currently faced with the challenge of extending the customer satisfaction it had long stood for amidst the intensity of competition and the various changes in the external environment. This report will be solely based on the Starbucks case study and will focus on how the specialty coffee player can better survive and survive in the industry. In order to do this, this paper will look at the historical performance of the company, noting the company's strategies in response to its external market. The first portion will provide an account on how Starbucks has prospered and gained wide success in the early 1990s. Next, this report will look at the changes which have transpired in Starbucks market which significantly differentiates it from the 1990s. Through this analysis, this paper will evaluate why the customer satisfaction rating of the specialty coffee retailer declined. Lastly, Starbucks problems will be identified, stressing on how they can be reconciled and remedied. Starbucks' Success in the Early 1990s The success of Starbucks in early 1990s has been well documented. The main idea of its "founder" Schultz is to create a third place for the Americans to stay. It should be noted that during that time, Americans are confined to only two destinations-work and home. Schultz then wanted to create a place where the people can relax and enjoy themselves alone or with other people. This business concept has been instrumental in the success of the business organization in the early 1990s. Schultz did not just envision a retail shop which specializes in selling coffee but in creating the proper "ambiance" and strategies in order to convey the "Starbucks experience." Starbucks has operated in a three pronged strategy in order to capture its target market. First, the company concentrates in offering the best coffee in the US by sourcing its coffee beans from Africa, South America, and Asia Pacific. In order to ensure that it is distributing the highest quality coffee beans, Starbucks takes control as much of its supply chain as possible. This means working directly with the growers, supervising the roasting process, and controlling the distribution process worldwide. Secondly, Starbucks have focused on delivering excellent customer service to complement its products. It should be noted that the company's baristas are well trained in entertaining and dealing with the customers. The company believes that the Starbucks experience is not just a matter of delivering quality coffee products but excellent customer service. Thirdly, the specialty coffee retailer also invests in completing the experience by creating the appropriate ambiance. Starbucks has created an atmosphere which is inviting for its customers. In the words of Day, "People come for the coffee but the ambiance is what makes them want to stay." Consistent with what is emphasized in the course, it can be seen that the product offered by Starbucks is comprised of a tangible component, intangible component, and a symbol component. The tangible component, the substance, is addressed by Starbucks' quest in producing and delivering the highest quality coffee in its stores. As discussed above, it becomes an essential component of the value proposition and strategy of the company. The second component, which is service, is exemplified by the company's pursuit in offering "customer intimacy." It can be seen that Starbucks, far from only being an organization which aims pursues winning customers or transactional marketing, it strives keep customers through relationship marketing. Starbucks' baristas are not just trained to make the best coffee but also to know the customers by name, know their individual preferences, and customize their coffee according to it. Starbucks recognizes the importance of repeat transactions with its customer. The third component, which is symbol, refers to the company's brand marketing or how Starbucks positions itself and create an image in the industry. In a typical business organization, this is reflected in the numerous marketing campaigns and promotions conducted. In the case of a company like Starbucks, the symbol in not exemplified in advertising because it only markets itself through word of mouth. Instead of allocating huge proportions of its budget for commercial advertisements, the company focuses in perfecting its substance and service. However, it also recognizes that focusing only in these two components is insufficient. The creation of the Starbucks brand also entails creating a proper atmosphere which communicates to the customers the image that it wants to convey, that is, a place of relaxation and comfort. The success of Starbucks in the early 1990s is directly attributed to these factors. Externally, Starbucks become one of the first players in the market which is able to identify a customer need, that is, a third place beyond home and work. It should be noted that during the early 1990s, the market for the specialty coffee remains unsaturated implying a relatively low level of competition. Aside from these favorable external factors, Starbucks is able to convey the value that the customers expect. The company is able to satisfy its customers even enabling them to pay a premium for their coffee. The company's three pronged strategy completely exemplifies a total product which is a combination of substance, service, and symbol. By seeing to it that these are efficiently delivered to the customers, Starbucks is able to succeed in winning and keeping its clients. The Current Market: Starbucks in the 21st Century Kotler states the global business arena is evolving into a hypercompetitive environment characterized by more stringent competition among market participants and higher bargaining power from customers. From the heights of its success in the early 1990s, Starbucks is now facing challenges as it faces a new era of business competition with various market participants. It is irrefutable that rapid trends and developments have changed the external environment that the specialty coffee retail is operating in. This, in turn, also pressures Starbucks to change its marketing strategy in response to the numerous environmental changes. In order to fully understand the current environmental and internal operations of Starbucks, this section will be divided into two parts. The first will look at the company's current market environment while the second will look at the internal changes that the business organization has instituted. External Environment One of the recent developments in the specialty coffee industry in the 21st industry is the entry and the proliferation of numerous players. As opposed to the situation in the early 1990s, potential entrants have come to realize the profit and business opportunity in this sector. Currently, Starbucks compete against a variety of small coffee chains. Among these rivals are Minneapolis-based Caribou Coffee, California-based Peet's Coffee and Tea which operates on a regional basis. The company is also in intense competition with other small specialty coffee house which offers a wide array of products aside from coffee. Bagel and donuts companies are also currently offering coffee products, notably Dunkin Donuts. The proliferation of various players in the industry has significant implications not only on the level of competition but also on the buyer leverage. With the opening of other specialty stores and other establishments which offers the products which are in Starbuck's portfolio, buyers are now faced with a wider array of choices. The intensity of rivalry in the industry where players aggressively market their products and devise ways to attract customers also implies that buyers' perception of what constitutes a quality product is also changing. As business organizations try to add more and more features and services to their operations, buyers now have a significantly new set of preferences and try to keep with the company which can satisfy these wants. It should be noted that during early 1990s, Starbucks was poised to capture a very specific niche market-"affluent, well-educated, white collars (skewed female) between the ages of 25 and 44." Through time however, this customer based have significantly changed. Currently, the customers of Starbucks are younger, less educated, and in the lower income bracket than the retailer's more established customers. In addition, "the affluent, well-educated white-collar female within the ages of 24 and 44 had expanded." This change in customer base implies that the change in customer need and customer perception which should be addressed by Starbucks. Internal Changes In response to the changes in its external environment, the Starbucks in the 21st century has become an entirely different business organization from what it used to be. First, the company's ambitious goal of becoming an international player has ushered the specialty coffee retailer to expand geographically. In its operation in the early 1990s, the company was constrained in a single continent, Northern America. However, Starbucks has become a very important player in the global market having over 300 company-owned stores in the United Kingdom, Australia, and Thailand, about 900 licensed stores in various countries in Asia, Europe, the Middle East, Africa, and Latin America. The company still hopes to open more stores in the future, aiming to reach as much as 15,000 retail shops. Secondly, Starbucks has been very aggressive in creating new products for its customers. The company now maintains a wider and longer product line in its portfolio. It should be noted that a large amount of the company's budget is allocated for product innovations. Aside from being in the specialty coffee sector, Starbucks has also diversified into both related and other unrelated industries. In addition to selling whole coffee beans and coffee, the business organization also brews Italian-style espresso drinks, cold blended beverages and teas. Starbucks also has partnerships with other business organizations in selling premium ice creams and bottled beverages. The company also offers coffee related accessories and equipment. Recognizing other business opportunities, Starbucks has also diversified into offering music CDs, games, and seasonal novelty items. The rise of new products under its portfolio and its entry into other unrelated industries pressures Starbucks to yield control over its distribution channels. In the previous section, it has been discussed that the company was able to maintain the quality of its product by having a tight control over its supply chain and distribution channel. However, with its partnership with other business organizations along with its other product offerings, the company is forced to yield control to department stores which sold its bottled beverages and ice creams and other business entities. Customer Satisfaction in the Changing Market The previous discussion shows that there have been significant changes in the external environment and internal operations of the Starbucks. Externally, competition is more intense, buyers hold higher leverage, and the customer base has changed. It should be noted that all these external changes implies one thing-change in customer perception of what constitutes a good product. More intense rivalry and higher buyer leverage bring aggressive strategies in the industry coupled with a higher standard of quality. Meanwhile, change in customer base implies that customers' expectation of value has also been changed. Internally, Starbucks is now a player in the international specialty coffee industry, has a larger product portfolio comprised of coffee products and other unrelated offerings, and more relaxed control of its distribution channel. Operating in foreign markets has significant implications for Starbucks. It is irrefutable that by venturing abroad, Starbucks exposes itself to different culture with different customers who have different perceptions and expectations. With this, it becomes a challenge for the company to tailor its products in order to suit the unique preferences of each market while maintaining the quality of its offering and its brand image. As the company's pursues product innovation, it also pushes service quality of baristas to decline. With the higher number of product variations on the menu, baristas are pressured to master more and more skills in mixing and making drinks. Thus, it also lessens their efficiency of extending excellent service. The company's decision of offering a wide range of products affects company's focus. With this development, it is irrefutable that the company's resources are now allocated into other ventures which can make it lose sight of its core operation. This decision of Starbucks can also harm its market position in the long run as customers become confuse about the nature of the company's operation. The company also runs the risk of tainting its image in the public. Lastly, Starbucks more relaxed control in its distribution and other operations imply that it has less control on the quality of its product and services. The company now faces the challenges of maintaining product quality and its brand while also keeping its partnership with other business organizations. Recommendation and Conclusion With the changing perception of customers in the marketplace, it is equally important that Starbucks enhance its operations to take into account the changes in the marketplace. This report strongly recommends that the transformation should be facilitated outward-in, that is, Starbucks should strive to put its customers first. A good starting point will be to fully identify and understand what the customer perceives as an excellent product. This can be done by conducting an intensive and extensive marketing research. Starbucks should conduct in-store surveys where it can gather information from its customers about the things which should be improved in terms of substance, service, and ambiance. The company's value card can also tell a lot about its customers. The company can use this in order to ascertain customers' needs and wants. After conducting market research, Starbucks should then put their information together in order to craft and implement an efficient marketing strategy. The company should see to it that it will also have a viable instrument where it can measure its performance and progress. For now, this report recommends that Starbucks gives more attention in improving its service quality. The company needs to ensure that baristas are well trained in order to cope with their more challenging jobs. This means creating venues where the baristas can periodically assess and enhance their performance. With the breadth and depth and length of the company's product portfolio, it is also recommended that the company cuts its product offerings and focus on its core items. In this manner, Starbucks can retain and maintain its focus as well as enhance its image on the specialty coffee industry. Lastly, it is recommended that Starbucks institutes a culture of thinking globally but acting locally. That is, it should take into account the differences in each market where it operates by crafting separate strategies for each one. References Kotler, P & Keller, K 2005, Marketing Management, Upper Saddle River: New Jersey Read More