Situation Analysis of Starbucks Company - Essay Example

Starbucks I. HISTORY Starbucks began in 1971. Back then, Starbucks were still a roaster and retailer of whole bean and ground coffee, tea and spices witha single store in Seattle’sPike Place Market. Today, Starbucks has grown to nearly 18,000 retail stores in 60 countries serving millions of customers every day (Starbucks 2013). Starbucks operates under the mission of “To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time” (Starbucks 2013). Starbucks offers a range of exceptional products that customers enjoy in their stores, at home, and on the go. Among these products are; Coffee with more than 30 blends and single‐origin premium coffees. Handcrafted beverages of fresh‐brewed coffee, hot and iced espresso beverages, Frappuccino coffee and non‐coffee blended beverages, smoothies and Tazo teas. Coffee‐ and tea‐brewing equipment, mugs and accessories, packaged goods, music, books and gifts. Fresh Food baked pastries, sandwiches, salads, oatmeal, yogurt parfaits and fruit cups (Starbucks 2013). II. INDUSTRY ANALYSIS: TRENDS, GROWTH AND COMPETITORS The fast food chain industry is a very competitive industry. There are other players in the industry who are offering the same product or services or an alternative to the product or services offered by Starbucks. Direct competitors include Seattle’s Best, Figaro and others while other fast food chains also poses as indirect competitors such as Dunkin Donuts, McDonalds and other fast food chains offering coffee as part of their menu. Competitors can either be direct or indirect competitors. Direct competitors are those companies who could offer the same product and services while indirect competitors are companies who could offer an alternative product or services (Möller, 2006). Needless to say, Starbucks operate in a very highly competitive environment. Competition in the industry was aggravated by the recent financial crisis which changed the buying behaviour of Starbucks customers whose purchasing habits changed dramatically along with their choices of coffee products. Starbucks used to market its product as premium coffee commanding premium prices in the market. This strategy however changed with the changing behaviour of consumers in the aftermath of recent financial crisis. The “premium coffee” preference suddenly became less a priority and convenience and affordability moved to the forefront. The “prestige orientation” of Starbucks is no longer applicable in the changing behaviour of its customers. This trend continues and is now the reality of the market. Demand however is not seen to diminish. Customers however are now price sensitive to the coffees they purchase. Economic environment determines the financial capacity of its market and business has to adjust correspondingly for it to survive. In the case of Starbucks, economic environment made Starbucks reconsider its position in the market when the financial crisis hit in 2008-2010 that companies were compelled to adapt to the new market realities to stay afloat as a business (Miron, 2013). III. SWOT ANALYSIS Strength The main strength of Starbucks is its brand that commands confidence in the market. Its brand allows it to command premium price in the market. It also has the goodwill of the market being a reputable company of being the only awardee of World’s Most Ethical Companies (WME) in Restaurant and Cafes category (Starbucks.com, nd). It also has a global recognition and global presence that commands a bigger customer base. Weakness The relatively steep price of Starbucks became its bane particularly during the financial crisis where competitors capitalized on it by labelling the product as expensive. This perception of being pricey prevents its price crossover attempt to become successful in other segment of the market. Opportunity There are still a lot of underserved markets in developing market which Starbucks can penetrate due to its global brand. The company also have important intangibles that could be capitalized as its comparative advantage over competition. Starbucks is known to be an ethical and socially responsible company. It also has the goodwill of its customers. This can be used as an advantage of Starbucks over other competitors. Threat Competitors are sensing the profitability of Starbucks and are trying to undermine its market share by lowering its price and criticizing the relatively steep price of Starbuck’s coffee. Starbucks response of lowering of its price is also a threat to its economic well-being because it would mean that it has to operate now with lesser profit margin necessitating it to become more efficient. RECOMMENDATION The most scientific and effective approach to become successful in the market is to use and combine the seven P’s of marketing which are product, pricing, place, promotion, people, physical evidence and process which has been proven to enable the business to perform more effectively in the market (Constantides 2006). In the case of Starbuck, the new market realities compel it to make its price competitive and this would necessitate it to have product lines that are not perceived to be expensive. Lowering price its price has a ripple effect to its various operations though because it would mean lowering its profit margin. Lowering its price without compromising its quality and integrity is not enough. Starbucks has to communicate and translate it to its customers. This can be done through an effective promotion. Promotion is one of the key components of these product which is the coordinated self-initiated efforts to establish channels of information and persuasion to facilitate or foster the sale of goods or services, or the acceptance of ideas or point of view” (Hundekar and Appannaiah, 2010 pg. 102). Promotion can basically stimulate demand or discourage it through the absence of promotional efforts and can basically dictate the success and failure of a company (Roger et al. 2009). In the case of Starbucks, its promotional effort has changed as its in-house staffs are now trained to communicate to consumers that its prices are now affordable. They are now communicating the information that more than 90% of their product lines cost $3 less and this is also being communicated in their advertisements. This change in promotional approach however will not be automatically understood and accepted by its customers because customers are used to perceive Starbucks as a premium high price coffee. Starbucks had cultivated its brand as a premium coffee that caters to the upscale market and this cannot shed off overtime. For the new brand or position of Starbucks to sink in the market, it will take time and plenty of promotional effort for the crossover to become successful. At present, the upscale brand of Starbucks prevented its success in the crossover attempt to lower price coffees because Starbucks is still perceived as an expensive coffee. The solution however is just to be consistent with its promotional campaign that Starbucks has 90% of their product lines cost $3 less. It took time to build its image as a premium and prestigious coffee and it will also take time for it to do a crossover in pricing. Starbucks can also capitalize on its positive image for the customers to become receptive to its campaign and for the customer to feel good in consuming Starbucks. It can include its ethical and holistic approach of sourcing its highest quality coffee. This includes communicaitng its responsible purchasing practices, supporting farmerloans and forest conservation programs that whenever customers buy Starbucks, they would have a feeling that they helped foster a better future forfarmers and a more stable climate forthe planet. In sum, the new marketing approach for Starbucks with the new market reality entails lowering its price and consistently communicating it to customers through its promotional campaigns. It should also include its socially responsible and ethical practice as a company to differentiate the company from competition. References Constantinides, E (2006). The Marketing Mix Revisited: Towards the 21st Century Marketing., Journal of Marketing Management, 22 no. ¾ (407-438) Luan, Y. J., & Sudhir, K. (2010). Forecasting marketing-mix responsiveness for new products. JMR, Journal of Marketing Research,47(3), 444. Retrieved from http://search.proquest.com/docview/346151517?accountid=32521 Miron, J. A. (2013). SHOULD POLICY ATTEMPT TO AVOID FINANCIAL CRISES?. CATO Journal, 33(3), 391-399. Möller, Kristian (2006). Marketing Mix Discussion - Is the Mix Misleading Us or are We Misreading the Mix?. Journal of Marketing Management, 22 no. ¾ ( 439-450) Roger A. Kerin, Steven W. Hartley, William Rudelius (2009). Chapter 19: Advertising, Sales Promotion, and Public Relations. McGraw-Hill. Starbucks Company Profile. (n.d.).Starbucks Company Profile. Retrieved July 01, from http://globalassets.starbucks.com/assets/9 Read More