Strategic Analysis & SWOT Analysis of Starbucks Corporation
rodrigo | December 3, 2012
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Starbucks brand name is one of most admired famous global business in the world (Moore, 2006, p.7). Moreover, in terms of marketing, Starbucks always is the case study for discussing about it successful marketing and branding strategies. Because of the fall of the economy, it was forced to close 700 stores that were unable to make enough profit and cut thousands of jobs in America, UK, and Australia after a drop in sales in 2008. The brand was also facing the issue of their customers choosing a cheaper option over their higher coffee prices. Starbucks then was applauded for their handling of crisis situations. This report will apply relevant theory and practice of strategic marketing management to explore the situation, contributing factors and management of marketing strategies in the financial crisis sector, reflecting the happenings and identifying recommendations relevant to Starbucks International Coffee.
OVERVIEW OF STARBUCKS COFFEE
The Seattle-based Starbucks Corporation, which founded in 1971, is nowadays a multinational coffee and coffee house chain with over 15,000 stores in in all 50 states and 43 countries outside of the United States (Pham, 2008, p.8). Serving consumers everywhere (Moore, 2006, p.12.), the aim of Starbucks is to establish and leverage its powerhouse premium specialty coffee through rapid expansion of retail operations, new distribution channels and successful make it coffee a global product for millions customers.
At Starbucks Coffee, the mission is “[…] to inspire and nurture the human spirit – one person, one cup, and one neighbourhood at a time.” (Clampitt, 2009). Starbucks has been and always be proud of their commitment to maintaining quality, integrity, and great taste of coffee through the course of its growth and the high value placed on the employees/partners worldwide (LeFort, 2008) .
Store Expansion Strategy of Starbucks
Throughout the 1990s, Starbucks had started developed a “three-year geographic expansion strategy” (Clampitt, 2009) then Starbucks’ store launches grew more successful in revenue (Creamer, 2007). Not just selling the coffee, Starbucks’ model with opening new stores next to doors and inside shopping malls caused them to increase in value than all other competitors (Cebrzynski, 2007) In 2004, Starbucks announced to analysts that it had a very aggressive target to double its rate of expansion. Their stated goal was to grow to 15,000 stores in the US. According to the report in an article, Starbucks has more than 13,000 locations around the world, and has overstretched itself with the long-term goal of 40,000 stores worldwide (Woodward, 2007, Clark, 2008). Appendix 4, 5, 6
There is a raised question that whether it is a bad business decision for coffee chain Starbucks to expand its brand too quick. (Cebrzynski, 2007) is also suspicious that has Starbucks lost its “Starbucks experience” by growing that big? (Business: Trouble brewing, 2007)
FINANCIAL CRISIS AND “COMMODITIZATION” OF THE BRAND
A crisis, according to (Brown, 2003) is “a decisive moment”, “a turning point”, “a time of great difficulty”, then marketing cannot possibly be in crisis. Mr Schultz, Starbucks’s CEO, saw the crisis coming. He had discovered the problem of their own development strategies: “Stores no longer have the experienced soul with the warm feeling of a neighbourhood store”. At the beginning of 2007, he did warned about the “commoditisation” of the brand that the expansion from 1,000 to more than 13,000 shops over the past ten years, in order to achieve the growth, development, has led to a series of decisions that make a watering down of the Starbucks experience. (Businessweek. 2007). The decline of Starbucks is the result of over expanding previous years, has been criticized by those who oppose globalization such as ( Klein, 2009): “Instead of opening giant stores on the outskirts of town, Starbucks chooses locations right in the range of the inner area already full with all kinds of coffee house. This strategy relies heavily on the cost reduction by purchasing multiple quantities at wholesale prices like Wal-Mar, however, affected more by the competitors”
The rapid growth has obviously caused Starbucks some problems. For the first time in its 37-year- history Starbucks lost customers and profits collapsed 97% (Jagger, 2008) during the fourth quarter of 2007 after the ubiquitous coffee chain was forced to absorb the effect of weakening demand. The footfall had declined in the UK, where it has two other big coffee retailer: Whitbread’s Costa and Caffè Nero as well, -$6.7 million after tax, compared with a $158 million profit for the same quarter last year. (Lee, 2008). Although company officials still do not believe growth is an issue (Cebrzynski, 2007), first time in five years, Starbucks was knocked out of first place in the coffee-and-doughnuts category by Dunkin’ Donuts (Creamer, 2007). And it was the biggest faller in the index by 7 points to 42 out of a possible 100. (Leroux, 2008)
As (Schindehutte et al., 2008) argues that “[…] something is clearly affecting the ability of firms and business units to sustain performance” ), suffering from a rough economy and its own strategic missteps, Starbucks had to admit their own mistakes, much of which is self-inflicted (Ignatius, 2010) In current economy, as a classic dilemma of any big business, while trying to expand, Starbucks not only have to deal with other factors like competitors and the mortgage crisis, they also competing with themselves. Size may have brought success to Starbucks, but it has also led to issues of brand depersonalisation. In the rush to open more stores, Starbucks is experiencing what all successful brands do when they move from being a small, niche firm to a global entity (Golding,2009). Moreover, there are some extra affections from the environment, such as:
– The brand’s bottom line has been hit by the rising costs of raw materials. “[…] now Starbucks isn’t for some people” said Howard Schultz, CEO of Starbucks (Not enough froth Starbucks, 2008). Fancy Starbucks coffee has also struggled to compete with cut-price rivals such as McDonald’s and Dunkin’ Donuts, as these traditionally food-focused outlets have begun to sell their own premium and reasonable coffee offer (Clark, 2008).
– As the financial crisis has spread to the real economy, “a perfect storm of negative factors affecting the consumer” (Cebrzynski, 2007). The flagging economy and soaring gas prices are responsible too (Leroux, 2008). Consumers are worried of rising gas prices, energy bills, declining home values, the weak dollar, tighter credit, therefore giving hard consideration to how they spend their money. They even already scale back on restaurant dining that made restaurants are slowly creeping out of their thoughts.
STRATEGIC MARKETING MANAGEMENT TO SOLVE PROBLEMS
Crisis management is much more than coping with a crisis, it is identifying, studying, forecasting, stopping and avoiding crisis as well. (Clampitt, 2009) Continuous improvement and monitoring in business operation can detect and prevent an upcoming crisis (Rhee & Valdez, 2009). Effective marketing can contribute to a firm’s growth through better anticipation of market opportunities, calibration of risks, a tighter linkage of technological possibilities with market concepts, and faster adjustment to shifting market needs and competitive moves. (Day, 2003) For their part, market-driving firms such as Starbucks is demonstrating how business model innovation results in sustainable advantage and superior long-term performance in a wide range of industries. (Schindehutte et al., 2008). When a crisis or disaster strikes, companies must analyze and choose from many strategic plans. One way they do this is by using a SWOT analysis – a strategic planning tool used to evaluate Strengths, Weaknesses, Opportunities, and Threats. The goal of a SWOT analysis is to identify key internal and external factors that affect the desired outcome. Strengths and weaknesses are internal to the company and include things like wage/benefits, corporate culture, leadership, marketing, and operations. Opportunities and threats are external to the company and include things like government regulations, competition, and economic and social forces. (Clampitt, 2009) The focus for the strategic management to understand the market and industry processes of Starbucks and must be able to integrate valid and reliable SWOT analysis so as to determine future strategies for business development and growth in the global market.
The SWOT analysis will provide enough awareness for the Starbucks and its business management and operations with regards to their strategic management implying relevant points for their resources as well as market approaches and processes in order to stay in shape and in control of their business environment. Applying a SWOT analysis to Starbucks global expansion strategy shows why they have been successful overcome the crisis. Appendix 7
The business strategy of Starbucks is identical to the corporate level strategy, focusing on coffee-related products as the premier purveyor of the finest coffee in the world and maintenance of great environment for every staff member in its retail stores. Continual quality improvement is crucial to competitive success and the perfect symbol for the dilemma that faces world trade (Schindehutte et al., 2008). Therefore, it is typical to give the promises to improve service, reduce growth and expand marketing efforts for responding to a decline in customer traffic (Business: Trouble Brewing, 2007). Equally as important, company should not lose sight of their brand heritage (Cebrzynski, 2007). A long term business strategy built upon the hundreds of little things on a daily basis which is the key to customer relationships in the future (Cannon, 2002).
Re-energizing Starbucks Process
When a decline in customer traffic happens to any chains like Starbucks, it’s a signal that the company should re-examine their positions (Cebrzynski, 2007). It is the market that provides signals both to the entrepreneur and marketer regarding what value is needed, when it is needed, and how it should be delivered (Schindehutte et al., 2008).
Starbucks needs to go back to its “roots” (Cebrzynski, 2007) and make its brand special again. Company brought back the original CEO, Howard Schultz to restore the company’s shine. Starbucks knows it needs to do something new (Skenazy, 2008).
Re-structure: Back to basics
Chairman Howard Schultz take back the reins from ousted CEO James Donald, not only closed 100 unspecified, underperforming locations with weak sales but also closed most stores across the US simultaneously in order to retrain to improve “customer experience” at American stores and to “get back to the core” (Creamer, 2007). Besides, Geoff Vuleta, CEO of New York innovation consultancy Fahrenheit 212, had a radical solution that open a chain of microstores devoted solely to making coffee. “No travel cups, no music, no machines, just amazing beans and a narrow range of the best-in-the-world coffee drinks,”, just moving brand back to the basics.
Resource-led Strategy: Focus on service quality experience
Everyone should know that nothing is better for a business than a satisfied customer who can talk to others about their experience with our service (Cannon, 2002). First of all, “Starbucks really needs to refocus on the luxury coffee experience; the smells, the sounds“. They also gained customers positive experience in stores by well-trained staffs who were knowledgeable about the company’s products, who eagerly communicated the company’s passion for coffee, and who had the skills and personality to deliver consistently pleasing customer service (What’s Brewing at Starbucks, 2011). Starbucks wanted to turn all Starbucks employees into partners, give them a chance to share in the success of the company and make clear the connection between their contributions and the company’s market value (Thompson& Strickland, 2009).
From its founding, Starbucks set out to be a “third place” to spend time, in addition to home and work.(Business: Trouble Brewing, 2007) To remedy that, the company plans to improve its service. Field managers will spend more time in the stores to make sure service really does get better, and new baristas will receive additional training. (Cebrzynski, 2007). New breakfast line, featuring a proprietary baked and chilled food program was unveiled in September. Howard Schultz said the smell of the sandwiches overpowered the aroma of coffee, one of the chain’s signature features (Jennings, 2008). Following the lead of other coffee chains, Starbucks will also be offering a customer loyalty card for the first time. (Ahmed & Walsh, 2008) In an attempt to rvetain loyalty in the UK, Starbucks has introduced free coffee refills for anyone buying a hot drink and has ramped up its hitherto negligible marketing activity (Lee, 2008).
Reputation management can take a while for a bad reputation to hit your bottom line, or a good one to increase profit (Cannon, 2002). As word-of-mouth is a primary marketing tool, Brian Collins, chief creative officer of New York’s Collins design research firm, suggested company should better use its digital resources to learn the tastes of regular customers and reach target audience by creating social networking tools like Facebook or Twitter and blog page. They also used it both as a way to stay interacted, involved with their current customers and look for new ones. According to TNS Media Intelligence, Starbucks spent $40 million in the first nine months of 2007 (York, 2008), launched its first national TV campaign to defend its ownership of the coffee segment from encroachment by McDonald’s, Dunkin’ Donuts and other chains (Cebrzynski, 2007).
They also created the site “My Starbucks Idea” (http://mystarbucksidea.force.com/), which gives consumers the opportunity to post ideas, suggestions, to vote and discuss about what they want to see from Starbucks. If they gain support, these ideas may be chosen to carry out to change the company in its business process, product development, experience development, and store design.(Jarvis 2008)
“Change will not happen overnight,” Mr. Schultz said. “It will evolve over time, but I ensure you a positive change will occur. I, along with our dedicated partners, will strive to exceed the expectations of our customers every day.” (York 2008)
RECOMMENDATIONS FOR FUTURE STRATEGY
Some experts therefore believe its unbranded stores initiative is not only logical, but necessary. ‘It needs to focus on the inherent values of being local; it needs to employ local staff; it needs to be suitably different from Starbucks’ corporate image.”It is a phenomenally successful company that started off as a local brand but grew incredibly quickly,’ he says. ‘The brand was originally loved and respected by everyone, but the corporate world decided it had become too big.As the company expands, the culture and corporate strategy must be maintained for success (Jennings, 2008). For the recommendation, Starbucks should be able to sustain the company’s growth and make the business become strong global brand. What could Starbucks do to make its stores an even more elegant milieu that welcomes rewards and give surprises to customers? What new products and new experiences could the company provide that would belong to and be associated with Starbucks? And how could Starbucks reach people who were not coffee drinkers? Starbucks must continue the fixed-price purchase commitments in order to secure an adequate supply of quality green coffee beans and to limit its exposure to fluctuating coffee prices in upcoming periods. (Thompson&Stickland, 2009)
However, David Anderson, director of Cada Design Group, argues that most consumers don’t have issues with the brand. Consumers are looking for a home away from home, and ‘want it in an environment that isn’t so heavily corporate branded’. ‘They think customers are brand loyal or product loyal, but they are not. It comes down to convenience and providing a space people want to be in.’ ‘It wants to regain a community personality and the image of the neighbourhood coffee shop.(Golding, 2009)
Starbucks Coffee’s heyday was back when the corporation announced the business results in the first quarter this year reached U.S. $ 2.7 billion, with net profit of 242 million dollars (nearly 300% increase compared to same period in 2009). This is also the result of efforts to revive the brand had been likened to a giant.
From the case of Starbucks, what is the lesson for business? Because development needs, the business diversified products and services is perhaps natural. A long time, Starbucks has gone with their own race shop system extension. This group has become the pride of American business people. The market strategy of Starbucks is a classic lesson in the textbook business. More services they desire to acquire a lot of customers. In fact, they have plummeted, but in time to edit.
So go in-depth development (product quality, service key) to get a solid foundation for expanding business. But do not be too ambitious expansion width, expansion, missing the core.
Marketing once again demonstrated its magic to bring Starbucks back to the track. The results of consumer research shows that of Starbucks, the main indicators in the business achieved a high level of satisfaction over a year ago.
Although Starbucks enjoyed success in the past few years, there are a few obstacles looming. Since the popularity of the coffee house idea has grown, some cities wish to issue regulations on the coffeehouses due to complaints of late night patrons becoming uncontrollable. In conclusion therefore, Starbucks was the only company with anything close to national market coverage. The company’s efforts to greatly increase its sphere of strategic interest via its joint ventures and the move to sell coffee in supermarkets that represents such ongoing drive in order to continually reinvent the way Starbucks operate its business. (Thompson & Stickland, 2009)
Amidst the environmental, social, and economic challenges and changes for Starbucks, its chairman, president, and chief executive officer, Howard Schultz, pledges “Even during this time of change for our company, one thing that will never change is our long-standing commitment to conducting business in a responsible and ethical manner. Going forward, we will only deepen our approach by continuing to integrate social and environmental responsibility in every aspect of our business.” With its various and numerous awards in “Best Business,” “Most Admired Company,” “100 Best Corporate Citizens,” to name a few, Starbucks is becoming one of the most respected brands in the world. (Clampitt, 2009)
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