CASE ANALYSIS: STARBUCKS

EXECUTIVE SUMMARY
The first Starbucks location opened in 1971. The name is inspired by
Moby Dicks first mate. This name and the mermaid logo were inspired by
the love of the sea, from Starbucks original location in Seattle Washington
in the heart of Pike Place Market. Starting as a single shop specializing in
high quality coffee and brewing products the company grew to be the
largest roaster in Washington with multiple locations until the early 80s.
In 1981, current CEO Howard Schultz, recognized a great opportunity and
began working with the founder Jerry Baldwin. After a trip to Italy to find
new products, Schultz realized an opportunity to bring the caf community
environment he found in Italy to the United States and the Starbucks
brand we know today began to take form. Selling espresso by the cup was
the first test. Schultz left Baldwin to open his own Italian coffee house Il
Giornale which found outrageous success.
In 1987 when Starbucks decided to sell the original 6 locations, Schultz
raised the money with investors and purchased the company and fused
them with his Italian bistro locations. The company experienced rapid
growth going public in 1992, and growing tenfold by 1997, with locations
around the United States, Japan and Singapore.
Starbucks also began expanding its brand. According to George Garza in
his article The history of Starbucks the following product lines were added:
Offering Starbucks coffee on United Airlines flights.
Selling premium teas through Starbucks own Tazo Tea Company.
Using the Internet to offer people the option to purchase Starbucks
coffee online.
Distributing whole bean and ground coffee to supermarkets.

 Producing premium coffee ice cream with Dreyers.

Selling CDs in Starbucks retail stores.
Starbucks uses minimal advertising and has grown on word of mouth and
brand recognition. According to Garza by 2004 Starbucks had reached
1,344 locations.
For the third quarter of 2009, Starbucks reported earnings of $151.5
Million compared to a loss of $6.7 million the prior year. Howard Schultz,
Starbucks CEO, say the media exposure concerning Mc Donalds versus
Starbucks

coffee

products

actually helped

his

firm

by creating

unprecedented awareness for the coffee category overall. When the

worldwide economic recession hit in 2007 and simultaneously Mc
Donalds entered the coffee business big time. Starbucks closed 600
underperforming stores in the United States in 2008 and plans to open
about 200 stores in 2009.
Today, according to the Starbucks website, they have 16,706 stores (as of
Dec. 27, 2009) in 50 countries. In 2009 they made strives socially as they
opened the Farmer Support Center in Kigali, Rwanda and became the
worlds largest buyer of Fair Trade CertifiedTM coffee. Their mission
statement from the company profile is as follows: Our mission is to inspire
and nurture the human spirit one person, one cup, and one
neighborhood at a time. Their core competencies can be defined as high
quality coffee and products at accessible locations and affordable prices
provided a community to share in the coffee drinking experience, and
variety of choices.

BACKGROUND
Vision

To inspire and nurture the human spirit - one person, one cup, and one
neighborhood at a time.
Mission
To inspire and nurture the human spirit - one person, one cup, and one
neighborhood at a time.
Values
With our partners, our coffee and our customers at our core, we live these
values:

Creating a culture of warmth and belonging, where everyone is

welcome.
Acting with courage, challenging the status quo and finding new

ways to grow our company and each other.

Being present, connecting with transparency, dignity and respect.
Delivering our very best in all we do, holding ourselves accountable

for results.
We are performance driven, through the lens of humanity.

Our Coffee
It has always been, and will always be, about quality. Were passionate
about ethically sourcing the finest coffee beans, roasting them with great care,
and improving the lives of people who grow them. We care deeply about all of
this; our work is never done.
Our Partners
Were called partners, because its not a job, its our passion. Together, we
embrace diversity to create a place where each of us can be ourselves. We
always treat each other with respect and dignity. And we hold each other to that
standard.
Our Customers

When we are fully engaged, we connect with, laugh with, and uplift the
lives of our customers even if just for a few moments Sure, it starts with the
promise of a perfectly made beverage, but our work goes far beyond that. Its
really about human connection.
Our Stores
When our customers feel this sense of belonging, our stores become a
haven, a break from the worries outside, a place where you can meet with
friends. Its about enjoyment at the speed of life sometimes slow and savored,
sometimes faster. Always full of humanity.
Our Neighborhood
Every store is part of a community, and we take our responsibility to be
good neighbors seriously. We want to be invited in wherever we do business. We
can be a force for positive action bringing together our partners, customers,
and the community to contribute every day. Now we see that our responsibility
and our potential for good is even larger. The world is looking to Starbucks to
set the new standard, yet again. We will lead.
Our Shareholders
We know that as we deliver in each of these areas, we enjoy the kind of
success that rewards our shareholders. We are fully accountable to get each of
these elements right so that Starbucks and everyone it touches can endure
and thrive.

ORGANIZATIONAL CHART
I.
TIME CONTEXT
The problem arose in 2008
II.
VIEWPOINT
Howard Schultz, Chief Executive Officer
III.
STATEMENT OF THE PROBLEM
A. MAJOR PROBLEM

Starbucks Corporation has inadequate marketing strategy which is

a hindrance in the business growth opportunities
B. MINOR PROBLEMS
They operate in a monopolistically competitive structure that
their products are easily substitutable
Dealing with current financial crisis in the world economy
forcing them call closures of many stores around the world.
Declining financial leverage
Declining net margin
IV.

STEMENT OF OBJECTIVES
A. Wants or Long Term Objectives
A1. To dominate or monopolize the specialty coffee industry in global scale by
enhancing their marketing capacity and inducing innovative marketing strategies in
a span of five
B. Needs or Short Term Objectives
B1. To be an above the standard performance expected in its industry.
B2. To increase market share for present products or services in present markets
through greater marketing efforts.
B3. To provide intimate and uplifting experience each time.
A. Wants or Long Term Objectives
A2. To be customer centric based company who utilize the marketing and IT
Channels as a media to be closed and interactive with the customers within three
years.
B. Needs / Short Term Objectives
B1. To provide brand awareness to customers through advertising and promotion.
B2. To retain pleasant customer relation.
B3. To increase brand popularity using social networking sites.

V.

AREAS OF CONSIDERATION
A. SWOT ANALYSIS
A.1 Strengths
1. Quality of Product
They give the highest importance to the quality of their
products and avoid standardization of their quality even for higher
production output like searching for quality beans worldwide.
2. Location

They target premium, high visibility locations near a variety

of settings including downtown and suburban retail centers. Office
buildings, university campuses, selected rural and off-highway
locations across the world.
3. Strong market positions and global brand recognition
Starbucks is known as the most recognized brand in the
coffee house segment. Strong market position and brand
recognition allows the company to gain significant competitive
advantage in further expanding into international markets.
4. Customer base loyalty
Starbucks has cult following status among consumers and
they have also implemented loyalty based programs to drive loyalty
with the Starbucks rewards program and Starbucks card.
A.2 Weaknesses
1. Expensive Products
While Starbucks does differentiate their products with being
highly couple with the whole Starbucks experience in times of
inactive economic activity. Consumers tend to have competitors
products with lower prices and omit to go premium.
2. Lack of internal focus
Starbucks has focus on expanding its stores through its
location worldwide. Find impairs to focus on their internal aspects.
3. Less marketing and advertising on its products
Starbucks has a weak marketing strategy that disables them
to promote their product more.
A.3 Opportunities
1. Expansion of retail operation
Starbucks has further operated to sell its packed coffee
products, iced beverages and merchandises through large box
retailers. This markets potential is yet and be fully realized and this
provides Starbucks great opportunities for the future to future
monetizes their brand.
2. Expanding product mix and offerings
Starbucks recently started to expand their product mix by
venturing into the tea and fresh juice product offerings with a smart
acquisition strategy.
3. Brand Extensions

Starbucks carries a powerful brand image and it can

leverage it to extend into horizontal lines of its business and also
venture into product diversification with keeping brand dilution risk
in check.
4. International markets
Increasing efforts internationally to increase stability
5. On the Go Lifestyle
Opportunity to grow instant coffee and other products to be
in groceries and convenience stores.
A.4 Threats
1. Increasing Competition
The biggest threat for Starbucks are their increasing
competitors like Dunkin Brands, Mc Donalds, Costa Coffee, Petes
Coffee, Mom and Pop Specialty coffee stores.
2. Changing consumer tastes and lifestyle choices
The shift of consumers toward a more healthy products and
the risk of coffee for culture being just a fact, represent threat for
Starbucks going into the future.
3. Recession
Recession has affected customer willingness to spend
greater risks in investment and tend to choose cheaper alternatives
available in the industry.
VI.

ALTERNATIVE COURSES OF ACTION (ACA)

1. Starbucks should focus on advertising through creating an effective
and appealing promotional campaign through the use of Television
Commercial, Radio advertising and Internet services for users to
access.
Advantage: These advertising mediums are convenient and flexible,
owing to its widespread popularity and the ease with which a message
can reach millions of customers internationally and nationally. These
advertising mediums allow advertiser the flexibility to use various
approaches and different combinations of audio, video and text to
make ads memorable and emotional.

Disadvantage: Consumers often bemoan the intrusive nature of

advertisements and find ways to avoid commercials. These forms of
advertisements usually cost a lot.
2. Starbucks Corporation should have the Customized it your own
segment by allowing consumers to create new flavors and drinks
based on their own preferences. Moreover, they could also generate a
new promotion like the loyalty cards and freebies.
Advantage: The Company can demonstrate product and market
diversification through research and development coupled with
creativity and innovation. Product differentiation has proven an
excellent defense against threats such as bargaining power of buyers.
Developing new products will offset such potential risks.
Disadvantage: Generating new products and adding freebies would
cost more than just sticking to the traditional product.
3. Expand and enhance the existing network by targeting new markets
and diversification.
Advantage: If Starbucks would continue to be first-mover into new
market and new product ideas into International Markets it would be an excellent
way for Starbucks to build customer loyalty and uphold its image as an innovative
company.
Disadvantage: Targeting new market would be risky because the
Company might lose its focus and would not be able to control their customers
needs.
4. Remind consumers of community involvement (Starbucks
Foundation) foster non-local public service and give back to the community.
Advantage: Companies that qualify as public charities under
Internal Revenue code are eligible for federal exemption from payment of
corporate income tax. Starbucks also would create a good reputation and image.

Consumers will look more up to them because they are giving back to the
community. It could also gain more loyal customers.
Disadvantage: Creating a foundation takes time, effort and money.
Because a foundation is a legal entity under federal, state and local laws, the use
of an attorney, accountant or other professional may well prove necessary.
5. A strategy should be formulated to tackle the competition by
entering agreement, long-term contracts with the food service companies that
Starbucks are competing against.
Advantage: In this way their coffee would be sold at these outlets
and would gain access to new markets and sales while decreasing
competition.
Disadvantage: It would cost higher investment and higher risk.

H. Decision Matrix

PROFITABILITY

RISK

R&D

A.C.A.
FACTORS
COST

TECHNOLOGY

COMPETITORS

WEIGHTING

3.5

2.67

2.83

3.5

VII.

RECOMMENDATION

VIII.

CONCLUSION