Final Starbucks2 PDF - 2

PLANET STARBUCKS (A) Group B
TABLE OF CONTENTS
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CONTENTS
Background Problem Identification Main Issue Narrow SWOT analysis Functional Area Analysis Alternatives Recommendation Implementation
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2 7 7 8 16 47 53 57
BACKGROUND
About Starbucks: Starbucks is one of the finest coffee stores, popular among its customers for its aura with a very comfortable atmosphere to relax and the first rate music it plays. As in the 1990s, it is a store which has been almost everywhere throughout the United States and Canada. Starbucks was founded in Seattle by Gerald Baldwin, Gordon Bowker, and ZievSiegl in 1971. It started its operations as a gourmet coffee bean roaster and distributor. Howard Schultz joined the company as a member of their marketing team in 1982 and urged the partners to consider opening an Espresso bar alongside selling coffee. The company opened its first Espresso bar at its Seattle store. However, the partners didnt want to take the idea of expanding its Espresso bar line forward, as to them it resembled stepping into the fast-food business instead of focusing on their own business of roasting and distributing. In 1985, Howard Schultz opened Il Giornale after he left Starbucks. Il Giornale was an espresso bar that sold coffee and assorted coffee beverages made exclusively with Starbucks beans. Two years later, Schultz bought the former Seattle Starbucks company, six stores and roasting plant, for $3.8 million. Schultz now was in control of Starbucks and with new investors, began building a global business which reached sales of $3.3 billion in 2002 and was acclaimed one of the top 100 growing global brands. Now Howard Schultz had every opportunity to implement his dream concept of taking the Italian espresso bar to ever corner of the world through Starbucks. By fall 2002, the company was specializing in three sectors --- assorting and roasting, selling coffee, selling Frappuccino globally through other retailers. Though Starbucks made up a relatively small percentage of the coffee industry in North America, it had successfully been able to re-energize the entire coffee industry. The Starbucks Effect was a term that stood for every excellence in the coffee industry not only in terms of selling products of premium quality but also in terms of the delivery methods. Starbucks did more for its customers than just providing them with good, differentiated coffee, it also made its
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customers familiar to products they were not accustomed to, thus winning their loyalty through a sense of discovery. Product and Service: Starbucks even worked meticulously on creating a differentiated atmosphere for its customers to give them the Starbucks Experience. And for this it had to go far beyond just being a coffee house or a coffee brand. The employees made sure that they keep their customers engaged with their various services like special deliveries, special pastries and selected music to create warmth and comfort. They made their customers feel that they were not at home, not at work but at a third place. The maintenance and development of this quality experience required a strong organizational commitment which was facilitated by Howard Behar who joined the company as the director of store operations in 1989. Behar refocused much of the Starbucks development away from the pure product itselfcoffee, to the consumers experience in a Starbucks. To make sure that the employees continuously pay attention to keep the customers engaged, highly extensive trainings were carried out to keep the employees motivated. But this involved a lot of investment which goes worthless if the employees are not retained. One of the biggest barriers to retention was compensation and benefits, in which the service industry was notoriously deficient. Starbucks solution to this was to come up with health care benefits and stock ownership plans for the employees. In 1990, Orin Smith joined the company as Chief Financial Officer who focused his development efforts within Starbucks on the organizational processes which would support effective execution of strategies. Thus while Behar had focused on people, Smith believed in strict organizational discipline. Howard Schultz continued to add key leaders in the business in the early 1990speople who would continue to fill out the gaps in the organization and solidify a corporate culture which was a difficult balance between entrepreneurship and disciplined growth. Supply Chain: The supply chain for coffee was highly fragmented and so, Starbucks wished to improve the quality and integrity of its coffee by working back up the supply chain to the actual growers. Thus the company managed to take some of its cost out of the supply chain.

As Starbucks moved into the market, it focused on its location. Stores were located in corner positions for consumer recognition and access. There were actually many stores of Starbucks in the same area and hence Starbucks was everywhere people looked. The strategy helped in its acknowledgement; however, revenue earned per store was falling. Expansion including International Market: To deter the entry of new entrants, the company practiced aggressive property negotiations and paid premiums over existing rental prices to push up the per square feet price. By the mid-1990s, Starbucks had stores in more than 40 states and was starting to look to the limitations of market saturation. Starbucks operated internationally with a motive to respect the culture and the traditions of the countries where they do business. Thus they defied many of their critics who argued that Starbucks premium prices, paper cups, and smoke-free cafes would not fit within traditional cultural practices in places like Tokyo and Vienna. In 1988, Starbucks first opened its store outside the United States in Vancouver, British Columbia. However, Starbucks true international expansion had begun in Japan in October 1995 with the formation of a joint venture with Sazaby, a Japanese retailer and distributor with its own chain of Afternoon Tea stores. Sazaby proved to be an excellent partner, with expertise in both retail beverages and real estate. By 2002, they had more than 250 stores nationwide, and projected more than 500 stores by 2003. Although average Japanese store sizes were half that of the United States, they averaged nearly twice the sales.
With the opening of its first store in January 1999 in the World Trade Centre in Beijing, China, Starbucks added the Peoples Republic of China to its growing list. In the next three-and-a-half years, it had expanded to 35 shops, focused in and about Beijing and Shanghai. The reception to Starbucks in a culture grounded in tea was remarkably successful. Although Starbucks was heavily criticized for opening an outlet in a souvenir shop in Beijings Forbidden City in 2001, the shop flourished. The companys entry into Continental Europe had been anticipated for years, but with much trepidation. Europes longstanding traditions of coffee consumption and independently owned and operated coffeehouses constituted an established market which was not considered open to American entry. Starting in Switzerland and Austria in 2001, the company then expanded into Spain, Germany, and Greece in 2002. Although many critics arguedas they had in Japan

beforethat local customers would not be attracted to smoke-free, paper-cup coffee consumption, the lines had been long. Each country of entry was evaluated in detail, including focus groups, quantitative market assessment, and detailed identification of appropriate business partners. As part of the expansion process, Starbucks brought all foreign managers to its Seattle offices for a rigorous 13-week training course in the Starbucks experience. By the end of 2002 Starbucks had 1,312 of its total 5,886 stores outside of the United States. The current plan was to open two international stores for every one new domestic store. The need for recognition in terms of having a socially responsible image is becoming popular and Starbucks doesnt lag behind in this sector. Starbucks conducts business in ways that produce social, environmental and economic benefits to the communities where they operate. This tags Starbucks as having corporate social responsibility. As a result, consumers are not only getting their favorite products from Starbucks but also the feeling of being attached to a company with strong values. Starbucks operates as a uniquely defined brand in many countries respecting individual cultures and is thus not confined within a single traditional entity. However it deals with only one commodity, which is coffee and the price of its raw materials is determined in the international market. As coffee prices fell in the late 1990s, Starbucks was criticized for benefitting from low cost sourcing of raw materials and for not taking into account the economic condition of the coffee growers. By 2001, Starbucks had implemented a multitude of programs to pursue its program for corporate social responsibility and pursue sustainable economic development for the people in its supply chain by altering business practices in procurement, directly supporting the coffee growers and forming brands which would provide conduits for consumers wishing to support their initiatives. Starbucks preferred to purchase using outright pricing, in which the price was negotiated directly with small and medium-sized farmers, cutting out the segment of the supply chain which the wholesalers usually occupied. Thus, a greater proportion of the price went directly to the producers, assuring a higher return to the small farmer. Starbucks had initiated a number of loan guarantee programs in 2002 to provide pre-harvest and post-harvest financing for coffee farmers. Starbucks was a regular and growing giver, supporting relief organizations such as CARE, the nonprofit international relief organization, as well as providing direct support to farmers and farm communities around the world. The company was also providing aid in a variety of ways to the improvement of coffee processing facilities in a number of the countries of origin and

initiated a few product brand programs which allowed consumers wishing to support these sustainable development initiatives to express their interest through purchasing at a price. By the spring of 2003, Starbucks was at what many thought the zenith of its prospects. Starbucks was one of the few companies to continue rapid sales and earnings growth during that period. However Starbucks was incurring some problems as well. Service quality and employee motivation and retention were continuing issues. Store managers and employees were overworked and underpaid. The industry was becoming saturated and so the limits to remaining expansion opportunities in North America were now in sight. Falling coffee prices on world markets in 2001 and 2002 had led to more and more pressure on Starbucks to increase the prices it paid to growers. As Starbucks moved into more and more countries, labor and real estate practices came under increasing consideration. Earnings growth was sure to slow. The question grew as to how far and how fast the company could still proceed.
Problem Identification
Starbucks was facing anti-globalist movement because of rapid global expansion strategy. Starbucks was criticized as a ubiquitous band i.e. high visibility with enormous stores. Conflict in higher management between CFO and Director of store operation. Starbuckss massive expansion strategy leaded to cannibalize their existing individual stores sales. The operating cost was very higher because of the enormous number of store. The Stock value was going down from 2000 to 2002 that hampers the shareholders interest. The strategy of Starbucks of being wholly owned operation incurs high fixed cost. Starbucks was criticized as Cultural Imperialized because of rapid aggressive expansion policy. The service quality and employee motivation and employee were decreasing over time. Some employees were underpaid and Starbucks was sued for that.
ISSUE
How could Starbucks increase their sales with keeping their mission intact and ensure consumer satisfaction?
CORE ANALYSIS: SWOT

Strengths:
Starbucks is a ubiquitous brand. Starbucks operates in 28 countries with nearly 5700 stores. Thus it has a familiarity all over the world. Being a ubiquitous brand, Starbucks can easily cover up for any fall in profits it incurs in one country through the revenue earned from other countries. Starbucks introduced espresso bar. Starbucks was previously involved only with roasting, distributing and coffee sales but then with the introduction of espresso bars, it became more profitable since there was little additional cost associated with this whereas the consumers also had a wider range of choice. Starbucks was acclaimed as one of the top 100 growing global brands in 2002. It had made more than $215 million in profit on $3.29 billion in sales in 2002, and sales and profits were both expected to grow 25% in 2003. It was the highest growth in the industry and increased their profitability. Starbucks re-energized the coffee industry. The coffee industry was re-energized as Starbucks was continuously coming up with different ideas to create a Starbucks Effect to differentiate it from regular coffee shops. Starbucks cared for its customers. Starbucks cared for its customers satisfaction. The employees made sure that they keep their customers engaged with their various services like special deliveries, special pastries and selected music to create warmth and comfort. They made their customers feel that they were not at home, not at work but at a third place.

Starbucks had a reduced supply chain. The supply chain for coffee was highly fragmented and so, Starbucks wished to improve the quality and integrity of its coffee by working back up the supply chain to the actual growers. Thus the company managed to take some of its cost out of the supply chain. Starbucks had good choice of location. As Starbucks moved into the market, it focused on its location. Stores were located in corner positions for consumer recognition and access. There were actually many stores of Starbucks in the same area and hence Starbucks was everywhere people looked. The strategy helped in its acknowledgement. Starbucks could deter the entry of competitors. To deter the entry of new entrants, the company practiced aggressive property negotiations and paid premiums over existing rental prices to push up the per square feet price. Starbucks was respectful of other cultures. Starbucks operated internationally with a motive to respect the culture and the traditions of the countries where they do business. Thus they defied many of their critics who argued that Starbucks premium prices, paper cups, and smoke-free cafes would not fit within traditional cultural practices in places like Tokyo and Vienna.
Starbucks was involved with corporate social responsibility. The need for recognition in terms of having a socially responsible image is becoming popular and Starbucks doesnt lag behind in this sector. Starbucks conducts business in ways that produce social, environmental and economic benefits to the communities where they operate. This tags Starbucks as having corporate social responsibility. As a result, consumers are not only getting their favorite products from Starbucks but also the feeling of being attached to a company with strong values.
Starbucks had low advertising costs. Starbucks was named by Interbrand one of the most recognizable global brands, although the company still spent less than $20 million per year in advertising.
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Starbucks has a Good Brand reputation and image. Starbucks primary strength is its impeccable brand reputation and image. The company is known to deliver high quality products and customer service. This was critical for their growth. Starbucks has a better access to quality raw materials. Despite its overly priced cup of coffee, brewed using high quality Arabica beans, most of its customers keep coming back to the store to feel the Starbucks experience the company has promised to its customers. Thus, the price of its coffee is not the issue but the quality of service the company gives to its customers. Starbucks has Favorable access to distribution channels. Apart from its strong brand, Starbucks also have access to high quality resources and raw materials. Its Arabica beans are derived exclusively from coffee plantations and percentage of its raw materials are Fair Trade certified. The company also has advantageous access to distribution channels as its stores and coffee houses are located in strategic areas. With several stores almost a stones throw away or are literally facing each other on both sides of the street.
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Weaknesses:
Store managers and employees were overworked and underpaid. To make sure that customers get the Starbucks Experience, the employees had to continuously work on keeping their customers pleased and engaged. The industry was notoriously deficient in terms of compensation and benefits which added to the difficulty of retaining employees. Starbucks had to invest a lot to keep the customers happy. The maintenance and development of this quality experience required a strong organizational commitment. To make sure that the employees continuously pay attention to keep the customers engaged, highly extensive trainings were carried out to keep the employees motivated. But this involved a lot of investment which goes worthless if the employees are not retained. The Price of Starbucks coffee was grossly overpriced. One of the weaknesses of Starbucks is its grossly overpriced coffees. Whilst the company targets the affluent executives, young and old, as its primary market, the current economic conditions make the customers become sensitive to prices of commodities and products. The frequency of customer visits may be reduced due to the current economic situation. Hence, Starbucks current price strategy may seem to be out of place and needs to be changed. Image as a high-end coffeehouse is diminishing. Apart from the pricing strategy, the Starbucks coffeehouses image as luxurious Third Place seems to be vanishing. With stores literally facing each other, the lush experience the customers wanted appears to be diminishing. It is increasingly becoming like a fastfood chain, only the prices of its products are much higher. Possibility that their innovation falter over time. Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time.
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It had over dependency on the competitive advantage. The organization is mainly dependent on their main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the need arise. Rather than focus internally it was focusing on expansion. They basically dont have that much focus on their internal factors rather they are focusing on the expansion more. They try to make this highly visible to the consumer. But as doing this they are lacking of internal improvement what is demotivating the customer to attract to their stores. So, internal focus is needed to attract the customers which are lacking for the Starbucks.
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Opportunities:
Starbucks can expand its international business even further. The company has a reputation of international success so they can consider entering the markets of other countries which they have not ventured yet. Global consumer products segment is doing well The company can capitalize more on the global consumer products segment whilst recovering from the other two business segments. The international market is also showing a good promise for Starbucks. The economies of the emerging markets are growing at a rapid pace. International market is showing a good promise The company can capitalize on this growth by aggressively expanding into these countries. Using its fundamental strategies indicated in the previous sections and the recommendations at the end of this paper, the firm can increase its revenue and profit by penetrating into the emerging markets. New products can be announced New products and services that can be retailed in their cafes, such as Fair Trade products can enhance the sales.
The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge. Co-branding with other manufacturers can be a good opportunity. Affiliation with co-branding with other manufactures of food and drink, and brand franchising to manufacturers of other goods and services both have potential for the expansion.
Expansion into retail operations could be a good opportunity.
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As they have very expanded retail chains so they also have the opportunities to expand into the retail operations. It would help them to attract the customer with the more diversification in their products. Technological advances could give an opportunity for innovation. Technological advancement has a great impact on the sales always. It would help them to introduce more diversified options to attract customers which will increase their sales as a result.
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Threats:
The coffee industry was becoming saturated. The industry was becoming saturated and so there were limits to expansion opportunities in North America. Growth was expected to slow down in the near future. Coffee prices fell in the international market. Falling coffee prices on world markets in 2001 and 2002 had led to more and more pressure on Starbucks to increase the prices it paid to growers. Entry of new competitors could be threat for Starbucks. The entry of two large companies and their fast rise in the specialty coffee presents the most credible threat to Star bucks dominance. McDonalds and Dunkin Donuts are formidable opponents to Starbucks. These two companies have the capability to match the Starbucks distribution channels and marketing activities. The two fast-food chains can equal Starbucks in terms of financial resources. Starbucks still faces the same old criticisms about its overpriced coffee. Hence, its image is being threatened, especially now that the economy is not getting better. Economic crisis may lead to less sales of coffee. The current global economic crisis also poses a danger to Starbucks. As reflected in the companys financial reports, its revenue and profit are going down due to the bleak economic condition. The companys shares of stocks are also not doing well in the stock market trading, primarily due to its low income and revenue. The economic crisis is pounding on the companys profitability. Threat of substitute The market for coffee is growing and stay in favor with customers but another type of beverage and drinks could replace coffee in the future.
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FUNCTIONAL ANALYSIS
Functional Analysis is an integral part of a case analysis. It enables us to have a very good analysis of the company, the industry, the competitors it will be dealing with and many other factors. Porters five forces, life cycle, financial analysis, companys HR strategy and country risk analysis and many other factors are analyzed so that we could have a complete scenario and take a good decision.
Porters Five forces Model:
The Porters Five Forces is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position youre looking to move into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning tool. Conventionally, the tool is used to identify whether new products, services or business have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations.
Threats of new Entrants: For most of the industries in the world the threat of new of new entrants exists. Analyzing this we have to consider some factors which are described below with the proper use in the case. Time and cost of Entry:
If anyone looks that any industry is making a sustainable profit they would surely want to enter the market. But entering into the market is not easy. One of the barriers is the time of entry means when they are entering the markets. The companies have to see whether it is too late or it is the right time to get into the industry. In the case the coffee market has become saturated with many players playing the game. There is also a recession going which is wracking the economy. For the new entrants considering entering the market the findings is not very satisfactory or motivating. On the other hand, cost is another issue to be taken into account. Cost of getting into a industry plays an important role and determine the fact of a firms entrance. It also serves as a barrier for the new firms to enter. It needs equipments and machineries, plant set up, licensing etc which might be costly. It might need a huge investment for a company to get in. There is also less cost associated with the coffee industry for the coffee shops, specialty places etc.
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If we consider international market firms will feel optimistic to enter the new markets because it has still the potential to provide more .markets in the world. So the early they can enter into the market, the fast they can get recognition. In the international market the threat of new entrants is high whereas the USA market has been saturated. Product Differentiation:
Product differentiation refers to-that that the product of the company is differentiated or not means the company is providing a different product from the other products in the market or not. The companys product might be differentiated in quality, price, customers specifications etc. It plays an important role for a new entrant who is considering entry into the market. If the companys product is differentiated it gets difficult for a new company to come and start taking the market share as the existing product is defined and established in the market. In the case the product is differentiated. Starbucks has defined themselves for both premium product & service. They stood not only for good coffee, but especially for the dark roasted flavor profile that the founders were passionate about. They offer something so far superior that it takes a while to develop their palates, and it created a sense of discovery and excitement and loyalty that the customers feel a bond with them. For a new company who enters into the market have to establish itself and define itself as a premium brand which will take a long time and it will not be easy. Specialist Knowledge:
Specialist knowledge is other important factor that constraints the firm to enter into the market Firms with special knowledge can enjoy long time freeness from the threats of new comers. The Starbucks coffee are made exclusively of Starbucks beans and their service is way superior compared to the other coffee shops. They specially give their employees training on treating customers and maintaining high standards of service to give the customers highest satisfaction. This is giving them an advantage over others. Economies of Scale:
Economies of scale are other important factor that constraint the new comers in entering any industry. If the firms in the industry have achieved economies of scale in their production it becomes difficult for the new comers to get into the market. For a new comer it is very difficult to achieve economies of scale instantly, it takes them a long time to achieve. As they have a lot of stores flourishing all over they can achieve economies of scale in the overall sales but if we consider individually it becomes difficult for them to achieve economies of scale. With so many stores flourishing they were able to achieve economies of scale in the marketing and promoting cost. Capital requirements:
For new entrants in an industry, it is important for them to take into account the capital requirement to establish the business. For many businesses it is high capital requirement that constrain new firms to enter. The capital requirement in this industry is moderate. Any new firm having an average amount of capital can enter the business but to sustain in the long run the
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company need to expand and if they want to expand like Starbucks they will need substantial amount of financing. So to do well and compete with a firm must have strong backup of finance. Access to distribution channels:
Distribution channel of a country plays an important role for the new entrants to consider It is not easy for a new firm to get access in the distribution channels. As the new firms are already in the business they have a access to different channels, for a new firm starting it is difficult to set up the distribution in order to reach all the customers. For a new firm entering into the market it will be really difficult for them to get a distribution channel like Starbucks. Starbucks have made themselves available in everywhere, anywhere you go. Their strategy of being available everywhere has paid them off. Being available in so many areas in short distances is not easy for a new firm to do. So the new firms will face difficulty in accessing channels. Switching cost:
The cost associated for consumers to switch from one product to other is referred to switching cost. The new entrant should also see if there is any switching cost for the consumers or not. If there is switching cost for consumers to switch to new products the consumers will barely shift if they dont have any problem with the product. In the case there is no switching cost for customers, the customers will switch if they get better product or service from any other firm. If the new firm has something better to offer e.g. better coffee, better taste, better or superior service the consumers will definitely shift to the newer stores, although it will be a difficult task for them as Starbucks provides a unique service so far different from other traditional coffee stores. Expected Retaliation:
Existing firms retaliate when they are threatened by the new comers. They try to retaliate them by different policies and sometimes play unethical and unfair games. Starbucks already play unethical games in real estate by not allowing other competitors to enter in their territory by paying premiums on real estate prices driving the prices up. For a new firm it will be difficult for the competitors to enter and start playing the game, Starbucks will definitely retaliate and try to make the new entrants weak. Cost Advantages:
Cost advantage is another form of barrier which restricts new entrants. It can be a very important weapon for a company who enjoys this advantage. Companies with this advantage can drive out their competitors anytime they want, so the threat for new comers increases if there are firms having the cost advantage. Starbucks have a cost advantage. They have pulled out all the middlemen of the supply chain which enable them to enjoy the cost advantage. Any new firm also have the opportunity to take this advantage because the farmers of coffee are ill paid and if they pay them well the farmers will become loyal and thus it can minimize their cost.
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Technological Protection:
The technology the firms use may make the firm apart form the others. The firms might have some technology that it is difficult to achieve for others.. If a firm in the industry have this kind of technology it will definitely enjoy the power. In the case, not much is talked about the use of any technology but we can assume that it is not a very high technology oriented industry. So the risk for the new entrants is minimum. New comers can enter into the industry and try to play the game with the existing players as there is no company who has the technology to drive others out. Government Policy:
High barriers to entry restrict new players to come in the field. These barriers mainly refer the barriers of the country to be entered. It could be political, legal barriers e.g. it could be tariffs, quotas, banned, and other restrictive policies taken by government etc. In U.S.A there are no particular barriers for a new firm to start a coffee store business. Any new entrant can enter into the business as no barriers are there for them. The U.S.A government has always been supportive to the new business until it doesnt violate the laws and policies of the government.
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Bargaining Power of Suppliers: Bargaining power of suppliers is another tool for testing the five forces. It allows you to have an idea about the suppliers, their influence in the industry, number of suppliers in the industry etc. Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. The considerations in analyzing the bargaining power of suppliers are: Number of Suppliers in the industry:
The number of suppliers in the industry decides the power and influence of suppliers. The lower the number of suppliers the higher the power they can have and consequently number of suppliers high in numbers means they have less power. In the given case there are not much given about the number of suppliers, though the analysis there are high number of suppliers who can have influence on the coffee industry. First of all, there are large number of suppliers which has driven the price down of coffee and the farmers are not well paid. The suppliers supplying are also high in numbers that means they dont have the bargaining power. There are large numbers of suppliers. Their strategy of being socially responsible helps them to get the suppliers in their hands.
Uniqueness of Product:
Uniqueness of product is other dimension of bargaining power of suppliers. If the suppliers are unique in their product or service they can exercise influence on the companies. In the case, the suppliers are not unique. The raw materials are easily available. So they dont have any power over them. Starbucks can switch suppliers if they see it is no more feasible to buy materials from them. Size of Suppliers:
The size of suppliers is another important factor. It plays a major role in determining whether who will be influential-the supplier or the buyer. If the supplier is huge enough that it can survive without you and it doesnt affect its business, the supplier will have higher bargaining power. If the firm you are operating is small compared to the size of your supplier the supplier will be playing with you in prices, in supplying raw materials etc. In the case, there are no suppliers who can enjoy such a power. Starbucks has much higher influence in its suppliers because its size is very big compared to its suppliers and it is playing a major role buying the raw materials from them. If the firm has the ability to substitute their suppliers the firm can have more power on their supplier. In this case, Starbucks position itself in sustainable economic initiatives with
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farmers of coffee making them large in size compared to suppliers. Leading players in the market must maintain product quality if they are to maintain their brand equity in the long term; their need to source raw materials of appropriate quality boosts the strength of the suppliers that can offer these.
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Substitutes of Suppliers products: If there are not many substitutes suppliers of products, supplier power will be high. The suppliers have influence in their customers. In the case Starbucks suppliers have low influence though the industry has substitutes such as tea leaves, tea etc referring the high power of suppliers.
Switching Cost of Suppliers products:
If there is high switching cost of the suppliers products the supplier power will be high. In the case, there is no switching cost of suppliers so if any supplier or suppliers play unfair game or there is conflict in negotiation they can always move to other suppliers. Threat of forward integration:
Suppliers can become competitors by making the customers products. There is always this threat. In the case there is no chance of the suppliers becoming a competitor as the farmers are already poor, they dont get well paid for what they are doing. So there is no chance of the suppliers to become their competitors. Threats of substitutes:
This is affected by the ability of your customers to find a different way of doing what you do, if you supply a unique product that produces an important process, people may substitute by doing the process manually or by outsourcing it .If substitution is easy and substitution is viable, then this weakens your power. Substitutes Performance:
If the substitute of the product serves the same utility or a better performance the customers are more likely to switch that product. The better performance of substitutes could be a threat for the company producing the product. From the point of view of consumers, there are a number of substitutes for coffee. These include tea, soft drinks, different types of shakes, energy drinks, caffeine, milk etc. Switching Cost: If the customers have no switching cost and the performance of substitutes are satisfying for the consumers they will definitely switch to substitutes. Customers might be switching to different substitutes if they provide them with the same utility. As there is o switching cost the customer might be switching to other products which will provide them the same utility. Bargaining power of customers: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to
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your business, the cost to them of switching from your products and services to those of someone else, and so on. Number of Customers:
The number of customers is influential in bargaining power of buyers. If you deal with few, powerful buyers they are often able to dictate terms to you. Higher number of buyers means lower power to them. As the coffee industry has large number of customers they will have lesser impact on its sellers. Threat of backward integration:
There is a threat of backward integration as well by the buyers. If buyers see that the industry is attractive and it can bring profit they might try to enter into the industry and take the market share. Undifferentiated products:
If the products are not differentiated the buyers are more likely to shift to any products anytime. They will be inconsistent in buying the same product. Starbucks have differentiated their products and service quite strongly (by brand, flavor and superior service and so on) and the fact that major buyers generally need to offer a wide range of products for their own customers, should also tend to weaken buyer power. Buyers ability to substitute:
If the buyers can easily substitute to other brands the firm can never win from them. In the coffee market the buyers are able to substitute to any other brand or product they want. The power of buyers is high considering this factor. It will be high unless the consumers become brand loyal. Price sensitivity:
Price sensitive customers tend to change brands more rapidly than the customers who are less sensitive to prices. The US consumers are not price sensitive rather they are quality sensitive. As they are price insensitive they have lesser power in their hands to influence the coffee market.
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Rivalry among existing competitors: Rivalry among competitors depends on some factors such as number of competitors in the industry, high exit barriers, slow growth industry, high strategic stakes, quality differences and switching costs.
Number of Competitors:
The important thing here is the number and capability of your competitors if you have many competitors, and they offer equally attractive products and services, then youll most likely have little power in the situation. If suppliers and buyers dont get a good deal from you, theyll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Starbucks provide the customers with superior service and premium brands of coffee which they cannot find in any other coffee store. It has taken them to a new world of coffee stores, it has changed the means the coffee store for them making them feel the store as a third place. This has brought them a strong position in the market. High Exit Barriers:
High exit barriers make an industry more competitive as once a company entering into the market will not exit easily because high costs are associated if they shut down. It is notable that there dont exist high exit barriers for firms. We have seen that earlier Starbucks was divested by the original partners because they wanted to cash out from their company. High Fixed costs:
The rivalry remains among the firms as the there are high fixed cost associated and no one wants to be driven out. Starbucks have high investments in stores. They have opened many stores like mushroom in the market incurring them high fixed cost in real estates and setting up stores. Lack of Differentiation or switching costs:
If the products are not differentiated the customers will be switching from one product to another. It gives rise to more rivalry. The competitors want to win their customers by marketing, playing price war and many efforts are taken. In the case Starbucks have differentiated them tremendously in the market. They have positioned themselves superior to any other traditional store in the market. Customer Loyalty:
If the customers are loyal firms dont engage themselves in high rivalry. But as the customers are not always loyal there rises the intensity of rivalry. They take different measures to gain customer loyalty.. Starbucks have taken all the measures needed to make a strong and loyal customer base. They try to develop satisfied customers all the time and they apply high standards
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of excellence for the fresh delivery of their coffee. By all these efforts they have managed to make a loyal customer base which has made the rivalry even more strong in the industry. Brief Overview of the Porters five forces: Forces Threats of new entrants Bargaining power of Suppliers Threats of substitutes Bargaining Power of Customers Rivalry among existing firms Power Moderate Low Low High Low
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LIFE CYCLE: The first concept which will be applied to the specialty coffee industry is the lifecycle. This lifecycle is based on the assumption that all industries pass through a number of generic stages. The four generic stages are introduction, growth, maturity, and decline. They are defined using the rate of growth in sales in an industry. As an industrys sales grow and decline through the numerous stages, inflection points can be marked in order to determine where the stages start and end. This concept also makes the assumption that all industries go through an S-shaped pattern in their sales growth. Product life Cycle:
When analyzing the specialty coffee industrys sales growth from 1990 to 2002, as illustrated in exhibit 1, we can see that the companys product are in growing stage. Starbucks is growing at a rate of 25% per annum. This suggests that the specialty Starbucks coffee is near the growth stage in the industry lifecycle. Having pinpointed where we believe the specialty coffee industry is in the lifecycle allows us to assess the likely future evolution of the industry.
Sales
Time
Company life cycle:
When analyzing the Starbucks sales growth from 1998 to 2002, as illustrated in Appendix 1, we can see that Starbucks experienced growth in total sales between 1998 and 2002. We can compare the two and pose a hypothesis as to where the specialty coffee industry is in this life cycle. This suggests that the specialty coffee industry is near growth stage in the industry.
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Sales
Time
Industry life cycle:
Coffee industry is a huge industry and as the world population is increasing having sufficient income the demand is on the increasing side. Coffee is an ever growing industry as it is taken as refreshing drink all over the world. Its demand will always be increasing. The case also suggests that the coffee industry has reached its saturation stage in the US market.
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FINANCIAL ANALYSIS:
Starbucks listed in NASDAQ: SBUX and became public limited company and by then they have the greater access to the finance. Financial Ratio Analysis: Liquidity Ratio: 1. Current ratio= Current asset /current liability Year Current ratio 1998 1999 2000 2001 1.8791086 1.538615 1.470324 1.333932 2002 1.57693
In the year 2002, their current asset was 1.57 times to cover the current liability. The Current ratio was been declining from 1998 to 2002 and the relative change in current asset was higher than the change in current liability.
2. Quick Ratio= (Current Asset-Inventory)/Current Liability Year Quick ratio 1998 1999 2000 2001 2002 1.0818942 0.818471 0.823227 0.836964 1.087256
In the year 2002, set their current asset excluding inventory were 1.08 times to cover the short term obligation. From 1998 to 2002, Quick ratio was not changed by a significant amount.
3. Working Capital = Current Asset-Current Liability Year Working Capital 1998 157.8 1999 135.3 2000 146.6 2001 148.7 2002 310.1
In the year 2002, Current Asset is exceeded current liability by $310.1. The Working Capital was increasing from 1998 to 2002.
Most Liquidity ratio is increasing the refers the liquidity position of Starbucks is good enough to meet the short term obligation.
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Current ratio 1.87 1.53 1.08 0.82 0.82 0.83 1.47 1.57 1.33 1.08 Quick Ratio
1998
1999
2000
2001
2002
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Asset Management Ratio: 4. Inventory Turnover=Sales/ Inventory Year Inventory turnover 1998 4.04 1999 4.13 2000 4.77 2001 5.03 2002 5.13
In the year 2002, the company has sold out and restocked the inventory 5.13 times on average. Inventory turnover was growing from 1998 to 2002.
5. Total Asset Turnover=sales/total asset Year Total asset turnover 1998 1999 2000 2001 2002 1.318191 1.346747 1.459909 1.431041 1.434447
In the year 2002, $1 asset generated $1.43of sales. The asset turnover was increasing from 1998 to 2002.
6. Fixed Asset Turnover= Sales/Fixed Asset Year Fixed asset turnover 1998 1999 2000 2001 1.9964912 1.947806 2.107423 2.107231 2002 2.27574
In the year2002, $1 fixed asset generated $2.27 of sales The fixed asset turnover was increasing from 1998 to 2002.
7. Days Sales Outstanding=365/Receivable Turnover Year Days sales outstanding 1998 1999 2000 2001 2002 14.224039 10.29998 12.80584 12.45602 10.83159
In the year 2002, Starbucks took 10.83 days on an average to collect the A/R . The average collection period was decreasing from 1998 to 2002.
8. Average payment period= 365/Payable Turnover Year Days Payable Outstanding 1998 1999 2000 2001 2002 13.917246 12.13926 12.35328 17.62307 15.09319
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In the year 2002, Starbucks took 15.09 days to pay the A/P. The average payment period was increasing to 15.09 days in 2002 from 13.91 days in 1998.
9. Cash Conversion Cycle=Days in inventory+ Days Sales O-Average payment period Year Cash conversion cycle 1998 1999 90.594606 86.48134 2000 2001 2002 76.9891 67.41967 66.89987
In the year 2002, it took 66.89 days to recover cash investment on an average. The cash collection period was declining from 1998 to 2002.
Among the asset management ratios inventory turnover ratio, asset turnover ratio and fixed asset turnover ratio was increasing that refers the efficient use of asset. The increasing trends in DSO, Average collection period, and the cash conversion period also refer the effective collection procedure.
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Debt Management Ratio: 10. Debt to Asset ratio=Total Debt/Total asset Year Debt to Asset ratio 1998 0.034 1999 0.057 2000 0.042 2001 0.037 2002 0.035
In year 2002, the companys debt was 3.5% of total asset. The debt to asset ratio was almost same in 1998 and in 2002. 11. Times interest Earned (TIE) =EBIT/Interest Expenses Year TIE ratio 1998 -15.380 1999 -21.466 2000 -29.901 2001 -26.028 2002 -34.269
In 1998 to 2002, the companys interest income exceeded the interest expenses.
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Profitability Ratio: 12. Gross profit margin=gross profit/sales Year Gross profit margin 1998 0.365 1999 0.470 2000 0.608 2001 0.768 2002 0.968
In the year 2002, the gross margin was 96.8% of total sales. The gross sales margin was increasing dramatically in 2002 from 1998.
13. Operating Profit margin = EBIT/sales Year Operating Profit Margin 1998 0.083 1999 0.093 2000 0.097 2001 0.106 2002 0.097
In the year 2002, the operating profit was 9.7% of total sales. The operating profit margin was increasing from 1998 to 2002.
14. Net profit margin= Net income/sales Year Net profit margin 1998 0.052 1999 0.060 2000 0.043 2001 0.068 2002 0.065
The net profit was 6.5% of sales in the year 2002. The net profit margin was also increasing from 1998 to 2002.
The profit margin shows that the income is rising of the company. But the gross profit margin is relatively much higher than the operating profit margin and net profit margin which indicates the higher operating profit.
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Duo Point Equation: 15. Return on Equity= Net income/Total equity Year ROE 1998 0.086 1999 0.106 2000 0.082 2001 0.131 2002 0.125
In the year 2002, the shareholders have earned $12.5 for every $100 investment in the Starbucks. The return on equity was increasing from 1998 to 2002.
16. Return on Asset= Net income/Total Asset Year ROA 1998 0.069 1999 0.081 2000 0.063 2001 0.098 2002 0.094
In the year 2002, every $100 worth of Total asset were generating a net profit worth of $9.4. The ROA was increasing from the year of 1998 to 2002.
Du point equation is not only reflecting the income. Besides income quality this ratios show the quality of asset utilization and structure of finance. So Growth in ROA and ROE refers the good income generation capacity, good asset management and healthy financial structure of the company.
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Stock Market Ratio: Earning per share=Net Income/Number of share outstanding Year Earnings per Share 1998 0.191 1999 0.280 2000 0.251 2001 0.477 2002 0.558
In the year 2002, common stockholders had a profit of $.558 per share. The Earning per share is increasing from 1998 to 2002.
Market to Book ratio= Market price per share/Book value per share Year market to book ratio 1998 4.085 1999 4.689 2000 6.631 2001 4.084 2002 3.314
In the year 2002, market price is 3.314 times higher than the book value per share. The Market to Book ratio was increasing from 1998 to 2002.
P/E ratio=Price per share/EPS Year P/E ratio 1998 47.433 1999 44.309 2000 80.749 2001 31.121 2002 26.603
In the year 2002, shareholders were willing to pay $26.603 for each $1 of reported earnings. The P/E ratio was declining rapidly from 19998 to 2002.
Even though the earning per share is increasing the decline in market price which leads to lower P/E ratio indicates that the lower dividend or non-payment of dividend to the shareholders so that they are not interested in the companys stock.
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HUMAN RESOURCE PLANNING MODEL:
Forecasting Demand:
Consideration: Product Demand: The demand of coffee in the North American market is saturating. But the demand of Starbucks coffee is increasing day by day. It is for the premium product and service they are providing to their customers. Their stores have changed the traditional means of coffee shops. They make the customers feel that they are in a third place where they can escape, reflect, read, chat or listen. Starbucks average sales growth rate is 25% per annum where the other companies have reached their saturation. So their product demand is increasing. Technology: There is no special technology used in the coffee industry with which the companies can be advanced from another. There is also not much said about the technological utilization in the coffee industry or in Starbucks. Financial Resources: As a Public limited company it could be assumed that they were solvent in financial resources. Their initial public offering took place in 1992 (NASDAQ:SBUX). It also undertook a public offering in Japan as a JV. These public offerings enabled them to raise money from the capital market and invest for their expansion. They were financially sound enough to open so many stores like mushroom. If we look at their balance sheet we will see that they had a very little debt compared to their equity which refers their financial stability and soundness. Absenteeism / Turnover: Starbucks took many policies to ensure that they maintain their employees and retain them in the long run. They were the first in the US history who gave stock ownership plan as a privately held company. They also offered health care benefits for the employees who worked more than 20 hours in a week per week. They believed that if employee retention was improved and quality of service preserved it pays off for the company. Later in the case we see that the employee turnover is increasing and there is lack of motivation working in the employees. Organizational growth: The company has grown rapidly since it started its operations. The companys main means of expansion was to establish stores to consumer foot steps such as commuting routes, corner
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locations and locating a third store between two stores. They have high growth in their organization. Their sales also showed an average growth of 25% per annum. They have their operations in 28 countries with 5700 and still growing which will bring more employment opportunities for the people in the future.
Management Philosophy:
Starbucks became known as ubiquitous which means easily available. The management especially Howard Schultz focused on building a global business which will be acclaimed as one of the top 100 growing global brands. Their concept was to build Starbucks in every corner of every city block of the world. They also redefined the coffee stores by their premium coffee and superior service which was totally different from conventional coffee stores. They had a strong belief in motivating and retaining employees with their benefits. They believed that their benefits would pay off if the employees are retained and they provide good service. They provided their employees health care benefits, stock ownership plan which were quite indifferent in the industry. Starbucks is also taking part in CSR. They have taken three programs to support their CSR initiatives-Procurement, Direct support, Conduit Brand Development. In the initiative of procurement they are paying premium above the market price or New York C. They are also providing pre harvesting and post harvesting financing to the coffee farmers. Starbucks was also a regular donor to a relief organization called Care who tries to support farmers. Another CSR initiative was Conduit Brand development. They built up some brands which would directly support causes for sustainable development. Orion Smith, the CFO of Starbucks believed in strict organizational discipline, including careful use of the Starbucks brand and insisted for many years on company-owned and operated stores, rather than the franchising common among most American retailers.
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Techniques:
Trend Analysis: Starbucks was experiencing a healthy and sustainable growth rate with an average of 25% growth in sale. Their stores increased from 165 stores in 1992 to 5886 stores in 2002. It showed a growth of 43% in the overall market of national and international boundaries. Their Starbucks net profit also shows a growth rate of an average of 49% which is very attractive for any industry. Their share price also increased from the day they started and revealed an average growth of 23%. Managerial estimates: Starbucks is expected to grow rapidly both locally and internationally. With the growth they have in their mind they will have to hire more labors for their new stores. Delphi technique: The company faced high criticisms for some of their policies. They were highly criticized for their market swarming expansion techniques. They expanded rapidly and wanted to be present in every corner of every city block in the world. The experts suggested that Starbucks would not be successful as coffee stores on both local and international markets as they dont follow the conventional stores of coffee shops. They were also criticized for their lose CSR initiatives. It was said that they use CSR as their brand polishing tool.
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Forecasting supply:
Techniques: Staffing tables: In 1989 Starbucks appointed Howard Behar who had more than 20 years experience in retail, as the director of store operations. In 1990 Orin Smith joined the company as Chief Financial officer. He had extensive experience in a number of organizations and consulting. He eventually became President and CEO of Starbucks. Howard Schultz continued to add key leaders in the company with a. view to expand successfully. Markov Analysis: The case mentioned some fact about the fatigue of employees because of rapid expansion though it didnt mention anything about the job change or rotation of employees. Skills inventories: Starbucks emphasized on providing superior service to customers. For that they provide training to employees to understand customer needs better. From 1990 Starbucks expanded it talent pool on the most influential senior levels. Managerial Inventories: Howard Schultz began assembling an experienced team of professionals to drive Starbucks growth. In 1989, Howard Behar, with more than 20 years in retail, joined the company as the director of store operations. In 1990, Orin Smith joined the company as Chief Financial Officer and quickly filled the role of the companys right-brain to Howard Behars left-brain. Smith had extensive experience in a number of organizations and consulting, and was a strong believer in process development. Replacement Charts: There is nothing in the case mentioned about the replacement charts or related anything related to it.
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Succession Planning: Howard Behar was one of the potential persons in the company who had over 20 years of experience in retail business. Starbucks could use him as an executive in the future if they need somebody to give them a lead in any region. Orin Smith who was the CFO of Starbucks had numerous years of experience in consulting. The company tracked him and he was a potential candidate of becoming a President or CEO in the company.
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External Considerations: Demographic Changes: The employees of Starbucks are becoming fatigue because of their policy of rapid expansion which shows us a change in their attitude and they have become demoralized about the job. Education of the workforce: As USA and the countries they have expanded their operations to are highly developed countries it could be anticipated that the educational level of the labor force is high. Labor mobility: There is nothing mentioned about the labor mobility in the case. Government policies: Government policy and statutory law is favorable for the labor force of the country which is found in the event of the disputation of the law suit by store manager for the removal of extra required overtime with underpaid. Unemployment rate: The countries they have their operations are highly developed referring that they have a low unemployment rate. The lower unemployment rate can increase the cost of labor force in their stores of operations.
Balancing Supply and Demand From the demand side analysis we found that the demand of labor force is expected to rise for Starbucks as they are expanding rapidly. As the unemployment rate was low in USA they dont have a sufficient supply of labor. So they would have to pay higher wages and salary to their employee.
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PORTERS DIAMOND OF COMPETITIVE ADVANTAGE: When companies want to analyze how attractive a market is there are several theories and models available; one of the most commonly used theories is Michael Porters diamond model. It has been widely used by companies to analyze potential markets, but also by countries to identify qualities and specific advantages that can be used to attract an industry or a specific company. Factor condition: The first ingredient of national competitiveness is the availability or non-availability of things that contribute to the production of goods and services in a particular country. Porter mention factors like human resources (quantity, skills, cost), physical resources (abundance, quality accessibility and cost), knowledge resources (the nations scientific, technical and market knowledge concerning the good or service), capital resources (amount and cost of capital available to finance industry) and finally the infrastructure (type, quality and user cost of the infrastructure available that affects competition). Porter means that the most important to have a competitive advantage is neither the factors inherited nor the stock of factors that the nation possesses at a particular time. The main factors are the ones created within the nation, the rate at which they are created, upgraded and made more specialized to particular industry. The coffee shops have recognized an increased knowledge about coffee from customers, staff as well as suppliers. They are all more interested in the whole process from the beans growth to how it is prepared in the coffee shop and which machines are used on the way. Rugman and Hodgetts describe how education affects aspects of the culture. They also agree that in a more advanced culture which the coffee culture is today there is a bigger market for more advanced products. Demand for healthy coffee and that fair-trade coffee are high. But the knowledge and interest is not only growing around the coffee itself but also the whole coffee culture. Not too long ago we only had people serving coffee in different cafs, today they are coffee experts working in coffee shops and even competing in their own championships. USA and the other countries they expanded to were affluent with high level of income and this made them quality conscious. High literacy rate of these countries ensured that educational development of human resources and lower unemployment rate. They have their operations in Japan, China, and in many European and Asian countries. These countries are most technological advanced countries in the world and well-known for innovation. USA is considered the most developed countries of the world and investors heaven. Starbucks has started their operations there and expanded rapidly. With the success in USA they were able to move in other countries e.g. Japan, China, and other European countries. Huge population of some these countries such as China indicates a large labor force ensures the supply of human resources needed for production and operation. The Real GDP (without the impact of inflation) growth rate of USA indicated that the overall economy was going well and suitable to conduct business. Major proportion of GDP growth is the growth in investment mainly in infrastructures. The countries they are selling in also have good GDP growth.
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Technological advancement is an important consideration for factor condition. In the industry the technological condition is not important. Here they emphasize on service rather than product development. So it is not a very important factor to be considered. Demand conditions: The second ingredient is the composition of demand for the product or service, which is the basic of national advantage. Size and pattern of growth of home demand can increase this advantage by affecting investment behavior, timing and motivation. The composition of demand shapes how firms should perceive to respond to buyer need. Porter say for example that a small country can be competitive in segments which represent an important share of local demand but a small share of demand elsewhere, even if the absolute size of the segment is greater in other nations. A nation have a competitive advantage if the domestic buyer are among the most sophisticated and demanding buyers for the product or service in the world. That kind of buyers works like a window into the most advanced buyer needs since they expect high standard in quality, feathers and service. Porter also says that a nation have an advantage if the needs of the buyers in the country anticipate those of other countries because this can be an indication of buyer needs that will become widespread. The customers demands for coffee are increasing all the time. According to Porter the basic of national advantage is the national demand for the product or service. Size and pattern of growth of home demand can increase this advantage by affecting investment behavior, timing and motivation. We can see a positive pattern of the growth of demand towards a bigger demand for coffee especially espresso based ones. The incensement of customers of all ages and at any time of the day or in the week is also something positive. There is without any doubt a big demand for espresso based coffee, even though a country is very small Porter claim that a small country can be competitive in segments which represent an important share of local demand but a small share of demand elsewhere, even if the absolute size of the segment is greater in other nations. Porter says that a country with tough competition and domestic rivalry can have a competitive advantage because this creates pressure on companies to improve and innovate; it also creates a fertile environment for creating and sustaining competitive advantage. Something that is difficult to reproduce through competition with foreign competitors. Porter also say that a nation have a competitive advantage if the domestic buyer are among the most sophisticated and demanding buyers for the product or service in the world. That kind of buyers works like a window into the most advanced buyer needs since they expect high standard in quality, feathers and service. We argue that Sweden is among the most sophisticated and demanding countries in the world and therefore Sweden should be an attractive country for coffee shops considering establish on this market. Porter say that a nation gain competitive advantage if they possess low-cost or high quality factors like human, physical and knowledge resources.
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Supporting and related industries:
The third ingredient of national competitiveness is the presence or non presence of supplier industries or related industries that are internationally competitive. A country can have a competitive advantage since they can offer efficient, rapid and sometimes more cost-effective inputs or machinery when there are supporting industries in the country. Another benefit of home based suppliers is the access to information, new ideas and insight, and to supplier innovation. The presence of an internationally successful related industry in a country creates opportunities for information flow much like it does in the case with home based industries. The case has little information about the suppliers but nothing is there about the related industry. The suppliers are the farmers who are impoverished day by day as the coffee prices are decreasing day by day. Strategy, structure and rivalry: The last one of the main ingredient is the characteristics that shape domestic competition; The typical size of companies, the way they are managed, and the way they compete are factors that can help companies succeed or fail. The goals, strategies and ways of organizing firms in industries vary a lot among countries. According to Porter it takes a good match between these choices and the source of competitive advantage in a particular industry to gain a national advantage. Different industries suit different types of organization. Many aspects of a nation influence the ways in which companies are organized and managed, and these often grow out of the educational system, social and religious history and family structure. There are also huge differences among countries when it comes to the goals that the companies, their employees and managers seek to achieve. Countries will be attractive if the goals of owners and managers match the needs of the industry and if both employees and managers are motivated to develop their skills and make efforts to keep a competitive advantage.
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A country with tough competition and domestic rivalry can have a competitive advantage because this creates pressure on companies to improve and innovate; it also creates a fertile environment for creating and sustaining competitive advantage. Something that is difficult to reproduce through competition with foreign competitors. Porter also say that a nation have a competitive advantage if the domestic buyer are among the most sophisticated and demanding buyers for the product or service in the world. That kind of buyers works like a window into the most advanced buyer needs since they expect high standard in quality, feathers and service. We argue that USA is among the most sophisticated and demanding countries in the world and therefore USA is an attractive country for coffee shops considering establishment on this market. Porter say that a nation gain competitive advantage if they possess low-cost or high quality factors like human, physical and knowledge resources.
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Country Risk Analysis:
The United States is generally considered the benchmark for low country risk and most nations can have their risk measured as compared to the U.S. The Political system is democratic and stable. Political stability is vital for any business. The economy is one of the largest in the world. Besides USA is the most affluent country in the world with a high per capita income and because of this the people of USA is very quality and brand conscious which we have founded in the case about Starbucks. The unemployment rate is lower than the comparative countries. Because of high employment rate the supply of labor is not abundant in the country and the wage rate is higher. The Judiciary system and law enforceability is very strong in USA. Labor act and policy is very strict which we seen in the case when court held in favor of store managers who filed a law suit against Starbucks for mandatory overtime with a under rate payment. We know that USA as a nation possessing high quality factors; peoples scientific, technical and market knowledge is concerning the good or service is good and is improving all the time. People are getting more and more aware about heath issues and gain more knowledge about coffee. Porter say that the best is if a nation possesses factors needed in a specific industry that are both advanced and specialized, and we argue that USA is advanced when it comes to health and environmental issues and specialized in coffee culture as one of the highest consumer nation in the world where the population drink most coffee.
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ALTERNATIVES
As Starbucks wants to increase their sales with the satisfaction of their supplier, employees and improvement of their images to have their best success in market as the most successful chain coffee shop around the globe. Starbucks is expected to see the volume sales return to a positive performance in the forecast period, recovering consumer confidence, which will accompany the countrys improved economic outlook. Improvements in confidence will see resurgence in the purchase of non-essential indulgences such as coffee shop. As it is the mostly available chain coffee shop around the globe, with sweet growth rates. For that reason we can achieve the high profit margins. For the increasing sales we have chosen three alternatives to establish our demand. They are-
1. Do nothing 2. Differentiation Focus Strategy 3. Companies do practice corporate social responsibility (CSR) and alliances with the companies to reach the long term success and growth.
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Alternatives Evaluation:
Alternative 01:
Do nothing Starbucks can avoid doing anything regarding their sales or anything else. Due to very contradictory some options and problems Starbucks can take a decision for not doing anything to increase their sales or improve their image.
Advantage: 1. 2. 3. 4. 5. 6. It will save the investment It will save the managerial cost for the Starbucks. R&D costing will be saved. They dont need to invest more to satisfy their farmers. They dont need to invest more for paying up the employees and their work time. Investment on improving image will be saved which can be utilized in different sector.
Disadvantage: 1. Starbucks will lose the opportunity to maximize their profit margin. 2. Due to higher availability their costing of store is very high which cannot be minimized or covered up through the increased sales. 3. Their international market expansion could make their brand more known and it could increase their brand value. So it they dont increase their sales or satisfy customer values then it will be tough for them to maintain their quality. 4. Starbucks can lose their loyalty of customer due to less improvement in their sales. 5. They might lose their highly capable sales team who are specially trained with their resources due to underpaid or overworked which might have a long term effect on their future sales.
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Alternative 02:
Differentiation Focus Strategy

Porters Differentiation Focus Strategy is the strategy can be employed by the Starbucks Corporation. This strategy provides a product or service to a specific market niche and differentiates from competition in specific areas. The value of the company is markedly not as a low-cost competitor. In the case of Starbucks, the company is a high cost, specialized selection provider, offering specially tailored lines of coffee and tea product to coffee loving customers for a premium price. Starbucks can utilize the focus differentiation strategy thoroughly, and partners company marketing and advertising direction to this strategy. Embracing the position as product quality leader and industry segment leader, Starbucks can have humble approach to avoid promotion the company but allowing it to be promoted by supporting customers and through its good works has been a successful strategy for the company to date. While Starbucks has been very successful with the Differentiation Focus strategy through the use of word-of-mouth marketing and strategic alliances, the future of the Starbucks Corporation could be in some jeopardy due to increasing competition without some small changes. One danger Starbucks faces in todays developing economy is the concern for the company that they will be surpassed by competitors on both cost and on product quality. It would be very beneficial for Starbucks to maintain a close watch on industry and market competitors, specifically other coffee shop establishments and the restaurant industry entrants to the specialty coffee market. Both specialty coffee shop entrants can pose a challenge to Starbucks in an effort to provide the best quality, service, and experience for the customer, while the restaurant entrants to the industry are marketing their specialty coffee on a cost savings platform. With these industry competitors attacking the Starbucks market share from both angles, it is essential for Starbucks to find ways to remain cost competitive while providing the top-of-the-line, quality product. Furthermore, it is also recommended that Starbucks consider implementing a marketing strategy apart from alliances that does not solely rely on brand awareness, reputation, and word of mouth. While word of mouth marketing is invaluable, it is essential with the growing competition on price and product for Starbucks in the niche coffee industry to aggressively market to ensure and restate the companys dominance in the diversification focus of specialty coffee. Finally, in todays current economy, it is recommended that Starbucks broaden focus from simply high end pricing and provide an economic package or economy offering during these tough economic times. This does not have to be a long-term strategy, but could ensure the survival of the company through a tougher economic time and also maintain the companys customer base for when the economy as a whole,
and thereby consumer wallets, are growing again. This would bring the company slightly away from the differentiation focus strategy, but not so far as to move the company into a new strategic
marketing focuses. In conclusion, Starbucks is still in a growing stage, and with a few recommendations for marketing improvement, can continue the product leader position currently held in the specialty coffee industry well into the future.
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Advantages:
1. Use of word-of-mouth marketing can increase their sales under this strategy. 2. It would be very beneficial for Starbucks to maintain a close watch on industry and market competitors, specifically other coffee shop establishments and the restaurant industry entrants to the specialty coffee market. 3. Careful management of these linkages are powerful sources for competitive advantage because it allows the company to resolve trade-offs across organizational lines and processes, which are difficult to do for most companies
Disadvantages:
1. Both specialty coffee shop entrants can pose a challenge to Starbucks in an effort to provide the best quality, service, and experience for the customer, while the restaurant entrants to the industry are marketing their specialty coffee on a cost savings platform. With these industry competitors attacking the Starbucks market share from both angles. 2. The Starbucks Corporation does not aggressively market the company or their product. Instead, they are driving their sales through the companys image and reputation.
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Alternative 03:
Companies do practice corporate social responsibility (CSR) and alliances with the companies to reach the long term success and growth. CSR is entering a new era where suppliers from developing countries have significantly increased in importance. It is almost becoming an obligation and responsibly many companies. Nowadays, corporate social responsibility (CSR) is an important part of many business organizations. It is concerned with how a company tries to be beneficial to all its stakeholder groups. Many companies today run businesses with CSR especially big companies. They try to involve in activities that will keep both the business and social environment sound. The effects of CSR cannot be overemphasized; they range from companies running business well to environmental improvements. CSR can also go a long way to improve on product quality and service to customers. We wonder how companies run businesses with CSR in an adverse competitive business world. Today, competitors of some businesses already practicing CSR and beginning to embrace this new philosophy of business. Starbucks Company can be succeeded in a world of business with CSR. We will investigate why Starbuck Company engages in CSR and what definition this company gives to CSR. There has been so much news out there about Starbucks Company, many consumers and employees satisfied with their good sense of CSR. Moreover, it has many suppliers interested to operate with them. It also has many organizations that complement the Starbucks Companys efforts towards CSR. Today, Starbucks has published many Corporate Social Responsibility (CSR) annual reports that these are all available on the web site of Starbucks Company. In these reports Starbucks Company shows how it is actively involved in a combination of activities linked to the social, environmental and economic perspectives (triple bottom line thinking). In this study, we intend to investigate how the Starbucks Company conducts business and integrates CSR with their business. And also how the company have responsibility with the goals of enhancing the lives of its stakeholders- partners of the company, customers, coffee farmers, shareholders, community members, suppliers and others with whom the company works. Starbucks does not aggressively market the company through traditional means but instead focuses almost entirely on high-level marketing and branding of word-of-mouth and key alliances and partnerships. The utilization of alliances can be a cornerstone of the Starbucks Corporation marketing strategy. The strategic alliances of Starbucks can be one of the foundational reasons for the corporations long-term success and growth. Alliances are truly the driving factor being their name and brand recognition. Starbucks forms alliances with companies and social groups across the board, thereby broadening the exposure of the company, improving the organizations brand image and reputation, and exposing their name and product on a regular
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basis to potential new customers. In 1993, the company partnered with Barnes and Noble bookstores to be the in-house coffee shop. Next, in 1996, Starbucks partnered with PepsiCo to bottle, distribute and sell Starbucks Frappuccino. Starbucks can also formed alliances with ice cream manufactures and hotel chains to offer Starbucks brand and flavored ice creams and Starbucks coffees within the hotels. Starbucks company engages the business ethics, which it can see Starbucks mission or Starbucks code of conduct (from the part of Strong values drive customer value) including companys policy both social and environmental. For instance, the environmental stewardship which shows the company ways to protect environment such as recycling, water etc. and community with firm support several on activities to improve communities. Moreover, Starbucks has the long term relationships with suppliers to control the qualities and prices, which they work together with suppliers and discuss strategic business to improve and develop products. Starbucks focuses on social and environmental points where coffee bean grows and support farmers by providing education, finance and fair trade too.
Advantages:
1. The effects of CSR cannot be overemphasized; they range from companies running business well to environmental improvements. 2. Responsibility with the goals of enhancing the lives of its stakeholders- partners of the company, customers, coffee farmers, shareholders, community members, suppliers and others with whom the company works 3. The strategic alliances of Starbucks can be one of the foundational reasons for the corporations long-term success and growth. Alliances are truly the driving factor being their name and brand recognition. 4. The utilization of alliances can be a cornerstone of the Starbucks Corporation marketing strategy.
Disadvantages:
1. It was accused of polishing its image more than truly working to improve the lives of those its existence depended upon: the coffee growers by the CSR. 2. If the alliance company cannot provide proper initiative strategically then Starbucks might not be capable to expand their business successfully to increase the sales.
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RECOMMENDATION: Why wont we choose Do nothing: First we reject do nothing, because it is not a wise decision to avoid a prospective market to expand the business as well as brand recognition. By making brand known to around the globe and make the profit out of it, is better decision for Starbucks. Starbucks will lose the opportunity to maximize their profit margin. Due to higher availability their costing of store is very high which cannot be minimized or covered up through the increased sales. Their international market expansion could make their brand more known and it could increase their brand value. So it they dont increase their sales or satisfy customer values then it will be tough for them to maintain their quality. Starbucks can lose their loyalty of customer due to less improvement in their sales even. They might lose their highly capable sales team who are specially trained with their resources due to underpaid or overworked which might have a long term effect on their future sales. For that reason it is not a better decision to do nothing regarding a prospective company structure.
Why we wont choose Differentiation focus strategy: Here we bypass the Differentiation focus strategy due to mismatch in their business mission and vision. As they want to make it highly available in all over around the globe but the strategy suggest making it targeting niche. As the Starbucks, is following very aggressive marketing to expand their business to make it highly available. But if they follow differentiation focus strategy then it might not be possible to make it as they want to. Both specialty coffee shop entrants can pose a challenge to Starbucks in an effort to provide the best quality, service, and experience for the customer, while the restaurant entrants to the industry are marketing their specialty coffee on a cost savings platform. With these industry competitors attacking the Starbucks market share from both angles. The Starbucks Corporation does not aggressively market the company or their product. Instead, they are driving their sales through the companys image and reputation.
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Why we are choosing Companies do practice corporate social responsibility (CSR) and alliances with the companies to reach the long term success and growth.
Many people are awed by the speed of the growth of Starbucks. The success of the coffee company in influencing the peoples preference in buying coffee is something that could grab the attention of everybody, most especially investors. Starbucks has established a unique image of itself. Thus, it is clear that what the company is selling is not merely its coffee, but its brand image as well. Starbucks has run its business by driving Corporate Social Responsibility (CSR) as a tool that covers the company in every sector of their business. Lets take the environment, for example. Starbucks is really concerned about affecting the environment. By utilizing innovative technologies to improve the effectiveness in its processes, they reduce costs and at the same time they are preserving the environment. In terms of social strategies, Starbucks has splendid strategies to cooperate with its partners and stakeholders. Starbucks has created a lot of activities to encourage communities and to create long term relationships with them, which reflects on their brand. In terms of economics, Starbucks is not only thinking about its benefits but also for all parties related with their business, by following the laws of each country. Starbucks has managed to create fair trade with its suppliers, customers, and even for their competitors. It has made Starbucks very successful in its economic situation. Moreover, CSR can build competitive advantage over competitors that Starbucks gain more competitive advantage by engaging in CSR into every part the company. Specially, the company focuses on their suppliers (coffee farmers) and partners (employees) which they have run business as sustainable together. We think that the company has come to correct the way to run business by fully practicing CSR and keeping their market position. From what we investigated, a companys CSR practice relates to numerous different behavioral aspects within a company. Many organizations argue that companies engaged in CSR can obtain increased sales and market share, reduce costs and increased interest from investors, improved employees motivation, improved brand awareness and image of the company. However, we think that the companys CSR investments will affect the companys performance positively as customers value CSR activities. It is the reason why the company has succeeded in business world by CSR.
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IMPLEMENTATION
Implementation: Having determined the causes of Starbucks current downfall, it is necessary to formulate a plan to address these issues. Strategic change cannot be achieved without specifying which actions are to be undertaken. Since the major issues were already identified, strategies for the remedy of these issues need to be formulated. Proctor states, Strategy is a plan that integrates an organizations major goals, policies, decisions and sequences of actions into a cohesive whole. Thus, based on the above evaluations, the following recommendations are put forward. To increase the sales it is required for Starbucks is to expand their business overseas. The most attractive industry for any profit maximizing firm within a capitalistic society would be one in which they can have a pure monopoly. In economics this refers to situations in which one established firm can be the sole provider of a product or service in a particular market segment. Among the different alternatives; we have chosen to Companies do practice corporate social responsibility (CSR) and alliances with the companies to reach the long term success and growth.
General Implementation: Implementing the CSR and alliances in the Starbucks: In the todays business world, there are many strategies being used to run businesses. In the recent past, the topic of Corporate Social Responsibility (CSR) has grown rapidly. People are starting to demand that companies take their social responsibility seriously. Many companies have started to engage in CSR as a strategy in order to gain benefits that can give them an added advantage over their competitors. There have been increasing numbers of companies engaged in CSR to run their businesses. Nowadays corporate social responsibility (CSR) can drive companies to succeed in business by increasing sales volume and brand awareness. We decided to choose Starbucks Company because this company has a good reputation in terms of social responsibility. Thus, we would like to investigate how Starbuck successes in the business world are linked to CSR strategy. We would like to know how the company integrates CSR and what factors have affected the companys success over the years with special reference to CSR.
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Functional implementation: Triple bottom line: it is very difficult to talk about CSR without looking at triple bottom line thinking (that is interactive thinking taking into consideration social, environmental and economic factors). These three indicators of CSR are shown in fig 1 below.
Figure 1: Triple bottom line
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Economic: Starbucks Company is one of world class organizations that are successful in business today. The corporations policy is that running ethnic business and doing the right thing are keys of Starbucks business. Moreover, the company operates business in many aspects by engaging environment, all people and following the laws of each country. Also, it endeavors to provide quality of products and service as well as good relationships to both suppliers and customers. All of these are long term strategies which make Starbucks successful. In order to understand deeply, we present Starbucks business conduct as follows:
No doubt in previous business, economics has influenced our world. Every company in all sectors has focused on the benefits or profits. Some organizations want to serve only shareholders or financial reports. But nowadays it is difficult to do this if companies think about merely their own benefits by ignoring social, environment and other stakeholders. Because it is short term strategies and the firms will face several impacts of organizations. In order to sustain economic businesses, companies should not only concern about benefits of financial forms but also ethnic firms have to care to people or society and environment as well. From Eco-efficiency, companies have involved in competitive businesses by offering good prices, products and services to improve the quality of life in order to make customer satisfaction. In which these processes try to reduce environmental impacts. Natural resource productions relate to maintaining environment and competitiveness which limited environment has created innovation of products as an eco-efficiency. To develop economic sustainability, all companies have to rely on ethnic businesses that they cannot run businesses without responsible stakeholders such as their staffs, customers or societies who affect directly to companies such as losing image, profits of companies and so on. On other words, the ethics company will receive a lot of economic benefits of organizations by using innovations to operate their businesses which can increase the companies benefits. For instance, reducing the cost of productions, creating good qualities of products and good image of media including building long run relationship with stakeholders too. It might say these are win-win strategies. Environment: All mankind is involved with the environment. Everybody has used a lot of natural resources in the whole life. Unfortunately, nowadays our environment is destroyed by people or corporations that might not care about it of which there are many impacts on our planet such as
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increasing pollution around the world, wastes water, climate change etc. because we dont care about the environment enough. There are two main things of significant natural capitals reformative or replacing natural resources. Firstly, it is necessary for the reservation of life and ecosystem balance. Secondly, it can renovate or replace natural resources such as solar cells in order to limit fuels From many countries, there are regulations to companies for their environmental performances. In order to protect the environment or ecosystem, we have to protect the environment by reducing the use of natural resources because some resources can renew again by using technological replacement such as using wind energy to produce electricity or recycle products and also can reduce companies cost as well. Moreover we have to protect environment at the same time by treating waste processes before sending to the environment. All of the above show that, in maintaining the environment it is important that all parties have to realize it. Its not only you and me but also everybody in our world. Social: Social development is one of the important parts in triple bottom line. It might be affected to economics and environment too. Social capital is trust of people in society which some parts can measure people ability to work together in organization. These capabilities have importance to develop sustainability in every status of society. Social accounting focuses on evaluating people who have impacted to the corporation. The area covers training, community relations, product safety, employment, education, do nation and so on. For organizations, they have to be responsible communities both inside and outside because it has impact to developing companies by providing good environmental workplace, training skills, welfare, and human right. For outside organizations, it should make good relationships with society by creating activities to support or help society such as donating money into communication or improving society to become better life etc. These companies will receive good feedback from communication and all employees to corporate sustainable development. The analysis of the evolution of the specialty coffee industry as a whole allows us to assess the possible adaptation strategies for the one that would most appropriately fit with Starbucks long term goals, while taking into consideration their current capabilities. Organizational theorists believe in both organizational inertia and view evolution as occurring within individual organizations through the process of variation, selection, and retention. Within Starbucks, one source of organizational inertia is the capabilities and routines developed through their established infrastructure and the set pattern of interactions among the numerous organizational members, which has developed over time.
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Another form of organizational inertia present at Starbucks is the complex configuration between their strategy, structure, and systems. The fit that they have created between their numerous components would be disturbed if the idiosyncratic combinations, which have allowed them to succeed, were changed independently. Rather, any change to their overall strategy will have to encompass additional changes to their structure and their management systems, culture, employee skills and all other characteristics of the Starbucks organization. These forms of organizational inertia make it more difficult for an organization such as Starbucks to reformulate their strategies without considerable capital investment and the possibility of immeasurable costs in broken tradition and lost synergies. Therefore, organizational inertia can be looked at as a barrier to change, but it is not absolute and organizations have shown the ability to adapt to both changes over the generic lifecycle and to technological change. The first thing an organization must do to adapt to a changing lifecycle is to determine where the industry is in that lifecycle. We have previously done this. From the assumptions made in this analysis, we have postulated that Starbucks and the specialty coffee industry in the United States is at the end of its growth stage and in the beginning of its mature stage. The changes that will occur during this transition are largely predictable. The buyer market will slowly become fully saturated and repeat buyers will become the primary constituents of the consumer base, with a stronger emphasis on discounting and less differentiation between brands. Product quality will continue to improve throughout the marketplace, leading to industry standardization and much slower product development. Marketing will focus more on advertising a broad product line, good service and packaging deals. Manufacturing and distribution will see some overcapacity along with lower labor skills due to an increased demand for high labor skills relative to an inelastic supply of labor. Understanding these changes is the first step to establishing the capabilities necessary to formulate a proper strategy to combat the negative attributes associated with a maturing industry. These capabilities should allow a company such as Starbucks to pursue a strategy that does not seek to increase market share. The appropriate strategy should attempt to maintain an image of quality and enhance both effectiveness of existing marketing and use of new forms of marketing. The next step is formulating a proper strategy to overcome the barriers to change present in an organization such as Starbucks, in the form of organizational inertia. This would involve developing a fundamental understanding of what the primary contributors to that inertia are. This in turn involves identifying the existing routines and capabilities, the hierarchy structure, along with the power structure and identifying the ingrained perceptions of the business from an outsiders perspective.
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Formulate Strategic Marketing: Strategic marketing is an important factor in any business. As discovered above, the companys failure to draw a marketing plan created a gap in its value chain, which has caused a significant deterioration in the companys brand image/reputation. The company needs to have a direction in the marketing arena to further improve its image and brand recognition. Marketing is concerned not only about promotional advertisement activities. Marketing planning is a process by which organizationsattempt to understand the market conditions and the needs and preferences of the customers whilst taking into consideration other organizations who are also competing in the market. It involves satisfying the customers wants and needs and managing relationships with stakeholders. Drucker also emphasized that a business has only two functions, one of which is marketing and the other is innovation. The aim of marketing is to create new customers and to communicate with all of its stakeholders (customers, shareholders and employees). A company cannot effectively implement any activity if no communication with all its stakeholders was made. This is the role of marketing. In the case of Starbucks, it has made little regards to marketing, as evidenced by its small portion of budget array allotment for the said value-creating activity. It appears that the company relies on its strong operational capabilities more in such a way that marketing has been put into the sideline. Although this may have worked before, the changing market conditions warrant that the company should start focusing as well in strategic marketing. Competitive advantage can be gained and sustained with the help of marketing. Proctor argued that competitive advantage should be market-led. Marketing is basically the distinguishing, unique function of a business. Thus, Starbucks must focus a substantial amount of resources into improving its marketing activities. To gain competitive advantage, an organization must first define its strategy. One of the authorities in the creation of strategy to achieve competitive advantage is Michael Porter. The author defined strategy as, the creation of a unique and valuable position, involving a different set of activities. Marketing strategy, therefore, is the formulation of a different set of activities that aims to create a unique and valuable position in the market. The strategy includes the creation of a plan to identify market conditions and to identify which segment of the market the company will focus on. Strategic objectives must also be set that will serve as a guide in the implementation of the marketing strategy. It has been identified above that Starbucks employs a generic strategy of focus with an emphasis on differentiation. This strategy, however, may now need to be revisited and adjusted. Starbucks needs to communicate with its customers now. Starbucks also needs to create new customers and new markets to prevent the saturation of its current market segment.
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Its marketing objective should be focused on creating new markets and, if necessary, new products or product line to accommodate new customers. The company may create new products that will have an appeal to the lower segment of the market, a segment which the company has not yet fully tapped. Its pricing strategy, therefore, may vary accordingly with the creation of these new products that aims at generating new customer s in the lower end of the market. The firms current marketing communications and customer relationship management practices also need to be changed. As evidenced in the online survey, the customers are not feeling any substantial improvement in Starbucks. If ever there are improvements that the company has been doing in the previous years, these changes have not been effectively communicated to its customers. These improvements in stores or customer service/relationships must be communicated with its customers to make them aware that Starbucks is improving itself to maintain the Starbucks experience that its customers have been wanting for in the company. On the aspect of exclusivity, the company also needs to enhance its current image of luxury. Although it has been recommended above that the firm has to create new customers, or market new segments, this will not necessarily have an adverse effect to its brand reputation. What the company needs to do is to create a system of exclusive membership with rewards or privileges for its frequent customers, especially the high end segment of the market and the students which have been the companys traditional customers. Privileges and reward s exclusive only to customers, whether individually or by group, who apply for regular membership in the company can be formulated such as unlimited free Wi-fi access and/or free coffees or other products once a week. The company can also create a function room in each outlet that the exclusive cardbearing members can use. These privileges may help enhance the companys image and reputation of exclusivity. Apart from that, the fees that will be collected from the annual registration dues of the members can add up to the companys profit. Enhance Operations Management: Aside from improving its marketing capabilities, Starbucks also needs to improve its store operations management. Operational effectiveness means the performance of similar activities better than the competitors perform them (Porter 1998b). However, operational effectiveness alone is not sufficient to gain or sustain competitive advantage. Porter (1998b) states that a company can outperform its rivals if it delivers greater value to customers or create comparable value at a lower cost, or the company should do both. It has also been identified above that the companys value chain has gaps involving its operations. The company is into rapid expansion of stores, however, the quality of its service or its brands reputation has been sacrificed, resulting into its relegation or into being perceived as similar to a fast-food chain rather than a luxury coffee outlet. Starbucks has not been able to create greater value whilst offering overpriced coffee.
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Thus, the company needs to improve its store operations management by enhancing the appearance of each outlet. The company may also need to improve its customer service further and make these improvements known to the customers, as indicated earlier. The addition or improvement of store equipment and ornaments will provide a new look to the outlets. The addition of a function room, as indicated above, for its exclusive card-bearing member s will enhance even more the experience of exclusivity and luxury of each Starbucks coffeehouse. Also noteworthy in the online survey is the attention given by customers to Starbucks being an environment-friendly store. Therefore, the company must improve this standing by becoming more environmentally friendly. It also has to give emphasis on buying Fair Trade materials since this practice appeals to its customers. The firm must therefore align its resources to these improvements in order to sustain its current position in the market and attract more customers, and gain competitive advantage and strategic competitiveness. In order to make the sustainability of company values organizations want to have good leaderships. Currently, Leaders have to have many skills to conduct the companys strategies to reach to the goal. One of them is communicating skills. The figure below shows that five principles of sustainable value based service business.
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Improve Stock Market Standing: To improve its stock market trading, Starbucks has to show that the company is a profitable business. This can only be done if the company will continue to show that it has a sustainable command of its brand/image reputation and recognition. The company has to significantly stop the current downtrend in sales and profit. But in order to do this, the company must initiate and implement changes within the organization, as recommended above. Stock market analysts are closely monitoring the Starbucks shares performance and profitability. Hence, the company must enhance its reputation by showing significant and substantial improvement in its marketing and operational activities to show that the company is in command of its future and that it can maintain its current leadership in the specialty coffee industry. A part from that, the company can also show that it has the capability to venture into new markets. This way, analysts will not hesitate in giving a high rating to the company, and investors will not be reluctant at putting their money into the Starbucks stocks.
Strategic Leadership Improvement: Above all the changes that Starbucks needs, its leadership must be changed. Not that the managers will be removed but their capabilities, skills and attitudes must be improved. No organizational transformation will be complete if the leaders are not receptive of change. Organizational change can be done only if the correct processes are implemented and the leaders have been at the forefront of these activities. Leading organizational/strategic change is not an easy task for managers or leaders of a company. There have been efforts that failed because of oversight by the leaders. Whilst Starbucks leaders seem to have not failed, it is necessary that its leaders should know exactly what to avoid in executing changes in the organization. Increase International Expansion: The first and most pressing action which Starbucks should take is to reduce their US expansion efforts. Continued aggressive attempts at expanding in the United States by adding as many new store locations as in the past will inevitably act to cannibalize existing locations same store sales. The fundamental reason why this is true and why Starbucks should reduce their U.S. expansion plan is the conclusion reached earlier in this analysis: that the specialty coffee industry in the United States has entered the mature stage. One of the qualities inherent to the mature stage of the industry lifecycle is overcapacity. Any significant expansion efforts in an environment where overcapacity is present will be met with failure. By reducing their expansion efforts in
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the United States, Starbucks can redirect the capital saved into their international expansion efforts. The international market provides an ideal target for expansion for three important reasons. First is the lack of penetration of specialty coffee in many nations and the potential market share which these nations represent. For example, Starbucks currently operates roughly 16,000 stores with 10,000 in the United States and 6000 internationally. Yet, the United States has not ranked in the top 10 for total coffee consumption per person in the last 25 years. This suggests that internationally, there is an enormous coffee drinking population to be tapped into. Another reason that international expansion presents a particularly good opportunity is due to the likelihood that such expansion would act as a catalyst for innovation. For instance, originally, Starbucks introduced their Tazo tea brand into the Japanese market. After a successful trial run in Japan, Tazo was brought into the US market. More such innovative products should be tested first in international markets because there, Starbucks does not put its brand reputation at as great a risk. This is true since those markets have not been exposed to Starbucks for as extended a period of time and, thus, the brand is more malleable in those markets.
Instead of selling discounted coffee under their segmentation strategy, which seems aimed at appealing to the price sensitive lower end of the market which is likely destined for McDonalds and Dunkin Donuts, Starbucks should concentrate on creating more elaborate discounting techniques to employ with their most frequent customers. This both eliminates the potential degradation of the Starbucks brand and increases the bond customers will experience with Starbucks. Additionally, a rewards program will encourage customers to visit Starbucks more often and will dissuade them from visiting competitor stores, such as McDonald's and Dunkin' Donuts, which seem unlikely to offer reward programs.
Rent out Meeting Space and Install Free Wireless Internet: Next, Starbucks should create a more business and technology friendly atmosphere in its stores. With the advent of the Internet and the ever increasing array of electronic products capable of accessing it, there has been an increasing shift in consumer's work locations from office buildings to home offices. With this shift and natural human psychological needs, Starbucks is allotted an opportunity to cater to these consumers working out of the home by providing meeting space for rent. These meeting spaces should be accompanied with the addition of free wireless Internet access throughout every Starbucks store and printers accessible to the customers, which are color capable and reasonably priced. The meeting space should be offered at a per hour rate while the printers should charge per copy. The availability of meeting space and printers, coupled with free wireless Internet access would
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encourage those consumers working from their homes to engage in business activities at local Starbucks. Some of Starbucks competitors, such as Caribou coffee, have already taken advantage of this trend in consumer preference but do not currently have the market share to use it as a defendable competitive advantage. CD Burning: In addition to free wireless Internet access, Starbucks could equip stores with a CD burning device to allow customers to burn copies of the online albums they purchase within Starbucks at a small fee. Not only would this increase the customers options when purchasing an online album but would also encourage customers to purchase online albums within Starbucks locations. Thus, customers could not only get the electronic version of their selected music for their IPods but could also have a hard copy CD for use in other devices such as the vehicles which transported them to the Starbucks store. Having this extra incentive could well increase foot traffic in Starbucks locations. Additionally Starbucks could advertise their brand and music label on the blank CDs. The labels of the CDs could use or incorporate Starbucks logo and the interactive experience the customer will have watching their CD being burned and the label being placed onto it will give them a greater sense of ownership. Increase Connection with Customer: One way in which Starbucks has always differentiated itself from its competition has been through the emotional connection formed with its customers. This connection is formed in significant part by creating a store atmosphere that fits the local settings and by training baristas to increase the personal connection between themselves and their customers. Specifically, Starbucks encourages feedback from their customers to induce a family like feeling and instructs all baristas to greet every customer with the question how are you doing today? To further increase this emotional connection with their customers, Starbucks could implement digital picture frames in all store locations and upload local customer photos and perhaps even customer supplied family photos, which are appropriate in nature, upon request. Digital picture frames are capable of holding thousands of pictures which would turnover regularly all day long. Such digital picture displays are not expensive. They would not require major modifications to any stores and would have an immediate impact on enhancing the family atmosphere. By allowing customers the option of uploading some of their family photos into the digital picture frames, Starbucks gives them the chance to personalize their local coffee shop and join a community. This would be a modern, classier version of that time worn icon, the local pub with countless photos of the regulars festooning the walls. Currently, the majority of Starbucks stores have latte machines that are positioned in such a way as to block the baristas from viewing the customers and vice versa when the barista is in the act of making the latte. These latte machines pose a serious physical obstacle to the baristas ability to establish a lasting impression on the customer. To increase the baristas opportunity to form the desired connection with the customer and also
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to give the customer a more worthy performance of the craft, skill, romance and theater which are present while making an espresso, these latte machines should be lowered so as to give the baristas a demonstration kitchen of sorts.
Continually Improve the Coffee: Given the specialty coffee markets transition into the mature stage of the industry lifecycle, it is important to maintain a reputation for the highest quality coffee in the industry. In February of 2008 the magazine Consumer Reports rated McDonald's drip coffee as tasting better than that of Starbucks. To ensure the quality of their coffee, Starbucks should continually analyze their brewing systems and practices and consider renovations. The brewing process should at all times be judged based upon its ability to bring out the complexities and distinctive flavors of the worlds different exotic specialty coffees. Starbucks should also be intent upon protecting whatever brewing process they deem to be the best through patents or acquisition of patents, which would, in turn, provide a defendable competitive advantage.
Becoming More Environmentally Friendly: Although many efforts are being made at Starbucks to enhance their image as being environmentally friendly, as is true for all modern corporations, they still have much room to improve, thus, further differentiating themselves. There is a growing positive public sentiment toward companies that make every effort at being environmentally friendly. This is particularly true among the demographic consumer base Starbucks targets. For the first 10 years of Starbucks existence, they would ask their customers whether they wanted their coffee to go or not. If the customer chose to drink the coffee in the store, they were given a porcelain cup as opposed to a disposable paper cup. The resurrection of this practice would be a simple way to appear more environmentally friendly. Moreover, if marketed and operated correctly, such a program could well save Starbucks money. To encourage customers to use porcelain cups, Starbucks could offer in-house drinkers who choose to use the porcelain cups a discount.
Other examples of ways in which Starbucks could enhance both its actual green bona fides and its image as an environmentally friendly company would include: selling to go mugs and reusable sleeves at affordable prices; implementing recycling bins; seeking to compost or otherwise recycle food waste; and encouraging customers, using financial incentives, to recharge plastic Starbucks cards as opposed to purchasing a new one. All of these steps would enhance Starbucks image of corporate responsibility and would help to further differentiate Starbucks
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from its competition. Ultimately, just as with the need for the company to continually analyze and improve the coffee, going green should be a continual process. All employees should be encouraged to suggest environmentally beneficial initiatives. Management should make constant improvement in this area a very public company priority, which only seems appropriate for a company with a famously green logo.
Wage and Hour Rules: Starbucks has paid the salary and compensation for partners (employees) based on hours laws and regulations that mean Starbucks offers the benefits fairly. Workplace Environment: All partners (employees) have been treated with esteem and honor without insulting, bias, unfairness, irritation and so on. On the other hand, they are working in the company under friendly working environment.
Workplace Health, Safety and Security: Officers and partners (employees) have cooperated to each other for following the safety regulations, practices and training in order to prevent themselves from accidents or injuries.
Starbucks quality and Customer Protection: Starbucks focuses on quality of products because customers health and safety are significant for business. Company ensure ever process that is clean and hygienic including good service and facility in the shops.
Compliance with laws and regulations: Starbucks Company has followed the laws, rules or regulations of every country where organization run businesses. In order to ensure, the company operates ethnic business and follows officially permitted standards.
Fair competition: Starbucks relies on fair competition laws and supports in free market. However, Starbucks has to have agreement with competitors or suppliers under regulations such as not talking
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about price, products or markets with competitors or customers do not try to control the market etc. Supplier: Starbucks has made long term relationships with suppliers and sellers as well as work closely together with them. The company has supported coffee farmers every aspects such as Fair trade by guarantee prices, offer financial credits, education and even housing. In order to get high quality products and control prices as well as protesting environment where coffee bean is grown and also rising farmer revenue as well. Sales practices and advertising: Organization focuses on truth and honesty to customers. Not only the products and service but also advertising as well. All of these are transparent which customers can prove them. The Third Place: In today's interconnected world it is important to develop a feeling of community. This is part of the reason Starbucks is so adamant about ensuring the well-being of its suppliers, for they are a part of the company's greater community. A large part of Starbucks appeal to people is the sense of community the customers feel when they walk through the door. Starbucks tries to offer a third place, where people can get away from the daily routines of their lives and enjoy a cup of coffee from Sumatra, Kenya or Costa Rica. It is a place where the noise and hostility ever present in the city dissipates. Most important, it is a place that offers casual social interactions. Ray Oldenburg, a Florida sociology professor, attributes much of Starbucks success to its ability to offer this third place or as he puts it, the great good place in modern society. He explains that, without such places, the urban area fails to nourish the kinds of relationships and the diversity of human contact that are the essence of the city. Deprived of these settings, people remain lonely within their crowds. The ability of Starbucks to take advantage of this need for a third-place is not entirely attributable to their own strategic planning. Many other developments unassociated with Starbucks were occurring during their aggressive expansion. Two of the most prevalent themes during the 1990s and early millennium were that of increasing numbers of people working from their homes and the increasing use of the Internet and mobile computing devices capable of accessing it. Both of these developments aided Starbucks in the additional flexibility that they afforded the general population. Today, Starbucks has gone to great lengths to take advantage of these advantageous environment changes. For example, they have recently struck a deal with AT&T, which will allow them to offer free wireless internet access to some customers at the majority of its US stores. The deal will give approximately 12 million broadband customers unlimited free access to the internet at
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more than 7000 Starbucks locations. Additionally, Starbucks will give two hours of free internet access per day to people who have a Starbucks card, which is a card customers can load with money to pay for purchases. Starbucks has also enabled customers to access an iTunes play list in stores, which shows the music playing in real time and gives them the opportunity to purchase music digitally. Starbucks success thus far can be attributed to five primary factors. The first of these factors was their ability to design a strategic approach to growth that quickly demonstrated the feasibility of their business model and took advantage of some key demographic groups. Next was their ability to attract the highest-quality employees through the implementation of a superior healthcare plan while reducing costs and giving equity ownership to all employees. The strategic alliance they had with conservation international allowed them to create a sustainable supply chain of high quality coffee. The three previous factors helped enable them to foster the fourth factor in their success, a community environment in which casual social interactions could take place. The fifth factor to their success was their ability to adapt to the changing dynamics of their consumer demographics. All of these factors have allowed them to stay at the forefront of the specialty coffee industry.
Human Resources Management at Starbucks: Starbucks realized early on that motivated and success of a retail business. Therefore the company took great care in selecting the right kind of people and made an effort to retain them. Consequently, the companys human resource policies reflected its commitment to its employees. Starbucks relied on its baristas and other frontline staff to a great extent in creating the Starbucks experience which differentiated it from competitors. Therefore the company paid considerable attention to the kind of people it recruited. Starbucks recruitment motto was To have the right people hiring the right people. Starbucks hired people for qualities like adaptability, dependability and the ability to work in a team. The company often stated the qualities that it looked for in employees upfront in its job postings, which allowed prospective employees to self-select themselves to a certain extent. Having selected the right kind of people, Starbucks invested in training them in the skills they would require to perform their jobs efficiently. Starbucks was one of the few retail companies to invest considerably in employee training and provide comprehensive training to all classes of employees, including part-timers.
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Integral Implementation: Strategic change is the call of the day for Starbucks. Perhaps, this is the time that the company will need to revisit its existing business models, practices and strategies to know whether these models still conform to the conditions of the market. The company has been in the business for two decades, and undoubtedly has been the industry leader for almost the same length of time. However, since market conditions change as evidenced by the current events and continuing globalization of markets, the company may need to reform its strategy. Starbucks may have already saturated its current market or its strategy may have been going into a different direct ion, one that is going away from the objective market situation. As such, the company has to implement a strategic change. Its management practices may need to be revised. It is the customer that determines what a business is. In this sense, Starbucks should identify what the customer wants, what they need and what they prefer, not the other way around. In the course of its practice in the previous years, Starbucks seems to be content in expansion alone, not communicating with the customers to know what their preferences have been. It must be emphasized that customers needs and preferences are always changing. Hence market conditions also change. In this context, Starbucks failed to keep up with the changing customer behavior and market conditions. Thus, in the last several months, Starbucks performance is going on a downtrend. It is imperative that the causes of this downtrend must be identified and remedies must be put in place. The remedies, however, need to be long-term, not only short-term. Whilst short-term actions are needed to address tactical changes, it is more important to set a strategic goal, or if necessary, revise the current strategic goal to conform to the realities in todays business environment and the future of the business. Thus, it was recommended that Starbucks should focus on marketing, while enhancing its operational effectiveness. Marketing has been the missing component in the Starbucks practice in recent years. It is therefore significant to put emphasis on this area. Apart from that, the companys leadership must be transformed as well. It has been recommended that the organizations leadership should adopt some behavior, traits or skills that are necessary to implement successful changes in the organization. Several practices and principles have been described in this paper to serve as a guide or reference in the leadership practices of Starbucks executives and managers. These principles have been set as a product of studies of academicians and practitioners in the field of management, marketing and other areas of business. It is highly recommended that Starbucks should implement these changes within the organization in order to maintain its current standing in the industry and achieve strategic competitiveness.
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PLANET STARBUCKS (A) Group B

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CORE ANALYSIS: SWOT

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Expansion into retail operations could be a good opportunity.

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Porters Five forces Model:

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Switching Cost of Suppliers products:

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Company life cycle:

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Industry life cycle:

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Supporting and related industries:

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Differentiation Focus Strategy

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