Executive Summary
This report seeks to analyze the marketing strategy of Starbucks. The report begins with a description of Starbucks in terms of structure and size. Further, the description also highlights the markets that Starbucks serves, its target customers, and the nature of products it offers. The next section after the description of the firm is the assessment of the external operating environment of Starbucks through an analysis of the competitive market position and through conducting a PESTLE analysis. The next section which is the most important section is the analysis of key issues. This section helped in identifying and reflecting on how Starbucks manages its marketing strategy. Some of the issues that were discussed included the internal resources capabilities of Starbucks, the key resources and capabilities of the company, innovativeness, competitive strategies, marketing mix, strategic alliances and networks, strategies for managing customers, and CSR initiatives at the company. The report found that Starbucks faces stiff competition as a result of adoption of technologies at home, allowing people to make their own coffee. Further, cultural and legal challenges may affect the company in its expansion into new markets. The report recommends collaboration and partnering with other firms for ease of entry and expansion into new markets for Starbucks. Further, the report also recommends continued innovation to improve efficiency, competitiveness, and quality of products and services.
The Firm
Starbucks Corporation is an American multinational chain of coffeehouses and roasting facilities that was established in the city of Seattle in the state of Washington (Koehn, 2002). It’s the world’s largest chain of cafes. At the end of November 2021, the firm had 33,833 outlets in 80 countries, 15,444 of which were situated in the US (Garthwaite et al., 2021). One person, one cup, and one neighborhood at a time is Starbucks’ mission statement. The company aims to inspire and nurture the human spirit (Koehn, 2002). Starbucks has done an outstanding job when it comes to building a concept where people of all ages are able to enjoy a flavorful cup of coffee in an aesthetically pleasing environment. The culture of Starbucks is one that values the needs of its customers above everything else. They look at the business from the point of view of the customer.
Since its founding in 1971, Starbucks has been committed to improving the service industry and providing its customers with the greatest possible experience (Garthwaite et al., 2021). In the first part of its mission statement, Starbucks aims to make a difference in people’s lives by providing an exceptional customer experience. Product differentiation can be used to describe Starbucks’ business approach (Koehn, 2002). Because of this, the world’s largest coffee chain places a premium on high-quality items, and customers are willing to pay for that quality. Starbucks Coffee has a matrix-like organizational structure. It’s a hybrid structure that combines elements from all four of the most common management structures (Garthwaite et al., 2021). Coffee, people, and outlets make up the three pillars of the Starbucks brand. The company’s coffee is of the best possible quality thanks to the strict controls over bean quality and processing that are in place (Koehn, 2002). The best employees in the business were selected and given extensive coffee education and customer service. Starbucks’ ideal customer is middle to upper-class male or female customers (Garthwaite et al., 2021). On a regular or daily basis, this customer segment makes up the highest percentage of the general population that can afford their relatively expensive cups of coffee.
External Operating Environment
Competitive market analysis
Starbucks is the largest coffee chain in the United States by a wide margin. Currently, the corporation has a 40 percent market share in the American coffee shop industry (Azriuddin et al., 2020). Dunkin, which has a market share of 26%, is in second place after Starbucks (Azriuddin et al., 2020). Starbucks has a distinct advantage over its competitors because of its strategy of product differentiation. The Third Place concept, excellent products, ongoing menu innovation, and the use of technology to communicate with customers are just a few examples of such methods (Rothaermel, 2017). For the most part, Starbucks makes advantage of geographic segmentation to limit the products it sells to specific markets.
PESTLE Analysis
Outside of the company’s control, regional market integration and disintegration present Starbucks with both chances and dangers for its future growth and success (Clements, 2019). As a result of the company’s integration, it has the ability to expand into new markets while disintegration provides a threat to its growth. Customers and suppliers have more access to Starbucks as a result of government measures that promote infrastructure improvement (Azriuddin et al., 2020). Despite this, bureaucratic red tape is still prevalent in many nations. Coffee company expansion may be hindered by this political external factor, which may benefit local competitors with substantial political connections.
The 2008 global financial crisis had a significant impact on Starbucks’ operations in a number of nations (Rothaermel, 2017). Costs at the company have risen as a result of the economic downturn. Consumers tend to view coffee as a luxury item during times of economic hardship such as Covid-19 period, which has an impact on sales in the coffee sector (Azriuddin et al., 2020). Starbucks’ operations are also affected by currency conversion due to the exchange rate fluctuations and taxation. The rising cost of labor in emerging countries is a concern to Starbucks, as it increases the company’s ingredient expenditures (Haskova, 2015).
Due to rising consumer expectations for fair practices, several companies, like Starbucks, have altered their business models in order to meet such expectations. The C.A.F.E program was developed to address customer concerns about Starbucks’ social responsibility (Rothaermel, 2017). A transformation in the company’s product offerings has been prompted by the growing number of health-conscious and learned consumers. Starbucks, for example, now offers coffee made with non-fat milk. To keep up with consumer demand, Starbucks reduced the amount of added sugars in its coffee drinks (Haskova, 2015). This was a necessary move. Coffeehouse movements favoring local individual shops rather than massive international chains are a threat to Starbucks’ business model.
Technological advancements in the marketplace influence product services, product innovation, customer experience, and business partner communication. A company can directly market to its target market through email, text messaging, and social media (Haskova, 2015). Starbucks has used technology to adjust its product line to meet the needs of new customers. Using Wi-Fi internet connectivity, the company’s VIA ready brew and online browsing services are good examples (Azriuddin et al., 2020). Improved mobile apps and related services can help Starbucks increase income from mobile purchases. However, the increased availability of alternatives to Starbucks’ products due to the proliferation of home-use specialty coffee makers poses a challenge to Starbucks (Clements, 2019).
Starbucks has the possibility to improve its sustainability standards due to an increase in the availability of sustainable business processes (Rothaermel, 2017). As a result of this improvement, customers will be more likely to purchase food and drink from the company going forward. Responsible sourcing, as seen in Starbucks’ supply chain, underlines the company’s commitment to social responsibility (Clements, 2019). These are areas where the coffee company can improve its performance. The company’s current responsible sourcing procedures, such as those governing the supply and procurement of coffee, can be improved further (Azriuddin et al., 2020).
Product safety regulations provide Starbucks with an opportunity to improve its performance. In the same way, the corporation can improve its supply chain in order to comply with restrictions on GMO ingredients (Haskova, 2015). Even while Starbucks is already doing well in these areas, there is always room for development. The higher expenditure on human resources that results from this external influence is also felt by the coffee industry. Despite this, the corporation has the ability to improve human resource management through innovative initiatives.
Key Issues Analysis
Internal Resource capabilities
Starbucks has a competitive advantage because of its excellent customer service. Starbucks has risen to prominence in the coffee market as a result of its focus on providing a great customer experience (Geereddy, 2013). On the other hand, it has been able to implement ground-breaking and environmentally friendly sourcing and production practices (Fischer & Roy, 2019). Because Starbucks excels in so many areas, the company’s identity is a bit ambiguous. In terms of brand awareness and customer loyalty, Starbucks has a solid position in the marketplace. It’s no longer necessary to say “Starbucks Coffee” in order to identify the brand, such as the siren in the Starbucks emblem (Fischer & Roy, 2019). Consequently, the company’s consumer base and loyalty are spread over the globe, as the corporation has established itself abroad. An important internal resource for Starbucks is its human resources. Tacit knowledge can be revealed in the manner in which Starbucks treats its staff. Employees at Starbucks are considered to be “partners” in the company’s success (Fischer & Roy, 2019). There is a publicly traded stock, health insurance and educational opportunities available for employees. Many people’s first professional work is at Starbucks, and the firm has built a culture that encourages its partners to develop positive habits that they may take with them into other areas of their lives (Geereddy, 2013). This ethos is reflected in the level of service provided by every Starbucks outlet across the world. While Dunkin Brands relies on third parties to handle its supply chain, Starbucks is vertically integrated in terms of structure to allow them to maintain 10.1 percent market share by operating their own supply chain, allowing them to ethically source 99 percent of their Arabica beans (Rothaermel, 2017).
New product/service innovation
One of the distinctive ways in which Starbucks interacts with its clientele is through the adaptation of its store designs, sometimes known as “brand localization.” The design studios of the organization are strategically placed, so that the company’s designers can have a deeper understanding of the areas in which they work (Hu, 2015). Starbucks has developed and released an app in order to facilitate the acceptance of payments, the tipping of baristas, the collection of incentives, and the redemption of prizes. As of the end of the year 2019, the Starbucks Rewards program has 17 million members in the United States and 10 million members in China (Hsiang & Rayz, 2020). Reinforcement learning is a form of machine learning in which the system learns to make judgments in complex, unexpected contexts based on the feedback it receives from the outside world. Starbucks has been implementing this technology in order to provide customers who use the Starbucks® mobile app with a higher level of service (Hsiang & Rayz, 2020).
Every Starbucks shop needs to have more than a dozen machinery, such as coffee makers, grinders, and blenders, running for approximately 16 hours a day (Hu, 2015). In the event that any of these devices develops a problem, a service call may be necessary, which may result in an increase in the costs associated with the repair. The provision of a consistently high-quality experience for customers is one of Starbucks’ primary goals; nevertheless, this goal is at risk whenever there is a problem with the equipment (Hossain & Islam, 2015). Azure Sphere is a cloud-based platform that will be installed in Starbucks’ store equipment through a partnership between Starbucks and Microsoft. This platform’s purpose is to protect the oncoming wave of connected Internet of Things (IoT) devices (Hsiang & Rayz, 2020).
Starbucks is one of the most forward-thinking companies in the world. There is no end to what this coffeehouse wants to try new things. The company is enthusiastic to incur short-term losses with an aim of producing high quality products in the long-run using incremental innovation (Hu, 2015). Even so, the company’s readiness to accept losses is not a distinguishing feature. The company’s noteworthy characteristic is its willingness to pay a high cost in quest for excellence (Hsiang & Rayz, 2020).
Competitive strategies
Starbucks Coffee uses a generic tactic of broad differentiation. This strategy emphasizes the distinctiveness and excellent quality of the products that Starbucks Coffee strives to provide its customers with. In comparison to many other coffee shops, the company’s cafes place a strong emphasis on specialty coffee (Kee et al., 2021). Market penetration is Starbucks Coffee’s primary intensive expansion strategy. Starbucks operates in more than 78 nations and jurisdictions around the world (Kee et al., 2021). The company uses market penetration by establishing more stores or cafés in order to maximize income and growth in their current and new markets. The company plans to add more outlets in Africa and the Middle East (Geereddy, 2013). However, in order to succeed in these coffee markets, the corporation must overcome legislative and cultural obstacles. Strategic locations and promotions are two ways that Starbucks’ Marketing Mix (or 4P) supports the company’s market penetration intense growth strategy (White & Moraschinelli, 2009).
In order to achieve rapid expansion, Starbucks relies on market development as a supplementary approach. The company’s present product mix of food and drinks can be offered in new markets or new market categories in order to promote the company’s growth (Geereddy, 2013). Starbucks Coffee, for example, has expanded its reach by opening stores in Africa and the Middle East (Kee et al., 2021). Even in coffeehouse markets that are saturated, new goods are considered as a means of driving up sales revenues (White & Moraschinelli, 2009). An examination of Starbucks Corporation’s strengths and weaknesses demonstrates that the company has a strong product development capability that helps it grow rapidly and strategically in worldwide markets.
Marketing strategy
Since its founding in 1971, Starbucks Coffee Company has been constantly innovating its product line. After acquiring The Coffee Connection in 1994, the company added the Frappuccino line (Talpau & Boscor, 2011). To maintain and grow its customer base, the company is constantly coming up with new items to sell. The majority of Starbucks’ products are sold at coffeehouses and cafes. Starbucks started by selling its products in coffee shops. Eventually, the company began selling some of its goods on its website (Haskova, 2015). This plan represented a significant advance for the company in terms of its efforts to incorporate e-commerce into its long-term objectives. Starbucks, on the other hand, terminated its online store in 2017 (Khan et al., 2019). Strategically, the company is shifting its attention to brick-and-mortar coffeehouses, where the customer experience is paramount (Khan et al., 2019).
Starbucks Corporation uses interpersonal contacts and communications to market its products, although advertising is also a part of the strategy (Talpau & Boscor, 2011). Word-of-mouth marketing was the most important marketing method that Starbucks used to establish its household name. WORD OF MOUTH tends to focus on creating the best possible customer experience, hence the reason it is encouraged (Haskova, 2015). In addition to these traditional forms of communication, the corporation makes use of digital and broadcast television, as well as print and online publications. Starbucks Rewards, a program that offers rewards to consumers who buy a particular amount of the company’s products, is also used for sales promotions (Haskova, 2015). The company utilizes public relations occasionally, and it has not always been effective for the company.
Starbucks utilizes premium pricing method. People’s predisposition to buy more expensive products because of the perceived link between high price and high value is exploited by this pricing approach in a marketing mix setting (Talpau & Boscor, 2011). The company’s coffee offerings are more costly compared to its competitor’s products, e.g. McDonald’s Premium Roast (Burritt, 2007). Starbucks is able to preserve its high-end specialty image because to this price policy. However, the company continues to work hard to innovate and offer high-quality products and services, alongside a positive customer experience in its coffee houses (Khan et al., 2019).
Customer management strategies
In view of customer management, first, Starbucks uses a CRM system referred to as “My Starbucks Idea (Nair et al., 2021).” Customers can connect with the system via social media sites like Facebook and Twitter (Nair et al., 2021). In addition, the business provides rewards. Loyalty programs like My Starbucks Rewards, which were introduced in April 2016, reward customers for their loyalty (Nair et al., 2021). For every $1 you spend, you get two “stars,” which can be redeemed for free drink (Nair et al., 2021). This program offers customers the opportunity to pay with a phone, and a fast-pass to avoid long queues. In order to maintain a steady supply, the company has implemented a supply chain strategy that includes a wide range of vendors. As part of their selection process, Starbucks uses the Coffee and Farmer Equity (CAFE) program to pick out and rank their suppliers (Chua & Banerjee, 2013). This program adheres to ethical standards, with an emphasis on environmental sustainability. Designing each store to reflect the aesthetics of the neighborhood in which it is located, a practice known as “brand localization,” is one way Starbucks engages with its consumers (Chua & Banerjee, 2013). Studio locations are purposefully placed so that designers may better understand the communities they serve (Nair et al., 2021).
Strategic alliances and networks
Starbucks’ long-term success and expansion is often attributed to strategic collaborations today (Khushman, 2019). For example, Starbucks uses non-equity based strategic partnerships such as joint marketing and strategic distributors and suppliers, as well as licensing (Khushman, 2019). Joint ventures, cross-shareholdings, and strategic investments are all examples of equity-based alliances that the company uses (Khushman, 2019). Since its inception, Starbucks has relied on strategic partnerships to expand its business. Tata Coffee’s Coorg, India facility serves as a sourcing and roasting hub for Starbucks’ high-quality green coffee beans, in which the two firms can partner in (Fischer & Roy, 2019). The two companies, Tata and Starbucks, are also exploring the possibility of opening Starbucks stores in their related retail and hotel locations (Fischer & Roy, 2019). Nestlé has also formed a strategic partnership with Starbucks. As part of Starbucks and Nestlé’s strategic cooperation, the alliance will help Starbucks’ CPG and Foodservice businesses grow globally (Fischer & Roy, 2019).
CSR and Environmental and social responsibility
Coffeehouse Ethics & Compliance is committed to Starbuck’s purpose, beliefs, and reputation by establishing an environment of ethical leadership and operating with integrity by delivering resources that assist partners in making ethical decisions in the workplace (Kang & Namkung, 2018). Since Starbucks is committed to improving the communities in which it works and lives, it has opened community stores that collaborate with local NGOs (Kang & Namkung, 2018). Those NGOs with which these shops partner provide services geared at meeting local needs. The Starbucks Foundation’s mission is to improve the quality of life for those living in and around the coffee and tea-growing regions of the world (Enquist & Haglund, 2021). The company awarded more than $10 million in grants to promote local and worldwide initiatives in the fight against Covid-19. For the year 2020, Starbucks had set explicit environmental objectives to reduce its carbon, water, and waste footprints by half (Enquist & Haglund, 2021). Starbucks has committed to a resource-positive future. By 2030, the company intends to achieve Carbon Neutral Green Coffee and to reduce water consumption in green coffee manufacturing by 50% (Kang & Namkung, 2018). To help the one million coffee farmers and employees who cultivate Starbucks coffee throughout the world become more prosperous and resilient, Starbucks is investing in communities, sharing technical coffee expertise, and innovating with innovative agricultural methods.
Observations and Recommendations
Starbucks Corporation uses a comprehensive and expansive differentiation strategy that ensures that its products and ingredients build an image of distinctiveness and uniqueness, ensuring a competitive advantage. In order to separate the coffeehouse business from the competitors, this general approach is translated into several policies and initiatives. When Starbucks uses this generic method for competitive advantage, it has to constantly innovate in order to keep its originality and appeal.
A large number of expansion potential exist in places where Starbucks’ coffeehouses have yet to be established, such as Africa. Market development and strong marketing initiatives may be used in these countries to develop a consumer base that is essential to support business growth in local coffeehouse marketplaces.
The product development intensive expansion plan can also be used to connect Starbucks’ product mix with the specific cultural preferences of customers in these regions. Focusing attention on customer service and premium quality offerings while pursuing global growth in emerging markets, as well as a wide product mix appealing to local preferences are essential for Starbucks’ long-term viability.
Since specialty coffee machines for home use have become more widely available in recent years, there are new dangers the industry that Starbucks must contend with. Developing new items for Starbucks should continue to be a priority for the company. Starbucks’ business model would benefit from such a shift. Partnerships with other companies in international markets can help the company ride on the success of local enterprises. This would also lessen cultural opposition.
In addition to airlines and global retail groups like IKEA and Wal-Mart, car washes and movie theaters, Starbucks may consider working with other unrelated companies. Starbucks should also consider collaborating with fast-food restaurants to strengthen its coffee offering in addition to combating severe competition from such direct competitors as McDonald’s.
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