MARKETING STRATEGIES OF STARBUCKS

QUESTION

Read the case study on Starbucks and answer the following questions:

Critically evaluate the marketing strategies that Starbucks has implemented on an international level. Focus should primarily be on the pros and cons of the strategies.

1. If you were appointed as the CEO of Starbucks, what changes would you make in its current strategies? Justify your choices and back your position with cases and examples.

SOLUTION

Starbucks one of the most internationally renowned coffeehouse, based in Seattle, United States , specialises in buying , roasting and selling speciality coffee and coffee based drinks all over the world with the help of retail chain outlets. Starbucks, the world’s largest coffeehouse company earned the credit of altering the way people all around the world consumed and perceived coffee and this is the reason why Starbucks has always been under limelight globally. The swiftness in its growth, lead to its expansion internationally and it targeted international markets of Europe , Middle East , new Zealand, Australia, Asia-Pacific and Latin America. This international expansion needed strategic planning which could face the challenges and utilize the opportunities hidden in these markets for Starbucks to earn revenues. The biggest challenge is to deal with the ‘anti-globalization’ feelings prevailing all over the world (UW Business School 2003).

Here we are going to find out the problems and issues which Starbucks had to face while tapping the specialty coffee markets worldwide and what kinds of changes in the strategy already planned might prove beneficial for Starbucks in future. The first step towards diversification worldwide was to organize Starbucks in to two separate business units corresponding to organizations operational segments: North America and International. Thus in the year 1995 Starbucks Coffee International which was wholly possessed by Starbucks Coffee Company was created to handle the sole international businesses of Starbucks except for North America. Its main tasks included creating a niche for Starbucks by opening solely company owned, licensed and joint venture based retail stores worldwide. In order to be the leading coffeehouse all over the world Howard Schultz framed a distinct and unique Starbucks model whose goals is to “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining uncompromising principles as we grow”. It is very important to mention that Schultz still considers Starbucks in growing stage worldwide as they plan to open one or two stores everyday all over the world. This clearly indicates his vision and the guiding principles on which the organization works (Koehn, Besharov & Miller 2008). The few things which they ensure for permanent and long term growth of the stores are:

• Securing the finest and high quality coffee Arabica beans from all over the world.
• Vertically integrating the roasting process of coffee beans just like an art form.
• Making a cup of coffee “A Starbucks Experience” and not just selling it.
• Building a unique culture of happy employees.
• Leveraging the brand using brand extensions and multiple channels of distribution

International Marketing Strategies of Starbucks

After expanding and growing in the U.S. markets, the need of the hour is global expansion for continuous growth of Starbucks and that is why International Marketing Strategies were being framed. Starbucks coffee International has hired multi lingual and multinational managers to work towards the worldwide expansion in a planned manner. This group has the responsibilities like:

• Developing new businesses
• Financing and planning new stores across the world
• Managing operation and logistics
• Merchandising
• Developing trained International mangers for Starbucks

Starbucks hold the honour of opening first non-North American store in Tokyo , Japan in 1996 and here its no-smoking policy served as an oasis in Japan and helped in creating a brand recognition in Japan. From 1996 off shore Starbucks stores are a force to wrecken with as now they have more than 7,800 units worldwide and mostly on the prime locations like shopping centres and airports.

Most of the products offered overseas are seasonal and locality specific across various countries.  A global Marketing Strategy Mix has been designed for effective global growth and impact. This says:

“Follow the same retailing formula all across the world”

The product offerings are modified and catered to local tastes and it tries to make them according to the local taste.

The advertising strategy of Starbucks is quite unique as it does not follow any international campaign or formula for advertising rather it focuses on using stores as their brand ambassadors. Thus the strategy of advertising is differentiated and localized rather than standard.

It follows the store expansion very rapidly all over the world thus not giving any time to other local organizations to imitate their concept. They follow the strategy of “Starbucks Everywhere” approach while expanding their span (Tewell, Odom & Snider 2006).

Follow extensive employee training and recruitment programmes where they have a proper system of recruiting, hiring and training baristas and store managers.

Focussing on the store design, planning and proper construction of the stores across the world. There is a broad range of formats which are adopted for store designs. Mostly the stores are located or planned in high traffic and high visibility and most prominent areas of the city.

The bottom-line of the strategy is to spread the American flavour of coffee all around the world by developing a diverse international business portfolio along with profitability and growth. Thus Starbucks keeps on adding new stores and that too in all the prime locations across all the fastest growing economies of the world (Starbucks International Strategy, slideshare.net).

Starbucks does not introduce its products in one go; it follows the product innovation and introduction in phases. Thus introduces the whole range of products of coffee and tea one by one, so that all the products get visibility and the customers get to relish the taste of every product of Starbucks and then choose and decide their favourite one. Starbucks is selective about introducing certain specific products which are not introduced worldwide like the ready-to-drink coffee beverages in just few countries like Japan, Taiwan, and Korea etc. to increase its profits.

Since North America just caters to just 20% of coffee markets so it was imperative for Starbucks to enter markets which had dedicated coffee and tea drinkers.

Framing a Starbucks way

According to US news and World report it has been found that venturing overseas, Starbucks has its own way. It first searches for local business associates in foreign countries and then does a test run by opening handful stores in trendy and chic districts with the help of well trained and experiences Starbucks managers. Then the local baristas are sent for a 13 week training program in Seattle. Now it starts opening stores by dozens in numbers while maintaining the same coffee line-up in each store. However the food is modified as per the local gourmet. Like in Britain it serves mince pies and even won awards for them, while in Asia it serves meat buns and curry pies. On the other hand the interior decor is also altered as per the local architecture mostly in the historical buildings (Koehn, Besharov & Miller 2008).

While planning overseas expansions it has left the sole ownership strategy as adopted in North America, in other countries they go for local partnerships. The main focus and the key point which is followed during international expansion is “partnership first, country second.” The main policy that they follow is to establish local connection for getting everything done and working. The main focus is to hit upon the apt local partner who can help in negotiations with local regulations and other country specific issues. They search for partner who carries the same values, goals and culture related to effective community development (Koehn, Besharov & Miller 2008). The main features that they are interested in local partners are:

1. Parallel guidelines regarding the corporate citizenship, shared values and commitment to business for long term just like Starbucks.
2. Vast multi unit restaurant experience in the industry.
3. Extensive financial resources so that they can expand the concept of Starbucks with a jet speed before competitors imitate it.
4. Unparalleled real estate experience along with great knowledge too, in order to pick and choose prime locations in real estate.
5. Good knowledge of retail market
6.  Strong commitment to the Starbucks project along with the availability of people.

In case of Starbucks way of international ventures they give the partners whole sole responsibility of preparing and selection work and that includes the store sites too. Then the Starbucks retains the rights to approve the location. Then after entering the new market they start searching for different things and start brand building for Starbucks. The stores are treated as biggest means of advertising as they do not spend extra cot on advertising anywhere (UW Business School 2003).

Then they start looking for sites which have high visibility like well and heavy traffic areas focussing on major points like:

• Demographic factors
• Branding potential
• Financial aspects

Establishing Starbucks as International Brand Worldwide

According to Business Week (2000) it has been highlighted that Starbucks has been rated the topmost brand amongst top 100 all over the world and has never faltered, satisfying millions of customers.

Licensed Starbucks International Stores (as of September 2002)

Source: Starbucks International Groups

Starbucks franchises worldwide only if it has to contribute less than 20% of the gross income of the franchisees’ and are not diluting the brand image. They could easily foray into the Japanese markets as Japan is the country which adopts American culture like Blue Pepe jeans and Coca Cola was accepted very easily but finding a market for paper cups and coffee in tea dominated country was a task but around 30% of Japanese now adopt the non smoking policy and carry takeaways in throwaway cups (Starbucks International Strategy, slideshare.net).

Similarly they had to cater to the historical cafe culture driven markets of France but Starbucks caramel coffee created its magic over there too. Chinese traditional market which is highly dominated by tea is also going crazy for Starbucks coffee as the young generation wants to flaunt their lifestyle and status through these expensive luxuries like Starbucks coffee.

Starbucks Cultural Diversity

It follows the rule of creating human connections by involving the whole community and celebrating all the cultures in each and every country.  That is why it has become the most diversified and admired coffeehouse in the world (Tewell, Odom & Snider 2006). Here diversity is defines as:

That is why it has global presence in about 50 countries where passion for speciality coffee, community connect and reliable service surpasses cultural and language barriers. They follow a supplier diversity programs by trusting and welcoming warmly the suppliers and create a culturally diverse workplace where people from varied backgrounds are values and respected. That is why they developed committed and highly motivated employees to create a motivated pool of HR. They do so by framing employee friendly human resource policies like:

• Supportive work environment and employee friendly policies
• Extension of earned benefits to its part time workers which is not done by most of the companies.
• Create most productive employees with comparatively very low turnover of employees.
• Provide employee training to regular as well as part timers at all levels of hierarchy.
• Employees completing the Coffee Master Course wear black aprons depicting “Coffee Master” in front.

It does effective Global Knowledge  Management by using Onyx system for managing the activities related to corporate sales which means effectual management of leads and delivery, effective pipeline management, quick activation of new accounts and faster resolution of Foodservice business by resolving customer issues as quickly as possible. That is why it has installed Blue Martini’s order management system for its retailers and channel partners.

It has distributed Starbucks cards to loyal customers and mystarbucks iPhone App can be used on iPhones for various special services by the Starbucks cards owners ( Starbucks International Strategy, slideshare.net).

Pros and Cons of Strategies

But this comes with a risk factor too as Starbucks has to share its profit with the local retailers in each and every store worldwide. Since they establish operations with local partners the opportunity to earn money becomes lesser because of joint ventures. If partnering with local partners makes easier establishments on foreign soil, the profit share gets reduced to 50% to 20%.

At the same time the firm is becoming an open target by the anti- globalization firms. Even Starbucks had to face and is still facing the perils of globalization and the biggest one is protest by anti-globalization activists against Starbucks global presence. The reason behind the popular global brands being soft targets of anti globalization protestors is that these are convenient symbols which can be easily targeted and the common man will know the protestors. The Starbucks was targeted for its overseas activities like paying fewer wages to its workers in Third world countries, involving labour into activities and environmental practices which are totally banned in U.S. These protestors blamed the company or cultural imperialism and said that Starbucks was driving local competitors out of business and was taking their share of market. Then Starbucks is many times accused of hiring child labour or bonded labour but if we see the brighter side they give jobs to people who are poverty stricken in developing nation (UW Business School 2003).

However some multinational supporters say that the entrance of Starbucks in international markets has positive effects on the economy and the livelihood as these multinationals offers and create new job opportunities and pay their employees good pay packages which are better than the local organizations. The best part of these multinational organizations is that they share their market share with local retailers with whom they partner and follow all the environmental norms and local labour laws fully without any glitches and shortcuts. It has been found the better they perform on foreign turf the more they plan to invest their capital and reduce the poverty. In order to counter the blames with which they have been charged Starbucks has developed:

• Corporate code of conducts
• Partnerships with nongovernmental organizations
• Corporate social responsibility programs etc.

But it has become a regular feature that whenever it tries to open a new store the global concerns are presented sugar coated with local issues. Like when Starbucks planned to open a store in Cambridge it was opposed by local activists along with community push –backs against Starbucks. In London to the Primrose Hill case is living example of mixing local issues like the local community never wanted a price rise in that area of the rent so they never wanted Starbucks to open a store in the Primrose Hall but they created a media hype by opposing and saying that Starbucks is not paying the coffee growers well and any such issues. This is the most prominent kind of disadvantage Starbucks has to face in other countries. Finally Starbucks had to withdraw their proposal from Primrose Hall, London.

Suggestions as CEO of the company

In order to improve relationship between coffee producing nations and US I would take some steps like launching schemes for workers working in coffee fields and work towards community development of the coffee growing nations.

Since recession has been a constant phenomenon all across the world the disposable incpo0me has influenced the purchasing levels so, design new products which are pocket friendly and are of good quality. Before consumer shifts its preference from coffee to any other beverage why not do some product innovation and develop a brand which attracts not just the youth but each and every section of society.

Reduce the serving time of the orders so that the customers do not have to wait for longer time for their order. Make the coffee vending machines technology driven by blending tastes with technology using Knowledge Management in order to stay in the growing markets all across the world.

They should become a bit stringent in allowing smoking in special smoking zones, because the percentage of people who smoke is growing day by day and they either drop the idea of buying a cup of coffee or do not enter the cafe because they cannot smoke. Same way if a group of friends want to enjoy a cup of coffee sharing quality time at Starbucks and some of them smoke, then they would ditch Starbucks for their friends and might enter another coffeehouse where they can enjoy with their friends.

The market getting technology driven they should plan on some advertising and use at least internet or social media for gathering more customer base. Like Procter and Gamble and many more big companies are creating global presence by joining esteemed social sites like Facebook or Twitter. Here they can use many marketing strategies like contests, iTunes downloading section etc. This will promote them all over the world and that too amongst all the sections of the society.

They need to learn to manage cultural diversity more strategically like they need to tap the Indian market where the whole South Indian market is great coffee lovers and they would love to enjoy their cup of coffee in a traditional ambience, so they can focus on region specific ambience development to enhance their customer base.

Growing economies like India have more scope in tier two cities too where the spending power of people has grown and they love to spend on luxury and leisure activities and for that they travel all the way down to metros, which is quite expensive experience for them, So Starbucks can now plan to expand in tier two cities where people have spending power and want to spend money and flaunt their rich lifestyle by visiting coffeehouses like Starbucks.

Products can be diversified as per the cultural aspects like in India people love giving unique gifts to their friends and families on most auspicious occasions and festivals. So they should launch new products like coffee hampers and gift hampers for festivals like Diwali, Christmas etc. which will help them in increasing sales by multiples during the festival seasons. These hampers can be marketed in shopping malls, individual stores and can be distributed as festival gifts in big offices to their employees too.

I would like to add some greenery too, since globalization means caring for the community as well as the environment too. So they can launch few new products just like green tea etc. which are much popular amongst environment conscious and health conscious people. Something like Eco-Coffee is a great idea which will be much appreciated and will show Starbucks concern towards environment.

References

• Business Week, “Planet Starbucks,” September 9, 2002, p.102
  • “Company, The.” Starbucks. 2006. 4 Dec. 2006 <www.starbucks.com>.
  • Online Extra: Q&A with Starbucks Howard Schultz. Business Week, September 9, 2002.
  • Koehn, N. F., Besharov, M. & Miller, K. 2008, Starbucks coffee company in the 21^st Century, Harvard Business School.
  • Tewell, K., Odom, B & Snider, K. 2006, Starbucks Marketing Plan.
  • The Ruckus Society website, http://ruckus.org/man/action_planning.html (site visited 3/14/03).
  • Starbucks International Marketing Strategy, slideshare.net, viewed on 15 October, 2011, http://www.slideshare.net/sk_prince/starbucks-international-marketing-strategy-3900413#notesList.
  • US World and News Report, February 19, 2001.
  • UW Business School, Revised April. 2003.

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