WRITTEN CASE ANALYSIS IN MARKETING MANAGEMENT:

I. SITUATION ANALYSIS/ENVIRONMENTAL ANALYSIS

A. INTERNAL

 Mission & Vision

OUR MISSION
To inspire and nurture the human spirit – one person, one cup and one neighborhood at a
time.

OUR VALUES
With our partners, our coffee and our customers at our core, we live these values:
 Creating a culture of warmth and belonging, where everyone is welcome.
 Acting with courage, challenging the status quo and finding new ways to grow
our company and each other.
 Being present, connecting with transparency, dignity and respect.
 Delivering our very best in all we do, holding ourselves accountable for results.
We are performance driven, through the lens of humanity.

 Current Strategy (Generic Strategy /Market Position)- Cost leadership,

Differentiation, Cost-Focus & Focus-Differentiation

Starbucks business strategy can be classified as product differentiation. Accordingly, the

coffee chain giant focuses on the quality of its products and customers pay premium
prices for high quality. Excellent customer services as one of the solid sources of
Starbucks competitive advantage further increases the attractiveness of the coffee retailer.

 Brief Company History (using the timeline)

1971
Starbucks opens first store in Seattle’s Pike Place Market.

1982
Howard Schultz joins Starbucks as director of retail operations and marketing.
Starbucks begins providing coffee to fine restaurants and espresso bars.

1983
Schultz travels to Italy, where he’s impressed with the popularity of espresso bars in
Milan. He sees the potential to develop a similar coffeehouse culture in Seattle.

1984
Schultz convinces the founders of Starbucks to test the coffeehouse concept in
downtown Seattle, where the first Starbucks Caffè Latte is served. This successful
experiment is the genesis for a company that Schultz founds in 1985.

1985
Schultz founds Il Giornale, offering brewed coffee and espresso beverages made from
Starbucks® coffee beans.

1987
Il Giornale acquires Starbucks assets with the backing of local investors and changes
its name to Starbucks Corporation. Opens in Chicago and Vancouver, Canada.

1988
Offers full health benefits to eligible full- and part-time employees, including coverage
for domestic partnerships.

1990
Starbucks expands headquarters in Seattle.
Unveils Starbucks Mission Statement.

1991
Becomes the first privately owned U.S. company to offer a stock option program that
includes part-time employees.
Opens first licensed airport store at Seattle’s Sea-Tac International Airport.

1992
Completes initial public offering (IPO).

1993
Opens roasting plant in Kent, Wash.
Announces first two-for-one stock split.

1994
Opens first drive-thru location.

1995
Begins serving Frappuccino® blended beverages.
Announces second two-for-one stock split.
Opens roasting facility in York, Pa.

1996
Begins selling bottled Frappuccino® coffee drink through North American Coffee
Partnership.
Opens stores in: Japan (first store outside of North America) and Singapore.

1997
Establishes the Starbucks Foundation.
Opens stores in: the Philippines.

1998
Extends the Starbucks brand into grocery channels across the U.S.
Opens in underserved neighborhoods through joint-venture partnership with Magic
Johnson.
Launches [Link].
Establishes the CUP Fund emergency financial assistance fund for partners.
Opens stores in: England, Malaysia, New Zealand, Taiwan and Thailand.

1999
Acquires Tazo Tea.
Partners with Conservation International to promote sustainable coffee-growing
practices.
Announces third two-for-one stock split.
Opens stores in: China, Kuwait, Lebanon and South Korea.

2000
Establishes licensing agreement with TransFair USA to sell Fairtrade certified coffee
in U.S. and Canada.
Opens stores in: Australia, Bahrain, Hong Kong, Qatar, Saudi Arabia and United Arab
Emirates.

2001
Introduces ethical coffee-sourcing guidelines developed in partnership with
Conservation International.
Introduces the Starbucks Card.
Announces fourth two-for-one stock split.
Opens stores in: Austria, Scotland, Switzerland and Wales.

2002
Establishes Starbucks Coffee Trading Company (SCTC) in Lausanne, Switzerland.
Launches Wi-Fi in stores.
Opens stores in: Germany, Greece, Indonesia, Mexico, Oman, Puerto Rico and Spain.

2003
Acquires Seattle Coffee Company, which includes Seattle’s Best Coffee® and
Torrefazione Italia® coffee.
Opens roasting facilities in Carson Valley, Nev., and Amsterdam, Netherlands.
Opens stores in: Chile, Cyprus, Peru and Turkey.

2004
Opens first Farmer Support Center in San Jose, Costa Rica.
Introduces Starbucks Coffee Master Program.
Opens stores in: France and Northern Ireland.
2005
Acquires Ethos Water.
Announces fifth two-for-one stock split.
Opens stores in: Bahamas, Ireland and Jordan.

2006
Launches the industry’s first paper beverage cup containing post-consumer
recycled fiber.
Opens stores in: Brazil and Egypt.

2007
Eliminates all artificial trans fat and makes 2 percent milk the new standard for
espresso beverages.
Opens stores in: Denmark, the Netherlands, Romania and Russia.

2008
Chairman Howard Schultz returns as chief executive officer and begins
transformation of the company.
Acquires Coffee Equipment Company and its Clover® brewing system.
Adopts new Mission Statement “To inspire and nurture the human spirit – one person,
one cup and one neighborhood at a time.”
Launches My Starbucks Idea, Starbucks first online community. Also joins Twitter and
debuts Starbucks Facebook page.
Opens stores in: Argentina, Belgium, Bulgaria, Czech Republic and Portugal.

 Competitor’s Analysis (execute the competitor’s profile matrix)

 Management Capabilities

Howard Schultz is president and chief executive officer for Starbucks. A

passionate servant leader, he proudly carries on Starbucks legacy of human connection,
driving the company’s core strategies for growth, and being of service to the more than
330,000 partners who wear the green apron around the world.

 Core Competencies

Starbucks offers more than 30 different blends of coffee and its single-origin
premium Arabica coffee fulfills the highest standards in premium coffee making. Farmers
are selected according the highest quality standards, and only the best beans are
processed into Starbucks coffee. The Starbucks Roast® is a special roasting technique
which not only provides the coffee with a distinct, dark color but also contributes to
achieving a unique and highly recognized flavor.
 The company’s brand power and recognition are strong, and Starbucks is
generally perceived as a high-quality and trendy coffee store.

 Corporate Culture

Being a Responsible Company

At Starbucks, we have always believed in the importance of building a great, enduring

company that strikes a balance between profitability and a social conscience.

Ethical Sourcing: We take a holistic approach to ethically sourcing high quality coffee.
This includes responsible purchasing practices, supporting farmer loans and forest
conservation programs. When we buy coffee this way, it helps foster a better future for
farmers and a more stable climate for the planet. It also helps create a long-term supply of
the high-quality beans we’ve been carefully blending, roasting and packing fresh for
more than 40 years.

Environmental Stewardship: We share our customers' commitment to the environment.

And we believe in the importance of caring for our planet and encouraging others to do
the same. We are working to reduce our environmental footprint through energy and
water conservation, recycling and green construction.

Community Involvement: From the neighborhoods where our stores are located to the
ones where our coffee is grown – we believe in fostering thriving communities.

 Marketing Audit (4Ps or 7Ps) Identify current strategies in Marketing

(Market Penetration, Market Development, Product Development &
Diversification Strategies- concentric, conglomerate & horizontal)

Starbucks Products
Starbucks offers its customers a very good number of food and drink options. The main
categories of Starbucks products are breakfast, lunch, cakes & cookies, muffins, pastries
& doughnuts, fresh fruit, bottled soft drinks, tea, espresso beverages, filter Coffee,
frappuccino blended beverages, refresha, and cold brew. Starbucks is famous for its
expertly roasted and richly brewed coffee. It is also popular for a selection of premium
teas.

Prices and pricing strategy of Starbucks

There are a number of pricing strategies available to organisations. Premium, cost-plus,
loss leader, and going-rate are some of the popular pricing strategies. Starbucks uses a
premium pricing strategy. As mentioned above, the company is famous for its richly
brewed coffee and a selection of premium [Link] customers often draw a conclusion
that quality products come with a high price. Starbucks has made use of this perception
and set premium pricing as the company’s pricing strategy.

Place/distribution channels of Starbucks

Starbucks offers most of its products through Starbucks cafés. As of December 2017, the
company operates in 70 countries and has over 24,000 stores. Starbucks has
introduced ‘Starbucks on the go’ which is a premium self-serve beverage solution
providing a selection of great tasting hot drinks (Starbucks Corporation, 2017). It also has
developed a number of apps (Starbucks App for iPhone, Starbucks App for Android, and
Starbucks App for Windows) for busy customers who would like to walk in select stores
and go straight to their coffee!

Promotional strategies of Starbucks

Starbucks makes use of a number of promotional strategies to communicate with its
stakeholders.
Starbucks has a customer loyalty scheme called ‘Starbucks Rewards’. As a member, you
can collect 2 stars for every $1 you spend in stores or online. Every 125 Stars you collect
makes you eligible for a reward which is redeemable for a drink or food item.
Corporate social responsibility is another powerful mechanism often used by Starbucks.

People of Starbucks
Starbucks already has a massive workforce. In addition, it plans to recruit around 240,000
more people worldwide including its home country (the USA) by 2021. It is an equal
opportunity employer and is committed to building a diverse workforce. Starbucks is also
well-known for its investment in employee training and [Link] is a customer
centric company where customers are the focal point.

Processes in Starbucks
Each Starbucks business function goes through a process. Let’s take customer service
process as an example. Starbucks is often a very busy place, and employees need to serve
customers as efficiently as possible. The interaction with the customers begins with a
greeting by a Starbucks employee. Customers will then place their food/drink order and
make the payment. This is then followed by the order being served and a farewell being
given.

Physical environment of Starbucks

Physical environment of Starbucks includes but not limited to its store designs, logo,
coffee cups, and napkins. Starbucks offers customers an inviting atmosphere. It has
adopted a new approach to store designs. The new approach requires Starbucks designers
to look at each store individually to ensure that it looks distinctively local (Starbucks
Corporation, 2017).

 Financial Analysis (Ratio Analysis) – do a comparative analysis

B. EXTERNAL
 PESTLE

Political
The political influence on coffee markets is generally not as pronounced as it is with
other markets. Coffee is generally perceived as a beverage that is harmless to the
consumer’s health and thus is not subject to extensive political debate.

Economic

The financial crisis of 2008 has left its hefty mark on many, mostly western companies.
Also Starbucks suffered from the global downturn and profit plummeted to an all-time
low in September 2008 ($316 million).

Social Environment

The coffee culture experienced an upswing in the early 1960. Coffee is historically
produced in Latin America, Central Africa, and South Asia. However, most of its
production was exported to western countries, particularly to the United States where it
became in vogue following the Second World War. Aggressively promoted by the
PanAmerican Coffee Bureau in 1952, the “coffee break” became an inherent part of the
American workplace. Nowadays, the coffee culture has shifted from self-made coffee to
single-serve coffee. While coffee has become an established beverage in western
societies, it has only just begun to make an appearance in developing countries,
particularly in countries where it is produced. Especially in Asian countries, which have
been known for predominantly consuming tea, drinking coffee has become a social
status.

Technological

The technological environment surrounding coffee consumption has changed over the
years. While typical coffee was originally grounded at roasteries, in grocery stores, or at
home using burr grinder, blade grinder, or mortars, and then brewed by means of coffee
percolators or automatic coffeemakers, nowadays instant coffee and single-serve coffee,
which is served in small capsules (or “pods”), is usually brewed in special machines at
home. Coffee capsules and instant coffee packs have revolutionized the technological
landscape of coffee making equipment. In the old days, coffee making was a rather time-
consuming and arduous task which required skill, practice, and the right equipment.
Nowadays, people can get a good cup of coffee by simply pouring instant coffee into a
cup of boiled water, or by putting a capsule into a machine. In today’s fast-moving world,
this easy and uncomplicated way of making coffee has become the norm. Making coffee
the old-fashioned way has become more of a trend among true coffee connoisseurs. This
change in technological environment has promoted Starbucks to move into the single-
serve coffee market by introducing the VIA instant coffee and K-cup lines. The first-
mover advantage, however, was reserved for Nestlé which introduced its Nespresso line
in the early 2000s. Nonetheless, the fast-growing instant coffee market, which displays
annual growth rates of seven to ten percent, is certainly big enough to host a number of
players.
Environmental

Environmental stewardship has become a priority for coffee makers, and producing
“green” and fair coffee is an important attribute for improving the brand image among
consumers and environmentalists. The production of coffee has a distinct impact on
forests, biodiversity, and water usage and companies like Starbucks actively try to reduce
their environmental footprint. Another big question is whether the profits of big coffee
chains are trickling down to the people who actually grow the beans. Traditionally,
complexities within the supply chain have meant that the 100 million people growing
coffee around the world have been excluded from the huge profit making potential of
coffee. On average, third world coffee farmers receive a paltry of ten percent of the
eventual retail price. Along with the negative effect this has on the living conditions of
farmers, the drive for increased output has had a knock-on effect on the environment as
well, with monocropping and sun grown coffee now being the norm.

It must also be taken into consideration that most coffee growing regions are home to
delicate ecosystems, which increases the potential for serious damage. Governments
around the world have been urging coffee producers to adopt fair trade and
environmentally-friendly practices. However, the implementation and execution of fair
trade norms is not practiced thoroughly by governments, particularly in developing
countries. Fortunately, companies have taken the implementation of such norms into their
own hands and established their own responsibility guidelines. Starbucks, for example,
carries out ethical sourcing practices and drives an environmental responsibility program
to support local farmers and protect the environment.

Legal

It is essential to understand the intellectual property right laws and licensing issues when
entering emerging market. For Starbucks it is important to make use of intellectual
property protection laws because the technology which the company uses (e.g. Starbucks
Roast®) is an essential component of the company’s competitive advantage. Especially
in China, western companies have frequently experienced infringements on their
intellectual property rights. Intellectual property which has not been thoroughly protected
has often been copied by direct, mostly local competitors. Upon first entering the Chinese
market in 1999, Starbucks has managed to secure all of its major trademarks within four
years.

Some local companies have overstepped legal boundaries in their effort to mimic
Starbucks’ popular and successful branding strategy, and have consequently been sued by
Starbucks – with success. Just like in China, India’s intellectual property legislation
covers every significant aspect of the protection of intellectual property if the property is
registered in a prompt and proper manner. Potential shortcomings of the IP legislation in
India are bureaucratic delay in the enforcement of IP laws, backlog of cases at both the
civil and criminal courts, and lack of transparency, particularly at local level. Also the
large number of small players infringing on IP rights puts a financial burden on the
government, which can result in court cases being dropped without clear reasons.
  Five Competitive Forces in the Industry

Threat of Established Rivals (HIGH)

The rivalry among exiting competitors is high. Starbucks is competing against major
competitors such as McDonalds, Dunkin Donuts, Costa, or Caribou Coffee. In addition to
that, the company has to compete with countless smaller coffee shops and cafes. The
competitive advantage that competitors have over Starbucks is that they offer their
(coffee) products at a cheaper price. The coffee war is particularly acute in emerging
markets. Other competitors, such as McDonalds and Dunkin Donuts, pursue similar
pricing strategies with which not so much the high income segments are targeted but
rather the rising middle income class (urbanites). Competitors are also aggressively
expanding their presence in emerging market.

Threat of New Entrants (LOW)

The threat of new entrants to the industry to compete with Starbucks is low because the
coffee market is highly saturated with established players. Moreover, a substantial
amount of financial resources associated with buildings and properties are required in
order to enter the industry. In developing markets, the threat of new entrant is marginally
higher because fast market growth and poor execution of intellectual property rights
allow small coffee startups to gain a foothold in the market.

Bargaining Power of Buyers (HIGH)

The bargaining power of customer is high because there are no or relatively small
switching costs for customers. Monetary switching costs, such as transportation and the
actual cost of coffee are low because customer can essentially buy a coffee at every gas
station or supermarket. In fact, customers can switch to competitors with ease and
Starbucks must be careful to not lose customers to cheaper competitors. On the other
hand, non-monetary, or emotional switching costs are high because other brands might
not meet customer expectations.

Threat of Substitutes (MEDIUM)

The threat of substitute products is medium. Typical substitute products for coffee are
tea, juices, soft drinks, water and energy drinks. Pubs and bars can be seen as alternative
locations to meet people and spend time outside of university or work. Nonetheless, the
Starbucks atmosphere is unique and hard to replicate by bars and pubs.

Bargaining Power of Suppliers (HIGH)

The bargaining power of supplier is high. The law of supply and demand states that when
demand exceeds supply, producers are able to offer higher prices. This is the case with
today’s coffee market. The demand for coffee is high and the supply limited because
coffee can only be produced in certain geographical areas. Moreover, fair trade laws have
obliged coffee companies to pay farmers adequate prices for their outputs. All this
increases the bargaining power of suppliers.

II. PROBLEM STATEMENT

Determine a final strategy (or strategies) for Starbucks to help it improve its competitive
position in the short- to medium-term versus other competitors.

III. ALTERNATIVE COURSES OF ACTION (Give 3 ACAs)

1. The SO alternative is the most aggressive strategy, as it utilizes internal strengths

to capitalize on opportunities. The main objective of this alternative is to
aggressively expand operations in emerging markets by flexing the financial
muscle and utilizing brand superiority as well as key strategic partnerships to gain
a permanent and preferably unrivaled foothold in the market (market leadership).
In developed, already saturated markets, the alternative envisages a strong focus
on niche segments such as the single-serve coffee segment. Technologies that are
necessary to succeed in niche segments must be either developed by using own
R&D capabilities or acquired from competitors. Furthermore, it is important to
promote the high-quality and one-of-a-kind image of the Starbucks brand,
meaning that prices should not be lowered but kept stable to not deteriorate the
brand image.

2. The ST alternative takes a more conservative stance as it utilizes strengths to

minimize threats. In other words, it suggests the retention of the status quo.
Current market share must be defended by foreseeing threats and eliminating
them before they become an issue. The preeminent threat of rising coffee bean
prices must be constrained by nurturing good relationships with supplier, focusing
on fair trade and ethical sourcing practices. Similar to the SO alternative, the ST
alternative also suggest to counter the low-price strategy of competitors by
sticking to the high-quality and exclusive brand image. Good customer service
and a unique and state-of-art store atmosphere should be sufficient to justify the
extra price customer pay for Starbucks products.

3. The WO alternative denies Starbucks’ current strategic approach and suggests a

turnabout in the pricing strategy. In response to the rising middle-class in
emerging markets, the product prices must be adjusted according to the
customer’s budget. This does not mean undercutting the prices of competitors, but
it will no longer allow Starbucks to charge a premium price for its products. Also,
niche segments should be tackled in a more precise and slim-cut manner, meaning
 that certain product categories should be discarded (e.g. merchandise) to free up
financial resources that are necessary to boost expansion in key segments, such as
the flavored coffee market or the courtesy coffee market.

IV. SOLUTION/RECOMMENDATION

The SO alternative is the most aggressive strategy, as it utilizes internal strengths

to capitalize on opportunities. The main objective of this alternative is to
aggressively expand operations in emerging markets by flexing the financial
muscle and utilizing brand superiority as well as key strategic partnerships to gain
a permanent and preferably unrivaled foothold in the market (market leadership).
In developed, already saturated markets, the alternative envisages a strong focus
on niche segments such as the single-serve coffee segment. Technologies that are
necessary to succeed in niche segments must be either developed by using own
R&D capabilities or acquired from competitors. Furthermore, it is important to
promote the high-quality and one-of-a-kind image of the Starbucks brand,
meaning that prices should not be lowered but kept stable to not deteriorate the
brand image.

V. ATTACHMENTS CAN BE AS FOLLOWS: (AS NEEDED)

 SWOT ANALYSIS
 BOSTON CONSULTING GROUP (BCG)

 STRATEGIC POSITION & ACTION EVALUATION (SPACE)

 QUANTITATIVE STRATEGIC PLANNING (QSPM)
 EPS/EBIT ANALYSIS