06165605 assignment 1
- 2. Executive Summary The aim of this report is to investigate the challenges facing Starbucks. The objective of this report is to analyse the businesses current situation, identify emerging issues, offer solutions for the problems identified and lastly to propose recommendations using relevant marketing theory which is in line with Starbucks overall mission.
- 3. Contents Executive Summary.........................................................................................................................1 SWOT Analysis.................................................................................................................................3 Problem/Decision Statement..........................................................................................................4 Decision Statement:........................................................................................................................4 Identification of alternatives:..........................................................................................................4 Criteria.............................................................................................................................................6 Analysis ...........................................................................................................................................6 Recommendations..........................................................................................................................7 Reference List..................................................................................................................................8
- 4. Starbucks is an iconic global company which originated in Seattle, the company was founded by Howard Schults who seized an open market opportunity and forever changed the coffee industry. The company has experienced unprecedented growth by converting a pedestrian commodity into a fashion accessory. Starbucks sells coffee and snacks in well positioned cafes for premium prices. The company began as a tiny chain of Seattle coffee shops and has grown into a multinational conglomerate. Starbucks has endured a hostile reception for future consumers, criticism for moving too slowly to improve the situation for poverty stricken farmers as well as discontent staff and low employee morale. This report will focus on and analyse these issues facing Starbucks. Alternatives are generated as strategic options and analysed in regards to the extent which the alternatives address the issue of negative public opinion, disgruntled employees and inability to penetrate the emerging younger market. SWOT Analysis A SWOT analysis investigates the current situation. Strengths of Starbucks are that it has substantial financial backing and an experienced management team. This ultimately provides Starbucks with capital base and buying power, with 3.1 billion worth of sales in 2004. It can afford to expand into new markets and acquire tacticalcommercialacquisitions. It also has unwavering support of investors and a well-established growth capacity, operating as one of Business Weeks top 100 global brands in 2005. Starbucks has also become proficient at ‘predatory real estate’ strategy, which enables the company to keep competitors at bay. The company-owned stores also enable Starbucks to maintain control over the image of the company. This will also enable Starbucks to implement any strategies across the stores rapidly without losing control. Starbucks also has the competitive advantage of having no nationwide competitor, which would contribute to its growth potential. The company is also renowned for being a highly innovative business with record service and creative new product development. In terms of weaknesses, Starbucks has encountered negative feedback from its futurecustomers, current employees have been dissatisfied and the company has also been criticized for debauched CSR practices. Generation X negatively received Starbucks, saying that the brand doesn’t welcome their age group and they find it difficult to identify with the Starbucks image. Furthermore, the 20-30 year olds complained about issues surrounding the affordability of the products. Starbucks also encountered large volume dissatisfaction amongst employees over odd hours and low pay, which ultimately affected the coffee itself. Controversy has arisen presiding over the companies CSR practices;critics have claimed that Starbucks is more concerned about public image than attempting to resolve widening inequalities with suppliers.
- 5. Regarding opportunities, the presence of the generation Y market as emerging consumers is growing and this technologically savvy cohort responds well to wireless access and pre-ordering. In order to gain a foothold on the younger generations, Starbucks must adapt itself to the current expectations. The younger generations are highly responsive to corporate social responsibility initiatives. Starbucks has experienced high demand for new stores internationally, which means the company has the opportunity for further international expansion. An improved human resources management inniative will help to improve employee relations and motivation. In terms of threats, Starbucks is facing increasing competition, an increasing fight for market share and decreasing store sales in foreign markets.Starbucks is struggling for customer retention in the youth market. Problem/Decision Statement The SWOT analysis identified key problem areas in the Starbucks case: Lack of corporate social responsibility Disgruntled employees and inefficient employee relations Ineffectiveapproach to penetrate the emerging youth market Decision Statement: “Should STARBUCKS pursue strategies to influence public opinion?” This decision statement questions the public opinion of the current business strategy and the ability for Starbucks to persuade a generation of consumers and employees that Starbucks is a company that enhances society and accountable for its actions. Identification of alternatives: Alternative A: Pursue a corporate social responsibility strategy Corporate social responsibility will address several issues in this case. The use of this strategy will balance corporate power with responsibility, promote long-term profitability, improve business value and reputation and correct social problems caused by the business(Lawrence & Weber, 2008). The use of a mission statement that incorporates a social mission will improve staff morale and motivation level, providing intrinsic rewards for employees and ultimately improving work and service quality. This is catering to employee’s higher order needs (Bergman, Coulter, Robins & Stagg, 2009).
- 6. Alternative B: Segmenting Consumer Markets Isolate individual characteristics and cater to these segments using different strategies. The newer generation that Starbucks needs to attract has relatively homogeneous needs. Starbucks must focus on closely aligning their image with the consumers’ideals. They must consider how the age gap relates to customers’ needs, attitudes, lifestyle and preferences(Hodgetts & Kuratko, 2008). The younger generation is more price sensitive and values different product benefits. Their personality, motives and lifestyles are different to that of Starbucks initial customers. Promotional discounting new products and odd-even pricing will help Starbucks tackle the price sensitivity of the new younger customers. Persuading the younger generation of Starbucks social responsibility and non-pretentious attitude will help to encourage penetration of this ‘up-and ‘coming’ market segment (Farell & Hartline, 2011). Alternative C:Customise products and Starbucks image to relate to new geographic locations to prove cultural empathy and a sense of humility. Starbucks should customise products to suit each countries wants and needs of the target market. This will help deal with the problem of rising competition and Starbucks ‘overly powerful’ image. This will also help hamper the socio-cultural issues faced by Starbucks in the Middle East. For example, to enter the Chinese market in order to raise awareness Starbucks will need to establish itself as a socially responsible company and prove that it will make a strong commitment to the new county. The daunting economic situation will increase this pressure and in order to succeed and compete on a global scale with the constant threat of imitators, Starbucks will need to be highly innovative with product development and cater to the countries tastes and preferences(Farell & Hartline, 2011). P.174 Alternative D: Development of a company-wide planning culture The relationship between headquarters and local subsidiary staff is a likely cause of dis-satisfied employees. It is common for Subsidiary staff to claim that, being more involved with the local customer’s gives them a better idea of opportunities and therefore they should play a larger part in the planning process, especially in the department of developing objectives and strategies. In order for this situation to change, all corresponding persons should have a clear idea of their own roles and involvement of the process and how their contributions are integrated. A greater emphasis on staff at all levels will provide an increased level of customer service performance and a sense of self actualisation amongst staff members. This should be a continuous process and enhance strategic thinking across the board though a standardised planning process P.223 (Doole & Lowe, 2008).
- 7. Criteria Criteria A In order to justify any expenditure or use of organisational resources, the use of these strategies must enhance the value proposition of Starbucks in the minds of the consumers. Criteria BExpenditure must enablepenetration of the younger market, increased staff morale and service capabilities, and improved public opinion of Starbucks. Criteria CThe benefits must outweigh the costs of this operation. It must enable the Starbucks brand to move into new segments and markets to increase profit margins. Ultimately it will enable Starbucks to increase global market share. Criteria D The strategy must support the long-term growth and sustainability of the company and enhance its competitive advantage. Criteria EThisapproach will improve customer relations and responsiveness to customer demands. Analysis This section will discuss advantages and limitations of the alternatives Alternative A In an assessment of the advantages of this alternative, it does cover the majority of criteria. The creation of a corporate social responsibilitystrategy will sway public opinion, enhance staff morale and therefore service to customers as well as increase global market share and responsiveness to customer demands. The most poignant feature of this alternative is that it will enhance the value proportion of Starbucks in the minds of the consumers. It will also enhance the sustainability of the company through increased an increased customer base and customer centric ideals. The strategy also has the added benefit of having a sustainable, long-term orientation and will enhance its competitive position. Alternative BSegmentation of the market will enable Starbucks to penetrate a new market and utilise Starbucks financial backing to manage this expansion. This alternative is in line with enhancing the value proposition of Starbucks and the accessibility of it to the new market segment. However, it does not enhance staff morale. Alternative CThis strategy presents many advantages. It involves an interchange between development and knowledge of the foreign market and an increasing commitment of resources. An apt knowledge of the new market and marketing of socially responsible efforts will increase the value proposition of Starbucks in the minds of the consumers. It is also likely to affect the motivation of employees and therefore enhance quality of service. These actions will increase the likelihood of
- 8. success in foreign markets and therefore abide to criteria C, having the cost outweigh the benefits. It will also help the issue of psychic distance such as overcoming barriers like difference in language, culture and political systems (Lawrence & Weber, 2008). This will enhance the long-term growth and enhance Starbucks competitive advantage. Alternative D Developing a company-wide planning culture will help the responsiveness to customer demands and will also boost staff morale and satisfaction (Stasch, 2010). As the majority of staff is within the generation Starbucks is hoping to target, it would also help to penetrate this new market segment. However, it does not cover the issue or public opinion. Recommendations Based on the analysis, alternative A is the best course of action; however elements of alternative D do warrant consideration. To implement alternative A, the following actions are recommended: In order to change and influence public opinion, the use of media messages must be crafted to enlighten or educate the public regarding the changes in the businesses viewpoint and how this will affect the public. This can be done through public service announcements. In order to attract customers that are politically and socially informed Starbucks can offer an editorial informing the public about philanthropy and activism. This can be offered inside the store and discuss issues that resonate with the public. It is an informative way of showing its customers that it is paying attention to global issues (Lawrence & Weber, 2008). Starbucks can create a global public relations management team to deal with issues surrounding corporate social responsibility. This team can also deal with responsiveness to environmental and recycling issues. The global management team can analyse scientific studies and track government actions across the world, it can also work within the company on different levels to ensure that the staff are ‘speaking with one voice’ regarding social issues. This team can iron our any cultural disparities, design press releases and interact with the media. The impact of the public relations program will most likely vary between different nations given the different systems and diversity. A public relations manager needs to be capable of speaking the native language to avoid embarrassing or misleading communication issues. This will also help to alleviate some of the anit-American sentiment felt globally (Lawrence & Weber, 2008). In order to ensure that business strategies are implemented appropriately, the global public relations program will need to be decentralized due to the vast differences between nations. This team will also integrate some of alternative D, so that company resources are quickly utilised to maximise customer understanding and employee satisfaction. A transparent communication system
- 9. between front of house staff and managers will impact Starbucks competitive advantage and consumer appeal (Lawrence & Weber, 2008). In order to announce changes in the business organisation, image advertisements will promote the new image of a socially responsible company. These advertisements target the public’s emotions and seek to inspire the customers and employees. This will target the younger generation and develop an image of a company that cares about its suppliers and ‘the little guy’. This will be communicated to the employees and customers. It is imperative that it is etched deep into the corporate culture to ensure pride by the employees and loyalty from customers (Lawrence & Weber, 2008). Reference List Bergman, N., Coulter, P., Robbins, P., & Stagg, A. (2009). Management (5th ed.) Australia: Pearson Hartline, M. D, & Ferrel, O.C. (2011). Marketing Strategy (5th ed.) USA: South-Western Hodgetts, R., M, & Kuratko, D. (2008). Small Business Management: Essential tools and skills for entrepreneurial success. USA: Wiley and Sons Lawrence, A., & Weber, J. (2011). Business and Society (13th ed.) New York, America: Mc-Graw-Hill Stasch, S. (2010). Creating s successful marketing strategy. USA: Praeger