1.1.

COMPANY PROFILE
Starbucks Corporation is an American global coffee company and coffeehouse
chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in
the world, with 20,891 stores in 62 countries, including 13,279 in the United States,
1,324 in Canada, 989 in Japan, 851 in the People's Republic of China, 806 in the
United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in the
Philippines, 179 in Turkey, 171 in Thailand, and 167 in Germany.
Starbucks locations serve hot and cold beverages, whole-bean coffee, micro ground
instant coffee, full-leaf teas, pastries, and snacks. Most stores also sell packaged food
items, hot and cold sandwiches, and items such as mugs and tumblers. Starbucks
Evenings locations also offer a variety of beers, wines, and appetizers after
4pm. Through the Starbucks Entertainment division and Hear Music brand, the
company also markets books, music, and film. Many of the company's products are
seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee
are also offered at grocery stores.
From Starbucks' founding in 1971 as a Seattle coffee bean roaster and retailer, the
company has expanded rapidly. Since 1987, Starbucks has opened on average two
new stores every day. Starbucks had been profitable as a local company in Seattle in
the early 1980s but lost money on its late 1980s expansion into the Midwest
and British Columbia. Its fortunes did not reverse until 1990 when it registered a
small profit. By the time it expanded into California in 1991 it had become
trendy. The first store outside the United States or Canada opened in the mid-1990s,
and overseas stores now constitute almost one third of Starbucks' stores. The company
planned to open a net of 900 new stores outside of the United States in 2009, but has
announced 300 store closures in the United States since 2008.
Millions of people all over the world walk into Starbucks every day for their cup of
coffee, but it is more than the overpriced coffee that brings people in day after day to

the Starbucks stores across the world. Starbucks offers an upbeat environment and
friendly and helpful staff to assist customers in any question or problem they might
have with the coffee or service. People buy Starbucks for what it represents and the
status symbol that comes along with it. Although various business models exist, the
principles and structure of Starbucks is a good model to follow, due to its national and
global success. The researcher examines how Starbucks is financially succeeding as a
corporation even through hard economic times. By looking at the industry and
company situational analysis, the researcher will determine where Starbucks stands in
the world coffee industry. The researcher will then discuss why Starbucks is a
successful international business and the implications of being an international
business. The last thing that will be discussed is the strategy recommendations for
Starbucks, and how to go about implementing those strategies.
With the economy in trouble, the stock market tanking it is important to start your day
with a good cup of coffee to take on these challenges.
In 1971, the original Starbucks opened in Pike Place Market in Seattle, Washington by
three partners named Jerry Baldwin, Zev Siegel, and Gordon Bowker. Their focus
was to sell coffee beans and equipment. They purchased green coffee beans from
Peets, a specialty coffee roaster and retailer, during their first year of operation.
Later, they began buying coffee beans directly from the growers.

In 1983, an

entrepreneur by the name of Howard Schultz joined the company; Schultz felt that the
company should sell coffee and espresso drinks as well as coffee beans. The partners
felt that selling coffee and espresso drinks would take away from their primary focus
of selling coffee beans. Since the idea did not work, Schultz started his own company
called II Giornale coffee bar chain in 1985. In 1987, the original owners of Starbucks
sold their chain to Schultzs II Giornale. Schultz changed II Giornale outlets to
Starbucks chains and quickly began to expand.
Starbucks coffee has grown into the largest coffeehouse company in the world with
16,120 stores in 94 countries such as in Australia, Canada, China, Puerto Rico, etc.
Starbucks has thirty blends and single origin coffee. Starbucks brand coffee can also
be purchased in local stores to brew at home. Starbucks employs over 140,000

employees worldwide with over five million customers a week. At one point they had
typical customers coming in on an average of six times a month while loyal customers
come in on an average of eighteen times a month spending averaging $50. Starbucks
is one of Fortune magazines 100 Best Companies to work for in 2008 and is Business
Ethics 100 Best Corporate Citizens for the fourth year.

1.2. MISSION STATEMENT

Establish Starbucks as the premier purveyor of the finest coffee in the world while
maintaining our uncompromising principles while we grow. The following six guiding
principles will help us measure the appropriateness of our decisions:

Provide a great work environment and treat each other with respect and
dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh
delivery of our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.

1.3. VISION
Starbucks has a vision statement but they call it their mission statement. The entire
statement can be read on the official Starbucks website. The mission statement
explains the principles that Starbucks lives by and how they feel about different
things. Subjects included in the mission statement include their coffee, partners,
customers, stores, shareholders and the neighborhoods that Starbucks stores are found
in. They claim that they are committed to inspire and nurture the human spirit.

1.4. HISTORY
The first Starbucks opened in Seattle, Washington, on March 30, 1971 by three
partners who met while students at the University of San Francisco:[10] English
teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. The
three were inspired to sell high-quality coffee beans and equipment by coffee roasting
entrepreneur Alfred Peet after he taught them his style of roasting beans. Originally
the company was to be called Pequod, after a whaling ship from Moby-Dick, but this
name was rejected by some of the co-founders. The company was instead named after
the chief mate on the Pequod, Starbuck.
The first Starbucks cafe was located at 2000 Western Avenue from 19711976. This
cafe was later moved to 1912 Pike Place Market; never to be relocated again. During
this time, the company only sold roasted whole bean coffees and did not yet brew
coffee to sell. During their first year of operation, they purchased green coffee beans
from Peet's, and then began buying directly from growers.
In 1984, the original owners of Starbucks, led by Jerry Baldwin, took the opportunity
to purchase Peet's. During the 1980s total sales of coffee in the USA were falling, but
sales of specialty coffee increased, forming 10% of the market in 1989, compared to
3% in 1983.By 1986 the company had 6 stores in Seattle and had only just begun to
sell espresso coffee. In 1987, the original owners sold the Starbucks chain to former
employee Howard Schultz, who rebranded his Il Giornale coffee outlets as Starbucks
and quickly began to expand. In the same year, Starbucks opened its first locations
outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago,
Illinois. By 1989 there were 46 stores across the Northwest and Midwest in 1989 and
Starbucks was roasting over 2,000,000 pounds (910,000 kg) of coffee a year. At the
time of its initial public offering on the stock market in June 1992, Starbucks had
grown to 140 outlets and had a revenue of $73.5m, up from $1.3m in 1987. Its market
value was $271m. The 12% portion of the company sold raised the company around
$25m which would help it double the number of stores over the next two years. By

September 1992, the share price had risen 70% to over 100 times the earnings per
share of the previous year.

2.1. SWOTANALYSIS
SWOT analysis will be used to evaluate Starbuckss Strengths, Weaknesses,
OpportunitiesandThreats.
2.1.1. Strengths
Leading retailer and roaster for brandspecialtycoffeeintheworld;
Brand image with the motto TheStarbucksExperience;
17000storesacross57countries; 1500inChinaalone;
Strongbalancesheet;
One of the strongest franchises in theworld with more than 6500 licenses
2.1.2. Weaknesses
High pricing which not everyone canafford;
Starbucksrefusestoguaranteethatmilk, beverages, chocolate, ice cream, andbaked
goodssoldinthecompanysstoresare free of geneticallymodifiedingredients;
FocusedmoreonUSdomesticmarket;
Starbucks Workers Union was made7shopsintheworld;
Starbucksisknownforprovidingsuperiorproductsandservices;
Have loyal customers in every countrythathasentered;

 Sophisticated atmosphere, music,interiordesignandartwork;

Havealotofflavorsvariation;
Limitednumberofstrongcompetitors;
Highmarketshareandmarketgrowth.
because some employees complain about the management style within thecompany;
NoexperienceincountrieslikeIndia. Opportunities
Highconsumerisminemergingmarkets;
Easier to penetrate market becauseStarbucks is selling as experience, notjustasimple
product;
Many of Starbucks coffee are usingorganicbeans;
SomeofStarbuckssbeansareharvestedin Indonesia island of Sumatra andSulawesi.
Starbucks are purchasing atpremium prices to support localcommunity and
sustainable production. Starbucks pays an average priceof$1.20per pound against the
commodityaveragepriceof$0.400.50perpound;
FairTradeProductscanbeoffered.
2.1.3. Threats
Globalfinancialcrisismadepeoplespendless on good that are not regarded as
necessities;
Increasinghealthconcernofthenegativeeffectofcoffee;
Starbucks domination is driving smallcafesoutofthebusiness;
Threat of substitute products in cultureswhere there is a strong preference fortea,
likeChina, India and UK.

2.2. SITUATIONAL ANALYSIS

Starbucks is currently one of the top contenders in the coffee industry. It is aware of
the stiff competition and is prepared to combat it however possible. In order to better
determine Starbucks situation in the specialty coffee industry, it is important to look
qualitatively and quantitatively at its current strategy. An analysis of the companys
strengths, weaknesses, opportunities, and threats, SWOT analysis, and a strategic
issues analysis will breakdown its strategy and provide positive and negative feedback
on the company as a whole. Starbucks has done many things to help its company
grow and expand into the transnational business that it is today. Its high quality
differentiation strategy allows it to focus on pleasing the customer in every way
possible. Its introduction of wireless internet and the Starbucks Digital Network
allows it to provide a better experience for its customers and increase its sales
compared to the companys previous performance. If people stay at Starbucks for
longer periods of time, they are more inclined to buy more beverages or food and
music from the online stores that Starbucks is partnering with in its Digital Network.
Starbucks is going to be able to sell its music, as well as other forms of media through
its introduction of wireless internet. In January, an announcement was made that sales
increased by 4% after months of decline after the introduction of the wireless internet
(Miller, 2010). Wireless internet is a major strategic asset to Starbucks, and it will
continue to help them in the future countries that they introduce it to. Another
strategic asset to the company is the decision to enter India as a new international
destination for business. India has a growing economy and upper and middle classes;
because of this, Starbucks will be able to help open the eyes of its citizens to specialty
coffee (Bose, 2011). Although a store has not been opened yet, India has a high
propensity for the specialty coffee industry as it becomes more industrialized. Its
citizens are starting to refrain from tradition and embrace new and trendy styles.
Another major country for Starbucks to explore is China. Starbucks recently entered
China, and it is focusing on the growth potential that China currently has with coffee
sales growing 9% just last year (Burritt, 2010). With continual growth in China,
Starbucks will be able to take on McDonalds as it begins to expand its coffee
business. China is currently on its way to being the second-largest coffee market,
leading Canada, the United Kingdom, and Japan (Burkitt, 2010). This means that
Starbucks will see significant profits rise as its new star target market begins to rise.

Starbucks has a strong transnational strategy that will allow it to continue to achieve
success in the years to come.
In order to completely understand how Starbucks is doing in the specialty coffee
industry, it is important to look at their numbers. In the last five years, Starbucks has
had a major dip in its stock price. Its stock price went from $35 in 2007, down to less
than $10 in 2009, and it has just gone up to the low $30s recently in 2011. The
economic crisis throughout 2008 and 2009 really hurt Starbucks stock price. The
important aspect to learn from the hit that it took is that it was able to overcome the
loss. Starbucks is on track to continue to keep its stock price high. Although
Starbucks stock price plummeted during the midst of the financial crisis, its net
revenues did not. Starbucks profits went from $7.8 billion in 2006, to $10.4 billion in
2008, down to $9.8 billion in 2009, and back up to $10.7 billion in 2011 (Starbucks
Corporation, 2010). The economic crisis that caused many companies to fail barely
put a damper on Starbucks revenue. A company that can endure an economic crisis
and still come out stronger than when its stock price was through the roof, is a
company that will not be taken down easily. The stores opened at the years end in
2006 have also continued to grow in the last five years. There were 12,440 stores
open worldwide in 2006, 16,680 in 2008, and 16,858 in 2011 (Starbucks Corporation,
2010). Starbucks has realized the importance of expanding its business worldwide in
order to create a larger target market. It has also maintained growth and revenue
during times of economic failure in their main market. Starbucks has faced a lot of
challenges these last five years, but it has made it out on top and will continue to
expand and succeed.

2.3. INDUSTRY SITUATIONAL ANALYSIS

Millions of people around the world thrive on their morning, afternoon, and
sometimes evening coffee. Due to the massive amount of consumers for the coffee
industry, there is also a lot of competition for those consumers. Coffee has been

around for a long time, but the competition of coffee retailers has just recently
sprouted with coffee sales rising more than50%in 2007 (Burritt, 2007). The main
competitors that will be examined in this thesis are Starbucks, McDonalds McCafe,
and Dunkin DonutsCoffee.
The dominant economic characteristics of the industry environment have to be
examined in order to determine where the industry is headed, and why Starbucks is a
good model to follow. The coffee industry is continuing to grow despite the increasing
costs for coffee from January of 2009s 108.39 U.S. cents per lb. to December of
2010s 184.26 U.S. cents per lb. ("International Coffee Organization Prices," 2010).
The almost 200% increase in the price of the coffee bean over the last two years has
hurt the overall profits of everyone in the coffee industry. The price has been rising,
not simply due to the price of coffee itself, but because of the supply chain and the
current economic situation around the world. Last year Starbucks had to raise prices
globally, but especially in the United States and China, due to rising prices for coffee
and other ingredients, but this year they are taking the hit from the rising coffee prices
for the consumers (Baertlein, 2011). Although the prices of coffee had to be raised
globally due to the high demand of the product and the cost of producing it, there is
still a strong outlook for the coffee industry because of the large consumer base of the
industry. The coffee industry is expected to continue growing through at least the year
2015 and even longer in other emerging markets around the world (Lingle, 2007).
Even if the market in the United States begins to decline, there are other emerging
markets for the specialty coffee industry. Due to Brazils rising economy, it is set to be
the biggest coffee drinking country in the world with recent coffee consumer growth
of 39% from2000 to 2009 (Murphy, 2011). With Brazils upper and middle classes
expanding, it has more money to spend on specialty coffee and other superfluous
items. Brazil could be the single most important economy to invest in for the coffee
business, if its economy continues to grow.
India is another major source of economic growth. Starbucks plans to open its first
shop in India this coming year, as well as begin buying coffee from India (Bose,
2011). India is also one of the emerging markets throughout the world that is
becoming a spending oriented country. Due to its economic progress, its upper and

middle classes are more able to spend money on coffee and other items that might not
have been thought of as a necessity in the past. The coffee industry is definitely
growing at a fast pace, and the company that can embrace a worldwide frontier will
win the battle for market leadership among the many competitors.
Many other factors are driving the coffee industry and transforming it into what it is
today. The key success factors of competitors in the coffee industry are innovation,
marketing, and expansion. With coffee prices rising, companies have to find a way to
either reduce their prices on their coffee, or find a reason to justify the price increases.
Innovation through new types of coffee or new drinks can allow companies to have an
upper hand in the market. Marketing is also a key in any business, and especially the
growing specialized coffee industry. McDonalds McCafe markets its low price
strategy (Burritt, 2007). Dunkin Donuts, on the other hand, markets that it simply has
better coffee and more to choose from on its menu (Dicarlo, 2004). Starbucks claim
to fame has always been its high quality and large varieties of coffee. With all of the
mounting competition, Starbucks made a bold move by introducing free wireless
internet and a Starbucks Digital Network that will allow access to sites such as the
Wall Street Journal, iTunes, and more that normally require a fee (Miller, 2010). This
new added bonus for consumers will magnify Starbucks high quality image in their
eyes. It is exactly what Starbucks needed to improve its image after facing brutal
competition from McDonalds who was also offering wireless internet.
Expansion is another key to success in this market. With much of the consumer
market for specialty coffee existing around the world, the competition is not just in
the United States. The nations of Brazil, Russia, India, and China, also known as
BRIC, areall evolving economic economies that are going to be crucial in world in the
years to come. Early entry into the market of these countries is a key to winning over
the large and increasing upper and middle class (Nichols, 2011). These key success
factors are important for each of the members of the specialty coffee industry.
Driving forces that shape the industry are a key element that every competitor in the
specialty coffee industry has to take into account. The first and main driving force
shaping the specialty coffee industry is disposable income. Starbucks stock took a

major hit during the economic crisis when its shares fell from around $40 per share in
2007 to less than $10 in late 2008 and the beginning of 2009 .Specialty coffee was not
a product that people had to have when families and individuals had to scale back
their budgets during a tough economy. The BRIC nations have a growing upper and
middle class that are gaining the finances and expendable income to afford specialty
coffee (Nichols, 2011).
As long as the coffee industry takes expendable income into consideration when
expanding domestically or internationally, it will succeed. Another driving force for
the coffee industry is industrialization. As more and more economies head towards
industrialization, those economies also begin to be influenced by westernization. In
India, tea was the common beverage for the upper and middle classes, but now coffee
is becoming a statement of wealth and prosperity (Bose, 2011). With many countries
finally embracing industrialization and westernization, coffee will become the
beverage of choice for many individuals. Expendable income and industrialization are
going to drive the coffee industry over the next few decades as new countries open up
for specialty coffee vendors just as India is opening up to the coffee industry.
In the process of analyzing the current situation of the specialty coffee industry, one
must examine the competitive landscape. Porters Five Force Model allows for proper
identification of the landscape of the industry (Thompson, Strickland, & Gamble,
2007). The biggest threat in the specialty coffee industry is the power that suppliers
have over the price of coffee. Arabica coffee prices soared 77 % in 2010 which leads
to major problems for the coffee industry (Murphy, 2011). Arabica coffee is one of the
most sold brands of coffee in the specialty coffee industry. With prices for that type of
coffee sky rocketing, it will definitely hurt the bottom line of every competitor,
especially those that thrive on a low cost strategy.

The second

biggest threat is from current specialty coffee competitors. McDonalds, Starbucks,

and Dunkin Donuts, and other smaller coffee chains are continually competing for
business. McDonalds is taking on Starbucks head on in Europe and plans to become
the number one Caf, thus overtaking Starbucks at its current number one position
(Liu, 2009). McDonalds is embracing the foreign market that Starbucks has been
leery about.

The third strongest threat is the power that the buyers have in this industry. Because
specialty coffee is not a necessity, people can decide that it no longer fits in their
budget, or that they no longer enjoy the environment of a certain vendor. With coffee
shops all over the world and almost on every corner, there are plenty of options for
consumers, and that allows them to be picky about what they want to buy. Starbucks
is even marketing its significantly lower costs to its Korean market (Han, 2009).
Consumers have the power to choose between low cost or high quality which forces
vendors to choose a strong and consistent strategy.
The fourth strongest threat is from new entrants. Although there are a lot of new mom
and pop coffee shops opening up, there are not enough of them to significantly deter
from the major competitors. The weakest threat for the specialty coffee industry is
that of substitutes. Most consumers that drink coffee like it because of the taste. The
energy that it gives a person can be substituted, but not the taste or richness of the
drink. Avid coffee drinkers will not be torn away by a substitute product such as an
energy drink or even a hot tea. The profit outlook for the specialty coffee industry,
considering the five forces of competition, is still high. There will definitely be some
challenges that the strong competitors will have to face; but overall, the coffee
industry will not be completely overcome by any one of Porters five forces.
The overall attractiveness of the industry and competitive environment is very strong.
The growth rate for the industry is still increasing and does not look to plateau any
time soon after examining the driving forces and Porters Five Forces Model. With
innovation, strong marketing, and global expansion the coffee industry is on pace to
make marvelous breakthroughs. The driving forces of industrialization and disposable
income will allow the coffee industry to flourish and will present new and challenging
opportunities. The competition is stiff to overcome and will take a lot of work from
any member of the specialty coffee industry. The escalating prices of coffee will play
a major role in the expansion of the coffee industry over the next decade. The
specialty coffee industry, overall, is very strong and has the potential to grow and
thrive.

2.4. PRODUCT ANALYSIS

Starbucks product line has grown to include fresh brewed coffee, hot and iced
espresso beverages, coffee and non coffee blended beverages, Tazo tea, baked
pastries, sandwiches, and salads. Starbucks paraphernalia includes coffee grinders,
espresso machines, coffee brewers, music CDs, books, movies and gift cards. The
global consumer products include bottled Frappuccino, iced coffee, and espresso
drinks, whole bean coffee, tea, coffee liqueurs and premium ice cream.
Starbucks understands concepts of brand identity and product differentiation. They
have tapped in on what the consumer perceives and had managed to identifiable
differentiate themselves between other companies products or services. Starbucks
realizes this success depends significantly on the value of the Starbucks brand while
relying on its excellent reputation for their product quality, superior, and consistent
customer service.
The management believes it must safeguard and develop the value and importance of
the Starbucks brand in order to bring continued success in the future. The perception
of brand value by the consumer is based on an array of personal qualities. Starbucks
has been able to establish an ambiance of sophistication and intellect.

Loyal

customers enter the retail chain as an escape from their mundane lives into a serene,
regal atmosphere where they proudly sip from their branded mugs. Starbucks profits
from the way they make their customers feel, allowing them to portray a prominent
image and feel like the upper crusted elite in society. Therefore, Starbucks brand
equity and quality is synonymous with high prices and a classy image. The Company
already owns and has also applied to register many service marks and trademarks both
in the United States and in many countries around the world. Some of the Companys
trademarks, including Starbucks, the Starbucks logo, Frappuccino, Seattles Best
Coffee and Tazo are all of great value to the Company. Starbucks owns numerous
copyrights for items such as product packaging, promotional materials, in-store
graphics, and training materials. In addition, the company also holds patents on
certain products, systems, and designs and has registered and maintains numerous
Internet domain names, including Starbucks.com and Starbucks.net.

2.5. INTERNAL ANALYSIS

2.5.1. Strengths
Brand Image:
Starbucks is one among very few companies that has successfully created awareness
for the specialty coffee category while maintaining supremacy of brand. Ranking
among the top 100 global brands, a recent Business Week survey pronounced
Starbucks as having the second highest one-year gain in brand value, on a global
scale, as indicated in the adjacent table. Using cost effective and innovative marketing
strategies, Starbucks has successfully created a brand that resonates with almost every
segment of the population. It hardly relies on advertising and instead its omnipresent
cafes, word of-mouth and appeal of storefronts serve as powerful brand ambassadors
the world over. It has been able to build this reputation based on the quality of the
products, consistency of service, and an overall excellence in catering to customer
satisfaction. As one Starbucks customer expressed, before Starbucks, the common
cup of coffee could best be described as a hot, brown liquid. A drink to be endured for
its jumpstart your day benefits of caffeine. What once was something to be endured,
Starbucks made into something to be enjoyed. Something to experience. Another
aspect of the Starbucks brand that makes it very unique is the intimacy of the brand
despite its ubiquitous presence. Jeremy Abbot, Bethany Village Starbucks store
manager commented, When our customers visit a foreign country like China, they
step into a Starbucks to feel at home.
Innovative

Business

Strategy:

But the essence of Starbucks is not about the coffee, although its great coffee. Its
about the coffee-drinking and the coffeehouse experience, says Hayes Roth, Vice
President of Marketing at Landor Associates, a consultancy that has advised Starbucks
on branding strategy. That comment sums up the unique and powerful combination of
Starbucks strategy, the coffee, the customer, the employees, location, service, and the
ambience. Whats more important is that this successful recipe calls for all of these to
work in harmony with each other, not just in isolation. Starbucks store manager and
Coffee Master, Darla Blazer remarks with much enthusiasm and fervor that she could
not have found a better place to work. She is passionate about her job and the

environment created by the executives is one of collaboration and teamwork. When

Darla looks to hire candidates for her store she follows the motto hire the personality,
train the skill.This is true company wide as it strives to ensure diversity in culture
and personality throughout the firm in order to provide the best service to their
customers and keep them coming back. The ubiquitous locations seek to be the third
place one would want to go to besides home and work.
Strong Financials:
The Starbucks name has become common place in the U.S. and internationally. This
popularity is coupled with financial success. As the adjacent figure (data is for year
ended Sep-2005) indicates, Starbucks has reported steady revenues and earnings over
the past five years and the past fiscal year, 2005, was no different. During the fiscal
year ended October 2, 2005, all areas of Starbucks business, from U.S. and
international company-operated retail operations to the Company's specialty
businesses, delivered strong financial performance. As indicated in the table,
Starbucks has not only shown strong results, it has surpassed market and industry
benchmarks in all categories. For fiscal year 2005, the company reported a24.6%
CAGR in revenues totaling $6,369.3 million, a 20% increase in revenue, operating
income as a percentage of total net revenues increased to 12.3% from
11.5% in fiscal 2004, and net earnings increased by 27%, compared to fiscal 2004.
These results demonstrated the company's ability to improve operating margin while
at the same time making strategic investments in the core retail business and in
emerging specialty channels.
2.5.2. Weaknesses
Reliance on U.S. Market: Starbucks is a global company and has a presence in 37
countries However, the total revenues derived from the U.S. market made the lions
share of its revenues at 83.7% in 2005. Given its significant presence globally and the
opportunities for further expansion, the company needs to be looking at generating a
greater proportion of revenues from outside the U.S. Large Corporate Image:
Starbucks continually struggles with backlash despite efforts to seem more connected

with the community. In the U.S., its ubiquitous presence and acquisitions have
destroyed local coffeehouses. They are perceived by many as the Wal-Mart of the
coffee sphere. While Dan Bowline, owner of a privately owned coffee shop in
Hillsboro, admires Starbucks for its marketing prowess, he sees it as an extreme
example of capitalism. Some see its international growth as corporate colonialism,
which can mean the destruction of local cultures and experiences. Overcrowding &
Cannibalism: Starbucks currently operates over 6,000 stores in the U.S. and plans to
increase that number to 15,000. Such expansion can and has resulted in overcrowding
or clustering of stores. People now are faced with limited choices. This can lead to
frustration, boredom, and rebellion on the part of customers, giving way to
competition that can provide a unique experience with quality coffee. In addition,
such clustering of stores can lead to cannibalism, where the company has to incur the
costs of setting up and running two units when the revenue is equivalent to that of
one.
Expensive Price:
Starbucks and other coffeehouses have caused the price for a cup of coffee to increase
to $3-$4. While this price has become acceptable in the U.S., it will pose a significant
barrier in emerging markets and countries where one can get a good cup of coffee for
a fraction of the price and where the buying power of consumers is much less. Such
high prices will make Starbucks more of a luxury good in markets such as China and
India, unlike in the U.S., where a its coffee is something everyone has come to enjoy
and accept.

2.3. EXTERNAL ANALYSIS

2.3.1. Suppliers

Due to its large size, Starbucks can exert significant pressure on its suppliers.
However, it chooses not to abuse this power as it is not in its best interest. Starbucks
does not operate by a model in which it squeezes down its suppliers.
It treats the relationship as a partnership. Some of the suppliers have grown up with
Starbucks and have built their businesses around its growth. We believe that if we
take actions to push our weight around and that causes our supplier to go out of
business then we have served no one.
Starbucks has high operating standards for its suppliers and needs to ensure they make
a reasonable profit so that the suppliers are able to meet these expectations. These
high standards include environmental policies such as energy conservation, excessive
packaging, and farming methods as well as employee benefits. Starbucks understands
the importance of the health of the overall supplier ecosystem.
Green Coffee, dairy, paper products, and personnel are the major inputs into the
Starbucks operation. Coffee is a commodity and a volatile industry. In a recent coffee
crisis, prices dropped so low that many farmers were unable to stay in business.
Starbucks is completely dependent upon its supply of coffee and demands a very high
quality bean. It mitigates risk to ensure its supply through agronomy programs it has
developed in coffee producing regions. It works with the farmers teaching valuable
farming methods and bringing prospective farms up to par. It is growing its supply
base as it grows its retail base.
Again, it is important to keep these farmers in business and Starbucks pays a
premium to ensure this. Dairy and paper product suppliers are a minimal threat.
Starbucks watches dairy prices closely and sources from multiple vendors. Starbucks
exerts some pressure on paper products suppliers for sustainability purposes. It
introduced the first paper drinking cup manufactured from 10% recycled material.
Overall, the threat exerted by suppliers is moderate due, mostly, to the instability of
the green coffee industry and the scarcity of the high quality bean that Starbucks
demands.

Customers the threat of customers is low for Starbucks due to: a low likelihood of
backward integration, differentiated products, diversified customer base, and
Starbucks ability to shape consumer tastes. The percentage of Americans drinking
specialty coffee daily increased from 9% to 16% between 2000 and 2004.Also, there
is a perception that coffeehouse products are of superior quality than other venues.
The survey indicates that the specialty coffee market is growing in the U.S. and
Americans will continue to buy coffee house products. It is unlikely that customers
will integrate backward by making coffee at home to replace coffeehouse products.
Starbucks brand and products are highly differentiated which lowers the threat of
customers. The brand has become well-known in the U.S. and abroad. One of
Starbucks self-proclaimed differentiators is its third place experience, yet survey
results question the value of its ambiance. Roughly 70% of survey respondents who
visited a coffeehouse in the last week listed convenience and quality as reasons to
choose one coffeehouse over another.
Only one third of respondents use the coffeehouse as a point of socialization oras
workspace which are cornerstones of the third place experience. The survey results
suggest that Starbucks dominance is based on the quality of its coffee and its
ubiquity, rather than the Starbucks third place experience. Starbucks executives
disagree and claim that the Starbucks atmosphere is one of the most important reasons
that customers come in.
Customers may be less likely to identify something like ambiance as a reason for
going to a coffee shop because it is less tangible. Ambiance is subtler and more
difficult to articulate than convenience, quality, or service in a survey with over 40
million customers a week and no typical demographic profile; Starbucks has a wide
customer base which diversifies risk. Tom Barr, the VP of Food for Starbucks
explains that the customer can be defined as anyone seeking a quality everyday
experience and this person could be anybody from a construction worker to a
grandmother to a soccer mom.

However, eighty percent of Starbucks revenue comes from regular customers who
visit an average of 18 times/month. So while we cant pin the customer down, we do
know that this devoted following holds significant weight for the company. If regulars
were alienated in some way, then it would present a problem for Starbucks.
The company has taken a $.50 commodity and turned it into a $4 experience. While
transitioning this market, Starbucks has been able to keep its premium products from
being perceived as exclusive luxury goods. When a company is able to drive
consumer preferences and play a significant role in the moving a product upscale,
consumers pose little threat to the company.

REVENUE AND SALES ANALYSIS FOR STARBUCKS

STRATEGIC ANALYSIS OF STARBUCKS COFFEE COMPANY

3.1. STARBUCKS CURRENT POSITIONS

Nearly two and half decades of phenomenal growth has finally subsided and left the
Starbucks Corporation in a precarious situation. As of July 2008 the company has had
a decline in customer traffic for the first time ever and their stock price has lost nearly
half of its value since 2006. This is all a new experience for Starbucks, which had
been serving over 50 million customers a week at its peak, and for 15 consecutive
years had at least 5% year over year sales growth in stores that had been open for
more than a year. The loss of sales has forced the company to make difficult decisions
in order to remain profitable. One of these difficult decisions was the announcement
to close 1000 company-owned stores globally during the 2010 fiscal year. They also
announced that they were going to be opening fewer than 100 stores in the U.S. and
200 internationally. This is a drastic reduction compared to the 1700 new stores
opened in the U.S. in 2007 alone, and far cry from the aggressive expansion that made
Starbucks most successful coffee chain in the world.
Although the current economic conditions have hurt many businesses, Starbucks has
been especially affected because most consumers view Starbucks as a luxury item.
However, the current economic conditions and tighter consumer discretionary
spending are not the only reason for Starbucks recent trouble. As you can see in the
following graph, Starbucks has been outperformed over the last 2 years not only by
S&P 500 and NASDAQ, but also the S&P Consumer Discretionary (exchange traded
fund made up of multiple companies, including Starbucks, that largely rely on
discretionary consumer spending)
The National Coffee Association estimates that the US coffee market will exceed $29
billion in (Morningstar). McDonalds and Starbucks are two well-positioned
companies that could take advantage of this, but the markets the two competitors
target are very different. The former aims at the cheaper coffee to go, whereas the
latter aims at providing a premium experience for a luxury price. McDonald's larger
retail footprint may overlap more with Starbucks' core markets, but their bleak
dissimilarities are reflective of the general differences between their core customers.

3.2. EconomicFactors
TheIndianeconomywillexpandanestimated6.5percentthisyear, the fastest pace among
developing Asian economies excluding China, according to January estimatesfromthe
World Bank (Agrawal and Sharma, Bloomberg 2012). The Reserve Bank of India
projects seven percent growth for the twelve months endingMarch. As sales
contribution in the US hasdeclinedinthepastdecadetolessthan70%inthelastfiscal
year,StarbucksisexpandinginfastdevelopingmarketslikeChinaandIndia.
India is one of theemerging markets throughout the world that is becoming a spending
oriented country. The personal disposable income per capitainIndiahasdoubled
between200001and200910resultingin improved purchasing power (Deloitte 2011).
Thus, its upper and middle classesaremoreabletospendmoneyoncoffee, beveragesand
food in coffee housesthatmightnothavebeenthoughofasanecessityinthepast.
3.2.1. LegalFactors
Indias government on January the 10thraised the ownership limit to 100% for foreign
retailers selling a single brand, a decision benefiting companies including
Starbucks(Passport,Euro monitor2011). However, Starbucks andTATAwillpossess
equalsharesinthe venture as both companieswillbothbenefitfromsuchanalliance.
3.2.2. SocioCulturalFactors
Indiais a traditionalteadrinkingnation whichisprovenbythefact that 69.9%ofthehot
drinksmarketisdominatedbytheteaindustry.

EventhoughinIndiateawasthecommon

beveragefortheupperandmiddleclasses, now coffee is becoming a statement of wealth

and prosperity among the traditionalsectoroftheIndian population, i.e. people more
resistant to changes (aged above 30) (Bose, Reuters 2012).
Thisphenomenonmightbeexplainedbythefactthatasmoreandmoreeconomieshead
towards industrialization,

those economies also begin to be influenced by

westernization.
Westernization is also easily adopted by the younger generation in India(1825
years).Researchshows that 72% of coffee shops customers arestudentsandyoung

professionals(Euro monitor 2011). The popularity of specialist coffee shops among

youths as a place tosocialize registered18%growthin2010; withaverage timespentona
tablehigher thaninother countries. Spending capacity of youth of India is increasing,
as well as their brand consciousness 60% of Indias population is below the ageof30
leadingtopopularizationofbrandsandproducts(Deloitte2011).Asillustratedabove, there
isamarket potentialsubject to dualeconomies, i.e. targeting both the modern sector
(youths) and the traditional sector (nationalisticindividualsresistanttochanges)(Nuttall
2011).Intheprocessassessingthegrowthopportunitiesinthespecialtycoffeeindustry,one
must alsoexaminethecompetitivelandscape.

3.3. FIVE FORCE MODEL

3.3.1. BargainingPowerofSuppliers
Themajorthreatinthe specialtycoffeeindustryisthepowerthat suppliers have over the
price of coffee. Arabica coffee prices so are 77% in2010 whichcausedconcerns to
coffeeretailers (Murphy 2011). Arabica coffee is oneofthemostsoldbrandsofcoffeein
the specialty coffee industry. With prices forthattypeofcoffeeskyrocketing,ithurtthe
bottomlineofcompetitors,

especiallythosethatthriveonalowcoststrategy.However,

Starbucks strategy can be regarded as charging premium price for premium product;
anditis supplying coffee formtheir partner, so the power of suppliers canberegardedas
weak.
3.3.2 CompetitiveRivalrywithintheIndustry
The second threat is from specialty coffee competitors that Starbucks will face when
itenters the Indian market.Wellestablished coffee shops chains, such as Caf Coffee
Day (CCD) and Barista, enhanced their panIndiapresencein2011.In2010, CCDand
Baristahad970and200stores,

respectively,andtheyaimtocontinueexpandinginthenext

fewyears(Datamonitor2010).Meanwhile,severalrelativelynewplayers,suchasCosta
Coffee,CoffeeBean, Gloria Jeans and Java Coffee, are trying to geta piece of the pie
in Indian coffee retailing . Both these factors drove ontradeconsumptionoffreshcoffee
beansin2010, with volumes growing by12 %( Data monitor2010).Ontradesaleshave
emergedastheprimary sales channel for fresh coffee beans, in the absence of any
substantial offtrade consumption. However, thepopular opinion was that with only
about1500cafestheINR 20 billion markets provided enough room for growth andcould
accommodatemoreplayers.(Vasudha2011)Eventhatmajor players startedexpanding,
thereispotentialforfurther growth in the Indian Coffee Retail Market.
3.3.3. ThreatofSubstituteProducts
A third relevant threat in the case of Starbucks entering India is the threat of substitute
goods. For instance, consumers may opt to reduce their caffeine intake due to health
concerns, which will influence coffee consumption somewhat.Insuchcase, herbal tea
andfunctional drinks can be potential substitutes. However, considering the increased
consumption

of

coffee

in

recentyears,

itisunlikelythatsuchsubstitutionwould

substantially impact uponsales.Overall,thethreatofsubstitutesinthe Indian coffee

market mightbeconsideredasmoderate.
3.3.4. Competitors
Starbucks main competitors are quick-service restaurants and specialty coffee shops.
There are an abundant amount of competitors in the specialty coffee beverage
industry. The company believes that its customers choose among retailers primarily
on the basis of product service, service, price, and convenience. Starbucks, in recent
times, has experienced drastic direct competition from large US competitors from
quick-service restaurants. These restaurants have significantly greater marketing and
operating resources than they do. Starbucks is also faced with well-established
competitors in the International markets with increased competition in the U.S. readyto-drink coffee beverage market.
Starbucks whole bean coffees compete directly against specialty coffees sold through
supermarkets, specialty retailers and a growing number of specialty coffee stores.

Both their whole bean coffees and coffee beverages compete indirectly against all
other coffees on the market. Starbucks Specialty Operations face significant
competition from established wholesale and mail order suppliers, some of whom have
greater financial and marketing resources than the Company. Starbucks faces intense
competition from both restaurants and other specialty retailers for prime retail
locations and qualified personnel to operate both new and existing stores.
The intensity of rivalry increases as businesses try to improve their position in the
industry. In order to gain new customers, competitors may reduce prices, introduce
new products or substitutes, and increase marketing efforts.
For example, on February 26, 2008, Starbucks closed its operations for several hours
across the board to conduct employee training. Dunkin Donuts took advantage of this
opportunity to gain new customers. Dunkin Donuts offered a small latte, cappuccino
or espresso drink for 99 cents from 1 p.m. to 10 p.m. during Starbucks shutdown.
The types of food choices, pricing and restaurant ambiance create the diversity among
competitors. Customers may choose among competitors based on preference. Some
competitors offer a full menu while others offer a bakery-caf menu. Pricing varies
among competitors as well.

Starbucks pricing is considered to be higher than

average. The ambiance among the competitors varies from a fast-food chain where
the objective is to get fast service, while the coffeehouses ambiance is slow-paced and
relaxed.
New entrants can increase the fight for market share, lowering prices, and the
profitability of an industry. Some existing competitors can retaliate against new
entrants to deter them from entering the industry in the first place. There are seven
major barriers/obstacles to entry that make it difficult for new entrants. Economies of
scale refer to the decline in unit costs as absolute production volume increases.
Starbucks can take advantage of reduced unit costs due to its specialization and
expertise through volume purchase discounts from their supplies.
Starbucks retail stores can generally be found in extremely busy, accessible locations
including being located directly off exit ramps to serve a wider range of customers

and promote brand awareness.

The stores can also be found in downtown and

suburban retail settings, shopping malls, within office buildings and can even be
found on university campuses. Drive Thru stores continue to develop to reach nonpedestrian customers.
Starbucks relies a great deal on information technology systems in the operations of
its supply chain, point-of-sale processing, and many other business transactions. The
management of these transactions greatly affects the production, distribution, and sale
of its products. Any technical failure within these systems can cause delays in sales
and decrease efficiency.
Starbucks utilized its Human Resources to its full capacity. Employees are required to
follow Starbucks comprehensive store operating procedures and attend training
classes. Starbucks realizes that its growth depends considerably on the knowledge,
skills, and abilities of key executives and other employees and its ability to recruit and
retain those employees.
Government policy exists to manage entry into an industry with licensing
requirements regulations. Opening a coffee shop or restaurant will require obtaining
certain licenses, i.e., business licenses, and tax ids, among other possible licenses.
Despite all the barriers or obstacles associated with entry, the most significant barrier
to entry is catching a niche market. Name brand franchises have ultimately captured
most of the market share because of their own personal niche.
Looking for atmosphere, for a place to hang out, for velvet sofas. "We've known for a
long time now that Starbucks is more than just a wonderful cup of coffee. It's the
experience, says Howard Schultz. His genius understanding is that: modern brandbuilding is at least as much about the customer experience as it is about the actual
product. (Shultz)
The threat of substitute products or services that are produced in another industry that
satisfy similar needs. Starbucks experiences a high threat of substitution because any
new product could be the start of the next consumer trend or craze, creating an initial
high demand for that product. The highly caffeinated drinks such as Monster and Red

Bull have certainly proven to be big sellers among consumers. Some former coffee
drinkers now prefer to get their caffeine from the energy drinks rather than through
coffee products. Soda also contains caffeine and can serve as a substitute for coffee.
Water can also be a substitute product as adverse public or medical opinions about the
health effects of consuming caffeine continue. While Starbucks has a variety of
beverage and food items that are low in caffeine and calories, some of the other
products contain high fat and calorie count have been the focus of adverse health
effects. This has caused a significant reduction in the demand for Starbucks products
and an increase in the demand for healthier products.
The bargaining power of buyers lowers the profitability of an industry by bargaining
for more services and perhaps higher quality.
More than 77 percent of all adults over 18 or 161 million people drink coffee on a
daily or occasional basis, the study reported. According to the 2007 National Coffee
Drinking Trends Report, 18- to-24-year olds have contributed to the increases in
coffee consumption in the past year (daily, weekly, and annual consumption). They
are also the only age group that showed an increase in daily gourmet coffee beverage
consumption. People aged 40 and up showed the largest growth in consumption of
gourmet coffee beverages over the past year.
The buyers hold enough power to influence company pricing. The industry depends
upon consumer spending on specialty eatery products; a lack of demand will
ultimately force a firm to change its product line and to lower prices. Starbucks has
recently introduced a 99 cent cup of coffee; this move will help them to compete with
the lower priced competitors and the sagging economy.
Bargaining power is the capability to control the setting of prices.

The more

concentrated and controlled the supply, the more power it leverages against the
market.
While there are many competitors in the specialty eateries industry, Dunkin Donuts,
McDonalds, and Panera Bread are the main players in the industry.

Starbucks recently opened a store on the backside of the historic TajMahal Palace
hotel in south Mumbai. The hotel has hosted famous guests including Jacqueline
Onassis and Mick Jagger, but it's better known as one of the sites in the 2008 terrorist
attacks.

3.4. MARKETING STRATEGY

3.4.1. Marketing:
Starbucks has created a brand that exudes an understanding of peoples values,
lifestyles, and needs. The companys attention to the experiential factor has been
pivotal to its success. In fiscal 2005, Starbucks spent $87.7 million on advertising
including billboards, online advertising, and signs at Safeco field. That's about 1.4%

of its 2005 revenues which is far less than other firms such as Coca-Cola and Pepsi.
Instead of big bucks, they resort to old-fashioned charm and appeal. For instance in
New York, Starbucks is handing out subway passes and in Boston and San Francisco
it is giving away free cab rides as a way of passing out good cheer for the holidays.
If you make an emotional connection with them, youve captured their heart. Thats
what creates brand loyalty, said Brad Stevens, Starbucks top marketing executive.
Such creative marketing has served and will continue to serve as a source of sustained
advantage for them.

3.4.2. Marketing strategy

Starbucks TATA Alliance Marketing Strategy
According to the Harvard Business School, after Starbucks first entered one of the
most teas loving countries (England) in1998, tea sales fell even as coffee sales rose
rapidly.By2008,annual sales of coffee in Britain had exceeded sales tea. India, where
Starbucks plans to penetrate this year, is also not a habitual coffee drinking nation.
The current paper aimstopropose a strategy for entering the Indian market while the
taking in to account local tastes and lifestyle. The analysis begin with and overview of
the Indian Coffee Retail Market; continues with examining the strengths of the
Starbucks brand and the benefits of a joint venture with the India's largest coffee
producer and exporter. The report will finally propose the most effective marketing
strategy for star bucks to enter the Indian coffee industry and get a piece of the
'market pie'.

Market Segmentation
Apartfromthedemographiccharacteristicspresentedinpartoneoftheanalysis,

marketers

should also consider psychographic variables such as interests and lifestyles. In

general, Indias coffee culture has changed the way young Indians socialise. In a
country where there is a limited bar culture, and where drinking alcohol is still not

allowed in many circles, it has provided an acceptable and safe outlet for people,
particularly young Indians, to share a drink. As mentioned earlier, coffee is becoming
a statement of wealth and prosperity among people with high disposal income, i.e.
individuals in employment.
Target Market Selection
The marketing strategy will focus on targeting both groups college and university
students (aged18-25) in the short term and working professionals (25-40) in the
medium to long run. Also, tourist and frequent flyers will be a target audience in the
long run.
MarketingObjectives
In order to make the marketing communications objectives as comprehensive as
possible, the SMART approach has been used, to ensure the objectives are specific,
measurable, achievable, realistic, timed and targeted.
The proposed strategy provides a plan for TATA Starbucks to open 50 stores by the
end of 2012 in major metro cities and second tier towns offering premium coffee
experience to the primary target group of students (aged18-25) and working
professionals (aged25-40).
Marketing Mix (4 Ps)
The marketing mix will be examined to determine Starbucks TATA unique selling
points, i.e. the unique qualities that will differentiate their products and services from
those of competitors.
Product
Anil Darker (2012),a Mumbai columnist and social commentator in India, points out
that when a foreign player sees a commercial opportunity and enters the new market;
and then it adapts giving McDonalds as an example(Vaidyanathan,BBC2012).
However, this should not be the case and Starbucks should have a clear strategy about
their product range (both drinks and food) it is going to offer prior entering the Indian

market. Costa Coffee Shops in India, for instance, offers products like Apple Pie
Latte, Latte Caramellato, Coconut Hot Chocolate, etc. suited for Indian taste (Costa
Coffee India online 2012). Therefore, Starbucks should adapt their drinks in order to
cater local preferences. Ice coffees should also be included in Starbuckss menu as
Indians have a strong preference for them because of high temperatures during
summer. However, one should not ignore the fact that India is a tea loving country
even though people prefer to consume tea at home because finding a perfect cup of
chai outside is really tough," said Smiti Singh, a Bangalore based software engineer,
who drinks at least four cups of tea a day (Madhok, Reuters 2012).TATA Tea (a unit
of the software to steel TATA conglomerate)is the worlds second largest branded tea
company ,so their premium tea products should be also offered to customers apart
from the Tazo Tea.
The biggest distinction is north India's preference for bread, meat, and chai (tea)
compared to the south's preference for rice, pulses, and coffee Food wise, Paninis,
sandwiches and wraps with meat but not with beef. The cow is considered sacred by
most Hindus and hence beef is considered taboo in the majority of Indian states. Pre
dominant food option in the south should be the bistro boxes with rice and pulses.

Place
The first Starbucks locations are scheduled to open in August in New Delhi and
Mumbai. TATA Starbucks might consider the option of opening on the 15 th of August,
Indias Independence Day. Starbucks TATA partnership is expected to open 50stores
in the country by the end of 2012. Starbucks also plan to explore the retail properties
of Croma, Star Bazaar, Trent and Indian Hotels belonging to the TATA Group to open
stores and also to rope in another franchisee for standalone cafes in the
future.(Vasudha2011). This is an efficient way of targeting individuals on business
trips in New Delhi, for instance, who prefer to go to a place which is familiar for a
cup of coffee; or tourists, who do not want to experience the local culture. As an
international brand, Starbucks should also open kiosk sat airports; thus, not depending

solely on Indian tastes and preferences as airports are occupied with people from all
over the world, who will recognize the Starbucks logo.
In Mumbai (most populous city in India) Starbucks should position the stores mainly
in shopping centers, cinemas, near universities or cultural venues as it is commercial
and entertainment capital of India. Coffee shops normally close around eleven o
clock at night, so Starbucks should consider the option of closing at midnight or even
one o clock in the morning; thus, becoming the preferred venue for young people.
Also, providing some guitar for jam sessions or karaoke nights on Friday or Saturday
may attract even more people.
As coffeechainsareseenasplacestosocialiseandpeopleaged25-40 will be also a target
group

of

theIndianpopulation,Starbucksmayconsideropeninga

ofStarbuckscoffeecalledStarbucksLounge,

for

new

type

example.Theatmosphere

intheloungeswillbemorerelaxedandthe
interiormoreexpensive;thuswealthyindividualswillbeabletoshowtheirclass.
Therefore, StarbucksTATA should aim to gain competitive advantage in smaller
cities as well in themedium to long rum as people there are more likely to be brand
loyal as opposedto customer in cosmopolitan cities.
4.6.3. Promotion
PromotionalactivitieswillnotbeanalysedindetailsastheyshouldbeinlinewithStarbucks
promotions worldwide. besides, retailers inIndia rely heavily on wordofmouth
(personal communication). TheStarbucksCardwillbeintroducedaconvenientwaytopay
foryour

drinksandearnrewardsforyourpurchase.Furthermore,instore

promotionsaccompaniedbynewproductssuchasdrinksandaccessoriessourcedfromthe
regionsshouldbepresentinIndiaaswell(Vasudha2011).Even

though

it

is

highly

unlikely for a coffee chain in India to advertise on TV,Starbucks might consider that
idea. In the US, there are three places thattheaverageAmericanspendhis time during
weekdays at home, inthe work place and inStarbucks.So,they should somehow show
the westernlifestyletotheIndianandaTVadvertisementatthedayofthe

launchshoulddo

thejob.Furthermore,itisthe first 50/50jointventure forStarbucks; so,bothStarbucksand

TATA Group will benefit fromcomarketingactivities.
4.6.4. Price
HistoricallyStarbucks has retained it US pricing model in almost every market they
haveentered, but should they follow the same pattern in India?Starbucks should adopt
their pricing based on the demand fromtheIndianconsumer.Afteranalyzinganalyzedthe
Indianmarket for hot drinksand the priceelasticity of products, probably the prices of
productsshouldbeatleast30%lowerthanintheUS.

4.7. Market Structure

Starbucks, despite their inflated prices have been able to create a sense of brand
loyalty with and array of loyal followers. Coffee is a fairly homogeneous item which
Starbucks has been able to market their standards of portraying a luxurious lifestyle.
Starbucks operates in a monopolistically competitive market structure in which they
have been able to maintain a control over their inflated prices. They have been able to
create a standard for their coffee and in which they require their customer base to be
exaggerated prices for a cup of their various brews. With usage of the Starbucks logo,
quality, and various trademarks, they differentiate their coffees from their competitors.
Starbucks prides itself on being completely different from any other coffee house and
its competitors, which is a reason why Starbucks has become so successful. The
companys strategy to focus on their core competencies to differentiate themselves has
made Starbucks into a coffee powerhouse. Starbucks has mastered knowing how to
benefit their customer; leverage the company widely to many products and markets,
and create ideas that are hard for competitors to imitate.
Starbucks is not the only coffee shop on the market, others like Dunkin Donuts,
McDonalds, and Panera Bread have an identical item with similar tastes and effect as
the Starbucks brew, yet they have been able to charge a premium for their blends by
luring in customers with the aroma of an inflated lifestyle.

There are other

homogenous coffee shops in the market, but their loyal customers believe that the

superior quality, taste, and aroma cannot be found from any other coffee brewing
entity. At one point, their customers were more interested in the pretense that holding
a Starbucks cup represented, but due to the current economic conditions, their
customers have began second thinking how they are affected by the extravagant price
of the black gold they have been sipping.
Operating in a monopolistic competitive society has caused the Starbucks effect to
crumble. The organization has been able to maintain customers in the short run that
were more interested in their details rather than price. When a business is making a
profit in the short run, they will eventually reach equilibrium in the long run because
their demand will eventually decrease, as we have seen in the recent times. Due to
this, in the long run, this monopolistically competitive firm will result in a zero
economic profit. Because Starbucks has profited on their brand loyalty, they know
that some loyal customers will never depart despite the towering prices.
With the recent news of Starbucks closing six hundred store, it is evident that they
have been running in a marginally inefficient business model. Most monopolistically
competitive firms are marginally inefficient because production average total cost is
not at the lowest point. In this event, in the long run, the marginal cost is simply less
than the price of the good. This translates to the price of the Starbucks beverage to
me marked up over the cost of production. The cost of producing for Starbucks may
not be the most cost-effective, but it is less than the price charged for their gourmet
brews. This could also explain why the price of Starbucks coffee is so high; their
production costs are high and must that cost onto the customers to increase their
revenue and decrease expenses.

Monopolistically competitive firms, like Starbucks are driven by mass advertising and
the establishment of brand names and logos. Starbucks ambiance and products are
marketed by the elevated, intellectual connotations. There are many coffee shops on
the market that also offer tasty aromatic coffees, but the advertising and atmosphere
of the Starbucks shops draws customers in. People are spending more on Starbucks
brews because of the logo and status attached to them. Because coffee many times is

virtually identical, advertisers and producers narrow in on what the consumer wants
and allow their products to portray those ideals. To differentiate between like coffees,
consumers must sample all types and determine what suits their tastes and lifestyles.
Yet, there are too many coffee options on the market and consumers do not have the
time or the funds to sample various brands. Advertisers are aware of this and
therefore embark on targeted ad campaigns to attract more consumers. Starbucks
attracts their customers over their competitors by their ad campaigns and serene
atmosphere of success.

CONCLUSION
Overall, Starbucks is a strong corporation that is in a growing industry. The researcher
discovered that Starbucks is taking a strong stand in the coffee industry and initiating
promising strategic and environmental goals. It is also securing coffee supplies from
India as well as China in order to keep its costs under control. Over the next few

years, Starbucks will continue to grow in the international market. Although twothirds of its stores are currently domestic, over the next few years the percentage of
foreign stores will escalate. Starbucks is handling the transition from a domestic to
international company very smoothly. It is taking the right steps to allow it to succeed
in its long term goals. Starbucks strong business model can and should be copied by
international businesses. Starbucks is a company that takes their global product and
customizes it to fit local and cultural needs of different regions and communities.
They have a transnational business model that allows them to have a universal
product that can be tailored to fit national needs. Starbucks system of corporate
learning allows them to gain knowledge of new marketing or product ideas that can
then be transferred to other national areas within Starbucks. Starbucks has to be
responsive to its varying markets as well. Economic crashes and political instability
can ruin a business market. Starbucks has to be aware of the changes in the
government and culture in order to better forecast the problems that they will be
facing. It is important for Starbucks to continue its strong system of communication
in order continue growing as a business. The researcher also examined that there are
many organizational and managerial implications of running an international business,
but discovered that Starbucks is working diligently to overcome those problems. One
problem that they had to overcome is the ability to understand the international
context. It is important to understand a culture before a company begins marketing to
a different country or region. The BRIC nations are going to play a major part in the
future of Starbucks as they begin to grow and influence the coffee market. These
nations have millions of people that are begging to embrace coffee, and it is important
that Starbucks has a strong market presence in these areas. If Starbucks expands
internationally through the undertaking of new countries, it will be difficult and time
consuming, but it will also greatly improve their company as a whole. But in the end,
the undertaking of new regions and countries will allow Starbuck to gain a strong hold
on the coffee industry as a whole. By opening additional stores in the countries that
Starbucks already is currently marketing to, Starbucks can expand internationally
without the additional funds for research and without the additional time and money it
takes by expanding into a new market. This would also give them a cultural advantage
in opening the new stores because they are already familiar with the customs and

practices of their target market. Starbucks has a strong international business model,
but it still has to continue building its goals and expectations. Starbucks will never be
finished growing as a business; therefore, it is important to keep its goals in mind and
its strategies in place in order to overcome any obstacle that might stand in its way.

WEBLIOGRAPHY

Websites visited:
www.googl.com

www.starbucks.com
en.wikipedia.org/wiki