Meghan McGowan Professor Gervais Case #3 4/2/12

Starbucks Corporation

and bakery items to provide even more options for their consumers. but to experience the atmosphere of an Italian coffee shop. etc. Providing top-quality. focused differentiation strategy. blended drinks. He wanted Starbucks to become an experience that would differentiate itself from its competitors. This is an evident characteristic of the market because consumers all have different preferences on the way they like their coffee. broad differentiation strategy. drivethrough windows. They also have a commitment to improving their business through better training. The strategy that Starbucks uses is broad differentiation where they seek to differentiate their product offerings from rivals’ with attributes that will appeal to a large variety of consumers. kiosks in supermarkets and other public places were added to locations depending on what would add value to their consumers. Create superior product features. Starbucks has some of the highest prices for the type of products they offer and people tend to be extremely loyal to whatever coffee they are used to purchasing. Due to their focus on providing a different experience depending on the location of the store. iced drinks. their international strategy is a multi-domestic approach.Summarize the overall strategy of Starbucks Management in its effort to create and develop a new concept and a rapidly expanding company. and/or gain buyer loyalty to its brand. increase unit sales. tools. Methods to enhance differentiation 1. If a differentiation strategy is successfully implemented the firm will be able to do one of the following: command a premium price for its products. Another prong to their strategy is to offer many different products and to distribute them among a variety of distribution methods. The . One of their key strategies in meeting this goal is a focus on customer service in order to create an experience for its consumers. and performance Starbucks has a superior knowledge of coffee and a commitment to providing customers with quality coffees. as a meeting place for its customers. design. focused low-cost strategy. Which is the reason why Starbucks offers many different product options like lattes. He believed that Starbucks should function as an important part of the community. newspapers. All of these are prongs to their strategy that will allow Starbucks management to turn Starbucks into a location where people don’t just go to grab coffee. fireplaces. The key market characteristic for the strategy of differentiation to work is that buyers’ needs and preferences are very diverse and cannot be satisfied with a standardized product offering. because they trust the quality. Couches. water. The overall goal of Starbucks Management was to create an American version of the Italian coffee bars that Howard Schultz had experienced first-hand in Milan. and best-cost provider strategy. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Starbucks is employing? There are five generic competitive strategies that can be employed and they are low-cost provider strategy. Another one of their strategies is to ignite their emotional attachment with consumers. coffee. skinny lattes. fresh-roasted whole-bean coffee was the company’s differentiating feature and a core value since the beginning of its founding. and products and to give attention to store-level economics and operating efficiency. They also offer fruit cups.

This meant that standard items could be ordered from vendors in volume at 20 to 30 percent discounts. a focus on reused and recycled materials and exposure of structural integrity and authentic roots. He then worked with employees to teach them about friendly customer service and created a pamphlet to teach new customers about coffee. They believed that the combination of all these elements should tell a story that would engage the consumer’s five senses and provide them with flexibility to meet the needs of the many different consumers that would be attracted to Starbucks. Most important of all they believed that coffee should be central and that distractions should be removed. 6. Pursuing production R&D activities Starbucks is constantly brewing new flavors and blends to offer their consumers a variety of coffee to try. Lattes. 2. In order to counter this Starbucks undertook the largest advertising campaign ever. In 2000 they began purchasing their coffee organically and a growing percentage of their coffees were grown organically as well as Fair Trade Certified. couches. music. local community news. Starbucks retail operations group outlined the minimum amount of equipment each store would need. Improving customer service or adding additional features When Howard Schultz first became part of the company he realized that one key problem Starbucks was having was that first-time consumers often felt uneasy about their absence of knowledge about highquality coffee. Wi-Fi access. Striving for innovation and technological advances One way that Starbucks was able to constantly strive for innovation was by controlling the cost of opening and renovating stores by centralizing buying. then they would in turn treat their consumers well. Starbucks didn’t spend a lot of money on advertising. and consolidating work under those contractors who displayed good cost-control practices. The items would then be delivered to the site from a warehouse or from the vendor. 5. Skinny Lattes. because they relied mostly on word-ofmouth. Seeking out high-quality inputs Starbucks promotes environmentally sustainable practices in coffee cultivation methods and have specific guidelines they follow called Coffee and Farmer Equity Practices that help farmers to grow high quality coffees in environmentally beneficial ways. Increasing intensity of marketing and sales activities Originally. This cut costs by a significant amount and shortened the process of opening a store to 18 weeks. 3. Improving employee skill.core characteristics of each new store was based on local materials and craftsmanship. 4. and activities. because he believed that if a company treated their employees well. An additional problem was that the employees came off as arrogant and unapproachable. free downloads. knowledge. and seasonal drinks. exclusive content and previews. and experience . developing standard contracts and fixed fees for certain items. 7. ability to use paid sites and services like Wall Street Journal’s site. Flavors are rotated daily or weekly to offer constant variety. The additional features that Starbucks offers are fireplaces. They also test new product offerings like Frappuccino’s. He also began to offer part-time employees health insurance and a stock option plan for all employees. A technological advance was that they used computer software to build store layouts that would calculate costs as the design progressed. In 2008 McDonald’s stepped up their advertising to highlight their McCafe coffee drinks.

business principles. Sheraton. and technological change is fast paced and competition revolves around rapidly evolving product features. including a coffee masters program. Hilton. hospitals. Also in 2008. and Wells Fargo all began to serve Starbucks coffee. and career programs for partners in all types of jobs. A joint venture with PepsiCo came with the sale of a bottled version of the Frappucino drink and Starbucks Doubleshot espresso drinks. First they were able to market their product to restaurants. In 2009 the retail sales mix of Starbucks was 76% beverages. All partners and baristas receive at least 24 hours of training in their first two to four weeks on topics such as coffee history. leadership training program. drink preparation. memorize recipes. and select retailers. They created the Pike Place Roast in order to satisfy these customers. From time to time. fruit cups. Hyatt. and making eye contact with customers. coffee knowledge. practicing how to mix drinks. Starbucks conducts special training programs. Sessions also include how to operate the cash register. yogurt parfaits. United Airlines. 18% food items. In 1998 Kraft Foods began marketing and distributing whole bean and ground coffee to supermarkets in the US. Westin hotels. a farmer’s salad. At this time the rights to manufacture. What are the key policies. banana walnut bread. there are many ways to differentiate the product or service that have value to buyers.Starbucks has a commitment to training their employees so that they are better able to serve their customers. 2009 saw the introduction of VIA instant coffee. clean the milk wand. they partnered with Suntory to sell ready-todrink Doubleshot drinks in Japan. When a new store is opened a Star Team of experienced employees are sent to make sure everything runs smoothly. and how to customize drinks. A 1995 partnership with Dryers created a new line of coffee ice cream under Starbucks names that was later disbanded in 2008. market. hotels. Management trainees are required to attend classes for 8-12 weeks and learn about store operations. explain the Italian drink names. In 2008. universities. Starbucks responded to customer’s wishes to have a blend of coffee that was always in stores. airlines. and distribute Starbucks ice cream was given to Unilever. and procedures that underlie how Howard Schultz and Starbucks’ management have implemented and executed the company’s strategy? . country clubs. 3 percent coffee-making equipment and other merchandise. A partnership with Jim Beam Brands created Starbucks Coffee Liqueur in 2004 and Starbucks Cream Liqueur in 2005. steam milk. Baristas in particular are required to learn how to grind beans. When does a differentiation strategy work best? A differentiation strategy works best when buyer needs and uses of the product are diverse. and retail skills. and procedures. Tazo Tea was acquired by Starbucks in 1999 and in 2005 they acquired Ethos Water. and smoothies in 2008. and 3% whole bean coffees. Starbucks’ actions to differentiate their product line They have expanded their product offerings along many different distribution channels by capitalizing on their growing brand name and awareness. practices. practices. pull perfect shots of espresso. business offices. In order to offer healthier options they began offering skinny lattes. In 2010 a partnership with Arla Foods spread Doubleshot products and Starbucks chilled cup coffees into retail stores in the UK. customer service (for a total of 4 hours). Radisson. few rival firms are following a comparable differentiation approach.

partners were trained on cash register operations. coffee can’t sit in the pot more than 20 minutes. steaming milk. is their coffee roasting practices. making eye contact. interacting with consumers. Starbucks prefers to license. For stores that were licensed Starbucks would receive a license fee and a royalty on sales. memorizing the recipes. and taking responsibility for the cleanliness of the store. pulling a perfect shot of espresso. how to clean the milk wand. retail skills. and learn how to cater to local market conditions. After about 20 stores are opened in this hub city. and beverage preparation. they either open company-owned and operated stores or license to a company that has a good reputation and the knowledge of retailing in that area. an espresso shot not pulled within 23 seconds needs to be thrown out. Some of the things that baristas learn in their 24 hours of training are coffee history. Business Principles. Fifth. Managers were required to go even more in depth with their training. Practices. Staff Training As mentioned previously. Finally. When they move into foreign markets one of their practices is to use a partner or license to help recruit individuals for employees. and Procedures The key policies that have been implemented can be broken down into five groups. and learning how to customize drinks. The third group is their staff training. coffee knowledge. drink preparation. International Expansion When expanding internationally Starbucks has two options.Key Policies. and disgruntled customers were given a coupon for a free drink. set up relationships with suppliers. This expansion strategy serves to create buzz and brand recognition for the company in an area that has a high amount of foot traffic before moving into a location that has less customer traffic. they will then move on to the surrounding areas that are the spokes. The fourth is their principles towards ethical business practices. Not only that but they had many rules that needed to be learned as well such as: milk needs to be steamed to 150 degrees Fahrenheit but not more than 170 degrees. how to explain Italian drink names. They are put through this training because customer service is so integral to their organization. practicing the drinks. First is how the company goes about expanding the number of Starbucks stores. Store Expansion Starbucks management’s approach to store expansion is using a hub city approach. . rather than franchise because licensing provides more assurance of quality control. customer service. but managers and employees were required to attend the same training as employees at company-owned stores. Beverage preparation includes grinding the beans. Not only that. find store locations. employees are put through an extensive amount of training to learn daily practices and how to treat customers. Companies that were licensed to supply Starbucks coffee were required to follow their detailed operating procedures. When a new area was selected for expansion a group of professionals were sent to facilitate the opening. Starbucks also had zone vice presidents who would oversee the expansion process and instill the culture of Starbucks in the new stores. how to sell espresso machines. The second is their international expansion practices. After a suitable demographic area is chosen Starbucks begins to open up stores in a large city that serves as its hub.

Green Apron awards. What “values” does Starbucks have? How well do they connect to the strategy and to the manner in which the company conducts its business? Are they successful in implementing to them? The values that Starbucks consider important are included in their mission statement and those are: 1) Coffee: They are committed to providing their consumers with top-quality coffee that is ethically sourced. they do not add artificial flavorings to their coffee beans. They do this by creating a store ambience. and recycle. reuse. They are very involved in Corporate Social Responsibility and take a number of measures to reduce. that safe and humane working conditions are being used. Manager of the Quarter. In order to be sure of consistency computerized roasters are used. and Bravo! Awards. First is their Coffee and Farmer Equity Practices (C. and to improve the lives of the people who grow the beans. 2) Partners: In order to better care for their employees Starbucks has a health care plan available for all employees. Employees are trained to take heroic measures to make customers happy. 4) Stores: Starbucks management’s goal was to create the stores to be a haven where customers belong and meet with friends. However. employee training. Spirit of Starbucks awards. They do this through a variety of methods. policy says that after three months they need to be used. having interesting .A. meaning that farmers make a fair amount of money for their products. Third. Once opened the shelf life is seven days. Coffee Roasting Practices Coffee recipes are put together by the coffee department once all components have been tested. These practices specify product quality.Ethical Business Principles Starbucks purchases products that are Fair Trade Certified. Certified Barista awards. they have Farmer Support Centers in Costa Rica and Rwanda.E Practices). and employee recognition. There are extremely exacting standards that must be met and the color of the beans is tested in a blood-cell analyzer and if it doesn’t meet the requirements the batch is discarded. that the price received by farmers/growers is fair.F. Green Bean awards. and that the methods of growing are environmentally responsible. Trained personnel are required to monitor the process by using hearing and their sense of smell to check when the beans are perfectly done. 3) Customers: They value connecting with customers and uplifting the lives of consumers by providing the perfectly made beverage and going the extra mile for their customers. Second. They are also committed to purchasing from companies that use environmentally sustainable growing practices. These support centers were staffed with agronomists and experts on environmentally responsible coffee growing methods and worked with coffee farming communities to promote best practices in coffee production They also worked to improve coffee quality and production yields. Directly after roasting and cooling coffee is vacuum-sealed into bags that are guaranteed to preserve freshness for 26 weeks. Some of their employee recognition awards include Coffee Master awards. a stock purchase plan.

as well as to help the devastation after the earthquake in Haiti. leather couches to sit and read newspapers in. and they encourage their suppliers to provide energy-efficient products and eliminate unnecessary packaging. is their program to give medicine to people suffering from HIV in Africa. coffee grounds are donated for use as a soil amendment. The commitment to do the right thing has been a significant part of how Starbucks operates as a company ever since Schultz became CEO. is the Ethos Water Fund where they donate 5 cents every time somebody purchases a bottle of Ethos Water. They have also committed money to hurricane Rita and Katrina victims. 4) Farmer loans: They provide funding to organizations that make loans to coffee growers. Starbucks has been named to Corporate Responsibility Magazine’s list of “The 100 Best Corporate Citizens” for the 10th time in 2010. mapping water resources. 2) Community involvement: Starbucks has several organizations to foster community involvement.A. First. Third. they donate money to the Starbucks Foundation which was the fund that was started in 1997 to handle all the Starbucks’ philanthropic actions. is the Starbucks Youth Action Grants which involves young people in community involvement playing. they take part in Earth Day activities. First. and they make sure that nothing overpowers the smell of coffee. In 2009 they became part of the Businesses for Innovative Climate Change and Energy Policy coalition. they focus on increasing recycling and reducing waste which they do by giving discounts to people who bring in their own mugs.F. and sharing sustainable agriculture practices with coffee growers. 5) Neighborhood: Their stores are part of its community and to be a force of positive good in the area. using environmentally friendly building materials and energy-efficient designs. and biodiversity indicators. They have also collaborated with the Earthwatch Institute and work on replanting rain forests. use renewable energy sources. One way they do this is by using local materials and craftsmanship. and buying from manufacturers that have a commitment to environmental and social responsibility. What is your evaluation of Starbucks social responsibility strategy? How much does it help to create their public image? Starbucks CSR strategy has four main parts which are: 1) Ethical sourcing of products: They do this through their C. They are also extremely involved in Corporate Social Responsibility. 6) Shareholders: Starbucks is committed to getting all of the above values right so that they can help everyone that is involved and affected by Starbucks thrive. Second.E Practices. Their goal for 2015 is to donate $20 million dollars to these funds. They also have commitments to be more energy efficient. . 3) Environmental Stewardship: In order to achieve this goal they have several methods. use green facilities. conserve water resources. Fourth. purchasing Fair Trade Certified products. they purchase paper products with recycled content and unbleached fiber. They also have plans to achieve LEED certification globally.

it increases the knowledge that people have about their CSR strategy.08% 6.572.40 $ 1.359.00 $ 1.20 International $ 92. The lowest point on the stock chart was in 2008 which makes sense because this is when the economic downturn occurred so many people were selling stocks. Operating income has fluctuated quite a bit since 2005 and since its peak in 2007 ($1.20 International $ 1.13% 27.Having a strong CSR campaign adds to the value of Starbucks’ products if consumers know that they are involved in these activities. In 2006 and 2007 Starbucks reached its peak growth in the period displayed in exhibit 1.608.05% International -9.590.774. It lets consumers know that part of the money they are spending is going to a good cause. Less people were indulging in coffee by the cup. By getting on the Corporate Responsibility Magazine’s list of “The 100 Best Corporate Citizens” for the 10th time in 2010.20 $ 1.30 These ratios tell us that overall they have been increasing their revenue growth by significant percentages of an average of 20% internationally and 12% domestically. Exhibit 1 Comparison of Starbucks' Financial Performance in the US and Internationally 9/27/2009 9/27/2008 9/30/2007 10/1/2006 Yearly Revenue ($ millions) United States $ 6. This makes sense because 2008 was the beginning of the economic downturn which affected the company’s bottom line. In 2008-2009 Schultz’s measures to institute .70 $ 6.90 Revenue Growth ($ millions) United States -6.90 $ 110.50 $ 852.37% 23.087. Revenue growth also went negative in 2008 internationally.20 million) has decreased significantly to $531.61% Operating Income/Revenue ($ millions) United States $ 531. Again these numbers make sense because it was in 2008-2009 that the economic downturn occurred and Schultz instituted strategic initiatives and revamped strategy execution efforts to fix these financial problems.28 million. Domestically the amount of revenue growth per year slowed down in 2008 and went negative in 2009.20 $ 955.80 million. revenue growth.0005.437. This is represented in the stock chart because it is also when their stock performance reached its peak at 40.997. and operating income/revenue.18% 19.20 $ 5.80 $ 454. What do these ratios tell you? What is your overall assessment of Starbucks’ financial performance during fiscal years 2005-2009? Explain the performance of Starbucks stock.50 10/2/2005 $ 4.70 $ 108.93% 26. Compare the US and International share of yearly revenue. One reason that the economic downturn affected Starbucks’ bottom line badly is because it was considered a treat to go to Starbucks and to get coffee that wasn’t brewed at the home.50 82. Internationally it has remained steadier at an average of $106.20 $ 1.005.10 $ 6.43% 32.495.50 $ $ 818.00 $ 137.

high-quality baked goods and pastries would be offered at the store along with new menu items for healthy eating on the go. Eighth. fruit cups. Schultz thought it was important to provide resources and tools for store employees such as laptops and internet-based software for scheduling. Fourth. smoothies. skinny lattes. Good customer service is one of the . Evaluation The goal for 40. because it inhibited the aroma from the coffee. and Sydney as the hub cities. In order to do this the character of each store would be a reflection of the area it was in to make the customers feel more at home and to make Starbucks the center of that community. there were cost-containment initiatives put in place in order to improve the bottom line that included a reduction of 1. What are the key elements and your evaluation of Howard Schultz’s transformation agenda for Starbucks during 2008-2010? What do you think of the letters shown on page C-364 and C-365? Has Schultz done a good job since his return as Starbucks’ CEO? Why or why not? Elements of the Transformation Agenda Howard Schultz’s transformation agenda during 2008-2010 had several key elements. yogurt parfaits. he planned on slowing new store openings to 73 internationally. Sixth. The seventh part of the agenda was to create a program to share best practices in stores globally. Melbourne. he planned on revamping the company’s locations in Australia with a focus on Brisbane. salads. Around 75% of these stores that were considered underperforming were within three miles of an existing store which shows that their strategy of having a Starbucks everywhere was cannibalizing their sales.000 people in staffing. Second. it was important to Schultz that there be an emphasis on developing new store designs in order to promote a refreshed customer experience. For example. which was one of the things that Schultz had found lacking when he became CEO again. this would promote quality control and improve customer service. This is a way for Schultz to be more particular about new store placement and to have a better chance of making a significant amount of profit and not losing traffic to existing stores.strategic initiatives and revamp strategy execution efforts began and clearly worked because in the period of time from 2008-2010 stocks returned to almost 30. Second. and the emphasis on increased store operations efficiency put financial strain on the company and led to a decrease in customer service.000 stores worldwide as a long-term objective and the rapid expansion that Jim Donald began led to a decrease in customer traffic in the US stores. He planned on closing 61 under-performing locations in order to do this. new store openings that continued at a rate of 6 per day worldwide. and healthier bakery selections were all a result of this step in Schultz’s transformation agenda. the last part of the agenda was to renew the attention placed on employee training in order to reignite the enthusiasm to please customers that is vital to the mission of Starbucks. The third element of the transformation agenda was raising the projected return on capital requirements for proposed new store locations. First. customer experience would be heightened through a variety of methods. Finally. Ninth. 900 underperformed company-owned stores were closed in the United States. The first method was by removing warmed sandwiches from the menu. The goal of this action was to raise sales and traffic at nearby sales. Fifth.

This letter shows that he truly cares about the thoughts and concerns of consumers. they need to have a strong base of employees and a focus on the experience that Starbucks is meant to provide its consumers. These themes are: strengthening the core. elevating the experience. igniting the emotional attachment with customers. being a leader in ethical sourcing and environmental impact. resulting in a loss of profit. which shows that Schultz’ transformation agenda has been working. but from 2009-2010 had five quarters of improving sales. there was a decrease in customer traffic at the stores. The second letter is to the employees of Starbucks. He is being extremely open and upfront the concerns of shareholders and about the actions that will be taken to address those issues. . Letters from Schultz The letters that are shown on page C-364 and C-365 of the case show that Schultz is dedicated to his shareholders.cornerstone values of Starbucks and was a central idea during Schultz’ leadership. In 2008-2009 the company experiences five quarters of deteriorating sales. Schultz’ return to CEO and his strategic initiatives mentioned above will help to return Starbucks to the values it originally held as very important and to return it to profitability by slowing down on expansion to focus more on the three main themes Schultz saw as important to his strategy. and delivering a sustainable economic model. “I am proud to be your partner…” By treating his employees like this he is able to foster accountability for the actions that everybody can take in helping to turn around Starbucks to what Schultz’ vision for it is. His vision includes becoming the authority on coffee. The first letter is addressed to customers and he explains that he has come back to Starbucks as CEO in order to ensure that the customers receive the experience that he believes Starbucks is known for. which is one of the values in their mission statement. He even says. creating innovative growth platforms. Before he can focus on growing the company. Evaluation of Schultz’ work Schultz has done a good job by creating strategic initiatives in order to return Starbucks to where he thinks the company should be. and investing and growing. In this letter Schultz addresses them as partners in the path to revitalizing Starbucks’ mission. expanding global presence and making each store the neighborhood’s heart. Every one of these visions is addressed in some way in his agenda. What issues confront the company as of mid-2010? What should Starbucks’ management be worried about? What are the challenges in expanding internationally? Issues as of mid-2010 1) Oversaturation of the market: With the “A Starbucks Everywhere” approach and the rapid expansion steps taken by Donald. which shows he has a clear idea of where the company should go and how to get it there. engaging and inspiring Starbucks’ partners.

5) Higher production costs Starbucks has chosen to follow a multi-domestic approach to international expansion. they will have the issue with tailoring their stores to fit the environment they are in. 3) Drifting away from the original values of Starbucks: Starbucks was built with an emphasis on high-quality coffee. Starbucks does have an extremely strong brand image and hype associated with their name. and political conditions in the countries where they are grown. economic. The main challenge that Starbucks will face in entering international markets is knowing what that group of people wants and prefers. What should management be worried about? Management should be worried about offering high-quality products. Finally. 4) Offering high-quality products: As Starbucks moves into new locations in order to draw attention away from local popular spots they will need to offer a product that is of high enough quality to keep consumers coming back. Another problem is that they will need to make partnerships and licensing agreements with reputable companies in order to be sure that the culture of Starbucks is continued to their new stores. 5) Differentiation: Again. They need to be able to give it to them in order to achieve their goal of being the heart of the neighborhood. because they will be unable to use a set design which could raise production costs. meaning that they customize their product offerings to match the tastes and preferences of local buyers. . If they cannot prove that their product is better due to quality or differentiating features then locations that sell coffee and consumers are already loyal. International Challenges Some challenges that Starbucks will face internationally are: 1) Adapting their stores to fit the location they are in 2) Creating partnerships and licensing agreements with reputable companies to offer their products abroad 3) Regulations on foreign businesses moving into their country 4) Having enough control over the quality in the international stores that are licensed. However. which is an asset for them in entering new markets. and a commitment to creating an experience for customers. However. when Schultz became CEO again he noted that this was lacking. good customer service. 6) Coffee prices: Coffee prices fluctuate significantly due to weather. as they move into new markets they will need to do significant research to find out what those consumer’s value. they will have issues drawing consumers away.2) Lack of emphasis on customer relationships: The emphasis on increased efficiency in store operations led to a decrease in good customer service.

 Take caution with price premium: Starbucks charges a significant amount of money for their coffee. Their . In these spoke areas they should be careful to not open too many stores. This involves adding product specifications. Their marketing campaign should highlight on their CSR campaign to increase consumer’s knowledge of how they support the environment. but they should be careful that they don’t turn their product into too much of a “treat”. The hub strategy works well in increasing brand awareness in locations where there is plenty of foot traffic and buzz can be generated that will spread to the spoke areas where they can then start getting locations. and technology must be strong so that they can successfully implement value additions. They need to continue to know the customers in the area where they are opening a store in order to offer them the store environment they want. One way that Starbucks can do this is by offering delivery of coffee within a certain distance by bicycle.  Focus on the core: In order to successfully implement any of these strategies the core of Starbucks’ business model: customer service.What recommendation would you make to Howard Schultz to sustain the company’s growth and support continued strong financial performance in the years ahead? Consider both the US and International strategies. They have been doing this by purchasing Fair Trade coffee and organically grown products. and suppliers. while adding value to the customers.  Continue with the hub strategy of international expansion: Slowing down on international is a good plan. because it will erode sales at the already established locations.  Increase incorporation of tangible features that increase customer satisfaction: This is an important aspect in delivering superior value via a broad differentiation strategy. This way they will incur little costs and be using environmental transportation methods. This will increase the value added to the customer’s product in noneconomic ways. their neighborhoods. such as offering delivery services or catering for a business meeting. functions. Recommendations  Coordinate with suppliers to address consumers’ needs better: By coordinating with the farmers and growers they source their beans from they will be able to add value to their product. Good customer service will help them out because it doesn’t cost them any extra. which is why it is so important for them to first focus on the core of their business. There are small differentiations that they can add. versus a drive through location. because consumers will know what their money is going to. If consumers are satisfied with a basic product and don’t think that differentiations are worth the price premium they may switch to a company that follows a low-cost provider strategy. Schultz’s strategy that began in 2008 focused on this a lot. brand management.  Increase marketing spending: Create a marketing campaign that focuses on adding intangible features to their products. They need to continue to increase this initiative and to take part is environmentally-friendly initiatives that add value to their customers. They need to make sure that their products and “experience” have enough differentiations from the basic product. a product that people can’t afford to indulge in every day.  Manage costs: An overspending on efforts to differentiate their products could lead to an erosion of profitability. Marketing and R&D are expensive to implement. For example a store versus a kiosk. they should wait to aggressively expand internationally until their finances have improved significantly. so continued actions should be taken to become more passionate about customer relationships and build up the brand name more. This will add value to the product. marketing. and styling.

These partnerships like the ones with PepsiCo and Unilever are particularly strong. Unilever. and a 13 percent share of the 3.7 billion cups served in restaurants and coffeehouses. These partnerships will allow them to use their brand name for products that are not directly related to coffee and therefore appeal to more consumers. a 4 percent share of the 25 billion cups of coffee served at home. and distribute Starbucks ready-to-drink Tazo beverages in the United States and Canada. Selectively develop new channels of distribution: In the United States Starbucks had a 3 percent share of what is estimated to be a 37 billion cups of coffee served to on-the-go drinkers. Partnerships: Continue with their partnerships with companies like PepsiCo. and Jim Beam Brands that will allow them to extend their product offerings into new consumer markets. Internationally these numbers are even smaller. but when they acquired Tazo Tea they extended that agreement to manufacture.  focus on licensing stores in international markets will allow them a larger amount of control over the quality control methods. but domestically as well. market. Starbucks and Unilever originally created a partnership to manufacture Starbucks brand ice cream. because Starbucks has been able to extend them beyond their original purpose. than if they had franchised. For example. This clearly shows that they have a lot of growth opportunities not just internationally. .

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