Starbucks is a coffee corporation in America that was founded in 1971 and has turned out to be the largest coffeehouse company in the world. It offers the highest quality Arabica coffee as the base for her espresso drinks. This essay considers the case of Howard Schulz and the Starbucks coffee company, Harvard business school, case N9-803-361, revised September 30, 2005, by Nancy F. Koehn. Economist Nancy has researched about Starbucks Company under the leadership of Howard Schulz. She explains economic, management and marketing strategies that Howard Schulz has used to rescue Starbucks from collapsing. The case investigates the strategic initiative developed to gain a mass market for specialty coffee in 1980’s and 1990’s. The initiative that the company through the management formed included rapid expansion regarding stores owned by the company, the development of premium products (Koehn, 2002). The other initiative is that of creating strong brands. The case study also explores the efforts that Schultz puts to Starbucks from the action of employees relations with the company and up to the financing for expansion plans. The case further illustrates how vertical integration leads to quality assurance and importantly the strategic and operational management for domestic and international growth after 1993.
Traditional capital suffers from diminishing returns to scale, whereas knowledge capital do not. To compare traditional capital and knowledge capital can be referred to as ideas. Ideas are non-rivalrous meaning that the economy is characterized by increasing returns to both ideas and objects. To contrast the two ideas, the traditional capital is about objects while knowledge capital is about pure ideas. Capital knowledge has fixed cost that is associated with the research of innovations. These fixed costs explain the increasing return to the concept of capital knowledge, unlike traditional capital. In the traditional capital, growth stops at some point leading to diminishing returns. Therefore, the Adam Smith’s idea of invisible hand theorem can be associated with the knowledge capital. When the two approaches are combined, a company would have sustainable growth (Geereddy, 2014). Both ideas have affected Starbucks in that traditional capital, which relates to objects has helped the company to open many stores through acquisition. Traditional capital is utilized in the idea of expansion regarding stores this has enabled the company to reach more market (Koehn, 2002). The knowledge capital is utilized to create premium products and strong brands. Their sustainable growth is associated with the utilization of both ideas.
The external factors affecting the life span of Starbucks between the periods of 2011-2015 can be identified by analyzing the PESTEL analysis of the company. The political factors that affected the company in this period are the government stability. When the company is expanding, it needs to consider what if the countries where it wants to invest is investor friendly. The economic factor that affected the Starbucks is the exchange rates, which affected the imports of coffee beans. The weak dollar made the company incur extra cost in production hence passing the cost to consumers is risky as there substitutes for coffee like tea (Greenspan, 2014). The social factors affecting Starbucks include the consumption patterns, changes in tastes and preferences and changes in consumer habits. The technological factor that affected Starbucks is the advanced technology where firms are forced to adhere to such changes for gaining competitive advantage. Starbucks adopted the technology of mobile money where they allowed phone payments to cut the long ques. The environmental factors included environmental rules and regulations and global warming issues.
The factor that seems significant is that of social factors. This is touching the customers who are the most critical to any business today. The lowering of prices of the company’s product is associated with lowering quality. Hence, the consumers of their product may cause a shift to substitutes since the new products are not satisfying their needs. The lowering of prices through quality alteration would affect Starbucks since high-class consumers would want to continue buying that high-quality product. The company generates extra revenue for catering for the needs of all categories of the society.
The overall grade that I can give to Howard Schultz for the proper job as a CEO of Starbucks is A+, which excellent. Through the contingency theory, Schultz makes the decision for the company based on the issue at hand rather than a general decision to cater for all problems (Koehn, 2002). The CEO changed the downfall of the enterprise. He utilizes employee relations in making decisions. He further uses the Theory X and Theory Y. This theory allows the manager to make a decision that is influenced by what attitude workers have about the business (Killen et al., 2012). Theory Y believes that employees naturally work by the drive of responsibility hence leaders encourage participation from employees. The other companies that can supplement my analysis include Dunking Donuts and McDonald Company. These two have been chosen because they are the competitor company to Starbucks. These two companies use product line to compete Starbucks. The competition between the companies is based on revenues. The CEO of Dunking Donuts uses the product line to sustain growth for the enterprise, as likewise does the CEO of McDonald Company where they offer many products in line with coffee hence making more revenues.
The recommendations that I can provide to the CEO Howard for sustainable growth of the company through building a global brand while maintaining local expectation. The recommendations include increasing international expansion to increase market share. The other recommendation is the CEO to initiate programs to promote the environment. The CEO need to keep improving the coffee they are selling for improved customer loyalty. The strategic marketing plan that the company can undertake to improve performance is the market segmentation plan (Wilson and Gilligan, 2012). Segments, which are possible, are geographical, behavioral, psychographic and demographic. This strategic marketing plan is applicable in France in Europe as highlighted by Ferrell and Hartline (2012). Where the company can segment the population into four segments to meet the customer needs. The country is centrally located thus going to another European market from there is an easy task.
References
Ferrell, O. C., & Hartline, M. (2012). Marketing strategy, text, and cases. Nelson Education.
Greenspan, R. (2014). Starbucks Coffee’s Five Forces Analysis (Porter’s Model). Available at: http://panmore.com/starbucks-coffee-five-forces-analysis-porters-model
Killen, C. P., Jugdev, K., Drouin, N., & Petit, Y. (2012). Advancing project and portfolio management research: Applying strategic management theories. International Journal of Project Management, 30(5), 525-538.
Koehn, N. F. (2002). Howard Schultz and Starbucks coffee company. Harvard Business School Pub.
Geereddy, N. (2014). Strategic Analysis of Starbucks Corporation. Available at: http://www.lcis.com.tw/paper_store/paper_store/starbucks_case_analysis-20141210222855562.pdf
Wilson, R. M., & Gilligan, C. (2012). Strategic Marketing Management. Routledge.
