Problem of the company
Starbucks Company had been experiencing profitability decline and it is due to this case that some strategies have been developed. In 2008 and 2009, sales declined with 3 percent and 5 percent respectively. Consequently, in this period, Starbucks has experienced a revenue decline from $10.4 billion to $9.8 million. The decline has been as a result of increased competition, unsatisfied customers and lack of strategic marketing policy.
Assumption PEST analysis
On Political view, Starbucks enjoys a good relationship between the coffee producing countries and the United States. This relationship has been enhanced by the trade partnership between coffee producing countries and United States. The company had been also experiencing a better relationship with both local and federal government.
On the economic influence, there has been an increasing demand for beverage and food due to an increase in the disposable income among the consumers.
On the social stand point, the consumer preference tends to ship from the consumption of coffee to other beverages such as roasted chicory and grain.
Starbucks has also embraced the technology in the packages of coffee, such as VIA ready brew, to improve operational efficiency.
The case provides some to the problems confronting the Starbucks Company. According to Schultz, the company was unable to attract, reward and motivate its employees that would in turn accomplish the employees’ satisfaction, hence higher level of customer services. The company has also experienced poor management. It is due to these problems that the company has experienced the diminishing sales, resulting to a decline in business’s revenue.
Strategies
- Global store design strategy
- Expand license store to increase the marginal profit
- Expansion of the product offering and penetrating new market segments
- Coffee buying strategy and;
- Social responsibility strategy
The strategies formulated by the Starbucks Company seem to go hand in hand with the company’s mission statement. By expanding the range of products and entering new market, the company aims to satisfy its mission of embracing diversity as an essential component in the global market. Moreover, the social responsibility strategy aims to give back to the society and create a powerful relationship between the company and the society. This strategy, therefore, enhances the company’s mission that requires the company to relate positively with the communities and the environment.
However, achieving the goals set by these strategies has been confronted with an internal challenge. The top management, the then CEO, Donald, has made the customer traffic erode. The mismanagement has made the accomplishment of the strategies fail because they concentrated on the efficiency on the expense of good customer services.
Three alternatives solutions
The company is exposed to alternative solutions such as enhancing the customer experience at the stores, coming up with a design for the future stores, and restructuring the company’s store operations in different countries. Customer satisfaction measures involve restructuring and developing the best-in-class menu to meet the taste and preferences of the customers.
Porters 5 forces
Threat to new entrant
There is no patent on dark roast, no advantage in buying coffee beans, and entry into the market is not restricted.
Competition
Starbucks belongs to one of the competitive coffee industry that has undifferentiated products. The company faces strong competition from local espresso bars such as Peet’s among others. However, the company has a competitive advantage on competitive pay scales and comprehensive benefits for both part-time and full-time partners.
Bargaining power of buyers
Buyers are price sensitive to the coffee product because of the existence of substitutes such as roasted chicory and grain. The buyers have adequate information about the market, and have the potential to force the price down.
Bargaining power of suppliers
Having no input substitute of coffee, the suppliers have the power to hike the prices by restricting coffee supplies. There is a minimal competition between the suppliers because they are not many in the market.
Threat of substitute products
The presence of the coffee substitute increases the propensity of the buyers to shift to the alternatives. Substitutes include Ayurvedic Roast, cafix, pero, and roasted chicory and grain.
Conclusion and recommendation
The turning point of the Starbucks Company relies on the extensive transformation, especially, in the top managerial role. With this transformation, the company can be able to undertake the identified strategies. Thus, it is appropriate for Schultz to launch a campaign that can transform the firm into a company of innovation and differentiation. As the returning CEO, Schultz is aiming to “strengthen the core, elevate the experience, and invest and grow.” The company’s thriving force also relies on the transformation of the workforce, which can be done by conducting promotions, training, creating an enabling working place and motivating the employees.
Concerning entry in the new market, the company needs to establish their stores in the developing countries to utilize the untapped demand. The company can enter the market through the combination of the licensing strategy and joint venture. This combination can be effective in the new market since they have been proven to be successful in the past. With the recognized brand, the company is going to thrive in the new markets.
Starbucks should continue and enhance the use of internet to reach for the existing and potential customers. The company should also continue using multiple distribution channels and establish centralized warehouse in all countries to reduce the cost.
With this recommendation, the company will not only offer the greatest range of coffee varieties to the consumers but also spread the company reputation across the globe. The recommendation will also help the company to thrive in the new and existing market hence increasing the profitability.
References
David, F. R. (2013). Strategic management concepts and cases: A competitive advantage approach. Boston: Pearson.
Michelli, J. A. (2007). The Starbucks experience: 5 principles for turning ordinary into extraordinary. New York: McGraw-Hill.
Thompson , A. A., & Shah, A. J. (2010). Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth. New York: Business Expert Press.
