Case Study Report - Dr Stefan Gassner

INTERNATIONAL MARKETING

Case Study Report

How Starbucks Corp. should improve its business

Syndicate Group Number 1 24/08/2007

The following group assignment report was prepared for a business unit at Macquarie University, Sydney. The information given does not need to be correct. The suggestions given and conclusions drawn remain (as the whole report in itself does, too) the intellectual property of the authors.

Do not use this report for plagiarism. Do not copy this report. Do not print this report. Do not hand this report in as your own!

Authors and Copyright:

Tanya Shahi Jorge Omar Martin Aufschl?ger Timo Schmerling Stefan Gassner

tanyashahi@ canogeorge@ martinaufschlaeger@ timo_schmerling@web.de mail@stefan-gassner.de

2 Case Study Report: Starbucks Corp.

Table of Contents

Table of Contents ....................................................................................................... 2

1. Introduction ............................................................................................................. 3 1.1 Company Profile ................................................................................................ 3 1.2 Case Summary.................................................................................................. 3 1.3 Current Situation ............................................................................................... 4

2. Deriving Key Issues from the Case Study .............................................................. 6 2.1 External Key Issues........................................................................................... 6 2.1.1 Limited Growth Opportunities...................................................................... 6 2.1.2 Customers and Image ................................................................................. 8 2.2 Internal Key Issues .......................................................................................... 10 2.2.1 Product Range .......................................................................................... 10 2.2.2 Employees ................................................................................................ 11

3. SWOT Analysis .................................................................................................... 13 3.1 Strengths ......................................................................................................... 14 3.2 Weaknesses .................................................................................................... 14 3.3 Opportunities ................................................................................................... 15 3.4 Threats ............................................................................................................ 16

4. Analytical Framework and Development of Alternative Solutions ......................... 17 4.1 Analytical Framework ? Starbucks Solutions Cube ......................................... 17 4.2 Business Model Dimension ............................................................................. 19 4.2.1 "No change" option.................................................................................... 19 4.2.2 "Moderate change" option ......................................................................... 19 4.2.3 "Radical change" option ............................................................................ 21 4.3 Product Range ................................................................................................ 22 4.3.1 "No change" option.................................................................................... 22 4.3.2 "Moderate change" option ......................................................................... 22 4.3.3 "Radical change" option ............................................................................ 23 4.4 Alternatives Regarding Marketing ................................................................... 25 4.4.1 "No change" option.................................................................................... 25 4.4.2 "Moderate change" option ......................................................................... 25 4.4.3 "Radical change" option ............................................................................ 26

5. Recommendations................................................................................................ 27 5.1 Evaluation Criteria ........................................................................................... 27 5.2 Recommendation ............................................................................................ 28 5.2.1 Business Model: Establishing a second Brand ......................................... 29 5.2.2 Marketing .................................................................................................. 30 5.2.3 Product Range .......................................................................................... 31 5.3 Evaluation of suggested solution ..................................................................... 31

6. Conclusion ............................................................................................................ 32

7. References ........................................................................................................... 33 8. Appendix............................................................................................................... 39

3 Case Study Report: Starbucks Corp.

1. Introduction

1.1 Company Profile

In 1971, English teacher Jerry Baldwin, History teacher Zev Seigel and writer Gordon Bowker who shared a love of fine coffee and exotic teas invested US$ 1,350 each and borrowed another US$ 5,000 from a bank to open up a store called Starbucks Coffee, Tea and Spice in the tourist's Pikes Place Market in Seattle. Later the name was changed to Starbucks Coffee Company (Thompson & Strickland, n.d.).

Starbucks is named after coffee-loving first mate in Herman Melville's Moby Dick and also because the thought of the name evoked the romance of high seas and the seas faring tradition of early traders. The Starbucks logo is a two-tailed mermaid encircled by the store's name (Thompson & Strickland, n.d.).

The store was an immediate success, with sales exceeding expectations. Stores opened in different parts of the US. Entrepreneur Howard Schultz joined Starbucks as a marketing executive in the early 1980s and acquired the company in 1987 (Cateora & Graham, 2007, p. 597). Starbucks went public in 1992 and has done extremely well, turning an everyday beverage into a premium product.

According to the company's mission statement Starbucks sees itself "as the premier purveyor of the finest coffee in the world while maintaining [its] uncompromising principles while it grows" (Starbucks, 2007).

1.2 Case Summary1

Starbucks has grown rapidly since the time of its inception: from 17 stores in Seattle to 5,689 outlets in 28 countries. But now the US market is getting saturated with only 8 states without any Starbucks stores (Cateora & Graham, 2007, p. 596).

1 This part serves as a summary of the Starbucks case study in Cateora's and Graham's (2007, 496-99) text book.

4 Case Study Report: Starbucks Corp.

Despite the self-cannibalising effects of a 30% loss in old stores' revenue, Starbucks in still opening new stores in order to achieve market dominance and increase total revenue. Furthermore, by paying above the prevailing market rent rates, Starbucks successfully tries to keep competitors out of location.

There was a time when Starbucks had the lowest employee turnover but now its employees face low morale and burnout. The employees are paid better as compared to other industry workers and are also given stock options and health insurance but all this, according to the workers, does not come close to the workload the job requires.

Starbucks relies on word-of-mouth advertising and therefore saves on marketing activities. It spends only 1% (US$ 30 million) of revenues on marketing annually as compared to other firms of the same size, which easily have a marketing budget of more than US$ 300 million a year.

Starbucks came up with Starbucks Express, a system where customers could order online or on the phone in advance so when they arrived at the store their beverage would be waiting for them. To reduce transaction times and speed up services Starbucks introduced a customer card and installed automatic espresso machines respectively. It also has wireless Internet access in 1,200 locations in both North America and Europe.

Starbucks faces the challenges of saturation of the US market and new competitors both in the US and overseas market. Furthermore, the company is confronted with a change in customer perception.

1.3 Current Situation

Sales have increased from US$ 3289 million (2002) to US$ 7787 million (2006). Till July 2007, Starbucks has already earned revenue of US$ 6,970 million. In

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