Starbucks

Starbucks mission is â€Å"†¦to establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employees could be proud of†¦Ã¢â‚¬  However, this mission was threatened in 2008 when the company found itself in trouble with slow growth and profits. Determined to continue its mission, Starbucks reevaluated its resource-based model of returns and made some changes which resulted in increased revenue and above-average returns for the next three years. The key player in Starbucks strategy was Howard Schultz, CEO of Starbucks.Schultz was determined to regain strategic competitiveness and set forth with an integrated strategic management process which focused on several of Starbucks core competencies (like internal culture and human resources) and included: halting new store openings in the U. S. ; withdrawing completely from Australia; focusing on customers and the â€Å"Starbucks experience;â₠¬  and transferring resources to international markets. We analyzed the strengths, weaknesses, opportunities, and threats through the TOWS analysis tool which focuses on external (or environmental) threats and opportunities AND internal weaknesses and strengths of the company.In this case, Starbucks’s biggest threat is competition, particularly from McDonald’s and Dunkin Donuts. Opportunities include expanding its product line, particularly into international markets, and diversifying its product line to give customers a better â€Å"experience† in AND out of stores. By creating licensing agreements with places like Marriot and Pepsi, and selling retail packs of drinks like Frappucinos in grocery stores, Starbucks increased its diversification.The biggest weakness for Starbucks is its pricing which led to competition with other companies that were offering premium coffee WITHOUT the premium price. Next is Starbucks’s greatest strength: brand name and rec ognition. In other words, to many people, coffee equals Starbucks. Another one of Starbuck’s strengths was how mainstream their name was; however, in 2008, this became a weakness as the competition took advantage of the situation and targeted Starbucks directly with campaigns that the company was â€Å"snobbish† and â€Å"friends don’t let friends drink at Starbucks. To help sustain their constant need for high-quality coffee beans, instead of just purchasing Starbucks fully invested their time into becoming a part of the market by creating support centers and creating fixed-price contracts whenever possible. Starbucks was no longer just a purchaser but a leader with coffee growers. In addition to TOWS analysis, analyzing Starbucks’ position using the Five Forces of Competition shows other issues facing Starbucks in 2008. For instance, the threat of new entrants and substitute products during this time was high. The same is true of the bargaining power o f buyers.The rivalry among competing firms was also high to moderately high, and the strength of the forces of the bargaining power of suppliers was moderate to low. Given the TOWS and Five Forces analyses of Starbucks, we agree with Starbucks strategy formulation. Starbucks should (and did) focus on stopping its saturation of the market (no new U. S. stores) and pulled out of unprofitable nations (like Australia) while reallocating resources internationally. We also agree that a large part of Starbucks’ strategic competitiveness is its â€Å"experience† so focusing on the â€Å"Starbucks Experience† and further branding itself was important.It was also vital to refocus on the core values which make Starbucks a global leader, not follower, as well as technology, like free wi-fi and the Starbucks credit card, which increases the appeal of its stores and products to customers. Since 2008, Starbucks revenue has continued to grow, and 2012 was Starbucks best quarter yet for net revenues! Will this pattern continue? If Starbucks continues to employ strategic competitiveness, take advantage of global markets, differentiate its product, and utilize the latest technologies, we say yes. Starbucks Which one of the 5 generic business strategies best matches Cataracts strategy? Why? I believe that of the generic strategies the best match to Cataracts strategy is that of the rivalry within the industry. This is the best match because there are a lot of different types of specialty coffee shops out their in the industry so the rivalry amongst all the competitors is very fierce. Of the other coffee shops it will tough for hem to match the price and popularity that Cataracts has on the rest of the competition.Other companies may be able to sell their coffee at a higher price but then the number of sales that they receive is going to be lower than that of Cataracts. The rivalry in the coffee shop market is very competitive but Cataracts has an advantage over the competition in the fact that it can charge a higher price then its competitors and still have more customers then the rest of the market. 2. Evaluate Cataracts social responsibility strategy. Is it sincere or Just something t o help with image?I believe that the social responsibility of Cataracts is sincere and not Just something to help promote their image. They want to make sure that the prices that they have paid for the coffee beans is high enough that the small farmers were able to cover all their productions cost as well as provide for their families. Cataracts also wants to work directly with small coffee growers, local coffee-growing cooperatives, and other hypes of coffee suppliers to promote coffee cultivation methods that protected biodiversity and were environmentally sustainable.Lastly Cataracts made purchasing arrangements that limited the exposure to sudden price Jumps due to weather, economic, and political conditions in the growing countries where they were getting their coffee beans. 3. What major issues face the company in mid 2010? In the mid 2010 people were not spending their normal amount on money, customers were more worried about saving their money because of the economic crisis. With Starbucks â€Å"To say Starbucks purchases and roasts high-quality whole bean coffees is very true. That’s the essence of what we do- but it hardly tells the whole story†¦(Starbucks, 2013, pg 1)† Starbucks is known for not only their high quality products but also their great efforts in social responsibility. They give back to the community while striving to have genuine service and an inviting atmosphere. Their mission statement is as follows, â€Å"It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done (Starbucks, 2013, pg 1). † They have done a tremendous job at having their mission statement hold true to their regular consumers while keeping them paying the higher costs of their product. Analysis Starbucks, in 2009, used economic analysis on elasticity in order to increase sales of their famous coffee drinks and use its reputation and premium brand drinks to take away sales from McDonalds which introduced a new line of lower priced espresso drinks that have proved to be popular. Starbucks has decided to increase the cost of some of their drinks like the Frappuccinos and caramel Macchiatos by an average of 10 cents to 15 cents. In some cases they are raising costs as mush as 30 cents which is about an 8 percent increase. Consumers that were regulars of Starbucks considered this beverage product to be in-elastic and were willing to pay anything because they need this product. An example of an in-elastic demand product would be anything that would be considered a necessity. For example, â€Å"the more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price, such as the case of insulin for diabetics (Gillespie, 2007, pg 28). † These regular consumers of Starbucks would be willing to pay top dollar for before purchasing the similar low priced product at their competitors. They know that competitors like McDonald’s does not offer all of the flavors or drinks that they offer so they know they will keep their regulars. To offset this increase, their strategy was to lower the price of their most popular beverages by 5 cents to 15 cents. This would include their popular 12 ounce lattes and their brewed coffees. This was the first time Starbucks lowered the price of any of its drinks since it began. The plan to reduce prices of their basic drinks like the latte falls on the fact that their competitors McDonalds is capturing some of the consumers that are less interested in the premium brands that Starbucks offers. By lowering the price of these coffees might bring some of those customers back. These consumers consider their beverage elastic and are willing to change the brand for a lower price. McDonalds was running a huge advertising campaign on the same sugary, creamy drinks that now at Starbucks will be more expensive but according to Kenneth Davids, editor of Coffee Review who states â€Å"Starbucks is safe raising the prices of specialty drinks because they are where the company best differentiates itself (Miller, 2009, pg 1). The consumers who value a great tasting coffee at Starbucks are consumers who are willing to pay more. Taste test comparing espresso drinks between Starbucks and McDonalds have proven that Starbucks drinks are favored over the same McDonalds drink. The difference between the standard lattes was not as noticeable then the advantage Starbucks has over McDonalds for their syrupy and whipped cream style drinks. Some of McDonalds drinks actually taste terrible. So a con sumer that expects the best tasting specialty drinks are will be willing to pay more. Like one always says, â€Å"you get what you pay for† and here it means a better tasting drink then any of Starbucks competitors. Conclusion Starbucks used economic analysis of the elastic and inelastic demand for their products which worked wonderfully. They lowered the prices of the elastic products in order to compete with their competitors such as McDonald’s McDonalds and raised the inelastic products for drinks that they proved to be the best of the best. With the changes in the pricing their revenue went back to increasing. As seen in Appendix A, in 2009 they were hurting due to McDonald’s new advertisements on their coffee and how low their price was. When Starbucks used this analysis and changed the pricing accordingly their revenue went back in the upswing. Starbucks made a very intelligent decision to market their products differently and to different consumers. This market decision based on elastic and inelastic demand kept them as successful as they have been in previous years by keeping their revenues increasing. Starbucks â€Å"To say Starbucks purchases and roasts high-quality whole bean coffees is very true. That’s the essence of what we do- but it hardly tells the whole story†¦(Starbucks, 2013, pg 1)† Starbucks is known for not only their high quality products but also their great efforts in social responsibility. They give back to the community while striving to have genuine service and an inviting atmosphere. Their mission statement is as follows, â€Å"It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done (Starbucks, 2013, pg 1). † They have done a tremendous job at having their mission statement hold true to their regular consumers while keeping them paying the higher costs of their product. Analysis Starbucks, in 2009, used economic analysis on elasticity in order to increase sales of their famous coffee drinks and use its reputation and premium brand drinks to take away sales from McDonalds which introduced a new line of lower priced espresso drinks that have proved to be popular. Starbucks has decided to increase the cost of some of their drinks like the Frappuccinos and caramel Macchiatos by an average of 10 cents to 15 cents. In some cases they are raising costs as mush as 30 cents which is about an 8 percent increase. Consumers that were regulars of Starbucks considered this beverage product to be in-elastic and were willing to pay anything because they need this product. An example of an in-elastic demand product would be anything that would be considered a necessity. For example, â€Å"the more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price, such as the case of insulin for diabetics (Gillespie, 2007, pg 28). † These regular consumers of Starbucks would be willing to pay top dollar for before purchasing the similar low priced product at their competitors. They know that competitors like McDonald’s does not offer all of the flavors or drinks that they offer so they know they will keep their regulars. To offset this increase, their strategy was to lower the price of their most popular beverages by 5 cents to 15 cents. This would include their popular 12 ounce lattes and their brewed coffees. This was the first time Starbucks lowered the price of any of its drinks since it began. The plan to reduce prices of their basic drinks like the latte falls on the fact that their competitors McDonalds is capturing some of the consumers that are less interested in the premium brands that Starbucks offers. By lowering the price of these coffees might bring some of those customers back. These consumers consider their beverage elastic and are willing to change the brand for a lower price. McDonalds was running a huge advertising campaign on the same sugary, creamy drinks that now at Starbucks will be more expensive but according to Kenneth Davids, editor of Coffee Review who states â€Å"Starbucks is safe raising the prices of specialty drinks because they are where the company best differentiates itself (Miller, 2009, pg 1). The consumers who value a great tasting coffee at Starbucks are consumers who are willing to pay more. Taste test comparing espresso drinks between Starbucks and McDonalds have proven that Starbucks drinks are favored over the same McDonalds drink. The difference between the standard lattes was not as noticeable then the advantage Starbucks has over McDonalds for their syrupy and whipped cream style drinks. Some of McDonalds drinks actually taste terrible. So a con sumer that expects the best tasting specialty drinks are will be willing to pay more. Like one always says, â€Å"you get what you pay for† and here it means a better tasting drink then any of Starbucks competitors. Conclusion Starbucks used economic analysis of the elastic and inelastic demand for their products which worked wonderfully. They lowered the prices of the elastic products in order to compete with their competitors such as McDonald’s McDonalds and raised the inelastic products for drinks that they proved to be the best of the best. With the changes in the pricing their revenue went back to increasing. As seen in Appendix A, in 2009 they were hurting due to McDonald’s new advertisements on their coffee and how low their price was. When Starbucks used this analysis and changed the pricing accordingly their revenue went back in the upswing. Starbucks made a very intelligent decision to market their products differently and to different consumers. This market decision based on elastic and inelastic demand kept them as successful as they have been in previous years by keeping their revenues increasing.