Brief history of Starbucks

The first Starbucks was founded in 1971 by Jerry Baldwin, Gordon Bowker and Zev Siegel in Seattles Pike Place Market. The initial goal of these thriving entrepreneurs was to provide fine coffee brewing equipment and high quality, whole-bean coffee beans to consumers in the United States. 1982, Howard Schultz was hired as the Marketing Manager for Starbucks. While visiting Italy Schultz realized that providing coffee brewing equipment was not the only service coffee lovers in the United States needed. By the end of 1983 Starbucks began selling their now core product, coffee by the cup. In 1987 Schultz became president of the Starbucks company and began to focus on the actual and augmented levels of the coffeehouses. Schultz began with the actual product levels by changing the company logo to green. Then he focused on the augmented level by adding atmosphere to the coffeehouses. Schultz was determined to provide an atmosphere of relaxation and to create the perfect social scene. The atmosphere allows the customer the opportunity to fully enjoy their coffee experience. In the 1990s Starbucks took further steps to expand the Seattle headquarters and an increase in resources with the opening of a new roasting plant. In 1996 alone Starbucks added a store a day and matched that in 2007 by adding an additional 325. Expansion into foreign markets began in 1996 when the company ventured into Japan and Singapore. By the year 2000 Starbucks had a host of 3,300 stores open in countries ranging from England to Australia and in the coming years continued to open more stores in Zurich, Switzerland and Austria to start with. It has been named in Fortunes Top 100 Companies to work for, Most innovative company and BusinessWeeks Top 25 Companies Providing Superior Customer Service

Introduction
Starbucks is a retailer of specialty coffee in the world. Coffee, initially only consumed by the upper class of society, was perceived as a luxury and only consumed within special coffee bars hidden in the shadows of western society, the first organization which brought coffee outside of shadows and into the limelight was Starbucks. Even now, the company has evolved to be a household name and transformed the commodity of coffee from a luxury into an upscale culture phenomenon. More and more local people outside America are familiar with Starbucks coffee shop around the world and poses new opportunities for the extend of Starbucks enterprises. Hence, it is essential to detect trends and understand strategic issues that stem from a global economy. The success of Starbucks lies in its ability to create personalized customer experiences, stimulate business growth, generate profits, energize employees, and secure customer loyalty-all at the same time (Machelli, 2006). For Starbucks, their knowledge of where the finest coffee beans are grown, the knowledge of how best to prepare them in order to make the best cup of coffee and also the knowledge of how best to approach a foreign market as, of their industry competitors, they are the most successfully globalized. In this report, I will evaluate the international expansion process of Starbucks coffee shop, a leading group in the worldwide coffee market, determine how the company has gained plus maintained such a large customer base by implementing changes in their product, operation, strategy and finally give some recommendations for improvement and development or the brand.

Observations
Starbucks Coffee has been established as one of the most recognizable and successful coffee brands in the world.

Starbucks mission statement from the company profile is as follows:

Our mission is to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time. Starbucks Coffee None of this success would have been possible without a set of goals that the company aimed to achieve and a set of principles, which governed the decision making process. Starbucks has a clear set of guidelines, which has to be followed and uses these as a direction tool for the future of the business. Traditionally, the guidelines would more appropriately be connected to the vision; however the company has set them with the mission statement. The six principles of Starbucks are stated as Provide a great work environment and treat each other with respect and dignity, Embrace diversity as an essential component in the way we do business, Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee, Develop enthusiastically satisfied customers all of the time, contribute positively to our communities and our environment, and recognize that profitability is essential to our future success (starbucks.com). Application of these principles can be used as a guideline for all employees from managers to workers to aim to achieve the companys goals, while maintaining a certain type of standard. This mission statement along with the set of guidelines provides a focus for employees as they make strategic decisions. It not only supports the employees, but supports the customers as well, making a note that they should satisfied all of the time. The mission shows alignment with the vision by stating how the company plans to reach the broad goals set by the vision statement. Another supporting sentence in the mission statement is that the company applies the highest standards of excellence to the purchasing, roasting and fresh delivery of its coffee. This statement supports the idea that Starbucks uses the best available resources to give it a recognized and respected name. The overall company operations are based around purchasing and roasting high-

quality whole bean coffees and selling them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, coffee-related accessories and equipment. This is achieved through the huge number of company operated retail stores, a specialty sales group, supermarkets, a direct response business and also on the World Wide Web at the Starbucks.com website (starbucks.com).

Starbucks product classification:

Starbucks coffee is a hybrid offering equal parts of product and services. Starbucks is in the service industry with well-trained employees but offers tangible consumer goods. One Starbucks employee stated, "We are in the people-development business almost as much as the coffee business".

Starbucks target market:

In the early stages Starbucks targeted coffee enthusiasts; well-educated, middle class business people seeking quality, convenience and relaxed social setting. Over time they have expanded their target market to younger, less welleducated, lower income patrons. But managed to maintain the original target market. At present, Starbucks in a mature stage of its lifecycle. It was founded almost 40 years ago and it has experienced rapid growth in the last 2 decades.

Starbucks Initial business strategy dedicated to selling only the

finest coffee brewing equipment and rich, gourmet coffee did get them early success but they remained a small-time Seattle operation until Howard Schultz became a part of the company.

Strategies for growth

Howard Schultz led Starbucks to expansion through Market, Product development, and diversification. (The Coffeehouse Strategy). They expanded their demographic and geographical markets, added new products to existing markets and ventured into adopting new products and markets. In doing so Starbucks differentiate itself from other vendors of beans and equipment. Schultz positioned his strategy on what the customer may touch, hear, smell, and taste when visiting the stores.

Production-Operations

Starbucks stores are typically clustered in high-traffic, high-visibility location in each market. Whatever location the Company chooses to be in, its focus will be on attracting high pedestrian street traffic. The product mix in each store varies depending on the size and location of the store. Starbucks takes great care in picking the right location

Brand Equity

Discover the finest coffee in the world Starbucks

Starbucks has customer-based brand equity. Added value is endowed on products, services and ensuring that customers have the Starbucks experience. The brand equity is reflected in the way consumers think, feel and act with respect to the brand, as well as in the prices, market share and profitability the brand commands for the firm

Customer Equity
The company sees a direct link between customer satisfaction and customer loyalty and aims to provide personalized services. The customer equity is reflected on the service provided by employees/partners.

Brand Positioning
Schultz carefully designed the Starbucks stores to enhance the quality of their: Store Atmosphere: The overall goal was to give customers a sense of community and a place they could relax and be social in. Physical appearance: Upscale and inviting layout as well as comfortable seating areas to encourage lounging. Aromas: Smoking is banned in all stores. Sounds: Soothing music is played throughout the day.

Starbucks positions their products on a relatively simple plane. They focus on quality and experience, rather than price. A comparison of specialty drinks with its competitors reveals very minor differences. Starbucks image is one of the key elements to their success. The company has realized that people dont only come for the coffee; they come for the atmosphere. People socialize, read, study, or just enjoy the music while drinking their coffee. Knowing this, Coffee shops try to make their stores unique in some way or another that will create an appealing atmosphere. Starbucks has less of a distinct setting for their locations; instead, they focus on

having plenty of comfortable seating so that people feel welcome to stay longer than they might have planned. Starbucks also positions each store individually according to the specific location it is in. This flexibility has attributed to the great success of the Company in the past decade. Another important part of Starbucks positioning is that they are environmentally friendly. While other retailers position themselves in similar ways, no one focuses to the extent that Starbucks has. Consumers seem to respond to environmentally friendly companies who seem to truly care about the future of the world.

Crossing Cultures: Strategies Used For Its International Expansion:

Starbucks began to adjust its business strategy to exploring foreign opportunities. Schultz and his team realized that American consumers accounted for only 20% of the worlds coffee market. Recognizing this, Starbucks turned its attention to foreign markets for continued growth.

The main business strategies for international expansion included:

Licensing and Joint Venture Starbucks operates primarily through joint ventures and licensing arrangements with consumer products business partners. Partnering with local business people allowed Starbucks to utilize the partners local knowledge and to leverage its capital to expand more rapidly. In 1996, Starbucks invested $1.5 million and established a subsidiary called Starbucks Coffee International, Inc. Maintaining quality Schultz and his managers invested in employee training and a strong employee benefit program so that they could attract and retain skilled employees who would enhance the customers experience. Schultz maintains that Starbucks sustainable competitive advantage is the quality of their workforce. Blanket an area completely Starbucks strategy is simple: blanket an area completely even if the stores cannibalize one another.

Starbucks Marketing Mix

Advertising strategies used by Starbucks has also been a key success factor. Starbucks has found more success advertising on a local level rather than to the nation as a whole. In order to maximize their brand awareness and establish themselves as the most recognized and respected brand in the world and within their target market, Starbucks implemented a well-integrated marketing program that would utilize a marketing mix (product, price, place, and promotion) that would satisfy the needs and wants of its target market. The four elements of marketing mix that Starbucks utilized are as follows Product Starbucks would not alter its coffee and related beverages but would vary its food offering to meet local tastes. Price Starbucks products are priced higher due to perceived upscale image attached to its brand. Place Starbucks can be found in any neighborhood where there is a perceived high traffic for its stores. Starbucks has branches all over the globe in Argentina, Australia, Chile, Singapore, Japan and the UK. Promotion The Company advertises a lot through print mediums, as Starbucks target market tends to be educated people who do more reading than the average person. Advertising mediums include: Billboard ads, newspaper or posters. A website, designed to collect suggestions and feedback from customers. Starbucks cards with special benefits for card holders. My Starbucks reward program allows members to earn a free drink after every 15 purchases at participating Starbucks stores.

Starbucks wants its customers, and potential customers to perceive them as a company that has a positive impact on the world. This is one of the ways Starbucks is using marketing concepts to strengthen its marketing strategy of a differentiator.

SWOT Analysis
Strengths Starbucks offers a wide range of coffee-products sold throughout the companys retail operations. Quantitative market research and extensive focus groups are leveraged to strengthen product portfolio before entering new markets. Operations set up around the world have allowed the company to establish itself as a global coffee brand and continued to build upon a reputation for fine products and services. Starbucks is a respected employer with strong customer satisfaction and mission statement. Starbucks stores offer a wide choice of coffee beverages in both US and international markets. It also offers a variety of fresh food items, catered to local tastes. Such an extensive product offering enabled the company to enhance its reach, cater to a wider customer base and meet their diverse needs efficiently. The core strength behind Starbucks's brand is the quality of its products. The company has a strong research and development team hired to enhance the technical development of food and beverage products and new equipment. Starbucks's strong research and development capabilities enable it to focus on relevant product innovation, expansion and leveraging of its existing products and sales channels. Starbucks invests substantial amount of resources on employee training, employee benefits and development activities. Starbucks's focus on quality and product innovation to help sustain the brand value of the company and introduction of new products at regular intervals helps them to stay

competitive. Starbucks is well positioned to increase its revenues, customer base, and profit margins through its expanded presence in international markets. Weaknesses The organization has a strong presence in the United States of America with more than three quarters of its cafes located in the domestic market. Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time, and product acceptance will come to a halt eventually slowing growth. Starbucks has higher coffee prices compared to competitors.

Product recalls due to unfavorable responses in new markets can hurt the value of the Starbucks brand and lead to a decline in the demand for its products. More than 75% of the companys stores are in the USA, which only accounts for 20% of the worlds coffee market. Costs to uphold the brand as a retailer of specialty coffee in the world are transferred unto the products itself. Opportunities Opportunities for revenue growth by expanding its global operations. Growth in coffee markets. Co-branding with other manufacturers and partnering with local

business partners in overseas markets. Entry into Europes ready-to-drink coffee sector and an introduction of Starbucks coffee in Japan and Singapore helped the company to gain access into the international growth opportunities. Co-branding and partnering allowed Starbucks to expand its brand to manufacturing new food and drinks. Starbucks has a market share of over 40% of the special coffee market. Therefore growth in the coffee markets would result in opportunities for further growth and expansion in the near future. Threats

Coffee may not stay in favor with the customers and another type of beverage or leisure activity could replace it. Rises in costs of dairy products and increased minimum wages could affect the companys margins. Slowing US retail sales. Continued threat in the coffee competition. Market saturation. Cultural challenge.

By the end of 1997 Starbucks had employed over 30,000 employees since Schultz joined the company. They now employ about 142,000 people in the US alone. Increased labor costs could increase overall costs and affect the company's operating margins. Product and equipment costs would definitely play a factoring role in the companys operating margins. As a retailer dependent upon consumer discretionary spending, Starbucks will face an extreme challenge. Consumers also have less money for discretionary

purchases as a result of job losses, foreclosures, bankruptcies and reduced access to credit. A decrease in consumer confidence and the resultant curbed consumer spending would result in decreases in customer traffic and average value per transaction. Starbucks's business is highly sensitive to changes in customer traffic, and the current economic downturn would put downward pressure on the company's margins. Increasing health consciousness among Americans could reduce demand. Starbucks's products contain caffeine, dairy products, sugar and other active compounds, the health effects of which are the subject of increasing public scrutiny. It is suggested that excessive consumption of caffeine, dairy products, sugar and other active compounds can lead to a variety of adverse health effects. Particularly in the US, there is increasing consumer awareness of health risks, including obesity, due in part to increasing publicity and attention from health organizations, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food products. Increasing health awareness among American consumers could significantly reduce the demand for the company's beverages and food products. Stiff competition from well-established players is a continuing threat to Starbucks. Competitors are selling similar products including specialty coffees and high quality foods as well. Competition for suitable sites to locate stores has become intense. Many of established suppliers have greater financial and marketing resources than Starbucks. So Starbucks has to compete against them for attractive locations and for qualified personnel to operate its retail stores. People are not attracted to Starbucks for the coffee but for the different experience. The pursuit of success in the foreign markets is very important in

exporting the unique nature of shopping at Starbucks, like its unique corporate culture, coffee services, exclusive taste, etc. All of them differentiate Starbucks from other competitors in the industry. Different regions are susceptible to different forms of employee culture and great care must be taken in providing the best unique to each culture.

Conclusion and Recommendations

Overall Starbucks has maintained a competitive advantage since bringing quality, bistro-style coffee choices to the masses. It has matured from a single privately-owned coffee shop to becoming a publicly-owned corporation with over 10,000 stores in 37 countries worldwide, Starbucks has been through some growing pain to where the Company stands now, all because of the vision of its founder Howard Schultz. The Company has been very successful in achieving its goal to become the world's leading coffee brand. Starbucks Corporation is the world leader in their industry. The scores, generally low, reflect this leadership position. Starbucks has found ways to minimize the threats in each industry force. The company's size offsets many of the threats of competition. Starbucks' ability to innovate and differentiate has minimized the risk of potential entrants. Efforts to integrate Starbucks into the home have minimized threats of customer bargaining power. Starbucks has offset the potentially high bargaining power of its suppliers by issuing coffee guidelines, and paying premium prices for suppliers who can meet these guidelines.

From the material presented, it can be seen that there are two important
points for Starbucks international expansion process: 1) which foreign markets to enter and 2) the strategies adopted for that entry. The latter is worth a rethink, even after Starbucks had decided to enter into a specific country or area in the world, since the investment outside its home country incurs high risks, such as culture shock, government policies and existing competitors. Its experiences or lessons are also valuable for the development of the hotel industry around the world. As international trade and business expand, there is no question that international linkage will become more important for the hotel industry. Unlike Starbucks, the common and more useful expansion strategies for hotels probably are establishing wholly owned subsidiaries and the forming of a strong related hotel chain for comparative advantages, especially in developing countries. Nevertheless, after a thorough marketing audit, the following summarizes some

areas of Starbucks weakness, because the Company's full efforts has been focused on store expansion and new market discovery, Starbucks may have neglected some consumers' concern of the Starbucks brand is too pricy. It appears that Starbucks' main marketing segment is the young adults with its coffee shop setting and music service additions. There does not seem to be any special services being offered to older adult retirees. Since the Company has been concentrating on developing more blends of coffee drinks, Starbucks may have over looked the potential market of different healthy tea drinks. Although Starbucks maintains a top-notch management team, the Company does not seem to have a well-organized consumer relations department. One of Starbucks' guiding principles is to create a pleasant work environment for its employees.

While it is good to maintain brand prestige with a higher pricing strategy,

Starbucks should consider the general demand and work a price reduction strategy into the Company's overall pricing strategies. Price reduction strategies may include a rebate or coupon promotion program. The increase in sales will offset the costs of these price reduction programs. They may offer economic packages during tough economic times like some lower priced coffee, a buy one get one free coupon for repeat customers, or free refills on soft drinks and juices etc. Starbucks has the potential for finding a new type of growth strategy once the International growth strategy is no longer beneficial. I believe that in this case Starbucks will need to concentrate on its core competency, high quality coffee products, and use a Concentration growth strategy. Starbucks will stay in the same industry, so the two main sub-strategies would be Product Development, and Product-Market Diversification. The company could demonstrate Product Market Diversification through research and development, and creativity. The company could be extra sensitive to changes in customer tastes, and the external environment. In doing so Starbucks could quickly react to environmental changes and make sure to entice as many people as possible into their stores. For example, While active young adults are more likely to be coffee shop patrons, the older generation/retirees may also want to have a hang out place. Starbucks should consider tailoring some of its coffee shops to accommodate these older adults, perhaps another line of special drink products and services. Starbucks could start a line children's fruit drinks and "yummy" milkshakes which would help bring families into the store. This way the mothers and fathers could go to Starbucks and get their favorite coffee drink while making their children happy. Besides concentrating on coffee specialties, Starbucks should also consider researching into the tea specialty drinks market. Tea drinks will increase popularity because their perceived value of healthy benefits. Starbucks may need to review its company policies to see if updates are needed to address different consumer relation situations. Sometimes managers may not

be able to act immediately and appropriately to settle consumer issues because they are abided by rather strict company policies. For some situations these policies need to be more flexible to ensure problems are being resolved in a timely manner to minimize further damages. The interiors of each Starbucks are all the same and tend to get quite boring; the younger generation is more likely to get their coffee to go. Just as neighborhoods and various cultures are unique, the store needs to bring some uniqueness as well. Employees are the backbone of a company. Starbucks may consider locality pay to compensate employees who are working in Starbucks store where the local living cost is much higher compared to other towns. This compensation my help build a better worker relation since the primary concern of the Union was the claim that Starbucks does not have a fair pay system. Focusing on the development of employees so that they can deliver that experience is their priority. In order to stay current it will need to focus on its core competencies and avoid spreading themselves to thin. To avoid competitors such as McDonalds and other coffee chains, they will need to create new value innovation by enhancing the customer experience by investing in online content and interactivity. Some store improvements that I would recommend are charging stations for cellphones, MP3s, laptops etc. TV and radio advertising may be considered to ensure and restate the companys dominance in diversification and focus of specialty coffee. I think Starbucks strength lies in their brand and by enhancing the connection to their loyal customers; they will separate themselves from competitors like McDonalds and others.