1.1. COMPANY PROFILE

Starbucks Corporation is an American global coffee company and coffeehouse

chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in

the world, with 20,891 stores in 62 countries, including 13,279 in the United States,

1,324 in Canada, 989 in Japan, 851 in the People's Republic of China, 806 in the

United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in the

Philippines, 179 in Turkey, 171 in Thailand, and 167 in Germany.

Starbucks locations serve hot and cold beverages, whole-bean coffee, micro ground

instant coffee, full-leaf teas, pastries, and snacks. Most stores also sell packaged food

items, hot and cold sandwiches, and items such as mugs and tumblers. Starbucks

Evenings locations also offer a variety of beers, wines, and appetizers after

4pm. Through the Starbucks Entertainment division and Hear Music brand, the

company also markets books, music, and film. Many of the company's products are

seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee

are also offered at grocery stores.

From Starbucks' founding in 1971 as a Seattle coffee bean roaster and retailer, the

company has expanded rapidly. Since 1987, Starbucks has opened on average two

new stores every day. Starbucks had been profitable as a local company in Seattle in

the early 1980s but lost money on its late 1980s expansion into the Midwest

and British Columbia. Its fortunes did not reverse until 1990 when it registered a

small profit. By the time it expanded into California in 1991 it had become

trendy. The first store outside the United States or Canada opened in the mid-1990s,

and overseas stores now constitute almost one third of Starbucks' stores. The company

planned to open a net of 900 new stores outside of the United States in 2009, but has

announced 300 store closures in the United States since 2008.

Millions of people all over the world walk into Starbucks every day for their cup of

coffee, but it is more than the overpriced coffee that brings people in day after day to

the Starbucks stores across the world. Starbucks offers an upbeat environment and

friendly and helpful staff to assist customers in any question or problem they might

have with the coffee or service. People buy Starbucks for what it represents and the

status symbol that comes along with it. Although various business models exist, the

principles and structure of Starbucks is a good model to follow, due to its national and

global success. The researcher examines how Starbucks is financially succeeding as a

corporation even through hard economic times. By looking at the industry and

company situational analysis, the researcher will determine where Starbucks stands in

the world coffee industry. The researcher will then discuss why Starbucks is a

successful international business and the implications of being an international

business. The last thing that will be discussed is the strategy recommendations for

Starbucks, and how to go about implementing those strategies.

With the economy in trouble, the stock market tanking it is important to start your day

with a good cup of coffee to take on these challenges.

In 1971, the original Starbucks opened in Pike Place Market in Seattle, Washington

by three partners named Jerry Baldwin, Zev Siegel, and Gordon Bowker. Their focus

was to sell coffee beans and equipment. They purchased green coffee beans from

Peet’s, a specialty coffee roaster and retailer, during their first year of operation.

Later, they began buying coffee beans directly from the growers. In 1983, an

entrepreneur by the name of Howard Schultz joined the company; Schultz felt that the

company should sell coffee and espresso drinks as well as coffee beans. The partners

felt that selling coffee and espresso drinks would take away from their primary focus

of selling coffee beans. Since the idea did not work, Schultz started his own company

called II Giornale coffee bar chain in 1985. In 1987, the original owners of Starbucks

sold their chain to Schultz’s II Giornale. Schultz changed II Giornale outlets to

Starbucks chains and quickly began to expand.

Starbucks coffee has grown into the largest coffeehouse company in the world with

16,120 stores in 94 countries such as in Australia, Canada, China, Puerto Rico, etc.

Starbucks has thirty blends and single origin coffee. Starbucks brand coffee can also

be purchased in local stores to brew at home. Starbucks employs over 140,000

employees worldwide with over five million customers a week. At one point they had

typical customers coming in on an average of six times a month while loyal customers

come in on an average of eighteen times a month spending averaging $50. Starbucks

is one of Fortune magazine’s 100 Best Companies to work for in 2008 and is Business

Ethics 100 Best Corporate Citizens for the fourth year.

1.2. MISSION STATEMENT

Establish Starbucks as the premier purveyor of the finest coffee in the world while

maintaining our uncompromising principles while we grow. The following six

guiding principles will help us measure the appropriateness of our decisions:

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.

Recognize that profitability is essential to our future success.

1.3. VISION

Starbucks has a vision statement but they call it their mission statement. The entire

statement can be read on the official Starbucks website. The mission statement

explains the principles that Starbucks lives by and how they feel about different

things. Subjects included in the mission statement include their coffee, partners,

customers, stores, shareholders and the neighborhoods that Starbucks stores are found

in. They claim that they are committed to inspire and nurture the human spirit.

1.4. HISTORY

The first Starbucks opened in Seattle, Washington, on March 30, 1971 by three

partners who met while students at the University of San Francisco:[10] English

teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. The

three were inspired to sell high-quality coffee beans and equipment by coffee roasting

entrepreneur Alfred Peet after he taught them his style of roasting beans. Originally

the company was to be called Pequod, after a whaling ship from Moby-Dick, but this

name was rejected by some of the co-founders. The company was instead named after

the chief mate on the Pequod, Starbuck.

The first Starbucks cafe was located at 2000 Western Avenue from 1971–1976. This

cafe was later moved to 1912 Pike Place Market; never to be relocated again. During

this time, the company only sold roasted whole bean coffees and did not yet brew

coffee to sell. During their first year of operation, they purchased green coffee beans

from Peet's, and then began buying directly from growers.

In 1984, the original owners of Starbucks, led by Jerry Baldwin, took the opportunity

to purchase Peet's. During the 1980s total sales of coffee in the USA were falling, but

sales of specialty coffee increased, forming 10% of the market in 1989, compared to

3% in 1983.By 1986 the company had 6 stores in Seattle and had only just begun to

sell espresso coffee. In 1987, the original owners sold the Starbucks chain to former

employee Howard Schultz, who rebranded his Il Giornale coffee outlets as Starbucks

and quickly began to expand. In the same year, Starbucks opened its first locations

outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago,

Illinois. By 1989 there were 46 stores across the Northwest and Midwest in 1989 and

Starbucks was roasting over 2,000,000 pounds (910,000 kg) of coffee a year. At the

time of its initial public offering on the stock market in June 1992, Starbucks had

grown to 140 outlets and had a revenue of $73.5m, up from $1.3m in 1987. Its market

value was $271m. The 12% portion of the company sold raised the company around

$25m which would help it double the number of stores over the next two years. By

September 1992, the share price had risen 70% to over 100 times the earnings per

share of the previous year.

2.1. SWOTANALYSIS

SWOT analysis will be used to evaluate Starbucks’s Strengths, Weaknesses,

OpportunitiesandThreats.

2.1.1. Strengths

‐ Leading retailer and roaster for brandspecialtycoffeeintheworld;

‐ Brand image with the motto ‘TheStarbucksExperience’;

‐ 17000storesacross57countries; 1500inChinaalone;

‐ Strongbalancesheet;

‐ One of the strongest franchises in theworld with more than 6500 licenses

2.1.2. Weaknesses

‐ High pricing which not everyone canafford;

‐ Starbucksrefusestoguaranteethatmilk, beverages, chocolate, ice cream, andbaked

goodssoldinthecompany’sstoresare free of genetically‐modifiedingredients;

‐ FocusedmoreonUSdomesticmarket;

‐ Starbucks Workers Union was made7shopsintheworld;

‐ Starbucksisknownforprovidingsuperiorproductsandservices;

‐ Have loyal customers in every countrythathasentered;

‐ Sophisticated atmosphere, music,interiordesignandartwork;

‐ Havealotofflavorsvariation;

‐ Limitednumberofstrongcompetitors;

‐ Highmarketshareandmarketgrowth.

because some employees complain about the management style within thecompany;

‐ NoexperienceincountrieslikeIndia. Opportunities

‐ Highconsumerisminemergingmarkets;

‐ Easier to penetrate market becauseStarbucks is selling as experience, notjustasimple

product;

‐ Many of Starbucks coffee are usingorganicbeans;

‐ SomeofStarbucks’sbeansareharvestedin Indonesia island of Sumatra andSulawesi.

Starbucks are purchasing atpremium prices to support localcommunity and

sustainable production. Starbucks pays an average priceof$1.20per pound against the

commodityaveragepriceof$0.40–0.50perpound;

‐ FairTradeProductscanbeoffered.

2.1.3. Threats

‐ Globalfinancialcrisismadepeoplespendless on good that are not regarded as

necessities;

‐ Increasinghealthconcernofthenegativeeffectofcoffee;

‐ Starbucks domination is driving smallcafesoutofthebusiness;

‐ Threat of substitute products in cultureswhere there is a strong preference fortea,

likeChina, India and UK.

2.2. SITUATIONAL ANALYSIS

Starbucks is currently one of the top contenders in the coffee industry. It is aware of

the stiff competition and is prepared to combat it however possible. In order to better

determine Starbucks’ situation in the specialty coffee industry, it is important to look

qualitatively and quantitatively at its current strategy. An analysis of the company’s

strengths, weaknesses, opportunities, and threats, SWOT analysis, and a strategic

issues analysis will breakdown its strategy and provide positive and negative feedback

on the company as a whole. Starbucks has done many things to help its company

grow and expand into the transnational business that it is today. Its high quality

differentiation strategy allows it to focus on pleasing the customer in every way

possible. Its introduction of wireless internet and the Starbucks Digital Network

allows it to provide a better experience for its customers and increase its sales

compared to the company’s previous performance. If people stay at Starbucks for

longer periods of time, they are more inclined to buy more beverages or food and

music from the online stores that Starbucks is partnering with in its Digital Network.

Starbucks is going to be able to sell its music, as well as other forms of media through

its introduction of wireless internet. In January, an announcement was made that sales

increased by 4% after months of decline after the introduction of the wireless internet

(Miller, 2010). Wireless internet is a major strategic asset to Starbucks, and it will

continue to help them in the future countries that they introduce it to. Another

strategic asset to the company is the decision to enter India as a new international

destination for business. India has a growing economy and upper and middle classes;

because of this, Starbucks will be able to help open the eyes of its citizens to specialty

coffee (Bose, 2011). Although a store has not been opened yet, India has a high

propensity for the specialty coffee industry as it becomes more industrialized. Its

citizens are starting to refrain from tradition and embrace new and trendy styles.

Another major country for Starbucks to explore is China. Starbucks recently entered

China, and it is focusing on the growth potential that China currently has with coffee

sales growing 9% just last year (Burritt, 2010). With continual growth in China,

Starbucks will be able to take on McDonald’s as it begins to expand its coffee

business. China is currently on its way to being the second-largest coffee market,

leading Canada, the United Kingdom, and Japan (Burkitt, 2010). This means that

Starbucks will see significant profits rise as its new star target market begins to rise.

Starbucks has a strong transnational strategy that will allow it to continue to achieve

success in the years to come.

In order to completely understand how Starbucks is doing in the specialty coffee

industry, it is important to look at their numbers. In the last five years, Starbucks has

had a major dip in its stock price. Its stock price went from $35 in 2007, down to less

than $10 in 2009, and it has just gone up to the low $30’s recently in 2011. The

economic crisis throughout 2008 and 2009 really hurt Starbucks’ stock price. The

important aspect to learn from the hit that it took is that it was able to overcome the

loss. Starbucks is on track to continue to keep its stock price high. Although

Starbucks’ stock price plummeted during the midst of the financial crisis, its net

revenues did not. Starbucks’ profits went from $7.8 billion in 2006, to $10.4 billion in

2008, down to $9.8 billion in 2009, and back up to $10.7 billion in 2011 (Starbucks

Corporation, 2010). The economic crisis that caused many companies to fail barely

put a damper on Starbucks’ revenue. A company that can endure an economic crisis

and still come out stronger than when its stock price was through the roof, is a

company that will not be taken down easily. The stores opened at the year’s end in

2006 have also continued to grow in the last five years. There were 12,440 stores

open worldwide in 2006, 16,680 in 2008, and 16,858 in 2011 (Starbucks Corporation,

2010). Starbucks has realized the importance of expanding its business worldwide in

order to create a larger target market. It has also maintained growth and revenue

during times of economic failure in their main market. Starbucks has faced a lot of

challenges these last five years, but it has made it out on top and will continue to

expand and succeed.

2.3. INDUSTRY SITUATIONAL ANALYSIS

Millions of people around the world thrive on their morning, afternoon, and

sometimes evening coffee. Due to the massive amount of consumers for the coffee

industry, there is also a lot of competition for those consumers. Coffee has been

around for a long time, but the competition of coffee retailers has just recently

sprouted with coffee sales rising more than50%in 2007 (Burritt, 2007). The main

competitors that will be examined in this thesis are Starbucks, McDonald’s McCafe,

and Dunkin DonutsCoffee.

The dominant economic characteristics of the industry environment have to be

examined in order to determine where the industry is headed, and why Starbucks is a

good model to follow. The coffee industry is continuing to grow despite the

increasing costs for coffee from January of 2009’s 108.39 U.S. cents per lb. to

December of 2010’s 184.26 U.S. cents per lb. ("International Coffee Organization

Prices," 2010). The almost 200% increase in the price of the coffee bean over the last

two years has hurt the overall profits of everyone in the coffee industry. The price has

been rising, not simply due to the price of coffee itself, but because of the supply

chain and the current economic situation around the world. Last year Starbucks had to

raise prices globally, but especially in the United States and China, due to rising

prices for coffee and other ingredients, but this year they are taking the hit from the

rising coffee prices for the consumers (Baertlein, 2011). Although the prices of coffee

had to be raised globally due to the high demand of the product and the cost of

producing it, there is still a strong outlook for the coffee industry because of the large

consumer base of the industry. The coffee industry is expected to continue growing

through at least the year 2015 and even longer in other emerging markets around the

world (Lingle, 2007). Even if the market in the United States begins to decline, there

are other emerging markets for the specialty coffee industry. Due to Brazil’s rising

economy, it is set to be the biggest coffee drinking country in the world with recent

coffee consumer growth of 39% from2000 to 2009 (Murphy, 2011). With Brazil’s

upper and middle classes expanding, it has more money to spend on specialty coffee

and other superfluous items. Brazil could be the single most important economy to

invest in for the coffee business, if its economy continues to grow.

India is another major source of economic growth. Starbucks plans to open its first

shop in India this coming year, as well as begin buying coffee from India (Bose,

2011). India is also one of the emerging markets throughout the world that is

becoming a spending oriented country. Due to its economic progress, its upper and

middle classes are more able to spend money on coffee and other items that might not

have been thought of as a necessity in the past. The coffee industry is definitely

growing at a fast pace, and the company that can embrace a worldwide frontier will

win the battle for market leadership among the many competitors.

Many other factors are driving the coffee industry and transforming it into what it is

today. The key success factors of competitors in the coffee industry are innovation,

marketing, and expansion. With coffee prices rising, companies have to find a way to

either reduce their prices on their coffee, or find a reason to justify the price increases.

Innovation through new types of coffee or new drinks can allow companies to have an

upper hand in the market. Marketing is also a key in any business, and especially the

growing specialized coffee industry. McDonald’s McCafe markets its low price

strategy (Burritt, 2007). Dunkin Donuts, on the other hand, markets that it simply has

better coffee and more to choose from on its menu (Dicarlo, 2004). Starbucks’ claim

to fame has always been its high quality and large varieties of coffee. With all of the

mounting competition, Starbucks made a bold move by introducing free wireless

internet and a Starbucks Digital Network that will allow access to sites such as the

Wall Street Journal, iTunes, and more that normally require a fee (Miller, 2010). This

new added bonus for consumers will magnify Starbucks’ high quality image in their

eyes. It is exactly what Starbucks needed to improve its image after facing brutal

competition from McDonald’s who was also offering wireless internet.

Expansion is another key to success in this market. With much of the consumer

market for specialty coffee existing around the world, the competition is not just in

the United States. The nations of Brazil, Russia, India, and China, also known as

BRIC, areall evolving economic economies that are going to be crucial in world in the

years to come. Early entry into the market of these countries is a key to winning over

the large and increasing upper and middle class (Nichols, 2011). These key success

factors are important for each of the members of the specialty coffee industry.

Driving forces that shape the industry are a key element that every competitor in the

specialty coffee industry has to take into account. The first and main driving force

shaping the specialty coffee industry is disposable income. Starbucks’ stock took a

major hit during the economic crisis when its shares fell from around $40 per share in

2007 to less than $10 in late 2008 and the beginning of 2009 .Specialty coffee was not

a product that people had to have when families and individuals had to scale back

their budgets during a tough economy. The BRIC nations have a growing upper and

middle class that are gaining the finances and expendable income to afford specialty

coffee (Nichols, 2011).

As long as the coffee industry takes expendable income into consideration when

expanding domestically or internationally, it will succeed. Another driving force for

the coffee industry is industrialization. As more and more economies head towards

industrialization, those economies also begin to be influenced by westernization. In

India, tea was the common beverage for the upper and middle classes, but now coffee

is becoming a statement of wealth and prosperity (Bose, 2011). With many countries

finally embracing industrialization and westernization, coffee will become the

beverage of choice for many individuals. Expendable income and industrialization are

going to drive the coffee industry over the next few decades as new countries open up

for specialty coffee vendors just as India is opening up to the coffee industry.

In the process of analyzing the current situation of the specialty coffee industry, one

must examine the competitive landscape. Porter’s Five Force Model allows for proper

identification of the landscape of the industry (Thompson, Strickland, & Gamble,

2007). The biggest threat in the specialty coffee industry is the power that suppliers

have over the price of coffee. Arabica coffee prices soared 77 % in 2010 which leads

to major problems for the coffee industry (Murphy, 2011). Arabica coffee is one of

the most sold brands of coffee in the specialty coffee industry. With prices for that

type of coffee sky rocketing, it will definitely hurt the bottom line of every

competitor, especially those that thrive on a low cost strategy.

The second biggest threat is from current specialty coffee competitors. McDonald’s,

Starbucks, and Dunkin Donuts, and other smaller coffee chains are continually

competing for business. McDonald’s is taking on Starbucks head on in Europe and

plans to become the number one Café, thus overtaking Starbucks at its current number

one position (Liu, 2009). McDonald’s is embracing the foreign market that Starbucks

has been leery about.

The third strongest threat is the power that the buyers have in this industry. Because

specialty coffee is not a necessity, people can decide that it no longer fits in their

budget, or that they no longer enjoy the environment of a certain vendor. With coffee

shops all over the world and almost on every corner, there are plenty of options for

consumers, and that allows them to be picky about what they want to buy. Starbucks

is even marketing its significantly lower costs to its Korean market (Han, 2009).

Consumers have the power to choose between low cost or high quality which forces

vendors to choose a strong and consistent strategy.

The fourth strongest threat is from new entrants. Although there are a lot of new

mom and pop coffee shops opening up, there are not enough of them to significantly

deter from the major competitors. The weakest threat for the specialty coffee industry

is that of substitutes. Most consumers that drink coffee like it because of the taste. The

energy that it gives a person can be substituted, but not the taste or richness of the

drink. Avid coffee drinkers will not be torn away by a substitute product such as an

energy drink or even a hot tea. The profit outlook for the specialty coffee industry,

considering the five forces of competition, is still high. There will definitely be some

challenges that the strong competitors will have to face; but overall, the coffee

industry will not be completely overcome by any one of Porter’s five forces.

The overall attractiveness of the industry and competitive environment is very strong.

The growth rate for the industry is still increasing and does not look to plateau any

time soon after examining the driving forces and Porter’s Five Forces Model. With

innovation, strong marketing, and global expansion the coffee industry is on pace to

make marvelous breakthroughs. The driving forces of industrialization and disposable

income will allow the coffee industry to flourish and will present new and challenging

opportunities. The competition is stiff to overcome and will take a lot of work from

any member of the specialty coffee industry. The escalating prices of coffee will play

a major role in the expansion of the coffee industry over the next decade. The

specialty coffee industry, overall, is very strong and has the potential to grow and

thrive.

2.4. PRODUCT ANALYSIS

Starbucks product line has grown to include fresh brewed coffee, hot and iced

espresso beverages, coffee and non coffee blended beverages, Tazo tea, baked

pastries, sandwiches, and salads. Starbucks paraphernalia includes coffee grinders,

espresso machines, coffee brewers, music CD’s, books, movies and gift cards. The

global consumer products include bottled Frappuccino, iced coffee, and espresso

drinks, whole bean coffee, tea, coffee liqueurs and premium ice cream.

Starbucks understands concepts of brand identity and product differentiation. They

have tapped in on what the consumer perceives and had managed to identifiable

differentiate themselves between other companies’ products or services. Starbucks

realizes this success depends significantly on the value of the Starbucks brand while

relying on its excellent reputation for their product quality, superior, and consistent

customer service.

The management believes it must safeguard and develop the value and importance of

the Starbucks brand in order to bring continued success in the future. The perception

of brand value by the consumer is based on an array of personal qualities. Starbucks

has been able to establish an ambiance of sophistication and intellect. Loyal

customers enter the retail chain as an escape from their mundane lives into a serene,

regal atmosphere where they proudly sip from their branded mugs. Starbucks profits

from the way they make their customers feel, allowing them to portray a prominent

image and feel like the upper crusted elite in society. Therefore, Starbucks brand

equity and quality is synonymous with high prices and a classy image. The Company

already owns and has also applied to register many service marks and trademarks both

in the United States and in many countries around the world. Some of the Company’s

trademarks, including Starbucks, the Starbucks logo, Frappuccino, Seattle’s Best

Coffee and Tazo are all of great value to the Company. Starbucks owns numerous

copyrights for items such as product packaging, promotional materials, in-store

graphics, and training materials. In addition, the company also holds patents on

certain products, systems, and designs and has registered and maintains numerous

Internet domain names, including “Starbucks.com” and “Starbucks.net.

2.5. INTERNAL ANALYSIS

2.5.1. Strengths

Brand Image:

Starbucks is one among very few companies that has successfully created awareness

for the specialty coffee category while maintaining supremacy of brand. Ranking

among the top 100 global brands, a recent Business Week survey pronounced

Starbucks as having the second highest one-year gain in brand value, on a global

scale, as indicated in the adjacent table. Using cost effective and innovative marketing

strategies, Starbucks has successfully created a brand that resonates with almost every

segment of the population. It hardly relies on advertising and instead its omnipresent

cafes, word of-mouth and appeal of storefronts serve as powerful brand ambassadors

the world over. It has been able to build this reputation based on the quality of the

products, consistency of service, and an overall excellence in catering to customer

satisfaction. As one Starbucks customer expressed, “before Starbucks, the common

cup of coffee could best be described as a hot, brown liquid. A drink to be endured for

its jumpstart your day benefits of caffeine. What once was something to be endured,

Starbucks made into something to be enjoyed. Something to experience.” Another

aspect of the Starbucks brand that makes it very unique is the intimacy of the brand

despite its ubiquitous presence. Jeremy Abbot, Bethany Village Starbucks store

manager commented, “When our customers visit a foreign country like China, they

step into a Starbucks to feel at home.”

Innovative Business Strategy:

“But the essence of Starbucks is not about the coffee, although it’s great coffee. It’s

about the coffee-drinking and the coffeehouse experience,” says Hayes Roth, Vice

President of Marketing at Landor Associates, a consultancy that has advised

Starbucks on branding strategy. That comment sums up the unique and powerful

combination of Starbucks strategy, the coffee, the customer, the employees, location,

service, and the ambience. What’s more important is that this successful recipe calls

for all of these to work in harmony with each other, not just in isolation. Starbucks

store manager and Coffee Master, Darla Blazer remarks with much enthusiasm and

fervor that she could not have found a better place to work. She is passionate about

her job and the environment created by the executives is one of collaboration and

teamwork. When Darla looks to hire candidates for her store she follows the motto

“hire the personality, train the skill.”This is true company wide as it strives to ensure

diversity in culture and personality throughout the firm in order to provide the best

service to their customers and keep them coming back. The ubiquitous locations seek

to be the third place one would want to go to besides home and work.

Strong Financials:

The Starbucks name has become common place in the U.S. and internationally. This

popularity is coupled with financial success. As the adjacent figure (data is for year

ended Sep-2005) indicates, Starbucks has reported steady revenues and earnings over

the past five years and the past fiscal year, 2005, was no different. During the fiscal

year ended October 2, 2005, all areas of Starbucks business, from U.S. and

international company-operated retail operations to the Company's specialty

businesses, delivered strong financial performance. As indicated in the table,

Starbucks has not only shown strong results, it has surpassed market and industry

benchmarks in all categories. For fiscal year 2005, the company reported a24.6%

CAGR in revenues totaling $6,369.3 million, a 20% increase in revenue, operating

income as a percentage of total net revenues increased to 12.3% from

11.5% in fiscal 2004, and net earnings increased by 27%, compared to fiscal 2004.

These results demonstrated the company's ability to improve operating margin while

at the same time making strategic investments in the core retail business and in

emerging specialty channels.

2.5.2. Weaknesses

Reliance on U.S. Market: Starbucks is a global company and has a presence in 37

countries However, the total revenues derived from the U.S. market made the lion’s

share of its revenues at 83.7% in 2005. Given its significant presence globally and the

opportunities for further expansion, the company needs to be looking at generating a

greater proportion of revenues from outside the U.S. Large Corporate Image:

Starbucks continually struggles with backlash despite efforts to seem more connected

with the community. In the U.S., its ubiquitous presence and acquisitions have

destroyed local coffeehouses. They are perceived by many as the Wal-Mart of the

coffee sphere. While Dan Bowline, owner of a privately owned coffee shop in

Hillsboro, admires Starbucks for its marketing prowess, he sees it as an extreme

example of capitalism. Some see its international growth as corporate colonialism,

which can mean the destruction of local cultures and experiences. Overcrowding &

Cannibalism: Starbucks currently operates over 6,000 stores in the U.S. and plans to

increase that number to 15,000. Such expansion can and has resulted in overcrowding

or clustering of stores. People now are faced with limited choices. This can lead to

frustration, boredom, and rebellion on the part of customers, giving way to

competition that can provide a unique experience with quality coffee. In addition,

such clustering of stores can lead to cannibalism, where the company has to incur the

costs of setting up and running two units when the revenue is equivalent to that of

one.

Expensive Price:

Starbucks and other coffeehouses have caused the price for a cup of coffee to increase

to $3-$4. While this price has become acceptable in the U.S., it will pose a significant

barrier in emerging markets and countries where one can get a good cup of coffee for

a fraction of the price and where the buying power of consumers is much less. Such

high prices will make Starbucks more of a luxury good in markets such as China and

India, unlike in the U.S., where a its coffee is something everyone has come to enjoy

and accept.

2.3. EXTERNAL ANALYSIS

2.3.1. Suppliers

Due to its large size, Starbucks can exert significant pressure on its suppliers.

However, it chooses not to abuse this power as it is not in its best interest. Starbucks

does not operate by a model in which it ‘squeezes down’ its suppliers.

It treats the relationship as a partnership. Some of the suppliers have grown up with

Starbucks and have built their businesses around its growth. “We believe that if we

take actions to push our weight around and that causes our supplier to go out of

business then we have served no one.”

Starbucks has high operating standards for its suppliers and needs to ensure they make

a reasonable profit so that the suppliers are able to meet these expectations. These

high standards include environmental policies such as energy conservation, excessive

packaging, and farming methods as well as employee benefits. Starbucks understands

the importance of the health of the overall supplier “ecosystem.”

Green Coffee, dairy, paper products, and personnel are the major inputs into the

Starbucks operation. Coffee is a commodity and a volatile industry. In a recent coffee

crisis, prices dropped so low that many farmers were unable to stay in business.

Starbucks is completely dependent upon its supply of coffee and demands a very high

quality bean. It mitigates risk to ensure its supply through agronomy programs it has

developed in coffee producing regions. It works with the farmers teaching valuable

farming methods and bringing prospective farms up to par. It is growing its supply

base as it grows its retail base.

Again, it is important to keep these farmers in business and Starbucks pays a

premium to ensure this. Dairy and paper product suppliers are a minimal threat.

Starbucks watches dairy prices closely and sources from multiple vendors. Starbucks

exerts some pressure on paper products suppliers for sustainability purposes. It

introduced the first paper drinking cup manufactured from 10% recycled material.

Overall, the threat exerted by suppliers is moderate due, mostly, to the instability of

the green coffee industry and the scarcity of the high quality bean that Starbucks

demands.

Customers the threat of customers is low for Starbucks due to: a low likelihood of

backward integration, differentiated products, diversified customer base, and

Starbucks’ ability to shape consumer tastes. The percentage of Americans drinking

specialty coffee daily increased from 9% to 16% between 2000 and 2004.Also, there

is a perception that coffeehouse products are of superior quality than other venues.

The survey indicates that the specialty coffee market is growing in the U.S. and

Americans will continue to buy coffee house products. It is unlikely that customers

will integrate backward by making coffee at home to replace coffeehouse products.

Starbucks brand and products are highly differentiated which lowers the threat of

customers. The brand has become well-known in the U.S. and abroad. One of

Starbucks’ self-proclaimed differentiators is its third place experience, yet survey

results question the value of its ambiance. Roughly 70% of survey respondents who

visited a coffeehouse in the last week listed convenience and quality as reasons to

choose one coffeehouse over another.

Only one third of respondents use the coffeehouse as a point of socialization oras

workspace which are cornerstones of the third place experience. The survey results

suggest that Starbucks’ dominance is based on the quality of its coffee and its

ubiquity, rather than the Starbucks third place experience. Starbucks executives

disagree and claim that the Starbucks atmosphere is one of the most important reasons

that customers come in.

Customers may be less likely to identify something like ambiance as a reason for

going to a coffee shop because it is less tangible. Ambiance is subtler and more

difficult to articulate than convenience, quality, or service in a survey with over 40

million customers a week and no typical demographic profile; Starbucks’ has a wide

customer base which diversifies risk. Tom Barr, the VP of Food for Starbucks

explains that the customer can be defined as anyone seeking a quality everyday

experience and this person could be anybody from a construction worker to a

grandmother to a soccer mom.

However, eighty percent of Starbuck’s revenue comes from regular customers who

visit an average of 18 times/month. So while we can’t pin the customer down, we do

know that this devoted following holds significant weight for the company. If regulars

were alienated in some way, then it would present a problem for Starbucks.

The company has taken a $.50 commodity and turned it into a $4 experience. While

transitioning this market, Starbucks has been able to keep its premium products from

being perceived as exclusive luxury goods. When a company is able to drive

consumer preferences and play a significant role in the moving a product upscale,

consumers pose little threat to the company.

REVENUE AND SALES ANALYSIS FOR STARBUCKS

STRATEGIC ANALYSIS OF STARBUCKS COFFEE COMPANY

3.1. STARBUCKS’ CURRENT POSITIONS

Nearly two and half decades of phenomenal growth has finally subsided and left the

Starbucks Corporation in a precarious situation. As of July 2008 the company has had

a decline in customer traffic for the first time ever and their stock price has lost nearly

half of its value since 2006. This is all a new experience for Starbucks, which had

been serving over 50 million customers a week at its peak, and for 15 consecutive

years had at least 5% year over year sales growth in stores that had been open for

more than a year. The loss of sales has forced the company to make difficult decisions

in order to remain profitable. One of these difficult decisions was the announcement

to close 1000 company-owned stores globally during the 2010 fiscal year. They also

announced that they were going to be opening fewer than 100 stores in the U.S. and

200 internationally. This is a drastic reduction compared to the 1700 new stores

opened in the U.S. in 2007 alone, and far cry from the aggressive expansion that made

Starbucks most successful coffee chain in the world.

Although the current economic conditions have hurt many businesses, Starbucks has

been especially affected because most consumers view Starbucks as a luxury item.

However, the current economic conditions and tighter consumer discretionary

spending are not the only reason for Starbucks recent trouble. As you can see in the

following graph, Starbucks has been outperformed over the last 2 years not only by

S&P 500 and NASDAQ, but also the S&P Consumer Discretionary (exchange traded

fund made up of multiple companies, including Starbucks, that largely rely on

discretionary consumer spending)

The National Coffee Association estimates that the US coffee market will exceed $29

billion in (Morningstar). McDonalds and Starbucks are two well-positioned

companies that could take advantage of this, but the markets the two competitors

target are very different. The former aims at the cheaper coffee to go, whereas the

latter aims at providing a premium experience for a luxury price. McDonald's larger

retail footprint may overlap more with Starbucks' core markets, but their bleak

dissimilarities are reflective of the general differences between their core customers.

3.2. EconomicFactors

TheIndianeconomywillexpandanestimated6.5percentthisyear, the fastest pace among

developing Asian economies excluding China, according to January estimatesfromthe

World Bank (Agrawal and Sharma, Bloomberg 2012). The Reserve Bank of India

projects seven percent growth for the twelve months endingMarch. As sales

contribution in the US hasdeclinedinthepastdecadetolessthan70%inthelastfiscal

year,StarbucksisexpandinginfastdevelopingmarketslikeChinaandIndia.

India is one of theemerging markets throughout the world that is becoming a spending

oriented country. The personal disposable income per capitainIndiahasdoubled

between2000‐01and2009‐10resultingin improved purchasing power (Deloitte 2011).

Thus, its upper and middle classesaremoreabletospendmoneyoncoffee, beveragesand

food in coffee housesthatmightnothavebeenthoughofasanecessityinthepast.

3.2.1. LegalFactors

India’s government on January the 10thraised the ownership limit to 100% for foreign

retailers selling a single brand, a decision benefiting companies including

Starbucks(Passport,Euro monitor2011). However, Starbucks andTATAwillpossess

equalsharesinthe venture as both companieswillbothbenefitfromsuchanalliance.

3.2.2. Socio‐CulturalFactors

Indiais a “traditionalteadrinkingnation” whichisprovenbythefact that 69.9%ofthehot

drinksmarketisdominatedbytheteaindustry. EventhoughinIndiateawasthecommon

beveragefortheupperandmiddleclasses, now coffee is becoming a statement of wealth

and prosperity among the traditionalsectoroftheIndian population, i.e. people more

resistant to changes (aged above 30) (Bose, Reuters 2012).

Thisphenomenonmightbeexplainedbythefactthatasmoreandmoreeconomieshead

towards industrialization, those economies also begin to be influenced by

westernization.

Westernization is also easily adopted by the younger generation in India(18‐25

years).Researchshows that 72% of coffee shops customers arestudentsandyoung

professionals(Euro monitor 2011). The popularity of specialist coffee shops among

youths as a place tosocialize registered18%growthin2010; withaverage timespentona

tablehigher thaninother countries. Spending capacity of youth of India is increasing,

as well as their brand consciousness 60% of India’s population is below the ageof30

leadingtopopularizationofbrandsandproducts(Deloitte2011).Asillustratedabove, there

isamarket potentialsubject to ‘dualeconomies’, i.e. targeting both the modern sector

(youths) and the traditional sector (nationalisticindividualsresistanttochanges)(Nuttall

2011).Intheprocessassessingthegrowthopportunitiesinthespecialtycoffeeindustry,one

must alsoexaminethecompetitivelandscape.

3.3. FIVE FORCE MODEL

3.3.1. BargainingPowerofSuppliers

Themajorthreatinthe specialtycoffeeindustryisthepowerthat suppliers have over the

price of coffee. Arabica coffee prices so are 77% in2010 whichcausedconcerns to

coffeeretailers (Murphy 2011). Arabica coffee is oneofthemostsoldbrandsofcoffeein

the specialty coffee industry. With prices forthattypeofcoffeeskyrocketing,ithurtthe

bottomlineofcompetitors, especiallythosethatthriveonalowcoststrategy.However,

Starbucks strategy can be regarded as ‘charging premium price for premium product’;

anditis supplying coffee formtheir partner, so the power of suppliers canberegardedas

weak.

3.3.2 CompetitiveRivalrywithintheIndustry

The second threat is from specialty coffee competitors that Starbucks will face when

itenters the Indian market.Well‐established coffee shops chains, such as Café Coffee

Day (CCD) and Barista, enhanced their pan‐Indiapresencein2011.In2010, CCDand

Baristahad970and200stores, respectively,andtheyaimtocontinueexpandinginthenext

fewyears(Datamonitor2010).Meanwhile,severalrelativelynewplayers,suchasCosta

Coffee,CoffeeBean, Gloria Jean’s and Java Coffee, are trying to ‘geta piece of the pie’

in Indian coffee retailing . Both these factors drove on‐tradeconsumptionoffreshcoffee

beansin2010, with volumes growing by12 %( Data monitor2010).On‐tradesaleshave

emergedastheprimary sales channel for fresh coffee beans, in the absence of any

substantial off‐trade consumption. However, “thepopular opinion was that with only

about1500cafestheINR 20 billion markets provided enough room for growth andcould

accommodatemoreplayers.”(Vasudha2011)Eventhatmajor player’s startedexpanding,

thereispotentialforfurther growth in the Indian Coffee Retail Market.

3.3.3. ThreatofSubstituteProducts

A third relevant threat in the case of Starbucks entering India is the threat of substitute

goods. For instance, consumers may opt to reduce their caffeine intake due to health

concerns, which will influence coffee consumption somewhat.Insuchcase, herbal tea

andfunctional drinks can be potential substitutes. However, considering the increased

consumption of coffee in recentyears, itisunlikelythatsuchsubstitutionwould

substantially impact uponsales.Overall,thethreatofsubstitutesinthe Indian coffee

market mightbeconsideredasmoderate.

3.3.4. Competitors

Starbucks main competitors are quick-service restaurants and specialty coffee shops.

There are an abundant amount of competitors in the specialty coffee beverage

industry. The company believes that its customers choose among retailers primarily

on the basis of product service, service, price, and convenience. Starbucks, in recent

times, has experienced drastic direct competition from large US competitors from

quick-service restaurants. These restaurants have significantly greater marketing and

operating resources than they do. Starbucks is also faced with well-established

competitors in the International markets with increased competition in the U.S. ready-

to-drink coffee beverage market.

Starbucks whole bean coffees compete directly against specialty coffees sold through

supermarkets, specialty retailers and a growing number of specialty coffee stores.

Both their whole bean coffees and coffee beverages compete indirectly against all

other coffees on the market. Starbucks Specialty Operations face significant

competition from established wholesale and mail order suppliers, some of whom have

greater financial and marketing resources than the Company. Starbucks faces intense

competition from both restaurants and other specialty retailers for prime retail

locations and qualified personnel to operate both new and existing stores.

The intensity of rivalry increases as businesses try to improve their position in the

industry. In order to gain new customers, competitors may reduce prices, introduce

new products or substitutes, and increase marketing efforts.

For example, on February 26, 2008, Starbucks closed its operations for several hours

across the board to conduct employee training. Dunkin Donuts took advantage of this

opportunity to gain new customers. Dunkin Donuts offered a small latte, cappuccino

or espresso drink for 99 cents from 1 p.m. to 10 p.m. during Starbucks’ shutdown.

The types of food choices, pricing and restaurant ambiance create the diversity among

competitors. Customers may choose among competitors based on preference. Some

competitors offer a full menu while others offer a bakery-café menu. Pricing varies

among competitors as well. Starbucks pricing is considered to be higher than

average. The ambiance among the competitors varies from a fast-food chain where

the objective is to get fast service, while the coffeehouses ambiance is slow-paced and

relaxed.

New entrants can increase the fight for market share, lowering prices, and the

profitability of an industry. Some existing competitors can retaliate against new

entrants to deter them from entering the industry in the first place. There are seven

major barriers/obstacles to entry that make it difficult for new entrants. Economies of

scale refer to the decline in unit costs as absolute production volume increases.

Starbucks can take advantage of reduced unit costs due to its specialization and

expertise through volume purchase discounts from their supplies.

Starbucks retail stores can generally be found in extremely busy, accessible locations

including being located directly off exit ramps to serve a wider range of customers

and promote brand awareness. The stores can also be found in downtown and

suburban retail settings, shopping malls, within office buildings and can even be

found on university campuses. Drive Thru stores continue to develop to reach non-

pedestrian customers.

Starbucks relies a great deal on information technology systems in the operations of

its supply chain, point-of-sale processing, and many other business transactions. The

management of these transactions greatly affects the production, distribution, and sale

of its products. Any technical failure within these systems can cause delays in sales

and decrease efficiency.

Starbucks utilized its Human Resources to its full capacity. Employees are required

to follow Starbucks comprehensive store operating procedures and attend training

classes. Starbucks realizes that its growth depends considerably on the knowledge,

skills, and abilities of key executives and other employees and its ability to recruit and

retain those employees.

Government policy exists to manage entry into an industry with licensing

requirements regulations. Opening a coffee shop or restaurant will require obtaining

certain licenses, i.e., business licenses, and tax id’s, among other possible licenses.

Despite all the barriers or obstacles associated with entry, the most significant barrier

to entry is catching a niche market. Name brand franchises have ultimately captured

most of the market share because of their own personal niche.

Looking for atmosphere, for a place to hang out, for velvet sofas. "We've known for a

long time now that Starbucks is more than just a wonderful cup of coffee. It's the

experience,” says Howard Schultz. His genius understanding is that: modern brand-

building is at least as much about the customer experience as it is about the actual

product. (Shultz)

The threat of substitute products or services that are produced in another industry that

satisfy similar needs. Starbucks experiences a high threat of substitution because any

new product could be the start of the next consumer trend or craze, creating an initial

high demand for that product. The highly caffeinated drinks such as Monster and Red

Bull have certainly proven to be big sellers among consumers. Some former coffee

drinkers now prefer to get their caffeine from the energy drinks rather than through

coffee products. Soda also contains caffeine and can serve as a substitute for coffee.

Water can also be a substitute product as adverse public or medical opinions about the

health effects of consuming caffeine continue. While Starbucks has a variety of

beverage and food items that are low in caffeine and calories, some of the other

products contain high fat and calorie count have been the focus of adverse health

effects. This has caused a significant reduction in the demand for Starbucks products

and an increase in the demand for healthier products.

The bargaining power of buyers lowers the profitability of an industry by bargaining

for more services and perhaps higher quality.

More than 77 percent of all adults over 18 or 161 million people drink coffee on a

daily or occasional basis, the study reported. According to the 2007 National Coffee

Drinking Trends Report, 18- to-24-year olds have contributed to the increases in

coffee consumption in the past year (daily, weekly, and annual consumption). They

are also the only age group that showed an increase in daily gourmet coffee beverage

consumption. People aged 40 and up showed the largest growth in consumption of

gourmet coffee beverages over the past year.

The buyers hold enough power to influence company pricing. The industry depends

upon consumer spending on specialty eatery products; a lack of demand will

ultimately force a firm to change its product line and to lower prices. Starbucks has

recently introduced a 99 cent cup of coffee; this move will help them to compete with

the lower priced competitors and the sagging economy.

Bargaining power is the capability to control the setting of prices. The more

concentrated and controlled the supply, the more power it leverages against the

market.

While there are many competitors in the specialty eateries industry, Dunkin Donuts,

McDonalds, and Panera Bread are the main players in the industry.

Starbucks recently opened a store on the backside of the historic TajMahal Palace

hotel in south Mumbai. The hotel has hosted famous guests including Jacqueline

Onassis and Mick Jagger, but it's better known as one of the sites in the 2008 terrorist

attacks.

3.4. MARKETING STRATEGY

3.4.1. Marketing:

Starbucks has created a brand that exudes an understanding of people’s values,

lifestyles, and needs. The company’s attention to the experiential factor has been

pivotal to its success. In fiscal 2005, Starbucks spent $87.7 million on advertising

including billboards, online advertising, and signs at Safeco field. That's about 1.4%

of its 2005 revenues which is far less than other firms such as Coca-Cola and Pepsi.

Instead of big bucks, they resort to old-fashioned charm and appeal. For instance in

New York, Starbucks is handing out subway passes and in Boston and San Francisco

it is giving away free cab rides as a way of passing out good cheer for the holidays.

“If you make an emotional connection with them, you’ve captured their heart. That’s

what creates brand loyalty”, said Brad Stevens, Starbucks’ top marketing executive.

Such creative marketing has served and will continue to serve as a source of sustained

advantage for them.

3.4.2. Marketing strategy

Starbucks TATA Alliance Marketing Strategy

According to the Harvard Business School, after Starbucks first entered one of the

most teas loving countries (England) in1998, tea sales fell even as coffee sales rose

rapidly.By2008,annual sales of coffee in Britain had exceeded sales tea. India, where

Starbucks plans to penetrate this year, is also not a habitual coffee drinking nation.

The current paper aimstopropose a strategy for entering the Indian market while the

taking in to account local tastes and lifestyle. The analysis begin with and overview of

the Indian Coffee Retail Market; continues with examining the strengths of the

Starbucks brand and the benefits of a joint venture with the India's largest coffee

producer and exporter. The report will finally propose the most effective marketing

strategy for star bucks to enter the Indian coffee industry and get a piece of the

'market pie'.

Market Segmentation

Apartfromthedemographiccharacteristicspresentedinpartoneoftheanalysis, marketers

should also consider psychographic variables such as interests and lifestyles. In

general, India’s coffee culture has changed the way young Indians socialise. In a

country where there is a limited bar culture, and where drinking alcohol is still not

allowed in many circles, it has provided an acceptable and safe outlet for people,

particularly young Indians, to share a drink. As mentioned earlier, coffee is becoming

a statement of wealth and prosperity among people with high disposal income, i.e.

individuals in employment.

Target Market Selection

The marketing strategy will focus on targeting both groups’ college and university

students (aged18-25) in the short term and working professionals (25-40) in the

medium to long run. Also, tourist and frequent flyers will be a target audience in the

long run.

MarketingObjectives

In order to make the marketing communications objectives as comprehensive as

possible, the SMART approach has been used, to ensure the objectives are specific,

measurable, achievable, realistic, timed and targeted.

The proposed strategy provides a plan for TATA Starbucks to open 50 stores by the

end of 2012 in major metro cities and second tier towns offering premium coffee

experience to the primary target group of students (aged18-25) and working

professionals (aged25-40).

Marketing Mix (4 Ps)

The marketing mix will be examined to determine Starbucks TATA unique selling

points, i.e. the unique qualities that will differentiate their products and services from

those of competitors.

Product

Anil Darker (2012),a Mumbai columnist and social commentator in India, points out

that when a foreign player sees a commercial opportunity and enters the new market;

and then it adapts giving McDonalds as an example(Vaidyanathan,BBC2012).

However, this should not be the case and Starbucks should have a clear strategy about

their product range (both drinks and food) it is going to offer prior entering the Indian

market. Costa Coffee Shops in India, for instance, offers products like Apple Pie

Latte, Latte Caramellato, Coconut Hot Chocolate, etc. suited for Indian taste (Costa

Coffee India online 2012). Therefore, Starbucks should adapt their drinks in order to

cater local preferences. Ice coffees should also be included in Starbucks’s menu as

Indians have a strong preference for them because of high temperatures during

summer. However, one should not ignore the fact that India is a tea loving country

even though people “prefer to consume tea at home because finding a perfect cup of

chai outside is really tough," said Smiti Singh, a Bangalore based software engineer,

who drinks at least four cups of tea a day (Madhok, Reuters 2012).TATA Tea (a unit

of the software to steel TATA conglomerate)is the world’s second largest branded tea

company ,so their premium tea products should be also offered to customers apart

from the Tazo Tea.

The biggest distinction is north India's preference for bread, meat, and chai (tea)

compared to the south's preference for rice, pulses, and coffee Food wise, Panini’s,

sandwiches and wraps with meat but not with beef. The cow is considered sacred by

most Hindus and hence beef is considered taboo in the majority of Indian states. Pre

dominant food option in the south should be the bistro boxes with rice and pulses.

Place

The first Starbucks locations are scheduled to open in August in New Delhi and

Mumbai. TATA Starbucks might consider the option of opening on the 15th of

August, India’s Independence Day. Starbucks TATA partnership is expected to open

50stores in the country by the end of 2012. Starbucks also plan to explore the retail

properties of Croma, Star Bazaar, Trent and Indian Hotels belonging to the TATA

Group to open stores and also to “rope in another franchisee for standalone cafes in

the future.”(Vasudha2011). This is an efficient way of targeting individuals on

business trips in New Delhi, for instance, who prefer to go to a place which is familiar

for a cup of coffee; or tourists, who do not want to experience the local culture. As an

international brand, Starbucks should also open kiosk sat airports; thus, not depending

solely on Indian tastes and preferences as airports are occupied with people from all

over the world, who will recognize the Starbucks logo.

In Mumbai (most populous city in India) Starbucks should position the stores mainly

in shopping centers, cinemas, near universities or cultural venues as it is commercial

and entertainment capital of India. Coffee shops normally close around eleven o’

clock at night, so Starbucks should consider the option of closing at midnight or even

one o’ clock in the morning; thus, becoming the preferred venue for young people.

Also, providing some guitar for jam sessions or karaoke night’s on Friday or Saturday

may attract even more people.

As coffeechainsareseenasplacestosocialiseandpeopleaged25-40 will be also a target

group of theIndianpopulation,Starbucksmayconsideropeninga new type

ofStarbuckscoffeecalledStarbucksLounge, for example.Theatmosphere

intheloungeswillbemorerelaxedandthe

interiormoreexpensive;thuswealthyindividualswillbeabletoshowtheirclass.

Therefore, Starbucks‐TATA should aim to gain competitive advantage in smaller

cities as well in themedium to long rum as people there are more likely to be brand‐loyal as opposedto customer in cosmopolitan cities.

4.6.3. Promotion

PromotionalactivitieswillnotbeanalysedindetailsastheyshouldbeinlinewithStarbucks

promotions worldwide. besides, retailers inIndia rely heavily on word‐of‐mouth

(personal communication). TheStarbucksCardwillbeintroducedaconvenientwaytopay

foryour drinksandearnrewardsforyourpurchase.Furthermore,“in‐store

promotionsaccompaniedbynewproductssuchasdrinksandaccessoriessourcedfromthe

regions”shouldbepresentinIndiaaswell(Vasudha2011).Even though it is highly

unlikely for a coffee chain in India to advertise on TV,Starbucks might consider that

idea. In the US, there are three places thattheaverageAmericanspendhis time during

weekdays ‐ at home, inthe work place and inStarbucks.So,they should somehow show

the westernlifestyletotheIndianandaTVadvertisementatthedayofthe launchshoulddo

thejob.Furthermore,itisthe first 50/50jointventure forStarbucks; so,bothStarbucksand

TATA Group will benefit fromco‐marketingactivities.

4.6.4. Price

HistoricallyStarbucks has retained it US pricing model in almost every market they

haveentered, but should they follow the same pattern in India?Starbucks should adopt

their pricing based on the demand fromtheIndianconsumer.Afteranalyzinganalyzedthe

Indianmarket for hot drinksand the priceelasticity of products, probably the prices of

productsshouldbeatleast30%lowerthanintheUS.

4.7. Market Structure

Starbucks, despite their inflated prices have been able to create a sense of brand

loyalty with and array of loyal followers. Coffee is a fairly homogeneous item which

Starbucks has been able to market their standards of portraying a luxurious lifestyle.

Starbucks operates in a monopolistically competitive market structure in which they

have been able to maintain a control over their inflated prices. They have been able to

create a standard for their coffee and in which they require their customer base to be

exaggerated prices for a cup of their various brews. With usage of the Starbucks logo,

quality, and various trademarks, they differentiate their coffees from their

competitors. Starbucks prides itself on being completely different from any other

coffee house and its competitors, which is a reason why Starbucks has become so

successful. The company’s strategy to focus on their core competencies to

differentiate themselves has made Starbucks into a coffee powerhouse. Starbucks has

mastered knowing how to benefit their customer; leverage the company widely to

many products and markets, and create ideas that are hard for competitors to imitate.

Starbucks is not the only coffee shop on the market, others like Dunkin’ Donuts,

McDonald’s, and Panera Bread have an identical item with similar tastes and effect as

the Starbucks brew, yet they have been able to charge a premium for their blends by

luring in customers with the aroma of an inflated lifestyle. There are other

homogenous coffee shops in the market, but their loyal customers believe that the

superior quality, taste, and aroma cannot be found from any other coffee brewing

entity. At one point, their customers were more interested in the pretense that holding

a Starbucks cup represented, but due to the current economic conditions, their

customers have began second thinking how they are affected by the extravagant price

of the black gold they have been sipping.

Operating in a monopolistic competitive society has caused the Starbucks effect to

crumble. The organization has been able to maintain customers in the short run that

were more interested in their details rather than price. When a business is making a

profit in the short run, they will eventually reach equilibrium in the long run because

their demand will eventually decrease, as we have seen in the recent times. Due to

this, in the long run, this monopolistically competitive firm will result in a zero

economic profit. Because Starbucks has profited on their brand loyalty, they know

that some loyal customers will never depart despite the towering prices.

With the recent news of Starbucks closing six hundred store, it is evident that they

have been running in a marginally inefficient business model. Most monopolistically

competitive firms are marginally inefficient because production average total cost is

not at the lowest point. In this event, in the long run, the marginal cost is simply less

than the price of the good. This translates to the price of the Starbucks beverage to

me marked up over the cost of production. The cost of producing for Starbucks may

not be the most cost-effective, but it is less than the price charged for their gourmet

brews. This could also explain why the price of Starbucks coffee is so high; their

production costs are high and must that cost onto the customers to increase their

revenue and decrease expenses.

Monopolistically competitive firms, like Starbucks are driven by mass advertising and

the establishment of brand names and logos. Starbucks ambiance and products are

marketed by the elevated, intellectual connotations. There are many coffee shops on

the market that also offer tasty aromatic coffees, but the advertising and atmosphere

of the Starbucks shops draws customers in. People are spending more on Starbucks

brews because of the logo and status attached to them. Because coffee many times is

virtually identical, advertisers and producers narrow in on what the consumer wants

and allow their products to portray those ideals. To differentiate between like coffees,

consumers must sample all types and determine what suits their tastes and lifestyles.

Yet, there are too many coffee options on the market and consumers do not have the

time or the funds to sample various brands. Advertisers are aware of this and

therefore embark on targeted ad campaigns to attract more consumers. Starbucks

attracts their customers over their competitors by their ad campaigns and serene

atmosphere of success.

CONCLUSION

Overall, Starbucks is a strong corporation that is in a growing industry. The researcher

discovered that Starbucks is taking a strong stand in the coffee industry and initiating

promising strategic and environmental goals. It is also securing coffee supplies from

India as well as China in order to keep its costs under control. Over the next few

years, Starbucks will continue to grow in the international market. Although two-

thirds of its stores are currently domestic, over the next few years the percentage of

foreign stores will escalate. Starbucks is handling the transition from a domestic to

international company very smoothly. It is taking the right steps to allow it to succeed

in its long term goals. Starbucks’ strong business model can and should be copied by

international businesses. Starbucks is a company that takes their global product and

customizes it to fit local and cultural needs of different regions and communities.

They have a transnational business model that allows them to have a universal

product that can be tailored to fit national needs. Starbucks’ system of corporate

learning allows them to gain knowledge of new marketing or product ideas that can

then be transferred to other national areas within Starbucks. Starbucks has to be

responsive to its varying markets as well. Economic crashes and political instability

can ruin a business market. Starbucks has to be aware of the changes in the

government and culture in order to better forecast the problems that they will be

facing. It is important for Starbucks to continue its strong system of communication

in order continue growing as a business. The researcher also examined that there are

many organizational and managerial implications of running an international business,

but discovered that Starbucks is working diligently to overcome those problems. One

problem that they had to overcome is the ability to understand the international

context. It is important to understand a culture before a company begins marketing to

a different country or region. The BRIC nations are going to play a major part in the

future of Starbucks as they begin to grow and influence the coffee market. These

nations have millions of people that are begging to embrace coffee, and it is important

that Starbucks has a strong market presence in these areas. If Starbucks expands

internationally through the undertaking of new countries, it will be difficult and time

consuming, but it will also greatly improve their company as a whole. But in the end,

the undertaking of new regions and countries will allow Starbuck to gain a strong hold

on the coffee industry as a whole. By opening additional stores in the countries that

Starbucks already is currently marketing to, Starbucks can expand internationally

without the additional funds for research and without the additional time and money it

takes by expanding into a new market. This would also give them a cultural advantage

in opening the new stores because they are already familiar with the customs and

practices of their target market. Starbucks has a strong international business model,

but it still has to continue building its goals and expectations. Starbucks will never be

finished growing as a business; therefore, it is important to keep its goals in mind and

its strategies in place in order to overcome any obstacle that might stand in its way.

WEBLIOGRAPHY

Websites visited:

www.googl.com

www.starbucks.com

en.wikipedia.org/wiki