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Stock Market and Starbucks sample essay

Q.1) What is Starbucks’ strategy?

To build the most recognized and respected coffee brand in the world, Starbucks has to adopt a Focus Differentiation strategy. From sourcing to marketing, Starbucks has a clear and focus strategy or policy to ensure the company grows towards the direction of their long-term goal. 1) Market share strategy: As Henderson (1979) states, “In a competitive business, it (market share) determines relative profitability.” In order to penetrate the specialty coffee market, Starbucks opens over a thousand retail stores, mainly in the top 50 U.S. markets. Starbuck’s concept of store clustering, which often placed the retail stores across from one another or on the same block, allowed Starbucks to maximize its market share in a given area and to build a regional reputation. Its real-estate approach also allowed Starbucks to take any retail spaces to open up a new store.

2) Sourcing System: Starbucks has a diversified source of its coffee beans to offer a greater palette of coffees to its customers while being able to maintain a hedged position. Besides, it maintained a very good relationship with the exporters by working directly with them and providing training to them. Such close relationship enabled Starbucks to be the first to get the best quality coffee beans. Also, since Starbucks is the biggest high quality coffee buyer in the world, it can enjoy the benefit of economies of scale.

3) R&D and Q.C. system: to ensure the quality of Starbucks coffee, Starbucks undertook a great deal of research to develop its roasting and blending recipe and this recipe can hardly be copied by its competitors. Starbucks is also very conscious on the quality control. In addition to the 3 stages of sampling, Starbucks also cares about the packaging of its coffee to ensure only the best Starbucks coffee be served to its customers. No coffee will be kept on its shelves for more than 3 months and for retail stores, coffee is kept for 7 days after it is opened. 4) Strong brand image: Starbucks also focuses on strengthening its brand image by offering great coffee, baristas, music and comfortable and upbeat meeting place. Such focus is intended to enhance customer experience and make Starbucks the “third place” where customers can sit back and be themselves.

5) Employee: Starbucks hired people in college or university and provide them with a great deal of training to develop their coffee knowledge and service expertise, so that they can replicate the organizational values, culture and principles. 6) Focus on both domestic and international growth: With the aim of being the largest and the most respected specialty coffee brand in the world, Starbucks used the strategy of pre-emptive entry into the market, followed by aggressive growth.

7) Innovation: Starbucks leveraged its brand into new product categories and channels. For market expansion strategy, Starbucks partnered with well-known companies, such as United Airlines and Nordstrom, to carry Starbucks coffee in their flights and restaurants. For Product Innovation strategy, Starbucks partnered with Pepsi to develop bottled Frappuccino, and Dreyers’ Ice Cream to develop its own brand of ice cream. The specialty sales have increased name recognition of Starbucks and also diversified the products of Starbucks. 8) Merchandizing: Starbucks only carried the highest quality merchandise. It also offered accessory items bearing Starbucks logo. Starbucks’ strategy was firmly based in its coffee, its staff, its merchandizing, its real-estate approach, its image, its market share strategy and its innovativeness. Q.2) How should Starbucks leverage its resources and capabilities to achieve growth?

As the market leader, Starbucks should leverage its resources to enhance its international presence by expanding to Asia, especially the China, Korea and Southeast Asia market, as demand for specialty coffee is growing rapidly in these markets. Starbucks should also enter specialty sales contracts with renowned retailers and restaurants etc. to increase name recognition and market share. Moreover, Starbucks should leverage its national brand image and foster its image in the local markets. It should also penetrate in the grocery channel to expand its customer base.

Q.3) How would you respond to the McDonald’s offer?

If I were Starbucks CEO, I would probably take the McDonald’s offer. There are four reasons for such decision. First, specialty sales were part of Starbucks strategy for its long-term growth. Second, Starbucks only partnered with companies that were leader in their field. McDonald is the world’s largest hamburger fast food chain restaurants. Third, McDonald has over 14,000 restaurants in the U.S. and every day it serves around 68 million of customers in 119 countries. It is a true symbol of globalization. If McDonald carries Starbucks coffee, the sales revenue for Starbucks will be tremendous and Starbucks can further multiply its market share for 14 times overnight if it partners with McDonald. This partnership seems to fit Starbucks’ market share strategy.

Also, Starbucks can make use of McDonald to enter the international market. Last but not least, if Starbucks chooses not to accept McDonald’s offer, this potential alliance would in turn become the biggest potential competitor of Starbucks. In business strategy, it is always better to have more friends than enemies. There may be concern that if McDonald carries Starbucks coffee, it may weaken the brand image of Starbucks and redirect Starbucks’ customers to McCafe. However, it may not be true as it really depends on the terms of the partnership and the number of products that McDonald’s is allowed to carry. Moreover, the whole concept of the Starbucks customer experience will be totally different from McDonald’s and both companies have different customer base. Nonetheless, if Starbucks is to partner with McDonald’s, Starbucks needs to consider if it can digest this sudden growth of demand for Starbucks coffee.

Q.4) Why is Starbucks facing a crisis of confidence?

Starbucks was facing a crisis of confidence in 1999 because Starbucks announced that profits for the fiscal year would be 10 per cent below expectations. Analysts criticized Starbucks for the expensive Internet Start-up, an unspectacular Frappaccino supermarket thrust and the fact that Starbucks is losing its focus. Investors dumped Starbucks and the share price dropped 28% in one day, which evaporated $2 billion of market capital in one single day. However, Starbucks seems to have no clues of the reasons leading the missed profit targets. In my opinion, the main reason for the missed profit targets is because Starbucks has a poor execution of the strategy, especially in its marketing strategy. First, Starbucks should set a very clear brand image and its objective. Investors like new stories to stimulate the stock market. The idea of specialty sale is a good initiative but the new product introduction needs to match with an effective marketing strategy and campaign.

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