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Starbucks was founded in 1971 as a roaster and trader of the raw coffee, tea and spices with only one single store in Seattles Pike Place Market. Starbucks was named after the first mate in Herman Melville’s Moby Dick. This name reminded of the legend of the high seas and the oceangoing tradition of the early coffee traders. Starbucks’s logo was also inspired by the sea. It was featured with a twinâ€tailed siren from Greek mythology (Starbucks, 2013)
After 14 years of doing business, Starbucks incorporated on 4 November 1985 and become a leader in coffee beverage industry operating in 62 countries with more than 18,000 locations globally nowadays. Starbucks plans to open more 1,300 new stores around the world in 2013 (Starbucks, 2013; The New York Job Source, 2012). Starbucks operates in four main segments: Americas; Europe, Middle East, and Africa (EMEA); China/Asia Pacific (CAP), and Channel Development. During 2012, the main revenues came from Americas market (75%), EMEA (9%), CAP (5%), and Channel Development (10%). The other market built about 1% of Starbucks’s total net revenues (Reuters, 2013).
Starbucks’s products are many kinds of coffee and tea. Beside its own stores, Starbucks also gives license of its trademarks via other distribution channels, such as licensed stores, grocery and international foodservice. In addition to Starbucks brand, its portfolio also includes Tazo Tea, Seattle’s Best Coffee, and Starbucks VIA Ready Brew, Starbucks Refreshers beverages, Evolution Fresh, La Boulange bakery brand, and the Verismo System by Starbucks.
Starbucks stores offer a wide option of normal and decaffeinated coffee beverages. There are a choice of Italian-style espresso beverages, cold blended beverages, iced shaken refreshment beverages, as well as selection of Tazo teas, packaged roasted whole bean and ground coffees; a range of Starbucks VIA Ready Brew soluble coffees, Starbucks coffee and Tazo tea K-Cup portion packs, Starbucks Refreshers beverages, juices and bottled water. There is also a variety of fresh food products which focus on nutritional value and flavour. Food items include pastries, prepared breakfast and lunch sandwiches, oatmeal and salads. In order to focus on coffee, breakfast sandwiches was stopped selling in 2008. In April 2008, Starbucks introduced Pike’s Place Roast which is also new line of regular coffee (Reuters, 2013).
Starbucks also announced that it would spend 100 million USD for buying LaBoulange Bakery in San Francisco which is famous for producing French pastry and bread from scratch and going to add these new items to Starbucks’s store menu in the near future. Starbucks also said that it would want to buy the famous tea Teavana retailer for about $620 million (The New York job source, 2012).
Starbucks’s mission is to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. Starbucks’s goal is serving the best coffee for the customers. In order to achieve that goal, Starbucks ensures that its coffee to be grown with the highest quality standards, using ethical sourcing practices. The coffee buyers of Starbucks also do travel to the coffee farms in area such as Latin America, Africa or Asia personally to select the highest quality coffee beans. In addition, Starbucks’s master roasters make the stability and rich flavour of the coffee beans via the signature Starbucks Roast (Starbucks, 2013).
There are some of Starbucks’s awards and recognition recently as listed below:
“No. 1 Best Coffee,” Fast Food and Quick Refreshment categories
Zagat’s Survey of National Chain Restaurants – 2009â€2011
“No. 1 Most Popular Quick Refreshment Chain”
Zagat’s Survey of National Chain Restaurants – 2009â€2011
One of “The 100 Best Companies to Work For”
Fortune – 1998-2000, 2002-2012
One of the “Most Admired Companies in America”
Fortune – 2003-2012
One of the “World’s 50 Most Innovative Companies”
Fast Company – 2012
One of the “World’s Most Ethical Companies”
Ethisphere – 2007â€2012
One of the “100 Best Corporate Citizens”
Corporate Responsibility/Business Ethics – 2000â€2012
“Sustainability Design Award”
Global Green USA – 2011
“Most Ethical Company, European Coffee Industry”
Allegra Strategies – 2009â€2011
“Business Person of the Year,” Howard Schultz, Starbucks chairman, president and chief executive officer
Fortune – 2011
After the millennium, the technology has been changing rapidly. Technology has been used in everyday life, everywhere including Starbucks. Starbucks use technology as a tool to develop itself.
Unlike many big companies in the world, Starbucks hasn’t spent a huge amount of money on advertising on television, poster or newspaper. Starbucks marketing strategy is different. It is called “creating a Starbucks community”. By using the advance of internet technology, especially social network, Starbucks has successfully created a strong community around their brand and turn their social media fans into revenue. The success of Starbucks through social media firstly starts with a commitment of building the relationship, not sales. Recently, many organizations all over the world attempt to use social media on reaching as many fans as possible. In fact, “focusing just on increasing the number of fans misses the company’s true value. This is the loyal customers who are willing to build the long term relationship with the company” (Ronan, E., 2013).
Starbucks is considered as a leader in effective social media marketing. Starbucks is nearly the top brand in social media (Gembarski, R., 2012). The coffee house was also voted “most loved” out of 3,400 food brands in a survey. Beginning in 1971, Starbucks has transitioned into the era of the internet by using social media domination. Currently, Starbucks has over 34 million fans on Facebook and continues to add more than 300,000 new fans every week (Starbucks, 2013). Everybody knows that Facebook is very powerful today. With more than 964 million of users, this is one of the best ways for doing marketing (Checkfacebook, 2013). On their Facebook page, Starbucks listens to their customers. They focus on creating and maintaining the customer relationship. Starbucks tell a story of their own brand by using social media, via stories and videos. Social media is also used for social activity, such as donation for Haiti during its disaster in 2010 (Grand social center, 2013). Because Starbucks targets on young people, social media is the effective tool for marketing. As the world becomes more digitally focused, social media is best place for sharing information and using the word-of-mouth marketing strategy. Starbucks has an advantage over competitors. The company did not have to spend a huge amount of money for traditional advertising. The advertising for Starbucks has been done by millions of fans they already have on social network such as Facebook and Twitter. That means when Starbucks share the photo on Instagram, post the video to Facebook or Twitter, share the information on website, it will reach to a million of target audients just by a simple click. Therefore, Starbucks is familiar with its customer when it comes to any social media campaigns. Many of their marketing campaigns are initiated using Twitter, Facebook and their own website. Instead of getting more and more fans, Starbucks tries to expand the brand awareness (Grand social center, 2013).
On the social media, Starbucks works on engaging a dialogue rather than pushing a one-way communication. Starbucks not only want to be recognized as fun and creative, but they also show their attention about what the customers think about their service, as well as their products (Practical social media university, 2013). On the website, Starbucks have a link to their “My Starbucks Idea” page. My Starbucks Ideas is online place where the coffee lovers can do chatting and brainstorming new ideas to make Starbucks become the best one in the coffee businesses. Starbucks really takes each idea into consideration. It shows to their customers that their requests aren’t going unheard. By doing that, Starbucks wants to send the message to the customers that they really care about them and want to make their experiences at Starbucks the best there are (Noff, A., 2010)
By offering the free and unlimited Wi-Fi for every store, Strubucks now is not only the traditional coffee shop but also the meeting place or makeshift office for its customers. People can go to the Starbuck’s store, order a cup of coffee, and go to the internet for entertainment, searching information for discussion or chatting with the others. This is the style of young people nowadays which is the target customers of Starbucks.
In October 2010, Starbucks made a move to develop its online offerings to its customers with the launch of its Digital Network. The Starbucks Digital Networks is available through the free Wi-Fi network in Starbucks’s stores in the US (Starbucks Digital Network, 2012). It offers the users access for free to hand-picked, multi-media content from content providers such as the Yahoo, Wall Street Journal, New York Times, Zagat and Apple which have to pay for from the Internet.
This is a new type of Starbuks’s competitive advantage as it is the first offering of this kind. It makes Starbucks become a place that customers can stay connected, be inspired and entertained. The Starbucks Digital Network has immediately differentiated Starbucks from a number of other coffee shop retailers that also offer the free Wi-Fi in their coffee stores. The customer response of it has been noted as enthusiastic (Grove, J., 2010).
New technologies in Starbucks
New technologies bring international attention and customers to the company. Emerging technologies give solutions to pressing global challenges and providing productive ground for sustainable business opportunities.
For decades, the technology of coffee brewing had been well established. Starbucks is known very well in the market due to its high quality coffee, care in selection and expertise in roast. Starbucks establishes its profitable competitive advantages by broadly differentiating its coffee and coffee related products, depending upon its competence and innovation.
An innovative design that lets customers to discover new dimensions within a coffee’s familiar aroma, flavor, body and acidity is the Clover brewing system (The Clover brewing system, 2013). This machine, which made its debut in 2007, uses innovative Vacuum Press technology in order to create the cup in front of the customer. This system controls brew time and temperature digitally, as even small changes can affect the quality of the product. After the coffee brews, it is pulled through a 70 micron filter in order to produce the ideal flavor. Clover machine has speedily become regarded as the gold standard in innovation in brewing equipment, with its proprietary brewing process.
Additionally, in order to expand and reach more customers Starbucks enter to the home of its customers by the home brewing system named “Verismo TM System”. This is the premium at-home brewing system which allows customers to craft Starbucks quality espresso beverage.
Another example how Starbucks has embraced modern technology is their use of smart phone capability. Starbucks is continuing to create amazing connections with the customers, offering them choices in how they want to pay. The company is betting big on mobile commerce to force its sales as more and more people use smart phones for their everyday needs (Kaushik 2012). Starbucks turns to mobile commerce to ensure that it grabs a slice of the every mobile user segment that does not hesitate to use their smart phones to transact. In early 2011, Starbucks launched a nationwide mobile payment app, available for Android, iPhone and Blackberry. This app is named Square’s Wallet app, which let customers to buy a coffee by presenting the barcode that the app generates, brose menu information, store hours and transaction history, all on their phones. Adam Brotman, chief digital officer of Starbucks, explained that Starbucks was the first retailer to present its own mobile payment technology (Grove, 2012). The Square’s Wallet app is linked to the customer’s debit or credit cards, so there is never a need to reload a balance.
Globalization had been widely debated in many areas (Friedman, 2006). It also affects the food industry (Traill, 1997).
Globalization on food and beverage sector
The globalization process affects The F&B sector, like other industrial sectors. Specifically, the beverage industry is a bellwether in the food industry. In globalization studies three main lines of researches have emerged (Traill 1997). Firstly, it is the escalating influence of international trade and its role of promoting economic growth. The second line is the increasing importance of Multinational Enterprises in trade and foreign direct investment, especially in promoting an integrated economy. The third emerged line of appeared researches in Globalization is the significance of perspectives that come from the marketing profession. At this last research the Globalization is seen in terms of consumer markets /for example demographics as well as food preferences and attitudes/ (Vaydia 2006).
Globalization has changed the face of this sector since 1980. According to Bolling (2002) three major shifts have occurred in the business environment of this sector since 1980. The first one is refocusing the business sector from national to international. Next shift is the expanding firm’s activities across business lines. The third one is growing the competition in the global soft drink industry.
Soft drink companies have to account for the various changes, brought by the various changes by the always changing global market. Nowadays they produce for domestic and foreign markets, license their products and invest in plants in other countries.
Globalization has been rising rapidly in last few decades and it has become one of the most discussed and debated topics. Globalization has effects on almost everything, economy, society, environment in their own different ways and it has become an important factor of business throughout the world. Upon globalization there are many changes to the corporations and those related mostly to the increasing of competition, change of price and quality, tremendous changes in technologies and information.
The coffee industry has changed and impacted by the various changes of global change. Today coffee has become a lifestyle from a simple product. Last four decades coffee price had gone cheaper due to the globalization and increased and overproduction of coffee all over the world. Due to the increasing demand of coffee and overproduction some manufacturers produce low quality products, however, some consumers are willing to pay higher price for the cup of higher quality coffee. There was one company that made drinking coffee is not just for certain group of people to get an morning caffeine but for everyone to enjoy at anytime they what, that company is Starbucks. Drinking a coffee in the cozy coffee shop is a lifestyle in nowadays. Globalization has helped Starbucks to go global and build international company. Building international company is not easy for every organization. There are benefits and always has difficulties and drawbacks.
When Starbucks went global they used exact same business model that quickly developed in United States, but soon they realized that the tactics that worked in local market would not work in international market. During their global expansion there were cultural conflicts with the many regions that those consumers did not want to accept Starbucks as the way they are. In addition, Starbucks had to find a ways to adopt the culture of these regions and understand them to get their support in those countries, and it was listening the opinions and suggestions of their customers. One of the big conflict were Chinese culture, Starbucks had to adopt many things, such as, store layout, timing of the opening and peak hours. Also, there were some food and drink preferences that they had to adopt to suit to the customer’s wants and needs in that specific region. They had to utilize Intellectual Properties for their name and logo. The reason was there were competitors or other coffee shops used their name and logo and to stop them and prevent this to happen again.
As mentioned earlier, globalization has its both good and bad sides. One of the major good sides of it is more people employed, educated and trained. Starbucks gave their employees complete health benefits and they were the first company in USA who did this. Besides that, Starbucks offers complete training to their employees.
Downside of Globalization
We have read all the books writing about how amazing globalization is, but it is not working in the same way in all the times. Globalization also has its downside and all the multinational companies, like Starbucks, have suffered in different degrees according to the countries they conduct their business. As many globalized companies managing businesses in many countries, the problems like ethic, corporate social responsibility, political problems, human rights, culture of the different countries, etc. are arise. For Starbucks having many outlets outside U.S, they sure suffer from different problems in different countries.
The problems most international company facing in global business can be divided in to strategic, operational, political, country, technological and environmental risks. Michael Porter stated five different forces, which has impact on competitiveness of company: threats of new entrance, threat of substitutes, supplier power, customer power and competition in the markets. These can be challenge to multinational companies like Starbucks because they need to make different strategic decisions according to different markets they are in.
Operational problems are much more internal to the organization such as machine breakdown, stock shortage, lack of professional workforce, delay in supply and delivery, and so on. These operational problems can harm Starbucks, because they value their uniqueness and unity in all outlets. In different countries those problems can be vary according to the location, culture, systems but it is important for Starbucks to deal these problems in time.
Starbucks also need to deal with political problems in different countries. Operating in many developing countries, where political volatility is high, Starbucks may needs strategies to deal with micro political problems such as changing regulations in industries.
Country risk is similar to the political risk but it is wider. The government policies, security of the country, political factors can be different. Starbucks may also need to deal with such problems in different countries.
The short-term problems like financial problems and other operational problems can be solved within a short time and if tackled properly, they can bring the organization to short-term success. However, problems like environmental problems are important for organizations to solve carefully because it can affect organization’s image and if properly solved, it can also be competitive advantage in the long-term. Starbucks also needs to solve environment problems like pollution and people’s outcry in some countries.
Cultural, Political and Ethical problems
Starbuck had faced many problems in the years of their international expanding. Starbucks faced problems in Middle East because of the culture of the country and volatile policy. Due to the close relations between US and Israel, Arab students called for boycott to American brands in their county including Starbucks, Coca-Cola and Burger King. Starbucks was top of the list because CEO of Starbucks, Howard Schultz, had close relation with Jewish community. He was awarded the “Israeli 50th Anniversary Tribute Award” by the Jerusalem Fund of Aish Ha-Torah, a group of activists supporting Israel. Things got worse when Howard Schultz allegedly made speech to students at University of Washington. In the speech Schultz said, “one of my mission is to sensitize you; you should not be immune to what is happening in the world. I travel a great deal and one of the things I see is the rise of anti-Semitism in Europe, especially France and England.” Tensions became more intense when he addressed to American-Jewish society. He said, “What is going on in Middle East is not an isolated part of the world. The rise of anti-Semitism is all time high since 1930s. Palestinians are not doing their jobs, they are not stopping terrorisms.” Later, Starbucks released statement stating that the comments of the Schultz are those of his personal views and not concerning with company’s policy and not of their views. Schultz also released a statement relating to the allegation “anti-Palestine” and said “my position has always been pro-peace and for the two nations to co-exist peacefully”. Moreover, Starbucks also had problems in Israel in 2003. When U.S declared war on Iraq, Starbucks had to close down their outlets in Israel because of security concerns.
In China, Starbucks also faced with problems relating with culture. Unlike in U.S, the culture of China is different. Most of the customers from U.S has to-and-go culture where they came in, grabbed a coffee and left. However, in China many customers are sitting for hours and refusing to leave. Chinese customers love the place of the Starbucks so much they come in just to sit and chat with friends without buying anything from Starbucks. Sometimes they bring in their own foods into the store, which is a common culture in China but not in U.S.
Another cultural problem Starbucks facing is the tea culture in India. In India, tea is the King. It has been the traditional drink for many years. Most of the India people only drink tea not coffee. Starbucks has to deal with the problem and had to market it’s product more widely. Because of these cultural problems, Starbucks need to make changes to its menu list to solve that problem, also offering tea but not the same taste that can get from local shops.
While Starbucks is investing huge fund in training the staffs all over the world and for marketing, the company only received partial share profit and loyalty fees as most of it’s stores all over the world are joint venture or licensing agreement.
Starbucks faced with ethical criticism in 2006 when company protested to US patent and Trademark office (UPTO) against the Ethiopia’s patent right application to the country famous coffee names. Many criticize Starbucks for hindering the trademark application of Ethiopia, which is one of the poorest countries in the world. This forced Starbucks to sign an agreement with Ethiopia government that acknowledge the Ethiopia’s ownership of the names of the coffee whether or not the patent or trademark application is granted.
MKT GROUP ASSIGNMENT: GLOBALIZATION – STARBUCKS
SOLUTIONS TO ISSUES ARISING FROM GLOBALIZATION
Given the solutions gained though exploiting global technology advances for harnessing business advantage, Starbucks’ international business model and marketing approaches have used a mix of differentiation and recognisable standardization, to generate solutions in the form of distinct competitive advantages.
In terms of marketing approach Starbucks has had to seek other approaches to re-position itself due to culture conflicts in resistance to the larger trend of globalization. Due to this resistance in some areas, Starbucks has had to establish ways to build relationships with foreign nations and seek the support of the residents of those countries for successful franchise and marketing.
Starbucks’s key strength in achieving this is in listening so well to its customers. Jim Donald, CEO of Starbucks from 2005-2008, noted both the difference in peak times in China and in food preferences. These were adapted in the same way as followed market research in Europe, to understand these regional fluctuations and differences.
With regard to successfully penetrating the European market, this was achieved over time as Starbucks evolved to specifically fit the demand of the European citizens. Incorporating nuances in cultural values associated with the coffee market and adapting its strategic succeeded in appealing at these levels – the Starbucks strategy in Paris adopts the positioning of coffee purchasing as an endorsement and acknowledged support for foreign coffee producers creating flavours. The approach in this respect incorporates the traditionally culturally held view to blend the classic French concept of pride in a professional skill, with a green and sustainable brand promise. By these means it has focussed upon the understanding of cultural values as a core positioning tool for successfully marketing within the region.
Product advertising has also been tailored to meet cultural differences and using a non-standardized promotion strategy, advertisement is country-specific according to trends, custom and culture. This has proved very effective.
Using License and franchise ventures strategy, Investment was made to establish Starbucks coffee International as a new company for the expansion of the international business specific in the Asian Region. The strategy adopted was in licensing to local retailers and stores. Starbucks ensured that all the stores followed the same formula of Starbucks and coffee was sold to them only after them they sold to customers. This meant that Starbucks only gained licensing fees and royalties on revenues.
Making use of competitive advantage strategy, Starbucks strategically focused on Differentiation. Using this, it remained focused on serving identified niche customers as opposed to its rivals. Using market segmentation strategy, Starbucks successfully built upon its unique capabilities to serve target buyers.
In terms of the Starbucks overall Global Market Mix Strategy the retail formula of Starbucks is worldwide; there is to change in the retail system which operates in same way throughout the world.
ICMR IBS Centre of Management Research case study ‘Starbucks: Evolution of a Global Brand’ (2003)
International IP Property Hart, R. (2011) The Globalization of Starbucks and its Effect on the World
Bloomberg Business week (Sept 2002) : Planet Starbucks: To Keep Up the Growth, It Must Go Global Quickly
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