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Case study of Starbucks

Starbucks is a company that started by selling coffee to customers. The

headquarters of the company are based in Seattle, Washington. The company focused
on niche marketing such that the targeted customers were the working class and
business people. The founders of the company were of the opinion that many people
had no place to rest after work and there was a niche of customers who required a
place to rest and socialize after work before they went home. The identification of this
particular niche was a milestone to establishing one of the largest companies in the
world (Read, 2008). As explained by Narver and Slater (1990), the management of
Starbucks was able to become customer oriented by identifying specific needs of a
particular niche in the market. This has made the company achieve a competitive edge
in the global markets.
To satisfy the needs of the customers, the management encouraged employees
to serve the customers according to their needs. The employees were required to
communicate with the customers to identify their specific needs and provide the best
goods and services to them. The company started by providing beverages to
customers and this created a lot of demand among many people. Customers could
order the brands of beverages they desired and could be served in a few minutes. All
products were made according to the taste of the customers. The company generated a
lot of demand for its products because many people felt that their needs and wants
were being satisfied (Read, 2008). The initial focus of the company was to identify
the needs and wants of all customers and collecting adequate information about these
needs and how to satisfy the customers fully. Employees of the company could
interact with customers and collect relevant information about what they require.
Starbucks has focused on the activities of competitors in the market by
implementing the strategy of opening many retail stores in different countries of the
world. It is through this strategy that Starbucks was able to penetrate the global
market and became one of the leading companies in the industry. The company has
managed to open many stores in many countries. Fifteen years ago the company had
17 coffee shops but now there are more than 16,000 outlets in 44 countries. Starbucks
is capable of designing and opening a store bin 16 weeks (Starbucks website 2010).
The strategy of opening many stores bin many countries has become successful. This
strategy has placed the company inn a strategic position in the global market. After
Starbucks had successfully entered the global markets many other companies started
opening similar stores to compete and shares in the abnormal profits that were being
made by Starbucks. The management of Starbucks conducts research about the
operations of competitors to come up with strategies of competing successfully in the
global markets.
Improving the sales of the company has been a strategy that the company has
by attracting new potential customers as well as retaining the existing customers. The
sales of the company have increased at an average of 20 percent per year after the
company went public. A sales value of $9.4 was achieved in 2007. Profits recorded
were $673 million in 2006 and increased by 30 percent the following year (Starbucks
website 2010). Since its establishment the company has specialized in providing its

products to a niche of customers. This has provided the company with premium
rewards and this has improved the image as well as the sales of the company (Kline,
2005). Starbucks has utilized the inter-functional element of Narver and Slater (1990)
by making maximum use of all available resources to achieve a competitive position
in the global markets. The company has accumulated a lot of capital and this has been
a strength which has been exploited by opening more retail stores all over the world.
Jaworski and Kohli (1990) provided that market intelligence is more important
than market orientation. Starbucks has achieved market intelligence by employing a
research and development team to identify the changing trends in the global markets.
The Starbucks has been able to promote the name and image of the company
worldwide. According to a survey done by Business Week, Starbucks has become of
the fastest growing brands in the top 100 brands globally. Many customers have
become loyal to the products of the company. Starbucks has been successful in
serving the needs of a niche of customers. The customers have a high value for the
products of the company because they are unique compared to other companies
(Schindehutte, Morris & Kocak, 2008). Starbucks was established to serve the needs
of the employees who had no place to rest after work before they went back home. In
fact, it created an extra place for the people in addition to workplace and home. The
main target was the high class employees, who had no place to rest, take a drink and
meet with other friends. Starbucks identified this market niche and supplied them with
their specific needs (Kline, 2005).
The company has managed to maintain a high growth rate for a long period of
time. The company has operated with low debts and has been able to expand its cash
flow. This has been possible because the company has managed all the stores and
hence has been able to maintain its image. The management team of the company has
encouraged the employees to be innovative in their marketing. The growth of the
company has been achieved by the sound management as well as the dedication from
the employees (Michelli, 2007). The marketing costs have been controlled since the
company uses the word of mouth to promote its products to the customers. Only $30
million are earned per year by the companion advertising. This represents one percent
of the revenues collected by the company. The expenditure concerns the new products
being introduced into the market. Other similar companies in the market spend more
than $300 million annually on promotion. The company has no competitors in the US
market (Kline, 2005).
As the Starbucks Company strives to achieve a market oriented approach,
there several challenges have been encountered in the market. The ambitions to open
many stores globally have created a risk. The company may be unable to manage all
the stores as well as its customers. The customers are very loyal to the company due
to the good services delivered. However, the increase in the number of customers has
increased the workload to the employees and the customers are no longer served as
before. Customer satisfaction may decline since there is delay in the delivery of
services (Pahl, 2009). The employees are being overworked due to the large number
of customers they have to serve. This has reduced the quality of services delivered to
the customers. The speed of service delivery has also reduced and customers are being
dissatisfied. During the early stages of the company customers were being served on

arrival (Schindehutte, Morris & Kocak, 2008). The company could prepare drinks for
the customers upon request. The quality of the products was high and some customers
could even order their drinks via the phone or internet. As the company continues to
expand its operations the contact between customers and employees has reduced and
customers wait for long queues to be served. Customer-made products no longer exist
and customers buy what is available. This creates the risk of loosing the customers
due to dissatisfaction (Kline, 2005).
The company faces the challenge of attaining market maturity in US. In the
1990s the company dealt with baby boomers but now it should access the market for
20th or the 30th Generation X. Most of the potential customers have been turned off
by the power and image of the brands of the company. The early adopters have
already been captured and the challenge is to attract the laggards in the market. The
US market is almost to become full and this will reduce the growth of the company.
The company is at risk of reaching a plateau in the US market. This will affect the
growth of the company (Brown, 2004). Some customers feel that the price of coffee
has been too high for them. Designer coffee is sold at $3 a cup. Economic crisis that
have affected the global market may affect the profitability of the company. The
company has specialized in selling high priced coffee to a niche of customers who are
willing to pay the high price. Starbucks should focus on the other income groups since
there is a risk that the in comes of many people have reduced and lower prices are
needed to capture these income groups (Schindehutte, Morris & Kocak, 2008).
The employees have become dissatisfied by the work conditions despite the
good rewards offered. The morale of the employees has reduced and the company
faces the risk of an increased employee turnover. The part-timers are offered with
innovative job packages to motivate them. At a wage rate of $7 per hour, the
employees are paid better than any other employees elsewhere. However, the
employees are not satisfied by the odd hours and the wages have become low. This is
affecting the service delivery by the employees. Some store managers sued Starbucks
in 2001 for failing to pay them overtime wages. The company spent $18 million to
settle the case. This reduced the earning per share by $0.03. The employees still feel
overworked and underappreciated (Davis, 2008). The company has opened more than
five thousand stores abroad recently. This is a tremendous achievement since the
company had 281 stores in 1999. Plans are being made to open more stores all over
the world. This strategy has decreased the quality of management. The managers have
the burden of managing oversees branches. The partners operating these stores may
create a risk (Kline, 2005).
1. Explain how Starbucks achieve a competitive edge in the global markets.
2. Starbucks is an international well-known brand. What are the important criteria
that Starbucks considered to achieve customer oriented?
3. Does Starbucks include technology in their marketing strategy? How and why?