THE STARBUCKS EXPERIENCE An Impacting Journey towards Globalization 1. An Insight to the Starbucks Company: ? Formed in 1971 ? Current position- 12,440 + stores across 37 countries ? Average is more than 35 million customers per week ? Loyal patrons visit 18 or more times a month ? If you invested $10,000 in 1992, it would have resulted in an income of $6,50,000 by 2007-08 ? Value of leading company’s since 1992- S&P= 200% rise, Dow= 230% rise, NASDAQ= 2805 rise and Starbucks= 5000% rise ? Starbucks opens 5 new stores a day, 365 days a year. Introduced words like barista, chai, venti, frappuccino blended beverages ? Changed American culture& culture worldwide ? It is not a franchise business 2. Starbucks Organization Structure ? The Starbucks Company is headed by its CEO, Mr. Howard Schultz, to whom the President of the Company directly reports to. However in 2008, Schultz resumed his position as the President of the company and CEO. ? There are 4 Executive Vice Presidents for the 4 main operations of the Company: Legal, Supply Chain & Coffee, Partner Resources and Finance. The Executive VP for Finance is also the CFO of the company. The Senior Vice President of the Coffee division directly reports to the EVP of Supply Chain & Coffee. The Senior Vice President also has the presidents from the various countries having global outlets reporting to him. ? The Corporate organization has four levels of management above Store management. 3. Five Principles for turning Ordinary into Extraordinary 1. PRINCIPLE 1: MAKE IT YOUR OWN Senior management must find ways to get its partners to fully engage their passions and talents while ensuring that individual partners’ differences are blended into a good uniform customer experience.
It can be tough to find a balance between these two leadership responsibilities, but Starbucks has managed to do so through its principle of Make It Your Own. It has created a structure known as the “Five Ways of Being”, which is encapsulated in a pamphlet known as the Green Apron Book: ? Be welcoming It is defined as “offering everyone a sense of belonging”. Partners should do all they can to create a place where people feel that they are a priority and where their day can be brightened, at least for a moment. Be genuine At Starbucks, being genuine means to “connect, discover, and respond”. Connect. Customers have repeatedly shared experiences of Starbucks partners making a connection well beyond some formulaic greeting. Discover. Business success requires the discovery of each person’s needs and individual situation. Respond. Starbucks employees not only listen to their customers, but also take action immediately based on what they hear and learn from these experiences for future customer interactions. ? Be considerate
Starbucks partners look beyond their needs and consider the needs of others – customers, potential customers, critics, co-workers, other shareholders, and even the environment – in sum, the entire universe of people and things Starbucks affects. ? Be knowledgeable Partners are encouraged to enhance their expertise in coffee and customer service. Value is always added to partners’ efforts when they gain work-related knowledge. In addition, as they become more informed, their value to the business, self-confidence, and the impact they have on others all increase. ? Be involved
This means nothing less than active participation in the store, in the company, and in the community – a “yes, I will” attitude where breakthrough products and service are created. There must be a move away from a “bare minimum is OK” mentality. 2. PRINCIPLE 2: EVERYTHING MATTERS All business is detail. When details are overlooked or missed, even the most patient customers can be frustrated and costly errors can occur. Leaders have to understand that they must take care of both the “below-deck” (unseen aspects) and the “above-deck” (customer-facing) components of the customer experience.
A small detail can sometimes make the difference between success and failure. Important details live in both that which is seen and that which is unseen by the customer. 3. PRINCIPLE 3: SURPRISE AND DELIGHT As early back as 1912, the Rueckheim brothers, who are behind the successful candy brand Cracker Jack, already knew that adding a surprise to each package would dramatically increase the appeal of their product. In that vein, delight is the caramelized popcorn – the basic product customers get – while surprise is the prize they get!
Customers want the predictable and the consistent, while hoping for an occasional positive twist or added value thrown in. Customer delight comes from surprise as well as predictability. 4. PRINCIPLE 4: EMBRACE RESISTANCE To work with resistance effectively, you must distinguish between those people who really do want their concerns resolved and those who simply want to complain. For some concerns, listening is all that is required; for other types of resistance, direct action is required. Management should know when listening is simply not enough. 5. PRINCIPLE 5: LEAVE YOUR MARK
We all end up leaving some mark on the world. What varies – and what is most important – is whether that mark is positive or negative. Do we give back more than we take, or do we take more than we give? Successful leaders realize that a key component of their success is leaving a powerful and positive mark in the communities in which their businesses operate. People want to do business with, work for, invest in, and patronize socially conscious companies. 4. Starbucks Timeline and important years in terms of their Expansions 1971- 1st Starbucks location in Seattle 982- Howard Schultz joins Starbucks as Dir. of Retail 1984- Schultz tests new coffee bar concept 1985- Schultz founded II Giomale offering brewed coffee & espresso beverages w/ Starbucks coffee beans 1987- II Giomale acquires Starbucks assets and changes name to Starbucks Corp. 1990- 84 Starbucks Location 1993- 272 Starbucks Location already 3 times more since 1990 1995- 676 Starbucks locations & Starbucks Intl formed. Starbucks goes International this year. 1998- 1,886 Starbucks locations, Joint venture w/ Magic Johnson and the Launch Starbucks . com 2000- 2,292 Starbucks locations 003- 6,604 Starbucks locations as well as Acquired Seattle’s Best Coffee Co. 2004- The operating profit of the company during fiscal 2004 was $610 million, an increase of 43. 7% over fiscal 2003 2005- Jim Donald holds President and Chief Executive Officer 2006- Rival Diedrich Coffee announced that it would sell most of its company-owned retail stores to Starbucks 2007- Launches Starbucks® Bottled Frappuccino® Coffee Drinks in China through International Coffee Partnership with PepsiCo 2008- Chairman Howard Schultz resumed his roles as President and Chief Executive Officer
At the end of fiscal year of 2008, Starbucks decided to reduce their pace of expansion since 1992 when they started their rapid expansion plans. They felt that the pace may have led to overexpansion in some regions and putting stores too close together in others. 5. Starbucks Global Branding Strategy ? Live coffees” mantra – to keeping the national coffee culture alive. Creating an “experience” around the consumption of coffee ? Three components to this experiencing branding strategy: ? First, coffee itself – offering the highest-quality coffee in the world, coffee tandards by controlling the supply chain as possible and the distribution to retail stores ? Second, service – customer intimacy ? Third, atmosphere. To make customers want to stay. Based on human spirit, a sense of community, the need for people to come together. ? Channels – Broad distribution strategy ? Want to reach customers where they work, travel, shop, and dine ? Good Location: Company-operated stores located in high-traffic, high-visibility settings ? Product mixed tended to vary depending on a store’s size and location ?
Non-company-operated retail channels, food-service accounts, domestic retail store licenses ? Good Starbucks Partners ? All Starbucks employees were called “partners” -Most hourly-wage employees. ? Generous policy of giving health insurance and stock options ? High partner satisfaction rate (80% to 90%), well above the industry norm. ? Lowest employee turnover rates in the industry (just 70%, compared with fast-food industry averages as high as 300%) ? Lower managers turnover rates & encouraged promotion from within its own ranks ? Delivering on Service and good measuring service performance ?
Training: hard skills and soft skills ? Treated as a valuable customer (75%), friendly staff (73%) and highest quality coffee (67%). ? A variety of metrics, including monthly status reports and self-reported checklists. ? “Customer Snapshot” measurement tool ? Less competition ? A variety of small-scale specialty coffee chains (regionally concentrated). ? Independent specialty coffee shops & Donut and bagel chains 6. Starbucks Challenges and Risks Going Global focuses on the risks and rewards of expanding into new geographic and cultural markets ? How to maintain growth and keep growing Cannibalizations: One challenge lies on its own dominance – with Starbucks in every corner of a street there is likelihood of cannibalization of sales from existing locations. Starbucks closed 600 underperforming locations in 2008. This seems to be an admission that cannibalization seems to be a major challenge. ? Quality: Premium coffee quality with local taste, there’s some specific coffee drinking market that Starbucks still left open. ? Prices: as a high-end coffee, Starbuck has a substantial price premium, should have a more reasonable price strategy to face with harsh competition of others like Mc coffee. Economic situation: The Company relies on consumer discretionary spending to drive sales. Consequently, a major economic change can have a large impact on revenues. Eg: With the global economic recession of 2008-2009, potential customers have less money and are more likely to forgo a $4 specialty coffee in favor of a cheaper alternative. ? Target demographics-yuppie, teens: Starbucks targets a higher-income crowd of the young and college-educated, a group that tends toward higher luxury-consumption levels.
Although this focus allows the company to maintain high profit margins, it also puts Starbucks at greater risk from a shift in consumer spending habit. ? Being a Global responsibility corporation ? Environment: In October 2008, Starbucks was report wasting 23. 4 million litres of water a day by leaving a tap constantly running for rinsing utensils, 10% used cup in the US is not recycle, what about hundred million cups served over the world? ? Health Concerns: Consumers’ awareness of their health rise the concern of obesity with dairy, sugar and caffeine product, may caused some “would-be” Starbucks customers to turn to their health options. Labor relation: should improve working conditions and others benefits for employee ? Major sources of risk facing the company and potential solutions Three major risks at domestic region: ? Saturated market condition in USA- One of the risks that they faced in USA-the risks of market saturation can be overcome in focusing on international or global marketing. They may focus on how to increase the quality of service and coffee for which they are well known. Loosing customers, customers that grow annoyed because fewer options are available- As coffee is the core product of them to serve they should give more focus on improving the quality of coffee. They may make arrangement for some other items beside coffee as well. ? How the young generation (Generation X) feels about Starbucks and their acceptance towards the brand- As they were facing ominously hostile reception from its future consumer (Generation X), they should reposition their product according to customers need, so that they find can the $3 they are paying for a cup of coffee is reasonable. They can also change their pricing strategy. As Starbucks is going abroad to expand it business with local partners of that region there is a risk of Self Reference Criterion (SRC) and ethnocentrism. It can be over come through proper adjustment keeping SRC and ethnocentrism away in decision making. Note: The primary obstacles to success in international marketing are a person’s self reference criterion (SRC) and an associated ethnocentrism. SRC is an unconscious reference to one’s own cultural values, experiences, and Knowledge as a basis for decisions. Closely connected is ethnocentrism, that is, the notion that one’s own culture or company knows best how to do things.
Ethnocentrism is particularly a problem for American managers at the beginning of the 21st century because of America’s dominance in the World economy during the late 1990s. Ethnocentrism is generally a problem when managers from affluent countries work with managers and markets in less affluent countries. Both the SRC and ethnocentrism impede the ability to assess a foreign market in its true light. But in international marketing, relying on one’s SRC could produce an inadequately adapted marketing program that ends in failure. 7. Criticism that Starbucks faces today as a result of a Global Company
Starbucks are incurring losses for mismatch between their corporate strategies and the customer’s expectations. Those are described below: ? When Starbucks is blanketing some specific cities for dominance, still eight states in the United States are with no Starbucks stores. Starbucks free cities are – Butte, Mont. , and North Dakota. ? They believe that the more the outlet the more the sale. Basing on this strategy they are increasing their outlets day by day in their domestic region as well as abroad. Without satisfying the customers need, by increasing the numbers they will not be able to succeed in their mission. Starbucks’s target customers are the Baby boomers or older generation, it has no differential pricing for the Generation X or younger generation. ? Starbucks is about to become a global company. But its spending does not match with its status. Starbucks only spends 1% of its revenue as advertisement; whereas most companies its size spend at least 10% revenue. Low spending on advertisement obstructs Starbucks’s brand building outside the USA. ? By aggressive marketing strategy they have created entry barrier for the competitors through “predatory real-estate strategy”. They have focused on the product concept which myopic attitude in making corporate strategy. ? Starbucks pay does not come close to match the work load of their employees that created dissatisfaction among them affecting sterling service and even the coffee itself. ? Schultz should be more cautious to various cultural and ethnic affairs. As a Chair of Starbucks and having market in Muslim dominated regions, he can not make any scathing comment against Palestinian. Note: “Predatory real-estate strategy” = paying more than market-rate rents to keep competitors out of a location. Still, the company’s strategy could backfire.
Not only will neighborhood activists and local businesses increasingly resent the tactics, but customers could also grow annoyed over having fewer choices. (http://www. vizettes. com/perspectives/tc/korporate/starfux/starvebucks. htm) Despite the current onslaught undertaken by Israel against the Palestinian people, Starbucks CEO Howard Schultz is fueling an already tense situation by using insightful language to “legitimize” Israel’s actions. He has also called on “every Jew in America” to rise up and defend Israel at any cost. (http://www. muslimtents. com/aminahsworld/boycott_starbucks. htm)