Meghan McGowan
Professor Gervais
Case #3
4/2/12
Starbucks Corporation
Summarize the overall strategy of Starbucks Management in its effort to create and develop a new
concept and a rapidly expanding company.
The overall goal of Starbucks Management was to create an American version of the Italian coffee bars
that Howard Schultz had experienced first-hand in Milan. He believed that Starbucks should function as
an important part of the community, as a meeting place for its customers. He wanted Starbucks to
become an experience that would differentiate itself from its competitors. One of their key strategies in
meeting this goal is a focus on customer service in order to create an experience for its consumers.
Another one of their strategies is to ignite their emotional attachment with consumers. They also have a
commitment to improving their business through better training, tools, and products and to give
attention to store-level economics and operating efficiency. All of these are prongs to their strategy that
will allow Starbucks management to turn Starbucks into a location where people don’t just go to grab
coffee, but to experience the atmosphere of an Italian coffee shop. Another prong to their strategy is to
offer many different products and to distribute them among a variety of distribution methods.
Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates
the competitive approach that Starbucks is employing?
There are five generic competitive strategies that can be employed and they are low-cost provider
strategy, broad differentiation strategy, focused low-cost strategy, focused differentiation strategy, and
best-cost provider strategy. The strategy that Starbucks uses is broad differentiation where they seek to
differentiate their product offerings from rivals’ with attributes that will appeal to a large variety of
consumers. The key market characteristic for the strategy of differentiation to work is that buyers’
needs and preferences are very diverse and cannot be satisfied with a standardized product offering.
This is an evident characteristic of the market because consumers all have different preferences on the
way they like their coffee. Which is the reason why Starbucks offers many different product options like
lattes, skinny lattes, coffee, iced drinks, blended drinks, etc. They also offer fruit cups, water, and bakery
items to provide even more options for their consumers. If a differentiation strategy is successfully
implemented the firm will be able to do one of the following: command a premium price for its
products, increase unit sales, and/or gain buyer loyalty to its brand. Starbucks has some of the highest
prices for the type of products they offer and people tend to be extremely loyal to whatever coffee they
are used to purchasing, because they trust the quality.
Methods to enhance differentiation
1. Create superior product features, design, and performance
Starbucks has a superior knowledge of coffee and a commitment to providing customers with quality
coffees. Providing top-quality, fresh-roasted whole-bean coffee was the company’s differentiating
feature and a core value since the beginning of its founding. Couches, fireplaces, newspapers, drivethrough windows, kiosks in supermarkets and other public places were added to locations depending on
what would add value to their consumers. Due to their focus on providing a different experience
depending on the location of the store, their international strategy is a multi-domestic approach. The
core characteristics of each new store was based on local materials and craftsmanship, a focus on
reused and recycled materials and exposure of structural integrity and authentic roots. Most important
of all they believed that coffee should be central and that distractions should be removed. They believed
that the combination of all these elements should tell a story that would engage the consumer’s five
senses and provide them with flexibility to meet the needs of the many different consumers that would
be attracted to Starbucks.
2. Improving customer service or adding additional features
When Howard Schultz first became part of the company he realized that one key problem Starbucks was
having was that first-time consumers often felt uneasy about their absence of knowledge about highquality coffee. An additional problem was that the employees came off as arrogant and unapproachable.
He then worked with employees to teach them about friendly customer service and created a pamphlet
to teach new customers about coffee. He also began to offer part-time employees health insurance and
a stock option plan for all employees, because he believed that if a company treated their employees
well, then they would in turn treat their consumers well. The additional features that Starbucks offers
are fireplaces, couches, music, Wi-Fi access, ability to use paid sites and services like Wall Street
Journal’s site, exclusive content and previews, free downloads, local community news, and activities.
3. Pursuing production R&D activities
Starbucks is constantly brewing new flavors and blends to offer their consumers a variety of coffee to
try. Flavors are rotated daily or weekly to offer constant variety. They also test new product offerings
like Frappuccino’s, Lattes, Skinny Lattes, and seasonal drinks.
4. Striving for innovation and technological advances
One way that Starbucks was able to constantly strive for innovation was by controlling the cost of
opening and renovating stores by centralizing buying, developing standard contracts and fixed fees for
certain items, and consolidating work under those contractors who displayed good cost-control
practices. Starbucks retail operations group outlined the minimum amount of equipment each store
would need. This meant that standard items could be ordered from vendors in volume at 20 to 30
percent discounts. The items would then be delivered to the site from a warehouse or from the vendor.
A technological advance was that they used computer software to build store layouts that would
calculate costs as the design progressed. This cut costs by a significant amount and shortened the
process of opening a store to 18 weeks.
5. Increasing intensity of marketing and sales activities
Originally, Starbucks didn’t spend a lot of money on advertising, because they relied mostly on word-ofmouth. In 2008 McDonald’s stepped up their advertising to highlight their McCafe coffee drinks. In order
to counter this Starbucks undertook the largest advertising campaign ever.
6. Seeking out high-quality inputs
Starbucks promotes environmentally sustainable practices in coffee cultivation methods and have
specific guidelines they follow called Coffee and Farmer Equity Practices that help farmers to grow high
quality coffees in environmentally beneficial ways. In 2000 they began purchasing their coffee
organically and a growing percentage of their coffees were grown organically as well as Fair Trade
Certified.
7. Improving employee skill, knowledge, and experience
Starbucks has a commitment to training their employees so that they are better able to serve their
customers. All partners and baristas receive at least 24 hours of training in their first two to four weeks
on topics such as coffee history, drink preparation, coffee knowledge, customer service (for a total of 4
hours), and retail skills. Baristas in particular are required to learn how to grind beans, steam milk, pull
perfect shots of espresso, memorize recipes, practicing how to mix drinks, and how to customize drinks.
Sessions also include how to operate the cash register, clean the milk wand, explain the Italian drink
names, and making eye contact with customers. Management trainees are required to attend classes for
8-12 weeks and learn about store operations, practices, and procedures. When a new store is opened a
Star Team of experienced employees are sent to make sure everything runs smoothly. From time to
time, Starbucks conducts special training programs, including a coffee masters program, leadership
training program, and career programs for partners in all types of jobs.
When does a differentiation strategy work best?
A differentiation strategy works best when buyer needs and uses of the product are diverse, there are
many ways to differentiate the product or service that have value to buyers, few rival firms are following
a comparable differentiation approach, and technological change is fast paced and competition revolves
around rapidly evolving product features.
Starbucks’ actions to differentiate their product line
They have expanded their product offerings along many different distribution channels by capitalizing
on their growing brand name and awareness. First they were able to market their product to
restaurants, airlines, hotels, universities, hospitals, business offices, country clubs, and select retailers.
United Airlines, Hyatt, Hilton, Sheraton, Radisson, Westin hotels, and Wells Fargo all began to serve
Starbucks coffee. A joint venture with PepsiCo came with the sale of a bottled version of the Frappucino
drink and Starbucks Doubleshot espresso drinks. In 2008, they partnered with Suntory to sell ready-todrink Doubleshot drinks in Japan. In 2010 a partnership with Arla Foods spread Doubleshot products and
Starbucks chilled cup coffees into retail stores in the UK. A 1995 partnership with Dryers created a new
line of coffee ice cream under Starbucks names that was later disbanded in 2008. At this time the rights
to manufacture, market, and distribute Starbucks ice cream was given to Unilever. In 1998 Kraft Foods
began marketing and distributing whole bean and ground coffee to supermarkets in the US. Tazo Tea
was acquired by Starbucks in 1999 and in 2005 they acquired Ethos Water. A partnership with Jim Beam
Brands created Starbucks Coffee Liqueur in 2004 and Starbucks Cream Liqueur in 2005. In order to offer
healthier options they began offering skinny lattes, banana walnut bread, fruit cups, yogurt parfaits, a
farmer’s salad, and smoothies in 2008. Also in 2008, Starbucks responded to customer’s wishes to have
a blend of coffee that was always in stores. They created the Pike Place Roast in order to satisfy these
customers. 2009 saw the introduction of VIA instant coffee. In 2009 the retail sales mix of Starbucks was
76% beverages, 18% food items, 3 percent coffee-making equipment and other merchandise, and 3%
whole bean coffees.
What are the key policies, practices, business principles, and procedures that underlie how Howard
Schultz and Starbucks’ management have implemented and executed the company’s strategy?
Key Policies, Practices, Business Principles, and Procedures
The key policies that have been implemented can be broken down into five groups. First is how the
company goes about expanding the number of Starbucks stores. The second is their international
expansion practices. The third group is their staff training. The fourth is their principles towards ethical
business practices. Fifth, is their coffee roasting practices.
Store Expansion
Starbucks management’s approach to store expansion is using a hub city approach. After a suitable
demographic area is chosen Starbucks begins to open up stores in a large city that serves as its hub.
After about 20 stores are opened in this hub city, they will then move on to the surrounding areas that
are the spokes. This expansion strategy serves to create buzz and brand recognition for the company in
an area that has a high amount of foot traffic before moving into a location that has less customer
traffic. When a new area was selected for expansion a group of professionals were sent to facilitate the
opening. Starbucks also had zone vice presidents who would oversee the expansion process and instill
the culture of Starbucks in the new stores.
International Expansion
When expanding internationally Starbucks has two options; they either open company-owned and
operated stores or license to a company that has a good reputation and the knowledge of retailing in
that area. Starbucks prefers to license, rather than franchise because licensing provides more assurance
of quality control. When they move into foreign markets one of their practices is to use a partner or
license to help recruit individuals for employees, set up relationships with suppliers, find store locations,
and learn how to cater to local market conditions. For stores that were licensed Starbucks would receive
a license fee and a royalty on sales. Companies that were licensed to supply Starbucks coffee were
required to follow their detailed operating procedures. Not only that, but managers and employees
were required to attend the same training as employees at company-owned stores.
Staff Training
As mentioned previously, employees are put through an extensive amount of training to learn daily
practices and how to treat customers. They are put through this training because customer service is so
integral to their organization. Some of the things that baristas learn in their 24 hours of training are
coffee history, drink preparation, coffee knowledge, customer service, retail skills, and beverage
preparation. Beverage preparation includes grinding the beans, steaming milk, pulling a perfect shot of
espresso, memorizing the recipes, practicing the drinks, and learning how to customize drinks. Finally,
partners were trained on cash register operations, how to clean the milk wand, how to explain Italian
drink names, how to sell espresso machines, making eye contact, interacting with consumers, and taking
responsibility for the cleanliness of the store. Not only that but they had many rules that needed to be
learned as well such as: milk needs to be steamed to 150 degrees Fahrenheit but not more than 170
degrees, an espresso shot not pulled within 23 seconds needs to be thrown out, coffee can’t sit in the
pot more than 20 minutes, and disgruntled customers were given a coupon for a free drink. Managers
were required to go even more in depth with their training.
Ethical Business Principles
Starbucks purchases products that are Fair Trade Certified, meaning that farmers make a fair amount of
money for their products. They are very involved in Corporate Social Responsibility and take a number
of measures to reduce, reuse, and recycle. They are also committed to purchasing from companies that
use environmentally sustainable growing practices.
Coffee Roasting Practices
Coffee recipes are put together by the coffee department once all components have been tested. In
order to be sure of consistency computerized roasters are used. Trained personnel are required to
monitor the process by using hearing and their sense of smell to check when the beans are perfectly
done. There are extremely exacting standards that must be met and the color of the beans is tested in a
blood-cell analyzer and if it doesn’t meet the requirements the batch is discarded. Directly after roasting
and cooling coffee is vacuum-sealed into bags that are guaranteed to preserve freshness for 26 weeks.
However, policy says that after three months they need to be used. Once opened the shelf life is seven
days.
What “values” does Starbucks have? How well do they connect to the strategy and to the manner in
which the company conducts its business? Are they successful in implementing to them?
The values that Starbucks consider important are included in their mission statement and those are:
1) Coffee: They are committed to providing their consumers with top-quality coffee that is ethically
sourced, and to improve the lives of the people who grow the beans. They do this through a
variety of methods. First is their Coffee and Farmer Equity Practices (C.A.F.E Practices). These
practices specify product quality, that the price received by farmers/growers is fair, that safe
and humane working conditions are being used, and that the methods of growing are
environmentally responsible. Second, they do not add artificial flavorings to their coffee beans.
Third, they have Farmer Support Centers in Costa Rica and Rwanda. These support centers were
staffed with agronomists and experts on environmentally responsible coffee growing methods
and worked with coffee farming communities to promote best practices in coffee production
They also worked to improve coffee quality and production yields.
2) Partners: In order to better care for their employees Starbucks has a health care plan available
for all employees, a stock purchase plan, employee training, and employee recognition. Some of
their employee recognition awards include Coffee Master awards, Certified Barista awards,
Spirit of Starbucks awards, Manager of the Quarter, Green Apron awards, Green Bean awards,
and Bravo! Awards,
3) Customers: They value connecting with customers and uplifting the lives of consumers by
providing the perfectly made beverage and going the extra mile for their customers. Employees
are trained to take heroic measures to make customers happy.
4) Stores: Starbucks management’s goal was to create the stores to be a haven where customers
belong and meet with friends. They do this by creating a store ambience, having interesting
music playing, leather couches to sit and read newspapers in, and they make sure that nothing
overpowers the smell of coffee.
5) Neighborhood: Their stores are part of its community and to be a force of positive good in the
area. One way they do this is by using local materials and craftsmanship. They are also
extremely involved in Corporate Social Responsibility. The commitment to do the right thing has
been a significant part of how Starbucks operates as a company ever since Schultz became CEO.
Starbucks has been named to Corporate Responsibility Magazine’s list of “The 100 Best
Corporate Citizens” for the 10th time in 2010.
6) Shareholders: Starbucks is committed to getting all of the above values right so that they can
help everyone that is involved and affected by Starbucks thrive.
What is your evaluation of Starbucks social responsibility strategy? How much does it help to create
their public image?
Starbucks CSR strategy has four main parts which are:
1) Ethical sourcing of products: They do this through their C.A.F.E Practices, purchasing Fair Trade
Certified products, and buying from manufacturers that have a commitment to environmental
and social responsibility.
2) Community involvement: Starbucks has several organizations to foster community involvement.
First, is the Starbucks Youth Action Grants which involves young people in community
involvement projects. Second, is their program to give medicine to people suffering from HIV in
Africa. Third, is the Ethos Water Fund where they donate 5 cents every time somebody
purchases a bottle of Ethos Water. Fourth, they donate money to the Starbucks Foundation
which was the fund that was started in 1997 to handle all the Starbucks’ philanthropic actions.
3) Environmental Stewardship: In order to achieve this goal they have several methods. First, they
focus on increasing recycling and reducing waste which they do by giving discounts to people
who bring in their own mugs, coffee grounds are donated for use as a soil amendment, they
take part in Earth Day activities, they purchase paper products with recycled content and
unbleached fiber, and they encourage their suppliers to provide energy-efficient products and
eliminate unnecessary packaging. They also have commitments to be more energy efficient, use
renewable energy sources, conserve water resources, use green facilities, using environmentally
friendly building materials and energy-efficient designs. They also have plans to achieve LEED
certification globally. In 2009 they became part of the Businesses for Innovative Climate Change
and Energy Policy coalition. They have also collaborated with the Earthwatch Institute and work
on replanting rain forests, mapping water resources, and biodiversity indicators, and sharing
sustainable agriculture practices with coffee growers.
4) Farmer loans: They provide funding to organizations that make loans to coffee growers. Their
goal for 2015 is to donate $20 million dollars to these funds.
They have also committed money to hurricane Rita and Katrina victims, as well as to help the
devastation after the earthquake in Haiti.
Having a strong CSR campaign adds to the value of Starbucks’ products if consumers know that they are
involved in these activities. It lets consumers know that part of the money they are spending is going to
a good cause. By getting on the Corporate Responsibility Magazine’s list of “The 100 Best Corporate
Citizens” for the 10th time in 2010, it increases the knowledge that people have about their CSR strategy.
Compare the US and International share of yearly revenue, revenue growth, and operating
income/revenue. What do these ratios tell you? What is your overall assessment of Starbucks’
financial performance during fiscal years 2005-2009? Explain the performance of Starbucks stock.
Exhibit 1
Comparison of Starbucks' Financial Performance in the US and Internationally
9/27/2009
9/27/2008
9/30/2007
10/1/2006
Yearly Revenue ($ millions)
United States
$ 6,572.10
$ 6,997.70 $ 6,590.20 $ 5,495.20
International
$ 1,608.00
$ 1,774.20 $ 1,437.40 $ 1,087.90
Revenue Growth ($ millions)
United States
-6.08%
6.18%
19.93%
26.05%
International
-9.37%
23.43%
32.13%
27.61%
Operating Income/Revenue ($
millions)
United States
$ 531.80
$ 454.20
$ 1,005.20 $ 955.20
International
$
92.90 $ 110.00
$ 137.70
$ 108.50
10/2/2005
$ 4,359.50
$ 852.50
$
$
818.50
82.30
These ratios tell us that overall they have been increasing their revenue growth by significant
percentages of an average of 20% internationally and 12% domestically. Domestically the amount of
revenue growth per year slowed down in 2008 and went negative in 2009. Revenue growth also went
negative in 2008 internationally. This makes sense because 2008 was the beginning of the economic
downturn which affected the company’s bottom line. Operating income has fluctuated quite a bit since
2005 and since its peak in 2007 ($1,0005.20 million) has decreased significantly to $531.80 million.
Internationally it has remained steadier at an average of $106.28 million. Again these numbers make
sense because it was in 2008-2009 that the economic downturn occurred and Schultz instituted
strategic initiatives and revamped strategy execution efforts to fix these financial problems. One reason
that the economic downturn affected Starbucks’ bottom line badly is because it was considered a treat
to go to Starbucks and to get coffee that wasn’t brewed at the home. Less people were indulging in
coffee by the cup.
In 2006 and 2007 Starbucks reached its peak growth in the period displayed in exhibit 1. This is
represented in the stock chart because it is also when their stock performance reached its peak at 40.
The lowest point on the stock chart was in 2008 which makes sense because this is when the economic
downturn occurred so many people were selling stocks. In 2008-2009 Schultz’s measures to institute
strategic initiatives and revamp strategy execution efforts began and clearly worked because in the
period of time from 2008-2010 stocks returned to almost 30.
What are the key elements and your evaluation of Howard Schultz’s transformation agenda for
Starbucks during 2008-2010? What do you think of the letters shown on page C-364 and C-365? Has
Schultz done a good job since his return as Starbucks’ CEO? Why or why not?
Elements of the Transformation Agenda
Howard Schultz’s transformation agenda during 2008-2010 had several key elements. First, he planned
on slowing new store openings to 73 internationally. Second, 900 underperformed company-owned
stores were closed in the United States. The goal of this action was to raise sales and traffic at nearby
sales. Around 75% of these stores that were considered underperforming were within three miles of an
existing store which shows that their strategy of having a Starbucks everywhere was cannibalizing their
sales. The third element of the transformation agenda was raising the projected return on capital
requirements for proposed new store locations. This is a way for Schultz to be more particular about
new store placement and to have a better chance of making a significant amount of profit and not losing
traffic to existing stores. Fourth, he planned on revamping the company’s locations in Australia with a
focus on Brisbane, Melbourne, and Sydney as the hub cities. He planned on closing 61 under-performing
locations in order to do this. Fifth, it was important to Schultz that there be an emphasis on developing
new store designs in order to promote a refreshed customer experience. In order to do this the
character of each store would be a reflection of the area it was in to make the customers feel more at
home and to make Starbucks the center of that community. Sixth, customer experience would be
heightened through a variety of methods. The first method was by removing warmed sandwiches from
the menu, because it inhibited the aroma from the coffee. Second, high-quality baked goods and
pastries would be offered at the store along with new menu items for healthy eating on the go. For
example, fruit cups, skinny lattes, yogurt parfaits, salads, smoothies, and healthier bakery selections
were all a result of this step in Schultz’s transformation agenda. The seventh part of the agenda was to
create a program to share best practices in stores globally, this would promote quality control and
improve customer service, which was one of the things that Schultz had found lacking when he became
CEO again. Eighth, Schultz thought it was important to provide resources and tools for store employees
such as laptops and internet-based software for scheduling. Ninth, there were cost-containment
initiatives put in place in order to improve the bottom line that included a reduction of 1,000 people in
staffing. Finally, the last part of the agenda was to renew the attention placed on employee training in
order to reignite the enthusiasm to please customers that is vital to the mission of Starbucks.
Evaluation
The goal for 40,000 stores worldwide as a long-term objective and the rapid expansion that Jim Donald
began led to a decrease in customer traffic in the US stores, new store openings that continued at a rate
of 6 per day worldwide, and the emphasis on increased store operations efficiency put financial strain
on the company and led to a decrease in customer service. Good customer service is one of the
cornerstone values of Starbucks and was a central idea during Schultz’ leadership. Schultz’ return to CEO
and his strategic initiatives mentioned above will help to return Starbucks to the values it originally held
as very important and to return it to profitability by slowing down on expansion to focus more on the
three main themes Schultz saw as important to his strategy. These themes are: strengthening the core,
elevating the experience, and investing and growing. Before he can focus on growing the company, they
need to have a strong base of employees and a focus on the experience that Starbucks is meant to
provide its consumers.
Letters from Schultz
The letters that are shown on page C-364 and C-365 of the case show that Schultz is dedicated to his
shareholders, which is one of the values in their mission statement. He is being extremely open and
upfront the concerns of shareholders and about the actions that will be taken to address those issues.
The first letter is addressed to customers and he explains that he has come back to Starbucks as CEO in
order to ensure that the customers receive the experience that he believes Starbucks is known for. This
letter shows that he truly cares about the thoughts and concerns of consumers. The second letter is to
the employees of Starbucks. In this letter Schultz addresses them as partners in the path to revitalizing
Starbucks’ mission. He even says, “I am proud to be your partner…” By treating his employees like this
he is able to foster accountability for the actions that everybody can take in helping to turn around
Starbucks to what Schultz’ vision for it is.
Evaluation of Schultz’ work
Schultz has done a good job by creating strategic initiatives in order to return Starbucks to where he
thinks the company should be. His vision includes becoming the authority on coffee, engaging and
inspiring Starbucks’ partners, igniting the emotional attachment with customers, expanding global
presence and making each store the neighborhood’s heart, being a leader in ethical sourcing and
environmental impact, creating innovative growth platforms, and delivering a sustainable economic
model. Every one of these visions is addressed in some way in his agenda, which shows he has a clear
idea of where the company should go and how to get it there. In 2008-2009 the company experiences
five quarters of deteriorating sales, but from 2009-2010 had five quarters of improving sales, which
shows that Schultz’ transformation agenda has been working.
What issues confront the company as of mid-2010? What should Starbucks’ management be worried
about? What are the challenges in expanding internationally?
Issues as of mid-2010
1) Oversaturation of the market: With the “A Starbucks Everywhere” approach and the rapid
expansion steps taken by Donald, there was a decrease in customer traffic at the stores,
resulting in a loss of profit.
2) Lack of emphasis on customer relationships: The emphasis on increased efficiency in store
operations led to a decrease in good customer service.
3) Drifting away from the original values of Starbucks: Starbucks was built with an emphasis on
high-quality coffee, good customer service, and a commitment to creating an experience for
customers. However, when Schultz became CEO again he noted that this was lacking.
4) Offering high-quality products: As Starbucks moves into new locations in order to draw
attention away from local popular spots they will need to offer a product that is of high enough
quality to keep consumers coming back.
5) Differentiation: Again, as they move into new markets they will need to do significant research
to find out what those consumer’s value. They need to be able to give it to them in order to
achieve their goal of being the heart of the neighborhood.
6) Coffee prices: Coffee prices fluctuate significantly due to weather, economic, and political
conditions in the countries where they are grown.
What should management be worried about?
Management should be worried about offering high-quality products. If they cannot prove that their
product is better due to quality or differentiating features then locations that sell coffee and consumers
are already loyal, they will have issues drawing consumers away. However, Starbucks does have an
extremely strong brand image and hype associated with their name, which is an asset for them in
entering new markets.
International Challenges
Some challenges that Starbucks will face internationally are:
1) Adapting their stores to fit the location they are in
2) Creating partnerships and licensing agreements with reputable companies to offer their
products abroad
3) Regulations on foreign businesses moving into their country
4) Having enough control over the quality in the international stores that are licensed.
5) Higher production costs
Starbucks has chosen to follow a multi-domestic approach to international expansion, meaning that
they customize their product offerings to match the tastes and preferences of local buyers. The main
challenge that Starbucks will face in entering international markets is knowing what that group of
people wants and prefers. Another problem is that they will need to make partnerships and licensing
agreements with reputable companies in order to be sure that the culture of Starbucks is continued to
their new stores. Finally, they will have the issue with tailoring their stores to fit the environment they
are in, because they will be unable to use a set design which could raise production costs.
What recommendation would you make to Howard Schultz to sustain the company’s growth and
support continued strong financial performance in the years ahead? Consider both the US and
International strategies.
Recommendations
 Coordinate with suppliers to address consumers’ needs better: By coordinating with the farmers
and growers they source their beans from they will be able to add value to their product. They
have been doing this by purchasing Fair Trade coffee and organically grown products. They need
to continue to increase this initiative and to take part is environmentally-friendly initiatives that
add value to their customers.
 Increase incorporation of tangible features that increase customer satisfaction: This is an
important aspect in delivering superior value via a broad differentiation strategy. This involves
adding product specifications, functions, and styling. One way that Starbucks can do this is by
offering delivery of coffee within a certain distance by bicycle. This way they will incur little costs
and be using environmental transportation methods, while adding value to the customers. They
need to continue to know the customers in the area where they are opening a store in order to
offer them the store environment they want. For example a store versus a kiosk, versus a drive
through location.
 Increase marketing spending: Create a marketing campaign that focuses on adding intangible
features to their products. This will increase the value added to the customer’s product in noneconomic ways. Their marketing campaign should highlight on their CSR campaign to increase
consumer’s knowledge of how they support the environment, their neighborhoods, and
suppliers. This will add value to the product, because consumers will know what their money is
going to.
 Focus on the core: In order to successfully implement any of these strategies the core of
Starbucks’ business model: customer service, marketing, brand management, and technology
must be strong so that they can successfully implement value additions. Schultz’s strategy that
began in 2008 focused on this a lot, so continued actions should be taken to become more
passionate about customer relationships and build up the brand name more.
 Manage costs: An overspending on efforts to differentiate their products could lead to an
erosion of profitability. Marketing and R&D are expensive to implement, which is why it is so
important for them to first focus on the core of their business. Good customer service will help
them out because it doesn’t cost them any extra. There are small differentiations that they can
add, such as offering delivery services or catering for a business meeting.
 Take caution with price premium: Starbucks charges a significant amount of money for their
coffee, but they should be careful that they don’t turn their product into too much of a “treat”,
a product that people can’t afford to indulge in every day. They need to make sure that their
products and “experience” have enough differentiations from the basic product. If consumers
are satisfied with a basic product and don’t think that differentiations are worth the price
premium they may switch to a company that follows a low-cost provider strategy.
 Continue with the hub strategy of international expansion: Slowing down on international is a
good plan, they should wait to aggressively expand internationally until their finances have
improved significantly. The hub strategy works well in increasing brand awareness in locations
where there is plenty of foot traffic and buzz can be generated that will spread to the spoke
areas where they can then start getting locations. In these spoke areas they should be careful to
not open too many stores, because it will erode sales at the already established locations. Their


focus on licensing stores in international markets will allow them a larger amount of control
over the quality control methods, than if they had franchised.
Partnerships: Continue with their partnerships with companies like PepsiCo, Unilever, and Jim
Beam Brands that will allow them to extend their product offerings into new consumer markets.
These partnerships will allow them to use their brand name for products that are not directly
related to coffee and therefore appeal to more consumers. These partnerships like the ones
with PepsiCo and Unilever are particularly strong, because Starbucks has been able to extend
them beyond their original purpose. For example, Starbucks and Unilever originally created a
partnership to manufacture Starbucks brand ice cream, but when they acquired Tazo Tea they
extended that agreement to manufacture, market, and distribute Starbucks ready-to-drink Tazo
beverages in the United States and Canada.
Selectively develop new channels of distribution: In the United States Starbucks had a 3 percent
share of what is estimated to be a 37 billion cups of coffee served to on-the-go drinkers, a 4
percent share of the 25 billion cups of coffee served at home, and a 13 percent share of the 3.7
billion cups served in restaurants and coffeehouses. Internationally these numbers are even
smaller. This clearly shows that they have a lot of growth opportunities not just internationally,
but domestically as well.