Market and Value Chain Analysis of Starbucks

Introduction:

Market research is often conducted by various companies in order to determine its niche market position as well as to determine the direction that it must take on order to remain competitive and succeed. Variety of methods is utilized while collecting date. Quantitative market research has historically been the territory of professional researchers with backgrounds in statistics, economics or mathematics. For any company producing various products, there may exist an almost infinite number of combinations of price, packaging, convenience and perceived value additions by its customers. Marketing research offers a set of well defined and generally accepted methods for identifying which combination may have the greatest likelihood of success. This report describes such market research endeavor undertaken to gauge the performance of the coffee giant Starbucks. The research obtains data by collecting primary data from the consumers using an interview questionnaire method and obtains secondary data using various published research and reports.

Research methodology:

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Primary Research:

Large, established companies, typically expend considerable resources conducting marketing research, either through their own internal research departments or by contracting with outside research firms. There is always a need to develop ways to monitor customers and identify their needs and demands and this could be done by asking questions such as why a consumer chooses a particular purchase, or not purchase, a particular product. While qualitative data may be useful in assessing customers’ feelings about a product, offers little insight as to how many customers in a given marketing area might actually purchase it, unless of course, every potential customer is questioned about his or her intentions.

Questionnaire:

A questionnaire could be developed by the company to identify these issues. Various questions that could be asked are as under:

• Consumer’s preference: The question can be designed to assess why consumers use this particular brand and what are their preferences. For example in case of coffee why people would prefer Starbuck coffee over other brands and if they chose to come to Starbuck then what could be their most preferred choice.
• The consumer may be asked about the variety of coffee at the outlets.
• The consumers may be asked about the price.
• The consumers may be asked about the availability of various sizes.
• If the consumers prefer some other addition to the variety

It is important to know not only which attributes customers desire, or are repulsed by as in the milk example, but also to be able to estimate the cost of adding these attributes to the product. It is ultimately the difference in the cost of adding attributes, otherwise known as value, compared with what the customer is willing to pay these attributes, that determines whether to bring a product to market.

Secondary Research:

The most obvious benefit of secondary data is that it already exists and does not require additional time and expense to collect. The disadvantage, of course, is that it is not likely to be tailored specifically to the questions that the producer wishes to answer. Nonetheless, it may be used to glean much useful information at very little cost. External secondary data may be available from a number of sources including government publications and industry trade groups. A third source, syndicated data, is available for purchase from private data collection agencies such as Morningstar, Hoover or Yahoo finance.

Starbucks an Overview:

Starbucks was founded by Jerry Baldwin, Zev Siegel, and Gordon Bowker as a small store called Starbucks Coffee, Tea, and Spice in Pikes Place Market in Seattle in the year 1971. The mission of the corporation is perhaps one of the reasons for its success. Starbucks seeks to maintain a balance between fiscal responsibility and social responsibility by growing its business in not only coffee, but also in “third-place environments” (places people can gather that aren’t work or home). Their mission statement itself is relatively simple: “to establish Starbucks as the most recognized and respected brand in the world” (Starbucks.com).

The Performance:

Starbucks is a public limited company operates from Seattle Washington and is traded at NASDAQ as SUBX. Ever since its inception the company has shown strong sales and growth record. According to Hoover (2010), there are more than 16600 Starbucks coffee shops in 40 countries across the globe. As of September 2009 Starbucks had notched up an impressive annual revenues of $ 9774.6 million with a net income of $ 3908 million (Yahoo Finance 2010). Starbucks had some 142,000 employees globally in year 2009 (Hoover, 2010).

The Company has a wide variety of products to offer. It provides tips on how to make good coffee at home. It offers biscotti, some salads, pastries, as well as sandwiches to go with the coffee. Majority of stores are modeled on Italian themes providing the customers an unmatched experience of Italian experience a little luxury. It also offers a variety of Italian products that may include lattes, cappuccinos and mochas. (Fletcher & Brown 2005)

Customer care is most important for Starbucks towards and therefore employees are specially trained towards customer orientation and customer satisfaction. It is not unusual to see employees asking customers about their coffee preferences and taking feedback on customer’s experience at Starbucks. Starbucks has been successful owing to changing lifestyle and a high availability of Disposable Personal Income (DPI). The baby boomers have moved towards a healthy lifestyle. This phenomenon is further coupled with the fact that is more and more people world over are shifting towards non alcoholic drinks implying further demand of Starbucks’ products. (Borden 1978)

Competition and Market strategy:

The success does not come easy: along with success come many competitors and that’s what has happened to Starbucks. There are many companies imitating Starbucks in terms of the store layouts and light furniture. (Hoovers 2010) In addition to this, some competitors have copied Starbucks’ rapid expansion plan. The example being Seattle’s Best Coffee Company that has been waiting for Starbucks to engage in aggressive consumer education about the importance of coffee, and then it goes to those same locations and opens up stores there. This has caused a lot of competition for Starbucks as they have to keep watching their backs. Another major competitor is Second Cup with the distinction of expanding rapidly in the US retail market growing in numbers and eroding the market share of Starbucks.

The company realizes that it has reached a saturation in the US coffee market with competition breathing down its neck and is thus gearing itself for new markets in hitherto unexplored and uninitiated international markets. Starbucks enjoys a well established brand name having a niche market; however off late they have been challenged by dwindling profit margins dues to increased coffee prices. All these factors prompt Starbucks to expand internationally. (Benter and Booms, 1981)

Value Chain at Starbucks:

Inbound Logistics

In order to deliver on its promise to customers of offering products at everyday low prices at its stores, Starbucks utilizes economies of scale in its inbound logistics activities by having excellent supply chain methodology that involves negotiating globally with managers negotiating with and developing strategic alliances with vendor partners for products.

Operations

Starbucks has global operations spread over 40 countries. These stores are set up in similar fashion and most offer a large variety of products. Operational efficiency is critical to the overall success of Starbucks as well as augurs well for a superior customer service. By setting up outlets in a similar fashion, Starbucks gains greater control that can be sustained at the corporate level however individual stores are allowed and encouraged to make modifications with justification.

Marketing and Sales

Starbucks employs economies of scale in its overall national-level strategic marketing and advertising campaigns, at the same time providing some degree of autonomy and financial independence to execute seasonal or tactical sales promotional campaigns. Starbucks is able to generate cost savings in advertising because of economies of scale and at the same time, create customer value through local adaptation of promotional campaigns.

Outbound Logistics

The nature of the business ensures that Starbucks has minimal shipping and distribution traffic, mainly. However, as an option for customers who prefer to have their goods delivered, Starbucks has carefully built up a distribution network, which has the capability to deliver products to customers’ homes

Service

Starbucks places extra emphasis on its primary business goal i.e. to serve its customers’ needs by efficiently and with a personal touch. Its managers are expected to spend more time on the shop floors, listening to their customers and employees, thereby enabling them to make decisions that respond quickly to the unique needs of target customers. By taking a decentralized approach to its operations, Starbucks is able to deliver on what it sees is its core value proposition to its customers: superior service.

Human Resources

Starbucks has a strong commitment to investing in their employees, which they feel is their greatest competitive advantage. The Company values its employees and considers them as important stakeholders in the business. Starbucks’ management believes that when all the needs of employees have been dealt with adequately then they will do their part in provision of quality services. On top of that, the Company’s leaders like its CEO Schultz believe that all employees should feel appreciated. Compensation plans such as performance bonuses and employee stock ownership plans help in retention of employees as well as recognition programs and emphasizing an open-door policy with management.

Technological

From a technological standpoint Starbucks have both internal and external issues to deal with. External issues pertaining to product development and improvement, patenting and R&D can be looked as mainly a supplier based concern. Even though the majority of that burden is on the suppliers, there are many internal technological issues that especially in Information technology. Expansion in this area is definitely an area of growth opportunity and positioning within the overall industry.

Conclusions

Marketing research almost invariably centers on collecting and analyzing the information necessary to make decisions about how to most effectively market a product. Quantitative data, unlike attitudes, perceptions or ideas, refers to information that can be measured, such as the quantity of a product that is sold during a specified time period, the sales price or the population of potential customers residing in a particular marketing area. Various aspects of Starbuck’s operations in the wake of its market position, current capabilities and various critical success factors make Starbucks Corporation an excellent model for success.

References:

1. Benter, J. and Booms, B. (1981): business development strategies and organizational structures for service firms, in Donnelly, J. and George, W. Marketing, American Marketing Association, Chicago.
2. Borden, N. (1978): The Concept of the business development. Journal of Advertising Research, June, Vol. 2, (Available in Schwartz G. Science in Management, John Wiley & Sons,)Crynes,
   Bryan. “Starbucks Overview.” www.seasim.org/archive/sim102002b.pdf
3. Fletcher, R & Brown, L. (2005): International business development skills, 3rd edition, Pearson prentice hall, French’s Forest
4. Starbucks Corporation, Company Description Hoovers (2010); http://www.hoovers.com/company/Starbucks_Corporation/rhkchi-1-1njdap.html
   Starbucks (SBUX) Income statement; Yahoo Finance Retrieved on 23rd April 2010, from http://finance.yahoo.com/q/is?s=SBUX&annual

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