Starbucks started its operations in the year 1971 in Seattle’s Pike Place Market, with a concept as seen in Italian Coffee Bars which is considered to be a place for conversation and a sense of community. Their mission statement explains their belief which is ‘to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time’. Starbucks has achieved significant growth and in the year 1992 had gone for an Initial Public Offering and got listed in the New York Stock Exchange this was followed by their entry into the Japanese market in the year 1996. After this they entered the United Kingdom through the acquisition of sixty five Seattle Coffee Company Stores this acquisition was successful as the two companies shared a similar culture (www.starbucks.com).
The aim of this research paper is to understand how the external environment influences the growth of the company. And the strategy adopted by the company to sustain its phenomenal growth. The period of research would be restricted to one year.
The external environment would be assessed using the PESTLE method and also the 3Cs method would be used to understand the Competition, the Company, and the Customer would also be assessed to have a fair understanding of the macro environment.
First we will review the macro environment with the use of PESTEL. PESTEL stands for Political, Environmental, Sociological, Technological, Environmental, and Legal factors.
Political: Political issues would be the trading policies, consumer protection regulations, industry-specific regulations, political trends, government structure and leadership would be the issues that would be affecting the political factor.
The growth of the economy in the recent months through favourable political measures has enabled the company to be back in the growth path. This was achieved through effective astute measures adopted by the company. And partly through the positive sentiment generated in the economy by the effective political measures adopted by the government have helped the company to achieve this growth.
Economical: Economical issues would be related to availability of disposable income, unemployment in the country, inflation consumer price index, production levels, etc.,
The United Kingdom’s economy has gone through the rough phase and is gaining significantly the inflationary figures are moving up from the negative which was noticed in the previous year as can be seen from the below snapshot which is taken from the national statistics website.
As can be seen from the above the inflation has emerged out of the deflationary trend it entered last year. This had a positive effect on the sentiment of the customers and has boosted the sales of the organisation. Starbucks growth graph is on similar lines as the inflationary trend which is projected above, wherein their sales have dipped in the last year and have regained constantly in the previous quarter. The drop in the pound value would have an impact on the revenues generated by the company and hence a favourable pound will ensure that the company has a financial advantage from this factor.
Sociological: The sociological trends would imply the education levels, average age of the consumers, living trends, fashion, leisure activities, occupation and earning capacity are the all the factors that would influence on a social level.
From a United Kingdom perspective there have been no major changes which are noticeable from a sociological perspective in the past one year. However, on the leisure activities there has been a marked decline in the way people spent their disposable income. This had an effect on the company’s sales as very few people have ventured to spend their hard earned money and were thriftier in this condition. However, with the improvement in the living conditions the company has gained the confidence of the customers and with which it can market share and achieved.
Technological: This factor considers the technological advances and advances in information technology, internet and other developments in the field of technology.
From a United Kingdom perspective there were no major changes in the technological front related to the coffee industry. However, the company has undertaken practices to concentrate on the technological front by adopting innovative technologies like developing LEED (Leadership in Energy and Environmental Design) towards a green environment (www.greentechnolog.com). Apart from that the company has embarked on providing coffee vending machines which offer contact less operation which is safer and without the use of currency and just with the usage of RFID cards (www.rfidjournal.com) or proximity cards. The same is being tested in the US market and may be introduced in the United Kingdom market after success in the US market.
Environmental: This factor refers to the environmental concerns which are being considered in a bigger way in this current decade due to the raising issues of global warming.
In the United Kingdom environmental issues are considered in a serious way and they have a big impact on the company’s performance as the customers would like to buy the products from only environmental friendly companies. Hence, Starbucks has undertaken different measures to ensure that it addressed this critical concern by ensuring that they support the environment initiatives, in line with this they support the farmers in the coffee growing geographies by undertaking different initiatives for the welfare of the customers. They also support the farmers by undertaking ethical sourcing measures, environmental stewardship and community involvement in the communities from where they source their raw materials.
Legal: This would be related to the legal barriers faced by the organisation or the restrictions imposed by the local governments and other relevant restrictions which infringe on the free trade.
In the United Kingdom there have been no changes in the legal front. However, with the reduction in employment levels and the restrictions which are followed by the increase in the minimum wages has been the major factors which had happened in the past twelve months. The increase in the prices of minimum wages had a cascading effect on the profitability and operability of Starbucks in the United Kingdom.
The other factors which would have an impact on the organisation from the macro environment point of view are the customers and the competition who are part of the external environment. Hence, let us have a look at these two factors also to have a fair understanding of all possible scenarios.
Competition: These factors have been proposed by Mr. Kenichi Ohmae, which at times is also referred to as the strategic triangle. We will have a look at the two factors which are external to the organisation. Competition implies the companies which are operating in the same industry and offering similar products as Starbucks.
They need to be monitored on continuous basis to ensure that they have a tab on the activities undertaken by the competitor and are able to suitably adjust their product range or depth accordingly to ensure that the competitor does not gain any competitive advantage by offering products which undermine the company’s strategy. The major competitors in the industry faced by Starbucks are Costa Coffee, Coffe Nero, etc.,. However, Starbucks with its entry and growth in the United Kingdom market have forced the competition to change their strategies to be competitive against Starbucks (www.brandchannel.com).
Customer: Customer is the main factor who has considerable influence on the company as he is the revenue provider to the organisation around whom the whole business model is built. Hence, a proper and systematic analysis of the different segment of customers is to be carried, which then should be targeted using the right communication methods to attract them.
Starbucks has the advantage of beautiful ambience and customer friendly support personnel who offer great service, this would enable them to attract first time visitors and bring in old customers on repetitive basis. This ensures that the customers visit the stores on regular basis. From a promotion point of view the company offers different options to customers to retain them in their stores as the competition is increasing in the market place. Company also positioned its stores at convenient locations across the United Kingdom to attract all segments of customers.
PART – B
As we have seen from the above paragraphs how Starbucks has scanned the external environment and addressed the concerns in a systematic way to ensure that they have countered the threats in an effective way and have risen to become one of the most preferred brands in the United Kingdom.
Let us now have a look at the marketing mix adopted by the company which would provide us a better understanding of the overall stategy adopted by the company.
Marketing mix comprises of 4Ps which are namely Product, Price, Place, and Promotion. This theory was proposed by McCarthy J.E in the year 1960. Now we will have a brief look the different parts of this strategy and how they are assessed by the organisation.
Product: This can be defined as any tangible or intangible product or service that is produced in bulk and offered to the customers. A product could have different variations, or extensions and duplications to meet the market requirements.
The product being offered by Starbucks is both the physical and psychological on the physical front if offers great tasting coffee and on a psychological level it offers service. They both are combined to form a product which is offered by Starbucks, this kind of product mix is prevalent in the service industry and it has its own advantages and disadvantages. The advantages of this are that the combination of this produces a lasting impact on the customer and enables the company to engage the customer on both aspects that would provide it with an enviable position to retain the customer if both service and the product are offered as per the customer’s requirements. However, on a flip side if either of the product or the service is not up to the standards expected by the customer that would have a negative effect and would potentially loose a customer in the long run. Hence, the company ensures that the ambience and the service that it offers are the best in the industry and apart from that the product is specially manufactured from selected beans which it sources through stringent quality control measures. This perfect combination has enabled the company to gain considerable advantage and leverage the same with the customers.
The company also offers different products depending upon the product life cycle to sustain its growth and maintain the range of products to meet different customer needs, which ensures that the company has a wide range of product offerings.
Price: Pricing strategy would have a major impact on marketing of the products, Pricing can be defined as the value associated by the customer to the product in monetary terms. Companies at times can use the skimming strategy to milk the benefit of cost differentiation.
The pricing strategy adopted by Starbucks is varied they price their products depending upon the location of the store and this enables them to provide differential pricing to cater for local demands. This particular strategy at times would be counter-productive as the customer may feel that the company does not have a standardised pricing and there are too many differences which at times become quite complex for the organisation also to manage. During this recession phase the company did not hike it prices, even though when they changed the menu to offer healthier food and drinks. This sensitivity towards price has enabled them to maintain the same customer satisfaction. At the other end of the spectrum the price at which the products are sourced would also need to be considered to arrive at a right pricing strategy. The company buys it products at a premium price in comparison to competitors as it offers high quality coffee beans to its customers which it sources from special locations with backward integration right up to the grass root level i.e., the farmers. This exceptional supply chain management ensures that the price is competitive and hence the pricing in the market place can be adopted to meet the customer needs at the market place (www.starbucks.com).
Place: Place can be defined as the location of the stores across the geographical locations the company operates and the sales and distribution channel the company adopts to deploy its products and services to the end customer.
Starbucks adopts different strategies for its placing firstly for distribution it has a partnership with Pepsico for distribution of its products, Kraft is another partner with which it offers over the counter bean products and fresh beans. Starbucks has also created a distribution network over the internet wherein customers can buy their products(www.starbucks.com).
This varied channels and different networks of distribution enable the company to gain considerable reach and ensures that its products are available to wide range of customers with which it would be able to support and offer the services and products as the customer demands.
From a United Kingdom perspective the location of stores is important and hence, the company has a strategy not to enter into franchisee mode of distribution except in case of non-availability of prime real estate like in airports, national grocery chains, hospitals and major food services corporations (www.starbucks.com). This conscious decision of the company to go alone and by not entering into franchisee model has enabled it to maintain its concept of being the ‘third place’ in between the home and the office which it claims to be. To maintain the quality of service and the ambience it had to maintain the stores on its own by implementing its highest quality standards. This has enabled the organisation to differentiate its placing from the competitors and it gained considerable competitive advantage through this method of operation. From a strategist point of view, while entering new markets the company would require to undertake the External Environment analysis from this perspective to ensure that the model would be successful in the new market if any they would like to enter.
Promotion: This can be defined as the strategy adopted by the company to promote its products to provide an understanding of the products and services that are on offer to the customers and the location of their availability to enable the customer to choose the product of his requirement.
Promotion can also explained as the process of creating a need from the wants of the prospective customers. These transformation from wants to needs is achieved by an organisation by adopting different promotional techniques.
The promotional techniques that are available are Advertising, Personal Selling, Sales promotion, Public Relations, Corporate Image, Direct Marketing, etc.,
The company has adopted advertising along with Pull strategy to enable them to market their products directly to the customers who would visit the stores and buy their products this strategy is called the pull strategy as the customers pull the product from the distributors or the channel in this case the coffee shop due to the need created by the promotion.
As can be seen from the above the company has clearly strategized its growth by undertaking an in depth analysis of the macro environment and the marketing mix to ensure that it sustains the recession. The above research is based on historical data and for a future perspective it can be assured with the overall improvements in the economy and the growth achieved by the company along with its strategies to invest in new stores across the country would ensure that the company would maintain its growth in the coming years.
The above methodologies of PESTLE, 3Cs and Marketing Mix provide us with a broad overview of the company operations and, the strategies adopted by it can be understood in a theoretical perspective.
It would be prudent to assume that the company would require to keep scanning the macro environment and the marketing mix on a continuous or periodical basis to ensure that they can adopt their strategies to meet the demands or variations observed during this studies. Hence, the marketing strategist is expected to have an appropriate methodology for collecting the required data on a standardised basis which would enable him to compare the historical data and arrive at appropriate conclusions which can be presented to the top management for review and implementation.