Category: Starbucks

The Strategic Position and Strategic Choices for Starbucks

Introduction

The Starbucks Cooperation, (Starbucks Coperation, 2015) is one of the world’s leading coffee roasters and retailers of speciality coffee. From opening its first store in downtown Seattle in 1971, the global expansion of the Starbucks name has been rapid and strategic (Roll, 2017). In 2018, Starbucks accounted for 29,324 stores worldwide of which 15,041 of them are based in the firm’s home nation of the United States. This dominance within the American retail coffee and snacks sector has given them significant market power in determining industry trends. As a result, Starbucks strategically balances its customer loyalty, premium value coffee and homelike atmosphere within its shops to surmount its competition and excel with the American population.

When discussing the concept of strategy, it is important to note that it encompasses the means in which an organisation achieves their premeditated objectives (Grant, 2015). In order to successfully implement objectives and goals, whether they be profit or customer orientated, businesses and organisations need to formulate a strategy in which they work by. This includes understanding the strategic position of the organisation and setting out outlines and principals on how a company would address these goals.

Introduction to Michael Porters Framework

By using Michael Porters Five Forces framework, we can analyse and evaluate the industry environment by investigating external influences that shape the competitive market and through this theory, organisations can devise an optimal strategy to achieve success market (Greenspan, 2019). The five forces used to formulate these influences are the power of suppliers, the threat of entry and of new competitors, industry rivalry, threat of substitute products and finally the power of buyers. When we apply Porter’s five forces to Starbucks, we will be able to investigate the external environment that may affect Starbucks’ competitive environment.

Threat of new entrants

Another key area of Porters 5 forces framework is the threat of new entrants. This area concerns the extent of how a new entrant could pose a threat on existing competitors within the same industry (Wilkinson, 2013). Due to the competitive nature the retail coffee industry with the United States, it is argued that there is a moderate threat of entry from new competitors within the sector. This is due to the fact that it is considered to be only moderate level of initial investment in order to be able to operate within the industry (Geereddy, n.d.). In relation to Starbucks, it can be argued that they may feel a considerate threat from new entrants as smaller coffee retailers can quickly establish themselves on a localised scale due to the fact that they have lower supply needs and offer no switching costs for consumers (Sakal, 2018). On the other hand, large and established brands such as Starbucks lead the industry as they have advanced economies of scale and extensive brand development which has been achieved over a number of years (Greenspan, 2019). This plays favourably to Starbucks because due to their advanced and large global scale they have the necessary funds and developed distribution systems to be able to expand outside of the localised areas (Larson, 2008) and thus, outside of the United States. Although this is a relatively easy market to penetrate, larger firms such as Starbucks hold an advantage as they have more of a focused and developed customer service strategy which is apparent in all their stores (Greenspan, 2019). This consequently results in loyal customer retention who continually return to the Starbucks store.

Threat of substitutes

Included in Porter’s 5 forces framework is the potential threat of substitute products within the industry. This takes into account when a close substitute of a specific product exists within a market, it therefore increases the probability of consumers switching to alternative retailers for cheaper options (Chartered Global Management Accountant, 2013) or purchasing other commodities in place of the industry’s product (Wilkinson, 2013). For example, the price of a product determines whether customers are going to purchase it, if already established companies seek to charge higher than new entrants in order the diminish the level of threat, this can ultimately lead to customer migration and a loss of profits (Cleverism, 2014). In the case of Starbucks it can be argued that the threat of substitutes is very high as products such as caffeinated carbonated drinks like canned energy drinks and products from Pepsi and Coca-Cola are on the rise (Sakal, 2018). These products pose a threat on Starbucks’ in store sales as they have a significantly lower retail price and can be bought more readily from supermarkets. In addition, it could be defended that these substitutes threaten companies such as Starbucks as they are more convenient and accessible to customers; they do not require waiting in queues, face to face interaction with employees or as stated earlier, products like these can be purchased outside of Starbucks’ outlets. In order to keep up with this trend and lower the threat level from these products, Starbucks have developed their own range of canned ready-to-drink products in partnership with PepsiCo (PepsiCo, n.d.). This is displayed in Figure 1 below. Such as canned their Nitro Cold Brew (Lucas, 2019). On their website, they market these products as ‘a premium experience’ that can be taken anywhere you want (Starbucks Branded Solutions, 2019). Starbucks is strategically trying to overcome threats by new entrants by expanding their range of products by keeping up with market trends. For example, in 2012 Starbucks acquired American tea retailers Teavana Holdings Inc who produce and market premium tea products (Financier Worldwide , 2013). This move by Starbucks further cements their customer retention, by expanding into alternative products, under the same brand name of Starbucks. Nonetheless, the threat of substitute products competing besides Starbucks does amount pressure onto their margins; with the demand to be conceiving new ideas or rival products to reduce this threat and to be continually gaining competitive advantage.

Bargaining power of buyers

The bargaining power of buyers concerns the pressure and influence customers/consumers can put on firms to gain a reduction in price or an increase of quality of the product/ service being displayed (Corporate Finance Insitute, 2018). This power can have an impact on the competitive environment as it influences the industry’s ability to gain profits (Wilkinson, 2013). The bargaining power of buyers can be determined by factors such as the bargaining leverage of customers and the price sensitivity of the buyer. If the bargaining leverage is high, this results in greater price sensitivity which effectively gives the buyer a large amount of power. It potentially can have a detrimental effect on their trading as products are being marketed at a lower price, therefore profits are lost and consumer surplus is higher (Decter, 2017). In terms of Starbucks and the bargaining power of suppliers, negotiations on price for primary buyers like individual customers are incredibly difficult. This is partially due to the vast scale of this business; it would not be possible to charge exclusive prices to different customers. Due to the ample choice of takeaway coffee retailers within the USA, customers have the choice to swap to alternative retailers that offer the same premium coffee, but at a lower price. To some extent, it may be argued that Starbucks gives an opportunity to their consumers to bargain their prices due to their 25¢ reusable cup discount which was introduced in 2018. This discount encourages consumers to bring their reusable coffee cups and in return they receive a 25¢ discount off their order (Gabbatiss, 2018). Starbucks have also introduced their own line of reusable plastic coffee cups in order to encourage consumers to partake in this scheme. This strategic choice made by Starbucks aptly offers consumers a sense of bargaining powers while simultaneously benefitting from those who do opt into the discount scheme by offering the means to do so, such as purchasing one of Starbucks’ own brand reusable cups.

Bargaining power of suppliers

It is a known fact the relationship between producers within an industry and their suppliers is comparable to the contact producers may have with consumers (Grant, 2015). Suppliers have a large influence over the profit potential and competition of an industry, this is because suppliers have the ability to raise prices of supplies and modify the quality of merchandise sold to the producers (Mars, 2018). As included in their 2018 annual report, Starbucks have coined the Starbucks Global Social Impact Strategy, this aims to act ethically and sustainably when sourcing their coffee and in addition contribute to local communities (Starbucks Corporation, 2018). Due to the vast number of retailers of speciality coffee and the many suppliers of Arabica coffee beans, which is commonly used by retailers, companies have to differentiate their products in order to retain competitive advantage. This means that companies such as Starbucks look for higher quality goods in order to be distinct from other retailers, such as outsourcing from premium coffee farmers. Due to this demand, these farmers have the capability to negotiate with producers as speciality farmers are not short of clients, resulting in a high bargaining power for Starbucks’ suppliers (Larson, 2008). On the other hand, due to the sheer scale of the Starbucks corporation within the USA and the large supply requirements, their financial loyalty to suppliers holds a considerable weight. This consequently means that suppliers have a low bargaining power against Starbucks as their trade with the global brand is vital to their production.

Competition Rivalry

Continuing on, one of Porter’s 5 forces includes the intensity of rivalry with an industry. It considers the amount of competition within the environment in which an industry operates in how much impact this may have on profit (Wilkinson, 2013). For example, a very competitive market can have many negative effects for the companies involved as there is less room for negotiation of prices and lower profit margins (Martin, 2014). Considering the intense nature of the speciality coffee market in the USA, the competitive rivalry in this sector is very high. In the case of Starbucks, it falls into the monopolistic competition category. This means that it exists in a market where there are a high number of retailers of the same product/service and therefore many buyers of these products. In order to try competing with this, retailers try offer a differentiation of the product, (Schwartz, 2016). As previously mentioned, Starbucks holds the largest market share within the United States with 39.8% (Lock, 2018). Although this figure dominates the other key players within the speciality coffee industry, it could be said that this amounts pressure onto Starbucks to upkeep this influence within the industry and to be continuously creating strategic and innovative ways to keep their already existing clientele while also attracting more customers (Kaci, 2017). On the other hand, it may be argued that although this amounted pressure on Starbucks creates high competition, Starbucks dominates the industry through their product differentiation by offering high quality coffee products and services. Since 2018, Starbucks have extended their service by partnering with food delivery service, UberEats. Starbucks currently have 15 million users every month using this service across more than 500 cities across the USA (Santana, 2019). This venture gives Starbucks the upper hand within the industry as it creates more convenience for the customer and gives Starbucks another operating cash flow margin outside of their drop-in stores, thus increasing their competitive advantage. Positively, Starbucks maintains their competitive advantage within the industry by acknowledging and implementing their high customer service and strategic branding, which conclusively results in high customer loyalty towards the Starbucks brand (Dudovskiy, 2017).

SWOT Analysis

In order to successfully assess the strategic choices made by the Starbucks cooperation, it is important to determine what is are the future choices of the firm. To do this, we can apply a SWOT analysis. This strategy incorporates the strengths, weaknesses, opportunities and threats regarding competition within the industry, specifically in the USA and its internal project planning (Bbamantra, 2017). The strengths of the Starbucks company refer to the internal factors that influence their success within the industry. As a major player within the American retail coffee industry, it can be said Starbucks have successfully developed an accomplished business model. Starbucks keep their core values at the forefront of their decisions. This includes creating a luxury coffee drinking experience, which diversifies them from competition. Through this focus on quality and service, Starbucks retain loyal customers and therefore sustaining the profitability of its business (Lombardo, 2019). In order to identify the flaws within the Starbucks, it is important to analyse internal factors that may affect profitability. The Starbucks brand relies heavily on the US market and currently 49.8% of all Starbucks coffee outlets are in the USA (Eckstein, 2019). This means that Starbucks is very sensitive to economic variation and could result in instability for the brand. The second part of the SWOT analysis focuses on the external factors that could promote business growth and opportunities. The Starbucks corporation can boost their sales through the expansion of emerging markets. An example of this is that Starbucks have invested in the expansion of drive thru hubs for customers, in place of their usual dine-in outlets (Forbes, 2016). Starbucks anticipates that 80% of their current shops will have a drive thru option by the end of 2019. In terms of threats towards the Starbucks business, in March 2018 the superior court in California, Los Angeles ruled that producers of coffee in the state must have a cancer warning label on as a cause of the carcinogens in the drinks. This as a result led to people avoiding products such as these, leading to a loss of customer retention and damaged brand equity (Rosenberg, 2018).

Conclusion

Starbucks continually drives to pioneer the retail coffee industry within the United States. This is thanks to their effective implementation of strategic choices which has given them the chance to develop their strategic position outside of the US and into new emerging global markets, such as Asia. In order to sustain this success, Starbucks must play close attention to internal and external factors influencing their business and how to keep up with the everchanging climate of this industry and to stay on top. Starbucks’ biggest weakness can be said to be their pricing strategies, if they hope to stay on top, they must offer more competitive prices as other players within the industry are starting to offer a similar quality of beverage, but at a fraction of the price that Starbucks does. Ultimately, if this change is implemented, Starbucks could attract more customers and gain more profit. Overall, it can be said that Starbucks are strategically successful due to the impact they have had not just within in the speciality coffee industry, but globally; by redefining the household commodity of coffee, into a developed customer experience.

Starbucks and Its Impacts on the Community

A company’s effort is powerful. It can impact the sales, profits, recruiting employees and working ethics. A great company effort attracts people who want to work or do business with a company. By creating good opportunities at their company, it can inspire employees to be more productive and positive at work. It’s easy to see how the company makes an effort that impact the employees working with them.

Starbucks give importance in protecting their employees who are working under them. In compliance with their Global Human Rights Policy, Starbucks supports equal opportunity in the hiring process by making decisions on employment based solely on job related requirements and does not use forced labor. They do so by providing them with a safe healthy workplace which are free of all forms of harassment that includes sexual and racism issues. When Starbucks comes up with such progressive policies that implemented by their management so that everyone is treated equally and fair, the employees would feel safe to work with Starbucks.

Besides that, the employees would feel more valued when Starbucks creates more opportunities for them to grow. Starbucks creates an environment where any individuals can work with them despite of their abilities. When opportunities like this are created for them, those individuals won’t feel insecure about their self-esteem but they would be rather confident about themselves where they could work normally as everyone.

Next, the employees will be acquired with new knowledge and skills required for their company. Starbucks management will encourage the employees to upgrade themselves with skills and drills provided by the company so that the employees who work with them have valuable experience. By doing this, the employees will get to apply the skills they learn from the courses they attend at their working place to improve their performance and to develop their future career as well. Therefore, when everyone is in it together, they will all make an effort to achieve their organizational goals.

Starbuck’s company impacts the community by purchasing organic coffee beans from the local farmers in order to support them by providing a better future and to have a stable climate on the planet. Although they purchase coffee beans from the farmers, they would perform a quality check that should meet the Starbucks high standard quality.

Finally, Starbucks look after the community by creating a place to manage waste, protect water quality, conserve water and energy while preserving the biodiversity by reducing agro-chemical use to protect the planet as well.

Starbucks Coffee: Critical Success and Fail Factors

Introduction

This report fundamentally assesses the activity the board approaches which are executed by the organizations for maintaining their business effectively. Other than that, this investigation has picked the Starbucks organization as an enormous association for evaluating its project management.

Project Management is the act of starting, arranging, executing, controlling, and shutting crafted by a group to accomplish explicit objectives and meet explicit achievement criteria at the predetermined time. The essential test of venture the executives is to accomplish the majority of the undertaking objectives inside the given imperatives.

The primary constraints are scope, time, quality and budget. The secondary and more ambitious, challenge is to optimize the allocation of necessary inputs and apply them to meet pre-defined objectives.

Critical Success Factors

User Involvement

Social Media is a platform for Starbucks Company as they constantly updating their updates in it. From there, they connect to customers by replying or answering their queries. Besides social media, Starbucks also launched their own mobile app. This makes the user or customers to have more personal contact with their account. As it is launched, it gets customers more connected to Starbucks.

Clear Business Objectives

Mission statement: ‘To inspire and nurture the human spirit — one person, one cup and one neighbourhood at a time.’

Vision statement: “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.”

These statements are concise, clear, and inspiring, especially in terms of achieving and maintaining the premier status in the coffeehouse and coffee industry.

Project manager expertise

Back to 1971, first Starbucks Coffee shop was opened in Seattle. Three partners were inspired to sell high quality coffee beans by coffee roasting entrepreneur, Alfred Peet. He taught them all about roasting coffee. They became experts in coffee and gradually upgrade their retail and start to sell freshly brewed coffee, which when most customers came to get their coffee beans, they were indulged with the fresh coffee brewed.

Critical Fail Factors

Competition

McDonald’s and Dunkin Donuts are an example of company that able to serve high quality products but at lower price compared to Starbucks. This has become a question to most customers as they could get the similar quality product at cheaper cost.

Human Resources

Starbucks Coffee, although a big company, they lack of human resources service. Partners(staff) were not considered as they launched a promo of 12-hour period. They expected partners to cooperate with the promotion period and to give great customer service at the same time. The pay for the barista is also not as much as big as this company is. Most partners gradually resign after one another due to lack of human resource and also the low rate pay.

Conclusion

Starbucks has maintained its place in the coffee industry, by becoming a coffee giant that continuously grows and expands. To do so efficiently, Starbucks must stay aware of the possible threats that could impact their desired growth. Performing a PESTLE analysis can help identify external factors and the determination of these factors that could present future opportunities for Starbucks to capitalize on. Starbucks must stay aware of recent trends while working to grow with these trends to stay relevant. Organizations such as Starbucks are the first ones in the market with trend-centric products, become recognizable leaders and gain loyal consumers with brand loyalty.

References

1. About Us. (n.d.). Retrieved from Starbucks My: http://www.starbucks.com.my/about-us
2. Mission Statement. (n.d.). Retrieved from Starbucks My: http://www.starbucks.com.my/about-us/company-information/mission-statement
3. Project Management. (n.d.). Retrieved from Wikipedia: https://en.wikipedia.org/wiki/Project_management
4. Starbucks. (n.d.). Retrieved from Wikipedia: https://en.wikipedia.org/wiki/Starbucks
5. Starbucks Digital. (n.d.). Retrieved from Inside Highered: https://www.insidehighered.com/blogs/student-affairs-and-technology/why-starbucks-gets-digital-engagement
6. Starbucks Failure. (n.d.). Retrieved from BusinessStudies: http://www.businessstudiesqa.com/2017/12/starbucks-failure-in-australian-market.html

The Historical Growth of Starbucks and Global Coffee Culture

In 2007, Starbucks began to show signs of market saturation in existing markets. As Schultz developed his five-year plan, despite the successes during his second run as CEO, Starbucks still faced market saturation. In the third quarter of 2016, comparable-store sales had begun to drop. In order to achieve the goals he set in 2014, Schultz needed to find a way to increase sales again.

Top Management Team

Howard Schultz

Howard Schultz graduated from Northern Michigan University in 1975 with a bachelor’s degree in communications. After graduating, Schultz began his career working for the Xerox Corporation as a salesman. In 1979, he entered the coffee industry as General Manager for Hammarplast, a coffee equipment manufacturer. Starbucks was a client of Hammarplast and piqued Schultz’s interest. In 1982, he joined Starbucks as Director of Operations and Marketing. He bought the original founders out of the company in 1987, with the goal of bringing the Italian coffeehouse experience to America.

Schultz resigned as CEO in 2000, taking up the mantle of Chairman in the same year. He returned to the company as President and CEO in 2008 and has transformed the company, incorporating sustainability, strengthening the Starbucks community, and innovating the future of the coffeehouse brand.

Kevin Johnson • President & Chief Executive Officer

Kevin Johnson joined Starbucks in 2009, serving on the board of directors. In March of 2015, Kevin became the President and Chief Operating Officer. In this position, he focused on leading businesses globally and all core support functions of the Starbucks supply chain. When Howard Schultz transitioned to Executive Chairmen, Johnson rose to assume the role of President and Chief Executive Officer. Outside of Starbucks, Johnson graduated from New Mexico State University with a degree in business administration and started his career at IBM. After IBM, Johnson spent sixteen years working at Microsoft, followed by five years as CEO of Juniper Networks. Johnson also spent time on the National Security Telecommunications Advisory Committee. He works with nonprofits supporting causes including distributing technology to nonprofits, supporting women in business, and youth and family counseling in the Seattle area.

Rosalind Brewer • Chief Operating Officer & Group President

Rosalind ‘Roz’ Brewer works as the Chief Operating Officer and Group President at Starbucks. She leads corporate-run businesses in North America, as well as the licensed stores. She was appointed to the Board of Directors in March 2017. Before joining Starbucks, Brewer worked as CEO of Sam’s Club, making history as the first woman and the first African American to lead a division in the Walmart corporation. She also worked with the Kimberly-Clark Corporation for 22 years, starting out as a staff scientist. Brewer’s bachelor’s degree is from Spelman College, and she later attended both Wharton’s Advanced Management Program and Stanford University’s Directors’ College. In addition to Starbucks, Brewer works on the boards at Amazon, Lockheed Martin, Molson Coors Brewing Company, and Spelman College. In 2018, Brewer was ranked by Fortune as #33 on the list of the 50 Most Powerful Women in Business.

Competitors

The primary competitive category that Starbucks falls under is that of Specialty Coffee Shops. Coffee club and informational resource JavaPresse defines a specialty coffee as “an approach to coffee that is fueled by globally conscious ethics, a rich appreciation for quality and diversity, and a thriving community that spans the globe.” Companies that produce this specialty coffee will pursue a quality coffee from the farms, serve as a global community, and will prioritize relationships between company and consumer as well as company and supplier. These competitors include Dunkin’ Donuts, Caribou Coffee, Peet’s Coffee and Tea, and premium craft coffee companies.

Dunkin Donuts

• Lower prices than Starbucks, with a similar menu
• Originally focused on coffee, baked goods, and ice cream
• Began selling premium espresso-based drinks in 2004
• Directly competed with Starbucks product expansions
• Starbucks released bottled coffee drinks with PepsiCo; Dunkin released bottled coffee drinks with Coca-Cola
• 58% of Dunkin’s franchises reported sales came from coffee sales
• Starbucks still maintains a 75% market share of ready-to-drink bottled coffee drinks

Caribou Coffee

• Smaller scale, directly competing with core offerings
• Specialty coffee
• Sustainable business practices, ‘third place’ customer experience, and high-quality drinks
• As of May 2015, operated about 600 stores worldwide across 11 countries

Peet’s Coffee and Tea

• Custom coffee roaster started in 1966
• Traditionally focused on fresh, whole bean coffee; More recently increasing freshly brewed drinks
• Recently acquired Mighty Leaf Tea, as well as craft coffee companies
• Pursuing similar strategies as Starbucks and Caribou

Premium Craft Coffee Companies

• Providing the highest possible coffee to the customer, despite cost and service time
• Emerging movement among dedicated coffee drinkers
• Also known as ‘third-wave’ coffee

Other competitors outside of the coffee shop category include McDonald’s, Panera, Keurig Green Mountain, and JAB Holding.

• McDonald’s
• Quick-service Restaurant AKA Fast Food – specializes in selling food products for an estimated $5 per meal
• Offering healthier options, all-day breakfast, and espresso-based McCafes
• Lower quality service and environment than Starbucks, focusing on price and efficiency
• Winning markets based on price and blind taste-testing
• Ownership is primarily franchise, with slowly declining revenues
• Panera
• Quick-service restaurant
• Specializing in healthy, organic baked goods and meals
• Aiming for a “warm, inviting, and comfortable environment” and for all-natural/organic products
• About half of all restaurants are franchised
• Presence of stores is growing, but with mixed financial response
• Homebrewing Companies
• Keurig Green Mountain, Nespresso, etc
• Targeting customers who want to brew coffee drinks from home
• Brewing with single-serve machines for basic coffee (Keurig) to complex espresso mixed drinks (Nespresso)
• No service, but market primarily based on low cost and convenience
• Has been pursued by Starbucks with single-serve pods
• JAB Holding
• German investment company with heavy portfolio of coffee and consumer packaged goods
• Owns a variety of coffee shops, coffee brands, and quick-service competitors
• Caribou Coffee, Peet’s Coffee and Tea, Einstein Noah Restaurant Group, Krispy Kreme, Keurig Green Mountain, and more
• Varied product and service offerings across the many brands

SWOT Analysis

Internal Strengths

Mobile Performance – Starbucks was on the leading edge of mobile app performance, especially with its mobile order and pay system and high performing loyalty program. Starbucks has aligned itself as the coffee app

Benefits for Partners – Starbucks has continually provided benefits for its employees, who are known as partners. This includes tuition-free education from Arizona State University, stock options, and access to health care.

Sustainable & Ethical Structure – Across its the span of Starbucks’ goods and services, it has emphasized both sustainable solutions and ethical business models. This includes purchasing Fair Trade coffee, establishing a resource center for farmers (CAFE), LEED-certified stores around the world, using environmentally friendly materials, and sourcing local materials.

Social Responsibility & Activism – Howard Schultz has been very vocal about political and social issues via the Starbucks Corporation. The company has supported a variety of causes, verbally and with actions. Actions include partnering with (RED) to raise awareness and funds for HIV/AIDS, banning guns in their stores, hiring military veterans and spouses, and more.

Internal Weaknesses

High Prices – Starbucks represents a higher price point to maximize its profits, blocking the access of lower-income customers. These prices are also higher to accommodate for more materials and resources that may not be the cheapest option, given that they value sustainability and ethical products over low cost

Product Imitations – Starbucks’ physical product is not a unique product. In-store coffees have been imitated by many, and product expansions nearly directly copied.

‘Divisive’ Social Stances – With Starbucks and Schultz being vocal advocates for many social causes, it caused criticism from shareholders. Blowback included a forced store shutdowns due to a protest by gun owners and Schultz releasing a statement to tell critics to “buy shares in other companies” if they did not approve of the social actions

Lack of Insulation in Financial Crashes – During the 2008 financial crisis, Starbucks took a major blow from consumers who eliminated extraneous, non-necessary spending.

External Opportunities

Health Conscious Consumers – More health-conscious consumers have strayed away from fast-food style business like McDonald’s, but still purchase from quick-service restaurants that can provide quick, on-the-go meals. As Starbucks diversifies its food menu, expanding into more healthful products, it can attract more health-conscious consumers.

Increased Support for Eco-Friendly & Ethical Business – As issues like climate change and pollution to become more and more mainstream, customers have become more interested in supporting businesses that represent eco-friendly options. By zeroing in on this concept, Starbucks can increase their green marketing to emphasize its eco-friendly aspects, elevating themselves as the greenest coffee shop.

At-Home High-End Coffee Makers – also recession proofs – During the 2008 financial crisis, customers cut back on coffee shop purchases, but continued drinking coffee from home. Using at-home machines from a classic Mr Coffee to higher-end Nespressos, consumers did not eliminate the coffee drinking habit but rather altered it to a more budget-friendly alternative. By expanding more into the at-home coffee market, Starbucks can add an element to their business that will make them more recession-proof.

External Threats

Low-Cost Competitors – Other major restaurant chains have undercut the Starbuck base by providing similar products for a significantly lower price. McDonald’s is a primary competitor when it comes to cost.

Imitations by Competitors – Other competitors are followers in the coffee market and target brand extensions for imitation. Dunkin Donuts has previously done this with its bottled coffees released in partnership with Coca-Cola after Starbucks released its bottled coffees in partnership with PepsiCo

Threats to Coffee Crop – There are a variety of threats to the coffee crop including geopolitical limitations, monetary exchange rates, high labor production changing weather conditions, and climate change. These factors are impossible to control, and one change could affect coffee crop production for years to come.

Past Actions Taken by Firm

When Howard Schultz took the reins again at Starbucks in 2008, he had developed a “transformation agenda,” that set goals for developing the Starbucks customer experience. These goals included igniting emotional attachment, making each store a stronger part of their local neighborhood, and engaging and inspiring employees. A major element of achieving these goals included adopting new technology allowing for increased customer engagement. These new technological practices included using social media, a loyalty program, and an innovating online ordering system.

Social Media allowed both corporate partners a voice to communicate with all of their customers on social media, but individual stores as well, reaching into their communities in a familiar way, bringing Starbucks’ global marketing initiatives to a local scale. At the corporate scale, social media also provided a low-cost customer support system. When consumers reached out with problems or questions, social media allows them to get answers in just minutes, and communicate in a way that feels more direct and authentic.

Starbucks developed a custom app, making its loyalty program digital. In an era where smartphones were ubiquitous, especially among Starbucks ‘ main demographics, the consumer is more likely to be carrying a phone than a variety of membership cards at all times. The app was available on Apple and Android phones and allowed a variety of options including earning loyalty rewards, finding stores, and a new mobile order and pay option.

Mobile ordering and paying allowed customers to skip the store lines, and pick their drinks up directly from the barista. This option increases a store’s operating efficiency and allowed it to take more orders, quickly during their peak hours. Starbuck was one of the early adopters of this system, In the fourth quarter of 2016, mobile ordering represented 6% of all US transactions.

Beyond its own technology, Starbucks partnered with other tech companies, in order to bring better and unique services to its own customers. These partnerships benefited both the customers and the store’s employees and included other innovative companies like Spotify, Lyft, and Google.

Recommendations

In order to combat market saturation problems, it is my recommendation that Starbucks strengthens its digital engagement. A diversified menu will not do anything to aid a company if the customers aren’t aware of it. Today’s world is a technology-filled one, and the influence that the digital world has on customers and companies is only going to increase in time. Taking the initiative to develop and further Starbucks’ digital engagement with current and potential customers gives them an opportunity to develop their relationship with the customer, in a way that feels more unique and special to the individual. My recommendation has three main action points: online customer service, loyalty program, and social media.

My first digital engagement recommendation is to dedicate customer service resources to provide a strong contact point by social media, as well as a texting-based chat option. In order to provide an efficient, effective customer service system, Starbucks must be available in a way that makes customers comfortable to reach out regarding any and all issues they may have, no matter how big or small. The millennial demographic, defined as ages 20-35, is the largest consumer of coffee in the US. According to 2017 research, millennials prefer text-based communications over email or phone. In addition to that, 1 in 3 social media users prefer social media-based customer care to phone or email, resulting in 67% of consumers using social media networks for issue resolution. These data points emphasize the importance of providing a customer service situation that accommodates customers, making the process of contacting and issue resolution as easy as possible.

My second digital engagement recommendation is to review the current usage of the Starbucks reward system and update it to incentivize customers to use it more. In early 2019, it was announced that Starbucks’ loyalty program had topped 16.3 million people, and was growing an estimated 1 million people, per quarter. The process of getting people to join the loyalty program isn’t an issue, but keeping people active loyalty members does present a problem. The loyalty system allows customers to earn points for every drink they purchase with their loyalty app and then rewarding them at certain points milestones. In order to return loyalty members into active status, there needs to be a higher incentive for them to spend. This includes increasing the value of rewards, increasing the frequency of rewards, and providing more ways to earn points. Having in-app contests, weekly perk days, or seemingly random double or triple point earning opportunities, customers are more incentivized to remember, pay attention to, and use the Starbucks loyalty app.

My third and final digital engagement recommendation is to leverage the power of social media. According to data released by Apple, social media networks ranked among the top 20 apps of 2018. These include YouTube in the number 1 spot, Instagram in 2, Snapchat in 3, FB Messenger and Facebook ranking 4 and 5, respectively, newcomer TikTok coming in at 16, and Twitter at 20. More than ever, social media is the biggest opportunity to reach customers, with both paid and unpaid potential reaches. It is important to dive deep into the community aspect, finding ways to increase Starbucks’ transparency and increase customer trust. This can be done through something like Facebook groups to build a community around a special interest, or through IGTV, Instagram’s long-form video streaming service. Give customers a curated insight into how the world of Starbucks works, and make them feel like they are a part of not just the community around the corporation, but the community inside the corporation. Market research should be done to aid in the decision of what direction to go in, looking into the goal customer reach, and working backward to find out where they spend the most time. Whether it’s Gen Xers on Facebook, Gen Z on TikTok, or socially active individuals on Twitter, social media provides a simple, cheap, and effective system for reaching your customers in a familiar, and relaxed way.

Conclusion

Based out of the iconic Pike Place Market in Seattle, Washington, Starbucks has risen from a bean roaster to one of the largest specialty coffee shops in the world. Howard Schultz developed the concept, turning one coffee into an experience, a ‘third place’ for social interactions. As the company continues to grow, it has begun to hit the point of market saturation in the United States. This paper analyzed the historical growth of Starbucks as well as the domestic and global coffee culture to understand how the corporation has come to this point, and provide digital engagement recommendations on how to approach market saturation. The recommendations were dedicating customer service resources to provide a text-based and social media support system, review and update the Starbucks loyalty program to encourage and incentivize higher usage, and leveraging the power of social media to creatively reach specific demographic segments where they are currently spending most of their time online.

The Factors of Success of Starbucks Coffee

Can you imagine how different our twenty-first century lives would be like without coffee? To coffee lovers, it might be a frightening one. What brand of coffee comes to mind first? For me, Starbucks would be the first. It was founded in 1971 in the city of Seattle, and now the coffee chain has close to 24,000 stores worldwide. Starbucks has become one of the biggest coffee brands in the world. There are three reasons why Starbucks has been so successful.

First, it has built their own brand culture. Coffee is an old product. However, Starbucks offers a different and consistent way to enhance brand value. It does not spend significant amounts of money in various campaigns. It focuses on quality of products, quality of the equipment, the decoration of the stores, and the behavior of the employees. Starbucks experts select coffee beans very carefully. Every step has a strict standard, and taste testers have to judge roughly 100,000 cups of coffee to protect the quality. Customer experience is Starbucks’ central target. Every Starbucks store has a custom design, and it focuses a lot on the interior and exterior decorations. It wants customers to feel comfortable to come in to order and sit down to pass the time. Therefore, Starbucks has strongly believed in developing and building the brand through word-of-mouth channels.

Second, it respects their employees. Starbucks treat each employee equally and every member of the staff is called a “partner.” They prefer to spend more money on training employees than on advertisement. Starbucks has an effective communication method for employees. The managers arrange the working hours per employee availability and plan the schedule of time off according to the employee’s request. In addition, Starbucks distributes stock dividends to all employees. Using this approach, the employees can get benefits from the dividends of the company. Consequently, employees have more motivation to provide better service and increase their sales. Moreover, Starbucks is the first private company to provide comprehensive health care for temporary workers. To Starbucks, employees are the most valuable asset.

Finally, it provides high quality customer services. Have you ever come across a rude Starbucks staff? I sure have not. They are fast, efficient, friendly, energetic, and they call your names out correctly. Therefore, their customers feel that they are important. This is crucial to customer relationship success. In fact, the average Starbucks customer visits the store 6 times per month. In addition, the loyal customer will go to a store 16 times per month, which accounts for 20 percent of their customers. Starbucks is implementing customer feedback to create new products. One great example is customers inspired Pumpkin Spice Latte, which is available in certain seasons and has generated a coffee craze. Starbucks always does one thing, which is never stop thinking about their customers. The more they are cared for, the better they are doing.

Consequently, they are becoming successful in the coffee area. Starbucks fully considers the feelings of their employees, puts a lot of value on customer service, and strives to build a people-based corporate culture. Such a concept will give people a warm feeling that feels humanized. In the end, consumers can enjoy the taste of their coffee and enjoy the mood of Starbucks, which is conducive to the development of its brand culture.

Starbucks and Delivering Customer Service

When Starbucks advanced as a business it set the models exceptionally high for its clients through its incentive. Despite the fact, Starbucks first figured out how to satisfy these guidelines, the retail extension and the item advancement methodology that the organization tracked with the customization of the beverages had a destructive impact on every one of the three parts (coffee quality, service, and atmosphere) of the offer which had prompted the declining impacts of consumer loyalty

The image of the brand changed as earlier the brand store used to be known as “third place”, where customer can relax and enjoy with other or by themselves, was appealing to larger target market. In the past clients were paying a premium for the Starbucks experience, however now Starbucks was nothing unique. In the brain of the customer, Starbucks turned into the standard, a spot which was all over the place, with great coffee and predictable service. The dedicated clients lost the touch they had with the brand; there was no reason any longer to pay a premium for a decent coffee when they could go anyplace else for a lower cost.

Starbucks had about 150% expansion in retail locations from 1998 to 2002. By topographically bunching markets, Starbucks was bargaining the ‘atmosphere’ part of its value recommendation. Numerous stores assembled were small and didn’t have seating or relaxing spot. In this way, the upscale yet welcoming condition that the organization guaranteed with its value proposition and which brought a great deal of loyal clients to the business didn’t exist any more.

The picture of Starbucks had changed in the brain of the buyers who saw the quick expansion of Starbucks with the increase of stores all over the place, as a path for the company to make money.

Unsatisfactory service of the partners led to decline in the service as the customers were growing, complexity due to hundreds of combination of customized drinks in its portfolio slowed down the process of delivering the beverage to the consumer and added strain to the partners, causing them to lose their soft skills.

Starbucks can attempt to advance its stored‐value card (SCV) more. The SVC not exclusively will help its cardholders to experience diminished exchange times which means quicker administration and accordingly higher satisfaction, yet it additionally persuades the customer to visit Starbucks more frequently and can gather and utilize the customer exchange information to improve the experience.

The Aspects of Starbucks as a Worldwide Company

Starbucks has developed an internationalization strategy to permit the agency to open shops and franchises in nations for the duration of the globe. market studies is at the center of most of the market access strategies Starbucks is using. this situation take a look at will do not forget how marketplace studies has strengthened Starbuck’s get right of entry to to the chinese language language markets.

In 1992, together with the corporation’s facilities, Starbucks set up a increase approach primarily based on focused on locations with applicable population demographics to help and constitute them. A huge town became decided on to serve as a center for each area wherein a set will help the goal of starting at the least 20 shops over the primary years. one of the key achievement factors of this operation become to recruit experts with advertising and marketing and operating enjoy chain-preserve retailing as vicinity supervisor. This method built upon the growing popularity of the Starbucks logo, which, in some times, had reached new markets even earlier than stores opened.

The primary advertising technique is to represent Starbucks’ keep as a “third place” among paintings and domestic. The agency ought to growth the market percentage in present markets and open stores in new markets swiftly. additionally, Starbucks usually tries to extend its products portfolio. The enterprise cooperates with other corporations to boom and distribute new merchandise.

Fee discounts became accomplished thru centralized purchasing for, through modern day contracts development and stuck expenses for positive devices, and through consolidated art work underneath contractors with suitable charge-manage practices.

Starbucks access to rising and advanced markets is knowledgeable thru marketplace research. Starbucks performed marketplace studies to allow a deeper know-how of the chinese language markets, and the manner that capitalism functions in the people’s Republic of China . China includes some fantastic locally-based totally markets, an thing that makes market studies vital to launching new stores and franchises in China.

A deep understanding of intellectual property right legal guidelines is essential to successful marketplace get admission to in emerging markets. Starbucks articulated an access method that would address the dominant chinese language markets and that grow to be designed to be as inoffensive with admire the chinese way of life as viable.

In preference to taking the conventional method to advertising and promotions—that may had been seen by the use of ability chinese language customers as attacking their tradition of consuming tea—they placed stores in excessive-site visitors and immoderate visibility places.

In keeping with their website, they’ve more than 24,000 shops across greater than seventy five markets and additionally they say” it’s clear that our passion for brilliant coffee, real service, and network connection transcends language and way of life.”. The us has the most shops in the world with a total of 6031 stores after which comes south Korah with 1231 shops and they’re establishing extra shops.

despite the fact that globalization has allowed big multinationals to enlarge across the globe developing their recognition and earnings, this phenomenon has been widely criticized and Starbucks was also the sufferer of anti-consumerism and anti-globalization actions. The increase revel in thru the business enterprise and its global dominance has generated many terrible discourses, more regularly than now not criticizing Starbucks’ ascendancy on the expense of nearby espresso shops.

As a multinational logo that aspires to be a recognized worldwide chief, Starbucks’ advertising approach calls for a diploma of standardization. to start with, the commercial enterprise agency occasionally advertises inside the traditional experience thru television, radio and print ads, further to this, the business business enterprise has advanced and perfected their social media advertising and marketing approach, the use of twitter, pinterest, Instagram, youtube, and different structures for competitions and promotional deliver for their clients. it could be argued that Starbucks’ achievement inside the social media sphere is also exceedingly depending on the anti-Starbucks movement, as this generates multiplied insurance of the emblem name, allowing the business organisation to counteract the accusations and promote their moral behavior even greater.

The involvement of customers in product development and variety (i.e.: new drink flavors) in addition to the encouragement to proportion personal studies in the interim are an indispensable a part of Starbucks’ international advertising approach. The employer regularly prides itself on the fact that it creates a community revel in amongst people from amazing countries via the recognizable emblem name Starbucks. The enterprise uses social media to encourage its customers to create a feeling of belonging to a network and rewards its dependable clients thru My Starbucks praise, using polls to make sure the most potential of crowdsourcing. via this, the employer demonstrates loyalty on its element to its customers, that focuses on remodeling their clients in brand ambassadors, in location of creating an investment time and big finances shares in competitive advertising and marketing strategies aimed towards collecting big shares of recent purchasers.

Ethnographic Essay Example

I decided to set out a place to first begin my observations without knowing what really to expect on what I would find. I came across a Starbucks that was near my home that was fairly empty compared to another one I had been at just a few days before. The Starbucks near my gym is in the corner of El Segundo Ave. and Hawthorne Blvd. in Hawthorne, CA and is in a busy street. I decided to compare this Starbucks location to the one nearby Cal State LA. It gave me an opportunity to observe subjects that I would consider different from myself and my values. As an anthropologist conducting an observation, it was poor of me to assume both locations would be similar but quickly had to avoid any biased ideas that I had of these two locations.

To blend in with my surroundings, I first decided to order a “venti pink drink”, also known as a “large pink drink”. Starbucks is the only location I know that they do not incorporate the typical; small, medium, and large cup sizes. This takes a while for one to get used to since many of the sizes sound like if you are only familiar with its Latin roots. After receiving my drink, I sat in a booth towards the corner of each location and began observing.

I first arrived at the location near Cal State LA during a busy school day during the schools “Dead Week” for finals. I figured the environment would be interesting to observe how differently it would be compared to one that is not necessarily with a school atmosphere. After being at this Starbucks for around fifteen minutes I decided I had enough to draw out my surroundings. The location was like any ordinary Starbucks. It has booths one can sit at and look out the window and get a view of the street and drive thru. There were twelve tables with four chairs on each one for anyone who would like to sit down with a group and get some studying in. there were these small stands where baristas would place a drink and someone would just walk in and take said drink without the need to get in line. After this, I began my observations of the people. Gender was not really a factor in here since many of the people coming in were just at random sitting down to grab a seat and get schoolwork done. From the people who walked in, only 3 were driving while the rest walked in on foot or just happened to have parked far instead of the open parking spots at the front of the store. Around 85% of the people who walked in had a backpack on which led me to believe they were all students at Cal State LA. Most contained a laptop or books inside their backpacks that they would pull out after taking a seat. Many would order and then take a seat and start studying right away. They were clearly focused and avoiding any distractions. The atmosphere was very quiet but at the same time very chaotic since there was a lot of people in this location all stressing in a way with the overload of work they have coming up or already struggling with. This focus the students had did not allow for much communication to take place so language could not really be taken aside from the ordering of the drinks in English.

I observed both locations at the same times. I figured people go for their morning cup of coffee, so I decided to observe both locations at 7am. Most of the behavior I observed at the Hawthorne location was a very casual and relaxed. The style and overall look of the Starbucks was very similar to the Cal State LA location. This location did not however have the drive thru or even the booth looking out the window and just consisted of tables and seats. Most of the people seemed to all be friendly in groups engaging with one another and enjoying their beverages. Sitting in circles conversating at a low volume. The energy was definitely less tense since people at this location were more focused on the drink, not the schoolwork. Once in a while you would get that someone that would recognize another fellow customer and they would proceed to great each other with a handshake meaning they are mutual and often seen each other before. Language was very diverse at this location. In the surrounding area, the community is very diverse with plenty of races in the city’s demographic. This allows for the opportunities to listen to languages such as Spanish and even ASL during my time of this ethnographic observation which caught my eye.

Overall, I have to say that for the most part of my biased ideas was reinforced which is consistent with what I figured would be the case. I was not able to fully understand my subjects and engage with them, I only observed how they behaved in that instance which may have been completely out their norm and even their first time at Starbucks.

Starbucks and the Chinese Market

The Chinese market is described as unique and difficult due to its climate, level of wealth and development, food preferences, laws, languages, traditions, spending motivators, and habits (Zakkour, 2014). Because of these characteristics, many brands invested in the country. However, some companies failed because their marketing research was insufficient to remain in the business. Some companies might have failed, but some were also successful in positioning their companies. One example is Starbucks. They scrutinized every detail upon entering: from demographic to its political and legal factors.

Culture was one of the factors that Starbucks had to consider upon expanding into the Chinese market. For a tea-loving community, it wasn’t easy for Chinese people to embrace the idea of coffee drinking mainly because it was not part of their culture. Cultural values are very important to all Chinese people. Starbucks saw an opportunity to expand its business and formed partnerships with Chinese business people and investors in order to expand its offshore business (Khlystov, 2016). Nevertheless, the company still had a hard time to attract customers who had their taste buds locked into tea. At that point, Starbucks came up with an idea to lure the Chinese people: they incorporated Chinese culture into the structure and design of their outlets. It was effective. They were able to entice customers by creating a particular ambiance in their outlets: serene and quiet, a place where customers can feel relaxed with friends and families – but instead of having tea, customers got coffee in their cups.

After understanding their cultural values, Starbucks faced political restrictions. China is a highly bureaucratic country with difficult processes of getting permissions and sanctions to start and run the business (Das, 2017). Entering a communist party where political things could change anytime was a challenge for Starbucks. As a result, they maintained and built relationship with firms and the government officials. It was also essential for the company to understand the property right laws and licensing issues upon entering an emerging market. They used intellectual protection laws to prevent its business model and brand from being illegally copied in China (Devault, 2018). Starbucks registered all its major trademarks in China four years after opening its first café in 1999 (Devault, 2018).

The vital demographic factor that Starbucks had to acknowledge was who to market its products to. With China’s ever-growing population and changing times, the older generation holds more collective goals, while the younger generation is more individualistic (especially considering the new law of one-child policy). However, Starbucks has become one of the most popular brands amidst the age group ranging from 20 to 40 years old called “Chuppies”. Local people who were trying to ape the Western lifestyle patronized coffee drinking as well. In addition, the younger generation enchantment to brands and products from the West led Starbucks to gain an understanding more about the business climate in China.

Their initial global strategy was to use different types of owner structures; they either used authorized local developer or set up a joint venture. Having these strategies helped the company to sell their products because they had someone who understood the different facets of the government and its counterparts. In addition, these local partners knew the Chinese market condition better. It was an effective step to satisfy the preferences of the different regions of customers. Although they were operating at a low risk level, the disadvantage was that they company were only receiving royalty fees. This means that they were only reaping minimum profits as the market grew. China became a member of the World Trade Organization (WTO) in 2001, which opened up opportunities for foreign investors to invest in the Chinese market. The organization made it easier for foreign companies to navigate alone. To take advantage of this opportunity, Starbucks announced that it was buying out its partner in China and took control of 60 stores in 2006.

The ability to adapt assists everyone, whether a business or a person, to keep moving forward. With the population of China continuing to grow and with the country in the WTO, the possibilities are limitless. Starbucks has expanded all over the world and will continue to grow as long as they follow the same practices they put in place like the ones in China.

Starbucks Executive Summary

Company introduction

The Starbucks Corporation is considered to be the most successful coffee company and coffeehouse brand in the World. The company was founded in Seattle, Washington with just one location in 1971. Today, Starbucks operates more than 27,000 locations around the world and plans to further expand to new markets worldwide. Due to its dominance and success, Starbucks is credited with revolutionizing the coffeehouse experience and considered as one of the most well known and recognized brands in the world today.

Business Model

Besides popularizing and selling variations on coffee as a beverage, Starbucks also sells teas, blended and dessert like beverages to suit nearly every taste. Their other products include whole-bean or ground coffee, teas, juices, and pastries. Most locations also sell pre-packaged items, sandwiches, and various branded merchandise. Starbucks branded retail items, such as bottled drinks, instant and ground coffees are sold through grocery outlets as well. To Starbucks’ credit, they have leveraged their popular brand and loyal customer base, to tap into other areas of revenue, beyond selling coffee at one of its 27,000+ locations.

One of the main strengths of Starbucks is their ability to effectively use their brand equity to offer products at premium prices relative to other coffee products. An important part of their brand equity is accomplished by providing a distinctive “Starbucks Experience”, which includes a personalized, neighborhood coffee shop experience, combined with consistent quality and convenience. This is all a part of a goal to create customer loyalty. Another notable strength is its leverage as one of the largest coffee buyers in the World, and builds strong relationships with their suppliers in order to deliver a consistent product while maintaining strong profit margins.

Current information systems configuration

Starbucks skillfully utilizes information systems in all aspects of its business. This summary will introduce and briefly describe the primary information systems in use, from determining when and where to purchase their coffee bean supplies, and to connecting and understanding its retail customers at the point of sale and through the Starbucks App.

• Inbound logistics – Sourcing coffee from diverse coffee bean producers with whom they have great relationships and built up efficient supply chain management system.
• Operations – They have operation in 60 countries with their stores being modeled on company operated stores and licensed stores.
• Outbound logistics – Most of its product mix are sold in-store and some through large box retailers.

Payment through point of sale, prepaid Starbucks Cards and mobile payments. Marketing and Sales – Traditionally, investment in marketing activities have not been significant and relied mainly on the growing reputation of premium quality product mix and superior customer service to give the ‘Starbucks Experience’ to drive customers to their stores and products.

Service – Starbucks has a reputation for providing supreme level of customer services to their consumers.

In 2019, Starbucks operates more than 27,000 locations around the world. It can be very complex to manage a supply chain at this scale, with the added risk of minor inefficiencies that can appear throughout the supply chain, which can compound when multiplied by 27,000 locations. This can limit the company’s ability to deliver a consistent and satisfactory experience to its customers, while capturing sufficient profits. As an increasing amount of the world’s population enters the middle class, with access to artisanal or upscale consumption of coffee, the wholesale demand for high quality coffee has exceeded supply in recent years. This has been further exacerbated by climate change, as well as labor costs and shortages, which have further impacted coffee suppliers. The combination of increased demand, and external pressures on supply, such as climate and labor costs has created much variability in the availability and cost of quality coffee. Starbucks has adapted to these changes by investing in supply chain technology. The ability to adapt to variations in supply and demand. Added with their leverage as a key purchaser of the world’s coffee supply, has given them a decisive advantage over their competition. Automated monitoring of supply chain, through their centralized logistics network, which monitors demand levels by each individual store, as well as integrating warehouse inventory and delivery schedules, has provided the company the ability to achieve a greater efficiency, to minimize waste, and allocate inventory in the most effective and timely manner. Since the concept of freshness is a vital factor in this industry, Starbucks has created an important advantage over its rivals by investing in an automated supply chain monitoring network.

Similar to its investment in automated supply chain monitoring, Starbucks also leads the industry in retail and customer engagement. The most commonly known information technology system for customers is the Starbucks App’s ‘Rewards Program’ and ‘Mobile Order’ system. On the surface, for customers these may appear to be simple and convenient tools for customers to utilize alternative forms of payment, to save their favorite drinks for easy repeat orders, to obtain discounts on promotions, and to save time by ordering ahead. The reality is that these information systems provide much more value for Starbucks. The ability to collect data from customers, who willingly provide all of this information through their agreement to access the convenience of the app, can provide a valuable tool to further increase profitability. They may be able to determine the effectiveness of certain items, based on various demographic data, such as geography, local weather climate, as well as promote new items and increase loyalty from its customers through collecting rewards and bonuses. demand fluctuations in product mix related to customization further enhances the responsive capabilities of their digital supply chain systems. The increased ability to improve efficiency and profits will not go unnoticed by its rivals, and the company will need to keep innovating in areas of customer engagement.

Potential opportunities using information technologies

As a company that has grown through scale and leveraging of information technology, Starbucks can be considered as a type of tech company, rather than as a simple coffeehouse chain. With the goal of achieving growth by increasing market share, profitability, and expansion, Starbucks is developing ‘reinforcement learning’ technology, which is a simple form of artificial intelligence that allows the system to learn and make decisions in complex, variable situations based on data gathered from the customer. The goal of this technology is to increase satisfaction and enjoyment for the customer by anticipating and predicting what the customer may desire at a given time of day, or situation. Customers can receive customized recommendations based on the technology’s ability to make decisions based on the customer’s data, such as preferences, and buying habits. This can increase customer satisfaction by providing the value of convenience by simulating the experience a customer may have with a neighborhood barista, who can remember their unique preferences.

Starbucks is also developing technology to improve the drive-thru experience for its customers. By leveraging the features of the Starbucks app, and its ability to deliver a personalized experience, the drive-thru experience is being revamped to offer personalized recommendations that may suit a busy driver, and even the digital menu board that each customer sees when they approach the window, can change based on the individual customers’ preferences and habits. As recommendations get more personalized and attractive to customers, this can also increase the potential for more profitable sales of new, and higher margin products. In addition, another feature that will continue to be developed is the ‘order ahead’ feature, which can appeal to busy customers who value convenience and shorter wait times.

Each Starbucks store has many pieces of vital equipment that must be in use throughout the day. A breakdown in any of the equipment can impact profitability. By minimizing the time and resources necessary to make service calls, as well as minimizing the loss of sales due to unavailability of an important piece of equipment, Starbucks will be able to reduce the costs associated to equipment breakdowns and repairs. More significantly, equipment problems can potentially interfere with Starbucks’ primary goal of providing a consistently high-quality customer experience.

To minimize the impact of equipment issues, Starbucks is developing a cloud based monitoring system, through the use of IoT (internet of things) capable machines that can allow it to manage, maintain, and minimize disruptions due to equipment that may require maintenance, or replacement. These IoT machines can gather a variety of data throughout the day, to monitor conditions such as temperature, the type of coffee beans used, and even the rate of use throughout the day and lifetime of the machine. This can provide Starbucks with the ability to minimize disruptions and loss of sales due to equipment breakdowns, by anticipating the need for upcoming maintenance, or by shipping out replacement equipment automatically in order to reduce down time.

In addition, the IoT ability can allow Starbucks to update equipment with new recipes, rather than requiring manual updates from the store employees. Therefore, when a new product is introduced, Starbucks will have the ability to update all of its locations simultaneously, and improve customer satisfaction by offering consistency and excitement through new products in all of it locations at once. This can further create efficiencies as there can be less down time for each location to manually train and update their staff, thus allowing for more efficient use of staff time to focus on more profitable activities. The goal is to move away from reacting to maintenance issues, to predicting and anticipating the issues.

The trend in the industry in terms of using IT and E-commerce technologies

The coffeehouse industry has embraced the use of IT and E-commerce technologies in several ways. An increasing amount of coffee consumers are choosing specialty or gourmet coffees, and younger consumers, with disposable income, are primarily behind this growth in coffee consumption outside of the home. Even though consuming coffee at home may be more cost effective, an increasing amount of coffee consumers choose to spend more for the quality, convenience, and experience of consuming a gourmet, specialty product. More people are buying coffee at a higher price point for the perceived quality and distinctiveness. In order to adapt to this trend, other coffee chains besides Starbucks have invested in IT and E-commerce technologies as well.

In the realm of E-commerce, the source of the coffee beans, whether the grower or roaster, can also receive promotional recognition through social media, or messaging apps, as well as loyalty programs similar to Starbucks’ rewards program. By portraying coffee as a specialty item, and highlighting subtle nuances in flavor or roasting methods, and in some cases, highlighting the grower’s environmentally conscious growing methods, can all create a better perception of quality and distinctiveness for each brand.

Some coffee chains are experimenting with improving customer experience and engagement through investment in IT and the use of connected devices, whether through Apps like the Starbucks App, or through in-store interactive ordering systems. These in-store systems are designed to appeal to younger customers who prefer to avoid human contact, but can also reduce staffing costs for the operator. These systems can promote and offer more profitable items without appearing to pressure the customer, based on the customers demographic and past history. In addition, these types of customers tend to follow trends, such as avoiding dairy products, or paying a premium for the addition of nutrient rich supplements in their beverages.

In essence, the industry is increasing its use of IT and E-commerce as another way to keep the line short, and moving fast and streamline routine operations with a membership program tied to their point of sales. By tracking a wealth of data from its own operations, such as equipment condition, and quality of coffee roasts, to increasing personalization and engagement with customers, the goal is to satisfy customers and create loyalty.