Starbucks and its Strategic Moves

A Term Paper

Presented to

Mr. Philippe Sipacio

De La Salle University

In Partial Fulfillment

Of the Requirements for

Englres

- 3rd Term, SY 2011-2012

By:

Maria Erika Lee

Nichole Sharleen Dy

March 13, 2012

Thesis Statement: This paper seeks to study how effective the

business strategies Starbucks has made

throughout its lifetime.

1.0 Starbucks and its Strategic Moves

1.1. Effectiveness of Business Strategies

2.0 Brief History of Starbucks

2.1. Birth of Starbucks

2.1.1. Founder

2.1.2. Corporate Profile

3.0 Marketing Strategies of Starbucks

3.1. Corporate Philosophies

3.1.1. Warm Atmosphere

3.1.2. Friendly Baristas

3.1.3. Variety of Drinks

3.2. Institutional Environment

3.2.1. Branding

3.2.2. Good Reputation

3.3. Technical Environment

3.3.1. Taste

3.3.2. Price

4.0 Findings

4.1. Awards of Starbucks

4.2. Effects of Recession

1

4.3. News and Suggestions

5.0 Conclusion

2

Starbucks and Its Strategic Moves

For 41 years, Starbucks has been a strong competitor in the

coffeehouse industry. In such a short time they have already

established 14,396 branches worldwide. Customers ranging from

teens to elderly are usually found there relaxing. Due to this

constant flow of variety of people coming in, Starbucks has

attracted a wide circle of customers that propelled it to

success. This paper seeks to study how effective the business

strategy Starbucks has made throughout its lifetime.

Starbucks opened its stores on April 1971 in Seattle’s Pike

Place Market (Kembell, Hawks, Kembell & et. al.). It first

started as a shop selling coffee beans and it was inspired by

Alfred Peet of Peet’s Coffee and Tea (Schultz & Yang, 1997).

Unlike most businessmen, the founders of Starbucks consisted

of Jerry Baldwin, a teacher; Gordon Bowker, a writer; and Zev, a

history teacher (Schultz & Yang, 1997).They went into the coffee

business not because of money, but rather because they simply

loved coffee and they wanted to serve the best coffee beans in

Seattle (Schultz & Yang, 1997).

Aside from selling coffee beans, Starbucks also sell coffee

makers which were supplied by Hammerplast (Schultz & Yang,

3

1997).In 1982, there came a time when Howard Schultz, who works

for Hammerplast, got intrigued by Starbucks’ large orders of

their drip coffeemakers so he decided to check Starbucks out

(Schultz & Yang, 1997). Upon checking it out, he saw how

Starbucks was dedicated in serving whole-bean coffee and he

realized he wanted to become a part of it (Schultz & Yang, 1997).

However, Starbucks initially did not want Schultz to become

a part of them, for Schultz envisioned Starbucks as a national

company where its name would equate to great coffee (Schultz &

Yang, 1997). The Starbucks founders thought that his idea was

just too big and risky (Schulz & Yang, 1997).Since Schultz could

not just take no for an answer, he showed how determined he was

in being a part of Starbucks by persuading Jerry Baldwin to

rethink his decision the night he got rejected(Schultz & Yang,

1997). The day after, Howard received a phone call from Jerry

telling him that he got the job (Schultz & Yang, 1997). Schultz

became the director of retail operations and marketing in

Starbucks.

In 1983, Schultz travelled to Milan in order to attend an

international house wares show. In Italy, he discovered that the

espresso bars there were always full of people because their

4

baristas knew every customer and their preferences in coffee

(Schultz & Yang, 1997). Italians also considered their coffee

bars as a place like their home where they are served with

custom-made coffee (Schultz & Yang, 1997). Howard Schultz brought

these new ideas back to the United States and tried to

incorporate everything he observed in Italy with the Starbucks

coffee company (Schultz & Yang, 1997).

In April of 1984, Starbucks tested the espresso bar at its

sixth store located at the Fourth and Spring in downtown Seattle

(Schultz & Yang, 1997). Although the espresso bar was crammed

into a small corner at the back of the store, it turned out to be

a success since customers just keep coming in and out of the

store just to purchase a cup of coffee (Schultz & Yang, 1997).It

was the first time America was served with café latte (Schultz &

Yang, 1997).

This new-found style of serving coffee by Starbucks came

along with a mission and a vision. The mission of Starbucks is:

to establish Starbucks as a premier purveyor of the finest coffee

in the world while maintaining our uncompromising principles

while we grow. (Kembell, Hawks, Kembell & et.al., 2002). The

vision of Starbucks is: to establish Starbucks as the most

recognized and respected brand in the world. (Kembell,

5

Hawks, Kembell & et.al., 2002).

The institutional environments of Starbucks may be one of

the factors why people continue to patronize it for 41 years. The

aspects to consider are the branding and good reputation of

Starbucks.

The Starbucks phenomenon started when Starbucks promoted

coffee drinking as more of a cultural tourism than just a daily

routine, by fusing a taste of European history with the

background of coffeehouses (Bussolini, 2004).

This introduced the Starbucks’ mind-set of “one must know

coffee to drink it”. With this, the Starbucks’ consumers managed

to differentiate themselves from the normal coffee consumers with

just a single cup of Starbucks’ coffee. Starbucks used this

technique to pique the class and the creativity of the customers

in a fashion that would benefit the corporation (Bussolini,

2004).

Another statement that would support the previous account

was said by Mathieu. Adapting the Italian language (i.e. barista,

con panna, etc.) to make their products look original and classy

is a strategic move that turned drinking an everyday cup of joe

into a gourmet coffee thrill. In the “World of

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Coffee”, coffee is grown in an “exotic” land, thus giving it a

reputation that “it’s the best in the world” (Mathieu, 1999).

This perception is proved when one of our interviewees, Mary Jane

Kau, stated that whenever she sips a Starbucks drink, she somehow

feels the elite status, because not all people can afford to buy

Starbucks coffee.

Looking closely, Starbucks does not only rely on their

Italian style to improve their branding, but they also create

alliances with eco-friendly companies to uphold their good

reputation of supporting the green environment (Capozzi, n.d.).

Aside from their good reputation of making alliances with

eco-friendly companies, Starbucks is also famous for their fresh

and cool ideas which continue to boost their sales by keeping the

public to talk about them (Lofthouse, 2011). An excellent example

of this profound innovation is probably when Starbucks decided to

promote its brand by introducing its limited holiday planner

which is connected with its holiday beverage, thus promoting two

items in one go (Rose, 2007). According to Allison Mae Yu and

Mary Jane Kau, both of our interviewees, they are even willing to

go on a spending spree in order to attain a Starbucks planner,

because of the excitement of getting a planner, girl impulse and

it can also be used as an excuse to

7

buy coffee all the time.

Starbucks also adjusts to the demand of a certain nation in

order to provide the needs of the consumers (Rein,

2012).According to Kedl (2006, as cited in Roberts), on October

24, 2006, Beijing Mei Da Coffee, which has about 60 rental shops

in China, was announced that it will be bought out by Starbucks.

Since Starbucks is in a corporate standard, it has enough

experience to navigate in China. Starbucks observed that Chinese

people are not really a fan of whipped cream with coffee, so

Starbucks did not try to sell it and wait for them to like it

(Rein, 2012). Since the Chinese loves tea, Starbucks created a

green-tea flavoured coffee beverage to serve to its branches in

China (Rein,2012). Starbucks did not allow the public to adjust

to its beverages. Instead, it adjusted its beverages to cater to

the public’s wants.

One of our interviewees, Mary Jane Kau, states that she

considers the taste and quality of the coffee when buying a

Starbucks drink. Therefore, the greatest asset that Starbucks

pride themselves in is that they keep on introducing new products

that complements the flavour of their drinks that would keep

their patrons coming back for more (Rose, 2007).

8

To keep an equal trade-off, Starbucks ensures that they

satisfy their customers by giving importance to their product

quality to make their coffee worth the price (Harford, 2006).

The corporate philosophies of Starbucks seem to make them

distinct from the other coffee shops in the United States of

America. The factors that are included in the corporate

philosophies are warm atmosphere, friendly baristas and variety

of drinks.

Starbucks also considered the internal aspects that would

affect the business of the coffeehouse. Rustan Coffee, the

company that brought Starbucks to the Philippines, highly valued

quality service and hospitable baristas. The company realized

that the engine that drives the company to success lies within

the task force; and the company quickly took the chance to

“divide and conquer”.

The top priority for great service is that the baristas

should always be prepared for guests and they should care for

their patrons. In fact, this fostered the “just-say-yes” policy –

it ensures the customers that the baristas would do more than

what is necessary to please their customers (Rose, 2007).

However, Starbucks does not hire employees on a whim. Starbucks

9

ensured to hire only people with good emotional quotients and

skills to create a place where different kinds of people would

feel at home. To continue such high quality standard, Starbucks

made sure that their coffee brewers are trained and have the

knowledge of brewing coffee the right way and using the proper

equipment (Rose, 2007).

It seems probable that the technical environment of

Starbucks is their way of giving back to their customers for

their continued patronage. At the same time, Starbucks ensures

that they satisfy their customers by giving importance to their

product quality in order to justify their steep prices. Starbucks

does not want to lower their prices, because if they do so, there

would no longer be any thrill in getting a Starbucks coffee (Lee,

2007).

In fact, according to Tim Harford, Starbucks was able to

come up with a way to serve a more aromatic and stronger coffee

at a cheaper price with the appearance of the short cappuccino.

The short cappuccino contains a stronger taste, because it

contains the same amount of espresso as the tall size except that

the water content is less (Harford, 2006). However, the short

cappuccino does not appear in their menu board, because the short

cappuccino is only their way of showing the customers

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that they can be served with better coffee at a cheaper price

despite the changes in the economy (Harford, 2006). They are also

unadvertised, for Starbucks does not want their more extravagant

consumers to buy the cheaper coffee compared to the coffee which

costs more (Harford, 2006). Therefore, the short cappuccino is

only available to those who ask the baristas personally and they

answer in a whisper in order to avoid informing other customers

(Harford, 2006).

To fully complete the Starbucks experience, Starbucks has

established a mind-set to the public that is a peaceful haven

where the people could just drink coffee and unwind, attracting a

variety of different people to their cafe. This gave a sense of

community where one could be at ease (Gaudio, 2003). This

strategy has gained Starbucks its own string of followers who are

advised to share their Starbucks experience in order to be able

to serve them better in the future (Lofthouse, 2011). Our

interviewees supported this idea by saying that the ambiance

really does matter, because it helps them relax and loosen up.

Back in 2008, Starbucks was hit by the global recession and

sales were not really doing well. Because of this, Howard Schultz

decided to step up again as CEO and place Starbucks back to the

market. He does this by teaching and reminding his

11

partners of what Starbucks is really about- passion for coffee.

He also tried to save his company by retraining his partners on

the basics of espresso making and allowing them to throw “bad”

espressos they made (Schultz & Gordon, 2011). In 2010, Moschina

states that Starbucks has risen from the recession after it has

started to earn more revenues. After closing down most of its

stores at the beginning of the recession, it is taking them back

by opening twice the number of the closed down stores (Moschina,

2010).

The business strategies of Starbucks are proven effective

by the numerous awards they received. In the years 1998-2000 and

2002-2009, Fortune awarded them as the one of “The 100 Best

Companies to Work For” (Starbucks company recognition, n.d.).

Business Week proclaimed them as among the “100 Best Global

Brands” from 2001-2008(Starbucks company recognition, n.d.).From

the years 2005-2006,Financial Times affirmed that they are one of

“World’s Most Respected Companies” (Starbucks company

recognition, n.d.). In 2009, Zagat Survey declared them as the

“#1 Best Coffee in the Fast Food and Quick Refreshment categories

and #1 Most Popular Quick Refreshment Chain” (Starbucks company

recognition, n.d.).

Although Starbucks has been a successful company despite

12

the global recession and the turn of the economy, Starbucks must

keep on improving their products in order to keep up with the

pace of time. Mullins (2009, as cited in Paul, Bhaskar, Nicole,

et. al.) points out that Starbucks should probably think of more

innovative ways to market their products. They could provide a

point system where customers could get freebies. They should also

join school and job fairs in order to reach out to the present

and incoming young professionals. He also said that Starbucks

must adapt the “differentiator” and “defender” strategy. As a

differentiator, Starbucks must make a difference in its products

in order to differ from its competitors. As a defender, it must

ensure that its products must be of its highest quality to give

it an edge from its competitors.

0 1 2 3 4 5

0

5

10

15

20

25

30

Warm AtmosphereFriendly BaristasVariety of Drinks

13

This graph shows the factors that greatly appeal to the

customers. Based on the graph, fifty percent of the consumers

consider the friendliness of the baristas when buying a Starbucks

drink and warm atmosphere is only the second factor they consider

when buying a Starbucks drink. It just goes to show that the

public still wants to experience the hospitality we Filipinos are

known for considering that Starbucks is a “third place” after

work and home. Warm atmosphere still stood as the second factor

they like about Starbucks, because it aids in setting their mood

to relax after a hard day at work. Aside from being a “mood

setter”, the warm atmosphere of Starbucks can also be used as a

meeting place for long time friends who want to catch up with

each other. Since it has a very calm and peaceful atmosphere, it

can also be a great place to study.

0 1 2 3 4 5

0

5

10

15

20

25

30

35

BrandingGood ReputationTastePrice

14

Based on the graph above, the public still continues to

patronize Starbucks, because of its good reputation. A reputable

company is really important to the customers, because a reputable

company is also a safe company. Forty-five percent of the

customers both gave a rating of four to Starbucks’ branding and

taste, probably because they do not agree that the Starbucks

brand always equates to excellent quality. No matter how famous

Starbucks may be, the public still disagrees with their excessive

prices for their pastries and beverages.

All in all, Starbucks started from a small coffee market,

and rose to become one of the top competitors in coffee house

business in a short time by integrating uncommon factors that

people usually overlook – the atmosphere, the friendliness of

their staff, and the security of a sense of belonging to their

customers before they leave the doors of Starbucks.

As Starbucks is now a worldwide phenomenon, it is most

likely that they would be able to navigate themselves smoothly in

large countries that are unfamiliar of them with ease. An example

of this country is China. The natives of China are huge consumers

of tea leaves, and coffee beans are not something they regularly

devour on a daily basis. But now, Starbucks had

15

already bought out a major coffee chain competitor, Beijing Mei

Da Coffee, proving that it is ready to be the brunt of the force

in starting a new trend in foreign lands.

16

Works Cited:

A. Print

Guadio, R.P. (2003). Coffeetalk: starbucks and the commercialization of casual conversation. Language in Society, 32, 659-691.

Rose, A. (2007). Strategic management paper on rustan coffee. 58.

Schultz, H. & Gordon, J. (2011). Onward: how starbucks fought for its life without losing its soul. New York, NY: Rodale Books.

Schultz, H. & Yang, D.J. (1997). Pour your heart into it: how Starbucks built a company one cup at a time. New York, NY: Hyperion Books.

B. Online

Bussolini, B. (2004). The crisis of profitability and Starbucks’ discourse of cultural appropriation. UC Davis: Prized Writing.Retrieved from http://prizedwriting.ucdavis.edu/ past/2003-2004/the-crisis-of-profitability-and starbucks2019-discourse-of-cultural-appropriation.

Capozzi, C. (n.d.). Starbucks marketing strategy. Retrieved from http://www.ehow.com/info_7753520_starbucks-marketing- strategy.html.

Harford, T. (2006, January 6). Starbucks economics. Retrieved from http://www.slate.com/ Articles/arts/ everyday_economics/2006/01/ starbucks_economics.html.

Lee, S. (2007, November 19). Are starbucks’ prices too high? Retrieved from http://www.customerthink.com/article/ are_starbucks_prices_too_high.

Lofthouse, R. (2011). How one brand changed the world. Retrieved from http://www.cnbc magazine.com/story/how-one-brand- changed-the-world/1297/1/.

Mathieu,P. (1999). Economic citizenship and the rhetoric of

gourmet coffee. Rhetoric Review. 18,112-127. Retrieved from http://uky.edu/~kecall2/welcome_files/Mathieu.pdf.

Moschina, A. (2010, November 23). These two companies are emerging from the recession stronger than ever…Investment

U Research. Retrieved from www.investmentu.com/2010/ November/starbucks-and-panera-beat-recession.html.

Paul, B., Bhaskar, C., Nicole, S. & et.al. (2009). Starbucks marketing strategy. Retrieved from http://blogs.indews.com /business/starbucks._marketingstrategy.php

Rein, S. (2012, February 10). Why starbucks succeeds in china and others haven’t. Retrieved from http://www.usatoday.com/

money /industries/food/story/2012-02-12/cnbc-starbucks- secrets-of-china-success/53040820/1.

Roberts, D. (2006). Starbucks caffeinate its china growth plan. Retrieved from http://www.businessweek.com/globalbiz

/content/oct2006/gb2006125712453.htm.

Starbucks company recognition. (n.d.). Retrieved from http://www.starbucks.com/assets/starbucks- Recognition-jan2010.pdf.

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Appendix:

Survey Question:

* Kindly rate the effectivity of Starbucks’ marketing strategies with 5 as the highest and 0 as the lowest.

1. Warm Atmosphere 0 1 2 3 4 5

2. Friendly Baristas 0 1 2 3 4 5

3. Variety of Drinks 0 1 2 3 4 5

4. Branding 0 1 2 3 4 5

5. Good Reputation 0 1 2 3 4 5

6. Taste 0 1 2 3 4 5

7. Price 0 1 2 3 4 5

Interview Questions:

1. What is the biggest factor that you consider when buying a Starbucks drink?

2. Why do you continue to patronize Starbucks despite its high prices?

3. Does the ambiance really matter?

4. Are you willing to go on a spending spree in order to attain a Starbucks holiday planner?

5. If the baristas are quite haughty, will you still go to Starbucks?

6. Do you feel the “elite status” upon sipping a Starbucks drink?

18

7. What is the comparison between the pastries of Starbucks and other renowned bakeshops?

8. Do you purchase Starbucks’ drinks on-the-go or do you stay and enjoy it inside the coffee shop?

9. How much time do you spend inside the coffee shop?

10. Aside from drinking Starbucks’ coffee, why do you stay inside coffee shop?

11. How often do you purchase a Starbucks drink?

12. Does the Starbucks brand always equates to excellent

quality?

Survey Results:

0 1 2 3 4 5

0

5

10

15

20

25

30

Warm AtmosphereFriendly BaristasVariety of Drinks

This graph shows the factors that greatly appeal to the

customers. Based on the graph, fifty percent of the consumers

consider the friendliness of the baristas when buying a Starbucks

drink and warm atmosphere is only the second factor they consider

when buying a Starbucks drink. It just goes to

show that the public still wants to experience the hospitality we

Filipinos are known for considering that Starbucks is a “third

place” after work and home. Warm atmosphere still stood as the

second factor they like about Starbucks, because it aids in

setting their mood to relax after a hard day at work. Aside from

being a “mood setter”, the warm atmosphere of Starbucks can also

be used as a meeting place for long time friends who want to

catch up with each other. Since it has a very calm and peaceful

atmosphere, it can also be a great place to study.

0 1 2 3 4 5

0

5

10

15

20

25

30

35

BrandingGood ReputationTastePrice

Based on the graph above, the public still continues to

patronize Starbucks, because of its good reputation. A reputable

company is really important to the customers, because a reputable

company is also a safe company. Forty-five percent of the

customers both gave a rating of four to Starbucks’ branding and

taste, probably because they do not agree that the Starbucks

brand always equates to excellent quality. No matter how famous

Starbucks may be, the public still disagrees with their excessive

prices for their pastries and beverages.

Interview Results:

A. Mary Jane Kau- BSA student at DLSU-Manila, visits Starbucks

at an average of four to six times a month

1. “I consider the taste and quality of the coffee and the

hospitality of the baristas.

2. “I like the taste of coffee and the kind of environment

you get inside the coffee shop.”

3. “Yes, because it helps me relax and loosen up.”

4. “Yes! It’s like an excuse to buy coffee all the time.”

5. “I would probably not go to that branch.”

6. “Yes, because not all people can afford to buy Starbucks

coffee.”

7. “I guess it has higher quality compared to local

bakeshops.”

8. “It depends if I have time to spare, then I stay inside

shop.”

9. “It ranges from one to four hours.”

10. “It’s a good place for me to study and relax.”

11. “Four to eight times a month.”

12. “Yes, because if their drinks are bad, they’re willing to

Redo it without hesitation.”

B. Allison Mae Yu- Comsci Student at Dlsu-Manila, went on

spending spree last Christmas to avail the

Starbucks’ Holiday Planner.

1. “I’d say brand name and personality of staff. Go to Starbucks

to socialize. 150 pesos comes with a package.”

2. “Customer service convenience and whole atmosphere. You don’t

get it anywhere in the Philippines.”

3. “Yes, imagine Starbucks as a fastfood chain. Everyone’s noisy

Starbucks’ lost is brand name.”

4. “Yes, because of the excitement of getting a planner and girl

impulse.”

5. “I wouldn’t go to that specific Starbucks branch, because

friendliness is a part of their package.”

6. “No, because it’s just coffee.”

7. “Prefers pastry from Goldilocks and Red Ribbon because it’s

cheaper and tastier.”

8. “Stay inside the coffee shop.”

9. “Average of 30 minutes to an hour.”

10. “Socialization with friends.”

11. “Twice a month.”