Restoring Starbucks' competitive position through domestic and international strategy

Starbucks Coffee has been faced with a number of challenges in recent years. The company has faced intense competition from McDonald's, Dunkin' Donuts and from a number of imitators in international markets. This has resulted in the company's margins being squeezed in the domestic market (Jargon, 2009) and threatens the company's strong growth trajectory in emerging markets. Starbucks' strategy should focus the company on stabilizing its competitive position as a differentiated player in the domestic market and continuing on a pattern of strong growth in key international markets. The objectives of the strategy should be focused primarily on the financial objectives that appeal to shareholders -- improving profits, growing revenues and increasing both market share and margins. Each of these should come with a specific target figure that represents an improvement over the current position of the company.

Functional Tactics

The Starbucks plan will require a number of functional tactics in order to ensure that the plan is executed. The first element of the plan is the restoration of the company's domestic market position. It has dumbed down its product and service offering to the point where many actually view Starbucks as simply another fast food chain, one that legitimately competes against the Dunkin Donuts and McDonalds of the world. This is an image Starbucks must shed, if it is to restore its premium pricing and the profit margins that flow from that. The company therefore needs to focus on its brand with a strong advertising campaign that truly emphasizes what Starbucks offers that is superior to the budget brands, both in terms of product and in terms of the in-store experience.

Starbucks should support this with new product development. Its food needs to be better -- right now it is mostly expensive sugary things. The company also needs to emphasize its coffee more -- most of its coffee now is of unknown provenance. For example, "Pike Place Roast" is a fairly generic name for most consumers, who are unaware of the meaning of the name. It sounds like any other no-name roast that every coffee company has. Starbucks either needs a better name for its flagship or to sell the name better. Its products should be innovative, to keep the company ahead of the competition. This requires tracking trends around the world, especially in hot spots like Asia, Australia and America's big cities.

A function tactic for international expansion is to build partnerships in more countries. Starbucks typically expands overseas by finding a local partner to help build the business, and at times market entry is made more difficult by the lack of a suitable partner. As Starbucks expands around the world, it will need partners with regional expertise, not just national. In addition, the company needs to ensure that financing is available to help it expand overseas. It should not have constraints -- it must be able to capture opportunities as they arise.

Milestones and Deadline

There are a number of milestones for this strategy. The strategy overall is a plan for the next 1-2 years, but the milestones will be set closer in the future. For the domestic side of things, the main milestones will be the rollout of a new advertising campaign as an input-oriented milestone. As an output-oriented milestone, the restoration of margins to their previous level will be a key milestone, as will the meeting of any of the different financial objectives that form the core of the plan.

For the international strategy, the main milestones will be measured in new countries launched, and any time a country opens its 100th store. For larger countries like China, a 1000th store will also be a key milestone. The deadlines for international expansion will include deadlines for the production of research of six months, followed by one year for the opening of the first stores opened under this program.

Tasks and task ownership

These strategies will be implemented by the company's existing organizational structure. Starbucks will lean heavily on the marketing department for the domestic strategy, as marketing is going to be responsible for building the brand back up to the point where margins can be restored. The international strategy will be guided by an international expansion team, even if this means creating one. Such a cross-functional team will allow Starbucks to utilize the capabilities of a full range of team members in this task. The new product team will also need to be formed, specifically bringing in managers from a number of different fields who can help.

Resource Allocation

There would be minimal shuffling of existing human resources. For example, most of the units and teams responsible already exist within the organization. Starbucks would need to find some financial resources for some of its strategies however. A faster pace of international expansion, for example, requires more money. In addition, more money is going to be needed to develop the advertising part of the domestic strategy. The company will also need to bolster its managerial capabilities -- it has fallen prey to low-end competition in part because the company's managers seemed unprepared or unable to effectively handle the threat.

Organizational Change Management

The biggest thing to remember about this strategy is that it effectively shifts the balance of the company's future towards the international growth markets. The domestic strategy is essentially geared for squeezing extra profit out of a mature market; it is the growth strategy that is key to the long-term success of Starbucks. Thus, the company needs to shift its organizational culture in particular, if not its structure, to reflect that Starbucks as a growth company is not an American company -- it is going to be Chinese, Indian, Brazilian, Japanese, Korean and Thai. This will need to percolate through the organization's culture in order to see effective implementation of an aggressive move into international markets.

Key Success Factors

The key success factor for Starbucks will be commitment to the strategies. Each strategy is simple, and should not be difficult to implement. The trouble is commitment. In the past, Starbucks has undermined its efforts by cutting prices (cheapening the brand) and veering too far from its core product offerings. For the company to succeed, however, it simply needs to follow its chosen path and do so with simplicity and execution in mind. Another key success factor is going to be creativity -- in particular with the marketing approaches. The company has lost its innovative edge and will need to get that back in order to truly excel.

Budget

These strategies are part of the overall corporate strategy from the main budget. Starbucks has annual turnover of $10.707 billion. The strategy will come from the main budget that reflects this high level of spending. The strategy itself will not and should not have a breakeven point. The company is investing in the future and will be judged on aggregate financials as a result, such as net income, rather than on project-specific metrics. Breakeven point is not even a good method of making a capital budgeting decision.

Risk Management Plan

As with any strategy, there is risk inherent in this strategy for Starbucks. The company needs to have controls on its spending in particular, so that the strategy does not go over budget significantly. The CFO's office will be responsible for the financial oversight of the strategy. Direct oversight is the ideal method of control at Starbucks and the company will utilize this method for all elements of the strategy. For example, the marketing messages overseas will be crucial to success, but there is no explicit way of controlling that, save for monitoring spending and effectiveness carefully. The more Starbucks knows about what its marketing efforts cost vs. what they actually deliver, the more likely the company is to make smarter decisions. The entire strategy will also be subject to oversight from a finance and strategy committee of top executives.

Works Cited:

Jargon, J. (2009). As profit cools, Starbucks plans price campaign. Wall Street Journal. Retrieved June 3, 2011 from http://online.wsj.com/article/SB124103701018769993.html

MSN Moneycentral. (2011). Starbucks. Retrieved June 3, 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Income&symbol=U.S.%3aSBUX&stmtView=Ann