Starbucks Has Built Its Business on a Essay

Excerpt from Essay :

Starbucks has built its business on a number of key success factors. The first is that the company has built its brand on delivering a consistent customer experience that consumers value. The company developed a formula for what a successful coffee shop would be, and followed that formula every time it entered a new market. The company's franchise outlets also must follow this formula. The Starbucks Experience itself is something that the company seeks to utilize to bring in customers, by providing a relaxing "third place" for people to meet or relax (Michelli, 2006). The company's ability to deliver this experience consistently despite rapid growth around the world, and to have the same consistency in the quality of its coffee, is something that has allowed Starbucks to spread so rapidly, to charge premium prices, and to extend its brand into bottled drinks and other products (AMI, 2011).

While consistency has been a key success factor for Starbucks, so too has been its ability to adapt to local conditions within the framework of delivering the "Starbucks Experience." The company uses local partners to help it enter challenging markets, and this local experience helps the company to overcome operational challenges. Starbucks relies on its own expertise to overcome strategic challenges. For example, it needed to overcome a number of barriers when entering the Japanese market, such as the fact that Japanese people are not traditionally coffee drinkers and that they liked to smoke in social situations. Starbucks stuck with the no-smoking policy because it felt that would create a comfortable environment that new consumers would find attractive, and it added more tea drinks to the menu, and emphasized things like Frappuccinos instead of regular coffee as a means of convincing locals to buy there (McMillan, 2001). The company's success has been exceptional in that time, and it has since adapted these same ideas to the Chinese market.

Another key success factor for Starbucks has been with its management. In particular, CEO Howard Schultz provides leadership to the company, and it has almost always succeeded when he was in control. When he stepped down for a few years, the company began a downward slide that was only reversed when Schultz took back over the CEO job. The current leadership team has a finely-tuned understanding of the little things that make the stores successful, from the product mix to the customer service elements, to how to choose the best real estate. In this details-oriented business, having leaders and managers who understand the finer points of the business is essential to success.

The Starbucks brand is vulnerable in a few places. For the most part, its coffee shop business has been successful, though missteps in Israel, Germany and Australia hurt the company. However, the main areas of vulnerability lie with non-coffeeshop businesses. Starbucks does not have the same dominant share in many of its non-retail businesses. It has sought to grow its hotel business, its instant coffee, coffee pods, and bottled drinks. While the Starbucks brand has allowed many of these businesses to be successful, they appeal to different target markets that the company perhaps does not understand as well as it understands consumers. Additionally, Starbucks was not able to enter these markets with first-mover advantage. The company instead has had to build its business against entrenched players such as Nestle, Green Mountain and others. This has forced Starbucks to compete on an entirely different dynamic, rather than to simply build a new market.

Thus, Starbucks is vulnerable in its peripheral businesses. Some of these are billion-dollar businesses, so this threat is serious for Starbucks. The company also depends on some of these businesses for differentiation. Starbucks is also vulnerable with its other-brand businesses, such as Teavana and Evolution Fresh, both of which are nascent businesses for the company (Fox, 2012). New businesses are always more vulnerable that existing businesses, although the potential loss is lower.

In the mid-2000s when the company struggled, Starbucks also suffered a blow to the reputation of its core brand. This occurred with product missteps like the infamous burnt cheese, poor real estate choices, and overly rapid expansion. The company has spawned a number of imitators and they seem to pop up everywhere Starbucks goes. As a result, the company is forced to be the premium player in the market to fend off this competition. If the company is strict about its quality standards, it will be in a better position to defend its brand. If Starbucks lets its guard down again, the brand will once again be vulnerable.

The company has a number of major competitors, depending on how it wishes to frame its business. As a quick service restaurant, Starbucks competes against McDonalds and Dunkin Donuts, both of which have strong coffee businesses. These are tough competitors with cost advantages and in the case of McDonald's operational excellence and a superior physical footprint. Starbucks has, however, successfully fended off the challenge of Starbucks by emphasizing its premium positioning in the marketplace and its commitment to being a third place. In the coffee business in general, competitors like Nestle, Green Mountain and other major firms are met again by emphasizing product positioning and the premium nature of the Starbucks product. Having a superior product helps here -- Nestle promote Nespresso as a premium coffee but quite frankly it does not taste like one.

In addition, there are a number of direct competitors ranging from regional chains to independent coffee shops. Many of these directly copy the Starbucks model in an attempt to capture some of that business. For the most part, that Starbucks was the original and therefore has the strongest brand has helped the company to deal with these threats. In addition, Starbucks again focuses on premium positioning and consistency of product and service in order to compete against its most direct competitors. Only in Australia, where Starbucks' attempt at premium positioning was futile, did the company fail to win against independent coffee shops and local chains (Mercer, 2008).

There are a number of recommendations that can be made to Starbucks' executives regarding their marketing. The first is to continue with what has made them successful. The company risks diluting its brand by applying that brand to products outside of the coffee shop business. These other products are performing well enough for the company but they detract from the coffeeshop brand, especially the beverages they make with Pepsi. Starbucks as a brand should always be attached to a premium product and sometimes this is not the case. Protecting the strength of the brand should be the top priority for the marketing department. This can be done by ensuring that all products with the Starbucks brand have a consistently high level of quality. When the consumer sees a Starbucks packet in the hotel room, and then goes down the street to the Starbucks shop instead, that is a sign that the hotel product does not live up to the brand. Eventually, too many products that do not live up to the brand's standards will dilute the brand.

The second piece of advice is to make branding the key focus of the Teavana and Evolution Fresh businesses. The Starbucks name will get some early press for these brands, but the brands must build credibility of their own in order to ensure their long-term success. Thus, keep the ties to Starbucks minimized in the marketing. The marketing instead should focus on brand-building for these companies on their own merits, and with their own image.

The third recommendation for Starbucks in terms of marketing is that the company will benefit from emphasizing the consumer's relationship with the brand. Coffeeshops rely on repeat business, and with intense competition from a number of strong competitors, Starbucks must ensure that its brand is always the…

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