Starbucks

Introduction

This report will evaluate and inform the reader about Starbucks corporate strategy from 1998 and into the future. This report will give a brief history, list strategies in 1998, and evaluate these strategies followed by a conclusion.

Historic Strategies

Starbucks has evolved into a great success due to: believing in and implementing their mission statement, Howard Schultz?s strategy to make Starbucks a great place to work, and expansion into new markets outside the Pacific Northwest.

Schultz?s mission statement for Starbucks was: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. This mission does not want to jeopardize the quality, ambiance, or service due to expansion into a global marketplace.

Schultz also believed deeply that employees make the store that they work in. A Starbucks employee needed to be very knowledgeable, communicative, and helpful to the customers. Customers in new markets needed to know the difference in the new roasted coffee Starbucks had to offer. Well-educated employees could handle this requirement. However, the employees wanted compensation for this service. Schultz implemented health benefit programs to part time workers to show how serious he was about the importance of his employees.

Schultz wanted Starbucks to be a household name. When consumers heard the word coffee, Schultz wanted people to think Starbucks. Shultz had to expand across the nation and soon globally to accomplish this goal. Schultz opened stores across the nation and maintained success due to implementing his mission, dedicated employees, and through aggressive expansion.

Strategy in 1998

Starbucks objective of becoming a household name was accomplished by fierce expansion. Starbucks wanted to open their doors and be in the market before anyone else. This would give them a great fist-mover advantage. Once consumers experienced Starbucks service, quality coffee, and ambiance of their stores there would be a great switching cost for the consumer to go anywhere else. The success of becoming a household name is now close to reality. Profits were at an all time high with $57.4 million in 1997 (Thompson and Strickland, pg C-1). However, Schultz measured his success by not compromising Starbucks ideals to maximize profit and was doing it very successfully.

To keep up with this expansion Starbucks opened three manufacturing plants to relieve itself of the large transportation and storage costs. This decision really improved Starbucks? distribution of the product. Starbucks could now distribute faster, fresher, and more product to many more of their stores. The plants also allowed them to enter the supermarket coffee sales industry in the spring of 1998.

Evaluation

To accomplish the goal of being a household name brand coffee, Starbucks chose to implement an expansionary strategy. Starbucks used the first-mover element to jump in and gain consumer loyalty. With its fierce expansion, Starbucks had over 1,500 stores in North America and the Pacific Rim and was opening new ones at a rate of more than one per day (Thompson and Strickland, pg. C-1). This strategy allows Starbucks to enter a market and win consumer loyalty before anyone else can. After visiting a Starbucks, switching costs for the consumer will be extremely high due to the great service and quality that Starbucks can assure.

Their decision to open three manufacturing plants to distribute their product more efficiently was essential to accomplish this strategy. Prior to these new plants it was difficult and costly to deliver the quality of the product. Starbucks saved a great deal of money by using this new distribution method. They no longer have to pay for the shipping and storage of the product. With Starbucks expanding globally, the only adjustment they might want to consider is a plant overseas to help distribution there.

The decision to enter the supermarket coffee sales market is a huge step for household recognition. Two thirds of the world?s coffee is sold in stores for home consumption. Not only will they be able to reach millions of coffee consumers, but also this will ensure a great distribution channel that will help lock out some potential competitors. Consumers can now enjoy great quality coffee at home or by stopping in a local store. This is a key step in ensuring that Starbucks becomes a household brand name. The only adjustment Starbucks must consider is that they are in a new industry with huge competitors such as Maxwell House, Folgers, and many others. Starbucks must make sure that the organization stays with its mission statement.

Conclusion

In order for Starbucks to become a household brand name, they must not stray from the strategy they set forth in the past. Their commitment to the mission statement, their employees, and expansion is what got them where they are. To stray from these ideals would prove tragic in their goal of world recognition. In order for Starbucks to develop globally they must remember the success factors they used in the United States. Should Starbucks stay loyal to their own beliefs they can only grow bigger.