Starbucks Business Case Study

Learn How Starbucks Brought Coffee to China

A Case Study of Market Research

Starbucks has developed an internationalization strategy to enable the company to open stores and franchises in countries across the globe. Market research is at the core of many of the market entry strategies Starbucks is employing. This case study will consider how market research has strengthened Starbucks entry into the Chinese markets.

Starbucks International Business Strategy

Starbucks entry into emerging and developed markets is informed by market research.

Starbucks conducted market research to enable a deeper understanding of the Chinese markets, and the way that capitalism functions in the People's Republic of China (PRC). China contains a number of distinct regionally-based markets, a factor that makes market research crucial to launching new stores and franchises in China. 

A deep understanding of intellectual property right laws is critical to successful market entry in emerging markets. Starbucks articulated an entry strategy that would address the dominant Chinese markets and that was designed to be as inoffensive with respect to the Chinese culture as possible. 

Instead of taking the conventional approach to advertising and promotions -- which could have been seen by potential Chinese consumers as attacking their culture of drinking tea -- they positioned stores in high-traffic and high visibility locations.

Moreover, Starbucks very deliberately began to bridge the gap between the tea drinking culture and the coffee drinking culture by introducing beverages in the Chinese stores that included local tea-based ingredients.

Market research supported the development of Starbucks' competitive internationalization strategy. The overarching competitive strategy was to create an aspirational brand. Prospective Starbucks customers in China could look forward to what Starbucks refers to as The Third Place experience.

The Starbucks experience conveys status that is highly appealing to those aspiring to Western standards or to climbing the ladder in their own culture.

Market research indicates that brand consistency is important to Starbucks' customers. When Starbucks opens a new store in an emerging market like China, the best baristas are sent for the launch and to conduct training of the baristas who will carry on when once the launch has completed.

Market Research Addresses the Emerging Market Political Environment

Market research helped to identify the attributes of capitalism in the Peoples' Republic of China (PRC). The middle class in China has rapidly accepted Western standards as an acceptable standard of the bourgeois class. Moreover, Chinese consumers accept purchases of luxury goods as a means to pursuing quality lifestyles.

Under the influence of Communism, the Chinese considered conspicuous consumption to be decadent or indicative of a lack of a nationalistic orientation. Capitalism in The Peoples' Republic of China supports the status-conscious population that manifests its interest in keeping up with the Jones' through excessive luxury consumption.

The Chinese government's support of luxury consumption is particularly apparent in certain cities in China. The second-tier city of Chengdu serves as a market research case study in Chinese governmental support of capitalism.

Chengdu promotes capitalism at a level evidenced by the presence of stores like Louis Vuitton and Cartier in its downtown.

According to Chengdu Retail Industry Association, stores selling 80 percent of international luxury brands are located in Chengdu, and the city ranks just third in luxury sales after Beijing and Shanghai. It is easy to see how this national orientation toward luxury goods extends to the Starbucks brand, which is characterized by a certain degree of exclusivity.

Market Research Reveals Attributes of Emerging Market Legal Environment

It is essential to understand the intellectual property rights laws and licensing issues when planning market entry in an emerging market. Starbucks has used intellectual protection laws to prevent its business model and brand from being illegally copied in China.

Four years after opening its first café in China - in 1999 - Starbucks had registered all its major trademarks in China. A number of Chinese businesses have overstepped legal bounds in their efforts to mimic the successful Starbucks model.

The organization and structure of Starbucks' global operations was informed by market research. The organizational strategies employed by Starbucks were derived from Starbucks' experiences in other emerging markets supported an early recognition that China is not one homogeneous market.

The organizational strategies employed by Starbucks addressed the many Chinese markets. The culture dominant in northern China differs radically from the culture in the eastern parts of China, as reflected in the differences in consumer spending power inland which is considerably lower than the spending power in coastal cities.

The complexity of the Chinese markets led to regional partnerships to aid in Starbucks' plans for expansion in China; the partnerships provided consumer insight into Chinese tastes and preferences that helped Starbucks localize to the diverse markets.

  • Northern China - joint venture with Beijing Mei Da coffee company
  • Eastern China - partnered with Taiwan-based Uni-President
  • Southern China - worked with Maxim's Caterers in Hong Kong

Starbucks' competitive advantage is built on product, service, and brand attributes, many of which have been shown through market research to be important to Starbucks' customers. Western brands have an advantage over local Chinese brands because of a commonly accepted reputation for consistently higher quality products and services, a factor that establishes the Western brands as premium brands in the minds of consumers.

When Western brands attempt to increase market share by cutting prices, they erode the very competitive strategy that gives them an edge in consumer perceptions. Moreover, Western brands cannot effectively maintain a lower pricing strategy than local Chinese brands.

Maintain brand integrity in new markets. Starbucks' global brand is valuable and maintaining brand integrity is a fundamental focus in Starbucks' internationalization efforts. The baristas in China acted as brand ambassadors to help embed the Starbucks culture in the new market and ensure that high standards for customer service and product quality are maintained at each new and established local store.

Starbucks' ability to address changing markets is honed by effective and ongoing market research. Establishing and maintaining a global Starbucks brand does not mean having a global platform or uniform global products. Starbucks marketing strategy in China was based on customization in response to diverse Chinese consumer target segmentation.

Starbucks created extensive consumer taste profile analyses that are sufficiently agile to enable them to change with the market and to create an attractive East meets West product mix. Moreover, the localization effort is sufficiently flexible to permit each store to have the flexibility to choose from a wide beverage portfolio.

Starbucks Case Study

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Preliminary
Starbucks – one of the fastest growing companies in the US and in the world - had built its position on the market by connect with its customers, and create “third place” beside home and work, where people could relax and enjoy others or themselves. It was the motto of Starbucks’ owner Howard Schultz and mostly thanks to his philosophy; company has became the biggest coffee drink retailer in the world. However, within the new customer satisfaction report, there is shown some concerns, that company has lost the connection with customers and it must been taken some steps to help Starbucks to go back on the right path regarding customer satisfaction.
I will briefly summarize and examine issues facing Starbucks. Starting from there I will pick the most important issue and study it from different positions. In the end of my I will try to suggest what steps should be made to keep the company in continuing its quest to become one of the most recognized and respected brands in the world.

Introduction
With clear core values towards providing quality coffee, the best service, and atmosphere, Starbucks has enjoyed great success since it was founded 30 years ago. The company has being doing very well for last 11 years with 5% or more store sales increase, even with the rest economy still reeling from the post-9/11 recession. However recent research, conducted to Starbucks, have showed some concerns regarding company’s problem meeting customers’ expectations.

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To increase customer satisfaction level, Christine Day, the Starbucks senior vice president of administration in North America, suggested a plan to add additional 40 million annually for extra 20 hours of labor per every store. This move should help the company to accomplish lower time of service to three minutes.

Analysis of Exhibits from the case:
Exhibits 1 and 2 show the growing of the Starbucks during the period of five years from 1998 through 2002. As I can see, company has experienced huge grow both geographically and financially. During that period net income more than tripled and amount of stores worldwide almost tripled. The next exhibits show payroll structure and income volume per location in 2002 and product mix for North American company-operated stores. Exhibit 6 shows US retail coffee market predictions till 2005 years. It clearly shows changing in Americans’ coffee drinking style into specialty coffee. It is very important for Starbucks because company’s main market is specialty coffee. Next of the exhibits, shows positive customer snapshot scores for North America stores. Those snapshots suggest further company’s success. The only issue we can find is the product quality. According to the exhibit product quality went down during 3rd quarter of 2002.
Exhibit 8 shows customer retention information. We can find from this data, that established customers and new customers are quite different in respect of education, income and attitudes toward Starbucks. According to the exhibit, customers who first visited Starbucks five years ago have higher degree of education and higher income level. Beside that, new Starbucks customers do not see it as a brand of high value, while established customers believe Starbucks to be brand they trust (50%), offering high quality product (51%). Next exhibit suggests, who customers visiting Starbucks stores often, are more satisfied, than customers who buy coffee from the company average four visits per month.
Exhibit 10 informs us about importance of key attributes in customer satisfaction during 2002. According to this data, customers put store cleanness as the most important attribute of the Starbucks stores. Next places on the list took convenient, treating as valuable customer, friendly staff, coffee taste and fast service and right prices. On the other end are selection of merchandise, new beverages and whole bean selection.
We can clearly see that fast customer service is not the most important attribute for Starbucks customers.
Last exhibit shows factors driving “valued customer perception. From 34% of responders indicating better service as a factor, 19% want see friendlier staff and only 10% want to have faster service. From 28% of responders indicating better prices and incentives as a factor, 19% of them believe “free cup after x number of visit” as the most important improvement. Therefore, we can clearly see that adding additional employees to speed up the service is not a solution to fix the company’s problems.

Solutions and Suggestions
After reviewing the case I believe there are some possible alternatives to fix the Starbucks situation.
1. Investing 40 million per year to increase labor hours per store. This solution does not appear as the best way to fix Starbucks’ problems. As we clearly saw from the exhibits provided with the case, there are some more important issues for customers than fast service. In long way, company will get into another downturn without more complex changes, than simply add 20 hours of work a week in every store. Besides that, I believe Starbucks customers are linked to the company because of its unique style created by Howard Shultz. Speeding up service could help increasing market share, but it is not the most important issue faced by Starbucks.
2. The company could lower prices for its products. This solution should bring more new customers to Starbucks, but with profitability around 6% in 2002 (according to exhibit 1) every change of lowering the price will implement more variable costs and fixed costs to reach similar revenue, so it means the net profit will be lower even with similar amount of revenue. This move would also lead to loose Starbucks’ customers, who have been willing to pay more for coffee because of its premium kind.
3. Starbucks would increase prices of its products to receive more money to be spent for speeding up the service and to increase the quality of customer service. This alternative could work, but according to the case consumers believe that they see Starbucks as the company mostly concerns with making money (53% to 63%) and opening new stores (48% to 55%). Therefore increasing prices will intensify this believing and Starbucks will loose more customers, especially in times where competition has started to imitate Starbucks’ way of doing business, but with lower product prices.
4. Starbucks should set up an internal strategic marketing team. This will allow Starbucks to have a proactive feedback of customer satisfaction and hence faster improvement. I also recommend, Starbucks should reduce waste in making drinks, keep consistency in drinks, and improving productivity, so savings could be used in free cup after x number visits program, which is highly anticipated among customers (19% of responders according to exhibit 11). I recommend the company invest more money in automated espresso machines which will help Starbucks to speed up the service.

Plan of Action
In conclusion, after reviewing all 4 alternatives, I recommend that Starbucks should use the last proposition to improve customer satisfaction. It is the most complex alternative, and it will demand a lot of work from all company’s members regardless the position. However using this alternative, Starbucks will accomplish the improvement in customer service, speeding up service time and making Starbucks more customers friendly.
First of all, creating an internal strategic marketing team will help Starbucks to keep the touch with its customers. The company has been running very well with recent marketing strategy; however it could be seen recently, that responding to the customers’ demands has been little late. It will also help Starbucks to keep the distance to its competition.
Second, Starbucks should reduce waste making drinks. It will improve productivity and help spare money for customer loyalty programs. These programs will help Starbucks in improving customer relationship and service. Reducing waste will also help company in keeping their locations cleaner, which is very important for customers.
Lastly, I believe Starbucks should invest in new espresso machines. This investment will help company to speed the service time ad will be better solution, than simply adding more work force or changing product prices.



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