RUNNING HEADER: Starbucks Knowledge Strategy

Starbucks Knowledge Strategy

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Introduction
Many companies are engaging with various social media tools, but what do they
get out of it? Firstly, its a place for them to market their products and brand. Secondly,
its a place for them to engage with and learn more about their customers. What is
Customer Knowledge Management (CKM)? CKM is defined as the capturing, sharing,
control and transfer of knowledge relating to customers for an organisation. It can be
broken down in three ways: 1. For customers: information pushed out from the
organisation to inform customers about products, discounts etc. 2. From customers:
customer feedback and ideas 3. About customers: knowledge about customers needs and
preferences
How is Starbucks doing this through Social Media? Starbucks is using mediums
like Twitter, Facebook and FourSquare to engage with customers on all three of the above
levels. Not only do they announce new or special products, they also quickly act on
customers complaints and compliments. By participating on these sites the store can
quash rumours and measure reaction to product and service changes. Starbucks have also
developed their own corporate discussion forum, MyStarbucksIdea, a place for customers
to ask questions and make suggestions to the organisation. In the first two months since
launch, 41,000 ideas were contributed, some of which have since been launched and now
feature as part of the companys product and service range. These examples show how a
bricks and mortar organisation can utilise social media channels to better communicate
with their customers, not only to market existing wares but also to develop new ideas.

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Competition
The competition for the coffee industry has increase massively due to the large
numbers of consumers that love coffee. Coffee has been around for years, but just
recently competitors for coffee retailers grew with coffee sales increasing more than 50%
in 2007 (Burritt, 2007). Dunkin Donuts Coffee, Starbucks, and McDonalds McCafe will
be the competitors that will be examined in this paper.
You must examine the competitive landscape when analyzing the process of the
current specialty coffee industry situation. The landscape of the industry can be properly
identified by the Porters Five Force Model (Thompson, Strickland, & Gamble, 2007).
The controlling interest that suppliers have over the cost of coffee is the biggest threat
that the specialty coffee industry is facing. Arabica coffee prices rose 77% in 2010 which
lead to major complications for the coffee industry (Murphy, 2011). In the specialty
coffee industry, the Arabica coffee is the most sort after and sold brand of coffee. Those
competitors that rely on the low cost strategy cant afford for coffee cost to sky rocket, it
will hurt their bottom line.
Smaller coffee chains are the second biggest threat to the current specialty coffee
industry. In Europe, McDonalds is taking on Starbucks head to head and is planning on
replacing Starbucks (who holds the current number one position) and becoming the
number one Caf in Europe (Liu, 2009). Since Starbucks has been so leery in embracing
the foreign market McDonalds has been taking advantage of this opportunity.
In this industry the power of the buyers is the third strongest threat. Since people
feel that specialty coffee is not a necessary, they can decide whether or not the cost will
fit in their budget, or they may no longer enjoy the vendor or the environment.

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Consumers have plenty of options when it comes to coffee shops since there is one on
almost every corner around the world. Starbucks is now marketing its considerably lower
costs to its Korean market (Han, 2009).
New competitors are the next powerful threat. There is not enough of the mom
and pop coffee shops to drastically deter from the major competitors. The feeblest threat
for the specialty coffee industry is that of substitutes.
Innovation, marketing, and expansion are the key factors for competitors to be
successful in the coffee industry. Innovation by way of new brands of coffee or drinks
will allow organizations to have a competitive edge in the market place.

In the

specialized growing coffee industry, marketing is the key. McDonalds McCafe markets
its low price strategy (Burritt, 2007). Dunkin Donuts markets that their coffee is better
and they have more items to choose from on their menu (Dicarlo, 2004).
The competitive environment and overall attractiveness of the trade is very strong.
After exploring the driving forces and Porters Five Forces Model, the development rate
for the industry is still escalating and does not look to stop or shift in the near future.
With strong marketing, innovation, and global expansion the coffee industry is on the
right path to create amazing advancements.
New and challenging opportunities will flourish in the industry with the driving
forces of industrialization and disposable income. It will take a lot of work and time by
the members of the specialty coffee industry to overcome any stiff competition. The
rising prices of coffee will play a major role in the development of the coffee industry
over the next decade. Having the potential to grow and thrive the specialty coffee
industry is very strong overall.

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SWOT Analysis
Strengths:

Strong Market Position and Global Brand Recognition: Significant geographical

presence across the globe and maintain a 36.7% market share in the United States
and has operations in over 60 countries. Most recognized brand in the coffeehouse
segment and is ranked 91st in the best global brands of 2013 (Interbrand).
Starbucks effectively leverages its rich brand equity by merchandizing products,
licensing its brand logo out. Such strong market position and brand recognition
allows the company to gain significant competitive advantage in further
expanding into international markets and also help register higher growth in both
domestic and international markets. Over the years, they have achieved significant
economies of scale with superior distribution channels and supplier relationships.

Products of the Highest Quality: They give the highest importance to the quality
of their products and avoid standardization of their quality even for higher
production output (Starbucks, 2013).

Location and Aesthetic appeal of its Stores: Starbucks has stores in some of the
most prime and strategic location across the globe. They target premium, hightraffic, high-visibility locations near a variety of settings, including downtown and
suburban retail centers, office buildings, university campuses, and in select rural
and off-highway locations across the world (Starbucks, 2013).

Human Resource Management:

employees.

Known for its highly knowledge base

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Goodwill among consumers due to Social Responsibly Initiatives: Community

friendly, focused on recycling and reducing waste. Build goodwill among
communities.

Diverse Product Mix: Starbuck portfolio of products that caters to all age groups
demographic factors.

Use of Technology and Mobile Outlets: Starbucks efficiently leverages

technology with its mobile application Starbucks App in both apple and android
softwares. They make significant investments in technology to support their
growth every year.

Customer base loyalty: Starbucks has cult following status among consumers and
they have also implemented loyalty-based programs to drive loyalty with the
Starbucks Rewards programs and Starbucks Card.

Weaknesses:

Expensive Products: While Starbucks does differentiate their products with being
highly quality couple with the whole Starbucks Experience, in times of
economic sluggishness, consumers to have so switching costs to competitors
products with lower prices and forgo paying a premium. These premium prices
could also pose some weakness for it to succeed in developing countries.

Negative large corporation image: Like any large corporation, Starbucks does
come under increased scrutiny and have to invest in corporate social
responsibility activates and maintain tight control over labor practices.

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American/European coffee culture clash with that of other countries: Starbucks

coffee culture may not widely accepted in some countries as part of their
international expansion strategy.

Opportunities:

Expansion into Emerging Markets: The increase saturation and selfcannibalization of the US market makes its international strategy even more
important. Starbucks has made good inroad into many countries, with India
recently joining the list with a joint venture entry.18 Starbucks has a great growth
potential in further expanding into the emerging and developing markets. They
can leverage their size, experience, financial prowess and efficiencies to make
new market share.

Expanding Product mix and offerings: Started to expand product mix by

venturing into the Tea and fresh juice products offerings with a smart acquisition
strategy.

Expansion of retail operations: Starbucks currently sell its packed coffee products,
iced beverages and merchandizes through large box retailers. This markets
potential is yet to be fully realized and this provides Starbucks great opportunities
for the future to future monetizes their brand.

Technological advances: Starbucks has leveraged the use of mobile applications

and has an investment partnership with Square, a mobile payments app that is
integrated with its Starbucks app. This creates an ease of use process for
customers, aligns customer loyalty through reward programs. Starbucks has
already set the bar in the industry with this advancement and about 10% of its

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transactions in the US have been made using mobile applications. This is a

growing field and would drive more business to their stores as technology
advances.

New distribution channels: Beta version of a delivery system called Mobile Pour.
Expands the end product distribution systems and could drive more revenue if the
implementation is successful.

Brand extension: Powerful brand image and it can leverage it to extend into
product diversification.

Threats:

Increased Competition: Biggest threat that Starbucks faces. Increased pressure on

Starbucks from its competitors. Dunkin Brands (main threat in the US market)
trails Starbucks with a 24.6% share.

Price Volatility in the Global Coffee Market: Significant fluctuation of prices in

the market for high quality coffee beans, which Starbucks cant control.

Developed Countries Market Saturation: Starbucks derives a significant amount

of its revenue from the development markets and there is increased market
saturation currently.

Developed Countries Economy: An economic crisis like the one in 2008 could
have a trickle-down. This threat would hurt revenues as consumers shift away
from premium product mix to stay in limited budgets during economic hardships.

Changing Consumer tastes and lifestyle choices: The shift of consumers toward
more healthy products and the risk of coffee culture being just a fad.

Industry Situational Analysis

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In order to continue to grow as an organization and to expand its market cap

Starbucks had to go globally. Starbucks has expanded into 43 countries because of its
need to be a stronger a greater in the market (Company Factsheet, 2014). Ever country
that Starbucks has entered has its own practices and cultures. The contradictory traditions
can be virtually impossible to prevail over; therefore, joint ventures are utilizes by
Starbucks to help lessen the stumbling blocks that can arise from expanding abroad. In
Japan, Starbucks has opened 700 stores and without the help of the joint ventures with
Japanese companies (that allowed it to gain cultural understanding), it would not have
been able to be successful (Company Profile, 2014). Every culture has a different set of
beliefs and values that affects what it sells and what it buys. Being careful to research
every country that it went into; Starbucks insured its success and ability to expand into
difficult and different countries and regions. Starbucks has a basic set of primary
products; however Starbucks is not so closed minded that they would not consider new
products. Because of the differing cultural tastes Starbucks works to create new products
for the different geographic areas it is expanding into. Starbucks is prepared to respond
and act
Developing abroad and recognizing that a superior market area is one of the first
strategic requirements of a company. To gain access to a larger market is the main
motivation the pushes Starbucks to expand globally. In 1987, Howard Schultz, (the
director of retail operations and marketing), started looking globally to expand the
business. With his influence, help, and encouragement the first international Starbucks in
Vancouver, British Columbia opened (Company Timeline, 2014). The coffee business

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is undeniably growing at a fast speed, and the company that can recognize a worldwide
frontier will win the battle for market control among the completion.
Information System Used by Starbucks:
In order to analyze business data, Starbucks use Decision Support System. DSS
is a computer program application that analyzes business data and presents it so that user
can more easily take their business decisions. Starbucks uses a singular DSS system at
the parent company in USA: oracle. Important decisions are based on monthly reports
that are generated montly by Oracle. Online Analytical Processing (OLAP) is used by
Starbucks to do the statistical analysis and large-scale data analysis that is used to manage
for decision making.
Conclusion
Starbucks demonstrated in the past its ability and strength to continue growth
even during a decline, and even though analysts believe that Starbucks growth will
decline, the company is still growing.
Starbucks continues to keep its customers happy and rely on non-traditional
means of attracting new customers; that is the Starbucks strategy. Starbucks mission and
goals have allowed it to be successful even in a fast pace world. Starbucks faithful
customers have remained by their favorite brand through it all. The Starbucks experience
is unique from all others and the history and progress of the company have contributed to
the Starbucks lifestyle as we know it to be.
Recommendations

Starbucks should continue to open in new locations worldwide.

Advertising should increase from 1% to 10%
Extend its menu to include selections of drinks that relate to a particular culture
Children drink selections should be increased.

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