Outline
This paper deals with the case study of Starbucks. Starbucks is facing keen competition from rival firms in the US coffee market. In this case study, various alternative strategies that can be adopted by Starbucks to regain its market position and profitability are discussed in order to provide recommendations on selection of the best alternative. The steps for the effective implementation of the expansion project which have to be followed by the firm are also discussed.
Strategic Issue
Starbucks is the world’s largest coffee shop retail chain operator. It faces keen competition from Mc Donald’s Corporation and Dunkin’ Donuts Inc. in the coffee market of United States. It supplies luxury end products. The spending habit among the target customer group towards loyal products provides competitive advantage to Starbucks. Price discounting policy is not adopted by it in the concept that customers are ready to pay premium prices for its high-end brand. (Starbucks plans to expand marketing, 2009).
Starbucks is planning to close down non-profitable business units in USA in order to avoid the financial losses and lack of potential for overcoming the keen competition from rival firms. As announced on July 1, 2008, Starbucks will close approximately 600 company-operated stores in the US, beginning this month, and continuing through the first half of 2009.
Why is this issue?
Winding up of business units has short term as well as long term impact on the business. On a short term basis it will lead to labor problems in the business, as companies has to pay large amounts of compensation for the retired employees. This requires adequate financial resources and may create financial burden to the business firm. On long term basis the closing down policy will lead to reducing the total market share of Starbucks business in the US coffee market. Even if the business is not profitable in current situation, on long term basis it will generate adequate profit and market return.
Strategic alternatives for the market expansion policy
Alternative #1
What: Starbucks can adopt restructuring of the operating process for ensuring maximum cost efficiency in production and operation. It needs to develop new policies and strategies supporting operational performance improvement. New product range has to be introduced for the new target customers. Cash discounting policy can be adopted to attract lower end customers in the market.
How: The first step of this process is to find out what are the actual requirements in the target group. As the first step for the starting up of lower rate products, an online survey among the customer base in lower end coffee market has to be conducted. This will generate information regarding the potential opportunity in the lower end of the market.
Who: The online customer survey has to be conducted by the company directly by appointing a research team selected from the various departments of the organization. Individuals from the marketing area will be responsible for creating and administering the survey. The top management has to provide adequate guidelines for the survey. Periodical review of the research process has to be conducted by the top management. As per the research results adequate steps have to be followed by the top management itself.
When: The business strategy focusing on the new customer base with new cost effective products has to be started immediately. By identifying the potential opportunity in the market, the company can take steps to start the business within a time period of 6 months.
Where: The alternative new customer focus strategy has to be implemented in the US market as it is focused on regaining the market position by overcoming the competitive pressure from rival firms. Before implementing the alternatives, the views and opinions of headquarters staff have to be considered. The implementation staff will indicate whether the new product focusing strategy will be producing the targeted results.
Alternative # 2
What: Starbucks has to divest its business in more profitable business areas. It can adopt a closing strategy by transplanting its non-profitable business units in more profitable new business areas. The expansion strategy of the business can be focused on the Asian region where there is potential market growth opportunity with wider customer base.
How: Before starting the transplantation strategy, it is better for the business to conduct a detailed analysis about the potential competency of different marketplace in providing the targeted return to the business on long term basis.
Who: For the Market research, a research team has to be constituted by the company for identifying the potential opportunities in the targeted market. The research team should conduct thorough market research in selected locations. Once this information is gathered and analyzed, a cross functional group has to be framed for analyzing the different aspects of the research results.
When: The divestment strategy has to be followed on a priority basis. In order to exploit the opportunities in the market, research has to be started immediately. This will help to generate results on the potential competency of different market places for expanding the Starbucks business. This alternative should be started immediately within a total time frame of about 18 months.
Where: The market research has to be focused on various marketplaces in the Asian region. The major market area for the expansion project should be different market places in China and India as there is greater opportunity for starting new business here.
Recommendations
I am recommending that Starbucks has to pursue alternative # 2 for expanding its business. An added benefit to this peculiarity is that it has the potential to exploit the emerging business opportunity in the new market places in the Asian region. The alternative # 1 will provide a negative image to the company’s existing products focused on the luxury end. Thus it is not beneficial for the company to target its business to the lower end customer groups. If the company adopts alternative # 2, it will provide great opportunity for exploiting the tremendous business opportunity in the emerging Asian markets.
Implementation
Changes in organizational structure: The expansion in the new marketplace will make changes in the organizational structure of Starbucks. In the new marketplace, strategic alliances may be required to overcome the cultural barriers.
Changes in organizational culture: In the new marketplace in the Asian region, Starbucks has to follow different cultural strategies in order to compete with the local firms.
Funding: Huge financial resources are required by Starbucks for its expansion process in the new market places in Asia. It will be acquired from two sources. They are long term debt and owned capital.
The project expansion implementation may be affected by the economic condition existing in the Asian market. Mc Donald’s Corporation and Dunkin’ Donuts Inc are the major competitors in the US Coffee market. The expansion strategy of Starbucks in the Asian region will be affected by the presence of Mc Donald’s and Dunkin’ Donuts Inc. in the selected market places in the Asian region.
References
Starbucks plans to expand marketing. (2009). Boston.com. Web.