Case Study 1
Adv. International Marketing
January 15, 2013
1. Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global markets.
The controllable elements that Starbucks has encountered in entering the global markets are price, taste, image, employees, target and their position. In the United States, Starbucks has been able to sell ‘Grande’ lattes for nearly $5, which has resulted in huge profits and fundamentally zero debt. However, in markets such as Italy where Starbucks anticipates entering in the near future, the price of $5 will not suit the people of that culture especially being that Italy is the epicenter of European coffee culture. The case stated that Italians are accustomed to spending 55 to 67 cents on a cup of latte in comparison Starbucks charges $1.50.
The next controllable element is taste. Starbucks has done an amazing job at appealing to the palate of cultural preference in taste. They have entered that Asian market with making espressos and lattes that are less sweet than the U.S. However the verdict is out on whether the Italians – the culture that Starbucks has adopted with its language – will favor the ‘American’ Italian flavor over vintage Italian coffee. This element also correlates with the loyalty of consumers in global markets, which is actually an uncontrollable component. Nevertheless, taste is a controllable factor for Starbucks in the sense that it can produce a bolder flavor. Starbucks position in the American market is distinct; it caters to business professionals and as the case pointed out “latte sipping sophisticates that enjoy listening to Kenny G”. However, just as the market for Starbucks is evolving, the position and target that Starbucks attract in foreign markets will also need to consider Generation X. An important controllable element is the rate at which they expand. Starbucks chose to expand aggressively in Japan, just as they did in the U.S.; however, they experienced a decline in profits with this strategy.
Most of the risks associated with Starbucks expanding to global markets are uncontrollable. Starbucks would have to consider competition, laws, loyalty of customers and cultural differences when expanding to foreign markets. For instance, in France it is tougher for MNC’s to start businesses due to their arcane regulations and generous labor benefits. In Italy, customers are loyal to their small chain coffee bars and many of them will not consider changing for a brand that they would see as “commercialized coffee”. Customer loyalty is rich in Italy and imaginably the same for many other countries. Competition is always a threat to any business, however for Starbucks it is more of a concern, as competition would come from those who are more familiar with the culture and know how to gain competitive advantage.
2. What are the major sources of risk facing the company? Discuss potential solutions.
* Positioning and reaching the target market
* It is a known fact that when a company enters a foreign market, their advertising team should revisit their brand position to ensure that it will fit the new market. What may have worked with Starbucks in North America may not work abroad. When companies seek to move abroad, several key issues are important for their positioning strategy. These issues are new competitors, different demographics, cultural nuances, language barriers, and regulatory restrictions (Branded Translations, 2011). Positioning was identified as a controllable element. Starbucks can enter any market with necessary research. In the case, Starbuck’s learned that young people or Generation X (GX) felt differently about their store that what they had assumed. Starbuck’s should consider the position of GX and use it to build a better strategy for the evolving market.
* The case mentioned that McDonald’s...