Starbucks’ Business Concept and History
When academics Jerry Baldwin, Zev Siegel, and Gordon Bowker established Starbucks Coffee Company in 1971, their vision of Starbucks was that of a local business specialising in “selling fresh roasted whole beans in ...specialty stores.” (Darguste et al., 2006 p.655). Fearing commoditization of the brand, the founders were opposed to the idea of broadening the appeal of Starbucks coffee. Howard Schultz, a marketer who eventually acquired Starbucks in 1987, made selling brewed coffee to a wider market the bedrock of Starbucks (Darguste et al., 2006 p.655). The concept, “inspired by the Italian espresso bars,” transformed coffee from an ordinary beverage to a lifestyle product for the aspirational and discerning consumer. Starbucks operates in Asia Pacific, Latin America, North America and Western Europe and according to Helliker and Ziobro (2010, p.25), “ of the roughly 16,700 Starbucks stores around the world, about 11,200 operate in the U.S”. This report summarizes how Starbucks dealt with challenges such as cultural adaption, market entry strategies and brand identity as it expands internationally.
Starbucks’ Decision criteria for Market Entry
Starbucks’ considered variables such as “economic indicators, size of the population, and ... joint venture opportunities” (Kotabe and Helsen 2008, p.284) to determine its market entry strategy. Singapore was preferred for its middle class’ value perception which suited Starbucks concept and coffee culture. In China, where the coffee drinking culture is still undeveloped, Starbucks hoped to benefit from “its first mover advantage, the large youth population and rising disposable incomes” (Euromonitor2009, p.7). In addition, psychic distance and similarities of business culture to USA (Griffin 2008, p.58) played a part in considering some of the markets like UK and Canada. Japan, Starbucks’ first market outside the US, had an existing coffee culture. Political risk is another criterion. Starbucks avoids countries which have strong anti-American sentiment (Griffin 2008, p.58).
Brand identity: Premium positioning vs. Commoditization
Starbucks positions itself as premium brand whose business concept is to serve affinity consumers with the finest products and a unique customer experience (Darguste et al., 2006 p.655). Starbucks’ global brand positioning strategy is focused on maintaining a “third” place positioning. The company offers its coffee houses as the third place between home and work/school for customers to socialise by focusing on store ambiance and staff amity-coffee and music are combined to “give customers a complete living room experience” (Darguste et al., 2006 p.655). Premium pricing and corporate branding strategies are used to position the brand as a premium offering. The company competes on product differentiation, quality of service and customer experience rather than on cost leadership. The brand has strong symbolic associations; it is a lifestyle brand with something of a “cult following” (Darguste et al., 2006. p.655). As competition increases and disposal incomes shrink worldwide because of the recession, consumers seek out “better value over a name brand” and therefore “Starbucks will need to justify its high price or risk becoming a commodity” Commoditized brands compete on price rather than on product differentiation or on a premium offering. Consequently, the brands gain more functional than symbolic associations. Euromonitor Furthermore, Starbucks’ aggressive global expansion could cause the brand to lose its “authenticity and premium platform” (Euromonitor 2008, p.23). Market Entry Strategies: Licensing vs. Premium proposition
Starbucks uses company-owned stores and joint ventures as high-control market entry strategies. The company controls “its coffee sourcing, roasting, and distribution” through vertical...