Starbucks Paper

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MG 420/ Business Policy
July 23, 2008

In 1971, Seattle Washington, three men joined together and founded the Starbucks Coffee Company. The three men responsible are Jerry Baldwin, Zev Siegel, and Gordon Bower. Starbucks was launched with the idea that coffee was brewed at home. Therefore, Starbucks only sold gourmet coffee beans and brewing/roasting necessities. Ten years later, Howard Shultz became interested in the company and in 1982 he was hired. Howard Shultz is responsible for bringing the idea of coffeehouse café to Starbucks. What began as one small coffee shop in Seattle has grown to over “8,000 stores in over 30 countries and annual revenues in excess of $7.5 billion” (Wilson, 2005). Starbucks is the number one specialty coffee retailer in the world. Starbucks offers specialty coffees and teas along with many other drinks products and pastries.

Starbucks has many valuable strengths. It is a well-known brand name that is recognized worldwide. It is also known for its consistency of products and services. Customer loyalty and ethical values are also important at Starbucks. Customers can sign up for a rewards card and receive discounts and other promotional rewards. This is a way for Starbucks to give back to its loyal customers. On page 27, Parnell explains that, “Established firms may enjoy strong brand identification and customer loyalties that are based on actual or perceived product or service differences” (2006).

Starbucks sells its coffee items in many grocery stores including Wal-Mart. This allows customers to brew their own Starbucks coffee at home. Starbucks also offers organic blend coffee and this is a plus for health enthusiasts. Starbucks has an iTunes Wi-Fi Music store and wireless internet in some of its store locations. Product/Service strategies are discussed on pages 131-132. According to Parnell, “Product decisions are a key part of the marketing mix and can be quite interesting” (2006). Wireless internet is good for working individuals and those who are in school. Customers can also order Starbucks products online. These products include: coffee and tea blends, brewing equipment and accessories, music, books, movies, and Starbucks cards.

One weakness that exists for Starbucks is the downfall of the economy. According to Parnell on page 44, “Economic forces significantly influence business operations, including growth or decline in gross domestic product and increases or decreases in inflation, interest rates, and exchange rates” (2006). Customers are now using their extra funds to pay high gas prices instead of buying coffee. Another weakness is the high price of Starbucks coffee. Customers perceive Starbucks as a high-end coffee company, which they view as more expensive than competitors. Starbucks needs to re-think its pricing strategy to compare with competitors. Parnell noted on page 130, “Business units that compete with the low-cost generic strategy produce basic, relatively undifferentiated outputs and often lower prices” (2006). Parnell also noted on page 131, “Businesses that use the generic strategy of low-cost differentiation must market quality products and services that are distinguishable from the outputs of their competitors” (2006). Declining market share could possibly be a weakness for Starbucks. Market shares are discussed on page 195. Parnell noted that, “As market share increases, control over the external environment, economies of scale, and profitability are all likely to be enhanced” (2006). If there is a decrease in market shares, then the factors previously mentioned are also susceptible to decline.

There are many opportunities for growth for Starbucks. Starbucks could merge with another well-known company. Krispy Kreme would be a great company for Starbucks to merge with. Coffee and doughnuts go hand-in-hand. Two successful companies merging could be a major step toward...
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