Starbucks

I. Statement of the Problem

In light of McDonald's aggressive marketing campaign targeting Starbucks by

promoting their significantly cheaper coffee alternatives, Starbucks faces a strategic
challenge in retaining its customer base. With McDonald's undermining the perceived
value of Starbucks' $4.00 per cup coffee, Starbucks needs to devise a clear strategic
response to counter these attacks and maintain its market position.

II. Statement of the Objectives

Understand McDonald's marketing tactics and their impact on Starbucks'

customer base, evaluate Starbucks' current strategies, identify key factors influencing
the perceived value of Starbucks' coffee, assess risks and opportunities in adjusting
pricing and marketing, devise a strategic plan to reinforce Starbucks' value
proposition against McDonald's, implement targeted campaigns to enhance customer
loyalty, and monitor the effectiveness of the response to maintain Starbucks' market
position and profitability.

III. Areas of Consideration (SWOT Analysis)

A. External Environment
 Demographic – Starbucks’s demographic targets all teens, middle-aged
people, senior people, and also professionals’ people who are addicted to
coffee. The age ranges from 22-60 based on the research in 2019 by
Barbara Bean-Mellinger.
 Industry Profile – “Starbucks” Who doesn’t know about this famous
coffee shop? Everyone is very interested and willing to spend just to taste
the famous coffee of Starbucks. They have a lot of branches not just in 1
country but in over 80 countries around the world with a total of 38,000
branches.
 Economic Situation – Due to the high inflation in every country, some of
the customers of Starbucks now prefer to drink instant coffee that can be
bought in any grocery store which is cheaper, or some of them prefer to go
to other coffee shops that offer lower price compare to the minimum price
coffee of the Starbucks.
  Socio Cultural Background - Starbucks has established a culture focused
on fostering robust connections with its workforce, whom they regard as
"partners." They place a high emphasis on employee welfare, providing
benefits such as stock options and health insurance, extending even to
part-time workers. Despite the economic challenges of the global financial
crisis, Starbucks maintained its commitment to investing in staff
development and educational opportunities. Within the Starbucks setting,
employees are treated with dignity and are encouraged to engage in
collaborative efforts voluntarily rather than through directives.
 Political/Government/ Peace and Order - Political factors play a critical
role in shaping the business environment in which Starbucks operates.
Various political aspects, including stability, tax policies, trade
regulations, labor regulations, and corporate social, influence the
company's operations.
 Technology - Starbucks is actively pursuing automation for tasks that
don't contribute significant value, such as inventory management and
storage, with the goal of enhancing efficiency and allowing employees to
focus on more meaningful responsibilities. Additionally, they are
innovating in areas like labor and trend forecasting, as well as improving
the hiring and onboarding processes. Continuous enhancements to
machinery, and also using apps that allows customer to order online.
 Natural - As a progression against those goals, the company commits to
Carbon Neutral Green Coffee and to conserve water usage in green coffee
processing by 50%, both by 2030.

1. THREATS – Coffee shops are now becoming very famous when it comes to meeting up
with your friends and also if you want to drink coffee, due to this a lot of café opens now
in every city that offer much cheaper price of a coffee compare to the price offer by
Starbucks. Due to this, customer now prepare to go to a much cheaper coffee shops
especially those students who can only afford a $1.00 cup of coffee. This affects the sales
of Starbucks due to its competitors worldwide.
2. OPPORTUNITES – Starbucks offers different taste of coffee for customers, they offer
taste that can be like not just by teens but also to middle and senior-age people who
cannot live without drinking coffee every day, that gives opportunity to the Starbucks to
maintain and value why people loves coming back in their store, also another opportunity
for Starbucks is to open as much as many branches especially to those cities who has only
limited access to coffee shops.
B. Internal Environment (Corporate Appraisal)

 Marketing Operations - Starbucks aims to transform the act of coffee

consumption into a holistic experience, creating retail spaces that serve as
hubs for socializing, relaxation, and contemplation. These outlets are
designed to prioritize customer comfort, offering amenities like electrical
outlets and wireless access. The introduction of the Starbucks' card aims to
enhance customer loyalty through improved service. Continuous research
and development focus on creating trendy yet reliable products and
services. Starbucks' presence extends beyond its own outlets to various
retail locations, reflecting its adaptability to diverse consumer needs. In
response to economic shifts, pricing adjustments have been made to cater
to budget-conscious consumers. The company's advertising strategy
emphasizes its image and commitment to community and employee
welfare. Recognized as one of the top places to work, Starbucks fosters a
positive corporate culture. Additionally, the company encourages
engagement through its website.
 Production Operations - Starbucks employs a diverse array of tools and
techniques to effectively manage its supply chain, encompassing advanced
forecasting methodologies, meticulous inventory management practices,
and strategic sourcing strategies. Leveraging these tools enables the
company to anticipate demand fluctuations, optimize inventory levels, and
secure high-quality inputs from reliable sources. Furthermore, Starbucks
has cultivated an extensive network of suppliers and logistics partners,
fostering collaborative relationships aimed at ensuring the seamless and
timely delivery of its products to various locations. Through this
multifaceted approach, Starbucks upholds its commitment to delivering
exceptional coffee experiences while maintaining operational efficiency
across its supply chain ecosystem.
 Organization and People - Within Starbucks, the senior leadership team
boasts a notable size, surpassing that of many organizations of similar
scale. Presently, Howard Schultz assumes the role of interim CEO, a
position he undertook subsequent to the departure of Kevin Johnson. The
organization anticipates the forthcoming announcement of a new
permanent CEO, a decision expected to materialize later in the current
year. This transitional phase underscores Starbucks' commitment to
maintaining stability and continuity in its leadership structure while also
signaling a potential shift in strategic direction under new executive
leadership.
 Financial Operations - The income statements and balance sheets of
Starbucks, as depicted in Exhibits 2 and 3, illustrate a trend of sustained
 revenue expansion, albeit accompanied by a notable 47 percent decline in
earnings within a single year. Specifically, for the 26-week period
concluding in March 2009, Starbucks witnessed a 7 percent decrease in
revenues, amounting to $4.95 billion, alongside a substantial 72 percent
reduction in net income, which totaled $89.3 million. This downward
trajectory in earnings is indicative of the challenges faced by Starbucks
during this period, potentially attributed to various factors such as
economic downturns or shifts in consumer preferences. Furthermore, the
recent decision by Moody's Investors Service to downgrade Starbucks'
credit ratings adds another layer of scrutiny to the company's financial
standing, reflecting the need for strategic reassessment and proactive
measures to address underlying issues and restore investor confidence in
Starbucks' long-term viability and financial stability.

1. Company’s STRENGTH - Starbucks' strengths lie in its marketing prowess, evident

through its unique store ambiance and customer loyalty programs. In production
operations, the company excels in supply chain management, forecasting, and delivering
high-quality products. With a stable leadership team and positive corporate culture,
Starbucks emphasizes effective organizational management. Despite financial challenges,
the company demonstrates resilience with sustained revenue growth and adaptability to
economic shifts, establishing itself as a dominant force in the coffee industry.
2. Company’s WEAKNESSES - Starbucks faces several critical challenges that require
attention. Firstly, its heavy reliance on physical retail outlets poses a potential
vulnerability if consumer preferences shift towards online or delivery options. Secondly,
despite efforts, maintaining customer loyalty is challenging in competitive markets where
rivals offer similar perks and services. Thirdly, adjusting prices to cater to budget-
conscious consumers risks impacting both profitability and customer perception of
quality. Additionally, any discrepancies between Starbucks' advertised image and actual
practices can erode trust among customers and employees alike. To effectively tackle
these challenges, Starbucks must conduct a thorough review of its marketing strategies to
ensure they align with evolving consumer trends, maintain profitability, and uphold brand
consistency

CONCLUSION:

Generally, upon reviewing the story of the Starbucks, it only shows how successful and
well-known business the Starbucks is. Company itself faces a lot of challenges but still manage
to overcome it to be who and what they are right now. Moreover, even though there is a lot of
more coffee shops today, Starbucks remain the number 1 coffee shops worldwide.
IV. Alternative Courses of Actions

A. General Statement of Possible Solutions – As Starbucks grow, the competitors also

grow. Starbucks should introduce cheaper and more affordable product to the
customers but still maintain its quality, especially if there store in the area where only
students can afford a $1.00 cup of coffee which is offered by other competitors. Focus
in maintaining and targeting audience that will come back for more.
B. Each alternative/possible solution can stand alone and totally independent of the
other alternatives - Starbucks can pursue several independent strategies to adapt to
changing consumer trends. It could expand its menu with healthier options, prioritize
sustainability, innovate digitally, explore emerging markets, focus on specialty
beverages, or engage with communities. Each strategy offers unique opportunities for
growth and adaptation in the competitive coffee market.

V. Recommendation

A. State your recommended Solution - Starbucks faces several critical challenges that
require attention. Firstly, its heavy reliance on physical retail outlets poses a potential
vulnerability if consumer preferences shift towards online or delivery options.
Secondly, despite efforts, maintaining customer loyalty is challenging in competitive
markets where rivals offer similar perks and services. Thirdly, adjusting prices to
cater to budget-conscious consumers risks impacting both profitability and customer
perception of quality. Additionally, any discrepancies between Starbucks' advertised
image and actual practices can erode trust among customers and employees alike. To
effectively tackle these challenges, Starbucks must conduct a thorough review of its
marketing strategies to ensure they align with evolving consumer trends, maintain
profitability, and uphold brand consistency.
B. Define your Objectives:
1. Short-run (1” to 5” Year) – In 1 to 5 years. Starbucks should maintain first its
quality in the market. Starbucks is well known for its delicious coffee and
aesthetic vibes place that gather more attention from the crowd.
2. Long-run (beyond the 5” Year) – Being able to run a business for more than 5
years means that it maintains is quality service. Hire more professional and
perfect person to run the business will also give the business more advantage for
the business in the market.
C. Functional Strategies – In order to achieve not just the short run, but also the long
run. Starbucks must invest more not just in quality products but also in quality
services that will give satisfaction to the customers. A happy customer will always
come back for more.
 VI. Plans/Programs for Implementation
 Program Title: Starbucks (Maintaining Quality)
 Objective: Maintain and improved quality services
 Expected Output: Customer satisfaction

Details of the Program:

ACTIVITIES TARGET DATE RESPONSIBILITY

 Conduct a monthly Year 1-5  Manager
survey to the customer
if the quality of the
product improved or
not.
 Team Building for
every staff to build a
stronger relationship
and discuss what is
needed to be done in
order to maintain
business needs.
 Provide a one-on-one
self-improvement/coac
hing for each
employee.

Estimated Budget:

Manpower: $50,000

Facilities & Equipment: $10,000

Operating Expense: $15,000

TOTAL: $75,000

VII. PROJECTED FINANCIAL STATEMENT

Projected Profit and Loss Statement

YEAR 1 YEAR 2 YEAR 3

Revenue $11,987,045 $9,675,894 $9,564,786
Cost of Goods Sold $345,979 $276,568 $265,078
(COGS)
 Gross Profit $6,689,097 $7,859,979 $8,969,079
Operating Expenses $1,980,967 $1,456,678 $1,434,786
Net Income $568,567 $675,070 $735,575

Projected Cash Flow Statement:

YEAR 1 YEAR 2 YEAR 3

Cash Flow from $476,979 $469,765 $598,356
Operations
Capital $358,867 $356,757 $486,079
Expenditures
Free Cash Flow $350,578 $457,858 $346,976