Starbucks Time For A Change
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Starbucks
Time for a Change
In America today, the failure rate of businesses are extremely high making it nearly impossible for a small business to prosper. Americans would rather hold their money than spend it with out it being for what they may consider a necessity. This not only affects the small businesses. Large companies and franchises also have to find new ways to have people come and spend their money on what the company is offering to them. The focal point today will be Starbucks; an upscale coffee house that specializes in specialty coffees. The foundation of Starbucks is an incredibly strong one that has been one of a kind coffee house that has broken into the vast coffee market. The competition for Starbucks has been very low since its opening in the late 1980s, with nearly no business selling specialty coffees. However, other businesses are beginning to sell such coffees causing much concern for Starbucks. Businesses like McDonalds are now selling premium coffees at a much lower price which threatens the long term well being of the coffee mogul Starbucks. There are steps that can be taken to protect Starbucks from losing market share to its competition. Creating a new promotional strategy would be the most beneficial to combating its competitions lower prices. The effectiveness level of a new promotional strategy will be very high; nevertheless, however much they are willing to spend on such promotions can be easily outspent by McDonald’s large bank account. This should not be a deterrent yet a reason to begin its new promotions sooner. With the unemployment rate up to 5.1% in America money is not being spent on luxuries such as specialty coffees. (Aversa 2008, Para 1) With jobs depleting people are more hesitant on spending their money. New ways need to be developed to bring new people into luxury places such as Starbucks. With the limited stability of the economy people need to be reminded that it is acceptable to spend money on things that they want. It should be the goal of Starbucks to do both, present the idea it is alright to spend their money, and to furthermore spend it on their coffee. Luckily coffee is still the number 2 import in the U.S. and it is because people still drink it; however, not at a coffee house. This seems like a negative aspect to focus on but in actuality it is an opportunity, an opportunity to take the in house coffee drinkers and make them customers.
As fore mentioned coffee still has a very high demand in which will be a huge benefit in reaching new customers at Starbucks. This more than likely will keep the price the suppliers set at a flat level if not diminish it. This doesn’t account for the buyer’s power though. The buyers easily manipulate their patterns which obviously greatly effects businesses income and sales. With many Americans afraid to spend their money when they don’t have to sellers are in treat of their growth being adversely effected. A new plan must be adapted to handle such a scenario. If a new specialty coffee shop beats Starbucks to such a punch line their growth could virtually be stopped in its tracks. It may have already begun with the 2007 launch of McDonald’s McCafe; which sells high end coffees similar to that of Starbucks. Already McDonalds offers premium coffees and lattД©s in 9,000 stores. This is something that also needs to be considered and something that has already been considered by Deutsche Bank Securities Inc. analyst Marc Greenberg, who reduce his Starbucks stock-target price by 14 percent to $32. “The golden arches are doing coffee better, Greenberg wrote in an investors note. (McIntyre, 2007)
Ranking at 338 Starbucks is hardly a small town local store, and with revenue of 6,369.3 million and profits of 494.5 million for 2006 puts that in concrete. (CNN Money) The management and service however, remains similar to that of a small time store. This is a common philosophy in which restaurants use. The philosophy not very original by Starbucks but done better than the rest of its competitors and other restaurants alike. However Starbucks training and business ethics internally are much higher than many businesses. Managers are to attend a two week class teaching them the fundamentals of coffee brewing and the quality of different beans. Starbucks also offers benefits for part time employees which is virtually unheard of in the workplace today.
A unique but fading identification of Starbucks is that they do not use mainstream advertising. Starbucks uses the technique of word of mouth to promote fully the establishment. This has appears to be very successful in viewing Starbuck’s robust income statement. This however may be only the tip of the iceberg in relation to the business they could have had. Using the idea of selling premium and specialty coffees like in Europe was alone good enough to launch the success of their business. All of the weight and hope of the marketing and publicity for the company was put into customer service, much like most eating establishments, hoping that they enjoyed it enough to return and possibly tell another potential customer. In the time before the specialty coffees people were just waiting for such a product and didn’t even know it, adding to Starbucks success. Starbucks uses very little demographic profiling when building their stores, by not altering prices or average sizes of its coffee houses or even the atmosphere inside. If each store will be exactly the same people of lower income should be given a reason to visit the store, furthermore, Starbucks should incorporate that into their marketing plan. This also should be done to help offset the extra two dollars one has to spend for a serving of their specialty coffees. With out a good reason or incentive to spend the extra money at their store people won’t spend it their. If they can get the same thing from McDonalds at half the cost why would they not do so? Starbucks has many loyal customers and no doubt an enormous backbone of business; however, in the matter of growth there is a massive market they have yet to reach by not advertising or promoting their brand the way it should be. With the extra care and brewing techniques the cost to produce the coffee is higher and that very well may be the angle to take in a promotional mix.
The items sold at Starbucks beyond coffee and coffee related items include coffee makers and novelties relating to coffee. The sales of their other products should be evaluated and a decision weather they are even worth selling should be made. With only 4% of their sales being that of coffee making equipment and accessories, it would make more