Introduction
Starbucks company refers to the major global providers of high-quality coffee. The production was launched in 1971 and started with a small store in Seattle’s Place Market. With the flow of time, the corporation extended from the scopes of the American market to numerous international business settings. Currently, the number of Starbucks stores in the world reached 22,000. The brand is appreciated by the citizens of 67 countries (Starbucks company profile, 2014).
The total success of the corporation is stipulated not only by the exceptional quality of the products but by the relaxed atmosphere and an excellent customer treatment approach. The experts state that the corporation became the first marketing domain, which employed an extensive use of social media advertising, which ensured the attention of the clients. The web platform that evolved from the company embraced not only the dedicated Internet page but some Facebook and Twitter groups, which discussed Starbucks products (Schoultz, 2013).
Nevertheless, the Starbucks company management still faces some hardness in competition with the rival fast food brands, which often take an upper hand in the total sales. Thus, this paper provides a critical evaluation of the major competitors of Starbucks as well as dwells on such issues as products elasticity, corporate culture, and productivity increase. The study may serve as a consistent basis for the development of following Starbucks management strategies.
Exploring the Marketing Type of Starbucks Business
Starbucks business was initially introduced as a kind of perfect competition since it targets a multilevel cohort of buyers. This type of marketing is characterized by an availability of an infinite number of customers. Indeed, the primary product of the company, which is coffee, draws the attention of a broad adult category while fancy milk drinks are oriented on kids and teenagers.
The analysis of the target auditorium of Starbucks discloses that the highest percentage of its clients belongs to adult groups. Thus, approximately 49 % of mature women and men, who are in their 25-40s, highly appraise the quality of Starbucks production. Some social aspects predetermine the number of adult customers. Since Starbucks is mostly oriented on an increasing urbanized population and uses the original formula of coffee production, its products are quite costly. Therefore, the business targets wealthy citizens, who are employed, and possess a high income. The experts state that such strategy always wins the game for Starbucks since the rates of the representatives of this cohort grow annually.
Starbucks production became quite popular among young adults, who are in their 18-24s. This category primarily includes college students and young professionals, who use the production of the company rather as a fashionable trend. Thus, the members of this group account for 40 % of sales.
Finally, Starbucks appeals to kids and teenagers as well. Approximately 17 % of the company marketing is predetermined by this cohort of the population. The corporation introduced various non-caffeine beverages that are based on milk, chocolate, and whipped cream so that to please its young customers.
Furthermore, a great success of Starbucks is connected with the introduction of complementary products. Thus, the company has lately entered the market on the Internet so that to allow its customers to receive high-quality coffee at any convenient time (O’Farrell, 2014).
Assessment of the Starbucks Products’ Value
Price Elasticity of Demand
The identification of price elasticity of demand signifies the need for a particular production with relation to the changes in products value. Thus, if the customers of a company accommodate to the new prices for limited production and it does not bring any spectacular income fall, demand may be called elastic.
Starbucks belongs to the businesses, which are characterized by high demand elasticity. Lately, the management of the company introduced a jump in prices for coffee, due to the drought in Brazil, which reduced coffee beans harvest considerably. Since the main supplier of Starbucks was not able to provide the company with a proper amount of materials, the management was supposed to increase the value of products. Nevertheless, the innovation revealed that a change in prices did not cut the number of Starbuck’s customers. The statistics show that approximately 40 % of American citizens are still likely to pay $4.5 for a cup of macchiato while the analog of this beverage may cost &1 in an ordinary street café.
First of all, it is tightly connected with the specifications of the product. Thus, the doctors claim that coffee evokes slight addictions. Therefore, it is quite hard not only to refuse drinking coffee in the morning, especially if it is customary procedure for a person but to change the type of product as well. Secondly, the quality of Starbucks coffee plays a significant role as well. According to the world ratings of the beverage quality, Starbucks provides its clients with the excellent common type of coffee, which takes the first place among similar products (Chayka, 2014). Therefore, caffeine addiction, high quality of the products, and an excellent service predetermine a global success of Starbucks as well as define its price elasticity.
Income Elasticity Identification
Income elasticity for a separate product implies the assessment of the actual profit that is gained by a manufacturer or a particular business in the course of marketing. The concept is largely dependent on the nature of the production. For instance, one can estimate the income elasticity while identifying the product as a luxury, necessity, or inferiority. In this context, the category of luxury includes unique and original products that can not be substituted. Even if a price for such product increases, the sales proceed going up.
The group of necessity products includes the regular production, which is bought by the customers on a daily basis. The value increase for such products results exclusively in the stable maintenance of the income level. Finally, inferiority products are vulnerable to any price increase since a general consumption of such issues is relatively mobile.
Coffee, according to the estimations of the experts, belongs to the range of average production. Since it is not included in an ordinary ration of a human, it may fall out of usage with an increase of price. In this respect, Starbucks represents the so-called miracle of marketing. Despite the steady growth of coffee value that is introduced by a general store, the tradition of ordering Starbucks on the way to the workplace or at the time of visiting the celebrated café with friends does not fade.
For instance, lately the central Seattle store of Starbucks launched a program of 8 % coffee value increase, which resulted in a growth of prices. Since the corporation management was afraid of falling sales, a new line of complementary order services was introduced. As consequence, in the next month, the income experienced 1 % increase (Phoenix, 2010). Therefore, it may be concluded that Starbucks is not only a coffee store but a fashionable trend of beverage purchasing. The company keeps its reputation on the high level, which stipulates immense income elasticity.
The Major Competitors of Starbucks Corporation
The average number of clients, as well as general revenue estimations, defines the popularity of a company. Despite Starbucks ranges as the leading coffee-drinks provider, it still faces stiff competition with the major international fast food stores. Thus, it is acknowledged that the primary rivals of Starbucks are McDonalds and Dunkin’ Donuts.
It is quite evident that three companies have some differences in the products distinction. While Starbucks puts an emphasis on high-quality beverages, McDonalds and Dunkin’ Donuts specialize in junk food marketing. Nevertheless, three corporations possess a relatively similar line of services. Moreover, the businesses are often compared, according to the original quality of their primary production.
The competition between the rivals is quite severe since, in the previous five years, the results of the rating were changeable and unstable. In 2014, the opposition was entered by one more fast food corporation, which is called Burger King.
The businesses compete on several aspects. First, the struggle passes along the factor of geographical position. Thus, Starbucks and McDonalds businesses have both been launched in the USA. Today, the stores of these companies are evenly spread throughout the world. At the same time, Dunkin’ Donuts, which started in England, is primarily Europe-oriented. However, the corporation makes plans on spreading its subsidiaries to the West continents. In this context, McDonalds and Starbucks are, of course, taking an upper hand.
Second, the rivalry is related to the habits of the clients. Thus, McDonalds surpasses its competitors in selling breakfast since the company introduced its original morning menu. Dunkin’ Donuts is rather lunch-oriented, for it targets high-calorie products and pastry. Starbucks, in contrast, aims at creating a status of a famous coffeehouse (Woolf, 2014).
Finding the Substitutes for Starbucks Production
Despite its exceptional quality, Starbucks faces a substantial threat of substitutes overshadowing. Indeed, the primary product that is provided by the corporation does not reflect universal tastes. It must be noted that there is an abundance of other beverages that can come on the top at any minute. For instance, such leading tea companies as Lipton and Nestea are extremely popular among the world tea-lovers.
Moreover, the global beverage production introduces new types of soda water mixes, cocktails, milk drinks, etc. After all, it must be taken into account that there are people, who are not allowed to consume caffeine, due to the high blood pressure or some other related health problems. Furthermore, a threat of substitute comes from the side of an introduction of some other coffee brands (Dudovskiy, 2014).
Nevertheless, Starbucks strategy includes several aspects, which do not allow overthrowing the business. Specifically, it is claimed that a part of the company’s success is linked to the availability of Starbucks coffee shops that allow enjoying high-quality products in a relaxed and friendly atmosphere. Moreover, the experts claim that the corporate culture of the corporation promotes excellent service principles, which attracts crowds of clients. In contrast to it, the leading tea providers are mostly functioning as store distributors and do not create brand tea houses, which limits marketing rates.
Therefore, Starbucks products may be substituted only in the case if the providers of alternative beverages decide to launch a culture of in-house selling. Still, this threat may be prevented as well. Thus, Starbucks management can initiate a production of a new line of some original subsidiary products such as Starbucks cocktails or juice mixes, which would serve as a choice for coffee non-drinkers.
The Reasons for Demand Growing
Before accessing the reasons for Starbucks production demand growing, it is critical to examine its financial data, which illustrates the pace of corporation growth. Thus, it is deduced that the revenue cost within the company increased from $10 million in 2008 to $15 million in 2015. Gross margin in Starbucks grew from 19 % to 65 % (Global company intelligence, 2014). Furthermore, the company demonstrates a steady increase in efficiency and financial health ratios as well as yearly growth (Table 1).
Table 1: Starbucks Financials (USD Figures in Millions).
Therefore, it is easy to notice that the ratings of the business reveal a tendency to steady progressing. The demand growth is stimulated by multiple factors, which predict sales increase for the company in future. Mainly, the new increase of revenue was predetermined by the extension of the production to China to the experts, the country, which is a home to 20 % of global population, is currently bringing the prosperity of Starbucks to a new level. Furthermore, it is predicted that demand for coffee will increase in the following year for 9 %. Moreover, successful marketing in Starbucks is stipulated by the fact that it is the only coffee-house, which launched a retail program.
The Human Resources Management in Starbucks
A successful utilization of workforce in Starbucks contributes to the development of efficient marketing strategy. Thus, the management of the corporation identified open communication as a fundamental principle of business functioning. Specifically, every worker of Starbucks is required to conduct a friendly dialogue with the clients. According to the regulations of the corporate culture, a Starbucks employee is not only a person, who serves a cup of coffee for a customer but becomes an excellent neighbor and a friend to him.
The principles of human resource management are, therefore, based on some harsh rules that determine the content of training programs for future employees. A regular Starbuck training starts with mastering a history of the corporation. The management of the company believes that a story of Starbucks establishment assists in perceiving its primary values. Secondly, the corporation leaders believe that an ideal candidate for a position must be well-acquainted with the production of traditional coffee shops as well as with the rules of service delivery. Finally, the basics of proper communication and clients’ treatment are introduced as well.
The experts often note that working in Starbucks appeals to the customers as well since the company offers some high-quality standards of employment. Specifically, it provides both the part-time employees and full-time workers with equal benefits, which are health care coverage and production discount (Blesch, 2013).
The recruitment process in Starbucks is pretty demanding, according to the rapid growth of the company’s rating. The HR managers of the corporation are specially trained so that to verify the abilities of potential candidates against three critical characteristics. In her interview, the HR director of Starbucks, Sandra Porter, states that leadership, a thorough knowledge of the company production and a high motivation account for the crucial features, which describe a happy employee (Peacock, 2011).
Assessing the Profitability of the Company
Dwelling on a recent release of Starbucks financials, one may claim that the company increases its profitability annually. Thus, in 2014, the corporation managed to sustain a big income statement growth. First, it increased its earnings per share from $2,2 to $2,7. Moreover, the firm opened new stores throughout the world: 650 in the USA and 900 in the other countries. A significant factor that influenced Starbucks growth was an extension of the production to the Chinese market, which brought a powerful source of income for the company.
As a result, net income, which equaled $3,1 million in 2013, had an increase of 10 %. The operating income grew to $728 million, which constitutes 18% increase. Finally, EMEA net revenues reached $323 million value, which equals 13 % growth (Starbucks investor relations, 2015).
The future predictions that are made by the leaders of the corporation, as well as the external experts, mostly promote a substantial increase in profitability for Starbucks in future. Thus, the head of Starbucks strategy office, Mett Ryan, in his report, outlined several aims that are set by the corporation so that to reach an increase. First, Starbucks plans on the investment in partners, who could bring new ideas and profitable practices in the organization. Second, the business does not intend to work exclusively with the available resources but strives to introduce the new types of production, which would maintain an interest of the customers. Third, Starbucks management wishes to take an orientation on the creation of new occasional visits program. Mainly the corporation plans to launch new refreshment and snack menus. Fourth, an introduction of Starbucks Teavana is offered. Since the company management strives to prevent any threats of coffee substitution, it intends to create a line of first Starbucks tea. Finally, according to a rapid technology growth, the experts within the company strive to introduce some innovative mobile platforms, which would make the process of ordering easy and convenient (Ryan, 2014).
Conclusion
In this paper, a consistent analysis of Starbucks corporation performance is provided. According to the outcomes of the assessment, the company represents an example of perfect fast service marketing. Thus, Starbucks is considered to be the only coffee-store, which managed to increase its profitability even at the time of coffee beans crisis. A global success of the corporation relies on few factors, which are high-quality resources and powerful formula of coffee producing, the availability of diverse menus, a wide spreading of the company stores throughout the world, a launch of Starbucks business in China, etc. Therefore, the inspirational ideas and quality projects that are promoted by the staff of the company contribute to its immense growth and prosperity.
References
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