Strategic Analysis of Starbucks: Core Problems and Recommendations

The report contains the strategic analysis of Starbucks along with the core problems that are faced by the company in their operations. The aim of the study is to understand the different problems that are faced by the company along with providing certain recommendations to overcome those issues. The feasibility of the recommendations is also analyzed in the study followed by a conclusion.

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Executive Summary
The report contains the strategic analysis of Starbucks along with the core problems that are
faced by the company in their operations. The aim of the study is to understand the different
problems that are faced by the company along with providing certain recommendations to
overcome those issues. The feasibility of the recommendations is also analyzed in the study
followed by a conclusion.

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Table of Contents
1. Introduction..................................................................................................................................2
2. Core problems faced by Starbucks in global business environment...........................................2
3. Detailed theoretical application to the problems.........................................................................4
4. Rationale of choice of problems..................................................................................................6
5. Recommendations........................................................................................................................7
6. Feasibility of recommendations...................................................................................................9
7. Conclusion.................................................................................................................................11
References......................................................................................................................................12

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1. Introduction
The strategic designs that are undertaken by organizations help the same in undertaking
the proficiency of the functions and thereby enhance the performance of the same. The
discussion aims at identifying the core issues that are faced by Starbucks and the manner in
which the organization might mitigate the issues. The feasibility of the recommended actions are
also undertaken as a part of the research in order to facilitate the smooth implementation of the
same as per the applicability in the case.
2. Core problems faced by Starbucks in global business environment
The issues that are faced by the organization are based on the evolution and modification
in the business environment. The changes in the business environment have affected the smooth
functioning of the business processes. The section depicts the core competencies that are faced
by the organization while operating in the ever- changing global business environment.
 The financial recession in different economies has affected the expansion goals of the
business. Financial recessions and the changing policies of the different nations have
restricted the growth of the business in the current business environment [5]. Moreover, the
rigid structure of the management of the organization has affected the smooth functioning of
the same while adhering to the different regulations.
 The fierce competition that is faced by the organization while operating in different markets
has affected the position of the business. The major competitors of the organization in US
markets are McDonald’s, and Nestle. On the other hand, players like Costa Coffee and Café
Nero have taken over most of the markets in UK [8]. The concerned organization mostly

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operates in the UK and US markets. Therefore, the fierce competition that is faced by the
same in the respective markets has affected the competitive advantage of the same.
 The slightly higher pricing strategy of the concerned company has affected the position of
the same in the different economies as it provides the competitors with an opportunity of
achieving a cost advantage over Starbucks. The high quality coffee beans that are utilized by
the concerned organization have resulted to the high priced product propositions. On the
other hand, the lack of adaptability of the organization to the standards in the different
economies has affected the proposition of the same and the pricing strategy used by the same.
The key changes that are undertaken by the organization is based on the product
differentiation strategy rather than focusing on the pricing strategy of the same [7].
Therefore, most of the people in the markets take their buying decision on favor of the
competitors.
 Inadequate marketing efforts of the organization relating to lack of suitable advertising has
affected the proper functioning of the same in the different market structures. Inadequate
marketing results to lack of knowledge among the consumers on the product offerings of the
organization and the goal of the same to deliver high quality coffee delicacies [9]. Suitable
marketing procedures are undertaken in order to make the target audience aware of the
offerings that are proposed by businesses. However, lack of utilization of proper advertising
media restricts the capabilities of the organization to reach out to most of its customers. The
inadequate marketing efforts of the organization hinder the growth process that is planned by
the same while operating in different markets.
 Lastly, the rigorous expansion that is undertaken by the same might affect the brand image of
the same as it might imply that the organization focused on quantity rather than improving

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the quality of the products. The key changes that are undertaken by the organization is based
on the aim of expanding in different nations in order to hold a major share of the
international markets. However, the competitors and the enhancements in the quality of the
product offered hindrances in the dynamic growth process of the business.
3. Detailed theoretical application to the problems
Cantor, Morrow and Montabon [10] stated that the flexibility of the management’s
operations helps in the smooth functioning of the business in different economies. The key
elements of change in the organizational processes are generally based on the flexible policies
that are formed by the management that correlates to the business environment. Moreover, Tseng
and Lee [7] added that the efficacy of organizational operations is based on the collaborative
functioning of the management with the workforce. It will be helping the organization in
maintaining the efficacy of the operations in compliance with the regulations and the economic
recessions faced by different nations.
Hu et al. [6] stated that product differentiation helps organizations in maintaining a
competitive edge in the different markets. The improvements in the product and service offerings
of organizations help the same in sustaining in different competitive markets. Adaptability of the
organization to the different changes in the market helps in maintaining the efficacy of the same
while operating in diverse international markets. Pernot and Roodhooft [4] stated that the
strategies that are formed by organizations depends on the competition faced by the same in the
international markets. The strategies include the identification of the target market and
positioning of the products as per the needs of the customers in order to gain a competitive edge.
On the other hand, the differentiation strategy of the organization helps the same in maintaining

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the uniqueness in the range of products that are delivered by the same while operating in diverse
international markets.
Pricing strategies that are undertaken by organizations helps the same in achieving the
competitive advantage over the other players in the market. Donaldson, Qiu and Luo [1] stated
that pricing the products as per the identification of the financial capabilities and study of
demographic situation helps organizations in enhancing their operations in the different markets.
Strategic pricing of the products relates to the different costs that are incurred by the organization
as per the Porter’s generic model, which emphasized on the costs incurred by the producer. On
the other hand, Bowman and Faulkner noted that the customers have nothing to do with the costs
that are incurred by the organization during the product development process [3]. Therefore,
organizations must take steps to develop policies to reduce the costs that are incurred by the
same in order to offer the products at an affordable price to the consumers. Vaccaro [5] stated
that the key elements of change in the organizational operations are based on the differentiation
of the line of products in order to maintain the uniqueness of the same over the offerings of the
competing players.
Advertising is one of the major activities that must be undertaken by organizations in
order to make the customers aware of the product and service offerings of the same. Johnson and
Snowflake [2] stated that advertising and promotions are the major steps that might be
undertaken by organizations in order to establish sound marketing communications, which will
be helping the same in developing the products more efficiently. Moreover, Jiang et al. [3] also
stated that the enhanced marketing communication helps the organizations in understanding the
priorities of the consumers while operating in diverse international markets. The enhanced
advertisements of organizations help the same in expanding their scopes in different international

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markets. It helps organizations in gaining a competitive edge and sustenance in the highly
competitive market structures.
4. Rationale of choice of problems
The problems that have been faced by Starbucks has occurred due to many reasons which
have been depicted below:
 Starbucks faced their financial recession in the year 2008 and suffered an economic
meltdown. This was due to the fact that the prices of product of Starbucks was always
comparatively higher than their competitors who offered good quality products in moderate
prices [11]. This was the reason for the economic hit as several of the customers chose
cheaper products as opposed to the high price coffee for their daily consumption. They were
forced to shut down several of their outlets and suffered a huge hit and loss in the year 2008.
 As mentioned Starbucks faces a fierce competition from its competitors which has affected
their sales to a great extent. Even though Starbucks is quite well-known in the coffee industry
for their exquisite taste of coffee and excellent service towards customers [12]. However,
their competitors such as Costa Coffee have been taking their space in the market by
providing better quality coffee in lesser price than the coffee served at Starbucks. This
intense competition in the market has always posed to be a threat for the smooth operations
of Starbucks and hence it is a major problems for the organisation.
 Starbucks follows a high pricing strategy as opposed to their competitors who follow
moderate pricing strategy for the same quality of products. Wall Street have commented that
Starbucks have a huge number of coffee shops which is not required according to them and
the prices of the coffee is high too which makes it impossible for the people to consume the

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product on an everyday basis [13]. This has affected the sales growth of the store to a great
extent and it has been very low in the last few years.
 Starbucks does not spend a lot of their money on advertising and hence they have very less
advertising techniques. They do not have a designed TV advertisement since the marketing
executive of the company does not believe that an advertisement would be able to capture
and portray the inner soul of the company [14]. Moreover, they do not conduct product
placements in movies or other television series. This states that Starbucks are not inclined
towards promotion as the other companies in the market which can become a major issue for
them in the long run.
 As mentioned earlier, Starbucks have a huge number of stores in various states and have been
continually growing till date. This huge expansion have led the company to focus less on
their quantity and the loss they have been suffering regarding their customers [15]. This has
given a chance to their competitors to penetrate the market which was earlier captured by
Starbucks and make their way towards the customers. Hence the customer base of Starbucks
have been hugely affected due to the same reason.
The problems that are faced by the company have affected many areas of their functions and
operations, the reasons of which have been mentioned above.
5. Recommendations
To overcome the problems there have to be certain steps that have to be undertaken by
the company to regain its position in the market. The steps are as follows:
 The company should focus more on their quality of products than their expansion as quality
is the main things which keeps the customers attached to the company. If the quality of the

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product is according to the satisfaction of the customers, then they would switch to another
brand which would provide them with better quality coffee. Therefore, they have to ensure
that they have improved quality of coffee which please the customers [16]. To understand the
demands and the current satisfaction level of the customers, Starbucks should conduct a
market research regarding their current products so that they understand the major areas
where they lack. Getting a better understanding of the views and feedbacks of the customers,
they would be able gain knowledge of the gap areas and concentrate on improving them.
 Secondly, they should decrease the prices of their products which are otherwise quite high in
nature. The price at which Starbucks sells their coffee is much higher than their competitors
and is not always affordable by customers for everyday consumption. This is the major
reason why customers choose other coffee brands over Starbucks [17]. Decreasing their
prices to a certain extent will help them to compete with the other renowned coffee brands
and regain their customers. Moreover, the taste of the coffee that is provided by Starbucks
does not comply with the price at which they sell their products. The price and the quality of
the product should be complimentary to each other so that the customers feel that the money
spent is worth the product. If Starbucks does not decrease their process, then they should
focus on the betterment of the quality of their products so that the customers do not feel
cheated in any way. A complete research of the products of their competitors and an analysis
of these findings should be conducted so that they can focus on their pricing strategy without
losing out on their customers [18].
 Thirdly, Starbucks should give more focus on their advertising strategy. Advertising plays a
major role in the success and growth of a company. Every company should develop their
own marketing and advertising plan which portrays their company. Similarly, Starbucks

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should have their own advertising plan which would help them to reach a huge customer
base. Even though Starbucks has a huge customer base, advertising plays as an additional
factor in the growth and expansion of the brand name [19]. The products of the company
should be portrayed to the audience so that new customers are gained by the company. The
advertising should also contain the knowledge of their best products and their difference as
there are any customers who might not have knowledge about the different products of the
company and hence does not consume it.
 Lastly, Starbucks employees a huge number of people to serve their customers in their
numerous stores. It might not be possible for the company to conduct training sessions for all
of their employees. However, it is important for the company to ensure that all of the
employees get the basic training on how to communicate with the customers so that they are
not offended in any way [20]. The employees should be also trained properly to handle
intense emergency situation which might occur at times so that there are no serious
repercussion in those situations and is solved immediately.
6. Feasibility of recommendations
The recommendations that are provided for the betterment of the company would only be
successful if they are logical and feasible. Feasibility is an important factor which plays a great
role in the actions on the recommendations. The feasibility of the recommendations would
depend on their importance and the expense that the company would have to do for taking the
correct actions.
 The company has to conduct a research regarding the market that they are operating in and an
analysis of their competitors. This research and analysis is very important for their company

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to grow in the market and establish themselves in the long run. The company should invest
huge amounts on their research as it provides the necessary information that is required for
the company’s performance [21]. Therefore, the company should spend their funds on proper
research so that they do not have to face their competitors without complete about them.
Since the company generates a huge amount of revenue, they should be able to dedicate a
portion of their revenue for research purposes which will give a huge benefit to the company.
 The company should also invest on their advertising and marketing techniques. The
advertising plan should be developed in such a way that it is able to extract and display the
nature of the company without having to spend unnecessary amount of money on the same.
The company should focus mainly on targeting their segmented customers and to spread the
knowledge about their products among their targeted customers [22]. They can also promote
their products through product placement such as through television series or movies which
displays their products. This is also a huge kind of promotion. Moreover, social media
activities and advertisements should always be conducted so that the name of the brand is in
constant existence among the customers and this spreads their brand name and improves their
brand image.
 The training of the employees is mandatory step that should be adhered by the company. The
company spends huge amounts on their other expansions and recruitment. They should also
invest in their employees so that they are able to develop good customer service. The training
of employees is necessary so that they know the way that they should handle and deal with
the customers [23]. No undue incident should be mishandled by the employees so that loss of
customers occur. Moreover, the proper knowledge of the products that are available in
Starbucks should be given to the employees so that they can serve the customers in a better

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manner. Their knowledge would help the customers to rely on them during any confusion in
ordering [24]. The politeness and professionalism should be maintained by all the employees
of the different stores of Starbucks.
The feasibility of the recommendations would depend solely on the company, however, the
recommendations provided in the study are the basic steps that should be taken by the company
to ensure their consistent performance and growth in the market in the long run. These
recommendations would help Starbucks to overcome the intense competition in the market and
therefore, the investment is necessary on their part.
7. Conclusion
Hence, it can be concluded that it is important for every company to take certain strategic
decision which would help in the enhancement of their performance and additionally their
growth. The study has discussed about different core issues that are faced by the coffee brand
Starbucks and provided different recommendations to overcome these problems. The different
problems that have been highlighted in the study are the ones which have their functionality in
the global market. Final recession, intense competition, the high pricing strategy, the absence of
proper marketing techniques and the rigorous expansion are the mentioned core problems of
Starbucks. The detailed theoretical application of the above mentioned problems are also given
along with recommendations to overcome them. The recommendations are to train the staff,
focus on the quality of products, to reduce the pricing of the products and develop advertising
strategy. The feasibility of the given recommendations have also been analyzed in the study
which discusses that the company should invest on developing a plan of action on these based
recommendations for the success of their company.

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