RUNNING HEADER: Starbucks Knowledge Strategy

Starbucks Knowledge Strategy

Introduction
Many companies are engaging with various social media tools, but what do they
get out of it? Firstly, its a place for them to market their products and brand. Secondly,
its a place for them to engage with and learn more about their customers. What is

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Customer Knowledge Management (CKM)? CKM is defined as the capturing, sharing,

control and transfer of knowledge relating to customers for an organisation. It can be
broken down in three ways: 1. For customers: information pushed out from the
organisation to inform customers about products, discounts etc. 2. From customers:
customer feedback and ideas 3. About customers: knowledge about customers needs and
preferences
How is Starbucks doing this through Social Media? Starbucks is using mediums
like Twitter, Facebook and FourSquare to engage with customers on all three of the above
levels. Not only do they announce new or special products, they also quickly act on
customers complaints and compliments. By participating on these sites the store can
quash rumours and measure reaction to product and service changes. Starbucks have also
developed their own corporate discussion forum, MyStarbucksIdea, a place for customers
to ask questions and make suggestions to the organisation. In the first two months since
launch, 41,000 ideas were contributed, some of which have since been launched and now
feature as part of the companys product and service range. These examples show how a
bricks and mortar organisation can utilise social media channels to better communicate
with their customers, not only to market existing wares but also to develop new ideas.

Competition
The competition for the coffee industry has increase massively due to the large
numbers of consumers that love coffee. Coffee has been around for years, but just
recently competitors for coffee retailers grew with coffee sales increasing more than 50%

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in 2007 (Burritt, 2007). Dunkin Donuts Coffee, Starbucks, and McDonalds McCafe will
be the competitors that will be examined in this paper.
You must examine the competitive landscape when analyzing the process of the
current specialty coffee industry situation. The landscape of the industry can be properly
identified by the Porters Five Force Model (Thompson, Strickland, & Gamble, 2007).
The controlling interest that suppliers have over the cost of coffee is the biggest threat
that the specialty coffee industry is facing. Arabica coffee prices rose 77% in 2010 which
lead to major complications for the coffee industry (Murphy, 2011). In the specialty
coffee industry, the Arabica coffee is the most sort after and sold brand of coffee. Those
competitors that rely on the low cost strategy cant afford for coffee cost to sky rocket, it
will hurt their bottom line.
Smaller coffee chains are the second biggest threat to the current specialty coffee
industry. McDonalds is taking on Starbucks head on in Europe and plans to become the
number one Caf, thus overtaking Starbucks at its current number one position (Liu,
2009). Since Starbucks has been so leery in embracing the foreign market McDonalds
has been taking advantage of this opportunity.
The third strongest threat is the power that the buyers have in this industry. Since
people feel that specialty coffee is not a necessary, they can decide whether or not the
cost will fit in their budget, or they may no longer enjoy the vendor or the environment.
Consumers have plenty of options when it comes to coffee shops since there is one on
almost every corner around the world. Starbucks is now marketing its considerably lower
costs to its Korean market (Han, 2009).

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New competitors are the next powerful threat. There may be a lot of new mom
and pop coffee shops, there are not enough of them to drastically deter from the major
competitors. The feeblest threat for the specialty coffee industry is that of substitutes.
Innovation, marketing, and expansion are the key factors for competitors to be
successful in the coffee industry. Innovation by way of new brands of coffee or drinks
will allow organizations to have a competitive edge in the market place.

In the

specialized growing coffee industry, marketing is the key. McDonalds McCafe markets
its low price strategy (Burritt, 2007). Dunkin Donuts markets that their coffee is better
and they have more items to choose from on their menu (Dicarlo, 2004).
The competitive environment and overall attractiveness of the trade is very strong.
After exploring the driving forces and Porters Five Forces Model, the development rate
for the industry is still escalating and does not look to stop or shift in the near future.
With strong marketing, innovation, and global expansion the coffee industry is on the
right path to create amazing advancements.
New and challenging opportunities will flourish in the industry with the driving
forces of industrialization and disposable income. It will take a lot of work and time by
the members of the specialty coffee industry to overcome any stiff competition. The
rising prices of coffee will play a major role in the development of the coffee industry
over the next decade. Having the potential to grow and thrive the specialty coffee
industry is very strong overall.
Industry Situational Analysis
In order to continue to grow as an organization and to expand its market cap
Starbucks had to go globally. Starbucks has expanded into 43 countries because of its

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need to be a stronger a greater in the market (Company Factsheet, 2014). Ever country
that Starbucks has entered has its own practices and cultures. The contradictory traditions
can be virtually impossible to prevail over; therefore, joint ventures are utilizes by
Starbucks to help alleviate the stumbling blocks that can arise from expanding abroad. In
Japan, Starbucks has opened 700 stores and without the help of the joint ventures with
Japanese companies (that allowed it to gain cultural understanding), it would not have
been able to be successful (Company Profile, 2014). Every culture has a different set of
values and beliefs that affects what it buys and what it sells. Being careful to research
every country that it went into; Starbucks insured its success and ability to expand into
difficult and different countries and regions. Starbucks has a basic set of primary
products; however Starbucks is not so closed minded that they would not consider new
products. Because of the differing cultural tastes Starbucks works to create new products
for the different geographic areas it is expanding into. Starbucks is prepared to respond
and act
Developing abroad and recognizing that a superior market area is one of the first
strategic requirements of a company. To gain access to a larger market is the main
motivation the pushes Starbucks to expand globally. In 1987, Howard Schultz, (the
director of retail operations and marketing), started looking globally to expand the
business. With his influence, help, and encouragement the first international Starbucks in
Vancouver, British Columbia opened (Company Timeline, 2014). The coffee business
is undeniably growing at a fast speed, and the company that can recognize a worldwide
frontier will win the battle for market control among the completion. Starbucks has a
strong international strategy that will allow it to continue to attain success in future years.

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Information System Used by Starbucks:

In order to analyze business data, Starbucks use Decision Support System. DSS
is a computer program application that analyzes business data and presents it so that user
can more easily take their business decisions. Starbucks uses a singular DSS system at
the parent company in USA: oracle. Important decisions are based on monthly reports
that are generated montly by Oracle. Online Analytical Processing (OLAP) is used by
Starbucks to do the statistical analysis and large-scale data analysis that is used to manage
for decision making.
Marketing Strategy (4 Ps)
Product: While coffee remains the core product and focus of Starbucks, the
introduction of various new products has expanded the Starbucks product portfolio. For
example, the acquisition of Tazo Tea has allowed Starbucks to provide new offerings
such as tea-only stores (Blessing). Also, as part of the marketing campaign, Starbucks is
making a push for its store employees to provide customer with exceptional customer
service. For example, part of the campaign is highlighting Starbucks willingness to
remake a drink for a customer if it is not satisfactory. This will ensure that Starbucks is
always putting the best product forward.
Pricing: Starbucks has always offered a range of products that vary in price. With
the economy slowing starting to gain momentum, Starbucks main objective must be to
keep prices on par with competitors. In addition, a market opportunity presented itself
during the recession at home coffee drinkers. In order to capitalize on this market
segment, Starbucks must price there at home coffee selections closely to competitors such

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as Dunkin Donuts, while also balancing economic factors such as distribution costs, fairmarket costs, and more.
Promotion: Starbucks will continue to adopt new promotional outlets in order to
reach consumers. An active participation on Web 2.0 platforms, televisions
advertisements, and email marketing will all be utilized to promote products and
initiatives. Initiating contests for customers to participate in will be a main focus. These
can range from coffee bag design contests, to social media contests integrating platforms
such as Instagram and Twitter. One more promotional opportunity that will be utilized is
participation in Daily Deal sites such as Groupon and Living Social, in order to
associate the Starbucks brand with affordable deals.
Placement: The traditional methods of distribution will continue to operate the
placement of Starbucks products to its consumers. One area which shall be investigated
further is how to better penetrate alternate retail outlets such as grocery stores, in order to
attract the market of at home coffee drinkers. Also, other potential sites for warehouses
shall be scouted and considered in order to anticipate for potential growth.
Action Programs
-Initiate television ad campaign for new product launches
-Initiate coffee bag design contest
-Organize free in store tastings for new products
-Develop Daily Deal site offering that will require email list registration

Distribution Strategy

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Multiple channels are used by Starbucks to distribute its products; more than one
distribution design is utilized. Firstly, products are sold through a direct retail system in
the company-owned stores. The coffee is imported, processed and soled under the
Starbucks brand name in their own stores. Products are also sold in supermarkets and
shopping centers. Distribution agreements are done with coffee suppliers, hotels, and
airlines. The company can reach a wider market by using multiple distribution channels.
Promotional Strategy
Being able to implement and put in place sound and strong strategies is one of the
managerial implications of running an international business.
A new approach to marketing has been implemented by Starbucks; instead of
spending money on advertising and marketing, the staff has become the communicators
for the brand (Gulati, 2008). Starbucks spent a lesser amount of funds on advertising, it
spent more money on its employees. In turn the employees worked harder for the
company and helped to promote the brand. Starbucks also strives to create a comfortable
environment and even build a personal relationship with each of its clients (Company
Profile, 2014).
Starbucks strives to achieve and is able to gain a strong and dependable customer
base that will not flip-flop between different chains or brands. A knowledgeable
employee base is also another key to Starbucks success. Starbucks insures that each store
employee take part in an extensive training program, exhibits product expertise, and has a
commitment to customer service.
One managerial key to success is in understanding the importance of diversity.
Starbucks focuses on diversity as a company because it believes that it is defined as a

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combination of differences and similarities in the pursuit of new ideas and individual
relationships made every day. (Company Overview, 2014) The diversity that
Starbucks consists of allows it to grow and change in ways that might not have otherwise
been possible. In a group of diverse people it is possible to come up with more ideas and
innovations than could be thought possible or probable with a group of asymmetric
clones. Starbucks four geographic presidents meet after every quarter to discuss changes
and improvements within the company (Gulati, 2008).
Starbucks allows its managers to make decisions on a regional and geographic
basis and then share the good and bad results at a corporate level. This allows for
collaboration and two way communication between the head office and the regional
offices. By having different regional managers, Starbucks allows its managers to assert
interdependence when making decisions. This allows its employees to think on their own
behalf and on the behalf of the company which allows them to become strong business
men and women. Starbucks builds strong international managers through its diversity,
strong personal relationships, and its geographic boundaries for product management.
Conclusion
Starbucks strategy is fairly simple: increase the perception of high quality of a
commodity product, adapt stores to the consumers lifestyle, and covers its existence
areas completely. By undertaking new regions and countries this will allow Starbucks to
gain a strong hold on the coffee industry as a whole. Starbucks will never be finished
growing as a business; therefore, it is important to keep its goals in mind and its strategies
in place in order to overcome any obstacle that might stand in its way.

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10

Starbucks demonstrated in the past its strength and ability to sustain growth even
during recession, and while analysts believe that Starbucks growth will slow down with
regard to its past, but the company is still growing.
Starbucks continues to keep its customers happy and rely on non-traditional
means of attracting new customers; that is the Starbucks strategy. Starbucks goals and
mission have allowed it to be successful in a fast pace world, and Starbucks faithful
customers have remained by their favorite brand through it all. The Starbucks experience
is unique from all others and the history and progress of the company have contributed to
the Starbucks lifestyle as we know it to be.
Recommendations

Starbucks should continue to open in new locations worldwide.

Advertising should increase from 1% to 10%
Extend its menu to include selections of drinks that relate to a particular culture
Children drink selections should be increased.

Reference

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11

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