The External Environment and Its Effect PDF

International Journal of Marketing and Management Research
Vol. 8, Issue 1, January 2017, Impact Factor; 5.108ISSN: (2229-6883)

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THE EXTERNAL ENVIRONMENT AND ITS EFFECT ON STRATEGIC MARKETING PLANNING:

A CASE OF STARBUCKS MALAYSIA
Grace Chok Yee Swan

MohdYaziz Bin Mohd Isa
M.S.B. Siddiq
UniversitiTun Abdul Razak,
Malaysia
ABSTRACT:
The purpose of this research is to examine the effects of external environment pertaining to the
marketing strategy of Starbucks, a coffee chain in Malaysia. An external environmental analysis has
been conducted to examine the environment in which the company operates. These paper
overviews several theoretical approaches to explore the strategic marketing planning process of the
Starbucks Malaysia.
KEY WORDS: Marketing Strategy, External Environment, Strategy Tactics Grid, Differentiation
CASE PERSPECTIVE:
This case has been developed as a basis for academic discussion for exemplifying the issues and
perspectives of managing, leading and strategizing rather than to illustrate either effective or
ineffective handling of any business or management situation. It is based on the information publicly
available through company reports, brochures, pamphlets, leaflets, newspapers, magazines,
websites, or other such material. It should not be viewed as a typical business case, but rather an
insightful and comprehensive elucidation of what we expect the students of a management program
to understand appreciate and demonstrate when they review, analyze, and discuss a highly
competitive environment from the standpoints of leaders of a corporate enterprise.
INTRODUCTION:
The coffee industry has been expanding rapidly all across the world. Malaysia used to be known as a
tea-drinking nation which was famously known for its “tehtarik” (“pulled tea”). However, the
aromatic coffee has drawn consumers to inculcate a coffee culture in the local beverage market.
Coffee culture has been hugely accepted in Malaysian society because of the wide expansion coffee
chains, both international and local brands such as Starbucks and Old Town White Coffee. Over the
An International Double-Blind, Peer Reviewed, Refereed Open Access Journal - Included in the International Indexing Directories
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last few years, the international coffee outlets have been opened every corner especially in cities
and towns, and the coffee culture is gaining popularity among the young and professionals. In light
of this, research has shown that there is a positive correlation between the GDP per capita and the
amount of coffee demanded in Malaysia. Thus, the market has the possibility to rely on more coffee
products to boost the economy of Malaysia.
The ambience of a coffee house has provided a place for fast-paced Malaysians to sit down and
enjoy the calm, invigorating environment. A coffee house like Starbucks provides a convenient meet-
up spot that is suitable for every age. Young people like college students are keen in meeting each
other in coffee houses to socialize and complete assignments while working adults prefer going to
Starbucks because they are willing to spend on better products and services using their disposable
income to improve their quality lives. The older adults are agreeable to the modest price of a cup of
coffee and snack with a laidback and casual environment.
Most of the Malaysians have the perception that drinking coffee is a part of western culture and
ideology. Therefore, sipping coffee on a daily basis and for leisure with a unique name encapsulates
a higher standard of life in Malaysia. Starbucks’ interesting approach has found itself a huge clientele
in Malaysia. Many go to Starbucks not only to indulge a cup of Frappuccino or Americano but to
enjoy the “Starbucks Experience” because they perceive it as trendy and exciting. Hence, Starbucks
has established itself as an aspiration brand, and is able to charge premium price for its coffee in
Malaysia.
In order to sustain loyal customers as well as new potential non-coffee drinkers, Starbucks applies
the differentiation marketing strategy which started off for coffee beverages and now for non-coffee
products as well. Starbucks is one of the largest coffee marketers in the world. Starbucks provides
variety of products such as premium roasted and handcrafted priced coffees, tea, juices, a range of
pastries, cakes and other beverages. What started off as a coffee hub has transformed Starbucks to
diversify into related food and beverages business as well as to offering merchandizes to expand
their differentiation strategy? They also distribute their products, mainly coffee; and license their
trademark through other channels such as licensed stores and retailed hypermarkets to increase
their competitive advantage.
STARBUCKS’ OPERATIONS IN MALAYSIA:

Starbucks was originally founded in Seattle, a city in Washington in the north-western of the United
States of America, in 1971. The company focused on selling coffee beans, roasting machines and a
wholesale business for local restaurants. Before Starbucks existed, Howard Schultz (the founder and
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current Starbucks CEO) owned a coffee bar named II Giornale, before buying Starbucks for USD4
million. Initially, Howard proposed an idea of serving coffee in a homely cafe to the original owners
of Starbucks, but it was rejected. This happened because their concept of Starbucks was to sell high
quality coffee beans and not to serve coffee, as that was not the company’s objective.
After the acquisition, Howard Schultz’s coffee bar, II Giornale was rebranded to Starbucks Coffee in
year 1987. That was when Starbucks really began taking shape and the business started blooming
and achieved incremental sales, about 84% in year 1991, after suffering losses due the overhead and
operating expenses for first two years, arising from rapid expansions. Even after 25 years of
establishment, Starbucks is still undergoing rapid expansions of the coffee chain.
Starbucks Coffee entered into foreign market when it opened its first store outside of America in
Japan in year 1996. From that time onwards, Starbucks expanded drastically on a global scale by
establishing more stores. The 25,085 total stores worldwide as on October 2, 2016 consisted of
company-operated and license stores in over 75 countries. In 2016 alone, it opened 2,042 new
stores including the first Starbucks stores in Cambodia, Kazakhstan, Andorra, South Africa, Slovakia,
and Trinidad and Tobago. Furthermore, the company’s annual revenue has tripled in the past ten
years, attaining USD 21.3 billion as on October 2, 2016. Due to global expansion strategy, Starbucks
has the largest numbers of stores in the world in the coffee chain industry. Thus, the company
produces the highest revenue annually in the industry. As a matter of fact, Starbucks came second as
the most valuable fast food brand worldwide as compared to McDonald’s which was placed first
within the broader quick-service industry. This proves that Starbucks has a strong market branding
and has set a high entry barrier for newcomers and existing coffee outlets.
In 1998, Starbuck opened a new store in Malaysia. Starbucks’ primary strategic option for entering
into Malaysia’s market is through licensing strategies. Berjaya Corporation Berhad is the company
that has been approved to operate the license to allow Starbucks to function throughout Malaysia.
Starbucks Coffee International and Berjaya Corporation Berhad formed an enterprise by the name of
Berjaya Starbucks Coffee Company Sdn. Bhd. Their first store in Malaysia was opened at KL Plaza in
Jalan Bukit Bintang, Kuala Lumpur on the 17th December 1998. The Starbucks Coffee Malaysia has
been selling products such as espresso, coffee drinks, non-caffeinated beverages, pastries, coffee-
related accessories and equipment, gift and merchandise, souvenirs and confections. The company
has expanded to Sabah and Sarawak, and successfully surpassed the 226 stores’ milestone in
October 2016. To date, it is into its 16th year of operations, proudly holding the most favorite coffee
place for Malaysians, and also a productive member of communities across the country.
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SITUATION ANALYSIS AND MARKETING PLANNING: A THEORETICAL OUTLOOK:

Situation analysis helps the company to identify its own strengths and weaknesses, correlating with
the external opportunities and threats. Furthermore, a strategic analysis enhances its strategy and
provides detailed feedback on the company’s current situation. The environment covers many
aspects comprising of two main areas: the micro-environment and macro-environment. The micro-
environment consists of environmental constraints such as the structure of the market, the
suppliers, customer, trends, public and competition. The macro-environment includes forces such as
social, cultural, legal, economic, political and technological ones.
Marketing plan (Figure 1) is the fundamental base that ensures the companies are on track with
trends in the market place, aside from studying customer needs and their competitors (Dibb, 1996).
Proactive planning ensures that resources are used effectively, and also to prepare alternative or
backup (“plan B”) when things do not turn out as planned or unexpected thing happens. The
importance of the internal and external environment and the relationship it has with the
development and implementation of strategic planning is crucial; and should be strongly encouraged
to companies that want to achieve profit in the competitive arena. A company is only able to
execute and support its strategy if it has ‘strategic fit’ with the environment. Other than strategic fit,
a company needs to assess marketing opportunities, thorough research and focused target markets,
understanding marketing objectives and developing a plan for implementations and control.
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Figure 1- The STRATICS PROCESS –Marketing Planning
STARBUCKS AND ITS EXTERNAL ENVIRONMENT:
POLITICAL/LEGAL FACTORS:
Starbucks’ sales are affected by political factors, directly or indirectly. The main factor is its means of
sourcing of raw materials having significant affects upon its business in a direct political manner. The
countries such Costa Rica, Tanzania and Rwanda from which Starbucks purchases its coffee and
other raw ingredients are susceptible to natural disasters such as earthquakes, tsunamis and wars.
Consequently, Starbucks won’t be able to receive and sell any coffee beans to its outlets if it faced
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with uncertain circumstances. Therefore, Starbucks focuses upon social and environmental norms to
protect the brand aspect in everything it does, from providing a living wage that is directly paid to
individual farmers to monitoring yielding techniques with low pollution rates. This gives importance
to fair trade practices. Another important standpoint of political factors is the need to follow the
laws and regulations in countries from where Starbucks purchases its raw materials. The increased
political awareness and activism in developing countries have made this essential. Most of the
countries are upgrading their infrastructures, which creates an opportunity for Starbucks to gain
access to more resources and markets. However, external factors such as bureaucratic red tapes still
pose threats to Starbucks because it hinders them from entering into the developing countries.
ECONOMIC FACTORS:
Before considering global expansion, Starbucks should examine the economic growth of developing
countries and the rate of unemployment to create an opportunity for Starbucks to gain additional
revenues. Starbucks has to deal with rising labor and operational costs in its quest for global
expansion. Other factors which can affect Starbucks are the local currency exchange rates, local
economic environment in different markets, and taxation level. As a whole, the country’s economic
growth reflects consumer buying power that determines Starbucks’ profitability.
TECHNOLOGICAL FACTORS:
Technology enhances the minimal usage of environment. It coincides with one of Starbucks’
missions which is “developing innovative and flexible solutions to bring about change”. The company
is in a good position to leverage with other companies such as Apple and Android to create an
application on the smart-phone software. Customers are able to treat their phone as a card whereby
it scans the QR code as well as store customers’ details. It helps to ride the mobile wave easily and
also enables mobile payments. Other than that, beginning from 2011, Starbucks had a breakthrough
in brewing coffee that carries the same aroma and flavor of Starbucks coffee which is the Starbucks
VIA®, an instant coffee. It took the team 20 years to make a breakthrough that finally enables
Starbucks’ loyal customers to drink same coffee anywhere and anytime. In addition the company has
installed Wi-Fi in each outlet for the comfort of the customers to surf the web for work and study
while enjoying a cup of Starbucks coffee.
SOCIO-CULTURAL FACTORS:
In Malaysia, the coffee culture is growing among Malaysians with the increase of coffee cafes. The
demand for coffee is increasing in Malaysia as growing middle class Malaysians start to inculcate the
habit of drinking coffee. Therefore, Starbucks has the opportunity to increase its revenue following
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the increase in demand for specialty coffee. Besides, Starbucks also caters to health-conscious
consumers by offering an array of healthy products such as homemade granola, packed banana, fruit
juice and personalized drink. Consumers are able to request their preferred beverage according to
their preferences such as full cream milk, or they can request for either low fat milk or soya milk. The
service provided by Starbucks indirectly gives consumer the feeling as though they created their own
beverage themselves.
In relation to that consumers’ behavior towards Starbucks is influenced by three perspectives which
are cultural, social and personal factors (Consumer behavior in relation to premium products, 2015).
Basically, Malaysians are drawn to Starbucks because of the “Starbucks experience” which gives the
feel of being in a Western country. Malaysians are heavily influenced by the westerners; hence they
are willing to experience westernized culture, deemed to be trendy. Most of Starbucks’ consumers
are from the “Gen X” and “the Millennials”, and this company has set them as their main target to
increase revenues for every store. Malaysians normally would hang out at “mamak” stalls and sip
coffee with friends, but sipping coffee in a different environment certainly gives a whole new
dimension for them, and people seem to enjoy the new classy concept.
ENVIRONMENTAL FACTORS:
Starbucks recognizes that environmental responsibility is essential for our future. Starbucks focuses
on operating with minimal environment impact of its business activities. Starbucks even applies
corporate social responsibility in the supply chain. The company is committed to a role of
environmental leadership in every aspect of its business ("Starbucks Shared Planet - Our
Responsibility," 2009). One of the ways that Starbucks embraces the environment is through
promoting its fair trade coffee. This practice has been adopted so that local farmers are able to
receive economical and sustainable prices for their coffee, and get extra profit for the betterment of
their communities and businesses (Davids, 2009). Hence, as a multinational coffee company,
Starbucks has banned itself from exploiting local coffee farmers. Other than that, Starbucks offers
RM2 off if the customer brings his/ her own Starbucks tumbler to the store when purchasing a drink.
This is to encourage customers to inculcate the habit “to go green”. Starbucks is currently growing in
popularity in support for environmentally friendly products. Starbucks in Kuala Lumpur Malaysia is
working in collaboration with the Society of Interpreters for the Deaf (SID) in operating a store
dedicated to providing employment opportunities for Deaf employees. There are currently 10 deaf
employees and three hearing impaired employees, employed at its Bangsar Village outlet. Starbucks’
commitment to excellence in the workplace has resulted in winning much recognition, including
“Employer of Choice” by the Malaysia HR Awards 2015.
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CUSTOMER TASTES:
Malaysia is a country with a diverse culture with set of values and beliefs that affect the sales
activities. Fortunately, Starbucks practices transnational strategy that encourages it to “think global,
act local” in Malaysia without compromising costs, product quality and operating effectiveness.
Thus, this ensures a high profitability and opportunity to expand to other regions and countries in
the future. Starbucks knows that in order to be successful, it has to realize the need for local
differentiation and responsiveness. It is risky for global brands to try to assimilate their business to
local markets due to cultural differences. However, Starbucks succeeded in overcoming the
conflicting environmental and cultural factors. As a result, Starbucks was able to gain access to new
customers.
PRODUCT:
Starbucks aims to serve a standardized set of beverages and products that have similar taste
regardless whether you’re in Thailand, Australia or U.S.A. Starbucks sells some of the merchandizes
which are different in prints which follow norms and preferences according to the country of
operation. These merchandizes suit best for souvenirs. Vignali (2001) stated that adaptation is vital
in aspects such as consumer preferences, customs and laws. Like in Malaysia, Starbucks adapted
their products following the religious laws and customs such as Syariah and then obtaining the Halal
certificate. It is compulsory for every global brand to undergo comprehensive inspections by Muslim
clerics to ensure that their products and services are halal and do not contain any element or
ingredient of a pork product. As a result, Starbucks customized the menu of beverages which is
different from that in the U.S.A. in order to tailor for Malaysians consumers but the standardized
taste has been retained. Occasionally, Starbucks would put in efforts in adapting into Malaysian’s
diverse culture. It can be seen during the main festive seasons such as Christmas, Hari Raya Aidilfitri
and Chinese New Year, when the company would offer promotions, merchandizes and Starbucks
Card that appeal to the local market. As a matter of fact, in 2003, Starbucks invented an original
handcrafted coffee in conjunction with Mid-Autumn Festival named Strawberry Cheesecake
Frappuccino. It is earnestly hoped that Starbucks will constantly innovate and offer the best products
to engage their customers in new and exciting ways.
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STRUCTURE OF THE MARKET/COMPETITION:
The framework of Porter’s Generic Competitive Strategies provides an evaluation of the position and
strength of the Starbucks within the coffee industry, keeping up its competitive advantage over its
rivals. It provides a proper identification of the landscape of the industry (Thompson, Strickland &
Gamble, 2007). Differentiation is aimed at the broad market that involves the production of a new
product or service that could be perceived throughout its industry as unique. Starbucks is known for
its top-quality coffee beans from the start. The company managed to compete with its rivals by
differentiating its business.
The company has the first mover advantage whereby it developed the concept of “Third Place” to
sustain customers. The “Third Place” concept is creating an environment that resembles customers’
“third place” besides working environment and home as their first and second places. Starbucks
intends to elevate customers’ experience at the store by going at great lengths from displaying
merchandizes, the artwork, the playlist and the aroma of all the blended coffee to arouse the love
for coffee and create a comfortable place to work or chill while sipping on their coffee.
Other than that, Starbucks Malaysia is operating the business using the differentiation strategy in
term of broadening and refreshing its in-store product offerings. Even though Starbucks is a coffee
chain, it also caters for non-coffee and health conscious customers. Starbucks doesn’t narrow its
product differentiation to coffee beverage but also expands to teas, juice drinks, music CDs, and
snacks. As long as Starbucks’ product differentiation does not stray away from its related business, it
will add more competitive advantage. Brand loyalty lowers customers’ sensitivity to price. Increased
costs are usually passed down on to the buyers by increasing the price of the beverages. Starbucks
has been consistently generating high profits because of the differentiation strategy that creates a
stronger barrier to face competition from possible competitors. Starbucks has been able to sustain
for 16 years in business because it leverages its core competencies further. The company leverages
its resources internationally by capitalizing in the coffee industry. It is a huge player in gaining access
to resources and capabilities in foreign markets. A Porter’s Five Forces analysis displays the intensity
of the competition in the marketplace. Starbucks is able to identify the intensity of the threat of
rivalry/potential entrants and threat of new/potential entrants as well as threat of substitutes,
bargaining power of suppliers and buyers.
THREAT OF RIVALRY/POTENTIAL ENTRANTS: HIGH TO MODERATE:
The coffee industry is experiencing a monopolistic competition, whereby there are many producers
of coffee that are differentiated from one another. The competition in the coffee industry is
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moderately high because Starbucks enjoys a significant market share. Therefore, Starbucks is
pressured to maintain its competitive advantage with its premium products. Many of the new cafes
are seeking to increase market share against the big player, Starbucks. Hence, there have been many
new cafes opening in Malaysia. Consumers are able to receive the same service and quality from
coffee houses, which are slightly cheaper and there are also varieties of food. Coffee industry has a
great potential in Malaysia, and it has yet to reach maximum saturation level.
THREAT OF NEW/POTENTIAL ENTRANTS: MODERATE:
In Malaysia, the coffee industry has threat of new/ potential entrants at moderately high level with a
monopolistic competition structure. There are many proprietorship enterprises who own their own
café houses such as Third Wave Cafe, The Pulp and Espresso Lab. What separates these cafes from
Starbucks is that they are less commercialized, but more authentic and personalized. For the people
who are enthusiastic about coffees, they serve different types of coffee making such as siphoning or
cold brew. At a localized level, small coffee shops have the capability to compete with the likes of
Starbucks and McD Café. The government agencies provide encouragement and support for local
entrepreneurs. As regards local cafes, some Malaysians would certainly prefer supporting them than
the global brands, though the people in general do not have a mind-set of domestication. The
customers look for quality, to be original and unique. Moreover, it involves no switching costs for the
customers. The local coffee shops have resources and capabilities to compete with the large
commercialized brands like Starbucks who have achieved economies of scale by lowering production
cost, and improved efficiency with a huge market share. Starbucks is playing a dominant role, and
has economies of a larger scale and scope. It has a learning curve advantage and favorable access to
raw materials with the relationship it has built with the suppliers. Despite Starbucks monopolizing
the coffee industry in Malaysia, a segment of consumer population would still prefer its very own
local coffee. Hence, local cafes may still win the hearts of the locals even though competing against
Starbucks is not an easy task.
THREAT OF SUBSTITUTES: HIGH:
The risk of losing customers who are able to look for substitute products is a threat which will have a
significant implication as a market force. There will always be variety of foods and beverages that
customers can choose over Starbucks. The factors that affect this substitution are the price and
quality. Starbucks’ coffee is pricier than other competitors’ beverages because Starbucks offers the
finest quality coffee beans. This market force is reinforced by the fact that there is no switching cost
involved in replacing other similar products. Coffee houses such as Espresso Lab, Gloria Jean’s Coffee
and Dr. CAFÉ are a few of the potential avenues for substitutes for the social experience, which is
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akin to that of the Starbucks. Most of the Malaysians prefer cheaper products that could somewhat
replace the expensive products. Even though, Starbucks has its own customers who would prefer
quality over price, it can’t afford to be complacent and need to continuously keep up with the new
rivals. Therefore, Starbucks has ventured into selling coffee maker, premium packs in retail stores
but this threat is still a concern, and would continue to be so in future.
BARGAINING POWER OF BUYERS: MODERATE TO LOW PRESSURE:
The bargaining power of buyers is moderate because it is closely related to the market force and the
rate of substitution products. Consumers are able to choose between which coffee chains they
prefer based on the price, preferences, quality of coffee and service. Furthermore, there is no cost
for switching a coffee chain to another. However, consumers cannot influence Starbucks’ market
pricing because the price of coffee bean is not subsidized by the government. Starbucks should be
concerned on how much the customers are willing to pay for a premium coffee before they consider
opting for reasonable competitor products.
BARGAINING POWER OF SUPPLIERS: LOW TO MODERATE PRESSURE:
Starbucks’ main suppliers are from Rwanda, Tanzania, Costa Rica, China, and South America and so
on. The main chain suppliers of Starbucks provide quality coffee beans and premium Arabica coffee
grown in selected regions, which makes the cost switching between substitute suppliers as
moderately low. Since Starbucks is a highly important client for the suppliers’ business, due to its
size and scope, it has the power to dominate its small and medium suppliers. However, Starbucks
provides local farmers with resources and expertise to minimize the production cost to improve the
quality of coffee and increase the yield of coffee. Other than that, Starbucks implements a fair trade
practice under its coffee and farmers equity (C.A.F.E.) program which gives its suppliers a fair
partnership status. It directly lessens those suppliers’ bargaining power.
COMPETITIVE POSITIONING:
Rumelt (1980) stated that competitive advantages are positioned with superior resources, superior
skills or a superior position. Normally, a firm can achieve better when its resources and skills are
sufficient, and as a result they do better than the competitors. Each industry or market segment
requires specific skills and resources to acquire competitive advantage. Many competitors use
location, product mix and store environment differentiation to establish market niche. Positional
advantage is how the company strategizes using resources and expertise to survive in the
competition. Positional advantage can be evaluated from the aspects of the form of size,
differentiation product and service from rivalries and branding. In order for a firm to be successful,
its strategy and tactics need to be synchronized to be efficient and effective (McDonald and Leppard,
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1993). Strategy and tactics are planned after analyzing the situational environment of the company.
As long as environmental forces remain constant, the position will remain constant. Positional
advantage can be evaluated from the aspects of the firm’s size or scale, differentiation from
competitors and successful trading names.
Figure 2: Strategy Tactics Grid
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It can be seen from the figure (Figure 2) that Starbucks Coffee Malaysia is positioned to the top left
of the matrix, which indicates that it is positioned at thrive. This is because its stores are flourishing
at every corner in Malaysia effectively and efficiently. This indicates that Starbucks Coffee Malaysia
is running profitably and not wasting time or resources. As such, recently Starbucks’ marketing
strategy was announcing a RM9.00 on a tall sized Frappuccino to end November and welcoming
December if an individual uses his/ her Starbucks Card or RM10 if he/ she is a non-member.
Starbucks is effective in gaining the outcome as this promotion will definitely invite a big crowd to
Starbucks during the promotion hour (5pm-8pm). Besides, Starbucks Coffee Malaysia may only lose
a small amount of profit just for that day since the original price is RM14/cup but it is able to gain
new, potential, or loyal customers. It is also efficient in encouraging customers to own a Starbucks
member card so that they can redeem any promotion in the future. In a way, Starbucks gains profit
by offering the member card for RM10. Hence, Starbucks’ strategies are the key factors for them to
sustain in Malaysia for the past 16 years! It knows how to attract its customers to keep purchasing
its products. For example, once a year, Starbucks would offer a free journal or handbag if the
consumers have bought 15 drinks within a month. This is one of the tactics for continuous business
and for gaining a loyal customer base in return.
Based on Starbucks’ international performance so far, it is thriving because firstly, it is a
multinational company, having tremendous resources and capabilities, backed by pragmatic
leadership. This company abides with its ethical standards to be an environmental leader even
though it is competing with other coffee chains in Malaysia. Starbucks’ main objective is “to
establish Starbucks as the premier or the finest coffee in the world while maintaining [its]
uncompromising principles as *they+ grow” (“Company Factsheet,” 2008).
PORTER’S GENERIC STRATEGY GRID:

Each coffee outlet can be distinguished by its tactics and strategies of achieving competitive
advantage in a crowded coffee industry. Other than considering its industry structure, Starbucks
should identify its position within the coffee industry. This positioning of Starbucks will determine
the competitive advantage within the four positions which are cost leadership differentiation
(copyright products and services) and “focus” (offering a specialized service in a niche market). Then
further along, the Focus Strategy is subdivided into two parts: “Cost Focus” and “Differentiation
Focus”. These are shown in the Figure 2 below.
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Figure 3: Porter’s generic strategy grid
One of the missions of Starbucks Malaysia is “to inspire and nurture the human spirit- one person,
one cup and one neighborhood at a time”. According to Starbucks Malaysia, every store is part of a
community, and [they] take [their] responsibility to be good neighbors seriously. Starbucks focuses
fully on humanity and embracing diversity among their customers. Overall, Starbucks falls on the
Cost Focus and Differentiation Focus because it increases profit by saving costs on production while
charging industry-average prices on the beverages, pastries and merchandizes and concentrating on
a particular niche markets and understanding the dynamics of the market and the demands of
customers when operating globally. Starbucks need to be creative on its product mix and supply
chain to sustain its position in the marketplace. It is challenging to serve customers from different
types of market segments, and provide them an average cost or well-specified products in the
market. Hence, Starbucks knows that it needs to build a strong brand loyalty amongst its customers.
As a result, this increases its competitive advantage among its competitors such as Coffee Bean and
Tea Leaf, Dr Café and San Francisco Coffee in Malaysia.
Starbucks’ positioning in the cost focus seeks cost advantage from suppliers of coffee bean.
Starbucks Coffee emphasizes on environment and providing the best hospitality to the customers.
They do not emphasize economies of scale. These factors have influenced the service and
accommodation that Starbucks provides as well as its brand image. That is why the price of the
product is high, and it caters for upper and middle class segments of the market. It is Starbucks’
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responsibility to make customers feel that the price they are paying is appropriate corresponding to
the factors mentioned before.
Differentiation strategy is adopted where the firm diversifies from its competitors by innovating and
enhancing its products to provide a unique value to the existing as well as potential customers.
Starbucks Malaysia’s diversification is through perceived superior quality product which beats its
rivals and high brand image and recognition. In Malaysia, Starbucks feels the responsibility to fully
engage with their customers and partners, and to promise to make a perfectly made beverage for
them. Starbucks holds regular new product launches to further strengthen the Starbucks experience.
For example, it follows the four seasons or the major festive seasons. This has enticed customers to
try on the limited edition beverages which increase the sales due to their curiosity such as
Peppermint Mocha, Toffee Nut Crunch Latte and Teavana Red Ribbon Green Tea Latte in
conjunction of Christmas season. The company also applies promotion and packaging for further
differentiation such as the Raya theme cups and “buy-one-free-one” from 5pm to 8pm on every
Friday. Starbucks is known for its internationally renowned identity for serving high quality coffee
with outstanding and friendly service. With the brand loyalty, they are able to set a premium pricing
policy in many markets where economic conditions allow that.
Strategic marketing planning
BCG:
The Boston Consulting Group (BCG) matrix in Figure 4 improves the strategic view of a
multidivisional firm; and, thus, is utilized as decision-making aid for strategic marketing plan.
Starbucks can identify the stores’ strategic position through the Boston Consulting Matrix. The BCG
matrix includes 4 divisions which are Question Marks, Star, Cash Cows and Dogs.
Figure 4: BCG
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Starbucks is identified to be in Star division. This is so because it has high market growth rate with
the wide expansion all over the world including Malaysia. It has successfully expanded to Sabah and
Sarawak, and successfully surpassed the 226 stores milestone in October 2016. It indicates that
Starbucks will be residing in Malaysia for a long run because its growth and profitability are still
increasing tremendously. Since Starbucks receives high revenue annually, it indicates that it
subsequently receives substantial investment. This quadrant includes forward backward, horizontal
integration, market penetration, market development and product development to operate its
business. Starbucks offers its product from the manufacturer to the end user who buys the
beverages and food. It has managed to penetrate into the global market and adapt to the home
country’s culture by introducing products that suit them. Other than that, Starbucks intends to
maintain a consistent environment for target customers. Thus, it focuses upon marketing its high
quality coffee to the high income, upper class with consistency and good standard. The company
wants to ensure that the value, culture and environment are well-preserved throughout the globe.
That is how it maintains competitive advantage from the other rivals as well as maintains a high
market growth rate.
CONCLUSIONS:
Effective marketing strategies and tactics can achieve a company’s mission. We cannot undermine
the significance of analyzing the environmental forces thoroughly. There are a number of
uncontrollable variables that affect Starbucks’ marketing strategy and tactical implementation in
Malaysia. Hence, some well-known models have been used to identify the factors that have to be
faced by Starbucks such as PESTLE, structure of the market and Porter’s Five Forces analysis as well
as examining Starbucks’ customers and product adaptation within its internalization strategy in
Malaysia. All of these models assist in the strategic decision making to determine the success of the
company.
Even though it has been said that Starbucks targets customers are from upper and middle class, it
did not compromise with its value and culture when it expanded in Malaysia. Starbucks didn’t lower
the cost of the beverages even though Malaysians complain the overpriced drinks. However,
Malaysians are still drawn to Starbucks because it manages to maintain its core value which is “to
inspire and nurture the human spirit – one person, one cup and one neighborhood at a time”. It’s
not about the money value, it’s the time value spent for yourself with your loved ones. Starbucks
didn’t have a hard time adapting into the Malaysian culture and belief because they did a proper
research before entering into a joint venture with Berjaya Corporation Berhad. Furthermore, the
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external environment analysis guides Starbucks to align with its marketing mix activities. With a
continuous analysis, Starbucks will be able to achieve its desire to achieve economies of scale and a
consistent culture as well as core values worldwide.
From Starbucks’ internalization strategy, the company’s effectiveness and profitability are reinforced
by their strong competitive position and market share. Starbucks’ success is achieved by adapting to
a country’s socio-cultural environment and keeping their main goal which is to establish Starbucks as
the premier purveyor of the finest coffee in the world. Starbuck is in a thriving market. The
company’s strategy and tactics have helped to improve the marketing planning in order to provide
maximum efficiency and effectiveness.
Apart from that, Starbucks is implementing cost focus and differentiation focus strategies (generic
strategies). In terms of differentiation, Starbucks constantly needs to compete with its competitors
from products and quality of coffee beans. Starbucks standardizes its blend of coffee to maintain the
same taste and excellence across the world. Most of their products are personalized following the
culture and customs of the market Starbucks operate in (Florence, 2013). In doing so, Starbucks
achieves its competitive advantage globally as a number one coffee chain in the world. They have a
transnational business model that encourages them to offer a universal product to fulfill the national
needs. It is achievable with the “think global, act local” strategy, resulting in a perceived high quality
product and retaining a good brand image as well as recognition.
Hence, Starbucks should continuously look for innovative alternatives to avoid market saturation
when running the business worldwide. Starbucks’ concept is not only expanding its market but also
dominating the coffee industry as a whole. It is recommended that in its future international
expansions, Starbucks should analyze its market using the value chain analysis to identify the degree
of homogeneity of a new country compared to the existing Starbucks’ outlets. This analysis will
further enhance economies of scale through the transferability of the resources and capabilities
from other countries.
Since Starbucks is mostly promoted by word of mouth, they gain cost advantage and thus they
should be able to offer drinks that are low cost. Otherwise, Starbucks could order coffees from local
suppliers such as Tenom coffee and combine it with its own ingredients to produce Malaysia’s own
Starbucks’ drink. This will definitely invite more avid local coffee drinkers to drink at Starbucks. In
short, Starbucks consistently needs to update on Malaysian’s culture to incorporate it into its system
and products to sustain life-long patronage from its loyal customers.
Page 52
REFERENCES:
1. Vignali, C., Vrontis, D. and Vranecevic, T. (2003) Marketing Planning. Analysis, Strategy and
Tactics, London: Foxwell and Davies.
2. Vrontis, D., &Pavlou, P. (2008). The external environment and its effect on strategic
marketing planning: A case study for McDonald’s. J. International Business and
Entrepreneurship Development, 298.
3. Roby, L. (2011). An Analysis of Starbucks as a Company and an International Business. A
Senior Thesis Submitted in Partial Fulfillment of the Requirements for Graduation in the
Honors Program Liberty University Spring 2011.
4. Company analysis of Starbucks Coffee Malaysia. (2015, March 23). Retrieved from
https://www.ukessays.com/essays/marketing/company-analysis-of-starbucks-coffee-
malaysia-marketing-essay.php.
5. PESTLE Analysis of Starbucks. (2015, February 25). Retrieved October/November, 2016, from
http://pestleanalysis.com/pestle-analysis-of-starbucks/
6. Starbucks PESTEL Analysis. (2015, October 22). Retrieved from http://research-
methodology.net/starbucks-pestel-analysis
7. SMITHSON, N. (2015, September 12). Starbucks Coffee PESTEL/PESTLE Analysis &
Recommendations. Retrieved from http://panmore.com/starbucks-coffee-pestel-pestle-
analysis-recommendations
8. http://www.slideshare.net/VikkasMalhotra/starbucks-casestudy-16466939
9. Thompson, A. A., Strickland, A. J., & Gamble, J. (2010). Crafting and executing strategy: The
quest for competitive advantage: concepts and cases. Boston: McGraw-Hill/Irwin.
10. http://www.starbucks.com.my/coffee
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International Journal of Marketing and Management Research

Vol. 8, Issue 1, January 2017, Impact Factor; 5.108ISSN: (2229-6883)

THE EXTERNAL ENVIRONMENT AND ITS EFFECT ON STRATEGIC MARKETING PLANNING:

Grace Chok Yee Swan

STARBUCKS’ OPERATIONS IN MALAYSIA:

SITUATION ANALYSIS AND MARKETING PLANNING: A THEORETICAL OUTLOOK:

Figure 1- The STRATICS PROCESS –Marketing Planning

STARBUCKS AND ITS EXTERNAL ENVIRONMENT:

STRUCTURE OF THE MARKET/COMPETITION:

Figure 2: Strategy Tactics Grid

PORTER’S GENERIC STRATEGY GRID:

Figure 3: Porter’s generic strategy grid

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