Recommendation Memo for Business Trend - Starbucks - Essay Example

? STARBUCKS The economic crisis dealt a blow to companies worldwide. Few saw it coming and few prepared for it. Overnight, it seemed, Lehman Bros. collapsed and with this collapse shockwaves were sent around the world. Those companies who held bad mortgage debt were wiped out or required government bail outs. Presidents Bush and Obama were forced to spend hundreds of billions of dollars in stimulus money in an effort to revive the economy (Task, 45). Unemployment rose dramatically. This is part of the new context within which businesses must operate. Not only do they have to restructure to deal with various levels of exposure, they must also understand that the lives of their customers have changed dramatically. Starbucks' clients have less money in their pockets than they used to. They may have lost their jobs or cut back on consuming luxury coffee like Starbucks. Furthermore, as the housing bust has unwound, whole neighbourhoods have changed. They will want to reconsider the placement of cafes. These are just several of a number of recommendations included below to help Starbucks weather this storm and once again get back on top of the coffee world. Starbucks is a very strong brand with a loyal following. They are well positioned to storm back to the top of the charts. Over the years, Starbucks has proved itself to be a very successful company. It is has expanded substantially and is a recognized brand. But the financial crisis and economic downturn had a severe impact on its revenue (see figure 1, appendix). Now is the time to consider a number of steps which can help Starbucks restore itself to its former glory. It is not a matter of simply returning Starbucks to the position it held before the crisis. Many things have changed in the marketplace since then. Success may well mean something different now. Starbucks must look around at a changing marketplace and seize new opportunities. In some cases it may have to shift its focus in order to maximize returns. What follows are five recommendations to ensure the Starbucks does not become a relic. The recommendations aim to help Starbucks focus on its customers and its future. Lower cost and rebrand The era of conspicuous consumption is over. The economic crisis made sure of that. It resulted in serious damage to national economies worldwide and the cuts that will have to result to bring down the deficit have not yet been made. Things are going to get worse before they get better. This is a problem because the price of Starbucks coffee is too high. Competition with MacDonalds may be negatively impacting Starbucks sales (Ordonez). The truth is that the climate has changed and cost is a big factor for many people these days. We need to see a small reduction in the price of a cup of coffee at Starbucks. That alone will be worth media attention and will be a kind of signal to consumers that Starbucks takes this issue very seriously. A lot of the coffee is overpriced and this overpricing is not sustainable with new competition in the market. Reducing the price even ten or fifteen per cent will show consumers that Starbucks is willing to change and adapt to new economic realities. This can be part of a rebranding that will make Starbucks more appealing to a larger audience. The communications element of branding is key to attracting more customers (Capon, 296). Currently, Starbucks is seen as a hipster place where the elites go to sip an expensive latte. There is no reason to lose this cache, but it makes sense in this economic climate to try to create a larger tent in which many different types of people can come and enjoy themselves. Starbucks needs to think long and hard about who it wants to attract in 2012 and beyond. The larger the customer base the more stable the company. It is important to remember that rebranding can be a risky proposition (Muzellec, et al, 802). Approach it with caution. Expansion into new markets Starbucks is seen primarily as an American company, with most of its cafes in North America and Western Europe. These generate a lot of revenue, but there is also a lot of room to expand internationally. This has never been easier to do as many restrictions have fallen in recent years (Reif, et al, 114). There are hundreds of millions of people willing to spend money in newly rich countries such as Brazil, Indonesia, and Russia. These people want lifestyle products such as Starbucks coffee and gear. They are promising marketplaces which Starbucks can make a big impression on. A word to the wise, however, is in order. While pursuing these markets, Starbucks should be careful not to expand too quickly. Each of these new markets will require several years of consolidation. It is important to get a foothold early, but Starbucks should not go overboard by opening too many cafes to quickly. There is nothing worse that over-expansion (See figure 2, appendix). These sunk costs can severely affect a company's bottom line. When expanding into new markets there are a number of important things to remember. Doing business in foreign countries is very different than doing business in American markets. That much is obvious. But it is also important to recall that Corporate Social Responsibility will require Starbucks be especially sensitive to cultural and political differences encountered in foreign countries. Locals should be hired to help negotiate complex situations. The amount of pay given to employees can also be a thorny question and can issues around union membership in socialistic countries. At all times, Starbucks should maintain the highest ethical standards. It should do what it can to create shared value, an important CSR concept which allows companies to gain profits while helping societies in need (Porter, 78). Starbucks should never lose sight of the lives of its customers and providers in poorer countries. Mobile payments It is very important for Starbucks to realize that the world is changing. New technologies are shaping our lives in ways we could not have imagined even a few years ago. It is vital that Starbucks stay on top of new trends and changes and find ways to integrate them into the company on a wide scale. One useful trend is mobile payments. This is a method by which people pay in advance for the products that the purchase. Rather than wasting time in a payment line, they often will simply pay via their smart phone. Smart phones are changing the way we interact and do every-day things. Starbucks should ensure that this form of payment is present at each of its locations. This can be a positive step to make payment more convenient for consumers. It can also help to burnish Starbucks' reputation as a trend-setter and as a cool and hip place to buy coffee. Expand to grocery stores Starbucks is primarily known as a cafe and primarily sells coffee in its cafes. However, this is a limited market. In order to reach more consumers, Starbucks should make an effort to place its products in grocery stores. This plays into the trend of economic crisis which Americans have recently lived through. People are more likely to buy their coffee in a grocery store than in an actual cafe. The brand is strong so Starbucks should be able to compete well in off-the-shelf sales. There are surely many grocery companies willing to stock the product. Diversifying points of sale is a good strategy to ensure stability and consistent returns. Different parts of the market may be affected by future recessions, but by spreading your company out across several markets, you are sure to protect yourself (Hitt, et al, 156). Social networking Another important technological change that is shaping business is social networking. Starbucks should be more aggressive in its social networking in order to reach new customers and better control its brand. There are now around 2 billion people online (Safko, 87). This is a massive base. Having a more significant presence on Twitter and Starbucks can help to spread messages about special events and sales. These are also valuable tools to help trumpet the good works and charitable contributions that Starbucks makes. Being a good corporate citizen is not all that useful if no one knows about it. By using these tools, Starbucks can tell the story of itself, its past, present and future. The more consumers know about a brand and a company, the more they feel connected to it. Creating a Starbucks family through social networking should be a goal. As people stay at home more due to their lack of money, they are also more likely to spend time on their computers. They are a captive market to advertise to. These five recommendations can help Starbucks reseize the momentum and again become a dominant coffee company. The important thing to understand is that the world has changed. It is not enough to do what was done in the past. New ideas and trends must be identified and put into action. Only then will Starbucks become the company it was always destined to be. Work consulted Capon, Noel. Managing Marketing in the 21st Century. Wessex Publishing, 2008. Hitt, Michael, et al. Strategic management: competitiveness and globalization : concepts & cases. Cengage Learning, 2009. Muzellec, Laurent, and Mary Lambkin. “Corporate rebranding: destroying, transferring, or creating brand equity?” European Journal of Marketing. Vol 40, No, 7. 2006. Porter, Michael E. and Kramer, Mark R. (2007). Harvard Business Review, vol. 84, No. 12. Ordonez, Jennifer. “Latte Wars.” Newsweek. January 11, 2008. http://www.newsweek.com/2008/01/10/the-latte-wars.html Reif, Joe, et al. Services--the export of the 21st century. World Trade Press, 1997. Safko, Lon. The Social Media Bible: Tactics, Tools, and Strategies for Business Success. John Wiley and Sons, 2010. Task, A. Bailout nation: how greed and easy money corrupted Wall Street and shook the world economy Hoboken, N.J.: John Wiley & Sons, 2009. Appendix figure 1 figure 2 Read More