Strategic marketing plan is essential for companies intending to expand their operations in the new market. The strategic analysis should include various elements that include environmental analysis of the company and the assessment of the country of operation. Starbucks decision to enter new market to increase its market share and profits can be achieved if it develops appropriate marketing strategies that can ensure its success in the new market. The reports provide the marketing audit of Starbucks as it plan to increase its operation in the overseas markets. It starts by providing the overview of Starbucks Corporation followed by the marketing analysis of its operation. The report that ends by giving appropriate recommendation that the company should consider when entering the new market.
Overview of Starbucks Corporation
The Starbucks Corporation is a coffee beverage company based in the United States of America. Starbucks has got a chain of coffee houses largely in America. It is vital to understand that Starbucks was founded in Seattle, Washington. It was started in the year 1971(Mason, Cole & Goza, 2017). Since its start, it has been on a fast rise within the beverages industry. It now operates in 23, 768 stores across the whole world (Mason, Cole & Goza, 2017). This particular company differentiates itself from the other coffees offered in the industry through its unique taste, quality and good experience of the customers. It has popularized itself for the darkly roasted coffee. Apart from coffee, which is its main product, Starbucks also serves its customers hot and cold drinks, tea, fresh juices and snacks. Some of the snacks offered within the company’s locations include chips and crackers (Mason, Cole & Goza, 2017). Financially, this company’s performance has been high over the time of existence. It managed to withstand the 2007 economic recession and stayed profitable.
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Although it has opened branches in many parts of the world including Europe and Asia, Starbucks does not have presence on the African continent. This particular paper proposes its expansion into Africa through entering South Africa. With presence in South Africa, the company will have made a significant and pivotal step in growing its business to the African continent.
Initial Analysis of Growth Opportunities
The South African beverage industry offers Starbucks huge opportunities for growth. Firstly, South Africa is the leading economy in the continent of Africa. Its per capita income is the highest in the continent. Therefore, the disposable income for consumers is large enough to allow them spend on coffee drinks (Merwe & Maree, 2016). It implies that Starbucks will get the opportunity of a market with many consumers for its coffee products. Moreover, the middle-income class is growing at a quite fast rate in South Africa. The middle-income class in the country has the culture of consumerism. Therefore, Starbucks will have the opportunity of growing its revenues progressively as the middle-income class rises.
It is also important to understand that with the entry in to South Africa, Starbucks will have the opportunity to easily reach out to the rest of the African continent. South Africa is the gateway to the rest of Africa in terms of business. A lot of the conferences and forums involving various organizations around Africa are held in South Africa (Merwe & Maree, 2016). South Africa, thus, will be the strategic country for Starbucks to get customers from other countries in Africa.
The culture of visiting coffee houses in South Africa and indeed the rest of Africa is an emerging trend. The culture of visiting coffee houses just started in the past few years and is promising to be the major practice of people in the urban areas of this country (Merwe & Maree, 2016). Today, a lot of business and social meetings are held in coffee houses. Therefore, Starbucks now has the great growth opportunity in the event it accepts to expand to South Africa.
Country of Choice
The decision regarding the country of choice should consider the economic growth of the country, market potential, political stability and competitive environment among other environmental factors. The country of choice for expansion is South Africa. South Africa is an emerging country within Africa. The country has a huge market potential coupled with high economic growth. As an emerging economy, Starbucks will benefit from the potential market in the country. The political landscape in South Africa is stable and thus encourages investment activities. The country has a democratic government and continues to enjoy stable political environment and this has made it to enjoy economic growth over the past few decades. In terms of the competitive environment, it can be argued that South Africa has a number of shops and retailers in food and beverage industry. However, Starbucks being the leader in specialized coffee will be able to compete favorably with the rival firms in the industry given its experience in the industry.
Mode of Entry
The preferable and chosen mode of entry is acquisition. Acquisition, as a mode of entry or expansion into an overseas market, entails a corporation gaining full control of an existing company in the new country by purchasing it (Chen & Mujtaba, 2007). This purchase may happen through just owning the all the shares in the case of a public company or simply paying a set price to the owners of the existing firm.
A lot of corporations prefer acquisition as an effective mode of entry because it involves gaining the full control of the acquired firm. With this full control, a company can even change the existing business strategy and introduce the one it prefers. Moreover, the acquisition mode of entry gives a corporation quick and wide penetration into the market. It takes advantage of the existing business network and loyal customers to establish its presence in a new country. However, the only negative aspect of this mode of entry is the fact that it is quite expensive. Companies pay dearly in order to acquire and benefit from the established business of other local firms.
For effective and quick penetration into the South African beverage market, it is vital for Starbucks to identify one major existing firm in the country and purchase it. This strategy will give Starbucks an advantage as it penetrates the African market. The company will have acquired readily existing customers, employees and administrative structures based on which to build its ground gradually.
Cultural Differences
Cultural differences are expected to exist within any cross-border interactions, but so do similarities. This is to be expected between societies such as those that exist in the United States and South Africa, as this paper will endeavor to showcase. Per Hofstede, insights, power and distance are some of the differences that determine whether people accept the set order . Whether people accept others to give then directions and instructions closely relates to the hierarchy of order where we have superiors such as the top management and subordinate staff who are guided by the top management ( Stedman, 2016). South Africa has a 49 % score which means people accept the order , superiors tell subordinates what to do, and they listen and obey them ( Stedman, 2016). The US culture is different; they score a bit lower than south Africa with rate of 40%, and they focus on equal rights where employers are not expected to just give employees orders, but they are all expected to work together to accomplish the organization goals as a team( Stedman, 2016).
Another cultural difference exists between South Africa and the US in the level of individualism and collectivism. Collectivism in culture is where people are integrated into strong cohesive groups since childhood ; people live as extended families ( Stedman, 2016). South Africa has a rate of 65% on this, which means people are more individualistic. In individualism, we find societies in which ties between individuals are loose, and everybody is expected to look after themselves and their immediate family ( Stedman, 2016). Individuals care most about themselves and their family, and most people live as a nuclear family in a homestead with no extended family ( Stedman, 2016). Americans too are individualistic and scored even higher than South Africa with a rate of 91%. This individualism is reflected in almost all aspects of life including in the job place. Therefore, the American population is much more individualistic, and people are bound to do things based on personal needs, and without considering the needs of others.
Cultural Exchange
An aspect of cultural similarity, albeit at different levels between US and South African culture is the masculinity versus femininity aspect. South Africa has a masculine culture scoring of 63%. People are ready to do what it takes them to achieve what they want and thus competitive in nature ( Stedman, 2016). In the US, the same cultural aspect is reflected where people strive to the best they can be by working hard. In both countries this cultural aspect is masculine since such freedom also exist, with people working to obtain higher achievements in life and are ready to do what it takes. Such higher achievements could be an increase in salary or a change from one job level to a better one.
Another similarity between the cultures of the two countries is the tolerance for uncertainty. This means a society’s tolerance for uncertainty and ambiguity, how society has trained its members to perceive uncertainty as either comfortable or uncomfortable. South Africa has a score of 49%, which means they have a low tolerance for uncertainty and they avoid uncertainty, they always want to create value for their time. The US has the same culture, with a score of 46 % ( Stedman, 2016).
Distribution Methods
Starbucks can use the franchises to distribute its products. Franchising is well established in South Africa, and the company can use their already established expertise to this end. Franchising is where a company gives another company its products to sell using its brand name, trade mark, and logo, and assist them with services such as training and financial assistance that can help distribute the company products ( Schindler, 2011). Also, they can use consumer retailers, who are small general dealers that are more convenient because small scale buyers like individual consumers of the beverage can buy from such retailer’s. They can also use wholesalers to distribute their products; wholesalers buy in large scale and store in warehouses, and then distribute to large scale consumers such as institutions like schools and large organizations ( Schindler, 2011).
Product/Market
For Starbucks corporation product to be selling in the market, the company should ensure that their product meets all the health standards, that it does not contain any element that can be harmful to the consumers since it is a consumable ( Hill, 2012). They should carry out research to know how they should prepare their products to satisfy consumers’ needs. Also , the company should know their target market well; if their main customers will be small scale such as individual consumers, which should direct their packaging for example, along with other elements such as ensuring that the product is affordable to their target market. I f their main customers are high end they should pack it in large sizes also to meet their needs ( Schindler, 2011).
Pricing
Starbucks Company should price their products in such a way that prices cover costs and profits, and the prices should be low so as to ensure sales, and the best way to lower prices is to lower cost ( Schindler, 2011). They can use pricing strategies like the competitive pricing strategy, where they will set their prices to match those of their competitors;this is necessary to ensure they do not set too high prices because this will lead to lack of customers and too low prices will lead to price wars with their competitors ( Schindler, 2011). Demand pricing strategy is another way they can price their products, such that people buying at large scale are sold products at a lower price than those buying smaller quantities of the product. Also, they can price their products through a cost-plus pricing strategy where the product is priced depending on their total cost (variable cost plus fixed cost) , and the desired profits are added to the total cost to get the product price ( Schindler, 2011).
Positioning
Positioning is how a company differentiates its products or services from that of their competitors and decides on the market niche they want to fill ( Hill, 2012). For Starbucks to be successful, they should establish their beverage products in a way that helps them establish its identity within the eyes of the buyer. To enable the company position itself well in South Africa they should make their beverage products unique such that the buyers can easily differentiate it from those of their competitors, and this is an element that has a lot to do with both the process of production and branding of the product to give it uniqueness (Hill, 2012).
Strategic Audit
Starbucks operates in the retail and coffee industry. The industry is affected by a host of social, economic, and legal factors. Therefore, it is essential to conduct an external and internal environment scan to identify opportunities and challenges in the industry.
Internal Environment
Starbucks is an internationally recognized brand; it offers a premium and variety of beverages and snacks to suit different customer needs. Starbucks is synonymous with high-quality coffee and its ability to deliver its customers unique “Starbucks Experience.” Aside from the products, Starbucks’ impeccable customer service and well-designed coffee shops differentiate them from the competitors.
Starbucks has developed excellent relationships with suppliers; this will complement the organization’s business strategy as it expands into South Africa. Starbucks will use a well-designed acquisition approach and form mutually beneficial alliances that will help the company attain its objectives and future expansion in the African market (Gallaugher & Ronsbotham, 2010).
External Environment
The external environment is rapidly changing. Global forces now influence customers, and this will work in favor of Starbucks in the new South African market because it is a well-known global brand (Kotler, 2007). The external environmental analysis for the company considers PESTLE strategic tool. PESTLE model is an essential strategic tool that evaluates the external environment of companies. PESTLE assesses the business environment of companies based on six variables that include political factors, economic factors, socio-cultural factors, technological factors, legal factors and environmental factors (Kotler, 2007). The fives factors can determine the strategic direction that affirm takes in the industry of operation.
Political Environment
The political environment plays an important role in determining the level of trade in a given country. The political environment can be determined by a number of factors that include the structure of the government, the trade policies and regulations and the stability of the government ( Frue, 2016) . Starbucks being a multinational company operates in various countries with different political factors which affects its business. The varying political environment that the company faces in various markets exposes it to several market risks. However, it can be noted that the majority of the countries where the firm operates are characterized by stable government and this promotes its business. South Africa has a stable political environment. However, the country is known to have corrupt politicians who can inconvenience new businesses. Most labor laws in South Africa are similar to the United Kingdom.
Economic Environment
The economic environment of organization includes the micro and macro factors that affect the activities of organizations. Notably, the economic factors are beyond control of the firm but their impact can be mitigated through the development of appropriate business strategy ( Frue, 2016) . One of the economic factors that can affect the operation of the company in the business environment is the level of income. South Africa is the market of entry for the company is having a relatively high and stable income. The stable and high level of income in the country will increase the demand of product in the market. Due to this, many customers will purchase the products of Starbucks and thus increases its revenues and profitability. There is also stability with regards to other economic factors such as inflation, interest rates and foreign exchange. Also, these contribute to growth in the market of Starbucks in South Africa where it will open its new retail stores. However, the impacts of global financial crisis and recessions among other economic uncertainties have negatively affected the demand of products and thus have adverse impacts on the activities of Starbucks. Besides, South African currency, Rand, often fluctuates and this can affect the profitability of the organization in the long run (Frue, 2016). On a positive note, the South African economy is the most developed in Africa. Many foreign businesses such as Uber and Air BnB have established businesses in South Africa, which shows that South Africa is open to new global opportunities.
Socio-Cultural Factors
The socio-cultural factors have a significant impact on the consumption of Jacobs among other hot beverages ( Frue, 2016)) . Currently, consumers are concerned about the consumption of healthy products due to certain health related diseases such as diabetes and obesity among others. Due to health concerns, many consumers desist from consuming some of the beverages that they perceive are not healthy. Such consumption can affect the demand of Starbucks in South African market.
Technological Factors
Technological progress can have positive or negative effects on the consumption of goods and services ( Frue, 2016). Ideally, the advancement in technology can provide Starbucks with an opportunity to improve its business processes, products and marketing strategies. The coffee company can use the new technological techniques such social media among other internet avenues to market and sell its products in the South African market. Also, technological improvements can enable the company to improve its production techniques and efficiency and this can lead to a reduction of cost and improved performance. In South Africa, many consumers nowadays purchase online due to the advanced in the level of technology and this can be an opportunity for the company to sell its products to a large base of customers in the country.
Legal Factors
It is worth to note that Starbucks operates in many countries with varying legal environment. As a result, it is necessary for the company to comply with all the policies and laws that prevail in its new market in South Africa. Notably, the compliance with various policies and legislation in different countries such as South Africa can raise the cost of production of the company and this can lead to a reduction of its profit.
Environmental Factors
The concern of global warming and greenhouse gas emission affects the operation of many organizations around the globe. In essence, there exist laws and rules that govern the emission of carbon gases and other waste products in the environment ( Frue, 2016) . As a retail business, Starbucks should ensure that it controls and manage its waste products so as to avoid the chances of environmental pollution and degradation. The failure of the company to adhere to some of the laws that govern the pollution of in South Africa can lead to heavy fines and penalties.
Strengths
The intention of the company to expand its operation in South African market should consider the factors that can contribute to its success in the market. It is important for the company to assess some of its strengths that can make it successful in the market. The company should leverage on its strengths to outperform some of its established competitors in South Africa. The main strengths of the organization include the following.
• A global brand recognition with over 20,000 branches in over 63 countries in 2014 (BrandIndex, 2014)
• High-quality products
• Strategic location and aesthetic appeal of Starbucks shops
• Taking advantage of technology to improve customer experience
• Customer loyalty programs
Problem Analysis
Starbucks is in the process of global expansion, but Starbucks is yet to open branches in Africa. Starbucks has significant strengths; hence the problem is how to convert the strengths into effective business strategies to help the organization meet the external environmental challenges in South Africa and to attain its objectives. In its expansion plan in the South Africa market, the company can face different challenges in the new marketing environment. One of the major problems that the company can face in its new market is the cultural difference. It is evident that there is significant cultural difference between the UK customers and South African customers. Such differences in culture can affect the marketing strategies of the company. The company should address this problem by implementing effective marketing strategies that conforms to the cultural environment of the new market. This can include using the local celebrity to market its products, employing the locals in its retail outlets and branding the products to conform to the South African culture.
The other challenge can be due to the intense competitive business environment in the country. There are various companies that offer coffee in South Africa. Furthermore, there exist many substitute products for coffee and can include tea and chocolate among other hot beverages. The presence of many rival firms and substitute products makes it difficult for the company to penetrate the new market and gain significant market share. As a result, it should enact appropriate marketing strategies that can help it to survive in its new marketing environment. This can include the development of unique marketing strategies and the differentiation of products. The company can also use an effective pricing strategy such as cost leadership to enter into the South African market.
Recommendations and Implementations
Johannesburg and other South African cities have an already lively coffee market; hence Starbucks will have to offer something unique to the South African customers. There is an affinity for foreign products in South Africa, but the products have to be customized to meet the tastes of the South African people. The products should reflect on local tastes, and supported by excellent customer service (Puskar, 2015).
The mode of entry is through acquisition. Through the acquisition, Starbucks will enter the South African market easily as it will take over the operations of an already established coffee business. Nonetheless, Starbucks has to change the coffee shop design, the product mix, the pricing strategy, and the product promotion approach to attract customers. The other strategy is for the company to adopt premium pricing in the local market. The use of premium pricing can make the consumers develop a feeling that its coffee is superior to those offered by the rival firms and thus affects their purchasing decisions. Besides, the product differentiation is also another strategy that the company can use to improve its performance in South Africa. This can involve designing the products in new and unique manner that is distinct from those of its close rivals in the market. Such strategy can win the trust of the customers and attract their purchasing decisions.
Evaluation and Control Process
Starbucks must establish qualitative and quantitative metrics to help evaluate the implementation of its strategies. Quantitative metrics like sales and the number of customers, but qualitative metrics such as customer satisfaction and public opinion also matter. By establishing controls such as a marketing budget or attaining a 10% market share of the South African coffee industry will guide the organization’s operations in the new market. It is important for the company to establish its marketing objectives when entering the new market. The marketing strategies developed by the company should be measurable. As a result, the company should work towards achieving its marketing strategies such as acquiring 10 percent of the coffee market share in the new market.
Conclusion
This paper proposes South Africa as the best expansion area for Starbucks Corporation. Considering the immense growth opportunity in terms of the trending culture of visiting coffee houses, expanding middle-class that likes consumerism and the country’s profile as a gateway to Africa in terms of business, Starbucks must seize the chance and expand to it. It must be emphasized that acquisition is the most effective mode of entry for Starbucks if it is interested in gaining quick and wide penetration into the South African beverage market. There are a number of firms that can be acquired by Starbucks.
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