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The Success of Starbucks Corporation

The Success of Starbucks Corporation Starbucks is one of the largest growing coffee chains all over the world. Many have patronized its coffee products because of its good taste and aroma. Numerous people one meets on the street carry a cup of Starbucks coffee in their hands. History of the Company Howard Shultz first established the corporation at Seattle, Washington. Starbucks changed the people’s perception of coffee as it became well known and successful (Schultz and Yang). The people behind Starbucks are Jerry Baldwin, Zev Siegl, and Gordon Bowker. These three entrepreneurs started selling whole bean coffee in 1971 in Seattle’s Pike Place Market. The founders named the coffee chain Starbucks, and in 1982, they opened five stores that have roasting facilities and wholesale business that markets coffee to other restaurants (Schultz and Yang). By chance, Howard Shultz met the three entrepreneurs while selling his Hammarplast products. Schultz was then the Hammarplast’s Vice President for operations. Hammarplast is a Swedish warehouse company in New York City. The founders recruited Shultz to bring its marketing strategy to their company. Schultz accepted the offer and joined Starbucks; he filled the position of Starbucks marketing manager (Schultz and Yang). In 1983, Schultz visited Italy for a buying trip and based on his observation he found out that Italians are very much into coffee. During his stay, he noticed that coffee plays an important role among Italians way of life. Because of their busy schedule, Italians would rush to a coffee shop to have a cup of coffee and later in the afternoon, they would come back for another round of coffee and hangout with their friends. Schultz found out that Italy has around 200,000 coffee shops while there are 1,500 coffee shops compared to Milan. This idea made Schultz believe that the Americans can adapt this coffee lifestyle. As soon as Schultz returned to Seattle, the concept of having an Italian coffee lifestyle was introduced immediately to the three founders. Sadly, the three businesspersons are not interested in opening a coffee shop. Schultz still pursued with the idea, drafted his coffee shop business plan, and started to look for new investors. The three founders sold Starbucks Corporation to Schultz in 1987 with a value of four million dollars. The coffee shop’s name II Giornales was immediately changed to Starbucks (Berfield, “Starbucks: Howard Schultz vs Howard Schultz”). As Starbucks continues to grow and decided to go international, it led them into a slow growth of unit volume and profit. These were the main reasons why they decided to open stores internationally. They face a lot of risk especially in bringing their products to other countries. They are obligated to export aggressively and opening new doors internationally made them grow. Since then, Starbucks no longer face any negative issues because their growth strategy has met with great success, however, there are some concerns about its development (Auch- Roy, “The Starbucks Corporation: Past, Present, and Future”). The Starbucks Model Primary Corporate Philosophy The company’s primary philosophy is “Great work for great clients.” Starbucks ensures to keep focus on this philosophy. They believe that if they keep a hold on this principle they will be able to provide their clients with what they promise (Berger, et al.). Company Mission and Goals To reach the top, Starbucks made its own goal. Even if they have accomplished their goals, they did not become contented. They made sure to hold on to it and this is one of the secrets of having a successful business. Goals should be followed continuously even if it has been attained. A business should not be content with what they achieved; instead, they should continue searching for ways to improve services so that customers will be satisfied. In addition, looking for other ways to generate more profits is also a key element to become successful in doing business. Starbucks ensures that they provide strategy that would benefit both customer and company (Fridell 249). Marketing and Financial Objectives Starbucks ensures to satisfy customers with their coffee experience by providing a good ambiance and environment and high quality coffee bean. They also aim to communicate their values and commitment to customers clearly. They want their products readily accessible and available to all types of people. Starbucks targets a weekly profit of $20,000 for every store. They target to open new stores with lower store- opening cost (Berger, “Starbucks”). Nature of Business (Markets) It offers coffee beans and drinks internationally. It started to market first-class coffee, and then later on it evolves into a firm. They built accessible coffeehouses where people can buy both refreshments and foods. The coffeehouse also sells packages of whole bean and ground coffee so that people can make their own coffees and enjoy the taste and aroma of coffee at the comfort of their own home (Starbucks.com). Social Analysis Starbucks established relation with CARE and started to market their products. CARE is an international assistance and development organization. To make 320,000 new books for children, Starbucks formed alliance with eight more companies. The company established a foundation that would help local education program in committees where there are Starbucks coffeehouses. Starbucks joint ventured with the Center for environmental Leadership in Business in 2001 and they were able to introduce coffee sourcing guidelines. When Starbucks acquired one million pounds of Fair Trade Certified coffee, they donated $1 million dollar to help coffee farmers financially by means of Calvet Community Investment (Transfairusa.org). To legally open Starbucks coffee store in Japan they agreed to form a joint venture with SAZABY Inc. Another agreement was also formed with Canadian bookstore Chapters Inc. Starbucks collaborated with Earvin “Magic” Johnson and Johnson’s Development Corporation and established coffee experience in the urban area of the United States, so that they may taste the products of Starbucks. Starbucks joined alliance with Conservation International to promote environmentally methods of growing coffee. Starbucks agreed to sign a memorandum of understanding with Fair Trade Labeling Organization International. This allows the corporation to make an agreement between National Fair Trade Organization so that they can market their products to countries who has Starbucks coffee shops. They also formed agreement with Trans Fair Canada to export Fair Trade Certified coffee to over 270 retail stores in Canada (Transfairusa.org). Employee Relation Analysis Starbucks became the first privately owned company that provides stock option program with their part- time employees. In addition, the company offered stock option program for full and part time partners in Japan. Starbucks employees are their asset that is why Starbucks treats their employees as their partners. They believe that the success of the company depends on the work and production of their employees. Starbucks provides the best training for their workers. The company makes sure that employees are compensated well; and they give benefit packages for both full time and part time workers. Schultz believes that all his people deserve to be treated right, this way they will feel secured with their job. He believes that providing the best interest for his employee will result to good service towards customers. He also said that minors who wanted to work in his company are not a problem to him for as long as it will not interrupt their education (Schultz and Yang). When they started operating internationally, Starbucks has to face a lot of things and risks such as finding local partners. Starbuck’s manager and trainers are brought to different countries to conduct training. They hired and trained managers and baristas and have them attend 13 weeks proper training (Fridell). Customer Service Analysis They designed their coffee shop comfortably and seductively. They made sure that every store is easily accessible to every consumer, that is why they put up stores in malls, street corners, and grocery stores. To ensure the premium quality taste of coffee, Starbucks coffee hired professional baristas or bartender. Starbucks opened their stores to other countries and still it became a big hit to other citizens. Starbucks extended its hand to meet the needs of wants of people by adapting different cultures by incorporating every country’s local taste of food and lifestyle. The Starbucks coffeehouse located in Seattle is designed with a European style family bistro and now serves huckleberry pancakes, oven roasted seared sirloins, and Mediterranean chicken breast on focaccia. The Coffee house in San Francisco has a concept of tattered rugs, live music, high-speed internet, and serves specialty Starbucks coffee (Schultz and Yang). Corporate Partnership Analysis Starbucks ventured with Pepsi Cola Company and they started selling bottled Starbucks Frappuccino blended coffee. Starbucks got the support from Dreyer’s Grand Ice Cream and they launched Starbucks ice cream and Starbucks ice cream bars. These ice creams became American’s favorite dessert. Begins Barnes and Noble Inc started to join Starbucks in 1993. The corporation also bought Tazo, a tea company in Portland, Oregon. Asian countries love to drink tea and they adapted it so that Asians would also patronize their products so they served Tiazzi blended juice tea. The drink is a mixture of fruit juice, tea, and ice (Starbucks.com). Starbucks signed an agreement with Kraft Foods Inc. so that their products will be extended to United States grocery stores. Kraft will be the one to market Starbucks products while Starbucks will continue to roast and package its coffee. The two big companies benefited from this strategy and they got faster entry to 25,000 supermarkets in the United States. There are 3,500 Kraft sales employees that helped market Starbucks products. Later on, the coffee that was marketed by Kraft became a success and they gained faster entry to the fast growing coffee segment (Starbucks.com). Starbucks also signed a joint venture contract between Albertson’s Inc and Starbucks and promised to open 100 more stores in their supermarkets in 2000. Another agreement was made with TransFair USA to market Fair Trade Certified coffee. Starbucks collaborated with Host Marriot International so they can open up new more store to selected locale. As a result, Starbucks kiosks opened in more 30 US airports. Together with that, several airlines started serving Starbucks coffee to passengers. Starbucks founded a Commitment to Origins coffee choices that includes shade grown organic and Fair Trade Certified Selections (Starbucks.com). Expansion Analysis Schultz foresees that expanding business internationally will not be that easy. When doing business internationally it has to consider its local trends, custom, and local regulations. Schultz confessed that expansion from one country to the other is not all the same. For instance, expansion in Pacific Northwest and Chicago is different because Starbucks in the Pacific Northwest profited right away while the Starbucks in Chicago take several years to profit. Starbucks’ expansion plan was based on three strategy: first is to attract the management team ahead of expansion needs. Next is to create its very own premium roasting facility, and last is to have a computer based system to keep track on its sales, products, and services worldwide (Hoovers.com). To have a successful operation worldwide, Starbucks hired professionals with skills in extensive operating and marketing experience. Another factor that influenced the success of Starbucks expansion was with the help of their real estate team. The teams are the ones who create a feasibility study and decides whether it good to build a store or not. Every store has different marketing strategy that would help strengthen the company’s reputation and image. Continues product supply played a big role to the successful expansion of Starbucks. The company acquired coffee on a negotiated basis as a result they gained trust with manufacturers and attained premium coffee beans from other producers. To ensure contract on coffee bean supply, the company agreed with its fixed price purchase commitments. To provide price protection, the company made an advanced future contract. With this strategy Starbucks is saved from any price hikes that could lead to negative effect on the company’s image (Hoovers.com). Environmental Analysis Starbucks is dedicated to a responsibility of environmental leadership in all aspects of their business. They fulfill this duty be means of understanding environmental issues and conveying the information to the corporate partners. They plan and create solution to environmental problems. Moreover, the company recycles some of its wastes products and they see to it to use only environmentally friendly products (Starbucks.com). Starbucks is dedicated in taking care of the environment. They believe that taking care of the planet is very important that is why they also encourage others to do the same. Starbucks uses environmentally friendly cups and they see to it to recycle to lessen waste products. The company uses energy efficient appliances and they see to it to conserve energy and reduce power consumption. Climate change is a serious threat to the business that is why their working on strategies to help farmers lessen the impact of environmental problem (Starbucks.com). Starbucks SWOT Analysis Strengths The concept of bringing the Italian coffee shop style in the United States became a big hit in 1983. Schultz opened his first coffee bar in April 1985 and it was named II Giornales. The coffee bar exclusively offers Starbucks coffee and after its immediate success, Schultz decided to open up three more coffee shops. The coffee shop became a trend among Americans; almost all citizens are patronizing and enjoying their product. According to Schultz, “Starbucks doesn’t just sell coffee, but it also sells experience.” Moreover, one of Starbucks executive also added, “We are not in the business of filling bellies; we are in the business of filling souls” (Berger, Buchman and Chase). Its net revenue increased up to twenty percent (20%) to $3.3 billion in 1992 up to the fiscal of 2002. Evidently, Starbucks net revenue continued to increase with a rate of thirty percent (30%) to $ 218 million (Schultz and Yang). The company completed an initial public offering with common stock being traded at NASDAQ National Market that carries of SBUX (Hoovers.com). Starbucks is a stable and profitable company. It earns more than $600 million in 2004 and on the same year, the company generated revenue of $5000 million. The coffee brand was created based on its reputation of having fine products and premium services. There are around 9000 coffee houses in 40 countries. In 2005, Starbucks was recognized as one of the Fortune Top 100 Companies to Work For. Many respect Starbucks employer because it gives value to its employees. The company has strong ethical mission and values statement that says, “Starbucks is committed to a role of environmental leadership in all facets of our business” (Berger, Buchman and Chase). Weaknesses Indeed, Starbucks carries a good reputation for new product development and creativity. The problem is, they might be defenseless from risk that their development might weaken as time passes by. In addition, Americans loves their products so much and because of this Starbucks put up plenty of stores locally. It is often discussed that they need to find a portfolio of different nations so that they can spread the risk in doing business. The Store offers only one product, and that is coffee, this can be a problem when they need to expand into other segment if the need occur (Berger, Buchman and Chase). The secret of Starbucks to be always on top is to provide customers with a product that has the right price and quality. They make sure not to over-price or under-price because they want to hold on to their quality. The coffee company makes sure to use only high quality Arabica coffee beans (Schultz and Yang). Opportunities Starbucks is superb when it comes to taking the risk of opportunities. Starbucks introduced its mail-order catalog to 50 states in 1988. Starbucks began to market compact disc based on an extremely well-known in-house music program. The company created a CD-burning service in 2004 at Santa Monica café together with Hewlett Packard. This is a great way for customers to make their own compact discs collection. Starbucks ventured with different companies like Kraft, Pepsi Cola, Fair trade products to help them market their product. They were able to extend their products to Supermarkets. Starbucks had the chance to expand its operations globally. New business for coffee started to emerge in India and the Pacific Rim nations. Co-branding with other food and drink retailers and franchising their brands to other food and drink manufacturers became potential in increasing their profit. They also risked venturing to other well known and stable company, and with the trust they gave, it resulted into a huge success (Berger, Buchman and Chase). To have enough beans and to avoid a shortage of coffee beans, they bought a mill located at the side of a volcano. Starbucks became a private supplier of Narino Supremo. Starbucks provides the best coffee taste. They are excellent when it comes to roasting coffee bean. They invested for their roasting equipments because they know that they will profit from this. They make sure that they roast their beans perfectly and they throw the beans that are not perfectly roasted (Schultz and Yang). As time goes by, Starbucks managed to offer high-speed wireless internet access in every store for customers. They also offered a reloadable card for customer’s use. Starbucks developed its own website and it has become “lifestyle portal” where in it offers coffee, tea, coffee maker equipment, compact disc, souvenirs, and collection items (Berger, Buchman and Chase). Threats The cost of coffee bean as well as dairy products may increase as a result; the cost of product may also increase. Due to unending demand for coffee by many people, many competitors would want to imitate the brand, product, and services of Starbucks (Berger, Buchman and Chase). Some critics said that what they worry about is the overuse of Starbucks brand name. Some also fears that Starbucks may overuse its resources widely or lose focus. Some remains a true believer of Starbucks. The point is, it is how well Starbucks manage its business growth (Schultz and Yang). Conclusion Starbucks coffee products became widely accepted by the Americans and other citizens and this has become one of its most important event. It did changed people’s perception of coffee. Due to Americans warm welcome to Starbucks coffee products, they began to open their opportunities nationwide and internationally and this resulted to a big success (Schultz and Yang). Starbucks generated lots of profit and became famous worldwide because of the people who handles it and because of the trust that they gave to his their partners. The people behind its success are the ones who made different strategies for them to stay on top. Its top executives are the ones who formulated the strategic planning and its long-term goals (Schultz and Yang). Starbucks opened its business both locally and internationally. It may seem to have no more places for additional stores, but for them there are still plenty of places to expand, and they not concerned about dispersion. The company no longer needs to improve anything because they have ventured to different companies that made them produce different products to offer with their clients (Schultz and Yang). The corporation is considered a powerhouse brand in category in which only inexpensive commodity products exclusively exists. As the brand became famous, its profits and sales increased. Around 20 million clients visit the 5,500 stores in a week, while 10% of theses client visit the stores at least twice a week. The success of Starbucks coffee products resulted to many imitators, ranging from direct rival such as Caribou Coffee to fast food business. These days it seems that almost everyone wanted to have his or her own brand of coffee business. To maintain its phenomenal growth, Starbucks has brewed up an ambitious multipronged strategy (Schultz and Yang). Reference Auch- Roy, Herve R. “The Starbucks Corporation:Past, Present, and Future.” Carlosbay, 2004. http://www.calarosbay.com/files/StarbucksCaseStudy.pdf. 6 November 2011 Berfield, Susan. “Starbucks: Howard Schultz vs Howard Schultz.” Bloomberg Business Week, 2009. http://www.businessweek.com/magazine/content/09_33/b4143028813542.htm?c han=magazine+channel_top+stories. 6 November 2011. Berger, Adam, et al. “Starbucks.” Loudoffice, 2010. www.loudoffice.com/donald/.../Starbucks.ppt. 6 November 2011 Fairtrade USA, 2011. http://www.transfairusa.org/.6 November 2011 Fridell, Gavin. Fair Trade Coffee. Toronto Buffalo London: University of Toronto Press Incorporated. 2001. “ Starbucks Corporation.”Hoovers Inc: A D&B Company, 2011. http://www.hoovers.com/company/Starbucks_Corporation/rhkchi-1.html. 6 November 2011 Schultz, Howard and Dori Jones Yang. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. New York: Hyperion. 1997. Starbucks, 2010. http://www.starbucks.com/assets/company-profile-feb10.pdf. 6 November 2011


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