Case Analysis Report
Case Analysis Report
Case Analysis Report
Starbucks Corporation is involved in the development and sale of specialty coffee. Widely recognized as the leading coffee house in the world, the company retails and markets specialty coffee to different customers. Starbucks has developed stores and outlets that provide a wide choice of coffee and tea beverages, as well as other premium, tea, and packaged products. Furthermore, the organization has a variety of ready-to-drink coffee, tea, juices, and bottled water. The organization’s stores offer a collection of fresh food and snack offerings. Headquartered in Seattle, Washington, Starbucks has expanded its operations to different parts of the world.
The Most Important Factors behind Starbucks’s Decline
The main problem that resulted in Starbuck’s decline in 2007 and 2008 is the loss of its brand and reputation as a result of its streamlining processes. For instance, the company lost the overall ambience and the feel of an authentic coffeehouse as a result of its decision to implement automatic espresso machines, which were meant to boost efficiency. Moreover, the rising need or freshly roasted coffee resulted in flavor locked packages, which were major ingredients for the loss of aroma. Furthermore, the standardization of all locations had resulted in the overall loss of the feeling of the neighborhood coffeehouse. The organization’s CEO Schultz realized that the company had lost its brand distinctiveness. For instance, after visiting hundreds of Starbucks store and outlets across the world, he noticed that there was an element in the texture of the store experience that had been lost. Therefore, he felt that there are various elements that are intrinsic to Starbucks brand, yet they were missing such as its aura, spirit, and ambience. The effects of such missing elements implied that the company was missing its original culture and ways of operating.
The organization’s loss of brand uniqueness also affected the ways in which customers interacted with their attendants. For instance, Schultz found out that customers who walked into the stores no longer had a human connection to their barista (attendants). In addition, few baristas seemed to remember clients’ names. In yet other worrying incidences, the large espresso machines that were used by the organization blocked a customer’s line of sight. This problem obscured the theater of coffee drink preparation, thereby diminishing the exciting contacts between customers and their partners. In some of the organization’s outlets, the CEO realized that the feeling and smell of burnt cheese from oven cautioning breakfast sandwiches overcame the real and intended smell of coffee, which was the critical component of the Starbucks’ Experience. Furthermore, the CEO found that some store outlets were running out of ingredients. The problem was a sign that the company might have been facing potentially bigger problems. For instance, one of the issues that disturbed the organization’s stakeholders was the observation that some store managers no longer seemed to be personally focused on their works. On the contrary, just a few employees seemed to be more concerned with the gross margins than with the organization’s core values.
In light of the above, Schultz felt that it was time to develop interventions that would go a long way in improving the company’s brand image and distinctiveness. A company’s brand can be viewed as a form of personality. In the same way that people have personalities that are unique to them, so do firms such as Starbucks. While logos, names, and colors are important components of an organization’s brand and branding processes, they alone do not define the company’s brand image. As with Starbucks, all the interactions and feelings that customers and other stakeholders have influence its brand reputation and image. The reengineering of a brand can be important in enhancing the attributes of an organization that result in a positive brand image or overcoming the attributes that result in a negative brand reputation. The process of regaining a once lost brand image and uniqueness is not often an easy endeavor. Every communication process that stems from the company exerts a significant influence on a company’s brand.
The CEO was worried that the leading coffeehouse on earth was increasingly reducing itself to the status of other restaurants and outlets because of the loss of its identity. Branding plays a critical role in supporting an organization’s differentiation strategies. In this respect, strong brands gain their market reputation and image as a result of their distinct nature and way of doing things, which establishes differentiation in the minds of consumers. In the case of Starbucks, it is clear that the key to developing and supporting a successful brand image rests in understanding what is distinct about the company and its services. Thereafter, the organization can focus on the distinctiveness across all its communication and operational activities. Although the process of building a brand can take many years, it may be defeated far more speedily through its inconsistency or incongruity with the messages and activities detected by the customers during interactions with the organization.
There are various ways in which an organization can identify problems in its branding. As Schultz claims, a company can decide to undertake an evaluation exercise meant to identify elements that conflict with its original brand and image. For instance, a brand image endorsement can be used as a scorecard of measures that collectively indicate whether the customers prefer the brand to its competitors including label products. The process is often complex and comprises of mental structures with various components such as relevance, credibility, as well as distinctiveness. While Starbucks scored high in terms of relevance and credibility, it was increasingly losing its feeling of distinctiveness. For instance, the smell of other foodstuffs overpowered the company’s original aroma of the coffee, which uniquely identified the brand from its rivals’ within the competitive coffee sector. Company team members may use measures such as brand image endorsement to interpret the extent to which the organization is increasingly becoming differentiated from its competitors within the same sector.
Qualities such as relevance, credibility, and distinctiveness are significant to an organization’s success and competitive status. Relevance refers to the degree to which the brand is expected to provide products or services claimed to offer the anticipated features and functional benefits that customer’s desire. For instance, many buyers of coffee would expect Starbucks to be focused on providing coffee and other beverages. However, when it reaches a situation in which customers are unable to find coffee but other products, then the organization has lost its original relevance. Credibility refers to the degree to which the brand is expected to fit the customers’ needs and wants. In the case of Starbucks, customers may desire the sharp and attractive taste and smell of coffee. Many customers are likely to choose a branded product based on trust without checking the features in details. Therefore, the company should focus on improving its brand through distinctiveness and improvements in its identity.
Extending the products that the company provides may stretch the brand’s credibility, but not its relevance. For instance, many customers may prefer to purchase Starbuck’s coffee based on the trust that the company has demonstrated to them via quality services. Therefore, part of Starbucks’ effort should focus on improving its brand credibility. Distinctiveness means that the brand can easily be recognized by prospective customers. The establishment of distinctiveness can only be attained if the organization decides to re-establish its original ambience and feeling of being in a coffeehouse. For marketers, this process requires allocating a lot of financial resources in promoting the brand.
Most Important Aspects of Starbuck’s Transformation and their importance to its Survival
There are various issues that resulted in the radical transformation of the organization. In 2007, the organization began to raise concerns that its gross margin declined from 59.2 percent to 57.5 percent (Koehn et al. 2014). The problem was compounded by a decline in the organization’s stock prices by 40 percent. Consequently, Schultz decided to return to Starbucks as CEO in a bid to establish a transformation agenda that was inspired by Dell. For instance, Schultz focused on improving innovation and renovation of the company without pointing an accusing finger on anybody (Koehn et al. 2014). Moreover, Schultz focused on communicating why Starbucks was special. There are various issues that Schultz focused on, for instance, approximately 70 percent of the company’s revenues were declining compared to global operations and locations. Therefore, Schultz planned to deepen customers’ emotional attachment to the organization in areas such as strengthening personal relationships with baristas, featuring seasonal offerings, and reengineering the company’s organizational structure and culture.
In light of the above, there are seven major transformational moves that Schultz identified as critical in reinstating the company’s brand image and distinctiveness. First, the company sought to reinstate itself as the undisputed coffee authority by ensuring that customers share their passion and pride. In addition, the organization sought to engage and inspire its partners (customers) by improving their experiences. The company also established programs geared towards expanding its international presence while making each store and outlet the center of their local neighborhoods. Furthermore, the organization set out on a mission to gain its leadership status in ethical sourcing and environmental sustainability and consciousness. In addition, the company launched a creativity and innovation program to improve the ways in which it developed and delivered coffee to target clients. Therefore, the company was committed to strengthening its training and development programs to improve employees’ skills in interacting with clients. In order to reignite the emotional attachment with customers, the company placed them back to the center of needs and provided them with value through loyalty programs. Starbucks’ effort to establish a high international presence was implemented by linking individual stores and outlets to local communities and cultures by serving through art, music, as well as decors. Furthermore, the company established a sustainable business model by reorganizing its activities in a way that supports quality, speed, as well as cost management.
Schultz sought to identify the specific threats that the organization faced and communicate them based on his experience. For instance, the organization convened a meeting to promote honest communication and collect ideas from all employees on how to improve the experience of customers and employees (Koehn et al. 2014). As a result, the organization worked to improve its current state in retail business, reignite emotional attachment with the Starbucks brand, and make long-term transformations to the foundation of the business (Koehn et al. 2014). To deepen customers’ emotional attachments, the organization introduced exciting product innovations to consumers and improved the Starbucks Experience. These included strengthening personal relationships with baristas and providing featured seasonal offerings and store aromas. The strategy was critical to attracting new customers and maintaining their loyalty. Further, the company undertook a careful scrutiny and subsequent reorganization and reengineering of its corporate structure through evaluation of operations, supply chain, and IT capabilities with the purpose of cutting costs and improving efficiency and customer service (Koehn et al. 2014). As a result, motivational programs were introduced such as healthcare coverage for workers. Further, the quality and ethical sourcing of Starbucks coffee was introduced.
Starbucks was transformed from an organization that had long lost its energy and vigor to one that was stable. Its leaders acted to change the value of the company. In so doing, they demonstrated the ability of the company to improve customer experience by offering a public display of new values, which made it successful within the context of the company’s task and environment (Koehn et al., 2014). By improving customer experience, the organization managed to increase the level of consumer loyalty. In addition, the morale to work hard and improve employee productivity had been boosted by the organization’s decision to introduce motivational programs such as the provision of additional benefits to workers, health coverage, and incentives. These efforts significantly improved the company’s sales volume. Consequently, it can be deduced that the innovation proved to be successful.
List of All Qualitative and Quantitative Facts
List of Qualitative Facts
- CEO Schultz made a trip to Milan to improve the coffee experience in Seattle.
- Schultz noticed that most connections in the stores were not authentic but rather artificial.
- Schultz noticed that Starbucks was losing its original brand identity, which is the aroma of coffee.
- The smell of cheese in the ovens overcame that of coffee.
- Baristas had lost the exciting connections with customers.
List of Quantitative Data
- The company’s revenue increased to $7.8 billion, representing a 22 percent increase from 2005 (Koehn et al. 2014).
- About 2000 stores were opened within 6 years
- In 2007, the company was the leading coffee retailer.
- In 2005, some stores were registering high sales, but were much lower compared to the rates of the previous year (2005), which was 10 percent.
- In 2008, the company’s earnings reduced by 28 percent to$109 million.
- In 2008, the global operating income declined to $178 million.
There are various strengths that give Starbucks a competitive gain over its rivals. For instance, the company has a strong financial position. Its revenue has been growing significantly across all its stores. For instance, the company’s revenues in 2005 increased to $7.8 billion (Koehn et al. 2014). In addition, the company has established a strong customer connection through value-added services that are provided through strong coffee-drinking experiences to in-store clients. Furthermore, Starbucks has established a high global presence.
Starbucks is increasingly losing its brand status and distinctiveness. For instance, the company can be mistaken by clients as cheese firm because the smell of cheese overpowers that of coffee. In addition, baristas have lost the strong connection that they had with customers and they no longer remember customers’ names. This problem is partly attributed to the decline in their levels of motivation.
There are various factors that provide the company with the opportunity for growth. For instance, technological advancements can offer Starbucks the opportunity to connect with customers and understand their needs and wants. In addition, Starbucks can take advantage of the growing foodservice industry in the United States and other parts of the world to expand its market outreach. Furthermore, the organization can go deeper into emerging markets where coffee raw materials are cheap and the labor costs are low.
There are various factors that pose threats to the company’s existence and operations. For instance, Starbucks faces threats from its competitors. Although the organization is the leading coffeehouse in the world, the gradual loss of its brand uniqueness can potentially make its competitors overcome it. In addition, the company is faced with the challenge of costly raw materials. Therefore, it seeks to work with farmers in the supply chain to retain their loyalty. Furthermore, the company faces threats from high compliance costs related to government regulations, for example, ecological sustainability and high minimum wage laws.
4Ps Marketing Mix
Starbucks has diversified its products categories. There are various product lines that the company offers. The major products include high-specialty coffee, specialty tea, and ready-to-drink coffee beverages. Other products include smoothies, and instant coffee. Starbucks also provides juices and bottled water.
Starbucks has established a high global presence. Therefore, the organization utilizes geographic segmentation to reach out to different regional, national, and international markets. The company’s distributional strategies include coffeehouses and restaurants, store outlets, as well as online mobile application. These outlets are meant to boost customer accessibility to products.
There are various strategies that Starbucks has employed to persuade its target customers to purchase its products, for instance, communication programs to boost customer loyalty. Moreover, the company influences customers through public relations and social responsibility initiatives. In addition, the organization uses online and broadest advertising platforms. Other promotional strategies include discounts and coupons.
Starbucks seeks to position itself as a highly-prestigious coffeehouse. As a result, the company offers a premium pricing strategy that uses behavioral patterns of customers to seek more expensive products based on the perceived association with high value. Therefore, the use of a premium pricing strategy enables the organization to retain its high-end specialty image and reputation.
Redefining the Role of a For-Profit Company
In 2014, Schultz provided a brief overview of his views regarding the social footprints that he had developed for the organization. In particular, Schultz stated that Starbucks was redefining the roles and responsibilities of a for-profit organization. In so doing, Schultz stated that the company was launching a program meant to balance profit motives with the social conscience. According to Schultz, social responsibility is increasingly becoming critical to the success of a business organization. For instance, apart from participating in acts of corporate philanthropy, the company promoted ethical outsourcing by partnering with non-profit organizations such as Conservation International to promote ecological sustainability. In addition, the organization embraced practices meant to boost coffee production and preserve biodiversity, maintain healthy ecosystems, as well as support economic social development in the production of coffee. Such partnerships underscored the organization’s devotion to long-term success in line with millions of farmers’ efforts to grow and supply the company with quality coffee.
Schultz believes that corporate social responsibility is one of the leading drivers of organizational success. Corporate social responsibility programs are meant to meet the needs and value of all stakeholder groups, and not merely the profit optimization goal of shareholders. This view is in line with the game theory, which postulates that one cannot take away from the game more than they can bring to it. When everyone is incorporated into the process of value creation, an organization is likely to be more productive and successful. The theory also asserts that many people view games egocentrically by focusing on their own positions. The primary insight of the game theory is the significance of emphasizing on others, a concept that is in line with social responsibility because it seeks to maximize the value of all stakeholders. As a leader, Schultz used the concepts of corporate social responsibility to design an operational mode that is right for the firm. Corporate social responsibility offers a way through which an organization can recognize its actions that affect the market, workers, and society, including the natural environment. Finally, social responsibility programs can improve the company’s image and reputation, thereby boosting its brand and customer loyalty.
Koehn, N. F., McNamara, K., Khan, N. N., & Legris, E. (2014).Starbucks coffee company:
Transformation and renewal. Harvard Business School.