STAR BUCKS CASE STUDY

Question 1 What are the main problems at Starbucks? The founding values of the company were to offer quality coffee to the customers, a variety of good quality coffee from which customers and tasters can choose from, have trained employees that give attention to customer service, make personal contacts with the customers, provide stores that customers can relax and feel like home, meet friends and chat etc. All of these were interrupted due to the rapid expansion strategy of the company. The expansion strategy led to abandoning the core business strategy of providing differentiated quality coffee of a romantic flavour. Due to the selling of the hot food and other food stuffs, the aroma of the coffee got diluted. This does not reflect the expectations of the customers from Starbucks and as a result, they are losing market share. The installation of automatic machines does not only affect the baristas (someone employed to make coffee) contacts with the customers but also, the customers could no longer see the drinks been made which led to many customers complaining that Starbucks had become impersonal. Customers want to know the composition of the drinks made but this marketing approach was abandoned by the company through the purchase of the automatic machines. Due to the companys efforts to cut cost and enhance efficiency, the company made changes to the stores layouts and atmosphere that the customers got the feeling of the stores being germ-free and cookie-cutter (without a distinctive features). Many customers were not happy about the layout. Although the entry of Starbucks to the espresso business increased their market share and revenue, it was a complete distraction from the main business and even created room for eventual competition. The other major problems of Starbucks according to analysts are the rapid expansion by the company eroded its competitiveness, as to the worsening US economy, with falling home prices, rising unemployment, and cash-strapped customers. These resulted in the companys star states- California and Florida- that accounted for one third of Starbucks domestic revenues were among the worst hit by the housing slump. The trends in the costs of opening new stores, distribution expenses, as well as material costs took a sharp turn and were touching new highs as of the beginning of the economic crisis. The price of coffee and milk major raw materials in the business rose sharply from 2001 to July 2008 until August to September 2008 when there was a bit drop in the high prices (see exhibit lll). The price of oil was also touching records level, increasing fuel costs. The stepping down of Schultz from the post of CEO in 2000 was also seen by some analysts as a mistake. And thereafter, he engaged in other interests like the championing of the national health-care legislation on which he spent considerable time, he became the

co-owner of the Seattle Supersonics, a professional basketball team. Despite the money he spent in these new interests, he attention at Starbucks also reduced giving the impression that, he is no longer the CEO of the company he only need to help and not to champion the way things were going. But many believe that he is the best man for the company with the excellent growth initiatives. Question 2 The main elements of context in the Starbucks case The impact of the economic crisis and in particular in the US that affected its sales revenues in 2007 which led the consumers cutting down their frivolous spending and expensive coffee became top of the list. They preferred to go for less costly brands. This also shows that; in normal price variation, the demand for coffee is price inelastic. When coffee prices show increases, consumers reduce their consumption. The economic crisis also led to the shutting down of many Starbucks stores and a drastic cutting down of the employees. These factors affected the company strategy of growth expansion. There was management crisis The rise in cost of materials for coffee and milk, the costs of opening new stores, the rise in price for oil, the rise in major material in the business and of other things like fuel price all contributed to the slowing down of Starbucks meeting its challenge of growth expansion and revenue increase in the US due to market saturation (reliance in the domestic US market). This also affected Starbucks challenge to maintain grwoth. Fierce growing competition whereby competitors Dunkin Donuts and McDonalds offering far less prices for coffee compared to the rates at Starbucks. This affects the growth and expansion strategy. Net revenues increased from $1.3 billion in fiscal 1998 to $1.7 billion in fiscal 1999, due to Companys store expansion program. This has a positive influence on the The diversification from the core business of coffee to other businesses affected the coffee business. This also affected the growth and expansion strategy. Technological innovations and customer service- installation of automatic espresso machines to speed up the service, an offer of prepaid Starbucks cards in order to cut transaction time in half, availability of WiFi at the stores has mixed feelings within the customers as the personal contact with the customers was reducing but is good for the company as it was able to cut customers and reduced the waiting time.

Modifying Coffee shops to make their stores unique that will create an appealing atmosphere for the customers

Internationally Starbucks is not able to maintain complete control as the ownership of a unit abroad is jointly owned by Starbucks Corporation as well as a local partner

Coffee bars serving both food & coffee (Italy) Employees feelings of a far less special place to work

Question 3 To what extent is the Starbucks strategy driven by customers. What are the implications? Starbucks unique blend of relaxing environment and innovative coffee drinks positioned it as a leader in its category, and made it an all time favorite for millions of devotees around the world. The Starbucks restaurant are more than just a coffee restaurants but instead it gave its customers the comfort of a home, excellent customer service, quality products and the feeling of being special. Moon & Quelch (2003, pg. 2). These elements made the Starbucks experience key in retaining its customers. Starbucks' overall retention strategy has cleverly covered the 5Ps, (Product, Price, Place, Promotion and People) among others, as we will see below. Product quality Starbucks trademark was the unique features of the coffee-based beverages. These innovative drinks have attracted new customers to experience luxury coffee drinks at affordable prices, in a very comfortable environment. Starbucks created a coffee culture, educating its customers on the coffee types, origins, and the roasting process, thus building brand credibility and gaining clients trust in the brand and quality of products provided. Clark (2007, pg.201). Consistency Starbucks major coffee priority is the consistency of the product taste and quality assurance. Starbucks whilst priding itself as the best quality coffee in the world tries to control much of the supply chain for quality control and product assurance. Starbucks reliability and product consistency is driven by the super-efficient coffee maker machines. Besides making the same drink shot, it is noise-dampening, making sure the customers experience is not disturbed by the blenders noises. Beverly (2007, pg. 6, 104). Customized and Seasonal Products Starbucks brand name and popularity came through customizing the beverages to the consumers desire through offering flexible drink options such as extra cream, caramel syrup etc Clark (2007, pg. 214). Starbucks also introduces various and new seasonal products to differentiate themselves from its competitors and to capture new clients. The new drinks add to the overall experience of loyal clienteles and this specialization increases its competitive edge over other players in the market. 2.4 Convenience Through Location

Starbucks applied the first rule in opening a store i.e. a successful and strategic location, and for thousands of its stores worldwide, credit should be given to their sharp foresight in storesite strategy to reach its target customers and eliminating its competitors. Starbucks' store-site strategy is to have high visibility, high traffic and convenient location (stores are located on the driver side in USA or on corners, shopping malls, bar districts and populated business towers), so a daily commuter will be delighted to stop everyday at the store for his Latte. The stores high visibility, convenience and accessibility in terms of its locations and services provided (relaxing furniture, grand amount of seating, clean restrooms, etc) attracts attention and increases brand recognition and reputation, thus diminishing customer defections and increasing the stores traffic and sales. Clark (2007, pg. 113, 116). Strong Brand Equity The unique earthly-colored walls of each store, innovative product display and warm atmosphere, seasonal ideas, promotions etc makes Starbucks a strong brand that allows for brand recognition and consumer retention. The image of Starbucks sustaining local coffee farmers and helping in grooming their crops builds the customers trust in the coffee bean superiority and Starbucks as a socially responsible corporate brand looking after the long-term benefits of the local community with the aim of growing together and not to exploit. The stores clean and hygienic image has added very much to the strong image of Starbucks reputation which is equally important for Starbucks overall image. Beverly (2007, pg. 4). Customer Bonds and Loyalty Programs Starbucks recognized that one of the ways to obtain customer satisfaction is by manipulating their perception of equity and fairness in gaining maximum return for their money and loyalty. So, Starbucks introduced the Starbucks Loyalty Card which gives great benefits to its customers; ranging from syrup and milk options on their drinks free of charge, complimentary coffee refills and free beverage with whole bean purchases. The Starbucks Card binds the customer whereby they feel that they are gaining more value for their money, being treated fairly by Starbucks and feeling appreciated by a better quality service in being a loyal and a regular client, thus preferring to stay devoted to the brand and gaining further benefits with their future purchases. The relationship with customers The Baristas (employees) of Starbucks are a critical factor since they interact directly with the client. Starbucks strategy of creating a personalized service that is vital for the customers satisfaction is key in ensuring his loyalty; personalized services include personal greeting, flexible changes to the drink/order and memorizing the favorite order of each customer, all with a genuine smile and friendly spirit. Beverly (2007, pg. 4) References Young Moon & John Quelch (2003) Starbucks: Delivering Customer Service. Harvard Business School Publishing Clark, Taylor (2007) Starbucked A Double Tall Tale of Caffeine, Commerce, and Culture. Little, Brown and Company William, Beverly (2007) What Should Starbucks do to better survive and prosper? Article from Harvard Business School.

Richard, Lynch (2009) Strategic Management 5th Edition, Slides 14