Strategies and Aims of Starbucks Company - Case Study Example

Case#2: Starbucks John Huang, Ze Yang, Jiaqi Chi, Fatima Zahra Sentissi, Selena Sohyun Kim, MGMT 360 Section#101 Team 11 of British Columbia- Okanagan Introduction With total net revenue of $11700.4m Starbucks is ranked among the most successful companies in the world. About 35 years ago when it had just been created by Gerald Baldwin and his college friend Gordon Bowker, Starbucks was only a coffee shop amongst others. Currently, the Seattle Company has expanded worldwide; opening stores in foreign countries, from Japan to England. It is no doubt that Starbucks is a success story influencing and inspiring other companies that look up to adopting their strategy. Indeed, Howard Schultz’s vision enabled Starbucks to become such a mythic place of meeting, work and relaxation; not only focusing on the quality of their coffee, which is supposed to be a basic requirement, but also on the personalized experience provided to their customers. In this paper, we will be emphasizing on Starbucks’ strategy and its analysis, expounding the discussion on the company’s success together with sustainability levels. Starbucks strategy As Dr. John P. Kotter Professor of Leadership, at the Harvard Business School, said, “Leaders establish the vision for the future and set the strategy for getting there”. Howard Schultz’s knew exactly what he wanted the Starbucks Company to be, and where it was headed. He also had clear long-term goals set for the company. As the CEO, Mr Schultz’s stated, “We’re not in the coffee business serving people, we are in the people business serving coffee.”, with a mission stating "to inspire and nurture the human spirit- one person, one cup and one neighborhood at a time." In other words, the company focuses more on having the customers engaged, giving them a personalized service, with a specific atmosphere that the customer can relate to and associate with the Starbucks experience. To achieve such level of success, Starbucks effectively implemented clear consistent long-term goals, deep understanding of their competitive environment and a fair assessment of their assets. Starbucks fully understood the competitive environment, and knew that customers were not only looking for a cup of coffee but an experience, thus their prioritizing, as previously stated the customer experience; indeed, what mainly differentiates Starbucks from another coffee shop, is not only the quality of their coffee made with the best beans in the market, but also the services that comes with it. As an internal strategy, Starbucks focused on its employees’ involvement, since the “baristas” were the ones who gave life to the Starbucks experience, creating a family atmosphere, giving to the customers the impression of being in a coffee bar in Milan. Thus, the employees had to be able to prove their ability to work as team members and had to be above average in terms of customer relations. Furthermore, Starbucks’ stores layout, played a major role in terms of experience, indeed, the stores were made so they were reconciling efficiency with comfort. While adapting every store in their neighborhood Starbucks still managed to be coherent in terms of design, brand image, service and agreeableness. Starbucks also has an objective appraisal of their resources; it promotes equality among people, bringing closer the community as a whole; from the shareholders to the coffee roasters. In this way, they maintained high quality coffee with a proper manufacturing, bringing certain stability, since the consumers could be sure of an ongoing quality of the drink and service. Starbucks, maximized use of their resources, licensing coffee shops, kiosks, and bottles drinks, distributing Starbucks retail packs, and creating Starbucks prepaid store card. This also shows the understanding of their business environment and helped Starbucks earn more profit and brand awareness. Their total net revenues went from $6369, 3m in 2005 to $11,700.4m in 2011 and their net earnings increased by $751,3m in 6 years. However, this rapid expansion of Starbucks stores lacked proficient discipline and management system. The stock market valuation dropped and no right solution was made until the previous CEO, Howard Schultz took back his position. Starbucks’ loss was big due to inefficient investments, and opening of new stores worldwide, employees and wages, something that led to a drop in their stock prices. Analysis of the Problems Starbucks’ strategies had a lot of impact on the performance of the company. It is normal for some companies to try cutting on operational costs through using low-end raw materials and thus compromising the quality of the product. For Starbucks, the quality of coffee beans used had to be of the highest quality each time; which enabled the customers to be sure of drinking high quality coffee. In one way or another, this developed loyalty from the people. As of Strategic fit, Starbucks succeeded in keeping their strategies on both internal and external environments consistently. Internally, having the best staff is exactly what maintains any company. For Starbucks, the staffs were business partners. It was essential that they felt as part of the company and this boosted how well they related with the customers. The fact that their work was not only brewing and serving the coffee but also ensuring that the customers are continually engaged in the store was an excellent way to ascertain that those that visited felt as part of a community. The fact that the founders respected every member of staff and considered them business partners was a great way of promoting some coherence in the operations of the stores as the staff felt valued and an important part of a team. On the other hand, Starbucks’ had its strategies on the external environment as well. Its engaging of the community at large is a great way of promoting the value of the company. People do not care too much about a company that does not give back to the community or one that is focused on profits only. Starbucks engaged the people and it is this reason that it was taken in such high regard. However, the risk that Starbucks is facing is that the market is growing incredibly fast and competitively. The competition among the coffee industry is increasing and as the market grows, the fluctuation in prices is something that Starbucks cannot control. Also, Starbucks had experienced vulnerability without the current CEO, Howard Schultz when their market value dropped. Starbucks not only needs to focus on maintaining the stores, but also needs to take care of the upper management team and how they are going to make decisions on the growing competitive market. Recommendation Starbucks is among the most successful companies today. Unfortunately, after Howard Schultz resigned as the head marketer, the company saw huge decline in profits and competition continued taking a toll on the performance of the company. No changes in marketing bore fruits and after sales greatly declined, the company had to ask Schultz to return to the company so that he can counter the poor performance in sales and boost its position in the market. After some changes and implementing a number of policies, Starbucks went back to its initial successful position. The fact that it was until the former manager was brought back to the company that there was an improved performance places the company in a very tricky position. The laying off over 6,000 members of staff shows how volatile the coffee market is. A very stiff competition could greatly compromise how well Starbucks performs and the fact that coffee is not such a ‘high demand’ product means that at some point, the success of the company will not be sustainable. While Starbucks is quite a successful company, investing in its stocks could prove very costly for anyone saving for their golden years. For Starbucks to maintain loyalty and to retain the long-term relationship with the customers, we came up with several recommendations; Prioritizing Starbucks’ internal segment of the business. Starbucks could schedule more meetings with franchisers and staffs to increase sense of community and have well-trained employees. This will help understand the customers from their local markets and know what kind of employees are the best fits for their markets. Expansion. Starbucks should expand on its external strategy by focusing on maintaining the best quality possible- depending on the regional sections or by each country. It must slow down on expanding the stores too rapidly. Improving the management of each store is a priority and investing should be made more carefully. Redefining Howard Schultz role and legacy. Making stronger and more set long term plans with Howard Schultz as the CEO, and letting him pass on his strategies as part of a culture and tradition of Starbucks in the future as well. International growth in Starbucks. The global market including Brazil, India, China, South Africa and Mexico offered important opportunities for Starbucks to further expand stores and build up more customer base. Under international expansion strategy, Starbucks should gradually transfer its core competencies and capabilities all over the world. Mitigating the Starbucks’ price volatility Coffee beans play a significant role in Starbucks value chain. However, the price of high quality coffee beans in the market has fluctuated dramatically. To avoid the large price fluctuation risks and implement effective hedging strategies, Starbucks should provide margin for the future cost and estimate the quantity of inputs to fit a low swing price range. Advertising investment. Starbucks makes very little investment in advertising and marketing initiatives. It would be recommended that Starbucks invest more in advertising and marketing initiatives in growing competitive market. Also in the theme of brand popularity and successful advertising, is the utilization of one of the latest photo sharing websites to advertise Starbucks’ products. The website’s platform has a very wide range of users; it is the equivalent of a modern day Instagram. This sort of website is an indirect form of advertisement from Business to Customers but also a direct advertisement from Customers to Customers. Compared to traditional advertisements, this type of advertising is friendlier and more acceptable to consumers. In conclusion, if Starbucks were to implement properly the recommendations above I would definitely buy Starbucks’ stock for your retirement portfolio, since it already is a successful company. Nevertheless, the company still needs to restructure and groom managers who will succeed Howard Shultz in addition to redefining their growth strategy, expansion and investments. Read More