Starbucks Management Strategy - Essay Example

? STARBUCKS CASE STUDY inserts his/her inserts inserts Today, Starbucks is one of the most successful global coffee companies that is doing more than just serving high quality coffee to its customers. According to Starbuck’s official website, Starbucks is operating almost 18,000 retail stores in 60 countries and its recent annual report states that its annual revenue was over 13 billion dollars in 2012. However, there was a time when Starbucks struggled and faced hard times in its business. This case study will look at how Starbucks overcame internal and external barriers in its business through design management and became one the most powerful brands in the 20th century. This paper mostly focuses on design management used in its product and services while slightly touching upon the other core part of design management that is culture and process. Brief History of the company & Issue: The first Starbucks store opened at Pike Place market in Seattle. Today’s CEO of Starbucks Company, Howard Schultz, went on a trip to Italy to find new business items and was impressed by coffee cultures in Italy which included barista roasts, grinds and the practice of making coffee right in front of customers. He found its great potential as a business in Seattle and opened a similar coffee house in Seattle. His business bloomed and merged with Starbucks which was combined with his original coffee house. Initially Starbuck’s strategy was offering high quality coffee that is roasted and made by the world’s best barista; however, as the business grow rapidly, Starbucks had to choose a different direction that included the purchase of machines and the provision of coffee that is made by machines for cost and time effectiveness. Starbucks realized it could not provide the coffee the old way because a lot of customers were visiting the store at the same time. However, by making coffee with machines, they were able to reduce the time of making coffee and were able to provide the same quality to all the customers. Starbucks also started the practice of not limiting its products to coffee but expanding the menu to include sandwiches and pastries. Starbuck’s profits grew until 2007 and the number of retail stores increased to 15,011. However, the global financial crisis slowed down the economy; many similar competitors entered the market and downplayed Starbucks by offering low priced, high quality coffee. Since Starbucks’s establishment this was the first time that its growth slowed down and in 2007, its stock value dropped down by almost 50 %. In 2008, its net revenue growth saw a decline of 11% compared to the previous years. Customer/ target audience of Starbucks: Starbucks targets a diverse audience. The fragments of target audience are different based on products that Starbucks provides. However, Starbuck’s overall target audience can be defined as men and women whose age is between 18 to 60 years and who consume coffee or enjoy special beverages that are offered by Starbucks. Starbucks appeals to these target age groups through contemporary and clean designs that are presented in a consistent way in its product and package designs, interior of the store and advertising. For young adults whose age is between18 and 24, Starbucks positions itself as a place where college students can study, write, read and hang out with others. This target market tends to grow by 4.6% every year. The targeted age group for Starbucks is 24- 60 years which includes people living in urban areas who have professional careers with relatively higher incomes and are socially responsive individuals who care about sustainability and environment. This target audience grows at a rate of 3 percent annually. Both these age groups consider customer service and experience at the retail store with the brand as important. The company’s offerings are targeted relatively to higher income individuals who are people who go to Tim Horton’s or McDonalds. The journey (The process and how did they do it): In early 2008, when Howard Schultz had to return to the company as CEO to restore the company, he closed all Starbuck stores in the US for 3 hours in order to train employees with “the art of espresso”. Although it brought great financial losses to the company in the short term, Schultz believed that it would return back in the form of customers’ satisfaction with the company’s service and products in the long run. In the meantime, Starbucks tried to sell a dollar priced coffee to compete with one of its strongest competitors, McDonald’s “McCafe”. The company also produced some TV commercials for the first time in this regard hoping to get more support. In March 2008, under the plan of closing down a number of its stores, the company launched “My Starbucks Ideas” which is a website that asks customers to share and suggest their thoughts about the company. In the middle of 2008, Schultz had to cut down outgoing money to become more financially secure and prevent the company’s potential losses. Schultz closed down almost 600 stores in the U.S.A and 61 stores in Austria whose performance was below expectations. Sometimes, downsizing the company may be a solution to cut down the operational cost and in this case, increasing the number of stores would not solve the problem until the internal problems were fixed. Realization: The company found that so many competitors have entered the market with similar concept as Starbucks and some of them were trying to compete by offering low prices or employing strategies different from Starbucks. Starbucks was not unique anymore like it used to be when instant coffee mostly existed. Soon, Starbucks realized that pricing down would not help to increase its revenue because people whom McDonalds was targeting were not the same as Starbuck’s target market. The company had already lost its romance of European coffee culture and uniqueness when it started to use machines to make coffee. Starbucks realized it has to re-design new strategies that will bring unique customer experience that one can have only at Starbucks. As Schultz stated, “We desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. While the current state of affairs for the most part is self induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.” Markets and businesses are always affected by internal and external changes. External issues like the global economic crisis in 2008 and the onset of strong competitors in the market give the original customers to an alternative which might affect the revenue of Starbucks. However, the core problem is that since the company grew so quickly, it did not have an opportunity to look back. Schultz was rather obsessed with opening more stores and selling more products which led to a distraction from its core value and objectives. It was time to look back at the company’s business objectives and core values from where the company had started from. There was an immediate need to understand where the company was at the moment in order to follow customer needs and market trends. Solutions: One of solutions with which Starbucks ended up was redesigning and revitalizing customers’ experience with Starbucks. Through the platform of “My Starbucks Idea”, Starbucks could communicate with customers and find out where they should go and what their customers want. By using other communication platforms, Starbucks was able to understand that its customers were concerned about their health and were interested in low calories products and wanted to get involved and rewarded on their loyalty to the company. Another strategy was putting great emphasis on social responsibility as a company. Starbucks’s target market included people who really care about sustainability and social responsibility. This would attract people who really care because buying their products was supporting them and making them feel a part of the corporate responsibility that Starbuck was fulfilling. Implementation: Starbucks also removed in-store products like dolls that don’t suit the brand value and replaced them with images that emphasize on customer’s wellbeing and healthier food products. The company stopped selling products that did not really go well with its brand image which in turn made the social identity of the company clearer to the customers. Adding low calories beverages to give customers options to choose from also provides another way to ensure customer satisfaction. Also, in order to attract non-coffee drinkers who were concerned about healthier food choices, Starbucks introduced Smoothies. One of the most successful redesigning of customer experience at Starbucks was its reward program. The reward program delivers the company’s appreciation for customers’ loyalty towards the company. This program was set to test in the U.S in 2009. Starbucks’ reward program operates by giving a customer a Starbucks gift card so that he can register it online and reload the money to continue using it after he finishes the amount of money that comes preloaded in the gift card. After he registers card, he gets a star on every transaction and after gaining 5 stars he gets to the green level. Reaching the green level gives certain advantages to the customer. When a customer collects 30 stars, a Starbucks gold card is made which has engraved on it the cardholder’s name. After obtaining the gold card, with every 15 stars the customers gets a free beverage coupon. This is a good idea to reward customers. Also, providing a personalized slick design of the Starbucks gold card made its customers feel more attached to the company. Starbucks also created iPhone apps called “My Starbucks”, which allows customers to register their card number on the phone and which can be used to make payments when customers forget to bring their card to the store. Social responsibility is being implemented both outside and inside the company’s stores. Starbucks started to use reusable cups and cup holders with environmental friendly materials as much as possible. Also, they pushed themselves hard to mark their role in supporting fair trade coffee and markets. The company’s clean packaging of coffee beans also gives a good impression to the customers. Read More