Strategic Management of Starbucks Corporation - Case Study Example

ID: Strategic Management – Case Analysis Introduction Starbucks Corporation is a global coffeehouse chain and coffee company that has its headquarters in Washington. The company in the present scenario is the largest coffeehouse company across the globe and operates in over 64 countries having a total of 23,187 stores. The stores of the company serve to its customer’s hot and cold beverages, full leaf teas, micro ground instant coffee, snacks and pastries. Howard Schultz has set an example of being one of the most influencing entrepreneurs who had made Starbucks reach its peak. The company started on its journey from being a single store of Seattle coffee to the largest chain of coffeehouse or rather the biggest coffee suppliers across the world. Howard Schultz had adopted various strategies may that be of international expansion, diversification, more of employee involvement, incorporating customer loyalty programs, or setting partnerships in new regions of its business operations. The company even to cut down on the operating expenses moved from opening company owned stores to licensed stores. However by the year 2007 there was a steep decline in the sales of the company and the value of its share prices had began to fall. The company has witnessed certain rewarding times as well as it had to face a huge turmoil in the competitive scenario. 1. Identification of Strategic Issues and Problems Howard Schultz has its entire strategy focused towards designing a coffeehouse more of an Italian nature that could give a splendid experience to all its customers so that they can relish a cup of coffee as well as spend quality time with closed ones. As an entrepreneur he had adopted specific measures so as to ensure that the coffee that was offered to its customers were of high quality and even the store design and layout was made in accordance of the goodness of the coffee to be offered and various artistic paintings and sculptures. The main aim of such a strategy was to create a memorable experience of the customers at their stores so that for them a cup of coffee would indicate Starbuck’s. So as to reach to more number of customers the company had taken measures to establish more number of stores equivalent to 20 stores in a particular urban area and the company even set up drive through windows in most of Starbuck’s stores so as to provide more of convenience to its customers and also more of outlets on the highway. The decline of the company started when Howard Schultz had left the organization in 2000. The core value of the company that was focused towards delivering value to their customers had faded away (Burks 67). The management of the company was more aligned towards diversification in their product range as well as through locations. The focus of the company had shifted from its core value towards international expansion so as to make the brand name appear in more number of locations across the globe. The major strategic issue was that the company provided the same standard services and products to all locations irrespective of proper analysis of the demand and need of the customers. The company even fail to analyze is external environment majorly in terms of competition and the changing consumer market demand. The strategy of Starbuck’s to increase its presence resulted into incorporating a lot of strategies such as changes in the menu which shifted the focus of the customers from the coffee towards other items such as snacks and sandwiches. The company even could not identify the fact that there was a lot of competition in US market that was emerging and also in Australian market in the form more of number of coffeehouse chains from Middle Eastern, Italian and European immigrants that led to downfall of sales of Starbucks as consumers started to have high preference towards coffee. There were even shifting local preferences which were not well analyzed by the company and thus the customer base of the company showed a steep decline. There were other fast food restaurants such as that of McDonald’s who were offering premium coffee to their customers which automatically took away the need that Starbucks had created in the minds of consumers towards their coffee (Michelli 112). The expansion strategies of the company make it devote less attention towards the intense competition and the need to innovate on its product range and services so as to retain the customers. The change in management was also a major issue that deviated the company from its core value of serving people. The focus was more on creating profit margins then to take active measures towards the society or to enhance loyalty of customers towards the Starbucks brand. 2. Analysis and Evaluation There are several factors that contribute towards the growth of a company; however amongst all the factors the most important is to create value to the customers. Customers can only be retained when they are given equal importance and their preferences are taken into consideration by the company. The core business value of Starbucks was that they are not in the coffee business rather they are in the people business where they serve people with the best quality coffee. Schultz had always aimed for setting such an atmosphere for its customers that they can have a memorable experience at the Starbucks. The main loophole in the strategy that was later designed for the growth of the company was only focused towards the growth and success of the company. More of an individual motive was served by the new management after Schultz that resulted into a steep fall in the sales of Starbucks. The strategy would have been more effective if the goals of the company were aligned towards the mutual benefit of the company as well as the customers. Competition is a major factor of concern for any organization as they can be the reason of success for an organization and on the other hand it can lead to downfall of an organization (Schultz 47). The analysis of competitive business environment was where the company lacked so as to set the most appropriate strategy as per the situation. Starbucks was just focused towards increasing their markets share and to create a buzz amongst the market place of the high quality coffee that the company promised offer to their customers. While the company was focused towards increasing its number of outlets and diversify in its product range there were small coffeehouse chains that were taking its market share. The analysis of its strategic downfall states that the company was not able to counteract the increased number of players in the market who were taking away the unique selling proposition of the company that was of selling unique coffee. The other fast food chains and various Italian and European retailer started selling more of grinded and best quality coffee that turned out to be the major reason behind the downfall of the company and closure of a wide range of stores across US and Australian market. The international expansion of the company was profitable for certain time period and later it began to cost the company a lot in comparison to the profit margins that the new stores generated. The closure of the majority of stores of Australia was also not a proper move that was taken by the company as it could have created a more strong impact on the consumer market segment of this region through analyzing the local preferences and demand and then positioning the brand as per the needs of this specific market. The other loopholes were changes in the menu items that comprise of sandwiches and snacks that took away the aroma that the finely grinded coffee created in the stores of Starbucks. The company to sustain in the market place followed more of aggressive growth strategy that hindered their current business operations and most of its outlets were operating through a negative cash flow as these stores were running in huge loss amounts. 3. Recommendations Starbucks had started off with its business operations from a single store to a large number of chains of stores throughout the world. The strategy of international expansion and diversification though had proved to be fruitful for the company in the initial phases but it was had been the reason behind the downfall of the company in the later years. The major drawback of the company was that it failed to analyze the in the intense competition that was prevailing in the markets in which the company was executing its business operations. The recommended strategy for this identified strategic issue would be to conduct a market analysis on a quarterly basis so as to identify the shifting preferences of the customers towards other brands or other coffeehouse chains and such a study by the company would help it to determine the possible competitors in the market who could pose a threat for the company and also take away its market share. A proper market analysis can be performed through a well trained market research team who can develop reports on the changing market scenario and the emerging players in the industry where Starbucks operates so that effective strategies can be incorporated by the company in order to stay ahead of the competition. The other recommended strategy for the company can be through collection information from their customers on the basis of what they like about their experience with Starbucks and what the factors are that needs to be modified by the company so that they can achieve higher levels of satisfaction of its customers. The company needs to set alternative strategies through which the declining sales of stores from certain regions can be substituted through alternative strategies such as exporting Starbucks coffee product to other markets, in retail stores, supermarkets and even through forming joint ventures with other fast food chains so that it can reach out to more number of customers (Sadler 107). This strategy would help the company to drive in funds from other sources of its business operations so that in such a crisis situation the company can manage a stable financial position. The other strategy is of eliminating the other food items from the menu so that the entire focus of the customers would be towards the coffee that would be offered by the company. The company should focus on maintaining the aroma of coffee in all it stores so that it is able to set a unique brand image that cannot be easily copied by other players in the market. In the highly intense competitive market the company can focus towards maintaining healthy relationships with all its employees as well as customers so that it is able to sustain in the market. The customer relationship can be maintained by the company through various loyalty programs which would comprise of gifts, messages on special occasions and offering discounts to the regular customers. As international expansion is a very important tool for the success and growth of the company so is maintaining a loyal customer base across all its regions of its operations as they are the ones that generates more revenues for the company and are cost less to the company in order to retain the existing employees in comparison to acquire new ones. Conclusion Business strategies can result into major outcomes for a company one can be towards the growth and success of the firm and the other would be towards the decline of the business operations. The strategies in order to be effective should be aligned towards the organizational goals as well as take into consideration the demands of the consumer market so that a competitive advantage can be achieved. In a present scenario of intense competition it is very much essential for any firm to retain on its customer base as well as set marks on the market in terms of high product quality and enhanced customer service. Aggressive growth strategies is not the only tool for success for a company but there are companies that operates in smaller regions and are still more successful in comparison to those that operates across a wide range of areas across the globe. Works Cited Burks. Marie., Starbucks. USA : ABC-CLIO. 2009. Print. Michelli. Joseph., Starbucks Experience. New Delhi : Tata McGraw-Hill Education. 2006. Print. Sadler. Philip., Strategic Management. Great Britain : Kogan Page Publishers. 2003. Print. Schultz. Howard., Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. UK : Hachette. 2012. Print. Read More