Understanding Customer Needs and Managing the Customer Experience - Case Study Example

Starbuck case study Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Executive summary Starbuck is a company originally founded in the US in 1971 and enjoyed widespread success in its prior years. This was mostly evidenced by its rapid expansion at the local level recording an exemplary number of 140 stores by the time it was being publicly listed in 1992. This company eventually engaged in the process of internationalization and opened a large numbers of stores in diverse regions like Asia and Australia where it recorded considerable success for some time. Nonetheless, a wide alley of both external and internal factors led the decline of this company, most notably in Australia. This paper seeks to explore what went wrong with Starbuck until its eventual collapse in Australia. This is done through the analysis of various aspects of service elements. Additionally, a SWOT analysis is undertaken to unearth these factors followed by the lessons which can be learnt by firms seeking to cross the international borders. This is followed by recommendations and conclusion. Contents Executive summary 2 Contents 3 Introduction 4 Strengths and weaknesses 5 SWOT analysis 5 Strengths 5 Weaknesses 6 Opportunities 9 Threats 9 Leant lessons 10 Recommendations 11 Conclusion 12 References 13 Starbuck case study Introduction It is an apparent fact that Starbuck experienced extensive expansion both nationally and internationally since its early years of establishment in 1971 in Seattle’s pike place market. At the local market, its rapid expansion is evidenced by the fact that by the time this company was being listed in public in 1992, it was already credited for commanding 140 stores and expanding at a fast pace. This is whereby the company had a growing store count of additional 40-60% annually. This success was for some time replicated in other regions of the world as Starbuck sought to internationalize its operations. These regions included Asia, Europe and Australia among other regions. For a period of time, Starbuck managed to command a significant market share in these regions, attaining commendable revenues in the process. Nonetheless, something wrong happened along the way and the popularity, profitability as well as competitiveness of Starbuck saw a gradual decline resulting to closure of operations in different parts of the world, most notably in Australia. Against this backdrop, this paper seeks to primarily explore where Starbucks went wrong and what caused it to collapse in Australia. Additionally, it will investigate diverse lessons which can be learnt by other service firms which are seeking to cross the international borders. Coupled with the above, this paper will also explore other aspects of the service element and evaluate the strengths, weaknesses, areas for improvement and constraints among other aspects and lastly make recommendations. Strengths and weaknesses There are diverse strengths which underpinned the initial success of Starbuck, mostly in the American market which saw its expansion in other regions of the world. On the other hand, there are some inherent weaknesses, both internal and external which immensely contributed to its eventual collapse, mostly in the Australian market. These can be comprehensively explored through a SWOT analysis of this company. SWOT analysis SWOT analysis can be perceived as the process through which decision makers in a specific organization engage in gradual development of their awareness of the organizational environments with the core objective of influencing the performance both in the short and in the long-term (Naryanan & Nath, 1993). Al-Rousan and Qawasme (2009) cited that an explicit relationship exists between dimensions of competitive advantage and SWOT (Strength, Weakness, Opportunity and Threat) analysis. Strengths Several reasons have been forwarded explaining the rapid success and expansion of Starbuck, mostly at the American market. Firstly, it has been cited that Starbuck succeeded in Americanizing the European coffee tradition, something which had not previously been done by any coffee house. This was against the backdrop that before Starbuck undertook this fundamental step, coffee had previously been alien to most American citizens. In addition, this company successfully created a ‘third place’ in the lives of people, that place between work and home where people could sit and relax. On the other hand, Starbuck was able to create a robust brand which became a symbol of status and still attracted consumers despite its higher prices. In this case, Starbuck can be perceived to have extensively adopted value-based pricing model which relates to value perceived by consumers. This was coupled with the fact that this company provided great consumer experience which was attractive to most consumers. Lastly, there was the aspect of convenience whereby consumers could be able to access a Starbuck store anywhere and buy coffee exactly according to specification. Weaknesses There are diverse weaknesses which can be perceived to have eventually contributed to the eventual collapse of Starbuck operations in Australia. Firstly, Starbuck experienced immense failure in its differentiation efforts which could have made its brand different from other competitors in Australia. This is whereby based on the fact that Australians had a long established coffee culture, Starbuck ought to have invested more time and resources in the creation of more robust and distinct coffee which could differentiate it from other competitors in the market. Diverse scholars and practitioners, for instance, Aaker (2001) and Kotler (1994) among others have for a long time talked about a meaningful perceived difference which is key in providing the consumers with their reason to buy and be loyal to a particular brand. In this case, Romaniuk et. al. (2007) revealed that new entrants in a market who are undifferentiated are bound to fail because none of their current or prospective consumer is motivated to buy their brands. The lack of cognition of this fact is one weakness which can be attributed to the eventual demise of Starbuck in Australia. Secondly, Starbuck had an incompetent strategy development team. This is best epitomized whereby amid the evident decline of the company’s popularity and competitiveness, the company adopted a strategy of setting key performance targets (KPTs) for its employees. This was detrimental in the sense that the instigation of these KPTs meant that the baristas and the staff had limited time of engaging with the consumers as they hurried in order to meet their targets. This compromised the basic principle and values of consumer service and experience upon which its success had been built and can be expounded using the role and script theory. In this theory, there is a sequence of events which are expected by an individual, either as a participant or an observer (Solomon et. al. 1985). Additionally, the ill-timed imposition of these KPTs had negative impacts on the level of morale and commitment among the employees which culminated in the inevitable decline of consumer service. This aspect of strategic miscalculation was thus another weakness which resulted in the collapse of Starbuck, not only in Australia but also in other regions. Thirdly, Starbuck performed an insufficient market survey in the new markets it intended to penetrate, most notably, Australia. This is best exemplified whereby while the company made some slight changes in its menu in countries like Japan and Saudi Arabia, it generally offers the same products in all its target markets. In this case, it simply tended to impose to the Australians what had worked in the American market without necessarily seeking a comprehensive analysis of what could work in the local market. Thus, the failure to have a prior understanding that Australia was a heterogeneous market with unique preferences and tastes different from those in the American market proved to be a major weakness in the entry mode of Starbuck in Australia. The other weakness is related to the promotion and advertisements undertakings of Starbuck in Australia. In a global spectrum, it has been revealed that this company hardly employs above-the line promotion, a case which has been apparent in Australia. In actual sense, this company has for a long time maintained that its stores are at the core of its business and thus it does not have any need of building and fortifying its brand through promotion or advertisement. This is against the findings by diverse researches that advertisement and promotions in the contemporary highly competitive market plays an integral role in the processes of inducing the consumers to purchase a particular product amidst a variety of products which are being offered in the market (Krishnan & Bhandare, 2009). In this case, the failure to incorporate robust promotion and advertisement in its marketing mix as envisioned in the 4Ps of marketing proves to be a major weakness of this company. This is founded on the fact that in a highly dynamic and competitive market like Australia where consumers have a discerning taste and loyal to specific barista, advertisement and promotion is critical in the communication of the Starbuck message. Therefore, advertising is often the first point of contact between service marketers and their dynamic customers. Thus, the unresponsiveness by Starbuck to this reality can be perceived as a major weakness on the side of this company. Opportunities There are diverse opportunities which are available to Starbuck in its contemporary situation as it seeks to reestablish its dominance in this industry as well as recapture its eroded market share. The first opportunity is seeking to enter into highly unexploited markets which have limited competition and entry barriers. These include markets in Africa and Latin America among other region. This is founded on the fact that from the initial days of its establishment, Starbuck got off on the back foot and lacked the first-mover advantage both in the US as well as in Asia. In this case, it found itself as a late entrant in a market which was already competitive and highly complex. However, the unexploited markets in terms of coffee consumption mentioned above provide a major opportunity for Starbuck to reemerge from its current form. The other opportunity for Starbuck is the utilization of more contemporary promotional platforms to communicate its brand to different regions of the world, for instance, the social media. This is against the background of increased popularity of social networks in supporting the operations of various businesses. As a result, various scholars like Weston (cited in Bolotaeva & Cata, 2011) have determined that if social networking is correctly approached in business, it can be integral in facilitating the processes of finding talent and new consumers, developing brand awareness as well as conducting market research and brand intelligence. Thus, the utilization of these platforms is a major opportunity for Starbuck in its efforts to reassert its dominance. Threats There are several threats to the viability of Starbuck which are both external and internal. From an external perspective, the fact that consumers have been faced by heightening interest rates and skyrocketing fuel prices among other dynamics have restrained their spending capacity and obliged them to pull back on epicurean coffee among other luxuries. Secondly, there has been elevated competition in this industry, both at the local and international level which has threatened the dominance of Starbuck in the market. From an internal point of view, the declining financial capital of this company can be perceived to inhibit its probable expansion efforts even if new opportunities like those mentioned in the preceding section become apparent. Lastly, the increasing level of discontent and disillusionment among the Starbuck personnel even to the point of openly posting blogs that the company has lost its way provides a real threat to the retainability of the key human resource in this organization. Both of these external and internal factors can be perceived as being the main constraints to the viability and feasibility of the Starbuck’s operations, both in the short-term and in the long-term. Leant lessons There are various lessons which can be learned for other service firms crossing international boundaries. Firstly, these companies ought to be cognizant of the fact that they are entering into completely different markets which have unique tastes and preferences. In this case, they ought to avoid making the mistake of imposing methods and practices which had succeeded elsewhere like Starbuck did in Australia. Instead, they should conduct profound market analysis before they enter so that they can tailor their services and products to fit the specific needs of the local populations in their new markets. This fact is supported by Carbone (2006) who determined that the management of consumer experience necessitates changing how firms do business and being able to sense and change their business models to meet the consumer needs. The other lesson learnt from the case study is that it is imperative for firms to expand their portfolio in order to capture a wide alley of consumers. This is founded on the backdrop that based on the limited portfolio of Starbuck, consumers associated it with coffee and proceeded to seek food elsewhere. This is unlike in other competitors like McDonalds which has a full alley of breakfast and lunch/dinner items which can be complemented by a McCafe latte. Therefore, other companies seeking to expand beyond their national borders ought to enrich their portfolio to meet the diverse needs among the consumers. The last lesson learnt in this case study is that these firms should engage extensive promotion and advertisement of their products and services in the new market prior and even after their entry. This is imperative in not only building awareness but also in communicating the meaning of the brand and giving the consumers a formidable reason to patronize their services or products. Recommendations Based on the preceding analysis, it is recommended that Starbuck ought to re-strategize on its operations in different markets, mostly if it seeks to expand to other regions outside its traditional markets of America, Asia and Australia, for instance, seeking franchising as an alternative entry modes into these new markets in Africa and Latin America. It is also recommended that Starbuck engage elevated efforts to differentiate its products and services from the competitors which will be key in affording it’s the much needed competitive advantage. This is founded on the findings by (Gebauer et. al. 2011) that service differentiation is indeed a robust source of competitive advantage. Lastly, it is recommended that Starbuck ought to adopt more contemporary promotion mechanisms of its products, for instance, using the social network platform to popularize its products, mostly among the young consumers who are the major consumers of these platforms. This will elevate its popularity and eventually recapture its niche in the market. Conclusion The preceding analysis has evidenced the early exploits of Starbuck, mostly in the US markets and the various reasons which underpinned its rapid expansion. Additionally, a SWOT analysis has been undertaken in this paper to reveal the diverse reasons, both internal and external which culminated to the collapse of this company, mostly in Australia. This review has also explored some of the lessons which can be leant by firms seeking to cross international borders based on the Starbuck case study. The last section of this paper has forwarded some recommendations which can be core in necessitating this company to regain its footing and recapture its favorable niche in the market. References Aaker, D.A. (2001). Strategic Market Management, (6th ed.). New York: John Wiley & Sons. Al-Rousan, M. & Qawasme, F, (2009). The Impact of SWOT Analysis on Achieving a Competitive Advantage: Evidence from Jordanian Banking Industry. International Bulletin of Business Administration, 243(6): 82-92. Bolotaeva, V. & Cata, T., (2011). Marketing Opportunities with Social Networks. Journal of Internet Social Networking and Virtual Communities, 1: 1-8. Carbone, L. (2006). Understanding Customer Needs and Managing the Customer Experience: End-to-End, B-to-B. Retrieved May 15th 2013 from http://isbm.smeal.psu.edu/documents/0206msum.pdf Gebauer, H. et. al. (2011). Competitive advantage through service differentiation by manufacturing companies. Journal of Business Research, 64(12): 1270-1280. Kotler, P., (1994). Marketing Management: Analysis, Planning, Implementation, and Control, (8th ed.). Englewood Cliffs, NJ: Prentice-Hall Inc. Krishnan, M. & Bhandare, U. (2009). Retail Advertising and Promotional Strategies in Growing Consumer Market. 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