Starbucks Case Study: Challenges, Alternatives, and Solutions

This case study examines the decline of Starbucks after 2007, focusing on key problems identified by Harvard Business Review, including a lack of innovation, superficial growth through new products, and increased competition. The case study analyzes the background, highlighting management turnover, the US recession, and the rise of competitors like McDonald's and Dunkin' Donuts. It identifies specific issues such as reduced customer experience, high prices, and inadequate marketing strategies. The study proposes alternatives like staying private, focusing on specific geographical areas, improving the supply chain, and lowering prices to retain customers. Proposed solutions include pricing strategies, online stores, new services, and enhanced marketing. Recommendations involve employee branding, CSR activities, pricing adjustments, and improved customer relationships. The case study provides a comprehensive analysis of Starbucks' challenges and offers strategic recommendations for recovery and sustained market position.

Case study on MBA
program

TABLE OF CONTENTS
A STARBUCKS ON EVERY CORNER........................................................................................1
Introduction.................................................................................................................................1
Background.................................................................................................................................1
Key Problems..............................................................................................................................2
Alternatives.................................................................................................................................3
Proposed solution........................................................................................................................3
Recommendation.........................................................................................................................4
REFERENCES................................................................................................................................5

A STARBUCKS ON EVERY CORNER
Introduction
The decline in the Starbucks was seen after the year 2007, when a memo of Howard
Schultz was leaked. It showed that there was no growth and company was having loss at the
outside stores. New strategies such as Wi-Fi, music for sale were included but then also their 600
stores were closed in US and there was no improvements. Harvard Business Review (HBR)
stated that there are three main problems that resulted in fall. Starting from Seattle-based-chain
they ended with great loss in 2008. The owners tried to minimize the threats, however, they have
deal with it in future (Chua, and Banerjee, 2013). As mentioned by HBR, that the price and
experience were no longer left and new planning is required by the Starbucks. There were
difficulties in raising the sales per store and removing the basic products. However, during the
same period there was rise in McDonald sales as they were providing better sales which raised
their sales to 13%. After 2003, there was decline in Starbucks trading and their sales went too
low (40%). HBR identified three issues that were restricting their growth, these were: isolated
early-adopters, to broaden the appeal they added too many products and superficial growth
through new products. Superficial-growth has provided many issues and challenges to the
company.
Background
There has been successful growth of Starbucks The main issues were related to the
management turnover and due to this reason there was fall in the company's sales. There was
also recession in US which lead to less customers and downfall in the sales. Due to this reason
the company was unable to achieve its target were facing huge loss in market. Along with this,
there were many competitors raised against the Starbucks which influenced the Customers.
There were new exclusive brands such as Caribou, Peets etc (Ngai and et. al., 2015). which were
influencing the customers and they too were switching towards them. Additionally, there was
premium prices of for their coffee but Dunkin-Donuts has made improvements in their coffee
that too at lower prices. This led to increase their sales at period of recession and fall of
Starbucks. Increased in the stores have made have made people less prioritise the stores. There
was no customer experience but prices were way too high for them. Moreover, the company has
to identify new ways through which they can reduce their fixed costs so that they can improve
their operating leverage (He, Zha and Li, 2013). Major advantages was taken by the McDonalds
1

as they provided coffee and other beverages at low cost which increased their sales, profit,
customers and brand value.
Key Problems
Starbucks was famous for brewed coffee and espresso beverages. It is multinational
company that has expanded with proper management and in 2008 it can be easily seen. The
entity issues started in U.S. when they have to close there 600 stores due to inadequate strategies
and management (Pattinson and Preece, 2014). As stated by the HBR, the three main cause
which lead to the decline in the sales, customers and profit in These were: There were many less
customers that were preferring the Starbucks as there was more focus provided on the speed but
taste was not considered which led to loss in the customers. This provided chance to the other
companies to get profit such as Caribou, Peets and other exclusive brands. Secondly, due to
introduction of too many coffee products customers were unable to chose the one. This affected
their appeal, brand position and image of the company. Baristas which was one of the way
customers were attracted by the Starbucks were unable to share their views. Moreover, the new
products added challenges to them which declined the brand experience and increased the
waiting time for the customers. They were also having the premium prices for their products
which declined their sales at recession. This chance was grabbed by the McDonalds and other
beverages companies which raising their product quality but keeping the prices low.
The third key problem mentioned was requirements of great management in order to
maintain the sales to the previous years. As brand loyalty is earned by the store managers and
they were the main reason for the increase purchase frequency, the rise in the store reduced the
managers. This highly affected the sales and manager morales of the company.
Quelch, (2008) highlighted that none of these could have happened if they remained
private and have maintained their pace (Zogaj, Bretschneider and Leimeister, 2014). The
expansion without proper management has led to the fall in the sales, profit and image of the
company. This has also provided many challenges to the company. As per the him if they
continued to be limited, exclusive and premium priced they can rise their distribution to the
international market. In simple words the problem lie in lacked marketing strategies, ever-
changing perception, customers dissatisfaction and rise in competitor.
2

There were some additionally challenges that were faced by the company, these were
economic situations as during that period there was high recession and customers cannot afford
the coffee for $4 so they switched to cheaper alternatives (Berggreen, Evolvi and Durham,
2016). There was also problem related to employee relation and environmental concerns.
Alternatives
Starbucks have missed the marketing strategies that can assist in maintaining the sales
and operation. Further, they should have stayed private should have made their growth at more
specific places and in more controlled pace (Handler and Conill, 2016). Additionally, they
should remain premium-priced brand so that there are less competitors in terms of distribution of
the products. They should focus on opening the new stores but it should be specific and should
be based on the geographical areas and coverage. Increase in the store must not be concentrated
on the same location, place or city. Along with this, they should focus on the improved supplies
chain and should maintain positive relationship with them. It must be implemented as it will
provide greater advantages such as reduce in the cost price, which will result in the increment of
the Profit margin.
In order to retain more customers they should lower their prices along with separate
counters so that consumers have less time (Zieba, Scarso, 2016). They should enhance their store
experience so that more people can visit the stores. Besides this, they should improve and
promote their existing products so that they can have better products service and they can
effectively launch their new products. At last, they should use the aggressive marketing
strategies in order to influence and attract the new customers.
Proposed solution
These are the possible solution which Starbucks can implement in order to maintain their
market position, image and store at US (Martínez-Torres, Rodriguez-Piñero & Toral, 2015).
They should focus on the prices through carrying out the pricing strategies as profit can be
maintained if focus on the sales is not given. They should launch the online stores where people
can pay directly pre-order or pre-pay. They should start new services so that more brand
promotion can be made and customers can be influenced. They should also focus on their
marketing part that is the ways they are branding the products. There are three things that are
included in the pricing strategies these are highest quality coffee, customer intimacy that is
services should be maintained and they should focus on the improving it. At last is the
3

atmosphere, as customers should be more satisfied so they should provide the effective
environment where they can relieve their stress and can enjoy the coffee.
They should also focus on the management part and should hire more part time
employees and increase the customers participation in the company. Increasing the
communication efforts helps to hike in sales and profit level. They have their key strength in
their brand name, financial base, location, innovation and respected employer. They have further
opportunity if they tie up with established business, and focus on supplier management as they
are the one that can increase the sales and profit of the company at the same time. Further, they
should focus on the possible threats from the new entries such as Mc-Donalds, Dunkin Donots
and bargaining powers of the customers. In order to be in the market they should establish the
brand marketing, customer satisfaction, smart partnership, innovation, customized products and
e-marketing.
Recommendation
These are possible recommendation that can be used by Starbucks to maintain their sales
and brand image:
 Establishing employee branding by keeping them motivated through incentive and
innovation. Positive reinforcement so that they can have job satisfaction.
 They should try to establish their stores after proper strategies.
 Enhancing and improving the CSR activities (Corporate Social Responsibilities).
 They should focus on their pricing strategies as it is way to high which makes customers
to chose other brands that are cheaply available have higher quality.
 They should try to maintain better customer relationship and should take their and others
review so that improvements can be made in coffee and beverages.
4

REFERENCES
Chua, A. Y., & Banerjee, S. (2013). Customer knowledge management via social media: the
case of Starbucks. Journal of Knowledge Management. 17(2). 237-249.
Ngai, E. W. & et. al. (2015). Social media models, technologies, and applications: an academic
review and case study. Industrial Management & Data Systems. 115(5). 769-802.
He, W., Zha, S., & Li, L. (2013). Social media competitive analysis and text mining: A case
study in the pizza industry. International Journal of Information Management. 33(3).
464-472.
Pattinson, S., & Preece, D. (2014). Communities of practice, knowledge acquisition and
innovation: a case study of science-based SMEs. Journal of Knowledge Management.
18(1). 107-120.
Zogaj, S., Bretschneider, U., & Leimeister, J. M. (2014). Managing crowdsourced software
testing: a case study based insight on the challenges of a crowdsourcing intermediary.
Journal of Business Economics. 84(3). 375-405.
Berggreen, S. L. C., Evolvi, G., & Durham, N. (2016). Media Narratives and the
Conceptualization of Tea: A Case Study of Teavana’s Oprah Chai Tea. Journalism. 6(1).
1-11.
Handler, R. A., & Conill, R. F. (2016). Open Data, Crowdsourcing and Game Mechanics. A case
study on civic participation in the digital age. Computer Supported Cooperative Work
(CSCW). 25(2-3). 153-166.
Zieba, M. & Scarso, E. (2016). Emergent approach to knowledge management by small
companies: multiple case-study research. Journal of Knowledge Management. 20(2).
292-307.
Martínez-Torres, M. D. R., Rodriguez-Piñero, F., & Toral, S. L. (2015). Customer preferences
versus managerial decision-making in open innovation communities: the case of
Starbucks. Technology Analysis & Strategic Management. 27(10). 1226-1238.
5