Starbucks Struggle to Survive
Starbucks’ Struggle to Survive
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Starbucks’ Struggle to Survive
The year 1971 has witnessed the birth of the coffeehouse behemoth that still persists to be known by the society until now. Starbucks is the brainchild of three entrepreneurs (“Our Heritage” 1). For almost 44 years, the Starbucks Corporation continues to be the largest, most successful, and most popular coffeehouse in the world, expanding stores to more than 50 countries from its home branch in Seattle (“Our Heritage” 1). As time passes, especially in the post-modern era, drinking coffee has been increasingly popular, not just among office workers or adults, but also among the younger age group. Considering that in almost every other block, a Starbucks coffee shop exists, the accessibility makes it more convenient for the population pool to satisfy its coffee fix. But as the said corporation continues to widen its market, new and more innovative specialty coffee shops start to gain popularity as well. The overwhelming number of competition poses a threat to Starbucks. A number of factors correlated with the aforementioned statement have made Starbucks struggle throughout the years landing to today. This paper will discuss the struggles faced by Starbucks to sustain its enterprise.
Although Starbucks has been prevailing for quite a while now, there are a number of reasons it is different from other coffeehouses. Starbucks relies mostly on word-of-mouth advertising, for one. If closely observed, it can be easily noticed that this coffeehouse does not have a lot of advertisements, whether on magazine, newspapers, or billboards (McGrath 1). Definitely, its prolonged presence in the industry helped in sustaining its customer pool, but for the most part, it relies on the satisfaction of customers and not on advertisements. The stated prolonged presence has also paved way for the recognition that Starbucks is the leader when it comes to quality coffee beverages. It h as successfully brandished its name all throughout its 44 years of existence. Since Starbucks has been the pioneer of serving high-quality coffee, most coffeehouses today pattern their businesses from Starbucks. This differentiates Starbucks from other coffeehouses since it is the model, and their successful branding of premium quality coffee and products make it difficult for them to be placed out of competition. This branding has also been able to lay out their loyal customers. With a target market of highly diversified consumers, Starbucks has been catering to almost everyone while gourmet coffee shops cater to a specific pool of customers only. This is another difference – independent coffee shops take pride on the quality of their products over the quantity of their branches. On the other hand, Starbucks claims to have both quality products as well as the quantity of branches.
Starbucks is under the monopolistic competition market structure. This coffeehouse corporation sells products that are not unique to them, but similar with other coffeehouses (i.e., coffee beverages) only they are not identical with other coffee beverages (i.e., different way of production and flavorings). In correlation with this, there are many sellers of coffee, but Starbucks, which has already established its name in the industry, tends to be an obstruction or a threat to possible competition. This is a characteristic of monopolistic competition. Additionally, Starbucks has the sole power to control the price of their products. Other competitors tend to lower prices of their goods so as to compete with bigger coffeehouses like Starbucks, and thus Starbucks has control over the price range of products.
Price Elasticity
Quite a number of factors affect the pricing of Starbucks inclusive of which are quality, differentiation, relative value and the authoritative value. Since the company balances its pricing on these factors, it has been able to stand out and outcompete most rivals. For instance, Starbucks was among the leading companies to employ mobile payments and promotions that are location based (Gilbert, 2009).Since 1997, the pricing at Starbuck has immensely increased and hit almost seven times what they used to cost. However, making judgment from the fact that they have managed to maintain a large consumer base and even expand, it is more than acceptable that Starbucks has not suffered from the pricing. Rising of the prices has led to the increase of revenue. For instance, within the early stages of 2013, the total revenue shot up by 11% to $3.8b compared to an analysis of the previous year. As such, the pricing is inelastic as the consumer willingness to purchase defies the odds of increasing prices.The company has also employed mechanisms that justify their increased pricing. They line up the cheaper and inferior products alongside the expensive products of high quality to give their clients the privilege of making comparisons. As such the clients opt for the standard, superior goods having weighed their options (Schultz & Gordon, 2011).
Starbucks’ Crisis; 2007 and 2008
Starbuck’s magnificent history was hit hard in the years of 2007 and 2008, and it suffered a significant quarterly loss in 2008 and a drop in prices of shares. Trading at the company had become flimsy, and it lost its ability to compete rivals in the market effectively. Some rivals even went to the extent of exploiting the situation further by launching de campaigning programs against Starbucks. The factors discussed below were critical to its economic dwindle.Poor strategy and product differentiation made the company’s products ordinary and with little ability to sell in the market. This was factored by reasons inclusive of the choice to abandon the previously labor intensive machines for the La Marzocco espresso machines. These machines led to the drop in the quality of the coffee. The company also changed its furniture design to more sterile wooden furniture that did not make a great impression compared to rivals cushioned armchairs and benches (Schultz & Gordon, 2011).The company also had weak branding compared to rivals. Considering that they had failed at product differentiation, the advertising that was aired in media could not cover up for the damage. The focus on rebranding of the products failed to meet the goal of promising quality and competitiveness against rivals.Starbucks also had a relatively slow reaction that sought to stop the negatives from advancing. For instance, when what the company needed was immediate reshuffling of executives and repositioning of its targets and aim, only few cases of reshuffling were registered. Moreover, the company took the time to introduce new products and brands into the market, a factor that could have presented dissatisfied customers with immediate alternatives. The company took the measure of slowing its growth to curb the problems encountered. However, this measure presented more problems as the slow growth failed to justify their business model and made their stock price fall further (Schultz & Gordon, 2011).
Strategies to Overcome the Crisis
Howard Schultz, the co-founder of the company, took to several measures to overturn the misery that had clouded the Starbucks. He ordered reshuffling of executives for the convenience of the enterprise and cut out the dead wood as the ineffective executives were laid off and replaced with new personnel with new ideas. The first change was the reinstating of Schultz as CEO. The company also changed the designs of its shops to more modern shops with cushioned chairs and benches (Gilbert, 2009). As such, they rid of the sterile look and put on an aurier that was more appealing and luring to clients.Rebranding and product differentiation also played a factor in the company’s comeback as they intensified the commercials to air their changes and competency. Significantly, the company increased their brands to offer more variety to clients. The customers’ loyalty was earned again by improving the quality of the products to outcompete rivals. Starbucks also slowed the rate of its growth to focus on the improvement of services at the existing shops already. As such, more of the finances were used for improving the company to match and even beat rivals (Schultz & Gordon, 2011).
Reason for the High Prizing at Starbucks
Having made a turnaround, the company comfortably managed to fit into the market and outcompete most of its rivals again. The improved product quality demanded more capital and the subsequent increased pricing (Gilbert, 2009). Considering that the company had gained customer loyalty, their demand for increased pricing was willingly met by the clients who were willing to pay for the quality goods. The high quality of products also led to rise in demand compared to the company’s ability production capacity. Moreover, the fact that Starbucks had managed to outcompete most of its rivals also facilitated the issue.The increased pricing hence led to rise in revenue that made the pricing inelastic. The company at this state had achieved relative economic stability and stock prices had also increased. The high quality and product differentiation that played the biggest role in the rise of pricing was enabled by the several changes factored into the organization by Schultz, the co-founder.
Starbucks’ Stability
Starbucks has been thriving in the market despite their high pricing compared to most rivals. The reason being, they have been entirely capable of justifying their reasons for the high pricing. They also offer alternatives to clients who cannot afford the highly priced products (Gilbert, 2009). The company also runs great commercials that are meant to create and keep a significant customer base.Starbucks has also set significant and prime marketing goals that have factored into their dominance and ability to outcompete rivals. Among the goals are penetration of the market and expansion of client demographics (Schultz & Gordon, 2011). They also address increased competition. The marketing goals have given the company an elaborated insight into the market and present them with the opportunities to exploit new turf and maintain the broad client base.
My Reasons for Buying at Starbucks
I have been a loyal client of the company always give credit to their ability to achieve customer satisfaction. My loyalty to the Starbucks products is widely influenced by their ability to effectively practice and execute product differentiation. The company has developed signature products inclusive of a chocolate velvet cake. The products have been developed so differently that they leave clients with an ‘addiction’ and craving for more.The other reason why Starbucks have earned my loyalty is the designs of their coffee shops that give room for relaxing (Schultz & Gordon, 2011). The shops have the atmosphere that stimulates appetite and creates satisfactions. Moreover, their service delivery is quite efficient and customer friendly.
Conclusion
Starbucks’ ability to make a turnaround and dominate in a very competitive market lays credence to good policy execution in a business. The decline was significant when the company’s policies failed to get factored into the objectives. Business competition can be overcome with strategies inclusive of product differentiation. Starbucks’ enormous stature is not an occurrence of chance considering the great and stiff competition that is presented by rivals like the McDonald’s. Companies should hence make for the exploits that are presented by the weaknesses of rivals to gain steadfast competitive ability. The strength of a company is determined by its ability to compete effectively and register increase in revenue despite any increase in pricing as in the case of Starbucks. It is also important to take drastic measures to challenges that serve to threaten the growth and economic stability of a company. Starbucks delay in tackling of its problems prolonged their crisis to two years. There should also be a counteroffensive to extreme attack from rivals. When rivals took to de campaigning Starbucks, they intensified their commercials to encourage clients to maintain loyalty.
References
Gilbert, S. (2009). The story of Starbucks. Mankato, Minn: Creative Education.
McGrath, Casey. “Starbucks, a Lifestyle: The Persuasion of Coffee.” Michigan State University. Michigan State University. n.d. Web. 8 Jan. 2015.
Schultz, H., & Gordon, J. (2011). Onward: How Starbucks fought for its life without losing its soul. West Sussex [England: Wiley & Sons.
Starbucks Coffee Company. Our Heritage. n.d. Web. 8 Jan. 2015.
