Starbucks Case Study

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Starbucks Case Analysis
By Rizwan Ahmad

Brief Contents: (i.) (ii.) (iii.) (iv.) (v.) (vi.) (vii.) Problem Statement Alternative Solutions Recommendations (A plan of action is summarized concisely in exhibits 3 & 4) EXHIBIT 1 EXHIBIT 2 EXHIBIT 3 (Short-term Plan of Action) EXHIBIT 4 (Long-term Plan of Action)

Problem Statement With the ‘Gate of Heavenly Peace’ to its north, the world’s largest public space is the centerpiece in a presentation of structures built on an inhuman scale. This UNESCO World Heritage site situated just outside the Forbidden City has hosted innumerable events of historical and cultural significance; including, from the years 2000 to 2007, a Starbucks franchise. Though locating a franchise near central Beijing would have been a strong strategic decision, placing a Starbucks in Tiananmen Square was both culturally insensitive and foolish. Such expansionary overload typifies the coffee company’s performance over the last several years. As a consequence, Starbucks’

excessive focus on growth has undermined its ability to provide a level of customer service consistent with its stated corporate identity. Fundamentally, an inadvertent regression from a marketing orientation toward a product orientation has been the cause of Starbucks’ problems. The company’s original strategy was

comprised of three simple components, each focusing upon the customer’s experience. § First, Starbucks “prided itself on offering what it believed to be the highest quality coffee in the world.” § The second component, “customer intimacy,” focused on creating an “uplifting experience” for each patron who visited a store. § Third, Starbucks wanted to create an ambient coffeehouse environment where people came for the coffee, but would stay for the atmosphere. Moreover, employees encouraged

customers to linger, lounge, and enjoy a sense of community in “an upscale yet inviting environment.”1 However, recent surveys of customer attitudes toward Starbucks have indicated that the corporation has nevertheless become product oriented [Exhibit 1]. For instance, the market research team discovered that customers perceive the coffee retailer to be primarily concerned with profitability and expansion.2 Furthermore, such customers have begun to view the stores as merely a place to

1 2

HBS, Starbucks: Delivering Customer Service, pg. 3. Ibid., 10.

1

meet before moving on to their destination. Whereas Starbucks’ initial objective was to provide a unique, personal experience for its customers, the company’s proliferation has commoditized that experience.

Alternative Solutions Given its current difficulties, Starbucks has seven alternatives from which to choose. § The first option involves recognizing segmentation within the customer base and targeting each audience individually. Starbucks is currently facing three different competitor groups (because it "wants" to serve everyone), giving each type of competitor the advantage of being able to differentiate its services to better suit its target market segment.3 If Starbucks wishes to segment its customer base and compete with these competitors, current Starbucks stores will need to be refurbished and two different coffeehouse formats created. However,

dividing the franchise could alienate certain customers and further degrade the Starbucks brand. § The second option is for the company to revert to an emphasis on its core competencies. Namely this could include adopting a singular focus, centered on retaining the original target group, coffee aficionados. Unfortunately, catering to the desires of coffee enthusiasts could result in the dereliction of a substantial portion of Starbucks’ current customers [Exhibit 2]. § The third alternative is to establish a Chief Marketing Officer (CMO) to more accurately gauge current customer sentiment. Paramount amongst the CMO’s concerns should be the coordination of the disparate departments responsible for marketing...
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