Posted: March 22nd, 2023

Starbucks Case Study

The Most Important Factors behind Starbucks Decline in 2007 and 2008

If the company became a mass brand, it would lose its exclusivity and its loyal consumers. The statements became a reality in 2007 when several factors contributed to its decline. One of the factors was the loss of human connection, evidenced by a lack of concern for customer loyalty. The company would open new stores and launch new products without considering what customers wanted. The management ignored the customer loyalty theory, which states that a lack of loyalty marketing strategy affects a company’s development (Kiseleva et al., 2016). However, Baristas focused on speedy service without taking the time to communicate with customers, the lack of connection with customers affected their loyalty.

The transformation to the red ocean from the coffee industry is another aspect that created more problems for the firm. By 2007, the coffee market had become saturated, with strong competitors, such as McDonald’s coffee, which customers preferred. Dunkin Donuts and McDonald’s were cheaper brands than Starbuck’s coffee, which intensified the competition. Besides, Dunkin Donuts was among the non-coffee food and beverage businesses that entered the market to compete with Starbucks. Customers preferred the cheaper brands to Starbucks’, causing its assets to fall significantly. Other competitors, such as Caribou Coffee and Peet’s Coffee & Tea chains, also emerged. The company also experienced an overexposure that seemed like the right direction to follow. The management did not immediately realize that it would lose its uniqueness. The revenue improved slightly, but it became hard to create and sustain positive relationships with new partners and stores.

While the mentioned factors were evident, the management failed to understand the role of brand experience in decline. They failed to understand the importance of brand image and brand loyalty in a company’s success. Among the less obvious factors was overexposure, which the management did not immediately realize was a problem for Starbucks. Around 2008, Schultz recognized that the company offered a lot of food and was not happy about it because its smell masked the coffee aroma. Schultz used technology, such as automatic espresso machines, to support production because coffee made Starbucks different from fast-food chains like McDonald’s. Also, diversity created a loss of value and confused clients, causing financial challenges. After anticipating problems in 2007/8, the leader warned for brand commoditization and closure of shops with poor management. Although Schultz slowed down expansion, the impact of his strategy was already felt since the firm declined, creating the need for transformation.

The most Important Aspects of Starbucks Transformation

The most critical aspect of the transformation was reconnecting the brand with customers. The CEO recognized the need to return to its roots, positioning itself as a place where people can comfortably spend their time. They included internet connections and sockets where customers could use their computers and other gadgets to learn and work. Besides, they refocused on quality and consistency and supported like-minded communities to allow a social connection. They recognized the value of the core mission and positive customer services, which supported quality service outcomes (Wirtz & Lovelock, 2016). The management realized the need to listen to customers and incorporate their views on products and services. The baristas became more attentive to customers and gave seasonal offerings.

The company introduced changes, such as creating customers’ brand loyalty to enhance competitiveness locally and internationally. They motivated employees to meet customer needs through internal strategies, such as healthcare benefits. The firm improved the supply chain through ethical sourcing and invested in innovation and reinvention to improve quality. Besides, the company’s leadership slowed down the quick pace of operations and closed underperforming outlets in the United States. The CEO focused on standardization, comprising of process, service, location, and branding.

The management recognized the role of social media in marketing and sales improvement through creating a positive brand image. They also launched a customer loyalty program to give clients rewards through online registration of Starbucks Cards. Another critical aspect adopted by the company and assisted in its transformation was social media. The firm borrowed the ideas of Chaffey’s theory that social media marketing monitors and facilitates customers’ interactions, participation, and sharing to support customer enhancement with the firm and brand to create value (Chaffey & Ellis-Chadwick, 2019). The company created a team of social media marketers to support its turnaround.

The changes mattered for the survival and transformation of the company because they would create customer loyalty, retention, and continued growth in sales and profitability. Besides, they were important in creating a competitive advantage in the market. Moreover, the ideas could be generalized to other companies because social media marketing had become important in all sectors. Thus, any business seeking to transform can obtain lessons from Starbucks and its changes that helped it recover from the decline. For example, Coca-Cola can change its ethical practices by engaging customers in a new strategy. Through social media marketing, they will understand what customers want in their soft drinks and how they want the company to sell to them. Generally, using social media to improve customer relationships is a key source of competitive advantage.