Starbucks and Its Difficulties During the Time of Economic Hardship - Case Study Example

Introduction Almost all of the companies from different industries faces many difficulties during the time of economic hardship but among them companies who have a brand image in the market performs comparatively better in those times. Every sector has certain brand names in its market who possesses a strong and broad customer base. These companies according to industry observers have been found to perform better compared to other brands. If being specific to industries such as coffee making industry, Starbucks Corporation has a brand name. Similarly Viking is a brand name in making luxury kitchen range, Patek Philip is yet another brand in manufacturing of home appliances has also a brand name in the market, and globally recognized brand Mercedes-Benz has also been influenced by the economic downturn but is still preparing to launch its new model of Maybach which belongs to a luxury class of automobiles. These companies are known for its luxurious products though other brands also exists in the market but these brands have a reputed image in the market. These companies believed in making their customers satisfied is the only way of creating a brand image. Challenges in marketing luxury brands Branded firms have their unique approaches in improving their market reach, brand image of the product, and maintain the quality standard of the product. Keeping in view the rapid rate of their expansion and growth at multiple locations these companies manipulated their marketing strategy according to the location since different locations offered different marketing environment (Larson. 2008). These companies focused more on its quality standard by critically handling the entire process involved from the purchase of raw materials till it's possession by its end user. These companies took a great care of each and every step to avoid compromising with the quality standard of their products. In case of Starbucks Corporation the firm created a coffee culture and also provided an atmosphere of relaxation for their customers who helped them in bringing the concept of “third place” where the first and second places were considered to be the home and office respectively (Larson, R. (2008). Many efforts are made by these companies under its strategic approach towards marketing to gain their customers’ trust and offer a value based service to their customers. The companies also faces problems due to variations in their customer group which varies with the location. Under such circumstances these companies faced challenges which were mainly of following types, what mode should be used by the company to exist in international market, how they should design their product offering to their customers keeping in mind the variations among the behavior of customer group. Along with it another major challenge for such companies was to compete with other brands of the same industry serving globally to their customers. The marketing strategies adopted by Starbucks Corporation worked like a magnet which drove their customers to do things as per the company’s expectation (Carroll. 2007). A brand name in watch making industry is Maurice Lacroix which is famous for its luxurious watches adopted strategy to promote their product and also form alliance with a brand name in movies production house Dream Works for their film named Time Machine. The company has its largest customer base in Germany with its first in-house production. These companies for their implementation of globally effective strategy relied on its set of principles and guidelines which included selection of partner having similar mind set and shared same view for the product and the market prospect. There are many luxury car brands, such as Toyota Motor Corporation's Lexus line and BMW, promoted their “certified pre-owned” vehicle programs under which they reconditioned the used cars, and presented the product with a new warranty date, and they offered the product with the same appeal which they opt for their new products which convinced their prospective customers in paying little more in such hardship just for the sake of fulfilling their dreams of having those unique range of products. . Louis Vuitton, yet another designer brand which is owned by France’s LVMH Moet Hennessy insisted lately on promoting its “junior” leather goods and other items at Neiman Marcus department stores (Buss, 2002). the major challenges faced by such branded firms offering luxury goods to their customers looks on factors for sustainability such as brand loyalty, evaluation of performance on the basis of objectives of the tasks, and also considers the customers experience regarding their products (Parasuraman & Grewal. 2004). Companies having a brand name its there industry are most prone to face problems associated with aggressive growth. This was brought into the scene by Miachael Zaoui, managing director of European mergers and acquisitions branch of Morgan Stanley which is involved in financial services. According to Zaoui adopting such aggressive growth by targeting broader consumer segments and providing the luxury goods at affordable price has its drawbacks also. The major problem associated with that is the customer group which is targeted by the firms by offering products at a low price. Those customer groups have maximum impact of economic ups and downs and as a response to such episodes they refrain from purchasing such products which they consider less important purchase because of its brand name (Jackson & Shaw. 2006). Plights of Starbucks Corporation in 2007 and 2008 During the year of 2007 the company was at its peak of success with an impressive success story behind this achieved success. The company was highly recognized all over the world and was highly admired as a global brand. However many complications were observed within the organization such as conflicts among the workers and staffs which influenced the company’s service and imposed a bad effect on the reputation of the company. Another major concern for the company was for the environment and its preservation since the company used paper cups to serve their product. All of the paper cups were claimed to be of recyclable nature but that was not true for all of its shop (Conrad. 2007). One of its location in Ethiopia faced challenges in handling the labor that were paid only a single dollar for each working day which was not considered as a fair deal. Another dispute was with the local people living around the plantation land which they claim to be their ancestral property (Knudson. 2007). The company also faced difficulties as a result of using ingredients such as milk which contained artificial growth hormone and many of its customers raised their voice against this act of Starbucks Corporation which resulted into a commitment made by the Vice President of Sustainable Procurement Sue Mecklenburg that by the end of 2007 all of their products will be prepared without the use of rBGH which is a form of artificial growth hormone (Anonymous. 2007). These were some of the most influential incidents which impacted on the business of Starbucks Corporation worldwide. The company tried its best to reduce the impact of such incidents and also adopted strategies to minimize such kind of threats. The dispute with the local Ethiopian people ended up with an agreement made between the company and them under which the Ethiopian people will have a control over the ownership of their coffee names (Anonymous. 2007). During early 2007 Starbucks Corporation promised to have more business in African countries with a farmer support center in east Africa after the great success of previous farmer support center which the company set up in Costa Rica. The reason behind more focus on African region was the finest quality of coffee which was found over there and Starbucks Corporation initiated a fair coffee trade between them and the African coffee farming bodies. The company analyzed that such kind of fair trade could be of use for the nation in order to develop the nation’s economic condition. The company also provided financial support of $1 million to the small coffee farmers to have more production of coffee. The company also initiated the culture of Café in African country which was done with an intention to have a long-term relationship with the coffee farmers and also to provide a premium as an advantage to the coffee producers (Anonymous. 2007). During the year of 2008 the company faced maximum trouble due to the global economic slowdown which begun during the third quarter of 2008. Though most of the industries suffered from the impacts of the global economic crunch some of them took initiatives to reduce the impact of the economic crisis. Starbucks Corporation was having a tough time during the year of 2008 as many incidents took place which negatively influenced the business of Starbucks Corporation. The company faced allegations for not following the fair trade policies which included payment of proper wages to its employees, their health and safety, and other associated benefits. The fair trade policies were based on the trading partnerships’ behavior since they shared reciprocated benefits and mutual respect among them. The company was probed for not taking good care of its employees which was one of the most unfortunate incidents for Starbucks Corporation since the company was famous for taking good care of its employees and providing them with maximum benefits and facilities (The Beacon News. 2008). The company faced legal actions against them for discrimination during 2008 when the company was alleged to fire two of its employees because both of them were gay. Later on the company realized its mistake and showed some sympathy with its victimized employees. Later on the company was awarded as the place best to work by Human Rights Campaign in 2008 by identifying companies which supported the equality among all including the bisexuals, gays and other trans-gender people (Chou. 2008). Recycling of papers and paper mugs were initiatives taken up by the company in order to contribute in environmental preservation and bring some awareness in the society on the issue of environmental conservation. All of the shops of Starbucks Corporation had such provision of recycling of papers but was not the fact since many of the Starbucks Corporations’ shops at various locations served their customers in paper mugs which were covered with a plastic coating to avoid the leakage problem. Due to the plastic coating the papers were not recyclable. The company claimed to outsource their task of recycling to other firms which was not considered as a good idea by most of the people (Jensen. 2008). Later on the company noted that many of its customers were more concerned for the nature and environment and wanted to have their product in paper mug instead of using plastic mugs. Most of the Starbucks shops were lacking the recycler for the used and waste papers so the noted to have proper provision for recycling. During the year of 2007 the Starbucks Corporation bought around 2.5 billions of cups for its shops in North America which were huge in numbers could have been composted or it could have been used for the purpose of land filling (Allison. 2008). Evaluation of the actions taken to re-invigorate the Starbucks Corporation The Starbucks Corporation was facing a lot of difficulties in maintaining its performance level and the problems were incremental with the time. During its initial days the company performed at its best and rapidly grows up to a multinational brand of specialty coffee making company. As the company developed and expanded its business it failed in taking care of their employees and satisfies their needs. To bring back the culture of Starbucks Corporation it called upon its former CEO Howard Schultz and also some of the older employees of Starbucks during its initial days. During the years of 2007-08 the company experienced many difficulties in operating their business smoothly. The employee satisfaction level was also declining while another major observation done by the Starbucks people was on the declining level of customer satisfaction by its program named “Customer snapshot”. The company always wanted to create and share an experience which is very unique since they wanted to make their shop the third place for the people of US where the first and second place denotes home and office respectively, from past few years the company is struggling to bring back the Starbucks coffee culture and also to continue its vision of having a place away from home and office where people can meet and have interactions which are of social nature. According to the recent survey on collecting views and feedback from people on the quality of the coffee and the social atmosphere offered by Starbucks and other similar brands such as McDonald’s, Dunkin’ Donuts, and Panera Bread. The survey resulted that people have slight inclination towards Starbucks over its other competitors. The survey indicated that people had a homogeneous view on the quality of the coffee offered by these specialty coffee makers. To enhance its profitability the company also focused on providing franchise to many business owners who liked the response of their customers towards the brand (Rice, 2009). It is very much interesting that since its establishment Starbucks Corporation never had a strategic management group despite the fact of being world’s one of the best company in effective marketing. The marketing department had a very limited set of activities which were performed in three separate groups of marketing department. One of the groups looked after the market research by gathering and analyzing the organizational data on business units’ requests. Another one was assigned the task of product development and maintenance of the menu while the third group looked after the promotional plans of the company. As the company realized the importance of the strategic marketing for itself many activities were being initiated. The performed activities provided the company with observations indicating lowering level of their customer satisfaction. Though the company has always focused on customer satisfaction but after the expansion of its business the Starbucks Corporation failed to maintain the glory of Starbucks (Simon. 2009). The company has build up its brand image by serving to its valuable customers over the years and providing them with a great experience of specialty coffee and the unique environment of Starbucks. The problem which the company is facing at present has made the analysts bound to raise the question on the sustainability of the Starbucks Corporations success story and its great business performance (Ramgopal & Dhar. 2006). The company during its hardship called back Howard Schultz who was the former CEO of Starbucks Corporation. Shultz initiated many programs in order to gain the position back in the market. As Shultz realized the current environment of the business which was facing the economic slowdown decided to innovate their product ranges to make that easy on their customers pocket. The company also offered their best in offering their employees with flexibility where one has the freedom to have their own blend of pay package instead of offering same blend to all of is employees. The company named this approach of independent selection of blend as “Your special blend” which helped the firm in attracting best talents towards the company (Pearce. n.d.). The company took special care of its employees but as the time passed out the business expanded all over the world. By the time the customer group to whom the company used to serve changed which was not observed or overlooked by the company. As a result of which they failed in meeting their customers’ expectation lowering the customer satisfaction level. As a response towards the customers’ belief that the organization offers product at a higher price Starbucks Corporation offered competitive prices for its product. They were almost equal to the prices offered by brewed coffee making companies in Italy (Tewell et al. 2006). Some other activities performed by the company could be a potential opportunity for its business to regain its position in the market. One of them is the recent agreement between the company and another wine and spirit making company Jim Bean Brands for developing and marketing the Starbucks product such as coffee liquor drink. These kinds of activities can help the Starbucks to come up again with the previous spirit of service. Though in such a stiff situation also the company has already acquired almost 40% of the worldwide specialty coffee industry out of which 15% belongs to the US retail market of specialty coffee making. The company should take care of the prices of coffee in the market which are highly volatile and the company is always exposed to a threat. Simultaneously the company is required to focus more on its brand image which they have lost in recent past few years. The company has also started program to attract the young generation to be its customer. By doing this many people have assumed that the company is making the young generation their customer at an early age but the company is trying got secure its customer base since Starbucks has an intention to have a long term relationship with its customer which are maintained over generations (Arola et al. (2007).. In the race of expanding their business the Starbucks Corporation has forgotten its core business and that is specialty coffee making and as a measure of wining customers trust the company is again more concerned with its core business of specialty coffee making. 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