A Case Analysis Of Starbucks: Identifying Core Problems Faced By The Company And Recommendations For The Future

Core problems faced by Starbucks in global business environment

The strategic designs that are undertaken by organizations help the same in undertaking the proficiency of the functions and thereby enhance the performance of the same. The discussion aims at identifying the core issues that are faced by Starbucks and the manner in which the organization might mitigate the issues. The feasibility of the recommended actions are also undertaken as a part of the research in order to facilitate the smooth implementation of the same as per the applicability in the case.

The issues that are faced by the organization are based on the evolution and modification in the business environment. The changes in the business environment have affected the smooth functioning of the business processes. The section depicts the core competencies that are faced by the organization while operating in the ever- changing global business environment.

• The financial recessionin different economies has affected the expansion goals of the business. Financial recessions and the changing policies of the different nations have restricted the growth of the business in the current business environment [5]. Moreover, the rigid structure of the management of the organization has affected the smooth functioning of the same while adhering to the different regulations.
• The fierce competition that is faced by the organization while operating in different markets has affected the position of the business. The major competitors of the organization in US markets are McDonald’s, and Nestle. On the other hand, players like Costa Coffee and Café Nero have taken over most of the markets in UK [8]. The concerned organization mostly operates in the UK and US markets. Therefore, the fierce competition that is faced by the same in the respective markets has affected the competitive advantage of the same.
• The slightly higher pricing strategyof the concerned company has affected the position of the same in the different economies as it provides the competitors with an opportunity of achieving a cost advantage over Starbucks. The high quality coffee beans that are utilized by the concerned organization have resulted to the high priced product propositions. On the other hand, the lack of adaptability of the organization to the standards in the different economies has affected the proposition of the same and the pricing strategy used by the same. The key changes that are undertaken by the organization is based on the product differentiation strategy rather than focusing on the pricing strategy of the same [7]. Therefore, most of the people in the markets take their buying decision on favor of the competitors.   
• Inadequatemarketing efforts of the organization relating to lack of suitable advertising has affected the proper functioning of the same in the different market structures. Inadequate marketing results to lack of knowledge among the consumers on the product offerings of the organization and the goal of the same to deliver high quality coffee delicacies [9]. Suitable marketing procedures are undertaken in order to make the target audience aware of the offerings that are proposed by businesses. However, lack of utilization of proper advertising media restricts the capabilities of the organization to reach out to most of its customers.  The inadequate marketing efforts of the organization hinder the growth process that is planned by the same while operating in different markets.
• Lastly, the rigorousexpansion that is undertaken by the same might affect the brand image of the same as it might imply that the organization focused on quantity rather than improving the quality of the products. The key changes that are undertaken by the organization is based on the aim of expanding in different nations in order to hold a major share of the international markets. However, the competitors and the enhancements in the quality of the product offered hindrances in the dynamic growth process of the business.

Cantor, Morrow and Montabon [10] stated that the flexibility of the management’s operations helps in the smooth functioning of the business in different economies. The key elements of change in the organizational processes are generally based on the flexible policies that are formed by the management that correlates to the business environment. Moreover, Tseng and Lee [7] added that the efficacy of organizational operations is based on the collaborative functioning of the management with the workforce.  It will be helping the organization in maintaining the efficacy of the operations in compliance with the regulations and the economic recessions faced by different nations.

Hu et al. [6] stated that product differentiation helps organizations in maintaining a competitive edge in the different markets. The improvements in the product and service offerings of organizations help the same in sustaining in different competitive markets. Adaptability of the organization to the different changes in the market helps in maintaining the efficacy of the same while operating in diverse international markets. Pernot and Roodhooft [4] stated that the strategies that are formed by organizations depends on the competition faced by the same in the international markets. The strategies include the identification of the target market and positioning of the products as per the needs of the customers in order to gain a competitive edge.  On the other hand, the differentiation strategy of the organization helps the same in maintaining the uniqueness in the range of products that are delivered by the same while operating in diverse international markets.

Pricing strategies that are undertaken by organizations helps the same in achieving the competitive advantage over the other players in the market. Donaldson, Qiu and Luo [1] stated that pricing the products as per the identification of the financial capabilities and study of demographic situation helps organizations in enhancing their operations in the different markets. Strategic pricing of the products relates to the different costs that are incurred by the organization as per the Porter’s generic model, which emphasized on the costs incurred by the producer. On the other hand, Bowman and Faulkner noted that the customers have nothing to do with the costs that are incurred by the organization during the product development process [3]. Therefore, organizations must take steps to develop policies to reduce the costs that are incurred by the same in order to offer the products at an affordable price to the consumers. Vaccaro [5] stated that the key elements of change in the organizational operations are based on the differentiation of the line of products in order to maintain the uniqueness of the same over the offerings of the competing players.

Detailed theoretical application to the problems

Advertising is one of the major activities that must be undertaken by organizations in order to make the customers aware of the product and service offerings of the same. Johnson and Snowflake [2] stated that advertising and promotions are the major steps that might be undertaken by organizations in order to establish sound marketing communications, which will be helping the same in developing the products more efficiently. Moreover, Jiang et al. [3] also stated that the enhanced marketing communication helps the organizations in understanding the priorities of the consumers while operating in diverse international markets. The enhanced advertisements of organizations help the same in expanding their scopes in different international markets. It helps organizations in gaining a competitive edge and sustenance in the highly competitive market structures.

The problems that have been faced by Starbucks has occurred due to many reasons which have been depicted below:

• Starbucks faced their financial recessionin the year 2008 and suffered an economic meltdown. This was due to the fact that the prices of product of Starbucks was always comparatively higher than their competitors who offered good quality products in moderate prices [11]. This was the reason for the economic hit as several of the customers chose cheaper products as opposed to the high price coffee for their daily consumption. They were forced to shut down several of their outlets and suffered a huge hit and loss in the year 2008.
• As mentioned Starbucks faces a fierce competitionfrom its competitors which has affected their sales to a great extent. Even though Starbucks is quite well-known in the coffee industry for their exquisite taste of coffee and excellent service towards customers [12]. However, their competitors such as Costa Coffee have been taking their space in the market by providing better quality coffee in lesser price than the coffee served at Starbucks. This intense competition in the market has always posed to be a threat for the smooth operations of Starbucks and hence it is a major problems for the organisation.
• Starbucks follows a high pricing strategyas opposed to their competitors who follow moderate pricing strategy for the same quality of products. Wall Street have commented that Starbucks have a huge number of coffee shops which is not required according to them and the prices of the coffee is high too which makes it impossible for the people to consume the product on an everyday basis [13]. This has affected the sales growth of the store to a great extent and it has been very low in the last few years.
• Starbucks does not spend a lot of their money on advertising and hence they have very less advertising techniques. They do not have a designed TV advertisement since the marketing executive of the company does not believe that an advertisement would be able to capture and portray the inner soul of the company [14]. Moreover, they do not conduct product placements in movies or other television series. This states that Starbucks are not inclined towards promotion as the other companies in the market which can become a major issue for them in the long run.
• As mentioned earlier, Starbucks have a huge number of stores in various states and have been continually growing till date. This huge expansionhave led the company to focus less on their quantity and the loss they have been suffering regarding their customers [15]. This has given a chance to their competitors to penetrate the market which was earlier captured by Starbucks and make their way towards the customers. Hence the customer base of Starbucks have been hugely affected due to the same reason.

The problems that are faced by the company have affected many areas of their functions and operations, the reasons of which have been mentioned above.

To overcome the problems there have to be certain steps that have to be undertaken by the company to regain its position in the market. The steps are as follows:

• The company should focus more on their quality of products than their expansion as quality is the main things which keeps the customers attached to the company. If the quality of the product is according to the satisfaction of the customers, then they would switch to another brand which would provide them with better quality coffee. Therefore, they have to ensure that they have improved quality of coffee which please the customers [16]. To understand the demands and the current satisfaction level of the customers, Starbucks should conduct a market research regarding their current products so that they understand the major areas where they lack. Getting a better understanding of the views and feedbacks of the customers, they would be able gain knowledge of the gap areas and concentrate on improving them.
• Secondly, they should decrease the prices of their products which are otherwise quite high in nature. The price at which Starbucks sells their coffee is much higher than their competitors and is not always affordable by customers for everyday consumption. This is the major reason why customers choose other coffee brands over Starbucks [17]. Decreasing their prices to a certain extent will help them to compete with the other renowned coffee brands and regain their customers. Moreover, the taste of the coffee that is provided by Starbucks does not comply with the price at which they sell their products. The price and the quality of the product should be complimentary to each other so that the customers feel that the money spent is worth the product. If Starbucks does not decrease their process, then they should focus on the betterment of the quality of their products so that the customers do not feel cheated in any way. A complete research of the products of their competitors and an analysis of these findings should be conducted so that they can focus on their pricing strategy without losing out on their customers [18].
• Thirdly, Starbucks should give more focus on their advertising strategy. Advertising plays a major role in the success and growth of a company. Every company should develop their own marketing and advertising plan which portrays their company. Similarly, Starbucks should have their own advertising plan which would help them to reach a huge customer base. Even though Starbucks has a huge customer base, advertising plays as an additional factor in the growth and expansion of the brand name [19]. The products of the company should be portrayed to the audience so that new customers are gained by the company. The advertising should also contain the knowledge of their best products and their difference as there are any customers who might not have knowledge about the different products of the company and hence does not consume it.
• Lastly, Starbucks employees a huge number of people to serve their customers in their numerous stores. It might not be possible for the company to conduct training sessions for all of their employees. However, it is important for the company to ensure that all of the employees get the basic training on how to communicate with the customers so that they are not offended in any way [20]. The employees should be also trained properly to handle intense emergency situation which might occur at times so that there are no serious repercussion in those situations and is solved immediately.

The recommendations that are provided for the betterment of the company would only be successful if they are logical and feasible. Feasibility is an important factor which plays a great role in the actions on the recommendations. The feasibility of the recommendations would depend on their importance and the expense that the company would have to do for taking the correct actions.

• The company has to conduct a research regarding the market that they are operating in and an analysis of their competitors. This research and analysis is very important for their company to grow in the market and establish themselves in the long run. The company should invest huge amounts on their research as it provides the necessary information that is required for the company’s performance [21]. Therefore, the company should spend their funds on proper research so that they do not have to face their competitors without complete about them. Since the company generates a huge amount of revenue, they should be able to dedicate a portion of their revenue for research purposes which will give a huge benefit to the company.
• The company should also invest on their advertising and marketing techniques. The advertising plan should be developed in such a way that it is able to extract and display the nature of the company without having to spend unnecessary amount of money on the same. The company should focus mainly on targeting their segmented customers and to spread the knowledge about their products among their targeted customers [22]. They can also promote their products through product placement such as through television series or movies which displays their products. This is also a huge kind of promotion. Moreover, social media activities and advertisements should always be conducted so that the name of the brand is in constant existence among the customers and this spreads their brand name and improves their brand image.
• The training of the employees is mandatory step that should be adhered by the company. The company spends huge amounts on their other expansions and recruitment. They should also invest in their employees so that they are able to develop good customer service. The training of employees is necessary so that they know the way that they should handle and deal with the customers [23]. No undue incident should be mishandled by the employees so that loss of customers occur. Moreover, the proper knowledge of the products that are available in Starbucks should be given to the employees so that they can serve the customers in a better manner. Their knowledge would help the customers to rely on them during any confusion in ordering [24]. The politeness and professionalism should be maintained by all the employees of the different stores of Starbucks.

The feasibility of the recommendations would depend solely on the company, however, the recommendations provided in the study are the basic steps that should be taken by the company to ensure their consistent performance and growth in the market in the long run. These recommendations would help Starbucks to overcome the intense competition in the market and therefore, the investment is necessary on their part.

Conclusion:

Hence, it can be concluded that it is important for every company to take certain strategic decision which would help in the enhancement of their performance and additionally their growth. The study has discussed about different core issues that are faced by the coffee brand Starbucks and provided different recommendations to overcome these problems. The different problems that have been highlighted in the study are the ones which have their functionality in the global market. Final recession, intense competition, the high pricing strategy, the absence of proper marketing techniques and the rigorous expansion are the mentioned core problems of Starbucks. The detailed theoretical application of the above mentioned problems are also given along with recommendations to overcome them. The recommendations are to train the staff, focus on the quality of products, to reduce the pricing of the products and develop advertising strategy. The feasibility of the given recommendations have also been analyzed in the study which discusses that the company should invest on developing a plan of action on these based recommendations for the success of their company.

Rationale of choice of problems

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