MKT621.

Buyer Behavior

Report on Starbucks Case,” how Starbucks nearly collapsed”

Submitted To

Dr. Md. Nazmul Hossain

Associate Professor

Department of Marketing and International Business

SBE, North South University.

Submitted By

Md Ashfaque Uz Zaman Khan Dhrubo 1935082060

Farita Binte Hassan 1935089660
Aminul Islam Sagor 1935141060
Farzana Afroze Rinti 1935163660

Date of Submission: 24-09-2020

Letter of Transmittal

24th Sept. 2020

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Dr. Md. Nazmul Hossain

Associate professor

Department of Marketing and International Business

SBE, North South University.

Subject: Letter of Transmittal

Dear Sir,
Here we are submitting our term paper on ‘Starbucks case, (how Starbucks nearly collapsed)’.
In presenting this report, we have tried our best to include all the relevant information and
explanation to make the report informative and comprehensive. It was a very enriching and
enthralling for us to prepare this report. Our practical knowledge about marketing strategies has
improved a lot while doing it. We have tried my level best to follow your guidelines in every
aspect of planning of this report. We have also collected what we believe to be the important
information to make this report specific and accurate as possible. We are honestly thankful for
your guidance to prepare this report.

Sincerely,

Md Ashfaque Uz Zaman Khan Dhrubo 1935082060

Farita Binte Hassan 1935089660

Aminul Islam Sagor 1935141060

Farzana Afroze Rinti 1935163660

Acknowledgement

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Before start with this Report, it is very important to convey our gratitude to where it rightfully

belongs. First of all, we would like to thank Almighty for enabling us to learn and write this

report.

It gives us tremendous pleasure in presenting our term paper report on ‘Starbucks case, (how

Starbucks nearly collapsed)’. The success of this report is a result of hard work, determination

and effort of our and the proper guidance of our honorable faculty. We would like to take the

opportunity to heartily thank our honorable faculty; Dr. Md. Nazmul Hossain. He has helped us

immensely and acted as a mentor throughout the study, despite his other several academic and

professional commitments. His knowledge and wisdom, continuous support and commitment to

the highest standards inspired and motivated us throughout the study. Without his insight and

supervision, this report would not have reached fruition.

Executive Summary
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Starbucks Corporation the leading coffeehouse in the world. The mission of Starbucks is to

inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time. In

this case study it shows that to achieve this goal, the Company rapidly expanded its retail

operations, and selectively pursue other opportunities to leverage and grow the Starbucks brand

through the introduction of new products. Howard Schultz was the key person who turned the

company a huge success around the globe. When Schultz left and Starbucks strategy has been

changed. The new management went for expansion. The original culture was a little bit

secondary during that growth. Its original value proposition is consumers sitting in the cafe and

enjoying their coffee. But at that time Starbucks became take away coffee rather than providing

an ambiance, a moment. People didn’t feel special going to a Starbucks any more. Consumers

didn’t accept it and their sell falls dramatically. Mr. Schultz returned to the company then he

took decision to close Starbucks’ many stores across the US for more than three hours so that its

baristas could be re-taught the art of brewing coffee. Mr. Schultz re-energized the brand, one cup

at a time and focusing on the customer experience returned to the original vale proposition of the

company. In this report we have suggested some extra strategies for the Starbucks those can be

taken like introducing loyalty cards, CRM, Mini library, campaign to increase customer

engagement, and learnings from this case study some strategies are taken and applied in real

corporate world in Bangladesh.

Table of Contents
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Introduction.................................................................................................................................................6
1. What’s wrong with the company?.......................................................................................................6
2. How did they overcome the challenges?.............................................................................................8
3. What more would you do if you were the decision maker?..............................................................12
4. What are your learnings from this case that you can apply in real corporate world here in
Bangladesh?..............................................................................................................................................16
Conclusion.................................................................................................................................................20
References.................................................................................................................................................21

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 Introduction

Starbucks Corporation is an American company founded at Seattle in 1971. It is a premier

roaster, marketer and retailer of speciality coffee with over 31,000 stores across 76 countries

around the world. It started off as a seller of coffee beans and roasting equipment for home

brewing. However, it later transformed into a café where people can have a place between home

and work to just sit back and relax. This transition took place when Howard Schultz (former

chairman and CEO of Starbucks) first travelled to Italy and become mesmerised with the

romance of their coffee experience. He had the vision to bring the Italian coffee culture back to

United States.

Starbucks is the pioneer of introducing Italian coffee terminology in America and part of their

coffee culture. Terms such as “Cappuccino”, “Americano” and “Latté” were first introduced by

Starbucks and are now instilled in our coffee vocabulary. From the beginning, Starbucks not only

celebrated the rich tradition of coffee, but also brought the feeling of connection. Their mission

is to inspire their human spirit – “one person, one cup, one neighbourhood at a time”.

1. What’s wrong with the company?

The core competence of Starbucks has always been their ability to offer customers their unique

“Starbucks experience”. Along with offering the finest quality of coffee, customers were

delighted with the ambiance through Starbuck’s aesthetic store design, warm atmosphere and

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personalized service by the baristas. They wanted to create a third place between work and home

where people can just lay back and relax.

However, after CEO Howard Schultz stepped down in the year 2000, the new management has

completely changed Starbuck’s business model. They went from a customer value centric

approach to revenue maximization and growth approach. Starbucks therefore experienced a

classic case of marketing myopia where their focus was on the product business rather than the

value and benefits providing business.

The new management went for rapid expansion. A new Starbucks was opened around every

corner and people began to get tired of this. The “Starbucks experience” lost its special touch as

it become more and more segregated in the market. They were too focused on expanding sales

and lost their original value proposition, which was sitting in their store and enjoying a cup of

coffee. The new management sacrificed the Starbucks experience and traded it for faster, take

away service. It became more of a fast food chain rather than a café. New management also

diversified to more food, additional flavours, CDs, sponsorships in movies instead of focusing on

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their strongest competencies. Staffs were pushed towards providing faster service rather than a

more personalized service. Moreover, in China they faced a major PR stunt where the public

thought of Starbucks as a means of Western takeover. Anti-globalization activists regularly

protested and Starbucks faced a cultural resistance throughout that time.

As a result, Starbucks revenue plummeted and their stock price were sharply in the decline at

2008. They were forced to shut down 600 shops that were making losses. By March 30, 2008, its

profit had fallen 28 per cent compared to the same period in 2007. In 2009, it closed another 300

stores and laid-off around 6,700 employees.

2. How did they overcome the challenges?

Starbucks, the world’s biggest coffee company, once faced challenges as people didn’t feel

special going there anymore. Saturation, increased competition, loss of touch with the consumer

and automated machines made it feel less special.

To overcome the problems, Howard Schultz returned to the CEO role in 2008 which

reinvigorated the company. He was the original person who had created the vision of the

company. Furthermore, he was very good in preaching Starbuck’s story and he had the ability to

build strong relationship with the employees and customers. Above all, People had confidence in

him.

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In February, 2008; one of the first things he did was to close Starbucks’ 7,100 stores across the

United States for more than three hours so that its baristas could be re-taught the art of brewing

coffee. It lost about US$6 million in sales but he was emphasizing on the brand credibility it

could restore to be far more valuable [ CITATION NgD181 \l 1033 ].

Also, he needed to address the size of the company which had ballooned to over 16,000 stores

worldwide. In 2008, he closed 600 stores in the US alone, of which 70 percent had been open for

less than three years. This initiative made more than 12,000 employees redundant, the economic

climate had changed by late 2008, and the stores had become a drain on profits. Not only the

profits but also the growth of this company had been drastically reduced.

At that time, the taste of the coffee had become worse. Starbucks ditched the traditional coffee

machine and went fully automatic. It kills the romance about the art of making coffee. The

machines created a physical barrier between the barista and the customer. There were also

friendly baristas and the craftsmanship behind each cup Automatic functions replaced barista

hand-crafting, knowledge, and expertise. He valued a return to the past when the coffee was high

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quality. That is why; he placed coffee at the most important value. He ordered to change the

automated machine and re-trained employees about the art of brewing coffee.

Starbuck’s original value proposition was consumers sitting in the cafe and enjoying their coffee.

Nevertheless, Starbucks become almost like a fast-food business and lost the charm a little bit.

Therefore, Howard Schultz re-energized the brand. He focused more on coffee aroma in the store

rather than offering warm breakfast sandwiches. He cut down Starbuck’s product offerings.

During the Howard’s management, Matsuo Iwata, former CEO of Starbuck’s Japan, tried to

build strong relationship between the store managers and customers. He gave them the freedom

and commitment and to some extent, encouraged the store managers to have the firm

commitment as they owned the café and gain customer loyalty again by customization.

Starbucks began to localize its strategy in Asia. They introduce Match Lattes and other Asian

flavors. Though Starbucks is a global chain but they have done their interior in such a way so

that customers can connect with their own community. The plan becomes successful.

China is one of the world’s fastest-growing markets for coffee drinkers. It is one of the biggest

challenges to capture the Chinese market where Starbucks had struggled for years with its image

as a western invader and an ignorant of Chinese culture. They did not understand the culture and

cultural value of China. To overcome this problem, they adopted more culturally sensitive

approach. They started working with the community, employed great employees, created some

kinds of experiences that valued.

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In 2018, they partnered with Jack Ma’s Ali Baba to operate a mobile E-payment and delivery

services and to adapt to local needs. It was a good move by Starbucks and the program was

effectual. Moreover, they provide 30,000 square foot roaster in China to covert the Chinese

customers into premium coffee lovers.

Under Howard Schultz’s strong leadership, Starbucks had gained the trust of the customers as he

did not compromise with the core values in order to maximize the profits and growth

opportunities of the company. By remaining true to its core principles and essence of the brand,

the company gained profit and reached in a stable position. Then Mr. Schultz resigned from the

CEO post and handed over the post to Kevin Johnson who is aiming to increase the number of

stores worldwide to 37,000 by 2021 by managing this 28 per cent growth from its current level

while preserving the heart of the company. That’s how, they overcame the challenges.

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 3. What more would you do if you were the decision maker?

As new customer acquisition is about three times more expensive than retention, we would take

an approach towards customer retention and increase the customer lifetime value of Starbucks.

We would take into consideration these following initiatives.

 Customer loyalty cards – As the competition in the coffee industry is quite

heightened at this point, it’s essential for coffee chains to offer something extra to sustain

in the market. In Starbucks, we would offer a loyalty program where customers will get

the opportunity to win a free cup of coffee after visiting our shop a certain number of

times. We would offer loyalty cards to our customers where we can track the number of

times they visited our shop and offer them a free beverage as a sign of gratitude for their

loyalty. The card design is shown below.

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We plan to offer a free cup of coffee to customers for every seven cups of coffee they buy.

Through this, we can track our valuable customers are reward them for their robust loyalty.

 Improved Customer Relationship Management (CRM) program – As

Starbucks already has a reward program through their app, they have a strong customer

information database. Through CRM analytics and data mining, we can identify

customers who are most and least likely to repurchase a product, their contribution to our

profits and their buying patterns. We plan to integrate our existing loyalty program into

CRM so that we can provide better offers to loyal customers. It will also help us to

successfully conduct target marketing as we can segregate the wants of individual

customers properly. We can tailor communications that are customized and unique for

individual customers. Moreover, as we will have their personal information (e.g.

birthdays, anniversaries etc.) we plan on distributing, gift coupons, Starbucks goodies and

gift baskets to our loyal customers (based on CRM analytics) on their birthdays and

anniversaries. This will show how Starbucks really cares about their customer base and

build a stronger bond between us.

 Establish a mini library: Now-a-days, people are so much addicted to social

media through their smart phones or other electronic mediums that they have less or no

time for reading books. In this kind of situation, setting up bookshelves inside the

Starbuck’s store would be a great initiative. It will be an excellent amenity for coffee

lovers as well as book lovers. It will facilitate to attract new customers and to retain

existing customers. Further, it will create a warmer and more welcoming environment.

Any book lover will definitely love the place. There will be a friendly atmosphere.

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 Customers will find different sorts of seating arrangements such as there will be a

separate corner for the readers by providing comfortable couch and chair. There will

also a separate reading area for Kids. Customers will have the opportunity to read

books with a mug of coffee and snacks as long as they want.

We will offer a wide range of quality publications, both regional and international. The library

will feature a diverse collection of books, magazines, comics, novels, and graphic novels, free to

access for all its visitors. Besides, we will host poetry recitals, reading sessions for book clubs,

and book launches.

Therefore, customers will have the facility to enjoy coffee and snacks and get the opportunity to

read various kinds of books for free of cost. It will encourage readership, stimulate creativity,

and ignite the love for learning. We will be able to retain our customers.

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 Introduce a child care section: There will be a dedicated space for children. It means

we will introduce a child care section. Customers and employees can keep their child

there. Employees don’t have to worry about their children. They will be able to provide

best services to the customers. Besides, customers who have babies will be able to enjoy

their coffee. They can read books as long as they want as well.

We would hire trained nannies who will supervise children. We will ensure highest facilities and

safety for the children. Children will be able to learn at an early age how to socialize with other

people. Quality care will have a substantial impact on the mental, social and psychological

development of the child. We think this initiative would satisfy both employees and customers. It

would add value to the Starbuck’s customers’ life and they would perceive Starbucks differently.

 Launching a campaign: We would come up with a new campaign to attract new and

retain existing customers. Customers would be able to participate in the coffee making

process and they would be able to give a name of the coffee and post it on the Social

Medias. The duration of the campaign would be six months.

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The best name selected by the jury would be included in the Starbuck’s menu list. This would

create hype in the market and customers would be more interested to visit the stores. They would

perceive that their thoughts are valued by us. It would increase customer satisfaction level.

4. What are your learnings from this case that you can apply in
real corporate world here in Bangladesh?

We can apply the learnings from the Starbucks case in our telecom industry in Bangladesh.

Currently there are four mobile operators are giving service in the telecom sector, 1)

Grameenphone, 2) Robi, 3) Banglalink, and 4) Teletalk with their own market share [ CITATION

DAT18 \l 1033 ]. They provide wireless communication services that are the utilitarian value of

these mobile operators [ CITATION tec \l 1033 ]. These mobile operators along with the utilitarian

value they provide hedonic value. Some of them are doing very great in terms of providing both

to their customers but there are some operators how have failed to provide their core service to

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their customer and as a result they are losing market share even with a huge range of hedonic

values.

We have selected Banglalink a mobile operator to apply our learnings from the case to

overcome their lacking and provide the desired service to the customers.

Banglalink as a mobile operator the core value that it needs to provide to the target customers is

the network so that people can get connected with full network from anywhere in Bangladesh. In

Banglalink case we observed that it’s giving extra services and offerings to attract and get

customer but they cannot provide the core value properly. Most of the customers having the

same problem and planning to switch to the competitor who provide best network.

Banglalink focused on capture a wide range of market share by giving convenient and lucrative

internet offerings and corporate services rather improving their core service. If we relate this

with the Starbucks case their new management did the same mistake by treating that as a

marketing myopia rather focusing on proving excellent customer experience. As a result, they

were losing their market share and customers were looking for better option.

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From this case, the following was learned and can be adopted in the corporate world.

1. Avoid the pitfalls of Marketing Myopia: Organizations need to pay close attention on

customers buying habits and quickly adapt to changes in customer behavior. They should

never cease to evolve and innovate just because their current business model is working

right now. Banglalink first needs to stop treating itself as marketing myopia and focus on

providing the best network service to the customer.

2. Stick to your core competencies: What makes a company unique is its core

competencies. While making strategic management decisions, organizations should not

deviate from their core competencies in order to expand. Customers associate each top

brand with their core competencies such as, Walmart for its best price, Volvo for its

safety, Apple for its innovation and much more. Banglalink should therefore stick to their

core competencies and execute strategic decisions that revolve around their core values.

3. Providing Augmented Product: In this increasingly competitive market, organizations

have to do more than just satisfying customer needs. They need to go the extra mile to

create extra value in order to survive. Banglalink needs to make sure that the core value

that’s getting full network anywhere in Bangladesh is delivered perfectly along with other

augmented services. For example, different internet packages, prepaid and postpaid

offers, talk time offers and corporate and business-related services for Banglalink.

4. Expansion should be controlled: Rapid expansion should not be the primary goal of any

organization. There is a huge risk associated with it. This can cause operational

inefficiency, diseconomies of scale, inconsistency in service and most alarmingly a

negative customer experience. Banglalink should focus more towards planned expansion

where they properly scrutinize the new markets they want to enter, conduct sufficient

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 feasibility study, test the waters and only then decide to expand. In this way, the

probability of success would be much higher. For example, before entering the Chinese

market, Starbucks should have conducted a thorough study on the taste and preference of

Chinese customers that’s applicable for Banglalink as well.

In this case we can apply some strategies for Banglalink to make a good impression to the

market

1. Mobile internet skills trainings: It needs to focus on teaching the users the basic mobile

internet use because after improving the core service it is mandatory that the other

offerings those are mostly related to internet usages. As in our country a limited number

of mobile users are using any internet services specially in the rural areas and the aged

persons Banglalink can provide mobile internet skills trainings among the users for free.

It’ll increase the customers’ involvement as well.

2. Easy to buy mobile data package : As Banglalink is giving so many offers related to

internet, they need to make the process of consuming or purchasing very easy. It needs to

be easy and very fast so the user will find it convenient and that’ll increase the

involvement.

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 Conclusion

Learning from their past mistake, Starbucks has now revamped their strategic decisions and

aligned their goals with creating customer delight. Even though Starbucks had enormous success

till the 2000s, their growth strategy has cannibalized their customer experience. During their

disastrous period after the retirement of Howard Schultz, they successfully rebranded themselves

and won back their lost customers. Now they are way more scrupulous with their decision to

enter new markets and evaluate every initiative more preciously.

In the long run, Starbucks should continue expanding their product portfolio and closely follow

new technological trends as their target population has this expectation. With an increasing

number of customers, Starbucks must be well organised and pursue their individual client

approach which makes their brand so unique and makes the customers come back regularly.

Finally, we can say after analyzing and applying some strategies the Starbucks case and the

Banglalink case every business should focus on improving the core value and try to give the best

user experience to the customers in order to sustain in the market in the long run.

References

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DATABD.CO. (2018, November 28). Retrieved from databd.co:
https://databd.co/profiles/industries/profile-telecommunication

Ng, D. (2018, November 26). CNA Insider. Retrieved from channelnewsasia.com:

https://www.channelnewsasia.com/news/cnainsider/starbucks-growth-nearly-destroyed-
business-howard-schultz-ceo-10928220

techopedia. (n.d.). Retrieved from techopedia.com:

https://www.techopedia.com/definition/27804/mobile-network-operator-mno

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