MARKETING MANAGEMENT- 1

TROUBLE BREWS AT STARBUCKS

GROUP NAME- TEAM ACES Submitted to- Prof. Asif Zameer

Aayush Mishra (163061) Date of Submission:20/09/2022
Neha Aggarwal (163062)
Adarsh Subramaniyan (163063)
Aman Agarwal (163064)
Ankush Agarwal (163065)
 DECLARATION OF ACADEMIC HONESTY

We, members of Marketing Management group 1: Team Aces, declare that

a) That the work presented for assessment in this Case Study Analysis is our
original work, that it has not previously been submitted or presented for another
assessment and that our debts (for words, data arguments, and ideas) have been
appropriately acknowledged.

b) The work conforms to the guidelines for style and presentation set out in the
relevant documentation.

c) Each and everyone in the group contributed equally and the work has been
divided equally between all.

We, understand that issuing a false declaration can result in severe penalties and
we are willing to be penalized if any form of copying is found valid.

Place: New Delhi

Date: 20th September 2022
Summary:

After going public in 1992, Stocks' strong balance sheet and double-digit growth made it
a popular growth stock. The Starbucks neighbourhood was a coffee culture community
where friends would share the experience and exotic language of gourmet coffee. Its
growth was fueled by a rapid increase in the number of stores, both in the United States
and abroad, the addition of drive-through service, and its own musical band that
promoted and sold CDs in stores and other add-on sales, such bakeries and sandwiches.
In a remarkably short period of time, Star Bucks become a hugely prosperous global
brand. But in 2007, Stocks' performance plummeted; the company reported it’s first-ever
decline in customer visits to U.S. stores, which resulted in a 50 percent decrease in its
share price. The board of directors appointed Jim Donald and brought back Howard
Schultz, the team's visionary leader from 1987 to 2000 and current chief financial officer
and global strategist, to retake control in January 2008. The growth strategies of
Starbucks have been frequently reported and examined, but rarely with an eye toward
how they affect the brand. This case provides a compelling example of how "non-brand"
managerial decisions, such as location changes, licensing arrangements, and drive-
through service, can make sense in the short term but have negative long-term effects on
equity. Examining the growth decisions made in the United States offers a rich context in
which to consider both the promise and the history of future foreign policy.
Q1. When Howard Schultz launched Starbucks, who was the target market,
what was the positioning of Starbucks and how the 4Ps supported the
positioning?
Ans-1. Starbucks positioned themselves to be a premium brand in the coffee market by
setting high standards, developing innovative products, and offering exceptional
customer service. Where the experience will be far superior to any other coffee shop.
Starbucks was targeted at employees, educated potential customers, and white-collar
residents who would want to purchase high-end goods because Schultz wanted the
company to be a luxury brand. Starbucks was created by Schultz to be a meeting and
resting place for people. Between one's home and one's job, he saw Starbucks as the
"Third Place" where people could congregate.
The 4Ps supported positioning as follows

Product: "Educate consumers about great coffee," was their stated goal. They
meticulously observed each step of the coffee-making process and were vigilant about
maintaining the product's quality. Dark-roast, whole bean coffee from nations such as
Sumatra, Kenya, Ethiopia, and Costa Rica was brought in—no ground or processed
coffee. Additionally, the introduction of Frappuccino and non fat milk had a significant
effect on the industry. They also started including items like cookies, baked goods, snacks,
and salads on their menus, as well as seasonal mixes like "Holiday" during the holiday
season.

Price: When Starbucks originally came out, people thought it was expensive because they
were getting the best products. Starbucks is positioned to be a premium brand so they
adopted a premium pricing to attract rich customers who came for an overall experience

Place: From a distribution standpoint, Starbucks adhered to a formula while choosing the
locations of its new stores. They opened their stores in groups in very conspicuous
locations. The dispersal of these clusters allowed them to keep a dynamic attitude and
control their increased flow even in the face of rising demand.
Promotion: Starbucks planned "at least one huge community event to celebrate its debut,
with the proceeds going to a local charity" because it lacked the resources to advertise
when it entered a new territory. Additionally, each city's identity was highlighted in the
artwork, which "was utilised on commuter mugs and T-shirts." Additionally, they "hired
local 'ambassadors' from new partners and customers whose names were in Starbucks'
catalogue customer database." Participants were given two free drink coupons, tickets to
the grand opening event, and a letter encouraging them to "Share Starbucks with a friend."

Marketing Mix (4P’s) of Starbucks

Q2. What routes did the company take to achieve its growth objectives?
Ans 2. When Schultz returned as CEO of Starbucks, he announced the
following programs: Enhance the state of business in the United States by re-focusing
on the customer experience in Starbucks stores.
INVENTING NEW STRATEGIES :Invent new products, redesign stores
and educate employees on how to ensure a good customer experience; Reduce the pace
of store openings in the United States and close underperforming stores to focus on
the retail unit economy pursue the emotional connection customers had with the
brand: Reorganize Starbucks and streamline management to support customer-
centric initiatives and allocate resources to key value drivers; increase Starbucks'
growth rate and profitability in stores outside the country by diverting part of the
capital set aside to finance the growth of US stores.
KNOWLEDGE OF COFFEE: Once Schultz was at work, noteworthy actions included
closing more than 7,000 stores for 3.5 hours to retrain staff on how to make the
perfect espresso, even though the company lost $ 6 million in
revenue that. day accordingly. The company had to go back to staff with knowledge
of coffee and customer relations. This led to the dismissal of 600 employees in 2000.
He hired outside consultants to help devise a detailed strategy. This is something he had
never done in the past.
ADVERTISING: The company invested for the first time in a national
advertising campaign. The advertisement aired during the 2008
presidential election and garnered around 70 million views. He decided to leverage
the business on social media by hiring an expert who had worked at Amazon and also
improved the company's website. Schultz found this to be the best way to continue the
coffee conversation after the consumer has left and to get ideas and
feedback. The aroma of coffee that was already there could be felt by consumers. The
company had registered old and obsolete computers and coffee. They have been replaced,
saving around 700,000 hours of waiting in line.
SAVING PROCESSING COST: The company closed approximately 600 stores in the
country, saving approximately $850 million in processing costs. This was a painful
decision that went against the employee-centered business approach developed by
Schultz. However, it had to happen.

REORGANISING SUPPLY CHAIN: Schultz reorganized the supply chain and made it
more efficient in delivering products to stores and maintaining inventory levels. The
number of correctly delivered orders rose from 3 out of 10 to 9 out of 10.
LOYALTY CARD: Schultz also created a loyalty card
to retain customers at a time when losing them would be very
costly. He continued to offer health insurance
to customers, as he always did when the economy
was weak and the cost was high. In doing so, he
wanted to stick to the original culture of
people appreciation he pioneered for the company.
Starbucks redesigned the company's stores to make them more
attractive for customers to sit and converse in the stores as they
had before.

REWARDS: To encourage employee or partner performance, Starbucks announced that

partners would be rewarded based on their performance. This reward should take
the form of salary increases. This further reinforced the value Starbucks originally placed
on people.

NEW PRODUCTS: To keep its promise to

develop new products, Schultz decided to try its
luck with instant coffee or VIA. It did very well and
even get a lot of media attention.
The company has also pledged to double down
on its fair trade purchases to improve the welfare
of farmers, who form an important part of the
coffee value chain.

CONCLUSION: On a personal note, Howard Schultz studied the turnaround strategies

of other executives only to learn that he was being used to change Starbucks' fortunes.
Following these actions, based on the initial value propositions, it took two years for the
turnaround to begin to bear fruit, and 2010 revenues reached $10 billion.

Q3. In hindsight, which of Starbuck’s initiatives were sound decisions for the
brand and which were inconsistent with brand positioning?
Ans3.
Sound Decisions:

• Maintaining Quality Control: • Maintaining Quality Control: Maintaining a

quality control over all of a company's stores is a difficult effort, but Starbucks
was able to prevail in this circumstance by adopting everything on its own, from
cultivating uncooked beans to steaming the cup. They genuinely believe that "the
coffee can be destroyed at any moment from its manufacture to consumption," so
why would they think otherwise? We are very susceptible to its quality being
diminished the moment we give our coffee to someone else.

• Formation of “Third Place”: One of Starbucks' primary objectives was to turn

their location into the "Third Place," which is the area where people congregate,
unwind, and socialise in between going to work and going home. For this,
Starbucks devoted close attention to every detail, making sure that everything was
done correctly-including the store's layout, furniture, music, and overall aesthetic.

• Training & Providing Security: Starbucks created a 24-hour training programme

including Coffee Expertise (four hours), Brewing the Perfect Cup (four hours),
Customer Service (four hours), and fundamental retail skills in order to instil the
necessary coffee knowledge in recruits. Schultz pushed with his board to make
health insurance available to all partners, including part-timers, in order to
guarantee personal security. "If you treat individuals like family, they'll be devoted
and loyal. People will support you if you stand by them, he claimed. The
calculations were sound because, at the time, it cost $1,500 per year to supply an
employee with all benefits as opposed to $3,000 to train a new person.

• Introduction of Bean Stocks: Schultz gave Bean Stocks, a fictitious stock option
plan, to partners who had worked at the
company for at least six months in an effort
to foster employee loyalty and faith in the
brand. Store partners had an incentive to
participate in decision-making, offer cost-
cutting strategies to boost profitability, and
assist maintain the brand's identity because
they were considered to be "stock holders."
They have the right and duty to confront
 management if they were acting inconsistently with the Starbucks vision.

• Going Public: In 1992, Starbucks went public with slightly over 100 locations
across four states. The stock's initial price was $17 per share, but it increased to
$21 at the opening bell. Starbucks' market capitalization was $273 million at the
end of the day after the first public offering (IPO) raised $29 million for the
business, $5 million more than anticipated. 18 Being a publicly traded firm
propelled Starbucks into the elite leagues; it generated millions of dollars for the
company's investors, provided vital funding for future expansion, and assisted in
luring new, skilled employees.

• Developing new products: With the increase in competitions in the market, soon
Starbucks realised that their business is not just about coffee or brand, it’s about
their customer. So, to cater the needs of its customer, they began experimenting
with different recipes and ingredients and came up with many new products such
as Flavoured Frappuccino’s, Hot & Cold sandwiches and salad for breakfast and
lunch respectively, Cookies and Pastries, Non-fat Milk Coffees and many more.

• Licensing: Airports were a natural venue for Starbucks, but all U.S. airport retail
locations were run by concessionaires — in the case of food and beverages, Host
Marriott. So, to add new locations, Starbucks Licensed with Host Marriott which
not only created greater customer convenience in established markets, but they
also gave Starbucks a way of entering new markets when it could not afford to
build company-owned stores.

Inconsistent Decisions:

• Licensing: To cater the needs of its customer in Airports and to get more exposure
and additional revenue, Starbucks licensed with Hotel Marriot, without which the
company could not get a store in such location. The effect of this was the loss of
control over its Quality of the Products through the value adding practices.
 • Looks, Movies and Music: Although the entertainment was the part of the
increased revenue but it was not the part of the original value proposition of the
company. The customers were now distracted from engaging with each other.

• Drive-through Stores: The addition of Drove sales took away the idea of
customers sitting and discussing issues as they did in Baristas. Also,the downside
of the drive-through locations was the cost of real estate and additional partners
needed to operate the window. In addition, the bottlenecks in the drive-through
could be far worse than those in the store, even though the average time to serve
customers was about the same.

• Introduction of Food: With the introduction of many foods in the store, the brand
undermined its position in the minds of its customer as for them it would be just
like any other restaurant like McDonald’s. And the smell of food heated breakfast
sandwiches for instances was irritating to the fundamental coffee lovers.

Going Public: To satisfy Wall Street and its Investors, Starbucks had to focus on
continued growth due to which it introduced many products, even to cater small section
of the society and also licensed with Hotel
Marriot. Such arrangements reduced some
amount of control that Starbucks had on its
outlets. Starbucks was also opened in
countries that did not have a coffee culture
and had to ultimately adapt its local
products which mean making changes to
the process and the final product.

Q4. What may be the negatives of foreign expansion on Brand Starbucks?

Ans4.
1. Labour Laws- Labour Laws- In London, tiny teams spent the morning distributing
informational leaflets to baristas at each Starbucks and Caffé Nero, another major United
Kingdom low chain with operating conditions that parallel those of Starbucks. The key
accusation has been that Starbucks baristas are paid simply higher than the wage and are
subject to excessive working hours and unpaid overtime. Additionally, baristas at
Starbucks are forced to figure at a relentless pace, leading to repetitive strain injuries. In
middle of 2007, the commercial staff of the globe (IWW) and No Sweat control a
booming National Day of Action against Starbucks, with demonstrations in 10 cities
across the UK, together with Glasgow, Leeds, Edinburgh, Leicester and London.

2. Unable to attach to native culture- When an organization expands to totally different

countries, the one among the key challenges that they face are that their incapacity to
connect to the local culture. For example- Starbucks created its go in the Australian
market by gap 2 stores in 2000 and speedily increasing presently after. By Gregorian
calendar month thirtieth of 2007, the corporate was reporting eighty seven stores in their
Annual Report. however soon, due to significant losses, Starbucks was forced to shut its
stores. ab initio it closed three of its stores in Australia and by July 2008, Starbucks were
closing sixty one of their stores in Australia.This was due to 2 strong reasons:
a) Starbucks failed to totally perceive the Australian low restaurant culture,
b) Starbucks had the image of being foreign interlopers.

Australia already had an entrenched restaurant culture and had franchise players like
Gloria Jean, low Club and alternative specialist coffee chains, who understood Australian
preferences and hence had a competitive advantage. Australian preferences enclosed a
stronger tasteful coffee served during a real cup that would be enjoyed on the premises.

3. Negative Public opinion- Starbucks withdrew from the Forbidden town in China
when a ground swell of negative opinion developed, due to that Starbucks delayed its
entry into India and Russia. Such delays gave native competitors time to organize for the
onslaught and go in prime locations.