Howard Schultz’s idea of Starbuck was to provide not only quality coffee but also the best service and atmosphere. Schultz’s created a chain of coffeehouses with a differentiation on its product which included specialty live coffee, quick service and a cosy relaxing ambience that offered a break from the their hectic life. Earlier Starbucks was run by three coffee fanatics who sold whole beans and premium priced beverages and catered to well educated white collar people belonging to the age group of 25 to 44.
By middle of 2002, Schultz had established the Starbucks as a dominant specialist coffee brand in the North America. The sales were high and net earnings also rose by about 50%. The company had opened up 5000 stores around the globe and was serving about 20 million customers and on an average the company launched three stores a day. To add on to the company’s advantage, Starbucks did not spend on its advertising, to promote the brand. Starbucks’ supply chain helped the company to follow the high standards and maintain control over the operations concerning at the retail level (Starbucks, 2011).
Starbucks entered into strategic alliance with Pepsi Cola in order to increase its sale of alternative beverages. The company developed and distributed ice cream; Kraft food managed the sales of coffee and distributed to warehouses and grocery store chain for Starbucks coffee. The employees of Starbucks, the Baristas, were encouraged to interact with the customers in a friendly manner and were paid higher wages than the average market wages.
They were also eligible for other benefits offered by the company. Starbucks considered its employees as the partner to the firm and believed that promotions takes place within the company. But the company encountered an issue with regard to the customer satisfaction as they complained about service delays and the attitude of the employees. Starbucks is one of the largest specialty coffee chain, and many of its competitors competed directly with Starbucks and these chains at any point of time can extend its product line to specialty coffee. Another important issue was that Starbucks’ innovation was based upon Starbucks partner’s preference or acceptance.
The company expanded its product line to add many new products and expanded its list of offered items. The employee at Starbucks had a tough time as its products became more detailed and elaborate and required greater time before final serving to the customers. The company thus installed automated espresso machines to reduce the wait time. It also introduced pre-paid cards that would enable the customers to pay for products in stores.
Starbucks did not have a centralized marketing program; the goal of Starbucks was to open three stores per day which resulted in the cannibalization of its existing stores, but Starbucks did not recognize this issue and further carried on with launching new stores. The product differentiation between Starbucks and its competitors were seen to be very less and with a change of time, the new customers belonging to low income group and less education viewed Starbucks from a completely different perspective. Starbuck had lost its connection between satisfying customers and growing its business. It wanted to serve its customers within 3 minutes time window. Therefore, the main issue arises whether this would add to the customer loyalty.
Reference
Starbucks. (2011). About Us.