The Rise And Fall Of Starbucks Brand: Lessons Learned
Background of Starbucks
The rise and fall of Starbucks brand present a classic example of how successful brands can fail if they fail to consider certain aspects in their operations. Starbucks had been one of the most successful brands throughout the 80s and 90s. It was perceived by consumers as a modern brand earning a competitive position in the global beverages market. With this tremendous success, the escape brand decided to invest in other opportunities available in the market. In 2003 this dream was actualized through the creation of a Starbucks Music recording company. Also, the company also opened an entertainment office in Los Angeles. Five years into the new venture, Starbucks had lost its original focus. Although its music business had won Starbucks eight Grammys, it had come as a major distraction to the organization’s original focus (Carroll & Shabana, 2010). The organization’s coffee Brand which was its main brand was badly affected. The focus of the organization’s leadership had shifted from the coffee brand. As a result, tremendous losses were encountered. The brand slowly faded from the market. What followed was a financial crisis that almost brought the organization down to its knees. Upon this realization, the company exited the music industry and delved into rebuilding its falling brand image. The issue is important because it almost led to the absolute collapse of star bucks brand.
Starbucks is an American Coffee company founded by Zev Siegel, Jewry Baldwin and Gordon Bowker in 1971. The Multinational Corporation has its headquarters in Washington Dc. The coffee chain has maintained it global position ruling the coffee industry for decades, with its global stores currently estimated at 28218. The Company entry in the early 1990’s came as a major boost for an organization that had become profitable almost nine years after it was started. The organization currently employs more than 238000 employees in its worldwide locations. Its main products include coffee beverage which is served hot or cold, Smoothies, sandwiches baked goods and Tea.
Its expansion journey began in 1984 with the purchase of Peet’s. During this period the total sales of specialty coffee were increasing in the United States. By 1986 its number of stores had increased to six, operated from Seattle. The chain was in 1987 sold to Howard Schultz, a former manager. He began the expansion of the chain in the same year opening locations in Illinois, Chicago, Columbia, Vancouver, waterfront station. The number of stores in the Midwest and Northwest had increased to 46. Its first location beyond North America was opened in 1996 in Tokyo. The revitalized prosperity of the organization was witnessed through its growth rate. It is estimated that the organization opened an average of two locations on a daily basis between 1987 and 2007. The organization experienced a change in leadership after the resignation of its CEO Howard Schultz in April 2017, a position which was taken over by the current CEO Kevin Johnson.
Strategies Adopted by Starbucks to Expand Operations
Organizations adopt different strategies to expand their operations and improve their profit margins. Diversification and internalization are the most commonly used strategies. Diversification is a strategy used by organizations to enter into new industries or markets. Diversification involves exploration of new markets and the creation of new products or services suitable for those new markets. Diversification can provide a good opportunity for an organization to achieve stability. Diversification can also be a risky affair because of lack of experience in the new market and uncertainty about the success or failure of the new product. Internalization, on the other hand, is a strategy used by organizations to venture into international markets. Starbucks has used both strategies in an attempt to increase its market share and profitability. Although the internalization approach can be referred to as successful, its attempts to diversify its operations dealt a major blow to the Company’s original brand (Koehn, Besharov & Miller,2008).
After launching their music studio which won a record of 8 Grammy and launching their first movie, the organization forgot its initial coffee brand and concentrated on its new venture. As a result, a number of its former clients abandoned the organization for cheaper alternatives available in the market. After realizing the deep mess in which the organization had gotten itself into a turnaround plan was initiated (Wu, 2017). This plan included shutting down of its music business and adoption of several other strategies to win back the loyalty of its former clients. Part of its plan involved setting goals of what they wanted to achieve, investing resources, shifting the focus of the coffee ritual beyond morning and building a broader portfolio around the coffee (Chua & Banerjee, 2013). With this refocused strategy, the organization was able to win back some of its loyal customers and record a double-digit growth for five consecutive years. Its stock price also increased.
Ineffective decision making in an organization can be quite costly. Before any decision to diversify is taken in an organization, all possible outcomes should be considered, and necessary steps are taken to mitigate against any possible negative consequences. For Starbucks, before venturing into the music industry, it should have analyzed how such a decision would affect its original brand and taken any necessary action that would prevent its coffee brand from shrinking. Armed with this knowledge, the organization would have been able to manage both the existing brand and the new venture concurrently. I can refer to this as a case of managerial negligence and incompetence. I believe with effective leadership; the organization has been a successful brand would have managed both the coffee brand and its new music business venture (White & Moraschinelli,2009).
Why Starbucks Diversification Strategy Failed
It is true that in 2003 the organization was at the best organization in the coffee industry despite its coffee being the most expensive. With this success, I believe its venture into the music industry was informed by corporate ego that was taking over the organization at that time (Larson, 2008). It was a decision made without consideration of the possible consequences. Besides, the management could have thought that the market position enjoyed by the organization at that time allowed them to do anything they wished or venture into any business they would think of. Corporate arrogance had taken over rational thinking at the organization. The management must have forgotten that even successful brands fail if their operations are not handled with due diligence. Not only were consumers of Starbucks coffee affected but also employees who lost their jobs after the closure of multiple stores.
Before venturing into its new business, the organization should have weighed the consequences and benefits of the new venture. They should have questioned how the venture would affect their ability to satisfy the needs and wants of their existing customers. They should also have analyzed the number of resources and effort that would be required to manage the new business. Also, Starbucks should have analyzed their human resource capacity, and focused on enhancing the capacity of its staff through training and development (Schultz & Gordon, 2012). Organizations have ethical responsibilities to their stakeholders including customers, employees and the community. Starbucks should have considered the interests of all their stakeholders before taking their erroneous move of venturing into the music industry. However, I think the organization’s attempt to get back on track after realizing the mistakes it had done is commendable. It is important for an organization that has suffered the consequence of ineffective decision making to try and wins back the trust of their stakeholders. So although Starbucks allowed itself to be controlled by corporate ego and arrogance its decision to get back on track was the best approach that could have been adopted (Tu, Wang & Chang, 2012).
I relied on some ethical decision making approaches in arriving at my conclusion. My choice was also backed up by reasons which I will discuss in my analysis.
The Fairness Approach
This approach can be traced back to the times of Aristotle in Ancient Greek. He proposed a model that spearheaded unequal treatment for unequal’s and equal treatment for equals. The Fairness approach is centered on identifying a course of action that supports equal treatment for everyone unlike in situations where it is morally justifiable. It provides an opportunity for people to consider if the actions they are about to take are fair to the people affected. The approach seeks to identify how benefits and burdens are distributed among members of a group by fair or unfair actions (Ferrell & Fraedrich, 2015). It seeks consistency in the way people are treated by discouraging discrimination and favoritism. This approach would have ensured the adoption of actions that would have ensured equal treatment for everyone and which would have been deemed fair. I believe the management should have considered the possible consequences of its action to the organization’s stakeholders.
The Consequences of Ineffective Decision Making
Utilitarian Approach
John Stuart and Jeremy Bentham are considered to have conceived the concept of utilitarianism in the 19th Century. The utilitarian approach was developed to aid lawmakers in identifying acts which were morally best. In their argument, the two stated that an action is considered ethical if it provides the greatest balance between evil and good. This approach requires the analysis of an issue through the identification of all the available courses of action. Secondly, the positive and negative impacts of each course of action on different parties are considered.Thirdly, an action that produces the least harm and greatest benefit is taken. Ethical action is considered to be one which results in the greatest good for the greatest number. The general focus for this Approach is the consequences of different actions on parties likely to be affected directly or indirectly. An ethical decision must, therefore, have more benefits than harms (Tenbrunsel & Smith?Crowe, 2008). The reason I used this approach is that of the fact that Starbucks has some stakeholders affected by its decisions. The decisions taken must, therefore, be the one that produces the greatest benefit to these stakeholders
Conclusion
In conclusion, Starbucks case study brings out some issues. It identifies the rise of a once global giant; its fall and amazing comeback. Determined to make the best out of the top global position it occupied, Starbucks decided to venture into the music industry by opening a music recording studio and an entertainment center. However, its diversification strategy was not executed appropriately leading to almost a total collapse of its coffee business. The organization was established in 1971, grew to become a major international organization with shops in different parts of the world. Its current employee population is estimated to be more than 200,000. Had the organization taken time to prepare for its diversification journey and adopted an approach that balanced between its coffee and the new venture; the chances are that both would have succeeded. However with its total shift of focus to the business venture its coffee brand suffered a great deal. The case also explores the actions taken by the organization to restore its former glory. These actions included exiting the music industry and trying to win back its lost customers. The ethical approaches used in the report are utilitarian approach and Fairness approach.
References
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Chua, A. Y., & Banerjee, S. (2013). Customer knowledge management via social media: the case of Starbucks. Journal of Knowledge Management, 17(2), 237-249.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.
Koehn, N. F., Besharov, M., & Miller, K. (2008). Starbucks coffee company in the 21st century. Harvard Business School, Case Study, 9-808.
Larson, R. C. (2008). Starbucks a Strategic Analysis. Past Decisions and Future Options.
Schultz, H., & Gordon, J. (2012). Onward: How Starbucks fought for its life without losing its soul. Rodale Books.
Tenbrunsel, A. E., & Smith?Crowe, K. (2008). 13 ethical decision making: Where we’ve been and where we’re going. The Academy of Management Annals, 2(1), 545-607.
Tu, Y. T., Wang, C. M., & Chang, H. C. (2012). Corporate brand image and customer satisfaction on loyalty: An empirical study of Starbucks coffee in Taiwan. Journal of Social and Development Sciences, 3(1), 24-32.
White, B., & Moraschinelli, E. (2009). The Pursuit of Sustainable Competitive Advantage: A Profile of the Starbucks Corporation.
Wu, H. C. (2017). What drives experiential loyalty? A case study of Starbucks coffee chain in Taiwan. British Food Journal, 119(3), 468-496.