Starbuck's Growth Destroyed Brand Value

Case Summary

Starbucks Corporation is the world’s leading retailer of coffee. It was formed in 1985 and run the business by selling fresh roasted coffee. Starbucks purchases and roast high quality coffee to make various kind of beverages such as espresso, rich-brewed coffee, Frappuccino, etc. Starbucks expanded its business to around the world and become the most recognized and respected brands in the world. The company increased its market share by selectively opening additional stores in existing markets and opening more and more stores in the new markets.

While the company grows bigger and expanding faster, the business face problems. The growth of Starbucks Company made a negative impact on its brand value, this causes many consecutive impact on the business. On 2008, the sales of Starbucks fall and the target was not hit. The customer switch to other exclusive brands such as Peets, Caribou, and etc. The Starbucks net earnings dropped 16% compare to 2007 result, the loss of customers made an impact on the revenue of the company.

Therefore, on July of 2008, Starbucks announced that the company will close 600 stores in the United States. Sometimes for the world of marketing, the less is more. The founder Howard Schultz came out with this solution to overcome the brand value problem of his company. This business strategy allow the business run at a more controlled pace. Other than that, this allowed company to stay premium priced brand by limiting its distribution. Starbucks also improve supply chain, enhanced the stores experience, improve and promoting existing products and apply an aggressive marketing strategy.

Starbucks introduced many business strategy and initiative idea, these help Starbucks to rebuild its customer relationship and able to compete in this highly competitive situation.

Chapter 1: Problem Statements

The world’s largest coffee’s retailer, Starbucks face an economic slowdown on 2008 as the demand are decreased due to brand value decreased. Customers’ satisfaction is getting lower and lower, meanwhile there are more competitors that giving pressures to the company revenue. The growth of the business caused an impact on its brand value. By 30 March 2008, the profit of Starbucks had fallen by 28 percent compare to the previous year’s result. (Starbucks Corporation, 2009) The company business slump not because of the price hikes in the daily products only, but also the heavy spending to accommodate the expansion of the business that created a bureaucracy that masked the problem.

The Starbucks sales had fallen and the target was not met. The profit margin has decreased because the demand decreased as number of customers were reduced. There are few reasons that causes this to happen. First, there are many competitors who also offer nice coffee, customer switch to more exclusive brands such as Peets, Caribou, etc. These competitors also selling high quality coffee-made beverages and provide excellent environment in stores, so it’s not only Starbucks provide these products in sector, so the customers of Starbucks were decreased. Besides that, McDonald’s and Dunkin Donuts improved their coffee offering at a much lower price. There are always customer who want to grab a normal coffee, so they will go to these shop who has lower price of coffee instead of Starbucks.

Starbucks also launch new products often, these new products undercut the integrity of the Starbucks brand for coffee purist. The business follow their business strategy that introducing new products sometimes resulted a negative effect to the business. Starbucks’s innovative ignored those customer who loyal or like their signature products. In the meantime, the barista have to keep on practice on the new products,