Case Study on the Success and Decline of Starbucks

12 December 2016

Starbucks faces a number of challenges it must grapple with. Due to its rapid growth it has had difficulties maintaining a lean and efficient bureaucracy, and also remaining focused on the customer. To name some of the challenges in their Annual report of 2007 the CEO Howard Schultz talked about ‘slow costumer traffic’ in the USA and assured that “We understand the challenges we face, and we know that we have the ability and experience to overcome them” (Starbucks 2007 p. ). The company’s core objectives, according to its latest annual report, are maintaining respect for its brand by both expanding its physical reach and product portfolio, and focusing on remaining an employer of choice. (Starbucks 2009) The following case study aims to take a closer look at the factors involved in the success and decline of Starbucks during the last decade including the period of the economic downturn as well especially as a company which operates in the service sector.

We combine a qualitative approach with multiple sources of evidence using secondary data. First we look at the company in general and its background. We then take a closer look at the success factors of service industries in general. In the main section we deal with the case description, as well as the data and methodology involved. We use a SWOT analysis to present our results and reach conclusions. 1 CONCEPTS AND DEFINITIONS The key words in this research are success, decline and factor as highlighted in the research question.

In order to make the readers of this paper understand better the purpose of this study we have defined these terms. The Merriam Webster online dictionary describes success as a favourable or desired out come and it further on describes decline as turning away from a straight course or to tend toward an inferior state or weaker condition. A factor in this paper has been described as anything that actively contributes to the production of a result or outcome.

In order to evaluate Starbucks the evaluation processes consist of two variables: organizational performance data and a benchmark that creates a framework for analyzing the data. For organizational information, we focused on the outcomes of its performance, but also including input/ environment/ process/ output- to have a comparative framework for analysis. Starbucks’ outcomes are directly related to the public purpose of the organization and in defining success or failure we look at how effective they are as determined by outcomes.

It is very vital to know what value Starbucks provides and its best practices and in doing so an evaluation on the internal operations was done by comparing its core process performance to the most effective and efficient process in the industry. 2 JUSTIFICATION OF THE STUDY The purpose of this study is to identify the factors that led to Starbucks’ success and decline over the last ten years. Starbucks has to compete with other coffee retailers in the world, most of which have a diverse product portifolio in the service industry.

The principle competitors have been mentioned in the SWOT analysis done below on the company, and the nature of industry has been critically analysed keeping in mind the marketing mix as well. Starbucks operates in a turbulent environment so it’s critical for it to promote and position itself as a market leader offering exceptional service quality but this does not exempt it from the many traps that lie along the way in terms of being complacent and also some core rigidities which may result thereby adversely affecting its operations as is the case with many companies.

A strong case is built on Starbucks especially looking into the fact that it is considered to be a market leader in the coffee industry, its story has been surmount to what is typical of any leading company facing competition and also economic crises but more so importantly in the equation how to handle the pressure. Factors along the way are determined as to why its performance can be considered successful or in the decline mode. The theory looking at customer focus, orientation, how to satisfy a customer and also on the service industry gives us reflective material to better make judgment on Starbucks.

The study not only brings out the pitfalls but also critically looks at how the company mitigated those pitfalls by seeking an approach that seeks to improve quality and performance which met or exceeded customer expectations but at the same time stressing that constantly innovating and being aware of societal trends is a company’s way of dealing with these pressures and thereby maintaining an optimal performance.

In addition to intangible products, companies in service industry often tangible products to support their main offering. A coffee shop is a good example of that. Even though coffeehouses sell coffee, their main product is to sell pleasant experiences and services. In order to identify reasons for failures in service industry, the key factors of success must be found. Reasons for company’s success or decline can be studied by using so called SWOT-analysis which is briefly presented next in this text. Another way to investigate success and decline in service industry companies is to pay attention to strategic choices of the company.

The key points of these are also handled in this text. Customer satisfaction and other factors related to that are also vital for success of businesses in service industry, and therefore these topics are also discussed in this text. 2 Strategy Formulation in service industry According to Porter’s generic strategies, there are three options for companies to form their strategy. Companies can seek for overall cost leadership, use differentiation or focus on specific narrow market segment. Overall cost leadership means simply lower prices than competitors.

Differentiation means that company tries to achieve superior performance in an important customer benefit area valued by a large part of the market. By choosing narrow market segment – in another words focusing – company gets to know these segments intimately and then pursues either cost leadership or differentiation within the target segment. (Kotler, et. al. , 2009, p. 56 Differentiation is important way to stand out from other operators. Differentiation is essential in achieving good brand – to be branded products must be differentiated (Kotler, et. al. , 2009, p. 376).

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