Starbucks Corporation - a Crack That Could Have Been Avoided

A Crack That Could Have Been Avoided

Marketing Management

Abstract

A case study of Starbucks Corporation's rapid decline in stock prices after the U.S. financial crisis in 2007 is examined. Specific aspects of the company's actions are considered from a Marketing Management perspective, such as how the company became so successful and what could have been done to avoid their financial difficulties.

A Crack That Could Have Been Avoided

Introduction

Marketing is "the set of activities designed to influence choice whenever an individual or organization has a choice to make" (Winer & Dhar, 2011). In 2007, a great many consumers made the choice to stop being patrons of Starbucks Corporation (Starbucks). During this same period America underwent a financial crisis, which Starbucks had no control over. However, through the use of effective Marketing Management strategies, the choices individuals made as a result of these conditions could have been influenced in a manner that would have been much more beneficial to Starbucks' bottom line. In order to better understand how Marketing Management strategies can positively or negatively affect consumers' choices, a case study of Starbucks will be examined.

What was the main cause of Starbuck's problems that emerged in 2007 and 2008? What could the company have done to revive itself?

Many economists consider the sub-prime mortgage crisis of 2007-2008 to be the worst American financial crisis since the Great Depression (Reuters, 2009). One of Starbucks' strengths that sets them apart from their competition is their "high-end atmosphere with an affluent customer-base" (Herriman, Michael, Motohiro Wanakawa, Ryoko Ichinose, Shobhana Darak & Yumana Chaivan, 2008). The combination of a product marketed towards affluence, combined with a severe economic recession, ultimately left Starbucks vulnerable. The "financial crises can affect consumer discretionary spending and thus Starbucks' sales. The sub-prime mortgage crisis of 2007-2008, with turmoil in the housing and credit markets, and high fuel prices, was an example of its vulnerability" (Harriman et al.). At the same time America was in one of the worst financial crisis in the last century, Starbucks was incrementally increasing the cost of their products. These price increases occurred despite growing consumer concern over the inequities in the price of coffer paid to growers, $.24 per pound in 2004 for example, verses the cost of the product in their stores, $3.60 for one large cappuccino in Starbucks Japan for example (Harriman et al.).

These factors ultimately created what seemed like a perfect storm for Starbucks; a storm they did not weather well, as their stock prices plummeted by 50% over a 6 month period of time in 2007 (Harriman et al.). The company could have done several things to revive itself; first and foremost, they could have lowered the prices of their product instead of increasing them. Furthermore, the company is known for their fair-trade practices, fair treatment of their employees, and environmental awareness, which has served them well (Harriman et al.) Starbucks could have added "concern for the plight of Americans struggling in the wake of the current financial crisis" to their list of charitable endeavors by donating money to families struggling to pay their mortgages for example. A "Rebuild America Brew" coffee product could have been offered, with some proceeds of every cup/pound/etc. going to help families remain in their homes. This effort, if marketed effectively, could have tempered their consumers' increasing distaste for their already bitter coffee.

Analyze the growth of Starbucks and identify three or four factors that distinguished it as a company and led to its rapid growth

The primary distinguishing factor that lead to Starbucks' astronomical success is their clever marketing of their products as not just a tangible good, but as a psychological commodity as well. They don't merely sell coffee, they sell relaxation, "the third place" someone can go to enjoy "the Starbucks experience" (Harriman et al., 2008). Secondly, the company "succeeded in presenting itself as an ethical and environmentally concerned organization through its avowed commitment to fair trade coffee and use of [a] clever logo based on green and paper-bag brown colors" (Harriman et al.). Their customers don't mind spending an exorbitant amount of money on a cup of coffee, because they're not just buying coffee, they're relaxing and contributing to a company that is beneficial for society and the planet. Finally, they simply offer a consistent product in predictable locations. Their customers "could go to any large city and predict where a store might be found" (Harriman et al.). Once a customer easily and readily found a Starbucks location, they were confident they would "know what it would provide" (Harriman et al.). It is the combination of selling a coffee drinking "experience" by a company