In the early 1980s, specialty coffee was an emerging trend in the U.S. where supermarket brands previously dominated the coffee market. Entrepreneur Howard Schultz believed that specialty coffee market had a growth potential in America, if introduced as a premium product.
This needed a proper introduction and development of a specialty coffee culture to the consumers so that they could appreciate it. To do this, the people in the business had to be passionate about coffee. He had a vision of introducing and developing a European-style coffee culture in the American market.
In Europe, specialty coffee had a big market. Howard saw this trend possible in America where the idea of specialty coffee was not well developed. At that time, Howard wanted to replicate the European coffee houses in America.
A brand built around coffee would easily capture the new market. This brand would grow as the specialty coffee market widens and since most Americans were moving towards specialty foods, the brand would soon become a household name.
When Howard Schultz acquired Starbuck, the company spread the gospel of high quality, customized coffee drinks throughout the urban centers in the country.
This portrayed Howard belief in the specialty coffee market since it had the greatest potential in urban centers and could be accepted nationally. Howard also had a different view of marketing. He believed that the word of mouth from one customer to the other would spread the company’s name.
His view of how a specialty coffee company would succeed was different from what other businesses were doing at the time. His idea was developing a coffee house and not a coffee store. The coffee house would provide a coffee experience to the customers, which would be good enough to win their loyalty.
These coffeehouses would also provide a friendly environment in welcoming the customers. In other words, coffeehouses needed to be a place to meet and visit. The baristas would create a friendly environment by communicating extensively with the customers and educating them about coffee.
The baristas therefore had to be well versed with coffee and its technology. Having a social conscience was also a factor Howard considered to be instrumental in the specialty coffee market as this would build customer trust and help create a strong brand.
Howard’s perspective of how the specialty coffee market should be strengthened was greatly influenced by the European-style coffee culture. The idea of coffeehouses was new to the American market but was already booming in Europe and Howard new that Americans were coffee lovers but lacked a culture that could help increase their coffee consumption.
From childhood experience, Howard believed that a good company should have a social conscience and should take care of its people. Having witnessed his father’s loss of a job due to work place injury and experiencing the family’s ensuing struggle to cope with lack of insurance or health compensation, he vowed that if he were to build an organization, it would take care of its people. This social conscience would also improve the word of mouth marketing strategy.
The declining per-capita coffee consumption in America in the 1970s meant that consumers needed new innovative coffee products different from the previous ones to boost their coffee consumption. Introduction of different trends already doing well in other places would also be to improve the per-capita consumption.
Drivers of Starbucks Success in the Twentieth Century
From the time Howard Schultz bought Starbucks coffee company in 1987 to the end of 20th century, the company had increased its number of stores to 3,300 in 17 countries. The spread to international level was largely due to the success the company had at home.
To start operating in other countries, the company had to have a strong financial base in their home country. At home in the U.S., several factors were responsible for the company’s success. Before describing this factors that specifically drove Starbuck, it is worth noting that coffee was experiencing a boom in consumption at the time.
This boom was mainly because of an increased number of American consumers who were becoming more interested in specialty foods like organically grown produce, fine wines and cheese. Specialty coffee fell in this category and it generated equal interest due to its new consumption trend.
This increased interest coupled with the fact that per-capita income for most of the population was increasing, created a more favorable environment for the specialty coffee companies. More people were willing to spend more on luxuries and premium products like specialty coffee.
Selling the coffee at a premium price meant the companies would get more money for expansion. The new wave of consumption trend was also attracting young professionals who found the friendly relaxed environment of coffeehouses welcoming.
This group of the population had more spending power meaning more sales volume for coffeehouses. The way of working was also different since it incorporated the use of technology like laptops for telecommuters, which meant that coffeehouses just provided a favorable environment for professionals to work, meet and visit.
Apart from the general factors that favored all the coffee companies at that time, Starbucks employed other strategies to perform better than the other coffeehouses for example, Peet’s Coffee & Tea and Caribou Coffee.
To begin with, Starbuck was founded on strong principles of working not for money and the success associated with it, but for what the company leaders believed in. This included Howard’s passion for providing customers with a coffeehouse experience that made them feel like they were part of the coffeehouse.
This meant that customers started to associate with the coffeehouse and therefore became loyal to Starbuck, leading to its success. Creating such an experience required the company’s employees dealing with the customers to maintain informative communication between them and the customers.
They also had to know their customers by drink or name. To achieve this, the company invested a lot in employee training and allowing employee customer communication to take a natural cause and not scripted.
Starbuck also respected and took care of its employees. For example, the company provided healthcare for each one of them and paid them above the normal rate. This provided the company with the work force energy and passion needed to meet its goals.
Since the company was committed to maintaining its social conscience, it earned trust from its customers and partners. Customer trust meant more sales. Other forces that contributed to Starbucks success included such factors like incentives provided by the frequent entrance and exit of other retailers.
This showed that expansion was still possible and that the company leaders were committed to an expansion strategy to cover the whole nation and go international unlike its competitors.
Main Source of Starbucks Competitive advantage
Starbucks was able to out-perform other coffee companies and become the leader in coffee retailing throughout the whole world. In realizing this goal, Starbucks had to have a competitive advantage. This advantage lay in the company’s culture that allowed it to gain customer loyalty, respect by activists and maintain employee energy required for its exceptional service and product quality.
The company was dedicated to providing quality products and services to its customers thus gaining their reputation while at the same time maintaining social and environmental responsibility. Starbucks was built on a strong belief that it can be a different company by doing things differently.
The owner, Howard Schultz, wanted a company that pursued two goals as opposed to other companies that were only after financial success. Becoming financially successful and maintaining a social conscience was his dream.
By gaining more profits, the company increased its stock value and thus finances from stocks increased aiding in its expansion. The social and environmental responsibility earned Starbucks consumers respect and loyalty.
This loyalty made it possible for the company to build a strong brand, which the company leaders were able to manage effectively. Practicing this made the company to be the leader in retailing of coffee and other products around the world.
To maintain this competitive advantage, a lot of commitment was required. The company had to have an efficient employee-training program such that customers would receive excellent service and high quality products that would keep them attracted to the company.
The passion and energy of the employees also needed to be maintained. In achieving this, Starbucks made efforts to respect every employee as well as providing them with stock options and healthcare services. The management structure also allowed the company to maintain its culture throughout its coffeehouses.
To realize customer reputation, social and environmental responsibility offered Starbucks a competitive advantage. Although it is challenging, it is sustainable and beneficial in the end. However, maintaining a dual agenda and remaining competitive may be a challenge.
For example, the cost of maintaining employee healthcare plan for such a large workforce is immense, but with good profits, it is possible. Starbucks has grown to be a big multinational company.
From 2006, Starbuck has experienced a decrease in its performance. It has faced criticism from press activists and subsequently lost some customers to its competitors. It appears as if the company is losing its competitive advantage and thus its position as a leader in the coffee retail market.
To regain this position, the company needs to do several things differently. It has to start by regaining customer reputation in providing a one of a kind experience in its coffeehouses. This can be achieved through refocusing on the company’s initial principle of ensuring proper communication between the customers and the employees serving them.
The baristas skill and passion in serving the customers also need to be improved. Too much automation should therefore be avoided in the coffeehouse and thus eliminate the criticism of the brand being commoditized.
Apart from the baristas relationship with the customers, customers need to relate with the company as a whole. They should be able to offer influential feedback and participate in the company’s promotions. Due to the technological developments, the company should adapt modern trends and stop relying on word of mouth for marketing.
The company should also display openly its corporate social responsibility program as this would avoid the uncalled for criticism. This will go along way in regaining reputation from the customers, the denizens of Wall Street and activists.