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A strong indicator of whether a company has succeeded is the value of its stocks in the stock market and its financial performance which can be seen in its Income Statement. Basedon the Income Statement and historical stock prices, it can be seen that something tremendously wrong happened in the implementation of its strategy. In July 2008 Starbucks made an announcement that it plans to close 600 of its stores in the US (John Quelch, 2008, p.1).
The announcement was made in view of dwindling Starbucks sales.
Appendix A below shows that the revenue of Starbucks substantially decreased compared to its performance in the past years. Its net income is also considered one of the lowest for Starbucks in the past decade.
It is apparent from what has happened to Starbucks that its strategies affected the in-store experience of Starbucks customers which resulted in the commoditization of the Starbucks brand (John Quelch, 2008, p.1). Starbucks have forgotten that it has become a great success because it does not just sell coffee.
It also sells the Starbucks experience.
In implementing its strategies, Starbucks lost its edge – the great customer experience (Jeneanne Rae, 2006, p.32). According to Starbucks Chairman and CEO Howard Schultz, “when we went to automatic espresso machines … we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines.
This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista.
” (Starbucksgossip.com, 2007, p.1) He added that the change they have made affected the premium of Starbucks brand, to wit: “However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.
Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee.” (Starbucksgossip.com, p.1) Moreover, its strategy only led to the saturation of its market. There is a limit to the growth of a company. Instead of improving sales of its existing stores, it opened new stores which oftentimes are geographically near each other. This only led to the cannibalizing effect where Starbucks stores did not attract new customers but only competed in attracting existing customers.
Moreover, its aggressive product expansion turned-off the coffee purists, Starbucks’ loyal customers, who think that it should instead focus on making great coffee. The complexity of concocting custom-made coffee also backfired as it only increased waiting time for customers. As a result, the relaxed atmosphere inside Starbucks coffee became similar to fast-food chains offering cheaper coffee.
Starbucks’ fate serves as a warning to companies, old and new, which are executing their strategies. Strategies must always be aligned with the company’s mission statement. In this case, Starbucks’ strategies went against its mission statement. The automatic espresso machines had an effect on the in-store experience of its customers and on the quality of their coffee. Its new products took so much time to prepare resulting in more people waiting inside its coffee shops. Starbucks lost the premium on its coffee. Starbucks lost its soul.
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