Starbucks: Reasons for Success

Starbucks is the world’s leading speciality coffee retailer, producing and selling a wide variety of beverages, as well as pastries and confections, through some 8,400 coffee shops throughout 30 countries around the world (Berlind, 1998). Starbucks also sells its beans to airlines, restaurants, businesses and hotels; manufactures coffee-related equipment and accessories, and produces a line of premium teas and a line of compact discs through its mainly company-operated retail stores.

According to O’Donovan (2004) in the four years since going public, the chain of coffee bars has become wildly successful by turning one of the world’s most pedestrian beverages into a premium product, wrapped in a carefully cultivated, widely recognized brand name that extends far beyond what’s in the cup. It is a brand that’s defined as much by attitude as it is by products. The Starbucks “experience” is about more than a daily espresso infusion; it is about immersion in a politically correct, cultured refuge from everyday hassles.

From inconspicuous beginnings as a one-store outfit in a marketplace 33 years ago, Starbucks has grown to become one of the most talked about brands in recent times. What really lit a fuse under Starbucks was not just its commitment to better beans but its move into retail – selling coffee by the cup. The stores were decorated with bins of coffee beans, photos of coffee trees, and shelves of gleaming coffee paraphernalia. Employees were trained to educate customers about what they were drinking and why it tasted good. For many, the experience was so engaging that Starbucks became a natural gathering place, and that made the brand familiar.

The Company’s formula for success is mainly based on the following:

• Employees’ Approach: The key retail success of the Starbucks brand is determined by people’s interaction with the Company’s experience, and the culture and values of how they relate to customers. By investing and creating a unique relationship with the staff and getting them to understand that first of all is the primary target to exceed the expectations of the employees and then of the customers. People at Starbucks are never viewed as commodities, but as business partners.
• Core Competence and Visions: The Company’s primarily role or responsibility is to ensure that the organisational culture is compatible with the kind of people that they want to attract and retain. Starbucks tries to create a sense of belonging and build a sense of trust and confidence in what the Company stands for with the employees and customers. The reason that their customers come back is the quality of the coffee and the quality of the experience, and the experience comes to life because of the employees. Starbucks believes in a good, competitive business strategy that is facilitated by a devout passion for the product. A good leadership and management approach of the Company has created a great success of the brand with a clear vision of core competence. The Company’s motivation to develop the most recognisable brand was also based on the good planning and positioning strategy.
• Experimentation and Innovation – Starbucks is a disciplined innovator, and good management of its innovation timeline is one of the primary reasons behind the Company’s success in generating consistently high levels of same store sales. Customers can try and taste various coffee brands in the store. The Company’s ability to roll out new initiatives and products relatively quickly is a considerable competitive strength. Customers are also increasingly drawn to the Starbucks’ music compilations, produced for the company by Hear Music. By the end of 2005, Starbucks plans to open hi-tech cafés offering custom music CDs – in addition to the high-speed Internet access (Ruggless,1997; Vishwanath and Harding, 2000; Donation, 2003).
• Promotional Patience – In a break from the norm, Starbucks has decided to shun what would be regarded as traditional marketing strategies. By relying on cafés to market themselves, there is the inevitable heavy dependence on a strong brand and word-of-mouth to spread a positive reputation. Sutter (2003) also suggests that powerful marketing principles of the effective positioning of the Starbucks environment creates an experience that invites people to study, to hang out and to read.
• Promoting Ethics – Sound corporate governance is commanding much of the spotlight for today’s businesses. The management levels of the Company are responsible for ensuring Starbucks promotes equality and fairness in all of its business dealings – whilst still sustaining its growth plans (Kurlantzick, 2003; Dann, 2004). The Company is very much concerned about ethical business practices and tries to get involved in charity events and corporate social responsibility.
• Command of a Premium Brand – Hayes (1999) states that consumers are willing to pay higher prices for Starbucks’ coffee as they are not only buying a beverage, but also making a social statement at the same time. Consumers are buying an experience, a lifestyle and an attitude. Whilst these intangibles can be extremely difficult to measure, Starbucks’ customers are making the job easier by swarming in their thousands.
• Measured Expansion – Whilst McDonald’s is famed for its ultra-fast location assessment and business set-up process, Starbucks has adopted a slightly more cautious approach, particularly in its foreign markets. In China, outlets have increased steadily from 8 in 1999 to just under 70 in 2004. The Company is entering into new markets due to emerging opportunities and their global established name.
• Financial Resources: Starbucks is the world’s number one specialty coffee retailer, and as such it has a greater financial reach than practically all of its competitors. Huge financial resources enable the company to take advantage of market opportunities, investments and expansion activities that are not available to smaller firms with a reduced capital.

For the brands that have managed to achieve worldwide fame and recognition, their prosperity has sewn them into popular culture and helped fashion them into icons of their time. Whether they are loved or hated, their influence remains undeniable.

Having established itself as a global force, many analysts are asking whether Starbucks can continue to go from strength to strength. Sustained success will require sharp focus on a set of key challenges, including innovation and experimentation. In order to achieve a competitive advantage, the Company continues to rapidly expand its retail operations and pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.

Nowadays, Starbucks still retains its worldwide position, recognised as one of the most successful globalized companies that has created a strong brand and international experience.

Having established itself as a global force, many analysts are asking whether Starbucks can continue to go from strength to strength. Sustained success will require sharp focus on a set of key challenges, including innovation and experimentation. In order to achieve a competitive advantage, the company continues to rapidly expand its retail operations and pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.

Nowadays Starbucks still retains its worldwide position recognised as one of the most successful globalized company that has created a strong brand and international experience.

References
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