Howard Schultz Starbucks Company Growth Marketing Essay

Starbucks has been in the business of making coffee since 1971, and dominates the market, holding about 73% of market share in the US coffeehouse market, and 43% of the gourmet coffee market. (Iwata, 2006) However, this changed during the recession, as Starbucks was expanding so quickly that it lost touch with its consumers, who in turn abandoned it because the drinks were simply too expensive. So, when Howard Schultz returned to Starbucks, his goals were to “fix troubled stores, rekindle an emotional attachment with customers and to make longer-term changes like reorganizing executives and revamping the supply chain”. (Samson & Daft, 2005) It is undisputable that strong leadership was the reason behind Starbucks’ phenomenal growth, and this is defined as “the ability to influence others towards the attainment of organizational goals”. There are mainly three leadership styles, as demonstrated by the findings of the University of Iowa Studies: Autocratic, where power is concentrated onto the leader and decisions are made and implemented unilaterally. democratic, where people are more involved in decision making, and Laissez-faire, where employees are given virtually complete freedom to complete their work in any way they wish. (Linstead, Fulop, & Lilley, 2009)

The leadership style exhibited by Howard Schultz can be said to be more autocratic in nature. This has caused some serious blunders in the past, one being the botched introduction and abandonment of Sorbetto, as it failed to meet the taste preferences of consumers. After the 2008 recession, Schultz has become much more “measured” in his decision making, and is more willing to listen to people’s ideas and opinions as compared to before, when he relied largely on his intuition, which backfired as seen in Sorbetto. Hence, there is a more egalitarian spirit in the workplace, where ideas can be communicated and exchanged more freely as compared to previous years. And this has help saved the company from making another mistake with Via by promoting it aggressively, choosing to test the product in two cities first instead. This allowed for Starbucks to change the marketing strategy of Via before it was marketed to a wider audience. Also, a more egalitarian spirit would foster a stronger sense of belonging within the employees in the company, resulting in higher morale, ultimately leading to increased employee satisfaction and lower staff turnover rates. (Linstead, Fulop, & Lilley, 2009)

The customer oriented framework has also allowed Starbucks to stay ahead of its competitors. Stores in different countries have tweaked their layout and menu to suit the tastes of the local customers, reflecting sensitivity to the local cultures, which is important in any business operating internationally. In Japan, green tea Frappuccinos are sold, and in Saudi Arabia, all stores are partitioned into men-only and family sections, in respect of the social norm where men and women are to be separated in public. This ability to adapt to local culture has allowed it to be successful wherever it goes. It has also opened economic opportunities for Starbucks. For instance, Starbucks has capitalized on the strong coffee drinking culture in Europe by introducing bagged ground and roast coffee into grocery stores. This has generated a total revenue of $8.9 billion in west Europe and projected to rise to $10 billion in 2012. (Bussing-Burks, 2009)

Starbucks is also characterized by innovation, as seen the development of Via (instant coffee), and sales have reached $200 million worldwide. Starbucks offers a wide variety of food; from ice cream made from real coffee to hot pastries. Besides this, it has ventured into the music market, which is an entirely different industry, and has been selling CDs since 1995. It has also tied up with Apple to create a Starbucks section in the iTunes store, allowing users to download music onto their laptops as it is playing in Starbucks outlets. (Bussing-Burks, 2009) Again, good leadership is key because leaders set the direction to forage into new markets and to develop products to meet the changing needs of consumers, thus increasing the capacity of innovation within the company.

Starbucks is trying to find its way back into the hearts of its customers by customizing the layout of their stores to make it feel more like a neighbourhood café, i.e. designing the stores with local materials and also buying specialty beans in limited supply. This strategy has worked, as the company just came out of its strongest holiday season in 2010, and the total annual revenue has increased from 9.7 million in 2009 to 10.7 million in 2010. Customer loyalty to Starbucks has also increased, with the average Starbucks customer visiting any Starbucks store about 18 times in a month. This would in turn help to increase profitability. It was found that a 5% increase in customer retention would increase profitability of the company between 30-85% depending on the industry the company is in. (Reichheld & Sasser, 1990)

Starbucks is moving towards the concept of a learning organization, which is defined as “an organization in which everyone is engaged in identifying and solving problems, enabling the organization to continuously experiment, improve and increase its capability” (Samson & Daft, 2005). Good leadership results in a shared vision for, which is the first step towards creating a learning organization. Schultz has created this (in the three goals) and a healthy environment for employee participation, all of which are characteristics of a learning organization. Employee empowerment is also crucial in Starbucks, which invests a lot in the training of baristas because they are the key element in making the customer experience a pleasant one. Numerous benefits are also available for employees; ranging from healthcare to stock options and telecommuting. As a result, staff turnover rates are low at 13%, a remarkable statistic in the F&B industry. Starbucks was ranked amongst Fortune Magazine’s Best 100 companies to work for in 2011.

In conclusion, it is evident from the successful rebound of Starbucks that strong leadership is essential for a company to do well. Good foresight, with an ability to predict future market trends, and to understand and satisfy the needs of different consumers has allowed Starbucks to stay ahead of its competitors However, a strong egalitarian corporate culture is also crucial to arrive at the best decision, as major disasters can be managed at worst, or avoided at best by allowing everyone to participate in the decision making process, as more ideas can be contributed if everyone takes part. Hence it can be seen that in this rapidly changing economy, where the task environment is very unpredictable, good leaders will be the most valuable asset to any company now and in the future.

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