Starbucks is an American multinational coffee house and roaster chain headquartered in Seattle, USA. The company was started in 1971, today it has 28,000 stores worldwide with a revenue of whopping 25 b $ in 2018 (Roby, 2011). It also retails a variety of food items and ready to drink coffee and tea products. The main competitors of star bucks are Dunkin Donuts, Peet's coffee, Caribou Coffee. Starbucks is located in a near-perfect competition industry where there are a lot of small, medium, and big competitors selling similar products and that they can easily enter or leave the industry. This is said, in a perfectly competitive market, no company has the power to influence the price of products, and prices are defined only by the total demand and supply of the products. Between 1991 and 2005, star bucks expanded itself at a remarkable pace, between 200 and 2005, USA observed a 70 % increase in coffee outlets (Groth, 2014). As the financial crisis of 2008 hit the world, It had its effect on star bucks also and this industry experienced a major slowdown in the 2008-09 periods due to economic crisis and changed customer tastes, with revenue declining 6.6 % (Sawo, 2018). And a trade-off during this period. The company frequently turned to change its target customers as a youth and 9 to 5 workers with varied and income and errand tastes and thus introduced several variants with low prices, added flavors to peak coffee sale in 2010. Starbucks saw a leveling-off in revenues during the 2009-11 periods. This industry saw a growth of a mere 0.9 % during 2008-13 (Sawo, 2018).
Starbucks introduced premium coffee variants and snack products and tried to pull out its brand image as a luxury eatery in the period of the financial crisis and strived to be a part of the daily coffee and refreshment needs of customers and included itself under the disposable income and maintained a leveling off in its revenues through these strategies (Geereddy, n.d.). As this industry is highly sensitive to the macroeconomic element disposable income of the world, the financial crisis caused pressure on revenue due to unemployment and decreased disposable income of people. As the economy started to improve in 2011, star bucks quickly started to make growth. During the financial crisis in the period of 2008-09, star bucks thus with its changed strategy remained on the leveled-off mark in its revenues and skipped the disastrous effect of the crisis (Sawo, 2018).
Starbucks as a world-famous brand had used a price skimming policy for a long period. That is charging high prices for premium products. However in the economic recession in 2008-09, star bucks announced a changed price strategy, it lowered its prices of low-end products with the introduction of more such products and increased the prices of high-end products.
Latif et al (2014) state the first strategy of cutting prices and adding new products to low-end products, is quite sensible, to enter the daily needs of a man, a promotional pricing strategy, in these times star bucks was facing weak liquidity and high competition. Thus offers of discount and lowered prices for daily coffee needs to be made star bucks maintain their high market share and avoid the downturn and prevented the customers to switch to competitors who have started to launch coffee variants like McDonald's. The second part of the pricing strategy, which was raising prices of the high-end products, may not be as sensible as the first strategy. Raising prices in times of recession when disposable incomes are lesser, there are two big reasons for it. Starbucks differentiated itself from its competitors based on high-quality special drinks, as the competition was less in this product section. Secondly, it knew that the quality of high-end products it was delivering with no competition will be sustained by the customer. It was believed that the low-end products would generate revenue for it, and the high-end products which are bought not for price but luxury and quality will be bought irrespective of the price as the brand image and price of high-quality products are in negative correlation. The consumer's reactions were different for high-end price rise; some consumers reacted negatively while some remained loyal to it. The high-end products were supposed to become a part of the lifestyle. This new pricing strategy reveals that during the recession times, star bucks wanted to have a twin brand.
Starbucks was facing a dual risk of liquidity concerns in the market and increased competition from competitors. Thus it had to sustain or at least level of the growth and on the other side had to fight competitors who were entering into the coffee business hitherto not interested. Thus the two pricing strategy however helped star bucks to earn revenue and also prevented customers from switching to other brands. Though star bucks had to shut down around 900 stores due to decreased revenue it trusted on its strategy by the new CEO Howard Schultz (Gereeddy, n.d.). To sustain its price rise of high-end products, it had closed stores for some time to train its chefs to make improved coffee. The CEO opened up himself by announcing complaints directly by mailing him. He asked for outside advice to sestina during this crisis. In addition to these, star bucks faced many internal and external issues and risks like changed economies change in tastes and preferences, and high business development costs (Groth, 2011). During this crisis, it had serious problems from the Middle East and faced closure. Starbucks needed to do a SWOT analysis of any new market it was entering. Starbucks also faced stiff competition during these times in Germany and France even from the local shops because of a lack of new market research.
Starbucks through its new CEO appointed had effectively contained the ill effects of the 2008 financial debt crisis through its effective handling of the risks, competitors emerged, and down market pricing strategies, though star bucks lost some of its revenue due to its lack of SWOT and PESTLE analysis of the new market before entering and lost in some countries to minute competitors. Starbucks had been successful in maintaining the leveling off of its revenues during the crisis. Thus this case study can make one learn about effective marketing strategies a firm should adopt during a crisis or in a normal market.
Geereddy, N. (n.d.). Strategic analysis of star bucks corporation. Retrieved from https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf
Groth, A. (2011). 19 amazing ways ceo howard schultz saved star bucks. https://www.businessinsider.com/howard-schultz-turned-starbucks-around-2011-6?IR=T
Latif, M., Sayeda, N & Semen. (2014). Starbucks sustained during economic crisis. International Journal of Accounting and Financial Reporting 4(4): 2162-3082.
Roby, L. (2011). An analysis of star bucks as a company and an international business. Retrieved from https://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1237&context=honors
Sawo, M. (2018). The success & failure of star bucks’ service innovation. Retrieved from https://medium.com/@msawo/the-success-failure-of-starbucks-c2ed7517058f
Silva, D. (2020). Starbucks: lessons from the financial crisis. Retrieved from https://seekingalpha.com/article/4336715-starbucks-lessons-from-financial-crisis
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