Business English – Exam 3 – Starbuck’s Part 2

Starbucks

Business English – Exam 3 – Starbuck’s Part 2

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First of all, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority. To grow, Starbucks increasingly appealed to grab-and-go customers for whom service meant speed of order delivery rather than recognition by and conversation with a barista.

 

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Second, Starbucks introduced new store formats like Express to try to cater to this second segment without undermining the first. But many Starbucks veterans have now switched to Peets, Caribou and other more exclusive brands.

 

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The third thing that Starbucks did was to introduce many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists. They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks.

 

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With over half of its customers customizing their drinks, baristas who were hired for their social skills and passion for coffee no longer had time for dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab-and-go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.

 

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And finally, opening new stores and launching a slew of new products only created superficial growth. Such strategies take top management’s eye off of improving same store sales each year. This is the heavy lifting of retailing.

 

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For instance, a local store manager has to earn brand loyalty and increase purchase frequency in his neighborhood one customer at a time. That store manager’s efforts are significantly reduced when additional stores are opened nearby. Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale.

 

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None of this would have happened if Starbucks had stayed private and grew at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging. Tiffany faces a similar problem. That’s why many luxury brands, like Prada, remain family businesses or are controlled by private investors. They can stay small, exclusive and premium-priced by limiting their distribution to selected stores in the major international cities.

 

Adapted from:  https://hbr.org/2008/07/how-starbucks-growth-destroyed

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