What are the Key Issues for Starbucks?

What are the Key Issues for Starbucks?

Starbucks has faced several problems which have threatened its existence both in the United States and internationally. Business analysts have speculated that the problem may escalate if the giant coffee shop does not adjust its marketing and expansion strategies. Within the last three months, Starbucks stock exchange rates have fallen by 11.38 per cent against an overall market increase of 4.10 per cent. This trend has been as a result of several factors. This essay highlights several issues which have contributed to the organization’s downfall.

Cannibalization

The organization has opened stores in every neighbourhood. This trend has left the company with no opportunities to open new stores which would rekindle its darkening image. Market saturation has, however, led to self-competition. This means one store will compete for customers from another store owned by the same organization. This is referred to as store cannibalization, whereby the success of one store depends on the failure of a store owned by the same company. To minimize internal competition, the organization has announced the closure of some of its stores in future.

Lack of identity

Successful organizations such as Costco have been successful because they have chosen a particular segment of the market through customer registration. Starbucks, on the other hand, has lost its identity. The coffee store has been known to be an “affordable luxury” where the middle class would meet and have coffee with friends. In the past few years the company has been attracting crowds from all spheres of life. This means the company has lost its identity by turning into a routine “first place.”

Stiff competition

The organization is currently experiencing stiff competition from innovative companies. Previously, the company enjoyed a monopoly because no competitor would beat its business model. For instance, the company faces competition from McDonald’s, which replicated the Starbuck’s espresso menu. Abroad, the company suffers similar competition from local stores which have taken customer satisfaction as their priority. The organization has been unable to introduce new products in the market. By doing so, the organization would increase its market share by attracting customers to try the product.

Poor pricing

The company has resulted in increased product prices to maximize its profits. By setting the rates higher than those of its competitors, the company has lost too many customers to McDonald’s, which offers the same products at relatively lower prices. For instance, the company has raised coffee prices to 38 per cent above its competitors. A decision which was previously meant to maximize profit margins has resulted in more bad than good for the organization.

In conclusion, the organization has contributed to its problems. The company’s trend of opening shops in every neighbourhood was to deter others from entering the market. The company has resulted in increased product prices to increase the profit margin. According to the Holy Bible, profiteering is equal to stealing. In the books of Mathew (19:12-16), Jesus is recorded referring to the traders as bandits (thieves). This story is also evident in the book of Luke (19:41-46). Jesus branded them thieves because animal sellers in the temple sold their animals at higher prices compared to those who sold them from outside. It is morally wrong to charge prices depending on demand and supply or to maximize profits. For the organization to rescue itself from its current situation, it has to address its pricing strategy and find more innovative ways of raising its profit margins.