Business Strategy - Starbucks - Case Study Example

Business strategy: Case study of Starbucks Lecturer Introduction The global market conditions have fostered a rapid evolution of contemporary business practices. Modern business is no longer a simple thing of jus lowering the costs aiming at increasing the levels of profit. There is an emergence of vital factors to the health of many organizations consequently enhancing the complexity of a business process. In effect, there is a need for creating and execute strategies that are effective so that the business can maintain its competitive nature and ensure a great focus on the strategic management concepts (Alton Y K Chua & Banerjee 2013). If the rise of Starbucks from one single Seattle coffee store to becoming the world’s biggest coffee drinks supplier is part of the American entrepreneurial mythology, then the story behind Schultz, who he was its guiding genius fits a hero’s return. Shultz lifted Starbucks from its downfall to becoming one of the greatest service corporations in the world (Seaford et al. 2012). Amidst fears of increasing market competition, depressed consumer expenditure, saturation in the market, the share price of Starbucks dramatically fell. After two years of revitalizing Starbucks, after the return of Schultz, the fortunes of Starbucks were restored. The growth of the company has been rekindled and the company is now enjoying unassailable growth. Its operating profits and margins have now hit a new record since its establishment (Seaford et al. 2012).  Business model and business strategy of Starbucks To wholly understand the strategic management as a means of business strategy, the study will focus on the strategy employed by Starbucks to gain perspective on what constitutes a successful strategic process (Argenti 2004). It aims at examining the business strategy in the American market, as well as the business approach to the international markets. However, Starbucks business is limited to food, beverages, products, and consumer-packaged food that are mainly sold within the store and online using its trademark name. The mission of Starbucks is to inspire ad nurture the spirit of humans- one individual, alone cup and one neighborhood at a time. These sites promise to each of the company’s stakeholders. In case Starbucks remains faithful to its vision and mission, it should be leading towards a sustainable growth. With its products or selling point centered on quality products of coffee and service without previous social, ethical, environmental and cultural values, the company cannot afford to deviate out of its path from its promise (Rossman 2009). Not only is the aspect of value captured from its formulated mission, but also the backing from the company’s stakeholders. Any slight divergence from this statement might lead to the non-delivery of the Starbucks experience that every loyal customer wants thus risking the loss if the company’s stakeholders support. Nevertheless, the company shows no evidence of any inconsistency in aligning to its strategic objectives with the needs of the stakeholders (Patterson et al. 2010). In order to underscore the main strategic issues of Starbucks, this section examines the company’ s environment based on PEST framework, Boston Matrix and using Porter’s five forces, as shown in figures 1, 2, 3, 4 and 5. QUESTION 1 Porter’s generic strategies Figure 1: Porter’s generic framework Porter’s generic strategy framework is a tool used for management and is designed specifically to help businesses to identify and appropriate as well as attractive position that is strategic in the market. There are three generic strategies that are potentially successful. They include overall leadership cost, focus (cost focus and differentiation cost) and differentiation (Roby 2011). Overall cost leadership- this implies the total pursuit of the cost reductions in nearly all the areas of the company through overheads that are tightly controlled, marginal avoiding, consumers that are less profitable and research and development sacrifice, customer service, advertising and other area not pertinent to the direct production of a product and service Differentiation- this involves the creation of something that is perceived by the industry as being different from what other companies are producing. These do take several forms that are different including but it is not limited to the image brand, features, technology, network dealers and the services to the customers (Miller et al. 2008). Focus- this implies the targeted groups, particular geographical market or segment of a certain line of product. A firm that focuses its strategies on the porters generic strategy of differentiation do have a strong abilities in marketing; despite this, Starbucks failed to run advertisement by taking advantage of technology through the use of television adverts until the year 1998. In addition, their total budget for advertising constituted four percent if their incurred costs (Han & Zhang 2009). Companies pursuing this strategic model have strong and well established capability in development and basic research. The main means through which Starbucks was conducting its research and development was based on trial and error in the company stores. Starbucks had no established development and research department within its stores (Gallaugher & Ransbotham 2010b). Starbucks had along reputation of having a unique product in the market in its segment of distribution specialising in coffee products. Since the foundation of the company, Starbucks was known for its high quality coffee products and staffs who were knowledgeable. But it was until the arrival of Schultz that Starbucks spread its stores widely (Thompson & Arsel 2004). It has been shown that coffee specialty in the late 1980’s was at its peak. Starbucks strategic approach in the coffee industry was established. With this information, it becomes easy to understand why Starbucks has been able to sustain itself with such huge margin of profits while at the same time being able to increase its share in the market exponentially (Zhenjia 2012). Boston Matrix Figure 2: Boston Matrix Figure 3: Boston matrix Above is Starbucks Boston matrix. It shows the company’s cash cow flows as the regular Starbucks and Frappuccino’s, these products are available at nearly every location of Starbucks store. These products are stable for the company and they account for Starbucks bulk sales. The international location forms a potential star that holds a financial risk and opens doors for the company for modern innovation and stability in the market. The recently added VIA instant coffee becomes part of the question marks. Products that are being sold currently are part of the dogs such as pre-bottled Frappuccino’s. They account for a small fraction of Starbucks sales. This brand of product will be revamped by the company occasionally since the future of the company is still unknown (CERTNER 2012). QUESTION2 PEST framework Designed to analyse the microenvironment of a business for purposes of strategic management of an organisation, PESTEL framework captures factors that mostly affect Starbucks in its global strategy. Figure 4: A generic PEST framework Figure 5: A generic PEST framework Political Today’s globalization has brought several changes throughout the globe in business trends. Many companies today find it difficult to survive by relying solely in the domestic market to sell its products. The borders between countries are getting invisible on a daily occasion (CERTNER 2012). Starbucks sell of its products depends on the relationship the united states has created with other countries that will act as their future base as well as the countries that are known to produce high quality coffee beans. Starbucks is not finding it easy to expand its business across the borders of the United States. The regulations, industry-specific and environmental, it gets in foreign countries are hard for Starbucks (Zhenjia 2012). Economic People are looking for more income to help continue their luxurious state of life. The demand for food and beverages is increasing globally. The customer’s purchasing power is also increasing thus making it advantageous to Starbucks (Gamble 1998). With the company aiming at improving its customer related services, immediate availability of their products as well as a trouble free operation of its products, its market share is projected to increase with time. To most customers, the price of the Starbucks products is of a concern to them. Therefore, any increase in the rates of inflation becomes a factor (Melvin 2012). Socio-cultural Socio-cultural entity provides Starbucks with a different type of consumers. Consequently, the company’s needs for different products, several services and strategies. The social influences in the American market have a great impact on the trends, preferences of consumers of the Starbucks products. The changes in the occupation and lifestyle and the growing need for most people to live a luxurious life is increasing the consumer demand of coffee products (McKinsey 2011). Technological High technology and mass communication are creating several patterns of global cultural diversity. Changes in technology and discoveries are having great organizational impact. Advertisement of the Starbucks through the internet has brought high achievement to its marketing strategy. In addition, advances in manufacturing of the coffee product to producing one of the finest coffee products in the world puts Starbucks in the leading position. Starbuck core competencies Starbucks has focused on several areas and boasts on its consistent provision of quality services, customer service, and its focus on corporate social responsibility. Furthermore, they have diversified the coffee taste in a bid to cover the clients’ needs more. Its unwavering competence is further indicated by the consistent support for the employees, through continuous education and indoctrination activities. In summation, the core competencies rotates around continuous product improvement, caring for the employees, excellent customer care to the clients, expansion and diversification of the products. The major competitors are Dunkin Donuts, McDonald and Caribou coffee. However, they perform all the coffee processing processes by themselves, so they fail to incur any losses via sharing the proceeds. Their responsibility in marketing is also adequate. Additionally, they have close links with farmers, hence access the best coffee from them. They possess great commitment form the farmers. Their commitment to environmental stewardship is the foundation to the company success. Despite the competitive advantages vested in Starbucks, there are still areas if weakness where the management team need to focus its concentration on. They include customer standards, financial arenas and escalating start-up costs, especially ion absorbing the culture of the community they start up several branches. Competition is on rise from upcoming coffee shops, while clients are shifting their loyalty to consumption of products with low prices. Further, the consumer demands for other beverage products is changing. The market costs for ideal service delivery have escalated, leading to low proceeds. Success key factors of Starbucks Superior customer services as well as motivated employees are among the success key factors of the Starbucks Company. The company concentrates on recruiting as well as developing the most appropriate staffs. Superior workforce talent has led to the innovation of products that distinct the company from other products that offer similar products. Secondly, the organizational capacity is another success key factor of Starbucks. Superior capability to utilize electronic commerce and the internet to conduct business as greatly improved the managerial capability within the company. Moreover, e-commerce has enabled the company to sell its products online. Thirdly, market related key success factors such as courteous customer services and a wider breadth of the products line as well as product selection have positively affected the company’s current position in the market. Other success key factors include convenient locations of the Starbucks premises and courteous employees within all the client contact positions. Competitive advantage Starbucks seeks to offer a connected consumer experience, which builds as well as maintains long-term relationships between the company and its customers. Despite offering the finest coffee, the company offers a good experience with its customers hence making them feel at home, hence creating a strong emotional attachment with its clients. Its stores are designed with great ambiance and in accessible locations. Starbucks recently established the “Starbucks reward cards” that offer a host of benefits to the clients. This entices clients returning to buy its products hence building loyalty. Moreover, it launched the “Starbucks customer’s experience” survey that permits clients to share their ideas concerning their experience with the company. The company also uses the finest coffee beans to make its coffee. The company’s personnel travel in countries that produce coffee in search of suppliers that meet the required standards. In addition, the company also purchases certified organic coffee as well as fair-trade certified coffee. In 2010, the company purchased 15 million pounds of certified coffee. The company also brews its coffee with Mastrena, which is a sophisticated espresso machine made in Switzerland. This ensures that the coffee taste in all the Starbucks stores is the same everywhere in the world. Strengths The major strength of the Starbucks Company is its good financial performance that has led to it occupying the first position among the beverage and coffee retailers globally. Moreover, it has the largest coffeehouse globally and due to its size as well as high volumes, the company can afford to offer lower prices to its customers compared to the rest to its competitors. Secondly, it is valued at more than $4.5 billion and this is also one of the key strengths when compared to its competitors. Thirdly, the intangible strengths of the company include the company’s top mind recall among customers as well as by virtue of its brand, that symbolizes superiority and quality at affordable prices, Starbucks enjoys a dominant position in the global market for beverages and coffee. Weaknesses Keeping in mind that the company major product is coffee, it thus relies on its major key input, which is coffee beans; therefore, it relies on the prices of the coffee beans as the major determinant of its profits. This means that it is overly price sensitive to the coffee beans price fluctuations. Consequently the company should diversify its range of products in order to reduce risks related to such dependence. Lastly, Starbucks has been under fire in the recent times due to its procurement practices with social as well as environments activists who are pointing to the unethical procurement activities of coffee beans from deprived third world coffee farmers. QUESTION 3 Starbucks business strategy The strategy of Starbucks is deeply grounded in the mission of the company “to inspire and nurture the human spirit- one person, one cup one neighborhood at a time” to put this mission into practice, Starbucks was needed not only to serve the best coffee but also engage its customers in an emotional level (Koehn 2001). Schultz concept of customers feeling the Starbucks experience was the backbone of Starbucks strategy. Starbucks aims at getting high quality coffee beans and handle a careful chain of management chain activities that result into the transformation of Starbucks as one of the best coffee selling company. The company is passionate about ethical sourcing of the world’s finest coffee beans, roasting the beans with great care and improving the lives of the farmers who are growing the coffee. The company seeks to involve its employees in creating the Starbucks experience. The employee’s role is not only brewing and serving coffee to also engaging the customers in the unique ambience of Starbucks shops selling coffee. If Starbucks is to engage its customers towards experiencing the “Starbucks experience”, which extends beyond just the provision of good coffee, then the company is going to make use of its employee who will be acting as critical providers of the company’s experience. Schultz viewed the company as part of his broader vision of the common humanity. The main strategy was for Starbucks to be invited wherever it does business. The company aims at becoming the force of action and brings together the partners, customers and the entire community to bring a contribution every day. On the other hand, the company’s stores were the elements of experience. Its store design group is responsible for the company’s furniture design, and layout of retails (Gallaugher & Ransbotham 2010). The location strategy of the company was strategic in enhancing the company’s experience both I the creation of local Starbucks buzz and in facilitating the Starbucks customer’s loyalty. Finally, the company employed the use of diversification to strengthen itself in the market. The idea of strengthening the company’s range of products was partly to respond to the demand of the customers and due to the need of building the Starbucks experience. Starbucks was forced to come up with new products in the market that are non-coffee related to attract more customers and enhance loyalty. Overall assessment Starbucks has ensured that they maintain uniqueness in the market. They have achieved this by considering customer comfort besides providing high quality products. They provide over 30 brands of coffee blends and thus giving their customers with a variety of options to choose from. Adoption of cultures in their new markets ensures that their brand is accepted n their new markets. Starbuck has developed global brand recognition due to their continued implementation of an internationalization strategy. Their strategic locations are vital towards maintaining a competitive advantage. Their unique projects such as the Starbucks app, the Starbucks card, and the Starbucks reward enable them maintain positive relationships with their customers. Positive relationships influence important business aspects such customer satisfaction and customer loyalty. The ambiance of their coffee shops contributes to increasing their competitive advantage. Internal relationships of Starbucks are strongly maintained by their resourceful and skilful human resource management staff. The HR department ensures that the needs of the employees are considered, and this translates into unique and satisfactory customer experience. Starbucks ensures that their waste material is recycled and that the amount of waste is minimized during all its operations (Starbucks Coffee Company, 2011). Their social responsibility image is hence maintained and thus wins the goodwill of customers and the neighbouring communities (Starbucks Coffee Company, 2014). This strategy earns Starbucks both a temporary and permanent competitive advantage. Recommendation After many years of trying to bring Starbucks back to its track through continuous expansion that was accompanied by high profits, the downturn of Starbucks was completely unexpected. The company’s valuation was the leading in the stock before starting to decline. It can be said that the best interest for Starbucks is adhering to its current strategic objectives for the company. This has not only reaped results that are proactive, but also endured a period of negative conditions that were induced by the high intensity of competition (Gambardella 2009). However, it cannot be complacent but keep itself on toes through continuous harvesting of knowledge about its threats and opportunities in the market. The use of leverage has been Starbucks evident tool for its prowess financially as well as advances in innovation. Therefore, this demonstrates a solid and a unified strategic process. Overall, Starbucks should maintain itself as the leading coffee selling company by expanding its business globally and keeping in mind the threats that facing it and offer sound solutions to them (Oppenheimer 2009). Conclusion A significant outcome of the analysis of this case study is the diminished role of profits in achieving the sustained inability of the company. It is common for the parties with similar interest to see growth of profit as a determinant of viability of a company. However, this is hardly the case with Starbucks. The company is motivated by its strong core values and focused disciplines on its objectives (Starbucks Coffee Company 2011). These two domains separate the company way ahead of its counterparts. Future development of this brand would help in strengthening the market share of Starbucks. Nevertheless, the company needs to have an effective medium for understanding the business strategies theories deeper. References Argenti, P.A., 2004. 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