Customer Benefit Package and Value Chains Analysis: Starbucks and Amazon.com - Case Study Example

Customer Benefit Package and Value Chains Analysis: Starbucks and Amazon.com Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 Introduction 3 Customer Benefit Package 3 Value chain designs and structures 6 Value chain analysis 6 Primary Activities: Starbucks and Amazon 7 Inbound logistics 7 Operations 8 Outbound logistics 9 Marketing and sales 9 Service 10 Support Activities: Starbucks and Amazon 10 Infrastructure 10 Human Resource Management 11 Technology 11 Procurement 11 Conclusion 13 Reference List 14 Introduction The concept of value-added, in respect to value chain is employed to determine a company’s sustainable competitive advantage. The activities interlink to create and augment a business’ value as well as that of its products. The range of activities includes procurement, manufacturing, marketing and distribution of product and services. Essentially, the aim of the value chain is to minimise cost and maximise value. This paper presents case analysis of Starbucks and Amazon to compare their Customer Benefits Package. Value chain analysis is also conducted. To this end, Porter’s (1990) value chain model recommends two key processes, namely primary and support activities. The two are used in analysis of the value chain design and structure for the two companies. The value chain design and structures of both companies is also compared based on the customers and manager’s perspective. Discussions on the advantages and disadvantages of each value chain design are also discussed. Customer Benefit Package Customer Benefit Package comprises a defined combination of tangible and intangible offering that the customer can recognise, buy and use. Customer Benefit Package may constitute perception or real value recognition experienced or received by customer from a company. Put differently, the concept refers to a set of peripheral goods and services that are value-adding to a company’s primary or core products. Among the peripheral services include free internet access, online ordering. Amazon and Starbucks have different Customer Benefit Package (Anon 2009). Starbucks is the world’s leading speciality coffee seller. The company has some 16,706 stores in more than 50 countries and roasts almost 2.3 percept of the entire world coffee. The company has also earned a reputation for being among the most ethical companies globally. In 2010, Ethisphere magazine voted Starbucks as the most ethical company for the fourth-year running. Starbucks uses a customer-centric approach as a business model. Starbuck’s competitive advantage is its high quality coffee and exceptional customer services (Lee et al, 2005). On the other hand, Amazon.com is a U.S.-based multinational ecommerce company that is currently the world’s leading online retailer. At present, the company is a leading provider of cloud computing services and online-retailing. A 2012 study by Gartner showed that the company has the second best supply chain after Apple. The company also uses a customer-centric approach as a business model. Starbuck’s competitive advantage is therefore its superior supply chain that makes its services superior and competitive in the online retail industry (Porter 2008). While Starbuck deals in purely physical products, namely coffee drinks, beans and other coffee products, Amazon provides an intangible product, in terms of offering an online platform for online sale of goods and services (Anon 2009). Starbuck’s core competence is providing high-quality coffee, at reasonable prices. The company also offers a variety of coffee drinks that give customers a range of choices (Lee et al, 2005). Starbucks employs a range of distribution channels to sell coffee drinks to end consumers, although it also sells ground coffee and beans to companies such as supermarkets, departmental stores and airlines. The company offers free internet Wi-Fi that customers can access within a single click. The company also offers free online videos, music and articles. Through partnership with Yahoo! Inc, the company offers an online segment on careers and businesses, such as job search online tools. The company's corporate objective is to gain sustainable competitive advantage by creating more production customisation to allow users develop new flavours and drinks, beyond their existing options (Lee et al, 2005). The online option allows users to go online and create own orders and drinks as well as locate the nearest Starbucks site. Mobile apps also improve user experience. Unlike Starbucks, which uses a two-fold value proposition, Amazon.com uses a four-fold value proposition that indicate its priorities in establishing an online venture. The four dimensions the company focuses on include selection, convenience, customer service and price. The online retail is convenient as it is open for any kind of customer or business at any time. The website is also designed to reduce the download time (Lee et al, 2005). Like Starbucks’s website, Amazon’s website offers users a range of notifications via email, product reviews and recommendations and product recommendations. Further, it offers customers unlimited product options they can select from. The company keeps an inventory of millions of merchandise that is far greater than that of Starbucks (Sabitha n.d.). Overall, Amazon has over 2 million third party sellers. Additionally, thousands of individual sellers and retail brands achieve increased sales and get to reach new customers by taking advantage of the Amazon.com website. Unlike Starbucks, Amazon.com also has a user-friendly online checkout system, dubbed PayPhrase, which attracts customers due to its comprehensibleness. The company also has virtual private cloud computing that allows corporate clients to link their IT infrastructure to the computer resources of Amazon (Anon 2009). The company has launched a range of application to attract customer interests. For instance, the company’s improved e-book reader version, called Kindle, which enables customers with 3G network to benefit from swift downloading. The increase in online shopping from across the globe had made the company popular among online customers (Anon 2009). Value chain designs and structures Value chain analysis Porter’s (1990) value chain model consists of mutually dependent network or system of activities that are linked. The term is collective and includes the sourcing of raw materials and production and distribution of commodities to add value to the company. When the system is carefully managed, the linkages become a vital source of competitive advantage. Value chain analysis consists of linkages of two areas. First, the value connects the company’s activities that bring value to the main functional parts (Papazoglou, Ribbers & Tsalgatidoue 2000). Next, the assessment of the contribution, each part makes, in the overall added value of the business, is made. Porter’s (1990) value chain model recommends two key processes, namely primary and support activities. Figure 1: Porter's generic value chain model (Strategic Management Insight 2013) Primary Activities: Starbucks and Amazon Inbound logistics The inbound logistics used by Starbucks involves using company agents to select coffee beans producers in countries, such as Rwanda in Africa, communicating the standards linked to the quality of the beans and creating strategic relationships with the suppliers. Supply is coordinated with a range of distribution channels that ensure timely and accurate flow of information on inventories, demand, planning for transportation and available storage capacity. Amazon receives a range of products from partners, distributors and manufacturers at the case of pallet level, which are then rerouted for put-away to storage or forward pick storage location, where pickers select products to be rerouted to orders (Penh 2011). This also ensures timely and accurate flow of information, orders placed, demand, and planning for shipping. Within the perspective of the management, optimisation in both company’s supply chain is attained primarily by enhancing the speed of delivery and minimising cost. Here, Starbuck works to minimise the physical inventory and bottlenecks and by negotiating better prices of the raw materials. Hence, an important means of speeding up production is by finding a faster way of shifting or manipulating the components. The key drivers of optimisation in the case of Amazon.com are information flow and relationship. In which case, building partnership with the suppliers is critical (Papazoglou, Ribbers & Tsalgatidoue 2000). Second, elimination of the virtual bottlenecks resulting from duplicating approval loops, Amazon.com can realise the same goal as that of Starbucks, which is faster delivery of products to the customer. Operations Starbuck conducts its operation in over 50 countries in two key ways. Directly operating the stores and through franchising. The company has more than 8870 stores it operates globally and over 8100 it operates through franchising. For Amazon.com, the main feature of its operation is multi-level e-commerce tactic, where it makes it possible to sell unlimited goods and service on its platform, from auctions to new and refurbished goods (Laseter et al. 2000). Unlike Starbucks, Amazon has some 2 million third party sellers (Amazon 2014). An underlying difference between both companies is that while the cost of manufacturing and distribution involves procuring, transportation and manipulation of the physical material in the case of Starbucks, it is different with Amazon.com. In the case of Amazon.com, labour and costs are extended towards manipulation of information and development of relationships with customers (Sabitha n.d.). Due to this difference, investing in equipment and machinery are essentially much higher in the case of Starbucks’ supply chain. Outbound logistics Unlike Amazon that has over 2 million sellers distributed in over 160 countries, Starbucks sells its products through its stores without the use of intermediaries (Amazon 2014). Starbucks uses the integrated make-to-stock supply chain. The model centres on monitoring customer demands in real-time to allow production to restock the finished item’s inventory resourcefully (Wiley n.d; Amazon 2014). The integration is attained using a fully-integrated information technology. In using information system, Starbuck receives information for demand, which can be applied in developing and modifying the production schedules and plans. The information is further transmitted to the procurement division to enable modification of production schedules and plans. On the other hand, Amazon’s outbound processes fulfil orders customers place through its ecommerce (Penh 2011). The company staffs do the picking, sorting and packaging and shipment that make up the outbound processes. Both companies use strategic alliances in their supply chain and logistics. A major advantage of using strategic alliances with the channel partners and suppliers is to reduce supply chain discontinuities that facilitate waste and delays (ACCA 2010). Amazon has teams across the glove that work to serve its customers at distribution fulfilment centres that provide fast and reliable shipping, directly from the company’s customer service centres and websites. Marketing and sales Starbucks makes minimal investments in marketing and instead relies on word-of-mouth that is attained through its high quality products and customer service. The company however uses occasional sampling of new products to market its coffee products. It also does its sales through the internet and direct mail. Unlike Starbucks, Amazon.com uses embedded marketing technique that improves customers’ experience (Penh 2011). The company undertakes customer tracking, by tracking website users’ cookies to personalise their experience, through recommending products to them. Amazon uses customer service centres globally that are supplemented through co-sourced systems (Gilmore 2014). Service Both Starbucks and Amazon.com aim to provide high level of customer service as one of its key objectives. The companies are also driven by a mission statement. Starbucks mission statement is “to motivate and nurture the human spirit through influencing one person, one cup and one neighbourhood.” As a result, Starbuck’s staff is trained and encouraged to focus on attaining high levels of customer satisfaction. Amazon’s mission statement is ``to be the most customer-centric company globally, where buyers can search, find and buy anything they want online at the lowest possible cost” (Amazon 2014). Amazon’s mission strategy provides the best experience to customers. Its core objective is to use technology and the expertise of its staff to offer the best buying experience to buyers online, at present and into the future. Support Activities: Starbucks and Amazon Infrastructure The key infrastructure of Starbucks and Amazon.com include varied general support activities, including planning, management, legal support, finance and planning and forming government relations to achieve overall support for the value chain. On the other hand, Amazon focuses on building infrastructure that allows web-scale business to run. Within the perspective of customers, Starbucks and Amazon.com’s supply chains both require input in labour to transfer products to the end customer. Both companies also need input from suppliers although of different types (Penh 2011). Within the perspective of the management, both companies need capital investment in the equipment that enables employees to carry out their work. Human Resource Management Starbucks and Amazon conduct varied training and staff development programs motivated by high salaries and packages, staff promotion and free victuals. For instance, the Starbucks employees are entitled to free drinks. Technology Both Amazon and Starbucks’ operations are largely reliant on technology to achieve cost-effectiveness and to achieve product consistency. Starbucks uses digitised coffee roasters to bring out the familiar Starbucks coffees taste, hence leading to customer loyalty. Starbucks and Amazon integrate supply and demand using information system. The company has integrated a range of sources of demand, which it matches with the supply through an Oracle automated information system for production dubbed GEMMS. The information system undertakes manufacturing and distribution scheduling, as well as, inventory management. On the other hand, Amazon.com uses technology innovation to distinguish itself as an online customer experience. Examples of innovation include one-click ordering and searching through the store online (EIU 2000). Procurement Amazon stocks up inventories of its distribution centres through a range of suppliers. For instance, the key suppliers of its media products include book distributors, such as Baker and Taylor and Ingram Book Distributors (Penh 2011). The company also employs Sales and Operations (S&OP) planning to foretell each product stored at the distribution centre. The inventory positions are monitored in real time (Amazon 2014). The placed orders by customers are issued to suppliers basing on the forecasted amount necessary, minus the existing inventory available in the warehouse. On the other hand, Starbucks buys and distributes coffee beans and raw materials for coffee drinks. Figure 2: How Starbucks distributes beans (Lee n.d) As indicated in Figure 1, the upstream segment of the company’s value chain shows that the product development is based on addition of international influences and teas and ultimately to the research that happened to create the VIA line of instant coffee. The company also undertakes searches globally for Fair Trade high-quality coffee beans suppliers. The commodities are afterwards distributed to corporate stores, airlines, retail store, franchises and eventually offer customers gift cards to take home. Figure 3: Starbucks' new value chain model (Lee n.d) As indicated in Figure 2, Starbucks new value chain that is focused on international development added upstream. This is to enable international markets to come up with new products that appeal to targeted markets, and which would potentially add value to the market. Added downstream also consists of online customisation, that permits the company to create online profiles, places online orders, as well as, come up with newer drinks (Auramo & Ala-Risku n.d.). An additional added value is the use of mobile apps that enable customers to locate Starbuck stores and to place orders for drinks. Within the perspective of the management, Amazon.com and Starbucks’ supply chains are focused on logistics, in terms of movement of physical material from one point to the other. The weight and the size of the materials to be shipped, as well as, the difference from the suppliers to the end customers play a critical role in determining the cost of the materials being shipped (Sabitha n.d.). However, within the perspective of the management, while Starbuck’s seeks to negotiate shipping rates and to fill the cargos with products to minimise the unit cost, Amazon seeks to upgrade its servers and to install updated software to fasten information flow, hence reducing the cost required to pass a product to end consumer. Conclusion Both Amazon.com and Starbucks use integrated value chain to streamline their processes and to improve customer service by ensuring greater connectivity between the business operations and the main operational systems. These reflective their corporate objective of increasing profitability by minimising costs. Overall, both Starbucks and Amazon.com have been able to maintain competitive advantages in their respective industries. Starbucks has achieved this through its valued adding processes that maintain high quality coffee and customer services. However, to avoid competition from competitor coffee chains, it will have to develop new value innovation by improving customer experience online such as what Amazon.com has done. Hence, it should invest in interactivity and online content. It is concluded that the strengths of Amazon and Starbuck lies in their reputable brand names, strengthened customer loyalty. Additionally, both companies have the advantage of hedging overhead costs and dealing in large amounts of inventory, as while Amazon takes the placed orders from distributors, Starbucks gets its coffee from suppliers. To conclude, Starbucks and Amazon.com only get to become effective it is links the value chain through re-conceptualisation of their businesses as a collection of business processes and operations and by restructuring their corporate structures to fit modern business and ensuring that the internal processes are aligned with the integrated value chain. 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