Strategic Alliance of Starbucks Differentiation. For the Starbucks' new line of fresh orange juice, the chosen positioning strategy is differentiation. Differentiation is used when a company tries to differentiate a product based on the benefits that it can offer customers, in contrast to the low-cost strategy. This strategy has been chosen due to various considerations. For one, the new product's positioning strategy has to be consistent with the positioning strategy of its parent brand, which is Starbucks. Starbucks is known for its premium brand, which offers benefits that are consistent with the needs and wants of its target market – the feeling of being special as an individual, which enables it to charge a premium amount over its product offerings.
In order to be consistent with the parent brand, the new line of fresh orange juice has to use a differentiation approach. Low-cost strategy is only good to pursue when low / competitive prices is one of the attributes that consumers look for when choosing a product. In order to provide value when pursuing a low-cost strategy, a brand can offer the same value for less, when it comes to price.
However, for a fresh line of orange juice, there is more to the price when people consider buying the product. Consumers look for other attributes; and because these attributes can only be fulfilled when a brand matches it with certain benefits, differentiation strategy is a better choice when positioning the new product line. I. Chapter 3 Skimming. Brand owners and marketing people usually underestimate the role of pricing when it comes to strategic decisions (Duncan 2005). Pricing is a strategic tool that a company can use when delivering value to its consumers.
In order to fully differentiate a product, the pricing considerations should match the desired consumer perception about the product. A product which is differentiated and positioned as a premium one, with the highest quality will distort that positioning if the price reflects otherwise, i.e. a cheap brand. Therefore, as regards pricing strategy, market skimming is used. This is consistent with the company's differentiation strategy, as well as the company's pricing strategy in relation to the Starbucks brand. The company can charge a premium over the product's price in order to reflect the quality of the new line of orange juice – to create a perception of something like “it's Starbucks, therefore it should be high quality. ” Market penetration is usually used when the demand for prices are highly elastic, i.e.
there is a high price sensitivity with regard to decision to purchase. This low-price strategy should also be maintained by the brand owner over the long run. If the company chooses market penetration, there are also other considerations to take note. One of these is to keep a lean operations and a very efficient supply chain in order to cut down the costs and ensure profitability despite the low pricing.
Since Starbucks is not a low-cost leader and not known for more competitively priced products, it will be inconsistent and off-target to use market penetration. As mentioned previously, when it comes to purchase of fresh orange juice, price is not the total deal-breaker, or the most important attribute as measured by the price elasticity of the demand. Rather, there are other attributes such as taste, quality of the product, service quality within Starbucks stores, etc.
Market skimming is the better choice between the two. II. Chapter 5 Strategic alliance. Like most of its products, Starbucks can use strategic alliance, such as when purchasing the raw material inputs for its fresh orange juice. Strategic alliances are important because it provides a link within the value chain, in order to ensure that right level of value is delivered to consumers. Strategic alliance with its suppliers is important for Starbucks because of its emphasis on the quality of its products.
Securing strong alliances with its key suppliers would ensure a steady amount of supply to the company, as well as getting the desired level of quality of raw material inputs for its fresh orange juice line in the form of agreements among the parties involved in the alliance. Because Starbucks plan to create a fresh line of orange juice using the Starbucks brand, it is only more logical to use strategic alliance than joint venture. Joint ventures are usually used when companies desire to create another entity, i.e.
another brand or company where it will need some help from another company in the form of contribution of a certain resource. Joint ventures are usually common when a certain amount of detachment in association is needed in order for a new brand or product to succeed; and if the other company's resource is very vital to the new entity's operations. In the case of Starbucks, it can get its supply from various suppliers through strategic alliances in contrast to partnering with only one major supplier and creating a joint venture for its line.
Joint venture will only be more costly to the company; and also make it more dependent to the other company, when the resource of the other company is not scarce enough for Starbucks to demand it exclusively and pay the high price of sharing its profits with it. III. Chapter 12 Combined modes. Starbucks can use combined modes when it comes to strategy-making for its new line of fresh orange juice. Because of the size of the company, it utilizes a combination of entrepreneurial and planning mode.
The entrepreneurial mode is usually used in new product development such as in the case of its fresh orange juice product line. This will keep the company proactive when dealing with the changes in the market, and taking the first-mover advantage in the segment that the company currently operates in. The planning mode is done for other functions such as supply chain and logistics, finance, marketing and other functions. Starbucks cannot use just one of the three modes when it comes to its operations. For example, if Starbucks chooses to use entrepreneurial mode exclusively for its strategy-making, the perception of having a trial-and-error decision-making system will create panic, for some of its stakeholders, say its investors.
This can adversely affect the company, for example in the form of fluctuations in stock prices, and lower credit limit when it comes to lending institutions. If the company chooses a purely planning mode, however, the company will be rigid. Although it focuses on its goals, fast changes in the markets will offset the company's competences, making it fall behind its more adaptive competitors. Adaptive mode, when being used exclusively will not provide the company certain directions for growth because the decisions are always a function of the conflicts of interests of different stakeholders.