Business Administration Capstone BUS 499 Assignment 5: Capstone

Starbucks Strategies

Student Name

Business 499 Business Admin Capstone

Professor

February 11, 2018

Analysis of Starbuck’s Business Level Strategy

Since its formation, Starbucks Corporation has profited its beverage and confection products. The strategy behind which the corporation establishes its market share and earns its profits is primarily determined by its business level strategy. A close evaluation indicates that the company uses the differentiation generic business strategy in serving its primary market. Starbucks produces gourmet offerings that have perceived value with consumers as being highly exceptional in quality as well as flavor, hence resulting in premium market pricing.

In order to develop an effective differentiated business level strategy, Starbucks must evaluate customer groups and customer needs as well as the company’s distinctive competencies. In as far as evaluating customer needs is concerned Starbucks Corporation must satisfy consumers’ need for high quality beverage products that provide some sort of extra perceived value. In essence, this is how Starbuck has managed to differentiate its offerings from other rival companies in the coffee industry. The company’s offerings- coffee, tea and other beverage options- are of utmost quality, thereby enabling the company to have a competitive edge over its competitors (Starbucks Corporation, 2011).

Apart from product differentiation the corporation used the differentiation strategy to segment the market and to recognize differences among different customer groups. Because of a segmented market structure, the corporation produces a wide range of offerings that meet the wants and needs of most consumer groups. It produces homemade coffee, tea, smoothie beverages, canned drinks and gourmet confections as well as gourmet juices. Also, it can concoct drinks with various milk options which can be either frozen or hot. The perception that the corporation only produces coffee drinks has disappeared as it truly has different products that can satisfy various niche markets. Alongside gourmet customized beverage offerings, the corporation offers an upscale setting for morning and evening business conversation. Various firms like Caribou Coffee and Panera Bread have adopted the same business strategy. However, cost leaders like McDonalds, Dunk Donuts as well as 7-Eleven are not offering these perks (Yahoo Finance, 2012).

Overall, I believe that this is the best business level strategy for Starbucks Corporation. The Corporation has effectively differentiated itself from its rivals in a manner that it has not only established a brand loyalty but also satisfy customers ways that its competitors do not. There is no doubt that this level of business differentiation strategy is not possible if all functions of an organization are not working together toward the achievement of a common goal. At Starbucks all functions use differentiation strategy to offer premium products while at the same time obtaining profits. Most importantly, the drive towards differentiation has enabled Starbucks to effectively respond to the competitive threats emanating from cost leadership companies within the industry.

Analysis of Starbucks Corporate Level Strategies

With North America consuming just 20 percent of the world’s coffee, Starbucks Corporation must aggressively sell its products in nations with dedicated coffee as well as tea drinkers (Starbucks Corporation, 2012). Nonetheless, the corporation must be wary of some global issues. As a multinational organization, Starbucks has developed its business strategy and corporate level strategy- global strategy- for global expansion. After analyzing Starbucks’ business differentiation strategy, it is important to analyze its global corporate level strategy. The company, upon considering the prospective nations for expansion and their respective culture, adapts its products to local tastes as well as preferences to increase its market share and remain profitable in the host nation. Because of differences in customer tastes as well as preferences worldwide, it is feasible for the company to offer different lines of coffee beans that satisfy customer needs around the whole world. In addition to local responsiveness, the cost reduction measures are relatively low and premium specialty products come with higher price tags. Hence, Starbucks Corporation utilizes localization strategy for worldwide expansion.

To support its global strategy, the company continues to expand into global or worldwide expansion. To do so, the company licenses its name through firms that have location property rights. Also, it franchises its shops through subsidiary. Starbucks Corporation utilize franchising and licensing as they accommodate local tastes and give the firm explicit control over quality standards as well as operation rules. These structures still allow the organization to claim the individual company’s profits. Numerous firms have used these tactics to set up profitable businesses while at the same time expanding globally in a competitive market. In general, the corporation has struck a fit between licensing expansion and worldwide franchise while at the same time maintaining achieving great customer service (Starbucks Corporation, 2012). Apart from franchising and licensing, Starbucks is also buying out its competitors’ leases to expand as well as maintain its dominant market position. For instance, the company bought the Seattle Coffee Company, exercised its capital strengths plus influences to expand into the United Kingdom region and to acquire prime locations (Starbucks, 2012). In China, the company is utilizing the Chinese traditional preference for tea as well as mild coffee beverages to aggressively expand its tea products. Also, the company fosters the emerging middle-class tastes and preferences to display their lifestyles as well as status while at the same time keeping the company’s offerings as affordable products (Rein, 2012)

Franchising and licensing options as the modes of entry into newer markets have worked well for the Corporation. As a licensor and a franchisor, the company offers a corporate level value chain to the franchisees. This sets expectations as well as rough outline of operational objectives. However, this still leaves daily product offerings as well as operations to the franchisees. As a result, the franchisee can still adapt its offerings that best suits the local market, thereby having the opportunity to successfully add new stores. This strategy has enabled Starbucks to continue using licensing as well as franchising as the preferred methods of entry into new markets. Also, with licensing opportunities the company can lease licensees, hence lowering the company’s exit barriers in case a franchisee is performing at unacceptable lower levels. It can license its name for its preferred durations, which is good for-profit maximization and minimization of risk portfolio (Starbucks Corporation, 2012).

Starbucks’ Competitive Environment

While Starbucks Corporation is considered the market leader in coffee industry, the coffee chain corporation has seen its hold loosening considerably. The company is facing increasing competition from older coffee firms and established first food companies that have decided to focus on the increasing trend of coffee. Also, the corporation has unsuccessfully strived at unseating several pop coffee houses that enjoy hometown familiarity as well as loyalty.

Dunkin Donuts is one of Starbucks biggest rivals. In as much as the company has not been as successful as Starbucks in selling coffee, it has decided to aggressive market its coffee. For instance, it recently hired Rachael Ray as the face of its advertising campaign. Also, the corporation is emulating several strategies of Starbuck, such as the free coffee day. While Starbuck is the leading retail chain, Brand Key’s survey of 2007 found that Dunkin Donuts enjoys the first position in customer loyalty with Starbucks occupying the second position (Shepherd, 2007).

Even though Dunkin Donuts is controlling the Northeastern market share, Peet’s Coffee and Tea is Starbuck’s main competitor in the West Coast area. Starbucks stocks have, in the recent past, fallen below the market while Pete Coffee and Tea has seen its stock trading at least at market level. This company, which is 5 years older than Starbucks Corporation, has managed to remain in the industry courtesy of its focus on quality products. The company has maintained its position as the producer of quality coffee The Company does not resteam milk and roasts coffee beans in small batches in addition to maintaining a wide variety of offerings for its customers. The company utilizes Starbucks popularity by locating near Starbucks locations and across major streets. By doing so, it offers consumers an alternative option. Moreover, the company has decided not to expand by maintaining its current position in California. As a result, it commands strong customer loyalty on the West Coast compared to Starbucks (Jackson, 2018).

Coffee Bean & Tea Leaf is another competitor that is doing well by ensuring that it appears different from Starbucks. It is the first company to popularize ice blended coffee drinks as well as chai lattes- both of which are quite successful and copied by Starbucks. Also, the company has managed to succeed in Israel, a region that Starbucks failed to conquer. This is because Coffee Bean and Tea Leaf allows smoking apart from boasting kosher drinks (Consumer Reports, 2007).

In addition to coffee shops, Starbucks Corporation is facing competition from prominent fast food corporations like McDonald’s and Burger Kings. These companies are not only older than Starbucks, but also enjoy much bigger establishments. They have existing infrastructures to sell coffee bearing in mind that they are promoting what they claim is high quality coffee, as Starbucks at cheaper price. Whereas Starbucks is charging 1.55 dollars, McDonald is charging 1.35 dollars and Burger King at 1.40 dollars. McDonalds has introduced the Newman’s organic coffee line in its breakfast menu or business. Burger King’s offering is popular for being high quality fast coffee, particularly its choices of turbo, decaf as well as regular (Consumer Reports, 2007).

The rapid rise of competition is clearly hurting Starbucks; both direct and indirect competitors are increasing their market shares and as a result Starbucks’ market is shrinking. Smaller and powerful coffee firms have significant control in the coffee market. Because of the shift Starbucks has grown more fragmented as customers are trying other brands instead of relying on Starbucks’ offerings. Similar trend is evident in customers’ preference for healthier drinks. Starbucks and its rivals do not enjoy the advantage on the retail industry like before.

Despite the aforementioned challenges Starbuck will remain successful in the future as it has decided to diversify into specialty drinks. According to Brizek (nd) Starbucks Corporation is making huge profits on its specialty coffee drinks because its rivals face difficulties in duplicating it. Starbucks is still ahead of its rivals because of its specialty coffee drink. Also, many consumers are attracted to the corporation’s brand. However, the company should reconsider its coffee practices to control the market share.

Starbucks in Slow Cycle and Fast Cycle Markets

Starbucks Corporations can survive in slow cycle markets because the corporation’s rivals cannot imitate or copy its competitive advantage. Also, it uses strategic alliances to access restricted markets and gain entry into new markets. For instance, Starbucks partners with Keurig Coffee to enter new target markets. For this reason, Starbucks can easily compete against other establishments across the globe. Moreover, the corporation is partnering with learning institutions to provide training to its employees. This affects the organizations long term success in a slow market cycle that maintains stability (Hitt, Ireland & Hoskinsson, 2013).

Also, Starbucks can succeed in a fast cycle market-that is- unstable, unpredictable as well as complex market environment. This is because the company has shown that it can transform even in challenging situations. For instance, it has introduced VIA- an instant coffee- which is a source of competitive advantage to counter fast paced rivals such as Dunkin Donut and McDonalds. The company is also utilizing the Internet to purchase products outside its stores. Most importantly, the company has established express stores in some cities like New York and introduced mobile trucks, new roasting facilities as well as retail stores to reach a wider market (Team, 2016). Its collaboration with Keurig Coffee to buy products in demand is a source of success in fast cycle markets (Hitt, Ireland & Hoskinsson, 2013).

References

Brizek, M. G. (nd). Coffee wars-The big three: Starbucks, McDonald’s and Dunkin Donuts. Journal of Case Research in Business and Economics, 1-11.

Consumer Reports. (2007). Starbucks wars. Retrieved from.

http://www.consumerreports.org/cro/food/beverages/coffee-tea/coffee-taste-test-3-

07/overview/0307_coffee_ov_1.htm

Hitt, M. A., Ireland, R. D., & Hoskinsson, R. E. (2013). Strategic management competitiveness and globalization: Concepts and cases. (7th ed.). Mason, OH: Thomson South Western

Jackson, B. (2018). Peets coffee: 40 years and still going strong. Street directory & Food editorials. Retrieved from. http://www.streetdirectory.com/food_editorials/beverages/coffee/peets_coffee_40_years_ and_still_going_strong.html

Shepherd, L. (2007, March 26). Starbucks' rivals brew up a coffee war. The Associated Press. Retrieved from. http://articles.moneycentral.msn.com/Investing/Extra/DunkinAndMcDonaldsTakeOn. Starbucks.aspx

Starbucks Corporation. (2011). Community. Retrieved from. http://www.starbucks.com/responsibility/community.

Starbucks Corporation. (2012). Starbucks corporation fiscal 2011 report. Retrieved

from. http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual

Team, T. (2016). Let’s look at Starbucks’ growth strategy. Forbes. Retrieved from. https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks- growth-strategy/#120516bb3d71

Rein, S. (2012, October 2). Why Starbucks succeeds in China and others haven't. USA Today. Retrieved from. http://www.usatoday.com/money/industries/food/story/2012-02-12/cnbc-starbucks-secrets-of-china-success/53040820/1.

Yahoo Finance. (2012). Starbucks Corporation (SBUX). Retrieved from http://finance.yahoo.com/q?s=SBUX&ql=1