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BSM 3114 TRI 2 2016/2017

Starbucks Corporation, the largest coffeehouse company in the world, first opened in Seattle in
1971. The three partners, Jerry Baldwin, Zev Siegl and Gordon Bowker met while studying at the
University of San Francisco. Inspired to sell coffee beans and equipment by entrepreneur Alfred Peet,
the founders named the company after a chief mate, Starbuck, from the novel Moby-Dick. In 1984 the
original owners purchased Peets Coffee & Tea and by 1986 had just begun selling espresso at their 6
stores in Seattle. In 1987 the Starbucks chain was sold to Howard Schultz who in the same year
began expanding outside of Seattle. By 1992, Starbucks has grown to 140 outlets and had revenue of
$73.5 million. Starbucks began expanding outside of North America in 1996 and then acquired the UKbased Seattle Coffee Company for $86 million in 1998. By 1999 Starbucks began experimenting with
eateries through a restaurant chain Circadia and eventually converted the restaurants to Starbucks
cafes. In 2003 Starbucks continued to grow as it purchased Seattles Best Coffee and Torrefazione
Italia for $72 million. By 2006, Diedrich Coffee sold most of its locations to Starbucks including the
Oregon-based Coffee People chain. In 2008 Schultz resumed his role as President and CEO and began
to restore what he calls the distinctive Starbucks experience. A community website, powered by
the Salesforce software, was designed called My Starbucks Idea to collect feedback from customers.
Around the same time Starbucks began offering lower-calorie and sugar free versions of the
companys drinks and began fixing its menu for salads and baked goods. Starbucks grew to such an
extent that it even began selling beer and wine at US stores in 2010 and now plan to build a chain of
juice bars.

There are many strengths and weaknesses within the Starbucks Company. Some of which have
great functional value to the company, and others undermining the value.
Starbucks is financially sound, with profits rising for the past few years. It outmatches its nearest
competitors on returns on equity.
However Starbucks profit and price is mainly dependent on prices of coffee beans and is not controlled
by Starbucks.
The Starbucks experience, one of Starbucks strongest advantages, is the experience it offers to
customers such as quality coffee and unique customer service. The company has a very strong brand
reputation, which strongly supports Starbucks in the marketing and advertisement aspect. Though
since Starbucks offers such great coffee and customer service, the price of the product is then higher.
Starbucks provides its employees with many benefits and a rather higher pay rate than competitors.
Unfortunately though Starbucks has weak publicity levels from the tax evasions, poorly treated
suppliers and not being environmentally sound.

Within the external environment, Starbucks has many opportunities to grow as well as threats to
Starbucks has strong bargaining power in terms of expansion and networking, and has a very high
profit value, which can open many doors of opportunity. Starbucks buys its coffee beans from many
suppliers mostly located in South America, Arabia or Africa. Starbucks has to extend its supplier
network in order to save shipping costs, ensure critical supplies and reduce its dependence on good or
bad harvest. China and India are developing and now have great opportunities for coffeehouses in
which Starbucks only has a small number of locations. Starbucks should look to expand towards these
emerging economies. Starbucks could expand the coffeehouses that offer wine and beer, and adding
some new product to increase the companys product offerings. Besides for managing coffeehouses,
Starbucks sells some of its products through other retailers. Starbucks should look to expand its retail
Additionally there are many threats directed towards Starbucks, competition and insecure supply can
become very detrimental towards the company. Competition within the coffeehouse industry has been
on a threatening increase. Local cafes can offer lower prices for the coffee and adjust its menu more
easily. Coffeehouse chains began specializing to avoid competing head-to-head with Starbucks.
Starbucks strongly depends on coffee beans and dairy products, and is incapable of controlling the
increase in prices. From political, economic and weather conditions, supplies can be disordered and
can then begin to add to the costs.

Compared to the weaknesses and threats towards the company, Starbucks has great strengths
and opportunities that keep the company competitive.
The Starbucks experience delivers high quality coffee, appealing atmosphere and amazing customer
service however it creates a rise in the price of Starbucks products. The lack of control on the supply
of their products creates a huge threat to the already high cost and price of Starbucks products. If
competition increases and the local cafes and specialized coffeehouses begin to offer alternatives to
Starbucks prices, Starbucks would surely deteriorate. Yet, there are many opportunities such as
location and product expansion, in which Starbucks can increase its success and overcome the threats
and competition. Nonetheless, Starbucks is at a very strong competitive position and has a foothold in
the international industry. Starbucks is the largest coffeehouse chain in the world and has a very
prestigious brand reputation. Even if it continues at its current pace, Starbucks will continue to
succeed regardless of the competition and high prices.

The business strategy of Starbucks is identical to the corporate level strategy. Since Starbucks is a
single business company, it focuses only coffee-related products and retail stores.
Starbucks uses particular structure and control systems to implement its business strategies.
Starbucks embraces the fact that their employees are one of their most important assets. With that in

mind, their maintainable advantage is the quality of their workforce. Starbucks formed a national retail
company by creating pride in the workforce that has been produced. They have achieved this pride
through a corporate culture that enables the staff. Consisting of great employee benefits and
employee stock ownership programs, the culture is maintained and it prospers. The philosophy
towards employees is supportive and comfortable. Management empowers employees to make
independent decisions and employees are encouraged to think as being part of the business.
Starbucks has avoided a hierarchical organizational structure and lacks any formal organizational
chart. The company has functional based divisions and product based divisions with some
correspondence. Starbucks uses these structure and control systems to implement their strategies
and is now the largest coffeehouse chain in the world.

Starbucks has become one of the most successful companies in the coffee bean business and with a
very effective strategy. From the start, Schultz, the company's owner, devised a strict policy in which
the company goes about a slow growth. With a reputation for high quality coffee, workplaces and
services, Starbucks can maintain its competitive edge and continue to succeed.
To grow further, Starbucks will need to expand further, in areas of the United States as well as in
international countries with emerging economies. Instead of just selling the product in franchises
Starbucks could expand the products into grocery and convenience store shelves and magnify the
network. Other types of growth would be extending the product selections by further expansion into
the brewery business. More partnerships would bring new products for Starbucks, and can even
enhance Starbuck into becoming one of the greatest companies in the beverage industry. Nonetheless,
as the company expands, the corporate strategy and workforce culture must be maintained for

"Starbucks." Wikipedia. Wikimedia Foundation, 12 Apr. 2013. Web. 04 Dec. 2013.

"SWOT Analysis of Starbucks." Starbucks SWOT Analysis 2013. Strategic Management

Insight, 25 Feb. 2013. Web. 03 Dec. 2013.

Thompson, Kevin. "A Case Study for Starbucks Corporation." Yahoo Contributor Network.
N.p., 15 Dec. 2013. Web. 04 Dec. 2013.

Video Case

1.Describe Starbuckss business-level strategy.

How is Starbucks managing its relationship
with customers?
Starbucks Coffee uses the broad differentiation generic strategy. In this generic
strategy, the goal is to make the company different from other competitors. It is such
difference that makes Starbucks stand out. The companys emphasis on specialty
coffee easily differentiates Starbucks cafs from many other establishments that
offer coffee. However, the application of the broad differentiation generic strategy
also extends to other areas of the business. For instance, Starbucks uses its
sustainable and responsible sourcing policy to differentiate its products from
competitors. This generic strategy is also manifested in the companys culture. While
competitors like McDonalds and Dunkin Donuts emphasize low cost, Starbucks
Coffee emphasizes a warm friendly ambiance that people enjoy.
An implication of the broad differentiation generic strategy is that Starbucks Coffee
must continue innovating to ensure differentiation in the long term. This generic
strategy could lose its strength when competitors also find ways to stand out. To
address this issue, Starbucks keeps innovating its product mix and supply chain. In
applying the broad differentiation generic strategy, Starbucks focuses on specialty
ingredients and products, such as baked goods that do not have high-fructose corn
syrup. Starbucks also innovates its supply chain to satisfy its generic strategy
through a continuing search for the most sustainable and finest ingredients. Thus,
based on this generic strategy, Starbucks Coffees strategic objective is to innovate
products and its supply chain.

No other coffee house or retail coffee cafs can be as famous as Starbucks itself, which is a
globally renowned coffeehouse brand name that has been successful in establishing both its
name and brand since its inception in 1971. The company began its humble operations as a

roaster and retailer of whole bean and ground coffee in Seattle. Today the company on average
serves over a million customers daily throughout its various outlets and franchises operating
around the globe. The main mission of this organization is to inspire and nurture the human
spirit, through providing a friendly environment that exudes qualities of combining
communication with a sense of community, through its coffees around various neighborhoods
all over the world. Today, Starbucks has over seventeen thousand and six hundred stores that
can be found in over fifty-five countries such as Bahamas, Canada, Bahrain, Chile, Cyprus, China,









This paper aims to discuss the business and corporate level strategies of Starbucks with an
analytical view of how the currently employed strategies by the company are beneficial for its









Beard & Dess (1981) opines that an organization's strategy is one of the most complex and
broadest concepts that are used for studying an organization analytically. This is further related
with the volatility of the continuously changing business environment due to which many
businesses, in order to continue functioning effectively, adapt and implement new strategies to
compete with the changing business situations. However, the two distinct forms of strategies,
namely the business and corporate level strategies of an organization, are the main types of
organizational strategies that help to critically review and analyze the situation and position of a
firm, in various aspects. Both these strategies are reflective of a business organizations intraindustry and inter-industry strategies. These are discussed in detail in the following sections.





Business level strategies are defined in terms of the differences in the firm's characteristics,
which are relevant for its competitive success, or failure in the industry of its operation. Thus,
each organization will have a distinct business level strategy for each of the different industries
that it operates in, as well as the characteristics of that firm's business level strategy would be
measured against the norms relevant to the characteristic of the industry that it operates in




To discuss about the company's business level strategies, Starbucks employs a differentiation
strategy that effectively utilizes its core competencies and product quality to enhance its value
and customer experience, even further. This is further supported by Gates et al (n.d) who
comments that because of employing a strong differentiation strategy the company has been
able to turn its half a dollar commodity into four dollars worth of final good, purchased by the
customer. Furthermore, the company also uses the combination of other business strategies
that aim ...

Loyalty Program Starbucks has a loyalty program called My Starbucks Rewards

("MSR"). Customers in the U.S., Canada, and certain other countries who register
their Starbucks Card are automatically enrolled in that program. They earn
loyalty points ("Stars") with each purchase at participating Starbucks ,
Teavana , and Evolution Fresh stores, as well as on certain packaged coffee
products purchased in select Starbucks stores, online, and through CPG
channels. After accumulating a certain number of Stars, the customer earns a
reward that can be redeemed for free product that, regardless of where the
related Stars were earned within that country, will be honored at companyoperated stores and certain participating licensed store locations in that same
country. We defer revenue associated with the estimated selling price of Stars
earned by our program members towards free product as each Star is earned,
and a corresponding liability is established within stored value card liability on
our consolidated balance sheets. The estimated selling price of each Star earned
is based on the estimated value of the product for which the reward is expected
to be redeemed, net of Stars we do not expect to be redeemed, based on
historical redemption patterns. Fully earned rewards generally expire if
unredeemed after approximately 30 days. Stars generally expire if inactive for a
period of one year. When a customer redee

2.Is Starbucks current business-level strategy

appropriate for Starbucks, now or in the
future? Why or why not?

There are many different buyers in this industry and no single buyer can
demand price concession.
It offers vertically differentiated products with a diverse consumer base,
which make relatively low volume purchases, which erodes the buyers
Even though there are no switching costs with high availability of
substitute products, industry leaders like Starbucks prices its product mix in
relation to rivals stores with prevailing market price elasticity and competitive
premium pricing.
Consumers have a moderate sensitivity in premium coffee retailing as they
pay a premium for higher quality products but are watchful of excessive
premium in relation product quality.

3.What are the competitive actions and

competitive responses taken by Starbucks for
its advantageous market position?

4. Discuss the effective corporate level strategy

implemented by Starbucks.
Starbucks corporate level strategy is to fully establish itself as the leading source of the finest
coffees in the world, while maintaining their principles as they continue to grow. The principles of
Starbucks are to supply the highest standard for its product while continuing to maintain diversity,
great work environment and customer satisfaction. Every staff member in its retail stores works in
a great environment and is provided with many benefits. As Starbucks acquires the finest source
and continuously adds and changes the products they offer, it upholds their diversity and
assurances of the highest product standards. The company satisfies customers and provides
unmatchable service while giving back to the community. Starbucks continues to be profitable and
live by a strict, slow growth policy. Before setting its sights on further expansion, Starbucks
ensures complete domination of a market. Though it may be difficult and costly at first, this
strategy has given Starbucks the advantage of becoming one of the fastest growing companies in
the country.