Understanding Porter’s Generic Strategy And Starbucks’ Success

What Is Porter’s Generic Strategy?

Question:

Write the case study about Starbucks coffee and explain Porter strategies.
 

Porter’s generic strategy is one of the most widely accepted strategic models that have been adopted by a vast number of successful firms. The strategy mainly aims at the creation of a distinct product or service that the competitors are unable to provide to the customers. The system is thus one that provides the company with the much needed competitive advantage over the competitors. The generic strategy of Michael Porter which was created in 1980 thus focuses on three prime areas of strategy. The three areas include cost leadership, differentiation, and focus. Although the three aspects is not used together in any strategy formation, it is important to note that most successful firms utilize at least two of these strategies in order to gain a competitive advantage. Starbucks, the coffee company utilizes the generic strategies of product differentiation and focusing on the target groups in order to penetrate into the market to their advantage. Starbucks was founded in 1971 and quickly became one of the world leaders in coffeehouse chains. It is the inclusion of differentiation intensive strategy that set them apart from their competitors and helped them gain a significant share in the market. 

Right from the beginning, Starbucks aimed at attracting customers from their competitors by providing them with products that the competitors wouldn’t. In such a case, Starbucks developed a strategy that focused on the specialty coffee products (Ritson, 2007). Starbucks also focused on creating an atmosphere that is extremely inviting to the customers. Starbucks thus focused on the development of specialty products along with the development of a completely different experience at their coffee shops in order to differentiate themselves from the competition. Starbucks have taken the generic strategies one step further by creating their intensive growth strategies aligned to their generic strategies (Braun & Latham, 2014). Starbucks has used their competitive advantages that they have achieved from the application of strategies to help them grow in new markets. The new markets have been gained by penetrating into the newer markets with its range of specialty products and as a result, gaining hold of the customer base where they have not yet been able to get the products that Starbucks offers. Starbucks also creates its generic strategy of differentiation by providing specialty products according to the local market preferences while keeping the originals intact. In addition to specialty products, Starbucks also maintains a system that is much different from their competitors. Starbucks has created an environmentally friendly system that is much different from the competing brands. The use of eco-friendly materials and reusable cups provides the company with the competitive edge as the customer base that Starbucks caters to is particularly growing more and more environmentally conscious. Also, Starbucks’ ethical outlook to providing their customers with the best quality coffee is one of the factors that provide them with a competitive advantage (Cole, 2008). The success of their generic strategy is seen when we take note that Starbucks is the largest coffee chain with 5500 coffeehouses in over 50 countries.

How Does Starbucks Utilize Porter’s Generic Strategy?

The generic strategy that Starbucks uses is thus a broad differentiation strategy. Starbucks focus is always on differentiating themselves from their competitors as much as possible. In such a case, Starbucks is constantly on the search for new and innovative means to develop their products as well as develop new products (De Kluyver & Pearce, 2009). The products are developed with the idea of standing out from their competition. It thus helps in the differentiation of the products. Starbucks have succeeded in extending their differentiation to other areas of operations as well. Starbucks uses a sourcing policy that is sustainable and responsible in order to differentiate it from its competitors that do not follow such measures (Porter, 1980). While most of the competitors of Starbucks including McDonald’s and Dunkin Donuts utilized a strategy of cost differentiation, Starbucks’ strategy of using differentiation of products was a completely new approach that helped it in becoming one of the giants in this field (Eldring, 2009). Starbucks’ approach of differentiating itself in matters of products and ambiance provided it with the much-needed edge over its competitors but it needs to be kept in mind that such differentiation techniques are on a rise in modern-day competitors. In such a case, Starbucks must develop a system that provides a constant innovation in order to differentiate itself. 

Starbucks has utilized its generic strategies in developing products that provide the highest level of market penetration. In such a case, the market penetration is facilitated because if the innovative and different products that the chain offers to its customers. The strategy aims at gaining the maximum amount of revenue from the existing markets and having a deeper penetration into new markets. Starbucks uses its reputation from its already existing markets to convey the value of their products in the new markets (Haskova, 2015). In such a case, the customers in the new markets are open to the idea of having new products that they have previously not been able to get. The brand thus succeeds in forming a strategy of market penetration using the generic strategy of Porter. The product development is another aspect of the generic strategy that helps the firm to not only gain a competitive advantage but also helps it in gaining penetration into the markets. The strategy here is the creation of new products with a view to gaining more revenue. The strategy used by the company is thus a part of the differentiation strategy (Mckeown, 2012). The differentiation strategy aims at gaining a maximum level of differentiation and uniqueness as compared to its competitors. Developing new products means that the firm has yet another product that its competitors don’t. The firm can thus utilize the product to encourage more sales from its existing outlets.

Recommendations and Conclusion

Starbucks is not only one of the major players in the coffee shop industry; it is also the largest chain in the world in this department. The presence of the firm in 65 countries proves the efficiency of its differentiation strategy. The specialty products and ingredients are what sets the firm apart from its competitors and provide it with the much needed competitive advantage. Starbucks’ strategy of differentiation in almost every sphere of its operations is a reason behind its broad differentiation. The differentiation is thus facilitated to a level where each and every action of the firm puts it at an advantage over the competitors. The factors thus help it in  gaining a competitive advantage which not only helps it in maintaining a strong presence in the existing markets but also helps it in gaining new markets as well as penetrating even further into the new dimensions of the existing markets (Šmakalova, 2012). However, the factor that Starbucks needs to keep in mind is again related to its differentiation strategy. It must be kept in mind that the use of the differentiation strategy is being used by more and more newcomers in this industry and as a result, it is providing the company with more and more challenges in this regard. In such a case, the firm must keep up its innovative levels to the maximum extent that is possible. The innovative strategies are what helped the company maintain a differentiation from its competitors. However, it must be kept in mind that, the fierce competitions in the market provide the company with the challenge where the competitors are able to copy their products and as a result, the customers are left with options. In such a case, the company is at a constant risk of losing customers to competitors that combine a strategy of competitive pricing as well. As a result, Starbucks needs to constantly innovate its products in order to maintain differentiation. The differentiation is, in fact, the presence of products that the competitors don’t offer. As a result, the innovation would provide the company with the means to develop the much needed innovative product that would provide it with a differentiation over its competitors. Also, Starbucks needs to include the growth into new areas in order to facilitate growth. The markets of Africa and the Middle East are lucrative ones that still have not been exploited by the firm (Salaman & Asch, 2003). In such a case, Starbucks can consider expanding to those regions as well. The expansion is one of the prime reasons for the growth and sustenance of the company and Starbucks needs to include the idea in their strategy. 

References

Braun, M. & Latham, S. (2014). Mastering Strategy. Santa Barbara: ABC-CLIO.

Cole, G. (2008). Grande Expectations: a Year in the Life of Starbucks’ Stock20081Karen Blumenthal. Grande Expectations: a Year in the Life of Starbucks’ Stock . Loughton: Piatkus 2007.Management Decision, 46(4), 673-675.

De Kluyver, C. & Pearce, J. (2009). Strategy. Upper Saddle River, N.J.: Pearson/Prentice Hall.

Eldring, J. (2009). Porter’s (1980) generic strategies, performance and risk. Hamburg: Diplomica Verlag.

Haskova, K. (2015). Starbucks Marketing Analysis. CRIS – Bulletin Of The Centre For Research And Interdisciplinary Study, 2015(1). 

Mckeown, M. (2012). The strategy book. Harlow, England: Pearson.

Porter, M. (1980). Competitive strategy. New York: Free Press.

Ritson, M. (2007). Speedy Starbucks has grown too fast. Strategic Direction, 23(8). 

Salaman, G. & Asch, D. (2003). Strategy and capability. Malden, MA: Blackwell Pub.

Šmakalova, P. (2012). GENERIC STAKEHOLDER STRATEGY. Ecoman, 17(2). 

Snyder, M. (2006). State of the Profession: The Starbucks Effect. Academe, 92(1), 70.