Discuss about the Crucial Starbucks Strategic Management.
The case study deals with the operational management of starbucks and its history of establishing itself in over fifty countries as the multi-million dollar coffee shop. The study is important to analyze the core strengths and short-comings of Starbucks during its initial years and the strategic management by which Starbucks was able to overcome most of their problems. Starbucks’ growth and expansion lead to many positive and negative outcomes, however the report also makes it explicit how Starbucks regained it business after suffering blows during its collaboration with Kraft. Areas of concern regarding the operation of Starbucks, for instance the inadequate supply of raw materials and other resources needed for the smooth functioning of its outlets, inadequate training session of its employees, lack of product differentiation, huge incurrence of loss in a number of outlets that failed to sale its products in adequate quantity, steady decline in the popularity of Starbucks whole bean coffee sales. The case study indicates here a poor supply chain management. For the case study, sufficient amount of information has been retained about Starbucks popularity and fame within the coffee lovers, however the case study will explore in depth the causes of starbucks’ failure after expanding its business comprising of a number of countries.
The report will address the issues of poor supply chain management, negative outcomes of product similarity, lack of technological advancement in starbucks stores, failure to study market demands, neglecting the quality of products as a consequence of over-expansion of outlets beyond the limited resource capacity of Starbucks. A comprehensive study would be carried out assessing the strengths, weakness, opportunities, threats of Starbucks that would be helpful in understanding the best possible ways Starbucks can sustain in the market in long-run. The areas will therefore highlight the negative aspects taking spontaneous business expansion without prior consideration.
Brand Recognition of Starbucks: according to the case study, starbucks have created a massive appeal with the taste of its coffee and has restored America’s faith in coffee again. As a result, Starbucks have expanded its geographical presence creating a strong brand image in the market. Starbucks has equated its brand image with rich taste of coffee and aristocracy, strengthening its competitive edge.
Location and Availability: owing to its market presence, starbucks has huge advantage compared to any other coffee stores in the world. The case study stated that it has 27,339 stores pan world creating a distinct niche in market.
Aesthetic Pleasance: starbucks offers “the third place” to the customers, a leisurely place somewhere between going to work and returning home. Starbucks’ music CDs gained huge popularity amongst the audience leading to a sale of 32 million copies as stated in the case study. It has the potential of staying the market due to the strong sense of aesthetic satisfaction and leisure that it provides its customers with.
Expensiveness: starbucks have to deal with its extravagantly priced coffee, as the case study indicates, a number of coffee lovers tend to avoid Starbucks due to its expensiveness. This is can hinder sales growth in economically developing countries especially with the growth of cheaper coffee outlets.
Lack of resources: the lack of resources of starbucks ultimately resulted in the poor management of the number of coffee outlets that Starbucks had started with. The shortage further led to poor quality operation and closing of number of outlets.
Negative Image: similar to a number of other corporations, starbucks too had come under the scrutiny of negative criticism on its huge expansion. The case study mentions that by the year 1996, Starbucks had established over 1,000 stores resulting in criticism and lampooning from newspapers and business magazines.
Over-crowding: in United States, Starbucks operates through 8078 stores therefore resulting in overcrowding of Starbucks stores[1]. This could have a negative impact on the reputation of Starbucks in the long run.
Lack of Uniqueness: starbucks specializes in farppucinos, cookies there is lack of distinctiveness in this section which can provide the other coffee shops plenty of opportunities over Starbucks.
Expanding Market: one of the many reasons accounting for its expansion is the unique taste of Starbucks coffee when compared to the other brands provided by America. Starbucks has made its entry into many countries and has created a good niche in the international market.
Technological advancement: owing to the amount of expansions, Starbucks with the help of technology had made the process easier for customers to buy their products leading to a boost in sales.
Brand Image: over the years, Starbucks had taken a number of strategies to expand its brand image and created a loyal customer base who equated Starbucks coffee with class and aristocracy. This has provided its rival competitors with a stiff market competition.
How Starbucks Plans to Make an Impact by 2020 and beyond, Starbucks Newsroom [Web document] (2017), < https://news.starbucks.com/news/starbucks-2016-global-social-impact-report >, accessed 9 April 2018.
Competitive analysis is essential in the evaluation of external factors for starbucks and can be understood with the tool of Porter’s five forces’ model for a thorough understanding of the current scenario of Starbucks’ in the market. The analysis will provide a comprehensive overview of the market structure.
Threat of New Entrants in the Market: Moderate. The saturation level of the market is moderately high and there is a scant presence of new competitors in the market. Rival competitors with cheaper options and better quality product can be a stiff competition to Starbucks.
Threat of Substitutes: High. Other suitable substitutes to coffee could be health drinks and beverages. The primary substitute products are the caffeinated drinks coming from brands like Pepsi and Coca-Cola[1]. Consumers have no switching costs and therefore this is one of the major threats of Starbucks. Another substitute product that can be considered as a threat is the rise of homemade products that many people are preferring over Starbucks due to lifestyle changes.
Bargaining Power of Buyer: Moderate to Low. Moderate because of the premium quality coffee that Starbucks is known for producing but this is highly dependent on the consumer base. Customers can both switch to lower costs or choose expensive products for better quality of taste.
Bargaining Power of Suppliers: Low to moderate. Owing to its brand image Starbucks have the power to take advantage of suppliers. It has occurred a higher control on the supply chain and therefore has the choice of choosing from a number of suppliers. Starbucks has started to collaborate with the coffee-bean farmers on a direct basis and is therefore at a strategic position to make strategic decisions. It is therefore that the bargaining power of suppliers can be considered low due to the size and brand image of the Starbucks coffee business.
Existing Competitive Rivalry: High to Moderate. It is a monopolistic market where both Starbucks and its rival competitors have considerable amount if market share and the entry and exit barriers are low. However, Starbucks still has maintained a competitive based due to the premium quality coffee that Starbucks produces has given them a competitive advantage over rest of the coffee brands.
Starbucks could create a better niche in the market by an innovative introduction of tea to have a deeper penetration in markets where coffee consumption is not much prevalent. Coffee in Starbucks can already put considered as a “cash cow” which indicates a relatively high market share position and is expected to bring profit even without any further investment or strategy formulation. The concept of tea would naturally be put under the section of “question mark”, indicating a low market share irrespective of high growth rate. With the success of tea products in the market, it can be classified under the “star” category. It will therefore be evident as capable of producing long-term opportunities of growth and profitability for Starbucks.
Starbucks is concerned with providing luxury quality of taste to its consumers which will be symbolic of class and high status. It is with this motto that Starbucks has showed rapid growth over the last one decade. This has resulted in major firms wanting to collaborate with Starbucks. With the rise of predominance in the ethical values by which many companies are forced to adhere with, Starbucks has acquired the social marketing strategy according to which with each product they are selling, they are adding benefits to the environment or community as a whole. This has naturally helped Starbucks t o perform better in the market. Its decision to stick by CSV- Creating Shared Values has helped them in expanding their loyal customer base. It has also worked excellently to improve their brand image.
Starbucks has improved its performance by offering better customer service and in-store experience especially by providing optimum experience like wi-fi and music, to provide for a very recreational space for the customers. Currently, as per market analysis suggest, Starbucks is being confronted with stiff competition from other quick service restaurants like McDonald’s and Dunkin Donuts. To deal with such a market crisis, Starbucks has taken upon the responsibility of upgrading itself technologically with introducing mobile based apps. This opportunity comes with reward-based programs for customers, added benefits for customers who are placing their orders via the Starbucks app. As a result, this has resulted in over 13.3 million loyal customers accessing the app to earn more rewards. Technological innovation has helped Starbucks to identify and align their customers based on their preferences, treat them with special offer on their birthdays to expand the customer base.
Starbucks’ strategy to sell products through supermarkets has also helped them to boost their existing sales rate especially of bottled drinks and instant coffee. One of the many competitive advantages of Starbucks is the fact that it is trying out innovative ideas to avoid its sales from becoming completely stagnant. It has been performing better in the market with the recent introduction of flavored drinks and coffee to cater to a variety of customers apart from the aristocratic coffee lovers.
Conclusion
One of the key findings is that Starbucks is aiming to become the dominating coffee brand on an international level especially in the developing countries like Singapore, Switzerland, Kuwait and Lebanon. Their goal has been to foster human connection and provide with more financial growth to their shareholder and partners. This has been a positive step towards developing a different approach amongst people while drinking coffee. Starbucks’ revenue has increased considerably around 3 percent. This is apparent in the 3,300 shareholders and partners that Starbucks has.
As evident, Starbucks has priced its coffee quite expensive when compared to the other options, with the introduction of cheaper options infused with healthier choices can help Starbucks to beat its competitors. The introduction of cheaper and healthier option would make Starbucks one of the best choices for middle class customers situated in countries like Brazil, China and South Africa. The relevancy of Starbucks in the markets it is serving is important to consider ensuring the best of its business.
Starbucks must devise strategies in order to bring forth innovation into its products, like with the serving of tea and fresh juice products it can explore the possibilities of gaining more customers. This would also help them to confront a more challenging market that focuses on health products like low-calorie drinks and healthy coffee drinks.
The growth strategy should never remain restricted to the US market and Starbucks should venture out more for gaining additional market penetration.
Starbucks should never solely concentrate on expanding its business without assuring that it would also provide the customers with premium quality service. Starbucks can restructure the workforce and close its outlets in the areas where the coffee drinking is not as prevalent or where the availability of affluent customers is comparatively fewer.
Starbucks can additionally make use of the market by partnering with other coffee shops and restaurant to cope with the declining sales growth in the recent quarters. New partnership will help them to achieve better sales. Starbucks in this way can also cater to a more culturally diverse customer range.
As Starbucks is constantly increasing its number of shops, it should bring in training programs to ensure that all the staffs are maintaining a high standard that is symbolic of Starbucks. The strategy of implanting better employee training program would therefore be extremely productive for Starbucks at this juncture. Starbucks has around 2,38,000 employees and has been listed under America’s Best Employers, this should be applicable to the rest of the countries as well.
Reference List:
How Starbucks Plans to Make an Impact by 2020 and beyond, Starbucks Newsroom [Web document] (2017), < https://news.starbucks.com/news/starbucks-2016-global-social-impact-report >, accessed 9 April 2018.
Leduc C, How Starbucks fought for its life without losing its soul, 1/58,(2017), pp. 4-10.
Speculation G, Here’s Why Store Expansion Is Crucial For Starbucks’ Valuation, Fobes [Web document] (2018), < https://www.forbes.com/sites/greatspeculations/2018/01/12/heres-why-store-expansion-is-crucial-for-starbucks-valuation/#7985460d1347 >,accessed 09 April 2018.
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