Management Principles: Market Sentiments In The U.S.

Which of Porter’s competitive strategies is Starbucks using?

Management Principles: Market Sentiments in the U.S.

Named after the first mate in Moby Dick by Herman Melville; Starbucks was founded in the year 1971 by three friends or better known as atypical businessmen named Gordon Bowker, Zev Siegl and Jerry Baldwin with the mission to “inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time”. With the growing years; by 1987 the company opened 9 stores alone in Seattle headed by CEO Howard Schultz who then took up measures for the expansion of the company’s reach at an international extent. Despite of its expensive service; customers even today get dragged because of its quality enriched coffee ranges.

Michael Porter’s five force industry theory effectively states how an industry is influenced by five business forces. Understanding and pointing out these five industry forces; you have Rivalry, Supplier power, Buyer power, Threats of New Entrants and Threats of Substitutes. Estimating the influence of these factors; you have Rivalry in the center taking over the most dominating position which influences other four industry forces (Marburger, 2012). Alike all other business companies existing in the market ruled by different sectors; Starbucks too adheres to these five industry forces effectively to ensure its successful functioning in the long run.

The center point of Rivalry arises from the competition taking birth between the same firms operating in the same sector. As per the traditional economic model; if a competition persist among the firms engaged in a rivalry; then the profit rate will drive to zero. However it is also to be understood that no market prevails under perfect competition and none so firms are unsophisticated to play the role of passive price takers instead they continue their position striving for gaining over competitive advantage  over the rivals they have in the market; whose intensity differs from industry to industry (Polo & Weber, 2010). With its entry in the market of Australia, New Zealand, North America, China, Hong Kong and Tokyo; Starbucks aims at having an international outlook.

When aiming at the international market; Schultz considered that Starbucks products should meet the local market effectively to attain success. Such a market also possesses the threat of rivalry with company already existing with its service in the same coffee sector. With the regard of industry rivalry; it was assumed that coffee industry is confined completely to competitors holding position within the coffee segment which took any competition from any other coffee segment as a substitute. It is estimated that the environment under which the specialty coffee industry has to undergo a tough competition comprised of both retail-based and product-based competition (Dong & Guo, 2014). Only those product-based companies who could extend their services to retail-based companies were considered perfect for withstanding the rapid growth of the specialty coffee industry.

Discuss how Schultz is using leadership, Structure, Information and control system and human resource to implement strategy at Starbucks.

Such can only be done by introducing new and upscale version of their brand product which is already famous and highly preferred by the customers. Companies indulging in such rivalry competition much also take up measures to maintain larger sale volume to retain position in the market with reliable profit margin. To ensure such growth; specialty coffee products have to face product based competition with other non-coffee beverages like juice, tea and both soft and hard drinks. To maintain such a competitive rivalry; Schultz also made sure to take up challenges for meeting the threats of substitutes. Considering the threat of soft drinks like Pepsi and Coca-Cola as the primary substitute; Starbucks joined into a partnership with Pepsi-Cola Company to come up with its new product- Bottled Frappuccino; while with Dreyer’s Grand Ice-cream Inc. for the production of one brand Ice cream in the US(Kim, Brorsen, & Anderson, 2010). However a potential threat still persisted as customers were less willing to substitute coffee for caffeinated soft drinks or ice creams. Taking over the competition among the rival companies much seriously; the Starbucks began serving the United Airlines along with Canadian Airlines as well as some of Chain hotels.

Starbucks coffee company has come up with its service as the largest coffee house having international access. The leadership of the company CEO Schultz is rightly attributed with the appropriate functioning of the organization’s structure. It has been rightly said that the management, leadership, communication strategy, business chain and other such factors which stand critical to the success of any business organization is highly dependent upon the organizational structure of the company which is why Schultz pays adequate attention for the formation of the organizational structure with his effective leadership strategies (Haskova, 2015). He motivates his employees in such a way that they are able to relate their requirements with the success of the organization.

Schultz has made sure to match the organizational structure of Starbucks Coffee Company in such a way that it is able to match the prevailing business needs of both the company and the market. The organizational structure of the Starbucks is basically based on an organizational structure of conventional typology which helps in the growth of its business helping it to optimize its business process effectively providing its customers with the best quality products and services (Mahobia & Jain, 2015). The organizational structure of Starbucks is defined as a hybrid mixture of various features guiding the structure of an organization such as Functional structure, Geographic structure, Product-based divisions and team structure.

Starbucks Coffee’s functional organization structure features refers to the employment grouping done on the basis of the business functions they are to perform. For example; there is an HR department, a marketing department and a finance department; all of which are referred as the top most departments of the company helping the corporate headquarter in taking the most important decisions for it. Such an organizational feature can be easily related to hierarchical feature of Starbucks organizational structure such as the HR department of the corporate implementing some policies which are acceptable by all Cafes of Starbucks (Vincenzo, 2012). This organization structure continues function with the CEO at the topmost position.

Talking about the geographical structure of the organization; presently Starbucks has three geographical divisions operating at China and Asia-Pacific, Europe-Middle East-Russia-Africa and Thirdly the Northwestern regions of the world. The organizational structure of the company is again sub divided in the US market. Each of these geographical divisions is headed and monitored by a senior vice president who helps the division in ensuring flexibility for adjustment of policies and strategies suitable for the prevailing market condition (Gonzalez, 2015).

The company also has product based employees division who are responsible for maintain focus the product lines of the company for ensuring its better performance. Along with all these structural divisions there are employees operating in teams and are most noted in the lowest level of the organization of Starbucks. They are responsible for ensuring effective and efficient services for the customers. However with the passing years; a transformation has been noted in the organizational structure of Starbucks. With its growing expansion since 2007 and Schultz resuming position in 2008; few changes have been amended to the formation of the organizational structure. The structural pattern of the organization is now so designed that effective attention is given to the employees training so as to ensure better performance on their part. This has led to an improved customers experience when dealing with the services of the firm as well as a stable financial position for Starbucks.

The contribution made by Howard Schultz towards the growth and expansion of Starbucks Coffees is too vast to be estimated in few words. He has made use of effective marketing strategies which has helped in the growth of the company having its reach worldwide that too with maximum customers’ response. Beginning with its marketing strategies; first you can have a gossip about decaffeinated coffee. Strange but Starbucks history reveals it has taken initiatives for bringing to its customers coffee without caffeine (Taylor, 2008). The company is reported to be adhering to a bold marketing strategy for the implementation of its highest ideals. However it is always the motivational effort of the CEO which has helped the company meet broader success.

Learning more about the conventional marketing strategy of Starbucks; there are various instances which can get you easy help. Starbucks history claims that it mainly aims at providing the customers with a perfect cup of coffee which means the company is too concerned about the quality which is why the company takes up strategies for ensuring that the coffee served is rich in flavor, fragrance and meets the expectation of the customers. Though the customers might find the price a bit high; but there is no compromise made with the quality which is why the company chooses to roast all the coffee beans in-house.

Adhering to the best marketing strategy; Starbucks is too concerned about the place that is where it is to set up its café because the company believes that only a comfortable place covered by nature is best suitable for enjoying a perfect cup of coffee. With this ideal the company makes sure to choose the best location for its café zone. For them; customer satisfaction is their greatest concern (Sindhwani & Ahuja, 2014). They believe that only when the product of the company is preferred by the customers; shall they incur highest profit rate with all the products being sold by the end of the day.

Moving on towards the next marketing strategic move for Starbucks; the company holds feeling for creating a community. It is because developing community feeling shall bring the customers is sharing their experience of coffee with Starbucks which will help the company to understand the needs and reviews of the customers so as helping them to leap out for improvement. Howard Schultz can be marked as a great innovator for he is the mastermind behind the company’s partnership with Pepsi-Cola for launching bolted Frappuccino (Lin, 2012). He understand that customers always look out for something innovative that will help them come out of the same old thing; be its any dress, or goods or food.

Lastly taking of the strategy adhered for the brand marketing; Starbucks made extensive use of the media for the promotion of its brand. From paper ads to social media; advertisement flooded for the promotion of the company’s coffee and other products. It also joined hand serving the United Airlines and the Canadian airlines along with the chain hotels; all of which together added on more to its promotion and growth.

References

Dong, H. & Guo, X. (2014). The Interaction between Market Sentiments in the U.S. Financial Market and Global Equity Market. IBR, 8(1). https://dx.doi.org/10.5539/ibr.v8n1p1

Gonzalez, G. (2015). The Ritualization of Consumer Capitalism: Catherine Bell’s Ritual Theory, Ritual Practice in the Age of Starbucks. Implicit Religion, 18(1), 3-44. https://dx.doi.org/10.1558/imre.v18i1.21761

Haskova, K. (2015). Starbucks Marketing Analysis. CRIS – Bulletin Of The Centre For Research And Interdisciplinary Study, 2015(1). https://dx.doi.org/10.1515/cris-2015-0002

Kim, H., Brorsen, B., & Anderson, K. (2010). Profit Margin Hedging. American Journal Of Agricultural Economics, 92(3), 638-653. https://dx.doi.org/10.1093/ajae/aap038

Lin, E. (2012). Starbucks as the Third Place: Glimpses into Taiwan’s Consumer Culture and Lifestyles.Journal Of International Consumer Marketing, 24(1-2), 119-128. https://dx.doi.org/10.1080/08961530.2012.650142

Mahobia, H. & Jain, T. (2015). Starbucks: Adapting in the Indian Market. Indian Journal Of Marketing,45(8), 37. https://dx.doi.org/10.17010/ijom/2015/v45/i8/79919

Marburger, D. (2012). How strong is your firm’s competitive advantage?. [New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert Press.

Polo, E. & Weber, W. (2010). Competitive Generic Strategies Evolution and the Importance of Michael E. Porter. REGE, 17(1), 99-117. https://dx.doi.org/10.5700/rege389

Sindhwani, P. & Ahuja, V. (2014). A Study of Online Co-Creation Strategies of Starbucks Using Netnography. International Journal Of Online Marketing, 4(1), 39-51. https://dx.doi.org/10.4018/ijom.2014010104

Taylor, S. (2008). Starbucks Spreads the Spirit of Giving with CARE. Advertising & Society Review,9(1). https://dx.doi.org/10.1353/asr.2008.0004

Vincenzo, L. (2012). How to make coffee so good you’ll never waste money on Starbucks again. [United States]: Waterbury Publishers.