Introduction
Starbucks was founded in 1971 in Seattle. In 1987, Howard Schultz took over Starbucks coffee and expansion over America. Decade, the revenues of the firm increased rapidly to $1.3 billion from about $10 million. In 2007, the coffee company gained profit about $9.4 billion in the worldwide stores.
This report will announce Starbuck’s mission that concerns with the product, partners, customers, stores, neighbors and environment. Also, using differentiates and focusing strategies of Porter’s generic model analyzes Starbuck’s business strategies. Moreover, the coffee company can apply Porter’s five forces to analyze structure of industry. SWOT analysis can be used for analysis about internal and external factors which associate with the growth of company. Core competencies can be explained in three main points of the company such as the product, Social, Environment and Economic responsibility and human resource of the organization and using Porter’s generic strategies to gain advantage from competitors. In addition, this report will provide recommendation strategies and potential fallout to forecast possible negative points that will be resulted of recommendations.
II. Identify the corporate mission and its business strategy
The corporate mission of Starbucks
According to Starbucks website, Starbucks Coffee Company mission (2010) has stated that “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time”. It can mean that the company tries to select the best quality of coffee that know well as Arabica beans in Latin American, Africa and Asia to serve their customers. Moreover, roasting coffee beans operation has been contributed by Starbucks experts who have lots of knowledge and experience about coffee roasting along time. Therefore, the company is more confident in flavor of coffee bean that is different from others and it can satisfy their customers. Furthermore, the employees of company whom are called partners are a necessary engine to make the coffee industry working. The company treats them as they are the same family. Therefore, the company is not only to support them by money but it is also looks after their health and knowledge by providing some programs to treat the partners with respect and dignity to achieve their standard. Looking at the customers, the company gives a high importance about human relationship between staffs and customers. Due to human connection at few times, it can create the customer engaged with the shop and enhance the lives of customers. Moreover, the stores environment can make the customers break from the worries or stress outside after work. The place can be the centre point to meeting with friends or colleagues and enjoyable in their lives. Besides, the coffee stores distinguish that they are the part of society. Thus, the company has to attend neighbors with good thing. What is more, the company tries to do the right way to achieve success and recompenses the firm’s shareholders. Lastly, the coffee industry considers seriously that the business is commitment with environment. Therefore, the company should be one of main part to help nature to decrease waste of coffee products, attempting to use friendly environmental product as well as increasing recycle, reuse policy in the organization. (Starbucks Coffee Company mission, 2010)
Business strategy
According to Starbuck’s case study, it can be analyzed Starbuck’s business strategy by applying Porter’s three generic strategies model: cost leadership, differentiation, and focus.
Porter’s Generic Strategies
Target Scope
Advantage
Low Cost
Product Uniqueness
Broad
(Industry Wide)
Cost Leadership
Strategy
Differentiation
Strategy
Narrow
(Market Segment)
Focus
Strategy
(low cost)
Focus
Strategy
(differentiation)
Source: Internet Center for management and business administration, Inc. (n.d.)
Differentiation Strategy
Looking at three generic strategies, Starbuck’s company can match with differentiation strategy due to this strategy offers “unique attributes that are valued by customers. Customers can perceive the product or service different from the competition”. (Internet Center for management and business administration, Inc. n.d.)
Similarly, a cup of coffee was produced from Starbuck coffeehouse; the company can guarantee that both of taste, and value can contribute difference from competitors. According to Starbuck’s case study of Harvard business school, Koehn, Besharov, and Miller (2008) stated that Starbuck was directly concerned with each step of operation process such as seeking coffee-growing areas in East Africa, Latin America, and Southeast Asia to choose the beans used in its beverages. Moreover, Starbucks strived to select high-quality coffee beans by providing practices and the treatment of farm workforce to improve the product. In addition, the company controlled processing of roasted coffee bean by itself and Starbucks experts make sure the resulting brews satisfied company standard by tasted about 1,000 cups of coffee per day. Moving to Starbuck’s house coffee, the organization has to train staffs to concentrate on service mind with the customer by using human relation because they believe that smile, small talk and remembering name or taste of customer can enhance the product value in customer’s eye. (Koehn, Besharov, and Miller, 2008) What is more, in the part of valuable, some revenue of the company has to pay back to farmers who offered the coffee bean, tea and coco bean to the industry due to the company realize that this money can help farmer workers to improve the quality of life by supporting education and personal finance. (Starbucks Coffee Company, 2010) Moving to the part of environment, the company strives to use friendly environmental products and recycle product such as paper cups to decrease environmental issue. ( Mikulin, n.d.) Therefore, the customers can be confident that they are a part of the company’s corporate social responsibility and helping to decrease global warming when they consume Starbuck’s coffee. It is not surprising why Starbuck’s firm can charge a premium price for the products that full of the value of uniqueness. Refer to all of the reasons that make Starbuck’s company succeed in a differentiation strategy.
Although, Starbuck’s firm has succeeded in caffeine world, it has also the risks associated with a differentiation strategy. Refer to Internet Center for management and business administration, Inc.(n.d.), it confirms that differentiation strategy can contribute risk that relates with imitation by competitors and changes in customer tastes.
Focus Strategy: differentiation
Refer to differentiation strategy; Starbuck’s firm has to create differentiation of the product to rival with competitor. Consequence, it can affect to the price of product that may be higher than competitor due to the firm has to charge premium price to cover all of investment cost. Internet Center for management and business administration, Inc.(n.d.)Therefore, Starbuck’s company can apply focus strategy that focuses on a narrow segment and endeavor that segment to reach unique product. For example,
“Originally when Starbucks began they targeted the young college students, with slightly higher than average income levels. After this initial target market Starbucks has since realized that they could target specific neighborhoods and social classes. Different customers are more willing to pay for luxury good now more than ever. With that in mind, through Starbucks aggressive expansion techniques they have begun targeting almost every demographic”. (Smith, 2009)
Moreover, customer loyalty can be the most important that Starbuck’s firm has to recognize due to building up brand loyalty can be a strong point to use for future competition of Starbuck. Thus, the firm has to create some programs to attach the customer and pursuit them becoming the loyalty customer. For instance,
“Starbucks is rolling out its free Wi-Fi for frequent customers Tuesday, along with a host of other membership benefits designed to encourage customer loyalty. The company also is unveiling more opportunities for free coffee: Customers who join the card rewards program between Tuesday and July 14 get a free drink”. ( James, 2008)
Although, Starbuck’s can use focusing strategy effectively, there are some risks of that Internet Center for management and business administration, Inc. (n.d.) used to mention such as imitation and changing the target segments that can threat with the firm.
III. Jaxson Smith
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Jaxson is a fun loving longboarding business man.
Industry structure
Starbuck’s company structure can be explained by apply Michael Porter model namely Porter’s Five Forces. Due to this model can help to understand well about the industry context in which the firm operates. There are five factors to consider in that strategy such as rivalry, potential entrants, threat of substitutes, supplier power and buyer power. (Internet Center for management and business administration, Inc. n.d.)
Rivalry
Refer to Starbuck’s case study; many small specialty coffee shops chains and independent coffee shop was already distributed in worldwide such as – Coffee bean & Tea leaf in USA, Caribou Coffee in the Minneapolise ares, Peet’s Coffee and Tea Company in Canada and USA when Starbuck’s company went to the market. (Koehn, Besharov, Miller, 2008).
Threat of new entrance
Although, Starbuck’s brand knows well in differentiation of the coffee market, the coffee market has high economies of scale that can attract competitors with superior business strategies to gain profit in the market such Dunkin Donut and Mc café. (Koehn, Besharov, Miller, 2008). Even though Starbuck’s tried to maintain as well as grow up their market share by created new brand “Seattle’s best” (Calkins, 2010) with cost leadership strategy to deal with competitors. As the result, the differentiate strategy can create an opportunity for Starbucks, during a threat competition is high and threat of new entrants are low.
Threat of Substitute products
According to Starbuck’s case study, there are several substitute products such as soft drink, tea, and fruit juice that can threat the product due to less expensive than the luxury coffee. Although, Starbuck’s store also launched alternative products such as tea, coco drink and blending fruit juice, it cannot rival complete with other substitutes that are cheaper. (Koehn, Besharov, Miller, 2008)
Bargaining power of suppliers
Starbuck’s company has good relationship with suppliers; for example, Coffee and Farmer Equity Practices (C.A.F.E) provides fairly wage to farmer workers who offer the finest coffee to the firm. Moreover, the company does not provide only current but they are also providing health insurance as well as supporting education for their partners. (Mikulin, n.d.)
Bargaining power of buyers
In the case of bargaining power of buyers in coffee industry, it can say that the company has high competition in these industries so it can affect customers to have several options to choose such as price or taste. Therefore, brand loyalty should be considered in the organization. Building up the brand awareness of the product can keep the customers and revenue rather than finding new market. (Internet Center for management and business administration, Inc. n.d.)
IV. SWOT Analysis
SWOT analysis will be used to analyze currently internal situation via strengths and weaknesses and external situation of Starbuck’s firm by looking at opportunity and threat.
Internal situation: Strength
Firstly, there are diversified products to offer customers. Refer to Starbuck’s case study, it announced that the company tries to produce and selling various products such as foods, desserts, book and movie including music. (Koehn, Besharov, Miller, 2008)
Secondly, the company established logo, developed brand, copyrights, trademarks, website and patents to enhance the value of brand and contributing trust for the customers. (Auch-Roy, 2004) Thirdly, the locations of Starbuck’s store can attract customers. Refer to Starbuck’s case study, it had example that “at one intersection in Seattle there were Starbucks stores on three corners, and the company was considering placing a store on the fourth as well”. (Koehn, Besharov, Miller, 2008) Moreover, the firm contributed good relationship with their partners by providing fair current, health insurance and security as well as education for their suppliers. “. ( Mikulin, n.d.) Customer loyalty can be strength of Starbuck’s firm to keep the product’s selling point.
Also, a good work environment can motivate their employees to work effectively. Expansion of the firms in globalization can help the company gain more profit in the worldwide. Finally, the company provided some programs to train all employees about coffee history, drink preparation, coffee knowledge as well as customer service. (Auch-Roy, 2004)
Internal situation: Weakness
Firstly, the price of product is expensive due to the company selected the finest coffee and control all steps of operation by themselves. Secondly, due to the firm efforts to extend its product options so the company may lose sight of its original identity of coffee house. Moreover, the firm wanted to expand in globalization a lot so they may lack of internal focus such as training service mind to staffs to make human connection with the customers. (Koehn, Besharov, Miller, 2008)
External situation: Opportunity
To begin with technological development, refer to Starbuck’s case study, the firm decided to invest Mastrena and Clover machine to decrease time that baristas spend to make coffee. (Koehn, Besharov, Miller, 2008) Secondly, the firm created opportunity to expand more profit in coffee market share by launching second brand products namely Seattle’s Best. (Calkins, 2010) Thirdly, the company created coffee instant name Starbucks VIA® Ready Brew coffee and the firm distributes product via new channels such as stores across the country to gain more opportunity in worldwide. (Starbucks Coffee Company, 2010)
External situation: Threats
First of all, there are many competitions that has been emerged in worldwide such as restaurants, street carts, supermarkets, other coffee shops, other caffeine based products.
Moreover, the US coffee market is saturation that can create big barrier to the firm’s expansion. (Auch-Roy, 2004) Also, there are increased competitions in market of fast food chains such as McDonalds and Dunkin’ Donuts. (Gambardella, 2009) Besides, almost people now trend to eat more healthy foods and away far from caffeine so it can be issue to decrease selling of the firm’s products. (Auch-Roy, 2004) Furthermore, refer to Starbuck’s case study, Starbuck had confronted with the economy situation in U.S. drop that had been most affected by the real-estate bubble. As the result, it affect to decline in the company’s profit. Lastly, cultural and political issues can affect to the firm in foreign country. For example, refer to Starbuck’s case study, for example, “in Lebanon, Starbucks stores were boycotted by opponents of the United States’s war on Iraq. Although, the firm’s local partner and the operator of the stores was an Arab-owned firm”. (Koehn, Besharov, Miller, 2008)
V. Core Competencies and Competitive Advantage
The definition of core competencies is strengths of the organization has that can include “any combination of skills, technologies, processes, knowledge or expertise and are often achieved as a result of long-term development processes and experiences”. (Mayhew, 2010) Moving to the concept of competitive advantage can offer the customers with a superior value of company’s product or service that the competitors are difficult to imitate. Besides, Porter’s generic strategies can use to acquire competitive advantage: cost leadership, differentiation, and focus. (Reference for Business, 2010) The detail of differentiate strategy is already explained in the topic of business strategy. According to Starbuck’s case study, it can be analyzed core competencies and competitive advantage that follow by:
The product
Refer to definition of core competencies, the strengths of Starbuck’s firm can see form the finest coffee that it is resulted from combination of skills between farmers and researcher, processes as well as knowledge and experience of personal in the organization. (Mayhew, 2010) According to Starbucks Coffee Company, the firm believes that Coffee can be the main important of Starbucks. Therefore, the company has done a lot of coffees trial that are more than 150,000 cups per year from around the world to look for only the finest, richest and most interesting beans. Then, “Starbucks purchases only the finest, high altitude Arabica coffee beans available as they have a more refined flavor and quality than the more common Robusta beans”. (Starbucks Coffee Company-Thailand, 2004). After that, they visited directly the farm and developing long-term of green coffee as well as making good relationship with farmer to achieve the standard quality of the company. (Koehn, Besharov, Miller, 2008) Lastly, the company provided Starbuck’s experts to control blending process, roasting process and packaging process as well as brewing coffee bean due to they have to make sure every step that can get maximum flavor of coffee bean. Therefore, the company can gain the benefit of differentiate product by charging premium price form the high-quality coffee. (Internet Center for management and business administration, Inc. n.d.)
Social, Environment and Economic responsibility
Environmental and social responsibility can be part of core competencies that Starbuck’s firm can use their image to compete with others. According to social responsibility, “Starbucks is now working toward purchasing all of their coffee from those who adhere to Coffee and Farmer Equity Practices (C.A.F.E), which ensures the coffee has been grown ethically and responsibly”.( Mikulin, n.d.). It can mean that a safe and humane working environment have to be provided to farmer, child workers cannot be allowed, and the company must pay at least a minimum wage for all labors. Moreover, Starbucks have provided current, health insurance and security for their partners and also education can be the main important for their partners to improve the quality of life. (Koehn, Besharov, Miller, 2008) Moving to environment issue, deforestation used to be an environmental issue that was created form coffee product. Therefore, Starbuck can be a part to decrease environmental problem. For example, refer to How is Starbucks socially responsible? topic, Mikulin (n.d) wrote that Starbuck’s firm “attempted to increase recycle of its current waste, it is now attempting to reduce, reuse, and recycle. By encouraging people to bring their own mugs, Starbucks has succeeded in reducing the amount of trash produced because of their business”. Therefore, it can say that Social, Environment and Economic responsibility can enhance the company’s image to gain advantage form competitor that Starbuck’s consumers are not only enjoy the richest flavor of coffee taste but they can also be a part to respond society and environment when they bought the product.
Human resource of the organization
Knowledge and skills of personals in the firm can be one of strength competencies to help the firm rival with competitor. ( Mayhew, 2010) It can be the reason that make Starbuck’s firm succeed. According to Starbucks Corporation Case Study, Auch-roy (2004) confirmed that the employees with knowledge of the product will be eager to communicate with customers about the company’s passion in coffee. Also, they will have skills and personality to suit with customer service; it can help the customers have a good view with the company and effective on the firm’s performance. Therefore, the company provided classes in the Starbucks Coffee School in San Francisco for every staffs to learn about coffee history, to make drink preparation, to know well about coffee as well as customer service. ( Auch-roy, 2004) Moreover, the employees have to learn more details of store operations, practices and procedure, information systems, and basis of managing people. Due to it can help the turnover rates of the firm low and enhancement the values on the company’s performance to gain more positive image to loyal customer.
VI. Strategy Recommendations
Starbuck’s firm can be leadership of coffee shop with various excellent strategies that can grow up in the coffee market rapidly and the firms can use the business strategy with effectively to continue to gain the profit in coffee market share until now. However, there are some recommendations that Starbucks Company can apply to gain more proportion in the food and beverage market.
Unique advertising
According to unique product, it can attach the firm’s customers with the richest flavor of the finest coffee bean. (Starbucks Coffee Company-Thailand, 2004) There are many customers especially the loyal customers that may want to directly visit the original sources of coffee bean. Therefore, the company should create some camping program to compensate their loyal customers. Also, this project can locate in the areas where coffee trees can be grown up and provide some activities to make customer associate and enjoy with coffee trees such as learning how to harvest coffee bean with the firm’s partners. Moreover, the company should provide some trips to visit famous place in the area as well as delicious food that apply the ingredient of coffee, tea or coco in the firm. The idea that provides food may be good way to do market research with loyal customers to launch new product in the market. Even though the most important that the company need to recognize is friendly with environment as it is one of the mission of the Starbuck’s coffee company. (Starbucks Coffee Company, 2010) The target of project could transfer the value of the finest product of the firm to the customer with real life not only just listen.
Service development
According to Starbucks case study, Koehn, Besharov, Miller (2008) announced that the company expanded fast in globalization so they may lack of internal focus such as training service mind to staffs to make human connection with the customers. It can cause of the company loss differentiate service that use to make the firm outstanding in the coffee market with the customers. Therefore, the firm should strive to train their licensing in the worldwide about customer service same original shop in U.S. If the firm can control service standard of the stores around the world, it will help the company survivor in the market that is high competition. Also, the image of the company will be strong power in the loyal customers and it can attract new customer by word of mouth.
VII. Potential Fallout
Refer to recommendation strategies, it had to explain two topics such as differentiate advertising and service development. Even though those recommendations may be good to gain benefit from competitive and to maintain the firm’s product selling in the future, it can also create possible negatives to the organization.
Differentiate advertising
Refer to differentiate advertising, it is good that the company can gain benefit from this project, but it can also create several disadvantages to the company such as high cost to operation, risk of the firm that may reveal competitors to know the finest source of product and loss the point of the goal.
Service development
High cost to operation can be the main effect in service development due to the organization need to invest about training program to support the stores around the world.
Conclusion
Although, Starbuck’s firm nowadays has confronted with high competition in coffee market in the worldwide, economic crisis as well as Politic situation and different culture in foreign countries, the firm can efficiently apply business strategies specially differentiate strategy to deal with competitors in globalization. The major strengths of the firm can be a unique product that can enhances the value as well as positive brand image from loyal customers.
Also, the company attempts to expand the profit of market share by launching second brand namely Seattle’s best and increasing channels to distribute new products.
Lists of reference
Auch-Roy, H.R. (2004). The Starbucks Corporation: Past, Present and Future. Retrieved August 25, 2010 from http://www.calarosbay.com/files/Auch-Roy_StarbucksCaseStudy.pdf
Calkins,T. (2010). The Starbucks-Seattle’s Best Brand Portfolio. Retrieved August 23, 2010 http://strongbrands.wordpress.com/2010/06/04/the-starbucks-seattle%E2%80%99s-best-brand-portfolio/
Gambardella, P. (2009). Application of Strategy Dynamics:
Starbucks Corporation. Retrieved August 23,2010 from http://www.systemdynamics.org/conferences/2009/proceed/papers/P1169.pdf
Internet Center for management and business administration, Inc. (n.d.). Porter’s generic model. Retrieved August 20, 2010 from http://www.quickmba.com/strategy/generic.shtml
James, A. (2008). Starbucks courts customer loyalty with free Wi-Fi. Retrieved August 21, 2010 from http://www.seattlepi.com/business/365518_starbucks03.html
Koehn, N.F., Besharov, M. and Miller, K. (2008). Starbucks Coffee Company in the 21st Century. Harvard business school. 45 p.
Mayhew, B. (2010). Core Competencies Working Definition. Retrieved August 21, 2010 from http://www.brucemayhewconsulting.com/index.cfm?pagepath=&id=18665
Mikulin, R. (n.d). How is Starbucks socially responsible?. Retrieved August 22, 2010 from http://www.helium.com/items/1651336-how-is-starbucks-socially-responsible?page=2
Reference for Business. (2010). COMPETITIVE ADVANTAGE. Retrieved August 23,2010 from http://www.referenceforbusiness.com/management/Bun-Comp/Competitive-Advantage.html#ixzz0xnJfnjrx
Smith, J. ( 2009). Starbucks Target Market and Management . Retrieved August 21, 2010 from
http://ezinearticles.com/?Starbucks-Target-Market-and-Management&id=2183347
Starbucks Coffee Company (2010). Find Starbucks VIA®. Retrieved August 25, 2010 from http://www.starbucks.com/coffee/starbucks-via-instant-coffee/retailers
Starbucks Coffee Company. (2010). Our Starbucks Mission Statement. Retrieved August 20, 2010 from http://www.starbucks.com/about-us/company-information/mission-statement
Starbucks Coffee Company-Thailand. (2004). Worlds Best Coffee. Retrieved August 21, 2010 from http://www.starbucks.co.th/en-US/_Worlds%20Best%20Coffee/
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