The Business Model of Starbucks - Term Paper Example

? Strategic management Contents Contents 2 Starbucks: Case Analysis 4 Assessment: current strategy and the capa to sustain competitive advantage 4 Findings: external and internal analysis 4 Key strategic issues/findings 5 Evaluation of options 5 Recommendations 6 Discussion 6 Conclusion 7 Appendices 8 Business System Model 8 Internal and External Analysis 9 Strategic issues 11 Options for steadying market share 12 References 14 Starbucks: Case Analysis The case analysis of Starbucks has been conducted by reviewing the current strategy of the organization and its capacity to sustain competitive advantage. An analysis of the company from external as well as internal perspectives has been undertaken and the findings obtained from the analysis have been presented below. Assessment: current strategy and the capacity to sustain competitive advantage The current strategy of Starbucks has been assessed with the help of Business System Model given in the appendix. The Business System Model is responsible for the current level of strategic performance of the company. In order to sustain in the highly competitive retail market, Starbucks has undertaken a comprehensive strategy of integrating its business ethics, values and principles in the area of customer service in order to tap the potentially high market demand. The emotional engagement talks about a third factor introduced by the company called the Starbucks Experience. The customer gets engaged emotionally with the offerings of Starbucks and treats it as the third place to visit after their home and office (Fitzroy and Herbert, 2007, p.48). Starbucks have been able to set up their retails shops in identified locations in the urban areas which can reach the largest number of customers. Apart from this, the current strategies also involve diversification of business to the area of financial services. Findings: external and internal analysis The internal and external analysis of Starbucks has been conducted with the help of analysis of data (given in Appendix) on the strengths and weaknesses, opportunities and threats of the company which are internal and external characteristics respectively of the organization. The analysis of the strengths of the company reveals that Starbucks is the largest coffee chain spread all over the world. The company has strong financials and the valuation of the coffee segment is $4billion. Starbucks experience is an influential factor in the business that has driven internal performance of the company to new heights (Hutt and Speh, 2012, p.29). The Starbucks products are slightly high priced and are aimed at tapping the customers who are willing to pay slightly more for the Starbucks experience. This leads to loss of customer base for Starbucks. The negative publicity of Starbucks is also an area of weakness for the company. Key strategic issues/findings The strategic issues in the business of Starbucks could be found with the help of information of the business and the industry trends (given in the Appendix). The dip in the performance of stock from 2008 to 2009 reveals that inevitable gaps between the business of the company and the industry trends have developed. This has also been reflected in the slowdown of revenues earned from 2008 to 2009 and in the profits earned from 2008 to 2009 and 2009 to 2010. The strategic issues that have been identified in the business of Starbucks are inability to control the rapid expansion of its retail coffee outlets (Jenster, Hayes and Smith, 2005, p.68). The image of Starbucks have got diluted which was built among the up market consumers over the years. The retail coffee outlets that are competing with each other intensely are also eating up their market shares. This has resulted in the of the Starbucks experience which has led to the decline of Starbucks performance. Evaluation of options The options to reduce the gap between the business performance and the changes developing in the industry could be evaluated with an objective to reduce the gaps in the business performance and the competitive industry scenario. The access to the alternate channels of marketing would help Starbucks in reaching out to a wide base of customer. The marketing of coffee products in the grocery shops and the supermarket chain also helped in cross-selling of products sold by Starbucks. The effective pricing of the Starbucks coffee helped the company to position its product as a preferred choice of the customers in the competitive market (OaShaughnessy, 1995, p.73). The emphasis on revitalizing customer experience also helped the company to get back its customers and check its declining market share. Recommendations Based on the case analysis of Starbucks, the following points could be recommended so that the business could develop its capacity to sustain in the competitive environment in the market. The business should analyze the recent changes that have taken place and the future changes anticipated in the industry. This would help them to align with the forces of change in order to reduce the gaps within the industry. This includes providing customers with high quality products as well as offering those at competitive prices. The business should also assess its internal and external strengths and weaknesses and adopt strategies to address the threats to business. Discussion Starbucks coffee has always been priced slightly higher in the market and has targeted the up market customers who are ready to pay a bit more for the enriched experience and customer service they enjoyed in the retail coffee outlets. With the saturation of the coffee market, Starbucks expanded its business in the international markets and also diversified into other business like the financial services. However, the expanded retail outlet chain developed the weakness of supply chain and logistics. The service level also deteriorated and Starbucks lost market shares that were reflected in its share price. The reformulation of strategies like integrating the values and principles of the company with the functional service has helped the company to attract their customers. The other strategies for revitalizing the business included effective pricing strategies, improving the quality of coffee products and exploring alternate channels for marketing. Conclusion Starbucks have developed its strategies in order to align with the forces of change in the market. The need for change management in Starbucks developed when the company started to loose its market share after years of successful operation and expansion of its coffee business. The total revenues earned by the company decreased from 2008 to 2009. Also the net income of the company decreased two years in succession from 2008 to 2009 and from 2009 to 2010. In order to reformulate its strategies and check the declining stock prices of Starbucks in order to attain a sustainable position in the competitive market, the company should analyze its internal strengths and weakness. There are internal factors and the business should involve its workforce in establishing its areas of strength. The analysis of external factors includes the market opportunities and threats of Starbucks. In order to remove the threats and explore the opportunities, Starbucks should look to reduce the gaps between the business and the industry trends. The business should explore the various options of marketing its products through the alternative channels, fixing effective prices and providing enhanced customer service and experience. Appendices The business system model of Starbucks has been presented below. Business System Model The business model of Starbucks is in line with the mission and goals of the organization that aims to treat each individual with a cup of coffee and establish a neighborhood or relationship with the customers. In order to sustain in the competitive retails market of coffee where there are several substitute products and increase in level of competition, Starbucks followed the following business system in which they integrated the retail footprint with emotional engagement of the customer (Coade, 1997, p.71). The revitalization of the values of Starbucks and extending the reach of their products to the customers has also been included in the model as given below. The business system model is applicable for the international business markets of Starbucks where they have also diversified their business in the financial services domain as well (McLoughlin and Aaker, 2010, p.52). The business system model is an important analytical tool for assessing the current strategy of Starbucks. Internal and External Analysis The data for internal and external analysis of Starbucks have been presented as follows. The data on the internal analysis of Starbucks represent the strength and weakness of the organization. The data for external analysis of Starbucks is represented by the Opportunities and Threats of Starbucks which is given below. The opportunities in the industry arise from the expansion of the retail operations of Starbucks and the role played by the increased number of retail stores in tapping the high potential customer base. The opportunities for the business of Starbucks lie in the available market potential of the emerging economies. In order to tap the opportunities, Starbucks have also diversified their operation to financial services by offering prepaid store card that was later integrated with the VISA card. The threats to the business of Starbucks could also be found with the help of external analysis (Rogers, 2001, p.58). The threats include rise in the cost of operation due to rise in the price of coffee beans. Apart from this, the cut throat competition in the coffee market due to emergence of local players is a threat to the market share of the company. The disruption in the large supply chain of Starbucks is another threat that has been found from the external analysis. The internal analysis also provides us with the weaknesses of the company. The pricing of the products is an area of weakness of the company. A comprehensive analysis of all these factors would help to obtain useful findings from the external and internal analysis of Starbucks. Strategic issues The strategic issues in the business of Starbucks could be analyzed with the financials of Starbucks as given below. An analysis of the financials would provide us with important findings on the reason behind the declining performance of the business of Starbucks. The declining performance could be analyzed with respect to specific financial parameters like the losses in revenues and profits earned from 2008 to 2010. The increasing concerns in the business of Starbucks could also be analyzed with the help of the stock performance of the company as given below. Starbucks have not been able to manage its expanded network of retail coffee outlets much efficiently due to weakness in its supply chain, etc. Thus the company should explore alternative channels of selling the coffee products which include supermarket chains, grocery shops, etc. The areas of segmentation, targeting and positioning of the products need to be analyzed efficiently followed by provision of enriched customer experience and service in order to sustain in the competitive landscape. Options for steadying market share The various options include cutting down of cost in the value chain which are mainly due to non-value added elements. In order to do this, the retail outlets of Starbucks should be clustered and the redundant operations are to be closed down. In order to regain the market share and check the declining stock prices, Starbucks need to integrate their values and principles in delivering customer service in order to provide enriched Starbucks experience. The alternative channels for marketing of Starbucks coffee could also be an option to tap the market potential which included sell of products through supermarkets, grocery shops, etc. The changing lifestyle and demand of the retail coffee customers should be analyzed and they should be offered coffee products which are compatible to quality and price prevailing in the competitive market (Kotler, 2009, p.47). These options could help to revitalize the performance of Starbucks and reduce the gaps between their business and the industry. References Fitzroy, P. and Herbert, J. M. 2007. Strategic Management: Creating Value in a Turbulent World. USA: John Wiley & Sons. Hutt, M. D. and Speh, T. W. 2012. Business Marketing Management: B2b. USA: Cengage Learning. Jenster, P. V., Hayes, H. M. and Smith, D. E. 2005. Managing Business Marketing & Sales: An International Perspective. Denmark: Copenhagen Business School Press DK. OaShaughnessy, J. 1995. Competitive Marketing: A Strategic Approach. New York: Routledge. Coade, N. 1997. Managing International Business. UK: Cengage Learning EMEA. McLoughlin, D. and Aaker, D. A. 2010. Strategic Market Management: Global Perspectives. Spain: John Wiley & Sons. Rogers, S. C. 2001. Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. USA: Greenwood Publishing Group. Kotler, P. 2009. Marketing Management. New Delhi: Pearson Education India. Read More