Strategic Management at Starbucks - Case Study Example

 Strategic Management at Starbucks Table of Contents Table of Contents 1 Introduction 2 Company profile 2 Business positioning 2 Vision and Mission 3 Internal Assessment 4 Current marketing strategy 4 Proposed Marketing strategy 5 Map of Operations 5 SWOT analysis 6 Porter’s five forces analysis 7 Website 8 Company’s website 8 Website improvements 8 Value chain of the company 9 Primary activities 9 Support activities 9 Strategic recommendations 10 References 11 Introduction Strategic management is an important factor in achieving organizational goals. The process of strategic planning would include analyzing external and internal environment of the business, developing strategic plans for marketing, studying strengths and weaknesses of the company, competition analysis and implementing suitable supply chain mechanisms. This report incorporates studying some of the strategic aspects of Starbucks in order to understand the reasons behind its tremendous success. The company has been successful at developing high reputation and brand image. It has maintained high quality standards so as to provide consumers with memorable and cherishing coffee experience (Michelli, 2006). . Company profile Starbucks Corporation is one of the most renowned coffee companies of the world that had started its operations in the year 1971 in Seattle, Washington. Starbucks has always been a place that serves the best coffee in the world. At present, the company operates in more than 62 countries and has more than 21,000 stores. Majority of the Starbucks consumers are from the nations of US, Japan, Canada, China, UK, Thailand, Germany, South Korea, and Mexico. Howard Schultz is the chairperson, CEO and president of the company. It is a public company and functions in the restaurant business sector. The products of Starbucks include whole bean coffee, varieties of instant coffee, snacks of different types, cold and hot beverages and full leaf tea. The store sells packaged food products and items such as, coffee mugs and tumblers. Starbucks also markets books, music and films through Hear Music, which is a brand owned by Starbucks. The company adopts diversified strategies to meet varying needs of consumers, who are spread across the world. The company’s products and services are seen to be seasonal and change according to store location and local demand. Starbucks’ coffee and ice creams are sold even at grocery stores. The company is currently reconstructing its operations by shutting down non-profitable outlets and opening new ones in emerging markets. Market saturation has also has been forcing Starbucks to adopt more innovative approaches for attracting customers (Koehn, 2001). Business positioning Positioning of the business in the market and the industry is a crucial factor for its success. The management of Starbucks pursues clear cut strategies regarding their business positioning. Their strategy is to build Starbucks into a destination that provides ultimate coffee experience that customers can enjoy. Some of the considerations that Starbucks takes into perspective for developing its position in the market are discussed as follows. The company carefully analyzes demographic factors of its store locations. This helps in developing suitable supply chain and operational plans, which provides adequate leverage. Starbucks hires and trains employees through hubs that are set up in areas, where its outlets are located. The company enlists local representatives from its customer databases and new business partners. Starbucks marketing and promotional strategies had immense positive responses from the market, which resulted in increasing its share price from $17 to $21. This helped the firm to gain enhanced financial support for developing its business in new regions. The company follows licensing and partnership strategies for expanding its business to newer regions. The company remains vigilant towards maintaining its goodwill and brand image. In addition to opening stores across the street, the company also has outlets located in clusters that sufficiently help to meet the high morning demand as well as to increase sales volume. A major reason behind success of Starbucks is that the company gives tremendous importance to customer feedback. This feature helped in developing innovative products that were greatly appreciated by customers and helped in capturing the market. In the beginning, Starbucks products were limited. However, with passage of time, increasing popularity and consumer preference led Starbucks towards expanding the product line. Even as a small coffee retailer in the early days, Starbucks started developing tie ups with established companies that facilitated developing wide spread business network in later stages of growth. This wide spread business network enabled Starbucks to find its way into numerous shopping malls and superstores (Gaudio, 2003). Vision and Mission The mission statement of Starbucks is as follows (Koehn, 2001): “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow”. The principles that guide the mission of the company are: 1) Providing a great work environment and treating employees with respect and dignity. 2) Diversity is accepted and promoted by the company in its operations. 3) The highest standard of excellence is maintained in purchasing, roasting and fresh delivery of coffee. 4) Satisfaction of consumers through effective service delivery. 5) Positive contribution towards the society and the environment. 6) Profitability is recognized as an important aspect for future growth and success. The vision statement of the company is as follows (Koehn, 2001): “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Internal Assessment Starbucks focuses on an in-depth internal analysis on the basis of performance with respect to each of its departments. The company focuses on strong product design to attract customers. Advance technology is adopted for coffee processing, packaging, store designing and online scheduling. However, it is seen that an increased level of research and development is required, in terms of market knowledge generation. The company adheres to vertical integration in its supply chain strategy. Starbucks believes in maintaining strong connections with suppliers. It also follows the concept of sustainable development by following operational procedures that cause least impact upon the government. By diversifying its supply chain network, it has been possible for the company to attain greater leverage. Quality control is an aspect that Starbucks strongly follows in its production process. Nonetheless, concentration of production facility network has increased costs for the company as this entails higher transportation costs. The company at present is focusing upon expanding its production network by setting up new facilities in emerging nations. Being a part of the restaurant business sector, providing customers with high quality service is important for Starbucks. For high quality servicing, it is essential to have a well trained workforce. The company develops high morale and motivation in employees through adequate training. The compensation structure of Starbucks is strong and provides employees with stock options and medical benefits. The firm treats its employees as valuable partners (Koehn, 2001). Current marketing strategy Starbucks has entered into joint ventures with Pepsi, Kraft and Unilever. The strong brand image of Starbucks has helped to capture customer attention easily. It is identified as a coffee retailer of the highest quality. The products of Starbucks are largely viewed as luxury products. This has, to some extent, reduced its competitive advantage in the market due to the already existing cheaper coffee sellers. Being in the upscale coffee market, the company competes in comfort, rather than convenience. The social media strategy incorporates the company’s website and other socializing platforms such as, Twitter, Facebook and You Tube. Through My Starbucks Idea website, the company has been able to generate customer feedback for improving business and developing new ideas. Customer engagement is the concept that is followed by Starbucks in this respect. The company banks upon the factor that happy and satisfied customers will share their experiences with others (Sweet, 2008). Proposed Marketing strategy For many years, the company had very less competition in the coffee business. With entry of new players in the industry, Starbucks is no longer the sole dominant player. The competitors of Starbucks provide premium coffee at a much cheaper price, although their quality of coffee is quite lower from the aspect of richness, flavor and aroma. In order to counter such issues, it is important to convince consumers that Starbucks serves coffee that is way superior to other brands. The company needs to aggressively market this concept by adopting advertising strategies that are widely used through the visual and printed media. Starbucks should also stress upon differentiating its products from other sellers in order to gain competitive advantage. Through product differentiation, Starbucks can come up with varieties of coffee that are more cost efficient. This would help the company to tap the market of consumers who are willing to spend less. Starbucks also needs to consider implementing drive-through facilities in its stores, which can help to manage the crowd at peak hours. The company also needs to shift its focus from the already saturated coffee market of US to those in the emerging nations (Wardhana, 2014). Map of Operations Starbucks stores have saturated the US market and are also widely spread in other western countries. However, concentration of its operations has been low in Asian countries. One of the future strategies of the company is to expand its activities to emerging nations of the east. In the eastern markets, consumers are willing to pay less. Hence, in order to gain more popularity in the new market, Starbucks needs to come up with cheaper variants of its products. Starbucks has a well-integrated supply chain network spread over nineteen countries. All raw materials are imported from different countries. This global resource plan enables the company to expand and reach out to more nations. Figure: Worldwide operations of Starbucks (Source: Supply chain 24/7, 2013) SWOT analysis Strengths- Starbucks’ strong brand image is one of the key factors behind its success. Power brand recognition along with strong financials has assisted the company in overcoming economic downturn of the recent past. Starbucks has been placed as one of the top coffee brands as well as the largest running coffeehouse chain. The company also maintains strong hold over suppliers and producers. Weaknesses- The company at present is suffering majorly due to economic volatility. Rising prices of coffee beans is also a major issue because of which overall cost of production has increased. Another weakness of Starbucks is that its premium image in the market has forced it not to allow discounts and free samples of products; this has resulted in loss of many price sensitive customers. Opportunity- The rapid economic development in Asia serves the company with potential market growth. It is also possible for the organization to extend its supply chain network and reach out to more number of suppliers. Developing exotic varieties of coffee at lower prices will be an advantage for the company. Threats- The economic trend and industry studies reveal that prices of commodities will consistently be on the rise in the future. This would further lower the purchasing power of people, inducing low spending habits. This might prove to be disadvantageous as such a scenario might lower revenue earning capacity of the company. Also, smaller coffee retailers have captured a large market share (Michelli, 2006). Porter’s five forces analysis Threats of new entry Coffee selling firms require a large amount of fund. For this reason, this sector is less characterized with new entry. Even if there are new entrants, it would not cause considerable harm to a big brand with high market reputation such as, Starbucks. It would take many years for newer firms in this industry to reach where Starbucks is at present. Although smaller and localized firms that enter the industry may cause Starbucks to lose its market share. Threat of substitution Products- Substitutes in terms of beverages comprise drinks other than tea and coffee, such as, soft drinks, fruit juice, smoothies, alcohol and so on and so forth. In the snacks category, substitutes are those which are not sold by Starbucks such as, burgers, tacos and pizzas. In order to reduce potential threat of substitutes, Starbucks should consider incorporating greater number of products in its offerings. Place- Restaurants, bars, restaurants, ice cream parlors and fast food centers may act as potential substitutes, in terms of place, environment and ambience. Competitive rivalry Other coffee chains such as, Coffee bean, Tea leaf, Barista, Cafe Coffee Day and Gloria, are some of the potential coffee sellers that aggressively compete with Starbucks. In addition, smaller coffee sellers are seen to exist in high numbers who dominate lower end of the industry. Secondary coffee sellers such as, McDonalds, Dunkin Donuts and Caribou Coffee, are also seen to strongly compete with Starbucks. Bargaining power of suppliers Suppliers of coffee bean have very little bargaining power as they give superior importance to Starbucks business. This gives the company the opportunity to dictate prices of coffee bean. Similarly, the suppliers of cups, coffee mugs lids and other such items that Starbucks outlets require can be obtained from a wide number of sources. Also, suppliers of such items do not possess much bargaining power. Nevertheless, there exists considerable bargaining power for suppliers of technology such as, automated coffee machines, as there are few firms supplying them. Bargaining power of buyers In the past, buyers did not have enough bargaining power as premium coffee sellers were very few in number. Moreover, there were hardly any coffee sellers who offered high quality coffee. In the recent times, companies like, McDonalds and Dunkin Donuts, offer premium roast coffee at a cheaper price. This has slightly increased the bargaining power of customers (DeMooij, 2004). Website Company’s website The website home page and other landing pages of Starbucks are easy to use without hassle. They are free from flash player content, making it easy to access from computer PC, iPad and Tablets. Colorful video content and well designed home page makes it attractive to customers. Starbucks has always had its own style for designing the web content. The company gives adequate importance to outlook of its website and functions because majority of its promotional activities occur over this medium. The website of the company also provides space for consumers in order to share their experiences. The website is designed in a manner, where a personal touch can be established between consumers and the company. The company’s corporate website also gives adequate details regarding origin of the company and major events since the time of its inception into the corporate world. The company also has other supporting website through which it promotes books, music and movies (Gaudio, 2003). Website improvements The website of the company can include a whole lot of feature so as to increase the appeal. One of the strongest aspects of the company is that it has dedicated customers across majority of the countries around the world. It is often seen that the company does not make changes or update latest news and happenings on its website. This disconnects Starbucks from its customers. The company can also include a feature in their website whereby people can purchase products of Starbucks directly from their homes. The company should encourage its customers to access Starbucks website by including reward programs, membership discount facilities and so on and so forth. In order to increase Starbucks popularity online, several innovative measures can be taken. Starbucks stores follow the concept of personalization. This aspect seems to be low on their website (Higbee, et al., 2008). Value chain of the company Primary activities Inbound logistics- The inbound logistics of Starbucks involves the company agents purchasing coffee beans across the world and mainly from the African Continent, thereby communicating regarding quality and cost aspect of the coffee beans, establishing strategic relationships with suppliers and organizing transportation. Once the coffee beans reach the facilities, they are well inspected and stored. Care is taken so that there is no deterioration in quality of the beans. The beans are then roasted in roasting warehouse until the proper color, aroma and flavor is achieved. After cooling, the coffee powder is then thoroughly blended to balance flavors. Following this, coffee powder is sent for packaging. Output logistics- The outbound logistics of the company happens in mainly three ways. Firstly, coffee and other products of the company are sold through Starbucks retail outlets directly without involvement of any intermediaries. The second method is specialty sales and marketing technique whereby the company sells its products through major restaurants, airports and airlines. Thirdly, the company also provides the facility of placing order for coffee and other products for direct delivery at homes and work places. Apart from these three methods, the company also sells some of its products through supermarkets (Phaozea, 2014). Support activities Infrastructure- Starbucks infrastructure involves a variety of support activities such as, management, planning, finance, accounting, legal support and government relations. Human resource management- Starbucks gives supreme importance to its workforce. Being part of the service industry, it is essential that Starbucks employees offer high degree of hospitality and services to its customers. For this, the company invests heavily upon procuring the right type of employees. Even so, rate of retention of employees is seen to be low. Better compensation plans and open door management policies may help Starbucks to increase employee commitment. Technological developments- Starbucks relies heavily upon technology for its cost saving purposes. At the same time, care is taken so that there is no reduction in quality of the products. Some of the issues that Starbucks faces from technological point of view are innovative development, patent and research related activities (Phaozea, 2014). Strategic recommendations Market analyses reveal that there is adequate scope for Starbucks to grow in emerging nations in Asia. In this context, the firm requires to follow differential product and pricing strategies. The company requires adopting suitable technological and supply chain factors in order to achieve cost savings. Some of the ventures of Starbucks are also lately seen to be performing poorly, such as, its ice cream business. The company should improve quality and marketing strategies for its ice cream business. Additionally, it is also necessary for Starbucks to increase its product base by producing greater variety of coffee and other snacks. Starbucks mainly relies upon online promotion and word-of-mouth to attain popularity. The company must market itself through mediums such as, television, newspaper and social events, so as to reach out to larger sections of individuals (Wardhana, 2014). References DeMooij, M. (2004). Consumer behaviour and culture: Consequences for global marketing and advertising. California: Sage Publications. Gaudio, R. P. (2003). Coffeetalk: Starbucks™ and the commercialization of casual conversation. Language in Society, 32(05), 659-691. Higbee, Z., Liaw, Y. C., Ting, C., Tjho, K. & Ton, M. (2008). The future of Starbucks. Retrieved from http://www.mcafee.cc/Classes/BEM106/Papers/2008/Starbucks.pdf Koehn, N. (2001). Howard Shultz and Starbucks coffee company. Harvard: Harvard School of Business. Michelli, J. A. (2006). Starbucks experience. New Delhi: Tata McGraw-Hill Education. Phaozea, B. (2014). Value Chain Starbucks. Retrieved from http://www.academia.edu/5730446/VALUE_CHAIN_STARBUCKS_wrkshp Supply chain 24/7, (2013). Behind the Scenes at Starbucks Supply Chain Operations it’s Plan, Source, Make & Deliver. Retrieved from http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operations/green Sweet, L. (2008). The gospel according to Starbucks: Living with a grande passion. New York: Random House LLC. Wardhana, F. S. (2014). Strategic Management of Starbucks Company. 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