Business Model and Strategic Plan: Conceptualizing a New Product Division of an Existing Business - Term Paper Example

Innovation in Starbucks Introduction Until recently, most companies conducted their operations based on traditional business models and incorporated limited amount of innovation in their activities. These organizations mainly focused on delivering quality in products and services and updated themselves as per market needs. This kind of business approach in the present competitive environment is only viable if products have long lifecycle and the sector has little scope for innovation. With the advent of globalization, competition has increased significantly and innovation has become a mandatory component of product differentiation (Hitt, Ireland & Hoskisson, 2012; Pearce, 2013). In this paper, the business of Starbucks has been discussed in context of a new product that the company is planning to add in its product line. The product will be customer focused and will aim at achieving highest level of competitive advantage for the company. Additionally, the vision, mission and values related to the new product as well as its alignment to that of the company have been discussed in the following sections. New product proposition Starbucks is one of reputed companies in the global restaurant chain industry. It is a coffeehouse but it is not only known for its coffee and other food products but also for quality service and relaxing ambience. In most foreign countries, the coffeehouse serves different purpose of different consumers. For instance, it is a casual meeting place for college goers as well as business personnel. It was ascertained from recent market survey that the company needs to add variety in its products for earning competitive advantage in the global food industry (Urban & Hauser, 1993; Starbucks, 2014a). The company is planning to launch a new combo meal in vegetarian as well non-vegetarian categories. The combo meal will comprise sandwich and chocolate flavored coffee. It was observed that most consumers of Starbucks enjoy their coffee with a touch of chocolate. Additionally, most consumers prefer buying their coffee with sandwich when eating in the café. The company decided to launch the combo meal keeping in view consumer demand and for value addition in their products and services (Starbucks, 2014a). The mission of this new product is to serve the mass consumers with best quality coffee and sandwich at an economic price compared to the premium price it charges for coffee and sandwiches separately. The reason is that presently Starbucks is viewed as a premium brand to most consumers and is not considered as a regular choice for consumers due to affordability issues. However, the economic combo meal is expected to attract attention of those consumers who prefer value for price meals (Starbucks, 2014a; French, Kelly & Harrison, 2001). Serving consumer needs and gaining competitive advantage Porter has proposed three kind of generic strategies through which a company can gain competitive advantage, namely, product differentiation, cost leadership and focus approach. The product differentiation strategy states that a company should analyze substitutes and competitors of its products and create a differentiated product that has not been designed by any of the existing or potential competitors so far. Contrastingly, cost leadership strategy focuses on delivering product at a comparatively low production cost by recognizing economies of scale and full utilization of resource. Focus approach is comparatively different from the other two strategies in a sense that it mainly involves concentrating on either a particular consumer segment or product segment (Porter, 1997). Starbucks has so far implemented focus approach as it primarily targeted consumers who have the means to afford expensive coffee. However, growing competition has made the management realize that focus approach will only narrow down the consumer base of the company and to gain greater market share, Starbucks require introducing low cost products alongside premium priced food and beverages. The new combo meal aims at attracting consumer with relatively moderate income. Moreover, any luxury brand attracts consumers from different social classes irrespective of affordability. The combo meal is expected to work as a way for middle class consumers to enjoy food and services of Starbucks (Porter, 1997; Urban & Hauser, 1993; Pearce, 2013). Vision and business model of the company The vision of the particular product division focuses on reaching mass consumers across the globe. The company not only wants to serve upper layer of the society but also wishes to penetrate the middle and lower level of the society through the low cost value meal. The vision of the product segment is not limited to the initial offerings, instead the company is planning to add varieties in its offering and improve the attractiveness of the segment (French, Kelly & Harrison, 2001). A business model is referred to business plan of a company that incorporates various functional and operating components in order to generate greater share of revenue. Based on the new product segment, the new business model of Starbucks is primarily focused on consumers, innovation and cost reduction. Figure 1 represents the new business model of Starbucks. Figure 1 (Source: Author’s creation) According to this model, the new product of Starbucks is comparatively innovative, adds value to consumer deliverables, created to serve mass consumers, does not compromise with product quality and ensures efficient usage of various resources of the company. The future plans of the company regarding the product are to add variety in segment and enhance its attractiveness (Chesbrough, 2010; French, Kelly & Harrison, 2001). Alignment of product specific vision and mission that of the company The foremost strategy of any business is to align it overall vision and mission with that of its various product segments. Unless these dimensions are aligned, an organization cannot achieve its complete purpose due to strategic conflict. In Starbucks, the vision and mission of the new product division focuses on serving the quality and essence of the brand to mass consumers at an affordable price. The overall mission of Starbucks is to ensure that the company serves every individual in a neighborhood at a time. Therefore, the vision of the product division can be considered to be a part of the overall vision of the company. The business vision of Starbucks has always been to be something more than just a coffeehouse. To meet this vision, besides brewing coffee, it serves food and provides an ambience which act as primary source of attraction for consumers. The company aims at creating a gathering place for individuals instead of mere coffee shop. The economy product division is expected to support the main vision of the company because most consumers suppress their desire to purchase from Starbucks due to high product cost. However, the economy meal will appeal consumers to experience product and services of the company (Starbucks, 2014a; French, Kelly & Harrison, 2001). Role of vision, mission and value in complementing the strategic direction of the product division The short term strategy of the product division is to create additional products within the existing capabilities of the company so that optimum resource utilization is achieved. On the other hand, the long term strategy of the company is to develop a competitive position that is relatively higher than that of its competitors in the economy food sector. Presently, companies such as McDonald and KFC are dominating the economy food sector in the global restaurant industry. The strategy of Starbucks along with its mission to serve mass consumers will deliver tough competition for these companies. The primary reason is that both these companies in their meal combo serve soft drink as beverage while Starbucks will differentiate by serving chocolate flavored coffee (Hitt, Ireland & Hoskisson, 2012; López, 2005; French, Kelly & Harrison, 2001). Principles and values of the division in the context of culture, social responsibility, and ethics Every guiding principle of Starbucks is ruled by ethics and social responsibility. The company always ensures that its actions do not affect needs of future generation. Economic and natural resource conservation is practiced by the company through green recyclable products, energy saving processes, less water consumption and community services. The company will ensure that sustainability and ethical practices are reflected in its new product division as well. The new product division will be serving products that are comparatively inexpensive but that does not mean that the company will be compromising with its quality. The company will maintain its food standard and quality in all food products irrespective of the cost (Starbucks, 2014b; 2014c; Crane & Matten, 2010). Conclusion The paper emphasizes on developing new product division in an existing business in context of Starbucks. In the paper, combo meal comprising sandwich and coffee was proposed as a new product division within Starbucks. The aim of this division will be to appeal consumers with moderate affordability. In other words, consumers with moderate purchasing power and desire to experience services of Starbucks are expected to be influenced by this new product. The company is facing tough competition from economy food products by McDonalds and KFC and the new product division will be an effort of the company to counter the growing competition. Additionally, the paper highlight the new business model of Starbucks developed in context of the new product division as well as its alignment with the existing vision and mission of the company. Lastly, social responsibility and ethics in context of new product division has also been highlighted in the paper. References Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long range planning, 43(2), 354-363. Crane, A. & Matten, D. (2010). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford: Oxford University Press. French, S. J., Kelly, S. J. & Harrison, J. L. (2001). Operationalising vision and mission. Journal of the Australian and New Zealand Academy of Management, 7(2), 30-40. Hitt, M., Ireland, R. D. & Hoskisson, R. (2012). Strategic management cases: competitiveness and globalization. Connecticut: Cengage Learning. López, S. V. (2005). Competitive advantage and strategy formulation: the key role of dynamic capabilities. Management decision, 43(5), 661-669. Pearce, J. A. (2013). Strategic management: Planning for domestic and global competition (13th ed.). New York, NY: McGraw-Hill. Porter, M. E. (1997). Competitive strategy. Measuring Business Excellence, 1(2), 12-17. Starbucks. (2014a). Our company. Retrieved from http://www.starbucks.com/about-us/company-information. Starbucks. (2014b). Environment. Retrieved from http://www.starbucks.com/responsibility/environment. Starbucks. (2014c). Ethical sourcing. Retrieved from http://www.starbucks.com/responsibility/sourcing. Urban, G. L. & Hauser, J. R. (1993). Design and marketing of new products (Vol. 2). Englewood Cliffs, NJ: Prentice Hall. Read More