Starbucks: Strategies Involving Corporate Restructuring - Literature review Example

Introduction In today’s business world competition has highly become competitive, budget-oriented planning or predict-based planning approaches are not sufficient for a big corporation to survive and flourish. Porter (1985) clearly states that, for a company to survive and flourish in this competitive business world, it has to engage in strategic planning or management which clearly defines its objectives and examines both the inner and outer situations to formulate a strategy, implement that strategy, evaluate its progress, and make any adjustments where necessary to stay on the track. Mature Markets Mature Markets are inevitable however, Porter (1985) points out that Managers of middle-market companies frequently whine regarding how the markets in which they are competing have ‘become highly competitive.’ In their observation, customers now do not have the loyalty they previously did. They show frustration that regardless of how much they cut down at costs, it doesn’t appear to be adequate. These reactions are particularly voiced amongst those managers who one time competed within newer, higher growth markets. (Porter, 1985) Yes, as markets mature, competition in the industry gets tougher. Growth of companies slows however, at least at the outset; there is no drop in the number of competitors. On the other hand customers grow to be more demanding. In such situation the only aspect which appears to matter is how much further the price of products can be decreased. This does not essentially have to be the situation if a company is in a mature market. There are several different and advantageous approaches a company can take. Though mature markets may possibly be unavoidable, mature companies are not. At times managers frequently attribute, incorrectly, a slow in sales to short-time economic setbacks. Distinguishing the realities of a company’s market place is the primary step in making adjustments to assists in growth of your business. (McGahan, 2004) In this study paper, we will outline the symptoms of mature markets and, more importantly, what a company can do about it. We shall use Starbucks as an example and analyze the steps the company has done. As noted before, markets and products might mature however companies need not to mature. Symptoms of mature markets There are several market symptoms but the following ones are the main ones Market growth slows; however the number of competitors in the industry does not directly change. Margin pressures go with slowing profits. Though a company may not want to get engaged in price battles, pricing demands coupled by lack of product differentiation forces a company to do so. The focus turns into nearly exclusively on reducing expenditures. (Grant, 2005) Internal dialogue in the company boardrooms changes. Is there a lot of gnashing of teeth since “customers are just not as loyal as they were in the past?” Are sales persons saying that the most important aspect which matters to customers is price reduction? If so, then a company is probably in a maturing market. (Thomson and Rampton, 2003) In less mature industry segments there is normally a lot product differentiation and innovation. The distinctive attributes and benefits a product are the central point of continuous communications. As the market matures the focus slowly moves away from product attributes to non product aspects such as price and also service. (Grant, 2005) Dominant suppliers start to emerge. In many cases, economies of scale are there to be realized, particularly when price (and thus expenditure) is the most crucial factor to customers. In a lot of markets, in the process of becoming bigger, economies of scale either in the production, marketing, or other aspects can be realized. (Hoyer, 2001) Starbucks’ strategy of expanding into international markets Hunger & Wheelen (2003) states that, redefining the company’s market is one way to grow the business through looking for “close-by” or adjacent markets which offer growth opportunities. Starbucks expansion to international market is because of the need to gather and increase the company’s market share and increase its financial base by moving away from the local market where the market has matured. Advancement in technology including communication efficiency and better international relations has contributed to the promotion of international trade. Increasing competition is another aspect that has enhanced the Starbuck’s international expansion. Through its international marketing approaches Starbucks has been able to meet its objectives. Starbucks management has had an obligation to further propel the company forward thus able to create and maintain a healthy international marketing culture within itself. (Starbucks Corporation, 2007) The source of Starbucks competitive success in the market A company needs to understand which customers segment and/or products are really profitable and which ones are not? This apparently straightforward question becomes a lot more intricate in a mature market segment. (Hunger & Wheelen, 2003) The competitive advantage of Starbucks comes from the fact that, Starbucks positions its products based upon quality and its image. Starbucks Corporation created the coffee shop revolution in America, and it has had the capacity to be the public instructor on espresso coffee. Starbucks coffeehouse chain is the leading specialty of coffee retailer in the America, with many locations in around the globe. Starbucks Corporation positions its products on a comparatively simple strategy. They sole centre on quality and experience, instead of price. An evaluation of specialty drinks compared to its competitors discloses very small differences. (Fortune.com, 2002) The corporation image is one of the main elements to its current success. Starbucks has recognized that individuals don’t just come for to take coffee; they come for the ambience. People come to socialize, study, read or just to enjoy the music as they drink their coffee. Understanding this, Starbucks try to make its coffee stores unique in one way or another which will generate an appealing ambience. Starbucks also has a distinctive setting for its locations; Starbucks focus on having a lot of cozy seating to make people sense welcomed for them to stay more than they may have planned to. (Fortune.com, 2002) In addition Starbucks positions each one of its store individually in accordance to the definite location it is located. This flexibility approach has contributed greatly to the success of the Starbucks in the past years. Another significant aspect of Starbucks locations is that they are usually environmentally friendly. Though other retailers locate themselves in related ways, none of them focuses to the level at which Starbucks has. Currently consumers appear to respond to those companies that are environmentally friendly who appear to really care about the world. (Fortune.com, 2002) More so advertising strategies that Starbucks uses have also been a major success factor. Starbucks has experienced a lot of success advertising locally, rather than national. Starbucks advertises a lot via print mediums, since Starbucks’ target market seems to be educated individuals who do additional reading than an average person. (Fortune.com, 2002) In the case of one client segment, a large number of overlapping and outdated product lines, coupled with many unprofitable customers, created a significant drag on profitability. Through reorganization the number of products offerings and putting focus on more profitable customers, the Starbucks has been able to almost double its profitability even in the advent of competitive market. Starbucks recognized that it is significant to increase product differentiation and create good customer relationship to increase profitability. It is crucial that Starbucks continue positioning their brand for what it stands for: “an innovative industry leader that produces high quality products”. Brand image, as it has been already revealed, is an objective upon which each one the future useful strategies will work to achieve. (Rubino, 1994) Competition from imitators Starbucks’ present and direct competitors in America are Diedrich Coffee, and Einstein/Noah Bagel Corporation. (hoovers.com) The rivalry, however, is not evenly balanced. Diedrich Coffee runs 370 coffeehouses located in 37 states and in 11 countries (hoovers.com). Einstein/Noah Bagel Corporation runs 460 bagel cafes in America (hoovers.com). Where as Starbucks has got over 4,709 coffeehouse locations in more than 20 countries (hoovers.com) Thus it is apparent that Starbucks has hardly any key competitors, and the rivalry has nowhere near Starbucks’ volume of its operations. Starbucks Corporation is the leading coffee retailer, coffee roaster and brand of specialty coffee in the whole world. However smaller competitors, pose possible threats to the company. (Hoovers.com, 2007) Starbucks has continued to fight against this potential market threat, the company has maintained a drive to retain its position and be the first mover. The company has been continuously innovated new products so as to be ahead its competitor’s competitive schemes. Targeted merger acquisitions In the targeted external growth Starbucks Company is focusing on merger acquisitions. Since the company’s goal of external growth is further strengthening its position in the development markets and continues maximizing its opportunities in the high growth markets. The company’s recent acquisition Seattle's Best Coffee and Torrefazione Italia from the previous owners AFC Enterprises, increasing the total number of Starbucks-operated outlets worldwide to over 6,400. In 2006 September is in line with the targeted external growth strategy, which the campy has undertaken in ensuring its growth. (Fortune.com, 2002) Human resource management strategy Human resource management (HRM) practices of Starbucks Corporation are among the best as attested by being rated as on of the best companies to work for by Fortune magazine. (Fortune.com, 2002) The management knows that the most important asset for any organization is its human resource-requires extensive investment, commitment, financial benefits among others to be highly motivated and also committed to the company, ensuring that the new strategies being formulated are implemented successfully. (Fortune.com, 2002) Strategic outcomes Through the company’s proposed strategic direction Starbucks Company has gained and also maintained its market share in the American market and other global markets since its inception. The company has also achieved a consistent global profit growth despite of the high competition in the industry and its high expansion plan that it has been carrying on over the past years. (McGahan, 2004) Conclusion Business strategy remains important in ensuring that a business performs well. It is important that various processes including globalization, product differentiation, human resources management and mergers are carried out in a proper manner The strategies which are pursued by the Starbucks Company are successful and the strategic choices which have been made by the organization in the recent past are suitable for the company’s external environment. However, for Starbucks Company to continue innovating new products and expansions to new markets to maintain or even surpass it current market share. (Overman, 1994) Appendix Chart 1: Starbucks vs. Industry The Chart compares Starbucks stock against the average Special Eateries Industry. As shown in the graph, Starbucks has clearly been a central force of the industry, since the industry average follow precisely the same pattern, just a little below Starbucks, in past five years (2001-2006) (Source: hoovers.com) Read More