Critical Analysis of Starbucks Coffee - Case Study Example

Case for Critical Analysis-Starbucks Coffee Name Grade Course Tutor’s Name Date Case for Critical Analysis-Starbucks Coffee Introduction Started in 1971 by two teachers and writer in Seattle, Washington, Starbucks Coffee Company is regarded as a leading coffeehouse in the world. The company boasts of operations in over fifty countries in the world (Starbucks, 2014). By 2015, the company had over twenty-three thousand coffee shops in different locations in the world. The company offers its customers quality services, an inviting atmosphere and exciting and exceptional coffee (Simmons, 2012). In this report, the paper focuses on three questions that make a critical analysis of the organization. Q1. The Porter’s generic strategies are tools that help one to undertake a competitive analysis of an organization. According to Porter, organizations can use three types of strategies to achieve competitive advantage. These include cost leadership, differentiation and focus (Porter, 2011). Differentiation as strategy denotes to the delivery of quality products or services that are distinctively unique and create value for customers. Differentiation is a strategy that ensures that organizations, like Starbucks offer products and services at higher prices based on the market segmentation to maximize their profits (Becerra, Santaló & Silva, 2013). The core competitive strategy used by Starbucks is differentiation strategy. Under the strategy, the organization seeks to offer unique products and services valued by its customers. The organization offers a differentiation approach through its excellent customer experience, known as the “Starbuck experience” and quality coffee (Starbucks, 2014). The unique customer experience is achieved through the design of its stores where there is good ambiance and well trained and groomed staff. The differentiation strategy has enabled the coffee shop to charge premium prices and offer unique coffee drinking experience to achieve a sustainable competitive advantage in both its domestic and international markets (Simmons, 2012). The organization has managed to expand at a remarkable rate due to the changes it formed concerning the traditional approaches to brand marketing. The organization has been able to propel one of the oldest products in the world and turn it into a differentiated and value-added brand, especially at a time when there were raised perceptions in the retail sector of products and services because of the economic situation. The ability to be different from the cost of production is what has made the difference for the organization. Imperatively, the differentiation strategy adopted by the organization ensures that it will remain competitive and allow them to grow sustainably in the future. The strategy will ensure that the organization is less vulnerable to the market externalities (Becerra, Santaló & Silva, 2013). Furthermore, its concept will remain difficult to emulate. To achieve differentiation, organizations like Starbucks, have to invest in exceptionally high-quality product offering, incredible quality service delivery, innovative designs, and technological capabilities (Marques, Camillo & Holt, 2015). Furthermore, they must ensure that they create a positive brand image that attracts customers because of the quality products and services offered (Thompson et al., 2013). Whatever product or service that an organization chooses to pursue its differentiation strategy, it must ensure that it sets it apart from its competition. Secondly, the selection must justify the premium price that clients must pay so that they enjoy the difference from the competition. Effectively, differentiation is not about creating a unique brand, or product for the sake of being apart from the rest. It is concerned with the need for an organization to understand its customers and how they can meet their needs (Marques, Camillo & Holt, 2015). Therefore, organizations like Starbucks must create a strategy that ensures that they meet these various demands from their clients. The creation of a differentiation head start means that Starbucks must formulate a business strategy which focuses on creating a unique position, products, and services in the market (Santos-Vijande et al., 2012). Differentiation is concerned with creating distinguishable characteristics from the rest of the market and establishing this advantage entails creativity. Differentiation cannot be achieved by applying common techniques and frameworks. The implication here is that differentiation should be pursued from an innovative and creative angle. However, it does not imply that differentiation advantage is not subject to any analysis (Salavou, 2015). Starbucks may have identified that there are two fundamental aspects to creating efficient and value-added differentiation. On the supply aspect, an organization must know its resources and capabilities through which it can create its unique position. On the demand aspect, the most critical focus is the knowledge of the consumer market and their needs and preferences. Effectively, Starbucks identified these two critical components that have enabled it pursue a competitive advantage and grow to where it is today (Marques, Camillo & Holt, 2015). Therefore, Starbucks distinguishes its products and service from its competitors by maintaining its hold on the quality standards of its coffee. Secondly, the organization maintains a hip image that attracts customers because they want to be associated with the brand (Simmons, 2012). Such customers are willing to pay a premium, not just for the quality coffee, but also to be associated with the brand identity. Q2. Using great leadership abilities, organizational structure, information and control systems and effective human resource practices, Schultz has transformed Starbucks to a formidable market leader in the coffee industry. In this part, the paper examines how Schultz has achieved these in implementing the ambitious strategy at the coffee house. Mr. Schultz uses cross-cultural leadership approaches where he believes that the organization should hire smarter people instead of top executives and allow them to deliver (Schoultz, 2013). He allows his managers to share their vision for the organization while he provides a powerful and proactive vision to guide the organization into the future (Salavou, 2015). Schultz offers strong motivational skills that inspire all the employees to focus on the vision and offers them the opportunity to have excellent planning abilities to help the organization implement its goals. One aspect of his leadership structure is the special role that he recognizes of the baristas or the coffee brewers. These brewers have allowed the organization to create a comfortable, steady, pleasing and entertaining environment for its customers (Schoultz, 2013). Because of this appreciation, Schultz developed a company culture that is nurtured through compensations, promotions and a feedback mechanism. All these aspects are meant at ensuring that the employees are highly motivated and contented with their performance and the growth of the organization. By viewing these employees as brand ambassadors and communicators, Starbucks has demonstrated that it is concerned with sustainable management of its brand in the global coffee market. In achieving these beliefs and values, Schultz has a leadership team that encourages communication, collaboration and empowerment of the managers at different levels. For instance, the organization has decentralized and regionalized a sizeable amount of the decision-making process. Effectively, most of the decisions are made at the regional levels (Simmons, 2012). The individuals responsible for making such deliberations must work closely with the corporate team on a variety of issues like store development, and identifying and selecting targeted markets to be developed in a geographical area. Additionally, the individuals must work with the operations team in the final plan so that stores’ designs meet the local demands of the market. Schultz prefers working with managers who have experience from reputable organizations and have invested much in personal training and information technologies. Starbucks understand the critical role that customers’ desires and expectations play in the delivery of the organization’s success strategy (Marques, Camillo & Holt, 2015). The organization believes that making a connection with the customers is critical to growing its business. The organization puts a lot of emphasis on its customers and baristas. For instance, baristas get twenty-four training in coffee making, customer service, and primary retail skills. Additionally, the organization ensures that the baristas can handle customer requests in the most professional way so that they create a long-term relationship (Santos-Vijande et al., 2012). Imperatively, the firm has created a feedback mechanism where customers give their experiences at the coffee house. For instance, the company takes into account the feedback it gets from the customers when launching new products. These controls allow managers to get essential information on their planning strategies and if there is need to change a strategy so that the organization can register good performance and maintain customer relationship. Another aspect that allows Schultz to implement the organizational strategy is the structure that he has put in place where he identifies talented and qualified personnel with relevant task designs to steer the organization to the next level (Schoultz, 2013). Because of the training and experience that such teams bring on board, the organization gets the capacity to cope with any possible managerial challenges associated with its international growth. The organization has aggressively and successfully pursued joint ventures with its partners like Pepsi Cola, and Dreyer’s Grand Ice Cream Inc. Through these partnerships, the organization makes differentiated coffee products that meet the demands of the partners’ markets. Starbucks supplies its coffee to two major airlines in North America, namely Canadian Airlines and United Airlines (Starbucks, 2014). The investment in the information technology has seen the organization develop a computer system that links the entire global network that allows managers to track sales. Every evening the system transmits information to the headquarters in Seattle so that the executives may review trends in different markets. Q3. Organizations like Starbucks have expanded their operations to the international level aided by globalisation and technology. Effectively, the success of an organization should not be viewed as one where it goes beyond its borders but as a survival strategy that ensures that the entity remains competitive in its industry (Canabal & White III, 2008). For instance, Starbucks had to expand because of the saturated domestic coffee market. The organization focuses on profitable growth and as such, it had to pursue an aggressive approach by locating its stores in strategic positions in some of the world’s fastest growing economies and developed markets. In most of its international markets, Schultz pursues strategies that allow joint ventures and partnerships with local retailers. The organization begins by introducing its full product range in phases, where it sells its products that include coffee and other beverages through retail stores. The selective introduction of its products ensures that it maximizes on profits (Simmons, 2012). The organization had to expand into the international market when it reached its brand maturity stage in the United States (Porter, 2011). Initially, the organization made forays in the international market by forming joint ventures and licensing agreements with strategic local retailers. Starbucks also buys competitor’s leases and sometimes operate intentionally at losses to gain a market share in these foreign markets (Starbucks, 2014). As stated, it also clusters its stores in different locations, especially small geographical areas so as to saturate the market. The organization also pursues franchise arrangements where the local partners contribute about twenty percent of the establishment cost to run the stores and have to stock products from the organization. Starbucks have been criticised because of its international expansion plan that disadvantages the local coffee retailers. For instance, the organization ran a financial loss in 1998 when it bought Seattle Coffee Company and used its capital to influence its entry into the UK market. References Batchelor, B., & Krister, K. (2012). Starbucks: A case study examining power and culture. Prism, Vol.9, No.2, pp.2-11 Becerra, M., Santaló, J., & Silva, R. (2013). 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Starbucks Marketing Makes Social Media a Difference Maker, Retrieved May 24, 2016, from Digital Spark Marketing: http://www.digitalsparkmarketing.com/creative-marketing/social-media/starbucks-marketing/ Simmons, J. (2012). The Starbucks Story: How the brand changed the world. Singapore: Marshall Cavendish International Asia Pte Ltd. Starbucks. (2014). Starbucks Company Timeline. Dover: Starbucks Coffee Company. Thompson, A., Peteraf, M., Gamble, J., Strickland III, A. J., & Jain, A. K. (2013). Crafting & Executing Strategy 19/e: The Quest for Competitive Advantage: Concepts and Cases. McGraw-Hill Education. Read More