Strategic Analysis of Starbucks Corporation - Case Study Example

Strategic Analysis of the Starbuck Corporation By: Professor: Class: University: City: State: Date of submission: Executive Summary Starbucks is one of the leading retail businesses operating in the coffee industry. The major issues affecting the company are declining share of the market, negative perception of the brand caused by the competitors, and devaluation of the experience, which it used initially for its competitive advantage. The report undertook the situational analysis of Starbucks indicating the possible prospects and threats. The in-house analysis was undertaken to ascertain institutional competencies and weaknesses against the competitors. Various strategic choices including market infiltration, improvement of the goods, and assessment of the market suitability and feasibility were studied. Table of Contents Table of Contents 3 Strategic purpose 4 External Analysis 5 SWOT Analysis 6 Analysis Using Porter’s Five Forces 7 Internal Analysis Strategic Capabilities 8 Basis of Competitive Strategy using Bowmans Strategy Clock Model 10 Strategic Choice and Strategy Evaluation 11 Market Penetration 11 New Product Development 11 New Market Development 12 Diversification 12 Analysis of Market Penetration 12 Suitability 12 Acceptability 12 Feasibility 13 Conclusion and recommendations 13 Marking the most from the strengths 13 Circumventing weaknesses 14 Capitalizing on opportunities 14 Manage their threats 14 References 15 Strategic purpose Starbucks Corporation is an American syndicate started in 1971. The establishment is a leader roaster, vendor, and merchant specifically of coffee internationally. The vision and mission statement of the syndicate tends to emphasize on the governance in the coffee industry. The mission statement serves as an indicator of what the corporation requires at the core of its business (Michelli, 2007, 162). However, organizational vision reflects what it intends to achieve in the future. In such regard, through the mission and vision statement, the business guides it activities, employees, and express the capability of the business to patrons. The vision is to inaugurate the organization as the principal purveyor of deluxe coffee globally while preserving its adamant doctrines while it grows. However, the mission declaration is to ensure adequate motivation and nurturing of the human spirit – one person, one cup, and one neighbourhood simultaneously (Haskova, 2015, 107). The values include the creation of warm and belonging that welcomes everyone, acting with courage, challenging the status quo, and finding new methods of growing the company; ensuring presence, connecting through transparency, respect, and dignity; delivering the best in what it does and holding accountable for the results. The objectives of the organization include maintenance of the company’s stand as the greatly recognized and respected brand internationally; to be the principal retailer and coffee brand in each country it targets through selling the finest quality products and provision of unique experience, and to inflate its international merchandizing trade and market share in a disciplined manner. There is positive relationships and compatibility between the strategic statements with the organizational functional objectives. External Analysis Political Economic Regional integration of the markets which is the current trend and external factor presenting opportunity for the company; Improvement in government support for the infrastructure creating opportunity that markets the products accessible to many market suppliers; Bureaucratic red tape for the developing countries which could be a threat as it affects organizational expansion High growth in the developing countries contributes to gaining of more revenues across the globe Declining the rates of employment Rising cost of labour in the countries of the supplier as an external factor threatens the company as it increases the spending for ingredients Social Technology Growing coffee culture which increases the company’s revenue based on the rising demand for quality coffee Increasing health consciousness Growth in the middle class which is an opportunity for widening an array of healthful products for the attraction of health conscious consumers Rising mobile purchases which link to the services it provides for acquisition of more revenues Technology transfers to the coffee farmers which improves supply chain efficiency Rising availability in quality coffee machines for uses in homes which is threat as it increases availability of the substitutes Environment Legal The business sustainability trend focusing on the business processes ensuring minimal environmental impacts with much stress on the corporate social responsibility Growing popular support for the environmentally friendly products Growing popular support for the responsible sourcing policies that offer recycling packaging Existence of product safety regulations Genetically Modified Organism (GMO) regulations Increasing employment regulations SWOT Analysis Strength Weaknesses Stronger market position and global brand recognition: the company enjoys presence in 60 countries and commands 36.7% market share of the U. S Production of high-quality products which assists in the acquisition of the desired competitive edge Existence of the stores in key and planned locations across international markets Effective human resource management with high knowledge base and effective human capital Diversified product mix that integrates technology to offer products and services for efficiency purposes Customer base loyalty; existence of loyalty-based programmes driving loyalty The company offers expensive products translating to the quality of productions which sometimes become worse due to economic sluggishness Self-cannibalization by congestion associated with hostile expansion and high congestion in the market Overdependence in the United State’s market Negative large corporation image Opportunity Threat Expansion into the emerging markets offering great potential for the areas of operations Expansion of the product mix and offering which provides significant opportunity for covering the needs of the customers Expansion of retail operations Technological improvement which increases the level of efficiency and reliability to which the company provides products and services Brand extension through undertaking powerful brand image used in leveraging to increase its horizontal business lines and venturing into diversification of products Increased level of competition from Dunkin, McDonalds, Pete, and Costa Coffees Volatility and fluctuations in the global prices of coffee in various markets Saturation in the market of the developed countries Economic integration of the developed countries which could result in economic crises Ever-changing tastes, preferences, and lifestyles of the consumers pose serious threat to the company Analysis Using Porter’s Five Forces Threat of New Entrants: Moderate Threat of Substitutes: High The threats for new entrants is moderate; entry barriers are high inhibit the entrance of competitors Industrial saturation is high contributing to a monopolistic structural competition For the new entrants, the initial investments could be insignificant since they lease the stores at reasonable levels of investment (Haskova, 2015, 110). At localized levels, the small coffee shops could compete with others such as Starbucks since the market lacks switching costs for the consumers Although the industry is competitive, the possibility of success for the new entrants is moderate; however, the relativity is encountered through large incumbent brand identities such as Starbucks that encountered the incumbent brands through lowering the cost and enhancing efficiency with market share There are several reasonable substitutes including beverages to coffee such as tea, soda, and energy drinks Consumers could as well make personal coffees at home at low cost using the premium coffee makers Absence of switching cost could be a threat; however, companies enjoying competitive advantage such as Starbucks could leverage such threat through selling devices used in making coffee within their stores Bargaining Power of Buyers: Moderate to Low Pressure Bargaining Power of Suppliers: Low to Moderate Pressure The industry enjoys numerous buyers; however there is no buyer to demand concession of price The company offers vertically differentiated products with diversified consumer base making low purchase volume eroding the power of the buyer Although the market lacks switching costs, the company prices the product mix relative to the stores of the rivals with the prevailing market elastic prices The company’s main inputs into the value chain originate from selected regions which are standard and makes the switching cost between the suppliers low The company has large size and scale; hence, it has power of taking advantage of the suppliers though it maintains fair trade, which contributes to moderately low suppliers posing low level of competition. Competitive Rivalry: High to Moderate There is monopolistic competition within the industry; since the company has the largest share of the market, the rivals have close market share which creates significant pressure There is no cost of changing consumers which tends to create high level of rivalry among the consumers though the company maintains some competitive advantage The industry is mature with growth rates being moderately low leading to intensified competition Internal Analysis Strategic Capabilities In the recent years, Starbucks has been experiencing competition from the increasing number of businesses venturing into the coffee retail industry. Therefore, in different countries, the threshold resources used by the company in undertaking its activities consist of venues, cups, tables, basic coffee machines, and effective and efficient human resources. However, such resources are insufficient in terms of establishing the required competitive edge to survive the escalating rate of competition. As a result, Starbucks utilizes a set of definitive resources in its operational markets such as properly designed shops, provision of loyalty cards to potential customers, and highly powerful Verismo technology. The threshold competencies for the company might include selling coffee drinks and application of basic process while preparing food for the customers (Dudovskiy, 2014). However, the company aim at achieving a competitive edge within the market by setting its various core of competencies including properly designed customer services by intergrating the factors that motivate the workers, offering quality products, and ensuring the existence of strong leadership skills used by both the CEO and the president. Besides such competencies and capabilities, Starbucks also posses generation of the record total value USD 13.3 billion which that additionally ensures the improvement in organizational financial position; joining super-premium industry through acquiring the Evolution Fresh; and increment in the array of merchandises by introducing Starbucks Blond Roast. Moreover, the company also initiated its social corporate responsibility (CSR) and partnership including the strategic partnership with organizations such as DonorsChoose.org and initiating of the Youth Action Grants, and launching of the personalized Frappuccino drinks. Resources and Capabilities Tangible Physical Stores Distribution centres Warehouses Financial Investments Expansion activities Human Well trained people Real estate team Research and development team Intangible Technology Information technology Equipment: coffee related Online store Organizational Brand and reputation Training programme Starbucks culture Relationship Coffee suppliers Partnerships: joint ventures and licensed agreements Interaction with the customers Basis of Competitive Strategy using Bowmans Strategy Clock Model To re-invigorate the brand of the company, the management focused on the strategy of product and service innovation, which relates to the maintenance of the continuous improvement process in terms of product and services to meet the changing demands due to the ever-changing demographics of the customers. To ensure the alignment of such unremitting enhancements, the business implemented the benchmarking procedure. The new strategic actions of the Starbucks are key differentiating features based on the service innovation. The strategic action in service novelty has been effective considering the process has been facilitated through the participation of the personnel (Smithson, 2015). In such respect, the company widened its store to provide coffee flavoured ice cream, fresh pastries, candy, juice drinks, Frappuccino, coffee accessories, and coffee mugs. To maintain its objective, the company implemented the strategy of maintaining consistency and quality through differentiation of products through a variety of beverages. The strategy has been important for the company to leverage on building brand awareness as luxury products. There have been out-of-store transactions including sales of ground coffee and coffee beans in grocery stores. Moreover, Starbucks formed a strategic alliance with PepsiCo and Dreyers Grand Ice Cream. Through a partnership with PepsiCo, the company has been selling Frappuccino in groceries and convenience stores while through Dreyers Ice Cream, the company has been selling coffee-flavoured ice creams. These form the organizational strategic actions of product differentiation, which have also been guided by the employees; therefore, it enables the employees to maintain their quality of services while offering greater differentiation for their products and services (Rosenthal & Brown, 2000, 181). The company strategy is position 5: Focused Differentiation. In such regards, the company’s products and services are enjoying high-perceived value and high prices. Therefore, consumers buy such products based on the perceived value. Additionally, the product does not necessarily have to have the actual value; the perceived value is enough to charge very large premiums. Strategic Choice and Strategy Evaluation Ansoff coined the product idea and market scope to assist in the formulation and selection of the strategies especially the organizations with growth objectives. Each cell in the matrix forms a different strategic alternative to achieve growth. In the matrix, the company lies in the market expansion, which involves consideration of the existing product and new market since the company make a good profit in almost every coffee aspect in shops differentiated globally (Johnson, 2014, 102). Expansion to the Middle East and Asia could be significant for the profit since there is huge potential for the coffee market. Market Penetration The company has been increasing the level of its sales in the existing markets to ensure that it reaches every market niche. For example, Starbuck is currently focusing on printing the names of the customers on the coffee cups with an intention of attracting more customers and ensuring greater level of customer satisfaction. New Product Development The coffee industry has been highly competitive leading to development of new products to meet the changing needs of the customers and increase the scopes of operation. Moreover, the company intends to produce more products and services into the existing market. An example would be introduction of new premium coffee made with rare and exclusive beans. New Market Development With current rates of developments and market saturation in the United States, the company has been focusing on the emerging markets. Starbucks has been increasing its sales through launching existing products into the new markets. The Starbucks offer a good example through having the coffee shops across the world. Diversification Starbucks is focusing on the introduction of new products and services to ensure it meets specific needs of customers. However, diversification is the most risky strategy. Starbuck’s latest plans of launching new food range is a diversification method since the company uses new product in tapping new market for the meals. Analysis of Market Penetration Suitability Suitability is a method of addressing important issues of the company: low global market share, negative corporate brand perception, and less value experience of the company. Suitability for market penetration is beneficial for the company especially with its objective of becoming the market leader. As a leader, the company could enjoy numerous opportunities such as maintenance of the pricing strategy for its products, thus becoming superior to its competitors (Johnson, 2014, 114). Moreover, it is in the interest of the shareholders for the company to enjoy competitive edge to exploitation of the brand awareness in a bid to create the desired perception among the consumers using Tazo brand to acquire more market share. Acceptability The company aims at being the best producer of the coffee brands and the leading retailer within the industry and target market by selling the finest and quality products. Market penetration involves gaining market share to have advantage and becoming the market leader. Since the company’s pricing strategy require exploitation of superior benefits than the competitors, it is vital that it becomes the market leader through sustainable utilization of the resources. The institutional statement supports such and is advantageous, as it would increase share prices. Feasibility To increase market share and develop positive perception through advertising, the company needs to apply its capabilities: financial and marketing. The company has high financial capability with marketing ability forming organizational strength; therefore, it is feasible for the organization to advertise to acquire market share. Conclusion and recommendations The paper focused on the Starbucks, which is a strong corporation within a growing industry. It is clear that the company is taking strong stand within coffee industry and initiating various promising strategic and environmental aims. Moreover, it is also securing market share is the emerging markets and occupying the largest share of the market in the United States. Under its international strategy, the company could focus on transferring the major core competencies and capabilities in every state and gradually building the factors driving profit in such localities while focusing on global expansion. Marking the most from the strengths Since the company occupies the largest market share in the U.S, it could increase its scope of operation to reach every part of the market niche; production of high quality could assist in developing the desired competitive advantage; with the effective and efficient human resources, the company could attract more customers; and customer loyalty programme to create better relationships. Circumventing weaknesses Production of quality products at affordable prices; expansion into emerging markets to prevent saturation in single place; depending on other markets besides the U.S; improving the image of the company, and production of customer-specific goods and services. Capitalizing on opportunities Availing adequate resources in the emerging markets during expansion; production of different products that covers the needs of different customers; integration of technology in all aspects of products, and continually undertaking brand image marketing Manage their threats Quality products and favourable prices might assist in acquiring positive competitive advantage and perception of the consumers; having contingency measures for the fluctuating prices is also important; exploitation of other emerging markets could assist to decongest the saturated markets; and production of customer focused products to satisfy the ever-changing consumer needs. References Dudovskiy, J. (2014, January 9). Starbucks Strategic Capabilities - Research Methodology. Retrieved July 18, 2016, from http://research-methodology.net/starbucks-strategic-capabilities/ Haskova, K. (2015). Starbucks Marketing Analysis. CRIS - Bulletin of the Centre for Research and Interdisciplinary Study, 4(1), 105-115. Johnson, G. (2014). Exploring strategy. Harlow: Pearson. Michelli, J. A. (2007). The Starbucks experience: 5 principles for turning ordinary into extraordinary. New York: McGraw-Hill. Rosenthal, D. W., & Brown, L. G. (2000). Cases in strategic marketing. Upper Saddle River, NJ: Prentice Hall. Smithson, N. (2015, September 12). Starbucks Coffee PESTEL/PESTLE Analysis & Recommendations - Panmore Institute. Retrieved July 18, 2016, from http://panmore.com/starbucks-coffee-pestel-pestle-analysis-recommendations Read More