Strategic Management - Starbucks - Case Study Example

Strategic management case study- Starbucks Name Professor Course Date Strategic management case study- Starbucks Starbucks is a leading brand in the coffee industry in the American market place. Its aggressive expansion strategy has seen the company dominate the American market place and expand its business to other markets internationally. The success of the company in the American marketplace is associated with the quality of the products provided by the company as well as its strong brand. The desire of the company to expand to the global market is mainly because of the saturated markets in America. This expansion to the global market is challenging to the company as the market dynamics, the customer tastes and preferences are not similar to those of the Americans, and therefore the company must employ the right strategies in order to succeed (Smith 1996, 516). Starbucks strengths and weaknesses Starbucks has most of its outlets in high visibility locations, which allow the company to attract a sizable proportion of customers in the market. The strategic locations of its outlets also allow the company to reach its intended customers at a place that is convenient to them. In addition, the coffee bars are widespread and consistent which ensures that the company has a commanding share of the available market. The company’s brand, which is often associated with quality in the market place, is also a significant contributor to the success of the company. The company’s brand is a leader in the coffeehouse segment, which is valued at billions of dollars. The brand is not only valued but also recognized for providing excellent customer care and exceptional coffee (Nadine 2009, 24). The company has also created a niche in the coffeehouse industry as a high-end of coffee provider brand, and offers rich and exotic blends of coffee. The company also has strong and sound financial records. These records reflect the rising profitability of the company which allows the company to move forward with its expansion plans without attracting liabilities. Its profitability places the company in a good position to implement its expansion strategies by using the company’s revenue alone. Additionally the company operates its retail stores and does not embrace franchising. The operation of the company’s outlet by the company rather than by franchisees eliminates problems associated with the management of franchisees and allows the company maximum benefits out of the outlet. Starbucks has also operated the coffeehouse business for a significant period and, therefore, the company is experienced in the industry. This experience allows the company to deliver to its customer’s perfectly blended coffee, which satisfies their tastes and preferences. Starbucks coffee bars also provide a pleasant atmosphere, which gives its customers a feeling of style, sophistication and a sense of knowledge, which has turned into the company’s culture (John 2004, 56). The company also offers its employees better pay that those offered by its competitors. The high pay allows the company to maintain its employees and ensure there is an unlimited supply of workforce for the company’s outlets. Additionally the company’s concept of value addition has enabled it attract and satisfy its customers better. The company, however, is not without weaknesses in the American market and among its principal weaknesses is its product pricing. Although Starbucks offers its customer with delightful coffee and experience, this is done at an expense which is passed down to the customer in the form of high coffee prices. The prices of the company’s products are higher in contrast to the prices of its principal competitors which affects the preference of the company by its potential customers. Starbucks also pays its employees well and higher than the market rates, but this affects the revenue of the company as more of its income is used up in salaries to employees (John 2004, 59). The company is also affected by negative publicity, which is as a result of how the company treats its employees some of its suppliers and concern for coffee farmers. It is also noteworthy that the chief input that drives the company’s success is coffee. The profitability of the company and the prices of coffee is closely connected. The company does not have control over the production or the prices of coffee and, therefore, is affected by the uncertainties associated with the supply and pricing of this product. The company’s goals are also misaligned with the needs of the customers, and this has materially affected customer loyalty. The company’s previously loyal customers have opted for other providers who understood their needs better. Furthermore, the company has focused most of its finances and strategies on rapid expansion and lost internal focus, which has considerably affected its customers. The proximity of its coffee bars to each other also increases the possibility of internal competition, which may affect the performance of these outlets and the loyalty of customers. According to Michael, Duane and Robert (2001, 243) the company is also affected by the ever increasing number of competitors entering the market. Moreover, unlike most of the other competitors in the industry who provide other food in addition to coffee, Starbucks provides coffee only which reduces its channels of revenue. The strengths and weaknesses of Starbucks in the American marketplace are not entirely similar to its strengths and weakness in the Australian marketplace. Although there are some similarities present in both markets, some market features are dissimilar in the two markets which results in the differences. Among the differences is that whereas the American market place is saturated the Australian market place is not saturated and the company can comfortably expand into this market. The company’s perspective of consumers in the Australian marketplace is also different from the perspectives of the American counterparts ad they consider the company’s products acceptable in relation to their prices. The local competition in the Australian marketplace is also old which places Starbucks at a higher position in the market given its sophistication and style. Nevertheless some features cut cross both the market places and chief among these are the uncertainty in the prices of coffee products used by the company since the company does not control the factors affecting its prices. Another factor that is present in the two market places which is essential to the success of the company in either market place is its brand, which is associated with the provision of quality coffee (Grant 2010, 150). How strengths relate to opportunities in Australia The company’s strengths are vital factors that enable the company maintain its expansion strategy. These strengths, however, must relate to the opportunities that are present in the desired market in order for the company to be successful in its expansion. In this regard, it is noteworthy that there are viable opportunities for the company in the Australian market place, and as such, it is imperative to match its existing strengths to these opportunities (Marie2009, 96). The company’s brand is a considerable strength that provides the company sufficient leverage to penetrate the market. The brand is respectable among most coffee consumers, and this relates to a positive reception of the company in the Australian marketplace. The quality of the company’s coffee is also exceptional, which is another factor that contributes to the positive reception of its products. The quality of products is significant for the success of the company since the company is new in the region and, therefore, must win customer loyalty. In order for customers to abandon their previous coffee bars, the quality of the products offered by the new coffee bar must be superior a factor that is keenly implemented by Starbucks. Christian (2010, 5) provides that this value will enable the company serve its Australian customers with rich and exotic blends of coffee, which will undoubtedly appeal to most of the coffee consumers in its market. It is also imperative that the company will export its experience in coffee production to the Australian market. This robust experience, which gives the company an upper hand in the service of coffee products, in the market, will strategically position the company for success in this market. Additionally the company enjoys economies of scale which allows it to absorb minor losses in its operations without significantly affecting its aggregate income. This factor will allow the company to stay relevant in the Australian market place even though the revenue from the Australian outlets may yield marginal revenue at the initial stages. These economies of scale will allow the company to offset any initial losses or set up costs in the Australian marketplace. Thompson and Zeynep (2004, 638) argue that another aspect of the company that is relevant to the opportunities present in the market place is its strategy of owning its outlets rather than franchising. The self-ownership of the outlets in the new market place will ensure that the quality of the parent company is maintained as well as ensuring the management of the new undertaking is in accordance with the management principles of Starbucks. Self-ownership also allows the company to reap as many benefits from its expansion (Michael, Duane, and Robert 241). On the other hand, the Australian market is different from the American marketplace; this difference is mainly attributed to the difference in coffee drinking cultures between the two markets. While the Americans associate coffee to this brand the art of drinking coffee existed in Australia much before the entry of Starbucks. Moreover, while American consumers prefer light coffee, the Australian consumers prefer more strong coffee blends. The difference in consumer preference is a factor that is likely to affect the success of Starbucks in the Australian market unless the company adopts measures to eliminate these differences. The payment of higher employee wages by the company is also another strength that is relevant to the Australian market place. This factor will ensure that the new outlets in Australia have a sufficient supply of the workforce as well as motivating the employees to provide quality services. Unlike most of the local coffee houses who provide its consumers with coffee as well as other foodstuff, Starbucks specializes in only coffee. This specialization enables the company to provide quality products that are aimed at customer satisfaction. Additionally the company has a practical advertisement strategy that will ensure that the company is marketed well in the new market. Whereas the company’s brand is sufficient to make the Australian expansion successful, advertisement contributes majorly to this success by positioning the company in the local context (Marie 2006, 87). Starbucks Current marketing strategy The marketing strategy adopted by Starbucks in the Australian, and New Zealand is comparatively similar to the strategy adopted by the company in the American market. The company’s strategy was to saturate the market with its stores so as to attract more customers. The company also adopted the quality of the products it offered in the American market place, but, in addition to this, the outlet used advertisement to appeal to its customers. The company also focused on the provision of coffee products although it offered other snacks but since the company is associated with coffee by many consumers its principal activities centered on this. Although these strategies were effective in the American markets, it is significant to note that due to the differences in the market structures the strategies were not guaranteed to work in the Australian market. The failure of the company to understand the taste, preferences and the culture of consumers in these markets ultimately resulted in the failure of the company. Among the major oversights by the company was the assumption that the tastes and preferences of customers in the Australian and American markets were similar and, therefore, the quality of its products would be superior in the Australian market (Nadine 2009, 36). The concept of saturating the market also did not work well for the company in the Australian market since the culture of consumers in the Australian markets is not similar to the culture of American consumers. How Starbucks strategies are comparable to those of its competitors The strategies adopted by Starbucks in the Australian market are comparatively similar to those adopted by its competitors. The strategies employed by Starbucks competitors focus on customer satisfaction which is also a core value in the strategies used by Starbucks. Starbucks and its competitors in the Australian and New Zealand market place also provide unique blends of coffee. Although the blends vary from one competitor to the other it is noteworthy that these blends are unique to each player in the market. In addition the primary objective in the strategy employed by both Starbucks and its competitors are focused on customer satisfaction and retention. (Thompson and Zeynep2004, 457). Differences in strategies employed by Starbucks and its competitors Among the differences in the strategies adopted by Starbucks and those adopted by its competitors that allowed the company’s to coexist is the difference it service delivery. Whereas Starbucks majored on the provision of coffee products with little attention on other foodstuff, its competitors provided coffee as well as other food material’s in its stores. This difference in the approach to attracting customers ensured that all the players received customers who preferred a product offered by the selected player. In addition to this, the competitors of the company did not spend a lot in expansion and limited its expansion strategies. On the other hand, the aggressive expansion strategies used by Starbucks gave it local presence and the ability to complete favorably with the already established competitors. The quality of the coffee provided by Starbucks and its competitors were also different which provided a variety of coffee tastes for the markets consumers without necessarily competing for similar quality and blends (Grant 2010, 174). Reference list Christian, M. 2010. STARBUCKS: Success Strategy and Expansion Problems. GRIN Verlag. Grant, R. M. 2010. Contemporary strategy analysis and cases: text and cases. Wiley. John S. 2004. My sister's a barista: how they made Starbucks a home from home. Cyan. Marie B.B. 2009. Starbucks. ABC-CLIO. Michael A. H., Duane R. I., and Robert E. H. 2011. Strategic Management: Concepts and Cases: Competitiveness and Globalization. Cengage Learning. Nadine Pahl. 2009. The Idea behind the Starbucks Experience: The Main Elements of Starbucks' Strategic Diamond. GRIN Verlag. Smith, M. D. 1996. The empire filters back: consumption, production, and the politics of Starbucks Coffee. Urban Geography 17 (6): 502-525. Thompson, C. J. and Zeynep l. 2004.The Starbucks brand scape and consumers’ (anti corporate) experiences of globalization. Journal of Consumer Research 30 (3): 631-642. Read More