Internal Analysis of Starbucks Coffee - Case Study Example

Name Class Unit Introduction Starbucks Coffe is a multinational coffee shop which was founded in Seattle in 1971. The company has more than 182,000 employees and operations in over 62 countries. The company offers customers comfort as they enjoy their coffee. The company is well known for their ability to adapt to different cultures and offering their product at affordable prices. Starbucks have 10% of their business operating as licensed brands. The company also engages in other business such as Starbucks Duetto Visa Credit Card, music, movies which constitute less than 1% of their initiatives (Starbucks, 2015). The company is concerned with the customer’s end product and also ensures that they improve the life of farmers. This critically analyses the internal environment of Starbucks. The report will use (Valuable, Rare, Inimitable, Well Organised) VRIO model. Internal analysis Strengths Starbucks is one of the best performing organisations in the coffee industry. The company has been very active in its strategies which have enabled them to grow and expand globally. Through providing free wireless access to customers, the company has been able to improve their customer exercise. Through the use of free wireless, customers are able to buy the company music. Starbucks has strong brand image being among the few coffee companies that have brand supremacy. The company is ranked among the top 100 brands with the highest brand value in the industry. Starbucks brand resonates with almost every consumer segment. The company has been able to come up with cost effective marketing strategies (Michelli, 2007). Starbucks marketing does not rely much on advertising, but uses word of mouth, brand awareness and appealing designs to market. The success of Starbucks has put them in a good financial position. The company has been able to post steady and strong revenues over the years. They do not only have strong financial results, but it has been able to go beyond the industry benchmark. The company has been able to demonstrate their ability to gain on operating margin while at the same time making huge and strategic investments in other speciality business channels such as music (Fellner, 2008). Weakness The company has been expanding at a very fast rate. This has led to overcrowding of stores especially in the US. This denies customers’ choice. The resultant is likelihood of boredom and frustrations. This may lead to rebellion by some of the customers. When the company clusters their stores, there is a high likelihood of cannibalism. This occurs when the company runs two parallel units where revenue generated is equal to that of one. This leads to the company incurring unnecessary costs of setting up and running the units. Starbucks coffee is sold at a higher price. Though the price is acceptable in the US market, it becomes a major barrier in emerging markets. This is especially in the countries which have low purchasing powers (Fellner, 2008). This makes Starbucks coffee to be considered as a luxury product in emerging markets. VRIO analysis VRIO analysis helps in comparing the organisation resources and capabilities in order to determine its competitiveness (Barney & Hesterly, 2012). Valuable Starbucks has a strong presence globally which acts as an asset when expanding their market share. This helps them to gain more revenue. The company has unique beverages that other competitors cannot offer on a regular basis. The company always ensures that they display calories information in all their products (Youngme & Quelch, 2003). Rare Starbucks has been able to establish themselves as the largest coffee corporation globally despite the fact that there are other players in the market. Starbucks has been able to distinguish themselves. The company uniqueness is strengthened by its strategic locations appealing stores design, global presence and high customer loyalty. Despite this, special drinks are not only limited to Starbucks since the competitors also offer them. Due to its size, Starbucks has been able to stand out among competitors as a large coffee shop which has an upscale (Fellner, 2008). The organisation is among the few which allow their customers to enjoy free wifi while relaxing. Inimitable Starbucks has an advantage over competitors due to fact that in the short term there is no competitor who can attain their global presence. Being in the prime location is only a temporary competitive advantage. This is due to the fact that is a strategy that can be easily imitated. Expansion to the global market can also be imitated by the competitors (Fellner, 2008). Starbucks good image due to their corporate social responsibility and provision of free wireless are also inimitable. Organised to exploit Starbucks is well organised to exploit its strong global presence. Starbucks offers variety of options and their menu changes depending on taste. The company have been exploiting this capability. This has helped the company to provide the customers their preferences. Customers can find what they like at Starbucks. The company has organised its atmosphere to make it cosy and upscale. This makes customers enjoy spending time at Starbucks (Fellner, 2008). The company makes its appearance trendy which attracts customers. Using VRIO model based on the value chain, one is able to see that Starbucks core competencies lie on its human resources management, marketing and its retail outlets (Barney & Hesterly, 2012). Human resource management Starbucks has enabled an environment where employees are viewed as a most valuable asset for competitive advantage. The company has created an exceptional workforce which highly values their work and takes pride in it. This is through provision of employees’ benefits which in some cases are above the industry standards and corporate culture which is empowering. The management ensures that the staffs are content and participative. This has enabled the great customer experience at Starbucks coffee. Employees can make decisions and are taken to be part of the business. There is a high level of transparency and flow of information (Michelli, 2007). Marketing The company has been able to understand the lifestyles, needs and values of their customers. Being focused on the customer experience has enabled the company to have great success. The company has been more consistent in their marketing efforts through using less revenue than competitors. Starbucks relies on charm and appeal in their marketing. They have been able to create customer loyalty which has served as a competitive advantage and helped a lot in marketing (Michelli, 2007). Retail locations Quality services are able to set apart Starbucks and their competitors. Most of the company revenue comes from the retail stores. The retail section is the company backbone and they ensure that there are smooth operations. The company uses hiring techniques that get the right people to run their retail segment. The management has always focused on giving the best customer experience by ensuring they have ethical staffs that are passionate in their work. The quality of their employees and location of their retail stores gives the company a sustainable competitive advantage in their retail stores (Michelli, 2007). Uniqueness as a Competitive advantage Customer experience at Starbucks serves as a competitive advantage. There is great customer care which is coupled with stores which are based on communities where it operates. The company human resource is trained in enhancing relationships between customers and suppliers. The company is thus unique due to the manner in which they handle people and manage their operations. Through upholding their culture and values, Starbucks is capable of enhancing their customer experience (Barney & Hesterly, 2012). Loss and recreation of company uniqueness Starbucks uniqueness had been contributed by intangible resources. As the company expanded, the company failed to maintain its uniqueness. They incorporated a lot of factors in their operations and expanded their menu (Fellner, 2008). Their customer experience went down. The company used their former CEO to restore the company uniqueness. Through his initiative, the company reintroduced instant coffee and ensured that baristas could not multitask (Bussing-Burks, 2009). This has helped the company to regain their unique customer experience. Innovative business strategy Starbucks has unique and strong combination of strategy based on coffee, customer, location, employees, ambience and quality service. These work together in harmony to attain excellent results. The company has created a workplace which is based on collaboration and teamwork. There is diversity in workers based on culture and personality at Starbucks ,which results in best customer service (Fellner, 2008). Conclusion Starbucks have their core competencies in internal environment which ensures that they a competitive advantage. The company has a strong brand name which has enabled them to be identified by most customer segments. They have a strong financial position and innovative business strategies. The main weakness lies on their fast rate of expansion leading to overcrowding and high prices. VRIO analysis reveals that their value is in brands, unique drinks and display of calorie information. Rarity of the company is based on their large size making them largest coffee house, appealing design and free wifi. Inimitability is based on fact that prime locations can be imitated, most of competitors are becoming large and wifi which can be imitated. The company is well organised to use its global presence to offer variety options in their menu and enhance their customer experience. Using VRIO analysis on their value chain Starbucks has core competencies in human resource management, marketing and retail outlets. The company has been able to maintain their uniqueness as a competitive advantage through use of innovative business strategies. References Barney, J. B., & Hesterly, W. S. (2012). Strategic management and competitive advantage: Concepts. Englewood Cliffs, N.J: Pearson. Bussing-Burks, M. (2009). Starbucks. Santa Barbara, Calif: Greenwood Press. Fellner, K. (2008). Wrestling with Starbucks: Conscience, capital, cappuccino. New Brunswick, NJ: Rutgers University Press. Michelli, J. A. (2007). The Starbucks experience: 5 principles for turning ordinary into extraordinary. New York: McGraw-Hill. Starbucks, (2015), Coffee, Retrived 9th March 2015 from, http://www.starbucks.com/coffee Youngme, M. & Quelch, J. A. (2003). Starbucks: Delivering customer service. Boston, MA: Harvard Business School Pub. Corp. Read More