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Master of Business Administration

LB5206- COMPETITIVE STRATEGY

REPORT- STARBUCKS

Professor: DR. ALVIN OH

Submitted by:
Anupriya Dohare-12488895
Mansi Chopra -12488301
Pavani Duddilla-12439060

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Table of Contents:
EXECUTIVE SUMMARY.......................................................................................................4
CORPORATE MISSION..........................................................................................................5
INDUSTRY STRUCTURE-----------------------------------------------------------------------------6
INDUSRTRY ANALYSIS........................................................................................................8
PORTER’S FIVE FORCES MODEL------------------------------------------------------------------8
FINANACIAL OVERVIEW--------------------------------------------------------------------------11
SWOT ANALYSIS-------------------------------------------------------------------------------------12
CORE COMPETENCIES........................................................................................................16
COMPETITIVE ADVANTAGE.............................................................................................16
STRATEGY MAP...................................................................................................................18
STRATEGY RECOMMENDATION--------------------------------------------------------------- 19
STARBUCKS STAREGIES NOW------------------------------------------------------------------ 19
EXPANSION STRATEGY----------------------------------------------------------------------------19
DIVERSIFICATION STRATEGY.........................................................................................20
HUMAN RESOURCE STRATEGY.......................................................................................20
MARKETING STRATEGY....................................................................................................21
RECOMMENDATIONS TO STRATEGIES-------------------------------------------------------22
POTENTIAL FALLOUTS-----------------------------------------------------------------------------23
RECOMMENDATIONS------------------------------------------------------------------------------24
CONCLUSION-----------------------------------------------------------------------------------------26
REFERENCE...........................................................................................................................28

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EXECUTIVE SUMMARY:
Starbucks - the name, the brand is synonymous with quality and with a unique coffee
experience all around the world. Its brand, the image, the logo, the location and the entire
coffee drinking brewing experience is iconic to Starbucks. In a global world today, it is not
very uncommon to find a Starbucks store not only in popular cities of the world but also in
some of the very remote suburbs of many countries as well. Starbucks have achieved a very
high awareness in the world and can be said to have reached the resonance stage of the brand
image.

In the quest for competitiveness, Starbucks have always adopted the expansion strategy and
the diversification strategy to be the market leader and to be at the vanguard in the coffee
brewing industry. Its reengineering process and continuous improvement made the company
perform better by differentiating its products and services from its competitors. The 7 S’s of
competitive advantage by D’Aveni (Pearlson & Saunders, 2009, p.32) – superior stakeholder
satisfaction, strategic soothsaying, positioning for speed, positioning for surprise, shifting the
rules of competition, signalling strategic intent and simultaneous and sequential strategic
thrusts are very well balanced by Starbucks company which helped it to achieve a position of
market leader in the coffee brewing industry. Starbucks quality control of the value chain
from selection of seeds to serving the coffee it in the store helped the company produce
quality service and quality products for which the customers were ready to pay a premium
price. This helped the growth of the company to a large extent and also helped to achieve
superior stakeholder satisfaction.

But, due to the economic downturn in recent years, just like many of the premium priced
products, Starbucks also suffered a downturn in its sales. Rapid expansion over many years
and targeting to open around 40,000 stores world wide by 2011 as given in the case study can
pose a great challenge to its core vision and strategy. Maintaining a unique culture with its
employees and its customers and being true and loyal to the company’s core values can be
quiet a challenge because Starbucks need to find a balance between the cost, price and its
service. With rising costs, with consumers withholding on spending patterns, Starbucks need
to frame a strategic architecture by increasing its opportunity horizons of core competencies
so that costs are minimised, the prices to the consumers are very appealing and the entire
customer experience of brewing the best coffee is retained in every store.

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CORPORATE MISSION:

To satisfy customers and to create a “third place” environment.

Three main components that will contribute to the mission statement –

 the coffee itself

 the service

 the atmosphere

Starbucks is a place for people to come to, a place not to be alone, a place to be with other

people, and a place where, without having to do anything people become a part of a

community. The character of the space is divided into two categories. First there is the quick

and simple transaction, in and out of customers with their coffee; and the second is the use of

Starbucks as an auxiliary workspace/office, meeting place or a cosy den.

However, in this public space, most people appear to be isolated from one another, closing

off themselves in their own private space. The focus is on the self-created private space

within a public place. It has been identified by emerging three patterns –

 the creation of the public environment

 the self-creation of the private space within

 the elements of trust

In the fast paced world today, people are generally isolated in the workplace as well as in

their homes. Coming to Starbucks to work or study offers the prospect of being part of a

community without really getting engaged – an invaluable opportunity given our extremely

limited discretionary time. (Starbucks: The Third Place)

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INDUSTRY STRUCTURE:

Coffee is one of the world’s largest commodities. Brazil (22.5 million bags), Columbia (10.5

million bags), Indonesia (6.7 million bags) and Vietnam (5.6 million bags) are the top

producers of coffee in the world.[ CITATION Map99 \l 1033 ]. Many developing nations

depend on coffee to sustain in its local economies. U.S. is the world’s largest importer of

coffee beans and largest consumer of coffee.

There are two main category of coffee, basic and specialty. Specialty coffees are high quality

beans that are roasted, have no defect and processed to produce a unique flavour when

brewed. Espresso, cappuccinos, lattes and iced or flavoured espresso drinks are all examples

of specialty coffee. Specialty coffee industry faced a sudden boom between 1989 and 1999.

The number of specialty coffee retails increased from 585 to 12,000, by the end of 2006,

there were nearly 24,000 specialty coffee stores. Major companies include Starbucks,

Dunkin’ Donuts, Caribou, Coffee Bean and Tea Leaf, and Diedrich (Gloria Jean’s).

[ CITATION Acc10 \l 1033 ]

The major reason for this sudden boom was that American consumer had become

increasingly interested in specialty food and their per capita income was rising. The new

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phase of coffeehouse conveyed friendly, relaxed atmosphere that many consumers found

welcoming. A trend of young professionals hanging out at coffee shops was adopted after the

immense success of television series ‘Friends’ and it’s frictional ‘Central Perk’ cafe. As

Americans taste for specialty coffee grew, other chains more in line with Starbucks

coffeehouse image developed. Some of the players, such as Peet’s Coffee, The Coffee Bean

& Tea Leaf , Caribou Coffee like Starbucks emphasized premium coffee beverages and a

relaxed in-store experience. They also made a point of contributing to social initiatives in the

countries where they purchased coffee. The expansion of all these chains brought specialty

coffee to millions of Americans, fuelling more demand, which, in turn, fed the growth of

independent coffee shop. According to the National Coffee Association (NCA) coffee

consumption is highest in the Northeast, where over 60 percent of the population consumed

coffee daily in 2005.  Per capita consumption is highest in the Central U.S., where coffee

drinkers average 3.7 cups per day.

[ CITATION Acc10 \l 1033 ]

These coffee shops products include beverages as well as complimentary food items. There

are ranges of hot and cold beverages which include brewed coffee and tea, espresso drinks

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(cappuccinos, cafe lattes); cold blended beverages, bottled water. There are varieties of food

products also available at these shops like, bakery items, deserts, sandwiches etc.

INDUSTRY ANALYSIS:

PORTERS FIVE FORCES MODEL - STARBUCKS

(Source: http://www.vectorstudy.com/management_theories/porters_five_forces.htm)

THREAT OF NEW ENTRANTS (HIGH):

In Michael Porters competitive forces, threat of new entrants is how an existing industry tries

to reduce the threat to new entrants to the marketplace by erecting the barriers to entry.

Starbucks has relatively low entry barriers in this industry which would make it attractive to

new entrants for the following reasons:

 There are very low barriers to entry in terms of patents, rights etc. So, any new

entrant entering in to the market has no major problem competing Starbucks.

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  Starbucks has very low economies of scale since it targets the premium customers

and also has many stores through its expansion strategy.

 Capital requirements in terms of setting up a new store- property costs, inventory

costs are not substantial enough to drive down the competition.

 Due to first mover advantage in this industry of creating an “Total Coffee

Experience”, to imitate the idea and the experience can be challenging for the new

entrant.

 Switching costs for the consumers are very low, since all it takes away from the

customers is just the experience and the brand.

THREAT OF SUBSTITUTE PRODUCTS (HIGH):

The potential of a substitute product in the market place depends on the buyer’s willingness

to substitute, the relative price-to-performance of the substitutes and the level of switching

costs a buyer faces.

 With an increase in price, the consumers are willing to change to other substitute

products such as coffee brewed from MacDonald’s, Coffee Bean, Dunkin Donuts

etc.

 Consumers have very low to negligible switching costs which makes it easier for the

substitute products.

BARGAINING POWER OF SUPPLIERS (LOW):

Suppliers bargaining power can reduce a firm’s profitability. This force is strongest when a

firm has few suppliers and when the quality of supplier inputs is crucial for the finished

products.

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  Supplier concentration relative to buyers is large. There are many exporters

competing for the business of few buyers.

 Supplier products are not differentiated. Coffee is a commodity product.

 Supplier products do not have high switching costs. Buyers are free to choose

between many suppliers and most do in order to diversify their product offerings and

hedge.

BARGAINING POWER OF BUYERS (HIGH):

Customers often have substantial power to affect the competitive environment. It is the ability

of customers to put the firm under pressure and it also affects the customer's sensitivity to

price changes affects the bargaining power of buyers.

 Buyer concentration relative to the size of the organization is large.

 Customer’s responsiveness to the price sensitivity is high.

 Competitors in the same industry are high so customers have substitutes in mind.

 Switching costs for customers is very low.

 In these stores more than the coffee, the customers are buying the experience. So, if a

customer is unsatisfied then he would not think twice to switch to a substitute if dealt

with an unpleasant experience.

COMPETITIVE RIVALRY WITH IN THE INDUSTRY (LOW):

For most industries, this is the major determinant of the competitiveness of the industry. For

Starbucks this is low because there are very few competitors in the same league which are

actually competing in the same industry such as Peet’s coffee & Tea and Caribou coffee

Company.

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  Industry rivalry depends on the geographical location and the brand identity. With

Starbucks at every corner of the well-developed cities around the world and with an

established brand name, the rivalry among the competitors is said to be low.

 There are very low entry and exit barriers in this industry since it requires low capital

requirements and low technological requirements.

 With a saturated industry growth the competition is also saturated in the coffee

business. So overall the industry rivalry is said to be low for Starbucks.

Thus, analysing Michael Porter’s five forces gives us an idea in terms of where does

Starbucks stand in terms of its competitors and its growth. Starbucks has high potential threat

of new entrants, low bargaining power of it suppliers, high threat of substitutes, high

bargaining power of buyers and low competition from its rivals. So, given these five forces,

strategically it would be better for Starbucks to put its focus on long term cost

effectiveness, high product differentiation from its rivals through continuous innovation

and focused customers service. Such a Strategic architecture can put Starbucks in a better

stand in the future years to come.

FINANCIAL OVERVIEW FROM YEAR 2000 – 2007

(Source: Case study – Starbucks Coffee Company in the 21st Century)

For the financial year 200-01 the operating margin has increased by 0.9% and the year 2001-

02 margin increased by 1%. The increase could be because of various reasons like high

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competition in market, raw material cost or expansion of business. Other years companies

stood to maintain it market and sustain its market even though there have been more number

of competitors in 2005-07. Operating expenses are very high in year 2000. Expansion of

business is one of the major reasons for increase in operating margin in case of Starbucks.

STARBUCKS- SWOT ANALYSIS

STRENGHTS: WEAKNESS:
 Strong Iconic Coffee Brand  Store over exposure in the US market
 Industry Market Leader  Cannibalization- rapid expansion
 Unique Starbucks experience  Dilution of the original brand image
 Choice of Location  Priced higher than its competitors
 Great customer loyalty  Lack of internal focus with
 Strong corporate ethical values exaggerated effort on expansion
 Global Corporation with deep  Aging top management
pockets- $9.4 Billion in  Standardization in its operations
revenues(2007)  No smoking in all of its stores
 Highly valued employees- “Partners” worldwide
 Good work environment
 Good relations with suppliers
 Company-wide diversity in four
areas: partners, customers, suppliers
and communities.
 Total Quality Control (QC)- in each
step of the value creation process
 Centralized Company operated stores
worldwide- Does not Franchise
 High on Corporate Social
Responsibility (CSR)
 Employee turnover less- 60%
compared to other fast food business

THREATS: OPPORTUNITIES:
 Saturation in the US coffee market  Expansion in to developing global
 Overarching uncertainty in global markets- BRIC (Brazil, Russia, China
economy and India)
 Inflation & increasing income  Expanding its target market for
disparities youngster and teenagers.
 Tough competition from its  Development in coffee brewing
competitors technology
 Negative publicity through media  New distribution channels
 Fragile state of worldwide production
of speciality coffee farmers

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  Consumers changing trends towards
non-caffeine products
 No Franchising option
 Cultural and political issues in foreign
countries

STRENGTHS:

 Starbucks is a strong iconic coffee brand known for providing a unique coffee
experience to all its customers- “Our mission: to inspire and nurture the human spirit-
one person, one cup and one neighbourhood at a time.”
 Starbucks brand elements- logos, icons, symbols, trademarks are in resonance with
the Starbucks coffee in its brand pyramid
 Starbucks spread the gospel of high-quality, customized coffee drinks to urban areas
around the country. The enthusiasm of Starbucks customers helped the company grow
its revenue from about $10 million in 1988 to more than $1.3 billion in ten years. By
2007, the coffee company earned $9.4 billion in revenues through a network of more
than 15,000 stores worldwide with 150,000 employees.
 Starbucks leaders and employees known as “Partners” with in the company, shows
the value for its employees.
 Provides healthcare and stock options for every single employee, something which no
company had ever done before. Result is the happy employees and in turn delighted
customers.
 Providing a unique customer experience increase customer loyalty which inturn
affects the customer life time value and thus the profits to the company. Most loyal
customers visited Starbucks store an average of 18 times in a month.
 Starbucks also provides benefits to the farmers and growers of the coffee sold in
stores around the world.
 Aside from extraordinary coffee, Starbucks has made a business out of human
connections, community involvement and the celebration of cultures where diversity
is valued and respected. 
 From the gate of the coffee farm to the door of the retail store, Starbucks was directly
involved with each step of the value creation process. This lead to the total quality
management on which Starbucks capitalized its resources to profits.

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  In order to control the value chain to the store level, the company exercised even more
control with the decision not to franchise Starbucks stores, only pursued licensing
agreements for stores in commercial locations such as airports, grocery chains and
hotels.
 Starbucks was linked with longstanding efforts to balance profits with social and
environmental responsibility. Starbucks recent partnership with Conservation
International’s (CI) focuses on protecting land, water and forests that surround and
nurture the most important coffee-growing regions in the world.
 Starbucks offered generous benefits to the coffee growers by paying above market
prices, disseminating high standards and providing a higher quality of living to them.
 The 2007 Annual Corporate Social Responsibility report published by the company
states that “65 percent of our coffee was purchased from C.A.F.E. (Coffee and Farmer
Equity) Practices–approved suppliers who are integrating our rigorous standards for
sustainability throughout the coffee supply chain”

WEAKNESS:
 Around every corner and in every shopping complex, there is always a Starbucks
store. To cite an example, even in Singapore on Orchard road there is Starbucks on
every cross roads. This is over-exposure.
 The stores are placed primarily to cater the needs of the consumers in heavy traffic
times of the day to reduce the waiting time. But, this led to “Cannibalization”, where
Starbucks stores are now competing with each other (stealing business and customers
away from other Starbucks locations).
 Starbucks in addition to brewing the coffee also broadened its food menu adding a
variety of breakfast, lunch and desert options.
 To expand consumer awareness was a line of Starbucks branded products sold in
grocery stores, warehouse clubs and other retail outlets.
 Starbucks also expanded in to the world of media with offerings in music, books and
movies. This not only diluted their original brand image but also left the confused
their consumers.
 The top management which started and managed the company for nearly three
decades nearing their retirement, while replacing them with the other staff can weaken
the company to a great extent.

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  With rapid expansion strategy, managing 40,000 stores, close to 172,000 partners and
with standardised policies can be a tight rope walk. If not managed properly can
greatly weaken the company at its core.

THREATS:
 Starbucks serves the premium coffee to its customers at a premium price. But with the
recent global downturn, with people not spending as freely as they had in past and
with available cheap substitutes, can pose a great threat to premium brands such as
Starbucks.
 With MacDonald’s, Dunkin Donuts also brewing the speciality coffee at a low cost to
the Starbucks, there seems to be immense pressure to control the costs and can act as
substitutes posing an immense threat to the company.
 Inflation, unequal income distributions and income disparities on the rise in US and
else where in the world can be a great threat to the company.
 In spite of being a very socially responsible company, any kind of negative public
relations can pose a big threat and can have a long standing affect on the company.
 In Saudi Arabia, the Starbucks had to change its strategic architecture to serve the
local market in a better way. This is moving away from its core value practices and
can be threat to the company.
 With rapid expansion, centralized and standardized operations means a great
challenge and also threat to the core values of the company.

OPPORTUNITIES:
 Majority of the Starbucks stores are based in US and with developing Asian
economies, expansion in to BRIC countries especially China and India can increase
the opportunity horizons and diversify the business to maximize its profits.
 Starbucks alienated teenagers as its target market. But with the rapid globalization in
the developing countries, teenagers and youngsters can serve as the most profitable
target market.
 To achieve economies of scale, re-engineering the processes by innovation and
advancement in technology of coffee brewing machines can act as a great opportunity
for the company.

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  Franchising, Licensing, Joint Ventures, Mergers and Acquisitions can act as a great
opportunity to new distribution channels across the globe giving a cushioning effect in
the operations of the business.

CORE COMPETENCIES OF STARBUCKS:

Definition: Core Competencies refer to the extraordinary abilities that a firm acquires from

its founders, which cannot be easily imitated. Starbucks competencies could be

 The Entire Starbucks Experience

 Employees as “Partners”

 Access to the best Quality Coffee Beans

 Intangible Assets: Strong Brand

COMPETITIVE ADVANTAGE OF STARBUCKS:

Definition: Superiority gained by a firm when it can provide the same value as its

competitors but at a lower price, or can charge higher prices by providing greater value

through differentiation. Competitive advantage results from matching core competencies to

the opportunities.

According to Michael Porter, there are three general choices of competitive strategy to

employ, as showing in the below figure: cost leadership, differentiation and focus (Pearlson

& Saunders, 2009, p.27). The focus strategy emphasize within a single industry segment in

which the orientation may be either toward low cost or differentiation. In pursuing cost

leadership, the company offers an identical product or service at a lower cost than

competition. This often means investment in scale of economies and strict control of costs,

such as overheads, R&D, and logistics. Differentiation, on another hand, takes advantage of

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real or perceived uniqueness on elements such as service & experience. Differentiated goods

and services satisfy the needs of customers through a sustainable competitive advantage. This

allows companies to desensitize prices and focus on value that generates a comparatively

higher price and a better margin.

(Source: http://www.om-pc.com/content/1/1/7/figure/F4)

Starbucks is known for its innovation and strong product differentiation within its

industry. Its differentiation strategy reflects in their stores which provides an experience,

offers interesting coffee-related drinks in a very pleasant atmosphere, the ambiance in the

store, the aroma, the colour of the interiors and their unique Coffee blending and roasting

process which enables to create an extensive product variety. Employees provide excellent

customer service through training (a manager or assistant manager at a Starbucks receives at least 80

hours of training and a barista receives 40 hours of training before they are allowed to make drinks

without supervision) to increasingly coffee-educated consumers, their ability to find the perfect

location for their stores, enabled them to maximize market share in a given area of a city and

thus establishing brand image in the minds of the consumers for which the consumers are

willing to pay a premium. Their cost leadership strategy was exemplified by their supply

chain operations where they received the best transportation rates, and were able to achieve

economies of scale by eliminating redundancy and maximize efficiency.

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 STRATEGY MAP- STARBUCKS
STARBUCK
STRONG
S- Unique HIGH
BRAND &
Coffee MARGINS
HIGH PROFITS
Experience

LARGE
RESOURCES

INVESTMEN INVESTMEN
INVESTMENT T IN INVESTMEN
T IN
IN HUMAN
OPEARTION T IN
MARKETIN TOTAL
RESOUCES FINANCE
BEST G
CREATES S
QUALITY INVESTMEN
TRAINING & BRAND CONTROL T IN
BEST AWARENES (QC) (from LOCATIONS
selection of seeds
PEOPLE S &
BEST STRONG to serving in cup)
& MACHINERY
SERVICE & BRAND
GREAT HIGH
IMAGE EFFICIENCY
EXPERIENCE PRECISION
DELIGHTED HIGH AND SPEED
CUSTOMER MACHINERY
CUSOTMER LOYALTY QUALITY
S RESOURCES

PREMIUM
PRICES

STRATEGY RCOMMENDATIONS:

STARBUCKS STRATEGIES - NOW:

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Howard Schultz bought Starbucks with an aim to introduce European- Style coffee culture to

America. He not only established a new name in specialty coffee industry but also Starbucks

became a synonym for true coffee experience. Actually the real magic happened in 1992 after

the company became public from just 165 stores in and around Seattle; there were more than

10,000 stores worldwide.

Whenever it was coffee it was about Starbucks. Indeed one of the Starbuck advertising right

outside the settle office said “If your coffee isn’t perfect, we will make it over. If it’s still not

perfect, you must not be in Starbucks.” In order to be where Starbucks is right now, it has

pursued different strategic actions. It followed a strategic architecture, which helped them

to identify major capabilities to be built. It was a blueprint for how to turn dreams into reality.

We can put them into different strategies:

EXPANSION STRATEGY:

Starbucks wanted to reach maximum number of customers, it wanted to be seen and to be

available almost everywhere. It not only expanded and opened new outlets within America

but it also did a lot of international expansion. In 2006 company announced operating 40,000

stores around the world. Starbucks aim to increase its Opportunity Horizon and aims to

operate in 53 countries by 2011.

Domestically Starbucks had a wide presence because it applied “Starbucks everywhere”

approach to reach to the maximum customers. In the early 2000s Starbucks increased its

international stores from about 1200 in 2001 to approx 4300 six years later. Starbucks

international expansion strategy includes:

 Create a joint venture with local firms

 Focusing on small number of countries with significant growth potential

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  Careful attention to differentiate in cultural tastes and preferences

DIVERSIFICATION STARATEGY:

Starbucks realized that it was saturating in the US coffee market along with a decrease in

gross profit margin. So, it adopted diverse business strategy to remain profitable and

competitive. It relied in its new product and services as a major driver of future growth. It

diversified in two ways:

 Concentric Diversification: Starbucks started diversifying in the same product line by

developing new Frappacino and Double Shot. Starbuck broadened its food menu by

adding variety of breakfast, lunch and desert options.

 Conglomerate Diversification: Starbucks went beyond the obvious and made alliance

with products unrelated to traditional product offering. It entered the world of media

with offering in music, books and movies. It purchased Hear music and by 2005 it

was selling over 3.5 million CDs a year.

HUMAN RELATIONS STRATEGY:

(Customer Satisfaction and Employee Reorganization)

Starbucks’ strategy places great value on customer satisfaction and employee advantage.

Starbucks keeps a close track on customer needs and wants, introduce new programmes to

increase loyalty among current customer and attract new customers. They introduced a

reward program associated with the Starbucks card, a prepaid card that the customers could

use exclusively for Starbucks purchase. It also had a website called Mystarbucksidea.com to

increase communication between customer and the firm.

Starbucks gives equal importance to its employees; Schultz believed that it had an obligation

to treat its employees with respect. Starbucks has great compensations and even part- time

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workers get benefit packages. There are also various training programs and awards for

efficient employees.

MARKETING STRATEGY:

Premise underlying the marketing strategy had always been that in-store experience lay at

Starbucks heart. Its campaign tended to be high-touch, low-reach efforts that relied on word-

of-mouth. This strategy was radically different other companies, which intend to invest

heavily in mass advertising and product placement. Only in 2007 it came up with its first

television commercial.

In-Store Strategy:

Starbucks made sure that its store are in high-traffic, high visibility locations. It gave

importance to in-store experience and always kept updating as per the needs of the society.

Recently it made its entire store Wi-Fi accessible and making its store design more appealing

and comfortable.

Starbucks foresight, breadth, uniqueness, consensus and action ability are the criteria by

which we judged that Starbucks process a good strategic architecture. Since Starbucks stores

around the globe are company owned with some joint ventures and licensing stores, we also

need to consider that the Starbucks expansion strategy also faces with the challenges of

retaining its core values of service excellence both to its customers and to its employees. Also

we need to consider the external factors of economic downturn where there is a great pressure

to lower the cost and the great pressure to become global.

RECOMMENDATIONS TO STRATEGIES:

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Controlled Growth Strategy: Starbucks should control their rapid pace of expansion since

the current phase of economic downturn affected consumer spending to a great extent. If they

keep expanding at the same pace, maintaining a huge organization under one single roof

would be difficult. Also, if the consumer spending goes down, then the profits also goes

down which will only lead to increase in their liabilities and incurring profits in long run may

not be sustainable. They can take certain measures internationally and domestically which

will affect their growth:

Internationally They Can

 Leveraging its resources by targeting, focusing and balancing processes

 Increase international presence and decrease reliance on US economy

 Necessity to pursue ownership in the coffee resources in countries south of the

United States

Domestically They Can

 Leveraging its resources by concentrating, conserving and recovering processes

 Continue use of product differentiation and location differentiation to maintain

customers’ perceived value for their products.

 Take complete control of the vertical and the horizontal integration of the supply

chain process.

 Manage the value chain’s primary and secondary activities with efficiency and

precision.

POTENTIAL FALLOUTS

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In the process of global expansion, several companies are tracking the same board

opportunity and striving to build roughly similar competencies, the main motive is to

maximise the worldwide market share and thus revenue.

Starbucks is also going through the same phase of worldwide expansion, because of which it

might face the following huddles in the future –

1. Joint Venture - Starbucks has always focused on Joint Venture as an entry strategy

into different countries. This entry mode needs a lot of training, supervising,

management assistance and technology transfer for the partner, along with inability to

engage in global strategic coordination. This became a burden on the mother company

in a later stage. In fact, the first Joint Venture of Starbucks was a failure, so it should

adopt different entry strategies for different countries.

2. Product Innovation and Product Differentiation - The success of Starbucks is not

only to its aggressive expansion but also to its product innovation. Starbucks came out

with new products to attract customers on different periods. But this strategy in future

can lead to very high addition of cost on the company. Moreover, there are following

possibilities –

 Buyer’s need for differentiating factor falls, as buyer becomes more

sophisticated.

 Imitation narrows perceived differentiation. (Porter, 1998)

3. Global Expansion as the Main Focus – This is the most important strategy of

Starbucks to expand as a company and to increase its worldwide market share. But

while focusing on a particular motive can result into –

 The differences in desired service between the strategy target and the

market as a whole narrows.

 Competitors find submarket within the target and out focus the focusers.

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 Thus we can say - focuser can defend against challengers via superior ability to

serve the niche members. (Porter, 1998)

4. Premium Pricing – Starbucks across the world has stood out as the leader in the

pricing of it products. But in the long run cost leadership can affect the company quite

adversely like –

 Taste and Preferences changes that multiplies past investments or learning.

 Low cost strategy of industry new comers or followers, through imitation

or investing in the state of art facility.

 Inability to see market changes.

 With the current economy crisis across the major countries of the world

can result in loss of customers. (Porter, 1998)

5. Propagation as a Global Pre-emption – As Starbucks is expanding globally it should

allocate more of its budget towards advertising for building the brand along with

direct marketing. This helps in communicating the advantages of new products around

the world. If not done so, it will result in drop of sales and revenue of the company.

(Prahalad, 2002)

RECOMMENDATIONS:

1. Organic Foods and Health Drinks 

Starbucks should include organic foods and health drinks in their menu. Modern

people are more health conscious, as new trends begin to focus on health-conscious

marketability. Using more organic ingredients or diversifying their menu would

provide fresh healthy coffee substitutes, thus potentially attracting new customers as

well as increasing the frequency of visits.

2. Catering

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 Starbucks can expand their service to large firms and companies or home delivery

when the purchase size reaches a reasonable minimum. The drive-thru retail store is

increasingly being marketed towards professionals on the go.

3. Community Outreach

Starbucks could refresh their corporate image by showing more concern for the

communities they are located in. Although a huge portion of the population is well

aware of the fact that Starbucks is successful in its endeavours, an extremely small

percentage is knowledgeable or exposed to its community or charity outreach

programs.

4. Product Extension and Specialization

Starbucks could try to extend its menu selection to include drinks related to particular

cultures. For example, the Chinese culture focuses more on tea than coffee, and

although Starbucks has a selection of different types of tea, it could further entice this

consumer segment by introducing boba, a drink that incorporates little balls of jelly

called tapioca. This caters more to local tastes and preferences, which increases

customer satisfaction.

5. Increase Bottled Drinks

Starbucks currently sells bottled Frappuccinos in supermarkets and specialty stores,

which are extremely popular among consumers. Starbucks should increase its product

line of bottled drinks to include other favourites, such as the Iced Chai Tea Latte or

even seasonal drinks, such as the Gingerbread Latte.

6. Increase Selection for Children’s Drinks

Since Starbucks also aims to be a family environment and cater the needs of all family

members, it should increase its menu items for children. It currently offers hot

chocolate and apple cider for children, but it could offer a wider range of products,

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 such as milk shakes or juice, as well as more bakery items that satisfy children’s taste

preferences.

7. Offer Set Mini-meals

Offering value meals similar to fast food restaurants would increase sales because it

increases the average sale per customer. Working men and women come into

Starbucks for something quick and convenient, so if they market mini-meals that

include a latte and a pastry or sandwich together at a set price, it encourages them to

purchase additional items.

8. Market Extension of Starbucks Merchandise

Increasing the Starbucks merchandise line to include more branded items, such as

baseball hats, canvas tote bags, umbrellas, aprons (and other kitchen accessories), not

only increases sales but helps  Starbucks achieve its ultimate goal of becoming the

most recognizable brand in the world. More people will be wearing the Starbucks

logo to show their loyalty and support of the brand, which increases awareness and

helps establish Starbucks as a mega-brand worldwide. (Analysis of Starbucks)

CONCLUSION:
Starbucks foresight to visceralize its strategic architecture was a perfect blend of direction,

destiny and discovery in terms of expanding its business. It needs to maximize its core

product share by developing and acquiring consistent skills and technologies. Though

Starbucks never restructured its strategy, reengineering and reinventing process for a better

performance is the need of the hour. Leveraging its huge resources of providing a unique

coffee experience by focusing, targeting, concentrating, conserving, complementing and

balancing with quality customer service, quality products and minimising its costs can be

helpful for sustaining competitiveness in the market. In order to achieve this Starbucks need

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to synthesize and synergize the core competencies in various aspects of customers,

employees, service and social responsibilities. Starbucks needs to expand its opportunity

horizons and explore the white spaces by expanding its core competencies in an efficient

way. Starbucks need to evaluate whether its core competencies are slowly eroding or are

being strengthened. Corporate strategy must be more than an amalgamation of individual unit

strategies. Because core competencies are at the highest level, longest lasting units for

strategy making they must be central subject of corporate strategy. With respect to Starbucks,

Starbucks certainly needs to expand its business but only at a certain pace where by its core

values and unique selling proposition of “unique coffee experience” are retained and reflected

in every store and in every cup that it brews. If Starbucks remain successful in providing the

same experience to each one of its customers then the global success of the Starbucks

Company in long term is definitely guaranteed.

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