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MGT604 Strategic Management

  1. Over the duration of the course, you are to monitor news and online sources of opinion to identify three (3) separate strategic influences that together impact on the outcomes of an organisation of your choice. These influential factors may be
    local, national or international in nature, but they must represent a changing or MGT604_Assess 3_Contemporary Analysis evolving story. For example, advances in battery technology, stricter emission controls, and a general move towards sustainable energy has resulted in General Motors (and indeed almost all car manufacturers) actively marketing electric or
    hybrid models for release in coming years. Note this example is not to be used in your submission.
  2. You are to discuss how the practice of strategy categorises these strategic influences, and identify the implications for the organisation in question.
  3. Drawing upon your understanding of theories, models and frameworks discussed in class, you are to identify a strategic course of action to address these circumstances (by either capitalising on positive influences, or minimising the impact of negative influence) in a way that will result in long-term benefit to the organisation. This should include a statement of the firm’s revised goals as a result of this change in strategy.

Solution:

STRATEGIC MANAGEMENT

Executive Summary

The report underneath analyzes Starbucks Business’s implementation of strategic management. Starbuck is the nation’s biggest coffeehouse, dedicated to promoting and nurturing the human condition — one person, one cup, and one community at a time. To gain a deeper understanding of the business’s competitive spirit and the strategy adopted, both the domestic and foreign surroundings are analyzed. As the organization is dedicated to its stakeholders, vendors, workers who are acknowledged as partners, customers and other stakeholders, investors, and the planet needs to be taken into account while designing company’s strategy. This research will concentrate on the technological prospects and suggestions that Starbucks Corporation may undertake.

1. Introduction

Starbucks Corporation, founded in 1985, is nation’s largest coffeehouse chain. It began as a distributor of instant coffee beans in Seattle, Washington in 1971. Despite its overpriced coffee, the company was able to attract large number of investors and represented itself as a profitable business. The company has expanded through time and they’re still the largest coffeehouse brand. They compete in approximately 70 countries and have a market capitalization of $70.9 billion via their 30,626 retail stores worldwide. With the growth in trade flows, this coffee chain now faces increased competition from Dunkin Donuts, Biggby Coffee, Caribou Coffee, McDonald’s, Panera Bread, and Einstein Bagels, as well as Secret Recipe, Old Town White Coffee, and Coffee Bean. Currently, the business environment is extremely competitive. Due to absence of a competitive dominance throughout this industry, being the leading market did not lead to a reduction in competition. Starbucks has spent years striving to maintain a competitive edge and expanding by closely analyzing their consumers’ likes and dislikes. Starbucks’ main challenge is maintaining the Starbucks experience for the customer.  For fifty years, the business has continually grown and changed its strategy to stay viable, which has culminated in the company’s brand growth and expansion (Taecharungroj, 2017). This report attempts to evaluate Starbucks’ tactics and the degree to which they have been successful in establishing themselves through-out globe. The report primarily explains how Starbucks different strategies has enabled the brand to sustain changing business dynamics.

2. Aim

The purpose and significance of this research is to discover how Starbucks’ methods have progressed in this challenging market in order to boost their profits and to uncover the mistakes they encountered, at national, local or international level. Furthermore, this analysis will make predictions for improvement strategies they might implement to prevent problems.

3. Main Discussion: Industry Overview and Analysis

Demand for coffee beverages and snack products is attributed to factors such as discretionary income, per person coffee intake, health beliefs, global coffee pricing, and demography. The growth in per capita coffee intake is a key factor in determining industry demand. Because coffee beans are really the major input in the company’s value chain, their fluctuating costs dictate market costs and company profits. Coffee prices have risen sharply in recent years due to higher commodity prices and resulting supply shortages. Health perceptions also have a role in driving business demand. Consumers are more likely to trend towards good nutrition and diets. Despite the enormous challenges, Starbucks has evolved significantly over the years, from selling coffee beans to offering a diverse range of beverages and other products. The Starbucks Corporation utilized the available profitable opportunity and owns a number of distinctive brands, including Starbucks Entertainment, Starbucks Hear Music, Tazo Tea, and Torrefazione Italia Coffee. This success is attributed to the company’s effective strategic management enabling it to establish objectives for future actions (Rothaermel, 2016). Additionally, the business have established strategies and implemented them while taking into account the characteristics of the market in which they operate (Mason, 2017).

3.1 Competitive Analysis: Core Competencies

Competition has always developed gradually in this beverage market, as monopolies are impossible to retain. Though Starbucks is in a commanding position with a sizable market share in an environment where market value is under constant assault, businesses are needed to devise tactics to increase client acquisition and outwit competition in the market. Starbucks has been reducing competition for a long period of time, and their competitiveness in the market has expanded in recent years. Starbucks’ techniques for outrunning its competition are detailed below:

3.1.1 Customer Experience:

According to a recent poll, Company has created need for coffee drinks. They have just a broad array of products to cater to all kinds of consumers. They not only serve the best cappuccino, but they really deliver a terrific atmosphere. They offer free WiFi and a place to sit. Most of their businesses are larger than most other coffee shops. People are visiting coffee shops more often and work will be easier (Susanty & Kenny, 2015). They even have coffee packets. The coffee chain also developed travel cups for frequent travelers.  Starbucks has become one of the most recognized names in western culture, with a very well baristas, excellent beans, and quick service.

3.1.2 Reward Program:

Starbucks has introduced the concept of a rewards card. Customers obtain credit and receive a variety of benefits with this card (Nguyen, 2020). Starbucks’ reward program revolutionized the coffeehouse industry by enabling consumers to receive free goodies faster. Additionally, Starbucks’ reward program grew to 16.3 million active members in the US market, an increase of 14% year over year (Business Insider Australia, 2020). That is, through rewarding customers, Starbucks is able to grow a sizable client base and convert casual coffee drinkers into permanent customers.

3.1.3 Relationship with Staff:

Starbucks recognized that without their employees, they would be unable to create a positive customer service experience and would be unable to comprehend their customers’ demands. As a result, they have looked after their staff and provided adequate training. Additionally, certain benefits were provided to its employees, dubbed ‘Partners.’

3.1.4 Technological Advancement:

Through social media and digital media, technology can facilitate communication between customers and Starbucks. Starbucks was recently crowned the most engaged brand on Facebook (Business Insider, 2019). Additionally, an iPhone application will be launched to assist customers in locating stores, determining nutrition facts, and enrolling in the royalty card program. Starbucks’ new store model is environmentally friendly, which has resulted in the company being the world’s largest buyer of Fair trade certified coffee and merging with Conversation International to combat climate change.

3.2 Porter’s Force Analysis

Porter’s five forces model enables businesses to ascertain the competitive forces that exist in the market in which they operate (Duke, 2018). These factors help the management in devising a strategy for the sector to pursue while taking these effects into consideration:

Threat of Substitutes: HighStarbucks faces the possibility of replacement items. The threat is growing as competitors develop identical items at the same or cheaper price as Starbucks.
Intense Rivalry: High to MediumThe number of overall domestic or international competitors continues to grow daily, and that is why Starbuck has faced significant rivalry in recent years. The frequency has increased significantly of the development of fast food restaurants offering comparable commodities. Considering the increasing café society and culture, Starbucks is able to stay competitive in this field due to its small five-store footprint and effective business plan. Even though these neighborhood coffee shops offer reasonably priced coffee (Nguyen, 2020). Therefore, it targets consumers.
Threat of New Entrants : ModerateThough it is fairly easy to open a coffee shop or café and the cafe culture has grown globally, there is no global supply chain for these cafés. Small firms lack funds. So, a global brand cannot be compared to fresh rising coffee shops or cafes. Starbucks exploits its economic advantages to supplant tiny local businesses.
Bargaining power of the Supplier: Low to ModerateStarbucks is able to buy items in bulk, such as dairy products, syrups, and paper goods, allowing them to pay less than other companies in the industry. Because Starbuck’s suppliers must offer several goods, there has always been competition for raw resources. As the world’s largest coffee brand, suppliers don’t haggle (Panmore Institute, 2018). 
Bargaining power of the Buyers: Moderate to Low  Customer can select their beverages at Starbucks, that draws a particular type of customer, and this type of customer raises the bar for Starbucks in comparison to its competitors in this industry. Few buyers choose a low-cost product, and for those who do, there are numerous low-cost possibilities. As a result, customers frequently switch from Starbucks to rival coffee shops. However, the range of beverages available at Starbuck’s may not be accessible at a competitor’s location. Thus, consumers have bargaining power, but it is restricted by their beverage preferences. Starbucks rates their beverages according to their target clientele in this situation, and the diversity of goods always entices them to return.

3.3 The need for Strategic Change

Starbuck Generic Strategies: Organizations change and struggle for same resources, skills, and consumers.  Business companies need to change to survive. For example, Starbucks has led the market in specialty coffee for over a decade. In actuality, Starbucks wasn’t the only organization in this field.  Others also compete for the same market and resources, which are likely to compete with Starbucks and others already in specialty coffee.  Starbucks maintained its leadership in specialty coffee through its following strategic moves: 

5.1 The Organization’s Ambition: Starbucks’ prime focus was to be the world’s leading coffee shop chain and to grow their operations globally.

5.2 Positioning (Niche Market): Starbucks’ owners discovered that so many coffee drinkers were disappointed with the current alternatives and desired to crush their own beans at home. The creators, who love coffee, could connect to all those people’s struggles. So they built the first physical stores selling real coffee beans to a little subset of gourmet coffee connoisseurs (Mohammed, 2018).

5.3 The Targeted Customer: Starbucks has almost always maintained a focus on customer satisfaction. They always want their consumers to stay with them for a longer amount of time, which is why their goal was to meet their demands through the use of new innovations that were superior to their competitors. By providing ample space and complimentary WiFi, they hope to ensure that customers spend the maximum amount of time either socializing or getting work done.

5.4 Divisional Plans: For any organization to succeed, the integrated reporting must be competent and in sync with all departments. Starbucks has done so, and its departments develop strategies with the other departments in mind (Gupta, 2020).

5.5 Performance Analysis: Starbucks has long been cognizant of the importance of performance analysis. The managers pay surprise visits to the coffee shops to ensure that work is being completed as planned and to analyze the coffee shops’ performance. This also enables them to gain a deeper understanding of their clientele.

5.6 Internal brand culture: Howard Schultz instituted a ‘Mission Review’ system, whereby every worker in every shop was provided a postcard-sized comment card and encouraged to report any decisions that were made against the brand’s mission. This became his technique of showing company’s commitment to the objective. Determination to preserve high standards and good communication with employees helped him realize the strategy. Howard fostered a respectful environment, which was vital to Starbucks’ mission. He provided his colleagues sufficient freedom to think, explore, make judgments, and apply their knowledge and skills (Garthwaite et al., 2017).

3.4 Strategy Implementation

Starbucks is committed to the Company’s growth through product innovation, diversity, technical advancement, and an awareness of client preferences. It takes a scientific and systematic approach to the company’s financial growth, ethical management, employee satisfaction, and customer satisfaction. Starbucks has developed numerous new innovations, including online services, revolutionary technology for enhancing the quality and speed of coffee preparation, and the introduction of Wi-Fi access in coffee shops. Employees were treated with respect and all of their concerns and issues were taken into account. Starbucks refers to its employees as ‘Partners,’ and the firm considers their perspectives as well. They are equipped with the necessary aids to ensure their comfort while working. Starbucks is constantly concerned with the cleanliness of the meals they serve to their consumers. (Clements, 2019)

4. Conclusion

To summarize, Starbucks is a well-known and well-positioned company. Starbucks is well-positioned to use its brand recognition and dedicated customer base despite rising competition in recent years. Starbucks’ strategic position in the industry has been revealed using Porter’s five forces analysis and SWOT analysis. Starbucks does not only sell coffee; it offers a full experience to its customers, which keeps them coming back time and time again. It establishes Starbucks as a leader in this industry, but it is not set in stone. As a result, it is critical for Starbucks to continue analyzing and modifying the business in order to continue catering to the needs of the customers.

5. Recommendations

Starbucks should take note of this advice to maintain a strong market position:

  • Starbuck can lower the price of morning coffee to compete with competitors like Gloria Jeans.
  • Many people enjoy Starbucks coffee and wish to make it at home. However, Starbuck currently sells ground coffee that does not work with capsule machines. Starbucks can launch a new line of products for automatic coffee machines.
  • Starbucks can enter into a deal with another company to use Starbucks’ brand recognition and receive a royalty.
  • Starbucks may obtain their coffee ethically and utilize it to market. This will appeal to people who support ethical sourcing. Some go for the experience, while others go for the drinks. So they must ensure that the experience does not change and that the product variety does not change. Not every Starbucks outlet needs to serve everything. The demographics of the customers serviced by each store can be statistically analyzed to serve food and items properly.

References

Clements, M. (2019). Strategic Audit: Starbucks.

Duke, D. (2018). Porter’s Five Forces and the Coffee Industry. Management Teaching Review, 3(3), 241-251.

Garthwaite, C., Busse, M., Brown, J., & Merkley, G. (2017). Starbucks: A story of growth. Kellogg School of Management Cases.

Management Study Guide (2021). Steps in Strategy Formulation Process. Available from <

https://www.managementstudyguide.com/strategy-formulation-process.htm>. [Retrieved on 11 August 2021]

Mason, A., Cole, T., & Goza, N. (2017). STARBUCKS: A CASE STUDY OF EFFECTIVE MANAGEMENT IN THE COFFEE INDUSTRY. Journal of International Management Studies, 17(1).

Panmore Institute, (2018), Starbucks Coffee Five Forces Analysis. Available from <

http://panmore.com/starbucks-coffee-five-forces-analysis-porters-model>. [Retrieved on 11 August 2021]

Nguyen, T. (2020). Starbucks Loyalty Reward application in Vietnam–identifying the impact of the app on Starbucks’ customers in Vietnam using the technology acceptance model.

Rothaermel, F. T. (2016). Strategic management: concepts (Vol. 2). McGraw-Hill Education.

Susanty, A., & Kenny, E. (2015). The relationship between brand equity, customer satisfaction, and brand loyalty on coffee shop: Study of Excelso and Starbucks. ASEAN Marketing Journal, 14-27.

Taecharungroj, V. (2017). Starbucks’ marketing communications strategy on Twitter. Journal of Marketing Communications, 23(6), 552-571.

Mohammed, S., (2018). How Did Starbucks Build Its Sustainable Competitive Advantage? -Business Strategy and The Key Success Factors. Available from <https://shahmm.medium.com/how-did-starbucks-build-its-sustainable-competitive-advantage-79ff5eedb5ff>. [Retrieved on 11 August 2021]

Gupta, A. D., (2020). Strategic Human Resource Management: Formulating and Implementing HR Strategies for a Competitive Advantage. CRC Press.

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