STARBUCKS CASE STUDY
Q.1Threats and Weaknesses of Starbucks
Aside from the premium coffee beverages, Starbucks also offers other beverages products in its stores. However, it faces huge threats that affect the whole operation at Starbucks.
Stiff competition
Starbucks corporates faces a wide range of competition from restaurants and retailers. Just like any other business, competition exists in almost every sector. Starbucks huge threat lies in its pricing strategy as potential competitors for instance, McDonalds franchise have resorted to lowering their prices which eventually attracts a huge number of customers. Stiff competitions results to reduction of Starbucks revenue as well as increased turnover rates in customers.
Imitative Brand and Business Model
Imitation in terms of product branding and business operation affects the consumer’s decision power. Majority of new entrants and existing potential competitions imitate what Starbucks offers in terms premium coffee and other beverages. New entrants at the same time copies the premium coffee beverages while selling the coffer products at a cheaper rate (White, 2019). Existing and potential competitor for McDonalds Franchise offers customers with premium coffee at a non-premium price hence attracting customers whose purchasing behaviors is dynamic. There is a huge threat to Starbucks operations.
Weaknesses
High premium Pricing
Pricing strategy plays a massive role in influencing the consumers purchasing decisions. Starbucks because of its brand offers premium coffee at a high price compared to the market price. From the statistics, Starbucks sells premium coffee at a minimum price of 4$. While other potential competitor’s offers the same premium coffee at a lower price. High premium pricing strategy has led to financial crisis at Starbucks as there is a high customer turnover rates which eventually affects the revenue and the business operations (Bush, 2016).
Generalized and fewer products
Starbucks is well known for its premium coffee beverages however this strategy makes Starbucks rely on solely coffee beans. While McDonalds offers a wide arrange of accompaniments, Starbucks offer generalized product which customers find unreliable. Customers prefer accompaniments especially when one feel to eat. The generalized and few products is major weakness at Starbucks
Q 2 Strategic Issues
Every business gets entangled with strategic issues especially when the business needs to grow or expand. At Starbucks there are different strategic issues which have resulted to management problems both at corporate and functional level.
Conflict of interest
Conflict of interest is a strategic issue that not only occurs at Starbucks but also in other businesses. According to scholars, conflict of interest occurs when one’s interest affects the roles, duties or responsibility at work. This is a strategic issue that Starbucks faces in relation to culture modification. Despite Starbucks strongly opposing the practice, various employees still have their own interest because of the prevailing situation at Starbucks. From statistics, managers whose job is on the line have conflicts of interest despite business putting measure to curb the menace. Apparently, conflicts of interest affect the whole operation in the business. Despite Starbucks addressing the issues in their booklet on page 15, most managers tend to have their own interest that collides with the organizational policies (Good Company, 2020). Starbucks has three levels of function which include: ethical and behavior, corporate social responsibility and corporate governance. Nevertheless, Starbucks employees tend not to abide by the polies because of the financial crisis at Starbucks.
Strategic Competency
Aside from the conflict of interest, Starbucks also faces strategic competency among other strategic issues. Continuous ignorance of strategic issues leads to business failure, reduced revenue, low consumer turnover rates and decline in the market share. Starbucks Corporation in that, at the moment, Starbucks has closed thousands of stores in its outlets. Despite having a huge market share earlier on, currently Starbucks fights to regain its competency level jest because of the strategic competency. The management at Starbucks is responsible for ensuring continuous and efficient running in the business. However, at corporate level there exits mismanagement both at functional level which has led to failure of several functions turned irrelevant.at Starbucks the strategic competency can be dealt with when the management re-strategies on the pricing level and dealing with financial crisis which is a huge threat. (Ambler, 2020) states that, dealing with strategic competency at both corporate and functional level leads to continuous and successful running of the business.
Q 3 “Sign language” Evaluation
Apart from the classical green mermaid branding and normal familiar fresh ground coffee bean, Starbucks has introduced a new service (American Sign Language) that helps that deaf and people having hearing difficulties. That strategies targets areas and institution where there is huge number of deaf people or have difficult in hearing. Especially it benefits the suppliers and the customers in the long run. Starbucks at the moment has opened the stores at various distinct points especially nears institutions where majority of the students have hearing impairment issues. According to the code of practice, the American Sign Language acts as a social ethical issue that incorporates both the abled and those “abled differently.”
I do agree and support the initiative since it’s a strategy which in the long runs peaks volume on Starbucks ethical values and practices. In New Zealand, there is need to adopt the strategy especially in areas leaning institutions where majority are the deaf or have hearing impairments. According to (Wiggins, 2017) New Zealand has about one million people who are either deaf or have impairing impairments. (Leave, 2017) states that the initiative or strategy acts as a means of reading awareness on how people should show empathy to the deaf community.
Starbucks Future Strategic Decisions
The prevailing situation at Starbucks ranging from financial crisis, huge competition, and threats, Starbucks can still regain its stability by making necessary and crucial decisions in terms of maximizing strength, re-strategizing the on the related competency issues. Since Starbucks recognizes the huge threat that exists, the management has to first of all, adopt a new prices strategy. The pricing strategy may focus on attracting and retaining the customers regardless of the small profits the business makes. According to (Lombardo, 2019), Starbucks also, needs to increase production stability, market aggressiveness, and resources access.
- 4 Michael Porter’s Five Forces Model for Starbucks
There are five different models that play a huge role in determining the success of the business. The factors are either internal or external.
Competitive Rivalry with Starbucks Coffee Company
In terms of premium coffee, Starbucks is recognized as global leader since its inception hence it faces a string face of competitive rivalry. Primarily, Starbucks faces external forces from potential competitors for instance McDonald among others. Acceding to (Greenspan, 2019), the external factors include low switching cost, moderate variety of products, and a huge number of firms. The huge number of firms gives Starbucks a leg up in competition however the low switching costs makes have alternatives when it comes to satisfaction. From research the primary competitors are McDonald’s and Burger King.
The bargaining power of Starbucks’s Customers/Buyers
It’s a strong force or strong bargaining power which customers pose. However, due to various factors both in the business, and in the purchasing decision of customers, the burgling powers gets affected by the low switching cost, huge number of available substitute, and a small number individual buyers in new Zealand (Pines, 2006). It gives a strong bargaining power to customers when the prices vary from one business to another, just like in Starbucks situation.
Bargaining Power of Suppliers
(Mohapatra, 2012), states that coffees is the second largest commodity being traded in the whole world. A lot of coffee restaurants rely on coffee beans in making coffee beverages which implies that coffee supplies influence the bargaining power. At Starbucks the supplier bargaining power is not a strong force since only supplier waving quality coffee bean products win the bid. Starbucks experience awake force when it comes to bargaining power of suppliers since there are quite a lot of quality coffee supplies.
Threat of Substitution
Starbucks faces a strong force when it comes to threat of substitution. The threat of substitution is based on factors including: availability of high substitute, low switching cost, and high affordability of substitute products which the new Zealanders have. Customers will resort to other non-premium coffee beverages when there is high threat of substitution (Tanwar, 2013).
The Threat of New Entrants
Starbucks experiences a moderate threat from the new entrants in the market since there are factors that act as potential measure. New entrants require moderate cost of running the business, modest chain of supply and high advertisement and branding cost. It poses a weak threat as new entrant find it hard to both run and establish the business.
The Ansoff Matrix
This is a model matrix developed by H.Igor Ansoff, which also bears the name product/market expansion grid. The matrix acts a platform for strategic planners to determine which model to adopt either in existing and new market. Business venturing in the new market, adopt market diversification and product development while business who aim is to expand in the existing market, adopts product development, and market penetration (Hussain, Latif Khattak, & Rizwan, 2013). By adopting the model matrix, Starbucks will improve its competitive advantage and position.
Market Development
Market development provides means for Starbucks to consider adopting new marketing strategy in the New Zealand market. Starbucks can achieve market development by introducing increasing the sales force activities, promotional prices launching special offers and loyalty programs (Meldrum McDonald, 1995).
Product Development
Not only does Starbucks need to adopt market development but also product development by launching product varieties. Starbucks achieves this by addition of complement and accompaniments in the menu, production of different variants and also repackaging. Adopting such strategies improves competency level and competitive position.
Market Penetration
This matrix model aims at increasing the number of sales in the existing markets. It applies at Starbucks since the business receives mixed reaction from both competitors and customers. Starbucks needs to consider lowering prices, increase its promotional and intuitional effort that results to attraction of customers.
Diversification
This strategy involves, businesses introducing new products to new market which according to scholar is the riskiest strategy. Starbucks at the moment can test the market response in terms of diversifying and introducing new accompaniments. Also it has to stop depending on the current coffee industry and starts forming relate alliances with local suppliers and distribution companies as a means of diversifying.
Porter’s Generic Strategies
Michael porter came up with Porter’s generic strategies as a means of determining the position and direction the business takes. The generic strategy involves: differentiae focus, cost focus, differentiation and cost leadership. The strategies play a massive role in positioning to attain competency position. According to Michael porter, before business adopts the strategy, one has to conduct PESTEL and SWOT analysis which helps in the decision making process (McDonald Meldrum, 1995).
Cost Focus and cost Leadership
Starbucks receives critiques from various stakeholders and customers especially in matters concerning pricing. To improve its competitive position Starbucks needs to target a broader market while giving customers quality premium coffee at a reduced price. According to cost leadership focus and cost leadership one has to lower the prices to the lowest rate in order to retain and attract new customers.
Differentiation and Differentiation Focus
This strategy involves coming up unique products that equally attracts and strands out in the market share. Before other potential competitors imitated the brand and the products, Starbucks had the best premium coffee in the world. They relied on the premium coffee uniqueness to outshine various competitors. However, at the moment various restaurants have adopted the premium coffees strategy at a lower price making Starbucks to lack differentiation focus. For Starbucks to increase their competitive position, it has to firstly reduce the prices, while adding new accompaniments to the coffee beverage.
Q.6 Disruptive Technology and Sustainable Competitive Advantage
Small firms according to scholars adopt disruptive technologies because of allocation of few resources that brings massive outcomes. While the large firms focus on improving and adjusting their products, small firms adopt disruptive innovation and technology as a means of penetrating there market. While each business regardless of the level, struggle in competitive advantage, scholars argue that pressure build when the business adopts sustainable completive advantage. Competitive advantage, acts as baseline or determinant of where the business gets in the future from now. Once a business establishes disruptive technologies, their competitive advantage gets higher since the disruptive innovation depends on vital drivers (Peskette, 2018). Compac technology as much as it utilizes the disruptive technology and innovation, the management knees to consider putting strategic measures in order to improves their competitive advantage. The vital and critical key driver in the disruptive innovation and technology, which Compac needs to adopt, is the focus advantage, value advantage, and cost advantage. Disruptive innovation and technology can be used to improve the competency advantage of Compac by facilitating technological strategic growth. Through disruptive technology, substitute availability, supply power as strategic initiatives gets created which in the long run helps Compac improve competitive advantage.
Reference
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