STRATEGY ANALYSIS

Starbucks' corporate, business, and functional strategy

STRATEGIC MANAGEMENT 2

by
Wilfred Shayoya

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 TABLE OF CONTENTS
LIST OF FIGURES........................................................................................................................iii
1.0 Introduction................................................................................................................................1
1.1 Corporate Level Strategy...........................................................................................................1
1.1.1 Partnership...........................................................................................................................1
1.1.2 Expanding global markets...................................................................................................1
1.1.3 BCG-Matrix........................................................................................................................2
1.1.4 The Ansoff Matrix...............................................................................................................2
1.1.5 Diversifying product portfolios...........................................................................................4
1.2 Business Level Strategy.............................................................................................................4
1.3 Function Level Strategy.............................................................................................................5
1.3.1Porter’s generic model.........................................................................................................5
1.3.2Role and responsibilities of different departments...............................................................7
1.4 Conclusion.................................................................................................................................7
REFERENCES................................................................................................................................8

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 LIST OF FIGURES
Figure 1: BCG Matrix…………………………………………………………………….. 4
Figure 2: Ansoff Matrix…………………………………………………………………… 5
Figure 3: Porter’s Generic Model………………………………………………………….. 6

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 STRATEGY ANALYSIS
1.0 Introduction
This section examines Starbucks' corporate, business, and functional strategy. Corporate strategy
is the firm's medium to long-term orientation. The business or competitive strategy involves how
well the business competes, or how it earns short-term profits (Boardman and Vining, 1999).

1.1 Corporate Level Strategy

Starbucks aims to defend and, if possible, enhance its market position against rising competitors.
Starbucks' long-term strategy is to defend against domestic and foreign competition and expand
market shares. Competition will no longer tolerate the company's virtually unrivalled market
position over the past two decades. McDonalds and Dunkin Donuts are trying to topple
Starbucks. Starbucks uses long-term strategies to contain competition (Hoskisson, 2000).

1.1.1 Partnership
Starbucks was a co-initiator of the late 1960s/early 1970s global coffee craze. Despite its
heritage and coffee-making skills, the company needs outside aid to grow. Starbucks' alliances
with key strategic partners have enabled them enter new markets, develop worldwide, and
acquire intellectual property like the Clover Brewing System. Starbucks may level the
competitive landscape and diversify its product portfolio through direct or indirect acquisitions.
Starbucks may use agreements and acquisitions to expand in emerging nations (Johnson &
Tellis, 2008).

1.1.2 Expanding global markets

Starbucks opened its first store in Japan two years after its IPO. With more funding, the firm set
out to dominate the world. Ten years later, it had 8,569 stores. Most of this growth came from
international expansion, which was first limited to Europe and Australia. Early 2000s expansion
into developing countries began despite low client incomes. Starbucks refocused its efforts on
emerging regions when the global financial crisis halted sales in 2008 (Beckett, Agarwal &
Jargon, 2011).

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1.1.3 BCG-Matrix
Starbucks might develop a strategic tea business unit, as suggested; tea sales are big in Britain
and Ireland. According to Tietjen (2013), Starbucks has mastered the coffee business and must
now focus on tea. Starbucks coffee is a "Cash Cow" that brings profit without further investment
or effort. The introduction of tea would be a "question mark" with a low market share and fast
growth rate. If more tea products are successful in India, they could join the "Cash Cow" as a
"Star" category. While the Boston Consulting Group Matrix allows us to have an idea of where
products or services stand, it has faced several criticisms such as the fact that one cannot always
be sure whether an industry is mature or not and misjudge the product placement.

High Low

Question Marks Stars

Low
MARKET GROWTH

Tea products

Dogs Cash cows

Coffee products
High

High Low

RELATIVE MARKET SHARE

Figure 1: BCG Matrix applied to Starbucks' products

1.1.4 The Ansoff Matrix

It has been said that the BCG matrix persuades companies to excessively focus on market share
and missed opportunities (The Economist, 2009) and, therefore, Starbucks must use it in
combination with the Ansoff Matrix illustrated below in its quest to enter the Indian Market.
According to The Guardian (2014), Starbucks is aiming to increase their evening sales since
coffee before bed is unpopular by introducing the sales of alcohol beverages such as wine or
beer. Following the Ansoff Matrix shown below, this strategic move could be qualified as
product development or even diversification since it would be leaving the coffee market and
becoming an evening bar industry.

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 PRODUCTS
Present New
Present

Market Penetration Product Development

MARKETS

Market Development Diversification

New

Figure 2: The Ansoff matrix

After a false start in 2007 with an Indonesian franchise partner and the Indian Future Group,36
Starbucks finally announced its plan to enter India in 2011 (Beckett, Agarwal & Jargon, 2011).
Early entry has several benefits (Luo & Peng, 1998) such as access to critical resources and
markets in an Indian perspective (Rahman & Bhattacharyya, 2003). Starbucks has to be cautious
due to the earlier missed opportunity, and therefore enter India through a 50% apiece joint
venture with a company such as Tata Global Beverages, branded as “Starbucks–A Tata
Alliance.” The selection of a local partner in emerging markets is primarily a crucial step in
establishing a successful business there (Agarwal, 2012). For Tata Starbucks Ltd, the coffee will
be sourced and roasted locally It will be the first time that the enterprise runs an outlet based on a
partner-owned roasting facility outside its plants. The case will be a typical example of
collaboration between an emerging market firm and a firm from a developed country. Starbucks
offers the conventional resources of a company entering emerging markets, such as technical
capabilities, intangible resources, and willingness to share expertise, what is demonstrated
clearly through a strong brand (Hitt et al., 2000).

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Starbucks’ specialized technical knowledge in building unique stores is beneficial for its global
operations. The outlets provide the atmosphere of a local coffee shop rather than that of a fast
food restaurant (Wilson, 2014). Tata offers access to India-specific resources, local market
knowledge, and a strategic network (Hitt et al., 2000). Through this alliance, Starbucks can also
obtain the expertise to deal with an unknown institutional environment, which is an additional
strategic advantage Peng et al., 2009).

1.1.5 Diversifying product portfolios

Starbucks has expanded its product line to boost sales and hedge against coffee consumption
slumps. The company began selling coffee in 1971 and currently sells groceries, teas, coffee-
making equipment and music CDs (Kluyver, 2010).

1.2 Business Level Strategy

This section describes how Starbucks develops demand and gets a competitive edge without
delving into each region's business strategy. Starbucks' strategic position and value chain are
useful here (Boardman and Vining, 1999). Starbucks' differentiation approach is supplying a
wide choice of products (rather than low prices) to a large consumer base (as opposed to a
narrow customer group). A corporation with a differentiation strategy strives to be distinctive in
its industry along buyer-valued criteria. It chooses one or more traits that industry buyers value
and positions itself to suit those needs (University of Cambridge, 2014). Starbucks positions
itself as a premium coffee maker to stand out in its business. Customers appreciate the company's
high-quality coffee, welcoming atmosphere, and modern image. Starbucks may charge premium
prices because of this (Vanderborg, 2013).

Differentiating products creates demand. Changing competitive scope best illustrates this. While
the company started as a simple coffee seller, it has expanded into a restaurant-like business
model, selling food and drinks. Starbucks consumers now also enjoy pastries and sandwiches in
addition to coffee. Starbucks adds quality (vertical differentiation) to its products and service
using innovative process and product technology (e.g., Starbucks Roast®, Clover® Brewing
System) (Kluyver, 2010). Selecting high-grade Arabica coffee beans from trustworthy farms
ensures input quality. The company will become more production-focused than marketing-

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focused. Starbucks will focus on word-of-mouth instead of traditional marketing. The coffee-
making process is more significant than the final product; hence the company will be process-
oriented. Starbucks leads and follows in technology. Starbucks Roast® coffee beans have set
new quality standards. Starbucks sold K-Cups (not invented by Starbucks) long after Nespresso's
Grands Crus (Agarwal, 2012).

1.3 Function Level Strategy

Functional level describes a company's operational activity and generates profit or loss.
Production, organisational, and financial strategies make up the value chain strategy. Previous
sections explored marketing and retail techniques. Starbucks outsources the entire production
process to suppliers. Starbucks does not farm or package. Instead, it forms long-term
partnerships with farmers, exporters, brokers, roasters, warehouses, and packaging
manufacturers. Key account managers oversee the production process. Starbucks selects, roasts,
and packages beans. This ensures quality and brand identity (Kluyver, 2010).

Starbucks reduces expenses by exporting production to companies with more experience. It also
allows the corporation to focus on selling its products through wholly-owned and licenced stores
and online. Starbucks' organisational strategy describes employee decisions. Starbucks is seeking
for people abilities. The organisation provides meaningful positions, a great work environment,
and fair pay and benefits (Starbucks Corporation, 2014).

1.3.1 Porter’s generic model

Porter (1980) highlighted three techniques businesses utilise to gain and maintain competitive
advantage. Strategic scope and strength define these three generic strategies. Strategic scope
looks at the size and makeup of the target market. Strategic strength is a supply-side
characteristic that measures a company's core expertise. Porter felt product uniqueness and
affordability were most essential (efficiency). Research on the financial impact of marketing
strategy found that enterprises with a high market share were often profitable, as were many with
a low market share (Rahman & Bhattacharyya, 2003). Moderate-market-share firms were least
profitable. This was called the middle-hole problem. Porter explains that firms with high market
share adopted a cost leadership approach, while firms with low market share segmented to focus

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on a narrow but profitable market niche. Middle-market firms were not profitable since they
lacked a generic strategy.

Combining strategies works once. Combining market segmentation and product differentiation
can help match Starbucks’ product strategy (supply side) to target market segments (demand
side). Combinations like cost leadership and product differentiation are hard to implement due to
the potential conflict between cost minimization and value-added differentiation. Since then,
some observers have differentiated between low-cost and best-cost techniques. Low-cost
strategies rarely provide a competitive advantage, they say. Price wars are common among
companies. They favour a best-cost strategy. This means offering the most for the least. The
figure below shows a company's "generic approach" options. A firm's competitive advantage
(cost leadership vs. differentiation) and competitive scope determine its industry position.
Competitive scope distinguishes between enterprises targeting wide industry segments and firms
concentrating on a specific section.

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Generic strategies are valuable because they characterise strategic views at the simplest and
broadest level. Porter contends that gaining competitive advantage requires a firm to make a
choice regarding the type and scope of its competitive advantage. There are varying hazards
associated with any generic strategy, but being "all things to all people" is a sure formula for
mediocrity - getting "stuck in the middle".

1.3.2 Role and responsibilities of different departments

Starbucks' organisational structure includes a functional hierarchy that groups employees
according to job function. The coffee company, for instance, includes divisions for marketing,
finance, and human resources. The prominence of these divisions is greatest at the top of
Starbucks' organisational hierarchy, such as at the corporate headquarters. Hierarchical describes
this trait. All company cafés must follow policies put in place by the corporate HR division. The
CEO is at the top of the functional hierarchy of the corporate structure, which permits top-down
monitoring and control. The creation and execution of Starbucks Corporation's general
competitive strategy and intense growth initiatives across the entire organisation is the
responsibility of functional groups.

1.4 Conclusion
Starbucks does have various marketing strategies which generally rely on customer loyalty and
word of mouth or the ethical considerations of the company along with involvement in the
community. Internal factors can be analysed thanks to the expanded marketing mix and core
marketing strategy analysis, and the PESTLE study provides a summary of the external
environment. While Starbucks is still perceived as a luxurious and responsible brand, there are
several issues arising and putting their competitive advantage in danger: the perception of tax
evasion or mass-production is hurting the brand's image and dissuading customers to purchase
their products. In the future, Starbucks must return to their core marketing strategy and focus on
their customer's individual needs and wants.

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REFERENCES
Agarwal, S. (2012). India’s First Tata Starbucks Cafe to Open by October End. Livemint.

Beckett, P., Agarwal, V., & Jargon, J. (2011). Starbucks Brews Plan to Enter India. The Wall
Street Journal.

Boardman, A., Vining, A. (1999): A framework for Written Comprehensive Strategic Analysis.
[Online]. Available from http://pptlab.com/attachments/25/1.strat_analysis_framework.pdf
(Accessed: 04.04.2022)

Hitt, M.A., Dacin, M.T., Levitas, E., Arregle, J.L., & Borza, A. (2000). Partner Selection in
Emerging and Developed Market Contexts: Resource-Based and Organizational Learning
Perspectives. Academy of Management Journal, 43(3), 449–467.

Johnson, J., & Tellis, G.J. (2008). Drivers of Success for Market Entry into China and India.
Journal of Marketing, 72(3), 1–13.

Kluyver, C. A. D. (2010). Fundamentals of Global Strategy. New York, NY: Business Expert
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Luo, Y., & Peng, M.W. (1998). First mover advantages in investing in transitional economies.
Thunderbird International Business Review, 40(2), 141-163.

Mitra, M. (2014). How Starbucks is Localizing to Crack the Indian Coffee Chain Market.
Economic Times.

Peng, M.W., Sun, S.L., Pinkham, B., & Chen, H. (2009). The institution-based view as a third
leg for a strategy tripod. Academy of Management Perspectives, 23(3), 63-81.

Porter, Michael E. 1980 Competitive strategy New York: Free Press.

Rahman, Z., & Bhattacharyya, S.K. (2003). Sources of first mover advantages in emerging
markets–an Indian perspective. European Business Review, 15(6), 359-369.)

Starbucks Corporation. (2014). Starbucks Evenings – We Love Seeing You a Little Later.
Seattle, WA: Starbucks

Tietjen, D. (2013) 'Starbucks buys Teavana. First coffee dominance, now tea?', The Christian
Science Monitor, 23 October [Online]. Available at:
http://www.csmonitor.com/Business/2013/1023/Starbucks-buys-Teavana.-First-coffee-
dominance-now-tea (Accessed: 04.04.2022).

University of Cambridge (2014): Porters Generic Competitive Strategies. [Online]. Available

from http://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-strategies/
(Accessed: 04.04.2022).

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Vanderborg, C. (2013). Starbucks to open at least 3,000 stores over next five years, China to get
1,500 stores by 2015. In: http://www.ibtimes.com/starbucks-open-least-3000-stores-over[1]next-
five-years-china-get-1500-stores-2015-1142647 (Accessed: 04.04.2022).

Wilson, M. (2014). Can Starbucks Make 23,000 Coffee Shops Feel Unique? Fast Company.