Starbucks: Business Model And Strategy

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Starbucks: Business Model And Strategy

Introduction

The company that I have chosen to research is Starbucks. The company that I work for does not have information that is public so I was unable to use them. When thinking of what company, I should research, I chose to research Starbucks because that is usually my go-to coffee shop. While I frequent this coffee shop, there is not much that I actually know about the company behind the scene and get a better understanding of who the company is. Starbucks has come a long way since the very beginning and is continuing to grow both in the United States and Internationally.

History

Starbucks was founded by Jerry Baldwin, Gordon Bowker, and Zev Siegal in 1971 and started as just one store in Seattle’s historic Pike Place Market. The founders came up with the name from the novel Moby Dick written by Herman Melville. In 1983, Howard Shultz, CEO of the company, went to Italy and was inspired by their Italian coffee bard and the romance of the coffee experience. He then decided to bring those techniques back to the United States. Shultz then decided to leave the company for a few years to start his own coffeehouse. However, he returned in 1987 and bought Starbucks with other local investors.

Mission, Vision, and Goals

Starbuck’s mission is to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time (Starbucks, n.d). As stated on their website, they wish to create a culture of warmth and belonging, where everyone is welcome. Doing this in ways such as great season beverages, Christmas cups, and specials throughout the year. As well as acting with courage, challenging the status quo and finding new ways to grow the company and each other. Being Present, connecting with transparency, dignity, and respect. Delivering the very best in all that is done, and holding oneself accountable for results (Starbucks, n.d). Starbucks is very proud of its employees and holds high expectations for them. Taking care of them by offering great training, room to quickly advance within the company, as well as help with schooling. While they do demand the most out of their employees, they will back them with rewards and support. Starbucks desires to have that connection with each customer, their mission is not just about sales and coffee, but about the customers and the impact, they have on each person. This is all in the belief that if they have a positive impact on those that come in the shop they have a chance to become part of their everyday schedule.

Starbucks is the largest coffeehouse chain in the world and that somewhat has to do with the brand and products that they have to offer. The company has never stopped exploring options that will appeal to its customers and bring in more business. They have become a company that holds almost a status symbol within the market. They are looked at in the same way as Apple. They lead the field in success and everyone is trying to catch them. Coffee is not the only product that Starbucks has to offer. They also have a number of teas and a small menu that includes breakfast dishes and treats. Though the product does have a lot to do with the success of the company, there is also their branding strategy that definitely rests on several pillars apart from great production and marketing as well as a well-managed supply chain (A, Pratap, 2019). Starbucks is a mix of company-owned and franchised stores. This has proven successful for the company due to having a great focus on their quality in all areas ranging from sourcing to production, sales, and service. Not only are they focus on full storefront but are huge in partnering with colleges, malls, airports, and even stadiums to but in smaller stores with limited menus to bring their products to as many people as possible in all settings.

Since the start of it all, Starbucks has focused mainly on the quality of its products, and this has not changed over time. Starbucks has a higher price point but this is because of the quality of the products they are selling. Although their prices may be higher than some competitors, their customer base does not mind paying more because they know they are paying for the quality of the product they will be receiving. Starbucks Customers are the company’s core focus and their level of commitment is noticeable when walking into a Starbucks coffee shop. While customers mean a lot to the company because without them, the company would not be as successful, the employees are just as important. Starbucks makes sure that the employees are happy because happy employees will be willing to give their best while at work and the company is dedicated to providing an excellent work environment. With a focus on giving them a voice and the ability to be creative at home, they do things. All of these lead to happy employees that love to stay with the company for a longer term. There are a number of other influences that make Starbucks so successful. To simplify it, their customers and employees are what help make the company so successful. As we can see, by how many Starbucks are around, Schultz’s business model has proven successful for him and the company.

External Factors Analysis

Political

The main political factor Starbucks faces is sourcing raw materials. Politicians in the west and the source countries of these raw material has gained a lot of attention. Starbucks should follow the social and environmental norms (PESTEL analysis contributor, 2016). In all of these factors is outs Starbucks in the middle of watch tariffs in not only this country but others. They have to play the political market more than other companies in the industry because changes in other countries have a bigger impact on them being multinational companies.

Economic

A global economic decline is a major external economic influencer for Starbucks. Because of this global decline, Starbucks’ profitability may be lacking. Buyers will pursue cheaper alternatives to cut down costs. If the consumers quit buying coffee, Starbucks may look for other opportunities such as marketing sales and lowering prices to be more competitive in the market. Starbucks has also introduced Seattle’s best coffee that can be found in gas stations and fast food that is a lower quality of Starbucks coffee but is still a way to make the company more money off of more economic levels of customers.

Social

Some social impacts that Starbucks could face may be forfeiting the quality of its product to adapt to the economic challenges. A socio-economic advantage to giving up quality would be opening up their customer base to include buyers who are lower and middle-income status. Starbuck is also viewed as a status symbol by some people. When they walk into the room with coffee on the go people will judge them as being high status or even trendy if they chose this company over a cheaper one such as a local gas station.

Technological

Presenting Wi-Fi capabilities, consumers can now use the internet and work, which will promote sales of products and keep consumers in their stores longer. Enhancing the consumer experience will also add value to the brand. Starbucks takes advantage of the ever-changing technology and creates an app for their customers. This app can do a lot for its customers, it can show great new offers, display the menu, offer a loyalty program, even offer surveys for its customers to earn points to get to a fee item. It also is big in cutting down wait times for people that before could not afford to wait in line in the morning. They can put in an early order through the app and not have to wait in line once they arrive. Technology can really help the company reach the next level with customer service.

Environmental

Activists and international advocacy groups are concerned about Starbucks ‘ business practices. Consumers have also expressed issues with Starbucks ‘ environmental practices and the firm should consider this while maintaining consumer trust. (PESTLE Analysis of Starbucks, 2015). The biggest political factor is in regards to sourcing raw materials. Because there is a lot of attention from politicians in the West and from the source countries, the company wants to adhere to social and environmental standards (PESTEL analysis contributor, 2016). Starbuck has also tried to become more friendly for the environment with cups that are made of recycled material as well as straws that can easily break down and not pose a threat to wild animals.

Legal

Starbucks must be hardworking not to violate any laws or regulations in its home market or countries where they are buying raw materials. Caffeine and consumption-related policies and regulations by health authorities will be imperative for the firm to pay attention to. Being a company that is in multiple countries they also have watched that they follow laws and policies in every country they are in.

Internal Factors Analysis

Strengths

Quality, profitability, and ethicality: Starbucks has made itself known as a premium coffeehouse chain. The products they sell are premium quality, the company is also environmentally friendly, and pretty consistent between locations. Due to this, they are able to charge customers higher prices, which as seen, most people are willing to pay. This means large profits as well as being globally recognized as one of the best coffee shops chains Bush, 2016).

Efficiency and reinvestment strategy: many of the profits that the company makes will go right back into expanding the business. This is obvious due to the increase in the number of locations that Starbucks has. As we can see, the corporation has a well-planned growth strategy, which is working well for them (Bush, 2016). One of the ways they are looking to expand is getting in with Keurig to get their coffee into people’s homes easier.

Employee treatment: Starbucks is known for treating its hundreds of thousands of employees very well, and has previously been listed as one of Fortune’s Top 100 Places to Work For (Bush, 2016).

Weaknesses

High Price Point: While their high price point can be a strength, it can also be a weakness. Their high prices may discourage customers from coming in and purchasing their products. Starbucks has a number of good qualities but some of their potential customer bases may not be able to afford that kind of money on a cup of coffee (Bush, 2016). The addition of greater reward programs and deals on its app has helped with this problem.

Lacking in a lot of unique products: Starbucks has a variety of products they offer, but they do not necessarily have the most unique market. For example, there are other chain restaurants that offer the same if not very similar products with a different name and cheaper price (Bush, 2016).

Opportunities

Global Expansion: Starbucks does have a number of stores around the globe. However, at this time most of them are within the United States. Starbucks should consider branching out to other regions such as India, Africa, or Central Europe (Bush, 2016).

Adding new products: Starbucks, while this has already begun, could really profit from selling their own branded products in retail stores other than their own. For example, they could sell not only their coffee beans but also other merchandise at local grocery stores (Bush, 2016).

Threats

Competition: Dunkin Donuts and Mcdonald’s are very big global companies that directly compete with some of the products that Starbucks sells. While they do not offer the premium quality that Starbucks has to offer, they do sell similar products that are not quite premium quality but convenient and cheaper (Bush, 2016). There are also up-and-coming companies such as Biggby that are having impacts on Starbucks ‘ bottom line.

Value Chain

The business management concept of the value chain was introduced by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance in 1985. He stated that a value chain is a sequence of activities that intends to create and add value to a product at every step during the production process. Value-chain business activities are divided into two activities, primary and secondary. The main activities are related to the creation of goods and services, while the support actives help in enhancing the efficiency and work to achieve a competitive advantage amongst their peers. As an example, Starbucks began with one store in Seattle in 1971 and is now the most recognized brand in the world (Bajpai, 2019).

Intellectual Property

Intellectual property rights refer to the general term for the assignment of property rights through patents, copyrights, and trademarks. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period (OECD Statistics Directorate, n.d.). Starbucks intends to own exclusive rights, including all intellectual property rights, to any work they create or have created from the idea or a similar idea of its own. Both Starbucks and other companies will need to pay careful attention to make sure they are not copying something that is already trademarked or patented by other companies. For example, a New York City Café had sued Starbucks over the Unicorn Drink Trademark because the café had filed a trademark application for “Unicorn Latte” in January of 2017. There was a settlement and the café agreed not to sue Starbucks. Starbucks does have a hotline and specific e-mail that they are constantly checking on any information on possible breaks in intellectual property.

Financial Health

Starbucks had reported earnings that outperformed its expectations which raised its outlook for the year. This is due to the sales within the United States and the sales growth in China was stronger than they had expected. The company has really done well with launching new products and marketing for those products, Starbucks has really proved its success both within the United States and internationally, especially in China.

Business Strategy

A differentiated culture is also one of the major strengths and a central pillar of Starbucks’ business model and strategy (Pratap, 2018). Starbucks has explained a few of its most important traits that outline its culture. Customers and customer service are at the core of their culture and it is apparent when you go into one of their stores. Some other critical traits that define Starbucks culture include inclusion, transparency, courage, dignity, respect, integrity, and accountability. It is not just about the customers, but the culture at Starbucks is meant to make its employees whom it calls partners feel included (Pratap, 2018). A strong culture and mutual standards keep the entire organization together and help create an atmosphere of trust. This, in turn, increases the efficiency of the organization and also gives it the strength to take on new challenges. It brings accountability and unity which is critical for companies that are competitive and taking on more of a challenge. A strong culture has some other great benefits too. Sometimes, it is the best tool to form a strong customer connection (Pratap, 2018). Customers are important but so are its employees, the employees are treated well and will therefore give their best and provide a good work environment. It is imperative that Starbucks continue to be innovative to keep up with competitors. To ensure differentiation, the company needs to continue to stand out with its specialty products, such as healthy options like salads and wraps, or dessert items that do not contain high fructose corn syrup.

Corporate Level Strategies

There are three concentration strategies which include, market penetration, market development, and product development. In market penetration, the company is trying to gain additional customers aside from the existing customers they already have. For example, using a celebrity presence in their marketing techniques or advertising specifically to a certain culture. Since Starbucks has an international presence, it is important to advertise to all cultures and parts of the world. Another strategy is market development. The best way for marketing development with Starbucks is selling their products other than just in Starbucks stores. Starbucks already sells their coffee beans in other grocery stores but they could extend that out to the other products and merchandise. This could help sales increase and will allow customers to purchase their products even if they do not have a Starbucks near them to visit. Lastly would be product development. This would mean for the company to continue to come up with new products whether this is new specialty drinks or even new food products to offer to the menu.