Starbucks Cooperation

Demand for Rapid Expansion

and Company Growth.

Every day, we go to
work hoping to do two
International
things:
coffee
share
with
great
our Business
friends and help make
the world a little
better. It was true Strategy
when the first
Starbucks opened in Prepared by:
1971, and its just as
true today. Allan James Nerger
Howard Schultz CEO Subash Adhikari
Starbucks Waqas Mushtaq
Table on Contents
1. Introduction ...................................................................................................................... 2
2. Context of the paper .......................................................................................................... 3
3. The strategic management process .................................................................................... 3
3.1 Strategic frame of references ....................................................................................................4
3.1.1 Mission ......................................................................................................................................... 4
3.1.2 Vision............................................................................................................................................ 5
3.1.3 Core values ................................................................................................................................... 5
3.1.4 Objectives..................................................................................................................................... 6
3.1.5 Business idea ................................................................................................................................ 7
4.0 External Analysis.............................................................................................................. 7
4.1 Macro environment analysis ...................................................................................................7
4.1.1 PESTLE Analysis ............................................................................. Error! Bookmark not defined.
4.2 Micro- Environment Analysis ..........................................................Error! Bookmark not defined.
4.2.1 Porters five force analysis ............................................................. Error! Bookmark not defined.
4.3 Competitors Analysis ......................................................................Error! Bookmark not defined.
5.0 INTERNAL ANALYSIS......................................................................................................... 8
5.1 VRIO Analysis: ..........................................................................................................................8
5.2 Value chain analysis: ............................................................................................................... 11
5.3 BCG Matrix: ............................................................................................................................ 12
6.0 Strategic Choice ............................................................................................................. 13
6.1 Business-level strategies ................................................................................................ 14
6.2 Corporate-level strategies .............................................................................................. 16
6.3 Growth Strategies .......................................................................................................... 17
7.0 Customer Value Preposition ........................................................................................... 18
8.0 Strategy Implementation ............................................................................................... 19
9.0 Competitive advantage .................................................................................................. 19
9.0 Performance: ................................................................................................................. 20
10. Conclusion ..................................................................................................................... 22
References .......................................................................................................................... 22

1
1. Introduction
Todays markets are characterized as dynamic, risky, complex, and cluttered (Aaker and
McLoughlin, 2012, p1). Firms need to obtain sustained competitive advantage to secure long-
term financial results and be relevant in the future. A firm can obtain competitive advantage
when it creates more economic value than its rivals (Barney and Hesterley, 2012. P.28). A
strategy which creates competitive advantage today, might be obsolete in the future. Therefore,
firms need to constantly improve their strategies by analysing the strategic management process.

Starbucks Corporations is an American coffee company which currently has competitive

advantage in the beverage industry. The first Starbucks store opened in Seattle in 1971 with the
aim of selling high quality-coffee beans. The current chairman and CEO Howard Schultz joined
the company in 1982 and convinced the founders to develop a coffeehouse concept. By the end
of the 1980s, Starbucks expanded the coffeehouse concept by introducing 55 new stores in the
USA. Starbucks first store outside the USA opened in Canada in 1987. In 1996, the company
expanded to Japan and Singapore. Further internationalization during the late 1990s resulted in a
global expansion of the company. By the year 2000, Starbucks stores increased to over 3,500 and
10,000 by 2005. Today, more than 24,000 stores operate under the Starbucks brand in 72
different countries. In 2016, the company generated more than USD 21billion in revenues and
2.76 billion net income. Starbucks employs 238,000 employees worldwide. Products include
coffee beverages, smoothies, tea, baked goods, and sandwiches. Starbucks is currently the
market leader in the coffee beverage industry with healthy financial results, good brand image,
and good customer base.

With an increasing number of competitors such as Dunkin Donuts, McDonalds, and Nestle, it is
very important for Starbucks to strengthen its sources of competitive advantage and constantly
improve their strategy to secure sustained competitive advantage and maintain its position in the
market.

This paper aims to elaborate the strategic management process which companies can use to
formulate their strategy to create competitive advantage. This paper focuses on the theory of
competitive advantage and how firms can obtain it using Starbucks as an example. Generally,
this paper will answer the following question: How can Starbucks maintain its global
competitive advantage in the coffee beverage industry?

2
The methodology of this paper relies on three pillars. First, relevant research articles from highly
rated authors such as Michael E. Porter which will provide the foundation for the theoretical
background. Second, this paper uses David Aakers and Damien McLoughlins book Strategic
Market Management as a supporting literature. Third, information about Starbucks will be
gathered from the companys webpage and recent newspaper articles.

2. Context of the paper

The purpose of this paper is to apply the theory of the strategic management process and the
theory of competitive advantage to a practical example which is in this paper Starbucks. The
paper concentrates on the coffee beverage industry where Starbucks is currently the market
leader. The chapters below follow a systematic process. First, each chapter will give a brief
theoretical background. Second, the latter part of each chapter applies these theories to
Starbucks strategy.

3. The strategic management process

Performance

Figure 1. The Strategic Management Process

A companys strategy is defined as a set of theories about how to achieve sustainable

competitive advantage (Barney and Hesterly, 2012, p22). These theories consist of a variety of

3
assumptions and hypotheses about the development of competition in the given industry. Some
authors define a companys strategy as four dimensional: the product market investment strategy,
the customer value proposition, the assets and competencies, and the functional strategies and
programmes (Aaker and McLoughlin, 2012, p4). Figure 1.1 illustrates the strategic management
process. It provides a sequence of analyses and choices which are used to enhance the chance of
a firm choosing a good strategy, one that creates sustainable competitive advantage.

In this paper, the different stages of the strategic management process will be addressed. In
addition, Starbucks strategic management process will be examined.

3.1 Strategic frame of references

The strategic frame of references is part of the strategic management process. It conceptualizes
the borders of an organization and defines the firms long term goals. The strategic frame of
references consists of the firms mission, vision, core values, strategic objectives, and business
idea.

3.1.1 Mission
Mission is an initial phase of every strategic management process of firms. Its a commitment
where the firms want to be in future. Mission of any firms written in short statement is called
mission statement. A mission statement provides clear sense of direction to the business and act
as a guiding principle to initiate strategic management process successfully. Similarly, Starbucks
also have a mission statement that clearly depicts its aspiration in long run.

To inspire and nurture the human spirit one person, one cup and one neighbourhood at
a time.

The mission statement of Starbucks comprises of two aspects; one is about human spirit and next
is about oneness of person, cup and neighbour. The first aspect explains Starbucks believes in
nurturing the human society and inspire others to do so. Thats why its focus is on ethical
sourcing, maintaining ethics and compliance in every part of its business and on investing in
environment and empowerment. The second part shows their meaningful impact creating better
environment caring customers, employee and society. Every cup that Starbucks serves is special.
This is the part of its mission statement that focuses on quality

4
3.1.2 Vision
Kefer (2014) explains that mission statement explains why the organization exist and the work it
does every day, the vision statement sets a long-term goal for company. A vision statement is the
organizations shared hopes, dreams and image of the future. Starbucks doesnt have specified
vision statement however their glimpse of vision can be found from their company websites and
different literature reviews:

To establish Starbucks as the most recognized and respected brand in the world and
become a national company with values and guiding principles that employees could be
proud of. Starbucks vision statement, 2008

This vision statement is quite subjective and is vague as the term most recognized and respected
brand doesnt significantly give meaning what exact it want to be in future. The vision
statements are more like scales that companies use to measure their actions, decisions and ideas
against. However, the second part of the statements describes what it wants its employee to be
proud of by becoming national company with values and guided principles. This part is
achievable and explains how it will strives to be the best and in which path it will follow.

3.1.3 Core values

Core values are the foundation upon which the members of a firm plan strategies, make
decisions, and interact with each other and their stakeholders. Core values reflect what is
important to the organization and its members. Starbucks core values are listed below:

Our Values with our partners, our coffee and our customers at our core, we live these values:

Creating a culture of warmth and belonging, where everyone is welcome.

Acting with courage, challenging the status quo and finding new ways to grow our
company and each other.
Being present, connecting with transparency, dignity and respect.
Delivering our very best in all we do, holding ourselves accountable for results.
We are performance driven, through the lens of humanity.

Starbucks core values tells us that they are the partners with their suppliers from whom they
source its raw materials, the coffee or the product and the customers. They are also cultural

5
focused and it is very important for the companies to establish a culture of empowerment and
collaboration where everybody feels welcome since it has been found that it easier to promote
the workers productivity and efficiency. Innovation is also very important aspect as no one can
move ahead without challenging the status quo. Transparency, dignity and respect, all the three
are related to ethics and accountability which is an important focus area for Starbucks and
despite being performance driven they are powered by humanity.

3.1.4 Objectives
A Firms objectives must be a specific measurable targets a firm can use to evaluate the extent to
which it is realizing its mission. It could also be possible to link specific objectives to each of the
elements of a firm mission. A firms objectives can be distinguished between high quality
objectives and low quality objectives, where high quality objectives are tightly connected to
elements of a firm mission and are relatively easy to measure and track over time while low
quality objectives either do not exist or are not connected to elements of a firms mission or are
too difficult to measure or to track over time. (Barney & Hesterly, 2012, p. 26)

Starbuck's goal is imperative to their business because without having it unmistakably expressed,
the organization do not have an ability to read a compass and reason. Its destinations additionally
help the organization during the time spent basic leadership where they can then make
procedures to accomplish sketched out objectives. Moreover, its goals can give the establishment
to measuring and controlling the execution of the organization in general.

Starbucks, one of their principle goal is to maintain its standing as one of the most recognized
and respected brands in the world. To accomplish this objective, their methodologies are plainly
expressed where they will proceed with their trained development of their worldwide store base.
This message gives support and a key intuition stage for workforce and the management to
achieve their objective, particularly an ability to know east from west.

Starbucks' second objective is to continue to offer costumers new coffee products in a variety of
forms, across new categories, and through diverse channels. This statement clearly outline the
objective of the organization in terms of their products. Its not just gives the establishment to
measuring and controlling the execution of the workforce, however it permits them an ability to
read a compass and to comprehend the significance of continually conveying new and inventive
products to the market.

6
3.1.5 Business idea
A business idea is defined as a concept which is used to make money. A successful business idea
should offer benefits to customers (offering solutions to problems); have a market to target; and a
model to generate long term profit.

Starbucks operates predominantly with company-operated stores and licensed stores.

Approximately 80% of revenues are generated from company owned stores, whereas 10% are
generated from licenses, and 10% from consumer packaged goods. Consumer packaged goods
are sold to grocery stores and warehouse clubs. The company selects its retailers according to the
retailers market knowledge and access. As part of Starbucks business, they sell coffee, tea, and
food products to licensees and collect royalties and license fees from retailers. In 2015,
Starbucks sales were as followed: 73% from beverages, 19% from food, 3% from packaged
coffee and teas.

4.0 External Analysis

External environment analysis is one of the crucial factors that influence any strategic decision of the
company. Morden (1993,29) argues that It is very important to analyze and understand the characteristics
of external environment because it plays a critical role to determine future of whole industry and certain
business in it. Business must adjust their strategy with the dynamics of environment to keep ahead of
competition. Similarly, in this section we will analyze how external environment factors have influenced
strategic decision of Starbucks. The prime focus of external analysis will be based on macro and micro
environment analysis along with the competitor analysis,

4.1 Macro environment analysis

Macro analysis is one of the initial stages of strategic analysis. It is developed with an aim to identify
possible opportunity and threat that are not in the control of business but will impact the overall business
strategy. It helps to evaluate impact of political, economical, technological and legal environment from

7
national and international perspective. One of the widely-used tool to measure macro environment is
PESTLE analysis. So, we are going to use this tool to analysis the macro environment situation of
Starbucks.

5.0 INTERNAL ANALYSIS

Internal analysis is the process of identifying and evaluating a firm specific characteristic,
including its resources, capabilities and core competencies. The two basic reasons to comprehend
why it is important for a firm to conduct an internal analysis is:

First, it is the only way to identify a firm strengths and weaknesses and the second, it is the much
needed for making good strategic decisions.

The common goal is to identify organizational strengths, weaknesses and constraints and,
ultimately, to develop responsive strategies, either exploiting strengths or correcting or
compensating for weaknesses (Aaker & McLoughlin, 2010, p 99)

We can conduct internal analysis of an organization by performance analysis which includes

profitability, sales, shareholder value analysis, customer satisfaction, product quality, brand
associations, relative cost, new products, employee capability and performance, and by
determinants of strategic options which includes strategic problems, constraints, strengths,
weaknesses and liabilities.

For the internal analysis of Starbucks, we have selected to make the VRIO analysis, the Value
chain analysis, and BCG Matrix.

5.1 VRIO Analysis:

We can analyze the competencies using the VRIO framework by J.B. Barney. VRIO is an
abbreviation of four questions framework you ask about a resource or capability to determine its
competitive potential:

1) The question of Value,

2) The question of Rarity,
3) The question of Imitability (Ease/Difficulty to Imitate), and
4) The question of Organization (ability to exploit the resource or capability).

8
Resources and Capabilities Value? Rare? Costly to Exploited? Competitive
Imitate? Implication
Prime and Strategic Locations:
In crowded, high-visibility locations near a Temporary
variety of settings, including downtown and Yes Yes No Yes Competitive
retail centers. Advantage
Hit into customers convince factor
Global Brand Recognition & Equity:
The most recognized brand in the coffee-
Competitive
house segment. Yes Yes Yes Yes
Advantage
Effectively leverages its rich brand equity by
merchandizing products, licensing its brand.
Aesthetic Appeal and Concepts of its Stores:
Their stores are visually appealing and have a
cool factor attached to them. Competitive
Yes Yes Yes Yes
Provide free wifi, warm atmosphere, good Advantage
music, great service and provide an
environment of community meeting spot.
Large Size and Strong Global Presence:
Operation in 72 countries and largest
Temporary
coffee/snack retailer
Yes Yes Yes Yes Competitive
Economies of scale through superior
Advantage
distribution channels and supplier
relationships
Human Resource Management and Company
Culture:
Knowledge based employees creating a
Competitive
healthy corporate culture Yes Yes Yes Yes
Advantage
Great human capital management couple with
great corporate culture translates into supreme
customer service
Leveraging Technology and Mobile Outlets: Temporary
Yes Yes No Yes
Starbucks Apps on iOS and Android Competitive

9
 Investment in Technology Advantage
Customer Loyalty and Cult Status:
Loyalty-based programs like Starbucks
Rewards and Starbucks Card drive loyalty.
Competitive
Starbucks Card is a value card program that Yes Yes Yes Yes
Advantage
provides convenience, support gifting, and
increases the frequency of store visits by
cardholders
Good Corporate Social Responsibility Image:
Their stores are community friendly, focused Temporary
on recycling and reducing waste. Yes Yes No Yes Competitive
They build goodwill among communities they Advantage
operate in
Table 1 VRIO Analysis

If an organization wants to build competitive advantage it must have capabilities that are of value
to its customers (Johnson et al, 2009, p.68). Starbucks able to add value through innovation and
efficiency in all resources: Culture/HR, Location, Brand Image, Goodwill and Financially. All
these resources are aligned, organized and exploited by Starbucks.

The strategic capability that provides sustainable competitive advantage is not straight forward.
It involves identifying capabilities that are likely to be durable and difficult for competitors to
imitate (Johnson et al, 2009, p.69).

The core competencies of an organization may be difficult to imitate because they are complex
(Johnson et al, 2009, p70) so vital success factors are essential for the success of Starbucks in the
market and they should continue expand through franchising for rapid expansion and growth as it
will help to attract customers in new market towards the product. They can also focus on
broadening their distribution channels as they expand their portfolio. This would help inject
additional revenue for a company.

10
5.2 Value chain analysis:

Value Chain is a set of activities that a firm

operating in a specific industry performs to
deliver a valuable product or service for the
market.

Value chain analysis is a process where a firm

identifies its primary and supports activities that
add value to its final product and then analyze
Figure 2: Porters Value Chain
these activities to reduce costs and increase
differentiation.

(Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance)

Primary activities:

Inbound logistics: Sourcing coffee from different coffee beans producers with whom they
have great relationships and built up efficient supply chain management system.
Operations: They have operation in 72 countries with their stores being displayed on firm
operated stores and licensed stores.
Outbound logistics: Most of its product mix are sold in stores and some through large box
retailers. Payment around source through point of sale, prepaid Starbucks Cards and mobile
payments.
Marketing and Sales: investment in marketing activities have not be significant and relied
mainly on the growing reputation of premium quality product mix and superior customer
services to give the Starbucks Experience to drive customers to their stores and products.
Service: Starbucks has a reputation for providing supreme level of customer services to their
consumers.

Support activities:

11
 Firm Infrastructure: They have well designed, appealingly & pleasing stores. They have
efficient level of finance, accounting and legal departments to support the firms
infrastructure.
Human Resource Management: Great benefits, employee empowerment and amazing
corporate culture makes Starbucks drive efficient management of human capital.
Technology development: Investments in innovative technologies like mobile app.
Procurement: Starbucks procures its products from a diverse group of suppliers and has fixed
contracts with some of the suppliers.

5.3 BCG Matrix:

The Boston Consulting Group product portfolio
matrix (BCG) is designed to help with long-term
strategic planning and help a business to consider
growth opportunities by reviewing its portfolio of
products to decide where to invest, which to
discontinue or develop products. It's also known as
the Growth/Share Matrix.

Figure 3: BCG Matrix

BCG matrix relies on two dimensions: Market Growth and Market Share. Placing appropriate
products in the BCG matrix, the four categories include the Stars, cash cows, dogs, question
marks. Each of these categories has their own measurement.
First, the stars are those products which have high market growth and market share. Such
products use large amounts of cash and considered to have competitive position in the business
which results in generating more profit. Second, Cash cows are those products which have low
growth with high market share. It is better to keep the profit high as it will be the foundation of
the company. Third, Dogs which is low market growth and share. It is noted that a firm should
discontinue / avoid or reduce the number of dogs products in the market. Fourth, Question mark
are those products which is high growth with low market share. These products are considered to
be the worst cash

12
features among others because high demands with low market share results to have low returns
and a firm should seriously sort such products as they may consume huge amount of cash.

Starbucks BCG matrix shows that the Coffee & snacks are star products that operate in high
growth markets and have high market share. They tend to generate good amounts of cash for
Starbucks. Which means that they should invest money in developing and promotion their coffee
and snacks.

Mugs are cash cow products with

high market share operating in a low
growth market. They are well
recognized and generating great net
cash flow. Therefore, mugs provide
them good amount of profits
according to seasonal styles and have
good profit quality.

Figure 4: Starbucks Product Portfolio

Packaged Coffee beans is a dog product with low marketing share as well as operating in a low
growth market. Starbucks' packaged coffee beans do not generate enough cash for the company
as customers tend to go to Starbucks for quick and good service for coffee and food.

Tea for Starbucks is a question mark product that operate in a high market growth sector, but
have low market share. Since Starbucks is more well-known for their coffee, their tea symbolizes
low product quality. Knowing that the tea market has high growth, Starbucks could analyze
reasons for its low market share and then develop strategies to grab higher share of the growing
tea market.

6.0 Strategic Choice

Once a firm has formulated its strategic frame of references (mission, vision, core values,
strategic objectives, and business idea) and thoroughly analyzed the external and internal

13
environment, the company can move to the next step by choosing an appropriate strategy. This
means that the firm is ready to formulate a theory and assumptions about how to gain
competitive advantage. Eventually, if a firm wants to gain competitive advantage, it is important
that the chosen strategy is in accordance with the firms strategic frame of references, neutralize
threats, and avoid weaknesses. Ultimately, the aim of a chosen strategy is to give a company
sustained competitive advantage. This chapter analyses several strategies which a firm can use to
gain competitive advantage. These strategies are: business-level strategies, corporate-level
strategies. In addition, this chapter will take a closer look at growth strategies.

6.1 Business-level strategies

Business level strategies is used by firms that operate in single market or industry to obtain
competitive advantage. According to Porter, there are three generic strategies to achieve
competitive advantage in an industry. These strategies are cost leadership, differentiation, and
focus (Porter, 1985 p.11). Firms which seek competitive advantage by choosing cost leadership
strategies concentrate on broad scope of industry segments. A broad scope is when a firm
perform more activities internally. Firms using this strategy aim to be a low-cost producer and
they serve many segments in the industry. The source of competitive advantage comes from the
structure of the industry. This means a firm can gain cost leadership from economies of scale,
desirable access to raw material, low overhead cost, low-cost labor, efficient organizational
procedures etc. The specific source of cost advantage will depend on the type of industry and can
differ in different industry. To be a cost leader, a firm must offer its product at or near the
industry average prices. Usually, firms which are cost leaders offer standardized products
produced using standardized processes. Controversially, Porter added that a cost leader needs to
consider differentiation to a certain extent. This means that a cost leaders product needs to be
perceived as comparable or acceptable by consumers or else the firm will be forced to offer
discounts well below the competition. Differentiation strategy is the second generic strategy.
Like cost leadership strategy, differentiation strategy concentrates on broad target as their
competitive scope. The main idea behinds this strategy is that a firm tries to be unique in its
industry on some dimensions which are important and valued by consumers. This strategy
requires that the company choose attributes which are unique and different from its rivals. Firms
with differentiation strategies can ask for premium prices from its customers. The source of

14
differentiation differs in different industries. This could be distribution procedures, unique
marketing, advanced technology, R&D, innovation process etc. To be an above-average
performer, a firms premium prices must be higher the cost for differentiation. However, a firm
cannot ignore its cost position. A firm seeking differentiation should try to achieve relative cost
parity or proximity with its competitors. This means, differentiators should minimize cost in
areas which do not contribute to uniqueness. The final generic strategy is Focus. This can be
divided into two areas: cost focus and differentiation focus. The focus strategy has a narrow
target as its competitive scope. This means a firm tailors its product to a specific segment,
geographic area or industry. Cost focusers try to gain cost advantage in a target segment, while
focus differentiators aims to offer unique product to a specific segment. These two segments
evolved from consumers with specific (unusual) needs which are not met by competitors. This
means that these segments are insufficiently served by the two broad competitive scopes.

Starbucks business-level strategy is comparable with broad differentiation strategy. The

company offers products which satisfy broad customer needs by preparing coffees to meet
customer wishes. One key differentiation factor is their quality of their products along with the
guidelines and standardized processes of preparing beverages. Starbucks source of competitive
advantage comes from their brand image as leader in providing the best quality coffee beans with
excellent roasting process. The companys competitive advantage and differentiation factors are
not limited to product quality and process dexterity, they also come from the companys
sustainable and responsible sourcing policies. They involve in paying fair wages to farmers and
source from environmental suppliers. Starbucks participate in economic accountability and
transparency. This means that suppliers must submit evidence that they are paying fair loans to
farmers. Another differentiation factor is their service and experience offer at Starbucks stores.
Starbucks aims to position itself as the number one preferable coffee brand. To achieve this, the company
is focusing on improving customer experience. This strategy includes targeting premium customers with
high income by adding Roastery. The second part of the pyramid is to add 500 new Reserve stores to
target upper-middle income segment. By increasing the segments, the company increase their value
proposition.

15
6.2 Corporate-level strategies
A corporate level strategy is when firm operates in multiple markets or industries at the same
time. These strategies include vertical integration strategy, diversification strategy, strategic
alliances, merger & acquisition, and global strategies. This chapter will focus on vertical
integration as a source of competitive advantage. Vertical integration is the coordination of
activities between a firm its suppliers, channels, and buyers (Porter, 1985 p.55). An important
idea behind vertical integration is the extent to which a firm purchase components/services or
make them itself. For instance, a firm might decide to contract its distribution services rather
than owning a distribution department. Important elements of vertical integration are vertical
scope and vertical linkages. Vertical scope is the degree to which a firm decide to do activities
in-house or by contract firms. Vertical linkages are described as the way suppliers or channels
are performed and how they affect the value chain. Vertical integration offers ways to obtain
competitive advantage. Well defined and organized procedures between firms and its suppliers
can cause cost advantages for both parties. These cost advantages could come from well-
organized distribution channels or reduction in transportation cost etc. Ultimately, vertical
integration can give a firm cost advantages or differentiation advantages depending on the firms
activities.
Our success is linked to the success of the farmers and suppliers who grow and produce our
products. Farmers and suppliers play an important role in Starbucks value chain. Farmers are
responsible for producing high quality coffee, tea and cocoa. The company has several
requirements from its suppliers including product quality, economic accountability and
transparency, social responsibility, and environmental leadership. The five key suppliers apart
from farmers are Regency Centers for leasing property, First Capital for leasing properties,
Tingyi Corporations for manufacturing and marketing of Starbucks ready-to-go drinks in China,
Dean Foods for milk supply, and Inventure Foods for marketing services. The importance of the
farmers and suppliers play an important role in Starbucks value chain because they add
differential value. Vertical integration, vertical scope, and vertical linkages are key success
factors for Starbucks.

16
6.3 Growth Strategies
Aaker and McLoughlin conceptualized four strategies a company can use to grow its businesses. These
strategies are (1) levering the business, (2) creating a new business (3) going global, and (4) energizing
the business. The first strategy, levering the business explores growth opportunities outside the existing
business by entering new product markets. This strategy analyses the firms core competencies and assets
as a potential source of competitive advantage in new markets. For instance, these core competencies
might be marketing skills, sales, distribution, R&D etc. Another approach to leverage the business is to
expand the companys brand with the aim to make a new product more feasible and efficient. Expanding
the scope of the business could provide growth opportunities. This expansion could mean that the firm
has sufficient knowledge to extent its product offering. Finally, entering new markets by expanding
geographically or expanding into new segments provide opportunities to grow the businesses. A company
can create a new business where there are initially no direct competitors. This strategy includes changing
creating a new market or submarket for consumer offerings. This strategy is described as blue ocean
strategy by other authors. The main idea is to exit the red ocean defined as head-to-head competition
where rivals fight for shrinking profits. The blue ocean strategy creates uncontested market space and
make competitors irrelevant. New businesses can be created by entering niche markets, meeting unmet
needs, or predicting customer trends. Going global as a source of competitive advantage means that a
firm develops separate strategies for different countries. Motivation for going global might be to obtain
economies of scales, becoming a global brand, search innovation, access to low-cost labor or materials,
access to national incentives, entering new markets, extension of the product life cycle etc. However,
before considering the strategies above, a firm could on improving the current business in the current
market. Energizing the business put forward that a firm can innovate to improve its offering, energize
the brand and marketing, and increasing existing customers usage.

Starbucks has a five-year plan to increase revenue by 10 percent. Starbucks growth strategies include
growing the number of stores by opening dine-in restaurants in suburban areas. This strategy aims to
increase the store penetration. Furthermore, the company is constantly tries to grow the home coffee share
by offering packaged coffee and by entering the ready to go coffee market. Moreover, the company is
investing in tea products especially in Europe and China where tea consumption is higher than in the
USA. This market provides the biggest growth driver for Starbucks. The company establishes new
partnerships as part of their growth strategy. Food sales represents 20 percent of Starbucks revenue and
the demand is increasing. To fulfill customer needs, Starbucks is establishing new partnerships and
making an important growth driver. Starbucks also extended its digital engagement which allows
customer to pay via smartphones. This provides a seamless and quicker payment. Comparing the theories

17
above with Starbucks growth strategies, it is obvious that the company is exploring several grow
strategies simultaneously. In addition to these growth strategies, it is discussable if Starbucks should enter
franchising. The company operates mainly fully own stores and has a rather hostile view about
franchising. On one hand, wholly owned stores might explain Starbucks success and value proposition,
however, entering franchising could provide rapid growth globally. Issues concerning franchising could
be quality control.

7.0 Customer Value Preposition

Customer value preposition is an assumption that describes how the targeted customer will react or realize
the value of product on its purchase (Kaplan & Norton, 2004, p.38). It is one of the most important tool
for the product marketers as it acts as the basis to evaluate how realistically the customer will realize the
value of product. Different factors like differentiation, target segment and creating sustainable value
influence the decision of creating specific value preposition. Value of any product is driven from the
customer perspective rather than from the unit of business operation (Aaker & Mc Loughlin, 2010,
p.155). Starbucks strategy to improve customer experience efficiently by using digital platform is one of
the example of creating value from customer perspective.

Value preposition as brand recognition: Brand awareness is a crucial factor in making decision to buy
the product as it signifies the sense of familiarity. As sense of familiarity drives customer and positively
influence the buying decision. (Aaker & Mc Loughlin, 2010, p.176). Starbucks was voted as the most
admired company in USA by Forbs (2003-2015) and its brand is recognized as the one of the most
popular coffee brand in US and Europe. Brand loyalty: The loyalty of a customer or switching to other
brand can be determined by various factors like habits, preference or switching cost.

(Aaker & Mc Loughlin, 2010, p.177). Brand association: Anything that is deep seated in
customers mind and is directly or indirectly linked in customers memory about brand is called
brand association. (Aaker & Mc Loughlin, 2010, p.179). Value Preposition as emotional
attachment: Emotional benefits that a customer can relate to the brand and make the customer
feel by relating to brand during purchase experience (Aaker & Mc Loughlin, 2010, p.182).
Starbuckss one of the value is providing relaxing environment that is welcoming by having good
time with friends. So, its clear that emotional attachment in Starbucks delivers significant value
preposition.
By increasing its locations in Asian and other European market result in portfolio expansion this helps
Starbucks to achieve its sustainable competitive advantage by increasing brand equity. In addition to it

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Starbucks have different other value prepositions quality, luxury, satisfaction, global brand familiarity,
social responsible and ethical outsourcing, relationship with suppliers and employee appraisal

8.0 Strategy Implementation

The next step after strategic choice is strategy implementation. During this phase, the company
implements organizational policies and practices in accordance with the chosen strategy. Three
important polices are; the firms formal organizational structure; its formal and informal management
control systems, and employee compensation policies. The chosen strategy for Starbucks is broad
differentiation strategy. The companys growth strategy in a combination of different approaches. To
implement these strategies, we have chosen the Balanced Score Card with the strategy map by
examining the different perspectives (financial, customer, internal, and leaning and growth). This will be
elucidated in the next chapter.

9.0 Competitive advantage

The ultimate objective of the strategic management process is to help a firm choose a strategy which
generates competitive advantage. Competitive advantage is when a firm creates more economic value
than its rivals. Economic value is defined as the total perceived customer benefits deducted from total
costs. Competitive advantage can be temporary, sustained, or parity. Temporary competitive advantage is
when competitive advantage last a short time. Sustained competitive advantage refers to competitive
advantage which last a long time. Competitive parity means that a firm creates the same economic value
as its rivals. On the contrary, a firm can have competitive disadvantage which can be temporary,
sustained, or parity. Competitive disadvantage is when a firm creates less economic value than its rivals.
Temporary competitive disadvantage is competitive disadvantage that lasts a short time. Sustained
competitive disadvantage is competitive disadvantage that lasts a long time. Competitive advantages or
competitive disadvantage can be measured using accounting measures (e.g. ROI, current ratios, debt to
assets etc.) or economic measures (cost of debt, or cost of equity etc.).

Starbucks competitive advantage relies on several different but interconnect pillars. These are Quality
coffee, well-developed roasting process, customer store experience, good service, sustainable and
responsible sourcing policies, well- recognized brand, strategic locations, customer loyalty etc. An
analysis of Starbucks competitive advantage has already been discussed under VRIO-Analysis in chapter
five. Starbucks has several sources of competitive advantage. A major question remains, as to how it will
maintain this advantage before being copied by competitors. In other words: how long will Starbucks

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have sustained competitive advantage. With increasing competition, exploring new sources and
strengthening current competitive sources will be crucial for future success.

9.0 Performance:
After strategy implementation, the performance measurement is an important phase for an
organization to check whether their chosen strategy is the best strategy to achieve their objectives
and goals towards their mission & vision. Performance measurement is the process of collecting,
evaluating and/or reporting information regarding the performance of an organization.

According to Kaplan and Norton (2004) intangible assets account for more than 75 percent of a
companys value since the trend away from a product-
driven economy, based on tangible assets, to a
knowledge and service economy, based on intangible
assets, has been occurring for decades.

All organizations today create sustainable value from

leveraging their intangible assets such as: Human
capital, databases and information systems, high-
quality processes, brands, customer relationships,
innovation capabilities, and culture therefore it is
important for an organization to measure such critical
parameters that represent its strategy for long-term
value creation.

Figure 5: The Balanced Score Card

Balanced Scorecard (BSC) offers such a framework for describing strategies for creating value.

Balanced Scorecard for Starbucks:

Based on our internal & external analysis, strategic choices & implementation of Starbucks, we
have developed a balanced scorecard for Starbucks that collaborates their objectives, targets and
action plans. This will help to control the entire strategy management process.

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The balanced scorecard is a strategic planning and management framework that is used to
support business activities to the vision and strategy of the organization, it also helps to improve
internal and external communications, and monitor organization performance against strategic
goals. BSC is used for the measurement focus of the scorecard to accomplish critical
management process: (1) Clarify and translate vision and strategy (2) Communicate and link
strategic objectives and measures (3) Plan. Set targets, and align strategic initiatives (3) Enhance
strategic feedback and learning

Strategy Map Balance Scorecard Action Plan

Objectives/goals Measurement Target Initiative
Financial Increase firm value Earnings per share Increase by New customers
Perspective Net revenue increase Percentage increase year 3.4% segment
to year 10% Increase no. of
stores
Customer Target more customer Number of customer and 21% growth More marketing
Perspective while keeping the new products in no. of activities, target
current customer customer new develop
Position in all markets markets
Increase customer Increase to
satisfaction, value Percentage revenue from 5% Monitor & Control
creation and care developed brand system

brand awareness of the Develop

new product tea marketing plans,
promotions, and
advertisings.

Internal Minimize waste No. of customers using Waste Green sourcing in

Perspective Increasing efficiency their own mugs reduction by its supply chain.
Quality assurance Internal audit of waste 6% Recycle material
Maintain clean, safe Randomly quality checks AAA or AA used to reduce the
stores Test employee product ratings waste
Maintain sustainable knowledge 100% fair
sourcing policies Submission of supplier loan
fair loan policies standard
Learning and Knowledgeable No. of training sessions 100% trained Barista basic
growth employees completed staff. training program
Perspective Employee satisfaction No. of employee Maintain for newly hired
suggestions submitted employee Increase perks,
Employee satisfaction turnover rate health coverage,
surveys below 10% tuition
Percent of employee reimbursement
absenteeism

Table 2: Starbucks Balanced Score Card

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10. Conclusion

References

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