Starbucks Case Study

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1. Strategy Diamond:

Arenas: Where will we be active?

Starbuck’s is obviously known for their coffee and they tend to stay that way. They specialize in a wide range of coffee and non-coffee drinks. Originally they looked to target areas with large numbers of wealthy and highly educated professional workers. As time went on they have attracted a more wide range of customers in their recent expansions, however still supplying the atmosphere of cooler, richer, and more sophisticated than their competitors. Starbuck’s has opened stores all over the U.S. in all 50 states.

Vehicles: How will we get there?

Starbuck’s has made a huge impact on society as we know it. Everyone knows their logo and what it stands for. They have teamed up with many different companies to stay present in all aspects of the coffee market. This includes their partnership with Kraft selling their coffee in grocery stores across the country. Also in 1995 Starbucks partnered with United Airlines in agreement to provide their customers with Starbucks coffee on all the flights. Not only that in 2001 Starbucks and Hyatt Hotels teamed up to serve Starbucks coffee in all their restaurants, rooms, and meeting rooms. More recently with the technology advancement with coffee to the growing market of single served coffee.

Differentiators: How will we win?

Starbucks has gained sales in the coffee business through price, image, and product reliability. They have set themselves apart from the rest by putting a price on their coffee that others can’t compete with. By making their product more upscale they have produced an image no other competitors can. The distinct smell and taste of their coffee is both rich and sophisticated. They have made their coffee shops a place to relax and retreat, you simply can’t get that type of treatment at McDonald’s. Their prices may not be the cheapest but the customers are receiving a unique experience when they buy coffee. Not only that but they have created an environment that customer’s enjoy and what to return to. These products are created equal every time with a smile from the friendly baristas.

Staging: What will be our speed and sequence of moves?

Starbucks has kept their presence in the coffee market for years and they don’t intend on backing down. When the coffee market creates something new that could be a potential competitor for Starbucks they waste no time to enter the market and become the market’s competitor. For example when Starbucks realized that people were still interested in brewing their own coffee they partnered with Kraft to have their coffee sold in grocery store across America and they took over the sales. Not only that but when instant coffee became popular there was no hesitation to make sure customers had instant coffee available to them provided via Starbucks. As long as Starbucks continues to stay present in every aspect of the coffee market they will continue to be prosperous.

Economic Logic: How will returns be obtained?

Starbucks is able to charge premium prices due to their unmatchable service and products. Yes you can pretty much get coffee anywhere these days but can you get the service that Starbucks provides you with each cup of coffee? The baristas are trained to provide a unique experience every time you place your order. Not only that but they share their knowledge and interpersonal skills to show you just how different their service is. You can’t put a price on a pleasant experience. The environment they deliver is one of a kind that a hamburger or donut business just cannot do.

2. External Environment:

The financial crisis of 2008 effected many companies including Starbucks. Starbucks suffered during the global downturn, as show in exhibit 4, which brought their profits to an all-time low in 2008. As a result this cause the company to shut down unprofitable stores. Revenues declined due to the fact that U.S. citizens had less disposable income leaving them to become more price sensitive. This caused Starbucks customers to go the less pricey route and buy coffee from their competitors, such as McDonalds and Dunkin Donuts, who were able to offer coffee as a much lower price. However Starbuck’s was able to regain their customer’s when Schultz decided to return to CEO and take matters into his own hands. By doing so he was able to boost their profits by 2010 and once again Starbuck’s was ahead of their competition.

Shultz knew he wanted to create a social when he traveled on a business trip to Milan, Italy only to find that espresso bar were a place not only to get excellent coffee, but a place for conversation and socializing. He knew immediately that America was lacking this type of business. When he tried to share his vision in America investors were not so thrilled about the idea, America’s were so use to making their own coffee at home. Eventually Schultz was successful and people loved the idea of “the third place”. He created a social environment that let people gather between work and home where they were treated with respect. This instantly became a hot market because people loved the treatment and social status behind the idea. Starbucks offered a lifestyle product that people perceived as cool and high class.

Technology and coffee have come a long way. Originally coffee was grounded at roasteries, in the grocery store, or at home and then would be brewed which took a great deal of skill and was very time consuming. Now instant coffee and single serve coffee is all the rage. Single serve coffee has made a huge mark on society when “pods” or “K-cups” brewed by special machines at home, such as Keurig’s, made an appearance. K-cups have really revolutionized the technological scene of coffee making equipment. The changes in technology for coffee making have promoted Starbucks to move into the single-serve coffee market by introducing the VIA instant coffee as well as their K-cup lines. Starbucks has realized that this market is growing fast equaling annual growth rates about 10 percent or more per year. By pairing up with Green Mountain Coffee Roasters they really have made a mark on the single serve coffee market letting their competitors know they are here to stay no matter what changes the coffee market challenges them with.