Question

Business level strategy formulation and implementation for Starbucks in Australia

Answer 1

STARBUCKS BUSINESS LEVEL STARTEGY FORMULATION AND IMPLEMENTATION

Starbucks Coffee’s Generic Strategy (Porter’s Model)

Starbucks Coffee uses the broad differentiation generic strategy for competitive advantage. In Michael Porter’s framework, this strategy involves making the business and its products different from other coffeehouse firms. This difference highlights Starbucks Coffee’s value proposition regarding high quality and uniqueness of products. The company’s emphasis on specialty coffee differentiates its cafés from many other establishments that offer coffee. However, the broad differentiation generic strategy extends to other areas of Starbucks Corporation. For instance, the coffeehouse business uses its sustainable and responsible sourcing policy to differentiate its products from competitors. Also, frequent introduction of new products or variants thereof contributes to the uniqueness and competitive advantage of the company’s food and beverages. This generic strategy is also manifested in Starbucks Corporation’s organizational culture. While competitors like McDonald’s and Dunkin’ compete through low cost, Starbucks emphasizes a warm and friendly ambiance that people enjoy.

An implication of the broad differentiation generic strategy is that Starbucks must keep innovating to ensure the uniqueness of its products in the long term. In this strategy, competitive advantage could weaken when competitors find ways to match or exceed the coffee company’s uniqueness. To address this issue, Starbucks keeps innovating its product mix and supply chain. In applying the broad differentiation generic strategy, the enterprise focuses on specialty ingredients and products, such as baked goods that do not have high-fructose corn syrup. Starbucks Corporation also innovates its supply chain to satisfy its generic strategy through continuous search for the most sustainable and finest ingredients. Thus, to maintain competitive advantage in this generic strategy, Starbucks Coffee’s strategic objective is to innovate products and its supply chain. These factors influence the coffeehouse company’s strategies for intensive growth.

Starbucks Corporation’s Intensive Growth Strategies

Given the intensive growth opportunities in the global market, Starbucks employs multiple strategies for effective business growth. In the simultaneous implementation of its intensive growth strategies, the coffeehouse company focuses more on expanding its international market presence, as well as in offering products of high quality and value. Starbucks adjusts the combination of these intensive growth strategies and the emphasis on each strategy, depending on current conditions in local and regional markets.

Starbucks Coffee’s main intensive growth strategy is market penetration. In the market expansion grid or Ansoff Matrix, this strategy supports the company’s intensive growth by maximizing revenues from existing markets, using the same or existing food and beverage products. Starbucks already has presence in more than 78 countries and territories. To maximize revenues and growth in these current markets, the company applies market penetration by opening more company-owned stores or licensed/franchised café locations.

For example, Starbucks aims to open more stores in countries where the business has a weak presence, such as in AUSTRALIA and the NEW ZEALAND. However, the company needs to overcome regulatory and sociocultural challenges in these coffee markets. Starbucks’s Marketing Mix or 4Ps support the market penetration intensive growth strategy, especially when it comes to expanding the company’s presence through strategic locations and promotions.

Starbucks uses market development as its secondary strategy for intensive growth. This strategy supports business growth by generating revenues in new markets or new market segments by offering the company’s current product mix of food and beverages. For example, Starbucks Coffee offers its current products to more consumers by entering more countries, such as in AUSTRALIA and the NEW ZEALAND. In market development, intensive growth opportunities are exploited by strategically growing the company’s consumer base, which equates to a larger volume of sales of food, beverages, and other merchandise.

As another secondary intensive growth strategy, product development contributes to Starbucks Corporation’s growth through new products or variants that add to business revenues.

For example, through product innovation, the company offers brewing equipment, as well as ready-to-drink products available at grocery stores. Product development may also come with mergers and acquisitions, such as when Starbucks started offering Frappuccino following the acquisition of The Coffee Connection. In this intensive growth strategy, new products are seen as ways of increasing sales revenues, especially in coffeehouse markets that are already saturated. The SWOT analysis of Starbucks Corporation shows that this capability to develop attractive and profitable products is one of the business strengths that support the company’s intensive growth and strategic expansion in the global market.

Continuing Starbucks’s Competitive Advantage, Intensive Growth and Market Expansion

In using the broad differentiation generic strategy, Starbucks Corporation ensures competitive advantage through products and ingredients that establish an image of specialty and uniqueness. This generic strategy translates to various policies and programs to keep the coffeehouse business differentiated against the competition. A challenge in applying this generic strategy for competitive advantage is that Starbucks must always innovate to maintain its uniqueness and attractiveness among target consumers. The enterprise needs to innovate ahead of other coffeehouse firms to maintain its competitive advantage and growth based on this generic strategy. A more detailed strategic analysis of Starbucks Corporation should consider how to support continuous growth and expansion by strengthening competitive advantages in relation to the current broad differentiation generic strategy of the company. Also, Starbucks could apply other generic competitive strategies together with its current one in order to maximize actual growth and competitiveness. For example, the focus or market segmentation generic strategy can enhance competitive advantage in operating subsidiaries that complement the company’s exiting coffeehouses. However, the cost leadership generic strategy might not work because being a best-cost provider goes against the premium brand image of the company’s cafés and merchandise.

In relation to the broad differentiation generic strategy, Starbucks grows its business through the intensive growth strategies of market penetration, market development, and product development. These strategies facilitate business expansion despite the increasing saturation of many coffeehouse markets. Also, Starbucks has intensive growth opportunities in countries where the company’s coffeehouses are not yet common, such as AUSTRALIA and the NEW ZEALAND. A possible approach in these countries is to employ market development along with aggressive marketing campaigns to attain the customer base size needed to support business expansion within these local coffeehouse markets. Another suitable approach is to use the product development intensive growth strategy to align Starbucks’s product mix to the distinct cultural preferences of consumers in these regions. Successful expansion in these markets ensures the fulfillment of Starbucks’s corporate mission statement and corporate vision statement, which adhere to making the company the leading player in the global coffeehouse market and related markets for coffee products and consumer goods. Moreover, the business diversification intensive growth strategy can help increase actual growth potential through operations outside the coffeehouse industry.