Analysing Starbucks' Strategy: Influencing Organisational Strategy

This case study provides an in-depth analysis of Starbucks' organizational strategy, examining its approach to market development, product differentiation, and diversification through licensed stores, retail packs, and financial services. It assesses the company's financial performance, particularly its turnaround strategy following the 2007-2009 downturn, and explores growth strategies such as expanding store numbers and elevating the coffee experience. The analysis also evaluates the coherence of Starbucks' strategy in relation to its external and internal environments, using Porter's Five Forces to understand competitive dynamics. Furthermore, it investigates Starbucks' commitment to both shareholders and stakeholders, addressing threats the company faces and suggesting countermeasures. The case study highlights the importance of employee involvement, community relations, and store design in shaping the Starbucks experience and driving customer loyalty.

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INFLUENCING ORGANISATIONAL STRATEGY
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1-28-2019

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Contents
Q1. What is Starbucks’ strategy?.................................................................................................2
Q2. Assess Starbucks’ strategy in relation to:.............................................................................6
a. Starbucks’ financial performance.....................................................................................6
b. The overall coherence of Starbucks’ strategy in terms of its fit with the company’s
external and internal environments and the internal consistency of the strategy....................9
Q3. Does Starbucks operate in the interests of its shareholders or its stakeholders?................11
Q4. What threats does Starbucks face; how should it counter these threats?............................16
References......................................................................................................................................21

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Q1. What is Starbucks’ strategy?
For analysing the strategy of Starbucks, it is important to understand the external environment in
which the company exist, and working, which affect the company to large extent. For this
purpose, the PEST analysis would be helpful. The four factors as of PEST analysis include:
 Political factors – since the company is working in various nation worldwide, the political
aspect of the nation becomes important to abide and understand to sustain in the market.
For instance, the involvement of political parties may affect the business, for instance in
case of promotion strategy Starbucks, have to abide with certain rules and have to do
according to the legal system and rule. Moreover, this is the reason that the company
have to enter the business with different mode of entries.
 Economic factors – this include aspects like GDP of the country, which reflect the
income level and consumer spending, which may affect the pricing strategy of the
company. Another aspect was tax, in some nations corporate tax is high and low in other
nations, which affect the revenue of the company
 Social factors – this include the social trends, for instance the consumption preference of
the customer. For instance, westerner nation are more found of coffee, whereas nations
like china are more found of coffee. Moreover, culture also affect the strategy, like in
some nation the culture of having coffee at coffee shops do not exist much, like in India,
when the company enter it was new to the culture.
 Technological factor – this factor includes the adaption level of the customers in case of
technology. For instance, UK, or other western countries are more technological
advanced nation, where the company needs to introduce technology in business as well,
like in payment system (Doole & Lowe, 2008).

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The overall strategy of Starbucks is to build the company into a destination, for which the
company aims to broaden the experience of the company, through product differentiation. This
included adding music, food, books, and videos. Ansoff’s matrix can be used to analyse the
major strategy of the company. The company has already developed the brand in most of the
nation worldwide while adopting market development. In today’s scenario, company’s major
strategy include product development that is targeting existing market with new product to offer.
Figure 1:( Source: (Aksoy, 2018)
This Starbucks’s strategy included the additional diversification of business, products, and
channel of distribution, which included:

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 Licensed coffee shops & Kiosks – this strategy involves expanding the business through
reaching out to maximum customers through coffee shops of Starbucks, which licensing,
which was with Host Marriot, at its first licensed
 Distribution of retail packs of Starbucks through various retail food stores, and
supermarkets – since the purpose of the strategy of the company is to reach out to the
customers, it can be possible by proving the Starbuck’s coffee retail packs to the
customers, through more approachable supermarkets and retail outlets.
 Licensing for bottle drinks – another aspect of the strategy is to license the product with
Unilever and PepsiCo for Starbuck Bottle drink supply to the customers. for instance,
Tazo tea, and Frappuccino
 Involvement in financial services – this begins with the prepaid store card of Starbucks,
along with the visa credit card afterward. This also initiated the card of Starbucks to enter
into the reward program, which let the customers enjoy the free drinks and various other
benefits to the customer who is regular or loyal customers to the brand (Aksoy, 2018)
 High-quality coffee beans – the major aspect of the strategy of the company is quality of
coffee beans, and consistent about the quality standards, which make the customer
experience the best of espresso coffee beans. Those beans were prepared with roasting
carefully and also enhancing the life of the growers of the coffee.
 Employee involvement – the counter staff of the Starbucks played an important role in
implementing the Starbucks experience the major role of the strategy was not only to
provide the customers the best range of coffee but also focus towards the customer
engagement and source of entertainment through excellent experience at the coffee shop.
For this, the employees were playing the major role as they would be responsible to

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communicate with the customers and direct link type the end users, which needs to be
enthusiasm
 Community relation and social purpose Schultz had provided the organization with the
view of refining role of the business of Starbucks in society. The major purpose of eth
strategy is to create the company where everyone is respected and valued, irrespective of
the place they came from, color, cast, and education level. The purpose was to link the
shareholder to the cultural values. Moreover, the positive action was a major purpose,
which included the positive action to bring the customers, partners of the company, and
society to contribute each day.
 Designing and layout of stores of Starbucks – this is something which indicates the
positivity or the negativity of the company in the customer perception. Therefore, the
strategy included that the company must have the good physical appearance of the coffee
shop and product offered to the customers like the design of the store and its layout must
be done. The company reflected the humanity of Starbucks through the designing of the
store (Andersson, 2016)
Starbucks experience is the key to the Starbucks strategy, which included the creation of the third
place for the people to make them feel other than work and home and where the people would be
able to engage socially and will be able to experience best taste coffee. This is a reaffirmation of
Starbucks, which will include social commitment and a good place for the world to spend, hang
out with friends and a stronger commitment towards the society through corporate social
responsibility of the company. This has reduced the automation of coffee creation, and
experienced the ready coffee with relaxation, and served with care. Moreover, along with a
coffee various variety of foods can also be offered such as sandwiches. Therefore, this strategy

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was to create to make higher profits of the company while making a better place in the world.
Moreover, the higher connection with the customers lead to better customer loyalty and increase
in use of social media platforms to reach out to the customers. As already discussed, the
employee engagement was also a major role in the strategy, which leads the company to
introduce with the “My Starbucks reward” for the employees in order to encourage innovation in
the company (Betton, 2017)
Q2. Assess Starbucks’ strategy in relation to:
a. Starbucks’ financial performance.
The strategy of the company considering one of the major factors that are the financial
performance of the company. The company’s downturn of 2007-2009, leads the company to
change the strategy in order to increase the financial performance of the company, which will
help the company to overcome the financial crisis. Schultz’s included the turnaround strategy
which included two major initiatives of the company. The first one is retrenchment, this was to
cancel or close down new stores and to enhance the cost efficiency of the company, and the
operational practices were revised. According to this strategy, around six hundred stores in the
US were closed. The company was able to save $500 million in operating costs in 2009, which
also leads to the self-salary of Schultz to $10,000, which was $1.2 million and selling three jets
of the company (Bruns, 2013)
The second initiative of the strategy involves the reaffirmation of the company’s value and
principles of business, this including the revitalizing of Starbucks experience, which was already
discussed in the previous section.

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Considering the growth potential of the company in 2016, the growth strategies of the company,
for the increase in the company’s revenue, it includes:
 Growing the stores in number – one of the growth strategies is to increase the store's
number, in next some years, where only the footprint would not be expanded but the
focus of the strategy will also be on shifting or bring a change to its store mix. That is
instead of only concentrating on the place to hang out and have fast food and coffee, the
company is also introducing the drive-through in various outer areas of suburban and
urban areas (Chari & Feng, 2018)
 Elevating the experience of coffee – the company strategy is to pull itself to most
preferable place to have coffee for the customer, for this they will be elevating the
experience of the people at the coffee shops while offering more customized taste and
offering. On the highest priority, is to target the roasteries, at least 10 roasteries would be
looked by the company which are the coffee connoisseurs and uber-rich. Another priority
would be the reserved stores. , which will have larger footage than that of normal stores.
The company has planned to open at least five hundred new reserved stores, which will
focus majorly on upper middle class according to the income size. This will include
providing the premium roaster although the price will be kept relatively less than the
roasteries (Chatzoglou & Chatzoudes, 2018)

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Figure 2: Source: (forbes, 2019)
Figure 3: Source: (forbes, 2019)
This could also be analysed through VRIO framework. Its factors would be responsible for the
financial performance of the company
1. Value – this reflect the cost for the resources to be procured
2. Rareness – this reflects the rareness of the resources that is how limited the resources are
3. Imitability –this reflect the difficulty for the other party to imitate the resources
4. Organization – this reflect the use of resources in the better manager and their
arrangement level (Chari & Feng, 2018)

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Figure 4: (Source: (forbes, 2019)
b. The overall coherence of Starbucks’ strategy in terms of its fit with the company’s
external and internal environments and the internal consistency of the strategy
The external environment is a major aspect which affects the strategy of any company, as it is
dynamic and changing very rapidly. Therefore, it can be said that the company changes its
strategy according to the external environmental change and analyzing the company’s own
strengths and weakness.
For external environment analysis, the porters five force model was analysed, which justify the
strategy of the firm. This include five major forces:

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1. Bargaining power of buyers (low to medium influence) – since the company is providing
premium product and include product differentiation, the bargaining power are not much
in hands of buyers.
2. Bargaining power of suppliers (low to medium) – the company’s strategy include to have
large number of suppliers worldwide, which leads to low influence of supplier and the
bargaining power are not in hands of suppliers
3. Competitors (medium to high competition) – some of the popular fast food chains are the
major competitors of the company, for instance, Mc. Donald’s, Dunkin donuts, costa
coffee, café coffee day. Moreover, due to rapid change in technology, the competition has
been increased to larger extent.
4. Threat of new entrants (low influence) – the influence is low due to brand image and high
brand loyalty
5. Throat of substitute (medium to high influence) – the substitute for this can be
restauranyts, coca cola, apple juices, hard drinks in various nations, green tea. These can
be the substitute that can be a threat to the company
For instance, considering the industry analysis, some of the major strategy of the Starbucks
included:
 Extending digital engagement – in the United States the payment through mobile consist
of more than one-fourth transaction for Starbucks. This could be the result of the
initiative taken by the company for promoting the easy comfortable and seamless
experience of digitalization. Moreover, the company’s loyalty program has been changed
the basis of frequency to the amount of transaction, as this was leading to the splitting of

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order and issues like the queue were observed to be long due to a number of transaction
considered for the basis of loyalty programs (forbes, 2019)
The requirement and the increase in the use of digital marketing strategy, the company
realize to launch the coffee mammoth plans to reach to the customers from email
marketing to reach to the customer on one to one basis, and various other social
marketing strategy was adopted to increase the sale of the Starbucks (Chu & Liu, 2017)
 Establishing a new partnership – considering the external environment and various
opportunity to gain by the company, including this another strategy to create a new
partnership. For instance, in 2016 the food sale of the company was around 20 percent of
the company’s revenue. The company thus observed that the saturation level while
considering per day food offering is far below. This leads to the strategy of the company
to create or establish a partnership, in order to make food business as one of the major
growth opportunity in the future. Through this, the company initiated the bunch business
through testing the weekend brunch in various western locations, which would be
conducted from 8 Am to 2 PM on Saturdays and Sundays. The Starbucks decided to
serve the princi food at their premium restaurants. One of such partnership is with
Macy’s, and it has been observed that Starbucks has an association with Macy’s through
its 49 stores of Macy’s (Davis, et al., 2016)
Q3. Does Starbucks operate in the interests of its shareholders or its stakeholders?
Before understanding the Starbucks strategy towards the stakeholder’s interest. The marketing
position of the company is important to understand, for which BCG matrix would be analysed: