Strategic Analysis of Starbucks: Evaluating Growth and New Strategies

This case study provides a strategic analysis of Starbucks, focusing on its business and corporate-level strategies to achieve growth. It begins by defining strategy and examining Starbucks' approach, revealing a limited growth strategy primarily centered on market penetration. Starbucks has successfully expanded globally by focusing on its coffee product and intensive marketing. The study suggests that Starbucks should consider product development to cater to a broader customer base and substantive growth strategies, such as acquiring supplier firms to reduce costs. The study concludes that a thorough understanding of strategy and the implementation of new strategies are crucial for Starbucks' continued growth in the competitive global market.

Strategic Analysis of Starbucks
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Executive Summary
Business and corporate level strategy helps a firm in fitting in with its external and internal
environment and achieving its long-term goals. Following study highlights the use of strategy
by Starbucks to attain business growth. This study uses Starbucks as a case study to ascertain
how a company uses strategy to attain its business goals.
At the onset the study tries to understand the meaning of strategy and the strategy used by
Starbucks. Analysis of the firm’s functioning revealed that Starbucks uses limited growth
strategy where it focuses on the market penetration strategy to attain business growth. The
firm focuses on its coffee product and markets itself intensively to generate growth in
customer base.
The firm has been able to achieve massive growth in the global market through market
penetration. However, this study recommends product development and substantive growth
strategy to Starbucks to grow further. Through product development, the firm can cater to a
larger number of customer and through substantive growth strategy it can acquire supplier
firms to reduce costs. Therefore, understanding strategy and applying new strategies can help
Starbucks in further growth.
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Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
Identification and Evaluation of Corporate Level Strategy of Starbucks..................................4
Recommendation of New Strategy to Starbucks.......................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8
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Introduction
The aim of business strategy is to make guidelines for functioning of a business organisation
(Bamford & West, 2012). Strategic thinking helps a firm to grow in the competitive business
scenario. Starbucks is a well-established brand name and the company has been able to grow
in the global markets through strategic thinking.
Identification and Evaluation of Corporate Level Strategy of Starbucks
Corporate level strategies are the strategies made by a business organisation with an intent to
position itself in a specific manner to achieving long term goals (Ferrel, 2012). Corporate
level strategy underlines setting up of vision, mission and business goals which are
implemented throughout the organisation (Henry, 2011). Growth, diversification, stability
and retrenchment strategies are the major corporate level strategies adopted by firms.
The corporate level strategy of Starbucks has been developed around its mission statement
which seeks to help nurture human spirit through its selected coffee (Starbucks, 2018). This
mission statement of Starbucks aims to create an image of a quality conscious company
(Starbucks, 2018). The corporate level strategy of Starbucks can be assessed based on major
theoretical concepts of corporate strategy viz growth, diversification and stability strategy.
Growth strategy focuses on increase of sales and revenue (Ferrel, 2012). This can be done by
either increasing the market share or by taking over venders and suppliers. Diversification
strategy aims to attain new markets and customers through diversification of the product
Offred (Henry, 2011). On the other hand, focus of stability strategy is to maintain the existing
customer base.
Starbucks’ corporate strategy is based on acquisition of more customers markets through
quality focus (Starbucks, 2018). Since, its foundation in 1971, the company has grown to
become a multinational company with millions of customers throughout the globe. The
company has shown 12% growth rate in the last five years by successfully selling their
brewed coffee product (Starbucks, 2018). This shows the remarkable way the firm has been
able to increase its customer base globally through the use of growth strategy.
In strategic management theory there are two types of growth strategies. Substantive and
limited growth strategies (Hill & Jones, 2012). Under limited growth strategy firms use same
product or the same market to grow further. On the other hand, in substantive growth strategy
the firm uses vertical and horizontal integration with similar firms and venders to grow
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further (Ungson & Wong, 2012). Major growth strategy followed by Starbucks is limited
growth strategy.
Limited growth strategy has three sub strategies. These are market penetration, product
development and market development (Sminia, 2014). In Market penetration, a firm enters a
new market with same product. On the other hand, in poduct development the firm brings in a
new product in the existing markets. In Market development, the firm tries to develop new
market segments for its existing products (Ferrel, 2012). Starbucks has used market
penetration sub strategies to grow in the global markets as it has concentrated majorly on its
coffee product.
By focuses on its ace product, Starbucks has been able to create a niche for itself in the global
markets (Starbucks, 2018). By using this strategy Starbucks has concentrated on a single
product; that is, its coffee brand and has extensively marketed it in existing and new markets
to create awareness, recall and purchase behaviour (Ferrel, 2012). Market penetration strategy
has also helped Starbucks in uniquely positions itself as a well-known brewed coffee selling
brand (Starbucks, 2018). Due to this strategy the firm has concentrated on its main product.
This has helped the firm in outwitting its competitors.
This strategy has also helped the firm in utilising external environmental factors like social
trends and economic fluctuations to its advantage. The firm has been able to establish suitable
prices and political necessities for the its sales because of its focus on a single product.
(Starbucks, 2018)
This strategy has also helped the firm to use its strengths such as, a very strong brand name to
its advantage. Through its focus on a single product, the firm and its brand name have
become synonymous with coffee (Ferrel, 2012). Therefore, the firm has acted strategically
and used market penetration growth strategy to become a popular brand name by fitting in
correctly with its external and internal environment.
Recommendation of New Strategy to Starbucks
Starbucks is a huge corporation and has an immense market presence and brand name
globally (Starbucks, 2018). Mostly the firm has been using market penetration to enter new
markets and acquire new customers. Following are recommendations for use of new
strategies
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The firm can also use product development as a strategy. This strategy aims to add new
similar products to the existing product line (Ferrel, 2012). Through the firm sells other
beverages and snack items along with coffee but it is not known for all these products. The
firm should develop new products in snack and fast-food segment to acquire more customers
(Ferrel, 2012). There are customers who do not drink coffee for health reasons. The firm can
come up with other beverages and food items for these people. The firm can take up active
marketing to spread awareness for these other products. This will help the firm in fitting in a
better way in the external environment as this will address the social factors like health-
conscious people (Ferrel, 2012). Additionally, it will help the firm to use its internal strengths
better in a way to channelize the opportunities of the food and beverages industry in a better
way (Ferrel, 2012).This strategy will also help the firm in getting a second unique positioning
of a fast food and beverages brand in addition to a brewed coffee brand.
The firm can also use substantive growth strategy to further increase market share and
improve its revenue shares. Under this strategy a firm tries to increase its market share
through vertical or horizontal integration (Ferrel, 2012). Vernicle integration is when a firm
acquires a dealer, a vender or a supplier firm. Through this method a firm can reduce supply
side costs (Bamford & West, 2012).
Through vertical integration Starbucks can acquire coffee plantations in south America or
Sri-lank to provide coffee at a cheaper rate to the emerging markets. This will help it in
penetrating the emerging markets at lower cost than its competitors (Ferrel, 2012). Hence,
this will help the firm in fitting better within the external and internal environment through
reduction in price to suit customers in emerging markets. This will also help the firm in
positioning itself uniquely as a middle-income group coffee provider in the emerging markets
which will help the firm in getting more customers.
Another substantive growth strategy is horizontal integration where a firm acquires similar
firms to increase its customer base (Bamford & West, 2012). Starbucks can acquire small
local coffee houses in the emerging markets. This will help the firm in making a foothold in
local markets and acquiring loyal customers of these small firms. Additionally, horizontal
integration strategy will help Starbucks in integrating in a better way with social, economic
and political environment of the emerging markets, as people in these economies may like to
visit a coffee shop they have visited for years.
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Therefore, through product development and substantive growth strategy, Starbucks can grow
faster and further in the global markets
Conclusion
An understanding of business and corporate level strategies helps a firm like Starbucks in
evaluating the kind of strategy it needs to survive and grow in the business world. An in-
depth assessment of business strategy can also guide a firm in evaluation of current strategies
and implementation process of new strategies. Therefore, to grow further an assessment of
strategy is needed for Starbucks.
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References
Bamford, C. E. & West, P. G., 2012. Strategic Management : value creation, sustaínability,
and performance. New York: Cengage Learning.
Ferrel, O., 2012. Marketing Strategy. New York: Cengage Learning.
Henry, A., 2011. Understanding Strategic Management. Oxford: Oxford University Press.
Hill, C. & Jones, G., 2012. Strategic Management: An Integrated Approach. New York:
Cengage Learning.
Sminia, H., 2014. The Strategic Manager. New York: Routledge.
Starbucks, 2018. About Us. [Online]
Available at: https://www.starbucks.com
[Accessed 11 September 2018].
Ungson, G. R. & Wong, Y.-Y., 2012. Global Strategic Management. Mew York: M.E.
Sharpe.
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