Value Creation for Business: A Comprehensive Starbucks Analysis Report

This report provides a comprehensive analysis of Starbucks' value creation strategies. It begins with a critical review of the situational analysis, examining both internal and external factors influencing the company's performance, including market position, competitive landscape, and financial health. The report then delves into a detailed understanding of the current value-based inadequacies, specifically addressing challenges such as high prices, slow service, and the impact of economic downturns. It proposes relevant changes to the business model, such as price adjustments and franchising, to attract investors and enhance shareholder value. The report also assesses the value-based results for future shareholders and key stakeholder groups, considering the impact on strategic positioning and long-term sustainability. The analysis includes a review of evidence, a reflection on the findings, and concluding remarks on the overall value creation process of Starbucks.

Value Creation for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART 1 ...........................................................................................................................................3
1.1 Critical review of Situational Analysis.................................................................................3
1.2 Comprehensive understanding of the current value based inadequacies..............................5
1.3 Propose relevant changes to the business model that investors will accept. .......................7
1.4 Value based results for future shareholders as well as key stakeholder group. ...................9
1.5 Impact on strategic position and future business sustainability of the organization. ........10
PART B.........................................................................................................................................10
EVIDENCE REVIEW...................................................................................................................10
PART C.........................................................................................................................................15
REFLECTION...............................................................................................................................15
CONCLUSION ............................................................................................................................16
REFERENCES .............................................................................................................................17

INTRODUCTION
Value creation is the primary focus of each and every business organization. Creating
values will help in increasing the trust and loyalty of customers as well as support the
organization to maintain their sustainability in the competitive markets. Value creation for a
business organization is the concept of recollecting all the measures that can lay emphasis on the
emotions and values of the old and potential customers of the organization. In general terms,
creating value is the essence of the business organization. 'Starbucks' is an American company
and chain of coffee house which was established in Seattle, Washington in 1971. As per the
reports of 2017, worldwide covered locations of the company are 27,339. The founder of the
company is Jerry Baldwin, Zev Siegi and Gordon Bowker. The main focus of this report is to lay
focus upon the value creation and the parameters taken by the Starbucks to lay emphasis on the
minds of their customers.
PART 1
1.1 Critical review of Situational Analysis
Starbucks' is an American company coffee house which was found in the year 1971 in
Seattle, Washington. As per the report of 2017, worldwide covered locations of company were
27,339. Company is a top leading brand of coffee industry and it operates in approximately more
than 15,000 stores in around 50 countries such as Canada, Germany, Russia and Australia. Joint
ventures are used by Starbucks to expand their market along with the local shops of coffee and
restaurants. Starbucks is considered as a leader of the coffee industry but in some past recent
years, it has become essential for company to lay more emphasis upon the development of their
customer services in order to create the exclusive brand image.
Aim of Starbucks; the mission statement of the Starbucks is to achieve all the objectives
of the organization. Their main aim is to create Starbucks as one of the finest brands of coffee
with their uncompromising principles.
As the coffee at the Starbucks is very unique, the main focus of the organization is upon
the standard of quality of their products. The local and international partners of the Starbucks are
treated with full harmony and respect that allow them to maintain the potential of their company.
The structure of the industry was analyzed by using Porter's Five Forces Model.

Situation analysis refers to the method of analyzing the internal and external environment
of the company in order to evaluate the capabilities, customers and business environment of the
organization. Situational analysis of any organization is made up of various factors; it is the
critical and important step for analyzing the outcomes of the company.
Situational analysis of the organization is based upon internal and external analysis.
External factors consist of opportunities and threats while on the other hand, internal factors
consist of strengths and weaknesses. As per the situational analysis of the organization, its
opportunities are; with other companies Starbucks uses joint ventures in order to launch new
products that will be sell in convenient and grocery stores. Threats for the organization are; one
of the biggest issue faced by the Starbucks is economic recession, it occurs because of the price
of the products of Starbucks, customers start drinking coffee of relatively low prices. And also
there are some countries that oppose coffee because of the low nutrition ad high calories factor.
As because the prices of the products are high, it become hard for the people with low income
group to afford it and then they find the substitute products to fulfill their purpose.
Internal factors consist of strengths and weaknesses of the organization. The other part
of the situational analysis lay emphasis on all the strengths and weaknesses of the company in
order to conduct the proper evaluation of the organization. As per the analysis conducted by the
company, strength of the Starbucks is strong brand awareness. It is a large coffee company with
so many operating stores across the world. Starbucks is very famous in British countries as
people out there really live upon coffee. The financial position of the Starbucks is very strong in
both international and local market. This is the main strength of the organization. The team
management of the company is very strong and impact-full. The staff at the Starbucks is well
trained and sufficient in meeting the needs of the customers. While, on the other hand,
weaknesses of the organization is that the major issues for the company is to manage their
employees at different level of their stores, there are many complaints regarding the long waiting
schedules that customers have to face in Starbucks due to low staff skills. Therefore, the
expansion of company becomes slow and profit ratio also decreases. One more major weakness
of company is high cost of their products.
As Starbucks is a famous organization, there are number of issues which have been faced
by the organization. It is very popular among the customers but company face a huge problem
during the time of the economic recession as there are many consumer who think that products

and services of company are relatively high in comparison to the substitutes. This has created a
whole new image of the organization among people. The year of 2017 was quite rough for the
Starbucks as company is enable to attract the new customers to stores. The current value of the
Starbucks in the mind of the customers is nothing what it was before because of their high
prices, slow services and many other factors for improving the market position and to gain the
attraction of the customers. Organization can use approaches of the situational analysis that will
help in gaining information regarding the internal and external factors of the organization.
Situational analysis is the technique to examine the differentiated value of the business in
the market and identify appropriate measures to overcome the problems which are being faced
by the business.
1.2 Comprehensive understanding of the current value based inadequacies.
Starbucks' is the American company and chain of coffee house, which was established in
Seattle, Washington in 1971. As per the reports of 2017, worldwide covered locations of the
company is 27,339. The company is a top leading brand of coffee industry and it operates
approximately more than 15,000 stores in around 50 countries, such as Canada, Germany, Russia
and Australia. It is very essential for the company to lay emphasis upon the skills of their
employees as they are enable in managing the crowd situation and often customers compliant
that they have to wait so much for one cup of coffee. It has also been seen that due to high
quality of the products used by the Starbucks their prices are also very high in comparison to any
other coffee house. One more challenge that the company really need to overcome is their food,
the overall revenue of the Starbucks makes very small amount of ratio as because of its very high
price than in comparison to its major rivals, Panera bread and Dunkin's group. The company has
modified its menu several times but it does not sufficient in bringing much of the profit to the
company. The brand image of the Starbucks revolves around the motive of providing premium
quality of coffee. Currently value based issues faced by the Starbucks are due to high prices of
their products, and normal people are not able to afford it on regular basis. As per after the
economic recession, their is huge fall in the popularity of the Starbucks as there are number of
people who opted for other substitutes for fulfilling their needs. As demand of Americans are
increasing for the coffee, they are much attract towards the ready-made drinks which does not
consume much of their times and are not very expensive. As per the reports it has been seen that
the popularity of the Starbucks is decreasing as the ready to drink segments are growing at a fast

speed. It is becoming difficult for the company to pin point their unique features in order to gain
the competitive advantage. The major issue that Starbucks is facing these days is currently
occurring financial crises with the country. The cost of the coffee of the Starbucks is very high
because the company only purchase the high quality of beans and it never believes in
compromising with its standard of quality, but because of the high prices of the Starbucks
products there are various competitors who enjoy the competitive advantage because of it. It is
very important for the firm to take appropriate measures in some limited time horizon in order to
gain the sustainable market position. The company should lay stress upon the factors like gaining
information regarding other similar products and try to low the prices of their products. One
more measure that can prove to be effective for the firm is, that they could accept the policy of
franchising. Starbucks adopted a policy of not franchising is a big concern for the working of the
firm. Franchising allows the company to expand their working by opening many stores in
various parts of the country and it also involves very less amount of risk and acquires some good
amount of profits for the firm. . The brand image of the Starbucks revolves around the motive of
providing premium quality of coffee. Currently value based issues faced by the Starbucks are
due to high prices of their products, and normal people are not able to afford it on regular basis.
As per after the economic recession, their is huge fall in the popularity of the Starbucks as there
are number of people who opted for other substitutes for fulfilling their needs. As the coffee at
the Starbucks is very unique the main focus of the organization lay upon the standard of quality
of their products (Sinkovics, 2014).
The local and international partners of the Starbucks are treated with full harmony and
respect this allow them to maintain the potential of their company. The structure of the industry
was analyzed by using Porter's five Forces.
For gaining the attention of the customers Starbucks should take some measures like
lowering prices of their products and adopting the policy of franchising, this will help in gaining
the position within the market. If no measure is taken for the same than the firm is going to face
some drastic loss in terms of profit as well as popularity. For reducing the risk factors for the
future, Starbucks should construct a focus based strategy in reference to differentiation and a
cost leadership based strategies, if the store will provide products at lower prices than in that
case it will able to maintain the competitive edge. If the company will not address appropriate

measures than in that case there are huge risk factors are present for the organization (Dean,
2014).
1.3 Propose relevant changes to the business model that investors will accept.
Starbucks' is the American company and chain of coffee house, which was established in
Seattle, Washington in 1971. As per the reports of 2017, worldwide covered locations of the
company is 27,339. The company is a top leading brand of coffee industry and it operates
approximately more than 15,000 stores in around 50 countries, such as Canada, Germany, Russia
and Australia.
Business plan is the measure which is used to conduct the effective plan for the business,
helps in identifying the area of profits, analyzing the needs of the customers and lastly in helps in
gathering information regarding the financial outcomes of the company.
The current business plan of the Starbucks lay emphasis upon the cost controlling
measure and the areas where they need to lay focus to make the relevant changes in the
organization. Business model is the structured format that is used to conduct the successful
operations of the business and to also identify the sources from where the organizations can earn
profits and revenues. Business model is a term which is frequently used by many organizations,
whenever any firm wants to regulate or reconstruct their work the first measure which was taken
by the organization is changing their business model.
The current business model of the Starbucks is based upon the values that creates and
delivers customers satisfaction. The business model of the Starbucks is based upon the nine basic
building blocks:
Customer Segments: Starbucks lay emphasis on their core customers and create value for their
customers, they lay emphasis on their targeted audience.
Value Proposition: Their criteria of working also depend upon the value or services they offer to
their customers, for example, what are the problems that are being solved by them or are their
solution is satisfying for their customers.
Channels: These helps in distributing the area of sectors where company wants to deal.
Customer Relationship: the main reason behind the why Starbucks changed their business model
is because the company wants to build effective relationship with the customers.

Revenue Streams: The cost of the products are relatively high at Starbucks, but this is because
the company never compromises in its quality as it choose best quality of coffee beans for their
coffee.
Key resources: Starbucks lay great emphasis upon the value proposition of their products and
also regulate its distribution channels.
Key Activities: The main area where the cited company deal is coffee and other food items.
Their main purpose is to provide best quality of services to their customers.
Key Partners: Starbucks does not adopt the policy of franchising, as it believes that it creates
negative impact upon the organization.
Cost Structure: The cost of the products of the Starbucks are relatively high in comparison to the
other products and services, it is due to the high quality of offerings they conduct for their
customers (Dorn,2016).
Business model is use to create the objective for the business organization, whenever
company face any kind of troubles then in that case, they come up with variations in their
business model, this will help in creating and delivering business value that covers all the value
of the organization.
For covering the financial matters Starbucks can start franchising their business, this will
help the firm in such a way that it will lay focus upon its profit and the company will come up
the methods that are prove to b helpful in gaining attention of the investors. Business plans are
the strategies and tools that business wants to bring in their function in order to modify their way
of conducting the tasks and activities that are related to their business.
Whenever business face any kind of crises the first thing that organization implement is
changes into their business plan. It is the measure through which companies bring changes in the
organization and introduce those changes in front of the board members and investors so as to
achieve the success in the business. Business model is use to create the objective for the business
organization, whenever company face any kind of troubles then in that case, they come up with
variations in their business model, this will help in creating and delivering business value that
covers all the value of the organization (Lee, 2016).
The other part of the situational analysis lay emphasis on all the strengths and
weaknesses of the company in order to conduct the proper evaluation of the organization. As per
the analysis conducted by the company, Strength of the Starbucks is strong brand awareness, it is

a very big coffee company with so many operating stores across the world. Starbucks is very
famous in British countries as people out there really live upon coffee. The financial position of
the Starbucks is very strong in both international and local market. This is the main strength of
the organization.
The team management of the company is very strong and impact-full. The staff at the
Starbucks is well trained and sufficient in meeting the needs of the customers, while on the other
hand weaknesses of the organization is; the major issues for the company is to manage their
employees at different level of their stores, there are many complaints regarding the long waiting
schedules that customers have to face in Starbucks due to low staff skills.
Therefore the expansion of the company becomes slow and profit ratio also decreases.
One more major weakness of the company is high cost of their products. Business plan is
constructed in order to construct the information regarding the all the possible losses and profits
company can achieve from their current business working model.
The problem within the Starbucks is that their prices and their services doesn't match
with each other. The cost of the products at the Starbucks is relatively high in comparison to the
other firms. So it is important for them to lay emphasis upon the quality and the price of their
products (Gebregiorgis,2015).
1.4 Value based results for future shareholders as well as key stakeholder group.
Starbucks can use various techniques to gain the trust and loyalty of their customers, the
quality of their product is very premium as they use best quality of raw materials for their
products, they can rebuild value of their organization by lowering costs of their offerings and
products, shareholders are the one who are equal partners in profits as well as losses of the
organization. Starbucks has reported to shareholders annually since it went public on June
26,1992. Starbucks, Corporation's Common Stock is traded on Nasdaq, under the trading symbol
SBUX. Starbucks Corporation provides detailed information and Q&A for investors relations
website. As on 11 November, 2011, the approximate shareholders of Starbucks are
approximately 21,900 as per the records. For engaging investors to provide their contribution
within the company it is very important for the Starbucks to create a successful business plan in-
front of them, this will help in maintaining the future outcomes of the company. The key
stakeholder group of Starbucks is based upon the various programs, organized by CSR.
Starbucks needs to account for the demands or interests of stakeholders, because the company is

viewed not just as an organization for profit, but also as a citizen of society. Thus, the firm must
contribute to the improvement of society. Starbucks has already implemented various corporate
social responsibility programs for its stakeholders. The value chain based solution for the
Starbucks is that it can lower the prices of their products in order to achieve success in order to
gain trust and loyalty of their customers (Schaveling, 2018).
1.5 Impact on strategic position and future business sustainability of the organization.
The main concern about the company is that, there prices are very high in comparison to
others as after the economic recession it becomes very hard for the organization to cope up with
the needs and desires of the customers. Introduction of ready made drinks is also huge concern
for the Starbucks as the service of the coffee house is very slow as per the reports, the overcome
these measures, company can take various measures to lower the price of their products so that
they can rebuild the attraction of the customer towards the Starbucks.
For maintaining organizational position, lower prices of the products and franchising are
the tow measure which can be taken by the company in order to implement there newly
constructed strategies. Strategic position of the Starbucks can be managed by implementing
some initiatives.
If Starbucks adopt the strategy of cost effective and price optimization, then in such case
it will be able to rebuild the trust and loyalty of their customers. Such strategies will also help in
maintaining sustainability for the future of the organization (Harold, 2015).
PART B
EVIDENCE REVIEW
Starbucks Corporation is an American coffee company and coffeehouse chain. It was originated
in 1971, in Washington, Seattle, it is considered as a main representative of second wave coffee.
As per the knowledge of Hutt (2016 ) total number of employees in Starbucks 238,000 in 2016.
the company deals in baked goods and other food materials and specially the organization is
famous for coffee. But the company face various issues regarding its high prices, as per the view
of Qian (2016) the pricing strategy of Starbucks in china is not stable, as the company charge
very high prices for its products in China in comparison to other western countries,Wei(2016)
stated that in china the main reason behind the popularity of Starbucks is it undertake the the
traditional approach of drinking tea over there. While on the other hand according to the view of
Wen (2016) the company is lying stress upon the pricing strategy, but the people of China have

the mind set that higher prices will offer better quality of products. They have perception that if
the price is high than in that case quality of the product will also be premium. But the media and
the other report put stress upon the high price of Starbucks product in Chinese market, the
company defended themselves by saying, the cost of functioning business in China's market is
much more higher for the organization in comparison to any other countries. The Starbucks also
has to face many kind of cultural differences in the China's market.
According to the reports of Xin (2017)company s trying to understand the local costumes
and traditions which are adopted by the country in order to relate with the people of the country ,
there are various customers in the China who are not able to afford the products offered by the
company due to its high prices as comparison to the other food or coffee outlets, the local middle
class people of China considered it as an expensive taste. The reports says that Starbucks is
failed to attract the attention of the average Chinese consumers because they are enable or
insufficient in affording the prices of there products.
According to the view of Euro-monitor International Yang (2015) China’s small fraction
of 4.5 billion cups of coffee drunk per year lagged behind that of North America’s 133.9 billion as of
2016, Chinese coffee consumption would grow 18% annually, significantly outpacing the US growth
of 0.9% by 2019. High prices of the products offered by the Starbucks is very serious issue for the
company, and they are enable to lower there prices as because of the quality of the products used by
them are relatively expensive in comparison to the other organizations. While on the other hand the
reports presented by the Harrington (2017)mentioned that the people of the China are prominent tea
drinkers, the market of the china are very far from the coffee drinkers the minimum number of cups
consumed by Chinese annually is 4 while on the other hand the number in case of Americans is 441
cups. There are many Chinese people are there who think that drinking tea does not go with the
modernization of their lives . Whereas Starbucks is able to convert the habit of drinking of tea into
habit of consuming coffee of many people of the china .
According to the view of Latif(2014) the main problem that Starbucks is facing in China is
due to there high prices of products and services, and the other fact is that the Chinese people are not
found of coffee, they are prominent tea drinkers, due to this reason many Chinese local people are
not ready to pay the high prices of the products offered by the Starbucks . While on the other hand
the middle class people of the China feel that, drinking tea is the traditional approach, and because
of there such habits they are insufficient in meeting the needs and desires of the modern life.

The major competitor of the Starbucks is McDonald in all over the world, it also very famous
company of the whole world, there are many franchises of McDonald across the world. The
company is very famous for there happy meals and the food and the beverage offered by them. The
brand awareness and recognition of the company is very strong in entire universe and there are
various numbers of its outlets are present in almost each and every country of the world. McDonald
is an American fast food company and its was founded in late 1940s . By revenue, the company is
world's largest chain of restaurant, and approximately it serves over 69 million customers on daily
basis.
According to the findings of Gerhardt (2015) the major cost driver of the Starbucks is, the coffee
beans used by the company. The organization believes in offering premium quality of products to
their consumers thus the prices are increased due to this fact. But while on the other hand as per the
findings of the Tercia (2016) the quality of the coffee of offered by the McDonald is equally good as
that of the Starbucks but there is a variation in the price of both the products.. The finding says that
the price of the iced coffee offered by the McDonald is $1, which is half less the prices charged by
the Starbucks and the cost of the McDonald's lattes are approximately $2 cheaper than the Starbucks.
But the reports presented by the Thornton(2016) stated that, the prices of the Starbucks products are
high in comparison to the McDonald's but the taste and quality of both the products are
incomparable. He also mentioned that there are many people who find the taste of the latte offered
Illustration 1: Margin of various Industries