University of Petroleum & Energy Studies

MBA (Oil & Gas Management)

Strategic Management
Case analysis 3: Starbucks
Group 8

Date: 26th August 2020

Submitted by,

Ganesh Jayakumar R020219020

C Gopika R020219023

S Kavin RaamaLaxman R020219076

Manoj Kumar Mishra R020219030

V Sivamathivanan R020219050

Answer 1
What is the business of Starbucks?
The targeted customer segment changes upon a partnership with McDonalds, which affects the
Arena of Hambricks diamond. Further, it represents a substantial change in the Vehicle element
too, as it involves a partnership with McDonalds in the overall growth. As Starbucks currently
operates in a differentiated through high-level customer service, the dilution of customer
service through a partnership might affect the Differentiator element and lastly, the speed of
expansion is altered as opposed to traditional retail store which affects the Staging element of
the Diamond.
Pros:
1. High speed of expansion
2. Higher customer reach that equates a higher revenue generation in the short term
Cons:
1. Brand dilution – The brand Starbucks that has been made over the past few years could
easily be disintegrated through an apparent lack of high quality customer service and ambience
at the McDonalds stores
2. Lower decision making flexibility – A partnership with a giant like McDonalds could easily
shift the power base from in house to McDonalds
3. Price – Starbucks currently operates in the premium price category and McDonalds acts in
the low-price affordable meal category.

Answer 2

What are Starbucks Strategy and its source of value creation?

In the accompanying extracts of a letter to Starbucks 'customers, Starbucks' vision for the
future was discussed. This letter was reported on the 1996 Annual Report of the Organization
by Howard Schultz.

 With more than 1,000 retail outlets in 32 markets in North America and two new stores
in Tokyo in 1996, they have built our strong leading role.
 Starbucks provide experiences for millions of consumers around the globe to appreciate
the Starbucks experience every day with over 20,000 devoted associates – employees.
 The enthusiastic about the global prospects that occurs industry is opening up for more
potential clients and they are mindful of a range of brand creation opportunities.
 Starbucks decided that they needed to redefine this genre when entered into a joint
venture with Pepsi-Cola in 1994 to create readily drank coffee beverages.

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  They innovated welcoming Frappuccino in bottles but, most significantly, that the forum
for new product developments has been created.
 Launched an online café for customers to long term goals.

Value creation:

 Research of value chain offers an empirical context for examining the linkages between
the specific pieces of activities and whether each component generates value towards
the income level. The supply chain of the business may be broken in two groups: main
operations and service.
 The inbound distribution, purchases, promotions and sales, outbound logistics and
facilities of businesses are called key supply-chain operations because they directly lead
to supply formation.
 Value development support operations, though, include technology, control of human
capital and recruitment.

Sourcing:

 By establishing the exclusive value proposition to be "the third location" for consumers,
after house, and work place, Starbucks has continued to separate itself from rivals. A
cup of coffee was a "accountable privilege" and a rare pleasure.
 Customized beverages were purchased and the beverages were consumed in
comfortable and good quality surroundings.
 In order to focus on growth, and still retain ownership over its market through the core
approach, Starbucks implemented aspects of the business model for franchises.
However, the business does not market historically.

Roasting and blending:

 In several cases, with different temperatures and time pressures, carried out a great
deal of work by rusting his coffees to make sure that it came as far from the bean as
possible.
 Naturally gas generated without letting in oxygen was enabled to be provided by fresh
roasted beans. This one-way valve system has expanded Starbucks coffee's shelf life to
26 weeks.

Operation model:

 With the strong revenue, possibly because of its fast growth levels, the operating costs
of the business increased. Starbucks thus agreed to update the organizational model to
maintain productivity and stayed faithful to the vision and corporate plan of the group.

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  Plan – for example preparing development or launching of a new drug
Link – break into coffee or non-coffee transactions
Create – covers all methods of output
Delivery – covers the aspects in shipping, distribution and customer support

Answer 3
How should Starbucks leverage its resources and capabilities to achieve its growth strategies?
Hambrick’s strategy model can be used to explain this. The Hambrick model consist of the
following items to be identified

 Active areas (Arena)

 Way to reach (Vehicles)
 Winning the market place (Differentiators)
 Sequence and speed of moves (Sequencing)
 Returns (Economic logic)
Arenas:
This represents the areas in which thee Starbucks will be active. This may also include product
categories, channels, geographic areas, technologies among other strategies.

 The new ventures included contract with Dreyer’s ice cream, Frappuccino product with Pepsi
and its penetration in to grocery channel.
 Product differentiation was one of the key strategies for Starbucks. It only procured high
quality coffee beans from Latin America, East Africa and Pacific.
 It also decided to enter international markets to get a head start before its competitors.
It started to focus on Asia-pacific as it was easily reachable.
 It had sizeable percentage of stores in Vancouver, Toronto, Ottawa, Montreal and
Calgary amounting to 56%.
 Introduce a ready to drink coffee beverage in the North American market place.
 Active participation in specialty sales by partnering with various malls, hospitals &
beverage brands.

Vehicles:
After deciding the areas of competition, we must decide how we should go through this

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  Presence in supermarkets through new investments or mergers & acquisition. They also
made agreements with wholesalers, retailers, restaurants and service providers.
 It succeeded in developing a grocery market in the Portland area and now it started to
focus in Chicago market.
 Introducing Starbucks coffee in premium restaurants and day-part chains.

Sequencing:
In this step we will determine what are the steps we will incorporating to achieve our strategy.

 They looked to develop their retail stores to 2000 by the end of 2000. Their staffs were
required to generate 20 to 40 stores per month owing to its strong real estate retail
team.
 Use Pepsico’s national distribution channel to offer Frappuccino to customer in Pacific
markets which already had a market for cold drinks.
Differentiator:
This shows in what means Starbucks provide differentiable consumer offerings. It also refers to
Unique Selling Propsitions.

 Introduction of its espresso carts or kiosks to brand the coffee cart called the Doppio.
 Mail order for customers whose shops weren’t very near to the stores. Encore, a direct
mail program helped to boost sales by increasing transaction size and introduce them to
a wider product.
 Promote Starbucks not only as a coffee brand but also as a Lifestyle attribute.
 Efficient top-level management training and employee (baristas) training to be well
educated about the coffee products.
 Bean Stock- an employee stock option.
Returns:
The finals part of the strategy diamond summarizes everything on one basis- Profit.

 Bottled beverage markets were viewed at USD 1 Billion.

 Ice creams were forecasted that it would account to USD 40 million at retail and USD
500,000 to earnings during the fiscal year 1997.
 Efficient real-estate may allow Starbucks to lock a price for a land at USD 750000 at
present than at a price of USD 1 million later.
 It did not follow low cost basis and rather it delivered premium products and made
consumers realize that what they are paying is worth.
 Various monetary returns can be viewed in Exhibits.

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