Starbucks Srategy
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1) Starbucks used mostly a differentiation strategy, however it had also used a cost leadership strategy. Its differentiation strategy was exemplified by their stores providing an experience, offering interesting coffee-related drinks in a theatrical kind of atmosphere, their unique Coffee blending and roasting process which enabled them to create an extensive product variety, their employees received great deal of training to become very knowledgeable about coffee in order to provide an exceptional service to increasingly coffee-educated consumers, and their ability to find the perfect location for their stores enabled them to maximize market share in a given area of a city and build their regional reputation which then increased their image to a national level of high prestige and status. For all these reasons, consumers were willing to pay a premium. Their cost leadership strategy was exemplified by their supply chain operations where they received the best transportation rates, and were able to achieve economies of scale by eliminating redundancy and maximize efficiency. Starbucks was also a cost leader due to its good relationship with coffee exporters who were “very anxious to become Starbucks suppliers”, a fact that enabled the company to get better prices and reduce bean-sourcing costs. The activities that created superior value for Starbucks retail coffee-house business were: Procurement – purchased more high quality coffee than anyone else in the world. Technological Development – A lot of research was put into the roasting and blending process to create unique tastes. Human Resource Management – extensive training and educating of employees (baristas) and turning them into part of the organizational culture. Outbound Logistics – finding good Real estate to maximize market share in certain area and provide the coffee in key places to consumers.
2) Starbucks core competencies are: R&D – Invested a lot in research of it roasting and blending of its coffees to ensure it was getting as much as possible form the coffee beans. This allowed them to create signature roasting curves which were done by very few competitors, and ensured that even if a roaster were to defect to another competitor, he/she would not be able to duplicate these signature curves. Their roasting and blending technology enabled them to create unique coffee tastes which created value to consumers. Organization, management, and design skills of Supply Chain Operations (SCO) – Starbucks has organized an SCO that had a complex bakery distribution model, a forecasting model for who will need coffee when, strong inventory turns for the specialty coffee industry, and a fully integrated manufacturing and distribution process. It had developed these skill and benefits because it benchmarked against its competitors, hired experts, and believed strongly in the concept if integrated supply. These skills gave start bucks a sustainable competitive advantage since they were costly to imitate by competitors, and hence were possessed by only a few of them. In addition, they illustrated the fact that Starbucks had the correct implementation mechanism, and held the right structure and controls of its supply chain. HR management skills – Starbucks employees received a great deal of training and education about the different coffees and processes. This enable them to relay forward this information to the increasing coffee-knowledgeable