Starbucks has an angel on one shoulder and a devil on the other. Because of these facts,  Starbucks is able to get low prices and reduce costs since suppliers are so eager to work with the company, making Starbucks a cost leader. Focused Low-Cost. In this intensive growth strategy, new products are seen as ways of increasing sales revenues, especially in coffeehouse markets that are already saturated. In relation to the broad differentiation generic strategy, Starbucks grows its business through the intensive growth strategies of market penetration, market development, and product development. Varadarajan, P. (1983). HUB AND SPOKE -In the later years, the Starbucks team refined the real estate strategy by adopting the ‘Hub and Spoke’ model. The focus strategy This strategy involves a company concentrating in a particular market segment and understanding the dynamics of the needs of the customers in those markets. The SWOT analysis of Starbucks Corporation shows that this capability to develop attractive and profitable products is one of the business strengths that support the company’s intensive growth and strategic expansion in the global market. The generic strategy trap. Balanced Scorecard Strategy B. Miller, D. (1992). Their cost leadership strategy success is largely due to the company’s supply chain operations where they received the best transportation rates, and were able to achieve economies of scale by eliminating redundancy and maximize efficiency. Competitive advantage can be defined as anything which gives one organization an edge over its rival in the products it sell or the services it offers. However does the generic strategy lead to sustainable competitive strategy?This analysis will explain in detail. Starbucks cost-leadership position is achieved by gaining advantage over competition through reducing economic costs below that of competition. In relation to the broad differentiation generic strategy, Starbucks grows its business through the intensive growth strategies of market penetration, market development, and product development. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. These categories are: Starbucks employs a broad differentiation strategy. Cost Leadership is a strategy to reduce the cost of operation and produce the lowest priced products or services, to out-do the closest competitors and gain market share. The enterprise needs to innovate ahead of other coffeehouse firms to maintain its competitive advantage and growth based on this generic strategy. This generic strategy translates to various policies and programs to keep the coffeehouse business differentiated against the competition. Thus, starting with coffee, Starbucks continued to expand its offerings as much in the beverage category as in the food category to diversify it’s offering through acquisitions and development of partnerships. Lower Cost Di˜erentiation Cost Leadership Di˜erentiation Cost Focus Focused Di˜erentiation Starbucks VIA In-Store brewing products/gifts Below are the financial ratios from the income statement and balance sheets for Starbucks: Current Acid Debt to Equity Gross Profit Net Margin 2009 1.29 0.86 0.83 56% 0.19 Question: QUESTION 1 Starbucks, EBay, And Cirque Du Soleil Are Examples Of Companies That Used A _____ To Reinvent The Industries They Were Operating In. 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Create a free website or blog at WordPress.com. (1997). The third generic strategy, he subdivided into two – cost focus and differentiation focus. This generic strategy is also manifested in Starbucks Corporation’s organizational culture. Starbucks’s Marketing Mix or 4Ps support the market penetration intensive growth strategy, especially when it comes to expanding the company’s presence through strategic locations and promotions. Excellent customer services as one of the solid sources of Starbucks competitive advantage further increases the attractiveness of the coffee retailer. A. For the Ansoff Matrix, Starbucks mostly stuck to market penetration in … Advertisement can develop through internet that services convinced for users to access, give the brochures, do road shows, so that public come to know more about Starbucks … An implication of the broad differentiation generic strategy is that Starbucks must keep innovating to ensure the uniqueness of its products in the long term. It requires the vigorous pursuit of cost minimization techniques such as efficient utilization of scale of production, good purchasing strategy, modern technology and produce quality products. While I believe that Starbucks' main strategy is that of product differentiation (which will be addressed in the next post), there are some cost advantages that the company enjoys. This difference highlights Starbucks Coffee’s value proposition regarding high quality and uniqueness of products. A more detailed strategic analysis of Starbucks Corporation should consider how to support continuous growth and expansion by strengthening competitive advantages in relation to the current broad differentiation generic strategy of the company. In addition, a cost leadership strategy enables a company to become a leader in cost minimization in the industry. Starbucks already has presence in more than 78 countries and territories. The coffee is often advertised as costing under a dollar, making Dunkin’ Donuts a low-priced alternative to Starbucks. For example, Starbucks aims to open more stores in countries where the business has a weak presence, such as in Africa and the Middle East. Michael E Porter has laid out three generic strategies – cost leadership, differentiation and focus to gain competitive advantage. ( Log Out /  Successful expansion in these markets ensures the fulfillment of Starbucks’s corporate mission statement and corporate vision statement, which adhere to making the company the leading player in the global coffeehouse market and related markets for coffee products and consumer goods. However, the cost leadership generic strategy might not work because being a best-cost provider goes against the premium brand image of the company’s cafés and merchandise. For example, the focus or market segmentation generic strategy can enhance competitive advantage in operating subsidiaries that complement the company’s exiting coffeehouses. In applying the broad differentiation generic strategy, the enterprise focuses on specialty ingredients and products, such as baked goods that do not have high-fructose corn syrup. This is because joint ventures enable the company to cut all costs that come with engaging in … Also, Starbucks has intensive growth opportunities in countries where the company’s coffeehouses are not yet common, such as in Africa and the Middle East. To reduce unnecessary cost, the company has been expanding its range of products consistently. Cost Leadership - NOT USED BY STARBUCKS. Supercuts’s website makes clear their longstanding cost leadership strategy by noting, “A Supercut is a haircut that has kept people looking their best, while keeping money in their pockets, since 1975.” Porter, there are three generic strategies that a company can use to achieve competitive advantage: Overall Cost Leadership, Differentiation, and Focus (Dess, McNamara, & Eisner, 2016). Configurations of governance structure, generic strategy, and firm size. Email . ( Log Out /  When there are big economies of scale, in different parts of a business, (i.e manufacturing, marketing, distribution, service, or anythings else) larger firms have a cost advantage over smaller firms. The first generic strategy is cost leadership strategy and the others are differentiation and focus strategies. These factors influence the coffeehouse company’s strategies for intensive growth. The coffee is often advertised as costing under a dollar, making Dunkin’ Donuts a low-priced alternative to Starbucks. Glazer, R. (1999). As another secondary intensive growth strategy, product development contributes to Starbucks Corporation’s growth through new products or variants that add to business revenues. Merchant, H. (2014). Starbucks has used a balanced mix of company-owned and franchised stores. Intensive growth strategies: A closer examination. In a bid to cut costs, Starbucks adopts joint ventures instead of foreign direct investments. ... where a mug of coffee might cost the same as a glass of cabernet at a wine bar. A focused cost leadership strategy requires Change ), You are commenting using your Google account. In the simultaneous implementation of its intensive growth strategies, the coffeehouse company focuses more on expanding its international market presence, as well as in offering products of high quality and value. Theses generic strategies include the differentiation strategy, the cost leadership strategy, and the focus strategy. The Nature of the Focus Cost Leadership Strategy. Cost leadership is a business strategy that essentially aims at lowering economic costs to the company to get ahead of the competition. For example, Starbucks Coffee offers its current products to more consumers by entering more countries, such as in Africa and the Middle East. New evidence in the generic strategy and business performance debate: A research note. Large volumes of production are often associated with lower average per unit costs. Alignment of its generic strategy and intensive growth strategies reinforces Starbucks Coffee’s competitive advantage and business performance in an increasingly competitive global market. Starbucks has always maintained its competitive advantage by being the leader in product innovation. McD has more than 90% of its restaurants run by franchisees. ... Starbucks innovative strategy … See our Privacy Policy page to find out more about cookies or to switch them off. ( Log Out /  Also, frequent introduction of new products or variants thereof contributes to the uniqueness and competitive advantage of the company’s food and beverages. We use cookies for website functionality and to combat advertising fraud. In its latest SEC filing dated June 10, 2020, Starbucks disclosed a significant shift in strategy, the launch of a new service concept called Starbucks Pickup for an “on-the-go” experience. As an individual company, it controls several times more market share than any of its competitors. Upon entering a region, Starbucks typically opened outlets in a larger city that would also serve as a centralized facility like a hub, providing logistical and managerial support for further expansion. http://nicksbizblog.blogspot.com/2015/03/cost-leadership-at-starbucks.html, https://www.ukessays.com/essays/marketing/a-robust-cost-leadership-strategy-marketing-essay.php, https://www.cheshnotes.com/starbucks-generic-and-intensive-strategies/, https://kabrown9.wordpress.com/2013/02/21/chapter-6-cost-leadership/. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). Cost Leadership at Starbucks Cost leadership is a business strategy that essentially aims at lowering economic costs to the company to get ahead of the competition. The company’s emphasis on specialty coffee differentiates its cafés from many other establishments that offer coffee. In Michael Porter’s model, this generic competitive strategy focuses on setting the coffee business apart from competitors. Starbucks business strategy can be classified as product differentiation. Starbucks uses market development as its secondary strategy for intensive growth. ( Log Out /  Focused cost leadership is the first of two focus strategies. Varadarajan, P., & Dillon, W. R. (1982). Lower Cost Di˜erentiation Cost Leadership Di˜erentiation Cost Focus Focused Di˜erentiation Starbucks VIA In-Store brewing products/gifts Below are the financial ratios from the income statement and balance sheets for Starbucks: Current Acid Debt to Equity Gross Profit Net Margin 2009 1.29 0.86 0.83 56% 0.19 Starbucks cost-leadership position is achieved by gaining advantage over competition through reducing economic costs below that of competition. ... Starbucks innovative strategy … Thus, to maintain competitive advantage in this generic strategy, Starbucks Coffee’s strategic objective is to innovate products and its supply chain. To address this issue, Starbucks keeps innovating its product mix and supply chain. Starbucks more specifically exercises a product differentiation strategy more than a cost strategy. Copyright by Panmore Institute - All rights reserved. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. A., & Wright, P. (1993). Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality. A focused cost leadership strategy requires competing based on price to target a narrow market (Figure 5.12 “Focused Cost Leadership”). Although Starbucks targets product differentiation as their main business strategy, they have also implemented cost savings strategies in an effort to maximize profitability. In chapter 6, we are introduced to the strategy of cost leadership. Starbucks Coffee’s main intensive growth strategy is market penetration. These strategies facilitate business expansion despite the increasing saturation of many coffeehouse markets. Although Starbucks’ market share of the U.S. coffee chain industry stands at a pretty might 39.8%, the brand still requires differentiation as it does not adopt a cost leadership or focus approach. If a company chooses to embrace a cost strategy route, the main focus is on gaining advantages by reducing its economic costs below all of its competitors. A cost-focus strategy is a low-cost, narrowly focused market strategy. Starbucks Corporation also innovates its supply chain to satisfy its generic strategy through continuous search for the most sustainable and finest ingredients. Leadership Strategy. Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a premier roaster, ... Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market ... differentiation strategies by offering a premium product … However, Starbucks can deliberately apply these strategies in order to reach the target customers – Figure 11: Porter’s generic strategy for Starbucks Source: Self g… These joint ventures help Starbucks to cut their costs and as such, they can be termed as cost leadership strategies. For instance, the coffeehouse business uses its sustainable and responsible sourcing policy to differentiate its products from competitors. Effective alignment between its generic strategy for competitive advantage and strategies for intensive growth supports Starbucks Corporation’s performance against competitors like McDonald’s and Dunkin’ (formerly Dunkin’ Donuts), as well as Maxwell House and Folgers, which compete in the food and beverage and consumer goods market. Strategies For ... offering the premium Roastery experience but at a lower cost. While I believe that Starbucks' main strategy is that of product differentiation (which will be addressed in the next post), there are some cost advantages that the company enjoys. The text explains that one of the most common and widely sourced cost advantages for a firm in a single business is its size. Cost Leadership at Starbucks Coffee Co. In chapter 6, we are introduced to the strategy of cost leadership. Even though Starbuck’s tried to maintain as well as grow up their market share by created new brand “Seattle’s best” (Calkins, 2010) with cost leadership strategy to deal with competitors. This strategy supports business growth by generating revenues in new markets or new market segments by offering the company’s current product mix of food and beverages. Also, Starbucks could apply other generic competitive strategies together with its current one in order to maximize actual growth and competitiveness. To maximize revenues and growth in these current markets, the company applies market penetration by opening more company-owned stores or licensed/franchised café locations. (1) In FY22, Starbucks expects outsized annual non-GAAP EPS growth of at least 20%, inclusive of the negative impact of lapping a 53-week year. While competitors like McDonald’s and Dunkin’ compete through low cost, Starbucks emphasizes a warm and friendly ambiance that people enjoy. In this strategy, competitive advantage could weaken when competitors find ways to match or exceed the coffee company’s uniqueness. Generic strategy and performance: An empirical test of the Miles and Snow typology. Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. Risk of cost leadership strategy Too much focus on cost reduction may lower quality. The market competitors of Starbucks includes Dunkin Donuts and McDonalds mccafé and so forth. Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality. Starbucks business strategy can be classified as product differentiation. The sources of cost advantage are varied and depend on the structure of the industry. The intensive growth strategies must align with the generic strategy to maximize Starbucks’s competitive advantage for firm performance and potential success. The cost-leadership strategy may be more difficult in a dynamic environment because some of the expenses that firms may seek to minimize are research and development costs or marketing research costs-expenses the firm may need to incur to remain competitive. Laying off experienced engineers, scientists, and other employees Using cheap materials Relocation of production to low cost countries Outsourcing may result in loss of valuable know-how, resources and capabilities When you don’t really do something for a while, you eventually forget how to do that. Its strategy in this area is much different from that of another major fast-food chain McDonald’s. Competitive Advantage Through Information-Intensive Strategies. This strategy is concentrated on a broader segment of the total market. Product development may also come with mergers and acquisitions, such as when Starbucks started offering Frappuccino following the acquisition of The Coffee Connection. Starbucks can effectively pursue Focus-Based Strategy in conjunction with differentiation or cost leadership based strategy. A challenge in applying this generic strategy for competitive advantage is that Starbucks must always innovate to maintain its uniqueness and attractiveness among target consumers. This article may not be reproduced, distributed, or mirrored without written permission from Panmore Institute and its author/s. Starbucks Coffee uses the broad differentiation generic strategy for competitive advantage. Focused cost leadership is the first of two focus strategies. Enter your email address to follow this blog and receive notifications of new posts by email. For FY21, Starbucks reaffirmed its GAAP EPS range of $2.34 to $2.54 and non-GAAP EPS range of $2.70 to $2.90 (both inclusive of a $0.10 impact attributable to the 53 rd week). The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. However, the broad differentiation generic strategy extends to other areas of Starbucks Corporation. Schultz’s strategy is to keep Starbucks’ partners happy and passionate about their work through compensation, benefits, and company culture. Parnell, J. I would like to explore the cost advantages that Starbucks enjoys. In Starbucks’ case, it has 51% of the restaurants owned and run by the company whereas 49% by the franchisees. The business level strategy of McDonalds includes product differentiation and cost leadership strategies which are used in order to compete in the food service industry. Starbucks leadership team emphasized caring for partners (employees) as a key building block of the company’s strategy, alongside a continued focus on creating uplifting experiences for customers while playing a positive role in communities and neighborhoods worldwide. Contact. A possible approach in these countries is to employ market development along with aggressive marketing campaigns to attain the customer base size needed to support business expansion within these local coffeehouse markets. Effective business growth customer satisfaction ) through reducing economic costs below that of.. Is to keep the coffeehouse business uses its sustainable and responsible sourcing policy to its! Coffeehouse industry that of competition conjunction with differentiation or starbucks cost leadership strategy leadership strategy enables a company to ahead. Below that of another major fast-food chain McDonald ’ s main intensive growth opportunities in the strategy! 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