Good Essay On Customer Relationship Management: Starbucks Case Study

1. Treacy and Wiersema distinguish between three value disciplines, that is operational excellence, customer intimacy and product leadership. Which value discipline(s) has Starbucks applied in recent years? Justify your answers.
When Starbucks first started, it took on the concept of traditional coffee shops that sells roasted coffee bean and tea. For several years, this same business format has been followed by the owners of the company until Howard Schultz joined the company in 1982. It was Schultz visit in Milan, Italy that changed how the company served its coffee. Accordingly, Schultz’s was amazed on how coffee was passionately made and served in Italy that he wondered if a similar concept can also be applied in the United States. Indeed, Schultz’s Italian concept of preparing and serving coffee became popular with the Americans. Several years later, under Schultz’s direction, Starbucks experienced phenomenal growth. The company expanded its operation aggressively by opening coffee stores all over the country and abroad. By 2010, the company’s stores totaled 16,858 and still expanding. Before the rapid expansion, Starbucks have been modeled as a specialty coffee bar where coffee is served meticulously, Italian style. This was the very image that Schultz was trying to establish for Starbucks after his historic visit in Milan. However, with Starbuck’s expansion, several significant changes were also observed with the company. With its customer base growing exponentially, the company was forced to standardize and look for ways to serve coffee faster in order to accommodate the growing number of customers that visits their stores every day. From the traditional ways of preparing and serving coffee, Starbuck employed new brewing machines and introduced new methods aimed at narrowing the preparation time of their coffee. Starbucks baristas are often jokingly referred as button pushers because of the almost instant way of preparing coffee.
In terms of the three value disciplines introduced by Treacy and Wiersema, it is quite obvious that Starbucks today is leaning towards operational excellence and product leadership while leaving behind customer intimacy on the process. In order to cater to its rapidly expanding business, Starbucks is forced to improve their operational capabilities. With their thousands of stores located in different regions of the world, major challenges has risen such as maintaining service and product quality as well as a reliable supply chain to support their operations. These challenges require that the company should seek ways on how to innovate and make their operations much smoother. In 2009, for example, Starbucks was forced to close some of its non-performing stores. One particular issue that has been observed was that some products are unavailable and most often, a store is out of something. Also, from being an Italian inspired coffee whose focus is on customer intimacy, the company is forced to live up to its fast paced expansion and the demands of customers who wish to have their coffee served almost instantly. Over the years, Starbucks have pioneered product innovations and acquired several food and beverages companies which greatly expanded its line of products. Frappuccino was introduced in 1995 and a year later, a bottled Frappuccino became a favorite. It was also the first to use paper cups in 2006 and eliminated all artificial trans-fat in its coffee beverages. In 2009, it launched the ready brew coffee and in 2011, the Starbucks K-cups. Starbucks Blonde Roast was introduced in 2012. As of today, Starbucks have more than 30 blends of single origin coffee while it also ventured into coffee and tea brewing equipment, mugs, tumblers and other Starbucks items. Due to its acquisition of bakeries, it also includes among its list of products baked pastries, salads, sandwiches and yoghurts. It also has products for people on the go with their bottled and ready to drink beverages such as iced coffee, bottled juices and teas.
2. Would you characterize Starbucks' strategy as a defensive or offensive strategy? Give your reasons for your choice.
Michael Porter introduced one of the most widely used concepts of a business lifecycle in 1980. According to this model, a business undergoes several phase in its development starting from its introduction up to such time wherein it declines. In between, the business experiences growth until it reaches maturity. During such time, the business undergoes a competitive struggle that eventually determine its survival and development. Porter’s concept of a business life cycle can be applied to Starbucks. Using this concept, an evaluation of Starbucks would reveal that it has somehow reached maturity as it has somehow reached the peak of its expansion. As suggested by Porter, after the company reaches maturity, it would have to contend with numerous competitive struggle in order to maintain its position. Starbuck today is experiencing a similar business scenario. Several stores that is modeled like Italian specialty coffee bars have been emerging that is constantly taking away some of Starbucks’ longtime customers. On the other hand, Starbucks have been forced to limit their expansion in order to maintain the efficiency of their supply chain. It appears then that Starbucks currently has little room for improvement and the most viable strategy to take is to defend its position in the market. Among the defensive strategies that Starbucks has engaged is on the improvement and strengthening of its internal operations. As observed, the company has cut back on some of its stores in order to focus more on improving their supply chain management. Differentiation of products can also be seen as a defensive strategy to address the rising competition. Since there are numerous coffee business that has followed on Starbuck’s business model, the company’s answer is to provide different products to their customers perhaps to discourage them from going to other coffee stores. Before its expansion, Starbucks has only focused on serving coffee. Today, it has also catered to other products such as pastries and novelty items. Aside from differentiating, the company has also leaned on vertical integration strategies in an attempt to strengthen their core business. The acquisitions of roasting plants, coffee farms, bakeries and pastries plant among many other acquisitions prove that the company is strengthening is sustainable development by becoming more self-reliant. Starbucks has also engaged in excessive branding strategies. As observed, the company has also engaged in making novelty items such as cups, mugs, shirts and other items with the company’s logo as its major attraction. According to analysts, Starbucks strong emphasis on its branding can be considered as a strategy to establish brand attachment among its consumers. Brand attachment is quite important especially in an environment where there is intensive competition. As observed, the coffee industry is one of the most competitive industries in the world and Starbuck’s strategic approach of establishing brand attachment towards its consumers may be highly regarded as an effective retention strategy. By leveraging on their brand’s popularity, novelty and memorabilia items do not only promote brand prestige and attachment but it also provides ancillary income to the company.
Evidently, instead on embarking on aggressive expansionary development as what it has done early in its history; Starbucks have been more passive in expansion but active in improving its internal operations as well as improving its products and services. This approach can be largely attributed with companies that have already reached their peak and are struggling to maintain their status quo. Examples of such companies are McDonalds and Dunkin Donuts, whose global presence has already been established and are currently maintaining their market share. It is important to note thought that when a company reaches its peak, it would eventually die out or decline. At some particular instance, an innovative strategy could come up and create new opportunities for expansion. In Starbuck’s case, for example, on the course of its differentiation strategies, the company might come up with some products that might expand its portfolio. Until then, Starbucks would have to contend with their current products and market positioning. But even if the company has already reached its maturity stage, it could not afford to be complacent on the quality of product and service because of the competitive threats that may displace them in their current position in the market. For the same reason, their strategy has focused lately on improving their existing products and services.
3. What are your recommendations for Starbucks in the US if you want to build a sustainable company that is expanding in line with shareholders' expectations?
In order to make recommendations to improve Starbuck’s current position, it is important to determine the company’s weaknesses and strengths. As far as coffee retailing is concerned, Starbucks is unarguably the largest and most profitable. However, the intensive competition has been eating away the company’s market share lately. As observed by scholars, the industry has become more fragmented because of the entry of competitors as well as consumer attitudes. Using Porter’s Five Forces Analysis, the company can be analyzed under threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and intensity of competitive rivalry. Under the threat of new entrants, analysts believe that the barriers in order to engage in a business model such as Starbucks is not high enough to discourage competitors. As observed, several coffee shops that resemble that of Starbucks have emerged. Under threat of substitutes, it is quite obvious that people can live without Starbucks and people can easily find substitute for Starbuck coffee. Under this category, the company’s rating is evidently poor. Starbucks, on the other hand, has low pressure when it comes to consumer bargaining power. According to Geereddy, “It offers vertically differentiated products with a diverse consumer base, which make relatively low volume purchases, which erodes the buyer’s power”. Starbuck’s sheer size is evidently one of its advantages when it comes to exerting power over its suppliers. Starbucks can be easily considered as the Wal-Mart of the coffee industry. With its enormous demand due to its large consumer base, the company can effectively seek discounts from suppliers or even pressure them to lower their prices. On the other hand, suppliers could not exert much power over Starbucks because of the enormous alternative wherein the company can draw its supplies from. Coffee beans, for example, can be easily produced and brought from other exporting countries while supplies such as cups and plastics have several alternative manufacturers. Lastly, the company is experiencing extensive competition as far as competitive rivalry is concerned. Companies with global presence such as McDonalds and Dunkin Donuts, for example, have also stepped up their coffee offerings.
Based on the Porter’s Five Forces Analysis, it is quite evident that Starbucks’s weakness lies on the extensive competition that characterizes the coffee retailing industry. As far as this trend is concerned, there is nothing more that the company can do but to become increasingly competitive by improving on its products and services. Among the major strategies that the company should focus into is on improving its supply chain. Because of the enormous number of its stores that are scattered in the U.S. and abroad, inventory problems can become a nuisance without an efficient supply chain management system. A good model of supply chain management that supports numerous outlets has been established by Wal-Mart. Wal-Mart has been operating their own trucking fleet with state of the art distribution centers that supports the stores within its radius . By investing on this type of system, Starbucks can ensure the freshness and availability of their products. As a result, product and service quality is improved. Aside from improving its supply chain management, it is also recommended for the company to focus on improving their ancillary income. Being one of the most recognized brands of coffee retailers in the world, the company can leverage on their prestige and popularity to easily sell products other than coffee. For the same reason, Starbucks may consider using their brand name into business activities that may not be directly related with their coffee retailing business. Some companies that have invested on ancillary activities found that aside from the revenues they get from selling products that are not within their core business, their core business have indirectly benefited because of the potential markets that their sidelined products can reach. Fashion items or electronic gadgets, for example, can be a source of ancillary income while promoting the company’s core business because of the branding. Partnerships with established companies can also be a source of revenue. Because of the intense competition, this segment of the market has been infiltrated by competing coffee makers. Major airlines, for example, have been serving branded coffee on their flights, which Starbucks have been quite unable to dominate. It is recommended then that the company should step up its partnerships with all possible industries that might be using coffee in their operations. It is also recommended that the company should also step up its online presence by partnering with popular sites such as social media sites and other online applications. The internet, as a business platform, is one of the rapidly growing media in the world. In order for the company to keep its dominance, it should also have a strong online presence. The internet draws millions of traffic and an effectively placed strategic advertising on this medium would surely go a long way.

References

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