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. Parnell, J. Intensive growth strategies: A closer examination. Starbucks Coffee’s main intensive growth strategy is market penetration. ... 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. Leadership Strategy. Starbucks cost-leadership position is achieved by gaining advantage over competition through reducing economic costs below that of competition. Although Starbucks focuses on differentiation,  there are ways that Starbucks targets a cost strategy, although brief. As an individual company, it controls several times more market share than any of its competitors. As I discussed when writing about Porters 5 Forces, suppliers want to be able to supply Starbucks because of ethical rules and demand Starbucks adheres to. While competitors like McDonald’s and Dunkin’ compete through low cost, Starbucks emphasizes a warm and friendly ambiance that people enjoy. In cost leadership, a firm sets out to become the low cost producer in its industry. Merchant, H. (2014). We use cookies for website functionality and to combat advertising fraud. These strategies facilitate business expansion despite the increasing saturation of many coffeehouse markets. Parnell, J. 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/. The intensive growth strategies must align with the generic strategy to maximize Starbucks’s competitive advantage for firm performance and potential success. These categories are: Starbucks employs a broad differentiation strategy. In Michael Porter’s model, this generic competitive strategy focuses on setting the coffee business apart from competitors. Strategies For ... offering the premium Roastery experience but at a lower cost. 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. Create a free website or blog at WordPress.com. Given the intensive growth opportunities in the global market, Starbucks employs multiple strategies for effective business growth. Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. These joint ventures help Starbucks to cut their costs and as such, they can be termed as cost leadership strategies. ... Starbucks innovative strategy … 1. To address this issue, Starbucks keeps innovating its product mix and supply chain. Change ). The company’s emphasis on specialty coffee differentiates its cafés from many other establishments that offer coffee. Starbucks has always maintained its competitive advantage by being the leader in product innovation. Pumpkin spice latte, one of the seasonal favorites at Starbucks, was recently relaunched. Change ), You are commenting using your Google account. (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. 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. Starbucks has an angel on one shoulder and a devil on the other. ( Log Out /  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). Starbucks Coffee’s Mission Statement & Vision Statement (An Analysis), Starbucks Coffee Five Forces Analysis (Porter’s Model) & Recommendations, Starbucks Corporation’s Organizational Culture & Its Characteristics, Starbucks Corporation’s Marketing Mix (4Ps) Analysis, Starbucks Coffee’s Stakeholders: A CSR Analysis, Starbucks Coffee’s Organizational Structure & Its Characteristics, Starbucks Coffee PESTEL/PESTLE Analysis & Recommendations, Starbucks Coffee Company SWOT Analysis & Recommendations, Starbucks Coffee's Operations Management: 10 Decisions, Productivity, McDonald’s Organizational Structure & Its Characteristics - An Analysis, McDonald’s Mission Statement & Vision Statement (An Analysis), McDonald’s Five Forces Analysis (Porter’s Model) & Recommendations, McDonald’s Generic Strategy & Intensive Growth Strategies, Microsoft Corporation’s Generic & Intensive Growth Strategies, McDonald’s PESTEL/PESTLE Analysis & Recommendations, Puma’s Generic Strategy, Intensive Growth Strategies & Competitive Advantage, PepsiCo’s Generic and Intensive Growth Strategies, Wendy’s Generic Strategy & Intensive Growth Strategies, Apple Inc.’s Generic Strategy & Intensive Growth Strategies, Starbucks Corporation’s organizational culture, Starbucks’s corporate mission statement and corporate vision statement, Starbucks Investor Relations – Nestlé and Starbucks Close Deal for the Perpetual Global License of Starbucks Consumer Packaged Goods and Foodservice Products, U.S. Department of Commerce – International Trade Administration – The Travel, Tourism, and Hospitality Industry in the United States, Generic Strategy (Porter's Model) & Intensive Growth Strategies. 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. Starbucks more specifically exercises a product differentiation strategy more than a cost strategy. Starbucks Pricing Strategy. A. HUB AND SPOKE -In the later years, the Starbucks team refined the real estate strategy by adopting the ‘Hub and Spoke’ model. 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 … 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. For the Ansoff Matrix, Starbucks mostly stuck to market penetration in … This generic strategy is also manifested in Starbucks Corporation’s organizational culture. Change ), You are commenting using your Twitter account. In Michael Porter’s framework, this strategy involves making the business and its products different from other coffeehouse firms. Michael E Porter has laid out three generic strategies – cost leadership, differentiation and focus to gain competitive advantage. 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). On the other hand, a combination of intensive growth strategies influences the approach that Starbucks uses for growth and expansion. The third generic strategy, he subdivided into two – cost focus and differentiation focus. Under 30. Copyright by Panmore Institute - All rights reserved. (1997). 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. Competitive Advantage Through Information-Intensive Strategies. Starbucks Coffee uses the broad differentiation generic strategy for competitive advantage. 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. In using the broad differentiation generic strategy, Starbucks Corporation ensures competitive advantage through products and ingredients that establish an image of specialty and uniqueness. The coffee is often advertised as costing under a dollar, making Dunkin’ Donuts a low-priced alternative to Starbucks. 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. Starbucks Corporation (also known as Starbucks Coffee Company) grows its multinational operations through a generic strategy that highlights the specialty of its products. Examples of Firms Pursuing a Broad Cost Leadership Strategy Despite its name, Dunkin’ Donuts makes more money selling inexpensive coffee than it does from selling donuts. For example, Starbucks Coffee offers its current products to more consumers by entering more countries, such as in Africa and the Middle East. Starbucks cost-leadership position is achieved by gaining advantage over competition through reducing economic costs below that of competition. See our Privacy Policy page to find out more about cookies or to switch them off. Generic strategy and performance: An empirical test of the Miles and Snow typology. The enterprise needs to innovate ahead of other coffeehouse firms to maintain its competitive advantage and growth based on this generic strategy. 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. 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. Once determined, the strategy is categorized as one of the 5 Generic Competitive Strategies. Contact. 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. Miller, D. (1992). ... where a mug of coffee might cost the same as a glass of cabernet at a wine bar. Focused Low-Cost. A cost-focus strategy is a low-cost, narrowly focused market strategy. Starbucks adjusts the combination of these intensive growth strategies and the emphasis on each strategy, depending on current conditions in local and regional markets. 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. 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. Also, Starbucks could apply other generic competitive strategies together with its current one in order to maximize actual growth and competitiveness. This is applicable with Starbucks because when a firm has high levels of production (which Starbucks does) they are able to purchase and use specialized machinery and manufacturing tools that other smaller firms cannot. This article may not be reproduced, distributed, or mirrored without written permission from Panmore Institute and its author/s. In this business analysis case, such alignment is observable in the company’s continuing emphasis on penetrating markets with its specialty coffee products, while offering these products to customers in various market segments. Another suitable approach is to use the product development intensive growth strategy to align Starbucks’s product mix to the distinct cultural preferences of consumers in these regions. ... we discuss these strategies at length and its potential impact on Starbucks. A focused cost leadership strategy requires Business Level Strategy:Thompson et al (2007) pointed out that all business organizations are using this strategy either deliberately or unintentionally. Configurations of governance structure, generic strategy, and firm size. Balanced Scorecard Strategy B. However, the company needs to overcome regulatory and sociocultural challenges in these coffee markets. 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.” However does the generic strategy lead to sustainable competitive strategy?This analysis will explain in detail. His expectations in return are to retain employees (reducing training and turnover expenses) and generate revenue (through customer satisfaction). Starbucks can effectively pursue Focus-Based Strategy in conjunction with differentiation or cost leadership based strategy. 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. Starbucks business strategy can be classified as product differentiation. Varadarajan, P., & Dillon, W. R. (1982). The Nature of the Focus Cost Leadership Strategy. Enter your email address to follow this blog and receive notifications of new posts by email. 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. According to Starbucks (n.d), “a cost leadership business strategy focuses on gaining advantage by reducing its economic costs below all of its competitors. To reduce unnecessary cost, the company has been expanding its range of products consistently. Change ), You are commenting using your Facebook account. 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. 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. Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality. McD has more than 90% of its restaurants run by franchisees. Risk of cost leadership strategy Too much focus on cost reduction may lower quality. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. 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. 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. 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. Intensive growth opportunities: An extended classification. In this intensive growth strategy, new products are seen as ways of increasing sales revenues, especially in coffeehouse markets that are already saturated. In chapter 6, we are introduced to the strategy of cost leadership. Cost Leadership - NOT USED BY STARBUCKS. 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. Also, frequent introduction of new products or variants thereof contributes to the uniqueness and competitive advantage of the company’s food and beverages. ( Log Out /  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 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. With its corporate strategic positioning to lead in the coffeehouse chain industry, Starbucks maintains its use of a generic strategy that involves specialty of products, and intensive growth strategies that emphasize current and new products in the company’s current markets. 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. Large volumes of production are often associated with lower average per unit costs. This generic strategy translates to various policies and programs to keep the coffeehouse business differentiated against the competition. Glazer, R. (1999). In chapter 6, we are introduced to the strategy of cost leadership. The first generic strategy is cost leadership strategy and the others are differentiation and focus strategies. Cost leadership is a business strategy that essentially aims at lowering economic costs to the company to get ahead of the competition. In a bid to cut costs, Starbucks adopts joint ventures instead of foreign direct investments. 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. This strategy is concentrated on a broader segment of the total market. This is because joint ventures enable the company to cut all costs that come with engaging in … Theses generic strategies include the differentiation strategy, the cost leadership strategy, and the focus strategy. 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. Email . a) Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality. 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. 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. 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. Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality. Starbucks And Porters 3 Generic Strategies Michael porter developed 3 generic strategies: cost leadership, differentiation and focusThey are developed to create a defendable position in the long-run, outperforming competition and establish a competitive advantage. 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 Focused cost leadership is the first of two focus strategies. 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. The market competitors of Starbucks includes Dunkin Donuts and McDonalds mccafé and so forth. In market development, intensive growth opportunities are exploited by strategically growing the company’s consumer base, which equates to a larger volume of sales of food, beverages, and other merchandise. Starbucks uses market development as its secondary strategy for intensive growth. New evidence in the generic strategy and business performance debate: A research note. 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. The coffee is often advertised as costing under a dollar, making Dunkin’ Donuts a low-priced alternative to Starbucks. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). These latter strategies are known as focus strategies (Porter, 1980). ( Log Out /  Excellent customer services as one of the solid sources of Starbucks competitive advantage further increases the attractiveness of the coffee retailer. Cost Leadership at Starbucks Coffee Co. The generic strategy trap. Focused cost leadership is the first of two focus strategies. Applying this concept to the McDonald’s case, it is possible to infer that the primary generic strategy adopted by the company is cost leadership (Gregory, 2017). Although Starbucks targets product differentiation as their main business strategy, they have also implemented cost savings strategies in an effort to maximize profitability. For GDPR compliance, we do not use personally identifiable information to serve ads in the EU and the EEA. The text explains that one of the most common and widely sourced cost advantages for a firm in a single business is its size. For example, through product innovation, the company offers brewing equipment, as well as ready-to-drink products available at grocery stores. 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. For example, the focus or market segmentation generic strategy can enhance competitive advantage in operating subsidiaries that complement the company’s exiting coffeehouses. In the market expansion grid or Ansoff Matrix, this strategy supports the company’s intensive growth by maximizing revenues from existing markets, using the same or existing food and beverage products. The sources of cost advantage are varied and depend on the structure of the industry. This difference highlights Starbucks Coffee’s value proposition regarding high quality and uniqueness of products. Product development may also come with mergers and acquisitions, such as when Starbucks started offering Frappuccino following the acquisition of The Coffee Connection. 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. a) Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality. In addition, a cost leadership strategy enables a company to become a leader in cost minimization in the industry. 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. As another secondary intensive growth strategy, product development contributes to Starbucks Corporation’s growth through new products or variants that add to business revenues. 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. 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. When we relate this back to Starbucks, it is safe to say that Starbucks enjoys significant economies of scale in comparison to competitors because of how huge Starbucks Coffee company is. 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. Moreover, the business diversification intensive growth strategy can help increase actual growth potential through operations outside the coffeehouse industry. Varadarajan, P. (1983). In this strategy, competitive advantage could weaken when competitors find ways to match or exceed the coffee company’s uniqueness. 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. However, the broad differentiation generic strategy extends to other areas of Starbucks Corporation. Starbucks has used a balanced mix of company-owned and franchised stores. 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 … ... a New York City–based firm that works with companies to devise content strategies and develop thought leadership for top management. Question: QUESTION 1 Starbucks, EBay, And Cirque Du Soleil Are Examples Of Companies That Used A _____ To Reinvent The Industries They Were Operating In. Schultz’s strategy is to keep Starbucks’ partners happy and passionate about their work through compensation, benefits, and company culture. A focused cost leadership strategy requires competing based on price to target a narrow market (Figure 5.12 “Focused Cost Leadership”). These factors influence the coffeehouse company’s strategies for intensive growth. I would like to explore the cost advantages that Starbucks enjoys. Starbucks business strategy can be classified as product differentiation. 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. A., & Wright, P. (1993). Based on Igor Ansoff’s matrix for market expansion, these strategies for intensive growth are directly related to the company’s generic strategy for competitive positioning in the coffeehouse market. 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 already has presence in more than 78 countries and territories. Starbucks is the leader of the coffee market. 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… 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. 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. Starbucks Corporation also innovates its supply chain to satisfy its generic strategy through continuous search for the most sustainable and finest ingredients. ( Log Out /  In Starbucks’ case, it has 51% of the restaurants owned and run by the company whereas 49% by the franchisees. When competitors find ways to match or exceed the coffee is often advertised as costing a. Or click an icon to Log in: You are commenting using your Facebook account them off the Roastery. Customers pay premium prices for high quality for the most common and sourced! Common and widely sourced cost advantages for a firm sets out to become the cost... Combat advertising fraud a mug of coffee might cost the same as a glass of at. First of two focus strategies research note order to maximize revenues and growth in these markets! Setting the coffee retailer performance and potential success enables a company to ahead. At a lower cost cost-focus strategy is categorized as one of the coffee often... Snow typology one of the total market ’ s strategy is also manifested in Starbucks Corporation s... 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