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Assignment 3: Business-Level and Corporate-Level Strategies
Using the same industry from Assignment 2, and one your chosen publicly traded corporation within that industry from Assignment 1.
Please Review the attached word docs the selected corporations are in there.
Research the company on its own Website, the public filings on the Securities and Exchange Commission EDGAR database (http://www.sec.gov/edgar.shtml), in the University’s online databases, and any other sources you can find.
The annual report will often provide insights that can help address some of these questions.
Write a six to eight (6-8) page paper in which you:
1.Analyze the business-level strategies for the corporation you chose to determine the business-level strategy you think is most important to the long-term success of the firm and whether or not you judge this to be a good choice. Justify your opinion.
2.Analyze the corporate-level strategies for the corporation you chose to determine the corporate-level strategy you think is most important to the long-term success of the firm and whether or not you judge this to be a good choice. Justify your opinion.
3.Analyze the competitive environment to determine the corporation’s most significant competitor. Compare their strategies at each level and evaluate which company you think is most likely to be successful in the long term. Justify your choice.
4.Determine whether your choice from Question 3 would differ in slow-cycle and fast-cycle markets.
5.Use at least three (3) quality references.
Note: Wikipedia and other Websites do not quality as academic resources.
Your assignment must follow these formatting requirements:
•Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format. Check with your professor for any additional instructions.
•Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required page length. The specific course learning outcomes associated with this assignment are:
•Identify various levels and types of strategy in a firm.
•Use technology and information resources to research issues in business administration.
•Write clearly and concisely about business administration using proper writing mechanics.
Running head: STARBUCKS 1
STARBUCKS 3
Starbucks
Student’s Name
Professor’s Name
Course Title
Institutional Affiliation
Date of Submission
Starbucks
Introduction
Starbucks is the biggest retailer that sells coffee products in the world. Its market share is big and continues to expand as the food and hospitality industry grows. The Company is affected by environmental segments just like any other company in the industry, although it seems to be coping well with the difficulties. Demographics and economics impact the most on the Company’s operations, and stiff competition as well as threats of new entrants is the major challenges affecting the Company. Starbucks can overcome the threats by increasing its investment in unexplored regions, and utilize its strengths by improving the quality of its products and hiring locally.
General Environmental Segments that Influence Starbucks the Most
Demographics/Psychographics
Demographics refer to factors concerning the consumers and the environment in which they live, and how the factors can influence their consumption patterns. Examples of demographic factors include: age groups of the population, the direction of affluence, ethnic composition of the population, education levels, variations in income levels, and sense of loyalty to the Corporation (Market Line, 2017). Psychographics reveal the attitudes and interests that the target population has towards the Company’s products. Starbucks’ success largely depends on demographics because factors such as education, attitudes toward the products, and disparities in income determine consumption patterns of the population. For instance, the poorly educated, low-income earners, and the aged are less likely to be potential consumers. As such, regions with populations with unfavorable demographics are likely to bring in lower returns than populations with favorable demographics.
Economics
Economic indicators such as interest rates, unemployment, GDP, net disposable revenue, and the consumer price index determine the productivity of Starbucks and the food and hospitality industry as a whole. High unemployment rates mean that the target population in a given region may not be willing to buy food in hotels. This translates to a low rate of stock replenishment. Starbucks set the prices of its commodities and securities higher than its competitors. As a result, the Company reported a decline in total revenue by the third quarter of 2017 by about -6.1%, which is a quicker overall decline of the Company’s competitors by about 1.1% within that quarter (Leduc, 2017). The consumer price index for coffee has been declining from 200 to 195 in 2017, and the rate of inflation in the US is 1.8 (Leduc, 2017). These factors have led to lower profit margins for companies selling coffee, in which Starbucks recorded a drop in net margin by about 12% (ML, 2017).
Two Forces of Competition Significant to Starbucks
Threat of New Entrants
The threat of new entrants implies that it is easy for new entrepreneurs to enter the coffee market in the US and in any other country that Starbucks operates. It is easy to enter the industry, specifically the coffee beverage business for new entrepreneurs. All that are needed are coffee-brewing machines and the starting capital, which does not necessarily require a huge amount of money because that depends on the business size. Starbucks sets its prices relatively higher than its competitors, which offers an advantage to new entrants in the coffee brewing business (Wei, 2016). This threat poses a big challenge especially in regions with low income-earning populations. Starbucks has countered this threat by improving the quality of its beverage so that it is still more appealing to the customers despite the higher prices than that of the competitors. The Company has also strengthened its brand, diversified its areas of specialization to suit the demand and cultures of specific consumers, increased the number of branches, and subsidized the prices of its products in regions of economic hardship (Wei, 2016).
Competitive Rivalry
Competitive rivalry denotes the competition between Starbucks and other companies that produce similar products. The stiff competition by rivals can be attributed to; the high number of organizations in the same line of business, and low cost of starting a coffee restaurant (Wei, 2016). Competitors such as McDonald or Dunkin Donuts also have a large market share and a big operating capital. As such, consumers can easily opt for them whenever there is no Starbucks store in sight. This is compounded by the fact that consumers can easily switch brands and commodities whenever they wish, especially when there are other substitute products such as tea and smoothies. Starbucks has countered rivalry through venturing into other product lines such as fruit juices and fast foods. The Company has also installed roasteries to offer a variety of coffee flavors such as nitro so as to catch up with competitors who are offering many appealing coffee flavors that attract customers (Kowitt, 2017).
What Starbucks can do to improve its Ability to Address Threats of New Entrants and Competitive Rivalry in the Near Future
The threat of new entrants is a strong force that can also be offset by Starbucks to maintain its competitive advantage. One idea is for the Company to reinforce its CSR strategies in which it will both embrace diversification of employees. This will let employees work at stores located in their residence. When the Company applies diversification in their labor force, it is likely to retain employees who can identify with people of their community who they often see and interact with (Valby, 2017). Allowing employees to work in branches located in their area of residence enables the Company to have a workforce that properly understands the demographics of the particular population. Such employees know the tastes and preferences of the customers and their spending habits, and for their sake, customers can be loyal to Starbucks. As such, they are more likely to be preferred by the customers, which will enable the Company to retain its customers even when there are new entrants.
The most likely way that Starbucks can deal with the threat of competitive rivalry is through innovations, price reduction, and expanding its branches especially in underserved regions. With its large market base and financial capability, Starbucks can expand its branches in the US and oversees strategically to cover communities that have been underserved by the food and hospitality industry (Valby, 2017). Therefore, the Company will move aggressively to outpace its competitors in opening branches in underserved communities. Under the same approach, Starbucks can launch the Community Stores Program (CSP) to diversify its business portfolio when pursuing the expansion agenda into new markets. The CSP can work because employees will feel like they are part of the Company, which will improve the brand image, and help attract new customers.
External Threats Affecting Starbucks and the Available Opportunities
Threats
The biggest external threats affecting Starbucks are: increase in prices of raw materials, intense competition from rival companies, and costs of compliance with government policies (Sisson & Bowen, 2017). The prices of the Arabica coffee keep rising due to factors such as political and economic policies, draught, and cost of production. As such, Starbucks cannot set a fixed price commitment contract with suppliers. This compels the Company to go by the prices that farmers set, which sometimes affects the Company. Competition in coffee specialty depends on product quality, price, and convenience (ML, 2017). Starbucks faces competition from well established companies in the restaurant sector such as Dunkin Brands. Dunkin Brands has strong presence in the North-Eastern US, and trades franchise to independent owners whereas Starbucks relies on building and managing its own stores, which is expensive (ML, 2017).
Opportunities
The food and hospitality industry in the US is expanding, and the restaurant food sales are estimated to be around $800 million in 2017, an increase of about 35% since 2010 (ML, 2017). The expansion is attributed to increase in consumer demand, and economic growth in the US. This has enabled Starbucks to utilize the opportunity to sell more products such as premium Tazo brews, and Starbucks VIA Ready Brew. Starbucks has also expanded its branches abroad in Asia and Africa. The opportunities resulted from the increase in middle class group of people in those regions (ML, 2017).
How Starbucks Should Deal with the Most Serious Threat and the Greatest Opportunity
Starbucks can address the threat of increasing cost of raw materials by working and cooperating with coffee-growing farmers and agronomy experts. Since Starbucks is a big cooperation in all aspects of the business, it has the capability of hiring talented and innovative agronomists to work with farmers to ensure that coffee growers utilize the best cultivation methods possible. The Cooperation can also give loans to struggling farmers to encourage them to grow high quality coffee. The threat of competition can be dealt with through the CSP, and opening stores in underserved regions while maintaining quality. The opportunity arising from the expanding food industry in many parts of the world can be utilized through opening several branches in the most viable regions. For instance, Starbucks can continue to open many branches in India and China where the food and hospitality industry is steadily expanding. However, Starbucks can diversify its products in such regions to suit tastes and preferences of the local population through offering beverages that are more appealing to the locals such as tea in the Chinese market since tea is on high demand in China than coffee (Wei, 2016).
Opinion on Starbucks’ Greatest Strengths and Significant Weaknesses
Greatest Strengths
Starbucks’ greatest strengths include innovative technology such as the Starbucks Card, My Starbucks Rewards, and Mobile Order and Pay. The Cooperation also holds a strong financial position evident from revenue growth in which the compound annual growth rate increased by 11.2% more in 2016 than 2015 (Wei, 2016). The Cooperation also provides value-added services such as entertainment to its customers. The innovative technology enables the retailer to offer consumers bonuses, and allows those without cash to purchase goods without smart cards or cash, which is flexible and convenient to suit all customers. The strong financial position gives Starbucks the ability to expand to new markets, and to improve existing stores. The value-added services that Starbucks offers to in-store consumers such as free Wi-Fi, and the Starbucks Digital Networks that allow customers read news from popular publishers such as the New York Times have the potential to attract new customers and retain existing ones. Starbucks can maximize the strengths by maintaining high standards of quality, and maintaining the offers and bonuses. It should also continue investing in viable regions to expand its market share.
Significant Weakness
The greatest weakness that affects Starbucks is product recalls. There have been cases of equipment and foodstuff being recalled on many occasions. For instance, in 2016, the Cooperation recalled reusable cold-to-go stainless steel drinking straws thereby causing an injury-risk panic to customers (Wei, 2016). In the same year, Cheese and Fruit Bistro Boxes were recalled because the products had cashew allergen. The Cooperation also recalled sausages, eggs, and cheddar in significantly large numbers. Such recalls and many others not mentioned here can devalue the Starbucks brand thereby resulting in low demand for its products. The weaknesses can be fixed through employing technical inspectors who can assess the products at the manufacturing/production stage to prevent defective products from reaching customers.
Starbucks’ Resources, Capabilities, and Core Competencies
Starbucks’ resources include both tangible and intangible properties. They include: assets in 62 countries adding up to 19,767 outlets globally, both licensed and company-operated stores. The company had total revenue of about $14.89 billion in 2013, with a compound annual growth rate of more than 11% ($21.316 million) in the financial year 2016 (Wei, 2016). The Company employs more than 200,000 workers, some of who have been highly trained to operate state of the art equipment, and as baristas. Starbucks’ capabilities include: opening branches in strategic areas such as high-visibility locations in several settings such as suburban retail outlets. The brand is the most recognized globally in the coffee beverage business, and the Company successfully leverages its brand equity effectively by merchandizing and licensing the brand (Thompson, 2017). Starbucks is also capable of maintaining the large-scale operation in more than 60 countries in which it enjoys economy of scale, and lower costs of input.
Starbucks’ competencies arise from HR management practices and organizational culture. Employees enjoy rewards such as retirement and stock benefits. The production system is knowledge-based, which builds an effective cooperate culture. The Starbucks Rewards and Card initiative enhances customer loyalty to Starbucks since it provides convenience, and offers support to customers, which is a significant competency (Foroohar, 2015). Further, the Company has good CSR in which the stores are friendly to the community. The Company hires employees from the local community in which each store is located. It also has CSR initiatives and built goodwill with customers. For instance, the Company offers high quality foodstuffs, and builds brand equity by offering each customer with unique experience through the integration of the local community culture in the local stores (Wei, 2016).
Starbucks’ Value Chain
Starbucks’ value chain consists of primary and support activities. Primary activities include inbound logistics that involve selection of high quality coffee beans from mainly Asia, Africa, and Latin America, which are transported and stored mainly in the US. Manufacturing operations are done in more than 60 countries in licensed stores and company-operated outlets (Warren, 2015). Outbound logistics is done through ensuring that most of the goods are sold in their local stores alone. This eliminates the need for intermediaries in the trading process. Starbucks avoids aggressive marketing. However, it instead focuses on quality and project-based marketing when new products are to be launched and samples are required, in areas near the stores. Customer service is based on quality of the products, which is enforced by the Starbucks Experience. Support activities include infrastructure such as stores that Starbucks has constructed all over the world, the HR management system that invests in employees, technological advancements, and procurement processes. Procurement involves agents travelling to areas where coffee is grown, and establishing relationships with the farmers.
Where Value can be created using Resources, Capabilities and Competence along the Value Chain
Despite the effectiveness of Starbucks’ value chain, it has weaknesses that can be solved by the use of the vast resources, capabilities and competencies. For instance, the procurement process does not have to connect the Company and famers only during harvest time. The Company can use its vast resources to station their agents and agronomy experts in the regions where the farmers plant coffee. This will save the Company cost of the agents travelling from the US to different continents to look for high quality coffee. The agronomy experts will also work with the farmers hand in hand thereby increasing the quality of coffee beans. Further, Starbucks should embrace aggressive marketing to increase its popularity among populations that are not familiar with the brand so as to ensure success when opening stores in unexplored regions.
Conclusion
The two main segments of the environment that affect Starbucks are demographics and economics, and the two most significant forces of the competition facing the Company are threat of new entrants, and competitive rivalry. The Company can deal with these forces through innovativeness, improving quality of its products, and expansion of its stores in unexplored regions. The biggest external threats to the Company include rise in cost of raw materials, intense competition, and compliance with government policies. The greatest opportunity for the company is the growing hotel and hospitality industry.
References
Foroohar, R. (2015). Starbucks For America. (Cover story). Time, 185(5), 18-24.
Kowitt, B. (2017). Howard Schultz has something left to prove. Fortune, 175(8), 114-124.
Leduc, C. (2017). “Onward How Starbucks Fought for Its Life without Losing Its Soul” Book Review.
Sisson, D. C., & Bowen, S. A. (2017). Reputation management and authenticity: A case study of Starbucks’ UK tax crisis and “# SpreadTheCheer” campaign. Journal of Communication Management, 21(3), 287-302.
Market Line. (2017). Starbucks Corporation SWOT Analysis. Starbucks Corporation SWOT Analysis, 1-9.
Thompson, A. (2017). Starbucks Coffee’s Stakeholders: A CSR Analysis. Panmore Institute.
Valby, K. (2017). Starbucks digs in. Fast Company, (218), 78-85.
Warren, K. (2015). Strategy Dynamics Essentials. Strategy Dynamics Limited.
Wei, C. (2016). Marketing strategy for setting up an own coffee shop in China: using Starbucks as a case study.
Running head: STARBUCKS 1
STARBUCKS 3
Starbucks
Name
Institutional Affiliation
Starbucks
As an American company and coffee shop franchise, Starbucks was founded in 1971, Seattle, Washington in 1971. With well over 15,000 outlets globally, the company has been considered as the world’s leading coffee vendor with the majority of the outlets being located in North America (“Company Information”, 2018). As of 2014, the company was estimated to be having a market value of close to $100 Billion. However, this could not have been possible without globalization; globalization has allowed the company to expand beyond the boundaries of the American Nation and influence the economies of other countries. It has also allowed various political powers to interact thus promoting cooperation and finally it has been able to tap into economies that have raised the value of the brand such as that of China and Europe (“Company Information”, 2018). In 2003, Starbucks began its expansion to foreign countries exploiting its potential and thus promoted their economies through the “Starbucks Effect.” This was the emergence of various coffee shops competing with the franchise in selling coffee (Kang & Namkung, 2017). The internet of things can be regarded as one of the most influential aspects that have allowed Starbucks to grow and dominate most markets globally. The company is aggressive in implementing change and this is inclusive of their machines. The company always installs the latest in machinery that allows the outlets to operate at maximum efficiency. Moreover, technology has allowed the franchise to have better interaction with its clients through online tracking of consumer preference. This tracking allows the company to understand what the client expects of the company and makes the necessary changes (Kang & Namkung, 2017). Finally, the company relies on online platforms for the employment of their staff as conventional means are not only expensive but extremely time-consuming.
As stated earlier, the “Starbucks effect” has been influential in the development of various economies through competition. Starbucks as a franchise has created a competitive environment in various markets that has resulted in the company being innovative in its marketing strategies (Kang & Namkung, 2017). This pressure to remain at the top can allow the company to generate above-average returns. Moreover, the brand is recognized by clients globally, this is the only advantage the company has considering that many locals may have other preferences towards other coffee vendors. In the Industrial Organization model, the company already qualifies as being attractive as its management and operation strategies are simple thus giving it room for more modifications to be applied. Moreover, the company applies the strategy of economies of scale whereby, due to its vast size it retails its products at a low and affordable price. This makes the company attractive to clients regardless of nationality or region. Inclusive of the low prices, the company trains some of its employees to become baristas thus giving them the professional skill needed to satisfy the needs of the client. All these characteristics are then implemented by a strategic means thus ensuring that the company earns above-average returns (Kang & Namkung, 2017). The same applies when the company applies the resource-based model. This is because the firm has the resources and identity that would give them the competitive edge in the market against their completion. Secondly, it has the technology, and capability to operate efficiently and at lower prices compared to the competition. This assures that Starbucks will always secure a larger and stronger consumer base. With a strong consumer base, economies of scale accompanied by technological advances, the company always has a competitive advantage. Finally, with the current application strategy, the company can easily identify any gaps in their performance that can be amended thus giving it the needed advantage.
Starbucks as a corporation does not have a readily available vision statement. However, from the analysis of its home website, is to institute Starbucks as the leading vendor of premium coffee globally, maintain its principles as it develops. From the analysis, some key points can be identified, leading vendor, premium coffee globally, principles and development (“Company Information”, 2018). Being the leading vendor, Starbucks wants to achieve control in the supply of coffee-based products, in other words, coffee of the highest quality. It should be noted that it has already seen through most of the parts of its statement. As, it is already the leading vendor of coffee globally and it is still developing (McGinn & Crowley, 2010). However, when it comes to the quality of coffee, other companies such as Dunkin Donuts and McDonalds have been stated by critics to be having better quality coffee. When it comes to principles, the company has been able to maintain them especially after the reinstatement of Howard Schultz in 2008. From the Starbucks website, the mission statement is “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (“Mission Statement”, 2018). From this statement, it immediately reflects what the company does to keep itself running. The company inspires and nurtures through its employees, this is through the maintenance of a small company culture (Williams, 2008). It encourages the employees to bond with the clients thus creating a personalized experience. The last key point identifies how the company aims to develop gradually influencing the community positively and analytically in the process.
The main stakeholders of the company include the employees, customers, suppliers, environment, government and finally investors. The company, unlike many others, has prioritized its employees in several of its responsibilities (Werther & Chandler, 2010). These are the social and corporate efforts, and in return, the employees have assured job security, optimal working conditions, and better wages. The company went a step further and collaborated with Arizona State University to pay over 50% of the tuition of junior and senior students who worked with the company. The customers top the least when it comes to numbers; their main interest in the company is high-quality service as well as products (Werther & Chandler, 2010). In return, the company addresses this matter adequately and includes personalization of service thus giving the consumer a warm experience. Suppliers, on the other hand, include wholesale firms and coffee farmers. The suppliers influence the performance of the company by ensuring the varying demands of the company are satisfied duly. The company, in turn, addresses the needs of the suppliers through various corporate responsibility programs. When the environment aspect of Starbucks stakeholders is addressed, it has programs that make the company environmentally sound. One of these programs includes the CAFÉ program that has promoted biodiversity (Peloza & Shang, 2011). With reference to the government, the company is influenced by the various changes that are made to public policies and regulations. One of the most fundamental regulations that affect the company is the minimum wage (Peloza & Shang, 2011). Nonetheless, Starbucks complies with these regulations and policies set by the government.
References
Company Information. (2018). Starbucks Coffee Company. Retrieved 9 January 2018, from https://www.starbucks.com/about-us/company-information
Kang, J. W., & Namkung, Y. (2017). The Effect of Corporate Social Responsibility on Brand Equity and the Moderating Role of Ethical Consumerism: The Case of Starbucks. Journal of Hospitality & Tourism Research, 1096348017727057.
McGinn, D., & Crowley, S. (2010). Vision Statement: Tired of PowerPoint? Try This Instead. Harvard Business Review, 09.
Mission Statement. (2018). Starbucks Coffee Company. Retrieved 9 January 2018, from https://www.starbucks.com/about-us/company-information/mission-statement
Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities create value for stakeholders? A systematic review. Journal of the Academy of Marketing Science, 39(1), 117-135.
Werther, W. B., & Chandler, D. (2010). Strategic corporate social responsibility: Stakeholders in a global environment. Sage Publications
Williams, L. S. (2008). The mission statement. A corporate reporting tool with a past, present, and future. Journal of Business Communication, 45(2), 94-119.
