Starbucks Corporation

Assignment-2

COURSE TITLE
Strategic Management Course Code: 689.1

Submitted by:
Abdullah-Al-Mamun
ID- 211002306

1) Analyze how macroenvironmental factors are influencing the industry’s work.

Answer:
As I go through the case, I found some macroenvironmental factors that can influence the industry’s
work.
Demographic forces: The reason why Starbucks has been able to grow so large in such a short amount of
time from their beginnings as an establishment at the Pike Place Market in Seattle, WA is that they have
focused their marketing efforts on their core demographics. Starbucks 49% of the revenue that Starbucks
receives every year comes from customers in the 25-40 age demographic. This core age demographic
grows economically at an average of 3% annually. Young adults in the 18-24 age demographic makeup
another 40% of the revenues Starbucks receives every year. Young adults grow at 4.6% economically
each year. Specialty coffee drinks make up 75% of the sales that Starbucks sees on any given day. This is
also why creative solutions to problems are embraced more often in these demographics than in the
general population. By focusing on emotions more often and making sure that a consideration for others
is a high priority, these core customers are likely to see them as being successful at being a human even if
they aren’t financially successful.
Social forces: Many people have more than one cup of coffee a day. Developing nations have also seen
rise in coffee consumption over the years. This is in fact what is driving the massive growth of Starbucks
in many countries. However, due to social distancing rules, the business has taken a big hit. These rules
may force the company to reduce the seating capacities in its restaurants in years to come.
Starbucks has invested millions of dollars in programs that are designed to improve the socio-economic
conditions of local communities. It created employment opportunities for many 6- to 24-year-olds who
are out of work and not in school. These initiatives along with many others strengthen its brand image in
the society.
National forces: According to this case study, under national forces, there are some forces which are,
demographics, technological, social and political etc. I have already explained demographics forces and
social forces.
Global forces: Globalization has caused the increase of every kind of flows: goods, capitals, information,
and people, on the international and transnational scales. All the products are integrated in this explosion
of flows. Coffee is one of them because it's the second most exchanged product all over the world after
oil. “Starbucks spends just $30 million annual on advertising, or roughly 1% of revenues. Most
consumer companies its size shell out upwards of $300 million per year.” This is a huge asset, not
only in reduced spending, but also for foreign countries where word-of-mouth recruiting effectively
replaces traditional marketing methods that are unavailable.

2) Identify the Resources, Capabilities and Distinctive Competencies of Starbucks with proper
explanation.
Answer:
Resources: The resources can be identified and separate to tangible and intangible resources. That are
given below:
TANGIBLE Resources
These are like physical assets which competitors may think to imitate easily. In case of Starbucks, we
found the following tangible assets.

 Strong financial health that contributed to employee stock option and grants, medical benefits.
 Owned shops around the world.
 Many shops inside and outside the USA.
 Efficient management to take right decision timely.
 Effective and efficient human resource.

INTANGIBLE Resources
These components we found in Starbucks were really difficult to imitate by competitors as these were
more of internal know-how than that of physical assets.

 Prudent decision-making power of management.

 Very unique styles of shops.
 Quality knowledge of service orientation.
 Perceived valued atmosphere.
 Superior customer service.
 More experiences contributing to higher level of efficiencies of both management and employees.

Capabilities: Necessarily capabilities are more of importance as in some cases the capabilities alone can
transform the inputs into outputs efficiently. Here we found the followings.

 Capability to own shops.

 Ability to add more services in the service lines along with coffee.
 Capability to provide higher level of incentives to workers leading to higher level of efficiency.
 The ability of entering foreign market ahead of competitors.
 Better suiting the foreign cultural setting.
 Capability to manage and operate shops outside the USA more efficiently with motivated.
  Ability to create a new format of coffee shop unique to market.
 Premium location choosing strategy.

Distinctive competencies: The firm-specific assets and capabilities of Starbucks we have figured out are
the followings which led the firm to have a superior performance and thus superior profitability.

 Very different capability to own shops rather than franchising what competitors followed.
 Choosing sophisticated location strategy providing higher leverage.
 Very unique understanding of “Third Place” format coffeehouse.
 Highly motivated workforce.
 Higher quality customized service to customer.
 Better suiting the foreign cultural setting which was of course ahead of competitors.
3) Identify the functional strategy that Starbucks using for its success:
The functional level of Starbucks is the level of the operating divisions and departments that must support
the business strategy by enacting the strategies and by providing constant feedback for improvement.
Starbucks has been successful at ensuring its employees and customers understand their strategy by
utilizing the following, but not limited to, functional level strategies.

Starbucks achieved superior efficiency through its economies of scale and employee productivity. As
previously mentioned, Starbucks had a leading positions in the home market, selling over 50% of the
specialty coffee purchased in cafes. The strong positions in the market allowed the company to be one of
the fasting growing companies in the domestic market and to achieve significant economies of scale. The
empowering corporate culture at Starbucks also resulted in efficient employees. First, employee turnover
were low due to the benefits package that Starbucks offered to part-time and fulltime employees. While
many other companies neglected their part-timers, Starbucks believed that part-timers were the frontline
with its 6 customers and it was important to value them. By providing these benefits, Starbucks
discouraged employee turnover and encourage employee to be more productive and efficient at their
work. Second, the bar classes at Starbucks allowed the employee to hone their skills in a low stress
environment. Meanwhile, the extensive training program empowered their employee to make decisions
that will enhance customer satisfaction instantly without requiring manager authorization.

The quality of excellence as well as reliability reflected in Starbucks core value. its commitment to
exceptional service and quality. As mentioned earlier in the Strengths section of the SWOT Analysis and
Evaluation, Starbucks went great length in getting the highest quality coffee bean (the Narino Supremo
bean crop) by outbidding many Western Europe buyers.

The Starbucks coffeehouse experience was ultimately an innovation for the whole coffee industry in the
U.S. Prior to the rise of Starbucks, Americans were notorious for buying poor quality coffee beans. Given
the chance, Starbucks built a value innovation by creating a new market space for Americans who would
pay premium for a quality cup of coffee in an aesthetically appealing coffee house design. Greater value
were offered through superior differentiation at lower cost than was previously thought possible.

Starbucks achieved superior customer responsiveness to customers by focusing on the customer and
satisfying their needs. Starbucks employees were encouraged to help customers make decisions about
beans, grind, coffee/ espresso machine, and instruct customers on home brewing. If customer were
unsatisfied, employees followed the “Latte Method”: Listen to customer, acknowledge their complaint,
Take action by solving the problem, thank them, and then explain why the problem occurred. If a
customer complained about the product, frontlines such as part-time employee were able to satisfy and
solve the problem on the spot without requiring manger authorization.

Overall, the learning effects of these employees increased labor productivity, increased management
efficiency, and reduced production cost, while the domination of Starbucks in the US market helped to
achieve economies of scale.