Elardo, Ferlie Mae S.

BSA51

1. How would you describe the market segment(s) that Starbucks serves and describe the
business level strategy the company is using?
Answer: Starbucks uses a broad differentiation business level strategy wherein it is concentrated
on a broader segment of the total market. It serves a market that is defined by coffee drinkers. As
a matter of fact, most Starbucks’ stores are accessible in high density places which is exposed to
commercial establishments like malls, areas near business offices and college campuses, and
locations providing convenience to drivers and pedestrians. Their premium price products tend to
target customers who perceive the same product values, who require premium-level coffee and
those who have the spending ability. This means that the company inclines to target more
consumers from middle class or higher (main target) aging from 25-40 including the employees of
corporate houses, busy officer goers and coffee lovers and addicts. Aside from the customers,
young urban professionals who have stable jobs with good income, the company also provides
product quality and services for teenagers or customers aging from 18-24 as their store is suitable
for studying, chatting and meeting friends. Coffees to be made at home are also offered by
Starbucks as the company wants their customers to feel the Starbucks experience without going
directly to the store.
Furthermore, Starbucks strikes a balance between profitability and a social conscience from
having an ethical sourcing of coffee beans, environmental leadership—energy and water
conservation, recycling and green construction, and community involvement. Having a focus on
the charity and the arts also makes the company socially and environmentally responsible. By
these activities, Starbucks can get more uplifting state of mind and additionally faithful clients.
Starbucks uses a differentiation business-level strategy. Differentiation business-level strategy is
defined as an integrated set of actions taken to produce or deliver goods or services at an
acceptable cost that customers perceive as being different/unique in ways that are important for
them. Starbucks focuses on customer satisfaction as they endeavor to make the extraordinary
through a high level of employee dedication. They are famous for selling not only the coffee itself,
but the Starbucks experience—where there are over 700,00 different ways to order a Starbucks’
coffee combined with the experience that when a client entered the coffee shop, known for
peacefulness and quietness, he will indulge the great coffee smell as the place is perfect for
relaxation, conversation with friends, and consultation for work purposes. Their customers
perceive product value wherein they are willing to pay for a premium price espresso and value
their product better than other competitors, who find their product not easy to be copied.
Starbucks’ differentiation business level strategy starts from their suppliers and farmers wherein
they made a different way of finding source materials at the original places not from optional
sources which improved the farmers’ quality of life as they got the great nature of coffee beans at
the same time. Besides, they treat the workers uniquely (wherein Johnson continues to provide
health insurance to all employees including part time in the midst of recession) in contrast to the
others whom they called partners as they aim to make the difference through the method of
service-minded and relations. Starbucks also offers a range of exceptional products--- wherein
they also buy outside companies who are competitive in their fields for the diversity of product
lines—those customers enjoy in their stores with comfortable and elegant interior, at home, and
on the go. So, to say, their customers can easily locate their stores everywhere, domestically and
Elardo, Ferlie Mae S.
BSA51

internationally--- which also makes them different. Another most imperative and differentiate point
is the global/environment/community responsibilities as their shared value, which is not done for
recognition purposes, but because it is the right thing to do.
Starbucks’ image and reputation, as a symbol grand indulgence, is seen on their product quality
and services which is a reason why their customers continue to patronize their premium price
products and positioning itself on a high level in the industry. In the given case, the differentiation
business level strategy was evidenced when Johnson, despite of Starbucks’ struggles, maintained
a premium price and in lieu, they reduce waste to save. From here, differentiation business-level
strategy is well implemented.
2. Is the strategy they are using appropriate for Starbucks? Yes or No. Explain
Answer: Yes, Starbucks adopts a differentiation approach that implies that companies are
designed around product uniqueness or differentiated attributes to achieve a competitive
advantage based on the characteristics of its coffee market offerings. The approach being
pursued by the Starbucks company, as a coffee customer separates them from their competitors.
Starbucks pride themselves on the atmosphere of their coffeehouse that encourages their clients
to enjoy their coffee while reading, working, and talking with their friends. Their coffeehouses are
built to be cozy and exclusive using environmentally friendly materials. Apart from their
construction materials, another way they aim to reduce their environmental footprint is to use a
100 percent recyclable or recycled cups and conserve their use of energy and water. Starbucks
also takes a very ethical approach when it comes to making their coffee. They take a holistic
approach to sourcing the highest quality of coffee ethically, in which this includes a responsible
procurement and assisting farmers. For many customers who are trying to be environmentally
conscious, these are the significant factors that they consider. Given that the differentiation
strategy for Starbucks is helpful to their business, this also helps Starbucks to gain a competitive
advantage that is sustainable.
Starbucks adopts a differentiation strategy suggests to build business around establishing product
uniqueness or differentiated qualities to gain competitive advantage based on features of its
offerings in coffee business. As a coffee consumer. The strategy being followed by Starbucks
does set them apart from its rivals. The company follows a distinct generic strategy, and the focus
is to provide specialty coffee products and enhanced customer experience to its customers. Thus,
the strategy is keyed on serving the unique needs of niche. For instance, while following the
differentiation generic strategy, Starbucks uses a responsible material sourcing policy to
differentiate its offerings and cater to the niche requirements of the customers. The aim is to use
the finest ingredients to provide specialty coffee products. Also, the organization does a conscious
differentiation by promoting it as premium product in the market. Thus, effectively doing brand
differentiation. It has achieved a lasting brand loyalty of its customers that makes it difficult for
others to imitate by merely copying its strategic approach. Moreover, the well appealing ambiance
makes it stand out among other rivals selling coffee in the ready to drink coffee industry. This
enables Starbucks to have a competitive advantage.
Elardo, Ferlie Mae S.
BSA51

3. If you are Kevin Johnson, the present CEO of Starbucks, how should Starbucks plan to
position the company in the midst of the COVID-19 pandemic? Discuss your answer.
Answer: Kevin Johnson, the CEO of Starbucks, speaks on how the pandemic has affected
Starbucks in a way of promoting differentiation from their competitors, which is one of their key
issues that was spoken on related to the restaurant industry. Mr. Johnson speaks on the
increased importance and change of digital touchpoints for Starbucks in the upcoming years.
This could prove to be problematic or impactful for the regrowth of Starbucks as many other
coffee shops, such as Dunkin Donuts and Caribou Coffee, have perks in these areas regarding
mobile orders and an online app. Although, this has proven to show success for Starbucks in
some areas such as the delivery scene that no other coffee company has put into place.
“Almost 90% of sales volumes in Quarter 3 flowed through the combination of drive-through
and mobile order-and-pay, Johnson said. Delivery has also been a boon for the company
during the pandemic.” Prior to the pandemic, most of their sales came from in person orders
and if the pandemic settles back down to normal, Starbucks could waste a timely cost of time
and funds into an investment this large.
If I were Mr. Kevin Johnson, A solution that I would recommend to Starbucks and a first step in
solving the issue to a problem of fighting other specialty coffee restaurants is almost
impossible as competition creates innovation. We learned this in the first few weeks of class. In
hopes of providing extra insight to help Starbucks overcome this competition and create a
larger gap, they need to attract their competition customers via new methods of providing
coffee to people whilst Covid-19 is pertinent in our world. Starbucks needs to advertise itself in
a manner that is both attractive and beneficial to those customers who are purchasing coffee
at other restaurants, and then really impress them with their service, their poise, and their
specialty drinks and baked goods. To attract these customers who are more loyal to a cheaper
or more local coffee shops such as Dunkin Donuts or Caribou Coffee, Starbucks must
spearhead the issues that these current other coffee shops are facing: The digital marketing
points that Kevin Johnson was talking about. Offering these customers, the ability to deliver
their drinks to the luxury of their home or workplace makes it that much easier to get a gourmet
cup of coffee. The key to this would be to create a perception to these customers that the
quality and experience Starbucks can offer them is substantially greater than these other
coffee shops because of their ability to receive a cup of coffee at any location. This could then
increase the other digital marketing points such as online orders and a mobile application to
increase retention by offering perks or discounts to new customers. This strategy could be
something that other coffee shops want to do because it may be a little costly, adding delivery
drivers and extra services to their customers, but it may be the differentiating factor that
Starbucks needs to pull away from its competitors, at least for the time being to rebuild from
Covid-19 impacts.
For a solution like this to work, a few pieces of the puzzle have to fall in place. These
customers that are loyal to their desired coffee shop must be open to trying new things and
testing new waters in other coffee shops. They must not be as loyal to have a willingness to
have Starbucks in their lineups of good places to grab coffee. Starbucks too will have to work
with these customers, even if it is at the price of free delivery for the first few cups of coffee or
offering advanced rewards to brand new customers to incentivize choosing them. Pricing is the
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BSA51

last thing as well that Starbucks may have to address in a different manner. These competitors
offer a good cup of coffee but at a lower price. How can Starbucks compete with that? By
adding value elsewhere. Starbucks needs to understand that their high valued items come with
high valued service and high premium coffee and goods. Customers need to understand why
they should pay for the value.
Overall, this solution that I am proposing isn’t picture perfect, but it is something that could
prove to be successful. I think with a proper focus and the right steps moving forward in
marketing and making sure a message is heard, Starbucks could convince some coffee
drinkers to become loyal to Starbucks through their loyalty programs and shelf products, but
also to the fact that coffee is something that is an everyday necessity for most people and that
Starbucks should keep the advantage for the frequent hardworking customers, whether they
work from home or are going to the office.
Elardo, Ferlie Mae S.
BSA51

REFERENCES:

http://www.starbucks.com/
https://www.business.com/marketing/business-strategies-and-analysis-of-starbucks.php
http://www.globalexchange.org/fairtrade/coffee/starbucks
http://smallbusiness.chron.com/starbucks-target-audience-10553.html