Danna Claire Javier | BSA-32

1. Describe Starbuck’s business-level strategy

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 to 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 70,000 different ways to
order a Starbucks’ coffee combined with the experience that when a client entered the coffee
shop, known for its 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 values 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

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optional sources which improved the farmers’ quality of life as they got the great nature of

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coffee beans at the same time. Besides, they treat the workers uniquely (wherein Schultz

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continue 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

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difference through the method of service-minded and relations. Starbucks also offers a range
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of exceptional products—wherein they also buys outside companies who are competitive in
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their fields for the diversity of product lines—that customers enjoy in their stores with
comfortable and elegant interior, at home, and on the go. So to say, their customers can easily
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locate their stores everywhere, domestically and internationally—which also makes them
different. Another most imperative and differentiate point is the global/environment/community
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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 of grand indulgence, is seen on their product
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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
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differentiation business-level strategy was evidenced when Schultz, 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.
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2. How is Starbucks managing its relationship with customers?

A good relationship with customers means satisfying them whereas the customers
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determine the growth potential of a business. From the differentiation business-level strategy,
the Starbucks keeps its customers by presenting unusual features which makes the company
unique in terms of product qualities and services. Today, they also have Starbucks reward card
and My Starbucks idea for their customers. The Starbucks reward card is not like any other
reward cards such that they offers an additional element of prestige and layer on extra benefits
for their loyal clients, instead of giving free coffees when certain level are attained like usual.
This concept is a double-edged strategy because there is a possibility that the customers’

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reward level will drop to the bottom when certain quota is not earned. So to say, maintaining a
Starbucks
reward card means a continuous buying of the products. Aside from that, My Starbucks idea
shows openness to criticisms wherein their customers’ feedback and ideas really counts. It is
the place where customers tell what’s on their mind with regards to Starbucks which creates a
harmonious relationship between the Starbucks and their customers.
In conclusion, the Starbucks manages its relationship with customers by complying with
what they want to satisfy them. It is evidenced when Schultz said that Starbucks’ traffic
increased because of the need for a sense of community and that they don’t want to do
anything to fracture the community experience.
People who always seek for the Starbucks experience were given a chance to have its own
online community network provided by the Starbucks itself. It is not just about a simple picture
of espresso where clients’ names are written that makes them connected but also the
important information and issues in relation to the company that will let them be aware and

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linked with each other. The said information is all about the Starbucks’ products and services

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through the experience of different clients, so it's all the more unequivocally contrasted with

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data from the company's website. In addition, the issues will be the problems encountered by a

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customer that will inform other customers. If it is about the good impact made by Starbucks to

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customers, then it will most likely help the company to boost customer relationships as well as
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the growth potential of the company itself.
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3. How would you describe the market segment(s) that Starbuck’s serves?
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Starbucks uses a broad differentiation business-level strategy wherein it is concentrated on

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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
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tends to target customers who perceive the same product values, who require premium-level
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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
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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-
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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.
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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 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.

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4. Is the differentiation strategy appropriate for Starbucks? Why or why not? Now or
in the future?
Yes, the differentiation strategy is appropriate for Starbucks—as of now. Through the
differentiation business-level strategy, the Starbucks can be one of the industry leaders. Its
uniqueness from the ethical sources of coffee beans, well-designed stores for Starbucks
experience, workers/partners treatment, diversity of product lines and being a responsible
company led them to have faithful customers who patronize their costly product continuously.
Its image and reputation is seen on their product quality and services such that their loyalty
program including the Starbucks reward card, My Starbucks idea and online community
network for their customers today. All of the things said above helped Starbucks to be an
outstanding company from other rivals throughout the years, even though they experience
struggles still they manage not to bring Starbucks’ prices down but reduce waste instead.
If Starbucks’ performance today is maintained in the future, probably the differentiation

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strategy (today) is not as effective as tomorrow. It must undergo improvements or there must

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be a continuous research to stay in the industry because if Starbucks will remain the same the

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other competitors’, who tries to imitate their concepts, might steal their place. Change is

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constant so as to trends—as there will be an uptrend or economic crisis—that’s why new

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innovation products and services are necessary. The Starbucks must ensure that they will not
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charge their customers too high of a premium price due to differentiation in terms of more
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social/global responsibility, research and development, suppliers and partner satisfaction and
usage of new technology as customer satisfaction are more costly than today. It is the potential
fallout of the Starbucks so in that case the use of differentiation and low cost is suggested to
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create more value to customers, to improve the product quality and services continuously
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which is subject to the company’s image and reputation and to maximize its market share.
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Since the future is unknown, in case of economic crisis just like in the short case, cost
leadership strategy is suggested if it’s the only thing left to do. If reducing excess cost is
needed, the Starbucks must take a look at that angle because there are cases that history
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repeats itself. The economic downturn is a preparation for tomorrow so they know how they
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will manage the recession through appropriate business-strategy level. As what Schultz said,
opportunities are created during tough economic times and Starbucks was created by
believing in big dreams so dream big and dream bigger.
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5. Using the five forces model of competition, how should Starbuck’s plan to
position itself in these economic times?
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The five forces model of competition is listed below as it answers how should Starbuck’s
plan to position itself in these economic times:

Threat of Substitution. A continuous improvement in the diversity of product line is needed

by Starbucks. This is because the market consists different types of food and beverages such
as tea, frappe, soda, smoothies, yogurt and other foods that can be offered by other lower-end

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 Danna Claire Javier | BSA-32

coffee shop—offering individuals place to hang out, talking or hold conferences. So to say, the
elements of threat substitution are product issues and ambience. In terms of product issues,

Starbucks can offer healthier beverages of a new kind with a new menu combined with
extreme eco-friendly packaging. Expanding product line through a proposal of having cocktail
can also be done. In addition, a renovated store that adopts the trend is one of the best way to
give the customers a better and unique experience.

Threat of New Entrants. The coffee industry’s entry barrier is quite low compared to other
industry, thus, it needs enough capital for staff training, purchasing normal equipment, store’s
place and etc. Dunkin Donuts can shoulder enough money needed in the coffee industry as it
penetrates gradually into the coffee market as it offers an upgraded coffee experience at a
lesser consumer cost. Starbucks alternatives are: (1) compete in low price with the same or
better Starbucks experience; (2) improve product quality and services, technologies and store;
and
(3) get scale economies and keep its uniqueness simultaneously to convey a totally

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extraordinary experience or the Starbucks experience at its finest to customer contrasted with

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different rivals.

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Competitive Rivalry. The competitive rivalry arises from other coffee chains and secondary

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coffee providers like Dunkin Donut. Faithful customers who are willing to pay whether the
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prices are high or low is the key to survive in competitive rivalry. Though struggling—as
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provided in this case—the Starbucks has the esteem, a firm position in the market with a vast
number of customers, so it must continue to gain more faithful customers as much as possible.
In addition, an effective customer relationship programs must be improved like Starbucks
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reward card, My Starbucks idea and online community network as an e-commerce platform.
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Bargaining Power of Supplier. Schultz already recognized that the economic downturn has
created more discretionary coffee decision making purchases. Thus, the coffee suppliers don’t
have much bargaining power to Starbucks because of the importance of the company’s
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business to any individual supplier. The most important thing is the Starbucks’ ethical sourcing
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of coffee beans at the original places not from optional sources which improved the farmers’—
the suppliers indeed—quality of life as they got the great nature of coffee beans at the same
time.
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Bargaining Power of Buyers. Nowadays, buyers are having a more bargaining power than
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before due to the appearance of newer entrants which offers customers the premium coffee of
reasonable quality for lower price. Starbucks can reduce buyer power by using its loyalty
program or offering other distinctive benefits for them to be satisfied by having the unique
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Starbucks experience making them faithful so they will not look for other alternatives.

References:

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 Danna Claire Javier | BSA-32

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

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