Digital Business Service

Term Two 2020/21

WARWICK BUSINESS SCHOOL

Starbuck’s Business to Consumers

The real-world organization that this study has selected is the Starbucks. It is the world
leading organization that deals in coffee and caffeine drinks along with some more
variety of eatable items. The company is known for its taste and a standard quality of
coffee. The company collects coffee beans form global coffee bean suppliers, roast
them with the unique formations and sell in the form of packaged items and ready to
drink coffee also. The uniqueness of the coffee lies in the element of roasting. The
product mix of the company varies according to the global stations and does not have
any limits. There are other players too in the market that are Dunkin Donuts, McDonalds
and local bars and pubs that provide the same services as of the Starbucks but the
company maintains its competitive advantage in all of its product ranges.

There are variety of services that Starbucks provides to its customers. The operational
complexities varies according to the manufacturers that offers various services and
deals in mixed processes. To match with the local need of the customer there required
to put larger inputs for receiving the greater outputs. The varieties are more costly as
compared to the specific ranges.

As a leading coffee brand it target the customers who are desperate for a premium
coffee and are in the need of taste and a space to relax. So to increase the demand of
Starbuck, variety in products is specific. If the variety is limited, it will leave the bigger
segment of the consumers to be left bored and tasteless.

Roasting and brewing are the main operational process of the company. Starbucks has
a uniqueness in its roasting and extracting the best flavors from the coffee beans. As
the company excel in its grinding skills, in the same way it grinds its competitive
advantage. Because of having less complex process of roasting and grinding, it focus
on the externalities of how to maintain the market image and digging ways to stay
competitive. The externalities of Starbuck’s include the sales and its customer services.
Where the company train its baristas for preparing the aromatic premium coffee, it serve
its customers with the best consumer experiences. The customer satisfaction is the
significant factor that spread its popularity other than the aromatic flavor.
Variations in the demand is the foremost challenging area of its businesses. For
businesses it is very easy to manage the processes when the demand of the product
and the services are constant. But when the demands varies with the customer needs,
the managing process becomes more complex. Although the business use to plan the
operational processes, business strategies and the projections on the sales in advance
but dealing with the need of time have some critical aspects.

When the demand rises or varies unpredictably then it needs to be adjusted over time.
The worst part is that, if the demand rises unpredictably then extra amount of resource
and the material are incorporated in the processes in the manner that it provides the
cushion that san comfort the excessive demand. Just for example of seasonal variations
in the demand of the products. The demand for the product increases in the festive
seasons, then Amazon prepare itself to cater the need of challenge in providing the best
services to its consumers. Whereas comparing with the companies such as that provide
technology in services, the level of complexity in catering the demand is much lower
than others. Starbucks provided variations of coffee according to the seasonal
requirements but the demand of coffee does not show any change in the festive
seasons. Because of this unchangeable demand in the seasonal hikes there are low
operational complexities. One good thing that company show is that, it does not invest
in huge amount in marketing and the promotional activities. The power of Starbucks lies
in its brand equity, spread of mouth and the publicity the company’s that deals in similar
businesses experience a brand image and the experiences of its customers.

Digital Transformation at Starbucks

From the outbreak of the corona virus in the beginning of 2020, the B2C companies
start to find ways for the transformation of their business processes. The companies
pushed themselves for the rethinking of the strategies involving digital marketing and
providing the services to the customers at home or better to say that providing services
to the internet. These are the opportunities as well as the risk that the integration and
transformations brings in. For gaining the opportunities there is a need to bring changes
in the digital marketing strategies of the Starbuck to handle the situations of lockdown
and the business. The ways for the strategic transformation in this time is the full
utilization of the Big data and allowing the customers for the personalized the orders
and use the technological innovations such as AI-artificial intelligence.

Starbucks operate in global locations and in China, it’s first developed the digital
transformation because China was the first country who face the outbreak of corona
virus and face the unexpected over the counter lockdowns and the stay home and
isolated restrictions. Rest of the world learn from China the strategies to deal with world
pandemic.

Form the birth of Starbuck, the marketing strategies have been developed for a
business that is a social gathering spot. People say it the third place to go after home
and office, a symbol of relaxation and coziness for the millions of consumers. The cafés
were designed for the community building, promote the conversations among the
baristas and the consumers and the place to mingle. But with the store closure brings
an immediate need for the business transformation. The transformation comes in the
form of an ad in which a Starbuck “We Chat” features were introduced. It was a cartoon
of barista telling the readers that how they brew a premium cup of coffee at their homes.
When the pandemic situations get normalized after months of store closures, it
reopened stores with a new design of ordering the required services. It launched an
innovative retail experience for its valuable customers. The new service involves the
customers to place a mobile order, make an advance payment of their visits and collect
their food items and the beverages at the nearest store. For reducing the gatherings of
customer Starbuck opens the easily accessible locations with the name of “Starbuck
Now” at the entrance of different stores and the malls. Meanwhile to reduce social
gathering a new delivery introduce with the name of “Starbuck Delivery” and leverage in
the pandemic. Although the service was induced in 2018 with the partnership with
Ababa group but in the times of need the service transforms in the convenience and the
fastest delivery nodes (Lee, 2020).

Although the reduction in the seating and the phenomena of social distancing is the bad
news, the Chinese strategy of digital ordering and delivery services is a remarkable
practice for the rest of the world. The digital ordering requires the use of big data and
the AI handling solutions for the company. The use of big data means, adopting the
operational means that answer the real time situation by collecting and analyzing the
data of customer satisfaction and purchase experiences in different channels with the
help of digital technology. The function of big data is to record and understand what are
the customers need, what they search and their observations. The best it works is in the
personalized services. The power of big data is measured when it is exploited by the
companies for finding the ways to help consumers, anticipate their needs and give
insight into creating the best marketing strategies. For innovations, big data is the need
of every society (Lee, 2020).

The Digital Transformation leveraging the AI- artificial intelligence

The Starbuck digital transformation divides its technological transformation into two
ends. One is for the business and other is the strategies for the consumers. For
providing the personalized service the targeted market was catered in the first line and
then the same service is provided on different electronic devices. On a Flywheel app
platform, data like product, standing inventory, price of that item, location, time, the
volume required for the sales and the unit sold are all recorded on the cloud service.
These are then integrated and analyzed by using AI to give more response of the
consumer experiences (Panda, 2020).

Starbucks profound in the sales through the mobile app and have made more efforts to
expansion of the sales point though the usage of AI- chat bots.

The cyber physical that the AI controls is the automated control of the machine
equipment and the process of making the products. By utilizing the data collected
through the smart products like phones and other devices that use internet of things IoT,
the best services are provide to the customers and there is the reduction in the chance
of failure. Consumers proactively search for their desired product on online and offline
channels, the app tracks the customer location and customized the service accordingly
by IoT (Caro and Sadr, 2019). The big data which is collected is then analyzed through
AI. The cyber physical system automatically controls the actual equipment of the smart
machine and the manufacturing process in the cloud space and produce the product
through automated machines replacing the manual process.
The digital Flywheel program creates a marvelous values and provide assistance to the
firm also (gt4sme, 2020). In 2020 there were almost 19 million programs that caters for
the loyalty of the users. Getting the idea of individual preferences of the customer’s
order and the buying habits and patterns, Starbucks provides a warm experiences to its
customers.

The AI in the Starbucks app leave customers with the personalized choice for their
product preference and a thought. The AI helps baristas to make the beverage ready by
capturing the whole picture in the account. For example if the store receive the order for
six ice cubed latte and the customer is 20 miles away, it will make order that will be get
ready on time with the fresh six cubes of ice.

Along with this above feature the AI, utilize customer data for analyzing their buying
habits from different locations and channels. This provides the company with the tough
basis for judging which item to target the stay home consumers and what will be the
expected menus, but at time it becomes tricky to predict.

Another function of AI is the maintenance of the billing records and reduce any
discrepancy that would be likely to occur. The bulling amount from the customer are of
very small amount but their quantities are large in number. Maintain a big data space
system is critical. If the machine shows error than it will significantly discontinue the
operations. There are the partners for the online payments that controls the financials of
the company. There are parameters, requirements for the repair and other type of
machine issues. The disruptions eat up the time which on the other hand if utilize for
providing services will be better off. The Ai helps in the projection of failures and the
need for the maintenance. An ideal example of AI is the new range of coffee machine
named Mastrena- a super automated espresso machine. These machines have built-in
sensors that record every shot of coffee and assess the need for tunings and
maintenance. This AI system is named as “Deep Brew” that use IoT technology.

The “Deep Brew” also provide assistance to the personalization engine, helps to control
the labor at store, their duties and also in the inventory management. This reduce the
wastage of time in manual integrations. “Deep Brew, cyber-physical are the excellent
examples that leverage the AI- artificial intelligence for providing the best efficiency for
the human interactions in developing a marvelous customer experiences (Deep Brew
no date).

AI- Artificial intelligence implementation cycle

The lifecycle of technology that has been developed within the organization has to go
along the different phases that are mention below (SDLC no date) :

Initiation: Starbuck’s China evaluate the strategy for the need of time and develop the
technique to rise when the world will wake up from the months of closure due to
pandemic virus. The initiation was done in analyzing the value for the digital
transformation into the manual business structure. The use of internet in the business
and catering the customer needs was a big idea. At first the developed strategy was a
cartoon of barista who get reader to read the ways for brewing at home. The second
was the personalized app that was installed after the store reopening in certain
locations which enable the customer to order in advance and pay in advance for
reducing the customer interaction. The third initiative it take was the fastest delivery of
the products to the customer that stayed at home. The fourth initiative was the induction
of machine with the built-in function of recording the coffee shots.

Acquisition: The acquisition of the digital transformation at Starbucks was on build

basis. They developed there new transformation system through market research and
the use of AI technologies.

Implementation: The implementation of AI system was done first in China and then the
rest of world follow the footsteps because China was the first country to face the virus
and lockdown.

Shakedown: The structured processes was develop to use and record the customer
orders through big data, the customer’s individual preferences were studied through big
data. The deliver services were initiated by the use if AI that provides the ease of
customer location through mobile apps. The big data was used to predict the expected
customer orders and the material were kept ready to cater any situation. The problem of
sales record, billing and maintenance requirement were solved through the installation
of AI in new range of coffee machines.
Onward and upward: the onward and the upward strategies are for the maintenance of
the digital system. Starbucks is the leading coffee brewing brand and keeps it
customers at the first end. The maintenance and the workability of the IoT services are
of the great importance for the company.

Decommissioning: Although the world and its technologies have a never ending
innovations, the digital technologies did not stop but they get obsolete with the passage
of time and usually becomes the roots of the new technologies. Starbucks change its
business operations with the needs of changing world and will do the same in future.

Risk and the mitigations involved in the implementation of the transformations

The risk that are involved in the business and the digital services of the Starbucks are
divided into two categories high and moderate (Geereddy, no date).

New entrants with the same services: There is a low chance of the new entrants
because of the fear of starting the new business in the ear of COVID-19. The local
competitors are already playing in the market such as Dunkin Donut and McDonalds
and customers have the preferences and the loyalty towards the Starbucks. Although
the product it made are of readily eatable and drinkable items have the possibility of the
new entrants but to compete with the quality and taste is a critical challenge. Starbucks
has a larger scale of business and the scope and have a rooted relationship with its
suppliers and the higher yield curves that are nearly impossible to meet with the local
competitors (Lombardo, 2015).

Threat of losing competitiveness created by the digital transformation: The

retaliation that is expected for the brand equity, resources and the prime store locations
and the pricing competition are at high state. Threat from the competitors for developing
the substitute of product and services is always be there. Number of bars and local pub
provide the same menu and the services and the place for the social gatherings too
(Geereddy, no date).

Losing sales through transferring to the digital technology: It is a big threat for
sales after the home brewing processes that the Starbuck’s introduce during lockdown
in China that customer will make their own coffee at home. Although the coffee they use
is of from the packaged range of Starbucks but it will reduce the sale of other items that
customer usually orders along with their beverages. Customer enjoys the quality time
they spent in the comfortable ambiance of the store and spend hours in multiple
ordering and receiving the premium services at the spots (Geereddy, no date).

Monopolistic competition for the transformation: The brewing industry has a strong
monopolistic competition because the competitors like Dunkin Donuts and Mc Donald
are also the industrial giants and have the largest market share. But the thing that is
notable is the maintenance of the Starbuck’s competitive advantage as it has a
differentiated products and the premium digital services which reduce the level of risk in
competition (Lombardo, 2015).

To mitigate with the threat of losing sales company already had developed a counter
measure thorough the induction of its AI formulated automated coffee machine with the
built factors of AI systems. The packaged items are available at different locations but
the quality that machine provides in brewing is the ultimate power of the product.

To mitigate with the challenge of losing competiveness like brand equity, resources and
the stores at prime location is the power of extensive market research. Keeping indulge
a group of people in gaining the now how of other competitors and continuous growth
with the knowledge of intellectual team members and the leading characteristics of the
CEO will help in maintaining the competitive advantage of the Starbucks.

References

‘Brewing with a dash of Data and Analytics – Starbucks’ (no date) Digital Innovation and
Transformation. Available at: https://digital.hbs.edu/platform-digit/submission/brewing-
with-a-dash-of-data-and-analytics-starbucks/ (Accessed: 12 April 2021).

Caro, F. and Sadr, R. (2019) ‘The Internet of Things (IoT) in retail: Bridging supply and
demand’, Business Horizons, 62(1), pp. 47–54. doi: 10.1016/j.bushor.2018.08.002.

Geereddy, N. (no date) ‘Strategic Analysis Of Starbucks Corporation’, p. 17.

gt4sme (2020) Starbucks’ Digital Transformation - A Case Study, GT4SME. Available

at: https://www.gt4sme.com/post/digitalization-challenges-on-the-path-to-a-better-living-
1 (Accessed: 12 April 2021).
Lee, S.-Y. (2020) ‘Study on Digital Transformation Strategies: Starbucks Case Study’,
Journal of Digital Contents Society, 21(10), pp. 1809–1816. doi:
10.9728/dcs.2020.21.10.1809.

Lombardo, J. (2015) ‘Starbucks Coffee Company SWOT Analysis &

Recommendations’, Panmore Institute, 12 September. Available at:
http://panmore.com/starbucks-coffee-swot-analysis (Accessed: 12 April 2021).

SDLC: Seven Phases of the System Development Life Cycle (no date). Available at:
https://www.innovativearchitects.com/KnowledgeCenter/basic-IT-systems/system-
development-life-cycle.aspx (Accessed: 12 April 2021).

Why AI is a ‘Differentiator for the Future’ at Starbucks (no date) QSR magazine.
Available at: https://www.qsrmagazine.com/fast-food/why-ai-differentiator-future-
starbucks (Accessed: 12 April 2021).