BUSINESS STRATEGY

Differentiation Strategies

(Internet Service at Starbucks)
Services focused towards certain types of customers and also innovation has been very important in helping Starbucks differentiate itself from its competitors. Starbucks goes as far as employing trained chefs and food scientists to develop new products as the introduction of its Creme Frappuccino line and the infusion of Tazo tea drinks, to reach out to target audiences using a differentiation approach. The Starbucks DoubleShot espresso drinks is their answer to the energy drink trend. This product is aimed at a younger crowd, the same customers targeted by energy drinks such as Red Bull. Another group of customers targeted by Starbucks are business person. As result Starbucks began offering high-speed internet access available at many of its stores. The service allows those with AT&T HotSpot access to connect to the Internet inside Starbucks location.

Porter's Five Forces Model

Buyer Power

Starbucks is not susceptible to powerful buyers. The power of buyers is low, because no individual buyer represents a large fraction of sales revenues or purchases in large volumes. Also there are few substitutes for premium coffee. In addition customer enjoy the friendly atmosphere, excellent customer service, and speedy order fulfillment that Starbucks offers. Most customers are loyal to Starbucks due to the high customer satisfaction that they offer and the high quality of their product. The only credible threat that buyers pose is that of switching to another brand. Because price elasticity is high, Starbucks makes sure their prices are optimal and to offer high quality product and services that differentiate from the rest.

Supplier Power

The power of supplier in this industry is low, because coffee is a commodity product and buyers are free to choose between many suppliers. For Starbucks in particular the case is different, Starbucks suppliers seem to possess a considerable amount of power. Starbucks use high quality coffee beans which can only be grow in certain areas of the world, like Brazil, Ethiopia and Costa Rica. Starbucks is very dependent on these high quality beans. Also the fact that all Starbucks supplier need to follow Starbucks Social Responsibility Standards, and that Starbuck encourage diversity in their suppliers by seeking out women and minority owned business to do business with, is something that can lead Starbucks to lose good opportunities and bargain. In order to reduce the supplier power Starbucks negotitate fixed long price purchase contracts, and maintain a close relationship with their supplier. When it comes to technoloy the power is less, currently T-Mobile loses Starbucks and AT&T becomes Wi-Fi hotspot gian for the company, offering only $4 for a two hours Wi-Fi session, compared to $6 per hours which T-Mobile was offering. Now that is a bargain!!!

(Coffee Journey)

Threat of Substitute Products

Even though there are lot of substitutes as regular coffee, fruit juices, colas and sodas, none of these products offer the experience and atmosphere provided by the specialty retailer. In general the threat of substitute products is low.

Threat of New Entrants

There is a great deal of risk of entry by potential competitors due to the low start up costs. Company as Procter and Gamble are currently a potential threat to Starbucks as they have the infrastructure to distribute prepackaged coffee to reailers. By mid August of 2010 Procter and Gamble will be entering the market teaming up with Dunking Donuts to distribute prepackaged coffee to around 40,000 retail outlets nationwide. Starbucks's physical positioning reduces the number of favorable locations available for new entrants, also Starbucks have established a differentiated brand with a wide variety of unique coffee flavors, which has led to brand loyal customers, and also increase customers switching costs.

Rivalry Among Existing Competitors

The number of competitors is large but only a few firms dominate the industry. One of Starbucks larger competitors is Caribou Coffee. But unlike Starbucks Caribou Coffee aims to expand into smaller communities rather than high pupulation areas. In fiscal year 2009 Starbucks reported total revenues of $2534.70 million compared to its nearest competitors Caribou COffee who reported revenues of $262.54. It is easy to see that Starbucks holds a dominant position in the specialty coffee industry.

Starbucks Business Initiatives

(Employee Scanning a 2D bar code mobile coupon)
Starbucks is currently using a digital technology provider Codilink, which specializes in mobile services in order to offer loyalty programs to its clients. The main goals of these initiatives are to reward loyal Starbucks customers and to get to know knew customers and attract them to Starbucks stores, the program is based on 2D bar code coupons deployed via SMS. Starbucks is also using Onyx Software to power CRM initiative. Starbucks uses the Onyx system to manage corporate sales activities including efficient delivery and management of leads, effective pipeline management, faster activation of new accounts, and more inmmediate resolution of customer issues. The mission of Starbucks is to have satisfied customers, and they ensure this by providing a positive customer experience, and quality products. In order to accomplish their objectives Starbucks uses top line initiatives, which allow them to reach new customers, create new products, and keep growing.

Starbucks IT Organization

Starbucks IT organization is a Matrix, which means is make up of cross functional work teams that have the ability to report to heads of the organization other than the primary supervisor, and it allow communication upward, downward and laterally with its employees. Technology for Starbucks, is not center stage but is use rather to facilitate the smooth running of its business, it needs to be included in all strategic planning processes. This mean that whenever Starbucks is planning to shift a particular business practice, the goal will be to include IT as a component of that planning process to ensure that the new plan will have the greatest degree if technological support possible.

Starbucks IT Culture Philosophical Approach

Starbucks philosophical culture is decentralized, this mean that they love innovation and are early adopters of technology, they keep up with technology in order to get competitive advantage over their competitors. A clear example of their position is the Starbucks card mobile, which is currently the most significant recent innovations in technology mobile payments. Now we need to wait and see what companies will follow Starbucks by also implementing this system.

Kinds of E-Commerce Starbucks uses

Starbucks uses the B2C (Business to Consumer) e-commerce. Starbucks launched a website in order to be able to better serve its customers and utilize internet technology to keep up with the changing face of globalization. Many loyal customer visit the Starbucks website, http://www.starbucks.com/, to learn information about the art of brewing and roasting coffee, to buy coffee products and gifts. The website also offers services such as the "Starbucks Taste Matcher", which interactiely recommends specific coffee roasts and blends according to the customers preferences. On its website Starbucks also uses B2B (Business to business) commerce. They provide their coffee products to restaurants, airlines such as United Airlines and hotels such as Marriott.

Starbucks Internet Business Model

Starbucks primarily uses a Business to Consumer internet business model. Starbucks internet business model is all about people. Starbucks realized that 90% of Starbucks customers are internet users, and in order to sastify customer needs, they created the website which is broken down into six sections, Coffe (Beans Blends Brewing), Menu (Drinks Food Nutrition), Coffehouse (Music Wi-Fi Community), Responsibility (Ethical Local Global), Card (Register Reload Reward)and Shop (Search Comapare Buy).

Starbucks Marketing Mix

Starbucks has a Twitter page with more than 180,000 followers and a Facebook page with close to 3.7 million fans. Starbucks introduced a contest in which the first person to post an online photograph of one of the company's newest mearketing posters will win a prize. Contest such as these attract thousands of customers, also special offers, coupons and discounts distributed via Facebook seem to be at the heart of Starbucks' magnetic appeal on the social network. Also by broadcasting their ad campaigns on YouTube Starbucks has target the largest online video community ever.

(Starbucks YouTube ad)

Payment System

Starbucks Coffee Co. has launched the 2D bar code payment system for customers to pay via their IPhone or IPod touch. The Starbucks payment app, which is available free of charge at Apple's App Store, lets customers use a credit card to put money on a virtual Starbucks card.

(Starbucks Payment system)

Starbucks Business Strategy Article Summary

On the article "Starbucks Business plan" the author talks about how Starbucks differentiate from the rest of its competitors by providing unique products. Product with quality which sastify their customers and in return create loyal customers. By providing excellent service, and giving customer a new experience Starbucks have become the leader in the industry. Also Starbucks employee have contribute to their sucess as they are the one involve in the day to day operation with most of the customers. They get to know customers so well that they personalized the service they offer, and that make customers feel valuable. Sastify employee mean sastify customers, that is the reason why Starbucks make sure to provide continue training to their employee. Starbucks has become so successful due to its innovations, always trying new ideas in order to get competitive advantage. Currently Starbucks biggest competitor is Caribou Coffe, but at the same time it is not big enough, because with 15,011 stores worldwide Starbucks is far ahead of its competition. The complete article can be found under related links (Starbucks Business Plan).