Starbucks mission is “…to establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employees could be proud of…” However, this mission was threatened in 2008 when the company found itself in trouble with slow growth and profits. Determined to continue its mission, Starbucks reevaluated its resource-based model of returns and made some changes which resulted in increased revenue and above-average returns for the next three years. The key player in Starbucks strategy was Howard Schultz, CEO of Starbucks.
Schultz was determined to regain strategic competitiveness and set forth with an integrated strategic management process which focused on several of Starbucks core competencies (like internal culture and human resources) and included: halting new store openings in the U. S. ; withdrawing completely from Australia; focusing on customers and the “Starbucks experience;” and transferring resources to international markets. We analyzed the strengths, weaknesses, opportunities, and threats through the TOWS analysis tool which focuses on external (or environmental) threats and opportunities AND internal weaknesses and strengths of the company.
In this case, Starbucks’s biggest threat is competition, particularly from McDonald’s and Dunkin Donuts. Opportunities include expanding its product line, particularly into international markets, and diversifying its product line to give customers a better “experience” in AND out of stores. By creating licensing agreements with places like Marriot and Pepsi, and selling retail packs of drinks like Frappucinos in grocery stores, Starbucks increased its diversification.
The biggest weakness for Starbucks is its pricing which led to competition with other companies that were offering premium coffee WITHOUT the premium price. Next is Starbucks’s greatest strength: brand name and recognition. In other words, to many people, coffee equals Starbucks. Another one of Starbuck’s strengths was how mainstream their name was; however, in 2008, this became a weakness as the competition took advantage of the situation and targeted Starbucks directly with campaigns that the company was “snobbish” and “friends don’t let friends drink at Starbucks. To help sustain their constant need for high-quality coffee beans, instead of just purchasing Starbucks fully invested their time into becoming a part of the market by creating support centers and creating fixed-price contracts whenever possible. Starbucks was no longer just a purchaser but a leader with coffee growers. In addition to TOWS analysis, analyzing Starbucks’ position using the Five Forces of Competition shows other issues facing Starbucks in 2008. For instance, the threat of new entrants and substitute products during this time was high. The same is true of the bargaining power of buyers.
The rivalry among competing firms was also high to moderately high, and the strength of the forces of the bargaining power of suppliers was moderate to low. Given the TOWS and Five Forces analyses of Starbucks, we agree with Starbucks strategy formulation. Starbucks should (and did) focus on stopping its saturation of the market (no new U. S. stores) and pulled out of unprofitable nations (like Australia) while reallocating resources internationally. We also agree that a large part of Starbucks’ strategic competitiveness is its “experience” so focusing on the “Starbucks Experience” and further branding itself was important.
It was also vital to refocus on the core values which make Starbucks a global leader, not follower, as well as technology, like free wi-fi and the Starbucks credit card, which increases the appeal of its stores and products to customers. Since 2008, Starbucks revenue has continued to grow, and 2012 was Starbucks best quarter yet for net revenues! Will this pattern continue? If Starbucks continues to employ strategic competitiveness, take advantage of global markets, differentiate its product, and utilize the latest technologies, we say yes.