Starbuck’s strategy is effective in its external consistency. The threats that Starbucks faces in its external environment include the availability of substitutes, ease of entry into this industry, high levels of competition, high bargaining power of buyers and sellers, and to a somewhat lesser degree, medium bargaining power of suppliers. PESTEL analysis shows additional political and economic threats based on the volatility of Starbucks’ coffee supply. Supply depends on many factors in the producing countries, including weather, natural disasters, crop disease, inventory levels, general increases in farm inputs and production costs, and coffee export quotas (Starbucks, 2016). Technology may also be a threat for Starbucks. The company’s point-of-sale, web and mobile platforms, and other IT systems can contain personal, financial or other data that make Starbucks a target for hackers. The costs of cyber-attacks and damage to the Starbuck’s brand could be substantial.
So Starbucks has chosen strategies to meet these threats. Starbuck’s handles threats to its coffee supply by using fixed-price and price-to-be-fixed contracts and purchase commitments. To address technology threats, Starbucks has made large investments in technology to develop systems and processes designed to prevent or minimize data breaches. As for the threat of substitutes, even though there are many substitutes for Starbucks coffee, many Starbucks’ customers do not see it that way. Customers love the specialty drinks that Starbucks introduces. They are so popular that other coffee chains have to make specialty drinks as well just to keep up with Starbucks. Starbucks’ branding has also been especially successful, so that customers perceive Starbucks as an affordable luxury that almost anyone can have.
Customers also like the ambience of the Starbucks stores, where they enjoy consistently superior customer service. Starbucks also has an effective customer loyalty program that keeps customers loyal and engaged. CEO Howard Schultz called the loyalty program the company’s “most important business driver” because it not only provides both short-term revenue increases and profit, but also long-term loyalty for years to come (Harris, 2015).
This industry appears easy to enter and barriers to entry are low as far as capital requirements. But not many competitors can afford to do the marketing and build a brand that competes with Starbucks. So, even though there are potentially a lot of competitors, Starbucks’ strategy of emphasizing a unique customer experience keeps Starbucks ahead of the competition. Also, Starbucks stresses social responsibility and makes sure the company has good relationships with suppliers and customers which helps its branding. The company has a sustainable competitive advantage that competitors are not able to copy.
Starbucks’ strategy is also effective in terms of being internally consistent. All of Starbucks’ strategies together help Starbucks be more successful. The strategies complement each other, there is little conflict between them. They all work together to match Starbucks’ overall company goals. Starbucks differentiates itself from its numerous competitors by the following: high quality beverages and snacks, excellent customer service, unique customer experience, strong internal and external relationships with employees and suppliers, and horizontal growth. For example, Starbucks understands that customers expect the same quality of products and service experience from the company’s licensees as from Starbucks. So Starbucks invests heavily in providing training and support for and monitoring the operations of their business partners (Starbucks, 2016). These activities all contribute to Starbucks’ product differentiation strategies that lead to competitive advantage. The company uses its brand to promote all their business goals. Starbucks excels at using various aspects of its value chain to create customer value. All these activities create synergy and capitalize on Starbucks’ unique capabilities.
Nonetheless, Starbucks must still find ways to stay ahead of the competition. The company acknowledges in its annual report that it faces intense competition. As a result, Starbucks is not the top coffee company in all channels and markets (Starbucks, 2016). Quick service restaurants have begun selling high-quality speciality.
Starbucks’ competitive advantage is sustainable over time because they optimize what they can control and they react appropriately to what they cannot control. Starbucks cannot control the economy and how much money people can spend, but they can control whether customers think they get good value for their money. Starbucks can control the customer experience by treating their employees well so that employees treat customers well. Starbucks can create a pleasant environment where people want to hang out. Starbucks cannot keep others from entering the coffee shop business, but it can make it hard for competitors to take away Starbucks’ customers. Starbucks has made critical choices based on its core competencies. The company has also implemented its strategy in an appropriate sequence. For example, Starbucks continues to enhance the customer experience. The company uses technology as it becomes available to extend its loyalty program and to add mobile transactions, like Mobile Order and Pay capability.
One of the few weaknesses that Starbucks has is self-cannibalization. The company is a victim of its own success with its expansion and overcrowding in the U.S. market (Munarriz, 2017). Starbucks is experiencing high saturation in some areas. The company must address this barrier to continued Starbucks’ growth.
But overall, Starbucks’ competitive advantage is not easy for other companies to achieve or duplicate. Starbucks’ strategy is sustainable over the long term because it is consistent with the company’s internal and external environment. In the short term, any number of things can go wrong, and the company will have to react to problems and fix them. They have a successful track record of doing this as their Balanced Scorecard metrics show. But especially over the long term, their proactive strategies will continue giving them the advantage over the competition. Starbucks continues to make critical choices that help it provide customers a superior experience. These strategy choices make Starbuck’s competitive advantage sustainable over the long-term.
- Harris, R. (2015). Why Starbucks is winning at loyalty. Retrieved from http://marketingmag.ca/brands/why-starbucks-is-winning-at-loyalty-152974/
- Munarriz, R. (2017). Starbucks has a lot to prove on Thursday. The Motley Fool online. Retrieved from https://www.fool.com/investing/2017/04/26/starbucks-has-a-lot-to-prove-on-thursday.aspx
- Starbucks Corporation. (2016). Form 10-K. Retrieved from https://s21.q4cdn.com/369030626/files/doc_financials/2016/Annual/FY16-Annual-Report-on-Form-10-K.pdf