Starbucks Corporation (also known as Starbucks Coffee Company) grows its multinational operations through a generic competitive strategy that highlights the specialty of its products. In Michael Porter’s model, this generic competitive strategy focuses on setting the coffee business apart from competitors. On the other hand, a combination of intensive growth strategies influences the approach that Starbucks uses for growth and expansion. Based on Igor Ansoff’s matrix for business growth, these strategies for intensive growth are related to the company’s generic strategy for competitive positioning in the coffeehouse market. The intensive growth strategies align with the generic strategy to maximize Starbucks’ competitive advantages for firm performance and success. In this business analysis case, such an alignment is observable in the company’s continuing emphasis on penetrating markets with its specialty coffee products, while offering these products to customers in various market segments. The alignment of its generic strategy and intensive growth strategies reinforces Starbucks’ competitive advantages and business performance in an increasingly competitive global market.
The effective alignment between its generic strategy for competitive advantage and strategies for intensive growth supports Starbucks’ performance against competitors, like McDonald’s and Dunkin’, as well as Wendy’s, Subway, and Burger King. In the industry environment described in the Five Forces analysis of Starbucks, these competitors offer coffee in addition to their core foods and beverages and some merchandise or consumer goods. With its corporate strategic positioning to lead in the coffeehouse chain industry, Starbucks maintains its use of a generic competitive strategy that involves specialty of products, and intensive growth strategies that emphasize current and new products in the company’s current markets.
Starbucks’ Generic Competitive Strategy (Porter’s Model)
Starbucks uses broad differentiation as its generic strategy for competitive advantage. In Michael Porter’s framework, this strategy involves making the business and its products different from other coffeehouse firms. This difference highlights Starbucks’ value proposition regarding the high quality and uniqueness of its products. The company’s emphasis on specialty coffee differentiates its cafés from many other establishments that offer coffee. However, the broad differentiation generic competitive strategy extends to other areas of Starbucks Corporation. For instance, the coffeehouse business uses its sustainable and responsible sourcing policy to differentiate its products from competitors. Also, frequent introduction of new products or variants thereof contributes to the uniqueness and competitive advantage of the company’s food and beverages. This generic competitive strategy is also manifested in Starbucks’ work culture (company culture). While competitors, like McDonald’s and Dunkin’, compete using low costs and prices, Starbucks emphasizes a warm and friendly ambiance that people enjoy.
An implication of the broad differentiation generic competitive strategy is that Starbucks must keep innovating to ensure the uniqueness of its products in the long term. With this competitive strategy, the company’s competitive advantages may weaken when competitors find ways to match or exceed the coffee company’s uniqueness. To address this issue, Starbucks keeps innovating its product mix and supply chain. In applying differentiation as a generic competitive strategy, the enterprise focuses on specialty ingredients and products, such as baked goods that do not have high-fructose corn syrup. Starbucks’ operations management also innovates its supply chain to satisfy its generic competitive strategy through a continuous search for the most sustainable and finest ingredients. Thus, to maintain competitive advantages using this generic strategy, Starbucks’ strategic objective is to innovate products and its supply chain. These factors influence the coffeehouse company’s intensive growth strategies.
Starbucks’ Intensive Growth Strategies
Given the intensive growth opportunities in the global market, Starbucks employs multiple strategies for effective business growth. In the simultaneous implementation of its intensive growth strategies, the coffeehouse company focuses on expanding its international market presence, as well as offering products of high quality and value. Starbucks adjusts the combination of these intensive growth strategies and the emphasis on each strategy, depending on current conditions in local and regional markets.
Market Penetration. Starbucks’ main intensive growth strategy is market penetration. In the market expansion grid or Ansoff Matrix, this strategy supports the company’s intensive growth by maximizing revenues from existing markets, using the same or existing food and beverage products. Starbucks already operates in more than 80 countries and territories. To maximize revenues and growth in these current markets, the company applies market penetration by opening more company-owned stores or licensed/franchised café locations. For example, Starbucks aims to open more stores in countries where the business has a weak or limited presence, such as in Africa and the Middle East. However, the company needs to overcome regulatory and sociocultural challenges in these coffee markets. Starbucks’ marketing mix (4Ps) supports the market penetration intensive growth strategy, especially when it comes to expanding the company’s presence through strategic locations and promotions.
Market Development. Starbucks uses market development as its secondary strategy for intensive growth. This strategy supports business growth by generating revenues in new markets or new market segments by offering the company’s current product mix of food and beverages. For example, Starbucks Coffee offers its current products to more consumers by entering more countries. In market development, intensive growth opportunities are exploited by strategically growing the company’s consumer base, which equates to a larger volume of sales of food, beverages, and other merchandise.
Product Development. As another secondary intensive growth strategy, product development contributes to Starbucks’ growth through new products or variants that add to business revenues. For example, through product innovation, the company offers ready-to-drink products available at grocery stores. Product development may also come with mergers and acquisitions, such as when Starbucks started offering Frappuccino following the acquisition of The Coffee Connection. In this intensive growth strategy, new products are seen as ways of increasing sales revenues, especially in coffeehouse markets that are already saturated. The SWOT analysis of Starbucks shows that this capability to develop attractive and profitable products is one of the business strengths that support the company’s intensive growth and strategic expansion in the global market.
Continuing Starbucks’ Competitive Advantages, Intensive Growth, and Market Expansion
In using the generic competitive strategy of broad differentiation, Starbucks Corporation ensures competitive advantages through products and ingredients that establish an image of specialty and uniqueness. This generic competitive strategy translates to various policies and programs to keep the coffeehouse business differentiated against the competition. A challenge in applying this generic strategy for competitive advantage is that Starbucks must always innovate to maintain its uniqueness and attractiveness to consumers. The enterprise needs to innovate ahead of other coffeehouse firms to maintain its competitive advantages and growth based on this generic strategy.
A more detailed strategic analysis of Starbucks Corporation should consider how to support continuous growth and expansion by strengthening competitive advantages in relation to the company’s current generic strategy of broad differentiation. Also, Starbucks can apply other generic competitive strategies together with its current one to maximize business growth and competitiveness. For example, the generic strategy of focus or market segmentation can enhance competitive advantages in operating subsidiaries that complement the company’s coffeehouses. However, cost leadership as a generic competitive strategy might not work because being a best-cost provider could limit support for the premium brand image of Starbucks cafés and merchandise.
In relation to the generic competitive strategy of differentiation, Starbucks grows its business through the intensive growth strategies of market penetration, market development, and product development. These strategies facilitate business expansion despite the increasing saturation of many coffeehouse markets. Also, Starbucks has intensive growth opportunities in countries where the company’s coffeehouses are not yet popular. An approach in these countries is to employ market development along with aggressive marketing campaigns to attain the customer base needed to support business expansion within these local coffeehouse markets. Another approach is to use the product development intensive growth strategy to align Starbucks’ product mix to the distinct cultural preferences of consumers in regional or local markets. Successful expansion in these markets ensures the fulfillment of Starbucks’ mission statement and vision statement, which adhere to making the company the leading player in the global coffeehouse market and related markets for coffee products. Moreover, the business diversification intensive growth strategy can help increase Starbucks’ growth potential through operations outside the coffeehouse industry.
References
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- Nestlé and Starbucks Celebrate Five Years of their Global Coffee Alliance.
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- Starbucks Corporation – Form 10-K.
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- U.S. Department of Agriculture – Economic Research Service – Food Service Industry Market Segments.