Porter’s Generic Strategy – case of Starbucks
For any firm to win in the highly competitive environment of the 21st century, it is important to have a source of sustainable competitive advantage. Only the firms like Apple, Google, Microsoft, Starbucks etc. that have acquired a sustainable competitive advantage have been able to reach the leadership position. Michael E Porter has laid out three generic strategies – cost leadership, differentiation and focus to gain competitive advantage. The third generic strategy, he subdivided into two – cost focus and differentiation focus. There can be various sources of competitive advantages for businesses. A firm can rely on technology to reduce its production costs and can then pass this benefit on to its customers. Another firm can focus on creating a differentiated product or service to gain market share. The industry is replete with such examples where firms have built sources of sustainable competitive advantages using these strategies. This is a discussion of the generic and intensive strategies adopted by Starbucks to generate competitive advantage and grow market share.
Differentiation for competitive advantage
The strategy Starbucks has used is known as differentiation strategy. There are several ways to achieve this since there can be several bases of differentiation. It can vary from product to product, service to service and industry to industry. Mostly the primary bases of differentiation are quality, durability, functionality and in several cases customer support and the brand’s image. Starbucks has differentiated its products based on quality and set an entirely distinct customer experience. Apart from these things, it has created a distinct brand image which is also a basis of differentiation and helps it market its brand better than competitors.
Quality based differentiation at Starbucks
The primary basis of differentiation for Starbucks is quality. It serves only premium quality coffee for the coffee lovers, which allows it to charge a premium price. It has adopted the highest standards in terms of the quality of its coffee beans. At every step Starbucks goes to great lengths to ensure that its beans meet the highest quality standards. Its Arabica beans are different from the regular ones. Found at higher altitudes where the beans are denser, Arabica has an exquisite flavor. These denser beans also have deeper and more complex flavor which is found in every cup at Starbucks. However, the story of quality does not end at acquiring great quality beans. It goes farther from there. A lot of difference comes from the preparation. Starbucks roasts its coffee deeper to bring out the flavor.
Rest of the credit goes to its trained baristas. Some may also call it Starbucks’ obsession but the brand is really very picky in terms of its coffee. It picks coffee cherries only when they are red and ripe and perfect for picking. Then they are sorted repeatedly on the basis of color, sized and density. Cups of coffee are tasted from every batch at least thrice before approval. This is how Starbucks creates the quality that every customer expects. Now, such obsession is bound to generate superior taste and satisfaction. So, since Starbucks is ready to go to every length to make distinguishably great coffee, its quality can hardly be matched by its competitors. This gives rise to sustainable competitive advantage which shows in the form of larger market share and better sales and revenue.
Ethical and customer friendly brand image
However, while quality of the product can be a great basis of differentiation , it has to be backed by brand image as well. Starbucks has created a distinct and ethical brand image which focuses on ethics inside as well as outside the organization. Apart from the image of an ethical brand, Starbucks has also created a superior experience for its customers. It is known for excellent customer service and friendliness too. The image of a customer friendly brand that sources 99% of its beans ethically is good in terms of marketing too. Starbucks has proved that great customer service can be a source of competitive advantage. Today, it has more than 22,500 stores open across the world. These stores provide a relaxing ambience that helps the customers lose the days’ stress. The warm and welcoming ambience inside these stores is also a primary driver of sales and revenue. Smiling baristas inside these stores are more than willing to share their knowledge and experience with the customers.
To create an ethical image, Starbucks has focused on responsible sourcing and helping the farmers and the community through its CSR strategy. It claims that its 99% coffee is sourced ethically. It has also invested in helping the coffee growing farmers. When it comes to ethics and compliance, Starbucks is just as serious internally as down its supply chain. Overall, this image of an ethical brand makes its customers love it even more. Today, brand image matters a lot and if the image is spoiled, it directly results in falling sales and revenue. So, a strong brand image can be a source of sustainable competitive advantage as in case of Starbucks.
Intensive Strategies used by Starbucks:
This strategy allows to grow sales and thus increase revenue from the existing markets. Generally, it includes greater focus on the marketing efforts to increase the market share of existing products and services. Traditionally, Starbucks’ investment in marketing has remained very low. the brand mainly used to market itself through its great quality products and extra ordinary customer service. However, with time things have changed and Starbucks has upped its expenditure on marketing. From its own website to the other channels including social media, the brand actively markets itself and its products actively. This helps attract more customers and beat the competition. It is also one of the main intensive strategies that Starbucks has been using to grow its market share.
Market development is an effective option for the companies which are very good at doing what they do and which are very successful in their existing markets. It involves the introduction of the existing products and services in new geographic areas. Starbucks expansion outside North America began in 1996 its first store in Japan. In the Asia Pacific region it first introduced its products in nine countries that include Australia, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea and Thailand. Since then its presence in the region has increased a lot. In China,it has more than 2500 stores which it plans to double by 2021. In India too, it broke ground by forming a partnership with Tata.
Apart from the two above explained intensive strategies, the company also focuses on the development of new products. Starbucks is an innovative brand that has continued to innovate its products. Over years, it has continued to add new flavors and varieties. It makes large investments in R&D and even in the sourcing of its raw material.