Running head: BUSINESS-LEVEL AND CORPORATE-LEVEL STRATEGIES 1

Assignment 3: Business-Level and Corporate-Level Strategies

Valentina Zuleta

Professor: Daniel

BUS-499

Strayer University

August 9, 2015
BUSINESS-LEVEL AND CORPORATE-LEVEL STRATEGIES 2

Introduction

The modern day business world is highly competitive, and companies have to increase their

effectiveness, efficiency and reach in order to survive. Not only do the companies have to protect

their market share from local and regional competitors, they also have to fend off the advances of

multinationals with lots of resources at their disposal. The client base is also well informed and

market share may be influenced not only marketing and advertising campaigns but also by the

clients’ decisions and collective action as a whole.

Some companies such as Starbucks have managed to thrive in this highly competitive

environment as a result of carefully crafted and executed business, corporate and competitive

strategies. Brizek (2014) equates strategy with the direction and scope that a company assumes over

a lengthy period of time in order to attain its goals and fulfill its mandate to its stakeholders. This

paper analyses the methods in which starbucks has implemented various strategies within its

operations in order tpe emerge as “the premier roaster, marketer and retailer of specialty coffee in

the world” (Starbucks corporation, 2016 p 6)

Background of Starbucks Corporation

The first Starbucks store was opened in Pike place market, Seattle in 1971 (Brizek, M2014).

In 1982, Howard Shultz joined the organization and Starbucks Corporation was formed in 1985.

From its inception, Starbucks was characterized by massive store expansions as a result of its great

market demand. Starbucks deals mainly in high end premium coffee, tea and other beverages. In

their strategy report, Leshner, Camacho and Damassa (2007) state that:

In addition to its sale of high‐quality coffees, Starbucks retail stores also

offer Italian‐style espresso beverages, cold blended beverages, complementary food items,

coffee‐related accessories and equipment, premium teas, and a line of compact discs.
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Outside of its company‐operated retail stores, Starbucks also sells packaged coffee and tea

products, ready‐to‐drink beverages including its bottled Frappuccino® beverages and

Starbucks DoubleShot® espresso drinks, ice creams, and other products mainly through

licensing relationships. (p 2).

The diversified product and licensing strategy is one of the key strengths of the company.

According to the Starbucks corporation fiscal report for 2016, stores account up to 90% of

Starbucks revenue. A typical Starbucks store has “a pleasant, coffee-house atmosphere replete with

couches and Wi-Fi” (Gambardella, 2009, p 1). Starbucks common stock trades in the NASDAQ

under the name SBUX .Starbucks was the first privately owned U.S. Company to offer stock

options for both its Part time and full time employees. Starbucks operates over 15,000 stores in 52

countries, and although it faces stiff competition within the coffee industry from other companies

such as McDonalds’ and Dunkin donuts, it is still the top roaster and retailer of specialty coffee in

the world.

Starbuck’s mission statement is “To inspire and nurture the human spirit – one person, one

cup and one neighborhood at a time” (Gambardella, 2009, p 1).

Business- Level Strategy

Starbucks has placed a high premium on developing a unique brand in the eyes of its

clientele. It has made it a corporate business strategy to ensure that they are associated with the

highest quality coffee and other beverages, coupled with high quality service and a serene and

conducive atmosphere where their clients can enjoy the Starbucks experience in peace. Leshner, et

al (2007) state that “Starbucks put an emphasis on freshness…and would replace coffee it deemed
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not to be fresh, and thus unfit for consumption, for free so that customers received only the best

coffee at these restaurants.” (p 3).

Apart from ensuring that the company deals exclusively in high quality gourmet coffee, the

company has also diversified its product options. This strategy enabled it to capture a larger

percentage of the beverage market share. Starbucks has created a niche for itself in the tea and

packaged drinks market. This is an excellent strategy since these are substitute products that

compete with coffee. By venturing into these products, Starbucks has been able to utilize its strong

brand and tap into an even larger share of the beverage market. They have also ventured into

complementary products such as sandwiches, salads and food snacks. (Brizek, 2014; Gambardella,

2009). Starbucks CEO Howard Schultz has been successful in ensuring that the company achieves

as much differentiation as possible. The company has gone so far as to venture into non- beverage

industries through such products such as music, books and films as well as the starbucks card. This

is designed to keep up with the pace of the rapidly changing American lifestyle.

Rapid expansion has been another business level strategy that has contributed to Starbuck’s

success (Brizek, 2014; Gambardella, 2009). The company’s fiscal report for 2016 states that:

Our strategy for expanding our global retail business is to increase our market share in a

disciplined manner, by selectively opening additional stores in new and existing markets, as

well as increasing sales in existing stores, to support our long-term strategic objective to

maintain Starbucks standing as one of the most recognized and respected brands in the

world. (Starbucks corporation, 2016, p 3).

The licensing/ franchise business model has enabled the company to expand rapidly while

maintaining a hold on its brand and marketing aspects. This has enabled it to expand both high and

low. High level expansion can be seen in the form of exclusive stores and locations meant to cater
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for clients who are able to buy expensive gourmet coffee. Low level expansion is seen by the use of

simple counters at stores as well as trucks that cater to mobile clients or clients who are unwilling to

spend much but still crave the Starbucks experience. The rapid expansion has not been without its

downside. It has opened the company to mounting expenses as well as allowed other companies to

create similar business models to compete with starbucks. Falamarzi, Alfadhel, and Shaju (2016)

report that as a result of massive expansion, the company was faced with mounting expenses as

well as transformational delays in 2008. However, they were able to restructure an solve the

problems effectively.

Corporate level strategy

There are various corporate level strategies that a company can employ. Starbucks has

applied a diversified corporate level strategy to its operations. Since it operates a diversified model

and franchise model, it has had to adopt a fairly adaptable process in order to ensure the corporation

as a whole maintains a leading market share. Corporate level strategy has to take into account the

prevailing economic climate in order to ensure the company remains profitable. For instance, the

recent economic recessions have created a downturn in high end beverage sales since most clients

are unable or unwilling to buy a cup of coffee at four dollars or more as had been the custom. The

company had to go through restructuring in order to keep up with the market. The company was

forced to shut down over 900 stores in the united states that were performing poorly (Brizek 2014).

Corporate social responsibility is seen as a means through which companies can give back

to the communities in which they operate. As per its mission statement, starbucks wishes to have a

positive impact on all the clients, business partners and communities in which it operates. This has

led it to be a part of the so called “green movement” where it seeks to create harmonious business

processes that are in line with nature and the environment. Part of this process involves ensuring
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that its products are sourced in locations that adhere to environmental regulations. According to

Leshner et al, (2007).

In 2006 Starbucks donated $36.1 million in cash and products, volunteered 383,000 hours in

local communities, required growers to use strict environmental guidelines, used 20%

renewable energy in stores, and actively recycled in almost 80% of stores in US and

Canada” (p 5).

Competitive strategy

In order to analyze the competitive strategy of Starbucks, it is important to compare it with a

company which operates in a similar niche and offers products that are similar to it. There are two

candidates for this comparison. One is McDonalds and the other is dunking donuts. Both companies

are American multinationals that are competing within the beverage industry. Both McDonalds and

dunking donuts were not originally interested in the coffee market until starbucks emerged and

managed to make gourmet coffee a staple of the American lifestyle (Brizek, 2014). Given that

McDonalds operates mainly as a fast food retailer with coffee as part of its offering, it may not

compare favorably with starbucks. Dunkin donuts is the better fit for analysis since it offers coffee

as one of the main components of its operations.

Dunkin Donuts is the number one retailer of hot and iced coffee by sheer volume size. Its

mission statement is “To Make and serve the freshest, most delicious coffee and donuts quickly and

courteously in modern, well-merchandised stores” (Brizek, 2014, p51). The company offers donuts

and coffee as complementary products that drive its key sales. It utilizes a franchising model and

seeks to expand its market share within the next two decades. It focuses mainly on the U.S market

as its key expansion target, although it has been able to penetrate into foreign regions such as India,

china and Latin America. Part of its marketing strategy is the use of menu based innovations such
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as value meals and limited time offers to drive store traffic and keep the clients engaged (Brizek,

2014).

Starbucks has created a strong brand as the source of gourmet coffee and beverages. This

puts it in direct competition with Dunkin donuts whose competitive strategy is to offer a cheaper

coffee that is “almost as good” as the starbucks coffee but at a cheaper price.( Brizek, 2014 p1).

Given the recent economic downturn that have reduced Starbuck’s market share as well as the

onslaught of cheaper coffee, the company has been forced to innovate. One innovation is the

introduction of instant coffee in the form of VIA readybrew © coffee which was launched in 2009.

(Brizek, 2014). Instant coffee is much cheaper than freshly ground bean coffee. The challenge with

instant coffee is that it may not be able to retain its high quality flavor, but Starbucks customers

have been able to adapt to the change in quality accompanied by a drop in price.

Dunkin Donuts places a lot of emphasis on its restaurant operations, and employs between

25 and 30 people per restaurant. The business strategy for Dunkin Donuts is directed at investors

that have proven leadership abilities and real estate experience. Dunkin Donuts utilizes a low level

of diversification by using single or dominant franchise model for business. Starbucks, on the other

hand, utilizes moderate to high levels of diversification. Employee training and retention is very

important in both companies, but they have approached it in different ways. Starbucks allows its

employees to have stock options. The company offers good wages and benefits, including a tuition

benefit. Starbucks has an agreement with Arizona State University to benefit eligible U.S.

employees with a chance to receive full coverage for tuition on either part time or full time basis.

In addition, Starbucks is providing its Baristas with Free transportation arrangements to and from

work at all hours.. This solves the problem of flexibility of difficult shifts and enables the employee

to have more disposable income. Starbucks believes it should make a difference in not only how
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America drinks coffee but how its employees can achieve the American Dream. Howard Shultz is

said to want to create a company that he would be proud to have his father working in. This is in

line with the company motto which directs goodwill towards all individuals. ( Leshner et al,2007).

This is the difference in my opinion why Starbucks will be the most successful long term

company in our ever changing global economy. It represents more than just success among its

competitors like Dunkin Donuts. Starbucks has managed create a wide appeal at all levels from the

highest rank CEO to the lowest paid employee to the customer. This appeal, which forms it main

competitive advantage is shaped by the company’s branding and differentiation, corporate social

responsibility and wonderful employee benefits (Leshner et al,2007; Gambardella, 2009).

MARKET CYCLE ANALYSIS

Starbucks has dealt with slow market cycle by rapid innovation and product differentiation.

This includes its cheaper coffee brands as well as marketing substitute and complementary

products. One of the ways in which it has dealt with slow market cycles is by rapidly expanding

into different geographical areas as well as non-beverage industries such as film, music CDs and

books. Another example of this is Starbucks partnering with Keurig Coffee to market Starbucks K-

cups to open up a new target market. This enables Starbucks to improve their ability to compete

successfully with other competitors globally. Starbucks can use cooperative strategies for

competitive advantage. Starbucks is cooperating with educational institutions to keep its employees

educated and also cooperates with transportation companies to ensure employees keep their jobs

long- term. This affects the long term success of Starbucks in a slow cycle market which maintains

stability (Starbucks Corporation, 2016).

Starbucks can also survive in fast cycle markets that are by definition unstable,

unpredictable and complex. Starbucks has proven it can transform itself even in the most
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challenging circumstances. It has successfully found sources of new competitive advantages by

introducing via, an instant coffee alternative to its fast paced competitors like Dunkin Donut and

McDonalds. Starbucks is creating value by the unique experience of Wi-Fi availability in its coffee

houses, the ability to purchase its products from various vendors apart from their stores. Other

operations include the development of express stores in New York and mobile trucks plus new

roasting factories and retail stores within easy consumer reach. Collaboration with the other

competitors such as Keurig Coffee enables it to respond rapidly in fast cycle markets.

CONCLUSION

In conclusion, Starbucks maintains market leadership and speeds up product development

with new market and services to overcome uncertainty. The company depicts clear and concise

strategies that are geared to making the company the premier roaster and retailer of coffee in the

world. Despite competition from other multinationals, Starbucks still maintains its market lead.

This is a testament to its ability to create viable business, corporate and competition strategies as

well as its flexibility and adaptability during times of change.

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REFERENCES

Brizek, M. (2014). Coffee wars: The big three: Starbucks, McDonald’s and Dunkin’ donuts.

Journal of Case Research in Business and Economics 5,(1), 1-11.

Falamarzi, S., Alfadhel, A., & Shaju, G. (2016). A comparative analysis of strategies and business

models of starbucks corporation and Dunkin donuts company. International journal of

Management and Social sciences research. 5(5),48-57.

Gambardella, P. (2009). Application of strategy dynamics: Starbucks Corporation. Silver springs,

MD: Worchester polytechnic institute

Leshner, H., Camacho, C., & Damassa, S. (2007). Strategic report for Starbucks Corporation. New

York, NY: Harkness consulting.

Starbucks Corporation (2016). Fiscal 2016 annual report. Seattle, WA : Author.

Uddin, M. B. & Akhter, B. (2011). Strategic alliance and competitiveness: Theoretical framework.

International Refereed Research Journal 2 (1). 44 -54.