Course Unit: Corporate Strategy

Students: Mauricio Pereira Cardoso

Tina Sikharulidze

Tamuna Papaskiri

Professor: Victor Tavares, PhD

 1. How did Starbucks create its uniqueness in the first place?

When Howard Schultz became the CEO of the company (15 years after its founding), he intended to turn
Starbucks into a company which could deliver ultimate customer value, because he knew that customer-
oriented brands are the ones which bring success. His strategy was to make Starbucks a unique place where
people could enjoy high quality coffee in the great atmosphere and feel as a part of community at the same
time. He has implemented the strategy by building the customer experience with following parts:

 Personal connections with customers – When entering the shop customers are always greeted
properly and asked their names while interacting with baristas, which influences customer behavior
and helps Starbucks to enhance customer loyalty and facilitate customer retention.
 Pleasant atmosphere – when entering the shop customers stepped into the place where they could
enjoy their coffee beverages in comfortable chairs, sofas while listening to music, chatting with friends
or working.
 Innovative, high quality coffee – back in 1970-1980s the coffee culture didn’t exist outside houses,
People purchased canned coffee beans and took them at home. Initial focus of Starbucks was
providing customers with high quality coffee beans, which were not canned, but Schultz decided to
turn coffee beans stores into cafes, where baristas grinded beans throughout the day whenever new
pot of coffee had to be brewed, so the grinding sound and fresh coffee aroma became trademarks of
Starbucks stores. Since then, Starbucks has been the company where baristas experiment with
different brewing methods and create new, innovative beverages.
Abovementioned tactics are the ones which were used by Schultz to deliver more than coffee to the
customers. He once said: “we aren't in the business of filling bellies, we are in the business of filling souls”
and superior value made the customers pay 4$ for a cup of coffee.

1|Page
 2. Was Starbucks’s uniqueness a VRIO resource? Did it help Starbucks gain
a sustainable competitive advantage? Why or why not?

Organizations always strive to find a competitive advantage that drives them in front of their competitors.
For analyzing such competitive advantage organizations are using VRIO framework - the tool used to analyze
firms’ internal resources and capabilities in order to find out if they can be a source of sustainable competitive
advantage. VRIO analysis stands for four questions that ask if a resource is: valuable, rare, costly to imitate
and is a firm organized to capture the value of the resources? So, we are going to discuss about VIRO
framework according to the Starbucks case. As we have mentioned, the factors that created Starbucks’
uniqueness were:

 strong brand image

 special quality of coffee
 store environment
 strong supply chain
 explicit customer service
Which in fact can be considered as a VIRO resource for the company and we will explain it step by step.

 Value - The first question of the VIRO framework asks if firm offers a resource that adds value for
customers. Each of abovementioned resources that created Starbucks’ uniqueness add value to
customer experience and this superior value in turn gives the company opportunity to retain and at
the same time grow its customer base.
 Rare - Second question asks if firm controls scarce resources or capabilities. If we look at Starbucks’
resources, we can see that some of them, for example strong brand image, excellent customer service
and store environment were not so rare and hard to achieve separately, but it’s quite a challenge to
achieve all of them together and companies like this were very rare in fact. Furthermore, Starbucks
had two more resources - special flavors, quality of coffee and supply management system required
significant investment and strategy and therefore Starbucks’ uniqueness definitely was a rare
resource.
 Costly to Imitate - Third question asks if is it hard to find an equivalent substitute to compete with
your offerings. All of the resources Starbucks owned were difficult to imitate because of different
reasons, for example, Special flavors, quality of coffee and store it required investment and human
resources companies didn’t have. Other resources like strong brand image and supply chain were
more or less imitable but only in the long run. So, uniqueness made Starbucks a brand that was costly
to imitate.
 Organized to Capture Value - Last question asks if firm has organized management systems,
processes, structures and culture to capitalize on resources and capabilities. Starbucks has an
effective organizational structure and coordinating system to fully exploit the competitive potential
of its resources and capabilities.
From our above explanations, Starbucks VIRO analysis revealed that company culture, prime and strategic
locations, customer loyalty, global brand recognition has definitely served as a competitive advantage for the
company.
2|Page
 3. Why and how did Starbucks lose its uniqueness?

The main cause why Starbucks lost its uniqueness was the change of its strategy. In 2000 former CEO Howard
Schultz retired and as the time has shown, new managers of the company were much driven by making
money rather than deeply understanding the culture of the company.

Company’s main focus became rapid growth for higher sales and earnings. Starbucks had approximately 1000
stores in the end of 2000 and the number reached nearly 20000 after 7 years in 2007. In this rush the original
culture of the company faded away. For instance, fresh aroma of the coffee was one of important part of
store’s ambience, however, because the customer traffic, baristas hade to grind coffee beans early in the
morning and store it for consumption all throughout the day. Managers ordered baristas to set their priority
on speed and not on the quality anymore. Customers were pushed to takeaway for the reason of cost cutting.
Rather than focusing on coffee, Starbucks started selling additional products like books, additional items on
the menu and other merchandise.

Because of these internal reasons Starbucks lost touch with its customers and several external reasons have
worsened the situation. The world financial crisis of 2007-2008 led people to say no to their “daily luxuries”
and switch to cheaper products and the fact that they didn’t feel special in Starbucks cafes anymore, made
them change their behavior and most of them completely forgot what they loved about the brand. Other
factors like increased competition and demonstrations against global companies have had their effect on the
reduction of the company’s sales and the stock price as well.

In conclusion, confusing growth with success and therefore changing company’s strategy from creating
unique and valuable experience for their customer to rapid expansion strategy has been the reason for
Starbucks of losing its uniqueness.

3|Page
 4. How is Starbucks attempting to re-create its uniqueness? Do you think it
will be successful? Do you think it will be unsuccessful? Why or why not?

As we have discussed in the previous question Starbucks faced a problem of sales reduction in 2007. After
realizing this, management team of the company decided to bring Howard Schultz back in Starbucks. As years
have shown, he attempted to re-create company’s uniqueness by changing its strategy from focusing on
expansion to creating ultimate customer experience.

We can read in the case that he started recruiting baristas, so that they would no longer multitask. As we
have done further research on the topic, we found out that Schultz closed 600 stores in 2008 and 300 in 2009.
60700 baristas were laid off and 135000 retrained. This way he made sure “the theatre” that customers loved
about the brand was back in the stores.

In late 2009, Starbucks introduced Via, its new instant coffee, a move that some worried might further dilute
the brand. But with proper promotion it worked. Starbucks announced that they’d found a way to create an
instant coffee, that tasted as good as fresh-brewed coffee, the company said that “Starbucks VIA is different,
the magic is in a proprietary, all-natural process that we spent years perfecting”. The name for the coffee was
perfectly chosen too. “VIA” is an Italian word for “road” and it signaled the idea that customers could enjoy
that coffee wherever they went. The cheap price of the product also should be taken into consideration.
Many were skeptical about it, but introducing the coffee helped Starbucks to be reachable for people who
were suffering world financial crisis and remembered customers that Starbucks is innovator as it has always
been.

There’s no further information about the attempts of the company to re-create its uniqueness, but the
general road of setting priority on bringing customer experience back in the stores was correct. As an
arguments we can state that stock price was up by approximately 143% in 2010 compared to 2009 and
Starbucks has posted positive same store sales ever since.

4|Page