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Group Report
Starbucks Case Study
Daniyal Ali (30402581)
Areeba Jafer (30768691)
Ismail Shaig (30935695)
Bhavesh Palanichamy (30809282)
Introduction
This report explains how Starbucks creates values in order to achieve superior profitability
and evaluates factors influencing the entry modes of Starbucks.The report goes over various
theories relating to the aforementioned such as dunnings electric paradigm and concept of
value creation.
Executive summary
Starbucks, now an American multinational company, opened their first coffee shop in
Seattle in 1971. They began as a small shop offering a speciality of whole-bean coffee, tea
and spices to customers. Howards Schultz took charge of Starbucks in 1980 and turned the
regional coffee company into one of the world’s top brands. Schultz was inspired by the cafe
culture in Italy and wanted to implement this into a similar cafeteria culture in the USA
(Gupta, Nagpal, & Malik, 2018). This vision was a vital start to the growth of Starbucks.
Opening about 116 outlets by 1991, he wanted customers to view Starbucks as a “third
place”, after their home and workplace which meant providing an inviting and refined place
for individuals to relax (Seaford, Culp, & Brooks, 2012). Within a short period of time,
Starbucks was the bestseller among coffee brands in the US and have started expanding
internationally serving upto 20 million customers daily by 2000. Post-2000, Schultz gave up
the position of CEO to Oren Smith and remained as Chairman, Global Strategist and Chief
Creative Officer of Starbucks. However, by 2008 the company’s performance started to
diminish as the stock price remained flat for 8 years due to competition and mainly being
dependent on new stores opening to grow (Seaford et al., 2012). There was also an issue of
staffing and the numbers of customers reduced per store. At this point, Schultz decided to step
in and retain core-values taking severe steps by firing a few top positions, closing
non-performing stores and focusing on operational excellence and customer experience. The
stock market at this point also jumped five-folds since 2008 which helped turn the tide for
Starbucks and helped having a sustainable and growth in revenues and profits ever since.
Concept of Value Creation
Creating value could be defined as the production of acts that raise the worth of
products, services, or even an organization. Most owners of companies also focuses on
generating value both in the sense that consumers buying goods and services and for
shareholders of companies who seek to value their interest.(Peloza & Shang, 2011).
Moreover, sustained superior profitability is whether the company manages to raise profits as
a result of reduced costs or rising sales, or both. Through fostering creativity and invention,
spending in research, that can be done (Kuzma & Shanklin, 1992). Furthermore, a value chain
is a process of improving and enhancing features of a product to add value at every step of
production. (Dudovsiy, 2014). Businesses like Starbucks divide their activities into primary
and secondary activities, where primary activities directly deal with the creation of goods and
services provided, and secondary activities deal with enhancing product efficiency and high
productivity rate among labour. Thus the logic behind it is simple; the more value a company
creates, the more profitable it is (Bajpai, 2015). Primary activities include inbound logistics,
operations, marketing and sales, outbound logistics, and, services. Starbucks has an efficient
supply-chain management and a strategic relationship with its suppliers. Its operations are
such that all Starbuck stores are conveniently located, which are either company operated or
licensed. Starbucks specializes in goods with high quality and customer satisfaction levels
than vigorous campaigns (Bajpai, 2015). The stores are highly concerned with customer
loyalty and target to improve their customer services. Whereas, the secondary activities
include infrastructure, human resource management, and development in technology. The
infrastructure manages activities such as planning, finances and management. Human
resource management is concerned with the employees training and skills, their motivation
providing benefits and incentives for them to stay dedicated to their workplace. Use of
technology benefits them by efficiency in work, and gets them more interactions through
feedback from customers.
How can firms create value and sustain its competitive advantage
The business climate today is intensely dynamic. It is now much easier and cheaper to
start a business, particularly with technology that enables companies in global markets to
attract customers online and internationally. The key to business success is a sustainable
competitive advantage, which allows an organization to spend more on revenue, raise profit
margins, and increase consumer and employee satisfaction than rivals (Liu, 2013). There are
three key types of sustainable advantage, cost, value, and focus advantage, though we will
focus only on value advantage.
Firstly, to create value, the firms need to move from basic offerings to value-added
solutions (Dhliwayo, 2014). The businesses must follow a corporate philosophy to step away
from traditional offers as well as the competitive situation. The added value will either
increase the price or value of the good. For instance, a free year of support will be a
value-added option on a new device. Individual people may add value to their services, such
as providing specialized services (Kenton, 2020). By improving the packaging or design you
