1) Starbucks used mostly a differentiation strategy, however it had also used a cost
leadership strategy. Its differentiation strategy was exemplified by their stores providing an
experience, offering interesting coffee-related drinks in a theatrical kind of atmosphere,
their unique Coffee blending and roasting process which enabled them to create an
extensive product variety, their employees received great deal of training to become very
knowledgeable about coffee in order to provide an exceptional service to increasingly
coffee-educated consumers, and their ability to find the perfect location for their stores
enabled them to maximize market share in a given area of a city and build their regional
reputation which then increased their image to a national level of high prestige and status.
For all these reasons, consumers were willing to pay a premium. Their cost leadership
strategy was exemplified by their supply chain operations where they received the best
transportation rates, and were able to achieve economies of scale by eliminating
redundancy and maximize efficiency. Starbucks was also a cost leader due to its good
relationship with coffee exporters who were “very anxious to become Starbucks suppliers”,
a fact that enabled the company to get better prices and reduce bean-sourcing costs. The
activities that created superior value for Starbucks retail coffee-house business were:
Procurement purchased more high quality coffee than anyone else in the world.
Technological Development A lot of research was put into the roasting and blending
process to create unique tastes. Human Resource Management extensive training and
educating of employees (baristas) and turning them into part of the organizational culture.
