What is Starbucks Competitive Advantage
According to a study done by McGahan & Porter(1997) one
can predict a company’s 50%
profitability by it’s company and industry effects, in addition a company
profitability depends upon it's competitive advantage. Competitive advantage is described as how a firm out performs others firms in
the same industry. Starbucks is a leading brand in Food and Beverage industry,
how the company reached to this stage where it operates 10 times more
stores(29,324) to it nearest competitor that is Costa Coffee, requires Starbucks Business model analysis leading to its Competitive advantage.
I would like to discuss Starbucks business strategy that gives it a competitive advantage based on its Capability Analysis along its value network that is what are the main capabilities of Starbucks that gives it an edge over it competitors.
Starbucks Innovation as its Competitive advantage:
Starbucks created a culture of Cofee Houses in United States
that was not common at that time and revolutionized the Food and beverage
industry where a specialty coffee becomes an affordable luxury , this business strategy was an
innovation which gave it an edge over its competitors.
Starbucks Scalability management as its Competitive advantage :
Mostly organizations, specially food outlets give a quality
product or a service in a limited scope, but as the business grows the
company is unable to maintain the standards which results in the deterioration
of quality of product and services, which in the end results in no demand of
its product and services and then a shutdown/ bankruptcy. Starbucks managed it's corporate strategy to scale amazingly from 11 stores to 29324 stores, that are owned by Starbucks, while
maintaining the quality of its product and services. So scalability can
attributed as one of the capability that Starbucks that has given it a
competitive edge over its competitors.
Starbucks Quality and Differentiation of Product as its Competitive advantage :
Starbucks has managed to get high quality Arabica coffee from
all around the world. Managing this relationship with its suppliers claimed as
“99% ethically sourced” ensured by multiple quality checks can also be
attributed as one of the capabilities of Starbucks that gives a competitive
advantage over its suppliers.
The Second factor is the differentiation of product is to
develop a customized taste of its coffee by doing in house roasting of
its beans from different sources and using trained roaster, that automate the
coffee roasting using software enabled coffee roasting, this result in precise and accurate same taste of coffee every time.
In order to prevent the coffee from loss of taste, Starbucks has ensured the Vacuum packaging of coffee, Rapid distribution and Starbucks has
positioned itself as west-coast Italian-style dark roasting tradition.
Acquiring all the above capabilities for maintaining and differentiation of product quality as a corporate strategy also gives Starbucks a competitive advantage over
competitors.
Positioning of Starbucks as a Third place as its Competitive advantage:
The capability of Starbucks to position its cafe as thirdplace other than home and work, is also a great achievement where people can
come and rest forgetting their worries, a comfortable place with coffee aroma,
the ambiance of the place that gives a cool look. The ability to bring the
people together at their cafes as a third place and making them comfortable, is one of the most important competitive advantage of Starbucks over its competitors.
Starbucks Consumer Products as its Competitive advantage:
Developing a product
line of consumer products like Coffee pods (Verismo® & K-Cup®), Via®
instant coffee, bagged tea (TAZO® and Teavana®), bottled and canned drinks,
equipment and drinkware sold out through different channels like Direct sales,
Retail, bottled, is also a capability that gives Starbucks a competitive Edge
over competitors.
Starbucks Human Capital Management as its Competitive advantage :
The capability of Human Capital management that is a very
important aspect how Starbucks develop its brand image, customer experience and
perception. The relationship between the Baristas and the manger is a critical
step where Starbucks plays its role in addition to the benefits like health insurance, retirement,
stock options, free coffee and college education support to keep the employees
motivated to work with Starbucks. Developing a mix of benefits for the
resources that ensures smooth operations along with profitability is one of
capability that is always difficult to achieve, Starbucks has managed it well
which can be seen by low baristas turn overrate as compared to other coffee
houses. Starbucks has been cited as one of the best places to work, which is an
evidence of its capability to manage human capital well.
Barriers to imitation (or replication) exist that ensure that Starbucks’ competitive advantage :
Based on the VRI framework, Starbucks has many resources
that have barrier to imitation like, Customer Roasting of beans with
automated coffee bean Roasters having
software encoded recipes, so that the recipes are not easily available and the taste of Starbucks coffee cannot be reproduced, this capability is definitely
valuable and rare.Similarly the
human capital management along with
their internal and external relationships, via training and mix of benefit for resources resulting in more experienced and loyal resource, who can get an extra mile for
the Starbucks. This Human Capital management success is evident as Starbucks cites many times as the best place
to work, developing a culture where the Human capital is motivated, is a very Valuable and rare capability and
it results in very high gains, many large corporations struggle to achieve the
best mix of benefits, employee cultural norms and values.
Personalization , developing a third place for its customers
where they can hangout and feel comfortable is also an important business strategy, this capability is valuable but easy to imitate, Innovation in the right
direction that results in EVA(Economic value added) is a rare, valuable and difficult to imitate
capability which Starbucks has achieved quiet well.
It is actually about the mix of capabilities in the right proportion, that has resulted in Starbucks success, all the capabilities are important but from managing the Taste of the coffee to the line of products, ambiance of store and personalization , human capital management and customer relationship building are all in a mix of factors attributes to Starbucks competitive advantage and it will be sustained if the value addition and innovation keeps on going in both business models and on the other hand cost reduction.
It is actually about the mix of capabilities in the right proportion, that has resulted in Starbucks success, all the capabilities are important but from managing the Taste of the coffee to the line of products, ambiance of store and personalization , human capital management and customer relationship building are all in a mix of factors attributes to Starbucks competitive advantage and it will be sustained if the value addition and innovation keeps on going in both business models and on the other hand cost reduction.
References:
[14] Coursera Business Strategy Course by University of Illinois at Urbana-Champaign
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