Starbuck's Augmented Porter Analysis Starbucks' Essay

Excerpt from Essay :

These two factors of aspirational value of the brand and customer experience are what also make this factor a very critical opne in the augmented analytical framework.

Market Growth

The growth of coffee retailing continues to be flat, only generating 5% growth on a compound annual basis (Joo, Min, Kwon, Kwon, 490). This is forcing coffee retailers to concentrate on highly differentiated approaches to selling. For Dunkin' Donuts their approach is to branch out into retail channels with their coffee being available in grocery stores. Other competitive strategies include creating satellite locations and smaller airport kiosks, a strategy Caribou Coffee has tried in the northwest U.S..

Market Turbulence

The rapid pace of disruptive innovation in coffee retailing is increasing, as Starbucks is now challenged by McDonald's entering the high end of the coffee retailing market with their McCafe brand of customized coffee beverages. There is also a shakeout of smaller chains that are struggling to stay profitable on coffee sales alone. Competitors are increasing the variety and uniqueness of items offered to differentiate relative to the customer experience Starbucks concentrates on. The turbulence of the market will continue as smaller competitors continue to focus on expanding into offering entrees, fast food companies offering higher-end coffee beverages, and retailing becoming a new area of competitive focus globally as well.

Profitability, Risk, Strategy

The profitability of the industry continues to be tight, with price wars at the local and regional chain level draining the market of profits (Joo, Min, Kwon, Kwon, 490). As the analysis shows, price wars can deplete a market of billions of earned revenue relatively quickly (Slater, Olson, 15). The risk to profitability is price erosion and competition. Starbucks briefly tried a cost reduction strategy yet failed to pursue it aggressively based on the backlash to their brand's reputation. Instead, the strategy is to focus on how to create the most valuable customer experience in the Starbucks location, and also provide a continual stream of new drinks and entrees as well.

Suppliers

Of all aspects of the Starbucks value chain, the suppliers have the most power. Their influence on the overall pricing of the industry is immediate and significant. Starbucks has made it known they will only buy from suppliers who are in compliance with the Fair Trade practices surrounding coffee. This has been a major strength for their brand and reputation, yet it has put major costs into their production process. Starbucks continues to command a premium price however due to the experience and reputation of the brand. As suppliers continue to look for ways to dominate the industry, Starbucks continues to hold onto a significant market lead overall.

References

Seong-Jong Joo, Hokey Min, Ik-Whan G. Kwon, and Heboong Kwon. "Comparative efficiencies of specialty coffee retailers from the perspectives of socially responsible global sourcing. " International Journal of Logistics Management 21.3 (2010): 490.

Stanley Slater and Eric Olson. "A fresh look at industry…

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