Assignment: Interactive Assignment Chapter 1 What Is Strategy and Why Is It Important? A creative, distinctive strategy that sets a company apart from rivals and provides a competitive advantage is a company’s most reliable ticket to above-average profits. Concepts & Connections 1.2 in your text discusses how Starbucks’ strategy led to its becoming the premier roaster and retailer of specialty coffees in the world. A company’s strategy is management’s game plan to grow the business, attract and please customers, compete successfully, conduct operations, and achieve targeted levels of performance. The central thrust of a company’s strategy is undertaking moves to build and strengthen the company’s long-term competitive position and financial performance. Ideally, this results in a competitive advantage over rivals that then becomes the company’s ticket to above-average profitability. A company’s strategy typically evolves over time, arising from a blend of (1) proactive and deliberate actions on the part of company managers and (2) adaptive emergent responses to unanticipated developments and fresh market conditions. Closely related to the concept of strategy is the concept of a company’s business model. A company’s business model is management’s blueprint for delivering a valuable product or service to customers in a manner that will generate revenues sufficient to cover costs and yield an attractive profit. The two elements of a company’s business model are its (1) customer value proposition and (2) profit formula. A winning strategy fits the circumstances of a company’s external and internal situations, builds competitive advantage, and boosts company performance. The following case and Chapter 1 will help you understand why every company needs a sound strategy to compete successfully, manage the conduct of its business, and strengthen its prospects for long-term success. In this exercise, please read the mini-case and answer the questions that follow. Since its founding in 1985 as a modest nine-store operation in Seattle, Washington, Starbucks had become the premier roaster and retailer of specialty coffees in the world, with over 22,000 store locations in more than 65 countries as of April 2015 and annual sales that were expected to exceed $19 billion in fiscal 2015. The key elements of Starbucks’ strategy in specialty coffees included: • Train “baristas” to serve a wide variety of specialty coffee drinks that allow customers to satisfy their individual preferences in a customized way. Starbucks essentially brought specialty coffees, such as cappuccinos, lattes, and macchiatos, to the mass market in the Untied States, encouraging customers to personalize their coffee drinking habits. • Emphasis on store ambience and elevating the customer experience at Starbucks stores. Starbucks management viewed each store as a billboard for the company and as a contributor to building the company’s brand and image. Each detail was scrutinized to enhance the mood and ambience of the store, to make sure everything signaled “best-of-class” and reflected the personality of the community and the neighborhood. The thesis was “everything mattered.” The company went to great lengths to make sure the store fixtures, the merchandise displays, the colors, the artwork, the banners, the music, and the aromas all blended to create a consistent, inviting, stimulating environment that evoked the romance of coffee, that signaled the company’s passion for coffee, and that rewarded customers with ceremony, stories, and surprise. • Purchase and roast only top-quality coffee beans. The company purchased only the highest quality arabica beans and carefully roasted coffee to exacting standards of quality and flavor. Starbucks did not use chemicals or artificial flavors when preparing its roasted coffees. • Commitment to corporate responsibility. Starbucks was protective of the environment and contributed positively to the communities where Starbucks stores were located. In addition, Starbucks promoted fair trade practices and paid above-market prices for coffee beans to provide its growers/suppliers with sufficient funding to sustain their operations and provide for their families. • Continue the drive to make Starbucks a global brand. Starbucks had increased its store openings in Latin America, Europe, the Middle East, Africa, and Asia to expand its reach to more than 60 countries in 2013. Most of the company’s international locations were operated by partners/licensees that had strong retail and restaurant experience and values that were compatible with Starbucks’ corporate culture. • Expansion of the number of Starbucks stores domestically and internationally. Starbucks operated stores in high-traffic, high-visibility locations in the United States and abroad. The company’s ability to vary store size and format made it possible to locate stores in settings such as downtown and suburban shopping areas, office buildings, and university campuses. Starbucks added 317 new company-owned locations in the United States and another 253 company-owned stores internationally in fiscal 2014. Starbucks also added 101 licensed store locations in the United States and 648 licensed stores internationally in 2014. The company planned to open 1,650 new stores globally in fiscal 2015, with 1,000 new units being opened in international markets.. • Broaden and periodically refresh in-store product offerings. Non-coffee products by Starbucks included teas, fresh pastries and other food items, candy, juice drinks, music CDs, and coffee mugs and coffee accessories. • Fully exploit the growing power of the Starbucks name and brand image with out-of-store sales. The Starbucks Consumer Packaged Goods division included domestic and international sales of Frappuccino, coffee ice creams, and Starbucks coffees. Sources: Company documents, 10-Ks, and information posted on Starbucks’ website. 1. Which one of the five generic competitive strategies discussed in Chapter 1 most closely approximates the competitive approach that Starbucks is employing? focused low-cost best-cost provider broad differentiation low-cost provider focused differentiation Starbucks’ strategies seek to differentiate its products and customer experience from rivals in a way that appeals to a broad spectrum of buyers (18,800 stores in 60 countries). Starbucks does not compete on price; it would not be difficult for consumers to find lower-priced coffee elsewhere. 2. Starbucks’ strategy of corporate responsibility is illustrated by opening stores in Latin America and Africa. emphasis on “everything matters” in designing store ambience. rewarding customers with “ceremony, stories, and surprise” as part of the store experience. purchasing and roasting only high-quality coffee beans. commitment to the environment and use of fair trade practices in purchasing coffee beans. Starbucks’ commitment to the environment and use of fair trade practices in purchasing coffee beans exhibits corporate social responsibility—a company’s duty to operate in an honorable manner, being a good steward of the environment, and actively working to improve the quality of life in society at large. This concept is explored in detail in Chapter 9. 3. Starbucks’ strategy has proven successful, largely due to keeping prices competitive with rivals. being an early mover in essentially creating a distinctive new market segment and using a differentiation strategy to build demand for its brand. competing head-on in the existing coffee beverage market. limiting store growth to maintain the “exclusivity” of the brand image. focusing only on offering high-quality coffee in stores, rather than expanding to other types of products, to avoid diluting the brand. Starbucks’ strategy was based on being a leader, not a follower, in the coffee-beverage market. It did not seek to imitate or copy other coffee stores; instead, it built a strong brand by offering something new, different, and unique, allowing the company to charge premium prices rather than competing on cost.
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