 Cup of coffee emotional atmosphere

Competitive Edge  High quality coffee and products  Reachable locations  Community to share the coffee drinking experience

Starbucks Model  1. Great attention to detail in stores  Employees well trained and qualified  Wide range & types of coffee, drinks, food  2. Attract coffee and non-coffee consumers  3. Transcended traditional coffee houses into a pleasant experience  Employees are pleasant and consistent in service  Coffee into a social platform

 Starbucks has been able to attract the non-customers through their business model of focusing on people  Starbucks did not take away from its competitors or make coffee go away. It simply made it more popular!

Porter’s Five Forces  Michael Porter of Harvard Business School  A helpful, widely used framework for classifying and analyzing the factors that determine the intensity of competition and levels of competition in different industries  Profitability of an industry  3 sources of horizontal competition  Competition from substitutes, entrants, and rivals  2 sources of vertical competition  Power of suppliers and buyers

Threat of Substitutes  Price depends on availability of substitute products  Elastic demand  Travel agencies  Inelastic demand  Gas  Starbucks Coffee

Threat of Entry  Barrier to Entry  Capital requirements  Absolute cost advantages  Product differentiation  Retaliation

Industry Rivalry  Concentration  Product differentiation  Excess capacity and exit barriers

Bargaining Power of Buyers  Price sensitivity  Greater the importance, greater the sensitivity  Less differentiated, more willing to switch  Intense competition creates eagerness for price reductions  Relative bargaining power  Size and concentration  Buyer’s information  Integrate vertically

Bargaining Power of Suppliers  A firms ease to switch between different input suppliers and the bargaining power of each party  Supplier usually lack bargaining power due to size  Suppliers of complex, technically sophisticated components may have greater bargaining power

Starbucks Porter’s Five Forces Analysis  Threat of substitutes  Tea  Juice  Soft Drinks  Water  Energy Drinks  Smoothies  Threat of Entry  Low- the market is highly saturated and substantial amount of financial resources associated with buildings and properties are required in order to enter into the industry

Starbucks Porter’s Five Forces Analysis  Industry Rivalry  Costa Coffee  McDonalds  Caribou Coffee  Dunkin Donuts  Bargaining Power of Buyers  Large- there is no and minimal switching cost for customers, and there is an abundance of offers available for them

Starbucks Porter’s Five Forces Analysis  Bargaining Power of Suppliers  High- demand for coffee is high and coffee beans can only be produced in certain geographical areas

Starbucks – Resources  Tangible  Over 20,000 stores  Worldwide market  Drink variety  Customization  Drive-thru locations  High Income  $1.38 B in 2012  Intangible  Starbucks experience  Brand equity  Store locations  Near premium stores  Human Resources  Employees  Expertise  Skills  Knowledge  Organizational culture  – organizations values, traditions and social norms

Starbucks - Internal Capabilities  Stay the #1 coffee shop worldwide  Starbucks experience  20,000 locations  Brand equity  Continued expansion  Brand equity  High income  location  More convenient experience  Drive-thru windows  Organizational culture

External Capabilities  External capabilities  Acquisitions  Mergers  Strategic alliances  Coffee bean farms  100% ethically sourced by 2015  Apple  Kraft - Mondelez

Resource & Capability Analysis  Identify key resources/capabilities  Brand equity  Location  Drink variety  Human resources  Create/sustain competitive advantage  Starbucks experience  Premium coffee shop

Resource & Capability Analysis  Identify key resources/capabilities  Brand equity  Location  Drink variety  Human resources  Create/sustain competitive advantage  Starbucks experience  Premium coffee shop

Six Paths Framework 1: Look Across Alternative Industries 2: Look Across Strategic Groups Within Industries 3: Look Across the Chain of Buyers 4: Look Across Complementary Product and Service Offerings 5: Look Across Functional or Emotional Appeal to Buyers 6: Look Across Time

Six Paths Framework Path 1: Alternative Industries Substitutes Alternatives

Six Paths Framework Path 2: Strategic Groups within Industries Out competing by Price and Performance Break out of Tunnel Vision Trade up or Trade down

Six Paths Framework Path 3: Chain of Buyers Purchasers can differ from actual users Typically focus on one single buyer group What are the Chain of buyers for Starbucks?

Six Paths Framework Path 4: Complementary Product and Service Offerings Untapped Value Other services affect demand Before, During, After

Six Paths Framework Path 5: Functional or Emotional Appeal to Buyers Functional vs. Emotional Industries have trained customers in what to expect Starbucks created emotional atmosphere in which customers enjoy their coffee

Six Paths Framework Path 6: Time Trends affect business over time Protecting the environment Grounds for your Garden Market today to what it might deliver tomorrow Difficult

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