Case study: Starbucks Coffee

The Porter’s competitive strategies which is Cutbacks using is differentiation strategy. Following a differentiation strategy, Cutbacks seeks to offer unique products that are widely valued by customers. The speed with which Cutbacks had managed its ascent was almost as remarkable as the changes it had formed in traditional conceptions of brand marketing. At a time of rising perceptions of correspondence across most product and service categories throughout the developed world, Cutbacks had managed to take one of the world’s oldest commodities and turn it Into a differentiated, lasting, value-laden brand.

The attraction of differentiation over low cost as a basis for competitive advantage Is Its potential for sustainability. It Is less vulnerable to being overturned by changes In the external environment, and it is more difficult to replicate.

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Sources of differentiation might be exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image.

The key to this competitive strategy is that whatever product or service attribute is chosen for differentiating must set the firm apart from Its competitors and be significant enough o Justify a price premium that exceeds the cost of differentiating. Differentiation strategies are not about pursuing uniqueness for the sake of being different. It is about understanding customers and how Cutbacks product can meet their needs. To this extend, the quest for differentiation advantage takes Cutbacks to the heart of business strategy.

Because differentiation is about uniqueness, establishing differentiation advantage requires creativity – it cannot be achieved simply through applying standardized frameworks and techniques.

This Is not to say hat differentiation advantage Is not amenable to systematic analysis. As Cutbacks observed, there are two requirements for creating profitable differentiation. On the supply side, the firm must be aware of the resources and capabilities through which it can create uniqueness. On the demand side, the key is insight into customers and their needs and preferences.

These two sides form the major components of Cutbacks analysis of differentiation.

Q)Mr.. Schultz is using cross-cultural leadership to implement strategy at Cutbacks. He is expected by his subordinates to provide a powerful and proactive vision to dude the company into the future, strong motivational skills to stimulate all employees to fulfill the vision, and excellent planning skills to assist in implementing the vision. Mr.

. Schultz had come away with an appreciation of the role the baristas, or coffee brewers, played In creating a comfortable, stable, and entertaining environment for the company’s customers.

That appreciation Inspired him to develop a company culture nurtured through promotions, compensation, and feedback mechanisms – that emphasized the importance of keeping employees motivated and content. By regarding employees as communicators of its brand, Cutbacks was clearly taking a path toward brand management than those normally followed by marketers. O u stardust company cutlets enough to promote sun Deletes M Schultz had to assemble a dynamic leadership team.

Cutbacks has buttressed the tangible incentives with an environment that encourages empowerment, communication, and collaboration.

One way Cutbacks empowers its partners is by decentralized and rationalizing a significant amount of decision making. Many key decisions are made at the regional level, but individuals within each region work loosely with the corporate teams on new store development, to help identify and select targeted areas to develop in each geographic area. These individuals also work with the operations team to finalize schematic plans, to ensure that stores are designed in a way that has relevance to the community. Keeping the customer’s desires and expectations firmly in mind is a tactic characteristic of successful Cutbacks.

Making a connection with customers at the store level is a key component of Starboard’s strategy, and particular emphasis is put on the relationship the customer has with the barista. Each barista receives 24 hours of training in coffee making, customer service and basic retail skills. Cutbacks also enhances the customer relationship by soliciting feedback about patrons’ experiences with Cutbacks. The customer’s relationship with Cutbacks is taken into account when the company considers new product offerings to expand the brand.

For Cutbacks activities, feedback is the only viable type of control available.

Feedback controls provides managers with meaningful information on how effective their planning efforts were. Feedback that indicates little variance between standard and actual performance is evidence that the planning was generally on target. If the deviation is significant, a manager can use that information when formulating new plans to make them more effective. Although Cutbacks is best known for its retail stores, the company has a growing wholesale grocery business selling.

And Cutbacks is leveraging its brand recognition by partnerships with Pepsico, who sells a new bottled coffee drink.

Cutbacks has chosen to enter into licensing agreements rather than franchise its stores – another form of alliance – in order to retain more control. Franchising and licensing agreements are similar in that an outside entity is selling the brand. However, licensing provides Cutbacks with more control of the brand because the licensee does not own the store, as a franchisee would.

Cutbacks stood out for its employee-friendly policies and supportive work culture. The company was especially noted for the extension of its benefits program to part- time workers from colleges and community groups – something that not many other companies offered. As a result, Cutbacks employees were among the most reductive in the industry and the company had a relatively low employee turnover.

Mr.. Schultz hired many managers have years of experience from such companies as Burger King, Taco Bell, Wend’s, and Block-buster.

He hired great people, and got out of their way, but he always willing to make the tough decisions. Q)Len trying to expand stardust’s Internationally, Mr..

Consult may race serious challenges arising from the openness associated with globalization and from significant cultural differences. One of the globalization challenges is the increased threat of terrorism by a truly global terrorist network. Globalization is meant to open up trade and break down the geographical barriers separating countries. Yet, opening up means Just that – being open to the bad as well as the good.

Another challenge from openness is the economic interdependence of trading countries.

If one country’s economy falters, it potentially could have a domino effect on other countries with which it does business. But it’s not simply the challenges from openness that Mr.. Schultz must be prepared to face. The far more serious challenges come from the intense underlying and fundamental cultural differences – preferences that encompass traditions, history, religious beliefs, and deep-seated values.

Managing in such an environment will be extremely complicated! Mr..

Schultz have to concern about the quickening speed of communication and pace of technology transfer lead to more rapid contamination of goods and services; in such environment; the differentiation of a brand through customer experiences becomes ever more important – as do the relationships, internal and external, that under gird those experiences. Can businesses grow, yet still maintain the quality of those experiences? Unlike many brands, it truly was built on the one-to-one relationships between its customers and employees – one cup of coffee, one customer, and one store at a time.


Schultz look to Starboard’s unique culture and relationships with its customers, employees, suppliers, and alliance partners as the driving force that will sustain the company as its grows. Cutbacks’ main challenge was whether it would be able to continue to attract and retain the right kind of employees in the right numbers, to man its rapid expansion program. In the light of its ambitious expansion program, Cutbacks’ generous unman resource policies made sound strategic sense, as they kept the turnover low and provided a ready pool of experienced employees to support expansion.

However, three possible problems Mr..

Schultz had to be considered – would the company be able to support its staff with the same level of benefits in the future, given the large increase in the number of employees; would the company be able to retain employees if it made any move to lower its human resource costs by cutting down on benefits; and would Cutbacks be able to maintain its small company culture, an important element in its past growth. Besides that, Mr..

Schultz also had to be considered other problems such as can technology be used as a tool to make the customer service experience better while not Jeopardizing the customer’s relationship with the barista; how should the company maintain brand consistency in the global marketplace without becoming institutionalized; and Starboard’s growth also has necessitated the need for more suppliers on a national and regional scale, and the number of its association partnerships continue to increase, can they be managed toward continuing excellence, Walt costs remaining competitive