1.) The two underlying assumptions of the Resource-Based View (RBV) shall include: First is the assumption that a firm’s competitive advantage originates from the sources that are unique to it; and secondly, the brand value and customer loyalty can be used to create competitive advantages for the company (Sehgal, 2011, p.65).
In the case of Starbucks, these assumptions hold true based on the context of the global coffee industry. Starbucks possess unique resources that are based on three categories, namely: direct resources, indirect resources and capabilities (Sehgal, 2011, p.65). Under the direct resources are cash and assets, while the indirect resources will include brand value and customer loyalty. The capabilities of Starbucks is the root of its real competitive advantage among the gourmet coffee brands worldwide. Starbucks originated in Seattle, Washington in 1971 and started as a purveyor of dark roasted coffee beans and coffee merchandise (Seaford, Culp, & Brooks, 2012). The founders did not expect the extraordinary success of the company after the evolution of its brand for the past decades. Starbucks was able to transform itself into a beverage provider that provided an Italian experience to its consumers through its coffee houses that served espresso drinks, and elegant camaraderie (Seaford, 2012). As part of the company’s strategy, the brand positioning of Starbucks is directed towards creating the consumers’ “Third Place” where they spend their time apart from home and office. Its trademark “Frappuccino” drinks and variety of products such as pastries, salads, desserts and lunch items became popular among its consumers. Part of the company’s capabilities is to provide drive-thru service to its loyal consumers. The brand value of Starbucks has provided the company a competitive advantage from other coffee shops.
2.) Three of the five sources of cost advantages include people, materials or supplies, and systems or processes. In the case of Starbucks, some of its cost advantages are its employees, its coffee supplies/materials, and its systems/processes. Starbucks remains to be the leading coffee brand of today because it is able to provide superior customer service. The company continues to inspire its employees by motivating them to provide the best customer service. The executives of Starbucks developed superior employee training and hiring programs that are applicable to the restaurant industry (Hill & Jones, 2011). All of their employees are required to attend training classes on coffee making, but also the service oriented values of the company.
Another cost advantage of Starbucks is its coffee materials or supplies. The company developed a plan on how to select the finest coffee beans. It only buys and roasts the top-quality coffee beans. The coffee buyers for Starbucks look for the higher-quality Arabica coffee beans that are grown in various parts of the globe. The coffee buyers travel to Africa, Latin America, Arabia and the Asia-Pacific region to purchase only the premium coffee that they are looking for.
Another cost advantage of Starbucks includes its systems and processes. The evaluation process for buying the coffee beans deals with the roasting samples of coffee and taste-testing. This process is known as “cupping” where the aroma and aspects of taste as being measured. After the beans have been purchased, they are shipped to the company’s roasting facilities. Starbucks hires only the experts who are known to have the capability to release the entire flavor of beans and the signature Starbucks dark-roast flavor (Bussing-Burks, 2009, p.51). The company is willing to pay more than the actual price of the Arabica coffee beans to the farmers to motivate them to maintain the premium quality of the coffee beans.
3.) The four generic industry structures are the cost leadership strategy, differentiation strategy, focus strategy and integrated cost leadership-differentiation strategy. In the case of Starbucks, it uses the differentiation strategy as its industry structure by creating a product and service that has distinctive qualities valued by its loyal customers. Its signature coffee places the company in a long tradition of health and taste. The company encourages its consumers to view their drinks as unique extensions of their personalities, as a way to communicate their own individuality. The company allows their customers to make their own drinks to suit their level of comfort, self-indulgence and relaxation.
The company is able to recreate the social experiences and communal rituals of Italian cafes and British pubs which fostered the company language that was designed to advocate feelings of belongingness and connection. Starbucks made coffee-drinking a unique culture on its own. At the same time, the company has been fulfilling its Corporate Social Responsibility (CSR) since their customers are aware that they are not just drinking coffee, but supporting noble causes. This was shown in their advertisements inside their stores which state that every time the client purchases their coffee, they are also making a difference by helping to improve people’s lives, and encourage conservation where their coffee sources are being grown. The commitment of the company to improve the environment and the lives of the people who are dependent on the coffee industry are the exceptional branding skills and effective advertising of Starbucks (Ruzich, 2008).
4.) The 5 forces in Porter’s model are rivalry, buying power, threat of new entrants, threat of substitutes, and supplier power. In the case of Starbucks, in terms of rivalry, the company is able to secure the best sites for its coffee shops. The prime sites have been secured by Starbucks and only the secondary sites are available to its competitors. Once Starbucks has a site, there is nothing that the rivals can do to switch the site to their business. At the same time, Starbucks as a pool of talented service staff who are well-trained of the service-oriented goals of the company. The company also compensates them well compared to their competitors. The unique staff management and rewards systems contribute to the continued success of the company. Despite the high cost of its coffee in comparison to other brands, Starbucks was able to keep its loyal customers because of the high quality coffee that they serve and the unique experience they provide to the consumers.
The buying power of Starbucks is sustained when it started to work with the non-governmental organizations (NGOs) to achieve its mission of environmental preservation. Starbucks had the buying power to create economic incentives through premium prices of quality coffee to attract more farmers and small growers.
In terms of threat of new entrants and threat of substitutes, Starbucks continues to be the leading coffee shop in the world. Although the substitute products provide low prices, the loyal customers continue to go to Starbucks to get their caffeine fix. It is the quality of coffee and service that sets it apart from its existing and future competitors. In terms of supplier power, the company was able to source the best Arabica beans from various parts of the globe since it is willing to pay more than the actual price of the beans to the farmers and small growers. This serves as a motivation for them to maintain the premium quality of the coffee beans. Keeping a harmonious relationship with its coffee buyers, farmers and small growers will ensure the continued supply of coffee beans.
Bussing-Burks, M. (2009). Starbucks. California: ABC-CLIO.
Hill, C. and Jones, G. (2011). Essentials of Strategic Management 3rd, ed. Mason, OH: Cengage
Ruzich, C. M. (2008). For the Love of Joe: The Language of Starbucks. Journal of Popular Culture, 41(3), 428-442.
Seaford, B. C., Culp, R. C., & Brooks, B. W. (2012). Starbucks: Maintaining a Clear
Position. Journal of the International Academy for Case Studies, 18(4), 35-49.
Sehgal, V. (2011). Supply Chain as Strategic Asset: The Key to Reaching Business Goals. New
Jersey: John Wiley and Sons, Inc.