Fina 375 - Integrative Case 1.1 Starbucks

Amanda Fevurly

19 January 2016

FINA 375

Jiri Tresl

Integrative Case 1.1- Starbucks

        While coffee is a simple product, the “Starbucks Experience” that is mentioned several times throughout the case is exactly what creates value for their customers and makes their company successful. Their strategy includes creating a home away from home that reflects the personalities of their consumers and community. Consumers are willing to pay more for Starbucks because they have a greater perceived value through experience.

        Regarding Porter’s Five Forces, Starbucks confronts a variety of challenges that has presented difficulties specifically from 2007 to 2010. Starting with the competitive rivalry and competition, Starbucks faces many direct and indirect competitors. Facing competitors such as fast food companies like McDonalds, Donut shops like Krispy Kreme or Dunkin’ Donuts, fast-casual restaurant like Panera, and the thousands of local coffee shops pose as rivals to Starbucks. As one of its most important concerns, Starbucks faces fierce competition in the global market place. Next, the threat of new entrants in the coffee market exists at a high level but does not necessarily propose a significant effect on Starbucks because of economies of scale. While there are not necessarily entry barriers, Starbucks has created a brand that would be very costly and difficult to develop from scratch giving them a strong sustainable competitive advantage.

The third force, the threat of substitutes, contributes a glaring force on Starbucks. There is a low switching cost for consumers of coffee and a large number of substitutes available who often offer lower prices. This also affects the buyer’s power, the fourth force, because there are a large number of buyers in the industry who can easily switch to the large number of substitutes available.  However, there are plenty of brand loyal consumers who return to Starbucks no matter what. Lastly, and probably the least effective force, is the supplier power. While Starbucks does buy high quality coffee beans, Starbucks does diversify a large part of supply through more local providers. They successfully control much of the supply chain, which decreases their costs without sacrificing their quality.