Case study: Starbucks Coffee

Essay by xiaocheeC-, July 2006

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Q1) The Porter's competitive strategies which is Starbucks using is differentiation strategy. Following a differentiation strategy, Starbucks seeks to offer unique products that are widely valued by customers. The speed with which Starbucks 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, Starbucks 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. 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 to 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 Starbucks product can meet their needs. To this extend, the quest for differentiation advantage takes Starbucks 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 that differentiation advantage is not amenable to systematic analysis. As Starbucks 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...