Synopses of Starbucks

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Synopses of Starbucks � PAGE �6�


Synopses of Starbucks

MMPBL/590 - Strategies for Competitive Advantage

University of Phoenix�

Synopses of Starbucks

The Threat of Substitutes

According to Strategy & Leadership (2010), the threat of substitutes refers to identifying the likelihood that customers to a particular industry will switch to purchasing an alternative product from outside this industry. "A substitute product can decimate an industry overnight or may have little to no long term impact" (¶ 2). The competition within the coffee industry can be affected by this threat and influence Starbucks profitability when the consumer chooses an available substitute over the company's. Substitutes can increase competition and decrease profits because each company offering the product or service may need to offer discounts or price cuts. It appears that Starbucks specialty coffee is itself a substitute product, threatening established brands such as Maxwell House and Folgers.

"People try to classify us as a restaurant company or a specialty coffee company, but that focus is just too narrow. It's important to recognize that what we have built is one of the most powerful consumer brands in North America," (Papiernik, 1996, p. 1). Coffee bars fill a lifestyle need and Starbucks has become known as a popular gathering place. Though it may be said there is no substitute for a good cup of coffee, Starbucks is facing a substitution threat in the form of alternative distribution outlets such as McDonalds and Dunkin Donuts whom have become skilled at brewing a premium cup of coffee (McKay, 2010). McDonald's has expanded into the gourmet-coffee market and is trying to directly compete with Starbucks (Gutierrez, 2008). There is also the threat of substitutes that compete with baristas, supermarkets because they offer additional forms of distribution channels which Starbucks might see as...