LONT036 Global Finance

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LONT036 Global Finance

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LONT036 Global Finance

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Course Code: LONT036
University: Conventry University

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Country: United Kingdom

Question:

Starbucks Corporation is an American coffee house chain.  Founded in Seattle in 1971, it is one of the best known coffee house brands in the world and currently has over 28,000 locations in 76 countries.  
In recent years Starbucks has been the subject of adverse publicity due mainly to its failure to pay what is considered to be a fair amount of UK Corporation Tax.  This led to many people boycotting the company and buying coffee elsewhere.  However this does not appear to have had a significant effect on Starbucks’ financial results – in the financial year 2017 Starbucks earned approximately US$22.4 billion in revenue (an increase of approximately 5% on 2016) with Operating Profit of US$4.4 billion (2016 – US$4.2 billion).
As a newly-employed Business Research Consultant for another well-known coffee house, you have been asked to conduct some research into the strategy and business model of Starbucks.
Task:
You are asked to undertake a detailed investigation of Starbucks and produce a report which covers the following:
(1)  Identify and analyse Starbucks’ current business strategy using a strategic model of your choice.
(2)  Critically evaluate the extent to which Starbucks’ value chain has influenced its performance (financial and non-financial) over the last five years and suggest ways in which changes to its value chain may help to enhance its competitiveness in the future. 
(3)  Evaluate the importance of the product life cycle to Starbucks, using examples to illustrate your answer.

Answer:

Introduction: 
Starbuck is one of most popular coffee companies in all across the globe. Originally an American company Starbucks Corporation was founded in 1971 in Washington, United States of America. The company over the years have used different business strategies as per the requirements of the market place to achieve desired financial performance. The objective of this document is to evaluate the business strategy, use product life cycle to improve the quality of products and the value chain management of the company.  
1) The current business strategy analysis of Starbuck with appropriate theoretical framework
The business strategy of Starbucks is mainly used as diversity strategy but not based on the cost leadership strategy. The differentiation in strategy is made to become the leader and new standards are innovated. This is performed with the unique products as well as the services of the company. The importance was placed on the need of the customers and the company’s strategy was made around the perspective of customers. Whereas competitors of the company have lacked such motivated efforts on the part of their management to satisfy the needs and requirements of the customers. This is termed as the Starbucks strategy to achieve organizational objectives of improving financial performance and achieve sustainable growth in revenue. The customers with whom the values are shared provided with coffees of highest quality to create a large and loyal customer base in all across the globe (Stewart et al., 2018). The ever changing customer preference and demand have been given due importance by the company and its management. Necessary changes in the products, i.e. coffee and other food products of the company have been made on a regular basis to ensure that the customers are happy and satisfied.  
The price of special coffees offered by Starbucks within the coffee industry is not the primary concern of competition within the rivals as the product differentiation of the company has given the company extra leverage in pricing its products. The Starbucks entered into the market with an aggressive expansion with the creation of a product that is different from the stuff offered by others (Hintze et al., 2018). Another significant factor which has influenced the industry attractiveness is the demographic maquila of the consumer base. The preferences of the consumer shifted to specialty coffees from basic packaged coffees. The Starbuck serves the highest quality of coffee. For ensuring this trend, the brewing system of the Starbuck is continuously analysed and on a process of constant renovation. The company has enhanced its image to be more environmental friendly. The developing positive sentiment of the public has made every effort of becoming environmentally friendly (Tracy et al., 2017). For encouraging the customers, the company has used porcelain cups which is offered to the in-house drinkers where there is a discount offered to the customers on choosing porcelain cups. Again, another important example of the Starbuck is that it has emotional bonding with its customers. The customer feedback is encouraged by Starbuck for inducing the family like feeling.
When President Trump had made an announcement to ban the entering of the refugees in US, the company has announced a hiring of 10,000 refugees all over the world within the next five years to wash off the accuse of political brainwashing. This is the strategic way of attracting as well as retaining the employee engagement to get linked with the coffee chain.
The business strategy of the Starbuck is utilised in all the procedures as well as the stakeholders beginning from the suppliers as well as the farmers. Difference has been made in the path of source identification for example the coffee beans at the original locations. They do rely on any secondary source. They also have opted for improving the life quality of the farmers in the meantime. This helped them to get the good quality of the coffee beans. Again, the employee of the Starbuck is treated in a different way form the others. The employee is known as the partners (Katie & Knobf, 2015). The other most significant and variant point is the responsibility of the environment, global and the community as like the value that is shard which is mentioned by the CEO of the Starbuck.
2) The Value Chain Analysis:
The key aspects and the evaluation:
The value-chain analysis of the Starbucks is an analytical framework which helps in the identification of the business actions where the value of the business is crated. This also acts as a competitive advantage of the business.

The primary activity of the Starbuck:
Inbound logistics of the Starbuck:
In the year 2010, the inbound logistics as well as the supply chain of the Starbuck was exposed to a theatrical reformation after the return of Howard Schultz to the role of the Chief Executive Officer that is the CEO. The Starbuck’s reformation initiative about the inbound logistics has involved the simplification of the management of the supply chain as well as the formation of a unique global system of logistics (Hintze et al., 2018).
The unroasted coffee beans from the Arabica are transported towards US from Africa, Asia and Latin America. It has also transported the coffee beans to Europe through sea. The green coffee beans are purchased by the coffee chains from several regions that produces coffees worldwide and are roasted by the customs (Tracy & Doucet, 2015). The delivery is processed in six centres of regional distribution extending from 200,000 till 300,000 sq.ft in size. These coffees are roasted first and then are packaged. After this the coffee are transported to the middle distribution centres and are moved worldwide. In consort with coffees from regional distribution centres, the centres of central distribution also obtain transfers from vendors for a variety of products opening from coffee machines ending in napkins. The centres of Central distribution perform more than 70,000 transfers in a week to 25085 stores of the Starbucks positioned in 75 countries.
Recently, Starbucks is discovering the chances to produce its own coffee. Since the year 2013 Starbucks has its initial a private coffee firm of 240-hectar in PoasVolacno which is located Costa Rica. Such a change in the tracking of products can upsurge the efficiency of new product expansion creativities for the business. This ensures that the company will have a fortuitous of examining with evolving new categories of coffee. Strategic relations with the suppliers is a chief origin of value for inbound logistics of the Starbucks (Han et al., 2015). The company functions eight farmer provision centres employed with agronomists as well as the experts of sustainability who effort with the communities of coffee farming for the promotion of the greatest performs in coffee manufacture which is intended for refining both coffee quality as well as yields.
Starbuck Operations:
Over 75 countries the Starbuck operate its stores. The stores are comprised of two formats:
Company Operated Stores:
For any business, the company operated stores plays a vital role as the management is enabled for observing shifts in the tastes of the consumers as well as the preferences. The also collect information about the tendencies of the market as usual in a straight manner.
Licensed stores:
The licensed stores offer its customers more than that of the great coffee as well as the handcrafted beverages as per the taste of the customer.
In the operation of the Starbuck, the chief source of the value is comprised of the stores positioning in the locations of high-visibility as well as the locations of high-traffic. Furthermore, the company can diverge the size as well as the stores format to discover them in as well as nearby a variation of surroundings, comprising of the downtown as well as the suburban retail centres, university campuses, office buildings and in excellent rural and the locations which are off-highway (Hu et al., 2017).
The Starbuck experience is the place where the consumers are encouraged to spend quality time alone as well as in the company which seems to be an additional point, where a value is added by the company to its operations. The largest coffee retailer in the world value operations with the providence of free Wi-Fi internet access within its stores (Han et al., 2016).
Starbucks Outbound Logistics:
Customers are there to buying the products of Starbucks from the stores which are licensed and are company-operated as well. Starbucks also applies the channels of online sales for certain variety of products for example packaged coffee, drinkware, tea as well as the equipment which are drink-related (Sunaga et al., 2016). Additionally, a very restricted range of products from Starbucks for example 3-in-1 coffees that are available in sachets can be bought from a set of foremost supermarket chains like the Tesco, Wal-Mart and Sainsbury’s.
Away from each other from the chains of supermarket that delivers restricted range of the products of the company, the absenteeism of mediators like the resellers as well as the wholesalers those are the chief source of Starbucks outbound logistics value. The company bakes its products in-house. The products are sold on its individual company-operated as well as licensed stores. Therefore, the margin is kept which otherwise would have moved to wholesalers as well as the resellers (Noonan et al., 2017).
The sales and the marketing of Starbucks:
Customarily, the company Starbucks was not intense for marketing investment. For years, cost-effective word-of mouth are the forms of marketing which is relied on top most excellence of products as well as high standards of customer services has become the foremost channel for endorsing the brand. Yet, the senior management is motivated to revaluate the marketing strategy because of the rapid increasing level of competition. The marketing budget of Starbucks has been steadily growing during the last five years (Maule & Maule, 2016).
Maximum level of incorporation of social media as well as the technology within the sales processes signifies solely about the rigid sources of Starbucks Coffee value. The company has effectively applied mobile order as well as pay method for its products. These days, about 8% of all the orders which are placed are done with the help of mobile phones (Orquin & Kurzban, 2016).
Starbucks Service:
Higher customer services appear as the fundamental basis of Starbuck competitive benefit and this specific primary action enhances a massive value as the brand image. The baristas of Starbucks are always graciously polite. They greet their steady customers with their names. Sporadically, regular customer may achieve their regular coffee that is free of charge at the pleasure of baristas that is counted as a good gesture. This act upsurges the discernment of the quality of the service to a significant extent (English & Carstensen, 2015).
Additionally, amongst ever-intensifying confused nature about the lifestyle as well as the cumulative rapidity of the establishment of customer services, the service at the Starbucks is never hurried.
Identification of the aspects of the value chain that could possibly be improved to enhance competitiveness in the future and suggestions about the improvements which is to be implemented.
The company Starbuck has convinced with the business diversification. Apart from the coffee it started concentrating on the consumer products good segment as well as food. It also invented some novel and innovative stuffs like the substituting diary with almond milk, soy milk etc. the store traffic of the Starbuck has considerably improved in the coming months despite of the slowing of the industry of restaurant. All this subsidized towards dispersing some of the adverse sentiment that had moulded round the company (Hafenbrädl et al., 2016).
Product Innovation:
The competitive advantage of the Starbuck has been maintained always with the leader in the innovation of the products. Recently the company has relaunched a product named as Pumpkin spice latte. This launch has followed over 150,000 incremental appointments within the first two days. This has resulted the share of Starbuck in the national QSR market that is roughly increased through 30 basis points to 6.96%.
Capitalizing on the changing preferences of the consumer:
Starbucks has preserved its acceptance through time with its flexible nature. It can adapt the changing tastes of the consumer and the preferences. Its suppleness is also a matter that is the reason behind the succession of the company in the tough tea-drinking market of China. Therefore, the innovation of almond milk in its provisions, along with the other non-dairy substitutes for instance the coconut milk as well as the soy milk which has come as no astonishment (Sutterer et al., 2016). The bend in the direction of the products that are dairy-free can be understood with some research.
Focus on Food:
The sale of food now represents 20% of the revenue of the Starbucks and have been reliably causal nearly a percentage fact to comps. Additionally, the company that each day fragment is far beneath its level of saturation regarding the food offerings founds it. To abundantly influence the gaining admiration of its complementary coffee as well as the food menu, the company is now practising for creating partnerships and production of food that is one of its chief driver for the future growth. Again, Starbucks has broadcasted its entrance into the business of brunch.
No franchisee:
Though most restaurants are intent on whirling their model in the direction of one with 100% franchisees, it is refused by the company Starbucks to franchise its stores. As per the Starbucks, a franchise model is meant to permit the franchisor to farm out risk on its personal capital that can lead to considerable higher limitations than a restaurant that is company operated. Again, through improved store development speed, the company has enabled the model to stay profitable as well as to develop (Triebel et al., 2016). Regardless of the benefits, the strategy is opposed by the Starbucks as it trusts that the value of the company as well as the culture are the things which continuously drives the company in the forward direction, in advance of its peers.
3) The importance of the product life cycle of Starbucks:
The coffee products of the Starbucks are in the matured segment of product life cycle. In this segment, the aim of the management is to preserve the sales as well as the revenues and endure with the minimization of the cost. There has been a minimization in the cost with the adoption of recyclable cups which are returned by the customers for a definite payback. It is understood by the customers about the products which are offered by Starbucks. This is observed that the customers are placing order for diverse blends of the ingredients of coffee because the customers are better to understand (Han et al., 2016). Thus, it can be settled that the customers have an improved understanding about the products. This assistance the management to improve customer consummation because the requirement of the customers is fulfilled by the management.
At this segment of the life cycle of the product, there is an additional comprehensive knowledge. The rival companies retain monitoring on the strategies of each other, thus, at this segment of a product, the passages of further companies are known which appears not to be favourable for Starbucks as it upsurges competition with rival firms.
During the innovation of any new product the product life cycle plays a vital role. At the time of the introduction in the market, there resides numerous things which is to be performed but the most beginning and foremost one is letting everyone to know about the product of the company. Informative promotion is required to be offered by the Starbuck to make the customer understand about the product and its uses (Fumagalli et al., 2015). At this period, money is required to be invested by the Starbucks on the location, the product and the promotion. At this point of time the sales of the company is lowered as the customers have less knowledge about the product. At the time of the market growth the company Starbucks will begin to get revenues. As the company notices an increment in the sales, a competition is visualised by them on the similar products. The rival companies will start to innovate similar kinds of drinks and will try to introduce the products better than that of the Starbucks with less price.
The competition will rise highly as well as the sale reduces. At this point of time, for attracting the customers, persuasive promotions are to be performed for buying the Starbucks coffees. They also arrange sessions to show the reason behind their coffees quality is higher than that of the competitors. There is an advantage of the products of Starbuck rather than that of the competitors because of its loyal customers (Jollant et al., 2016).
Reference
Burgio, F., Delazer, M., Meneghello, F., Pertl, M. T., Semenza, C., & Zamarian, L. (2018). Cognitive training improves ratio processing and decision making in patients with mild cognitive impairment. Journal of Alzheimer’s Disease, (Preprint), 1-14.
English, T., & Carstensen, L. L. (2015). Does positivity operate when the stakes are high? Health status and decision making among older adults. Psychology and aging, 30(2), 348.
Fumagalli, M., Marceglia, S., Cogiamanian, F., Ardolino, G., Picascia, M., Barbieri, S., … & Priori, A. (2015). Ethical safety of deep brain stimulation: A study on moral decision-making in Parkinson’s disease. Parkinsonism & related disorders, 21(7), 709-716.
Hafenbrädl, S., Waeger, D., Marewski, J. N., & Gigerenzer, G. (2016). Applied decision making with fast-and-frugal heuristics. Journal of Applied Research in Memory and Cognition, 5(2), 215-231.
Han, S. D., Boyle, P. A., Arfanakis, K., Fleischman, D., Yu, L., James, B. D., & Bennett, D. A. (2016). Financial literacy is associated with white matter integrity in old age. NeuroImage, 130, 223-229.
Han, S. D., Boyle, P. A., James, B. D., Yu, L., & Bennett, D. A. (2015). Mild cognitive impairment is associated with poorer decision?making in community?based older persons. Journal of the American Geriatrics Society, 63(4), 676-683.
Han, S. D., Boyle, P. A., James, B. D., Yu, L., Barnes, L. L., & Bennett, D. A. (2016). Discrepancies between cognition and decision making in older adults. Aging clinical and experimental research, 28(1), 99-108.
Hintze, J. M., Wells, C. S., Marcotte, A. M., & Solomon, B. G. (2018). Decision-making accuracy of CBM progress-monitoring data. Journal of Psychoeducational Assessment, 36(1), 74-81.
Hu, X., Uhle, F., Fliessbach, K., Wagner, M., Han, Y., Weber, B., & Jessen, F. (2017). Reduced future-oriented decision making in individuals with subjective cognitive decline: A functional MRI study. Alzheimer’s & Dementia: Diagnosis, Assessment & Disease Monitoring, 6, 222-231.
Jollant, F., Richard-Devantoy, S., Ding, Y., Turecki, G., Bechara, A., & Near, J. (2016). Prefrontal inositol levels and implicit decision-making in healthy individuals and depressed patients. European Neuropsychopharmacology, 26(8), 1255-1263.
Katie, S. L., & Knobf, M. T. (2015). Primary Breast Cancer Decision-making Among Chinese American Women: Satisfaction, Regret. Nursing research, 64(5), 391-401.
Maule, A. J., & Maule, S. (2016). Aiding lay decision making using a cognitive competencies approach. Frontiers in psychology, 6, 1884.
Noonan, M. P., Chau, B., Rushworth, M. F., & Fellows, L. K. (2017). Contrasting effects of medial and lateral orbitofrontal cortex lesions on credit assignment and decision making in humans. Journal of Neuroscience, 0692-17.
Orquin, J. L., & Kurzban, R. (2016). A meta-analysis of blood glucose effects on human decision making. Psychological Bulletin, 142(5), 546.
Stewart, C. C., Yu, L., Wilson, R. S., Bennett, D. A., & Boyle, P. A. (2018). Correlates of healthcare and financial decision making among older adults without dementia. Health Psychology.
Sunaga, T., Park, J., & Spence, C. (2016). Effects of lightness?location congruency on consumers’ purchase decision?making. Psychology & Marketing, 33(11), 934-950.
Sutterer, M. J., Bruss, J., Boes, A. D., Voss, M. W., Bechara, A., & Tranel, D. (2016). Canceled connections: Lesion-derived network mapping helps explain differences in performance on a complex decision-making task. Cortex, 78, 31-43.
Tracy, J. I., & Doucet, G. E. (2015). Resting-state functional connectivity in epilepsy: growing relevance for clinical decision making. Current opinion in neurology, 28(2), 158-165.
Tracy, V. L., Basso, M. R., Marson, D. C., Combs, D. R., & Whiteside, D. M. (2017). Capacity for financial decision making in multiple sclerosis. Journal of clinical and experimental neuropsychology, 39(1), 46-57.
Triebel, K. L., Novack, T. A., Kennedy, R., Martin, R. C., Dreer, L. E., Raman, R., & Marson, D. C. (2016). NEUROCOGNITIVE MODELS OF MEDICAL DECISION MAKING CAPACITY IN TRAUMATIC BRAIN INJURY ACROSS INJURY SEVERITY. The Journal of head trauma rehabilitation, 31(3), E49.

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