Starbucks after schultz how to sustain a competitive advantage

This week’s discussion delivered fascinating information on competitive advantage development. This chapter started with the incredible story of Starbucks, in its journey to become the largest coffee chain in the world. Starbucks started in Seattle with three partners who started a company named Pequod. After mild growth over 17 years, Howard Schultz decided to acquire the company from his partners. In the following 20-plus years, he oversaw the expansion of the company to over 23,000 worldwide stores and revenues over 19 billion dollars in 2015 (Froeb, 2018). So how was this done?

This chapter focuses on the different strategies that can be undertaken to build profitable competitive advantages. Warren Buffet mentions his strategy in looking for good investments in companies, what he looks at is a “sustainable competitive advantage”. According to Starbucks past CEO, Howard Schultz, “Starbucks is the quintessential experience brand and the experience comes to life with people” (Froeb, 2018). This idea might seem vague, but behind the scenes, Starbucks employees were trained very thoroughly on delivering that wonderful experience along with the drinks which would give the consumer the perceived value of an expensive cup of coffee as affordable.

Value creation and value capture are key to fulfilling a competitive advantage. Successful companies will manage to capture the consumer value they create by increasing their prices while reducing their costs. Successful companies like Starbucks manage to do both (Froeb, 2018).

In simple terms, the three basic strategies to identify in building and sustaining competitive advantage over time are cost reduction, product differentiation, and reduction in competitive intensity.

Q: What strategy is your company following (try to classify it into one of the three strategies in the text)? How is your strategy working—how long will it allow you to maintain a competitive advantage?

My company offers a product that is unique in its way while providing affordable prices. The product itself is a fragrance, that was created with the inspiration of cologne. Cologne was originally very light, and short-lasting. Our founders decided to create something similar to Colognes while giving it a long-lasting power. There are other complementary benefits of our product, such as gifting benefits, personalization of fragrances, and competitive prices.

The main competitive strategy we undertake is product differentiation, as I mentioned above our products are innovative. This type of product differentiation and competitive advantage is good in the short run, but in the long run, many competitors will follow the trends with our product. The strategy is working well, but I believe that at our current stage it is important to add more components to our prior competitive advantage by adding potentially more differentiation and cost reduction to improve customer experience uniquely and keep good margins.

2) After learning about market strategies and equilibrium in chapter 9, this week we will study chapter 10 which discusses strategy and concepts about how to keep the profits steady and ways to prevent them from wearing down. The chapter focuses on concepts like sustainable competitive advantage (SCA), sources of economic profit, the five forces, platform strategy and resource-based view. The means of achieving profits are very simple – to increase profit we have to figure out a way to increase price and reduce the operating cost. The chapter also discusses industrial organization (IO) perspective which states that the profitability of any organization depends on the structure of the market in which the organization type belongs. To analyze the favorable market sector, we need to look out for factors like low supplier power, low buyer power, high entry barrier, low threat of substitutes and low rivalry. (L, 2018). If organizations are to follow resource-based view, then they have to focus on making their resources rare, valuable and difficult to procure. By doing this, the companies are able to gain competitive edge over others in the market.

The organizations who are looking to keep the profits at highest level, need to have strategies in place to stop the erosion. For this, the company needs to be aware of every move the competition is making and introduce some kind of promotional offers to keep the customers attracted. They can either deliver the same product in less price or provide a customer service that is no other company providing in the market. Another way is to build your way towards sustainable development slowly over a period of time so that to make a stronghold over the market which will be extremely difficult to perturb for the competitors. Examples of such organizations are Google, Starbucks and Microsoft. If an organization operates on the lines of a resource which is valuable, rare and not easily accessible to other companies then it will act as an advantage over its rivals and competitors. But that doesn’t mean that this will help company in the long term as this is not permanent. It is only a temporary competitive advantage. They need to make constant improvements to build a sustainable model.

Question –

My organization follows product differentiation strategy. We do not stick to just one product category even if it seems like a beneficial and sustainable model. The reason is that our competitors produce or give service to same category of products. Some of the products remain a public favorite for a long time and the company can also sustain on them for profit margins. But that being said, the electronics market is very volatile where the technologies change very often and so does the public interest. That is why we keep seeking different product portfolio while keeping the regular products manufacturing ongoing. This way we are able to keep the customers attracted as they are able to see that the company is catching up with latest tech and making advancements.