Starbucks

I will end the strategy series with Starbucks.

Disclaimer: This analysis is based solely on the strategy discussion in Jack Welch’s Winning.

You enter a typical Starbucks and what do you see? Bunch of people sitting with their coffee cups reading, working on their laptops or talking (usually) softly, soothing jazz music playing in the background and baristas standing at the counter ready to take your order and prepare a fresh cup of coffee. One might argue why people pay the premium on each cup of coffee they buy at Starbucks. Apart from the great tasting coffee, the answer lies primarily in this atmosphere that Starbucks creates at its stores.

This links directly to the strategy of Starbucks: making the local Starbucks as the third place for the people in the community after their home and work. How is this atmosphere created? By providing friendly service, likable music and of course, great coffee.

In the recent years, Starbucks is facing growing competition from the like of McDonald’s, and the interesting thing to note is that McDonald’s is taking potshots at this very strategy of Starbucks in its advertisements. To counter the initial competition, Starbucks still maintained the same “third place” atmosphere and complemented it with serving simple breakfast and lunch options at its stores. This fit pretty well in its basic strategy. Next they started the $1 cup of coffee, which added an economical option to its premium-priced beverage lineup, but still maintained the atmosphere. It will be interesting to see how Starbucks will further reallocate resources to take on growing competition from the fast food chains.