Introduction to Strategic Models
In order to work in a business environment, manager of firm will have to formulate the number of strategies. This is because, by making the selection of an appropriate tactic only, firms can mark significant presence in the markets where it is operating its business operations (Shavarini and et.al., 2013). Here, with an aim to carry out the present report, Starbucks is selected. The report will provide detailed explanation regarding number of strategic models which manager of cited firm can use in order to make the strategy of choices in an effectual way. Finally, at the end of report, conclusion will be drawn which will depict the overall findings related to the study.
Starbucks is a public limited American coffee company and chain which performs its business operations in number of nations. Organization has its recognized brand name in food and beverage industry. In addition to this, firm was found in the year 1971 by three persons who are named as Gordon Bowker, Zev Siegl and Jerry Baldwin. Starbucks has different subsidiary organizations also (Starbucks, 2016). Furthermore, it has a team of around 191000 employees who put their all sort of efforts with an aim to attain the goals and objectives of enterprise. Company’s core product is coffee but along with it, organization also offers varied other goods such as smoothies, sandwiches, tea and backed goods etc. (Rossi, 2010).
It is not an easier task for any firm with respect to make the strategic choices regarding the tactic which needs to be used by them for the purpose to attain the strategic goals of firm in an effectual manner. Hence, in order to perform the same, manager of corporation will have to take help from different strategic models or theories. In accordance with the given context, there are two different strategic models assessed which manager of Starbucks can use with an aim to make the selection of an effective tactical strategy for its enterprise (Ghezzi, 2013). It consists of Ansoff matrix and Bowman's strategy clock. Detailed explanation of these models are depicted in below
It is being regarded as the most famous strategic planning model which assists manager of firm in the process of making the selection of one specific tactic which will help corporation in achieving significant growth in the market. The model states about different options for Starbucks such as diversification, market development, product development and market penetration (Boons and Lüdeke-Freund, 2013). These all given options play a significant role in the task of improving the sales and profits of company in an effectual way. This respective model is effective because by taking help from given model, manager of Starbucks can make the selection of such tactic which perfectly suits to its current condition.
For example, if Starbucks manager has identified that it has new product and with the use of given product, it wants to enter into the existing market (Garriga and Melé, 2013). Then, in the given circumstance, manager of cited corporation can make the use of market penetration strategy. Here with the help of respective method, firm can perform necessary improvements in its own sales and profits. For the cited firm, Ansoff model is selected because with the help of it, management can make the proper selection of tactic as per the situation which is being facing by it.
Bowman's Strategy Clock
It is another strategic model which manager of Starbucks can use for making the strategic choices. This respective model is applied because it has more options than Ansoff model. In addition to this, the criteria followed by respective model for making the selection of one particular tactic is totally different from the Ansoff model. Here, due to the availability of range of strategic options the respective model is chosen for the cited company (Miltenburg, 2005). Overall, it can be said that both model have appropriateness in their respective places.
Application Of Strategic Models/Choices
Strategic models which are mentioned above are applied upon the Starbucks in the following manner. First model which can be used by cited firm is Ansoff matrix. This model was developed in the year 1957 and it was named after Russian American Igor Ansoff (Porter, 2008). Here, with the use of Ansoff matrix, it is recommended to the manager of cited firm that it should adopt the diversification related strategic tactic. Diversification is the practice in which manager of firm develops new product and then gets entry into a completely new market (Diversification, 2016).
Diversification is of two types such as related and unrelated. In accordance with the given context, it is suggested to the firm that Starbucks should adopt related diversification tactic as a strategic choice. In related diversification, firm tends to expand its business in the area which is related with its current operation. For example, at present, Starbucks offers different food and beverage products.
Thus, in this context, it is suggested to the corporation that it should diversify its business in the bakery sector wherein it can deliverer goods such as bread, cake, pastry and doughnuts (Boehm and Turner, 2005). By selling all the mentioned products, manager of cited firm can expand the base of its existing buyers. In addition to this, through this way, Starbucks can fulfill the needs and demands of those buyers who like to eat bakery items with every sip of coffee. Furthermore, through this way only, firm can perform necessary improvement in its sales and profits in an effectual way.
In this regard, it can be said that there are some challenges associated with the related diversification tactic which needs to be considered by the cited firm (Flor and Oltra, 2010). One of the biggest challenges which is associated with the given tactic is related to generate confusion in the mind of buyers. In this context, it has been seen that consumers often get confused in between the main and diversified product of the organization. Impact of such confusion is incurred by the main product of enterprise which is of coffee in the form of decreasing sales. Thus, while making the decision with regard to adopt the respective tactic, manager of firm should think twice (Galpin and Whittington, 2012).
In addition to this, another challenge which is associated with the related diversification is that whether customers will accept the new product which is being developed by the corporation or not. For example, manager of cited firm has launched new product such as bakery item in the market without taking suggestions from its buyers. Then, in the given circumstance, significant loss can be incurred by the corporation if its customers do not accept the product which is being produced or offered by the firm (Campbell and Rahman, 2010). Thus, these two are the major challenges which are incurred by the Starbucks manager if it will adopt related diversification as its strategic tactic.
However, it has been critically evaluated that instead of challenges, there are varied benefits which manager of cited can gain by adopting the respective method. In this context, it can be said that with the help of related diversification, firm can get the opportunity with regard to cover and attract different types of customers towards the enterprise. Here, by launching bakery product, Starbucks can attract such buyers towards the product who like to eat bakery items with coffee. Thus, through this way, firm can get benefit in the form of increased profits and sales (Chapman, 2005). Furthermore, through this way only, firm can give competition to other competitors in the market who are following the same type of approach.
But, it can be said that strategic choice such as diversification has major risk of failure in comparison to other tactic. This is because, as per the Ansoff matrix, it is assessed that manager of firm tends to adopt the respective method when it wants to get entry into a new market with completely new product. Thus, there is a huge possibility that whether new product of the company will be accepted by the customers or not. This is because, customers generally do not take risk of purchasing new product and service (Crumpacker and Crumpacker, 2007).
But, if they tends to purchase the new product then it may provide necessary benefits to the company in an effectual way. In addition to this, by introducing bakery products in the market, manager of Starbucks can enter into competition with some other firms who are working well in the backing industry.
Besides this, with the help of Ansoff matrix, manager of Starbucks can also adopt another tactic such as market penetration. It is an effective strategy which gives opportunity to the enterprise in regard to cover all the market with the use of number of strategies. Here, in order to penetrate the market, manager of Starbucks can offer discounts upon its goods such as coffee. Ansoff matrix depicts that given tactic needs to be used by the company when it wants to establish its presence in the existing market with the availability of existing product (Hagel and Brown, 2005). Strategic approach used by the company is effective because with the help of this, firm can attract those customers towards the firm who are price conscious and do not prefer to use the product of cited company because of high prices.
Overall, it can be said that Ansoff model is effective as it leads firm towards the right direction and with the help of given model only, manager of Starbucks can accomplish all its tactical goals in an effectual way. Thereby, management can get benefits in the form of increased profits and sales (Henderson, 2000).
Recognized coffee chain house is offering a wide range of products to their customers for having its dominance in the market by serving hot and cold drinks, whole-bean coffee, micro-ground instant coffee and other products. In order to expand its market share, Starbucks adopts various strategies such as clustering geographical locations, buying out competitor’s leases and others. Along with these measures, adopting other measures will accrue lucrative results and outcomes for the company.
One such strategy is low cost leadership in which organization caters the market by offering products at very economical prices for capturing the attention of wide stream of customers (Doole and Lowe, 2008). With the help of this process, company is able to sustain itself by selling high volume of products in the market. By flooring the prices at very low level, producers convince their customers to try them at-least for once.
Hence, providing high quality coffee to their customers along with steering them with economical prices prove beneficial in a considerable manner. Offering products at low prices avails significant benefits to the management of Starbucks. Providing products at reasonable ranges enables producers to convince their suppliers to provide products in bulk. Availability of huge quantity of products creates an option for the organization to increase their market share.
Starbucks has created an effectual position in the market due to its high quality and outstanding services. Employees of the company offer personalized and thoughtful services to their customers. Hence, it satisfies with the commitment for quality and ensures their customers to move forward for the range of products with low prices (Butler, 2012).
It provides benefits in the form of cost reduction through various means. Comparing the sales ratio of products with high prices and low prices, it is found that number of products sold by the organization with low prices is higher. Availability of high sales benefits the organization in providing economies of scale. It refers to the process of deriving profits from one section and utilizing it to the other. Starbucks experiences economies of scale in different forms such as cost of production is relatively low for these product ranges and other related. Hence, profit generated from the sales of certain range of products is utilized in the production of other products.
Low cost leadership provides competitive advantage to Starbucks in the market due to existing wide customer base. There is no need to make extra efforts in advertising the product range and spending on manufacturing. Further, along with availing benefits, there are some challenges likely to be faced by Starbucks while using the strategy of low cost leadership. Firstly, at present among the customer base of Starbucks, major part is the affluent group which seeks for quality coffee and is ready to pay high prices. Launching product range with low prices put its adverse impact on the retention of this group (Galpin and Whittington, 2012).
Customers who are inclined towards adopting snob effect will deviate any from consuming Starbucks products. Hence, it is recommended that offering products with low prices must be placed strategically with effectual marketing in order to target new customers and retain the existing ones. Along with the threat to goodwill, it can also affect the resource management process. Offering products at low prices demands less investments on inputs which hampers the quality of products. Compromising with inputs can be afforded by the well-established company like Starbucks. Finally, it is concluded that using low cost leadership strategy is beneficial for Starbucks to consolidate large number of customers with it.
From the above report, it can be concluded that strategic and tactical models have greater importance for the firm like Starbucks. This is because, models which are mentioned above help enterprise in regard to maintain their competitive position in the market in an effectual way. In addition to this, with the help of these models only, organization can perform significant improvement in their market share. Furthermore, it is also suggested to the firm that it must carry out thorough analysis of the external environment before making the selection of one particular tactic.
This is because, by adopting the given step, firm can assess that whether it is going on the right direction or not in terms of strategic choices. Moreover, by complying with the given type of activity only, benefits can be gained by the corporation in terms of increased profits and sales in an efficient way.
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