strategic manangement

STRATEGIC ANALYSIS OF STARBUCKS COFFEE COOPERATION
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Table of Contents
TOC o “1-3” h z u Strategic analysis of Starbucks Coffee Cooperation PAGEREF _Toc513483796 h 3Executive summary PAGEREF _Toc513483797 h 3Introduction PAGEREF _Toc513483798 h 4Industry overview PAGEREF _Toc513483799 h 6Main finding PAGEREF _Toc513483800 h 7I.Mission PAGEREF _Toc513483801 h 7II.Vision PAGEREF _Toc513483802 h 7III.Company Overview PAGEREF _Toc513483803 h 7I.Company Analysis PAGEREF _Toc513483804 h 8Porter’s Five Forces Analysis of Starbucks PAGEREF _Toc513483805 h 8Starbucks’ SWOT Analysis PAGEREF _Toc513483806 h 12PESTLE PAGEREF _Toc513483807 h 16I.Analysis of digitalization in Starbucks PAGEREF _Toc513483808 h 21Digitalization in Starbucks PAGEREF _Toc513483809 h 21Challenges digitalization poses to Starbucks PAGEREF _Toc513483810 h 22Impact of challenges posed by the continual rise of digitalization PAGEREF _Toc513483811 h 24Starbucks strategies to reduce the impact of challenges posed by the continual rise of digitalization PAGEREF _Toc513483812 h 25Conclusion PAGEREF _Toc513483813 h 26Recommendation PAGEREF _Toc513483814 h 28References PAGEREF _Toc513483815 h 29Appendices PAGEREF _Toc513483816 h 32
Strategic analysis of Starbucks Coffee CooperationExecutive SummaryContinual rise of digitalization poses several challenges to organizations. Since the advent of the internet and mobile technology, the mode in which business activities and processes are carried out is dynamic.

Digitalization has impacted large businesses and entire industries. Starbucks has been revolutionized by digitalization. The company has incorporated various aspects of digital technology in its operation enabling it to reach high levels of consumer interaction. Through its mobile application, the Starbucks Mobile App, the company has focused its digital strategies on, gaining customer loyalty.
However, there are particular challenges of digitalization which have had an impact on Starbucks. Starbucks has had to invest a lot of capital in this process. There are also other potential risks such as breach of their technological systems and low quality of customer experience.
This report analyzes Starbucks’ position in the retail coffee and snacks store industry. The report also examines the impact of the challenges posed by the continual rise of digitalization and strategies put in place by Starbucks to combat these effects. From the analyses, I conclude and make recommendations for strategies that will help Starbucks in coping with rapid digitalization.
IntroductionDigitalization refers to incorporation of digital technology in running the day to day operations of an organization (iSCOOP, 2017, np). Digitalization aims to improve business and therefore generate more revenue. Digital changes comprise of mobile computing, significant data analysis, clouds, and sensors. Digitalization is known for its many benefits such as the faster way of doing things and more secure means. However, digitalization also brings with it uncertainty and various challenges even for already established organizations in numerous industries.
Digitalization is changing how businesses were traditionally run, and if organizations do not adapt to it, this will prove detrimental to the organization. Digitalization has changed the way people interact, communicate and acquire services. The impact of digitalization cannot be understated. And its continual rise, due to rapid development in information and communication technology, makes to it difficult for organizations to adjust fully.
Almost every organization now uses the Internet (Atkinson, 2013, 2). This aspect has enabled changes in business models. Due to the Internet, organizations are adopting new business models to operate their businesses. Consequently, this has led to increased revenues and creation of different opportunities to generate income for companies.
The Internet introduced social media, and each day more people use social media. There are various social media platforms, and they have changed how members of society communicate. Digitalization has not only changed industries and our social lives, but it has also affected various sectors of the economy. It is, therefore, essential for organizations to take into consideration the multiple impacts of digitalization in their surroundings.
More specific to business organizations increased digitalization through the development of technology has affected the interaction between the organization and the customers. Customer needs have changed, and organizations need to respond to these new needs of customers. Customers now expect high-quality services. Organizations have had to change their business models to adapt to digitalization. Organization’s primary aim has now become creating a great experience for their customers.
However, digitalization has brought with it various challenges to organizations. Such challenges include increased competition, reduced personalized customer experience, the necessity to engage digitally with suppliers, employees and partners and the threat of commoditization. Therefore, they have to come up with new models of strategic management. These models aim to create unique experiences for the customers hence gain customer loyalty and consequently gain an advantage over competitors. Organizations which successfully incorporate digital change gain advantage over their competitors.
This report analyzes Starbucks’ position in the retail coffee and snacks store industry. The report also analyzes the impact of the challenges posed by the continual rise of digitalization and strategies put in place by Starbucks to reduce these impacts.
The report has the main findings through a theoretical framework, PESTLE analysis, to identify the external macro- environment factors, Porters five force analysis and SWOT analysis technique to determine the microenvironmental factors, threats, and opportunities for Starbucks. Based on findings, a conclusion will be drawn, and recommendations will be made.
Industry OverviewStarbucks is part of the retail coffee and snacks store industry. In 2009, the sector underwent its worst period regarding revenue generation as a result of the 2009 economic crisis and changes in consumer tastes. During this period, the industry’s revenue dropped by 6.6% in the U.S. alone, resulting in a $25.9 billion revenue (Starbucks, 2009, np). However, for the previous ten years before 2009, the industry’s growth was consistent. The 2009 economic crisis resulted in consumers reducing their budgets hence buying cheaper products instead of high priced coffee drinks. The crisis also resulted in fewer people eating out since this now a luxury they could not afford. Between 2008 and 2013, the industry had an annual growth rate of 0.9%, with revenues reaching $29 billion in the U.S. (Latif et al., 2014, 307). For the next five years, the industry is projected to grow at a rate of 3.9% annually, with revenues expected to reach $35.1 billion in the U.S. (Geereddy, 2014, 3). Currently, the industry generates about $782 billion in revenue, and this value is expected to rise over the next few years. Factors aiding in this growth include expanding menu offerings, an improving U.S. economy, and increase consumer confidence in the industry. Starbucks has the most significant share of the market with 36.7%, ahead of competitors such as Durkin Brands, Tim Horton’s, Costa Coffee and McDonalds. This information is represented in Appendix 1.
Main FindingMissionTo inspire and nurture the human spirit- one person, one cup and one neighborhood at a time (Starbucks Corp., 2018, np).
VisionTo establish Starbucks as the premier purveyor of the most exceptional coffee in the world while maintaining our uncompromising principles while we grow (Starbucks Corp., 2018, np).
Company OverviewStarbucks Coffee Corporation was founded in Seattle, Washington in 1971 (Starbucks Corp., 2018, np). It is an American company with global reach. It is a marketer, retailer and a premier roaster of specialty coffee in different parts of the world. Starbucks operates 24,000 licensed stores in 70 different countries (SHK, 2016, np). Starbucks has employed around 182,000 people working in its stores. Starbucks products include handcrafted, roasted and high-quality coffees, a variety of fresh foods, tea, and other beverages. Starbucks also does the marketing of its products with different brand names such as Starbucks VIA, Teavana, Evolution Fresh, Tazo, Seattle’s Best Coffee, Starbucks Refreshers, Verismo and La Boulange.
Over the past five years, Starbucks revenues have been on a steady rise. The company continues to generate more revenue each year during the recession period. In 2013, the company made $14.866 billion in revenue; this value rose to $16.447 billion in 2014. In 2015, the growth was even much higher with the company generating $19.163 in revenues. The growth continued for past two years, with $21.316 billion generated in 2016 and $22.386 in 2017 (Morningstar, 2018, np). Appendix 2 shows Starbucks financials over a period of six years. The company is expected to continue its steady growth over the next few years. The future is bright for Starbucks.
To continue its dominance in the industry, Starbucks has undergone a crucial digital transformation. Its mobile application, “Starbucks App”, was among its first digital transformation. Starbucks has been able to use this platform to attract more customers, establish brand loyalty and ultimately generate more revenue.
Company AnalysisPorter’s Five Forces Analysis of StarbucksMichael Porter, in 1979, came up with a comprehensive approach to analyze organizations. The strategy aimed to achieve efficiency in an organization’s functions and dependence between various departments in the organization. Michael Porter provided a structure, the five forces analysis, through which an organization’s internal and external environment can be analyzed and came up with practical business strategy (Porter, 1980, 5). The approach assesses the organization environment and rates the magnitude of the five forces as high, medium or low. It also determines the potential attractiveness and competitive intensity of a market. The five forces which are accessed by the approach include the intensity of competitive rivalry, bargaining power of buyers, bargaining power of suppliers, the threat of substitute products, and the threat of new entrants into the industry.
The intensity of competitive rivalry (Strong force)
Starbucks faces strong competition from its rivals. Competitors have a big influence in the industry. This force in Porter’s five forces analysis model analyzes the extent to which competitors influence the industry. Some of the factors which contribute to strong force regarding competition include;
There are many firms in the industry, and each firm plays a significant role since each firm controls a share of the market.
Due to the numerous firms, consumers have various options to switch if they feel Starbucks’ products are too expensive to afford.
The firms in the industry offer a variety of products to Starbucks, though this is just a moderate contributor to the high intensity of competition.
Starbucks’ competitors employ different strategies and specialties. Starbucks’ main competitors include Dunkin Donuts and McDonald’s. Competition from rivals should form one of Starbucks’ top priority challenges.
Bargaining power of buyers (Strong force)
Starbucks experiences strong bargaining power of buyers. This effect in Porter’s five force analysis model analyzes the impact of both grouped and individual customers. Some of the factors which contribute to the healthy bargaining power of buyers include;
Customers can quickly switch products due to the low costs of competitors and substitute products. This aspect makes it easy and affordable to make the switch.
There are also various substitute products; therefore, consumers can abandon Starbucks’ products if they wish to. Substitutes include drinks from restaurants and instant beverages.
Starbucks has a small size of individual buyers. However, their impact is weak since they form a small part of Starbucks’ total revenues.
Bargaining power of customers should, therefore, form Starbucks’ top priority challenges.
Bargaining power of suppliers (Weak force)
Starbucks experiences weak bargaining power of suppliers. This force in Porter’s five forces analysis model analyzes the impact suppliers have in the organization. Some of the factors which contribute to weak bargaining of suppliers include;
There is a large number of suppliers hence the actions of a single supplier do not have a significant effect on the company.
Starbucks, through a policy, has diversified its supply chain. The policy reduces the influence of suppliers on the company.
Analysis of the bargaining power of suppliers shows that the demand or concerns of suppliers do not need to be prioritized by the company.
The threat of substitute products (Strong force)
Starbucks faces a treat from substitute products. This force in Porter’s five forces analysis model analyzes the impact of the presence of substitute products on the company. Some of the factors which contribute to the substantial threat of substitute products include;
There are numerous substitute products such as bottled beverages, beverages from restaurants and instant beverages. Substitute products can negatively influence the company.
It is easier to switch to substitute products. Starbucks charges premium prices for their products. Substitute products are therefore more affordable than the original products.
The threat of substitute products should, therefore, form Starbucks’ top priority challenges.
The threat of new entrants (Moderate force)
Starbucks experiences a moderate force of threat of new entrants. This force in Porter’s five forces analysis model analyzes the potential impact of new firms joining the industry. Some of the factors which contribute to the moderate threat of new entrants include;
New entrants would incur moderate costs of operation when they join the retail coffee and snacks store industry.
New entrants would also incur moderate costs of developing supply chains when they join the industry.
However, new entrants would incur high costs of developing strong brands. This characteristic makes it difficult for them to compete against reliable brands such as Starbucks.
The threat of new entrants should, therefore, form a secondary priority for Starbucks.
Starbucks’ SWOT AnalysisSWOT is a technique which analyzes strengths, weaknesses, opportunities, and threats of a business. Strengths and weaknesses occur as internal factors to the organization, while opportunities and threats occur in the external environment of the organization (Brock, 2012, 2).
Strengths
Significant market share and global brand recognition- Starbucks has a global reach, with its operations in more than 60 different countries. Many across the globe, therefore, identify the brand. The global reach helps Starbucks control a significant portion of the market, with 36.7% market share in the U.S. Starbucks is the most recognized brand when it comes to coffee. Starbucks uses its global brand recognition to license its brand logo out and merchandise products. The universal recognition and market position helps Starbucks maintain a competitive edge over their rivals and further venture into international markets. Over time, there is growth in these markets, and this growth helps Starbucks keep better supplier relationships and distribution channels. Starbucks ranked 60th in the best 100 brands of 2017 (Interbrand, 2017, np). Starbucks’ label is expected to continue growing over the years.
High-quality products- Starbucks emphasizes the quality of their products; it is of high importance to them. They do not compromise their quality to increase quality.
Customer base loyalty- Starbucks enjoy the benefit of a loyal customer base. Starbucks serves 80-90 million customers in a week (Starbucks Newsroom, 2016, np). Through programs such as Starbucks Card and Starbucks Rewards Programs, Starbucks encourages loyalty among its customers. The Starbucks Card has many benefits such as support gifting, integration with Starbucks mobile application and increases convenience.
Use of mobile outlets and technology- Starbucks has incorporated technology in its operation through the Starbucks Mobile App which is available on Android and Apple software. The mobile app continues to support their growth each year.
Diverse product mix- Starbucks offers a variety of products; this is to appeal to people of different age groups and different demographics.
Aesthetic appeal and location of its stores- Starbucks are very strategic when picking out locations for their stores, and this applies to all its stores all over the world. Starbucks target high visibility and high traffic locations which are close to specific settings such as universities, campuses, office buildings, downtowns, select rural areas, suburban retail centers and specific off-highway sites across the globe. The latter has helped Starbucks access a large market. The Starbucks stores are very appealing and eye-catching. They try and integrate with the surrounding of the store. Inside the store are also another big attractions; Starbucks stores have great music, free Wi-Fi, warm and great atmosphere. The stores have a welcoming environment. Starbucks aim to make their stores feel like home for their customers.
Human resource management- Starbucks takes good care of its employees since they are an integral part of their company. Starbucks provide their employees with retirement accounts among other great incentives (Glassdoor, 2018, np). These incentives motivate their employees to provide excellent customer experience, which is the company’s top priority. Starbucks has been ranked in the top 100 for the past five years among the best places to work for by Fortune Magazine. The magazine also ranked Starbucks as the third most admired company in the world (Starbucks Newsroom, 2017, np).
Weaknesses
Overcrowding of stores- this is evident in the United States where there are 8078 Starbucks stores. Addition of stores in specific areas affects the performance of already existing stores. The latter hurts the long-term growth target of the company.
Expensive products- Starbucks’ quality products come at a price; customers have to pay premium prices for Starbucks products. This aspect comes into play when the economy is not performing well. During these periods consumers tend to buy competitors’ products which are a bit cheaper compared to Starbucks’. Or consumers may decide to do away with the coffee culture since it would be more of a luxury they cannot afford. The cost of their products also becomes a weakness when Starbucks is trying to grow into a new market in a developing country.
Clash of coffee cultures- internationally, coffee cultures differ. American or European coffee culture may clash with that of other regions. This conflict may result in the Starbucks coffee culture not being accepted in certain parts of the world.
Over-reliance on the U.S. market- most of Starbucks stores are located in the U.S. hence most of their revenue comes from the U.S. market. This inference means should the United States economy undergo another crisis like 2009, then Starbucks’ income will be negatively affected.
Negative large corporation image- with such a global market, Starbucks is always under intense scrutiny from various stakeholders across the world. This latter means Starbucks has to invest heavily in social responsibility activities so that they maintain a positive image in society.
Opportunities
Expanding product mix- Starbucks added tea and fresh juice to their product mix. These additions provide opportunities for Starbucks.
Expansion into new markets- it is crucial for Starbucks to venture into emerging international markets. This move is necessary since there seems to be overcrowding in the U.S. market. Starbucks has already ventured into India, Brazil and South Africa, which are all developing countries with much potential and numerous opportunities for businesses. The above provides opportunities for Starbucks. Despite its global size, Starbucks still has the chance to grow further. Starbucks can take advantage of their financial muscle, experience, capacity, and efficiencies to expand into developing the market and increase their market share.
Expansion of brand- Starbucks has a global brand image making it very powerful, but they always run the risk of brand dilution. It is, therefore, crucial for Starbucks to consider product diversification.
Expand retail operations- Starbucks sells its products such as iced beverages and packed coffee through large box retailers. This constraint limits Starbucks from realizing their full market potential.
Advancement in technology- Starbucks invested in a mobile app, the Starbucks app, customers can quickly access Starbucks’ services. The mobile app also increases the number of business interactions between Starbucks and its customers.
Threats
Increased competition- rival companies, pose the biggest threat to Starbucks. As the industry develops, the competing firms offer more motivation, especially in the U.S.
Developed countries economy- in case economies of developed countries perform poorly; it would affect markets in developing countries. Consumers would then switch from Starbucks’ premium priced products to cheaper competitors’ products, due to a strained budget. This factor would in turn negatively affect Starbucks’ revenue.
Unstable coffee prices in the world market- Starbucks would have no control in case the prices of high-quality coffee fluctuate in the global market.
Change in consumer taste- consumers may decide to change their taste and abandon the coffee culture; to consume healthy products. Starbucks has little control in case this happens, and this poses a threat to the company.
Market saturation in developed countries- Starbucks gets most of its revenues from the already developed market. This fact indicates they always run the risk of market saturation.
Appendix 3 shows a summary of Starbucks SWOT analysis.
PESTLE
PESTLE provides a framework through which the macro- environmental factors to an organization can be analyzed and how they impact on the organization. This analysis considers factors which are essential and are taken into consideration when coming up with company strategies. PESTLE takes into account six factors that impact the business. They include political factors, economic factors, social factors, technological factors, legal factors and environmental factors (Crossan et al., 2009, 3).
Political factors
Political factors consider how the government influences business. Government’s influence on businesses is achieved through policies and laws; they include tax policies, environmental regulations, and trade restrictions. The government also affects political stability in a country; this determines whether it is conducive to do business or not. Some of the political factors that impact Starbucks operations include;
Regional integration of markets- governments of different regions across the world are integrating their markets to form broader regional markets. The above provides an opportunity for Starbucks to expand their business into these markets.
More government support for infrastructure- most governments, especially in developing countries, are improving their infrastructure. The latter opens up new regions and markets. It also provides an opportunity for Starbucks to meet other suppliers and access more markets.
Bureaucratic red tape- bureaucratic red tape limits business expansion into other regions. This constraint is common in developing countries where bureaucratic red tapes persist and pose a threat to Starbucks since they cannot build their business in such countries.
Political factors, as analyzed by PESTLE analysis model, present Starbucks with opportunities rather than threats.
Economic factors
Economic factors impact how an organization is run and how much profits the business makes. Economic factors include exchange rates, economic growth, inflation, interest rates and consumers’ disposable income. Some of the economic factors that impact Starbucks operations include;
High growth of developing countries’ economies- the high rate of economic growth in developing countries means more people are getting employment hence more disposable income within these economies. This factor increases the market for Starbucks, resulting in more revenues.
Increase in labor cost for suppliers- in developing countries, where most of Starbucks’ suppliers are located, the labor cost is increasing. Therefore Starbucks have to pay more for their suppliers posing a threat to the company since it reduces revenues.
Economic factors, as analyzed by the PESTLE analysis model, present Starbucks with opportunities rather than threats.
Social factors
Social factors include aspects such as cultures, social trend, population attitudes, and beliefs. They are about consumers’ perception of an organization and its products. Some of the social factors that impact Starbucks operations include;
Growing coffee culture: the growing coffee culture is attributed to the growth of the middle. Nowadays more people want to take coffee, increasing demand for specialty coffee providing an opportunity for Starbucks to generate more revenue.
Increasing health consciousness- more people are conscious of what they take. Consumers are now attracted to healthful products presenting an opportunity for Starbucks to grow its options of healthful products.
Social factors, as analyzed by the PESTLE analysis model, present Starbucks with numerous opportunities.
Technological factors
Technological factors include new means of product distribution, level of automation and its acceptance. Some of the technological factors that impact Starbucks operations include;
More mobile purchases- each day more people are using Starbucks’ mobile app, the Starbucks app, to make purchases. The application provides an opportunity for Starbucks to improve the application and services linked to it. The improvement will certainly generate more revenue for the company.
More efficient supply chain- improvement in information and communication technology provides Starbucks with the opportunity to have a more efficient working relationship with their suppliers with regards to money transfer and communication on orders.
Increased availability of specialty coffee machines- the number of specialty coffee machines is increasing, mostly used in homes. This fact poses a threat to Starbucks since it is a substitute for Starbucks products.
Technological factors, as analyzed by the PESTLE analysis model, present Starbucks with opportunities rather than threats.
Legal factors
Legal factors, under the PESTLE model, analyze the impact of legislation and regulations on the business. Some of the legal factors that impact Starbucks’ operations include;
Product safety regulations- it is important for companies to adhere to the product safety regulations. Starbucks currently satisfies these regulations, though there is an opportunity to improve.
GMO regulations- it is also critical for companies to adhere to the GMO regulations. The regulations ensure the ingredients from genetically modified organisms (GMO) are safe for consumers. Starbucks also satisfies these regulations, though there is an opportunity to improve.
Increased employment regulation- this is common in developing countries where governments are safeguarding the interests of workers. This analogy indicates that Starbucks has to spend more on labor in such markets posing a threat to Starbucks’ operations.
Legal factors, as analyzed by the PESTLE analysis model, present Starbucks with opportunities rather than threats.
Environmental factors
Environmental factors, under the PESTLE model, consider the impact of environmental conditions or change on the business. Some of the environmental aspects that impact Starbucks operations include;
Business sustainability trend- this trend focuses on business activities which have the least impact on the environment, regarding pollution. This aspect provides an opportunity for Starbucks to better its performance in this area since it will improve its global image.
Responsible sourcing- more people are supporting social responsibility of corporate organizations. Starbucks has already put in place responsible sourcing policies. But this area still provides an opportunity for Starbucks to improve its global image.
Environmentally friendly products- there is growing support for companies to produce environmentally friendly products presenting an opportunity for Starbucks to package its products in more environmentally friendly items.
Environmental factors, as analyzed by the PESTLE analysis model, present Starbucks with numerous opportunities.
Analysis of digitalization in StarbucksDigitalization in StarbucksStarbucks’ digital and mobile strategies focus on its loyalty program. Its mobile and digital technology have helped the company gain customer loyalty, creating an emotional connection between the company and the customers. The Starbucks App, the company’s mobile platform, has helped improve the company’s brand hence increasing revenues. The app allows a digital loyalty program, where customers can earn and redeem loyalty points. The app has over 20 million users in the United States alone. The Starbucks App is popular, with 70% of consumers aware of it have downloaded it (SHK, 2016, np). My Starbucks Rewards, Starbucks’ loyalty program, has over 20 million members across the world (Dignan, 2015, np). Starbucks is using its digitalization process and technological innovation to maintain their edge over rivals and deliver the Starbucks experience to its consumers.
The Starbucks stores still play an important role; they offer a physical presence and connection with the customers. The presence of stores all over the world helps engage costumers and build trust between the company and its customers.
Starbucks’ partnership with other organizations is another way the company is generating more revenue through the digital platform. Starbucks’ partners include The New York Times, Spotify and Lyft (Roderick, 2015, np). The loyalty points earned act as external currencies in Starbucks partner organization (SHK, 2016, np).
Starbucks also introduced another feature to its Starbucks App, the Mobile Order & Pay feature, to its digitalization process. This feature allows customers to order and pay for products in advance within the app; they then pick up their orders from the stores. The latter leads about six million transactions done through this feature every month. Starbuck’s Mobile Order and Pay have increased sales for the company. 21% of the transactions at Starbucks are done through mobile payment (Roderick, 2015, np). Starbucks has 8 million customers using mobile payment, with one out of every three using the Mobile Order & Pay feature (Starbucks Newsroom, 2016, np). During 2016, Starbucks prepaid cards were loaded with over $6 billion in North America alone (Starbucks Newsroom, 2016, np). During 2017, Starbucks added another feature to its Starbucks Mobile App. The feature enabled customers to make an order using voice command or via a messaging interface (Starbucks Newsroom, 2016, np).
Effect of Digitalization on Starbucks Customers
The change in customer expectations is what has brought about digitalization to Starbucks. To remain a leading player in the industry, Starbucks has had to adopt digitalization concepts. This is aimed at maintaining and improving the relationship between the company and its customers. This has definitely had a positive impact on the customers. Customers have always wanted more convenient means of purchasing products. Also, the modern consumer craves for a personalized experience. Starbucks, through digitalization, is meeting these customer expectations. This is evident from the level of engagement Starbucks has on its mobile platform (which is also its main digitalization strategy). Starbucks customers are impressed with the digitalization.
Starbucks customers can now buy Starbucks products more conveniently. Through a feature in the Starbucks Mobile App, the Mobile Order & Pay feature, customers are able to order and pay for products in advance. Customers are then able to pick up their orders from the Starbucks stores. This saves time for customers, creating more convenience.
Starbucks customers also feel a more personal connection to the company. Starbucks uses digitalization to enhance the personal experience of their customers. The Starbucks App has a feature that allows customers to make an order using a voice command or via a messaging interface. Starbucks has also digitalized its physical stores to enhance customer experience. The stores help Starbucks engage with their customers at a personal level and build trust between the two key stakeholders. Through the loyalty program, customers also feel more loyal towards Starbucks. And Starbucks rewards such loyalty. Starbucks customers can earn and redeem loyalty points by using the Starbucks App. The loyalty points act as external currencies in Starbucks partner organizations such as Spotify, Lyft and the New York Times.
Challenges digitalization poses to StarbucksContinual rise of digitalization poses various challenges to Starbucks.
Threat of commoditization
Technology has developed machines that can make coffee instantly. Such technology is available for all firms in the industry and those willing to enter the industry. Such technology can lead to the commoditization of the products sold by Starbucks. Since there are numerous coffee shops like Starbucks, consumers have options to switch especially if they feel the products are similar in quality and Starbucks charges higher prices.
The need to engage digitally with suppliers and employees
Each day technology is always improving; sometimes it becomes difficult for an organization to keep with the rapid development. Digitalization is a continuous process; this poses a challenge to various organizations including Starbucks. Starbucks always has to develop its digital platform frequently. Suppliers, employees, and consumers are adopting new technology each day for communication. It is, therefore, crucial for Starbucks to keep up with such technology in order to digitally various stakeholders. This move is not only to keep up with the rapid development of technology but also to maintain its competitive edge over its rivals.
The need to engage digitally with suppliers and employees also poses another challenge; difficulty in acquiring the right personnel. It has become difficult for Starbucks to acquire personnel with the right skill set to operate their digital systems. And since technology is still improving each day poses another challenge to personnel. The employees have to be adaptable to incorporate the latest of technology in their daily work.
Security and regulations
Susceptibility of digital systems to outside interference is also another challenge for Starbucks. If it occurs, it may lead to loss of materials for the company. Digitalization has brought with it issues like cyber-crimes. This is a challenge for every firm including Starbucks.
Cultural shift
A cultural shift is another challenge brought about by digital transformation. Before digitalization, Starbucks had a certain way of conducting its operations. They have had to shift from their previous mode of operations to integrate digitalization. This is always difficult and costly, especially for a global organization like Starbucks. They have to train their employees again on the transformation. They also have to purchase new equipment and do away with the old which are not suitable for digitalization.
Increased competition
Development of technology has made various equipment and machines available in the retail coffee and snacks store industry. Such equipment and machines have standardized operations of numerous firms in the industry. With standard procedures for coffee production, consumers do not see any difference in the product. This increases competition in the industry since there is commoditization of the products.
Loss of control over customer relationships
In the past, consumers relied on brand communication and advertisements for information on products. However, the improvement in information technology has changed this. Nowadays, consumers rely on information from other consumers. 72 percent of consumers trust peer recommendations against 18 percent who trust advertisements. Brands such as Starbucks are losing in the area of information in the area of information monopoly and a shift towards two-way communication and conversation.
Impact of challenges posed by the continual rise of digitalizationThe challenges posed by the continual rise of digitalization have had a massive impact on how Starbucks operates and strategizes their business. Digitalization is an expensive process; it requires a huge investment. Due to digitalization, Starbucks has had to engage digitally with suppliers and employees. Starbucks has, therefore, made a massive investment in its technological department. Starbucks has also globally invested in its digital initiatives. It costs a lot of capital to combat these challenges. Starbucks invested about $145 million in 2015, and in 2016 the amount rose to about $270 million (Dignan, 2015, np). Starbucks has invested in the right systems to ensure that they are not exposed to outside interference, another challenge of digitalization. Acquiring technological systems which are less susceptible to outside interference costs a lot of capital.
The rapid development of technology also costs capital to acquire the systems and to train the employees on how to operate these systems. Digitalization has increased competition since firms can purchase the latest technology to prepare their coffee; bringing about commoditization. Starbucks has had to carry out extensive training for its employees across the world, so that customer experience is enhanced. First, new employees are trained by a store manager. Here, they are told what to do and shown exactly how to perform an action. In training, they are also expected to perform these actions after being shown what to do. The training also involves 24-hour classroom learning. Here, new employees are taught of Starbucks history, values and products. These projects cost a lot of money for the company. The aim of these training programs is to ensure the new employees understand the importance of customer experience to Starbucks. Starbucks customer experience is what differentiates Starbucks from other companies in the industry and gives them a competitive advantage over their rivals.
Digitalization also causes disruption when it is implemented at first. People have to learn how to use these systems and adapt to them disrupting how people were used to carrying out their business. Digitalization also requires a change in organizational structure of the company, such as the creation of the digital or technological department. The department keeps up with the rapid changes in information and communication technology. The department also makes sure the company does not lag behind in the digitalization process. Starbucks made an important organizational change so that digitalization could be a success.
Starbucks strategies to reduce the impact of challenges posed by the continual rise of digitalization
Starbucks strategies to reduce the impact of challenges posed by the continual rise of digitalization are based on customer experience. Starbucks main strategy has been to improve the customer experience. Through their mobile application, the Starbucks App, they ensure loyalty and convenience for their customers. By offering high-quality customer experience, Starbucks attracts a high number of consumers, about 80-90 million in a week. This way they are able to generate high revenues, over $20 billion in a year, which helps offset the high costs associated with digitalization.
Starbucks, through digitalization, has developed various platforms including their mobile application to engage their customers. They complement these platforms with high-quality customer experience in the Starbucks stores; which still play a critical role in their strategies. With the ever developing technology, it is easy for Starbucks to lose connection with their customers. The stores make sure this connection is maintained. Their strategies reduce the impact of challenges posed by the continual rise of digitalization. Starbucks is, therefore, able to stay ahead of their competitors who cannot compete with the level of Starbucks customer experience.
ConclusionIt is evident that Starbucks has put effective strategies in place to combat the impact of digitalization challenges. The company has had to spend more to reduce such impact. The company has invested with technology companies and has also incurred the expense to train employees within the organization. However, the company can reap the rewards of such investments. Starbucks is not at risk of succumbing to digitalization; on the contrary, the company is thriving on digitalization. It provides an opportunity for Starbucks to increase its market share and also maintain its advantage over its competitors. Loyalty remains the most important pillar in Starbucks’ digital success. Through digitalization, Starbucks has come up with digital ways of improving its services. However, Starbucks runs the risk of taking away the “Starbucks experience” which is associated with Starbucks stores. The customer experience is what drove the customers to the stores and made Starbucks such a big brand. Starbucks also faces potential breach of its information technology systems; this would be detrimental to the company.
RecommendationFrom this digitalization process, Starbucks has access to a lot of customer information. Through the Starbucks Mobile App, the company could predict future customer behavior by studying their past behaviors. They could use this information to personalize and improve customer experience, both in the store and out of the store to ensure customers still enjoy the “Starbucks experience.” Starbucks should also invest more in system security to ensure there is little risk of breach. These measures will gain customer trust, improve sales and generate more revenues. They also ensure Starbucks has long-term sustainable growth.
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Source: Geereddy, 2014
Appendix 2: Starbucks Corporation’s Financials

Source: Geereddy, 2014
Appendix 3: Summary of Starbuck’s SWOT analysis
Strengths
Significant market share and global brand recognition
High-quality products
Customer base loyalty
Use of mobile outlets and technology
Diverse product mix
Aesthetic appeal and location of its stores
Human resource management Weaknesses
Overcrowding of stores
Expensive products
Clash of coffee cultures
Over-reliance on the U.S. market
Negative large corporation image
Opportunities
Expanding product mix
Expansion into new markets
Expansion of brand
Expand retail operations
Advancement in technology Threats
Increased competition
Developing countries economy
Unstable coffee prices in the world market
Change in consumer taste
Market saturation in developed countries