A Level Business Studies - Starbucks Ansoff Matrix and Porter's Generic Strategies

Starbucks is an American coffee company and chain, first founded in Seattle in 1971. It started with more basic beverages but has since expanded and moved into new products – an act of diversification. This is important because the coffee industry is very crowded and so Starbucks has lots of companies to compete with. Although Starbucks’ market share of the U.S. coffee chain industry stands at a pretty might 39.8%, the brand still requires differentiation as it does not adopt a cost leadership or focus approach.

For the Ansoff Matrix, Starbucks mostly stuck to market penetration in its early years to establish itself in the market. They gave customers the products they knew and loved: coffees, cappuccinos and espressos. They also write their customers’ names on the cup which gives service a more personal touch. The intention of this is to increase sales as customers become more satisfied with the service. The coffee shop market is very saturated for market penetration to grow sales significantly however, so the benefits are usually short term.

Starbucks has also announced a new coffee which is branded as a premium, due to its high quality ingredients. This is an example of product development because they are trying to increase sales by launching a new product into their existing market – sticking to a similar product will attract their consumer base as it builds on what they like from Starbucks and makes it an even higher quality.

For market development, Starbucks is growing sales by launching existing products into new markets. They have set up their coffee shops and houses all over the world which gets their product out to much more people.

As more competition comes onto the scene – notably fast food chains like McDonalds venturing into their own brand of coffee/morning products, Starbucks is forced to take more drastic approaches to diversify because the market is quickly becoming much more saturated. There isn’t much room for Starbucks to introduce new drinks because they already have countless combinations and they have thousands of stores across the globe so market development is limited. Starbucks has started to develop in the food industry, an example of their diversification. Their expansion into the food industry allows them to tap into the food market which may increase sales. Shifting more attention onto food that isn’t a snack to compliment a coffee, it means that Starbucks has the opportunity to grow sales and gain a competitive advantage.

In terms of Porter’s generic strategies, Starbucks is in the differentiation strategy as they provide high quality coffee with a unique experience in a large number of places. Their competition adopts a low cost-leadership approach (the new instant coffee – VIA). Starbucks is unique from other products in the market because it offers in-store gifts and brewing utensils which cater and target the coffee lover directly, and this is something only found in Starbucks stores.