This document discusses Starbucks' success as a blue ocean strategy. It summarizes how Starbucks shifted the coffee industry's focus from commodity coffee sales to the emotional atmosphere in stores. Starbucks offered quality coffee and drinks in a relaxing environment that encouraged socializing. This attracted both coffee and non-coffee customers. Starbucks also focused on excellent customer service and employee satisfaction, training baristas extensively. This emphasis on people has driven Starbucks' popularity and success without disrupting competitors.

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5. TWO WORLDS
Red Ocean
Compete in
crowded
markets
Blue Ocean
Create and
capture new
market space

6. To fight and conquer in all your
battles is not supreme excellence;
supreme excellence consists in
breaking the enemy resistance
without fighting
Master Sun Tzu in ‘Art of War’

7. Researching the history of blue ocean creation
• Data:150 strategic moves, more than 30
industries, over 100 years (1800-2000)
• Variables considered industrial,
organizational ands strategic.

8. Red V/S Blue
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Market the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value cost trade off Break the value cost trade off
Align the whole system of a
Align the whole system of a
company’s activities with its
company’s activities in pursue of
strategic choice of Differentiation
differentiation and low cost
or low cost

9. Six paths to blue ocean strategy
Industry
Strategic group
From Buyer group To Creating
Competing Scope of product or service Across
Within offering
Functional emotional
Orientation of an industry
Time

10. Four actions framework
Reduce
Which factors should be
reduced well below the
industry’s standard ?
Eliminate Create
A New
Which of factors that Which factors should
The industry takes for
Value Curve be created That the
Granted should be Industry has never
eliminated ? offered ?
Raise
Which factors should be
raised well above the industry’s
standard ?

11. Minimizing risks & maximizing opportunities in
formulation & executing blue ocean creation
Formulation Principles Formulation Risks
Reconstruct market boundaries Search Risk
Focus on the big picture, not
Planning Risk
the numbers
Reach beyond existing demand Scale Risk
Get the strategic sequence right Business Model Risk
Execution Principles Execution Risks
Overcome key organizational
Organizational Risk
hurdles
Build execution into strategy Management Risk

12. Value Innovation
Region where a company’s action
favorably affect both it’s cost structure
and its value proportion to the Buyers.
- Cost savings by eliminating
and reducing the factors an COST
industry competes on
- Buyers values is lifted by
raising & creating elements VALUE
the industry has ever offered INNOVATION
- Over time, costs are reduced
further as scale economics
kicked in
BUYER’S VALUE

14. Careful, the trick
you’re about to enjoy
is extremely hot.

15. Blue Ocean Strategy : Starbucks
• Starbucks sold a retailing concept: the coffee bar,
offering relaxation and conversation, and drinks made
with quality beans, frothy and flavored milks, creams,
syrups and ices. While $3 for a cup of Starbucks' coffee
is outrageous compared with the cost of a cup of
instant coffee at home, consumers did not see it that
way. They judged Starbucks as an indulgence, so the
steep price appeared good value for money. Starbucks
turned the coffee industry on its head by shifting its
focus from commodity coffee sales to the emotional
atmosphere in which customers enjoy their coffee. With
almost no advertising, Starbucks became an
international brand with margins roughly five times the
industry average.

16. Starbucks did not take away from its competitors
or make coffee go away. It simply made it more
popular !!!
!
• Starbucks began in 1971 when three academics—English
teacher Jerry Baldwin, history teacher Zev Siegel, and
writer Gordon Bowker—opened a store called Starbucks
Coffee, Tea, and Spice in the touristy Pikes Place Market
in Seattle. Starbucks has since then increased to over
13,000 stores nationwide.

17. How has Starbucks been so successful?
• The primary reason Starbucks has experienced such
great success is their business model that is all about
people worldwide. From customer service to employee
benefits their business model focuses on the people.
• They have their own coffee farmers and harvesters, their
own roasters, and carefully followed recipes that are just
their own, including the Frapaccino. They offer the best
payment plans and benefits packages available to all of
their farmers (something that many of these people have
gone without for generations), they have great payment
plans and benefits packages for their local employees
including fantastic benefits for their part time employees
(something that doesn’t happen very often), and with this
idea of people they have worked hard to please those that
work hard to please their customers.

18. How has Starbucks been so successful?
• Customer service has always been a high priority with
Starbucks. It is why a manager or assistant manager at a
Starbucks receives at least 80 hours of training and a barista
receives 40 hours of training before they are allowed to make
drinks without supervision.
• CEO, Howard Schultz, figured out how to attract, motivate, and
reward store employees in a manner that would make Starbucks
a company that people would want to work for and that would
result in higher levels of performance. Moreover, Schultz
wanted to cement the trust that had been building between
management and the company’s workforce. In 1995, Starbucks
implemented an employee stock purchase plan. Eligible
employees could contribute up to 10 percent of their base
earnings to quarterly purchases of the company’s common
stock at 85 percent of the going stock price. The total number of
shares that could be issued under the plan was 4 million. After
the plan’s creation, nearly 200,000 shares were issued; just over
2,500 of the 14,600 eligible employees participated.

19. How has Starbucks been so successful?
• Schultz’s approach to offering employees good
compensation and a comprehensive benefits package
was driven by his belief that sharing the company’s
success with the people who made it happen helped
everyone think and act like an owner, build positive long-
term relationships with customers, and do things
efficiently.
• Starbucks’ focus on its employees has lead to great
customer service. As a result, Starbucks has achieved
elite brand recognition that of Coca Cola.

20. Starbucks did not take away from its competitors
or make coffee go away. It simply made it more
popular!
• First, Starbucks has great attention to detail in stores.
The employees are well-trained and qualified to make
specific drink orders. They offer a wide range of types of
coffee, drinks, food, etc. Customers who are particular
about their orders are confident when they go to a
Starbucks.
• Second, Starbucks has been able to attract coffee and
non-coffee consumers by offering a wide variety of
drinks, coffees, food, snacks, mugs and other
paraphernalia. Their plethora of products offered
complements individuals of a wide range to have an
interest in Starbucks.

21. Starbucks did not take away from its competitors
or make coffee go away. It simply made it more
popular !!!
• Thirdly, Starbucks has transcended traditional coffee
houses into a pleasant experience. The well-trained and
happy employees provide quality customer service. They
are pleasant and consistent in service. Starbucks has
also transitioned coffee into a social platform. People
gather at Starbucks to relax, read, use the internet, meet
for business or chat with friends, etc.
• The success of Starbucks has only increased the
popularity of coffee and tea amongst consumers.
Furthermore, Starbucks has been able to attract the non-
customers through there business model of focusing on
people. Consequently, Starbucks’ success has
experience great success in the coffee industry without
destructing competitors.

22. Kim’s thought about Starbucks’ success
• Kim said Starbucks’ success is not entirely because of
the coffee sold at its locations. That company took the
idea of a “mom and pop” coffee shop and combined it
with the comfort of a modern hotel lobby such as a
Marriott. While the mom and pop coffee shop might sell
good coffee, the patrons who go there are mostly
truckers who are not interested in having conversations,
he said. But in the lobby of a modern hotel, it is much
easier to start a conversation; therefore Starbucks
combined good coffee with comfortable, friendly
locations to sell coffee, he said. While it is true that
Starbucks sells coffee, “what they are really selling is
atmosphere,” he said. By changing the atmosphere in
which coffee is sold, Starbucks created an uncontested
market and made the competition irrelevant, he said.
Starbucks “created and captured new demand,” he said.

23. Skillful leaders subdues the enemy’s
troops without fighting; he captures
their cities without laying siege to them;
he overthrows their Kingdom without
lengthy operations in the field
Master Sun Tzu in ‘Art of War’

24. THANK YOU