VRIO Analysis of Starbucks Success PDF

**VRIO analysis:** **How does the logo may affect Starbucks' success?** Several ways (=explanations): - Merchandise with logo.. Supporting evidence ("others sales") - Brand recognition: Food traffic (we tried to estimate how much random pedestrians/unfamiliar situations) - Premium pos...

**VRIO analysis:** **How does the logo may affect Starbucks' success?** Several ways (=explanations): - Merchandise with logo.. Supporting evidence ("others sales") - Brand recognition: Food traffic (we tried to estimate how much random pedestrians/unfamiliar situations) - Premium positioning → Charging higher prices - High brand recognition: lowering marketing costs **VRIO Analysis:** Main Steps: 1. Identify Key Resources: - What is a resource? - A resource can be tangible (e.g., infrastructure, technology) or intangible (e.g., brand, corporate culture, data, know-how). - Which resources are relevant? - Look for resources that contribute to the company\'s competitive advantage, such as: - Technology (e.g., Walmart\'s advanced IT systems). - Organizational capabilities (e.g., economies of scale or cost-focused corporate culture). - Infrastructure (e.g., Walmart\'s hub-spoke logistics network). - How to identify them? - Observe what makes the company unique compared to competitors. - Use frameworks like the value chain to identify resources at each stage of the business process. **"X"=Resources!** A diagram of a company\'s organizational capability Description automatically generated **Apply tools such as Value Chain and Functional Analysis to improve asset identification.** **Value Chain: Functional Analysis:** A diagram of a company\'s value chain Description automatically generated 2. **VRIO analysis:** Something("X") can be the reason why we observe differences in outcomes if... 1. **Valuable**: Value is about customer value, NOT company value [Resources must bring significant value to customers] Customers appreciate X, they "value it" a. Rare: Not all firms possess X. b. Difficult to Imitate: Difficult to get X Customers appreciate X, they "value it": How does X help the customers? Do they value and appreciate it (=different from, WTP/are they paying for it)? Examples: - High quality beans: Customers like/appreciate/value coffee brewed with high quality beans (rather than low quality beans) - Logo: People find the logo on merchandise appealing 2. **Rare**: Not all firms possess X. A resource is rare if competitors cannot easily obtain or implement it 3. **Difficult to Imitate:** Difficult to get X Competitors find it difficult to replicate the resource or capacity  4. **Appropriability:** The company found a way to use X to increase sales, increase the profit margin or lower costs. The farm must be organised to make full use of its resources. **VRIO analysis:** **Example:** Starbucks Logo=Is it a resource that leads to a sustained competitive advantage? some company do it, but many other do not do it not at all. Traning,. 0 mins., Pen cannot be the reason why starbuks so successful **We want to explain differences in success** How is it possible, Magdalena Vintage Coffee Shop and Starbucks are in the same business, but one is struggling while the other is extremely successful? - There must be differences between these two companies (or do things differently). **We have to answer for any potential explanation: Is this different?** - Is this different or does everybody do it/have it? - If there are differences, it MAY explain differences in outcomes (=success) - If no differences, it cannot explain differences in outcomes (=success) - Is this rare? **2) Rare:** [Espresso Based Drinks] Espresso based drinks almost not available in the US prior to 1985 ⇒ it was rare! Today: At every corner, other firms imitated Starbucks ⇒ no longer rare The fact that Starbucks offers "espresso based" drinks cannot be one reason for its success (but may have been one early on) **2) Rare:** [High Quality Beans] "One reason for Starbucks success is the high quality beans it uses" Is it rare? Is it difficult to find a coffee shop that uses high quality beans? There are many shops that use high quality beans but also many (e.g., Dunkin Donout) that use low quality beans ⇒ Not ubiquitous but also not really rare **3) Difficult to imitate: Brings us to a second question we have to answer:** 1. Switching to High-Quality Beans: - The slide asks if it is easy or difficult for companies (like Dunkin\' Donuts) to switch to using high-quality coffee beans. - The focus is on understanding whether this change is feasible and straightforward or if there are significant barriers preventing it. 2. Imitation Difficulty: - The question emphasizes the difficulty of eliminating the difference between Starbucks and other competitors, like Dunkin\' Donuts. - It's not about whether it's economically viable but how challenging it is for competitors to adopt the same practices. **Sustainable Competitive Advantage** 1. Requirements for Sustainability: - To have a sustainable advantage, the resource or strategy must: - Be rare (not widely available or adopted). - Be difficult to imitate. 2. Outcome: - If a strategy meets these requirements, it can lead to a long-term competitive edge. - If not, it might provide only a temporary advantage. **Is it Rare?** 1. Definition: - Rarity implies that most competitors aren't employing the same resource or strategy. 2. Link to Success: - If everyone is using high-quality beans, Starbucks' success wouldn't be unique. - Differences in success must stem from differences in inputs, which could include rare resources or innovative strategies. **Resource Acquisition Difficulty** 1. Ease of Access: - The slide explores whether competitors, such as gas stations with poor coffee quality, can easily acquire better beans. - If acquiring the resource (high-quality beans) is straightforward, the competitive advantage isn't sustainable. - Difficulty in acquiring resources contributes to a [sustainable competitive edge.] 2. Example: - The slide uses an example of poor coffee quality at Swiss gas stations to highlight how the challenge of improving inputs affects competitiveness. **Walmart case:** A screenshot of a computer screen Description automatically generated  A screenshot of a computer Description automatically generated **Will Case**  A white background with black text Description automatically generated **Recap -- What Makes Resources/Capabilities Hard to Imitate?** - **Key Points**: - Resources and capabilities are hard to imitate when: 1. 2. 3. - **Example**: - Starbucks' success might be tied to a combination of brand image, operational practices, and culture---creating causal ambiguity for competitors. **bscuring Superior Performance** - **Key Points**: - A company's superior performance can remain hidden if: - Detailed internal information is not publicly available. - Specific contributions of different resources are unclear. - Example: Starbucks---its merchandise business profitability might be difficult to evaluate because of limited visibility into the contribution of this segment. - **Impact**: - This makes it harder for competitors to determine which resources to imitate. **Deterrence and Preemption** - **Key Points**: - **Deterrence**: Actions by incumbents to discourage competitors from entering the market (e.g., aggressive pricing, increasing capacity). - **Preemption**: Taking proactive steps to secure resources or customers before competitors (e.g., locking in supplier contracts, securing prime locations). - **Example**: - Starbucks' strategy might include ensuring prime retail locations or locking in supply agreements for premium coffee beans. **Causal Ambiguity -- Complexity and Interdependence** - **Key Concept**: - The value of a company's resources often comes from how they work together (interdependence), not just individual components. - **\"The sum is greater than its parts.\"** - Competitors struggle to imitate this because they can't recreate the same synergies **Starbucks -- Interdependence** - **Example**: - Starbucks creates value through the interplay of: - Free and fast Wi-Fi. - Power outlets for convenience. - Space and tables for a comfortable environment. - The "Third Place" concept (a space between home and work). - These elements work together to deliver a unique customer experience that's hard to replicate. **Imitation via Acquisition** - **Key Points**: - Some companies try to imitate resources by acquiring them, but this has limitations: - **No Seller**: Some resources, like a company's culture, cannot be sold. - **Building Resources**: Developing resources internally can take significant time and resources, often constrained by **path dependency**. - Example: A competitor can't \"buy\" Starbucks' culture or customer loyalty; it must be built over time. **Inertia** - **Key Points**: - **Inertia** can make it difficult for competitors to change their processes to imitate successful companies: - **Path Dependency**: A company's current state is shaped by decisions and developments over time. - **Example**: U.S. coffee shops took years to adopt espresso-based drinks because their existing processes weren't set up for it. - This makes catching up to a market leader like Starbucks challenging.