BCG Matrix & Decision Trees: Starbucks (SL IB Business Management)

• The business management toolkit is a set of situational, planning and decision-making tools. These tools should be to analyse and evaluate the syllabus content in terms of a real world example
  
  
• This suite of decision-making tools is designed to help business leaders assess their current situation and implement strategies for the future
  
  
• To evaluate these tools, you can
  • Consider the reliability of the data fed into these tools
  • Comment on the the subjectivity of their outcomes
• This evaluative approach will help you to apply your knowledge and to engage with decision-making as a process and a skill
   
   
• You will be assessed on your knowledge of important contemporary business topics through the the  analysis of a fictitious or real business. The case study below provides an example of how to effectively use the business Management Toolkit

Starbucks Corporation is an American multinational chain of coffeehouses with its headquarters in Seattle. It is the largest chain of coffeehouses in the world, with more than 34,000 stores in 80 countries, including almost 16,000 in the United States and over 2,500 in Europe. 

Starbucks offers hot and cold beverages including whole bean and micro-ground instant coffees, teas with and without leaves, juices, frappuccino drinks, pastries and snacks. Some offerings are seasonal or specific to the store location. 

Despite widespread scepticism, the first Starbucks opened in Italy in 2018 and 25 stores now operate in the country, selling its best-selling portfolio of products as well as a popular Oleato range of olive oil coffee drinks, amongst many other Italian specialities. Some senior Starbucks Europe managers have suggested that the business should focus on strengthening its product range in Italy - a strategy that was undoubtedly a key feature of Starbucks’ rapid growth in the UK - by investing $4 million later this year in above the line promotional activity to increase sales of a selection of drinks brands.
 

Starbucks Italy’s drinks portfolio illustrated in the BCG Matrix

Alternatively, following its success in Italy, leaders at Starbucks’ US headquarters are looking to expand the brand to one the few remaining European countries where it does not presently operate, with coffee-culture Croatia at the top of its list. They are keen to open a flagship city-centre store in Dubrovnik in time for the next summer season at a cost of $8 million. Extensive market research over a number of years has revealed some significant issues with this idea:

• Starbucks menu items and cafe layouts are designed for high traffic and rapid customer turnover whilst, for Croatians who love to linger, enjoying coffee with friends is something over which time is taken
• Cafes already exist all over the country including much loved chains such as Quahwa, D16 Coffee and Cogito Coffee, each of which enjoy strong customer loyalty
• On average, a medium-sized cup of coffee in Croatia costs less than one Euro, half the price Starbucks typically charges in other European countries

In order to help senior managers decide which strategy to pursue in Europe a decision tree diagram has been devised.

A decision tree diagram detailing Starbucks Europe's two strategic choices
 

Questions 

(a) Define the term product portfolio. [2 marks]
  
(b) Explain one advantage and one disadvantage to Starbucks of using decision trees in determining business strategy. [4 marks]
 

(c) Use the decision tree diagram to calculate the expected values of

(i) the promotional campaign in Italy

(ii) the opening of a flagship store in Croatia [4 marks]
  

(d) Using the BCG Matrix of Starbucks' drinks portfolio in Italy, as well as further information from the case study, recommend the products that Starbucks should select as its focus for increased promotional spending. [10 marks]

(a) Define the term product portfolio.  [2 marks]
 

(b) Explain one advantage and one disadvantage to Starbucks of using decision trees in determining business strategy.  [4 marks]
 

(c) Use the decision tree diagram to calculate the expected values of

(i) the promotional campaign in Italy

Step 1: Multiply the expected value of success of the promotional campaign by the probability

Step 2: Multiply the expected value of failure of the promotional campaign by the probability

Step 3: Add these two values

Step 4: Deduct the cost of the promotional campaign to identify the expected value

The expected value of the promotional campaign in Italy is $5.81m

(ii) the opening of a flagship store in Croatia

Step 5: Multiply the expected value of success of the flagship store by the probability

Step 6: Multiply the expected value of failure of the flagship store by the probability

Step 7: Add these two values

Step 8: Deduct the cost of the flagship store to identify the expected value

The expected value of the flagship store in Croatia is $4.5m

[4 marks]

 
(d) Using the BCG Matrix of Starbucks' drinks portfolio in Italy, as well as further information in the case study, recommend the products that Starbucks should select as its focus for increased promotional spending.  [10 marks]
 

Exemplar structure