Sample Essay On Starbuck External Environment
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The purpose of this paper is to discuss the strategies employed by Starbuck, by looking at its external environment and internal situation to determine their effectiveness. The paper will look at how the firm has been able to use its differentiation strategy to achieve growth from the time the firm was small and now it is a multinational company. Hence, the paper will help understand to how external and internal environment within which the company operates in, impact its strategic approach to its global business. The company business environment will be analyzed using porter’s five forces model and SWOT analysis approach. Lastly, based on the company’s environment analysis and its current strategy, recommendations will be provided on how it can improve its strategies, gain more competitive advantage and continue growing in terms of its profitability and operations.
In the year 1971 in Washington State, in Seattle the firm was founded; The firm logo and the name were inspired by the mermaid that is in the novel Moby Dick. The coffee house recently is very successful because it has used the Arabica coffee beans that have been sourced ethically. Howard Schultz was inspired to bring back the concept in the United States by the frequent trips that he made in Italy where he was greatly inspired by the bars of coffee that were there. He first paid a visit to the Starbucks in the year 1981 and he is also the current CEO of the company. Starbucks managed to buy the firm Starbuck from the investments that he had in the local businesses. The philosophy of the company is to be able to create a friendly environment that people feel it as the third place they can get between their home and the places of work and also have a very welcoming place to carry out their conversation. In around 50 countries, there are about 15000 stores of Starbucks.
This section of the paper provides an in-depth analysis of the firm and industry business environment and its strategies. Therefore, the analysis will show whether the current firm strategies that are fit based on the business environment or not.
3.1 External Environment Analysis
For any of the company’s analysis of competition the Porter’s five forces usually represent the identical significant activity of the company. The key to success in the very high competitive place of market the scientific view of the competition involved in the rapid global contested market. Michael Porter is the one who designed this specific approach that is being described. This particular approach is a very systematic approach in the process of identifying and also assessing the five forces strength that is influencing the coffee industry nature of competition.
There is very high competition in the fully packed coffee market and thus, there is very high potential threat of any new competitor that is trying to come into the market. This is with the threat of competitors of coffee industries such as the café Ritazza on the border. There are very challenging barriers that have been put in place for any of the firms that wish to enter the market and get to compete with the Starbucks and Costa and these firms they need to open a very big chain of shops. Starbuck can end up facing very serious and also disastrous consequences if for instance the coffee house can decide to bring resources together with the Tesco Company.
Secondly, for any of the company, the strong forces are the bargaining power that is with the suppliers and also the cost incurred in purchasing of the raw materials (Misner, 2010). As it is in the case of the commitment that Starbuck has that it will only get the coffee beans that have only been ethically sourced, the prices of the trade fair goods are at the premium prices. If the company is unable to pass the increased cost of the costs onto their customers, the company will have no option but to squeeze on their profit margins. The prices of the coffee will probably be lower if the other coffee houses decide to get their coffee beans, raw materials from elsewhere and also the non-fair trade.
The third thing about the porter’s forces is the growing power of bargaining in the customers. The reviews and the recommendations by the online peers are the one that usually has a great influence on the most decisions to some reasonable extent. Having the band wagon effect being applied, the decision of the customers on which product they should purchase can be influenced that is to say the customers will buy the most popular brand. Most of the companies usually pay more attention to nurturing the relationships and also the communication that they usually have with their customers because the power of the customers cannot be underestimated at all. For instance, in the new products this would finally result in the co-production. For those of the consumers that would like to feel involved with their favorite brands there is a lot of support and appreciation fro the social media to be able to communicate. The consumers usually get the feeling of being closer to their brand through the culture of the relationships of the consumer-corporation, because in such engagements the ‘us and them’ is usually cancelled. This phenomenon is best described as the ‘the consumers usually have the wish to understand the brands that they are usually able to connect with”.
Fourthly, the products that are entering the market place usually have some forces resulting from their substitutes (Misner, 2010). This can result from an innovative new product that has come from a well established competitor for an instance a new coffee flavor from a non –coffee house or also a coffee house or coffee from Costa. MC Donald introduced using the traditional house burger he was able to bring in the concept of ‘Mc Cafe’ thus providing the coffee house. Finally, the fifth force of porter can be provided by the strength of the competition that is involved in the rival products and rival firms and this is the combination of the other four forces. Costa coffee is the number one coffee dominant in the market, but there are many rival that are coffee market house in the market.
3.2 Internal Situation Analysis
The firm’s core competence has been in the area of its capability to effectively use its product differentiation approach, whereby it offers a product mix made up of high quality snacks and beverages. The company’s brand equity has over the years been built on the basis of selling the best quality coffee as well as other related products. Also, it has focused on ensuring that each and every customer has unique experience once he or she visit any of the Starbuck coffee houses (Alderman, 2012). The customer experience is based on providing high quality customer services, well maintained and clean stores, which reflect the unique culture of different communities, where the company has its operations. It approaches to serving customers, have enabled it to build a high level of customer loyalty in various markets around the globe. Other key competencies of the firm are in the area of management of human resource, which take the approach, values, encouraging the building of the relationship between the store and external stakeholders; hence, enhancing the process of implementing its business strategy of growing and expanding its operations within the international market, by employing the strategies of strategic alliance and acquisition.
There are a number of strengths, weaknesses, opportunities and threats that the firm faces based on its business environment;
Strengths: firstly, the company has a strong brand that is recognized globally and market position. It is one of the highly recognized coffee houses around the globe and it’s maintaining high market share within the U.S and other markets in a number of geographical locations. Secondly, the company offers high quality products as well as services that are in line with market demands and customer needs (Kotler & Armstrong, 2010). This plays a critical role in building customer loyalty that is critical for moving the firm forward. Additionally, the strategic location of the firm’s stores and their appealing nature make it easier for Starbuck to attract various groups of customers. On the other hand, the firm has embraced the use of modern technology in serving customers making their services convenient and always effective. In addition, Starbuck offers a variety of product mix that makes it easier for it to attract different customer segments. Lastly, the firm has a committed workforce, with vast experience in the area of product development and customer service.
Weaknesses: one of the major weaknesses of the firm is that it offers expensive products which in times of economic hardship, customers find it hard to pay for their products going for those products offered by competitors at a lower price (Jobber, 2010). Secondly, its over dependence on one market, that is the U.S market, thereby being faced with a risk of it income being adversely affected in the case that U.S market faces economic crisis. On the other hand, the company depends on the European and American coffee culture in entering into other markets, failing to take into account that the coffee culture in various countries varies greatly with the one in Europe and the U.S markets.
Opportunities: The firm has an opportunity to expand its operations in various parts of the world. It can also take advantage of the growing demand for healthier beverages, by ensuring its offer highly healthier products to its customers.
Threats: The firm is faced with a huge threat from the entry of new players in the market. In addition, high competition levels from the already established players in the industry poses a threat to the company market share.
3.3 Starbuck Strategies
One of the main strategies that have been followed by the company since it was started has been differentiation strategy. The firm has positioned itself as a coffee house that is committed to offering the finest coffee beverages to its customers. Hence, over the years, their mission, vision and objectives have been built around being unique in the nature of coffee beverages provided to its customers. In order to reduce risks and maximize on its profits the firm has embraced the broad differentiation strategy, whereby they have invested largely in the provision of different beverage products and related products, hence moving the firm from its initial retail approach strategy to embracing the strategy of investing in chain restaurants (Misner, 2010). The differentiation strategy has been very successful in enabling the firm to create customer loyalty and strong brand equity.
On the other hand, the firm has embraced the strategic alliance and acquisition strategies while entering into international market. The strategies have enabled the firm to successfully establish itself in different markets around the world, despite facing stiff competition during the initial entry stages. It is evident that the strategies that have been embraced by the firm have been instrumental in giving it competitive advantage, in one of the most competitive industry in the world.
The biggest growth in Starbucks is usually in the international segment. So as to be able to serve more customers, the markets that have come up such as; Mexico, India, Brazil, South Africa and china together with the middle class people continued to offer very important opportunities. There are a lot of untouched potentials that is existing in these markets despite Starbucks making a lot of inroads to get into the Chinese markets. So as to be able to develop in these local markets, Starbuck should remain very relevant to all its customers by growing in the emerging markets. The management also has a great role to play so as to be able to tailor into the store format they should possess the freedom to be able to work within their own framework. They should also be able to bring in some different tastes in their products; hence, being able to introduce the product mixes available locally so as to meet the needs of the individuals and communities in the market. The core competencies and also the capabilities of the company should be tailored from one country to another and this is according to the International strategy of Starbucks (Gamble, Thompson & Peteraf, 2013). They should then gradually put up the profit drivers in the various countries as they continue, the world expansion in the organic method.
In the fresh juice and also the tea products mix, Starbucks has very good growth opportunities. They should be able to put up these products along with their main coffee products. Starbuck should also consider moving along with the consumers’ preferences as they are changing to more beverages and snacks. They should ensure they offer more healthy mixes. In the market, there have been fluctuations in the prices of coffee beans despite the fact that Starbucks main value chain is coffee beans. Starbucks can be able to come in and mitigates this in the future through contracts so as to be able to close in the approximated inputs at a cost that is low and thus being able to manage the costs in the future at a greater extent.
In conclusion, it should take a brand differentiation and market differentiation strategies, given that various markets have unique beverage needs. In its global operations, implementing the two strategies will be very instrumental as it will be able to take into account the culture of people in various markets; therefore, offering them beverage products that suit their needs according to their cultural beliefs and values.
Alderman, L. (2012). In Europe, Starbucks adjusts to a Café Culture. [On-line]. Available @ http://www.nytimes.com/2012/03/31/business/starbucks-tailors-its-experience-to-fit-to-european-tastes.html?pagewanted=all&_r=0 [Accessed 10/4/15].
Gamble, J.E., Thompson, A.A., Peteraf, M. A.(2013). Essentials of Strategic Management, The quest for competitive Advantage, 3rd edition. New York, New York, McGraw-Hill Inc
Jobber, D. (2010). Principles and Practice of Marketing. 6th Edition. Maidenhead: McGraw-Hill.
Kotler P., Keller, K., Brady, M., Goodman, M. & Hansen, T. (2012). Marketing Management (2nd Ed). Harlow: Pearson Education Limited.
Kotler, P & Armstrong, G. (2010). Principles of Marketing. 13th Edition. Harlow, Essex: Prentice Hall.
Misner, I. (2010). The Five Key Competitive Strategies, http://ivanmisner.com/the-five-key-competitive-strategies/
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