“The Boston Consulting Group (BCG) matrix is enhancing a multidivisional firm’s efforts to formulate strategies” and are including Question Marks, Star, Cash Cows and Dogs Starbucks is applying this matrix to identify the each stores strategic position. In division Question Marks, shows low relatives market position but high growth industry. Firms cash needs are high and cash generation is low. This division decides to strengthen on pursuing an intensive strategy. Division Stars is the best long-run opportunities for growth and profitability.
This stage is maintaining or strengthening their dominant positions. Next in are Cash Cows with control and manage for high relative market share position but compete in a low growth industry. Finally, in Dogs have low relative market share position and no market growth industry. This divisional are weak into internal and external position and often retrenchment, divestiture and liquidation. Retrenchment is the best strategy because can reduce cost and expenditures to become viable, profitable divisions.
Besides that, between the years 2003 to 2005 Starbucks Income Statements shows the net revenue were $4075,000 in year 2003, $2191,000 in year 2004 and year 2005 was $6369,000. Moreover, the sales growth rate between year 2004 and 2005 was 56. 3%. This was HIGH position of industry sales growth rate and proved that in STAR division. This division represents the Starbucks have long-run opportunities for the growth and profitability. The divisions will be considering about forward, backward, and horizontal integration, market penetration, market development and product development.
PEST ANALYSIS Political Nowadays companies find it difficult to survive by relying solely on domestic market and try to find various businesses in various countries without boundaries. The basic need for globalization is to understand and learn different cultures of country which are including tax rates, law and legislation. Economic Currently the trend in globalization is looking for more luxurious life for people due to increase in the inflation rates and increase in unemployment.
People will look for the products which save costs and time, improved customer service, immediate availability and trouble free operation is becoming more important. Social, Cultural, Demographic and Environmental According to these analyses, it need to provide some benefits to consumers which can more convenience and attractive to be used by any customers. A cultural connection is created, produce the products with better quality, flexible price and free chemical products but additional flavor mix which is made from natural ingredient for the rich and middle classes family.
Technological High technology is improving the business in an organization. Internet is the advance technology in the world which can communicate and spread the information from a user to another user. In contrast, advertising is more convenient into marketing strategy because customers can consume their products after notice their advertisement. Online purchasing also is another way to advertise or sell their products. Besides, high technology machineries can make more profits and meet the achievement goals sooner or later. SWOT ANALYSIS Strengths
Starbucks concern to provide great work environment for the staffs and apply excellence services. Starbucks also monopoly advantages over its competitors. Consumers more concern on quality and healthy so purchased Ethos healthy water for $8 million and also does not use chemical flavor for coffee. The top management considers to earning more profit so launch a new sales of Frappuccino in Japan and Taiwan. Weakness Despite so many strengths on Starbucks organization, the expensive price is the weakness to Starbucks, it will influence consumers seldom to order and buy their products.
Less marketing and advertising is the problem to Starbucks and no available Starbucks products at supermarket. Consumers can not lead up to try Starbucks new product. Opportunities Starbucks do advertisements about Free internet connections and excellent service for customers. Furthermore, Starbucks also provide express food to reduce time to be spent and increase healthy products which is high demand in the time being. Do research & development to sell products in every supermarket with low price and same quality. Threats
Starbucks need to change marketing strategy by reducing price to compete with the competitors. Create new products with low price and good quality for customers and sell at supermarkets too. There is intense competition in the coffee market amongst established coffee shops that are fighting to get customers. There are local coffee shops offering specials to lure potential customers in. Restaurants are opening earlier and closing later to accommodate customers on the go. With the 85% North American customers taking their coffee to go, convenience is a major factor
There is a great deal of risk of entry by potential competitors due to the low start up costs. McDonalds is able to add specialty coffee to their existing services to tap into the specialty coffee market. There is potential of $125,000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market. Water is a substitute which is healthy for us and it is free. The option to buy bottled water is also inexpensive compared to coffee. With the focus on healthier living, water is the ultimate choice.
There is more bargaining power for suppliers of technological innovations such as automated coffee machines, latte and espresso machines, etc because there are not as many suppliers for such equipment as there are for coffee beans. Customers did not really have bargaining power when it came to premium coffee such as Starbucks. The sheer scale of Starbucks’ business reduces the bargaining power of any single group of buyers. They believe that the more the outlet the more the sale. Basing on this strategy they are increasing their outlets day by day in their domestic region as well as abroad.
Without satisfying the customers need, by increasing the numbers they will not be able succeed in their mission. Starbucks is about global company but it does not spend so much money on advertisement. They only spend 1% from revenue as advertisement. Low spending on advertisement obstructs Starbucks’s brand building outside the USA. Political risk refers to political actions that may have a negative impact on the firm’s value. Political risk is not confined to developing countries. It will exist in industrialized economies.
They have to types of political risks to affect value of firms which are macro-political risk and micro-political risk. Macro -political risks such as war and anti-globalization efforts will affect the value of all firm, micro-political risks such as regulation of certain industries adversely affect the value of a firm too. Besides, The risk out of factors internal to the company such as machinery breakdown, industrial strife, supply and distribution imperfections, excess or shortfall in inventory, etc. It causes downtime in the day-to-day operations of the enterprise.
Reducing costs by eliminating waste and reducing variances and lead time by improving processes are important to bring about global efficiency. The greater the number of parts and processes involved in production, the greater the risk of not achieving the desired quality and productivity standards. Country risk is a wider concept that encompasses economic conditions, government policies, political conditions, and security factors. The challenge of country risk analysis is in the aggregation of risk factor.
The volatile political environment in the middle-east created serious problems for Starbucks. Arab students boycott of American goods and services especially Starbucks in the top list of the companies because of Schultz closeness to the Jewish community. Technological risk means the probability of adverse effects on business due to factors such as obsolescence of an existing technology, development costs of new technology, failure of a new technology, and security concerns of electronic transactions. Environmental risk can be of two forms.
The company may incur regulators’ wrath because it polluted the environment, or there may be a public outer in the event of environmental damage caused by the company. Environmental risk management might not provide short-term gains like financial risk management does, but in the long run, it can certainly become a source of competitive advantage and also enhance the corporate image. Starbucks’ coffees price much expensive it is because Starbucks’ purchased only high quality coffee beans. As Starbucks have many competitors, this will be an advantage of the competitors.
Nowadays people are looking for cheap products. Even though Starbucks have customers to spend money for buying their products. After the economy crisis incident, Starbucks have to face of declining general consumers demand for specialty coffee products. Other than, Starbucks is highly dependent on the financial performance from US operating segment. Starbucks also increased labor costs, including health care benefits and workers’ insurance costs. This will more burden on financial. Nowadays, consumers trend toward more healthy ways and away from caffeine.
They will look for products without caffeine and chemical flavor for coffee. According to newspapers which to adverse public or medical opinions about the health effects which will effect or harm to the business. Starbucks have poor marketing strategy on advertising. They prefer to build the brand by promoting the drinks cup-by-cup with customers. In this way, the advertisement ends until they drink the coffee, while some groups of people willing to support the advertisement for timing just to taste the drink for free.
The chances to attract valuable customers are very low. Therefore, it also affects gross profit of Starbuck. Starbucks need to do more advertisements on newspapers; magazines and internet advertisements to promote new and latest products to attract more customers enthusiastically walk in to buy your products. Starbucks does not emphasize in distributing their products to supermarkets due to concern on quality of the coffee; if the coffees were packaged into plastic bags the mixing of the beans will not be as accurate.
It will cause the taste of the coffee will be different and the coffee beans would not be fresh as grinded beans. Therefore, the packaging coffee in supermarket did not have same taste as coffee which mixed in the Starbucks. Customer’s satisfaction on the coffee will badly affect and as well as demand of the Starbucks coffee. Recommendations Reduce their price by producing a new product of coffee using cheaper beans or find buy cheaper coffee beans from farmer.
Starbucks’ should decrease price of the coffee to face their competitors such as Gloria Jeans, Coffee Bean, Mc Donald, Dunkin Donuts. They also can do promotion or promote packages of coffee set to impress customers, such as McDonald promoting their product. If the challenge was met successfully, in all likelihood company’s best years lay on the strategic road ahead. Besides, reduce own companies and change it to licensing companies, it can make more profit but reduce operating cost, rental and renovation cost which is running to debt long time ago.
Starbucks need to sell and produce some own products in the supermarket instead of own outlets only which is high demand in the time being. Meanwhile Starbucks can provide benefits to consumers such as provide some discounts to consumers when company anniversary, persuade consumers to join to be a member due to can enjoy many benefits which can get member discounts when they order drinks every time or have a free drinks when birthday date. Consumers or members can share their comments and ideas in Starbucks forum. It can improve the business operations and upgrade the products.