First of all I will explain the external environment of Starbucks using PESTEL analysis, Porter’s five forces analysis and competitor analysis.
Next will be an analysis of Starbucks’ strategic capabilities. These will be determined using a resource audit, a value system analysis, the identification of possible core competences and the identification of important stakeholders. After this I will present a SWOT analysis of Starbucks before discussing three possible strategic options open to the company. Using the information I generate I will decide upon the most suitable option and then critically evaluate all the models and techniques used.
Howard Schultz bought a Seattle coffee company in 1987 then transformed the six coffee stores into a national, publicly owned company with more than 25, 000 employees and over 1,300 stores. By 2002 these figures had risen to 5,689 stores in 28 countries. He is the man behind, and CEO of, Starbucks.PESTLE Analysis:PESTLE analysis is a tool that can aid organisations making strategies by helping them understand the external environment in which they operate now and will operate in the future.
It is a method of examining the many different external factors affecting an organisation – the outside influences on success or failure.PESTLE stands for:Political – The current and potential influences from political pressuresEconomic – The local, national and world economy impactSocial – The ways in which changes in society affect usTechnological – How new and emerging technology affects our businessLegal – How local, national and world legislation affects usEnvironmental – The local, national and world environmental issuesThe PESTLE analysis will be used to identify and understand the important factors Starbucks must consider in all areas of the business.Political:* Taxation policy – high taxation imposed on farmers in those countries producing the coffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the consumer.
Recently (June 13, 2003) Tanzania’s Minister of Finance harmonized and rationalized local government taxation to boost rural productivity of the coffee bean. Tax was lowered for these ‘small holder’ farmers and this saving will have been passed on to purchasers of coffee like Starbucks.* Deregulation – A decade ago, the USA pulled out of the ICA (international Coffee Agreement) that set export quotas for producing nations and kept the price of coffee fairly stable. Coffee quotas and price controls ended.
Since the deregulation farmers have suffered and their earnings have dropped. Many have struggled to make a living so have given up.* International trade regulations/tariffs – Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country’s government imposes a tariff it not only results in an efficiency loss for Starbucks but large income transfers can become inconsistent with equity.
This extra charge can turn a bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.* Government stability – Starbucks should thoroughly investigate the political stability of any country they plan to expand to. Changes in government can lead to changes in taxation and legislation.
The forthcoming American elections may have an effect on Starbucks as new legislation or new or existing government may bring in taxes. Also, those countries in political turmoil or civil war (e.g. Zimbabwe at present) should be approached with great caution when considering new ventures.
* International stability – The international economy must be brought into consideration as it can affect Starbucks’ sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market. If the world market is in a slump it is not usually the ideal time for a business to look at grand expansion.* Employment law – A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers.
This saving would in turn be passed on to the purchaser.Economic:* Interest rates – A rise in interest rates means investment and expansion plans are put off resulting in falling sales for Starbucks and their suppliers. Also mortgage repayments rise so consumers have less disposable income to spend on luxury products such as coffee. Low interest rates should have the opposite effect.
* Economic Growth – If growth is low in the nation of location of Starbucks then sales may also fall. Consumer incomes tend to fall in periods of negative growth leaving less disposable income. Consumer confidence in products can also fall if the economic ‘mood’ is low* Inflation rates – Inflation is a condition of increasing prices. It is measured using the Retail Price Index (RPI) in the UK.
Business costs will rise for Starbucks through inflation, as will shoe-leather costs as they shop around for new ‘best prices’ of materials, menu costs will rise as Starbucks have to create new price lists. Also, uncertainty is created when making decisions not least because inflation redistributes money from lenders to borrowers. A firm that borrows ï¿½1000 during an inflation period will pay back less in ‘real terms’ as the value of this money will decline over the period.* Competitors pricing – Competitive pricing from competitors can start a price war for Starbucks that can drive down profits and profit margins as they attempt to increase, or at least maintain, their share of the market.
* Globalisation – Globalisation of the coffee market has meant farmers of the bean now earn less money than they used to. This can result in a decrease of people willing to do it for a living, which will mean a decrease in coffee produced, resulting in a drop in Starbucks supply levels and probably profits.* Exchange rates – Starbucks are affected by exchange rates when dealing with international trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ or ï¿½ when importing the goods to their country.
This saving can be passed along to the customer. Exchange rates are forever changing throughout the world in today’s market.Social:* Population demographics – Population demographics are a very important factor for Starbucks as they identify what parts of the population they need to aim their products at or which parts of the population they need to encourage to visit their stores more than they presently do. Looking at the table in the case study demonstrating the percentage of the age groups that drink coffee or speciality coffee it can be seen that the age groups that Starbucks should be aiming their marketing at are the people between 35 and 54.
They should consider targeting the 18-24 age group as they drink the least amount comparatively and by encouraging this segment to choose Starbucks coffee now, there is a chance they may continue to drink it long into the future.* Income distribution – Where income is distributed is another factor that Starbucks should look at as this also demonstrates the ideal place to aim their marketing or to locate their stores. Coffee is more of a luxury product so it is those people/places with the most amount of disposable income to spend that should be targeted the most intensely.* Attitude to work – Starbucks would not want to locate to an area where the local population have a poor attitude to work.
Recruitment would be difficult, training arduous, and staff turnover would be high. Attitudes to work are important in other ways. A large number of workers in large cities now go out for their lunch rather than use an internal canteen. Starbucks can use this to their advantage and promote the shop as a place where people can meet up and so it will mean that they will get a larger amount of people in their stores at this time of the day.
* Standard of education/skills – When Starbucks are deciding upon new premises they must look at the standards of education and skills locally. They must be sure there are people who live there with sufficient skills to ensure successful operation of the business, or at least the potential to learn that comes with a good education.* Working conditions/safety – Those people with the most disposable income, e.g.
young single professionals etc, will be accustomed to high standards. Starbucks must ensure it’s shops are clean and comfortable, service is of the highest order and health and safety issues are fully addressed* Location – Transport needs to the premises must be considered for both staff and customers. Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not to visit.* Age distribution – Research shows the average age of the population is getting older and birth rates are stagnating.
Starbucks is presently aiming it’s product at young people but maybe these views will change in the long-term as the market proportion for young people diminishes. The most profitable way forward may be to widen their target market despite the risk of alienating present customers.* Health consciousness – Good health and foodstuffs associated with healthy living are important I today’s market place, as this is a trend that is occurring at the moment in western societies. Starbucks can use this information when deciding the additional products to sell, as well as coffee, as a large number of their customers are looking for healthy alternatives to cakes and biscuits, which have been associated with coffee in the past.
Technological:* IT development – Starbucks is always looking to develop and improve its Internet facilities. Starbucks launched its first-generation e-commerce Web site in 1998. In late 1999, Starbucks decided the site needed a major upgrade to enable new functionality and prepare for long-term growth. To achieve these goals, Starbucks upgraded to Microsoft Commerce Server 2000, one of the key Microsoft .
NET Enterprise Servers. As a result, scalability and performance have improved, and the company now has the tools it needs to profile and target customers, analyse site data, and deliver new features to the market in the shortest time possible.* New materials and processes – Developments in the technology of coffee making machines and the computers that Starbucks use to run their cash registers will enable their staff to work more quickly and efficiently. This will result in customers being served quicker and create the potential to serve more customers in a day.
This will prevent customers from having to wait around for long periods thus improving customer relations along with increasing the customer base.* Software upgrades – In the short-term, Starbucks must identify the most efficient software upgrades to use to keep up with the competition. This applies to the improving the accessibility of their website (www.starbucks.
com) and also improving the speed and quality of the service provided on the shop floor.* Research and Development activity – As a multi-national business empire, Starbucks has the budget and the resources to have a cutting-edge R+D department. The website is very accessible, the facilities are state of the art but more importantly new ideas are consistently being tried in terms of a constantly updating menu.* Rate of technological change – The rate of technological change in the current world market is high, much higher than, say, thirty years ago.
Much of this is down to the Internet and the speed with which information can be communicated around the globe. Starbucks will need to invest heavily just to stand still in their ever expanding and developing market, and even more so to try to stay ahead of competitors.Legal:* Trade and product restrictions – Starbucks need to be aware of the trade laws in the various countries they occupy and do business with. They need to ensure they are not in violation of e.
g., religious laws. Also, certain countries impose a tariff that has to be paid when goods are imported/exported so this must be taken into account.* Employment law – Each country has varying employment laws.
Some may have a Sabbath day, some may have a limit on the number of hours an employee may work per week, all will have varying levels of minimum wage. Starbucks should consider these factors when deciding on relocation.* Health and Safety regulations – Starbucks may find these regulations are not as stringent or well enforced in certain countries. It would be wise though to enforce a universally high standard of health and safety throughout all it’s shops to maintain a good global image and ensure all laws are abided by.
Also, by not maintaining high standards they will be liable for a large amount of civil cases as it is a legal requirement for them to enable that their staff and customers are safe when they are in their stores.* Monopolies commission – If Starbucks consider expanding their operations further to control an even larger percentage of the market than they already have they will have to consider the possibility of breaking monopolies legislation as they may have a share of the market that is too large. This would mean that they would have unfair advantage over other companies in the same market. This would mean that they could benefit from economies of scale and would also be able to charge prices that were not competitive in the market and get away with it due to the lack of competition.
The Competition Commission are in place to try and prevent these situations occurring [e.g. CC (back then the MMC) block BskyB attempted takeover of Manchester United in 1999].* Land use – Starbucks may have to abide by local planning regulations when building shops or altering purchased sites, as certain areas of land may be protected or unsuitable.
All matters would be addressed by the local government.Environmental:* Pollution problems – Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
* Planning permissions – Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.* Work disposal – Starbucks need to carefully consider the methods in which they dispose of their waste as there are strict laws in most countries to ensure a firm trading in their country disposes of the waste that is created in their business in a specific and efficient way. If they do not follow these laws they may find themselves being sanctioned, which not only affects them financially but also tarnishes the reputation of the brand name, as most of the waste created will bear the logo of Starbucks.
* Environmental pressure groups – Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth. Any violation of animal or environmental rights by a company is usually followed by a swift and attention-drawing protest from one of the groups. Brand image and customer bases are often irreconcilably tarnished due to the actions of these groups.Porter’s Five Forces analysis:Porter’s five forces analysis is an important tool for analyzing an organizations industry structure in strategic processes.
It helps the marketer to contrast a competitive environment. It tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products.Porter has identified five competitive forces that shape every industry and every market. These are: The threat of entry, The power of buyers, The power of suppliers, The threat of substitutes and Competitive rivalry.
The threat of entry:The threat of entry covers: Economies of scale, The high or low cost of entry, Ease of access to distribution channels, Cost advantages not related to the size of the company, Whether competitors will retaliate? Government action and How important differentiation is.There will always be a continuous pressure for Starbucks to react and adjust to these new entrants. The easier it is for new entrants to enter the market the more competition there is within the market. Although this really should not pose too much of a problem for Starbucks as they have a very large share of the market that will be relatively immune to the threat of new entrants.
Starbucks is a company that have years of experience in roasting specialised coffee, if a company was to enter the coffee industry it would be extremely difficult for them to offer the same quality of coffee at a competitive price. As a company’s volume increases, so does its experience and knowledge which tends to decrease the cost of their productsThe power of buyers:Buyer power is likely to be high if a number of conditions are in place. There is a concentration of buyers, particularly if the volumes of purchases of the buyers are high, the supplying industry comprises a large number of small operators, there are alternative sources of supply, the component or material cost is a high percentage of total cost, the cost of switching a supplier is low or involves little risk, there is a threat of backward integration by the buyer. This is high where there a few, large players in a market If there are a large number of undifferentiated, small suppliers The cost of switching between suppliers is low for Starbucks.
The power of suppliers:If the market is dominated by few large suppliers rather than numerous fragmented sources, a suppliers bargaining power is likely to be high. Although suppliers do have certain amounts of power, it is limited. With Starbucks being ‘the most famous specialty coffee shop chain in the world’ reaching sales of $3.28 billion in 2002 and still expanding they should still be requiring coffee beans for some time.
It is safe to say that the Suppliers need Starbucks, just as much, if not more so than Starbucks need their supplies. Fortunately for Starbucks they buy their coffee beans directly from producing countries: Latin America (50%), Pacific Rim (35%) and East Africa (15%).The threat of substitutes:This occurs where there is product-for-product substitution, where there is a substitution of need e.g.
a bald head reduces the need for hair gel, where there is generic substitution and finally the attitude ‘we could always do without …’.
An example for Starbucks would be if an alternative to coffee was offered e.g. a customer switching from coffee to tea.Competitive rivalry:Numerous factors contribute to intense rivalry between existing competitors in an industry.
This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is found in the centre of the diagram. The extent to which competitors are in balance, this is where competitors are of an equal size which creates intense competition as one of the competitors tries to gain dominance over the other, high fixed costs in an industry may result in price wars, differentiation is important as in a commodity market where products or services are undifferentiated there is little to stop customers switching between competitors. Starbucks do not really have any competitive rivals that are of similar size to them so there are not any rivals in the market that would be considered in balance with them.
However, they must maintain their excellent standards and always be on the lookout for new innovations in order to stay as the market leader.Competitor Analysis:Competition is steadily growing against Starbucks each year as the industry grows. Competitors look to gain an advantage by price cuts, launching a rival product, aggressive expansion of production to increase market share or inclusion of significant modifications to a product that other competitors must also undertake to keep up. The following are the current figures showing the market share of companies in the coffee industry.
35% Starbucks20% Local Coffee Outlets14% Internet Cyber Cafes13% Caffe Nero10% Costa Coffee8% Coffee RepublicResource Audit:The strategic capability of any company is underpinned by the resources available to it. Practically all resources fall into one of four categories: Physical, Human, Financial or Intellectual capital.Physical resources:The physical resources of Starbucks are the shops that they own, any vehicles they own for transporting goods and all the equipment that is used to create the cup of coffee (or pastry etc). Those resources that are younger and in better condition are deemed more useful to Starbucks.
In 2002 Starbucks had 5689 outlets around the world, which at the time was still increasing at a ‘breakneck speed’ and at the end of the 1990’s the company was opening an average 2 stores per day. In January 2004 the company opened their 8000th store (www.Starbucks.com)Human Resources:The human resources are the knowledge, skills and adaptability of the workers at Starbucks.
Staff who work to their potential in these areas often become a company’s ‘most valuable asset’. Schultz, the founder of Starbucks, believes every member of staff plays an equal part in the ‘customer experience’ regardless of whether they be CEO or waiter.Financial Resources:These are the capital, cash, debtors ; creditors, and suppliers of money (e.g.
shareholders) of Starbucks. Obviously for Starbucks the less debt they are in, the more positive their resource audit looks. Starbucks have a lot of working capital tied up in the business. Some of this capital includes varieties of whole coffee beans, foodstuffs, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers and other accessories.
Intellectual capital:These are the intangible/immeasurable resources of Starbucks. This is the information captured in brands, patents, customer databases, business systems and relationships with business partners. All these can contain great value and when a business is purchased these values fall under the price-tag marked ‘goodwill’. One of the few ways Starbucks can protect this intangible information is to ensure employees sign confidentiality agreements to protect any leaks of knowledge to competitors.
Value-system analysis:THE VALUE SYSTEM:SUPPLIER VALUE CHAINS –> FIRM VALUE CHAINS –> CHANNEL VALUE CHAINS –> BUYER VALUE CHAINSThe value system is the inter-organisational links that are vital in the creation of the product or service of a company. It follows the production of the service/product from raw material stage right through to the customer purchase. Each instruction for the development of the product is detailed and explained at each stage of the value system. The ‘firm value chain’ is the most important to a manager because that is their company, however, a good manager will understand the whole process and how to manage each individual link and relationship to maximise customer value.
Managers should also need to learn the whole value system because most of the cost and value creation occurs in the supply and distribution chains.For Starbucks, the ‘supplier value chain’ deals with where they get the coffee beans from that they use to create their end product – a cup of coffee. Starbucks buy all their beans direct from the farmers in the producing countries cutting out any middle-man therefore keeping prices to a minimum. The countries that supply them can be found in Latin America, East Africa and on the Pacific Rim.
Starbucks fully appreciate the need to oversee all aspects of the value system and we can see an example of this in their determination to obtain the highly sought Narino Supremo crop in 1992. This acquisition ensured some of the highest quality coffee supplies in the world would be reaped by Starbucks. The company has close relationships with their coffee exporters. They maintain this by working directly with them and training them.
A good relationship here is essential and needs to be maintained.The ‘firm’s value chain’ consists of:-The Firm’s infrastructure; which is about the ways in which Starbucks want their organisation to run and how it is best to implement systems of planning, finance, quality control and information management, it is also where they have made the decision to make high quality coffee from the best coffee beans as this is involved with the quality control.-Human Resource Management; It is concerned with the activities involved in recruiting, managing, training, developing and rewarding people within the organisation. For Starbucks this is where they have made decisions about the fact that all employees are equal, even those on the shop-floor that are working over 20 hours a week receive bonuses like free coffee and health care coverage, this was to make sure that the members of staff felt as if they were valued by the company and would continue to provide a good service.
Another implemented scheme is for all Starbucks store staff to have a comprehensive 24 hour training scheme before they were allowed on to work directly with customers.-Technology development; Starbucks has a large number of areas where it uses technology from regulating their stock levels to the cash registers. There is also technology to enable customers can to order their coffee over the internet and then pick it up from the store when they get there. Some stores now also contain computers where customers can access the internet.
-Procurement; this refers to the processes for acquiring the various resource inputs to the primary activities. For instance, the method of obtaining the grade A coffee beans from suppliers to use in the Starbucks coffee.-Inbound logistics; For Starbucks this means receiving the coffee beans and other products that they need to make the products in their stores from their suppliers and storing these until they are used to make the product that they are going to sell.-Operations; this is the stage where Starbucks make the coffee in the store and package the other subsidiary products.
-Outbound logistics; this is collection, storage and distribution of coffee. A customer actually purchasing a cup of Starbucks coffee from the store.-Marketing and Sales; This is how consumers become aware of Starbucks coffee and purchase it. Starbucks is a worldwide company and their brand is recognised all over the world, which means that marketing is not as necessary as it once was.
Most people now recognise the name and associate the brand-image with high quality products.-Service; this includes all the activities that enhance or maintain the value of the product, e.g. installation, repair and training.
This area is concerned with the members of staff that deal with the customers, it focuses on the need to ensure the ‘customer experience’ of visiting a Starbucks store is all the more enjoyable due to the friendliness and efficiency of staff and consistently high quality product on offer.The ‘channel value chain’ deals with the outlets Starbucks uses to enable consumers to purchase their product. Starbucks should know everything that is sold under their banner and also the sales methods used to customers. They should know the location of every store along with its surrounding area so it can generate an idea of the surrounding customer demographics, e.
g. students, young professionals, etc.Starbucks should know in detail all information regarding any business partners they are involved with, be they retail estate agents – used to obtain premium retailing sites – or foreign suppliers – who can take advantage of market conditions.’Customer value chains’ illustrate how value is added by the end buyers of the product.
Customer value can be increased by Starbucks by ensuring the store environment is how it should be, the coffee is consistently up to a high standard, the menu is broad and varied enough to cater for most tastes, value for money is achieved and most of all the service is exemplary. Through training and research and development all these factors are achievable and maintainable for Starbucks and should ensure a bright and prosperous future.Core Competences:Core competences help to provide firms with a ‘competitive advantage’. They are used to achieve a strategic advantage through activities, skills or know-how, and basically a general expertise in the development of the product.
This advantage will provide value to customers.’In the 1990s managers will be judged on their ability to identify, cultivate, and exploit the core competences that make growth possible – indeed, they’ll have to rethink the concept of the corporation it self.’ C K Prahalad and G Hamel (1990)The aim is for Starbucks to focus attention on competences that really affect competitive advantage. For Starbucks, these competences include the knowledge of where the finest coffee beans are grown, the knowledge of how best to prepare them in order to make the best cup of coffee and also the knowledge of how best to approach a foreign market as, of all their industry competitors, they are the most successfully globalised.
Core competences can provide potential access to a wide variety of markets so can be of immeasurable use to Starbucks and their varied attempts of product diversification. Starbucks have established such a strong leadership in the coffee market due to core competences such as clear distinctive brand proposition that focuses solely on a closely-defined customer group and leading direct marketing skills in the Starbucks Research and Development department.Stakeholders:A stakeholder is an individual or a group, which has an effect on, and is affected by, an organisation.The stakeholder approach believes all groups associated with the firm can benefit at the same time without one party, e.
g. shareholders, suffering. By working with its stakeholder groups the firm can generate more profit.Main stakeholders in Starbucks are the employees, owners, suppliers and, of course, the customers.
Individual stakeholders may not have too much influence on the way that Starbucks perform due to lack of sufficient power. Influence has more chance of occurring if stakeholders share their expectations and grievances with others, uniting them as a stakeholder group.Swot Analysis:Every organization has some strength. In some cases this is obvious, for example, dominant market shares.
In other cases, it is a matter of perspective, for instance, a company is very small and hence has the ability to move fast. It is important to note that companies that are in a bad position also have strengths. Whether these strengths are adequate is an issue for analysis.Every organization also has some weakness.
In some cases, this is obvious; say for example, a stricter regulatory environment. In other cases, it is a matter of perspective, for example, a company has 99% market share and is open to attack from every new player. It is important to note that companies that are extremely competent in what they do, also have weaknesses. How badly these weaknesses will affect the company is a matter of analysis.
All organizations have some opportunities that they can gain from. These could range from diversification to sale of operations. Identifying hidden opportunities is the mark of an astute analyst.No organization is immune to threats.
These could be internal, such as falling productivity. Or they could be external, such as lower priced international Competition.Starbucks SWOT AnalysisStrengths- Excellent product diversification: coffee, baked goods, cds, and etc.- Established logo, developed brand, copyrights, trademarks, websites, and patents- Company Operated Retail Stores, International Stores- High Visibility Locations to attract customers.
– Valued and motivated employees: low employee turnover- Good Relationship with coffee suppliers- Not a Franchise- Coffee industry market-leader- GlobalisedWeaknesses- Ever-increasing number of competitors in growing market- Clustering of too many shops in a small area: self cannibalization- Cross Functional Management- Price: expensiveOpportunities- Expansion into retail operations- Technological advances- Finding new distribution channels, i.e. delivery- Launch new products- Further international market expansion – Asia etc.- Distribution Agreements- Brand ExtensionThreats- Competition: restaurants, street carts, supermarkets, other coffee shops, other caffeine products.
– US Coffee Saturated Market by 2004- Coffee price volatility in developing countries- Poorly treated farmers struggling to make a living in those countries supplying the coffee beans – negative publicity.- Consumer trends toward more healthy ways and away from caffeineFuture strategic options:Having analysed the external and internal forces of Starbucks it is now possible to generate three possible future strategic decisions. These strategies will be analysed thoroughly before one of them is recommended as the best way forward.The options I have chosen to analyse are Diversification, Mergers and Expansion.
Diversification:If a business diversifies it starts making new products or offering new services. Businesses can diversify in two ways; related and unrelated. I propose Starbucks attempt related diversification; by this I mean diversification reflecting some connection with the organisation’s activities.Suitability:Starbucks already sells Brewing and serving equipment, Coffee beverages, Coffee by the pound, Books, Gifts, Music, Sweets and Tea, so as you can see it has a successful history of product diversification in the short time it has been around.
New products preparing for launch currently include the Prepaid Starbucks Card, Starbucks Express (pre-order products) as well as general store changes (installing automatic espresso machines and a high-speed wireless Internet service).I propose the introduction of savoury products such as pastries as I feel current foodstuffs on offer tend to be sugary and unhealthy. If there were products that could be eaten as a substitute lunch or snack then I feel customers would be more inclined to stay in the shop longer and have less of an excuse to leave. The more time a customer spends in a store, the more likely they are to spend more money and drink more coffee.
Thus far Starbucks have proved how successful diversification can be when a new product can be combined with the existing product. If you really look at Starbucks’ products, you’ll see that the company has remained true to its core product, coffee. Basically, any product that one could ever need to make and/or enjoy coffee is sold. The introduction of pastries just seems like a natural progression in the Starbucks diversification line.
Although this option would appear to be a good direction for the company go in it may have a few problems at the suitability level. The problem with this option is that it may be moving away from Starbucks’ position as a market leader and pushing them into another market which would mean that they would be dealing with new competitors (e.g. Greggs Bakers) that are already established in that market.
These firms would have an industry-knowledge advantage over Starbucks.Acceptability:In 1997, Starbucks began offering the popular books recommended by Oprah Winfrey. Giving customers the opportunity to relax, combining reading with coffee drinking. It went down a storm because it was the sort of thing that people did at home whilst drinking coffee.
Eating savoury pastries is also done at home with a coffee. Each coffee related new product Starbucks have launched has been a financial success and there is no reason to suggest why this would be anything otherwise.This idea would also appeal main customer base of young professionals as they come in the stores on their rushed dinner breaks. A savoury snack is often all they need to get them through the rest of the day.
The option may be a financially viable and successful campaign but this is not that definite as they will have a number of new competitors who know the market a lot better than they do. Their customers may also not like the direction that they are taking as they may feel that they are not concentrating on what they do well and may become disillusioned with the new direction of the company. Another problem at this level is that the key stakeholders may not agree with the decision and may oppose it due to the fact that they will not like the amount of control the organisation is losing over what it does wellFeasibility:Starbucks has moulded its future with a commitment to diversifying its product lines. Marketing your new product is essential if it is to survive.
Starbucks’ marketing strategy needs to identify who their potential clients are, what sort of product they are interested in, how they can best promote your product to them, and most importantly how they can provide your product to them in a way that satisfies their needsVery few changes would need to be made to the resource audit. The same oven used to bake the muffins could be used for the pastries. A heating stand would need to be purchased to ensure pastries stayed warm and some simple training schemes would need to be initiated to inform on cooking times. The pastries would be bought ready-made but uncooked.
However, it may be quite difficult for the company to find new suppliers. It could be risky, as they would not know if they could trust the supplier. The second problem in this area is that they may not have the resources to sell the products effectively as they would not have enough space in their stores and may have to go through a restructuring process that could become very expensive.Mergers:A merger is the marriage of one company’s assets with another.
If a deal is agreed on both sides, it is viewed as a merger. However, if one company raids the market for another company’s shares in an effort to force a merger it is known as a hostile takeover. Essentially, all takeovers and mergers set out to achieve the same goal: to grow a company in size, value, market share and profit.This strategic decision is for Starbucks to merge with current Internet Cyber Cafes.
Suitability:Starbucks have already stated that a current aim of theirs is to introduce Internet facilities to their stores so this strategy makes good business sense in that respect. Starbucks will not only acquire the premises and customers from these sites but also the facilities and expertise gained from working in an Internet environment. This knowledge can be fully utilised in the process of establishing Starbucks’ own Internet facilities in other shops. This idea is compatible with expectations and will also exploit an opportunity whilst avoiding threats.
Starbucks will have found a synergy between the two companies and also increased market share.Accessibility:This idea should be successful because the Internet is something that Starbucks’ R&D department have identified, as a customer need. The Cyber Cafes already hold 13% of the market-share altogether, that is third position. Seemingly the only thing holding them back from further growth is the lack of high quality products on offer and possibly an inferior ‘customer experience’ offered by the shop as oppose to that offered by Starbucks.
The fact expansion and an increase in market share looks certain to be achieved should persuade stakeholders to accept this proposal. An added bonus is that it will enhance the chances of Starbucks new Internet idea becoming a success.Feasibility:A big problem facing Starbucks with this proposal is that there is government legislation in place to threaten this decision. There are strict rules enforced in Britain by the Competition Commission (which used to be called the Monopolies and Mergers Commission) to ensure that companies do not become overly dominant in any one sector through mergers.
The deals are also monitored by the Takeover Panel to ensure that more rules – this time governing codes of conduct and market information – are adhered to. Starbucks is the market-share leader with 35% and Internet Cyber Cafes are in third place with 14%. These figures together would amount to almost half the market-share so this decision would be a prime contender to be rejected by the CC on grounds it would create an unfair monopoly in the market.Another question that needs to be asked is will the new facilities disrupt the idyllic Starbucks environment? Some customers may not like the change in atmosphere so Starbucks could risk losing their clientele.
Expansion:A firm can expand within a country it already exists or branch out and expand into a foreign market. Starbucks should attempt to expand into new countries to further globalise itself.Suitability:Starbucks believes the key to growth is rapid expansion so this idea is in line with their thinking. There is so much exploitable potential out there undiscovered by Starbucks.
It is a suitable move because the US coffee market is reaching saturation point so the need to expand overseas is more pressing than ever.As of February 2004 Starbucks shops can be found in 25 countries in the world. This shows Starbucks have a real strength in this area as they have achieved remarkable growth for such a young company. It also shows they have experience in cracking foreign markets.
Although this represents a very good start, and they are undoubtedly the market leader in this area, it also illustrates how much potential is actually waiting there for Starbucks.- Current market of Europe: over 50% of world’s coffee consumptionWell-developed market, long-standing coffee drinking traditionsAffluent population, room for gaining market share.- Current market Asia: 12-15% of world’s coffee consumptionDeveloping market, long-standing tea drinking traditionsHigh potential for market growth- Current market South America: under 10% of world’s coffee consumptionTraditional coffee growing countriesLess affluent population, room for gaining market share in frequented commercial districts.Asia and, in particular, Europe are attractive places to relocate to.
There is real potential due to the population sizes, amount of people with a high disposable income, development in the market and genuine love for caffeine!When looking at the life cycle portfolio matrix it identifies that Starbucks is a Dominant Company in a mature market, when looking at the link between these two it states that in this position they should defend their position as a cost leader. Overseas expansion is the way forward.Acceptability:To make the project a success Starbucks will need help. Previously, joint ventures, licenses and company-owned operations are mechanisms that have brought success with previous global expansion.
In most countries Starbucks select a local partner that fits their strict criteria, to help recruit, obtain supplies and learn market conditions (e.g. in Singapore Starbucks tied up with Bonvests Holdings Ltd).To ensure the idea is accepted by stakeholders it must be proved to be financially profitable.
Using collaborated financial data it has been proven that there is a definite positive correlation between the number of stores owned by Starbucks and profit levels. Between 1987 to 2002 the number of shops increased from 17 to 5689, while profits increased at a rate of 30% per annum.Evidence like this is more than likely to win over the stakeholders.Feasibility:This will discover if Starbucks has the financial resources to allow a broad venture such as international expansion.
I believe they have, especially since the figures suggest they will only be out of pocket in the short-term.Starbucks already has a strict, precise and successful policy on the way that they go about opening new stores so this mean that they already have the resources in place to implement the action plan. The major barrier to this option is the fact that if they continue to grow at the rate that they are growing at the moment then they may have to look at the legislation involved with having a monopoly share of the market. Smaller problems that Starbucks may face when attempting international expansion are; local negative preconceptions about American multinational companies, mass culture infecting traditional values, large scale service meaning poor quality, people growing to despise U.
S. commercialism and the notion of being “invaded”.Recommended option:On the basis of all the research and evidence consulted for these three strategic decisions, I am inclined to suggest Expansion would be the most profitable and successful venture to undertake. It also seems this decision has the most undiscovered potential for Starbucks to exploit.
The prospects for this plan look good and, at the end of the day, Starbucks are a strong brand, and strength of brand is often the key factor in whether a growth strategy is a success or failure.Critical Review:The PESTEL analysis is mainly used to assess the future impact of environmental influences. It only deals with the external business environment. Another limitation is that environmental forces especially important to one firm may not be so important to another.
Also, items found in a PESTEL analysis are of limited value if they are merely seen as a listing of influences. Although the PESTEL analysis is a good tool used by all companies to examine their general external environment the number of macro environmental influences are unlimited. For the analysis to be more accurate the company must prioritise and monitor those factors that influence their industry.Porter’s Five Forces model can be applied to practically every company.
However, its main weakness is due to the historical context in which it was developed. It is best used with companies with simple market structures. The analysis of all five forces can get very difficult in industries with multiple interrelations, product groups, by-products and segments. It is important that companies don’t do a too narrow analysis, risking missing important elements.
The model assumes relatively static market structures and it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks, etc.Porters Five Forces Model has some major limitations in today’s market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-to-understand way – as a starting point for further analysis.
SWOT analysis is widely used by businesses to identify internal strengths and weaknesses. It will highlight external opportunities and threats. However, it can be undermined by subjectiveness, also ignoring a firm’s intangible resources mean a full picture of their strategic position is not given. Also, this marketing plan fails to prioritise objectives.
The SWOT analysis is best used only as a guide.In the long term, strategic analysis will only keep being successful if all staff are made fully aware of its effects upon decision making.