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    Strategy of Starbucks and its competitive position

    University: BPP UNIVERSITY SCHOOL OF BUSINESS AND TECHNOLOGY

    • Unit No: 5
    • Level: High school
    • Pages: 20 / Words 5008
    • Paper Type: Assignment
    • Course Code: MGT5STR
    • Downloads: 449
    Question :

    This assessment will cover following questions:

    • A critical evaluation of the sources of Starbucks’ competitive advantage and how these differ from other firms competing in the industry.
    • Starbucks is a coffee house chain. An analysis of the Speciality Coffee Café industry and its External Environment.

    Provide in-depth understanding of the internal and external environment of the Starbucks that impacts its working.

    Answer :

    INTRODUCTION

    Starbucks and its competitive position

    Starbucks is most popular coffee firm which has great coffee house chain. It offers wide range of products to its potential buyers and always takes care of their taste and preferences. It has branches across the world and has become the leading brand in this sector. Starbucks is famous for using high quality whole bean in its items. In the year 2015, Starbucks has become the world leader in this industry and has generated 16 billion revenues which was very high as compare to other coffee retailers. Company is using licensing and franchising system to run business worldwide. Its return on investment was 23.1% in the year 2015 whereas it was 6.8% last year. Starbucks has made partnership with Apple company and In the year 2007 Apple has given opportunity to its potential buyers that they can browse iTune of Apple at store of Starbucks (Real and Percell, 2018).

    Starbucks is very concern about environment hence, it has started making its business plan in very effective manner. Recycling of papers has raised company’s image and also have supported in reducing its operational cost to great extent. It has fulfilled its corporate social responsibilities and organized food bank donation camp etc. The main key of its success and its strong position in the market as compare to its competitors is its strategies and quality of products. Other factor which has made it able to take competitive advantages and improving image in the eyes of people is its sustainable activities and commitment to reduce wastes.

    Competitive position of Starbucks

    There is a huge competition in the coffee industry. Major competitors of Starbucks are McDonalds, Caribou coffee, Dunkin’s Donuts etc. Starbucks has covered 50% of local market and then others big brands started targeting the Starbucks.

     

    Starbucks

    McDonalds

    Dunkin’s Donuts

    Stores

    Company is having 21000 stores in the country.

    It has more than 36000 stores.

    Dunkin has only 11000 stores which is lower than its other competitors.

    Gross profit margin (GPM%)

    In the year 2014 its GPM was 58.84%

    McDonalds has 44.29% GPM in the year 2014.

    It has 32.38%

    Number of workers

    Starbucks has employed 191000 workers.

    McDonalds has 420000 staff members

    It has hired 1134 employees only in the year 2014.

    Return on assets

    In the context of return on assets it is stated that Starbucks has 23.14% return on its assets investment (Competitive position of Starbucks, 2018).

    McDonalds have 13.42 % return on its assets which is less than Starbucks.

    It has only 5.50 % return on its assets which shows that it is at lower position as compare to its rivals.

    Net profit margin

    It has 14.57% net profit margin.

    McDonalds has 17.34 % net profit margin.

    It has 23.55% net profit margin.

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    The external environment

    PESTEL analysis

    Political factors

    The major political factors which impacts the organizations are tax rate, political stability, corruption, labour laws etc. The company have analyzed that political factors which have changed the customer relation approaches and have also decreased the sales of the company. The company also have to analysed that it has the opportunity to mere with many companies which are present in the market to grow the business and maintain the quality of their products and increase the quality of their services. It also focused on the policies of the government so that they can maintain the quality of the strategies and make them more efficient in the company.(Cortimiglia, Ghezzi and Frank, 2016)The company also evaluated that the company can decrease its productivity if they invest themselves in the developing markets as the demand for coffee in the developing countries will be less and it will decrease the efficiency of the company. The tax policies and the regulations of the government have to be analyzed in this factor to increase the efficiency of the company.

    Positive effect- Since the termination of UK from EU referendum, the tax rate has declined to more than 24.5% which has impacted the Starbucks in a positive way. Due to the decreased tax rate, company generally incurs less excise duty and other taxes on the export of their raw material (Phillips and Moutinho, 2018).

    Negative effect- Due to the emergence of Brexit, the political stability of UK has somewhat hindered and the government tend to change on frequent basis. This has given rise to high level of corruption in UK and this have impacted Starbucks in negative way. The extreme level of corruption has made it difficult for the organization to conduct their operations effectively.

    Economic factors

    The economic factors normally encompasses the economic growth, exchange rates, inflations rates, unemployment rates, interest rates etc. which affects the organization in a great way. As every market have different currencies and exchange rates the company have to determine all the rates like GDP of the market, inflation rates, unemployment rate.(Neugebauer, Figge and Hahn, 2016)

    Positive effect- Due to the impact of Brexit, the unemployment rates in UK has declined from 56.7% to more than 32.6% and thus there is high ratio of people that are educated. This has impacted the Starbucks in a positive way and thus have made it easier for them to hire the skilled employees who are competent enough to achieve the organizational goals (LIU, 2017).

    Negative effect- Since the advent of Brexit in UK, the interest rates have increased from 32.6% to more than 78.4% and this has made it difficult for Starbucks to effectively manage their operations. Due to high interest rates, it has become complicated for Starbucks to take loans and borrow funds for various activities like expansion, opening new outlet etc. 

    Social factors

    These factors mainly consist of population growth, age distribution, lifestyle, attitudes, cultural barriers, health consciousness etc. The company have to determine the behavioural patterns of the company and beliefs, cultural values so that they can formulate the effective strategies in the market to attract the efficiency of the company. The change in the family thinking can also impact the sales of the company, preferences, tastes, job changes, education level of the customers are being analyzed by the company it can decrease the efficiency of the company. The company also have to determine the different pricing strategies to relate with the income level of the customers in the market.

    Positive effect- Due to the growing awareness of people towards their health most of the have become heath conscious and this has impacted the Starbucks in a positive way. This has enabled the company to increase the array of their healthful products and thus have helped them to attract the customers. Due to this, Starbucks have shifted their focus to more health conscious products.

    Negative effect- The population and the age distribution where the old age people have dominated youth in UK have affected Starbucks in a negative way. This has somewhat reduced the profitability ratio of company as Starbucks mainly focuses on the white collar professionals and youths who needs coffee to relax their mind from the frustrating busy schedule.

    Technological factors

    The major technological factors consist of R & D, level of innovation and automation, growing power of online market, technological changes etc. The company also have to ensure the change in the technology to increase the efficiency of the company. As the technology changes very rapidly which ca decrease the efficiency of the company and also decrease the market shares.(Cortimiglia, Ghezzi and Frank, 2016) The company also have to conduct the research to innovate the technology according to the behavioral pattern of the customers. The company also have to examine the new development ares which can decrease the cost of the company and increase the customers satisfaction, and they can also develop their own agricultural units with maximum technological advancements to increase the quality of the company. 

    Positive effect- Since the advent of technology, people have become technology-oriented and now wants each and every product online. This has affected Starbucks in a positive way that has enabled them to diversify their online services through their own application. The growing power of consumers to access each and every product within a single click has helped Starbucks to incorporate technology in each and every aspect.

    Negative effect- In order to attract the customers and convert them into loyal consumers, a high degree of technology is required in each and every product and for this a high amount of investment is required in R & D department. This has affected Starbucks in a negative way as there a large amount of fund is required for investing in this department.

    Environmental factors

    The various environmental factors that affects the organizations are climatic and weather changes, environmental policies, sustainability etc (Rothaermel, 2017).

    Positive effect- The growing awareness of people towards environment and reducing the environmental pollution has impacted Starbucks in a positive way. As now more and more people wants reusable products and become highly conscious against the plastic products, this has enabled Starbucks to design the sustainable products like paper coffee cups. This has helped company to increase their profitability ratio.

    Negative impact- Strictly adhering to the environmental policies has somewhat been a challenging task for Starbucks and have affected it in negative way. For reducing the environmental pollution, Starbucks is required to use fuel-efficient equipments as well as biodegradable materials that reduces carbon emission and it requires a high amount of investment.

    Legal factors

    The legal factors consist of discrimination laws, employment laws, consumer protection laws, copyrights, patents etc.

    Positive effect- having a well-through patent and copyright of their products have helped Starbucks to protect their rights and processes of innovation. The patent have allowed the organization to perform their function ethically and thus attract the customers through ethical manner (Taecharungroj, 2017).

    Negative effect- As Starbucks operates in wide range of countries thus this affect the organization in negative way as they remain exposed to changing political and legal laws. Sometimes the laws of a particular country are framed in such a way that it does not favour the operations of organization and thus hinders their performance.

    Five force analysis of Starbucks

    There are some factors which can have impacts on the performance of Starbucks and opportunity of competitive advantages. So, it is important to analyse all that forces. 5 forces of porter's are described as below:

    Bargaining power of buyers: It is stated that this company faces a strong force of bargaining power of its customers. There are several factors which lead and put pressure on customers to switch shop such as low switching cost and availability of substitute products which have almost same features which they require (Lewis, 2017).

    Bargaining power of suppliers: In this context it is stated that, Starbucks faces weak force and there is a weak intensity of this power. In this industry there are several suppliers which becomes the main reason of this force.

    Threats of substitute products: There is a strong force of this factor as some rivals have same features of products as like Starbucks. Starbucks is famous for its high quality products but still there are some substitutes such as: ready to drink beverages, instant beverage powders which can decrease sales of this company.

    Threats of new entrants: New entrants force is moderate in this context. There is the main factor by which people cannot enter in this industry in an easy manner such as high brand development cost. There is a requirement of moderate cost of doing business but for expanding and growing business as like Starbucks there is requirement of high cost. It is beneficial for the company (Starbucks Five Forces Analysis, 2019).

    Competition among existing players: Starbucks has several competitors that give strong force and is the main reason of intense competition. Dunkin’s Donuts, McDonalds are strong and popular brand which are main competitors of this company. Due to strong force of low switching cost, it puts high pressure on Starbucks to invest in technologies and take competitive advantages.

    So, from the above it can be said that most of the factors have strong and moderate force which can decrease sales of Starbucks, so it is important to make changes in strategies (Mahat, 2019).

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    Five force analysis of Starbucks

    There are some factors which can have impacts on the performance of Starbucks and opportunity of competitive advantages. So, it is important to analyse all that forces. 5 forces of porter's are described as below:

    Bargaining power of buyers: It is stated that this company faces a strong force of bargaining power of its customers. There are several factors which lead and put pressure on customers to switch shop such as low switching cost and availability of substitute products which have almost same features which they require (Lewis, 2017).

    Bargaining power of suppliers: In this context it is stated that, Starbucks faces weak force and there is a weak intensity of this power. In this industry there are several suppliers which becomes the main reason of this force.

    Threats of substitute products: There is a strong force of this factor as some rivals have same features of products as like Starbucks. Starbucks is famous for its high quality products but still there are some substitutes such as: ready to drink beverages, instant beverage powders which can decrease sales of this company.

    Threats of new entrants: New entrants force is moderate in this context. There is the main factor by which people cannot enter in this industry in an easy manner such as high brand development cost. There is a requirement of moderate cost of doing business but for expanding and growing business as like Starbucks there is requirement of high cost. It is beneficial for the company (Starbucks Five Forces Analysis, 2019).

    Competition among existing players: Starbucks has several competitors that give strong force and is the main reason of intense competition. Dunkin’s Donuts, McDonalds are strong and popular brand which are main competitors of this company. Due to strong force of low switching cost, it puts high pressure on Starbucks to invest in technologies and take competitive advantages.

    So, from the above it can be said that most of the factors have strong and moderate force which can decrease sales of Starbucks, so it is important to make changes in strategies (Mahat, 2019).

    Industry life cycle

    Cycle help to know different stages of business to upgrade and develop their business at a large scale.

    Introduction

    Starbucks offer new unique product to their customers. Company need to develop effective research for their products to bring innovation in their services. Need marketing to attract customers towards development of business at a large scale(Davidson, Binks and Gediga, 2016.). Innovation help company to satisfy their customers.

    Growth

    Company need funds for development of their business. Need to develop their marketing skills to earn a competitive advantage over their competitors and to make them effective and attract towards success of organization at extreme level. Funds are required for overall development of business.

    Maturity

    In this stage where companies sales are increasing which help them to increase profitability of their business. It is a stage where company is able to expand.

    Decline

    When Starbucks not able to bring changes and develop innovation in their business then it leads to decrease in their sales and reduce overall profitability of business.

    The Internal environment

    This is defined as to culture, members, events and components within the enterprise that has capability to influence the decision of an enterprise and this also determines the behaviour of the human resource.

    Source of competitive advancement can be determined as-

    VRIO analysis- It is framework that aids to compare the resources and capabilities of Starbucks and helps to gain competitive advancement (VRIO ANALYSIS OF STARBUCKS COFFEE, 2016). This is defined as-

    Value-:

    • Strong brand image- It is the entity that has strong brand image and this is one of the valuable resource that assist at enlarging the customer base and this entity also great reputation.
    • Special flavours and quality of coffee- It is valuable resource as this allows to customers flock to Starbucks.
    • Customer service- It can be termed out as valuable resource as the staff of this firm provides proper customer assistance and also complements the quality of Starbucks commodities and this aids to enhance customer retention.
    • Supply chain- This is highly valuable resource that aids to source of good quality raw materials and also retain the quality of commodities. 
    • Global presence- This is valuable resource that makes the Starbucks more competitive and this is stronger than competing brands.

    Rare-:

    • Strong brand image- It is rare but this also has challenge for competing the brands.
    • Special flavour and quality of coffee- This can be defined as significant investment as this goes into procurement and then creation of special flavours.
    • Customer service- It can be accomplished by other firms too. This requires investment to undertake the activities as staff training and special consideration.
    • Store environment- This can be accomplished by other entities too. They needs to undertake investment in store make up, training to staff and special focus.
    • Supply chain- It is quite typical to accomplish as this requires both investment and strategy.
    • Global presence- It is difficult to accomplish for others due to significant financial investment involved.

    Inimitable-:

    • Strong brand image- This is difficult to imitate but also possible in the long run.
    • Special flavour and quality of coffee- It is quite typical to imitate due to the price and procedures.
    • Customer service- Therefore, this is difficult to imitate.
    • Store environment- It is quite typical to imitate.
    • Supply chain- This is quite typical to imitate but also possible within the long term.
    • Global presence- Due to the issue of investment this is also quite difficult to imitate.

    Organised-:

    • Strong brand image- This is the entity that strong brand image within the market.
    • Special flavour and quality of coffee- The flavour of the Starbucks is talk of the town and also an significant aspect of Starbucks marketing and customer retention strategy.
    • Customer service- It is another fact that has made the operations of Starbucks popular.
    • Store environment- This is crucial part of Starbucks marketing and customer retention strategy.
    • Supply chain- The Starbucks sources 99% of coffee ethically. Thus, better advancement of this firm is due to exceptional quality of beans that are sourced around the world and this give the brand an edge.
    • Global presence-This helps the Starbucks to generate the high amount of profitability.

    Value chain analysis- The concept of value chain termed out as entire range of activities that is defined as process of bringing a product to market and to customer (PORTER’S VALUE CHAIN ANALYSIS OF STARBUCKS, 2017). Henceforth, activities under this framework are divided into two categories as-:

    Primary activities-:

    • Inbound logistic- This is inclusive of obtaining the raw materials from the suppliers. Therefore, the main consideration of quoted entity is to maintain excellent relationship with suppliers. In case of Starbucks, the unroasted and green coffee beans are procured directly from the farms by Starbucks buyers.
    • Operations- Starbucks operates their business activities in more than 75 markets either by the company owned stores and licensees. Therefore, quoted entity has more than 2400 stores internationally and this is inclusive of Starbucks coffee, Teavana etc.
    • Outbound logistic- The Starbucks sells its commodities to customer via the company stores and from their licenced stores. Henceforth, ready commodities are shipped to retail stores from warehouse and distribution centres. This entity also uses the online channels of distribution the products.
    • Marketing and sells- It is one of the effective market value chain. Starbucks do not use the traditional method of marketing its brand. This is firm that uses the social media marketing approach and customer engagement purposes. Therefore, this mainly rely over the word of mouth marketing and effective customer services.

    Support activities-:

    • Infrastructure- It is inclusive of departments like legal, management and legal etc. this is all required to keep the firms stores operational. Thus, internal infrastructure of the Starbucks stores are quite impressive. This is the brand that also has captured the strong position of excellent leadership and management.
    • Human resource management- Starbucks entity has focused on human resource policies and this also provides the staff the enough level of satisfaction from their job by providing training opportunities. Henceforth, the focus is being ethical and customer oriented to create the effect working environment that facilitate the collaboration.
    • Technological development- The quoted enterprise uses the technological advancement to serve its target market. With use of better technical advancement the entity can run business an sell the commodities to online and mobile payment system. Apart from it, technical advancement plays major role within supporting the administrative functions inside the quoted enterprise like human resource, accounting and payroll as well as communication internally and externally.
    • Procurement- It is highly significant within 21st century. Firms are focussing over to efficiency and profitability. Therefore, procurements of Starbucks has received a lot of attention. It is the brand that has set the strict rules in relation to making choice to its suppliers and product quality.

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    Recommendations

    CEO of Starbucks need to improve overall effectiveness of their organization. Require to achieve goals of organization on time and need to maintain effectiveness of organization. Need to develop effectiveness of marketing strategy to expand their business at a large scale. CEO need to motivate employees and share plan and objectives with employees to make them familiar with organization.

    Specific

    Starbucks want to attract large number of customers towards working of their organization and want to develop effectiveness of their business. Company need to fulfil their marketing objectives more effectively to attract customers towards their business. Company need to develop their overall presence in market. Need to innovate different ways to make their business grow.

    Measurable

    Starbucks aim is to increase profitability of their business. Need to maintain work environment in their organization. Aim to develop new product in new markets to increase their market share(Bjerke and Renger, 2017. ). Aim to develop their name at an global level. Make effective use of all resources available to organization. CEO of Starbucks need to set their organization objective and analyse ability of employees to achieve those goals.

    Achievable

    CEO need to improve their efforts for development of business. Make an effective use of all available resources to establish their business at an extreme level. Company need to hire employees with skills and abilities to develop their business. Need to bring innovation in their business to improve.

    Realistic

    Starbucks need to analyse technology and resources available to their organization. Need to develop skills and abilities of employees for their development, and maintain their employees abilities and help them to expand at a large scale. Need to motivate employees towards development of organization at a large scale. For marketing of their business company need to know about methods that are available to organization.

    Timed

    Company aim is to achieve those goals within 3 year to expand abilities of their company. Their aim to make their organization one of the leading. Marketing need time to improve their organization for development at a large scale.

    Part 2

    Stakeholder Report

    Stakeholder plays a very important role in a company and so do they play a very important role in Starbucks and the different stakeholders in a company are creditors, directors, employees, government, owners, suppliers, unions, community and the customers in a company (Davis, 2016). The internal stakeholders hold the decision-making powers in their hands which make the company work efficiently and effectively and that is a very important factor because to make a profit in the market it is very important for the company to have a strategy and method to function better. The customers are playing a very important factor in the company as well because that is making the company have a better understanding in the company and the company is being able to understand that factor better which is why the company is improving accordingly so that they can satisfy the needs and wants of the customers since it is very important to satisfy the customers in the company (Boone, 2017). In all the countries in which the company has expanded itself it is very much visible that the company has captured the market very well and is having the good coffee market shares in the regions of Canada, United Kingdom, Western Europe, Asia, etc. The employees in the company is 291,000 as of 2018 and the company has made around $4.51 billion in 2018 which is great progress for the company because there is a lot of customers who have a loyalty towards this company since the quality of the company is very good. It is because of the experience and skilled employees the company was able to capture such a large market for themselves. The characteristics of the customers of Starbucks is that they get used to the quality of coffee or other products the company is providing them because there is a lot of quality improvement which has taken place in the products of the company for the satisfaction of the customers (Akisik and Gal, 2017). From the past 3 years the company has improved on the quality and the services which they are providing to the customers of the company because the company is not being able to provide the right expectations of the customers.

    According to Mendelow's matrix The customers have a great interest in the company and the power of the customers is not so much in the company's functioning because the company has made a name for themselves over a long time in the market and the experience the company has gained is a lot which is why the company is being able to make better decisions which is helping in the company's functioning factor. The customers have a high level of interest in the company which is making the company have a great influence in the company and that is making the company improve for the customers. The power is still with the other stakeholders of the company and that is a great way of staying in the market for the company because the customers should not be having a control on the company so that the company can take their own decisions for the benefit of the company (Hutt, 2016).

    CONCLUSION

    Hereby, it can be concluded that strategy defined as plan of action that helps to give framework to enterprise to conduct the business activities in well defined manner. It is planning and directing the operations of business enterprise to achieve the long term plan of business. The present report has covered the business activities of Starbucks.

    Furthermore, report has covered internal and external environment to analyse the condition of working of enterprise. Henceforth, the stakeholder report has been outlined to determine the role of stakeholder within the enterprise.

     

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