Starbucks - Admission/Application Essay Example

? Starbucks AFFILIATION: Starbucks Introduction Located in several countries all over the world, Starbucks is one of the leading coffeehouse chains offering a range of products from coffee to a number of food items. Started in 1971 in Seattle, it has established itself not only in the US but also as an international brand in over 40 countries with the total number of stores exceeding 3000 (Pham-Gia, 2009). Starbucks values the relationship it has with its customers. It transcends the ephemeral interaction that the customer has with a Starbucks’ barista into a unique connection, a value ingrained in its vision which is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Starbucks Corporation, 2011). For any organization, vision is invariably one of its most important core values since it allows its employees to be oriented in their work and to collaborate for the achievement of shared goals and objectives. In order to achieve this vision, mission plays an integral role. It chalks out the plan with which the organization aims to achieve its goals. Thereby the mission not only reiterates the values which are represented by its vision but also has distinctive features which set it apart from other competitors. The mission of Starbucks inculcates the goal of making the company as the principal supplier of top-of-the-line coffee on an international level and to always adhere to its operating rules and standards (Pahl, 2009). This mission affects the attitude and performance of employees at the organization and other stakeholders which are directly or indirectly concerned with its functioning. The primary stakeholders for Starbucks include the employees themselves along with its customers, stockholders, partners, NGOs and environmental groups, media, government organizations, groups/organizations by university students, competitors and regional community groups (Clampitt, 2009). Specialty Coffee and Porter’s Five Forces Specialty coffee is still a growing market in the food industry since trends show a shift from the conventional consumer good-aligned market to one whereby the product quality is better and brands have distinct traits which set them apart from other brands (Baghdadli, 2008). The market for specialty coffee is also quite fragmented with a high level of competition primarily due to low barriers to entry (Pearce & Robinson, 2003). This pertains that there are certain factors in play, based on the competition, which affect Starbucks’ performance. According to Michael Porter, there are five forces which influence the competitiveness of the organization. An analysis of these forces allows an insight into the operational dynamics of competition in a particular industry. The Five forces model identifies the important forces which establish the competitive prowess of a business. One of the prime determinants of the competitive model is the new entrants in an industry. New entrants in an industry are heavily influenced by barriers to entry. As a general rule, the lower the barriers, the easier the entry into the market. The costs of entry along with other competitors that are already operating in the market dictate the competitive power of the business. For instance, Internet has decreased the entry barriers and has made it easier for businesses to break into the market. Similarly, Starbucks’ entry into the market in Italy, which already had a number of competitors in the market, augmented the competition present (Thomson & Baden-Fuller, 2010). In the coffee specialty market, barriers to entry are relatively low. According to Bussing-Burks (2009), the coffee market already boasts several businesses offering similar products. She further observes that it does not cost much to make a coffeehouse, thereby attracting a number of businesses to the market. Where many businesses have not been able to do well, there are others which have established themselves as profitable entities. Bussing-Burks (2009) asserts that it is a logical trend for businesses to seek markets which are profitable. For those who succeed, they are able to attract a percentage of the customers to themselves. This has been the case for Starbucks, which cannot essentially be considered an exclusive business. Particularly in the US, competition is tough with scores of businesses having coffeehouses (Bussing-Burks, 2009). With such an external environment, it is interesting that Starbucks has managed to not only create, but also maintain and advance brand image and customer loyalty. The presence of substitute products in the market creates a competitive threat for businesses; particularly in the case of coffee which is an enduring and integral part of the average American’s life and is consumed on a daily basis. The cost of alternate products, their availability in the market and customer preferences can collectively contribute to changes in the demand of one product over another. Starbucks can be directly impacted by the presence of substitute products in the market; organizations offering specialty coffee at lower prices, or with a greener image, can discourage people from buying its goods. In fact Starbucks does have good quality substitutes but there is no particular brand that can significantly draw away Starbucks’ customers (Boin, Domain & Piva, 2011). Suppliers and buyers are also important in determining the competitive prowess of a business. Although both these factors are polar opposites yet their effect on competition reflects a common denominator. Suppliers and buyers are concerned with the bargaining power, which is itself dependent on the scope and clout of the people and organizations involved in it. This can be exemplified by the fact that an employee alone cannot have a significant impact on the management but if a union of employees presses for a demand, it can boycott the opponent and can influence major decisions (Thomson & Baden-Fuller, 2010). Despite having a lot of control on its suppliers, Starbucks does not make unfair use of its powers and has just expectations from farmers. Suppliers in the dairy industry or those companies part of the packaging material field do not pose a momentous threat because Starbucks not only contracts with several suppliers but also ensures that the supplier follows green business activities (Boin, Domain & Piva, 2011). The bargaining power of the buyers denotes that they have a range of similar items to choose from a number of different coffeehouse chains. Bargaining power of the suppliers entails that the company has to make use of the best available suppliers in order to gain product differentiation by producing fine quality coffee. Since Starbucks operates on an international scale, it has to ensure that it maintains the standards of coffee and other items offered regardless of the locality. Supplier power is also affected by changes in the price of raw materials such as Arabica coffee beans. In order to counter with the fluctuations in price and standardize the raw materials obtained, Starbucks has set up the Farmer Support Centers (Moser, 2011). These centers aim to inculcate practices which have been proven to yield a good produce and make delivery efficient. Moreover, Starbucks has a fixed-price deal with the farmers, which mitigates the brunt of unexpected changes in price (Moser, 2011). There are many companies operating in the market, not only raising the par for better quality and service but also setting standards for innovation and progress. Starbucks competitors in the US include big names such as Gloria Jeans, Caribou Coffee and Tully’s Coffee. Along with such a string of dedicated coffeehouse chains pitched against Starbucks, fast food chains like Dunkin’ Donuts have also joined the ranks (Boin, Domain & Piva, 2011). Antagonism and rivalry, which is an obvious consequence of competition, has been categorized into a distinct factor in Porter’s model. Currently, amongst Starbucks’ competition, McDonalds has the greatest rivalry against it. It has been able to establish itself through good quality food, delivered quickly and at lower prices (Larson, 2008). The factors mentioned previously, along with the need to differentiate and distinguish the company from other businesses in the market, augments rivalry. Moreover, with the accelerating growth of technology, IT and media industry, resulting in leveled provision of resources, it has become all the more difficult for firms to set themselves apart from competitors (Daft & Marcic, 2011). This goes on to prove that competition has increased multi-fold since the time when Starbucks started expanding a couple of decades ago (Larson, 2008). An example of the collective effect the five forces have at Starbucks is represented in their pricing. With a number of competitors in the industry, Starbucks has brought down the price of its items such that the current price reflects the cost of production coupled with the value customers affiliate with the brand (Boyes, 2011). SWOT Analysis As mentioned previously, the market for specialty coffee is occupied by hundreds of coffeehouse businesses in the US (Bussing-Burks, 2009). Nevertheless, Starbucks has been able to gain a significant market share by a two-pronged approach: product differentiation and delivery of service. Despite the fact that it offers coffee at $1.60, a higher price when compared to those at other coffeehouses, Starbucks has been able to develop a unique identity for its products. It combines its customer experience with good quality coffee and beverage items. The ambience that it creates is yet strength and allows the customer a temporary escape from his problems. The marketing strategy places a great deal of emphasis on the value of the product. Baristas are instructed to give customers details about the coffee, helping to foster a connection between the product and the customer (Bussing-Burks, 2009). It commands a great deal of customer loyalty along with a good reputation, which is buttressed by its emphasis on corporate social responsibility. The range of items offered cover people of different tastes. It also boasts of good relations with its baristas, with no history of any strikes (Leshner, Camacho & Damassa, 2007). The weaknesses of the business include the higher price that customers have to pay for the coffee, which is one-fifth more than the market prices. The increasing number of competitors in the industry restricts options for growth in the future. Leshner, Camacho and Damassa (2007) observe that customers do not have the option of monetary switching. Moreover, the fact that it takes along the US culture when expanding abroad can prove to be a barrier in places where the local culture contradicts American culture. Moreover, the amplifying shareholder base also affects the business by decreasing its interest. Opportunities for Starbucks include its capacity to decrease premiums it invests in the coffee, to extend its operations beyond national borders, to increase its product on levels such as quality and price and to license more for maximizing profits. Threats encompass fluctuations in the prices of raw materials, increased competitors and saturation of the market, changes in the economy affecting demand, not remaining true to the brand image and the reluctance of the neighborhood to store extension (Leshner, Camacho & Damassa, 2007). Recommendations Starbucks is renowned for its product differentiation and ambience. Sometime back, it introduced breakfast items which replaced the typical coffee smell that used to come from the coffeehouse and was much appreciated by customers. It digressed from its image and brought changes which took away the free control customers had over their coffee mix. These were the values Starbucks stood for, and had capitalized it upon, developing its own niche in the market. Therefore, in order to capitalize on its strengths in the future, Starbucks needs to focus on its values and not implement practices which come into conflict with the product differentiation it has created over a period of decades. To further accrue royalties, Starbucks can be engaged in licensing agreements and joint ventures, like it has with Pepsi. Such business ventures open up options for leveraging along with added benefit such as marketing. They also lower costs and allow greater sales revenue, increasing the profitability of the business. However, these ventures should only be with companies which have a good reputation and participates in sustainable production (Leshner, Camacho & Damassa, 2007). Since the price of coffee is higher compared to the market price, Starbucks needs to focus on solutions which can bring the price down. This has become especially important in the light of intensifying competition. Leshner, Camacho and Damassa (2007) suggest that Starbucks leaves the Fair Trade certification since it promotes a negative image in the farming industry in developing countries and to promulgate this decision; this can boast the company’s PR. They also recommend that reduction in price should only be imposed on coffee and not on add-ins since price elasticity varies more for coffee. Starbucks can also increase the catalogue of product that it offers, accommodating a greater segment of the population. This would also be feasible for those customers who are not necessarily fond of coffee but are attracted by the brand image. It can tailor the ambience according to the local culture to make it more appealing. It also needs to invest resources in improving the quality of coffee offered. In a taste test done by Consumer Reports, McDonald’s drip coffee was ranked higher than Starbucks’ (Bloomberg, 2007). Thereby, Starbucks needs to work on the quality of ingredients offered, and the recipe used, to be at par with competition. Maximizing Competitiveness and Profitability Strategies to gain competitiveness depend on product differentiation Starbucks uses. Customer preferences are an important variable in guiding product differentiation (Hitt, Ireland & Hoskisson, 2011). Of late, the increased preference for eco-friendly products is a clue for future strategy. Starbucks needs to highlight the sustainable business practices it engages in. To increase profitability it can further develop high-margin goods which are not being produced and marketed to their potential. Employees constitute an integral part of the production process and measures which add to employee satisfaction can augment efficiency. These measures include better working conditions, provision of clean rest rooms and a pay rise. Corporate Governance Issues Like any big company, Starbucks is rife with corporate governance issues. In the start of the Fiscal year 2011, Starbucks decided to bring an end to the distribution contract it had with Kraft Foods Global, Inc. on the grounds that it was transgressing the agreement. However, not only did Kraft refuse to accept the charge it contended that if Starbucks wants to end the agreement, it should provide a hefty compensation to Kraft. Kraft took the matters to court but the court refused to provide injunctive relief to Kraft. Thereby, Starbucks ended the agreement it had with it and gained complete control over the business it collaborated with Kraft. According to the annual report for the year, there may be financial consequences to the termination of the agreement, which have not transpired as yet. Nevertheless, Starbucks assures it shareholders that they have not been estimated at the moment. This represents the level of transparency that Starbucks has in its internal proceedings. Another issue that Starbucks faces relates to its employees’ demand to wear more than one union badge. According to policy at Starbucks Corp, employees were allowed only one pro-union button; allowing several badges would make them “personal message boards” and marketers for unions (McCool, 2012). According to a court ruling, it was fair for Starbucks to introduce such a policy. Even the 2nd U.S. Circuit Court of Appeals stated that Starbucks has the right to prevent pro-union badges decorating the uniform. When considering the work ethics and the philosophy of the company, it is better to keep the one-button policy. Since amount of regulation is necessary to ensure that the internal environment of the company is maintained. Reference List Baghdadli, I. (2008). Breaking the Cycle: A Strategy for Conflict-Sensitive Rural Growth in Burundi. Washington D.C.: World Bank Publications. Bloomberg. (2007). McDonald's coffee tops Starbucks in Consumer Reports' taste-test. Retrieved from http://starbucksgossip.typepad.com/_/2007/02/consumer_report.html Boin, A., Domain. M. & Piva, D. (2011). Starbucks Strategy. Retrieved from http://www.slideshare.net/BenedettaPiva/starbucks-strategy-7178660 Boyes, W. (2011). Managerial Economics: Markets and the Firm. 2nd ed. Ohio: Cengage Learning. Bussing-Burks. M. (2009). Starbucks. California: ABC-CLIO. Clampitt, P. G. (2009). Starbucks Coffee Company Crisis Case - Part I. Retrieved from http://www.uwgb.edu/clampitp/phils%20site/internet_broadcast/Hall%20of%20Fame/Starbucks_Coffee_Company.pdf Daft, R. L., & Marcic, D. (2011). Understanding Management. Cengage Learning. Hitt, M.A., Ireland R. D., & Hoskisson, R.E (2011). Strategic Management: Concepts & Cases: Competitiveness & Globalization. 9th ed. Mason: Cengage Learning. Larson, R. C., (2008). Starbucks a Strategic Analysis Past Decisions and Future Options. Retrieved from http://coe.brown.edu/documents/StarbucksaStrategicAnalysis_R.Larson_honors_2008.pdf Leshner, H., Camacho, C. & Damassa, S. (2007). Strategic Report for Starbucks Corporation. Retrieved from http://economics-files.pomona.edu/jlikens/SeniorSeminars/harknessconsulting2008/pdfs/Starbucks.pdf McCool, G. (2012). Starbucks baristas can't be union billboards-court. Retrieved from http://newsandinsight.thomsonreuters.com/New_York/News/2012/05_-_May/Starbucks_baristas_can_t_be_union_billboards-court/ Moser, J. (2011). What is Starbucks' edge? Retrieved from http://money.msn.com/top-stocks/post.aspx?post=907c8f9e-afa2-4a07-9e8f-208e9965164a Pahl, N. (2009). The Idea Behind the Starbucks Experience: The Main Elements of Starbucks' Strategic Diamond. Germany: GRIN Verlag. Pearce, J. A., & Robinson, R. B. (2003). Strategic management: formulation, implementation, and control. McGraw-Hill/Irwin. Pham-Gia, K. (2009). Marketing Strategy of 'Starbucks Coffee'. Germany: GRIN Verlag. Starbucks Corporation. (2011). Our Starbucks Mission Statement. Retrieved from http://www.starbucks.com/about-us/company-information/mission-statement Thomson, N., & Baden-Fuller, C. (2010). Basic Strategy in Context: European Text and Cases. West Sussex: John Wiley & Sons. Read More