Starbucks Corporation's Strategy: SWOT Analysis and Porter's Five Forces - Research Proposal Example

Name Professor’s Name Course Date Starbucks Corporation Abstract In the past few decades, Starbucks Corporation has arguably been the most successful coffee shop. The company attracts customers yet the prices are higher compared to Starbucks competitors. In this study, SWOT analysis is carried out and recommendations made on things Starbucks should improve on. Starbucks management is also discussed since it is one of the main reasons why the organization is so successful. Starbucks has also laid down expansion strategies. It serves customers all over the globe since their stores are located in various parts of the world. Findings showed that Starbucks is not under threat of being substituted since they have a well-built reputation and their products are of the highest quality. Introduction An operation in an organization needs a plan to be built so as to achieve the targeted goals within a definite time. The plan is otherwise known as strategy. A successful strategy in management strategies are identified and carried out by managers and these leads to an overall better performance and advantaged competition for their respective companies. An organization is said to be highly competitive if it is more profitable compared to other companies in its industry. Strategy in management deals with the evaluation and controlling of a business. Though the future of a business is either predictable or unfeasible, it can be planned for with the help of strategic management. High levels of knowledge are required of the managers. They should analyze the competition and the general business environment. With substantial knowledge, the right decisions are made and the right course of action taken. In this study, SWOT and competition analysis are going to be conducted and proven to be of great importance to any business organization. External environment All the outside factors that impact businesses’ operations are composed in the external environment. An urgent action or reaction is needed to maintain the flow of operations. The external environment is divided into two that is macro-environment and micro-environment. It comprises; the government, industry associates, customers, competitors, suppliers and other social factors, they all influence the company’s decisions (Yajiong, Liang & Boulton, 71). Microenvironment factors impact a company’s operations directly while macro-environment factors cannot be controlled by the company. In this case, the success of the company solely depends on how quick it can adapt to the changes. Some of the external factors include climate, economy, technology, political, legal, competition, and media. Environmental factor Starbucks has failed to offer recycling in its stores, at least many of them, thereby taking the heat. According to Kamenetz Anya (4), the coffee cup problem in Starbucks has prolonged than expected. The cups are not recycled and this negatively affects the environment. Starbucks seems to have a hard time finding a long-lasting solution to this cup problem. The usage of energy during production of coffee by Starbucks is high. Starbucks falls behind in many of their environmental goals. To offset the use of electricity, Starbucks needs to purchase renewable sources of energy yet this process is slow-paced. Ganma et al., emphasized that a high intake of coffee risks the development of breast cancer (2071). Physicians recommend a low intake of caffeine and this poses a great challenge to Starbucks Company. The scarcity of raw materials caused by climate change makes coffee production more expensive and this directly influences coffee pricing. When coffee is expensive then, fewer customers are expected. Societal environment The framework of PESTEL analysis elaborates the social aspects and trends that influence Starbucks’ customers and the whole business organization. Starbucks addresses various external factors such as the growth of coffee culture. Catherine Tucker (3) acknowledged that coffee existed for the past 500 years but in recent years its expansion has been enormous. This clearly shows that coffee is not just a mere product but a way of life. With coffee culture well established, an increase in the number of customers is guaranteed. Starbucks increases its array of better products health-wise so as to increase the number of customers, no matter their health issues. All these factors present opportunities for Starbucks Company. Task environment Starbucks has set up stores in different parts where coffee is sold. Task environment is made up of distributors, suppliers, customers, stock markets, and competitors. They all set conditions and directly influence the attainment of goals in businesses. Starbucks’ competitors try a different look; provide unique features and products in efforts of creating differentiation and luring more customers. In the coffee industry, companies compete for customers but Starbucks wins the majority since their customers are loyal. Starbucks concentrates on the best quality there can be and this wins the trust of many customers. There is also a good relationship between Starbucks and its suppliers. The suppliers’ bargaining power is not that high. SWOT analysis Opportunities In Asia, Starbucks presence was minimal and therefore there was a need for it to expand in this part of the world. The economy in Asia is increasing rapidly and the coffee market was untapped. This created a favorable marketing condition for Starbucks and an increased profit margin. Starbucks also put diversification of its products under serious consideration. This move was to counteract allegations made by Ganma et al., (2071) that coffee can cause cancer. Starbucks makes coffee that can be taken without any health consequences. With this system in place, customers’ satisfaction and retention are assured. Diversification also helps Starbuck to keep up with other businesses in the industry. Starbucks has also established partnerships since it helps them be more competitive. In this part of SWOT analysis, it is clear that Starbucks Company has many major opportunities for worldwide growth. Threats Competition for low-cost coffee sellers is a potential threat to Starbucks. Businesses firms such as Dunkin’ Donuts and McDonald’s are worthy competitors of Starbucks. They have proven to own the tools needed to compete effectively against Starbucks whose products are pricier. Imitation is another threat that Starbucks face. A number of competitors have used their name to gain an advantage, such as Stars and Bucks, located in Palestinian. In addition, a social movement has emerged that discriminates coffee shops chains such as Starbucks and instead, they support independent coffee shops. Amid potential threats such as imitation and competition from other firms, this SWOT analysis shows that Starbucks has to uphold the advantage they have in the market. EFAS The aim of external factors analysis summary is to evaluate the external environment of the business. Currently, Starbucks find it hard to locate the equilibrium in external influence matrix. Regardless of social factors being favorable, other factors such a legal, political and economic show significant threat. That being said though, Starbucks has some strength too that counteract external influences that cannot be controlled. The company is flexible and changes with time. They were into the idea of paying more tax in the UK and they closed some of its stores that failed to raise the expected amount of profit. To exploit new opportunities, Starbucks set up a reliable management that could make the right decisions for the company. Porter’s Five Forces Dynamics need to be fully comprehended by a company in order for the business organization to thrive, compete both intensively and effectively in today’s market. Porter’s Five Forces framework was made by Michael Porter who was an American management writer. According to Gibson, (5), a company uses Porter’s five Forces in the understanding of both threats and opportunities. The five forces are relevant in an organization since it determines potential threats. The five fundamental forces include: 1. Threat of substitutes. 2. Intensity of rivalry. 3. Threat of new entrants. 4. Bargaining power of suppliers. 5. Bargaining power of buyers. Threat of substitutes Generic substitutions, as well as product-for-product, are vital areas that Starbucks need to consider. When it comes to beverages, there is a vast available variety such as juices, soda, energy drinks or even water as compared to coffee. This, however, does not raise much concern since Starbucks stock its stores with other beverage such as tea which is a perfect alternative to coffee. The major concern arises from the fact that consumers might opt to change their brand entirely, moving away from Starbucks to other competitors such as Costa Coffee in the UK. McDonald's, though being a large food chain competitor, quality is compromised for being cheap. Intensity Rivalry The intensity is high-moderate. The pressure on Starbucks is significant since Starbucks share its customers’ base with its competitors. In addition, customers can shift to any brand they prefer, whenever they deem fit. Diversity in McDonald’s beverage marks them as key Starbucks’ competitors. Production of the same products leads to a stiff competition, for example, Costa Coffee since both companies produce similar products and services Starbucks has an upper hand since they spend less in buying bulk and take full advantage of the economic scale. Starbucks has also matured in the marketplace hence they are used to rivalry since they provide the best quality both its products and services; they have nothing to worry about. Threat of new entrants Coffee specialty market has a lot of barriers that need to be overcome before completely settling in this venture. Starbucks has been in the market for ages and has built a reputation for itself. The threat of potential new entrants is almost neutralized. To start a small coffee shop is somehow possible since it requires a relatively small floor space and less technology, which is always a great hindrance since it is the biggest startup cost. Hence there is a possibility of the emergence of more small coffee shops in the coffee industry. Bargaining power of suppliers Bargaining power of suppliers is low to moderate. Coffee beans and premium Arabica coffee are the main inputs into the value chain. The cost of switching between substitute supplies is moderately low. Starbucks can take advantage of the supplier but it prefers to maintain fair trade hence ensuring its suppliers a fair partnership. Starbucks suppliers’ poses less threat since there are in no position to compete with Starbucks. Due to its scope and size, Starbucks forms an important part of the suppliers business which makes the power of the suppliers lower. These factors indicate that suppliers pose a moderately low bargaining power. Bargaining power of buyers Bargaining power of buyers is moderate to low. In the coffee industry, there are many buyers but none can ask for a price concession. There is also diversity in the consumers’ base which can make purchases low and this erodes the power of buyers. Consumers are sensitive to premium coffee since they pay a premium and expect the highest quality of coffee that Starbucks can produce. However, this also means that the consumers look out for an excessive premium that is directly proportional to their quality of the product. Starbucks is a known brand hence it can sell its products at high prices. In this case, there is no room for negotiations of prices. Starbucks customers are also loyal therefore the chances of bargains are greatly lessened. Internal environment Starbucks value system guides it in achieving its mission and objectives. It also determines how the employee is treated, customers and society at large. Starbucks has shown a good relationship with its customers for good services, employees, and the society by trying to be environmentally friendly. Starbucks also maximizes its long-run profit. The structure of Starbucks is well-built hence its management and service delivery runs smoothly. Competence from employees, for example, Human Resource, is an important aspect. Starbucks employees are skilled, capable and committed. With the right management and a skilled workforce, Starbucks has proven to be very successful and gain a huge customer base. Resources Resources are finances, people, infrastructure, supplies, machinery, equipment, and facilities at an organization’s disposal. The paramount resource in business organizations are the people. The other resources help humans in their quest to accomplish the mission statement. Pablos et al., (49) alleged that the resources of an organization boost them during market competition. The different ways in which the management value of both human and nonhuman resources influence the environment of the organization. Starbucks has both tangible and intangible resources. They have a good number of stores that market their products. Starbucks also has warehouses where they store their goods bought it bulk as they wait to be processed to get the final product, coffee. Starbucks has an online store which is easy to use thus attracts more customers. To keep up with competitors, Starbucks has business partners such as Pepsi. Starbucks’ staffs also stick with their company. According to Moon and Quelch, Starbucks has the lowest turnover rates (4). Capabilities Sidney, (993) affirms that a long time commitment to specialized resources is required in capabilities. Starbucks launched Frappuccino drinks, and they are the only one producing it. This is a special treat that helps them attract customers since they cannot find this kind of product of product in any other brand. They also acquired Evolution Fresh as they entered the market of juices. Starbucks also introduced Starbucks Blond Roast hence the diversification of its products. Different products increase the customer base since they get a variety of customers looking for different products. They also hold their position firm in terms of revenue generation. Competencies Starbucks has an unwavering focus on delivering high-quality products to ensure customers’ satisfaction and their revisit. They also put a lot of efforts to retain their employees. Starbucks’ brand is also recognized globally; hence it is a familiar name to many making them favorites. Their stores are also built in a way that attracts customers and makes them feel comfortable (Nazir et al., 18). Starbucks’ human resource also helps the company to control the stock. They also hire employees with vast knowledge about the field who facilitate high-quality products that are healthy for consumers. SWOT analysis Strengths Starbucks brand is highly recognized since they are famous in the coffee industry, Geereddy Nithin (4). Though its main market is found in the United States, it still owns a significant geography around the world. Starbucks stores are present in over 60 countries and are fully functional. Starbucks is high-ranking in the marketplace and this gives them an advantage they don’t want to relinquish. They completely avoid the standard quality of the coffee they produce. In addition, Starbucks stores are strategically located. They put up stores in places that can easily be accessed and by a good number of people. Their stores are also appealing to the eye. Everything about it is great, the atmosphere is warm, service and music. More often than not, Starbucks stores are meeting points. Starbucks customers are also loyal and support it by buying from none other. Weaknesses Starbucks products are expensive. During pressing economic times, many customers are most likely to shift to cheaper brands, Starbucks’ competitors. For high quality, high prices are assured and there is nothing Starbucks can do unless they downgrade their quality which they cannot since it differentiates them from its competitors. Starbucks has also started many stores and this leads to a crowded market. As a result of this, the organization loses its focus on their growth target. Starbucks also mainly depends on the United States for the provision of a local market, and the main one. Just like any other well-established organization, Starbucks is scrutinized. Though the coffee culture is embraced in European countries, this might not be the case in other countries. IFAS Starbucks rating clearly indicates that the organization is successful. Their strengths outweigh their weaknesses. The company makes a good amount of profit since their products are well priced. Their presence globally is also another vital factor that contributes to their success. The profits cater for their operational costs making the organization thrive. However, Starbucks should distribute their stores evenly across the globe. Most of them are concentrated in the United States, though they are the main providers of the local market. In addition, they should advertise their brand to gain more recognition and this will increase the number of customers. Key success factors Starbucks is a successful business company for various reasons; 1. High-quality products – With increasing level of competition in the market, fresh and high-quality products is of great importance. 2. Customer services – customers are always interested in brands they can be offered excellent customer services. Starbucks provides the best service they can offer. 3. Store design – Starbucks stores are strategically located. They are also aesthetic and comfortable. Customers use them as meeting points, a place to relax and have a good time. 4. Customer loyalty – Starbucks has started programs to offer discounts and certain privileges to customers who exhibit a high level of loyalty. 5. Social media – Starbucks utilizes the presence of social media. Gallaugher and Ransbotham, (198) clarified that social media enables a business organization to know the customers’ view as well as their opinions. VRIO Cardeal and Antonio, (10161) claimed that advantages in competition can quickly disappear if a company’s resources can be imitated with an ease. Starbucks is an established company and it takes more than money to imitate it. Competitors who might try to imitate it have a high chance of failure. Starbucks has a unique store atmosphere and the customers find the presence of their stores valuable. For this reason, they are loyal which makes it hard for competitors to substitute Starbucks. VRIO is a framework used in a detailed analysis of Starbucks’ strategic positioning and its position in the market. It is shown in Appendix 1. Mission statement A mission statement describes why a given organization exists and what it stands for as Azaddin, (242) claimed. It is not just words; on the contrary, a mission statement is meaningful since it reveals the company’s purpose and philosophy. A mission statement inspires the stakeholders of a business organization. It provides a focus for specific goals by rallying the organization members. However, not all mission statements are effective in business firms. Today’s market is very competitive; therefore, a mission statement should be customer-centered in order to retain them. Evaluation of mission statement Starbucks mission statement composes development in culture, great performance, accountability and promotes innovation. This is what the whole company entails. The company has agreed that their coffee cups are a problem they are trying to solve. It has also shown a good relationship with both the customers and their employees. For this reason, the business runs smoothly and is profitable. The organization has also brought people together since their stores are places to be. Just like in their mission statement, their stores are used as meeting points and a place away from either work or home. It is therefore fair to say, Starbucks’ look fit their mission statement description. Tahir and Howard stated that mission statement contributes to the success of a business organization (257). This holds true in the case of Starbucks. Their mission is clear and the organization is doing everything they can to accomplish it. Goal and objectives Farfan gave Starbucks’ mission statement as “to inspire and nature the human spirit – one person, one cup and one neighborhood at a time.” Starbucks, therefore, needs to develop a culture that accepts and supports personal growth. The goal here is to achieve and accept diversity. Ethical sourcing is another goal Starbucks pursues in order to strengthen relationships with their suppliers to ensure quality farm products. Recycling of the coffee cups is another objective in Starbucks’ list. This to ensure the company conserves the environment and this will create a good relationship between Starbucks and the society. Strategies For a business organization to out and achieve its designed objectives it must have a plan, business strategy. Business strategy is mainly concerned with issues related to resources such as raising funds to build stores and allocation of resources according to priorities. The scope of businesses also falls under the business strategy. It determines what the company will produce and where. Teece, (180) confirms that strategy is an important aspect of a business since it helps the business organization in competition preparation. Corporate strategy Corporate entails predicting and adapting (Freeman & Mcvea, 6). Particular organizational goals are achieved through various ways in which the overall scope and direction of a corporation work together. To create the most value in a firm, portfolio approach is advised in any corporate strategy. Leaders in Starbucks focuses focus on several important aspects of corporate strategy. The management determines the best way to allocate resource in various business units. Competent workers are evenly distributed across the stores. The type of management is based on priorities, where it is most needed. Opportunities are also critically analyzed and capital is allocated. Starbucks is also designed in a way that the head office decisions are made top down. Portfolio management manages the risk through diversification and seeds emerging opportunities that could be heavily invested if appropriate. It can also monitor competition and ensure that market trends are well balanced. Corporate strategies mainly focus on risk management and return across the firm. Optimization of these factors leads to the creation of a portfolio in Starbucks. Business strategy How a company will end up a few years down the road is entirely determined by business strategy. If the strategy is clearly defined, achievement and development of growth will be easy. Goals will also be met both as an entrepreneur and business leader. Business strategy comes in when a company wants to focus on strength, to curb weaknesses, and find a way to leverage these strengths to oust competitors. It also clearly outlines the requirements that need to be met to hit a business target. Strategy choices can at times be determined by interactions between business organizations (Peng et al., 922). The location of most Starbucks' stores are conveniently positioned, away from work and home, ensuring that people can spend quality time in a relaxed manner, whether with friends or alone. Customers are not restricted from working in the stores and this is very welcoming for consumers. Starbucks coffee is of high quality, hence distinct. Though customers pay more, their satisfaction is assured. The attractiveness of Starbucks retails is further improved due to excellent customer services. Starbucks has also crossed borders and expanded its business in different parts of the world. It has also digitalized some of its business processes. Customers have to queue no more since they can order via online using voice command software which makes it much easier. Presence of wireless networks in Starbucks stores also attract customers and encourage a revisit. Starbucks business strategy gives them multiple opportunities. As for the competitors, they stand no chance. Recommendations and Conclusion Starbucks has proven to be not only a great organization but also a successful one. Its competitors find it hard to catch up with Starbucks since it offers a stiff competition. Starbucks is advantaged because their customers are loyal and the company produces quality products. However, apart from being successful and popular, Starbucks should consider the following; 1. Put more emphasis on the international market. The middle-class proved new market opportunities and therefore Starbucks should add the number of stores in such areas. 2. Starbucks should also produce and sell tea, in the same manner, they do with coffee. The venture should be taken seriously since the diversification of products results to a variety of customers. 3. They should adjust their menu and provide more healthy products. 4. The rural markets are untapped while the United States market is saturated hence there is a need for Starbucks to penetrate new markets. 5. Though Starbucks is popular in the coffee industry, it should spend some of its resources and advertise its products more. This also gives the consumers full comprehension of what the organization is about as well as its products. 6. Mobile applications used for online buying should be upgraded. This will attract more customers due to the lack of queues. With all these factors in place, Starbucks will be an unstoppable force that no competitor can challenge. Work cited Cardeal, Nuno, and Nelson Santos Antonio. "Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?." (2012). Farfan, Barbara. “Starbucks Mission Statement.” the balance small business. Dotdash, 21 Oct.2017. Web. 25 Aug. 2018. https://www.thebalancesmb.com/starbucks-mission-statement-2891826. Freeman, R. Edward, and John McVea. "A stakeholder approach to strategic management." (2001). Gallaugher, John, and Sam Ransbotham. "Social media and customer dialog management at Starbucks." MIS Quarterly Executive 9.4 (2010). Ganmaa, Davaasambuu, et al. "Coffee, tea, caffeine and risk of breast cancer: a 22‐year follow‐up." International journal of cancer 122.9 (2008): 2071-2076. Geereddy, Nithin. "Strategic analysis of Starbucks corporation." Harward [Електронний ресурс].–Режим доступу: http://scholar. harvard. edu/files/nithingeereddy/files/starbucks_ case_analysis. pdf(2012). Gibson, Robert. "Starbucks Corporation: How to Improve the Current Marketing Strategy." Kamenetz, Anya. "The Starbucks Cup Dilemma." Fast Company (2010). Moon, Y., & Quelch, J. A. (2003). Starbucks: delivering customer service. Harvard Business School. Nazir, Sajjad, Amina Shafi, and Nadia Nazir. "Strategic Change and Effectiveness of Starbucks Coffee in China." Ordóñez de Pablos, Patricia, and Miltiadis D. Lytras. "Competencies and human resource management: implications for organizational competitive advantage." Journal of Knowledge Management 12.6 (2008): 48-55. Peng, Mike W., Denis YL Wang, and Yi Jiang. "An institution-based view of international business strategy: A focus on emerging economies." Journal of international business studies 39.5 (2008): 920-936. Salem Khalifa, Azaddin. "Mission, purpose, and ambition: redefining the mission statement." Journal of Strategy and Management 5.3 (2012): 236-251. Sufi, Tahir, and Howard Lyons. "Mission statements exposed." International Journal of Contemporary Hospitality Management 15.5 (2003): 255-262. Teece, David J. "Business models, business strategy and innovation." Long range planning 43.2-3 (2010): 172-194. Tucker, Catherine M. Coffee culture: local experiences, global connections. Routledge, 2017. Winter, Sidney G. "Understanding dynamic capabilities." Strategic management journal 24.10 (2003): 991-995 Xue, Yajiong, Huigang Liang, and William R. Boulton. "Information technology governance in information technology investment decision processes: The impact of investment characteristics, external environment, and internal context." Mis Quarterly (2008): 67-96. Appendix 1: Detailed VRIO analysis of Starbucks Corporation Source: Geereddy, Nithin. "Strategic analysis of Starbucks corporation." Harward [Електронний ресурс].–Режим доступу: http://scholar. harvard. edu/files/nithingeereddy/files/starbucks_ case_analysis. pdf(2012). Read More