Market Analysis - Starbucks - Case Study Example

Executive Summary Starbucks leads the coffee market and looks towards innovation and new products in markets which are easily accessible. This paper thereby provides an analysis of Starbucks by looking into the external and internal analysis which helps to understand the strengths and weakness and provides the various opportunities that Starbucks need to consider. Starbucks initiative to shape the coffee market through continuous service improvement, product innovation, expanding globally and ensuring proper location has helped Starbucks to reduce the effect of external analysis on their working culture. Starbucks has looked towards products which are of high quality at a slightly higher price and at the same time ensuring increase in product offerings. This has helped Starbucks develop a brand image and work on their internal strengths which has grown them into a market power and has helped the business earn higher profits. The SWOT analysis highlights improved efficiency and being able to work on the different aspect of business which has helped them to stay ahead from competition which is intensifying due to the wide possible profits that the market presents. Starbucks through their enduring efforts and objectives will look towards occupying the position of the market leader and will continue to satisfy customers due to quality performance in all areas. Table of Contents Introduction 3 Purpose of Report 3 Nature of Service 3 Macro Environmental Analysis 4 Micro Environmental Analysis 6 Targeted Customers 7 Competitors 9 Consumer Behavior Issues 10 SWOT Analysis 11 Conclusion 13 References 14 Introduction Starbucks which started their business in 1971 has grown and with continuous innovation and changes has developed the coffee industry. This has provided an opportunity for other provides to look into and has increased the opportunities of higher profits. The increasing demand for coffee and the change in the attitude of customers towards this provides an opportunity for the different players to market their services (Starbucks, 2012). Starbucks has thereby ensured that they are able to target a large audience and ensure better opportunity. Purpose of Report The purpose of this report is to conduct an external analysis of the coffee industry so that its effect of Starbucks coffee can be identified. This will help to work forward on the internal analysis as external factors will help to understand its impact on business and will thereby help to understand the competition level, target customers and identify the strengths and weakness of the organization thereby presenting the future opportunities. Nature of Service Starbucks which performs in the coffee industry works in the service sector. The company on this aspect has looked towards providing coffee through its outlets and looks towards customer satisfaction. This strategy is based on the fact that the company has looked towards developing a niche market and has thereby focused their attention towards providing something extra other than coffee so that customers remain loyal as there is little differentiation in the nature of business of Starbucks & other competitors (Thompson & Strickland, 1999). Macro Environmental Analysis The macro environmental analysis which deals with the external factors will help to understand the manner Starbucks needs to deal with it so as to ensure profits. The industry analysis will thereby focus on the industry instead of a single player like Starbucks. This is depicted in the chart below The above graph shows that macro environmental factors have an effect on the working of companies which is thereby explained through the PESTEL analysis (Oxford University Press, 2007) Political Coffee industry has to undergo tremendous political pressure as coffee importers have to ensure proper custom and tariff rules on the imported cocoa beans. This makes it important that the different importers need to understand the manner in which changes in the political front and political policies are dealt with. Economic Factors The recent economic crisis has affected the business as rising operational cost with decreasing profit margins has reduce the real wages in the hands of consumers which has affected the consumption pattern and has resulted in increased inflation and unemployment (Bureau of Labour Statistics, 2011). The market is slowly improving and will thereby present a better outlook in the future (World Bank, 2010). The coffee industry on this regards competes on two front firstly is the undifferentiated traditional coffee and secondly is the Italian style coffee beverages. The coffee industry to continue with its operations will look towards low cost coffee for the fringe customers and higher cost coffees for the affluent consumers (Moreno, 2008). This will help the coffee industry to deal with the present economic scenario and ensure increase consumption of coffee. Social The socio cultural factors have affected the manner the industry performs as increase in consumer outcry and growth of fair trade practices has made firms to ensure better services (Northey, 2007). This is seen be the use of CAFÉ program by Starbucks which looks towards fair practices (ICO, 2011). This has ensured that the coffee industry starts to use 2% milk along with not fat milk (Thompson & Strickland, 1999). Along with t\it the use of sugar levels has also been looked into and steps taken to ensure that they are nutritious at the same time provide flavor. Technological Technology has a major role in the coffee industry as product innovation due to technology, customer ambience and other factor related issues are answered by the customer through emails, text message and social sites (Buckstein, 2010). This has made increase use of technology and also the use of digital billboards multiplies the use of technology (Buckstein, 2010). Environmental Coffee industry also looks towards preserving the environment by ensuring that tree are planted which helps to provide coffee beans. Along, with it the stores looks towards maintaining the privilege and ensuring that minimum environmental harm is done so that the environment can be looked after. Legal On the legal side organizations conducting business has to obtain the legal permission regarding taxes, entity applications, legal contracts and leases which the business has to obtain from the other country. This has to be in tune with the local laws so that the business abides with the legal requirements. Micro Environmental Analysis The micro environmental factors look towards focusing on individual companies so that their strengths and areas of focus can be found out. The internal analysis of Starbucks shows that the company has sound tangible and intangible resources (Gable & Thompson, 2011). The company thereby has looked towards clearly demonstrating their corporate mission, products and services, leadership, culture, and strategy which has ensured that the company has clearly stated the things they look to achieve (Hannan, 2011). The company by looking towards understanding their internal factors has looked towards the following The above diagram shows that Starbucks has understood their internal strengths and then looks towards developing ways so that both the tangible and intangible resources are used in the most effective manner so that the workforce is able to contribute towards the growth of the organization. Targeted Customers Starbucks coffee looks towards understanding the demographics of their country of operation and based on it look towards providing their services. It is also identified that people over the age of 59 has a different preference for compared to people in the age bracket 18 to 24 (NCA, 2008). This has made Starbucks looks towards delivering quality service based on the different drives which makes the customer purchase their products as shown in the chart below The above chart shows that Starbucks looks towards every segment of the customer and while identifying their targeted customers Starbucks has looked towards developing different products based on their taste and preferences. This shows that Starbucks looks towards targeting all section of the customer who has a love for coffee and looks towards providing quality services to its customers through their servings. Competitors Starbucks faces severe competition from other players in the market. Starbucks faces both direct and indirect competition. On the direct front it faces competition from manufacturers of hot drinks like coffee (Datamonitor, 2010) whereas indirect competition comes from energy drinks, caffeinated soft drinks and energy shots (Datamonitor, 2010). The below chart shows the major competitors of Starbucks The above chart highlights the Starbucks leads the market but faces stiff competition from Nestle and others in the market. The degree of competition is further mapped based on the price and quality of their offerings which looks to present the product line. This is thereby represented with the mapping which highlights the symbolic presentation of the firm based on their revenue as shown below Thus, Starbucks faces stiff competition and have an advantage in case of product line which has thereby ensured that the company is able to deal with the customers and provide efficient servings to its customers. Consumer Behavior Issues The buying behavior of consumer is greatly influenced various factors. Consumer visiting the different coffee shops gets influenced by their associates, friends and relatives. This has a huge role to play as external factors determine the purchasing habits. This is further affected by the fact that coffee drinkers demonstrate a different behavior and have a preference towards a brand as they stay loyal to it and look towards the same services again and again in the future. Thus, various factors have an effect on the consumer behavior which Starbucks need to understand and use in their marketing strategies. SWOT Analysis The SWOT analysis looks towards including both the external and internal factors so that the manner in which the business is affected can be identified. The SWOT analysis of Starbucks will thereby help to understand the manner in which their business will get affected in the near future. Strengths Starbucks has a strong brand name Offers a wide range of products Sound Financial Performance Efficient Workforce and proper management in relation to the tangible and intangible resources Weakness Overdependence on the US market for sale of their products Decreasing market share Dilution of the brand image due to recalling of various products Opportunities Focusing on new emerging markets due to increase in demand from those markets Look towards strategic growth by having stores at locations which are more accessible Look towards third place experience where consumers can purchase coffee at stores and at the same time purchase more products from the store Threats Intensifying competition both from local and international players Increasing governmental regulations which has reduced profits and made it difficult to sustain the business Decrease in the supply of high quality coffee beans affecting the quality of coffee Thus, Starbucks has identified different areas that they need to work and has to ensure better use of the resources so that they are able to improve their business which is as follows Conclusion Starbucks has thereby looked towards understanding the external environment so that they are able to use its resources in the most effective manner. The company has identified some of the external factors which are very relevant in their strategy for the future. They are increasing governmental regulation, changing economic climate, increasing legal intervention, changing consumer taste, and decrease in supply of quality coffee beans. Starbucks has identified the most important environmental factors and based on it look towards developing their strategies so as to sustain growth References Bureau of Labor Statistics. 2011. REGIONAL AND STATE UNEMPLOYMENT —2010 ANNUAL AVERAGES. Washington, D.C.: Department of Labor Buckstein, J. 2010. Savvy Shoppers in a Brave New World. Bottom Line, 26(4), p. 28. Datamonitor. 2010. Drinks Market Watch: Starbucks. Datamonitor Gamble, J. E., & Thompson, Jr., A. A. 2011. Essentials of Strategic Management. New York: McGraw-Hill Irvin. Hannan, M. T. 2011. Organizational Analysis. Encyclopedia Britannica ICO. 2011. The Story of Coffee. Retrieved July 18 2012, from The international Coffee Organization: http://www.ico.org/coffee_story.asp Oxford University Press. 2007. PESTEL Analysis of the Macro-environment. Retrieved July 18, 2012, from Oxford University Press: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm Moreno, J. 2008. CONSUMERS / Blending coffee and frugality / A once-piping-hot trend cools off as java lovers try to economize. Houston Chonicle, p. 1 Northey, J. 2007. The Canadian coffee consumer: Understanding consumer preferences for Fair Trade coffee products. University of Guelph (Canada). Canada: A&I. NCA. 2008. National Coffee Association of the USA, Inc. National Coffee Drinking Trends 2008. NCA Market Resources Starbucks. 2012. Satrbucks Office Coffee. Retrieved July 18 2012, from www.starbucks.com: http://www.starbucks.com/business/office-coffee Thompson, Jr., A. A., & Strickland, A. 1999. Strategic Management (11 ed.). Mcgraw-Hill World Bank. 2010. Global Economic Prospects: Fiscal Headwinds and Recovery. World Bank Read More