Porter’s Five Forces
Porter’s five forces analysis refers is a marketing analysis approach that is used in business strategy development and analysis of the industry in which the business is operating (Abraham 2012, p 567). Porter M. E. of Harvard Business School developed this model in 1979. The main aim of the five forces approach is to establish the level of competition present in the market. Porter’s five forces can be studied in two divisions. Three of the forces fall into the category of external competitive threats. The two remaining forces are internal threats. This microenvironment affects the firm’s capability to address the needs of customers while making a gain out of the business operations (Abraham 2012, p.568). The five forces can be outlined as follows:
1) Threat of new service providers and new competition
Starbucks faces the challenge of settling the tariffs that are imposed by the foreign countries on the importation of coffee beans. The reason why these countries use this measure is that they would like to bar entry of new players into the coffee market (Hill & Jones 2009, p.68). The effect of these high tariffs for Starbucks includes the reduction of the returns from the sale of coffee.
2) The threat of substitute products
Many of the Starbucks’s customers insist that the company should provide coffee that is traditional without any genetic modifications. The customers of Starbucks have an open chance of using other traditional substitute products like milk and water (Hill & Jones 2009, p.68).
3) The customer bargaining power
The customer struggle against the use of genetically engineered ingredients in brewing coffee shows the impact that customers have in directing the operations of Starbucks. The legal suits by customers have cost Starbucks about $ 225,000. This indicates the level of bargaining power held by Starbucks customers (Hill & Jones 2009, p.69).
4) Supplier bargaining power
Starbucks has spent a whopping deal on the supply of health and safety regulations equipment. This is not a core coffee business spending, but the push by the authorities and the suppliers, leads to a major expenditure.
5) The level of competitive rivalry
Starbucks Company is in the middle of a technology competition. Starbucks focuses on the reduction of the amount of expenditure directed towards energy and water. In order to increase the margin of profits, Starbucks has to consider efficient and more effective methods of processing coffee (Ahlstron & Bruton 2009, p.78).
The political stability present in the United States gives room for improved and expanded operations. The conducive taxes, economic policies and legal services support Starbucks’s efforts a fantastic deal. Increasing number of human resources available at the disposal of Starbucks and good standings with the government as a result of massive revenue are generated by Starbucks according to the legal and labour provisions. The quality good will that Starbucks hold in the people of the United States. Starbucks has the latest technology that serves to enhance efficiency and improve the relationship between Starbucks and its customers (Henry 2008, p.98).
The concern that Starbucks put on environmental matters has increased the trust that the stakeholders have in Starbucks. The concern of a clean atmosphere indicates to the customer that Starbucks cares for its customer’s welfare (Ferell & Hartline 2010, p.90).
The use of renewable energy has considerably reduced the energy consumption of Starbucks. Starbucks receives numerous benefits if its efforts in energy conservation continue.
Starbucks suffers from high import tariffs imposed by countries and businesses exporting coffee. This affects the final price that Starbucks charges its customers. Starbucks faces a considerable challenge from international and domestic terrorism. Though this is a declining threat, it boasts of the enormous effects (Ferell & Hartline 2010, p.94).
Starbucks faces a considerable threat with respect to lawsuits that are directed at Starbucks’s use of genetically modified ingredients in preparing coffee. This leads to the loss of customer trust, hence, a decline in revenues.
Starbucks also faces a threat of losing its moral, financial and legal advantages because of the consecutive lawsuits.
The amount that the authorities deal with safety and health regulations charge seems to be extremely high. This threatens that amount that Starbucks gets as profit.
Strategic Capability of Starbucks
The strategic capabilities exhibited by Starbucks include the ability to offer employment to a great number of population.
Starbucks has shown a massive capability of expanding. It has expanded from 500 to 9000 shops and still indicates strength to expand (Ferell & Hartline 2010, p.95).
The mission and the vision statement indicate how serious Starbucks about the needs of the customers and the business of making a profit. Starbucks has a strong legal arm that steers Starbucks out of trouble when legal suits arise (Simerson 2011, p.234).
Starbucks boasts of the latest technology that enables it to save water and enhance the efficiency of company operations. The ability to save water enables Starbucks to exercise environmental safety and waste control (Pahl & Richter 2009, p.156).
Starbucks has shown an extraordinary capacity of abiding by the government business legislation guidelines. This comes with the minimum wage legislation, age and rate together with the working time adherence.
Starbucks has the capability of recycling wastes so that environmental conservation concerns are addressed. Many companies still dream this unique capability of implementing. Starbucks boasts about unique capabilities that include an outstanding technology that enables Starbucks to save water to the tune of 25% of normal operation values (Auja 2009, p.87). Starbucks has embarked on the use of renewable energy that has steered Starbucks from a serious reliance on electricity.
Value chain includes activities that Starbucks has initiated in order to improve the quality of its goods and services. Starbucks has focused its efforts on continuous improvement of its coffee with a special mention of concern on blocking genetic modification of its coffee. This ensures that the customers maintain their trust and support. Starbucks has invested in the latest technology so that it may improve customer relations and enhance the efficiency of production at its plants (Hill & Jones 2009, p.345).
Get this EXCLUSIVE benefits for FREE
Outline (on demand)
The introduction of reusable cups for Starbucks drinks and coffee serves to enhance the service quality. Starbucks motivates and trusts its employees. The adherence to the legislation of the labour force encourages the employees, hence, high motivation levels.
Starbuck enjoys a wealth of relationships with stakeholders in the industry. There exists a healthy relationship within the community because of the rates at which Starbucks has alleviated the problem of unemployment (Henry 2008, p.278). Starbucks’ rate of expansion has ensured that levels of unemployment reach their lowest.
Starbucks and the U.S. government have a genuine relationship because of the revenue that Starbucks is able to generate for the government. Starbucks is also a law-abiding firm because of the keenness of its exercises concerning business registration, safety and health system installation and maintenance.
The mission that Starbucks has enhances its relationship with the customer base. This arises because of Starbucks’ desire to nurture and inspire the human spirit.
The relationship between Starbucks and its employees is a healthy network (Simerson 2011, p.238). Starbucks has managed to achieve this by enhancing the living standards of its employees. Starbucks is also keen on the safety and health standards present in the work environment.
Strengths and Weaknesses
Starbucks has massive financial resources that have enabled it to initiate and implement growth and expansion plans.
The presence of more than 9,000 Starbucks stores around the United States indicates a considerable capability that enables Starbucks to serve high demand for coffee and other drinks (Ahlstrom & Bruton 2009, p.347).
Starbucks has indicated a strong capability to employ large numbers of workers. The strength that comes with this is the technical and talent capabilities that Starbucks’ workforce brings on board. This serves as an advantage when compared against other coffee providers.
Starbucks has excellent quality control mechanisms together with the capability of doing research and development. This has enabled Starbucks to enhance customers’ and stakeholders’ satisfaction.
Starbucks implements ethical sourcing. With this policy in place, Starbucks is bound to reap a fabulous deal from the public image and the trust that stakeholders develop. This sways customer loyalty (Hill & Jones 2009, p.235).
Starbucks enjoys the benefits of the latest technology. For instance, Starbucks’ use of renewable energy has enabled the company to save energy by almost 50%. The water saving technology under development will cut a niche for Starbucks in the coffee market.
Starbucks has a stable policy on environmental conservation. In order to achieve this, Starbucks implements recycling of waste products. Starbucks has the reusable cups program that largely saves the running costs together with maintaining the environment.
Starbucks enjoys services of an excellent legal and public relations team. These assets have played a considerable role in enabling Starbucks win many landmark court cases.
The presence of a conducive employment policy that caters for employees working times, the minimum wage payable to the workers together with age and rates elevate the position that Starbucks holds in the coffee industry.
Starbucks enjoys the advantage that arises from the availability of the safety and the health policies that enhance the public image of Starbucks to its stakeholders.
Starbucks has a dented image that arises from the successive legal suits. The more the legal suits take place, the more negative publicity Starbucks receives.
Starbucks is also suffering from a few cases of inaccurate operations, which have cost Starbucks a great deal (Henry 2008, p.56). For instance, the case that involved violation of a customer’s gift card. If all employees and the responsible authorities did their rightful duty, Starbucks could not have lost $225,000.
Another undoing comes from the leakage of information concerning the availability of genetically modified ingredients in Starbucks coffee. This works against Starbucks because customers increasingly lose trust in the company.
Starbucks’ strength and weaknesses in the least sense balance out the threats and opportunities that are external to this organization. The strengths of Starbucks help to overcome to a large extend the threats that exist in the business environment. For instance, Starbucks has a strong financial capacity that serves as a basis to overcome the high tariffs that coffee exporters have initiated (Abraham 2012, p.389). From the numerous opportunities that the government has offered to Starbucks, the tariff costs are neutralized to a considerable amount.
Starbucks is able to handle the threat of substitute products by enhancing the quality of the coffee they supply to the customers. Using the latest technology, Starbucks is able to deliver well-refined coffee that surpasses market expectations, hence, maintenance of customer loyalty. Another way in which Starbucks is able to counter the threat arising from substitute products is through enhancement of environmental conservation programs.
Starbucks has indicated a massive control over the threat of customer bargaining power. In order to achieve this, Starbucks has tightly focused its efforts on customer satisfaction (Ferrell & Hartline 2010, p.376). Starbucks’ mission indicates the nature of concern that Starbucks seeks to serve. Starbucks is keen to nurture and inspire the spirit of its customer base. This strategy enhances the customer relations that Starbucks has with its customers. Starbucks is also keen on adhering to the legal, safety and health guidelines that the government has laid out. The result of this is enhanced cooperation between the customer base and other stakeholders. This voids any instances of customer legal suits.
Another threat that Starbucks has overcome due to the existing strengths and opportunities is the threat of supplier bargaining power. Starbucks enjoys a favourable business environment laid out by the government. The rates of taxes and other relevant levies are bearable. Starbucks’ employees form a large group of human resource suppliers. Starbucks has initiated numerous employment policies that have alleviated any uprisings from employee complaints. For instance, Starbucks has implemented ethical sourcing. With this policy in place, the employee standards of living are considerably enhanced (Pahl & Richter 2009, p.387). Another vital policy that Starbucks has implemented is the safety and health regulation. Starbucks has keenly worked upon the working time regulation, age and rate regulations together with the minimum wage regulations. These strategies have enabled Starbucks to cancel out any cases of customer dissatisfaction and overworking.
Starbucks also faces the threat of competitive rivalry. Starbucks has handled this threat by increasing the amount it is investing in research and development. For instance, Starbucks uses the latest technology in its stores so that customers find the best services. The use of technology at Starbucks has also enhanced efficiency of the operations. The technology employed is also unique, hence, exceedingly slim chances of rivals emulating and implementing it. The use of renewable energy has cut Starbucks’ dependence on electricity by about 50%. With the use of the latest technology, Starbucks has achieved more profits compared to previous seasons, hence, widened the gap that exists among the competitors. Starbucks’ desire to use water saving technology will place Starbucks further ahead in the competition. Starbucks is able to cancel out the effect of competition by continuously expanding its operations. At the moment, the presence of more than 9000 stores means that the value of competition is remarkably low.
Starbucks has also established a strong good will in the stakeholders of the coffee service industry. For instance, Starbucks has enhanced its efforts towards customer satisfaction leading to massive customer followings. The environmental concern program run by Starbucks is well established. This enables Starbucks to maintain a near to monopoly operation, hence, chances of raising competition are extremely minimal.
The threat posed by terrorism has been on the decline. This serves as good news for Starbucks as a result of the nature of the threat.
From this perspective, it is evident that Starbucks is strategically fit in the competitive scene of the coffee business. This strength is cemented further by the availability of a strong financial backing from the numerous operations that Starbucks runs. Starbucks is a strong player in the market because of the good will that it has established with the numerous stakeholders. Starbucks enjoys a genuine relation with its employees, the government, financial institutions and many other systems that are vital to Starbucks operations.
Starbucks has a distinctive strength in its technological advancements. The research and development of energy conservation programs stands to enhance the position that Starbucks holds in the market. Starbucks’ development of water saving technology also stands to streamline operations in the near future.
Starbucks should focus just a little more on the accuracy of its operations so that avoidable legal suits did not exist. The case of the gift card violation was exceptionally avoidable. When this strategy is implemented and monitored, Starbucks will be able to accomplish a lossless operation of the coffee business.
|Economics Cases||Case Study|