Strategic Management Analysis
Billions of people walk daily either in morning, afternoon or even in the evening to have a cup of coffee amid of the current over priced status of the Starbucks company’s coffee items. The various store of the company across the world in recent studies have been found to offer specific market environment that is highly friendly to staffs and even customers in understanding the coffee brands and services available. Furthermore, the research revealed that customers buy Starbucks company’s coffees products because of the status, symbolic fitness and what it brings to them. Although most of the business models existing in the current management analysis field are effective, the one for Starbucks is a proper model to follow, especially in the current competitive market environment. Starbucks Corporation’s history dates back in 1971, when an academic English teacher opened one store that sold coffee, spices and tea to various tourists in Seattle. Since then, the company has exceedingly excelled on various market environment due to a specific focus and application of strategic management that fully catered Starbucks company strengths and weakness through engagement in research and proper dissemination of information.
Therefore, there is a need for this paper to focus on the strategic management of Starbucks company market capabilities, resource application, market environment and also its relationship to various coffee industry performances. In order to meet this objectives, the researcher will focus on the strength, weakness opportunities and threats prevailing in the coffee industry and within the company’s business environments either internally or externally (Schultz & Yang 1997). Moreover, the paper will relate them to the future strategies laid down for the company’s development and growth in the ever competitive global market. In terms of the business environment, the researcher will mainly focus on the competitive external environment and the cultural and final success of the company throughout the economic hard times the company has faced since its inception. This will provide with a wider capability of analyzing the critical success factors of the company such as an internal business and the implications of them to the international community. Lastly, the research chapter will inevitably be ended through a detailed discussion on the strategy recommendations and conclusions to Starbucks company and how these analyzed strategies should adequately and carefully be applied for the future prosperity of the company (Stevens, Loudon & Warren, 1991).
Task A: Market Environment Analysis
Billions of people globally wake up in the morning to a have cup of coffee. Others prepare it during the normal working hours in order to stimulate their bodies or even keep themselves warm in the evening. Due to this, there is a massive increase in the consumer demand for this product in the market, putting the coffee industry at a strategic competitive environment. Although coffee has been there for a long time, the industry has faced a stiff competition between the coffee retailers and various companies involved, such as Starbucks in recent times. The matching results of this witnessed coffee sale volume rise by 50% annually as from 2007. The market environment of the coffee industry is dominated by Starbucks, McDonald’s, Dunkin’ Donuts and McCaf? companies.
After examining the market environment with the purpose of determining the dominancy strength of the various companies and where the marketing is heading to, it was found that Starbucks company plays a vital role in controlling the market share globally. The coffee industry was found to be ever growing, despite the rising costs in maintenance and transport of the product for instance in January 2009; the cost was found to be 108.39 US dollars per lb, only later it increased to 184.26 US cents per lb. However, the almost 200% increment of the various coffee prices globally has seen the profits of most of these companies decrease at a higher rate. The price has been identified to be inflated by the current economic situations and supply chains adopted by the companies in the competitive environment, they have subjected themselves into (Michelli 2007).
In 2010, Starbucks company had to increase its coffee price in the United States segment due to the increasing operational costs for the coffee ingredients. However, in 2011, the company decided to remove the higher coffee price burden from consumers in order to retain them. The management of the company remains optimistic that regardless of the current escalating coffee price, the coffee industry prosperity remains brighter due to the large volume of consumer base globally.
The coffee industry market environment is optimistically expected to be more competitive and continue to expand by 2015 and year later. It has been found that even the market performance in the United States is going to start declining; there are other emerging coffee markets available such as Brazil and China. Brazilian ever rising economy seems to be a coffee hub in future; hence, it is expected by 2015, the country will be the biggest coffee drinking country. This has been evidenced in recent years, since coffee consumption level has risen by 39% from 2000 to 2010. Secondly, the country middle and upper class people population expands daily, and this may lead to the country having a large amount of funds to spend on the coffee and other superfluous based products. The examination of global coffee industry reveals that the Brazilian economy serves as the best one to invest in coffee business (Roby 2011).
In addition, the Indian economy serves as another significant hub for coffee companies due to its adequate performance. Starbucks company has already identified an opportunity in the market environment, and now it is planning to open up the first shop by 2012. Moreover, it has started to import coffee from India as India is becoming a greater spending economy country, and still it forms a good coffee market source for the coffee industry. Thus, it is still possible to agree that the coffee industry has a brighter future for the companies; thus, they should embrace an expansion of the worldwide market frontiers by strategically identifying the strength, weakness, opportunities and threats within and out the market environment. Starbucks company has started to maintain the market leadership over its competitors.
Many other critical factors have been found to dive the coffee industry market environment today. The next key success based factors of the competitors and Starbucks companies are marketing, quick expansion and innovations. With the ever escalating coffee prices globally, the companies have devised ways of reducing the coffee prices for customers or even come up with the innovative techniques to justify the price increment. Innovation through harnessing new coffee brands and new drinks can overwhelmingly lead to any coffee company in the industry having an upper hand over the rival competitors (Michelli 2007).
The second critical market environment success factor is marketing. In order to meet the demand of the ever growing coffee specialized industry, most of the companies, such as MacDonald’s, McCaf? and Dunkin’ Donuts, have decided to adopt the low price marketing strategies to attract more customers. On the other hand, Starbucks company claims that it sells high quality coffee and the product has wider varieties than its competitor, hence, it is preferred. In order to beat the competitors, the company innovations introduce free wireless internet, and Starbucks made digital networks that allowed its customers to watch and access the Wall Street business journals and iTunes, hence, not only retaining them, but also tapping more from the global coffee market. Therefore, this has been seen by market strategists as an opportunity for Starbucks company to promote its quality image before the customer’s eyes. This happened exactly after the company faced a serious competition threats from the McDonald’s Company, which had initially introduced wireless customer helpline Internet (Hill & Jones 2012).
In addition, the expansion of companies was observed to be a key success in the industry. In the race to tap the ever growing specialty coffee industry markets, companies have found to expose themselves in competition through opening of shops in the United States of America, Brazil, Russia and even India, as the countries have been found to have the upper and middle class people population expand annually. The main driving forces in shaping up the coffee industry are competition and desire to provide customers with a special coffee brand. The main driving force to the specialty coffee industry was the disposable income used by the companies. Good example is Starbucks: during the economic crisis of 2007, the share price dropped from 40 dollar to 10 in mid 2008, and at the beginning of 2009 the company saw a massive rise in the share price. This was due to the gained finance from the middle and upper classes of people in some countries, such as China and Brazil, and who could afford the coffee brand, hence its presented as an opportunity to increase market share for the company (Schultz & Yang 1997).
Lastly, the other driving force for the critical success factors is industrialization and westernization, whereas most of the countries interact with the United States and Great Britain, they are lured to consume coffee as a way of embracing the western cultures. India is an example of this movement as initially tea was the main drinks, but after interacting with Great Britain through trade, it can be observed that recently coffee has become the drink of the day. This means that in future, the coffee industry will be driven by industrialization, just like the case of India (Schultz & Yang 1997).
However, there are several threats posed by the competitiveness of the companies. First, the power of some of the suppliers over the price may serve as a substantial threat to the specialty coffee industry as it can lead to the escalation of coffee price, just like in the case of Arabica coffee in 2010, where the price increased by 77%. This may inevitably stagnate the small companies striving to survive with low cost strategies. Second, a crucial threat to the prosperity of coffee industry is the current specialty coffee competitiveness between the companies that can seriously hurt their performance in the foreign market. Third, the most essential threat is the increasing power of the buyer within the coffee industry, where consumers can decide not to consume the specialty coffee and rather jump to lower cost, but high quality products. This threat is highly created by the plenty of varieties of coffee products in the market which are charged very low prices. Lastly, the strongest threat is the entry of new firms in the coffee industry as they can bring in a lot of coffee substitutes, while diluting the market through introduction of new tastes, hence. a challenge to the strong competitors such as Starbucks (Hill & Jones 2012).
Task B: Starbucks Situational Strategic Analysis
Starbucks company has remained to be the coffee industry giant for the past years due to its spectacular move to retain its culture through maintaining high quality products, introducing various innovations, such as wireless Internet, collaborating with other market giants, such as Coca-Cola and Pepsi companies among others. For example, in 2001, the company retained its customers by introducing a program that attracted and rewarded farmers who have committed themselves to environmental friendly farming. This was analyzed by market strategists as an opportunity created with the purpose of cultivating the culture of harmony and strong relationship between the company and farmers. On the other hand, it was made to ensure the culture values and environment of the company remain intact (Kotler & Armstrong 2012). Through the introduction of specialty coffee, the company aims to embrace the different cultural tastes among customers in every culture of the market globally.
Moreover, the financial capability of the company is maintained; thus, resources are utilized efficiently for revenue maximization. The company has tapped several markets, such as the Indian market, where it has opened several coffee shops, the Japanese market, where the company has opened over 700 stores, while in 2012, it is planning to venture in the Brazilian economy. The low products are currently sold in the North Korean markets. Thus, Starbucks company currently occupies 43 countries globally (Crossan 2005). In Europe, the company invested over 350000 dollars in the wireless Internet in order to attract as many customers as possible and, thus, eventually expand the financial base.
Task C: Strategic Fit Analysis
Analysis of Starbucks company in the market environment and internal prevailing financial and cultural position reveals that significant tools drives the company in cutting across the competition in the specialty coffee industry. A couple of strengths, weakness opportunities and threats are available. One of the most significant strength behind its success is that it dominates the market, and, as a leader, it had over 16858 stores across 43 countries in the end of 2010. Another strength behind the company’s prosperity is a rapid market expansion both internationally and domestically; hence, this makes the company more financially stable than its competitors. During the 2007 economic crisis, the stock price of the company dropped, but the profits took a notch higher, leaving investors satisfied. Other minor strengths comprise of the company taking pride of high quality coffee products and strong coffee brand recognition that the company and customers have celebrated for decades (Hill & Jones 2012).
Although the company has the abovementioned strength, it has weaknesses, such as substantially high prices that make its customers suffer; hence, its arch market rival McDonald’s uses the high price strategy in its market campaign against it. Secondly, the company has a weakness as 75% of its profits result from coffee products and specialty beverages, yet its rivals, such as McDonald’s, focus on both food and coffee; hence, if the escalating coffee prices have hit backs, Starbucks company will be adversely affected. Thus, the analysis of the company’s weakness does not outweigh the available strengths; hence, it can be recommended for the company to remain a prominent and strong market household as compared to the rivals (Kotler & Armstrong 2012).
Several opportunities are available for the company, and among them there is a huge market internationally, including such countries as Brazil, India, Russia and China, where the number of upper and middle class population is increasing at an alarming rate. By 2012, Brazil is expected to be the world largest coffee product consumer; hence, it gives an opportunity to open several shops there. Starbucks company has also gained a market opportunity in India, where it has signed coffee supply agreement with Tata coffee company, which is the fifth largest exporter of the product globally.
Starbucks company has a brighter future in the coffee industry, and it will continue dominating for decades in case it maintains the abovementioned strengths, reduces the weaknesses and embraces innovations towards unveiling the available market environment opportunities. Since thirds of its stores are domestically located, the company seems to perform well as its financial resources are not exceedingly exposed to the international market economic crises, such as the one that was witnessed in 2007.