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Global Business and Strategy
Introduction
The modern business environment is ever-changing and is difficult to understand by most of the experts. Organizations are putting huge efforts into incorporating the changing business scenarios in their strategic planning. This has increased the importance of the strategic analysis which is a crucial process that is required to carry out for analysing the operating environment to create a strategy. The ultimate goal is to achieve the organisational goals and objectives. Various tools and instruments are used for strategic analysis. In this report, an evaluation of the marketing strategy of Starbucks will be done. A brief introduction to the organisation's background will be presented. Furthermore, an internal and external analysis of the organisational environment will be done by making use of tools such as SWOT and PESTLE. In the report, the sustainable competitive advantage will be presented along with the recommendations and issues in implementing them will also be elucidated.
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Organisation’s Background
Starbucks is the one of the largest American coffeehouse chain and coffee company that was founded in the year 1971 in Washington. The company is known for its unique quality, taste, and customer base and is largely popularised for darkly roasted coffee. The company's ideology is based on the fact that it not only focuses on being the determined coffee's purveyors but also on providing a full-fledged experience of the coffeehouse. From the very beginning, the company is focusing on being a unique coffee company and become the world's most celebrated coffee company in the world by developing a feeling of connection. At present, the company has 28,218 stores across the globe (Starbucks, 2018). The number of employees working in all the stores worldwide are nearly 238,000. The company deals in coffee beverages, baked products, tea, smoothies, and sandwiches. In 2017, the annual net income of the company was US$ 2.885 billion. The secret of the company success lies in its marketing and promotion strategies. The company launched its mobile app in 2013 that increased its sale by 10%. Starbucks’s promotion platforms include Twitter, YouTube, Facebook, and Instagram. In June 2018, Starbucks made a decision regarding implementation of “block-chain technology” that aimed at connecting coffee drinkers with those who cultivate it. The idea is to provide direct financial opportunities to the farmers (Starbucks, 2018). The program initially started in Colombia, Costa Rica, and Rwanda to track the journey of coffee beans from farm to cup.
While being one of the most celebrated brand worldwide, Starbucks has also suffered serious accusations of stealing the tax in the UK. For the past three years, Starbucks has not paid a penny as tax while for the first 14 years of the establishment in the UK, it had paid 1% of the overall corporate tax in the region. This had severely damaged the company’s image and affected the public relations. In addition to this, the sustainability of the company had also suffered a major setback (Starbucks, 2018).
Internal and External Analysis
The environment of the organization is of two types. One is internal and the other is external. Internal environment consists of those factors which are in the control of the business. External environment consists of those factors which are not in the hands of the business (Aithal, 2016). The organization has no control over the external factors. The external environment is also known as the macro environment. The macro environment consists of political factors, economic factors, social factors, technological factors, legal factors and the environmental factors which influence the business of the organization and have an impact on the decision making. The PESTLE analysis of Starbucks has been explained below-
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Political factors
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These factors include the policies and the regulatory framework of the nation. It also includes the impact of government on the organization. The political factors which affect the business of the organization are regional integration of the markets and improving the governmental support for infrastructure. These are basically the opportunities for the organization. A political factor which also includes bureaucratic red tape in developing countries.
According to Barker, et.al (2017), the major political factor is related to the sourcing of the coffee beans and other raw material. The government of the countries is very much concern about the social and environmental impact on their people. Therefore, Starbucks is always under pressure of adhering to the socio-environmental laws and standards.
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Economic factors
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These consist of those factors which refer to changes significant and the economic conditions of the business. The economic factors which affect the organization are high growth of the developing country. The declining unemployment rates in the nation and the rising labour cost in the supplier's country also affects the business of the organization.
The global recession of 2008 had put a major dent on the Starbucks's profitability. The consumers started shifting to the cheaper alternatives available to them. The best part was that they did not forget the taste of Starbucks and that helped the company to regain its profitability.
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Social factors
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These are those factors which portrait the trends and the social conditions which influence the business and the consumers. The factors which should be kept in the minds of the management of the organizations are growing a coffee culture, an increase of health consciousness amongst people and the rise of middle-class people. The tastes and preferences of the people changes as the market are very dynamic. Starbucks has opportunities to understand the customer's need and make the changes accordingly.
In addition to this, the company sticks to its ideology of providing quality coffee without reducing the product cost. This turns out to be a major social challenge that the company faces. Another challenge is that older consumers are turning away from the brand. Hence, it is important for the company to tap the millennial as customers.
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Technological factors
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These are those factors which include the technological advancements. The organization needs to use the latest technology so as to fight the tough competition in the market. Starbucks has an opportunity to be available to rural people through the use of technology in the form of mobile applications. It can be globally present to the people through the internet domain. The supply chain efficiency can also be improved with the help of latest technologies.
The company is providing free internet in its outlets because nowadays people need Internet and they prioritise those restaurants that provide free Wi-fi to them. This can serve as an added value. It has increased the overall profitability and brand share.
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Legal factors
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These are the factors which include the laws and regulations of the nation. The organization has to adhere to the laws and regulations of the nation. The legal factors which affect the business of the organization are product safety regulations, increase in the regulations relate to employment. The performance of the organization can be improved by satisfying the provisions of the Genetically Modified Organisms (GMO).
It is important for Starbucks to follow all the rules and regulations and should not violate any of them in order to operate in different countries around the globe.
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Environmental factors
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These are those factors which recognize the effects of environmental and ecological changes and conditions on the organization. There are certain environmental factors which the organization faces which are the trend related to business stability, growth in the popular help for responsible sourcing and the growth in the help of environmentally friendly products. The environmental factors include the activities which should have a less negative impact on the environment (Wang, et.al, 2015).
Many practices and activities of Starbucks and other coffee organisations have been constantly opposed by concerned activists and some International agencies along with some customers. These concerns and factors are important for maintaining the brand image and consumers’ trust.
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SWOT Analysis of Starbucks
The Swot analysis is a concept of the macroeconomics. It tells the strengths, weaknesses, opportunities, and threats to an organization. The SWOT analysis of the organization, Starbucks is as follows-
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Strengths
· Strong financial position
· Ranks Number 1 in the coffee and the beverage retailers
· Valuation of the company is more than $4 Billion (Hricová, et.al, 2016)
· Provides quality beverage at an excellent rate
· It is the largest coffeehouse in the world
· Has a pioneering people management
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Weaknesses
· The prices are generally high which is not affordable for every sector of the society
· Most of the products have a generalized standard.
· The products are imitable.
· The company was trapped in a fire in recent times because of which company borne losses (Wilson, 2015).
· Company’s reputation was damaged as it was alleged that the company has violated the ‘fair coffee trade’
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Opportunities
· The company is expanding in the developing nations.
· The business is been diversified into other sectors also
· Starbucks is getting into alliances and partnership with other firms also.
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Threats
· There is a competition with the sellers who provide coffee at low rates
· There are independent coffee house movements.
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Sustainable Competitive Advantage
In the mid-80s, the company faced many financial difficulties and as a result of which the company had sold its stores. However, in 1986, Howard Schultzreinvented the company. He introduced many sustainable competitive advantages for Starbucks. These have been discussed here:-
Positioning:In order to become a leader in the coffee industry, Starbucks put huge effort, funds, and time in brand positioning. It focuses on particular desires, needs, and wants of people. This helped the company in dominating the niche market (Hricová, et.al, 2016).
Value Proposition: Starbucks has always given preference to the authenticity. Starbucks work on the quality and selection of the beans in order to offer the best savour of coffee to its customer. The management realised that offering comfort along with a sense of coffeehouse experience to the customers have been adding a great value to the company.
Build Relationships: Starbucks aims at fulfilling the needs of the customers by giving them special attention. They are giving people their attention and special assurance. This has increased loyalty and build customer relationships. Ultimately, this has increased the sales of the customer in the due course.
Speedy Service: In today's day and age, the customers are prioritising the speedy service over quality as they have a time shortage. This need of the customer is acknowledged by Starbucks and it is focusing on providing fast services to them. Hence, keeping its competitive position as it is.
Consumer Education: Starbucks is leading in the market because it emphasises on consumer education. It is focusing on spreading and providing knowledge about the quality of coffee beans and the efforts the company is putting in selecting them. For that purpose, Starbucks is connecting coffee drinkers with those who cultivate it(Banerjeeand Dey, 2017).
Research: The strengths of the organisation lies in its R&D methods. The company’s ideology is “Be the Customer.” The company signifies the desires, needs, fears, limitations, and wants of customers. To understand the customer, the company observe them in-depth.
Trade-offs: The clear trade-offs has been an initial success factor for the company. The trade-offs comprise those activities that Starbucks avoid doing in the first place. These usually are incompatible with the company’s core values and brand’s vision. The competitors find it difficult to copy the measures taken to deal with the tradeoffs.
Procurements:Currently, the company is dealing with over 300,000 farmers that provide quality coffee beans to the company at a reasonable price. The company has never gone for outsourcing the procurement process. The company carries out rigorous testing while choosing beans that provide the best flavour (Hricová, et.al, 2016).
Recommendations
Looking into all the information discussed above, it can be seen that Starbucks’ unique stores and effective taste of coffee drinks have propelled its success. Starbucks now is not a brand but a feeling in North America (Banerjeeand Dey, 2017). There are certain recommendations that have been discussed here:-
Premium Product Strategy: Since the company is offering quality coffee worldwide, it can promote some of its products as a luxury. This can help in gaining the luxury-oriented customers. The customers will not think about the price while getting the quality product.
Product Differentiation: Starbucks is investing its efforts in clubbing its merchandisingand its marketing programs in order to develop its brand image as a leader in coffeehouse chain. The company is offering pre-packaged drinks in its outlets that are widely accepted by the coffee drinkers (Wang, et.al, 2015).
Retailing: Earlier, the company was selling the coffee through physical stores that used to be present in the busiest place or street in the market. Now, Starbucks is selling its products through online platforms via its website and mobile app. This has increased the sales of the company by 15% adding values to the market (Barker, et.al, 2017).
Promotion: The best way to promote itself in the local market in different countries is to take part in and give support to the local events and helping communities to uplift. This way it can improve public relations. It will ultimately help in growing the business (Hricová, et.al, 2016).
Pricing Strategy:Starbucks is a customer-oriented business entity and therefore, it focuses on product quality. The company provides the best coffee quality and customer services that explain the higher prices of Starbucks’s product. The pricing strategy should be made while keeping the focus on quality and customer service (Geereddy, 2012).
Conclusion
In the above discussion, it has been seen that organisations are putting huge efforts into incorporating the changing business scenarios in their strategic planning. The modern business environment is ever-changing and is difficult to understand by most of the experts. The report highlighted how the importance of strategic analysis has increased. This is a crucial process that is required to carry out for analysing the operating environment to create a strategy. The ultimate goal is to achieve the organisational goals and objectives.Various tools and instruments are used for strategic analysis. In this report, an evaluation of the marketing strategy of Starbuckswas done. A brief introduction to the organisation's background had been presented. In addition to this, an internal and external analysis of the organisational environment was done by making use of tools such as SWOT and PESTLE. In the report, the sustainable competitive advantage was also presented along with the recommendations and issues in implementing them wereexplained.
References
- Aithal, P.S., 2016. Study on ABCD analysis technique for business models, business strategies, operating concepts & business systems.
- Banerjee, S. and Dey, D., 2017. Eco-system complementarities and urban encroachment: A SWOT analysis of the East Kolkata Wetlands, India. Cities and the Environment (CATE), 10(1), p.2.
- Barker, J., Asare, K., Brickman, S. 2017 Transfer Pricing As A Vehicle In Corporate Tax Avoidance, The Journal of Applied Business Research, 33(1)
- Geereddy, N., 2012. Strategic analysis of the Starbucks corporation. Harward [Електронний реÑурÑ].–Режим доÑтупу: http://scholar. harvard. edu/files/nithingeereddy/files/starbucks_ case_analysis. pdf.
- Hricová, B., Lumnitzer, E., Piňosová, M. and Bodnárová, A.G., 2016. Life-cycle assessment of product through of the SWOT analysis. In Production Management and Engineering Sciences(Vol. 89, No. 93, pp. 89-93). ROUTLEDGE in association with GSE Research.
- Peters, M.E., 2017. Trading barriers: immigration and the remaking of globalization. Princeton University Press.
- Ruziwa, M., 2015. PESTLE analysis vital for strategic decision making. COMTEX News Network, Inc. Africa News Service.
- Schmukler, S.L. and Abraham, F., 2017. Financial Globalization.
- Starbucks, (2018) the Starbucks story, [Online] Available at: https://www.starbucks.com.au/Home.php [accessed on: 26-12-18]
- Thomas Friedman, 2008, Thomas Friedman's Three Eras of Globalization, video recording, YouTube, viewed 21 August 2018, <https://www.youtube.com/watch?v=lp4znWHvsjU >.
- Venkatachalam, A.M., 2018. Identifying the dynamics of growth in a competitive and transitioning lighting industry using PESTLE and SWOT analysis.
- Wang, K., Fan, X., Fu, X. and Zhou, Y., 2014. Benchmarking the performance of Chinese airlines: An investigation of productivity, yield and cost competitiveness. Journal of Air Transport Management, 38, pp.3-14.
- Wilson, J., 2015. Strategic Partners: Russian-Chinese Relations in the Post-Soviet Era: Russian-Chinese Relations in the Post-Soviet Era. Routledge.
