External and Internal Environments - Essay Example

External and Internal Environments Starbucks Starbucks Corporation is an American worldwide coffeehouse chain and coffee company, which is based in Washington. It is a Public Ltd. Organization. It is regarded as the largest coffeehouse company in the world. Starbucks Corporation cannot be viewed as a normal coffee shop, as it exemplifies a diverse atmosphere and culture which is beyond having a cup of coffee. Starbucks consist of almost 20,737 stores in 63 territories and countries. The presence of stores all over of the world proves the fact that Starbucks Corporation is a renowned brand. Over the years, Starbucks has diversified in other areas to grow their market globally. People bewildered by the business strategy of the company which lead to the rapid upsurge of Starbucks. The rapid growth of the Starbucks has made rivals challenging to match the speedy success. The prime purpose of the company is to maintain old-fashioned way of making coffee by creating a culture of belonging and warmth with implementation of new technology. Furthermore, these values and mission can help to retain old customers and attract new customers. Segments of the general environment The general environment of the company is defined as the conditions and factors that are uncontrollable and can affect everyone in a market or industry. It is difficult for a firm to control forces affecting the general environment. Moreover, the evaluation of the general environment can benefit companies to identify future opportunities and predict changes. There are seven segment of general environment which includes demographic, legal, technological, sociocultural, global and economic segments. It is pivotal for Starbucks Corporation to assess the changes and continually monitor necessity changes for the benefit of organization. Two segments that can effectively influence Starbucks Corporation are technological and economic environment. Technological Environment Emergence of technological advancement has forced organization to innovate to sustain in the market. The capture of Chinese market has been one of the prime objectives of Starbucks Corporation. Therefore, it is vital for Starbucks Corporation to know that their processes and products are accepted in the Chinese market. Moreover, it is the vision of company to make effective alterations in the changing time to make new products. Starbucks Corporation has to make sure that these changes are acceptable by the consumer in the Chinese market. Therefore, it has become prime aim of the company to create an effective plan and introduce new technology that can be accepted by the consumers.The analyst of William Blair and Company, Sharon Zackfia stated that the economics of China is very good for China and consumers of China also love the brand which is affordable luxury. Intensive process and product research has been initiated by the company to create new technologies to impress people of China. Some of the innovative technologies include brewers for coffee. One of the things that have not yet been developed in China is the baking coffee technology. Starbucks Corporation has technological advantage that can be implemented to introduce baking coffee technology. More than 800 stores are created throughout China. This resembles the fact that the success of Starbucks Corporation is credited for method towards continuous innovation and effectively understanding the Chinese market. Economic Environment Economic environment are the factors, which are based on the economic condition of the organization. Some of the elements of the economic environment include gross domestic product, interest rates, unemployment rates and inflation rates. The recession and inflation rate was high at the time of arrival of Starbucks Corporation in Chinese market. Chinese people had less disposable income to afford expensive quality products. Global recession and economic crisis has forced Starbucks Corporation to correct the issue by lowering the cost of production and dropping the price of product. Despite the unfavorable condition for application of business, the company has implemented necessary strategy for to capture the Chinese market. This segment of the general environment has forced Starbucks to implement new strategy for the betterment of the organization and maintain sustainability in future. The annual report of Starbucks in 2012 reveals that the growth rate of China is increased to 15%. This proves the fact that Chinese market has created significant impact on the growth of net revenue of Starbucks Corporation. Five forces analysis of competition The Porter five forces model helps to analyze the competitive environment of any organization to formulate new strategies for betterment of the organization. According to Michael Porter, every industry has some set of technical and economic features that can eventually lead to the rise of competitive forces. Five forces include industry rivalry, bargaining power of suppliers, threat of substitute, threat of new entrants and bargaining power of customers. Bargaining power of buyers and industry rivalry are the two forces that are more significant towards the Starbucks Corporation. Industry rivalry The rivalry among existing competitors of Starbucks Corporation is very high. In UK, the rate of increase of branded coffee shops is high. From the source the Telegraph, it has been revealed that the number of coffee chain located in United Kingdom in 2013 is 5,719. There is a significant upsurge on the total number from the year 2012 to 2013 is 5,359 to 5719. Competitors of Starbucks Corporation are McDonald’s, Coffee Bean, Nestle, local café, Dunkin Donuts and Costa. The market segment of Costa coffee is close to Starbucks. Costa Coffee uses comfortable environment and luxury coffee to attract middle-class customers. Nestle coffee is another rival of Starbucks which uses low pricing strategy to attract customers. Some other factories other than coffee quality is looked after by Starbucks Corporation to draw loyal customer and maintain their competitive advantage over rivals are ambiance, place for everyone and consistently convenient. The ambiance of Starbucks is top notch regardless of the variety of coffee and non-coffee products. Baristas in green aprons, rich warm color structure, organic-looking art and alternative music are more than comfortable for customers. None of the competitors provides the variety of quality and flavors than that of Starbucks. A differentiated environment is offered by the company with WIFI connection, magazines and newspapers. Bargaining power of buyers Customers are regarded as the powerful force in any business as they can force companies to demand better services and cut down prices from the companies. Previously, people with high income used to visit Starbucks. But it has changed effectively as Starbucks Corporation used to attract broader demographic of customers. Moreover, this wider demographic includes customers with different ethnic ages and backgrounds. The success process of Starbucks is the combination of friendly environment with good services, comfortable chairs and good music and high quality drinks. Sensory marketing strategy implemented by Starbucks Corporation is to attract customers. Sensory marketing strategy is a technique which includes five human senses such as sound, sight, touch, smell and taste. This process enables to be authentic, unique and promote products in such a way that people remember the name of the brand. Starbucks Corporation can develop its ability to address these forces Several methods and strategies can be implemented by Starbucks Corporation to enhance their ability ad magnify their high quality image globally. Industry rivalry Expansion is the key to maintain hold over industry. All evolving economic countries such as India, China, Russia and Brazil are going to be crucial in future. The key of winning over the growing middle and upper class is by early entering in these countries. Cost-leadership strategy can be implemented by Starbucks. It is the strategy which can be executed by business to create low cost operation by reducing operation costs. It can benefit Starbucks to pursue greater efficiency, ignore wasteful practices and inflating costs. Bargaining power of buyers The growing coffee industry requires implementation of effective marketing strategies. Innovation, expansion and marketing are the three success factor for any organization. Therefore, it is vital for Starbucks Corporation to innovate new types of coffee that can allow company to have upper hand over other competitors. Starbucks Corporation needs to implement new marketing strategies and new innovations that can help to sustain competitive advantage and attract customers. External factors Threats and opportunities are external factors that involve specifying the elements in the environment that could be used to exploit advantage or that can cause trouble for any business operation. Threats The most credible treat towards the dominance of Starbucks Corporation is entry of two large companies. Dunkin Donuts and McDonalds are the two formidable opponents. These are the two companies that have the capability to match the marketing activities and distribution channels of Starbucks Corporation (Thomas, 2005). The image of the company can be hampered by overprices coffee. Another threat for Starbucks is current global economic crisis. The financial reports of the company reflect that profits and revenue is going down. The profitability of the company is pounded by economic crisis. Implementation of new technology and enhancing the environment can be prime objective of the company to make then different from other rivals. Introduction of cost-leadership strategy can benefit company to reduce their cost at the time of economic crisis. Opportunities There are many opportunities for Starbucks that include venture on consumer products in other segments such as international segment and United States domestic segment. Expansion of coffeehouses in emerging economies, such as India and China is another great opportunity for Starbucks. The business operation is expanded by selling products to retailers (Lewis, 2006). Starbucks Corporation should focus expanding their marketing to grow their global dominance. It can be seen that the emerging economies are the future for market expansion. Internal factors Strengths and weaknesses are internal factors that specify the characteristics of the business to notify faults and benefits. Strengths The experience of Starbucks is one of the strongest advantages to deliver customer with friendly staff, perfect blended coffee, warm atmosphere and premium music. Low turnover rate is another strength of Starbucks which provides employees excellent work environment (Pride, 2013). Global dominance, high brand recognition and excellent customer service are other strengths of the company. Cost-leadership strategy is another method that can be executed to create plan for low cost operation. The pricing tactic in different countries can benefit Starbucks to maintain their dominance at the time of global recession. Weaknesses Product pricing is one of the weaknesses. Starbucks Corporation offer excellent customer service and great coffee with high price. The price of McCafe premium coffee is lower than that of coffee from Starbucks. Negative publicity is another weakness. The product mix of Starbucks is narrow and it has been revealed that more than three quarters of the Starbucks retail sales comes from the beverages. Pricing strategy should be implemented by Starbucks Corporation to maximize their profit. The current pricing strategy of Starbucks is out of date and needs to be reviewed to nullify its negative effects. The implementation of effective pricing strategy can act as a beneficial factor.The current pricing strategy of Starbucks is out of date and needs to be reviewed to nullify its negative effects. The implementation of effective pricing strategy can act as a beneficial factor. Core competencies, Capabilities and Resources Core competencies of Starbucks Corporation includes its unwavering focus on constant product advancement, outstanding customer service, drive to be everywhere and excellent quality. The product offering of Starbucks includes their beverages, teas, bakery goods, lunch items and coffee is attained through capability of Starbucks to form supplier relationships strategically. One of the capabilities of Starbucks is the choice of forming corporate relationships with other companies that are appealing to the customers and complement towards the Starbucks Experience. Moreover, this capability allows achieving success with the help of future and loyal customers. Internal environment of Starbucks is made by other capabilities and resources such as reputation, channels of distribution and location. Strong financial and skilled human resources are major resources of the organization. Value chain analysis The primary activity of the Starbucks value chain system includes locating raw materials from suppliers and storing the coffee beans in to a safe place to keep them fresh and also maintaining cleanliness of the beans. Moreover, it also includes sales, effective customer service, promotional activities and management of stores. These activities involve the physical events that are vital for organization for enhancing brand image and selling of products. Core competencies can create value by effective customer service and product development. The secondary activities include legal work, accounting and firm infrastructure. For Starbucks, outbound and inbound activities, service and marketing events are maintained by the help of human resource management, procurement activities and good corporate management planning. The stores made by Starbucks are planned and carefully studies. Furthermore, several details should be taken in to consideration such as demographic characteristics, density of people and traffic flow. These following things are done to support the first activities which aim to deliver best quality products to the customers. Capabilities and resources of the company can be fulfilled by the help of loyal customers by providing quality products and services. References Lewis, P. (2006). Management: Challenges for tomorrow’s leaders. New York: Springer. Pride, W. (2013). Business. Stamford: Cengage Learning. Thomas, R. (2005). New product success stories. London: Routledge. Read More