One of the industry in Malaysia that’s has been chosen for this assignment is Starbucks. Starbucks is a coffee company which was founded in the year 1971. As for now, Starbucks Corporation currently operates in 28218 locations worldwide according to its mission statement “to inspire and nurture human spirit – one person, one cup and one neighborhood at a time”.
Starbucks business methodology is related with giving clients a Starbucks Experience, i.e. a ‘third place’ encounter far from work and home, where individuals can have quality time with companions or alone getting a charge out of value espresso, drinks and new nourishment. Mobile applications had been adapted by Starbucks earlier than its competition for the promotions and also for its brand and sales. Not only does the mobile app offers multiple features such as store locator, nutrition-based information and reward programs but also has the ‘My Starbucks Signature’ which allows customers to develop their own signature drinks, name them and share those with the community.
The analysis model provides information for strategic management to address the five forces, namely, competitive rivalry, the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitution, and the threat of new entrants .Starbucks works in a business domain that includes serious rivalry with other café organizations, and sustenance and drink organizations like Dunkin Donut ,The Coffee Bean and Tea Leaf , Oldtown white Coffee and etc.
In this assignment Porter’s Five Forces Analysis will done for Starbucks Corporation. Fundamentally porter’s five strengths may be a commerce analysis that help diverse businesses to survives conjointly to support profitability. This is unequivocally utilized to examine the company structure and technique .This Model makes a difference to degree the competition concentrated, and a benefit of an industry. The porter’s five forces are as below:
Figure 1 : Porter’s Five Forces Analysis
First one will be Competitive Rivalry. This is to see the number of competitor. this also comprise on who are they and how quality is their product compared to the services/product you are providing.
Competitive Rivalry: High to Moderate
Starbucks is having the largest markets share and its closest competitors also having a significant market share, creating significant pressure on Starbucks. Consumers do have any cost of switching to other competitors, which crates high intensity in rivalry. Due to its premium products and services, Starbucks has maintained some competitive advantages which caused a moderate level of intensity in the competition. The trade is mature, and rate of growth has been moderately low that cause the intensity of competition among the businesses to be moderately high because of all of them seeking to extend market shaper from established companies like Starbucks. In summary, this impact of the trade group action force created by the competition between specialty low retailers is extremely high
Second one will be Bargaining Power of Suppliers. This is determined by how your competitor is managing the product price by increasing the price. And, how unique is the service or product they are providing.
Bargaining Power of Suppliers: Low to Moderate
The main inputs into the value chain of Starbucks is coffee beans and premium Arabica coffee grown in select regions which are standard inputs, which makes the cost of switching between substitute suppliers, moderately low. The suppliers within the business conjointly create a coffee threat of competitive against Starbucks by forward vertical combination, that lowers their power. Starbucks conjointly forms an extremely vital a part of the supplier’s business, due its size and scope, that build the ability of the suppliers lower. Powerful suppliers in Services sector use their negotiating power to extract higher costs from the corporations during this field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Specialty Eateries. By building a good relationship with the multiple supply chain provider, Starbucks has managed to manage the negotiation Power of the Suppliers. The conjointly forever develop an infatuated provider and experimenting with product styles exploitation wide-ranging materials in order that if the costs go of one stuff then company will shift to a different.
The third one will be Bargaining power of customers. This is wherever we want to work out however straightforward it’s for a client or patrons to drive your costs down. what number patrons are there, and the way massive are their orders? what proportion would it not value them to modify from your product and services to those of a rival?
In this Five Forces analysis model of the business, the bargaining power of buyers is among the most significant forces affecting the company. Based on the low switching costs, customers can easily shift from Starbucks to other brands. Moreover, there are many substitutes for the customers who wants to stay away from Starbucks such as the instant beverages and vending machines, this is called High Substitute Availability. These strong factors overshadow the fact that individual purchases are insignificant compared to the company’s total revenues. The small size of individual purchases equates to the weak influence of individual buyers on the business. Despite such weakness, the other two external factors strengthen the bargaining power of customers.
There are many different buyers in this industry and no single buyer can demand price concession. Consumers have a moderate sensitivity in premium coffee retailing as they pay a premium for higher quality products but are watchful of excessive premium in relation product quality. Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Starbucks Corporation profitability in the long run. The smaller and more powerful the customer base is of Starbucks Corporation the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers. . There are few way Starbucks Corporation tackle their business, one of them is by building a large base of customers. This will be helpful in two ways. First is that, it will reduce the bargaining power of the buyers besides it will also provide an opportunity to the firm to streamline its sales and production process. They also rapidly produce innovating new products. Customers often seek discounts and offerings on established products so if Starbucks Corporation keep son coming up with new products then it can limit the bargaining power of buyers. New products will also reduce the defection of existing customers of Starbucks Corporation to its competitors.
Fourth one will be Threat of New Entrants. Company’s supremacy is also affected when there are new entrants into its market. The position of the company is significantly weakened when the competitor effectively infiltrate the company’s market with less time and cost. An industry with strong barriers to entry is an attractive feature for companies that would prefer to operate in a space with fewer competitors.
Threat of New Entrants: Moderate
For new entrants, the initial investment isn’t as important as they’ll lease stores, instrumentality etc. at a moderate level of investment. At a localized level, tiny low outlets will contend with the likes of Starbucks and Dunkin Brands because of there are not any change prices for the shoppers. While it’s a competitive business, the likelihood of recent entrants to achieve success within the business is moderate. There’s a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime assets locations, and its store scheme ‘experience’. The incumbent companies like Starbucks have a bigger scale and scope, yielding them a learning curve advantage and favorable access to stuff with the link they build with their suppliers. New entrants in fields brings innovation, new ways of doing things and put pressure on Starbucks Corporation through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Starbucks Corporation must manage all these challenges and build effective barriers to safety measure its competitive edge. The way Starbucks Corporation can handle the Threats of New Entrants is by keep innovating new products and services. New products not only bring new customers to the doubling but also give old customer a reason to buy Starbucks Corporation’s products. It can lower the fixed cost per unit, building capacities, and cost benefits on research and development by building the economies of scales. New entrants are less likely to enter a dynamic industry where the established players such as Starbucks Corporation keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage inexperienced players in the industry.
The last one will be Threat of Substitutes. Competitor substitutes that can be used in place of a company’s products or services stance a threat. For example, if customers depend on a company to provide a service that can be substituted with another service or by performing the task manually, and if this substitution is easy and of low cost, a company’s power can be weakened.
Threat of Substitutes: High
There are many reasonable substitutes of beverages to coffee, which are mainly tea, fruit juices, water, sodas, energy drinks etc. Not only that, customers or consumers could also make their own home-produced coffee with household premium coffee makers at a fraction of the cost for buying from premium coffee retailers like Starbucks. There are no switching costs for the consumers for switching to substitutes, which makes the threat high. But it’s also important to note that industry leaders like Starbucks are currently trying to counter this threat by selling coffee makers, premium coffee packs in grocery stores but this threat still puts pressure the margins. When a new product or service meets a similar customer needs in diverse ways, industry profitability suffers. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry. The high availability of substitutes makes it easy for consumers to buy these substitutes instead of Starbucks products. For example, substitutes like ready-to-drink beverages, instant beverage powders and purees, and food and other beverages are readily available from various outlets, such as fast food and fine-dining restaurants, vending machines, supermarkets and grocery stores, and small convenience stores. In addition of having those, the low switching costs further strengthen the threat of substitutes, as it is easy for consumers to buy substitutes instead of Starbucks products. Moreover, many of these substitutes are considered affordable and it cost much lesser than the company’s products. Thus, this Porter’s Five Forces analysis of Starbucks Coffee Company determines that the threat of substitutes is a high-priority strategic management concern. Starbucks Corporation can tackle this last force by being service oriented rather than just product oriented and they also understand the core need of the customer rather than what the customer is buying.
Summary of five forces analysis in Starbucks Corporation. By having this porter’s five forces……………….>> haven’t complete.