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Starbucks Market Status Assignment

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Starbucks Market Status Assignment

Starbucks Market Status Assignment

PORTER’S FIVE FORCES OF STARBUCKS

1.  EXECUTIVE SUMMARY

The product differentiation is the strategy in which goods development, distinctive product is offered for making it more alluring to end consumers as well as make it distinguished from its rivals to gain an advantage over its competitors, capture market and generate high profits. Concerning Starbucks, it provides excellent beans and superb ambiance which attracts its consumers and their loyalty can't be judged. The Starbucks Company indulged in the market strategic development and strengthen the business outcomes for the better sustainability. It is analyzed that the major forces- substitution threats and existing rivalry that might influence Starbucks sales and success gloomy as wide availability of substitutes in coffee industry can disturb the growth of company because of the avoidance of cost leadership strategy that is overshadowed by its rivals such as MacDonald's. Therefore, price-conscious consumers might switch to alternatives although, quality lovers and Starbucks loyal buyers will always have their products in their bucker list. However, force and factors such as high substitute’s availability influences the sales and lucrative opportunities of Starbucks negatively and may hindrance the business growth in long run. Nonetheless, overshadow its rivals and capture the market, cost leadership would justify and boost up sales of the company and Starbucks can therefore enjoy consistent growth in coffee industry both in local markets and overseas as well.

2. Introduction

 

With the ramified economic changes, every organization needs to strengthen the business by complying with the effective strategic planning. The porter’ five forces have been used to assess the market factors and influencing the business strategy for its sustainability. In the report, the strategic model named Porter’s five forces of Starbucks revealed. Moreover, market status/position for Starbucks in a current scenario specified. In addition to this, application of Porter’s five forces concerning Starbucks mentioned in support and completion of subject matter. Furthermore, the product differentiation of Starbucks for gaining a competitive edge, offering unique proposition value, earning lifespan customer loyalty as well as capture market described in the report. On the other side, relevant justifications in regards to proposed strategy- cost leadership approach mentioned in underpinning the given concept. Moreover, relevant recommendations and conclusions regarding the undertaken company specified (Lim, 2019). from a long-run perspective, Starbucks profits might erode because of such alternatives and implementation of cost leadership approach by the rivals hence, low pricing approach was proposed in the report that will assist Starbucks in remaining in lead and overshadow its rivals by offering excellent beans at low amounts that would attract end consumers and boost up its sales

3.  STARBUCKS CURRENT MARKET STATUS

With Starbucks, its strong consumer base and delivery of excellent products/services marks its worldwide existence, customer retention, and large market. Currently, Starbucks accomplished around 14.17% of its revenue growth and managed to capture a share of market estimated at 26.48%. Additionally, its consumers perceive it as one of the best companies in a coffee industry reason being offering best beans with an excellent ambiance that satisfies and retain them for a long period (Nguyen, 2017) About its competitors such as- Dunkin Donuts, Costa, and MacDonald’s, pricing of Starbucks coffee products is relatively higher therefore, price-conscious consumers shifts to alternatives available like MacDonald’s, Costa and CCD. Moreover, Starbucks goods are a bit expensive hence, well to do families and rich youth are their sources of income (Maksymyuk, 2018).

4. PORTER'S FIVE FORCES APPLICATION TOWARDS STARBUCKS

About Starbucks, the five forces model invented by Porter is underpinned below-

PORTER'S FIVE FORCES APPLICATION TOWARDS STARBUCKS

1. The bargaining power of a buyer- It is defined as the bargaining power exercised by existing consumers against available products/services when there is availability of similar goods and alternatives in the market. Moreover, the rising trend and high demand for coffee make it a fostering factor but a barrier too for Starbucks as wide alternatives are available in coffee industry which offers similar products at cheap prices (Xiao, & Xu, 2017).  For example- Macdonald’s.  On the other side, there exists strong force from its rivals and substitutes available in the market who offer coffee and identical goods at low prices comparatively but compromise on goods quality hence, cost-conscious buyers may not prefer Starbucks in their bucket list. Although pricing of Starbucks coffee products is relatively higher therefore, price-conscious consumers shift to alternatives yet its loyal customers and quality lovers might not switch to alternatives. Therefore, in such a situation, cost leadership approach is highly recommended to Starbucks to attract and retain buyers and so that the buyers don't switch to coffee alternatives available at large in the market (Lewis, 2017). Hence, such force and factors such as high substitute’s availability influences the sales and lucrative opportunities of Starbucks negatively. Moreover, such external force erodes profit of Starbucks and impacts the psychological minds of buyers that they ultimately switch to a low priced product (Gavinelli, 2016).

2. The bargaining power of a seller- - It is defined as the bargaining power exercised by existing suppliers against the company when the high demand of its goods arises, or when there exists less availability of suppliers (Thompson, et al. 2016). Therefore, Porter model observes such force as a big impact that suppliers possess against a firm. Concerning Starbucks, it maintains strong connections with its existing suppliers such as suppliers from Zambia, Europe, and Asia. Unfortunately, what disturbs and influences the business functioning and sales of Starbucks is climatic fluctuations and increased temperature. In addition to this, suppliers possess low power because of wide availability for required products hence, to compete and survive, suppliers tend to agree on offered amounts by Starbucks Company (Mohindroo, 2016). Moreover, it cannot be wrong to say that the bargaining power exercised by existing suppliers against the company is relatively lower as there exists high availability of suppliers in an existing market. On the other side, it doesn't influence sales and even gives lucrative opportunities to Starbucks to bargain accordingly against them by buying in bulk at a lower amount. Additionally, such force doesn't negatively impact its business but natural factors such as climatic fluctuations disturb the supply management (Margiono, Zolin, & Chang, 2018).

3. The threat of a substitute- It is defined as the risk arising from rivals or substitutes availability hence, such external force disturbs the sales and success of firm. In case of Starbucks, it's imposed on a major substitutional threat in the coffee industry. Moreover, such force of Porter model such force and fa high substitute's availability influences the sales and lucrative opportunities of Starbucks negatively. Moreover, such external force erodes profit of Starbucks and impacts psychological minds of buyers in which they ultimately switch to a low priced product or a substitute product. In addition to this, Starbucks possess strong force or substitutional threat from MacDonald's and CCD who offer identical goods and services at lower prices as compared to Starbucks in which cost is a major factor which shifts buyers towards available alternatives in the market thereby cost-conscious buyers may not prefer Starbucks in their bucket list (Jing, 2018). Additionally, the rising trend and high demand of coffee make it a barrier for Starbucks as wide alternatives are available in coffee industry which offers similar products at cheap prices and instant coffee or homemade coffee trend disturbs the sales of Starbucks negatively hence, cost leadership approach must be its focal point to grow and compete (Carter, 2018).

4. The threat of an entrant- It is defined as the risk arising from entrants or new firms against a company that disrupts that firm/company. Therefore, such force of Porter model depicts the impact that new players might have over rivals or against a firm operating similar business. Although, high entrant threat is a major risk for a company whereas low entrant threat is a green flag and competitive advantage for a particular company. In regards with Starbucks, there is a moderate threat because of the brand recognition and identity from several years and the fact that providing best beans to ultimate consumers makes it a barrier for an entrant to foot in and give robust competition to such an admissible and popular coffee company who has a strong international existence presence and highly preferred by loyal buyers and quality lovers. Moreover, an initial cost of setup and extra investments is a costly affair for new players hence, moderate force is observable under such factors towards Starbucks. However, cafes and shops for coffee are opened but it too isn’t a major entrant threat for Starbucks because of the need for high expenditures, strong strategical plan, customer base, and positive recognition which is a costly and timely affair (Ahmadi, Rahimi, & Rezaei, 2018). However, the new entrances force and factors such as high substitute’s availability influences the sales and lucrative opportunities of Starbucks negatively.

5. The exiting rivalry- It is defined as the increased competition and wars in terms of pricing, strong marketing strategies arising between two or more companies from a similar industry. Hence, in regards to Starbucks, there occurs strong competition or increased rivalry in the coffee industry because of the increased culture and trend for coffee especially by youth and working individuals who crave coffee and tea and are ready to pay prices (Shokeen, 2016). However, the quality lovers and loyal buyers of Starbucks will always have their goods in their bucket list. On the other side, the rivals of Starbucks such as Costa, MacDonald's, CCD, and Dunkin donuts attempt their best to gain an advantage over its rivals and thereby, gain high profits and marketplace. But, Starbucks is still a tough competitor against such firms because of its high-quality goods and services such as- best beans and excellent ambiance which assists Starbucks in gaining their trust for a lifetime. Moreover, its vigorous global existence and immense customer base are because of its extraordinary services and good provision yet the increased rivalry is still a major burden for Starbucks hence, cost leadership is highly recommended to stay in trend and grow in long run over its rivals (Rahman, et al. 2017)

6. PROPOSED STRATEGY

In regards to Starbucks, it uses goods and services differentiation effectively but highly lacks a cost leadership approach which is need of hour for Starbucks to remain presiding and popular for youth and coffee lovers from the world.

The cost leadership approach can be defined as a cost reduction strategy in which the existing firm uses and offers respective products at a very low amount intending to gain an advantage over its rivals, gain high lucrative opportunities and boost up its sales in the market.  In addition to this, it was observed that the above Porter's five forces in regards to Starbucks show that regardless of high recognition, strong customer base, availability of alternatives, substitutes or similar goods and services can negatively influence the business functioning, growth, sales and productivity of Starbucks therefore, the proposed strategy is cost leadership strategy. On the other side, with the rising trend and high demand for coffee, it gives a profitmaking opportunity to Starbucks but as the alternatives are widely available in the market hence, cost leadership approach must be its focal point to grow a compete worldwide. Furthermore, Porter's forces such as an existing rivalry, substitutional threat, and bargaining power of a buyer or buyers must be held into account as these forces showed that Starbuck's profits and sales might be negatively influenced by its competitors if cost leadership approach isn't implied (Rahman, Zaman, & Afroz, 2017).  Unfortunately, strong force by substitutional and buyer bargaining power can be observed as an alarming situation in which its rivals like MacDonald's and CCD are providing similar goods at comparatively lower prices hence, it's likely that consumers especially price-conscious buyers will move towards low price alternatives hence, if cost leadership approach isn't followed and offered to buyers, then Starbucks might suffer in long run (Sakal, 2018).  Although Starbucks uses goods and services differentiation approach in the best manner which is the main determinant behind its vigorous growth overseas hence, such strategy isn't proposed but adding cost leadership will lead to wellbeing and a large market share over its competitors. Contrarily, the product differentiation is the strategy in which goods development, distinctive product is offered for making it more alluring to end consumers as well as make it distinguished from its rivals to gain an advantage over its competitors, capture market and generate high profits. Concerning Starbucks, it provides excellent beans and superb ambiance which attracts its consumers and their loyalty can't be judged. Hence, it can be observed that the strategy which needs to be taken into account by Starbucks is cost leadership as the product differentiation is the main determinant of its massive success, strong customer base, and customer's trust but, if low pricing approach also gets implemented then it would help the company in attracting price-conscious consumers (Guler, 2018).  Although its vigorous global existence base is because of its excellent services and good relations with both employees and end consumers yet the increased rivalry is still a major burden for Starbucks hence, cost leadership is highly suggested. And if such strategy is proposed it would lead to additional values and help in standing out in the market. Although, current market status showed a green light strong force by substitutes and rivals might weaken Starbucks sales in a long run. Therefore, to overshadow its rivals and capture the market, cost leadership would justify and boost up sales of the company and Starbucks can therefore enjoy consistent growth in coffee industry both in local markets and overseas as well (Duke, 2018).

7. JUSTIFICATIONS

Concerning Starbucks, the cost leadership is highly suggested as it’s the only factor that falls behind and overshadowed by its competitors while all elements and strategies such as diversification, product differentiation, excellent goods quality, and marvelous ambiance are undertaken but low pricing approach is what lacks when it comes to Starbucks. Hence, its competitors such as MacDonald's offers similar goods at comparatively low amounts then, it's likely to be that price-conscious consumers will find and choose alternatives. Hence, the cost leadership approach must be held into account by the CEO to gain profitmaking opportunities in both local markets and overseas as well (Dang, 2019).  Moreover, if such low pricing approach gets implemented then it would help the company in attracting price-conscious consumers who will switch to such a popular company famous for its excellent beans and coffee which is made and checked regularly so that customers are highly satisfied and don't switch to alternatives. And, many individuals wills to try Starbucks coffee but because of high prices they either can't afford or don't want to spend money on a coffee of such high amount hence, such individuals should be considered by the company as their purchase will help in remaining in lead and earning high revenues. However, to overshadow its rivals and capture the market, cost leadership would justify and boost up sales of the company and Starbucks can therefore enjoy consistent growth in coffee industry both in local markets and overseas as well Additionally, the proposed strategy is best suitable for Starbucks because being a highly recognized American company which has global existence and loyal customers need to grab the opportunity of attracting rest of individuals/consumers who might have not yet tried or may be switched to other companies like MacDonald’s, costa and CCD hence, to overshadow its rivals and capture the market, cost leadership would justify and boost up sales of the company (Ferreira, 2012). Moreover, it was observed that the above Porter's five forces in regards to Starbucks show that regardless of high recognition, strong customer base, availability of alternatives, substitutes or similar goods and services can negatively influence the business functioning, growth, sales, and productivity if prices are higher because alternatives might be in bucket list for price-conscious consumers Starbucks therefore, need to implement the proposed strategy which is the cost leadership strategy or low pricing strategy. Furthermore, key fact of consideration under Porter’s forces such as an existing rivalry, substitutional threat and bargaining power of a buyer or buyers forces showed that Starbucks profits and sales might be negatively influenced from its competitors if cost leadership approach isn't implied as its rivals offer goods at cheap prices as observed in force of substitutional, bargaining power and alternatives available hence, competitive analysis and low-cost approach will surely lead to wellbeing and growth in long period but, if high prices are offered for longer duration then even its loyal customers might switch to economical alternatives and it would lead to profit erosion and loss of consumers. Hence, cutting off its product prices will assist in standing out and gain an advantage over its competitors. Therefore, the unnecessary cost must be decreased and waste should be minimized. Therefore, cost leadership is justified for the company to sustain in market. (Keane, 2010).

8. CONCLUSION

It is concluded that Porter's five forces assisted the American situated company named Starbucks in analyzing the internal and external forces which could either disturb or encourage its growth in a longer period. Moreover, the fact that needs to be considered is two major forces- substitutional threats and existing rivalry that might influence Starbucks sales and success gloomy as wide availability of substitutes in coffee industry can disturb the growth of company because of the avoidance of cost leadership strategy that is overshadowed by its rivals such as MacDonald's. Therefore, price-conscious consumers might switch to alternatives although, quality lovers and Starbucks loyal buyers will always have their products in their bucker list. But from a long-run perspective, Starbucks profits might erode because of such alternatives and implementation of cost leadership approach by the rivals hence, low pricing approach was proposed in the report that will assist Starbucks in remaining in lead and overshadow its rivals by offering excellent beans at low amounts that would attract end consumers and boost up its sales. On the other side, it was observed that product differentiation, diversification approach, and excellent services are the ultimate sources of growth in both local markets and overseas, hence, if cost leadership strategy is proposed it would lead to additional values and help in standing out in the market. Although, current market status showed a green light strong force by substitutes and rivals might weaken Starbucks sales in a long run. Moreover, Porter's five forces showed that external forces need to be determined to analyze current market standing and utilize available opportunities accordingly as seen in a case of low supplier power in regards to Starbucks. Hence, the cost leadership approach is best suited to remain in the lead and gain an advantage over its competitors such as Macdonald's. Although, threat entrant and supplier power possessed low or weak force, therefore, developing strategies, cutting unnecessary prices will help Starbucks in running smoothly and overshadow its rivals.

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