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Unit 1 Business Environment Assignment – Starbucks
Diploma in Business
Unit Number and Title
Business Environment Assignment – Starbucks
Report on Starbucks
PEST is an analytical tool that stands for P-Political, E-Economical, S-Social and T-Technological factors. PEST analysis involves the analysis of the effect of these factors on the long-term growth and success of the company.
- Political: Starbucks has affected by several political factors like the pattern of sourcing the raw material. Government has made it compulsory for the company to involve in the sourcing of raw material. If the company denies then a lot of political pressure is caused. There is another example that is “Skip Starbucks Saturday” boycott where people were encouraged to stop going to the store because of the gun policy of the company according to which the customers were allowed to carry loaded guns in the store and this policy created a huge political issue.
- Economical: Consumer buying power is the vital factor in determining the overall economic situation of the country. In 2007-2209, the consumer buying power reduced hence reducing the overall profit of the company as a result of which a large number of stores were shut and employees were fired. Currency exchange rate was the next important factor. Strengthening of the US dollar in comparison to other foreign currencies decreased the profitability of the company. (Starbucks, 2016)
- Social: The western culture became very popular and its adoption became a point of prestige for the people. This was enhanced by the internet to a greater level and hence the coffee culture accelerated. Starbucks store visited a larger number of buyers that made it familiar with more people. Simultaneously people became very health conscious which resulted into lesser consumption of caffeine and sugar that reduced the number of visitors in the store. Fluctuating patterns of work, changing customer demands and demographical changes are other important factors.
- Technological: Technological advancement is acting on its peak in the current scenario and people are going more technology oriented hence Starbucks adopted e-commerce methodology so as to maintain its position in the market. In year 2010, Starbucks was named as the most popular brand on the social the social networking technologies sites. A free mobile application was launched through which people could purchase the products by just entering a Starbucks card number at any location. Another attractive service provided by the company was unlimited Wi-Fi in the stores. (Rothaermel, 2015)
The internal and external analysis of the company refers to the study of the complete SWOT analysis in which the acronym stands for S-Strengths, W-Weakness, O-Opportunity and T-Threats. SWOT is a market analysis strategy that helps in determining the various factors that play either in support or in against of the company’s growth. It not only determines the strengths and weakness of the company but gives an idea about the changing business environment and the threats for the company. (ukessays.com)
- One of the major strengths of Starbucks is its very stylish image that has made it very widely known especially among the youth. Nowadays, the youth is following the coffee culture in large numbers.
- The services provided by Starbucks such as unlimited Wi-Fi access is appealing the customers in a huge number.
- The well designed website of the company has attracted many internet users because in the current scenario people rely more on the information provided on the internet.
- The coffee culture is increasing very rapidly thus it has hiked the profit market for the company.
- The loyalty scheme launched by the company is also a profitable measure. According to this scheme the customer is provided with a loyalty card with the first purchase that will help in the future purchase. (Geereddy, 2011)
- Starbucks is experiencing financial issues in the recent years. Thus the company is unable to invest in the launch of new products that is making the profit rate lesser than expected.
- Due to the decreasing market value, stocks and shares are also deteriorating which is causing loss to the company. Thus count of customers is getting lower because of lesser innovation in the company products.
- People feel afraid of the gun policy of the company according to which the company has allowed the customers to bring their weapons inside the store if they wish to.
- The tax avoidance scandal in year 2012 in which the company did not pay the corporation tax for years; contaminated the reputation of the company. Although in the long-term strategy adopted by the company this flaw has been recovered. (STARBUCKS CORP 2013 Q1 Quality Report)
- The decentralized organizational structure is also one major setback in terms of quick decision making.
The strengths and weaknesses are linked to the external macro factors directly or indirectly. The stylish image of the company has increased the number of customers for the company as a result of which it has strengthened the social factor of the PEST analysis model. It is also affected by the adoption of the western culture for instance youth is the most affected segment of the westernization culture that is highly contributing in the profitability of the company. The technological advancement of the company that is having a mobile application and an online website is hiking the technology usage in the organization. The purchase can be made through the internet that is a major advantage for the company. The availability of unlimited Wi-Fi has attracted a lot of internet users to become the customers that has made the technological as well as the social factor stronger. (Starbucks, 2016) A very apt example can be considered here in case of the economic factor: Starbucks has a market that needs greater investment for the profit of the company. If the company has a considerable amount of fund to make an entry to the market then this is the best option for a company. The company will enter the market making a big investment and as expected the profit rate will also increase. This is an appreciable step for any company that has the required amount of fund. On the contrary if a company is not available with the amount of fund required to enter into the market, then the company is deprived of this profit making opportunity.
In this section PESTLE model and the SWOT analysis model are explained.
PESTLE Model: PESTLE model is a strategy analysis tool which is very helpful in realizing the impact of the external factors on the growth and success of the company. It is an extended version of PEST model. The acronym stands for
Political- The major factor is the souring of the raw material. The government wants to stick to the environmental norms that also provide fair trade prices. The company also has to follow the rules and regulations of the country from where the raw materials are being purchased. Factors like tax payment and employment laws are also important.
Economical- The most effective factor is the local currency exchange rates for example US dollars. Business market and the taxation payment keep changing which make it a considerable characteristic in this context.
Social-Changing family and working patterns, lifestyles play a crucial role in enhancing the market. On the contrary customer preferences and concern towards the health is resulting in lesser consumption of the products.
Technological- Starbucks has its own mobile application and a well designed website for the customers. Its partnership with Apple provides discount coupons which makes it customer interactive. It also provides internet facility within its outlets.
Legal-Company must take care that it should not violate any law while buying the raw material or while selling the products in any country.
Environmenal- In this context, even consumers has raised voices regarding the exploitation of environmental rules and regulations. The countries that are producing coffee beans are experiencing environmental disasters. Global warming is also increasing. (PESTLE analysis, 2014)
SWOT Analysis Model: It is a business strategy that determines the future growth aspects in reference to the existing measures taken by the company. The acronym stands for
Strengths- Starbucks is well known for the quality of its products. It is very efficient in the services it provides and is ethical in its nature. The company treats all of its employees well regardless of the position they hold in the company.
Weakness-The hefty price tags on some of the products it provide makes the customer hesitant in buying that product. Moreover the products it provide are not very unique that is they are available in other stores also which increases the competition in the market and lowers the profit.
Opportunity-Starbucks has expanded its utility stores all over the world which multiplies the scope of success. It has also has the opportunity to team up with well reputed brands to enhance their productivity and the market.
Threat-Starbucks is facing fierce competition from cheaper alternatives such as Dunkin Donuts and McDonald’s that sell some of the products same as Starbucks but at a cheaper price. Moreover Starbucks is providing the products to a very specific market of tea and coffee related products that also provide it with limited number of customers. (SWOT analysis, 2013).
SWOT analysis (2013) (online) available at http://pestleanalysis.com/swot-analysis-of-starbucks/ last accessed on 2/11/2016.
PESTLE analysis (2014) (online) available at http://pestleanalysis.com/pestle-analysis-of-starbucks/ last accessed on 2/11/2016.
Starbucks (2016) About us (online) available at http://www.starbucks.in/about-us last accessed on 1/11/2016.
Rothaermel, F. T. (2015). marketing management. McGraw-Hill. P. 15-30
Geereddy, N. (2012). Strategic Analysis of Starbucks Corporation. P. 87-99
Starbucks (2016) "Starbucks Company Profile" (PDF) (PDF). Starbucks Coffee Company. July 2014 P. 7-15
"STARBUCKS CORP 2013 Q1 Quarterly Report Form (10-Q)" (XBRL). United States Securities and Exchange Commission. January 28, 2014 P.5-8