This sample essay on Starbucks External Environment reveals arguments and important aspects of this topic. Read this essay’s introduction, body paragraphs and the conclusion below.
An example of this is that in the market that Cataracts operates in, there are many substitutes which can entice consumers into other businesses. As mentioned before, with the introduction of coffee machines and instant coffee, consumers can quickly make coffee rather than go out of their way to find a Cataracts. Furthermore, using the UK as an example, rival businesses offer an easy substitute.
With other similar businesses like Costa, offering products at a similar quality and price it is easy for Cataracts to lose customers, but also gain them at the same time.
This can be of strategic importance to Cataracts, as a reconsideration of choice if something goes wrong can influence a customer to move to a rival. Being a fairly easy market to penetrate, Porter’s Five Forces also suggest that Cataracts could face challenges in its business environment.
Using technology that isn’t patented just to the Cataracts franchise means that if a new business was to penetrate the market it would be easy to produce an almost identical product to that of theirs. With the right financial background and a good pricing strategy,
Cataracts could face rivalry from a new competitive opponent. So, because once a new firm has successfully entered the market it can easily gain access to the same technology and produce similar products, possibly the only thing protecting Cataracts is its image and already established name thus showing a challenge that is of current strategic importance.
As previously stated, Cataracts has high competition in its market. Due to this great level of competition, price wars are commonly in place having to match their rivals.
This can be seen as a challenge in Cataracts’ business environment as it could hen in turn drive down profits and profit margins as they try to increase, or as a minimum, maintain their share of the market. Although it could be easy for a new business to enter the market, because Cataracts has such a high market share they would be almost exempt from any threat. Having already built a reputable corporate image and with vast experience in the market, it would be extremely hard for a new entrant to straight away offer much competition.
If the market is dominated by a small amount of fairly large suppliers rather than numerous fragmented sources, a suppliers bargaining rower is more than likely going to be high. However, even though suppliers do have power it is often capped to a certain level. Using Cataracts as the example, with such a renowned name and an increasing productivity it means that the coffee beans need Cataracts as well. Additionally, because Cataracts has a range of suppliers of coffee beans coming from South America, Asia and Eastern Africa it means that even if one supplier was to pull out for a reason they could still resort to the other suppliers.
This doesn’t go to say however, that because Cataracts has a range of suppliers that they can underestimate the power that they to control and limit the amount of coffee beans exported. Due to this reasoning, the bargaining power of the suppliers can and always will be a challenge in Cataracts business environment, and is of current strategic importance. The bargaining power of buyers also ought to be considered when looking at the relation between Porter’s Five Forces and the business environment along with the market Cataracts operates in. The buyers or consumers, at the end of the day are the key things that keep a business running.
In this market it has already been demonstrated that the errs do have the power in theory- according to the five forces proposed by Porter- to control the price of the products. The point that the products aren’t entirely differentiated, buyers’ cost of switching to a competitors’ product is low, the shopping cost is low and buyers are price sensitive means that the buyers seem to have lots of power. In reference to the differentiation segment in Igor Nations matrix (a new product, entering a new market) it doesn’t seem as if Cataracts products differ from that of its competitors.
This perhaps gives the buyers power to switch over to a competitor offering animal products, because the cost of switching to the alternative is of low cost, and the buyers are price sensitive so will take up the opportunity to do so. This suggests that buyers have power in the market, and because they keep the business running it is of strategic importance for Cataracts to look at this potential problem in their business environment. One of Cataracts’ many strengths is their established brand name.
Because they have such a reputable name, it means that perhaps new consumers may go straight to them rather than competitors when Cataracts decide to expand into a new egging or country. This in turn, means that Cataracts could afford to spend less on advertising when expanding because the recognition by the customers is more likely to already be there. Another strength that Cataracts possesses is the use of high technology in the stores. Using it as an attempt to generate a larger customer base, Cataracts have installed high speed internet in a vast majority of its stores.
This makes It ideal for business men, amongst others to gain access to the internet in a relaxed environment, encouraging them to stay longer and perhaps buy more from Cataracts. The use of pre aid cards and an online store, selling coffee machines, tea bags and ground coffee beans is another example of technology used by Cataracts. This is a strength as, even if a customer doesn’t shop in store they can buy from online. Another possible strength portrayed by Cataracts is a range of high quality products. An ever increasing range of hot beverages and foods means shows innovation within Cataracts, which is vital in keeping customers hooked.
Cataracts also faces a few weaknesses as well, including the high prices it sets on its products. With rivalry businesses in abundance and a high rice due to a rising cost of production, when buying fair trade coffee beans the increase Of price may have a direct effect on the pricing strategy. This could then lead to falling sales and loyalty of the customers. Other weaknesses may include an almost, self-cannibalistic like effect on itself. Due to shops being located within a short distance of each other in major cities Cataracts can be seen to have taken customers from itself in the past.
But surely as long as Cataracts are getting the customers, it shouldn’t matter should it? Well, because the stores are in abundance and short distance of ACH other, it means some stores won’t perform as well as others. The cost of running the stores that aren’t as high performing as the others is very high, and means that Cataracts may need to reconsider their marketing mix. Possible opportunities that could come from the strengths could be that, it would be easier for Cataracts to expand abroad without facing as many discomposes of scale because of their reputable name in the market.
It can be argued however, using China as an example that social problems may overcome the brand name when trying to expand highlighting a problem Cataracts could encounter making it of strategic importance. Another opportunity could be the expansion into retail operations, by selling coffee machines, beans and tea online to customers furthermore expanding their market. This could increase the financial status after diversification. Having looked into, and evaluated the challenges in Cataracts’ business environment there are possible solutions that could solve them.
In regards to the ageing population, Cataracts could possibly create an environment in its stores that cater for more than one age group. This could be reached by possibly putting suggestion boxes in all stores, so they know what to look for. The social problem faced when expanding could possibly be solved according to Porter’s diamond (M. Porter, The Competitive Advantage of Nations, 1990). Because the product is of higher demand in the home country of the firm, it should probably choose where it expands very carefully and pull out to achieve success.
With the economic problem of a low disposable income faced by customers and an increase of rivals due to an increase in technology, Nations matrix would suggest that Cataracts diversifies to fight Off the rivalry. Cataracts were to perhaps enter a new market customers could be willing to Penn money on their goods. To solve the environmental challenges when importing coffee beans, the SOOT analysis would suggest to keep good relations with the suppliers and if possible, increase the spread of where they are sourced.
This would then lower the threat of decreased materials is bad harvests are reported. To counter act the problem of rivalry in the market, Nations matrix again would suggest diversifying to enable Cataracts to offer something different capturing the attention of the customers. In order to solve the weaknesses and threats of the business, most frameworks offer the same solution. This would be to concentrate on the marketing mix and the way the company is internally run (structure) this would enable the business to see when and when not to expand.
The best solutions for the company for the challenge of the ageing population would probably be conduct research, both primary and secondary to enable them to see how they can cater for different age brackets. This would be suffice as it is getting information from the customers themselves, and should help Struck to excel. In regards to the social problems, maybe Cataracts should reconsider their pricing strategy within different areas to keep the customers happy. With such large populations, these kinds of markets do offer potential if the pricing strategy is right and if Cataracts can correctly grasp the culture.
Diversification would be the answer to solve the economic, technological and competition challenges. The offer of different products, such as coffee machines and buying online could help Cataracts to enter a new market, increasing the chance to pull away from competitors and solving the economic problems. With environmental challenges it is vital that Cataracts should keep good relations with, and a variety of suppliers. To conclude, although Cataracts is an international business, the research shows that even these huge businesses do face challenges.
With the solutions mentioned above, Cataracts should be able to succeed in getting rid of the challenges. Primary and secondary research methods are both a good way of determining what is needed to be done in order to please the customers. As Cataracts would receive first hand opinions, then maybe they could perhaps work on the problems and satisfy the customers. This would need to be done because the buyers in this certain market have a lot of power and determine the productivity and success of a rim. When expanding, the pricing strategy is very important as economies differ in different countries as demonstrated in China.
With careful reconsideration of the culture and price, countries like China could prove to be wise investments. When looking at the problems encountered in the competition, technology and economy diversification although risky at times is the answer. It allows the firm to expand into a new market, increasing the chances of enabling them to decrease the level of which competition faced by rivalry firms. Because coffee beans play such a vital role in how Cataracts reforms, it is key that they keep a good relationship with their suppliers in case any environmental problems were to occur and they got cut off.