Exploring the External Environment of Team Macchiato: An Analysis of Starbucks

The provided content discusses various aspects of Starbucks Corporation, including its history, company profile, market trends, and environmental initiatives. The papers explore how Starbucks responded to the 2007 financial crisis, its appeal to Chinese demographics, and its marketing strategies. Additionally, the articles analyze the external factors affecting Starbucks' business, such as the coffee shop market, government policies, and social trends.

[Year]Starbucks: Contemporary Developments in Business and Management
[Document subtitle]
Stephen Omoroghomwan

Running Head: Business Report
Contents
Executive summary.....................................................................................................................................3
Introduction.................................................................................................................................................5
Task 1..........................................................................................................................................................6
Primary external influences.....................................................................................................................6
Importance of External influences to the Organization..........................................................................10
Task 2: Demographic Factors....................................................................................................................12
Influence of Demographic factors on Policies and Decision-making within Starbucks.........................13
Critical evaluation of the effectiveness of the company’s response.......................................................15
Areas of improvement in the responses.................................................................................................17
Conclusion.................................................................................................................................................18
References.................................................................................................................................................19
Appendices................................................................................................................................................23
Appendix 1: Company Profile...............................................................................................................23
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Executive summary
Problems
The company is striving to become a global brand and for this it has tripled its revenues over the
past 5 years. To increase the pace of the growth the country has not only targeted all sorts of
markets in its homeland, but has also amended its taste to meet the needs of the customers
outside the US. Different nations have a different Environmental laws and policies to which a
foreign company adheres in order to deliver its services without any hindrance.
The company’s success highly depends upon the type of Coffee beans it is supplied with and if
an Environmental disaster hits a country in the coming future hen it may have a drastic impact on
the quality of the coffee beans being supplied to the outlets. The quality and production of
Coffee may also be hampered by the Global warming issues prevailing in the world.
Starbucks is currently leading the Coffee retail market by selling its products at the premium
prices to increase their profitability. But the emerging competition in the Coffee industry is
posing a great threat to the existence of the Starbucks in the current and potential markets. The
economic recessions in a country are also accompanied by the low-priced coffee offerings at the
fast-food stores. In order to remain in the top position, Starbucks has to ensure that it does not
violate any laws and regulations of a country. This applies both for the home market as well as
the foreign markets.
Key findings
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Running Head: Business Report
 The demographic factors present in the markets that influences the working of a company
includes sex, age, education, marital status, income level, religion, family size,
geographic region, etc.
 Coffee plays a pivotal part of everyday life in the US and other foreign countries.
According to a recent report, more than 60% of the US households use either whole or
ground coffee beans at home.
 The customers are the major asset for a business and their perceptions keep on changing
with time. The company needs to align its operations and strategies with these changing
behaviors.
 Starbuck is known to serve its customers with premium-priced coffee products which
could not be afforded by the people falling under medium to low-levels of income.
 The Lifestyle of people in European and Asian countries is changing with time. At
present these changes include long working hours in offices and homes. This change has
made coffee, the most desirable drink of such people.
 High caffeine content often increase pulse rates and may lead to myriads of heart-related
issues, hence it is recommended by doctors to patients with high blood pressure and heart
ailments to avoid caffeine in daily uses.
Recommendations
 The company could respond to the income levels factor by introducing some low-priced
food products and beverages
 Starbucks could also work on its pricing strategy so that it could target all sorts of
customers in myriads of markets.
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Running Head: Business Report
 Targeting different types of consumers with a single product will definitely give a great
experience to the company’s employees to evaluate
 The company could seek alliance with the local marketers and experts who already have
a great knowledge of their domestic markets.
Introduction
Management plays a pivotal role in the every organization or business as it clearly determines
the short and the long-term goals for the business along with the variety of strategies that could
be employed to achieve them in the given time frame. In the recent times, the researchers in this
field are constantly reporting the presence of a number of interlinked variables that interacts to
highly influence the ways in which a firm delivers its services.
The following report has been written undertaking the discussion over a leading American
Coffee Company and a Coffee house chain, Starbucks. In the first part, the report will closely
evaluate the Primary external factors that influence the working of the company. In the second
segment, the report will unveil the myriads of demographic factors that are constantly
influencing the working methodologies, Policies and Decision-making process of this leading
giant. In this part the responses from the company towards these influences are also critically
evaluated along with the suggestion of areas of improvement (Geereddy, 2013).
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Task 1
There are a number of factors that could not be voluntarily controlled by the company and at the
same time have the potential to highly influence the internal workings and strategic operations of
the firm. The executives of the firm are required to analyze these factors and evaluate the
strategies that could be readily incorporated to manage these factors in the best possible manner.
This is needed because the nature and impact of these factors are unpredictable and with time
these factors can either be beneficial or harmful. So, if evaluated in a proper way then the
company could use these factors for yielding lucrative results.
Primary external influences
The Primary external influences often remain similar for most of the industries in the market;
however, their level of influence may vary. The leading companies always keep a number of
contingency plans to tackle the ill influence of these factors, but the way in which these plans are
improvised creates a difference.
The crucially identified primary external factors for Starbucks are:
1. Globalization: At present, Starbucks has over 15,012 stores in around 44
countries across the world and this has allowed it to be a Globalization Icon. The company is
striving to become a global brand and for this it has tripled its revenues over the past 5 years.
To increase the pace of the growth the country has not only targeted all sorts of markets in its
homeland, but has also amended its taste to meet the needs of the customers outside the US.
Starbucks has tried to bring American- style coffee sales to international marketplaces
regardless of the volatile political and economic situations of different countries (Bears, 2008).
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The company has not only invested its resources in expanding its business internationally by
gaining customers from all over the world, but at the same time the company has also hired
highly experienced MBAs and Corporate Executives from different parts of the world to
deliver high quality services to its customers. Globalization has allowed the company to
understand different tastes of the people across the world and what all changes could the
company make in its operations to attract the consumers with different tastes (Hart, 2011).
2. Environmental Policy: Different nations have a different Environmental laws
and policies to which a foreign company adheres in order to deliver its services without any
hindrance. The Environmental laws of some of the Asian and European countries are quite
strict and hence any new foreign entrant needs to follow it in a proper manner (MNN Group,
2010).
The environmental policies allow a company to deliver its services in a sustainable manner and
avoid any sort of contribution in the pollution levels in the environment. This also helps in
maintaining a good and respectable position among the competitors and also builds a loyal
relationship with the sensitive target market segments of the society.
The company, at present, is indulging in a number of recycling and waste-treatment activities.
The company has launched the industry’s first hot beverage cup with 10% post-consumer
recycled fiber. The company also started an initiative of using ceramic cups and a good
discount to those customers who bought cups of their own. Apart from recycling, the company
is also concerned with the water use and has announced to reduce the water wastage by 25%
till the end of the year 2016(Corporation, 2016).
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Running Head: Business Report
The company’s success highly depends upon the type of Coffee beans it is supplied with and if
an Environmental disaster hits a country in the coming future hen it may have a drastic impact
on the quality of the coffee beans being supplied to the outlets. The quality and production of
Coffee may also be hampered by the Global warming issues prevailing in the world. The
increment in the earth’s temperature due to Global warming patterns may also change the
duration and occurrence of the Winter Season. As winter is the most desirable season for the
coffee lovers, hence this might lower the sales for the firm in this particular season(Patiyal,
2016).
3. Competition:Starbucks is currently leading the Coffee retail market by selling its
products at the premium prices to increase their profitability. But the emerging competition in
the Coffee industry is posing a great threat to the existence of the Starbucks in the current and
potential markets. The major competitors for the company are Dunkin’ Donuts, McDonald’s
and Caribou Coffee(Hawley, 2015).
In the year 2002, Dunkin’ Donuts entered in the business of espresso beverages. For a better
expansion of its business, the company entered into a partnership with Proctor and Gamble to
sell the Coffee in the Grocery stores. On the same line, McDonald’s began to offer premium
coffee at a cheaper price than Starbucks. As Starbucks also offers coffee beans and ground
coffee in retail and grocery stores around the world so there are other competitors too in the
markets including Maxwell House and Folgers. Both of these companies dominate the dry
coffee goods market and hence give a great competition to Starbucks(White, 2016).
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Running Head: Business Report
Competition helps a firm to perform better and deliver better services to its customers even
under great competitive pressure. In the competitive environment, a company utilizes all its
resources in a judicious manner to satisfy its customers in all possible manners.
4. Economic Recession:Starbucks is known to offer premium priced coffees to its
customers, but as the global economy turns sour, people have begun to lose appetite for these
premium-priced drinks. The economic recessions in a country are also accompanied by the low-
priced coffee offerings at the fast-food stores(Clark, 2009).
The company had aimed to open around 20,000 stores in the US and a further 20,000 overseas.
But, the economic turmoil has restricted its overall stores only up to 16,875. The unfavorable
economic conditions in a foreign land often compels accompany to incorporate more of its
resources to retain its customer base and profit rates(Jacob & Ulrich, 2012).
5. Laws:In order to remain in the top position, Starbucks has to ensure that it does
not violate any laws and regulations of a country. This applies both for the home market as well
as the foreign markets. The company serves its customers with the best taste of caffeine, so it
has to keep in mind the rules and regulations of a country specifically related to the production
and consumption of caffeine.
The health authorities of various countries are mostly concerned about what their people are
consuming and whether the foreign entrants are not breaching the laws and standards introduced
by them. Starbucks has faced similar type of legal issues in their home country and even in the
market overseas. These legal complications have compelled the company to maintain its quality
and serve its customers with the best taste of coffee(Murphy, 2012).
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Running Head: Business Report
Apart from the rules and regulations imposed by the health authorities, the company’s internal
operations are also influenced by the level of Customs and Trade regulations of a country. If a
country has strict trade regulations, then the foreign entrants often compromise with its product
quality to gain maximum profits from new markets. The company entering into foreign markets
also faces legal issues associated with licensing and often pays a huge amount to settle such
problems.
6. Technological factors: Starbucks has been always known for using most of the
innovative technological elements. For instance, to promote its products, Starbucks has been
using the social media platform like Facebook and Twitter. Moreover to reach more and more
customers, the company has also launched its mobile app. The company has also been quite
innovative in making its products. For example, Starbucks has recently purchased the Coffee
Equipment Co. that has launched its single cup coffee maker known as the “Clover” which uses
the technological elements and calculated algorithm to brew coffee within one degree
Fahrenheit to produce an ideal flavor(Adkins, 2016).
Importance of External influences to the Organization
The above mentioned external factors have both a positive as well as a negative influence on the
company’s operations. These factors compel a firm to deliver the services in a more enhanced
manner than the competitors in the market. Starbucks has always concentrated on the taste of the
coffee it serves regardless of its premium prices and this strategy has allowed it to maintain its
top position in the coffee industry(Lee, 2011).
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The political and economic factors often allow a foreign firm to discharge its duties while
adhering to the standards and regulations framed by a company. While remaining under such
pressures, the foreign entrants do not compromise with the qualities of the products it is serving
and even tends to expand its customer base in remote and raw markets.
Globalization has allowed Starbucks to reach other potential segments of the markets for who
only spend their earnings on basic amenities of life. This factor has also allowed the company to
reach out for the coffee lovers in the unreachable countries of the world.
1)
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Task 2: Demographic Factors
Demographic factors are personal characteristics that are used to collect the data effectively and
evaluate it on the people in a given population. The demographic factors present in the markets
that influences the working of a company includes sex, age, education, marital status, income
level, religion, family size, geographic region, etc. Demography plays a crucial role in deciding
the sales and profit rates of coffee company. For instance, if a coffee shop is placed near an
office or in a college campus, then it is likely to make more profits as compared to the one set on
a highway or scarcely populated area(Dow Jones & Company, Inc., 2013). Demographic factors
in a business and management world are the socio- economic characters that could be expressed
statistically. These factors are to be taken into concern by every marketer before launching any
new product or services in the market.
Coffee plays a pivotal part of everyday life in the US and other foreign countries. According to a
recent report, more than 60% of the US households use either whole or ground coffee beans at
home. Another report shows that around 13% of the American adults go to Starbucks compared
to Dunkin’ Donuts, which is able to attract only 11% of the adult American population (Fetto,
2009).
The love for coffee could change suddenly or slowly over a period of time. It may increase or
dwindle. The customers are the major asset for a business and their perceptions keep on changing
with time. The company needs to align its operations and strategies with these changing
behaviors. Starbucks is a highly customer-oriented company and it needs to incorporate
strategies that target the specific consumers in specific markets(Gledhill, 2015).
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Running Head: Business Report
The premium-priced coffee and other eatables are produced to attract those customers who
consider the quality of services over the price and quantity. For the expansion of the customer
base the company needs to evaluate the actual needs of the customers across the world and
serve them with the tempting products that have the capacity to satiate their taste buds in a
better way than the competitors in the markets.
To have a competitive edge over all the other coffee sellers in the market, Starbucks has used the
demographic factors to analyze the product preferences and determine the buying behavior of
different consumers across the world. These traits also help the company to identify its key
consumers and then align its marketing strategies to fulfill their specific demands. The target
markets with similar sets of demographic characteristics help a company to maximize its sales
and profits at a decent rate.
Influence of Demographic factors on Policies and Decision-making within Starbucks
The Demographic factors have a crucial impact on how a coffee company sells its product and
what all methodologies it adopts while doing so. Starbuck is known to serve its customers with
premium-priced coffee products which could not be afforded by the people falling under medium
to low-levels of income. The influence of the income levels could easily be seen in Asian
developing countries which either recently are categorized under developed nations or are still
struggling to be in this category. To maintain a leading quality of coffee in all its stores, the
company keeps the price premium(Jared, 2013). But in such nations, drinking coffee is regarded
as a status symbol and is not regarded as one of the basic amenities. Hence the income levels and
living profiles of customers in such countries are constantly compelling the company to amend
its pricing strategy and even include coffee products with lower price yet tempting taste in the
coffee shops(Team, 2015).
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Running Head: Business Report
The Lifestyle of people in European and Asian countries is changing with time. At present these
changes include long working hours in offices and homes. This change has made coffee, the
most desirable drink of such people. This has influenced the company to open more and more
outlets near the offices and other working areas. The increasing demand due to change in
lifestyle has also compelled this coffee giant to increase its production while maintaining the
quality of the coffee(Hadas, 2013).Starbucks has faced a great challenge in maintaining the
quality while increasing the production and for this it has made a number of changes in its
production strategy. Starbucks has installed new machineries and innovative operations in its
production units to produce fine quality coffee while utilizing the available resources in a
judicious manner(Gaille, 2014).
As people all over the world are facing a number of health related issues, hence the health
authorities across the globe have developed strict laws related to production and consumption of
caffeine in the countries. Consumption of coffee has both advantages and disadvantages
associated with it and if the consumers face any health ailment by consuming coffee, then the
concerned authorities immediately take strict action(National Coffee Association, 2016). High
caffeine content often increase pulse rates and may lead to myriads of heart-related issues, hence
it is recommended by doctors to patients with high blood pressure and heart ailments to avoid
caffeine in daily uses. The legal complications often pose a great hindrance for such companies
to deliver their services in the foreign markets because they often incorporate most of their skills
and resources in tackling with these issues.
Approximately 40% of the people aged between 18- 24 years drink coffee daily. Hence, this the
crucial target market for the company. Starbucks has aligned its marketing objectives and
strategies to attract this huge market segment towards its products and have also hired employees
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Running Head: Business Report
with innovative and young minds who could easily interpret the actual consumer behavior and
their demands with the coffee sellers in the markets(Waxman, 2006).
The major demographic change in today’s world is denoted by the increasing role and
participation of the women in the business and other crucial industries in the market. This has
made the coffee shops to include a number of marketing strategies that have the potential to
attract the female consumers. The Starbucks outlets all over the world have included a number of
innovations in their ambience in the stores and even have employed female employees to readily
promote the idea of women empowerment and independence(Thomas, 2014).
Critical evaluation of the effectiveness of the company’s response
To tackle with the issues accompanied with the Demographic factors, Starbucks has responded in
a very positive manner. This was important because the company has a very respectable image in
the marketplace and it needs to maintain it in order to retain their loyal customers and even
attract the new ones. However, there have been some times when the company has not been able
to manage such issues in a wise manner and has responded unexpectedly(Liang, 2011).This is
because the demands of the people are quite uncertain and unpredictable and if a company is not
able to evaluate the actual needs of its customers, then it can never align its strategic goals and
current operations to them.
The increasing stress and workload among the young as well as old people have made coffee as
the most appreciated beverage among them. The increasing demand of this beverage due to
changing lifestyle and needs of the customers has forced the leading brands in the markets to
open more and more outlets. To this, Starbucks has responded by launching its outlets in
international markets offering them the services in compliance with their actual needs and tastes.
To raise the production, Starbucks has almost doubled the intake of its employees and even
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Running Head: Business Report
increased the sources for its coffee beans. The company has also installed improved machines in
its production units and has also effectively trained its employees to deal patiently with the
customers and serve them with a smile. However, the company has never compromised with its
premium-prices and hence, is able to maintain its quality all over the world. The exorbitant price
of the Starbucks’ products is the symbol of its high quality and the efforts that have been put in
every coffee cup to serve a perfect blend to the customers(Spinks, 2016).
As the factors like age and income levels plays a crucial role in influencing the ways in which a
company operates in a current or new market, hence, Starbucks offers a wide range of products
suiting to every age group. The menu in every outlet includes dark coffee to espresso and even
other eatables along with the coffee. Starbucks has taken care to serve the taste buds of all sorts
of customers. The customers never feel reluctant to pay $4 for a coffee cup as they are getting
the best taste of coffee(Burge, 2013).
The geographic region also has a great influence on the sales and profits of Starbucks. Asian
countries prefer tea over coffee and compelling them to adapt to the coffee culture was a tedious
task. However, Starbucks has succeeded in attracting a huge market of tea-lovers towards the
coffee shops. Although this took a great time but due to constant efforts, the company succeeded
in gaining a huge customer base. But, on the other hand it could be seen that Starbucks is not
readily expanding its business in the Asian countries as compared to its rapid expansion in
European and Western Markets. This could be largely due to the lifestyles and perceptions of the
Asians, which vary a lot from the Europeans. The Asians spend wisely and gives more priority to
basic amenities rather than to luxurious items. Hence, this premium-priced brand is reluctant to
expand its markets in developing nations and is trying to direct its talent and resources more
significantly in the developed nations(D'Costa, 2011).
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Areas of improvement in the responses
Coffee is an extremely diverse product and its value highly depends on a fact from where it is
derived, the place where it has been grown, its size and texture and its processing and roasting.
Starbucks has been able to maintain its position in almost all of its target markets and is still
expanding its business in a number of remote areas and countries overseas. However, the
demographic factors have influenced the methodologies through which the company decides its
most potential target markets and even the internal operations carried out by the firm to compete
with its worthy competitors in the markets(Roby, 2011).
There are a number of improvement areas which can be worked upon by Starbucks to deal
wisely with the demographic factors. Firstly, the company could respond to the income levels
factor by introducing some low-priced food products and beverages in the menu so that everyone
in the market could afford it(Michelli, 2016).
Moreover, Starbucks could also work on its pricing strategy so that it could target all sorts of
customers in myriads of markets. The changes in the Pricing Strategy could also allow Starbucks
to have a great competitive edge over its competitors as it would be serving low-priced coffee to
the consumers who cannot afford premium-priced products. Targeting different types of
consumers with a single product will definitely give a great experience to the company’s
employees to evaluate and analyze the changing needs and behaviors of a variety of customers in
the markets.
As an improved response, the company could seek alliance with the local marketers and experts
who already have a great knowledge of their domestic markets. This could be done when the
company is trying to explore foreign markets with an entirely new culture and market
segmentation. This approach will help the company executives to learn more about their new
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Running Head: Business Report
customers and even anticipate the best strategies that could be adopted to attract and retain them
for a longer period(Higbee, et al., 2008).
Conclusion
Starbucks has been able to be on the top position among all the other coffee companies across
the globe. This has been made possible because of its great understanding of the coffee lover’s
taste and the changing perceptions of myriads of people towards beverages and its associated
advantages and disadvantages. The Demographic factors play a huge role in influencing the sales
and profit rates of the company and even the ways in which it delivers its services in domestic as
well as in the foreign lands. Starbucks has succeeded in closely analyzing the actual influence of
these factors on its business and has incorporated significant measures to tackle serious issues
associated with them. If the company adapts the suggested improvements, then it will readily
expand its business to the foreign lands by targeting each and every potential customer with its
tempting coffees and other food items.
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Appendices
Appendix 1: Company Profile
Starbucks Corporation is the leading roaster, retailer, and marketer of specialty coffee in the
world. Its operations include upwards of 7,300 coffee shops and kiosks in the United States, and
nearly 3,000 in 34 other countries, with the largest numbers located in Japan, Canada, the United
Kingdom, China, Taiwan, South Korea, the Philippines, Thailand, Malaysia, Mexico, Australia,
Germany, and New Zealand. In addition to a variety of coffees and coffee drinks, Starbucks
shops also feature Tazo teas; pastries and other food items; espresso machines, coffee brewers,
and other coffee- and tea-related items; and music CDs.
Starbucks was founded in Seattle, Washington, a haven for coffee aficionados. The city was
noted for its coffee before World War II, but the quality of its coffee had declined so much by
the late 1960s that resident Gordon Bowker made pilgrimages to Vancouver, British Columbia,
to buy his beans there. His point of reference for the beverage was dark, delicious coffee he had
discovered in Italy.
In 1982 Starbucks hired Howard Schultz to manage the company's retail sales and marketing.
While vice-president of U.S. operations for Hammarplast, a Swedish house wares company, and
working out of New York, Schultz met the Starbucks trio and considered their coffee a
revelation. The company has always believed in serving the best coffee possible. Starbuck aims
that all of its coffee is grown under the highest standards of quality, using ethical sourcing
practices. Its coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to
select the highest quality Arabica beans. Once these quality beans arrive at our roasting plants,
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Running Head: Business Report
Starbucks experts bring out the balance and rich flavor of the beans through the specific
signature.
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