Assignment 1 – External Environment

External Environment Analysis for Assignment 1

set: 15  February 2017                            due: 8 March 2017


Extended to 15 March 2017

For this assignment, we will use Starbucks as a Case Study.

Below are some extra resources on Starbucks, and you can find your own resources.

  1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
  2. In performing a customer analysis, can we estimate the cost of  lost customer?
  3. One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
  4. What are the major opportunities and threats facing Starbucks?
  5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?

 

Resources:

cris-bulletin-of-the-centre-for-research-and-interdisciplinary-study-starbucks-marketing-analysis

2-starbucks-growth

starbuck08full

starbucks

 

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98 thoughts on “Assignment 1 – External Environment

  1. Omran M.Rashid Abdulqadir
    Student number:20165704
    Department:Banking and accounting

    Q1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Answer: Starbucks operates on a global level with products coming from and being distributed all around the world The government’s decision to impose regulations is influenced by the Economic, political and environmental factors Starbucks is headquartered in the United States.Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to protect consumers and keep companies honest about their products. In this case Starbucks is required by the law to comply with the truth in advertising its products, for instance, the ingredients of the coffee and biscuits sold by Starbucks .all product labels must include information about the product, such as nutrition, size, and distribution. For instance, in the United States advertising must be truthful and non-misleading. Should a customer complain about misleading marketing communication, Starbucks must be able to back up claims made in advertisements at any time; and advertisements must be fair to competitors and consumers This will enable the company to remain competitive in the coffee market. Starbucks must also comply with the Safety and Health Act which ensures that employers provide safe and sanitary work environments through frequent inspections and a grading scale. In this case Starbucks must meet specific standards in order to stay in business. The company must at all times provide hazard-free workplaces, avoiding employee physical harm and death, through a number of procedures.

    Q2. In performing a customer analysis, can we estimate the cost of lost customer?
    Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers. When you lose a customer, you lose future opportunities for personal recommendations which often turn into additional engaged customers. Starbucks is a great example of a company that has built their marketing strategy around their customers and ethical behavior instead of investing millions of dollars on advertising that does not bring any social benefit. The advantage of this company is the market they are operating in; there is always a demand for coffee, and people regularly visit cafés before work or to spend time with their close ones. But I think Starbucks must revisiting their customer strategy. First of all investigate the causes of customer attrition. The ongoing global economic recession is the prime external economic driver for Starbucks. This factor dented the profitability of Starbucks. This has convinced buyers to shift to cheaper alternatives. As they did not quit buying coffee, Starbucks should seek an opportunity here. The company should actively measure its retention rate. The disappearance of consistent, predictable income resulting from the loss of a single customer may not be huge immediately, but it’s certainly noticeable.

    Q3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Answer: A prime risk associated with product diversification strategy is that sometimes getting outside of what you do best isn’t a good strategy. Starbucks, long known for its “grande-double-shot-espresso-skinny-latte-hold-the-foam” drinks, has slowly diversified into other drinks and food without overshooting its reach.People can only drink so much coffee in a day. Even a die-hard fan may only buy one to two drinks a day. With various coffee brands in serious competition for market share, Starbucks decided to branch out. They have done this successfully by identifying their customers as being people who want to treat themselves or grab a drink on the way to work, and have recognized the fact that they could sell not only coffee, but also breakfast pastries, other breakfast items, light lunches, sweet snacks and healthy options for kids. Another risk is that product diversification may result in deviation from the core of the business.
    Q4. What are the major opportunities and threats facing Starbucks?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities . Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.

    Q5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities .Situational analysis of India reveals that Indians are tea addicted. Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.
    Threats.
    The increasing emphasis on healthy lifestyles and reducing caffeine intake for people with certain health conditions is a potential threat to coffee house companies The secret will be finding suitable alternatives for those consumers who cannot or choose not to drink caffeinated coffee. A quality decaffeinated alternative will provide access to this sub- segment of the market.Raw material prices of Starbucks may increase causing in enhanced prices of manufacturing costs .Starbucks may have to face challenges in meeting desired standards of quality .The relaxation of the licensing laws has provided an opportunity for firms like star bucks to broaden their offering in coffee houses to include alcohol. This will attract new market segments.There are further potential niche markets or segments to target, for example developing a caffeine free alternative for those consumers concerned about the health risks of to much caffeine

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  2. Omran M.Rashid Abdulqadir
    Student number:20165704
    Department:Banking and accounting

    Q1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Answer: Starbucks operates on a global level with products coming from and being distributed all around the world The government’s decision to impose regulations is influenced by the Economic, political and environmental factors Starbucks is headquartered in the United States.Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to protect consumers and keep companies honest about their products. In this case Starbucks is required by the law to comply with the truth in advertising its products, for instance, the ingredients of the coffee and biscuits sold by Starbucks .all product labels must include information about the product, such as nutrition, size, and distribution. For instance, in the United States advertising must be truthful and non-misleading. Should a customer complain about misleading marketing communication, Starbucks must be able to back up claims made in advertisements at any time; and advertisements must be fair to competitors and consumers This will enable the company to remain competitive in the coffee market. Starbucks must also comply with the Safety and Health Act which ensures that employers provide safe and sanitary work environments through frequent inspections and a grading scale. In this case Starbucks must meet specific standards in order to stay in business. The company must at all times provide hazard-free workplaces, avoiding employee physical harm and death, through a number of procedures.

    Q2. In performing a customer analysis, can we estimate the cost of lost customer?
    Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers. When you lose a customer, you lose future opportunities for personal recommendations which often turn into additional engaged customers. Starbucks is a great example of a company that has built their marketing strategy around their customers and ethical behavior instead of investing millions of dollars on advertising that does not bring any social benefit. The advantage of this company is the market they are operating in; there is always a demand for coffee, and people regularly visit cafés before work or to spend time with their close ones. But I think Starbucks must revisiting their customer strategy. First of all investigate the causes of customer attrition. The ongoing global economic recession is the prime external economic driver for Starbucks. This factor dented the profitability of Starbucks. This has convinced buyers to shift to cheaper alternatives. As they did not quit buying coffee, Starbucks should seek an opportunity here. The company should actively measure its retention rate. The disappearance of consistent, predictable income resulting from the loss of a single customer may not be huge immediately, but it’s certainly noticeable.

    Q3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Answer: A prime risk associated with product diversification strategy is that sometimes getting outside of what you do best isn’t a good strategy. Starbucks, long known for its “grande-double-shot-espresso-skinny-latte-hold-the-foam” drinks, has slowly diversified into other drinks and food without overshooting its reach.People can only drink so much coffee in a day. Even a die-hard fan may only buy one to two drinks a day. With various coffee brands in serious competition for market share, Starbucks decided to branch out. They have done this successfully by identifying their customers as being people who want to treat themselves or grab a drink on the way to work, and have recognized the fact that they could sell not only coffee, but also breakfast pastries, other breakfast items, light lunches, sweet snacks and healthy options for kids. Another risk is that product diversification may result in deviation from the core of the business.
    Q4. What are the major opportunities and threats facing Starbucks?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities . Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.

    Q5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities .Situational analysis of India reveals that Indians are tea addicted. Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.
    Threats.
    The increasing emphasis on healthy lifestyles and reducing caffeine intake for people with certain health conditions is a potential threat to coffee house companies The secret will be finding suitable alternatives for those consumers who cannot or choose not to drink caffeinated coffee. A quality decaffeinated alternative will provide access to this sub- segment of the market.Raw material prices of Starbucks may increase causing in enhanced prices of manufacturing costs .Starbucks may have to face challenges in meeting desired standards of quality .The relaxation of the licensing laws has provided an opportunity for firms like star bucks to broaden their offering in coffee houses to include alcohol. This will attract new market segments.There are further potential niche markets or segments to target, for example developing a caffeine free alternative for those consumers concerned about the health risks of to much caffeine

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  3. Name: Dlshad Mala Saeed
    Student No. 20168773
    Strategic Management
    Starbucks – Planning
    Presented to: DR Karen
    Department: knowledge management
    1- When a marketing transaction impacts a third party–others besides the marketer and purchaser–the effect is called an “externality.” The third party is often the environment. Thus, it is the government’s role to regulate industry and thereby protect the public from environmental externalities. Whether the government is effective in this role is a matter of much discussion. The Gulf oil spill of 2010 has been cited as evidence of lax oversight.

    2- If you listen to your customers in good times, bad times will never come. This is because you will be ahead of your market just by knowing what the customer wants. Several companies have third parties employed permanently which deals in mainly customer feedback. Many restaurants and hospitalities dealing mainly in services (intangibles) have made feedback forms mandatory wherever they are interacting with customers thereby improving their services over time.
    3- When you invest, you have to be prepared for risk. The kinds of risk you face and the damage those risks can inflict depend on the combination of investments you make. While you can help limit risk with your investment choices, you can’t eliminate it completely.
    4- Opportunities for Starbucks (External Strategic Factors)
    This component of the SWOT analysis model focuses on external factors that a firm can use to grow its business. Starbucks Coffee’s main opportunities are:
    a- Expansion in Asia, the Middle East, and Africa
    b- Diversification of product mix
    c- Partnerships or alliances with other firms
    Starbucks has the opportunity to expand in the Middle East and Africa, where the firm currently has minimal presence. The company also has the opportunity to expand in Asia, where economic growth rates are high. In addition, even though Starbucks already has a considerably diverse product mix, further diversification can help improve its competitive advantage. Partnerships and alliances can also strengthen Starbucks Coffee’s competitive position. This part of the SWOT analysis shows that Starbucks has major opportunities for global growth.
    Threats Facing Starbucks (External Strategic Factors)
    In this aspect of the SWOT analysis model, the focus is on external factors that could reduce business performance. The main threats to Starbucks Coffee’s business are:
    a- Competition from low-cost coffee sellers
    b- Imitation
    c- Independent coffeehouse movements
    Low-cost coffee from firms like McDonald’s and Dunkin’ Donuts effectively compete against the more pricey Starbucks products. Also, other companies can imitate the business. Many competitors have already imitated Starbucks and succeeded, such as Stars and Bucks, a coffeehouse in the Palestinian Territories. There is also a growing social movement supporting independent coffeehouses and opposing large coffeehouse chains like Starbucks. This part of the SWOT analysis shows that Starbucks must ensure competitive advantage amid potential negative effects of the identified threats, especially imitation and competition.

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  4. Name: Gaukhar Almenova
    Student number: 20168574
    Department: International Business

    Starbucks

    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Factors affecting the industry
     Prices for substitute goods
    Because of a sharp increase / decrease in prices for substitute goods, preferences of potential visitors may also change, but in the opposite direction. The degree of influence of this factor is quite large, because the differences between the prices of cocoas, teas, coffee drinks and coffee can become quite large and the population will limit the consumption of code and coffee products.
    Income level of the population
    With the increase / decrease of the income level of population and consumer preferences, the volumes of consumed coffee (and coffee products), preferences in the field of confectionery, which we will offer to coffee, can change. The degree of influence of this factor is also significant.
     Preferences and tastes of potential visitors (based on the results of the questionnaire)
    This factor should become decisive in determining the volume of purchase of raw materials for the preparation of coffee (and coffee products).
     Territorial factor
    It is necessary to consider this factor for determining the location of the coffee house. It is best to place the object in the places of greatest concentration of people.
     Technical equipment
    To keep up with the experienced competitors, “keep the bar” at the proper level, and in the future “overtake” them. You will need to introduce new technologies, monitor new products on the market to “defeat” the competitors.
     State policy in the field of import, import substitution
    Because Coffee is not grown in Belarus – prices for ready-made coffee will directly depend on customs duties, limits on imported products, etc. Therefore, under “normal” conditions, a stock of products can be made on the market.
     The level of taxation of the industry
    Taxes – are part of the cost of production, their change cannot be ignored in the conduct of any business.
     Suppliers
    It is necessary to take into account the prices for the confectionery, which they will buy and the prices for coffee, cream, and sugar. It is desirable to find permanent and reliable suppliers, so as not to risk and not to spend too much time looking for new (unverified!) suppliers. But do not “fixate” on the same suppliers, in order not to become dependent on their conditions.
     The amount of rent payments
    Rent is also a significant part among the costs of the enterprise, which is reflected in the price of the finished product. It is important to take this factor into consideration.
     Prices for water, energy, and etc.
    Prices for all types of resources needed to produce a particular type of goods are important in determining the price of the final product.

    2. Can we estimate the cost of lost customers in performing a customer analysis?
    Customers are the lifeblood of any organization. This cliché, like many others, corresponds to reality. Without customers, the company cannot have any income, no profits and therefore no market value.
    It is traditionally, accepted that all customers are equally important for the company. All of them are using the same services, consume the same products, and pay the same price for it. But, if we realize that each client is unique, we can safely say that some customers are more valuable to the company than the others.
    The ideal indicator of the client’s real valuation is its long-term value – the expected profit from future transactions with the client (excluding the company’s maintenance costs) multiplied by the appropriate discount factor, which takes into account the individuality of each customer and the risks. It is, however, necessary to bear in mind that the profit from operations with the client is determined not necessarily only by future purchases, which he will do. Customers bring the company other benefits as well. For example, they can recommend your company to those who are not yet using its services, and also help in the development of new products or services.
    Why do we have to evaluate the customer in general? This is necessary in order to spend money on the most profitable customers, without forgetting about the rest.
    The principle of 80/20 is widely known – 20% of customers bring 80% of profit, and 20% of “unprofitable” customers – “eat” 30% of profits! But it is impossible to simply refuse unprofitable clients, as they can involve their friends, and here comes the question of prestige – not to lose clients.
    Determining the long-term value of customers, no matter how perfect the methods for this are, in fact, is a prediction based on the construction of assumptions and probabilities. After all, we do not calculate only the quantitative profit that a client can bring.
    The formation of the long-term value of the client is influenced by non-quantitative factors, for example, the assistance that the client can provide in the development of the company’s new product. Therefore, when determining the value of a client, we will never be able to accurately calculate and take into account all its components.
    Although it is possible to accurately calculate the average long-term value for certain groups of customers, we will never know with certainty how the concrete customer will behave in the future, even if we knew how to evaluate it.
    3. Based on the analysis of the marketing strategy of Starbucks in the markets of the US, Japan and Russia, it is possible to derive the following relationship between the external market environment and the way Starbucks will enter a specific foreign market:
    1) In markets that are complex for individual development, where political barriers exist, a high level of competition or significant cultural differences, Starbucks opens a joint venture with a local company that has extensive experience in organizing the production process in the restaurant business.
    2) In markets similar to cultural customs, economic and political situation with the US market, where the degree of risk is assessed as medium or low, Starbucks invests directly in the opening of its subsidiary, which is managed by Starbucks Coffee International.
    3) If it is impossible to open a joint or a joint company on the market, or at an analysis of the foreign market there is an unstable economic and political situation that increases the potential risks of financial losses, Starbucks is considering selling a franchise to a local company.

    4. What are the major opportunities and threats facing Starbucks?
    The main competitors of Starbucks are fast food restaurants and specialized coffee shops. Starbucks has recently undergone a sharp competition from large American fast-food restaurants. The competitor of Starbucks is the Canadian coffee house Blenz, which plans to open a cafe in China where consumers can smoke, while Starbucks does not provide this opportunity. McDonalds the network that has even more customers than Starbucks. Coffee from Starbucks is considered a luxury for the rich, while McDonalds caters to families with children, and the elderly people. Like Starbucks, McDonalds has a strong brand awareness and customer loyalty. Thus, Starbucks operates in a highly competitive environment, but continues to dynamically develop, improve its core performance. So, summing up the results of the Starbucks brand research, we return to the topic of the recipe for success and outline its main elements, in our opinion: 1) Use a good naming. 2) Respond to change, follow innovations 3) Adapt your product to specific markets 4) Use free advertising media 5) Focus on the social responsibility of your business 6) Emphasize the importance of all employees 7) Create a benevolent atmosphere 8) Add elements of uniqueness to your product and, finally, the last: never neglect marketing research

    5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    We can conclude that the domestic market is dominated by the number of coffee houses owned by Starbucks itself, while in the foreign market, approximately 10-15% more points are opened by franchise than through direct investment. However, Starbucks buys out some companies that operate under their license agreement if it believes that it is successful, and that the parent company’s influence is also greater.
    It should be noted that Starbucks expanded step by step – in the first five years the company developed its activities in the Asian region, after which the company smoothly switched to the development of the European market and the Middle East, after which it gradually penetrated the markets of the countries of these regions. Accordingly, the Asian market served as an experiment for Starbucks in applying the marketing strategy in order to reach the more complex regions with lower costs and losses. As a result, this regionalization led to the development of most large and promising markets, a more detailed forking led to the presence in more than 60 countries, while opening about 20 thousand coffee houses, while not losing its mission and the company’s concept.

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  5. Sakar fatah — knowledge management
    20168085
    sarkarfatah 9@gmail.com
    Q-1
    
Change within external environment is often caused by changing government regulations or legislation. Identify some government legislation, from the international community that might affect star bucks, and comment on the effect it could have on the effect it could have on this international company.
    A major consequence would impact company profits in the form of fines, legal fees and on a complying with government regulations also has a positive social impact on employees at all levels from harvesting beans in the field to brewing cups of coffee in retail stores because they enjoy a healthy, safe work environment protected by labor laws. Government regulation is an important step in the commodity chain that ensures not only food safety as it’s imported and exported around the world, but worker safety as well.
In the United States, a primary agency affecting star bucks’ commodity chain is the United States departments of Agriculture. Due to the agricultural nature of star bucks’ imports, the USDA ‘’make sure that all imported agricultural products shipped to the United States from abroad meet the Agency’s entry requirements to exclude pests and diseases of agriculture’’ (import export). Failure to company with government regulations could have a number of social consequences for the company.
Star bucks is headquarter in the United States, but also has to be aware of regulatory laws of each country it operates

    Q-2

    Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers?
    A perfect example of high customer loss can be the telecom industry which is saturated with operators and is heavy on price wars. Thus brand loyalty is low and users switch their services over and over again. This frequency at which your customers leave your product / brand is known as the defection rate. The rate of defection in the telecom sector goes upto 25%.
    1 – The company should actively measure its retention rate. If it is a magazine, then how many renewals did it get. How many visitors on my site are repeat visitors. How many of your customers are rebuying your products?
    2 – Identify the causes of customer attrition / causes of customers switching brands. The best way to find out customer attrition is market research. Several such market researches have been done over time and it is found that more than 50% customers are lost because of lack of attention / improper service!! 15% shift because of new / better products being launched and 15% shift because of getting cheaper products in the market. The remaining might leave the business because of shifting to a new region or locality.
    3 – Identify the profit lost because of lost customers – In business, it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers. For Example – A tailor loses one customer. If he would have given that customer an excellent service, he would have probably retained that customer for a long time. So what would have been the lifetime value of this customer? It would be huge!! Another reason to reduce your defection rate.
    3 – Identify the profit lost because of lost customers – In business, it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers. For Example – A tailor loses one customer. If he would have given that customer an excellent service, he would have probably retained that customer for a long time. So what would have been the lifetime value of this customer? It would be huge!! Another reason to reduce your defection rate.
    4 – The company needs to find out what will be the cost to bring back these lost customers. In other words, what is the cost of lessening the defection rate. If the cost of lessening defection rate is more than the profit, then there is no use in going ahead with the retention plan. Thus the company needs retention plans which are low in cost and high in profits. Generally sales promotion / updating their customer service does the trick for such companies. Both these methods are low on cost and high on profit.
    5 – Customer feedback!!! If you listen to your customers in good times, bad times will never come. This is because you will be ahead of your market just by knowing what the customer wants. Several companies have third parties employed permanently which deals in mainly customer feedback. Many restaurants and hospitalities dealing mainly in services (intangibles) have made feedback forms mandatory wherever they are interacting with customers thereby improving their services over time.
    By these five measures, you can find out what is it that the customer is missing, and thereby how to lessen the defection rate of your company. Once you gain back these lost customers, your profits goes up and your cost of lost customers goes down. A win-win situation.

    Q-3
    Diversification is just one of four growth strategies of the Ansoff Matrix, which shows the four ways a firm can increase sales:
1. Market penetration – is growing sales of existing products in existing markets. For instance, Starbucks have started writing names of customers on coffee cups. The intention of this is to increase sales as a result of greater customer satisfaction.
2. Product Development – intends to increase sales by launching new products into an existing market. An example of this would be Starbucks introducing a new premium coffee made with rare and exclusive beans.
3. Market Development – is growing sales by launching existing products into new markets. Starbucks are a great example of this by having coffee shops all over the world.
4. Diversification – is launching new products into a new market, potentially increasing sales by a significant amount. However, this is the most risky strategy. Starbuck’s latest plan to launch a new food range is a diversification strategy because the firm is using a new product to tap into a new market for meals.
Until now, their food range has only been intended to complement their beverages and not a significant source of revenue or consumers’ meals. As this form of diversification is very similar to their current product range and market, it is considered ‘related diversification’.
Spread uneven demand. Currently peak sales for Starbucks occur in mornings and afternoons for coffee breaks; an emphasis on food encourages consumers to visit their outlets at meal times. Consequently, it will be easier for Starbucks to manage their capacity and not have to use inconvenient shift patterns.
Gain a competitive advantage. It goes without saying that the coffee shop market is extremely competitive. And there are no signs of competition becoming less severe: McDonalds have now decided to enter the coffee market to diversify their offering. To an extent, expanding into the food sector is almost a retaliation from Starbucks, aiming to steal hungry coffee consumers.
Diversification is the last available strategy to grow sales for Starbucks. The coffee shop market is far too saturated for market penetration strategies to grow sales significantly – the benefits of market penetration are often short term anyway. Starbucks have an incredibly vast range of drinks, which means that there is very limited opportunity to develop further products. Lastly, the chain has over 20,000 outlets in 63 countries, again, limiting the possibility to grow sales through market development.
To quickly recap, Starbucks’ plan to diversify is one of the Ansoff Matrix growth strategies. The alternative strategies to grow sales are market penetration, market development and product development. The benefits to Starbucks are to grow sales, spread uneven demand and gain a competitive advantage. This strategy is also suitable for Starbucks because they have exhausted the ability to grow sales through the other means.

    Q-4
    After performing the DEPEST analysis, trends at the intersection analysis, and funneling approach, management should have a better understanding of potential opportunities and threats within their industry.  The following opportunities and threats are based on the macro-environmental factors and help to conclude the attractiveness of the industry.
     
    Opportunities
    Demographic
    Although it has been found that financially stable Americans drink the most coffee, the potential market for customers includes all individuals who like coffee, have the income to purchase it at least occasionally, and have the ability to get to a shop. 
    Threated
    A purchase from a coffee shop is considered a luxury for most people rather than a necessity.  These individuals will brew coffee at home when they do not have extra income. 
    Economic
    Opportunities
    The price of coffee futures contracts is currently down 35% from 12 months ago.  Therefore, it would cheaper for a new shop to purchase the coffee.  These savings could be passed along to the customer, resulting in very competitive prices.
    Threated
    This industry is led by two major companies.  Each has a very strong market share and loyal   customer base.  It would also be very difficult to compete with these companies on price and accessibility.
    Political
    Opportunities
    Coffee imports are currently duty-free and the quota for purchases is unlimited.  These factors, in addition to minimal government interference, make purchasing coffee from suppliers easy and less-costly.
    Threated
    Members of the World Fair Trade Organization must meet minimum price requirements per pound of coffee.  Companies in the industry choosing membership will therefore pay higher coffee prices than non-members.  Also, the coffee industry is subject to regulation by the U.S. Food and Drug Administration.
    Environmental
    Opportunities
    Green companies are attractive to many consumers.  Companies within the industry can take advantage of this by implementing several green techniques such as refillable travel mugs available for purchase, recycled paper products, emailed receipts, and reusable dishware.
    Threated
    Many green techniques are more costly to companies, for example 100% recycled paper products.  Also, discounted refills for customers with their own travel mug from the shop could eventually prove costly for the company.  If these costs must be passed along to the customer, some may not recognize the environmental benefits and choose to go elsewhere for their coffee.
    Social-Cultura
    Opportunities
    Coffee is a daily routine for a lot of Americans and many appreciate convenience.  If a company within the industry can develop different strategies to make the experience more convenient for customers, they have the potential to gain a large market share.  Also, integrating healthy options into their menu could be a differentiating factor against competitors.
    Threated
    In general, foods served at coffee shops contain high amounts of carbohydrates, fat, and sugar (ex: muffins, donuts, bagels, danishes).  In order to better compete, a company may need to offer more options to appease the health conscious as well as those who are not.  This may increase inventory costs, wasted foods, and the number of suppliers.
    Technological
    Opportunities
    New hardware and software can improve efficiency within a company.  For example, bar code payments on smart phones will reduce the payment time while customers using a touch screen ordering system will reduce the amount of employees needed.  Social media has improved advertising capabilities because it can reach more customers, faster and for less money. 
    Threated
    Often, the newest, most innovative products are very expensive.  They are also risky because there is no guarantee customers will respond positively, employees must be trained frequently, and the system may have glitches.  Social media advertising does not necessarily reach consumers of all ages.  Companies need to be cautious not to completely neglect all other areas of advertising, such as print and   television.

    Dominant economic features are analyzed on the next page.  These features include: market size and growth rate, number of rivals, scope of competitive rivalry, number of buyers, degree of product differentiation, product innovation, supply/demand conditions, pace of technological change, vertical integration, economies of scale, and learning/experience curve effect.

    Q-5
Starbucks is best known as a chain of coffee shops. As such, it has various suppliers and inputs it buys coffee beans to make coffee as well as customized mugs and products to sell in its stores. It backward vertically integrated when it bought a coffee farm in China, because normally it would have to buy coffee beans from a coffee bean supplier.
Starbucks chose to buy a coffee farm in China, an area that showed tremendous growth in the number of coffee drinkers. At the same time, there was increased competition among companies selling coffee, such as McDonald’s and other chains such as Costa Coffee. Adding so many new coffee drinkers to the market creates competition for high-quality beans, with every coffee shop needing to buy them. Competition for high-quality beans means that some competitors will not receive them at all and that those who do will pay a high price driven up by competition. By backward vertically integrating by buying a coffee farm, Starbucks ensures that it will have a bean supply and that it will receive it at a reasonable price.


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  6. Assignment 1
    Student name : Nour Alallawi
    Student no:20154438
    Business Administration

    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company
    The change in the external environment through a change in the regulations and legislation affecting the Starbucks CorporationFor example, if the government decided to raise the tax value of the company will be affected negatively, down profits and high costAlso at the present time the State is imposing a number of calories on the product and this will certainly cost the company and affect the profits and capital
    2.In performing a customer analysis, can we estimate the cost of lost customer.
    Of course, customers can analyze and estimate the cost of lost because the client is set for the first and last in the
    3.One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Each company has a special and specific products on the basis of which specific period in order to renew its customers and add a wider choice for them but for Starbucks products is somewhat limited
    4.What are the major opportunities and threats facing Starbucks?
    Strength: the elements of power in the project and which distinguish it from other projects , a translation of the word Strengths

    Weaknesses: weaknesses in the project which is a translation of the word Weaknesses
    Opportunities: and that can come from outside the project could lead, for example , to increase sales and also can lead to increased profits, which is a translation of the word Opportunities

    . Threats: They that can come from outside the project and cause turmoil for the project which is a translation of the word Threats.
    .5.With further reference to Starbucks, how have they approached the buying decisioN process? What factors have they considered in creating a vertical chain of supply?
    Things did it for the success of Starbucks in China..
    When Starbucks entered China in the year
    In 1999, many people were skeptical about the chance to Starbucks success. And due to the fact that people
    Chinese prefer tea since ancient times , and it seems impossible that Starbucks able to break into this market .

    Discouraged by her resolve. A careful study of the market revealed that the emergence of the middle class However, Starbucks did not let this question of Chinese Find
    Opportunity for Starbucks to offer coffee Western experience, where people can meet their friends
    While eating their favorite beverage .

    Starbucks has pioneered this application. right Now
    You can find Starbucks cafes in most of the main streets of the coastal cities in China. Even
    And my father, who is 90 years old, he took to talk about how Aansaih coffee after eating
    Meals, instead of tea, so as to help it digest. Indeed, Starbucks caused a revolution in the point
    The Chinese looked for coffee and how Aansaiha .
    Strategic location :

    When Starbucks decided to enter into China,
    It has implemented a smart strategy to enter the market. Where he did not use any advertising and promotional advertisements,
    Which can be considered a threat to the Chinese culture of tea drinking. Instead, Starbucks focused
    To identify famous places and places that are packed with traffic in order to highlight its brand
    Commercial .

    The next step taken by the
    Starbucks benefit from the culture of tea drinking, so by offering drinks contain ingredients
    Local and popular , such as green tea. This strategy has worked effectively to transform obstacles
    Potential to their advantage. Soon the tastes of Chinese consumers have evolved to Starbucks coffee, which
    They are necessary for its success in China .

    One of the marketing strategies of Starbucks
    Home is providing customers with an exceptional experience. It was not for the elegance of the interior and provide Altsmamam
    Comfortable and quiet music sessions thing that characterized Starbucks for others, but they also have attractive
    Strong young generations who imagine Western coffee culture

    The pattern considered as a symbol of modern life.
    The main reason was not behind the influx of many of these young people to drinking a Starbucks cafes
    Just a cup of coffee, but also for the “Starbucks experience” that make them feel
    Awe and trendy .

    Thus, it has created the Starbucks Corporation
    Itself as a brand ambition able to impose distinct price .

    || section ||

    Global Brand :

    Starbucks realize the value of its brand
    Global has taken steps to preserve the integrity of the brand. One of the best practices
    Starbucks is to send the best waiters who are in strong markets to new markets
    In order to train new employees. They represent the waiters brand ambassadors and help
    In the establishment of the Starbucks culture in new locations and ensure that meet the service provided at each shop
    Local standards on a global level .

    In general, enjoyed brands
    Western good reputation by offering an innovative range of the best products and services of value
    And high quality. Among these global brands a competitive advantage for Chinese companies
    To establish themselves as trademarks distinct. However, as pointed out Shawn Ryan, Founder and Director
    Executive of the Chinese market research, to be attempting to enter many brands
    Western market by lowering prices is a losing strategy, because it is able to
    “Overcome” the local Chinese competitors .
    Does not mean global brand
    “Global product” or “global platform” like the misconception that
    It occurred when site (eBay – EBay). Availability
    Starbucks drinks menu commensurate with local Chinese consumers in particular. It has also
    Starbucks to conduct analyzes of a wide and accurate consumer tastes to create a unique blend of “East
    Meets West “. What distinguishes all cafes across China also freedom of choice
    Consumers for something that suits them from a list of drinks with a wide selection .
    At a time when it was difficult for signs
    Global business that Taqlm its business with local markets in order to achieve success
    In China, the Starbucks has achieved this success .
    Local partnership :
    China is not a single market. But there are many
    Of similar markets in China. North China ‘s culture very different from the culture of the east
    China. Does not equal the internal purchasing power spent by the consumer with those in the coastal cities.
    To address this complexity in the Chinese market, Starbucks has partnered with three regional partners
    As part of its expansion plans .
    In the north , Starbucks has entered a joint venture
    With coffee (Beijing Mei Da – Beijing Mei Da) ;
    In the east with the company (UNI Bryazdnt – Uni-President) in the
    Taiwan; and in the south with the company (Maxim Katrrz
    – Maxim’s Caterers) in Hong Kong. It brings all of these partner
    Partners different strength and local expertise will help Starbucks to gain insight into the tastes and preferences
    Chinese consumers are local .
    Working with the right partners is a
    An effective way to reach local customers and rapid expansion without pathos educational curve
    Long – term commitment :
    Not easy to break into the Chinese market.
    But it requires long – term commitment. Important strategy is to invest in
    employees. When you visit a Starbucks in Shanghai in 2007, impressed by the way
    Wonderful welcome made by Chinese waiters, which distinguished it from the rest of counterfeit cafes.
    Starbucks has been able to do an excellent and did a great job, and that recruitment and training of its employees. This strategy
    A win – win because the staff reflect the “Starbucks experience” for customers. They are the best ambassadors of Marketing
    Company .
    Other meanings reflected by the concept of
    Long – term commitment is patience. Where it takes time to educate the market and gain customer loyalty.
    Companies that invest in long – term plans can be sure of reaping lucrative rewards .
    If Starbucks was able to achieve success
    In the Chinese market, there is no excuse for any other company, large or small, from the lack of
    Success in China. The ability to think differently and perform the duties imposed and implement strategies
    Correct and adapt to local markets and commitment to long – term are all important steps to achieve
    This goal .

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  7. Omran M.Rashid Abdulqadir
    Student number:20165704
    Department:Banking and accounting

    Q1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Answer: Starbucks operates on a global level with products coming from and being distributed all around the world The government’s decision to impose regulations is influenced by the Economic, political and environmental factors Starbucks is headquartered in the United States.Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to protect consumers and keep companies honest about their products. In this case Starbucks is required by the law to comply with the truth in advertising its products, for instance, the ingredients of the coffee and biscuits sold by Starbucks .all product labels must include information about the product, such as nutrition, size, and distribution. For instance, in the United States advertising must be truthful and non-misleading. Should a customer complain about misleading marketing communication, Starbucks must be able to back up claims made in advertisements at any time; and advertisements must be fair to competitors and consumers This will enable the company to remain competitive in the coffee market. Starbucks must also comply with the Safety and Health Act which ensures that employers provide safe and sanitary work environments through frequent inspections and a grading scale. In this case Starbucks must meet specific standards in order to stay in business. The company must at all times provide hazard-free workplaces, avoiding employee physical harm and death, through a number of procedures.

    Q2. In performing a customer analysis, can we estimate the cost of lost customer?
    Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers. When you lose a customer, you lose future opportunities for personal recommendations which often turn into additional engaged customers. Starbucks is a great example of a company that has built their marketing strategy around their customers and ethical behavior instead of investing millions of dollars on advertising that does not bring any social benefit. The advantage of this company is the market they are operating in; there is always a demand for coffee, and people regularly visit cafés before work or to spend time with their close ones. But I think Starbucks must revisiting their customer strategy. First of all investigate the causes of customer attrition. The ongoing global economic recession is the prime external economic driver for Starbucks. This factor dented the profitability of Starbucks. This has convinced buyers to shift to cheaper alternatives. As they did not quit buying coffee, Starbucks should seek an opportunity here. The company should actively measure its retention rate. The disappearance of consistent, predictable income resulting from the loss of a single customer may not be huge immediately, but it’s certainly noticeable.

    Q3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Answer: A prime risk associated with product diversification strategy is that sometimes getting outside of what you do best isn’t a good strategy. Starbucks, long known for its “grande-double-shot-espresso-skinny-latte-hold-the-foam” drinks, has slowly diversified into other drinks and food without overshooting its reach.People can only drink so much coffee in a day. Even a die-hard fan may only buy one to two drinks a day. With various coffee brands in serious competition for market share, Starbucks decided to branch out. They have done this successfully by identifying their customers as being people who want to treat themselves or grab a drink on the way to work, and have recognized the fact that they could sell not only coffee, but also breakfast pastries, other breakfast items, light lunches, sweet snacks and healthy options for kids. Another risk is that product diversification may result in deviation from the core of the business.
    Q4. What are the major opportunities and threats facing Starbucks?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities . Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.

    Q5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Answer. US organic food market is fast growing business segment where competitors of Starbucks are growing in wellness and health program Starbucks has decided to execute brand distribution strategy by retail stores of company and adoption of additional channels Starbucks is targeting the China and Indian markets that have largest population in world. China is getting fast paced economic development where disposable income of middle income people is increasing There is great opportunity for Starbucks to meet growing demand of consumer products. Starbucks has formulated aggressive expansion plan in India and China Starbucks is targeting the demographic factors in its marketing strategy. Company is registering its strong operational performance in China that is quite positive symptom for brand marketing opportunities .Situational analysis of India reveals that Indians are tea addicted. Starbucks has made joint venture agreement with Tata group named as Tata Starbucks Limited and Tata Coffee Limited where Tata Coffee is supplier of Tata Starbucks Starbucks is creating local alliances in Asian markets to tap fast growing economies. Starbucks has entered into agreement with Courtesy Products to deliver on demand and in-room coffee service in more than 500,000 US luxury hotels Likewise, Starbucks made another agreement with Green Mountain for licensing, distribution, marketing, and manufacturing, and sale of coffee brands.
    Threats.
    The increasing emphasis on healthy lifestyles and reducing caffeine intake for people with certain health conditions is a potential threat to coffee house companies The secret will be finding suitable alternatives for those consumers who cannot or choose not to drink caffeinated coffee. A quality decaffeinated alternative will provide access to this sub- segment of the market.Raw material prices of Starbucks may increase causing in enhanced prices of manufacturing costs .Starbucks may have to face challenges in meeting desired standards of quality .The relaxation of the licensing laws has provided an opportunity for firms like star bucks to broaden their offering in coffee houses to include alcohol. This will attract new market segments.There are further potential niche markets or segments to target, for example developing a caffeine free alternative for those consumers concerned about the health risks of to much caffeine.

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  8. Students number:20167201
    Question 1 :
    Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Answer :
    Certain political issues can arise since coffee beans are grown in developing countries, and this could raise questions about the working conditions and child labor. Tariffs and import taxes could also influence the prices in stores considerably not forgetting that economic factors such as the economic recession or exchange rates could threaten Starbucks profits.
    Question 2 :
    In performing a customer analysis, can we estimate the cost of lost customer?
    Answer :
    Losing customers means that valuable insight is lost. Customer’s feedback contributes to improve the quality of the service and provides understanding of what those poor performing areas are and the actions to change.
    When a customer is lost to the competition their market share increases, and might help them understanding the weaknesses and target other customers.
    Reputation is impacted through lost customers.
    Question 3 :
    One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Answer :
    – The first risk is that of a reaction from competitors already on the market. They can engage in response actions (abrupt price cuts) or raise barriers to entry (blocking the distribution network, imposing large investments).
    – The second risk is that the new entrant entails an excess of supply on the market, causing a slump, price war and commercial struggles.
    – The third risk relates to market entry costs: capital required for fixed assets, inventories, commercial expenses … These entry costs may be too high compared to the company’s financial capacity.
    – The last risk is due to start-up losses. They are due to the fact that the product is in the launch phase and that volumes are low, resulting in additional costs due to the lack of economies of scale and learning. Thus, the lack of mastery by a firm of all the skills necessary for the exercise of a new trade can inflict insurmountable competitive disadvantages.
    Starbucks has already exhausted this strategy, they have a wide range of drinks along with a range of snacks and light refreshments, this strategy is suitable for Starbucks because it gives a better distribution of risks related to its activities.
    Question 4 :
    What are the major opportunities and threats facing Starbucks?
    Answer :
    -OPPORTUNITIES
    1. Possibility to expand to more countries
    2. Open specialised stores
    3. Sell coffee or tea to large chain stores
    4. Develop a larger tea market
    5. Create official coffee farms
    6. Enhance the customer in-store experience
    7. Develop Starbucks capsules for home coffee machines
    -THREATS
    1. Competitors have lower prices
    2. Lack of ownership of coffee farms
    3. Decrease in consumer bying power
    4. Rising prices of coffee and milk
    5. Saturated market
    6. Rise in sales of coffee machines for home use (Espresso, Nescafe…)
    Question 5 :
    With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Answer :

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  9. Çağın Bulakbaşı

    20154757

    Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.

    When starting their business in new countries every international company has to take into consideration the regulations of the country in question. The change in legislation may provide new opportunities and limitations for business. The company has to evaluate which of these conditions will be better for profit maximization. While a change in strategy may lead to increased profits it should be noted that such changes may also require a drift from the general strategy employed in the home country.

    One of the general points of political criticisms Starbucks faces from the international community is the working conditions and exploitation of people in coffee producing countries. While Starbucks has started several social responsibility projects towards improving the conditions of coffee producers in other countries and places importance towards employee happiness, these initiatives obviously come with a cost. The labor laws in Turkey are relatively weaker in terms of employee rights and heavily favor employers. This results in lower importance placed into employee happiness in return for lover labor costs. While Starbucks still holds the establishment image as a company associated with upper-middle class, it comes with the cost of losing the image of a socially responsible company when operating in Turkey. Starbucks is one of the most recognizable international brands in the world. Outside the general western perception this outstanding recognition it also carries with itself with general criticisms towards exploitation and capitalism. When combined with weaker employee happiness and lower requirement in investing towards social responsibility the ethical company image is non-existent in Turkey.

    Another set of laws that limit Starbucks is the regulations towards the regulation of alcohol sales. Specifically the Code 4250 (4250 sayılı İSPİRTO VE İSPİRTOLU İÇKİLER İNHİSARI KANUNU) , places heavy restrictions on where and how alcohol can be sold. Also it places additional restrictions on companies selling their own alcohol products. According to the law all private companies with the exception of hotels who have special status a tourism resort, who wish to sell alcohol must have at least 100 meters distances from schools, training centers, dormitories and religious facilities at the time of alcohol licence application. Additionally places where alcohol is sold to go is required to be closed to viewing from the outside. Additionally companies who have their own alcohol products are prohibited from advertising or using the logo in any promotional material. When we take into consideration the Starbucks location and visibility strategies for shops it has been nearly impossible for Starbucks to sell alcohol in Turkey.

    In performing a customer analysis, can we estimate the cost of lost customer?

    The most important aspect of estimating the cost of a lost customer is to track the number of regular customers so that a decrease in customer retention can be clearly observed. Churn rate is described as the annual percentage rate at which customers stop subscribing to a service. In order to track customer loyalty Starbucks uses promotional cards in which if a customer makes consecutive purchases in a certain amount of time they receive promotional items and discounts. By tracking the change in the distribution of these promotions and discounts per shop, Starbucks can estimate the change in customer loyalty per shop. When we take into account how much the average profit per customer in a market the loss in profits if any can be estimated. However we should also take into consideration the advertising and customer retention program costs per customer as well. When we combine these values we can reach an estimate of the cost of a lost customer.

    It should be noted that this way we can only calculate the results of behavioral loyalty by the customers. Apart from these ther might be additional costs regarding the loss of cognitive loyalty. A loss in cognitive loyalty may lead to further costs depending on why the loyalty has declined. A customer may go on to negatively effect the company sales via bad word of mouth. Similarly a general event like tax-evasion or worker exploitation going public may result in increased costs. These can be calculated by calculating the change in customer loss by statistically purifying other global trends and isolating the event. The real challenge is understanding which customers left for what reason. Since unhappy customers who are no longer loyal to the brand are much less likely to give proper feedback.

    One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?

    Starbucks has faced increasing competition in the recent years. In order to increase flexibility and reduce reliance on coffee alone the company has gone towards diversification in products and markets. Currently the company is receiving most of its profit from coffee products. There is an already existent technical knowledge and infrastructure in order to continue this revenue without significant costs to development and experimentation.

    When introducing a new product the company has to go through an initial stage of investment until that product reaches maturity. This investment has both tangible and intangible aspects which need to be invested and developed before full profit realization can be achieved. Currently Starbucks has invested in all aspects of its coffee production from cultivation of the seeds to the customization of service. In order to achieve this with another product it has to go through an extensive investment process for the prospect of future profit. These expenses include investing in equipment, staff training and production establishments. While these costs may be very risky for smaller companies initially, Starbucks has the capital to undertake such challenges. It should be noted that beyond the initial investment product diversification and an increase in multi tasking for different products may lead to a loss in efficiency.

    Another risk of diversifying product is the damage done to the brand. Starbucks is already facing criticisms regarding the loss of in store experience and turning into a fast food chain. While the effects of similar products like tea may have limited impact further product diversification may lead to a damage to the brand. In fact the removal of coffee from the logo in 2011 in order to launch other products have received negatively among customers. Brand equity is one of the greatest value of Starbucks and remains an important factor in the success of the company. Diversification that decreases customer loyalty may result in greater loss to the brand overall.

    The key to successfully manage diversification is the ability to understand which products are best suited for which markets. While brand image may be very well centered and tied to coffee in USA, in Turkey the company is not that strictly tied to that perception. The traditional coffee shop perception in the Middle East was always different from what Starbucks offered so moving towards other products than coffee would not have the similar cost for the brand in the area.
    What are the major opportunities and threats facing Starbucks?

    The major threat to Starbucks is the change in coffee consumption trends around the world. The “Third Wave of Coffee” can be considered as a revival and reinvention of the original Starbucks concept. This trend which is becoming more and more popular among Generation Y which is the core of Starbucks target customer has a fundamentally different view towards coffee. According to the third wave coffee should not be viewed as a commodity to and utilized just for consumption and sale. Coffee is more and more viewed as an artisanal food similar to wine. The customer is interested in all the aspects of the coffee production and possesses much more knowledge about the entire process. They highly value customization and new experimentation with coffee. The competitive advantages of these coffee shops are that they are operating as numerous independent shops rather than a chain which results in overall greater range in products offered. While customization is much more limited among Starbucks stores a customer can cycle between several shops in their area to access different varieties. In terms of intangible preferences, third wave prefers less visibility or a diversion from mainstream rabbits in general. Most of these shops are located in side streets rather than central places and Gen Y customers value the authenticity provided by seclusion. These coffee shops double up as workshop and meeting areas which are conducted by the customers and such activities create a natural advertising for potential customers. Drifting away from corporate standards allows customers to build the personal relationships with the shop which has been lost for Starbucks for some time. Additionally customers usually participate directly in the customization and development of the shop. For instance a workshop for photography ends with the photographs being a part of the decor which further increases the sense of belonging. Opening a coffee shop or a bar is probably the most common ventures when people think of starting a shop and the number of these independent shops is increasing in an ever higher rate. While Starbucks can monitor other coffee chains with ease the diversity and independence of such shops provide a difficulty in assessing the competition properly. The opportunity of Starbucks lies with its ability to adopt to this new trend in coffee. Either Starbucks will have to change their target customer group or they will have to adapt to this trend. Providing greater autonomy for shops and promoting increased localization can be a solution in competing with such establishments.
    With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?

    Starbucks currently controls all stages of the coffee production in establishments under the company. Cultivation, production, roasting and sales are all conducted under the company. While Starbucks can better control the quality of its product at lower costs by removing intermediaries there is also the promotion of the ethical marketing strategy of the company in accordance with the buying decision process. The target customer group of Starbucks is becoming increasingly concerned about the social and environmental effects of the products they use. By controlling the chain of supply Starbucks can also ensure to a certain degree the worker safety and environmental consciousness. In order to boost customer loyalty Starbucks has increasingly supported the ethical values of their customers and the implementation of a “vertical integration model to the extreme” as indicated by Howard Schultz they can have grater control on the process.

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  10. Fatima Alhouz
    20165421
    Q1
    Global companies are affected by the change within external environments, that happened by the government’s regulations and legislation. Starbucks also affected by this conditions. Starbucks also change the way they operate. The unique selling proposition concept helps Starbucks differentiate their products and services and gain competitive advantage over competition. But Starbucks faces real threats in within international environment. For Starbucks that its products coming from and being distributed all around the world. So the standards and governmental regulations could have a number of social results for the company like legal fees and profits in addition to brand reputation. The different and changed situations from countries to another make the control in the shops harder. However the unclear rules in many countries like Syria for example. For the company that manufactures food , requires high level of safety in order to customer trust. And any violation could cause closing the shop and break the reputation. Also certain political issues can arise since coffee beans are grown in developing countries, and this could raise questions about the working conditions and child labor
    Q2
    In performing a customer analysis, can we estimate the cost of lost customer?
    we can estimate the cost of lost customers by measure retention rate, calculate opportunity cost, profit losing when losing customers, Identify why customers switch brands by market research, and follow up the reasons to know if these are internal causes of lost customer like quality, price or CRM for example. Or there are external reasons like competition. Because the lost customer not only straight affect the bottom line, so they may be avoiding from drawing new customers.
    Q3
    A product diversification strategy is a form of business development by adding new product to the range. The strategy provides opportunities to grow the business by increasing sales to existing customers or entering new markets. But it is high risk strategy, so it is important to assess both the opportunity and the level of risk. The cost of development and marketing the new product allow company to earn a profit. Risk increasing if new product might take sales away from existing products or if the cost of market entry is very high. In those scenarios, the benefit to Starbucks may not affect but if not, maybe cause slower service and lower pleasure of customers. This company with more than 20,000 stores needs to reduce the number of menu choices and focus on what consumers appreciate with focus in the local culture and preferring.
    Q4
    Threats
    1- High competition and lower alternative’s price: like some arguments that McDonald has improved the coffee quality with lower price that means there is a big challenge for Starbucks, and also Costa Café and so on… Moreover the threat of goods and settings imitation that grows very fast where there is no lack of customers in food market.
    2- Climate change may affect the prices of the coffee beans, and in the end, increase manufacturing cost that threats the profit margin. In addition to, standard of quality, the case that can be the most assets of Starbucks branding, maybe the biggest challenge also, because of the cost of the export. So it is not easy to balance between the standards and branding requirements in these conditions.
    3- according to Michael Porter’s Industry Life Cycle the drinks that contain high-fat in the maturity stage. And while the American community able to move its culture very fast to another communities, so the threat is to offer new products for those customers who have carefulness about health and fitness and work hard to interrupt these products and beverages. Not only in America also around the world.
    4- Tariffs and import taxes could also influence the prices in stores considerably not forgetting that economic factors such as the economic recession or exchange rates could threaten Starbucks’ profits.
    Opportunities
    1-Global spreading out: chance to grow in some market Starbucks did not enter before like China, Middle East and Africa. Especially the countries that are getting fast economic development where income is increasing.
    2- offering new product that fit with local communities like Arabic coffee that was offered in almost coffee in gulf states more than American coffee because it is lower of caffeine. Or in some communities that have people care about health and look for healthier alternative. Not only about the drinks but also all products cause of the growing of this market day after day. According to the UK Tea & Infusions Association (2014), the largest per capita tea drinking nation is Britain where 165 million cups of tea are drunk daily versus 70 million cups of coffee. While younger generations may be moving towards new American trends such as having coffee or frappes at any time of the day, Starbucks must adjust their product portfolio and propose more tea.
    3- when Starbucks face threats of fast imitation plus to manufactured goods life cycle the technology can create break this threats, because of the importance of technology is not only by social media to communicate with loyal customers. No; today in the supportable e-marketing situation is to publish and broadcast content that keep companies in their customers’ daily life. The biggest chance for these companies that offer low price product and services like Starbucks, so while Starbucks matched with local issues and with repair the environment will save its image and save the loyalty of customers with time. The ethical social factor and desire to be eco-friendly is also evolving, Starbucks must adjust to this trend.
    Q5
    Starbucks have approached the buying decision process by the habit and people gathering in common set of values and needs. Starbucks support a complete Approach to Ethical Sourcing. They make every effort to cultivate lasting relationships with the people who grow their products and create manufactured goods and produce high-quality, ethically sourced products. Their approach includes responsible purchasing practices, farmer support efforts, social responsibility standards for suppliers, and environmental programs.

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  11. Name: Bawan Sabir
    Student Number: 20167309
    Department: Banking and Accounting
    Assignment 1: External Environment

    (1). Government legislation that may affect are;
    Product safety regulations
    Product safety laws require that Starbucks products be produced in with the designated health standards. Such standards do affect product composition of the coffee and in most cases the use of genetically modified organisms has been strongly regulated. Such regulations can be expensive for Starbucks especially when the regulations results in an increase in production costs which in which it is difficult to pass on the costs to the consumer. However, this does not impose greater effects on profit earning capacity since naturally products are easily available.
    Employment laws
    Employment laws has much effects on profitability and this is because in most cases they are often introduced to ensure that corporations such as Starbucks comply with minimum wage requirements. They can also put a limit on the number of daily working hours. It can be noted that all these two will constrict profit and productivity levels respectively.
    Tax regulations
    Taxes levied on Starbucks either within on outside the United States often impose a huge cost burden on companies such as Starbucks. This is because they increase cost of production and when Starbucks cannot easily pass those costs to consumers in the form of increased prices, its profits will fall and can even make it difficult to operate effectively.

    (2). The cost of lost customer can be estimated and this can be achieved using profits lost.

    (3). Diversification might fail and in most cases when the diversification strategy has been improperly done or certain aspects have been overlooked. What makes product diversification to fail is that changes in the business or economic environment can cause volatility in the new markets causing prices to tumble. There is always no guarantee that diversification will provide the required results. Diversification has high risk that it creates a negative perception about the company as some may fear that the company is not performing well and hence the decision to diversify. There are also high risks that Starbucks might be under resource pressure from diversification as both existing and new products both inside and outside the USA will be competing for the same amount of resources.
    — Starbucks can be said to have exhausted this strategy and this is because it now has more and different coffee products such as Caffé Latintes and Cappuccinos. In addition, Starbucks now operates in more than 5 countries around the world.

    (4). Opportunities that are facing Starbucks are;
    I. ability to make capsules for local machines
    II. ability to improve customers’ in-store experience
    III. access to huge coffee farms
    IIII. can expand into a big coffee market
    V. growing sales base
    VI. open specialised stores
    VII. can enter into international markets.
    –Threats that are facing Starbucks are;
    I. the market is getting saturated
    II. increase in milk and coffee prices
    III. loss of consumer buying power
    IIII. falling prices as a result of increased competition
    V. increase in sales of coffee machines for home use

    (5). Starbucks approach to the buying process has changed to some extent and this is because it has managed to introduce additional changes in which the customer can additionally request extra services after placing an order and this is true when it comes to flavouring.
    — The following factors have been considered by Starbucks in creating a vertical chain of supply;
    I. risk
    II. set up costs
    III. Coordination
    IIII. Turnaround time
    V. Transaction costs

    Like

  12. Assignment 1-External Environment
    Name:Aryan Sabir
    Student Number:20165960
    Department:Banking and accounting

    1. Governmental legislation that might have an effect on Starbucks are;
    • Customs and trade regulation: These regulations had limited sources from which Starbucks can buy its raw materials (coffee). Such implied that the choice to buy from cheaper providers was now limited and measures to control costs through controlling purchasing costs were now difficult.
    • Employment laws: Though employment laws are meant to protect employees, they tend to affect the viability of organizations such as Starbucks. This is because employment laws try to ensure that employees are adequately paid and are not being exploited. Such however, tend to reduce profits and productivity respectively as costs increase and less time can be expended to produce coffee.
    • Product regulations: Coffee products are required by law to be produced under certain standards. These standards have an effect on quality and quantity. Quality and quantity restrictions have a strong negative implication on profitability through reduction in sales margin per unit as well the number of customers.

    2. It possible to calculate the value of a lost customer and Starbucks can achieve this through calculating changes in profit levels before and after the customer loss.

    3. The risk that are associated with diversification are;
    • Risk of failure: Risks are always high that diversification might not yield the desired outcome. Thus successful diversification requires an effective approach which includes accurate estimation of the operating environment and future changes in the business environment. Inability to do so can imply that the success of the introduced products will be limited especially when market instability is very high.
    • Reputation and brand damage: Diversification failure is associated with high risks of reputation and brand damage. If diversification fails, the reputation of the firm will be at stake and consumers might distaste Starbuck’s products.
    • Risk of conflict of interest: Widening product range means that there is an increase in demand for the same amount of resources. Therefore scarcity and inability to provide the required resources will result in delays which often see customers being frustrate. As a results, consumers may shun Starbucks products in favour of competitors’ products.
    • It can be said to some extent that Starbucks has exhausted this strategy and this can be evidenced by its growing number of coffee bars located across America, Asia and Europe. Moreover, its product diversity has increased with more than 3 different types of coffee being sold.

    4.
    Opportunities
    Threats
    Develop a larger tea market
    Saturated market
    Open specialized stores
    Lack of ownership of coffee farms
    Expand in more countries
    Low prices being caused by competitors
    Sell coffee to a lareger tea market
    Increases in the price of milk and coffe
    Enhance in-store experience
    Decline in consumer buying power
    Develop more Starbucks capsules
    More coffee sales machine being sold
    Create official coffee farms

    5. Starbucks approach to the buying process has relatively changed to some extent. this is because it is still similar to the ordinary buying process except that product choice has been widened after the ordering step.

    vertical supply chain factors considered by Starbucks
    1. Coordination effectiveness.
    2. Transaction costs.
    3. Set up Costs
    4. Transaction risks
    5. Turnaround time.

    Like

  13. Assignment 1_External Environment
    Name:Dana ahmed
    Department:Banking and Accounting
    Student Number:20167250

    1. How changes in regulations that have affected Starbucks
    Regulations that have affected Starbucks
    Regulation
    Description
    Employment laws
    • Imposed restriction on working hours and min imu wages paid to employees.
    • Constrict profits and productivity.
    Product and health
    • Limit caffeine content in coffee products.
    • Affects quality and quantity standards
    • Have negative effects on sales units and profit per unit.
    Customs
    • Limits product choice and costs effective efforts.
    • Increases costs of production.
    Tax
    • Limits product choice and costs effective efforts.
    • Increases costs of production.

    2. Yes it is possible to calculate the value of a lost customer.
    3. Risks that are associated with diversification
    Risks that are associated with diversification
    Risk
    Effects
    brand damage
    • Customers sometimes have a negative perception about diversification.
    • It damages the both the reputation and brand of the company especially when the introduced products fail
    conflict of interest:
    • Products and processes will compete for resources.
    • can result in delays
    Risk of failure:
    • It can be a total failure.
    • Can be prove to be a costly strategy when sales revenue is low.

    • the increased number of coffee products and more coffee shops around America and in other continents such as Asia, Africa (South Africa) and Europe do provide evidence of how greatly Starbucks has exhausted this strategy

    4. Opportunities and threats faced by Starbucks
    Opportunities
    Threats
    Enhance in-store experience Enhance in-store experience
    Low prices being caused by competitors
    Develop more Starbucks capsules
    Saturated market
    Create official coffee farms
    Lack of ownership of coffee farms
    Sell coffee to a larger tea market
    Increases in the price of milk and coffee
    Expand in more countries
    Decline in consumer buying power
    Open specialized stores
    Low prices being caused by competitors
    Develop a larger tea market

    5. A few changes have been observed in Starbucks’ approach to buying process and it is still being characterised by the same process with just changes in more flexibility in product choice when receiving the ordered product.

    Factors considered by Starbucks when embarking on vertical supply chain
    1
    Turnaround time
    2
    Set up Costs
    3
    Transaction costs.
    4
    Coordination effectiveness.

    Like

  14. Name: Bawan Sabir
    Student Number: 20167309
    Department: Banking and Accounting
    Assignment 1: External Enviroment

    (1). Government legislation that may affect are;
    Product safety regulations
    Product safety laws require that Starbucks products be produced in with the designated health standards. Such standards do affect product composition of the coffee and in most cases the use of genetically modified organisms has been strongly regulated. Such regulations can be expensive for Starbucks especially when the regulations results in an increase in production costs which in which it is difficult to pass on the costs to the consumer. However, this does not impose greater effects on profit earning capacity since naturally products are easily available.
    Employment laws
    Employment laws has much effects on profitability and this is because in most cases they are often introduced to ensure that corporations such as Starbucks comply with minimum wage requirements. They can also put a limit on the number of daily working hours. It can be noted that all these two will constrict profit and productivity levels respectively.
    Tax regulations
    Taxes levied on Starbucks either within on outside the United States often impose a huge cost burden on companies such as Starbucks. This is because they increase cost of production and when Starbucks cannot easily pass those costs to consumers in the form of increased prices, its profits will fall and can even make it difficult to operate effectively.

    (2). The cost of lost customer can be estimated and this can be achieved using profits lost.

    (3). Diversification might fail and in most cases when the diversification strategy has been improperly done or certain aspects have been overlooked. What makes product diversification to fail is that changes in the business or economic environment can cause volatility in the new markets causing prices to tumble. There is always no guarantee that diversification will provide the required results. Diversification has high risk that it creates a negative perception about the company as some may fear that the company is not performing well and hence the decision to diversify. There are also high risks that Starbucks might be under resource pressure from diversification as both existing and new products both inside and outside the USA will be competing for the same amount of resources.
    — Starbucks can be said to have exhausted this strategy and this is because it now has more and different coffee products such as Caffé Latintes and Cappuccinos. In addition, Starbucks now operates in more than 5 countries around the world.

    (4). Opportunities that are facing Starbucks are;
    I. ability to make capsules for local machines
    II. ability to improve customers’ in-store experience
    III. access to huge coffee farms
    IIII. can expand into a big coffee market
    V. growing sales base
    VI. open specialised stores
    VII. can enter into international markets.
    –Threats that are facing Starbucks are;
    I. the market is getting saturated
    II. increase in milk and coffee prices
    III. loss of consumer buying power
    IIII. falling prices as a result of increased competition
    V. increase in sales of coffee machines for home use

    (5). Starbucks approach to the buying process has changed to some extent and this is because it has managed to introduce additional changes in which the customer can additionally request extra services after placing an order and this is true when it comes to flavouring.
    — The following factors have been considered by Starbucks in creating a vertical chain of supply;
    I. risk
    II. set up costs
    III. Coordination
    IIII. Turnaround time
    V. Transaction costs

    Liked by 2 people

  15. Assignment 1_ External Environment
    Name:Aryan Sabir
    Student Number:20165960
    Department:Banking And Accounting

    1. Governmental legislation that might have an effect on Starbucks are;
    • Customs and trade regulation: These regulations had limited sources from which Starbucks can buy its raw materials (coffee). Such implied that the choice to buy from cheaper providers was now limited and measures to control costs through controlling purchasing costs were now difficult.
    • Employment laws: Though employment laws are meant to protect employees, they tend to affect the viability of organizations such as Starbucks. This is because employment laws try to ensure that employees are adequately paid and are not being exploited. Such however, tend to reduce profits and productivity respectively as costs increase and less time can be expended to produce coffee.
    • Product regulations: Coffee products are required by law to be produced under certain standards. These standards have an effect on quality and quantity. Quality and quantity restrictions have a strong negative implication on profitability through reduction in sales margin per unit as well the number of customers.

    2. It possible to calculate the value of a lost customer and Starbucks can achieve this through calculating changes in profit levels before and after the customer loss.

    3. The risk that are associated with diversification are;
    • Risk of failure: Risks are always high that diversification might not yield the desired outcome. Thus successful diversification requires an effective approach which includes accurate estimation of the operating environment and future changes in the business environment. Inability to do so can imply that the success of the introduced products will be limited especially when market instability is very high.
    • Reputation and brand damage: Diversification failure is associated with high risks of reputation and brand damage. If diversification fails, the reputation of the firm will be at stake and consumers might distaste Starbuck’s products.
    • Risk of conflict of interest: Widening product range means that there is an increase in demand for the same amount of resources. Therefore scarcity and inability to provide the required resources will result in delays which often see customers being frustrate. As a results, consumers may shun Starbucks products in favour of competitors’ products.
    • It can be said to some extent that Starbucks has exhausted this strategy and this can be evidenced by its growing number of coffee bars located across America, Asia and Europe. Moreover, its product diversity has increased with more than 3 different types of coffee being sold.

    4.
    Opportunities
    Threats
    Develop a larger tea market
    Saturated market
    Open specialized stores
    Lack of ownership of coffee farms
    Expand in more countries
    Low prices being caused by competitors
    Sell coffee to a lareger tea market
    Increases in the price of milk and coffe
    Enhance in-store experience
    Decline in consumer buying power
    Develop more Starbucks capsules
    More coffee sales machine being sold
    Create official coffee farms

    5. Starbucks approach to the buying process has relatively changed to some extent. this is because it is still similar to the ordinary buying process except that product choice has been widened after the ordering step.

    vertical supply chain factors considered by Starbucks
    1. Coordination effectiveness.
    2. Transaction costs.
    3. Set up Costs
    4. Transaction risks
    5. Turnaround time.

    Liked by 2 people

  16. Name:Dana Mahdi
    Student Number:20167260
    Department/Banking And accounting
    Assignment 1/ External Environment

    1. How changes in regulations that have affected Starbucks
    Regulations that have affected Starbucks
    Regulation
    Description
    Employment laws
    • Imposed restriction on working hours and min imu wages paid to employees.
    • Constrict profits and productivity.
    Product and health
    • Limit caffeine content in coffee products.
    • Affects quality and quantity standards
    • Have negative effects on sales units and profit per unit.
    Customs
    • Limits product choice and costs effective efforts.
    • Increases costs of production.
    Tax
    • Limits product choice and costs effective efforts.
    • Increases costs of production.

    2. Yes it is possible to calculate the value of a lost customer.
    3. Risks that are associated with diversification
    Risks that are associated with diversification
    Risk
    Effects
    brand damage
    • Customers sometimes have a negative perception about diversification.
    • It damages the both the reputation and brand of the company especially when the introduced products fail
    conflict of interest:
    • Products and processes will compete for resources.
    • can result in delays
    Risk of failure:
    • It can be a total failure.
    • Can be prove to be a costly strategy when sales revenue is low.

    • the increased number of coffee products and more coffee shops around America and in other continents such as Asia, Africa (South Africa) and Europe do provide evidence of how greatly Starbucks has exhausted this strategy

    4. Opportunities and threats faced by Starbucks
    Opportunities
    Threats
    Enhance in-store experience Enhance in-store experience
    Low prices being caused by competitors
    Develop more Starbucks capsules
    Saturated market
    Create official coffee farms
    Lack of ownership of coffee farms
    Sell coffee to a larger tea market
    Increases in the price of milk and coffee
    Expand in more countries
    Decline in consumer buying power
    Open specialized stores
    Low prices being caused by competitors
    Develop a larger tea market

    5. A few changes have been observed in Starbucks’ approach to buying process and it is still being characterised by the same process with just changes in more flexibility in product choice when receiving the ordered product.

    Factors considered by Starbucks when embarking on vertical supply chain
    1
    Turnaround time
    2
    Set up Costs
    3
    Transaction costs.
    4
    Coordination effectiveness.

    Like

  17. Name:Dana Ahmed
    Student Number / 20167250
    Department:Banking And Accounting
    Assignment 1_External Environment

    1. How changes in regulations that have affected Starbucks
    Regulations that have affected Starbucks
    Regulation
    Description
    Employment laws
    • Imposed restriction on working hours and min imu wages paid to employees.
    • Constrict profits and productivity.
    Product and health
    • Limit caffeine content in coffee products.
    • Affects quality and quantity standards
    • Have negative effects on sales units and profit per unit.
    Customs
    • Limits product choice and costs effective efforts.
    • Increases costs of production.
    Tax
    • Limits product choice and costs effective efforts.
    • Increases costs of production.

    2. Yes it is possible to calculate the value of a lost customer.
    3. Risks that are associated with diversification
    Risks that are associated with diversification
    Risk
    Effects
    brand damage
    • Customers sometimes have a negative perception about diversification.
    • It damages the both the reputation and brand of the company especially when the introduced products fail
    conflict of interest:
    • Products and processes will compete for resources.
    • can result in delays
    Risk of failure:
    • It can be a total failure.
    • Can be prove to be a costly strategy when sales revenue is low.

    • the increased number of coffee products and more coffee shops around America and in other continents such as Asia, Africa (South Africa) and Europe do provide evidence of how greatly Starbucks has exhausted this strategy

    4. Opportunities and threats faced by Starbucks
    Opportunities
    Threats
    Enhance in-store experience Enhance in-store experience
    Low prices being caused by competitors
    Develop more Starbucks capsules
    Saturated market
    Create official coffee farms
    Lack of ownership of coffee farms
    Sell coffee to a larger tea market
    Increases in the price of milk and coffee
    Expand in more countries
    Decline in consumer buying power
    Open specialized stores
    Low prices being caused by competitors
    Develop a larger tea market

    5. A few changes have been observed in Starbucks’ approach to buying process and it is still being characterised by the same process with just changes in more flexibility in product choice when receiving the ordered product.

    Factors considered by Starbucks when embarking on vertical supply chain
    1
    Turnaround time
    2
    Set up Costs
    3
    Transaction costs.
    4
    Coordination effectiveness.

    Like

  18. SANDRA MATOPE
    (Tourism and Hotel Mgt)
    20165454
    Q1. Government legislation, from the international community, that might affect Starbucks includes:
    • International tariffs and trade regulations- Starbucks is affected by this as it operates across its borders and in over 50 countries therefore high tariffs mean that Starbucks reputation and ability to import the best quality coffee beans from different countries can be compromised and this subsequently affects its global sales and its competitiveness
    • Taxation policy – tax rates differ across the different countries and there are some countries with high tax rates. High taxes may be imposed on farmers producing the coffee bean, Starbucks will have to pay a higher price when buying the bean and these fluctuations in taxation levels are passed on to the consumers resulting in the coffee`s price increasing and this will reduce the sales of the company.
    • Government stability- Political stability of countries is an important issue however this could rapidly change when there are elections (e.g. the US elections) or political instability (e.g. Egypt). This could lead to massive disruption in Starbucks operations and strategy. In a worst case scenario where Starbucks was forced to completely pull out of Israel because of such issues thus negatively affecting its strategy for expansion.
    • Legal laws- Not all countries welcome big firms because they like to protect their indigenous firms from unfair competition and takeover especially in Africa. Legal issues such as monopoly and national protectionist laws will affect Starbucks because of its size and its plan of expansion. E.g. countries like India guard against such practices with a legislation that bars external companies from owning more than 51% in a merger. The more this happens in other countries, the more Starbucks expansion plan is restricted.

    Q2. In performing a customer analysis, can we estimate the cost of lost customer?
    We can calculate customer loss by analyzing the customer retention rate; this means the number of customers that return after buying their coffee. A good retention rate means there is good customer service but if the rate is low it means customers are dissatisfies hence leading to customer loss and it is costly to lose customers. They can also conduct a research to find out the reasons why some customers are not returning by seeking for feedback from these customers so that they try to reduce post purchase dissonance for future sales. This can be estimated by monitoring the number of customers Starbucks has at the beginning of a period and compare it with the figure they have at the end of that period and then check the profit and loss account in relation to the number of customers they have that period hence they can see if they have gained or lost customers.

    Q4. Product diversification is a good strategy that can be used by a company to enter new markets and tap new customers as this increases sales and revenue. Starbucks has already exhausted this strategy; it has pursued an extensive product line strategy, creating a variety of products, beyond simply the coffee beans. Through partnerships, it now provides coffee flavor and expertise and/or its brand name to jazz music CDs, frappuccino beverages, carbonated ready-to-drink (RTD) coffee, flavored ice creams, and branded coffee sold through supermarkets. With this reputation for product diversification and creativity they remain vulnerable to the possibility that their innovation may falter over time. There are risks associated with diversifying the product which include:
    The brew and services available through various outlets may vary widely, potentially causing an adverse impact on the value of the brand name. The originality of the brand may be lost because of drifting away as the company was experiencing in the period of 2007-2008. Diversifying into new areas using the same brand name can confuse customers or convince them the company is no longer a leader in the area because it does not specialize. Another risk is maintaining and controlling quality. The quality of the products and services can be altered as the value chain has been distorted from the input to the output as the finances and labour will be distributed to a lot of aspects which will result in compromising the quality delivered to the customers. Another risk is that customers may resist this strategy and it may lead to customer loss.
    Q4. Opportunities
    i. Global expansion: While Starbucks does have many coffeehouses across the globe, most of them are located within the US. There are plenty of regions where profitably branching out is a possibility, including India and Central Europe
    ii. Introducing new products and co-branding: Starbucks products would be welcomed in supermarkets across the world, something which has already begun. Selling their own branded products in stores other than their own would be a great way to maximize the value of their big reputation.
    iii. In 2004 the company created a CD-burning service in their Santa Monica (California USA) cafe with Hewlett Packard, where customers create their own music CD

    Threats facing Starbucks
    i. Starbucks’ success can be partially attributed to the popularity of coffees, teas and convenient snacks in today’s society. If consumers were to shift away from these products (perhaps one day relying on caffeine pills instead of caffeinated beverages), it would leave Starbucks struggling to stay afloat.
    ii. Starbucks are exposed to rises in the cost of coffee and dairy products.
    iii. Since its conception in Pike Place Market, Seattle in 1971, Starbucks’ success has lead to the market entry of many competitors and copy cat brands that pose potential threats

    Q5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    The first important step of the buying decision process is the need recognition in this case for coffee. This need is triggered by the internal stimuli (thirst) and Starbucks strategically positions itself in a place that customers first think of it when the need arises.
    Information search is made easier for customers as the company extensively markets their products so that it has a competitive advantage. Hence even if the coffee at Starbucks is not actually scientifically better than the average coffee, the combination of the brand, the experience and the customer’s belief that it is probably better makes their brain actually taste it as better coffee and enjoy it more than an average coffee.
    Starbucks makes customers choose them over other alternatives because of its positioning. Since coffee is a low involvement product most of the customers decide what they what to buy when they are already in the Starbucks shop hence their decisions are easily influenced by the quality brand image.
    Purchase decision is made easy even when you are in a different city, going to Starbucks is lower risk: you know the coffee is OK (at least, or at least you think that), you know what to expect, you know they probably also have pastries and other items you may be looking for. It is a decision with lower risk than going to an unknown place that may or may not have good coffee.
    Vertical chain of supply
    Starbucks has adopted both backward and forward integration in their business strategy. The company has integrated backward by owning coffee bean farms in countries like Tanzania and Columbia, it owns bean roasting plants warehousing and distribution facilities. The company also signed contracts with coffee bean growers in the South America and Asia. Starbucks also integrated forward by owning stores that sell food, different types of beverages, coffee beans, appliances and accessories such as coffee mugs, wallets, key rings etc.

    Like

  19. TRUST TAKUDZWA GUMUNYU
    20165791
    TOURISM AND HOTEL MGMT

    Q1. The following are some of the government legislation or regulations that might affect Starbucks.
    • Taxation policy – this is critical for Starbucks since it buys its raw materials (coffee bean) from developing nations like Tanzania. This therefore means that if high taxes are imposed on farmers producing the coffee bean, Starbucks will have to pay a higher price when buying the bean and these fluctuations in taxation levels are passed on to the consumers resulting in the coffee`s price increasing and this will reduce demand for the coffee since consumers will opt to go to other competitors like McDonalds.
    • Deregulation – Some years ago, the USA pulled out of the ICA (international Coffee Agreement), this was a board that set export quotas for producing nations and kept the price of coffee fairly stable. Due to this deregulation the Coffee quotas and price controls ended therefore there has been no standardisation of prices bringing uncertainty to the farmers so some gave up in producing the seed and this has affected Starbucks since it reduced the number of its suppliers.
    • International trade regulations/tariffs – Starbucks` operations requires a lot of importing and exporting therefore, when tariffs are imposed it will mean that large income transfers can become inconsistent with equity therefore increasing the cost of operations for Starbucks due to inconsistent return on investment.
    • Government stability – It is important for Starbucks to do a thorough feasibility study before expanding into a new country because the political stability of a nation threatens business operations for example in Zimbabwe there are a lot of laws hindering foreign investment for example the indigenisation policy whereby a foreign investor should own only 49% of his company. Another issue is change in government; this change can lead to a change in taxation laws and legislation.
    • International stability – Starbucks should take note of the international economy and this brings about issues like global recession as this affects Starbucks` sales and markets. When the world market is affected, Starbucks will be affected to a greater extend since it has branches in many different nations for example the aftermath of 9/11 was an example of an economic downturn that affected the world market.
    • Employment law – This is usually experienced in the source market (raw material) for example a reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers, resulting in Starbucks purchasing cheaper raw materials. Furthermore Starbucks should consider employment laws within a country they invest into since they may be very different from those in home country so there is need to adjust to issues like minimum wage, holidays to do with religion in that country and working hours.
    • Interest rates, inflation rates and exchange rates- These two aspects are very important because if there is a rise in interest rates it means investment and expansion plans for Starbucks are put off since the cost of investment will be very high since it will be very expensive to get loans or mortgages due to rises in their repayments. On the other hand rise in inflation reduces the disposable income of consumers resulting in them resorting to other cheaper beverages since they will consider coffee as a luxury product. Starbucks is also affected by exchange rates when dealing with international trade for example If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ however exchange rates are always fluctuating.
    • Monopolies commission – due to Starbucks` continuous growth there is risk of breaking monopolies legislation since Starbucks will be too big resulting in it having unfair advantage over other companies in the same industry. The monopoly commission is there to monitor such issues in order to contain issues like Starbucks being able to charge prices that are not competitive in the market and getting away with it due to lack of competition
    • Land use – Starbucks has to abide by the local government legislation of the area its investing in order to abide by the local planning regulations when building shops or altering purchased sites because different nations have different ways of managing their land.
    Q2. In performing a customer analysis we can estimate the cost of lost customers in the sense that
    • We can try to calculate the projected profit of a customer in their lifetime through using the customer lifetime value method which is calculated as follows (average spending multiplied by number of visits per week)
    • Another good aspect is measuring the retention rate, how often a client is coming back to get service, if that customer decides to stop to come we can project the revenue we would have lost
    • Customer feedback is also important in order to realise the cost of lost customers. This feedback can be obtained from the use of suggestion boxes or even social media since some clients may highlight the services they disliked resulting in them leaving. On social media the number of followers if its declining it can reflect the cost of lost customers
    Q3. Starbucks is diversifying its product range and the number of target markets since its now venturing into tea and alcohol therefore widening its product range resulting in automatic alterations of the initial target markets. The risks associated with this strategy are:
    • It is complicated to manage the different products because they will be on different levels of the product life cycle, in this instance alcohol is at the introduction stage, tea is at the development stage and coffee is at the maturity stage.
    • Leads to rebranding and this is expensive as there are high costs in putting awareness that Starbucks is no longer has coffee only but now has other products. Furthermore its costly (advertising costs) to try to reach out to new market segments.
    • Resistance from consumers some will lose faith in the organisation as they will feel like the organisation has changed especially in the sense that Starbucks had to change its logo. People will not be familiar with the new logo or identity.
    • Quality control problems, Starbucks is widely known for its individual customer service approach, and this differentiated it from its competitors but due to the implementation of this new strategy many feel that it is now turning into a fast food facility and some of its branches have lost this customer service approach whereby it would give customized coffee cups to clients and a quiet and relaxed ambience within its facilities.
    Q4. Major Opportunities and Threats facing Starbucks
    Opportunities
    • People are now concerned about their natural environment to a greater extend therefore Starbucks` operations suit this type of clientele since it has environmentally friendly practises like the recycling of its waste.
    • Coffee is a necessity (no direct substitute)
    • Readily available source market
    Threats
    • Other competitors like McDonalds since the market is saturated
    • In house coffee machines for example Expresso coffee makers therefore people now make their own coffee and see no reason to go to Starbucks.
    • Issue of copy cat brands and these can give the original brand a bad image since they will not follow the standards of the original brand.

    Q5. In order to effectively influence the buying decision process, Starbucks:
    • Practises extensive advertising in order to increase awareness of this brand to the extent that whenever someone thinks of having coffee, Starbucks will come to mind as the outlet to get the coffee from
    • Opening as many outlets as possible, this will drive competitors away resulting in consumers only resorting to Starbucks.
    • Corporate Social Responsibility is another factor, its practising this in the sense that it attaches an additional fee on the price of products and this fee is said to be used to help farmers in developing nations by offering them financial aid. Clients will want to purchase these products since they will have satisfaction that they are also contributing in the helping of these farmers.
    • Its uniqueness is also a factor in influencing the buying decision process. Starbucks differentiated itself from other outlets through offering individual customer service and this will attract clients since they will be offered customised services which will make them feel special.
    • The long existence of the brand also influence the buying decision process of consumers since long survival in the industry gives the brand a reputable image therefore consumers trust the brand.
    Factors that Starbucks considered in creating a vertical chain of supply:
    Starbucks in order to create an effective vertical chain of supply is using vertical integration in order to manage effectively the supply of raw materials and the distribution of the coffee to customers.
    • The company is doing backward integration whereby it acquired coffee bean farms in Costa Rica and China. Furthermore Starbucks has company owned bean roasting plants and it purchased agreements with coffee growers.
    • It is also practising forward integration in the sense that the company distributes coffee through its company owned stores.

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  20. RONALD CHIKUDO
    20160477
    TOURISM AND HOSPITALITY
    Q1. GOVERNMENT LEGISLATIONS THAT MIGHT AFFECT STARBUCKS FROM THE INTERNATIONAL COMMUNITY.
    1. International Trade regulations
    • Tariff and non tariff barriers to business are likely to affect Starbucks and other trade regulations on import and export of resources.
    • When the USA pulled out of the ICA (international Coffee Agreement), a board that set export quotas for producing nations and maintaining fair coffee price, coffee quotas and price controls ended. As a result there has been no standardization of prices and these discouraged farmers. Some gave up in producing the seed and this has affected Starbucks since it reduced the number of its suppliers.
    • High tariffs discourage investment.Starbucks might be affected with high tariffs in different locations they operate in.
    • High tariffs for star bucks will lead to increase in the price of the product to compensate for the high costs, some consumers will then switch to other competitors who offer the product at lower price and there can be as well negative publicity through word of mouth or media.
    2 Employment laws.
    • Starbucks employee wage or salary structure can be affected by employment government legislation that works towards protecting the welfare of employees
    • Among other acts, USA has the Fair Labor Standards Act which sets the minimum wages a worker is supposed to earn meaning to say that Starbuck has to adhere to the wage stipulations if it’s to operate.
    • In as much as they may want to reduce cost of business through low wage/salary structure they are by the law compelled to pay equal to or higher than those stipulated to avoid negative publicity and government penalties.

    2. National Protectionist laws.
    • Protectionist laws protect local businesses from foreign giants and as Starbucks expand into various continents it is to be affected by these laws as the governments try to protect the small local companies from huge foreign investors like Starbucks.
    • Zimbabwe’s Indigenization and Economic Empowerment policy allow 49% foreign ownership among others so if Starbucks is to enter these markets it is definitely affected by such government laws in terms of company ownership and share of profit.

    3. Customer protectionist laws.
    • Nowadays awareness on food consumption and health issues has increased because of various diseases that comes through what people eat and drink. Starbucks has to ensure that it is aware of health laws set and adhere to them by all means possible. That means its coffee making process should reach local healthy standards which might take quite some energy.

    4. Taxation.
    • It is imperative that Starbucks be aware of taxation issues in countries where it wants to set up business. High taxation rates are not conducive for business and some countries tend to have high taxation rates for foreign companies which will greatly affect Starbucks business.
    • Failure to pay tax can have tremendous effects on business and the worst for the business is negative publicity as in the case of Starbuck in the United Kingdom.
    • Strabucks buys coffee bean from farmers in different locations, and if these farmers face high taxes in their business they will increase the price of the bean, which then increase the price of the coffee and some customers will switch to cheaper products.
    Q2. Customer analysis vs cost of lost customer.
    • Customer analysis can be defined as collection and evaluation of data associated with customer needs and market trends, through customer focus groups, customer satisfaction measurement, field testing among others.
    • In customer analysis the company actively measure its retention rate. Starbucks could find how many repeat visits it got. In other words, how many of your customers are rebuying your products. This analysis is then used to calculate cost of lost customer. Customer analysis allows identification of the causes of customer attrition / causes of customers switching brands. The best way to find out customer attrition is market research. Several such market researchers have been done over time and it is found that more than 50% customers are lost because of lack of attention / improper service!! 15% shift because of new / better products being launched and 15% shift because of getting cheaper products in the market. The remaining might leave the business because of shifting to a new region or locality.
    • Identify the profit lost because of lost customers – In business; it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers. For Example –Starbucks can lose one customer. If it would have given that customer an excellent service, it would have probably retained that customer for a long time. So what would have been the lifetime value of this customer? It would be huge
    Q3. There are risks associated with diversification of product range and target market and below are some of them.
    • There is a risk that the new products may cannibalize the already existing product introduced this take the sales away from the already existing product which is not the idea behind dervisifaction.
    • Product failure is another risk. Customers may be loyal to a certain product such that the new product may not be well received by customers. Customers may have that attachment with coffee such that tea might not be a priority to them.
    • New product development requires much capital. There is always a huge risk of losing more money in trying to diversify and if the product becomes a failure it means loss and lost revenue.
    • There is always a risk of entering markets where there are high entrance costs as indicated by Michael porter forces model especially if the company is to effectively establish itself amidst several competitors. Therefore a company needs to ensure that it has adequate funding at its disposal to effectively launch a product and diversify product range.
    Starbucks has also already ventured into the diversification.
    • Starbucks is already offering other beverages and food instead of just coffee only. Starbucks held a promotion for free pastries on its Face book page, allowing customers to access a coupon that would give them a free pastry with a purchase of a coffee drink. Through partnership with mobile social network Brightkite.Starbucks give its members special discounts on drinks .
    • Starbucks started offering foursquare mayors of retail stores special ‘Barista’ badges that would come with discounts on drinks and food.
    • Starbucks has been successful in diversifying from Italian sodas, the brand turned to soft drinks by launching its new FizzioHand craftted Sodas as well as Teavana.From flavored syrups, Starbucks dirvesified into traditional yet more complex flavors like spiced root beer and lemon ale.
    • Starbucks has already embarked on some of these diversification strategies and of great significance is licensing agreements which allows other companies to operate in the brand name Starbucks not only in Europe but Middle East and Africa.
    Q4. THREATS AND OPPORTUNITIES FACING STARBUCKS.
    THREATS
    • Starbucks faces competition from other companies in the same industry. For example, companies like McDonalds and others offer some of the products Starbucks offers at a cheaper price hence there is stiff competition. This means consumers that are not loyal to the brand can easily switch to competitors in search for cheaper items. There are little to none switching costs for the consumers for switching to substitutes, which makes the threat high.
    • There is also the threat from those who copy Starbuck’s business practices and name especially in China where Starbucks had to utilize intellectual property rights. Imitation of Starbucks Coffee’s business by competitors like Stars and Bucks is a major threat to business as these competitors take a huge number of customers away.
    • The forces of the external environment like global economic recession poses as a big threat to Starbucks as this is resulting in lower disposable incomes which inevitably lead to lower spending .With low income people will possibly try to buy the basics and avoid Starbucks products.
    • Legislation is changing frequently in the business world and some legislation will pose threat to Starbucks operations because unfavorable legislation may affect production.
    • According to Michael porter there is always threat of new substitutes. Substitutes could be fruit juices, water, even tea. According to the case study consumers can make their own home produced coffee with household coffee makers at low cost compared to coffee retailers like Starbucks, which means lost business on the part of Starbucks.
    • The fluctuation in world currencies affects the import of coffee beans this has a negative impact on raw material price and the price of final product. When the price of raw materials is high Starbucks will increase coffee price to cover costs which may not be well received by customers.
    • Changes in the tastes and preferences of consumers also poses as a threat to Starbucks.People are particularly conscious about their healthy these days and many are switching to healthier products like green tea which may result in shift from coffee to tea thereby affecting Starbucks revenues.
    • Natural disasters in countries where coffee beans are produced results in scarcity of raw materials and it becomes expensive which affect the price structure of the products and customers switch, for example a fungus outbreak which hit Central and South American crops had severe impacts on Starbucks.
    OPPORTUNITIES
    • Starbucks can exploit the opportunity in the trend for organic products in the market as the market for green products is now growing. Consumers are healthy conscious these days and are very particular about what they eat so Starbucks could capitalize on organic products.
    • Growing coffee culture is one of Starbucks opportunity. The company has opportunity to increase its revenues based on increasing demand for specialty coffee, which is due to a growing coffee culture and a growing middle class around the world.
    • There is room for more opportunities through partnerships for example Starbucks’ partnership with Apple where they offer app based discount coupons.
    • The company can utilize the convenience offered by mobile payment.Starbucks launched its mobile order and pay app in 2015,it made stores more efficient and pleased busy consumers who didn’t want to wait in a long line to get the products.Starbucks has the opportunity to improve its mobile apps and linked services to gain more revenues through mobile purchases.
    • Starbucks has major opportunities for global growth. There is room for growth in other markets in places like Africa where Starbucks has minimal precence. This can be achieved through license agreements and franchises. Other Starbucks Coffee’s main opportunities are in Asia, the Middle East where it diversify its product mix and come into Partnerships with other firms.
    Q5. Buying decision process
    • Consumers go through the buying decision Process before trying out a new product or brand and Starbucks uses this process through the following stages. The buying decision making process is not complex for starbucks as compared to other products. Need for recognition is an important step in the process.Starbucks is an international brand of reputation, hence such need is automatically satisfied when people purchase its products
    • Information search is an important part of the process. Usually customers do not know what kind of beverage the person might want until they get into the store. They then get Information while being at the store. Starbucks has been succesfull in store promotion through eye catching advertisement of popular or new products.
    • Alternative evaluation is an important part of the buying decision process. Starbacks has an exceptional international standard that it becomes hard to switch to other products especially for loyal customers. When all is considered consumers finally purcase .This is a result of certain considerations above that eventually leads to a purchase.
    Factors considered in creating a vertical chain of supply
    • In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that company.In 2013 Starbucks purchased a 600 acre coffee bean farm. The new farm facilitates with research and development so as to offer new hybrid coffee beans and study specific diseases that are devastating the coffee bean crops. Starbucks also has many plants across the United States that deals with coffee beans and full leaf tea.Starbucks has bean farms in Costa Rica and they have considered the quality of their raw material and sought to improve it, they are trying to grow disease resistant plants.
    • Starbucks has been in purchase agreements with coffee growers in three main growing regions that is Africa/Arabia, Latin America and Asia Pacific.
    • Education of young people to get skills of doing business as well as educating local farmers in countries where they farm coffee beans like Tanzania, Rwanda, Colombia, China and Costa Rica.
    • Starbucks take into consideration local customs and culture of people which is essential when doing business.
    • Creating work opportunities for local people within the environment they operate which is an ethical practice.
    • Starbucks considers government policies as well as forces of the external environment

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  21. NAME: EVANS PARADZAI 20166601 MBA
    ASSIGNMENT 1
    1: Government regulations that might affect Starbucks
    Government legislations affect businesses in many ways, for example the government can pass a minimum wage law as a way to protect its citizens from being exploited by employers meaning that all employers will have to abide by that bill. In the US the government passed a bill, the Fair Labor Standards act, which is a law that is critically important to Starbucks because the employees with the Starbucks retail stores have a job in which wages are paid hourly. In order to adhere to federal regulations, Starbucks must pay all of its employees at least the federally mandated minimum wage. Prior to the passage of this law, employees working for Starbucks would be paid according to what the retail store deemed fair hence this law meant changes in the payroll bill. However, since this law was passed and is federally regulated, Starbucks must always make sure their hourly employees pay equals or exceeds minimum wage standards. Such a law affects firms such as Starbucks in that it becomes limited to the number of employees to employ as they have to abide to the minimum wage bill which doesn’t consider how profitable the business might be.
    Every country has environmental laws that firms should abide by, the purpose of these laws are to protect the environment from public or private actions that could cause damage. Environmental laws are all targeted at the reduction of danger to the environment and an increase in public health and awareness. This means that Starbucks before settling in a new country should understand these laws in order to avoid huge penalties should they be found wanting if their operations are considered to be destructive to the environment either in pollution or other stated ways.
    The US government passed a law, the Americans with Disabilities Act, which greatly affects Starbucks because it is a company that prides itself on employing a diverse group of people, including those with disabilities. In order to meet their standard of employing persons with disabilities, Starbucks has to make all of their retail stores accessible to those with a disability. However, after the passage of this law, Starbucks is now federally required to provide certain accommodations for any disabled employees it hires.
    Tax laws also are of importance to Starbucks as they have an effect on their income. If the government in which Starbucks operates increases tax rates, this means that the company will be affected as a larger percentage of their income will contribute to the government. It is also of great importance for Starbucks as an international company to understand tax laws of a country before they actually settle for operations. Some countries have strict and higher tax rates for international companies as a way to protect local businesses therefore before settling in any country Starbucks should understand fully the tax laws.

    2: The cost of losing a customer
    A lost customer means lost feedback and no opportunity to improve.
    Many companies use their existing customer base to research product improvement and development. However when a firm loses customers, it also lose their opinions, advice and criticism. Also, a lost customer is unlikely to want to communicate with the firm about the reasons for their departure
    A lost customer means lost sales and revenue.
    A lost customer means sales are reducing thus the revenue declines as well. The cost of replacing this revenue is much higher than the cost of retaining the business.
    A lost customer has a negative impact on the confidence of the entire organisation.
    The loss of a significant account doest not only affects the top management, but it can also have a devastating effect on confidence and self-assurance. It can also cause doubt about the validity of Starbucks’ service fulfillment and pricing strategies.
    A lost customer demoralises sales and marketing staff.
    Customer loss can be disheartening for the sales and marketing teams in particular, and may lead to all sorts of negative introspection about the products and services they are promoting.
    A lost customer may become an opportunity for the competition.
    When a customer defects to the competition, they are able to give them all sorts of information about Starbucks’ processes and products.
    A lost customer means a distraction from other important issues.
    While an organisation is bemoaning the loss of revenue, it may also be distracted from other important business needs, such as the question of seeking and retaining new customers.
    A lost customer can be the beginning of a bad reputation.
    A company may be known for losing customers, which could hinder its ability to employ the right people. It can also degrade its image and reputation in the marketplace. There may also be a serious retail backlash as a result.
    A lost customer can have a damaging impact on sales projections, cash flow, receivables, and payables.
    The impact on cash flow and profitability goes without saying, but a lost customer can cut volume and prohibit meeting buying commitments with suppliers and vendors. It can affect stock levels as you may be left with vast holdings of a product that you cannot move.
    A lost customer can trigger spending un-budgeted funds on marketing, research and new customer acquisition.
    It will require hard work to find new business, and a company may have to spend vast amounts of money to replace a significant loss with far more accounts to cover the same volumes of purchase. Companies will end up spending a disproportionate amount to replace the same revenue.
    3: Have Starbucks diversified their product range, what are the risks associated with diversification of product range
    Starbucks, which was originally created to provide high end coffee products, has continued to diversify their business from it’s inception in order to gain a competitive advantage. In addition to the coffee products that they provide, they also offer a large variety of different beverages ranging from bottled water to soft drinks.
    Additionally, Starbucks offers breakfast options, sandwiches, and wraps to compliment their high quality coffee. As a result, by bundling and sharing these related activities, these options have enhanced revenues for Starbucks as they are able to exploit their strong, positive reputation as it relates to their coffee products, and extend it to other items that Starbucks offers.
    Starbucks went a step further in diversification by offering speciality brewing methods, craft beer and fresh food with what it calls a coffee theatre, a new outlet in central London.
    The outlet, branded as the Starbucks Reserve bar, is to be the first of the US retailer’s UK outlets to serve fresh food such as pastries, salads and sharing platters of cheeses, meats and flatbread. An evening menu will offer beer and wine.
    Risks associated with diversification for Starbucks are that;
     It may result in slowing growth in its core coffee product business activities.
     Adding bureaucratic complexity. In addition to direct financial costs, there may be additional bureaucratic complexities necessitated by the need to coordinate and control core coffee product activities with additional activities.
     Losses may be incurred during market consolidation process resulting in some business units being subsidized by other profit making units.

    4: Major opportunities and threats facing Starbucks
    Opportunities
    • Starbucks has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge.
    • As technology is continuously improving, new hardware and software can improve efficiency within Starbucks. For example, bar code payments on smart phones will reduce the payment time while customers using a touch screen ordering system will reduce the amount of employees needed.
    • Social media has improved advertising capabilities because it can reach more customers, faster and for less money.
    • Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.
    • New products and services that can be retailed in their cafes, such as Fair Trade products.
    • Coffee imports to Starbucks are currently duty-free and the quota for purchases is unlimited. These factors, in addition to minimal government interference, make purchasing coffee from suppliers easy and less-costly.

    Threats facing Starbucks

    • The growth for the market for coffee cannot be guaranteed, it is unknown whether or not the market for coffee will grow and stay in favour with customers, or whether another type of beverage or leisure activity will replace coffee in the future.
    • Since its conception in Pike Place Market, Seattle in 1971, Starbucks’ success has led to the market entry of many competitors and copy cat brands that pose potential threats
    • Starbucks are exposed to rises in the cost of coffee and dairy products.
    .
    5: How Starbucks have approached the decision buying process and the factors they have considered in creating a vertical supply chain

    The decision buying process consists of various stages that customers go through in the process of purchasing a product.

    The first stage is called need recognition; this is a stage whereby a customer realizes that he or she needs coffee or any of the products that are offered at a Starbucks retail store
    .
    After a customer recognizes the need for a product the next stage is to look for product information. In this stage the customer seeks to know the information about products, seeks from others what they think of the products. In this stage a customer might want to know from a friend whether or not they have purchased Starbucks coffee.

    The next stage is called product evaluation, here the customer knows all the products offered at Starbucks but now needs to consider which one suits them the best in terms of prices the ones that are affordable to them.

    After evaluation of the products, the customer then makes a decision as in when, where and how purchase the product. In terms of Starbucks other retail stores attract more customers than the other depending on their location.

    After purchasing, a customer makes a post purchase evaluation which is where one considers whether or not the coffee and dairy products have satisfied his or her needs. If a customer is satisfied he or she will become a regular customer and if not, the customer will go through the same process in search of the best product that suits them.

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  22. Lardmore Chitange- 20166916, Tourism and Hotel Management.
    Strategic Management Assignment: Case Study Starbucks
    Introduction.
    Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a premier roaster, marketer and retailer of specialty coffee around world. Their product mix includes roasted and handcrafted high- quality/ premium priced coffees, tea, a variety of fresh food items and other beverages. Starbucks also markets its products mix with other brand names within its portfolio of companies, which include Teavana, Tazo, Seattle’s Best coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La Boulange and Verismo.
    a) Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community that might affect Starbucks and comment on the effect it could have on this international company?
    Government legislation is law which has been promulgated by a legislature or other governing body. International community refers to a broad group of people and governments of the world. Government legislation from the international community are rules and regulations that have a direct effect to the development of businesses in a country. In this case, Starbucks is expected to adhere to the laws and regulations set by the international community.
    Government imposed tariffs and import taxes to foreign companies and as a result the price of coffee increase. Economic recession is worldwide issue and it directly affect the operation of Starbuck in any country. Exchange rate could threaten Starbucks profit as the rate fluctuate against the same price of coffee in any country.
    Healthy and safety law- government prefer to operate with companies which use right and ethical products for the production of the goods, in order to keep the people healthy and hygienic. Starbucks is expected to keep the contents of caffeine low to reduce its physiological effect on the customers.
    Brexit seen affecting global stores brands like Starbucks. Regulatory divergence grows over time increasing the cost of trade, impacting on volumes and the United Kingdom place in supply chains. Starbucks is likely to feel the impact of Britain’s exit from the European Union on their bottom line. Starbucks has the greatest exposure to the United Kingdom and Europe. It is not easy for Starbucks to expand in United Kingdom because of government legislation restrictions to foreign companies. Starbucks is also expected to comply with the British Standard Institution which promote trade, reducing waste and protecting the consumer.
    Fluctuation in trade laws- Starbucks imports coffee from 24 countries which have suitable climate and environment for the growth of coffee beans. Starbucks import coffee from Burundi, Ethiopia, Kenya, Rwanda, Tanzania and Zambia to mention but a few. The trade laws can be amended because of changes in the countries government that might affect good relationship that exist between the company and the countries.
    United States of America withdrawal from the Trans-Pacific Partnership (TPP) might affect the operation of Starbucks. Issues of regulations like intellectual property rights and allow for elimination or reduction of tariffs, making it difficult for goods to be sold in foreign markets. Trans-Pacific Partnership facilitates good government legislation laws with all the member countries. This might affect Starbuck’s strategy of expanding in other 11 member countries of TPP. The labour market of America is also going to be affected negatively.
    It is very inevitable for political issues to arise since coffee beans are grown in developing countries. Meanwhile, issues like working conditions and child labor may emanate from the system. In 2009 they opened the Farmer Support Center in Kigali, Rwanda and became the world’s largest buyer of Fair Trade Certified TM coffee. Political instability in developing countries like Rwanda affect the supply of coffee beans to Starbucks.
    Local license/ planning permission- for Starbucks to operate in a foreign country there should be a mutual agreement between the government and the company. There is a great government influence on the expansion of the company. To expand the company, they need to have a proper legal permission from the government.
    Employment Laws and regulation in most of the countries where Starbucks is operating. Starbucks is operating in different countries with different laws and regulations which protect workers and employers. The issues of violation of wages and hour laws are tarnishing the image of Starbucks in countries like California.
    Environmental laws: climate change-The great requirements of the firms on policies of recycling of the waste material which is collected in tons every day. Starbucks is trying to do the best for the environment by the use of cups which can be easily recycled or reused in every country in order to reduce global warming.
    b) In performing a customer analysis, can we estimate the cost of lost customers?
    Customer analysis is a very important process of identifying viability and performance of products in the market. We can estimate the cost of lost customers by using profit ratio accounting system. Statistics can be obtained from recording cost and expenses of delivering a product to the customers and the revenue generated. They are many factors which contribute to the loss of customers for instance, In United Kingdom Starbucks is losing its reputation because of violating tax evasion laws or degrading of individual service. This act is breaching of customer trust, the value that had been created by Starbucks brand was tarnished.
    Starbucks should analyse feedback from customers in order to identify customer retention level. It is easy to loss customer because of negative word of mouth. There will be loss of revenue through customers who defects and prefer competitors. Competitors market share increases. Loss of customers can affect the sales levels, relationship with suppliers and also affect stock levels.
    Market research can be implemented to identify potential customers by looking at the needs of a specific target market and how best the organization can satisfy the market. The concept of opportunity cost is essential to identify customers who add value to the company. Starbucks estimated a number of cost factors that may come with losing a loyal customer base. Market research helps organization to deliver products and services that satisfy customers by reducing the gap between customer expectations and the actual service delivery or customer experience.
    Customer lifetime value method is used by Starbucks to project revenue that a customer will generate during their lifetime. In this case, if we calculate the average spending of a Starbucks customer multiplied by the number of visits per week, we obtain that this customer will bring Starbucks profit in their lifetime. This system will help us to estimate the cost of lost customer by keeping customer purchasing database.
    Customer relationship management- is put in place to track and strengthen customer relationships. At Starbucks the membership card plays a role in tracking the number of sales per customer and helps determine whether it is worth investing in keeping this customer or not. This method of creating membership card helps to identify the purchasing behaviour of Starbucks customers. This can be used to measure and estimate the cost of lost customer.
    Starbucks mobile app through which customers could pay at Starbucks- within a year Starbucks handled 20 million transactions in total. This application is very vital for obtaining statistical data for customer analysis. It helps to identify regular customers and to improve customer care by providing personalized services.
    However, it is essential for companies to adopt these methods of identifying the customer purchasing behaviour for estimating the cost of lost customers and also consider all these factors in customer analysis.
    c) One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    The business has been pursuing a long-term strategy of diversifying its core offering beyond beverages; this is designed to help differentiate the brand, which is very important considering coffee is almost a commodity. To add a feather on the cap, United States Starbucks is now serving La Boulange pastries-a bakery that the firm acquired for $100 million and Evolution Harvest granola Bars- again acquired for a tasty $30 million. In the United Kingdom Starbucks has launched a new food range, with the ‘Duffin’ doughnut/ muffin hybrid serving as the flagship product. The above information shows that Starbucks embraces the strategy of diversity by acquiring different units which are offering different products.
    Diversification is an ongoing process which cannot be fully exhausted because of internal and external factors that affect the success of every business. Furthermore, it is very essential to analyse Starbucks product diversification by using Ansoff Matrix which shows the four ways a firm can increase sales.
    1. Market penetration- Starbucks have stated writing names of customers on coffee cups
    2. Product development- Starbucks introducing a new premium coffee made with rare and exclusive beans.
    3. Market development – Starbucks are a great example of this by having coffee shops all over the world.
    4. Diversification- Starbuck’s plans to launch a new food range is a diversification strategy because the firm is using a new product to tap into a new market for meals.
    There are many risks associated by diversifying products in different target market. Starbucks considered these factors which affect the success of new products in the market.
    Brand damage- Starbucks is well known by selling coffee and created a reputable brand name. Starbucks created brand image and identity by positioning the product in the mind of the customers. It is a risk to introduce or launch other products in the market using the same brand. The process will tarnish the brand name if one product fails to meet the needs of the customers.
    Operational stress – new products and services in the market attracts new skills and education in order to meet the Starbucks standard. The company’s attention can be easily shifted from selling coffee to other products like snacks. Sometimes customers might be confused to attach the coffee brand to other products like tea and beer.
    Starbucks should also consider the cost of entering in the target market. More research and development cost can incur through feasibility study and sampling the market. Some business aspects must be taken into consideration as a risk measure because of technological advancement, human resources development, marketing strategies, capital or finance and production.
    However, it is also an advantage to Starbucks to use the same brand name to all the products for maximizing sales and increase market share.
    d) What are the major opportunities and threats facing Starbucks?
    Opportunities
    Brand extension- The brand image is used to launch new products like pastry and other snacks to customers to increase product portfolio. The strength of Starbucks lies in their brand and by enhancing the connection to their loyal customers, they can test the market by introducing new products. It is an opportunity for them to grow and expand to other potential market.
    Technological advances-There is a room for Starbucks to create new value innovation by enhancing the customer experience through investing in online content and interactivity.
    Starbucks has leveraged the use of mobile applications and has an investment partnership with Square, a mobile payments app that is integrated with its Starbucks app. This creates an ease of use process for customers, aligns customer loyalty through reward programs. Starbucks has already set the bar in the industry with this advancement and about 10% of its transactions in the US have been made using mobile applications.This is a growing field and would drive more business to their stores as technology

    New distribution channel- Starbucks discovered new distribution channels to enhance efficiency and effectiveness in delivering products/ services to the customers. Starbucks introduced a better version of a delivery system called Mobile Pour. This presents a great opportunity for the future by expanding their end product distribution systems and could drive more revenue if the implementation is successful

    Expansion of retailer operations- Starbucks is also opening stores in small villages in United States as a way of increasing their market share. Starbucks currently sell its packed coffee products, iced beverages and merchandizes through large box retailers. This market’s potential is yet to be fully realized and this provides Starbucks great opportunities for the future to future monetizes their brand.

    Expanding Products mix and offerings- Starbucks offers services to all customers, those who spend some time in the shop and continue on their way. Personalized services increase customer’s satisfaction. Starbucks recently started to expand their product mix by venturing into the Tea and fresh juice products offering with a smart acquisition strategy. This provides significant opportunities for Starbucks.
    Expansion into emerging markets- The increase saturation and self-cannibalization of the US market makes its international strategy even more important. Starbucks has made good inroad into many countries, with India recently joining the list with a joint venture entry. Starbucks has a great growth potential in further expanding into the emerging and developing markets. They can leverage their size, experience, financial prowess and efficiencies to make new market share.

    Threats
    Increased competition-Threat of new entrants’ industry competitors. New players in the field are posing threats to Starbucks such as McDonalds, Caffee Nero, Pret a Manger, Dunkin Brands, Costa Coffee and Pete’s Coffee. Other companies with different business model are imposing threat because the coffee market is changing for example McDonalds created the McCafe Line and Peets has also increased presence in the market as well.
    Price capriciousness in the global coffee market- Pricing is another issue which is a threat to the development of Starbucks. Some customers are sensitive to high prices of coffee especially in China. There has be significant fluctuations in the market prices of high quality coffee beans, which Starbucks can’t control.

    Threat of substitute products or services in the market- There is an increase of people who are taking tea, fruit juices, water, sodas and energy drinks instead of coffee. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks. The threat of substitutes is low, because coffee is always going to be a desired drink and pastime of choice. Starbucks is now perceived as a fast food outlet because some customers felt neglected as the company expand its operation.
    The bargaining power of suppliers is high because of the natural resources needed to create their ingredients and Starbucks believes in finding fair trade and high quality beans, often from other countries. These specifications limit the number of suppliers.
    Developed countries economy- In an increasingly economically integrated world, an economic crisis like what we are experiencing now could have a trickledown effect from the developed markets to the developing markets. This threat would hurt revenues for Starbucks as consumers shift away from premium product mix to stay in limited budgets during economic hardships

    Developed countries market saturation- Starbucks derives a significant amount of its revenue from the development markets and there is increased market saturation currently.

    Changing consumer tastes, healthy and lifestyle choices- There is an expected shift towards healthy eating and diet among the consumers and the risk of coffee culture being just a fad represent a threat for Starbucks going into the future. This could be a potential threat to the industry as they become more aware of issues related to weight and obesity. There has been a proactive shift among the industry participants to tailor their menus towards more organic and healthy products mix.
    e) With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Starbucks buys and roasts all its own coffee and sells it through entirely company-owned stores. The company is immensely vertically integrated for one purpose alone, maintaining perfect quality throughout the value chain. Starbucks is able to ensure a constant supply of coffee beans at a cheaper price with the farms it purchased.
    Starbucks has successfully integrated backwards through:
    1. Purchase Agreements with Coffee Growers- agreements with growers in three main growing regions namely Africa/Arabia, Latin America and Asia Pacific.
    2. Company Owned Bean Roasting Plants
    3. Company Owned Warehouse and Distribution Facilities
    4. Coffee Bean Farm in Costa Rica and China
    Starbucks has successfully integrated forward through its company owned stores that sell food, drink, coffee beans, appliances and accessories.
    Starbucks, with its size and scale, has the power to take advantage of its suppliers but it maintains a Fair trade certified coffee under its coffee and farmer equity (C.A.F.E) program, which gives its suppliers a fair partnership status, which yields them some moderately low power.
    Starbucks main strategies of participating in the improvement of coffee and tea farmer’s lives is their priority together with saving the environment through more eco-friendly stores, reducing water consumption or serving coffee in recyclable cups. Starbucks help their stakeholders especially farmers through Corporate Social Responsibility to enhance good relationship with suppliers of coffee beans.
    Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of high quality coffee beans. Starbucks could mitigate this price volatility risks by implementing an effective hedging strategy like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a greater extent.
    Starbucks assesses, its resources constraints, limits and operating capabilities in developing vertical integration strategy. Deciding among vertical integration requires consideration of three sets of factors which are capabilities/ resources, coordination requirements and strategic control and risks.
    External and internal factors considered by Starbucks in vertical supply chain are environmental uncertainty and information technology. Company environment is also related to the company’s expectations of quality, on time delivery, competition in the sector and the level of rivalry among firms.
    Government support – it is important to consider the level of support that the company receives from the government when importing raw materials from overseas. Government regulation, policies and laws of international trade especially exchange rates, tariffs and administrative practices.
    Technological advancement- the use of information technology allows to facilitate data transfer and communication between the trading parts which are Starbucks, suppliers and manufacturers and distributor. Starbucks considered ways of using technology in purchasing, and planning as well as marketing the products to the customers.

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  23. Caelleen Sapita
    20158012
    MBA
    An external environment is composed of all outside factors or influences that impact the operation or performance of a business. The assignment below will look at the external environment analysis using a case study of Starbucks Corporation which has restaurants (Coffeehouses) in 75 countries. Starbucks is currently the leading retail coffee market through selling their coffee for a premium price to increase their profitability.
    What are the major opportunities and threats facing Starbucks?

    One of the threats Starbucks faces is increased competition. This is by far the biggest threat that Starbucks faces with the market being at a mature stage, there is increased pressure on Starbucks from its competitors like Dunkin Brands, McDonalds, Costa Coffee, Pete’s Coffee and Caribou Coffee. Dunkin Brands had at its main threat in the US market by trailing Starbucks with a 24.6% share. Additionally, low-cost coffee from firms like McDonald’s and Dunkin’ Donuts effectively compete against the more pricey Starbucks products. As a result of pricey products, customers end up buying substitute products offered by the above competitors, that is McDonald’s and Dunkin Donuts.
    Starbucks whole bean coffees compete directly against specialty coffees sold through supermarkets, specialty retailers and a growing number of specialty coffee stores. Both their whole bean coffees and coffee beverages compete indirectly against all other coffees on the market. Starbucks Specialty Operations face significant competition from established wholesale and mail order suppliers, some of whom have greater financial and marketing resources than the Company. Starbucks faces intense competition from both restaurants and other specialty retailers for prime retail locations and qualified personnel to operate both new and existing stores. The intensity of rivalry increases as businesses try to improve their position in the industry. In order to gain new customers, competitors may reduce prices, introduce new products or substitutes, and increase marketing efforts. For example, on February 26, 2008, Starbucks closed its operations for several hours across the board to conduct employee training. Dunkin Donuts took advantage of this opportunity to gain new customers. Dunkin Donuts offered a small latte, cappuccino or espresso drink for 99 cents from 1 p.m. to 10 p.m. during Starbucks’ shutdown.
    Imitation is also a main threat to Starbucks Coffee’s business. Many competitors have already imitated Starbucks and succeeded, such as Stars and Bucks, a coffeehouse in the Palestinian Territories.
    There is also the threat of new substitutes. There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, water, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks. 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 is 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 their the margins.
    Opportunities
    Growing coffee culture is one of Starbucks opportunity. The company has opportunity to increase its revenues based on increasing demand for specialty coffee, which is due to a growing coffee culture and a growing middle class around the world.
    Starbucks experiences technological external factors in its remote/macro-environment. These technological opportunities include rising mobile purchases and technology transfers to coffee farmers use. Starbucks has the opportunity to improve its mobile apps and linked services to gain more revenues through mobile purchases. The company also has the opportunity to improve its supply chain efficiency based on new technologies coffee farmers use. However, the rising availability of home-use specialty coffee machines is a threat to Starbucks because it increases the availability of substitutes to Starbucks products.
    Starbucks also experiences political external factors in its remote/macro-environment Regional integration of markets and improving governmental support for infrastructure. Regional integration is a current trend and external factor that presents an opportunity for Starbucks to globally expand. Also, most governments around the world are improving infrastructure, which creates the opportunity for Starbucks to access more markets or suppliers. However, bureaucratic red tape persists in most countries. This external factor is a threat because it makes business expansion more difficult for Starbucks, especially in developing countries.
    Still on opportunities, Starbucks also faces some legal external factors in its remote/macro-environment. These include product safety regulations and GMO regulations outside the United States. Starbucks has opportunities to improve its performance by satisfying product safety regulations and regulations on ingredients from genetically modified organisms (GMOs). Starbucks is already performing well in these aspects. However, increasing employment regulation, especially in developing countries, threatens Starbucks Coffee’s access to the labor market. This external factor also impacts Starbucks through increased spending for human resources. Thus, in this aspect, the identified external factors present mostly opportunities for Starbucks Coffee.
    Other Starbucks Coffee’s main opportunities are, Expansion in Asia, the Middle East, and Africa, diversification of product mix and Partnerships or alliances with other firms. Starbucks has the opportunity to expand in the Middle East and Africa, where the firm currently has minimal presence. The company also has the opportunity to expand in Asia, where economic growth rates are high. In addition, even though Starbucks already has a considerably diverse product mix, further diversification can help improve its competitive advantage. Partnerships and alliances can also strengthen Starbucks Coffee’s competitive position. This part of the SWOT analysis shows that Starbucks has major opportunities for global growth.
    In performing a customer analysis, can we estimate the cost of lost customer?

    On the customer analysis of Starbucks, the demographic segmentation’s main group is between 25 and 40 years of age with high incomes, the second target group is 18 to 24 year of age and belongs to richer families. In general, the customers belong to the Generation Y born between 1977 and 2000; this is where most profit is made as claimed by Fromm (2014). Psychographic segmentation indicates that customers belong to the upper-middle class and generally have college education (Rafii, 2013). When targeting, Starbucks is situated between mass marketing and segment marketing; they are targeting a broader public; however, there are some criteria that the customers should have, such as higher incomes or a younger age.Other types of segments are based on the type of drinks consumed, bulk coffee purchases and food purchase behavior
    When Starbucks launched its mobile order and pay app in 2015, the hope was that it would make stores more efficient and please busy consumers who didn’t want to wait in a long line to tell someone they wanted a Venti iced chai with almond milk.But now that more and more caffeine addicts are actually using the app to order in advance, it is leading to a logjam of orders for baristas.The long lines at peak hours are scaring off some customers who would have already placed their order.”This congestion resulted in some number of customers who either entered the store or considered visiting a Starbucks store and then did not complete a transaction thereby leading to the loss of customers. CEO Howard Schultz said that there were a growing number of stores being challenged to keep up with the increased volume demands from mobile ordering. As a result,Starbucks share fell by 4 % because sales growth in US stores failed to meet Wall Street’s expectations.

    There is also need to perform customer feedback. If you listen to your customers in good times, bad times will never come. This is performed to know what the customer wants. Several companies have third parties employed permanently which deals in mainly customer feedback. Customer feedback also helps in delivering quality services and products.

    One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?

    Starbucks has a diversified product range. The company has always sold Italian sodas, lightly flavored with a shot of any syrup they have on tap, but they were never specifically branded or capitalized on before. But as Starbucks continues its plans to diversify its offerings, the brand has turned to soft drinks by launching its new FizzioHandcraftted Sodas line alongside its Teavana iced teas as the centerpiece of its Summer 2014 season. Instead of relying on its usual stable of flavor syrups, Starbucks has put the time and effort into creating traditional yet more complex flavors like spiced root beer and lemon ale especially for the Fizzioline. With soft drink sales in decline for major brands like Coca-Cola and Pepsi, this may seem like a counterintuitive move on the part of Starbucks.

    Product diversification is a high risk strategy, so it’s important to assess both the opportunity and the level of risk. Focus on product diversification that represents an attractive opportunity for your business, such as an instance where the market is growing and no other company is meeting the demand. Provided the costs of developing and marketing the new product allow you to earn a profit, this is an opportunity to pursue. Risk increases if the new product might take sales away from your existing products or if the cost of market entry is very high. In those scenarios, the benefit to your company may not offset the risk.

    Starbucks also has a diversified number of target markets. They target adults, young adults, kids and teens.Starbucks’ primary target market is men and women aged 25 to 40. They account for almost half (49 percent) of its total business. Starbucks’ appeal to this consumer age group through hip, contemporary design that is consistent in its advertising and decor, and working to keep its products current as status symbols. Customers tend to be urbanites with relatively high income, professional careers and a focus on social welfare. This target audience grows at a rate of 3 percent annually. Young adults, aged 18 to 24, total 40 percent of Starbucks’ sales. Starbucks positions itself as a place college students can hang out, study, write term papers and meet people. Starbucks appeals to this consumer directly through introducing technology as soon as it becomes available, focusing on social networking and actively cultivating a “cool” image. The young adult audience grows 4.6 percent each year. Kids and teens are also a large part of Starbucks’ target audience. Together, customers age 13 to 17 account for just 2 percent of Starbucks’ sales, but most items for kids are purchased by the parents. Whether the focus is on the steamed milk that Starbucks’ baristas refer to as “babyccinos” or the sugary, caffeinated, whipped cream topped coffee drinks that are so popular with teenagers, kids and teens form a large part of Starbucks business. Kids go there with their parents; both mother and child leave with cup in hand. Teens meanwhile use Starbucks as a place to hang out with friends or study. Starbucks may not cater directly to kids (and risk criticism about the high calorie and caffeine content of some of its drinks) but it does make its products kid-friendly, offering special child sizes for instance.
    With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?

    The consumer buying decision Process is what every single customer goes through before trying out a new product or brand and Starbucks uses this process through the following stages.Since Starbucks sells beverages and food, the buying decision making process is not as complex as it would be when buying a house or car. The first stage that would lead a costumer into a Starbucks store is the need recognition of coffee. Since Starbucks belongs to one of the top coffee brands, people will automatically think of the company when it comes to satisfy the need. The second stage is information search. Because Starbucks belongs to the low-involvement product purchases, the customer does not exactly know what kind of beverage the person might want until he/she gets into the store. Therefore, Information search takes place while being at the store. The coffee brand provides in store promotion by eye catching advertisement of popular or new products (drinks or food) or having programs such as “one free coffee day” / “happy hours” to promote their coffee.After being in one of Starbucks coffee houses, the customer will quickly notice the unique ambient that the store offers. Starbucks comes out on top when it involves alternative evaluation most of the time because of their unique experience. Starbucks is able to build up human contact through their employees. Those try to make the customer feel good about being at Starbucks. Not for nothing Starbucks is considered as a high prestige-brand.The next stage is purchasing. The customer decides to purchase coffee or other beverages by the time he/she stepped into the store.

    In creating a vertical chain of supply, Starbucks have considered factors like purchase agreements with coffee growers, having a coffee farm and roasting and warehousing plants. The company has agreements with coffee growers in three main growing regions that isAfrica/Arabia, Latin America and Asia Pacific. Also in 2013 Starbucks purchased a 600 acre coffee bean farm. The new farm facilitates with research and development so as to offer new hybrid coffee beans and study specific diseases that are devastating the coffee bean crops. Starbucks also has many plants across the United States that deals with coffee beans and full leaf tea.

    Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.

    There are some government legislation from the international community that may affect Starbucks. For example, in the United States, a primary agency affecting Starbucks’ commodity chain is the United States Department of Agriculture. Due to the agricultural nature of Starbucks’ imports, the USDA makes sure that all imported agricultural products shipped to the United States from abroad meet the Agency’s entry requirements to exclude pests and diseases of agriculture. Failure to comply with government regulations could have a number of social consequences for the company. A major consequence would impact company profits in the form of fines, legal fees, and on a much broader scale, damage to the brand reputation.

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  24. Petronella Kawondera
    20158013
    MBA
    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Starbucks is headquartered in the United States, but also has to be aware of regulatory laws of each country it operates in. In addition to the financial regulations of a multinational corporation, Starbucks must comply with local “trade, labor, healthcare, privacy, food, anti-bribery and corruption, and merchandise laws”
    The Fair Labor Standards Act, is critically important to Starbucks because the employees with the Starbucks retail stores have a job in which wages are paid hourly. In order to adhere to federal regulations, Starbucks must pay all of its employees at least the federally mandated minimum wage. While Starbucks itself was not in operation prior to the passage of this law, if it were, employees working in the retail stores could have been paid any wage that Starbucks deemed fair for such a position. However, since this law was passed and is federally regulated, Starbucks must always make sure their hourly employees pay equals or exceeds minimum wage standards. This is extremely important for both Starbucks and its employees. If Starbucks failed to meet the federal regulations, not only could their reputation be damaged, but they could also face severe penalties from the federal government. This law helps protect Starbucks hourly-wage employees, providing them a guaranteed amount of hourly pay and federal protection to support them should their employer not cooperate by the law.
    The Americans with Disabilities Act, greatly affects Starbucks because it is a company that prides itself on employing a diverse group of people, including those with disabilities. In order to meet their standard of employing persons with disabilities, Starbucks has to make all of their retail stores accessible to those with a disability. Prior to the passage of this law, Starbucks may have taken it upon themselves to provide certain accommodations for people with disabilities, especially in order to attract disabled customers, but it would not have been required to do so. However, after the passage of this law, Starbucks is now federally required to provide certain accommodations for any disabled employees it hires. In doing so, Starbucks could actually position itself as a more accessible location for consumers with disabilities to patronize as well as a company that caters to the needs of potential disabled workers, which could make the Human Resources recruitment efforts stronger.

    In the United States, a primary agency affecting Starbucks’ commodity chain is the United StatesDepartment of Agriculture. Due to the agricultural nature of Starbucks’ imports, the USDA “makes sure that all imported agricultural products shipped to the United States from abroad meet the Agency’s entry requirements to exclude pests and diseases of agriculture” (“Import Export”). Failure to comply with government regulations could have a number of social consequences for the company. A major consequence would impact company profits in the form of fines, legal fees, and on a much broader scale, damage to the brand reputation.
    Regulatory Laws
    Regulatory laws are standards that affect how businesses operate in specific situations. While most business laws are regulatory in some way, there are several categories of legislation that apply more to certain industries than others. These include environmental laws and building code laws set forth by both the federal government and state governments. There are also regulatory laws for international trade and most types of business licensing.
    Labor Laws
    Labor laws are regulations that pertain directly to how businesses treat employees. These laws include minimum wage regulations, wage garnishment rules and worker protection rules, such as the Migrant and Seasonal Agricultural Worker Protection Act. Labor laws also includes older laws, such as Child Labor Protection acts and Occupational Safety and Health rules. States also have laws for employee insurance and benefit programs.
    Tax Laws
    Tax laws control how a business must report its financial status to the government. The IRS, for example, specifies many different methods that businesses must use when reporting income and expenses. The accrual method of accounting is required for businesses over a certain size and depreciation schedules must be chosen from a limited number of options, and additional methods have their own regulations. Many of these laws are in accordance with generally accepted accounting principles, but some are notable deviations, such as government-allowed depreciation schedules.
    Complying with government regulations has a positive social impact on employees at all levels from harvesting beans in the field to brewing cups of coffee in retail stores because they enjoy a healthy, safe work environment protected by labor laws. Government regulation is an important step in the commodity chain that ensures not only food safety as it’s imported and exported around the world, but worker safety as well.
    Some of these employment laws are not exactly new but they have had profound effects on the way in which Starbucks must operate. Not only do they require Starbucks to abide by and stay abreast with federal regulations, but they can greatly affect the expenses incurred by the business.
    2. In performing a customer analysis, can we estimate the cost of lost customer?
    Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers?
    1 – The company should actively measure its retention rate. You consider factors like how many of your customers are rebuying your products?
    2 – Identify the causes of customer attrition / causes of customers switching brands. The best way to find out customer attrition is market research. Several such market researches have been done over time and it is found that more than 50% customers are lost because of lack of attention / improper service!! 15% shift because of new / better products being launched and 15% shift because of getting cheaper products in the market. The remaining might leave the business because of shifting to a new region or locality.
    3 – Identify the profit lost because of lost customers – In business, it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers.
    4 – The company needs to find out what will be the cost to bring back these lost customers. In other words, what is the cost of lessening the defection rate? If the cost of lessening defection rate is more than the profit, then there is no use in going ahead with the retention plan. Thus the company needs retention plans which are low in cost and high in profits. Generally sales promotion / updating their customer service does the trick for such companies. Both these methods are low on cost and high on profit.
    5 – Customer feedback- If you listen to your customers in good times, bad times will never come. This is because you will be ahead of your market just by knowing what the customer wants. Several companies have third parties employed permanently which deals in mainly customer feedback.
    By these five measures, Starbucks can find out what is it that the customer is missing, and thereby how to lessen the defection rate of your company. Once they gain back these lost customers, their profits goes up and the cost of lost customers goes down.

    3. One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Starbucks has diversified and the challenge is that it is a massive brand that was well known for selling one product. Also sometimes customers think that Starbucks is only aiming for high profits instead of preserving the friendly relationship.
    Starbucks made a major move toward diversification by finalizing its acquisition of the Atlanta-based retail chain Teavana.Starbucks has turned to soft drinks by launching its new Fizzio Handcraftted Sodas line alongside its Teavana iced teas.
    Starbucks locations serve hot and cold drinks, whole-bean coffee, micro ground instant coffee known as VIA, espresso, caffe latte, full- and loose-leaf teas including Teavana tea products. Evolution Fresh juices, Frappuccino beverages, La Boulange pastries, and snacks including items such as chips and crackers; some offerings (including their annual fall launch of the Pumpkin Spice Latte) are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drinkware including mugs and tumblers; select “Starbucks Evenings” locations offer beer, wine, and appetizers. Starbucks-brand coffee, ice cream, and bottled cold coffee drinks are also sold at grocery stores.
    Starbucks has strategies for fighting these risks. Starbucks does have various marketing strategies which generally rely on customer loyalty and word of mouth or the ethical considerations of the company along with involvement in the community. These include utilizing partnerships and acquisitions with other companies and assuring the consumers that they still value them and they will always have them at heart.

    4.What are the major opportunities and threats facing Starbucks?
    Opportunities
    ◾The Company has an opportunity to expand its supplier network and expand the range of suppliers from whom it sources in order to diversify its sources of inputs. Further, this would also help the company in becoming less sensitive to the prices of coffee beans and make it resilient against supply chain risks.
    ◾The company has a huge opportunity waiting for it as far as its expansion into the emerging markets is concerned. With a billion consumers likely to join the pool of those who want instant coffee and breakfast in China and India, the company can expand into these countries and other emerging markets, which represents a lucrative opportunity for the taking.
    ◾Starbucks also has the opportunity to expand its product offerings to take on the full spectrum food and beverage retailers like McDonald’s and Burger King as the consumer segment which these retailers target is expanding leading to more business opportunities for Starbucks to take advantage of.
    ◾The company can significantly expand its network of retail stores in the United States as part of its push towards greater market share and more consumer segments. This opportunity ties in with the other opportunities described above related to the expansion into newer markets, diversifying into newer consumer segments, and increasing its footprint across the US and globally.
    Threats
    ◾Starbucks faces threats from the rising prices of coffee beans and is subject to supply chain risks related to fluctuations in the prices of this key input. Further, the increase in the prices of dairy products impacts the company adversely leading to another threat to its profitability.
    ◾Starbucks is beset with trademark and copyright infringements from lesser-known rivals who wish to piggyback on its success. As with other multinational retailers in the emerging markets, Starbucks has fought litigation against those misusing its brand and famous logo.
    ◾Starbucks faces intense competition from local coffeehouses and specialty stores that give the company a run for its money as far as niche consumer segments are concerned. In other words, the company faces a tough challenge from local stores that are patronized by a loyal clientele, which is not enamoured of big brands.
    ◾Starbucks has to expand into emerging markets as a necessity as the developed markets that it has traditionally relied on are saturated and given the fact that the ongoing recession has made the going tough for many retailers, it faces significant threats from this aspect.
    ◾Finally, as mentioned earlier, Starbucks faces significant challenges because of its global supply chain and is subject to disruptions in the supply chain because of any reason related to either global or local conditions.
    5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Starbucks ensures its supplier make reasonable profit so that they can meet company’s corporate standards and expectations which include environmental policies such as excessive packaging, energy conservation and farming methods and employee benefits.
    Dairy, paper products, Coffee are the major inputs into the Starbucks operation. It is fully dependant on its supply of coffee ad demands a high quality bean thus it has developed various programs in the development of farmers and coffee producing regions. Starbucks also grows its supply base as it grows its retail base and to keep its supplies in business and loyal it pays a premium to ensure this.
    Starbucks’ global supply chain of coffee is divided into 3 main steps: production, packaging, and distribution. These steps were strategically engineered for cost cutting, operational efficiency and profits. Production, or coffee cultivation occurs in countries across the equatorial belt to capitalize on optimal climate condition, while Starbucks has over 40,000 coffee suppliers from various regions and countries such as Columbia, Rwanda, China and Mexico.
    Upon harvesting, the coffee beans are sent for processing and packaging. The numerous processing plants are located strategically around the world to service Starbucks’ regional retailers in Asia, Europe and the U. S. Starbucks adopts a 3-step processing rule: storage and handling, roasting and packaging, and dispatch. Coffee beans deposited in the plants are separated by type, before being roasted, cooled, ground and sent for packaging.
    Due to a potential hold-up and moral hazard problem that leads to high transaction cost, it is inefficient for Starbucks to outsource bean roasting. Since Starbucks values the quality of their product at the highest priority and “considers the roasting of its coffee beans to be an art form” they have strict and high standards for their quality checks. More specifically, they use a blood-cell analyzer to test color of the beans. This requires a high degree of asset specificity such that other companies do not require this equipment to check the quality of their roasted beans and leads to a potential hold-up problem.

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  25. GORAN Y ISMAEL
    Student number (20168924)
    Department (Innovation and knowledge management)
    Profesor // karen Howells

    (Q1) / Governmental legislation that might have an effect on Starbucks are;
    • Customs and trade regulation: These regulations had limited sources from which Starbucks can buy its raw materials (coffee). Such implied that the choice to buy from cheaper providers was now limited and measures to control costs through controlling purchasing costs were now difficult.
    • Employment laws: Though employment laws are meant to protect employees, they tend to affect the viability of organizations such as Starbucks. This is because employment laws try to ensure that employees are adequately paid and are not being exploited. Such however, tend to reduce profits and productivity respectively as costs increase and less time can be expended to produce coffee.
    • Product regulations: Coffee products are required by law to be produced under certain standards. These standards have an effect on quality and quantity. Quality and quantity restrictions have a strong negative implication on profitability through reduction in sales margin per unit as well the number of customers.
    (Q2) / In performing a customer analysis, can we estimate the cost of lost customer.
    (Q3) / One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Sometimes getting outside of what you do best isn’t a good strategy. But let’s look at an example of Starbucks.
    According to Investopedia website, “a technique that reduces risk by allocating investments among various financial instruments, industries and other categories is known as diversification. Diversification is the most important component of reaching long-term financial goals while minimizing risk” (“Investopedia”, 2011). “Fundamentally, this strategy is about creating new products with new product life cycles and making existing ones obsolete” (Olsen, n.d.). With diversification, Starbucks would be able to enter new markets with new products. By having a diversification strategy enforced, this will create a path for effective growth for the business. As with any company considering new products in new markets, there are risks associated with it and Starbucks would need to be prepared to respond accordingly.
    With diversification, Starbucks will have the opportunity to increase its growth. Also, this strategy will permit the company to add related or either unrelated products to its existing business. This will be the opportunity the company needs in order to expand its products, by offering new items to its customers. If Starbucks is considering to diversify, it’s essential to adopt a strategy that is fitting for the company. Starbucks recognized the fact that it could sell not only coffee, but also breakfast pastries, other breakfast items, light lunches, sweet snacks and healthy options for kids.
    The key is not straying too far from what you do best. Any of the food items that Starbucks now offers are complimentary to a cup of coffee or tea.
    The lesson learned is that while diversification isn’t always the best option for your brand, offering complementary products or services may give you increased opportunity for revenue. Diversification has the potential to rapidly grow sales. Particularly for Starbucks, the new food range can become a major source of revenue. Sales of food items have been flat for the past three years, however the coffee chain is aiming to increase sales by 30%. Food items also help increase the spend per customer in store, which is important for coffee outlets that are limited by the amount of customers that can be seated. Therefore this is a more efficient strategy than increasing the amount of consumers visiting Starbucks.
    (Q4) / Opportunities that are facing Starbucks are;
    A. ability to make capsules for local machines
    B. ability to improve customers’ in-store experience
    C. access to huge coffee farms
    D. can expand into a big coffee market
    E. growing sales base
    F. open specialised stores
    G. can enter into international markets.
    *Threats that are facing Starbucks are;
    A. the market is getting saturated
    B. increase in milk and coffee prices
    C. loss of consumer buying power
    D. falling prices as a result of increased competition
    F. increase in sales of coffee machines for home use
    (Q5) / 1. Purchase Agreements with Coffee Growers..
    2. Company Owned Bean Roasting Plants.
    3. Company Owned Warehousing & Distribution Facilities.
    4. Coffee Bean Farm in Costa Rica & China
    Forward Integration
    Starbucks has successfully integrated backwards through its company owned stores that sell food, drink, coffee beans, appliances and accessories.

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  26. Raja El-Majzoub, 20168944 (MBA)
    1. First of all, always our governments will put us under a risk because of new regulations and rules , for example today in Lebanon the government edited the law of taxing , increasing 10% in everything, so this will affect the demand and supply on the market places.
    Starbucks is a trustful coffee shop and unique taste but it will be different from one country to another because of the culture, society, what is the customer need…
    Legislation is usually proposed by a member of the legislature (e.g. a member of Congress or Parliament), or by the executive.
    In Muslim societies Starbucks will be different from Civil societies or Christian societies like Vatican because it will effect on the demand of the customers.
    Government 90% will make new regulations that will be on the benefit for the income of the country that will a threat for the international companies to continue it is business under the rules and regulations, but sometimes it will be an opportunity for them to show the governments it is a trustful company that will open the border for it to have more branches.
    Second, I will mention some rules that affected Starbucks from the case study:
    1. The last environmental factor affecting the nature of industry competition during the era of Starbucks’ founding was the market growth rate, which for retail specialty coffee was 6% in North America in 1987. (Specialty Coffee Association of America, 1988)
    2. The second unique initiative that the Starbucks’ corporate team implemented was an employee stock ownership plan affectionately referred to as Bean Stock. The basic plan was to grant stock options to every employee, companywide, from top managers down to the baristas, in proportion to their level of base pay. Initially, the stock options were offered at 12% of base pay but were then boosted to 14% of base pay.
    3. Although Starbucks has locked some of the coffee suppliers into long-term contracts not all suppliers are affected; thus, the supplier bargaining power is only marginally diminished by that tactic.
    4. Through the application of Michael Porter’s five forces model to the specialty coffee industry in which Starbucks currently competes, an understanding of the relative magnitude of each of the five competitive forces has been developed. Understanding how these forces affect the industrial environment in which Starbucks competes allows us to assess the structural components of the environment and how they have changed in response to numerous variables.
    5. The most important evolutionary changes affecting any industry are the long run changes to its growth rate. This is often what leads to the largest structural changes in an industry and influences future strategy the most heavily.
    6. One of the primary changes to the demographic composition of the industry, which has affected the demand for specialty coffee, is the decreased income elasticity caused by a lower average income among specialty coffee buyers.
    7. The next factor affecting the long run anticipated changes in the specialty coffee industry’s growth rate is the changing consumer lifestyles associated with the development of the Internet and personal computing devices capable of accessing it.
    8. The move in a different area, however, still affects the initiating firm and can be interpreted as a warning. For example, when Starbucks closed 7,100 of their US locations from 5:30 p.m. to 9 p.m. one night to retrain baristas, Dunkin Donuts responded by offering their coffee for a dollar between 5:30 p.m. and 9 p.m. on the same day. This can be interpreted as a cross-parry market signal directed at Starbucks, warning them about the direct competition which Dunkin’ Donuts intends to pose. (Adamy, Starbucks Closes Stores To Retrain Baristas, 2008).
    2.The salaries of the employee in all around the world play a big rule to make a decision to buy something and if it is deserve to pay for it !
    For example in united state of America and U.K. it will be not expensive as it will be in Latin America because the exchange of currency play a big rule in the economic life cycle .
    As it shown in the case study the cost of lost customer?
    1. Products within the industry were greatly differentiated, with varying degrees of quality, convenience, customer service, and differences in the atmosphere and ambience of the retail stores. The high differentiation within the specialty coffee industry made it possible to establish brands that could act as barriers to entry. Since most capital requirements within the specialty coffee retail industry were fixed costs, including the leasing of property, construction of roasting plants, and specialized equipment, the switching costs imposed on competitors within the industry were quite high.
    2. Many cost advantages can be independent of scale and may be gained by establishing one’s position in an industry early. These can be referred to as first mover advantage. Some of these advantages come from proprietary product technology, favorable access to raw materials, favorable locations and a learning or experience curve. (Grant, 2008, p. 9).
    3. ince most capital requirements within the specialty coffee retail industry were fixed costs, including the leasing of property, construction of roasting plants, and specialized equipment, the switching costs imposed on competitors within the industry were quite high.
    4. The barriers to entry seem high in the specialty coffee industry in the late 1980s due to high product differentiation, high specialized capital requirements, high switching costs and disadvantages to new entrants in the form of limited access to premium Arabica coffee, limited choice of locations and a moderately steep learning curve.
    5. The cost of buying a cup of specialty coffee did not represent a significant fraction of any individual buyer’s cost of living, reducing the tendency for price shopping and increasing the emphasis on quality and customer service.
    6. The cost of buying a cup of specialty coffee did not represent a significant fraction of any individual buyer’s cost of living, reducing the tendency for price shopping and increasing the emphasis on quality and customer service.
    7. The consumer does not know the actual demand, market prices or supplier costs which greatly reduces their bargaining power.
    8. The initial stores did not charge adequate prices given the higher cost of goods and rental prices present in Chicago and did not take adequate advantage of the inelastic demand for specialty coffee. (Shultz, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, 1997, p. 120).
    9. There is numerous cost disadvantages imposed on new entrants that are independent of the economies of scale considerations.
    10. The increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and have an enormous selection of retailers from whom they can buy.
    3.The risks associated with this strategy are the force created by industry rivalry has gone from one grounded in strategies of differentiation and focus while discouraging price wars to an extremely competitive environment where differentiation is increasingly difficult and price wars are looming, the analysis of the evolution of the specialty coffee industry as a whole allows us to assess the possible adaptation strategies for the one that would most appropriately fit with Starbucks long term goals, while taking into consideration their current capabilities. Organizational theorists believe in both organizational inertia and view evolution as occurring within individual organizations through the process of variation, selection, and retention. (Grant, 2008, p. 275) Within Starbucks, one source of organizational inertia is the capabilities and routines developed through their established infrastructure and the set pattern of interactions among the numerous organizational members, which has developed over time, these forms of organizational inertia make it more difficult for an organization such as Starbucks to reformulate their strategies without considerable capital investment and the possibility of immeasurable costs in broken tradition and lost synergies. Therefore, organizational inertia can be looked at as a barrier to change, but it is not absolute and organizations have shown the ability to adapt to both changes over the generic lifecycle and to technological change.
    Starbucks already exhausted this strategy on creating new innovative approaches to doing business or create “new game strategies.” This strategic innovation can come in the form of adding new products or services that perform novel yet related functions.
    It can be concluded that the force created by industry rivalry resulted in an environment in which competition was grounded in strategies of differentiation and focus, while discouraging price wars. Furthermore, the strongest of the four forces acting on the specialty coffee industry was that of potential new entrants given the existence of established firms in North America. These are very specific parameters in terms of customer base when considering the general coffee market. In regard to incorporating some characteristic differentiation strategies, Starbucks did have a corporate reputation for quality and creative flair. In order to ensure that the quality of Arabica beans stayed at a consistently high level, Starbucks pursued strategies to secure their supply-chain. In spite of the extraordinary domination Starbucks eventually had within the specialty coffee industry, they never utilized their market power directly against their coffee suppliers to lower bean prices and, thus, improve their profits.
    At the end, strategy of any organization must including many plans , plan A and B to face any risk will face it in the future , it may be internal and external, we will see more details on question number 4.
    4.As we mentioned on question number 3 about the risks related to the strategy and plan, lets talk about the opportunities and threats both of them are external:
    Opportunities:
    • Possibility to expand to more countries
    • Open specialised stores
    • Sell coffee or tea to large chain stores
    • Develop a larger tea market
    • Create official coffee farms
    • Enhance the customer in-store experience
    • Develop Starbucks capsules for home coffee machines

    Threats:
    • Competitors have lower prices
    • Lack of ownership of coffee farms
    • Decrease in consumer buying power
    • Rising prices of coffee and milk
    • Saturated market
    • Rise in sales of coffee machines for home use (Espresso, Nescafe…)

    5. The buying decision process is the decision-making process used by consumers regarding market transactions before, during, and after the purchase of a good or service. It can be seen as a particular form of a cost–benefit analysis in the presence of multiple alternatives. … Decision-making is a psychological construct.

    Starbucks decided to create value for its customers through this matter; the friendly in-store experience differed from other fast food stores and helped them gain competitive advantage.
    Since the individual customer service approach is more and more difficult with an increasing demand and leads time to serve the individual, Starbucks decided to create brand value through the development of communities. Mainly centered on corporate social responsibility, the company attempts to unite its customers under two main causes: protect the environment and encourage fair-trade. Being a manufacturer brand, Starbucks promotes the ethical side to selling farmer quality coffee and this gives the company a certain image.
     vertical integration is an arrangement in which the supply chain of a company is owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need.
    Most experts will agree that Starbucks has one of the best social media strategies out there. Now that it is giving away free WiFi, it is even more of a magnet for roving laptop warriors. They have 10 million Facebook fans. The company has held a number of promotions on its page to drive engagement. For example, Starbucks held a promotion for free pastries on its Facebook page, allowing customers to access a coupon that would give them a free pastry with a purchase of a coffee drink. Advertising on the social network has also helped to drive traffic to Starbucks’ page, in terms of Twitter, Starbucks has also been incredibly active on the microblogging network, amassing nearly 1 million followers. Not only does the company’s Twitter stream serve as an engagement tool with customers who are talking about the brand on Twitter, but it is also used as a way to spread news from Starbucks. Starbucks has also participated in Twitter’s promoted Tweets program, which allows advertisers to buy sponsored links on Twitter.
    This strategic innovation can come in the form of adding new products or services that perform novel yet related functions. Specifically, the orientation in product and service development should be toward rejuvenation of the brand’s image. Starbucks should also reconsider their assumptions as to what factors contribute to success in the specialty coffee industry and whether they can effectively change these factors.
    Creativity and innovation always playing a big rule on buying decision and supply chain of any international company for example if Starbucks decide to add any new product it will make a positive sense for it is strategy that will increase the demand of it from the trustful customers.

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  27. Assignment 1: External Environment
    VINY MANYA
    20166092
    MBA
    Government Regulations Affecting Starbucks Coffee’s Business
    Q1. Starbucks Coffee’s industry leadership is linked to the company’s effectiveness in addressing external factors identified. The external analysis is used to determine the most important issues that Starbucks must address in its business strategies to avoid being affected by some of the government regulations from the International Community.
    The framework analysis identifies the impact of governments on business. Starbucks experiences the following political external factors in its remote/macro-environment:
    1. Regional integration of markets (opportunity)
    2. Improving governmental support for infrastructure (opportunity)
    3. Product safety regulations (opportunity)
    4. GMO regulations outside the United States (opportunity)
    5. Increasing employment regulation (threat)
    6. Bureaucratic red tape in developing countries (threat)
    7. Tax policy (threat)
    8. Employment laws (threat)
    Regional integration is a current trend and external factor that presents an opportunity for Starbucks to globally expand. Also, most governments around the world are improving infrastructure, which creates the opportunity for Starbucks to access more markets or suppliers. However, bureaucratic red tape persists in most countries. This external factor is a threat because it makes business expansion more difficult for Starbucks, especially in developing countries. Thus, this model presents mostly opportunities for Starbucks Coffee. The legal factors in the external analysis model are the laws and regulations on business. Starbucks must address the above legal external factors in its remote/macro-environment:
    Starbucks has opportunities to improve its performance by satisfying product safety regulations and regulations on ingredients from genetically modified organisms (GMOs). Starbucks is already performing well in these aspects. However, increasing employment regulation, especially in developing countries, threatens Starbucks Coffee’s access to the labor market. This external factor also impacts Starbucks through increased spending for human resources.
    Not all countries welcome big firms because they like to protect their indigenous firms from unfair competition and takeover. Legal issues such as Monopoly and national protectionist laws will affect Starbucks because of its size and its plan of expansion. E.g. countries like India guard against such practices with a legislation that bars external companies from owning more than 51% in a merger. The more this happens in other countries, the more Starbucks expansion plan is restricted. Thus legal influences are unfavorable for Starbucks.
    The main danger for Starbucks is any regulation that makes it difficult for sourcing the raw materials. This has gathered a lot of the attention from politicians in the West and from the source countries. For this reason, the company wants to adhere to social and environmental norms. It is willing to follow the sourcing strategies. It gives importance to fair trade practices. Another impact is the need to follow the laws and regulations in the countries from where Starbucks buys the raw materials. Activism and increased political awareness in developing countries have made his essential.
    The regulatory pressures within the home market in the US are also a factor. Multinationals based in the US are now subject to greater scrutiny of the business processes. The company must monitor political stability within the country as well.
    Q2. CUSTOMER LIFETIME VALUE METHOD

    The customer lifetime value method (further LTV) is the projected revenue that a customer will generate during their lifetime (Kissmetrics, 2014). According to the Starbucks case study, if we calculate the average spending of a Starbucks customer multiplied by the number of visits per week, we obtain that this customer will bring Starbucks a $14,099 profit in their lifetime. Respecting this prediction, Starbucks should not spend more than this amount in advertising and customer retention techniques, and this budget limit allows them to maintain high profits without excessively spending on advertising. Having a set budget, Starbucks can send promotional messages to their customer and offer them reduction coupons on their favourite products; benefits are mutual, customers purchase at lower prices and Starbucks has a constant cash flow in their stores

    Customer loyalty was highly discussed in the 70s with theories by Jacoby (1971) or Jacoby and Chestnut (1978) when the distinction between behavioural loyalty and cognitive loyalty was made. In general, the authors agreed that customer loyalty is the act of a non-random repurchase (behavioural loyalty), after following a process of evaluation (cognitive loyalty). At Starbucks, behavioural loyalty is created through the quality of products and good customer service; however, if customer service begins to decrease, there will be a variation in budget necessary to maintain this behavioural loyalty.

    Q3. A diversification strategy is the strategy that an organization adopts for the development of its business. This strategy involves widening the scope of the organization across different products and market sectors. The strategy is to enter into a new market or industry, which the organization is not currently in, whilst also creating a new product for the new market.
    Product Diversification strategy is a form of growth strategy, which helps the organizational business to grow. It opens up new possibilities for the organization. By adopting this strategy, the organization not only diversifies its products offerings in the target markets but also expands its business horizons. The strategy helps the organization to increase sales volume and revenues while keeping costs to minimum.
    An implication of the broad differentiation generic strategy is that Starbucks Coffee must continue innovating to ensure differentiation in the long term. This generic strategy could lose its strength when competitors also find ways to stand out. To address this issue, Starbucks keeps innovating its product mix and supply chain. In applying the broad differentiation generic strategy, Starbucks focuses on specialty ingredients and products, such as baked goods that do not have high-fructose corn syrup. Starbucks also innovates its supply chain to satisfy its generic strategy through a continuing search for the most sustainable and finest ingredients. Thus, based on this generic strategy, Starbucks Coffee’s strategic objective is to innovate products and its supply chain.

    The Risks/dangers of product diversification and new target markets
    The main dangers facing an International Company such as Starbucks following a product diversification strategy for a brand are that it could fail to adequately understand the new customer base and that any new brand name may result in loss of meaning for the original brand and/or destruction of the original brand, particularly if it is a brand extension.
    The risk of not understanding the new customer base is present as it is with market development. And the risks of loss of meaning are just as significant as with product development.
    Product diversification is a high-risk strategy, so it’s important to assess both the opportunity and the level of risk. Focus on product diversification that represents an attractive opportunity for their business, such as an instance where the market is growing and no other company is meeting the demand. Provided the costs of developing and marketing the new product allow you to earn a profit, this is an opportunity to pursue. Risk increases if the new product might take sales away from your existing products or if the cost of market entry is very high. In those scenarios, the benefit to the company may not offset the risk.
    Recommendations
    Starbucks lacks significant presence in Africa and the Middle East. Thus, Starbucks can use its intensive growth strategy of market development to grow in these regions. Also, the intensive growth strategy of product development can be used to offer products that suit the distinct cultural preferences of consumers in Africa and the Middle East.

    Q4. Opportunities

    Entry into new markets:Global companies that plan for expansion usually seek out attractive countries with suchopportunities. In a bid to increase its world wide presence, Starbucks has opened a rangeof stores and operates in over 50 countries with 16,000 coffee shops (Starbucks.com).Starbucks is currently on its way to exploiting potentially lucrative markets such as India(marketwatch.com) that will provide it with opportunities of revenue growth.

    The above point directly links to Political factors in the External Environment analysiswhere on a global scale more countries are embracing open door policies to foreigncompanies rather than protectionism. This is favourable for Starbucks in its expansion planand will assist it in securing the finest coffee beans due to countries being morewelcoming.Growth in coffee market:The general taste of coffee drinkers in America is shifting towards the more expensiveorganic coffee which accounted for $1.3 billion in imports (Restaurant hospitality).This links to the Social factors identified in the External analysis and relates to changing tastes.

    This is favourable because it provides an opportunity for Starbucks to expand its customerbase with the possibility of higher profit margins as a result. Opportunities is favourablefor Starbucks.

    Threats

    Competition: Although the competitive threat from the specialty coffee sector is minimal, competition from other sectors such as restaurants and other big coffee shops still remain. The dominant threat from other competitors such as dunk·n donaughts and especially McDonalds which was recently found to sell good coffee for better value is damaging forStarbucks (digitaljournal.com). In other words this is an unfavourable influence. The SWOT analysis however also shows Starbucks as being balanced as well because its Strengths and Opportunities are favourable while its Weaknesses and Threats are unfavourable. On closer analysis it could be said that Starbucks possesses more Strengths than weaknesses and although all companies do have weaknesses, the fact that this is within their internal environment means that it can change its practices in order to turn its weaknesses into strengths. Nevertheless for the threats, constant scanning of its environment and monitoring close rivals should assist it in developing strategies in order to remain competitive and maintain (or if possible) increase its market share.

    Q5. The expansion of the specialty coffee industry created a wider array of competitors who offered high quality specialty coffee such as Starbucks. This made it much harder for the players in the specialty coffee industry to differentiate themselves through quality and turned quality into the industry standard. In addition to the increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and has an enormous selection of retailers from whom they can buy. The buyers of specialty coffee do pose a credible threat of backward integration. The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the World Wide Web. With full information, the buyer is in a better position to ensure that they pay a favorable price and receive an appropriate level of quality from the product. The amount of bargaining power that can be exerted by the buyers within the specialty coffee industry has increased as a result of the availability of information regarding market variables. This along with the other previously discussed changes to the dynamics of buyer bargaining power has increased its overall magnitude from the level it was compared to where it is right now.

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  28. Assignment 1: External Environment
    VINY MANYA
    20166092
    MBA
    Government Regulations Affecting Starbucks Coffee’s Business

    Q1. Starbucks Coffee’s industry leadership is linked to the company’s effectiveness in addressing external factors identified. The external analysis is used to determine the most important issues that Starbucks must address in its business strategies to avoid being affected by some of the government regulations from the International Community.
    The framework analysis identifies the impact of governments on business. Starbucks experiences the following political external factors in its remote/macro-environment:
    1. Regional integration of markets (opportunity)
    2. Improving governmental support for infrastructure (opportunity)
    3. Product safety regulations (opportunity)
    4. GMO regulations outside the United States (opportunity)
    5. Increasing employment regulation (threat)
    6. Bureaucratic red tape in developing countries (threat)
    7. Tax policy (threat)
    8. Employment laws (threat)
    Regional integration is a current trend and external factor that presents an opportunity for Starbucks to globally expand. Also, most governments around the world are improving infrastructure, which creates the opportunity for Starbucks to access more markets or suppliers. However, bureaucratic red tape persists in most countries. This external factor is a threat because it makes business expansion more difficult for Starbucks, especially in developing countries. Thus, this model presents mostly opportunities for Starbucks Coffee. The legal factors in the external analysis model are the laws and regulations on business. Starbucks must address the above legal external factors in its remote/macro-environment:
    Starbucks has opportunities to improve its performance by satisfying product safety regulations and regulations on ingredients from genetically modified organisms (GMOs). Starbucks is already performing well in these aspects. However, increasing employment regulation, especially in developing countries, threatens Starbucks Coffee’s access to the labor market. This external factor also impacts Starbucks through increased spending for human resources.
    Not all countries welcome big firms because they like to protect their indigenous firms from unfair competition and takeover. Legal issues such as Monopoly and national protectionist laws will affect Starbucks because of its size and its plan of expansion. E.g. countries like India guard against such practices with a legislation that bars external companies from owning more than 51% in a merger. The more this happens in other countries, the more Starbucks expansion plan is restricted. Thus legal influences are unfavorable for Starbucks.
    The main danger for Starbucks is any regulation that makes it difficult for sourcing the raw materials. This has gathered a lot of the attention from politicians in the West and from the source countries. For this reason, the company wants to adhere to social and environmental norms. It is willing to follow the sourcing strategies. It gives importance to fair trade practices. Another impact is the need to follow the laws and regulations in the countries from where Starbucks buys the raw materials. Activism and increased political awareness in developing countries have made his essential.
    The regulatory pressures within the home market in the US are also a factor. Multinationals based in the US are now subject to greater scrutiny of the business processes. The company must monitor political stability within the country as well.

    Q2. CUSTOMER LIFETIME VALUE METHOD

    The customer lifetime value method (further LTV) is the projected revenue that a customer will generate during their lifetime (Kissmetrics, 2014). According to the Starbucks case study, if we calculate the average spending of a Starbucks customer multiplied by the number of visits per week, we obtain that this customer will bring Starbucks a $14,099 profit in their lifetime. Respecting this prediction, Starbucks should not spend more than this amount in advertising and customer retention techniques, and this budget limit allows them to maintain high profits without excessively spending on advertising. Having a set budget, Starbucks can send promotional messages to their customer and offer them reduction coupons on their favourite products; benefits are mutual, customers purchase at lower prices and Starbucks has a constant cash flow in their stores

    Customer loyalty was highly discussed in the 70s with theories by Jacoby (1971) or Jacoby and Chestnut (1978) when the distinction between behavioural loyalty and cognitive loyalty was made. In general, the authors agreed that customer loyalty is the act of a non-random repurchase (behavioural loyalty), after following a process of evaluation (cognitive loyalty). At Starbucks, behavioural loyalty is created through the quality of products and good customer service; however, if customer service begins to decrease, there will be a variation in budget necessary to maintain this behavioural loyalty.

    Q3. A diversification strategy is the strategy that an organization adopts for the development of its business. This strategy involves widening the scope of the organization across different products and market sectors. The strategy is to enter into a new market or industry, which the organization is not currently in, whilst also creating a new product for the new market.
    Product Diversification strategy is a form of growth strategy, which helps the organizational business to grow. It opens up new possibilities for the organization. By adopting this strategy, the organization not only diversifies its products offerings in the target markets but also expands its business horizons. The strategy helps the organization to increase sales volume and revenues while keeping costs to minimum.
    An implication of the broad differentiation generic strategy is that Starbucks Coffee must continue innovating to ensure differentiation in the long term. This generic strategy could lose its strength when competitors also find ways to stand out. To address this issue, Starbucks keeps innovating its product mix and supply chain. In applying the broad differentiation generic strategy, Starbucks focuses on specialty ingredients and products, such as baked goods that do not have high-fructose corn syrup. Starbucks also innovates its supply chain to satisfy its generic strategy through a continuing search for the most sustainable and finest ingredients. Thus, based on this generic strategy, Starbucks Coffee’s strategic objective is to innovate products and its supply chain.

    The Risks/dangers of product diversification and new target markets
    The main dangers facing an International Company such as Starbucks following a product diversification strategy for a brand are that it could fail to adequately understand the new customer base and that any new brand name may result in loss of meaning for the original brand and/or destruction of the original brand, particularly if it is a brand extension.
    The risk of not understanding the new customer base is present as it is with market development. And the risks of loss of meaning are just as significant as with product development.
    Product diversification is a high-risk strategy, so it’s important to assess both the opportunity and the level of risk. Focus on product diversification that represents an attractive opportunity for their business, such as an instance where the market is growing and no other company is meeting the demand. Provided the costs of developing and marketing the new product allow you to earn a profit, this is an opportunity to pursue. Risk increases if the new product might take sales away from your existing products or if the cost of market entry is very high. In those scenarios, the benefit to the company may not offset the risk.
    Recommendations
    Starbucks lacks significant presence in Africa and the Middle East. Thus, Starbucks can use its intensive growth strategy of market development to grow in these regions. Also, the intensive growth strategy of product development can be used to offer products that suit the distinct cultural preferences of consumers in Africa and the Middle East.

    Q4. Opportunities

    Entry into new markets:Global companies that plan for expansion usually seek out attractive countries with suchopportunities. In a bid to increase its world wide presence, Starbucks has opened a rangeof stores and operates in over 50 countries with 16,000 coffee shops (Starbucks.com).Starbucks is currently on its way to exploiting potentially lucrative markets such as India(marketwatch.com) that will provide it with opportunities of revenue growth.

    The above point directly links to Political factors in the External Environment analysiswhere on a global scale more countries are embracing open door policies to foreigncompanies rather than protectionism. This is favourable for Starbucks in its expansion planand will assist it in securing the finest coffee beans due to countries being morewelcoming.Growth in coffee market:The general taste of coffee drinkers in America is shifting towards the more expensiveorganic coffee which accounted for $1.3 billion in imports (Restaurant hospitality).This links to the Social factors identified in the External analysis and relates to changing tastes.

    This is favourable because it provides an opportunity for Starbucks to expand its customerbase with the possibility of higher profit margins as a result. Opportunities is favourablefor Starbucks.

    Threats

    Competition: Although the competitive threat from the specialty coffee sector is minimal, competition from other sectors such as restaurants and other big coffee shops still remain. The dominant threat from other competitors such as dunk·n donaughts and especially McDonalds which was recently found to sell good coffee for better value is damaging forStarbucks (digitaljournal.com). In other words this is an unfavourable influence. The SWOT analysis however also shows Starbucks as being balanced as well because its Strengths and Opportunities are favourable while its Weaknesses and Threats are unfavourable. On closer analysis it could be said that Starbucks possesses more Strengths than weaknesses and although all companies do have weaknesses, the fact that this is within their internal environment means that it can change its practices in order to turn its weaknesses into strengths. Nevertheless for the threats, constant scanning of its environment and monitoring close rivals should assist it in developing strategies in order to remain competitive and maintain (or if possible) increase its market share.

    Q5. The expansion of the specialty coffee industry created a wider array of competitors who offered high quality specialty coffee such as Starbucks. This made it much harder for the players in the specialty coffee industry to differentiate themselves through quality and turned quality into the industry standard. In addition to the increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and has an enormous selection of retailers from whom they can buy. The buyers of specialty coffee do pose a credible threat of backward integration. The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the World Wide Web. With full information, the buyer is in a better position to ensure that they pay a favorable price and receive an appropriate level of quality from the product. The amount of bargaining power that can be exerted by the buyers within the specialty coffee industry has increased as a result of the availability of information regarding market variables. This along with the other previously discussed changes to the dynamics of buyer bargaining power has increased its overall magnitude from the level it was compared to where it is right now.

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  29. Nabil Shanta
    student no 20164031
    STRATEGIC MANAGEMENT
    Introduced to: DR KAREN
    PREPARED BY: NABIL SHANTA
    STUDENT NO: 20164031

    CASE STUDY:
    Starbucks – Planning

    Summary
    Planning is the foremost need of every business organization. It is done at all levels of management. No matter what type or extent of planning a manager does, the important thing is that planning takes place.
    Starbucks has many stores in almost 37 countries. Starbucks long term goal is 15,000 US stores and 30,000 stores globally and to earn a good amount of revenue of 20 to 25% from them.
    Starbucks has an even “glitzier” goal which takes it beyond its coffee roots and in helping define society’s popular culture menu.
    Starbucks is considered as the most dynamic retail brand. It has been able to become a “Global Brand Leader” by reinventing the coffee experience. Starbucks gave the US the “Café life” which didn’t exist before. Starbucks has changed our tastes, our lifestyles and penetrated in us by becoming part of the popular culture. Starbucks covers a broad base of customers from urban professionals to clerical assistances; Starbucks has found a way to appeal everyone despite its high prices.
    Starbucks broad “strategy” is to grow into a global empire and any new change is done with great care and planning. Growth strategies are made to exploit customer connection.
    Starbucks sells a lot of items and has grown beyond coffee into related businesses and they do so by developing these products with other companies. The company also launched the “Prepaid cards” as well and it was very successful because the company has made it easy to purchase, reload and use for the customers. The company is finding innovative ways to get the prepaid cards into potential customers.
    Company’s another successful brand extension was music. Schultz thought that the music has always been a part of café house experience. The company launched the Hear Music Café in Santa Monica, California.
    At these stores, customers burn their own compilation CDs. Starbucks then decides to selectively link Star bucks brand with certain kinds of movies.
    Despite many successes, Starbucks encountered some failure as well like its magazine, a carbonated coffee beverage called Mazagran and some Italian cafes which didn’t meet the goals it set for them.
    Starbucks is still coming up with some new & innovative ideas.
    Discussion Questions
    Q.1) Star bucks have some pretty specific goals it wants to achieve. Given this, do you think managers would be more likely to make rational decisions, bounded rationality decisions or intuitive decisions? Explain.
    Specific goals are goals that are clearly defined and leave no room for interpretations. There’s no ambiguity because the objectives are clearly defined. There are three ways managers can make decisions:
    1. RATIONAL DECISIONS:
    In these decisions, managers make consistent, value-maximizing choices where the problem is clear & unambiguous. Simple, well-defined goal is to be achieved. Preferences are clear, constant and stable. Managers know all possible alternatives & consequences and the decisions made are in the best interest of an organization.
    2. BOUNDED RATIONALITY:
    They make decisions rationally but are limited (bounded) by their ability to process information. The managers satisfice, rather than maximize. That is, they accept solutions that are “good enough”.
    3. INTUTION:
    It is the decision making on the basis of experience, feeling and accumulated judgments. Such a manager doesn’t go for systematic analysis of problem or evaluation of alternatives but instead uses his experiences & judgment to make decisions.
    From my point of view, managers in Starbucks are more likely to make bounded rational decisions instead of rational or intuition because they cannot possibly analyze all information on all alternatives and know all outcomes. They accept decisions that are good enough. They make decisions rational, but are limited by their ability to process their info. Any growth that Starbucks pursues is done with great care and planning but they are being rational within the limits.

    Q.2) Give an example for decisions that Starbucks managers might make under conditions of certainty, under conditions of risk and under conditions of uncertainty?
    Certainty
    Under the condition of certainty, the manager can make accurate decisions because the outcome of every alternative is known to him. In this situation, the Starbucks manager will be certain about the result of acting upon every available set of alternatives. Routine decisions which are mostly systematic can come under this category like banking decisions, inventory keeping, staff recruitment and other daily operational decisions etc.
    Risk
    The most common situation which managers usually face is of risk conditions. It is where the manager can estimate the likelihood of certain outcomes on the basis of past experience or secondary data. In this case, the managers of Starbucks have to keep their decisions flexible because of the risk factor. Decisions such as the launching of new brands and products of relatively similar nature as previously launched products or its kind, investment in similar ventures, expansion within the same country or city where Starbucks already operates etc. can come under this heading.
    Uncertainty
    Under the condition of uncertainty, a manager has no certain idea about the outcomes and can’t even make reasonable probability estimates to outcomes. In such conditions, the choice of alternatives is influenced by the limited amount of information available to decision makers. Investing in completely new areas and ventures and expanding into new territories whose political and economic variables are unstable or different from places where Starbucks is already established and launching of new and unique products can be some examples.

    Q4). Discuss the types of growth strategies that Starbucks has used. Be specific.
    The two main growth strategies that Starbucks has used include growth by concentration and diversification.
    Concentration Strategy
    In concentration, Strategy Company focuses on their core business and want to expand their core business as Starbucks did when it went global and opened thousands of stores in the US and worldwide. They focused on their primary business by expanding more outlets each year.
    Diversification Strategy
    Starbucks used both related and unrelated diversification. The example of related diversification is when it entered from coffee beans to food items, flavored coffee ice cream, ready to drink beverage. And the example of unrelated diversification is when it launched prepaid cards, the launch of music café, cobranded with yahoo, a breakfast product with Kellogg and magazine called Joe with Time.

    Q5). Evaluate the growth strategies Starbucks is using. What do you think it will take for these strategies to be successful?
    As we can clearly see Starbucks has been quite successful in implementing concentration growth strategy as it has open 11,377 stores in 37 countries worldwide and has received immense success. Starbucks’s CEO Jim Donald says “all company growth is governed by whether quality can be maintained if there is any uncertainty about quality a new strategy won’t fly. No matter how good it might seem”. Starbucks has to maintain and ensure high quality at all times while expanding their business in order to reap the success from its concentration growth strategy.
    In related diversification, Starbuck received success on the introduction of coffee flavor ice cream with Dryers and with Pepsi-Cola in ready to drink coffee beverages. At the same time, Starbucks failed on the introduction of the carbonated coffee beverage called Mazagran. Similarly, in unrelated diversification, Starbucks received success on introducing prepaid card and hear music café but it also faced failure on the introduction of magazine Joe.
    Starbucks, in order to implement diversification growth strategy, has formed strategic alliances various companies like Pepsi-Cola and Dryers. Using the strategic alliances, has given Starbucks a synergy effect to dominant the market. Alliances are a way of reaping the rewards of the team effort – and the gains from forming strategic alliances appear to be substantial. Rather than take on the risk and expense that expansion into new markets can demand, one can enter new markets by finding an appropriate alliance with a business operating in the market one desires to enter. The goal of alliances is to minimize risk while maximizing ones leverage and profit.

    Q6.) What competitive advantage(s) do you think Starbucks has? What will it have to do to maintain that (those) competitive advantage(s)?
    Competitive advantage can give a company distinctive edge over their rivals. Competitive advantages are the core competencies a company has. Competitive advantage can also come from organization resources. Listed below are the competitive advantages of Starbucks.
    • Customer-responsive culture
    • Valued employees
    • Finest coffee
    • Strong brand management
    • Wide geographical coverage
    Steps to maintain Competitive Advantage
    Starbucks can maintain the competitive advantage by being aware of five competitive forces introduced by Michael Porter.
    • Starbucks should be aware of the new entrants coming into the Industry.
    • As Starbucks is expanding globally, it has to make sure that customers aren`t switching to substitute products.
    • Focus on their customers and maintain good relationships with them and make sure they do not price their products too high that they might lose customers as they might not be able to afford it and aren’t willing to pay the high price.
    • Maintain good relationships with their suppliers.
    • Keep an eye on their competitor’s actions.

    Q10.) Describe Howard Schultz as a strategic leader.
    “We aren’t in the coffee business serving people. We are in the people business serving coffee”
    Howard Schultz since he bought Starbucks back in 1987 has played the role of a Strategic Leader for Starbucks. His passion for coffee business and his vision translates into what Starbucks is now. Since the day he visited the Italian Espresso bar, the community life that Schultz witnessed there continues to shape the culture of Starbucks. In his own words:
    “ Being a great leader means finding the balance between celebrating success and not embracing the status quo, identifying the path we need to go down and creating enough confidence in our people so that they follow it. The art of leadership is making sure we don’t allow the scale and size of the company to change the methodology of how we conduct ourselves. We have to careful not to let our values be compromised by an ambition to grow. “
    Since inception, Howard Schultz has led the company in a way that has allowed Starbucks to successfully grow, meet and exceed its goals and to do so ethically and responsibly. From the creation of company’s guiding principles to the various innovative strategic initiatives like the launching of many products, expansion into the international markets, decision to integrate Starbucks and the musical culture to entering into legislative lobbying for company’s future and prioritizing employees (partners), Schultz has never veered from his belief about what Starbucks could be and should be. For a good Strategic Leader the thing of utmost importance is the success and wellbeing of the Company which can be only ensured through new ideas and continuously improving leadership strategies, Schultz started grooming Orin Smith, the then president of Starbucks coffee in U.S to succeed him and in 2001 Schultz himself decided to move into the chairman position and Orin was promoted to CEO thus ensuring the running of innovative and new blood in Starbucks.

    Q11.) Is Starbucks “living” its mission? Explain.
    The company’s mission is:
    “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.”
    The six Guiding Principles behind the success of Starbucks are:
     Provide a great work environment and treat each other with respect and dignity.
     Embrace diversity as an essential component in the way we do business.
     Apply the highest standards of excellence.
     Develop enthusiastically satisfied customers all of the time.
     Contribute positively to our communities and our environment.
     Recognize that profitability is essential to our future success.
    Starbucks culture emphasizes keeping employees motivated and content. At Starbucks employees are not just employees but partners in business even in the literal sense as many of them have shares in Starbucks. Employees are considered heart and soul of the business and Howard Schultz personally visits many of Starbucks stores to ensure the satisfaction of his employees. Starbucks workplace polices provide for equal work opportunities for all. 65% of its total US workforce and 34% of the total are women and 14% of company’s top executives are people of Non-American background. Despite the company’s rapid growth strategy, in the words of CEO Jim Donald, all company growth is governed by whether quality can be maintained, if there is any uncertainty, a new strategy won’t fly, no matter how good it may seem. Some 24% Starbucks customer visit it 16 times a month- a number that no other fast food chain even comes close to. As a global company with revenues over $6 billion Starbucks jointly fulfills its social responsibility by getting involved with partners to help build stronger communities and conserve natural resources by donating to local charities and working to protect the rainforest, using recyclable paper cups etc. Hence in every possible manner, we can say Starbucks is living its mission.

    Q6.) Do a brief SWOT analysis of Starbucks.
    SWOT Analysis for Starbucks:
    Strengths
     Strong brand name recognition
     Large retail distribution system
     Quality product
     Extensive product list
     Good supplier relationships
     Strong human resource
    Weaknesses
     Dependence on single source of business/income
     Prices are high relative to competition
     Some of the innovations may fail over time
     Increase expansion makes it complex to handle the operations
    Opportunities
     Brand Extension
     Emerging international markets
     Continued domestic expansion
     Expansion of retail operations
     Strategic alliances with other manufacturers
    Threats
     Increasing number of competitors in the growing market
     Consumer trends toward more healthy ways and away from caffeine
     Economic conditions may make consumers unwilling to pay high prices
     Political conditions abroad may limit expansion

    What mangers can learn from this case study?
    The future you see is the future you get
    Setting up goals and making plans are the first things that an organization must do because this is what gives an organization a direction of where to go in the future. Without goals and planning, managers will have nothing to organize, lead or control. So it’s very important for managers to first develop long term and short term goals of the organization and make appropriate plans, as these goals and plans set the foundation for the success of any organization.
    Growth is a way of life and we have to grow at all times
    Most of the successful companies may it be Dell, Apple or Starbucks or any other started out small and then grew and became one of the most successful companies in the world. Starbucks started out with just one store in Seattle and as of April 2006 it had 11,377 stores in 37 countries and it continued to grow and expand. It’s very important for managers to plan and look for opportunities to expand their business and keep growing. Otherwise, the business may become stagnant and the competitors will move ahead and take over the market.
    “I think that our fundamental belief is that for us growth is a way of life and we have to grow at all times.” – Mukesh Ambani
    Expansion drives diversity and diversity protects and strengthens
    Starbucks is the number one specialty coffee retailer. It sells coffee drinks, food items, coffee beans and coffee-related accessories and equipment. Starbucks did not stop there and grew beyond coffee into related business such as coffee flavored ice cream and ready to drink coffee beverages. It also extended its business into music and plans to launch an online dating site and a breakfast product. There is a famous saying “Don’t put all of your eggs in one basket!” Diversifying business can save it from financial catastrophe. For example, if something really bad happens in the coffee industry and the coffee industry begins to see a decline, Starbucks won’t run out of the business as it has diversified into various other businesses which are generating revenue for them.
    Alliances have become an integral part of strategic thinking
    Starbucks launched the Frappuccino and Doubles hot with Pepsi-Cola, Coffee flavored ice cream with Dryers and plans to launch the online dating site with Yahoo and a hot breakfast product with Kellogg.
    “Companies should expand beyond their existing resources through licensing arrangements, strategic alliances, and supplier relationships.” – Business Week
    One of the fastest growing trends in business today is the increasing number of strategic alliances. Alliances are a way of reaping the rewards of the team effort – and the gains from forming strategic alliances appear to be substantial. Rather than take on the risk and expense that expansion into new markets can demand, one can enter new markets by finding an appropriate alliance with a business operating in the market you desire to enter. The goal of alliances is to minimize risk while maximizing your leverage and profit.
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  30. FUAD YUSIFLI
    20168492
    International Business
    Assignment 1 – External environment

    1. Starbucks biggest growth is in its International segment. The emerging markets of Brazil, India, China, South Africa and Mexico with a growing middle-class population continue to offer significant opportunities to add new stores and serve more customers. Starbucks has already made significant inroads into the Chinese market but there still is a lot of untapped potential growth in these markets. Starbucks should grow in these emerging markets by winning locally Starbucks must remain relevant to the customer in order to grow in these markets, and its management teams should have the freedom to operate within their overall framework to tailor store format, introduce local product mix and price points to the needs, lifestyles and tastes of each individual market/community.  Under Starbucks international strategy, it should transfer its core competencies and capabilities country to country and then gradually build profit drivers in several countries as it continues its global expansion in an organic way.  Starbucks has great growth opportunities in Tea and Fresh Juice products mix. They should build up these products along the same line of their core coffee products.  Also as consumer tastes and lifestyle shift towards more snacks and beverages options, Starbucks should tailor its menu’s and expand to give more healthy product offerings in its mix.  Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of high quality coffee beans. Starbucks could mitigate this price volatility risky by implementing an effective hedging strategy like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a greater extent.  Starbucks growth strategy in the saturated U.S. market should focus on getting additional penetration into untapped rural markets.  Another growth sector is its packaged coffee packets and iced beverage products. Starbucks should build better relationships with big box retailers to get premium shelf space and increase the efficiency of this distribution channel.  From their 10-K’s, we can see that Starbucks invest very little in advertising and marketing initiatives. It would be recommended that Starbucks make significant investments in advertising and marketing initiatives in the face of increased competition in the market.  Further build and retain customer loyalty, by building on beta concept of on-the-go home delivery.  Their mobile apps business drove 10% of the sales in the US, so it would be recommended for further building to stream lining ease of use and payment process which would help drive more customers, decrease wait time in stores and increase efficiency. Integrating Starbucks loyalty program with the mobile application would also be recommended.

    2. Customer retention is very important for a company if it wants to grow and reach its apex. However, many of these companies also lose customers over time. In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. So what can be the cost of lost customers?
    A perfect example of high customer loss can be the telecom industry which is saturated with operators and is heavy on price wars. Thus brand loyalty is low and users switch their services over and over again. This frequency at which your customers leave your product / brand is known as the defection rate. The rate of defection in the telecom sector goes upto 25%.So what is it that the company can do to reduce the defection rate / reduce losing customers.
    1 – The company should actively measure its retention rate. If it is a magazine, then how many renewals did it get. How many visitors on my site are repeat visitors. How many of your customers are rebuying your products?

    2 – Identify the causes of customer attrition / causes of customers switching brands. The best way to find out customer attrition is market research. Several such market researches have been done over time and it is found that more than 50% customers are lost because of lack of attention / improper service!! 15% shift because of new / better products being launched and 15% shift because of getting cheaper products in the market. The remaining might leave the business because of shifting to a new region or locality.

    3 – Identify the profit lost because of lost customers – In business, it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers. For Example – A tailor loses one customer. If he would have given that customer an excellent service, he would have probably retained that customer for a long time. So what would have been the lifetime value of this customer? It would be huge!! Another reason to reduce your defection rate.

    4 – The company needs to find out what will be the cost to bring back these lost customers. In other words, what is the cost of lessening the defection rate. If the cost of lessening defection rate is more than the profit, then there is no use in going ahead with the retention plan. Thus the company needs retention plans which are low in cost and high in profits. Generally sales promotion / updating their customer service does the trick for such companies. Both these methods are low on cost and high on profit.

    5 – Customer feedback. If you listen to your customers in good times, bad times will never come. This is because you will be ahead of your market just by knowing what the customer wants. Several companies have third parties employed permanently which deals in mainly customer feedback. Many restaurants and hospitalities dealing mainly in services (intangibles) have made feedback forms mandatory wherever they are interacting with customers thereby improving their services over time.By these five measures, you can find out what is it that the customer is missing, and thereby how to lessen the defection rate of your company. Once you gain back these lost customers, your profits goes up and your cost of lost customers goes down. A win-win situation. One way in which Starbucks has always differentiated itself from its competition has been through the emotional connection formed with its customers. This connection is formed in significant part by creating a store atmosphere that fits the local settings and by training baristas to increase the personal connection between themselves and their customers. Specifically, Starbucks encourages feedback from their customers to induce a 73 family like feeling and instructs all baristas to greet every customer with the question “how are you doing today?” To further increase this emotional connection with their customers, Starbucks could implement digital picture frames in all store locations and upload local customer photos and perhaps even customer supplied family photos, which are appropriate in nature, upon request. Digital picture frames are capable of holding thousands of pictures which would turnover regularly all day long. Such digital picture displays are not expensive. They would not require major modifications to any stores and would have an immediate impact on enhancing the family atmosphere. By allowing customers the option of uploading some of their family photos into the digital picture frames, Starbucks gives them the chance to personalize their local coffee shop and join a community. This would be a modern, classier version of that time worn icon, the local pub with countless photos of the regulars festooning the walls. Currently, the majority of Starbucks stores have latte machines that are positioned in such a way as to block the baristas from viewing the customers and vice versa when the barista is in the act of making the latte. These latte machines pose a serious physical obstacle to the barista’s ability to establish a lasting impression on the customer. To increase the barista’s opportunity to form the desired connection with the customer and also to give the customer a more worthy performance of the craft, skill, romance and theater which are present while making an espresso, these latte machines should be lowered so as to give the baristas a demonstration kitchen of sorts.

    3. The analysis of the evolution of the specialty coffee industry as a whole allows us to assess the possible adaptation strategies for the one that would most appropriately fit with Starbucks long term goals, while taking into consideration their current capabilities. Organizational theorists believe in both organizational inertia and view evolution as occurring within individual organizations through the process of variation, selection, and retention. (Grant, 2008, p. 275) Within Starbucks, one source of organizational inertia is the capabilities and routines developed through their established infrastructure and the set pattern of interactions among the numerous organizational members, which has developed over time. Another form of organizational inertia present at Starbucks is the complex configuration between their strategy, structure, and systems. The fit that they have created between their numerous components would be disturbed if the idiosyncratic combinations, which have allowed them to succeed, were changed independently. Rather, any change to their overall strategy will have to encompass additional changes to their structure and their management systems, culture, employee skills and all other characteristics of the Starbucks’ organization. These forms of organizational inertia make it more difficult for an organization such as Starbucks to reformulate their strategies without considerable capital investment and the possibility of immeasurable costs in broken tradition and lost synergies. Therefore, organizational inertia can be looked at as a barrier to change, but it is not absolute and organizations have shown the ability to adapt to both changes over the generic lifecycle and to technological change. 54 The first thing an organization must do to adapt to a changing lifecycle is to determine where the industry is in that lifecycle. We have previously done this. From the assumptions made in this analysis, we have postulated that Starbucks and the specialty coffee industry in the United States is at the end of its growth stage and in the beginning of its mature stage. The changes that will occur during this transition are largely predictable. The buyer market will slowly become fully saturated and repeat buyers will become the primary constituents of the consumer base, with a stronger emphasis on discounting and less differentiation between brands. Product quality will continue to improve throughout the marketplace, leading to industry standardization and much slower product development. Marketing will focus more on advertising a broad product line, good service and packaging deals. Manufacturing and distribution will see some overcapacity along with lower labor skills due to an increased demand for high labor skills relative to an inelastic supply of labor. (Porter, 1998, p. 240) Understanding these changes is the first step to establishing the capabilities necessary to formulate a proper strategy to combat the negative attributes associated with a maturing industry. These capabilities should allow a company such as Starbucks to pursue a strategy that does not seek to increase market share. The appropriate strategy should attempt to maintain an image of quality and enhance both effectiveness of existing marketing and use of new forms of marketing. The next step is formulating a proper strategy to overcome the barriers to change present in an organization such as Starbucks, in the form of organizational inertia. This would involve developing a fundamental understanding of what the primary contributors to that inertia are. This in turn involves identifying the existing routines and capabilities, 55 the hierarchy structure, along with the power structure and identifying the ingrained perceptions of the business from an outsider’s perspective. Starbucks’ Corporate Capabilities Starbucks has numerous capabilities but the ones that allow them to stand apart from the other specialty coffee companies are their market leadership, superior real estate locations, and their supply chain operations. Serving the largest market share in the specialty coffee industry gives Starbucks the capability to set industry trends, which they have done in the past with drinks such as the Frappuccino. Their superior retail locations give them powerful capabilities over their competitors. They have stores that are exposed to areas with much higher foot traffic and better local demographic compositions. Also, given the high visibility associated with their premium retail locations the cost of their marketing budget is significantly reduced due to the incidental advertisements there storefronts naturally offer. However, Starbucks’ strongest capabilities are in their supply chain operations. These operations are superior to competitors in the specialty coffee industry for a few primary reasons. First, Starbucks transportation rates are the best in the industry. Both their bakery distribution model, coupled with their sophisticated forecasting process, enable them to accurately identify where coffee is needed and when. (Lee, 2007) This allows them to make appropriate and on-time deliveries. In addition, their complex manufacturing and distribution process allows them to maintain strong inventory turns as compared to competitors in the specialty coffee industry. Most important to their supply 56 chain operations superior capabilities is their ability to protect the integrity of their coffee beans from the detrimental effects of oxygen and time through a closed loop system of packaging. (Lee, 2007) The synergies created through their complimentary capabilities were only enhanced by the company culture, which enabled them to eliminate redundancy and maximize their efficiency. The company culture was guided by six principles which Starbucks believed were keys to their success. These principles demanded creation of an environment that: (1) nurtured respect and dignity; (2) embraced diversity; (3) applied the highest standards to all areas of operation; (4) developed satisfied customers; (5) contributed to the community and the environment; and (6) recognized profitability as essential to success. The hierarchy and power structure at Starbucks was administrative, with a superior to subordinate downward flow moving from top to bottom. However, at the store level there was a modular system, where every store employee was cross trained in operational aspects and allotted freedom to make many decisions at their own discretion. (Koehn, 2005) This allowed the company to economize with coordination among the largest subunits, allowing adaptability at the storefront level. This two-pronged approach was necessary to maintain the homey atmosphere within their stores, while not hindering their ability to manage their large-scale organization. When Starbucks was first popularizing specialty coffee in the late 1980s, the perception of the industry by outsiders was of an affordable luxury, which companies could differentiate from one another using varied quality standards and a variety of store atmospheres. Today the perception of specialty coffee has changed with the entrance of 57 McDonald’s and Dunkin’ Donuts. This can be seen in exhibits 7 documenting a survey which has been done regarding what traits customers look for in their specialty coffee. There is a new emphasis on price and corporate social responsibility as well as convenience of store location.

    4. Increased Competition: This is by far the biggest threat that Starbucks faces with the market being at a mature stage, there is increased pressure on Starbucks from its competitors like Dunkin Brands, McDonalds, Costa Coffee, Pete’s Coffee, mom and pop specialty coffee stores. Dunkin Brands had at its main threat in the US market by trailing Starbucks with a 24.6% share. Price Volatility in the Global Coffee Market: There has be significant fluctuations in the market prices of high quality coffee beans, which Starbucks can’t control.  Developed Countries Market Saturation: Starbucks derives a significant amount of its revenue from the development markets and there is increased market saturation currently.  Developed Countries Economy: In an increasingly economically integrated world, an economic crisis like the one in 2008 could have a trickle down effect from the developed markets to the developing markets. This threat would hurt revenues for Starbucks as consumers shift away from premium product mix to stay in limited budgets during economic hardships.  Changing Consumer tastes and lifestyle choices: The shift of consumers toward more healthy products and the risk of coffee culture being just a fad represent a threat for Starbucks going into the future. There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, water, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks  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 its 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 their the margins. There is a moderate threat of new entrants into the industry as the barriers to entry are not high enough to discourage new competitors to enter the market.  The industry’s saturation is moderately high with a monopolistic competition structure.  For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment.  At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even thought it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate.  But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘experience’.  The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favorable access to raw material with the relationship they build with their suppliers.  The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to entry.

    5. Starbucks primarily operates and competes in the retail coffee and snacks store industry. This industry experienced a major slowdown in 2009 due to the economic crisis and changing consumer tastes, with the industry revenue in the US declining 6.6% to $25.9 billion. Before this, the industry had a decade of growth consistent. Due to the economic slump, consumers spent less on luxuries like eating out, choosing to purchase low-price items instead of high-priced coffee drinks due to shrinking budgets.3 The industry grew at a low annualized average growth rate of 0.9% from 2008 till 2013 with current industry revenues at $29 billion in the US. The industry is now forecasted to grow at an annualized rate of 3.9% over the next five years, with a potential to reach $35.1 billion revenues in the US. This growth would be mainly driven by an improving economy, increase in consumer confidence and expanding menu offerings within the industry. Starbucks dominates the industry with a market share of 36.7%, Dunkin Brands with 24.6% and other competitors like McDonalds, Costa Coffee, Tim Horton’s etc. This industry is in a mature stage with a medium level concentration. Starbucks and Dunkin Brands make up more than 60% of the market share ,giving them considerable market power in determining industry trends. The industry’s demand for premium coffee and snack products are mainly driven by a number of factors which include disposable income, per capita coffee consumption, attitudes towards health, world pricing of coffee and demographics. This industry is highly sensitive to the macroeconomic factors that affect the growth in household disposable. During the recession, the decline in household disposable income due to increased unemployment and stagnant wages, caused a downward pressure on the revenue and profitability margins in the industry. Another crucial factor for analyzing the demand in the industry is the per capita coffee consumption where the increase in coffee consumption increases the revenue of coffee & snack shops. The main driver of this consumption increase would be the increase disposable income, as the economy improves and consumers start to relax their budgets. This driver has a positive effect on market revenue. Per capita coffee consumption is expected to increase in 2014. As coffee beans are the primary input in the value chain of the industry participants, the prevailing volatile prices of coffee beans determines market costs and profitability margins. The world price of coffee has risen sharply in recent years due to growing demand in other countries and the resulting supply shortages. During the five years to 2018, coffee bean prices are projected to decrease, which will likely translate into lower market costs and higher profitability. 5 Attitudes towards health also play an important role in determining the demand in the industry. There is an expected shift towards healthy eating and diet among the consumers in 2014, and this could be a potential threat to the industry as they become more aware of issues related to weight and obesity. There has been a proactive shift among the industry participants to tailor their menus towards more organic and healthy products mix. The core competence of Starbucks has been its ability to effectively leverage their cornerstone product differentiation strategies by offering a premium product mix of high quality beverages and snacks. Starbuck’s brand equity is built on selling the finest quality coffee and related products, and by providing each customer a unique “Starbucks Experience”, which is derived from supreme customer service, clean and well-maintained stores that reflect the culture of the communities in which they operate, thereby building a high degree of customer loyalty with a cult following. Its other core competence is its human resource management’s valuesbased approach for building very strong internal and external relationships with suppliers, which drives the successful deployment of its business strategy of organic expansion into international markets, horizontal integration through smart acquisitions and alliances that maintains their long-term strategic objective being the most recognized and respected brands in the world. One of the key strategy that Starbucks followed since its inception is that of product differentiation offering differentiators such as premium product mix, locations, coffee beverages reputation and supreme customer service that translated to building a premium valued brand which is costly to imitate for competitors. Starbucks has also followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didn’t follow franchising model and operated company oriented stores and joint ventures in international markets. Starbucks has made some key acquisitions such as Teavana (Tea products), Bay Breads (premium bread products), Evolution Fresh (fresh juice products) etc. to use the product diversification strategy. gives a whole list of joint ventures, strategic alliances and acquisitions of Starbucks. Starbucks acquisition strategy, as shown in their acquisition history in Appendix, has been horizontal, product and market extensions acquisitions. Another crucial strategy for Starbuck’s growth has been its international strategies of expanding into key developed and emerging markets to geographically diversify, and it has been highly successful with operation spanning 60 countries. All these strategies have derive considerable competitive advantage for Starbucks over its competitors.

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  31. karzan qader hamad
    student number 20169030
    department inovation knowlge managment

    Q 1.Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Some government legislation that might affect Starbucks from the international community include laws and regulations in countries from where Starbucks buys raw materials, political and employment laws.
    • Laws and regulations in countries from where Starbucks buys raw materials like coffee beans might affect Starbucks because these coffee beans are an important ingredient to make coffee which seems to be the concentration of the business. So if the laws and regulations of a coffee beans supplying country are strict and tight it will affect Starbucks income because of more expenses that will be incurred as Starbucks will be forced to buy from expensive suppliers with favourable laws and regulations. High tariffs and imposed quota by the government will also affect this International Company negatively. For instance the government of Starbucks largest supplier of coffee bean might impose quota thus controlling or limiting the quantity of the coffee beans to be exported and imported.
    • Political Factor – The main political factor is about sourcing the raw materials. This has gathered a lot of the attention from politicians in the West and from the source countries. For this reason, the company wants to adhere to social and environmental norms. It is willing to follow the sourcing strategies. It gives importance to fair trade practices.
    • Employment Laws – They vary from country as Starbucks is multinational and has branches in different countries and regions. The wages and working hours and other related factors may be applicable in one country and may not be applicable in a foreign branch. For minimum wages in Zimbabwe maybe Five hundred dollars a month and in USA it’s two thousand dollars, other things being constant the cost of production in USA is higher than that in Zimbabwe.
    Q 2. In customer analysis, can we estimate the cost of lost customers?
    Yes we can estimate the cost of lost customers through:
    • Profit lost – Generally decrease in profit may arise due to two main factors which are decrease in revenue and increase in expenses. So in this case decrease in revenues or sales will result to decrease in profit. The decrease in revenue will be caused by decrease in customers. Strategically the organisation can use customer life time value to estimate the profitable customers (loyal customers of the brand). From the case study it was noted that ‘‘Starbucks generally strengthens it with the loyalty cards that customers use to accumulate points which they later exchange for free beverages or goods found in the e-shop.” The card helps the company to track if they are losing customers or gaining them and which products are bringing more revenue.
    • Market research – This way Starbucks can evaluate the estimate number of customers lost and why they are losing those customers with the use of questionnaires and surveys.
    • Customer feedback- This can only happen when the organisation has an effective customer relationship management. As the case study mentioned that customers complain about Starbucks taking too long to answer on social media .If Starbucks satisfies their customers on social media effectively they will know who, why and approximately how many customers are lost.
    Q 3.One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    • Diversification is considered as a risk of a target market because of the changes in preferences and taste due to increased awareness of the customer.
    • Risk of entering into the markets where there are high entrance costs, the company has to be capable in the funding aspect hence having adequate funds.
    • Another risk is losing money in a new product range maybe in the product development initial stage which will require more capital for marketing and labour.
    • Sales of an existing product may be taken away by the introduction of a new product
    • Risk of product failure. An old or new market may not be interested in the new product
    Starbucks has already ventured diversification of its product range as it is offering other beverages and food instead of offering coffee only for example tea in UK. In Middle East region it has licensing agreements with Alshaya Group which at present operates numerous Starbucks shops in the Middle East and Africa.
    4. What are the major opportunities and threats facing Starbucks?
    Opportunities.
    • Brand franchising to manufactures of other goods and services have great potential for business growth.
    • There is room for more opportunities through partnerships for example Starbucks’ partnership with Apple where they offer app based discount coupons.
    • Starbucks can also penetrate those markets where people cannot afford their priced coffee but still drink coffee and offer them cheaper options..
    • Increased consumer spending in the world, as a result of the economic boom which means the company has an opportunity to expand business.
    • New markets for Coffee are beginning to emerge such as India and the Pacific Rim
    Threats
    Bureaucratic red tape is continuously persisting in various countries therefore making it difficult for expansion of Starbucks especially in developing countries were coffee beans are grown. There is Stiff competition from low-cost competitors such as Costa coffee, McDonald’s and Dunkin’ Donuts. Starbucks sells their products at high prices which focus on high income earning customers disadvantaging the customers who are low income earners from buying the coffee .

    Q5. Starbucks has also offered farmers advanced financing to help cover costs. Farmers send samples and meet with Starbucks coffee buyers before Starbucks accept their beans. Their buyers work directly with suppliers, negotiating contracts for the products they need in the company’s operations or sell to our customers.

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  32. Pshdar Abdalla Hamza .
    20165703,
    Innovation Knowledge Management .
    Strategic Management.

    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Legal and environmental policy by governments that might affect Starbucks
    • Tax policy in the countries producing coffee, if the government imposes high taxes on the farmers, then Starbucks will have to pay a high price for the coffee.
    • International tariffs and trade regulations: this is threat to Starbucks if there are changes in the import laws since Starbucks imports all its coffee beans. If the import costs are higher and if the process is made difficult then the direct impact will be on the consumption level of Starbucks coffee.
    • The business environment is becoming very volatile due to the increasing tensions between US and the rest of the world. It created a serious problem for Starbucks when the United States declared was on Iraq. Due to the close relationship between Israel and US the Arab students boycotted the American goods. Starbucks was one among the boycotted companies.(ihatestarbuck.com,2010)
    • International Stability: Starbucks sales and markets are greatly affected by the international economy.
    • Economic growth: Starbucks will face low sales if the location in which it is located has slow growth. Consumer incomes will reduce leaving them with less disposable income. Starbucks faced many problems in countries such as Switzerland, Germany and the Japan in the 2000’s due severe economic recession.
    • Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
    • Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.
    • Starbucks need to carefully consider the methods in which they dispose of their waste as there are strict laws in most countries to ensure a firm trading in their country disposes of the waste that is created in their business in a specific and efficient way.
    • Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth.

    2. In performing a customer analysis, can we estimate the cost of lost customer?

    Yes, losing customers is costly and it’s important for companies to try to compute this cost. There are four steps in estimating the cost of losing a customer.
    Step 1: Determine your retention rate.
    Step 2: Distinguish between the different causes of customer loss (or attrition) and focus on the ones that can be better managed.
    Step 3: Estimate how much profit is lost when a customer is lost.
    Step 4: Calculate how much it would cost to reduce the defection rate. If the cost of the reduction is less than the profit foregone, the measures should be implemented.

    3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    The rapid international expansion also has negative effects. First of all, too many new locations established would exert an adverse effect on customer service. Therefore, the customer experience may degrade. Secondly, some retail stores opened even before the local supply chain was fully built up, leading to bad customer perceptions towards Starbucks coffee and food. Thirdly, the strategy of closing down US locations to offset new growth abroad results in reducing the convenience factor in the US market. Many American customers have to drive a long way to buy a cup of beloved Starbucks coffee. As mentioned previously, the convenience is one of most important parts of its value proposition. Last but not the least, the large number of stores is a huge asset or liability, depending on how one assesses the situation. If there is a strong economy and people have disposable income, then it is an advantage to have abundant stores to generate revenues. On the other hand, the vast number of stores will become a huge financial liability during economic downturns. Therefore, now Starbucks, led by Schultz, advocate the disciplined expansion of store bases and focus on real, sustainable growth.

    4. What are the major opportunities and threats facing Starbucks?
    Opportunities:
    Starbucks has many opportunities. Now, as the recession is almost over in United States, Starbucks can again open its stores which got closed due to recession. Also the Company can spread its business to various nations like India and Brazil in Asia and South America where the competition in the market is also less related to coffee industry. There is also scope to improve in technological methods and retail operations. Many observers are of the opinion that there is vast scope and potential to expand if the company co-brand or franchise itself with other drink and food companies.
    Threats:
    The biggest threat that the Starbucks Company possess is the competitors in the market like Mc Donald’s which are entered into the coffee market. Mc Donald’s has the similar prices as set by the Starbucks but if the prices vary in future Starbucks will directly get affected by it. Also the company can be affected by the heavy competition due to the opening of new less costly coffee shops and restaurants. The company also have to be inflexible with its pricing strategy especially in developing countries. There are also chances that the price of products and services can be affected if there is an increase in the price of raw material and dairy products.
    5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    A company’s value chain system can be classified into two categories; (1) the primary activities, which involve the physical creation of the products, marketing and delivery system, and after sale service and support activities; and (2) the secondary activities, wherein company infrastructure and inputs allow the primary activities to take place (Porter 1998). When these activities are already defined, the value chain system can be analysed in order to aid the development of a strategic goal and gain competitive advantage or, in our case, to understand the current downfall in the Starbucks business model.
    Below is the current value chain of Starbucks with international and technological developments. The upstream value chain allows the development of new products that suit international markets better, e.g. green Tea Latte in Starbucks Japan. The downstream is the online storefront customization, which allows customers to order online and create new drinks etc. The newly-added mobile app could locate Starbucks locations and order drinks.
    • Product Distribution
    • Bean and Ingredient
    • Selection
    • Local
    • Adjustment
    • Product
    • Development
    • Take-home
    • products
    • Online
    • Storefront Customization
    • Mobile Apps
    • Storefront
    Starbucks’ value chain creates additional value for its products, which the customers are willing to pay for. Hence, the customer is not reluctant to pay above-market prices for Starbucks coffee. In fact, its customers are not looking for the price of the coffee but they are seeking for the quality of the products and the brand image that the company offers.

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  33. Assignment 1 – External Environment name: shwan mohammed ali
    student number: 20169024
    department: banking and accounting

    (1.). Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company?
    – Health regulations
    Health regulations are imposed by either the government or standard associations so as to safeguard consumers’ health (Michelli, 2006). In relation to Starbucks, the emphasis is to limit caffeine intake by consumers. It is important to note that the quality and quantity of coffee produced by Starbucks might require more caffeine levels that what health regulations require. This may results in low quality coffee produced and consumers may cut down their coffee consumption levels. The reduction in coffee consumption might be followed by low sales revenue as sales units begin to decline.
    – Customs regulations
    Governments can utilize customs regulations as a way of promotion domestic firms or strategic industries. Hence, on Starbucks customs regulations have been strict in most cases were coffee purchases were strictly required to purchase from designated sellers. As a result this has made it difficult for Starbucks to acquire coffee from cheaper sources. The effect has manifested in the form of increased production costs (MacDonald, 2007).
    – Employment regulations
    Employment laws have been posing stern challenges on Starbucks. This is because they are usually associated with high wages and salaries as governments may seek to promote equality in the distribution of income and wealth (Thompson, 2004). Efforts to curb exploitation of workers through long working hours is best addressed by adjusting working hours. For Starbucks, this may require that workers work long hours but with adjustments in working hours it becomes a challenge and this may affect productivity which often manifest in low output levels. Such are also evident in the form of declining sales revenue.
    – Tax regulations
    International and local governments rely significantly on tax as a source of revenue and corporations such as Starbucks offer a huge opportunities to obtain attain such an objective (Venkatraman, 2008). However, tax is regarded as a major contributor to high rising operation costs. Moreover, challenges can be witnessed when Starbucks fail to recoup its expenditure through increase in sales price.

    (2). In performing a customer analysis, can we estimate the cost of lost customer?
    – Yes.

    (3). One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risk that are associated with diversification?
    – Firstly, risks with diversification are observed when the new markets are unstable causing the new products to fail (Smith, 1996). This is known as product failure and the risk of new products failing is in most cases high especially in new regions or when international diversification is the norm.
    – Secondly, there is a risk that resources might fall short of the needed to sustain both existing and new products. As new products are introduced, the demand for a firm’s resources tends to increase as well (Koehn et al. 2002). Hence, risks of customer frustrations and delays can be when resources fail short of sustain both new and existing products.
    – Thirdly, brand and image risks can take effect when the new products fail and customers demonstrate distaste of the new products (Tu et al., 2012).. Once this occurs, efforts to gain consumer trust can be difficult and costly.
    – Fourthly, it can be said that Starbucks has made efforts to exploit this strategy and this is augmented by the rising number of Starbucks’ branches located across the world (Europe, Asia, America). This can also be augmented by wider product ranges (5 different coffee types)

    (4). What are the major opportunities and threats facing Starbucks?
    Opportunities facing Starbucks:
    • Enhance the customer in-store experience
    • Develop Starbucks capsules for home coffee machines
    • Create official coffee farms
    • Expand in more countries
    • Develop a larger tea market
    • Open specialized stores.

    Threats facing Starbucks
    • Falling prices
    • Lack of ownership of coffee farms
    • Rising prices of coffee and milk
    • Saturated market
    • Rise in sales of coffee machines
    • Decrease in consumer buying power

    (5). With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    – The approach has not changed much except that there is more consumer flexibility and choice.
    Factors considered by Starbucks towards engaging in vertical supply chain
    – Coordination effectiveness•​
    – Turnaround time.
    – Set up Costs
    – Transaction costs.

    REFERENCES
    Koehn, N. F. (2002). Howard Schultz and Starbucks coffee company. Harvard Business School Pub..
    Tu, Y. T., Wang, C. M., & Chang, H. C. (2012). Corporate brand image and customer satisfaction on loyalty: An empirical study of Starbucks coffee in Taiwan. Journal of Social and Development Sciences, 3(1), 24-32.
    Smith, M. D. (1996). The empire filters back: consumption, production, and the politics of Starbucks coffee. Urban Geography, 17(6), 502-525.
    Venkatraman, M., & Nelson, T. (2008). From service scape to consumption scape: A photo-elicitation study of Starbucks in the New China. Journal of International Business Studies, 39(6), 1010-1026.
    Michelli, J. A. (2006). Starbucks experience. Tata McGraw-Hill Education.
    MacDonald, K. (2007). Globalising justice within coffee supply chains? Fair Trade, Starbucks and the transformation of supply chain governance. Third World Quarterly, 28(4), 793-812.
    Thompson, C. J., & Arsel, Z. (2004). The Starbucks brandscape and consumers'(anticorporate) experiences of globalization. Journal of Consumer Research, 31(3), 631-642.

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  34. Name: omar abdulwadood
    Students number: 20168922
    Department: Banking & Accounting

    (1.). Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company?
    • Customs and trade laws: these have put limits on the number of sellers Starbucks can access. As a result, Starbucks’ move to buy raw materials at a lower prices is impeded and in consequence this can restrict profit maximisation efforts.
    • Product regulations: Caffeine content in coffee products sold by Starbucks is monitored by Standards Associations and health officials. This has a danger of putting limits on quality and quantity improvements efforts in which efforts to make more sales by improving coffee quality and quantity through increasing caffeine are prohibited. Sales revenue and units can fall or even lead to a decline in customer base.
    • Tax regulation: These types of regulation have an effect of increasing costs of production and tend to impose viability challenges.
    • Employment laws: They tend to reduce production hours and increase labour costs. All in all they can be said to increase production costs and reduce profit levels.

    (2). In performing a customer analysis, can we estimate the cost of lost customer?
    Yes estimate the cost of lost customer

    (3). One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risk that are associated with diversification?
    Foremost, the significant risk is the risk of failure and the probability of failure in most cases is high and there is little warrant that diversification will be more effective. In most cases it can curb loses and not capable of boosting profit levels.
    Secondly, it requires a lot of resources and organizational conflicts can ensue when such resources are inadequate. In addition, competition within the organization can be high as both products and individuals compete for the same resources. Products and process which require due attention are sometimes delayed and this can lead to frustrations on the part of customers leading to customer loss.
    Thirdly, in the event that it fails, Starbucks can lose its customers who can even end up being dissuaded from buying Starbucks’ products but rather opt for other products.
    lastly, it can be argued that Starbucks has to a greater degree managed to exploit this strategy as evidenced can be drawn from the increase in the number of coffee shops located in and outside America (more than 170 coffee shops). This can also be supported by the idea that it is even spreading in Asia, Europe growing in importance in countries such as Japan.

    (4). What are the major opportunities and threats facing Starbucks?
    Opportunities
    • Create official coffee farms
    • Enhance the customer in-store experience
    • Develop Starbucks capsules for home coffee machines
    • Expand in more countries
    • Open specialized stores.
    • Develop a larger tea market.
    Threats
    • Decrease in consumer buying power
    • Rising prices of coffee and milk
    • Saturated market
    • Rise in sales of coffee machines
    • Falling prices
    • lack of ownership of coffee farms

    (5). With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Starbucks has significantly approached the buying process as it has managed to widen the buying process through an increase in consumer choice and flexibility.

    Factors considered by Starbucks towards engaging in vertical supply chain
    • Set up Costs
    • Turnaround time.
    • Transaction costs.
    • Coordination effectiveness.

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  35. name: Haval Ali Rasool
    SN:20166407
    Dep:Economic

    ASSIGNMENT 1
    QUESTION (1.). Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company?
    Answer
    Foremost, legislation can either be used to promote business operations or to restrict them. Such depends on the government’s desired outcome. Notable government legislations that have affected Star Bucks are mainly in the form of;
    (1).Employment laws: Employment laws imposed outside the USA have imposed severe challenges on Starbucks. These have been in the form of wage controls and minimum working hours (Turner, 2011).
    (2).Tax policies: international tax [policies have also been posing threats to Starbuck’s profit earning capacity. This is because high tax levels charged in other countries make it difficult for Starbucks to produce at lower costs which can guarantee the required profit levels.
    (3). Customs and Trade regulation: These laws were mainly targeted at ensuring that Star Bucks does not only purchase its resources from anywhere but from selected corporations and economies (Tietjen, 2013). Efforts to restrict Star Bucks from purchasing materials from an undesired economy were often observed in the form of strict cust
    (4). Product safety regulations
    (5). GMO regulations outside the United States
    Product safety and industry have however been serving as opportunities for Starbucks opportunities to improve its performance by satisfying product safety regulations and regulations on ingredients from genetically modified organisms (The Local, 2012).

    QUESTION (2). In performing a customer analysis, can we estimate the cost of lost customer?
    Answer: YES, the cost of a customer lost can be estimated and this can be done by either calculating profit lost from the loss or the lifetime value of lost customers.

    QUESTION (3). One common way of increasing organisational flexibility is to diversify the product range and the number of target markets.
    What are the risks associated with this strategy?
    Answer: Risks that are associated with product diversification are mainly related to brand damage (Traynor, 2014). This is because using the same name by widening product range can be negatively portrayed by customers as a losing a market edge because Starbucks will not be specializing. Thus customers are either convinced or confused that Starbucks is no longer a leader in that area.
    Secondly, there are high risks that it might result in operational stress as pressure in put on the operational ability of the firm (Todd, 2012). This usually requires that workers multitask and this negatively affects their productivity.
    Other risks also lye in the idea that diversification might fail to yield the desired results and in most cases it requires that the markets for the new products to be stable and not complex. In most cases the resources must be relatively adequate otherwise a conflict of resources between production needs of these products might occur.

    Have Starbucks already exhausted this strategy?
    Answer: Yes but to a greater extent, this is because Starbucks has increased its product range to include Frappuccinos, Cappuccinos, Espresso Macchiatos and Caffé Latintes, with more than over 170 000 employees worldwide (Forbes, 2013). In addition, in it increased the number of markets it is servicing to in cooperate Chicago and Vancouver, Canada in 1992 and now operates in more than 19 767 stores bars with some emerging in other countries as well (Starbucks, 2014) and has grown from one store to 19,767 stores today.

    QUESTION (4). What are the major opportunities and threats facing Starbucks?

    Answer: major opportunities facing Starbucks are mainly in the form of international expansion and consumer packaged goods. This is because the American market is now saturated and it is now venturing in new markets across Asia such as China, Japan and Europe. Other opportunities include;
    • Create official coffee farms
    • Enhance the customer in-store experience
    • Develop Starbucks capsules for home coffee machines

    Answer: major threats facing Starbucks is highly changing coffee prices especially that of Arabica beans which used by Starbucks and its competitors. The prices of Arabica beans is also highly expensive as compared to the cheaper robusta beans which are also used to make coffee (The Local, 2012). The level of competition has also been rising severely with other players such as McDonalds and Dunkin’ Brands Group imposing price, quality, service and convenience challenges on Starbucks (The Local, 2012). Other threats include;
    • Decrease in consumer buying power
    • Rising prices of coffee and milk
    • Saturated market
    • Rise in sales of coffee machines

    QUESTION (5). With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Starbuck’s buying process is not significantly different from the ordinary buying process experienced elsewhere. This is because the consumer has to either first check what is on the menu and after that an order can be placed. However, differences can be observed in the ordering process in which the consumer can specifically choose how the product has to be with extra flavours such as caramel, vanilla, toffee nut etc., and with or without cream.
    Factors considered by Starbucks in creating a vertical chain of supply are;
    1. Set up Costs
    2. Transaction costs.
    3. Turnaround time.
    4. Transaction risks
    5. Coordination effectiveness.

    REFERENCES
    The Local (2012). ‘H&M under fire for ‘low’ Cambodia wages’, The Local, 24 October [Online]. Available at: http://www.thelocal.se/20121024/44010 (Accessed: 13 March 2017).
    Tietjen, D. (2013). ‘Starbucks buys Teavana. First coffee dominance, now tea?’, The Christian Science Monitor, 23 October
    [Online]. Available at: http://www.csmonitor.com/Business/2013/1023/Starbucks-buys-Teavana.-First-coffeedominance-now-tea (Accessed: 13 March 2017).
    Todd, T. (2012). ‘Ex-France Telecom CEO probed over 35 suicides’, France 24, 7 June [Online]. Available at: http://www.france24.com/en/20120705-former-france-telecom-ceo-investigated-over-staff-suicides-lombard/ (Accessed: 13 March 2017).
    Tong, X. and Hawley, J. M. (2009). ‘Measuring customer-based brand equity: empirical evidence from the sportswear market in China’, Journal of Product & Brand Management, 18, pp. 46-61.
    Traynor, D. (2014). ‘CHURN, RETENTION, AND REENGAGING CUSTOMERS’, Intercom [Online]. Available at: http://insideintercom.io/churn-retention-and-reengaging-customers/ (Accessed: 13 March 2017).
    Turner, R.W. (2011). Supply Management and procurement. Ft. Lauderdale: J. Ross Publishing Inc.
    UK Tea & Infusions Association (2014) Tea Glossary and FAQ’s [Online]. Available at: http://www.tea.co.uk/tea-faqs (Accessed: 13 March 2017).
    Winchester, M., Romaniuk, J. and Bogomolova, S. (2008). ‘Positive and negative brand beliefs and brand defection/uptake’, European Journal of Marketing, 42(5/6), pp. 553-570.
    Wood, Z. (2011). ‘Starbucks staff offered £500 of free shares’, The Guardian, 26 January [Online]. Available at: http://www.theguardian.com/business/2011/jan/26/starbucks-offers-shares-to-staff (Accessed: 13 March 2017).

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  36. Name: ABDULLAH AL-SAWADI
    Student no:20159197
    Department: MBA
    Q 1.Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company?

    Political Factors Affecting Starbucks Coffee’s Business
    1.Regional integration of markets (opportunity)
    2.Improving governmental support for infrastructure (opportunity)
    3.Bureaucratic red tape in developing countries (threat).

    Economic Factors Important to Starbucks Coffee
    1.High growth of developing countries (opportunity)
    2.Declining unemployment rates (opportunity)
    3.Rising labor cost in suppliers’ countries (threat).

    Social/Sociocultural Factors Influencing Starbucks Coffee’s External Environment.
    1.Growing coffee culture (opportunity)
    2.Increasing health consciousness (opportunity)
    3.Growing middle class (opportunity).

    Technological Factors in Starbucks Coffee’s Business
    1.Rising mobile purchases (opportunity)
    2.Technology transfers to coffee farmers (opportunity)
    3.Rising availability of specialty coffee machines for home use (threat).
    Ecological/Environmental Factors
    1.Business sustainability trend (opportunity)
    2.Growing popular support for responsible sourcing (opportunity)
    3.Growing popular support for environmentally friendly products (opportunity)

    Legal Factors
    1.Product safety regulations (opportunity)
    2.GMO regulations outside the United States (opportunity)
    3.Increasing employment regulation (threat)
    Can continue to succeed despite the negative forces impacting its business.

    Q 2.In performing a customer analysis, can we estimate the cost of lost customer?
    A MODEL FOR DETERMINING THE EFFECT OF DISADOPTION ON THE VALUE OF A LOST CUSTOMER
    Assessing the value of a lost customer requires that we distinguish between defectors and disadopters. If the relative proportion of lost customers in a market that are disadopters is α, then the value an average lost customer is: [1] VLC = α VLC disadopter + (1- α) VLC defectors In some markets (typically low technology markets) the value of α will approach 0 and the value of a lost customer can be measured with conventional customer lifetime value models for defectors (c.f., Berger and Nasr 1998; Dwyer 1997; Rust, Zeithaml, and Lemon 2000). However, situations where disadoptions are common, such as for technology intensive products, α > 0 and therefore we must estimate VLC disadopter in order to calculate the value of an average lost customer. This study focuses on estimating VLC disadopter . However, the relative importance of disadoptions in shaping the total value of lost customers depends on the value of α for a specific market.

    Q 3.One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    The risk might happen in organizational flexible strategy.
    Though there are many advantages of flexible structure, there are also some problems associated with it. According to experts, excessive freedom can lead to lower level of commitment and loyalty issues by the employees and some amount of in discipline in work. If this happens, then the organization would be at the losing side. Many times, in such a structure, individual achievements get more importance than the success of the entire team. This means that employees work for their own succes , and not for the team or company. In the long run, such kind of working style can be disastrous and affect the performance of the firm.

    Q 4.What are the major opportunities and threats facing Starbucks?
    Opportunities for Starbucks (External Strategic Factors)
    This component of the SWOT analysis model focuses on external factors that a firm can use to grow its business. Starbucks Coffee’s main opportunities are:
    1.Expansion in Asia, the Middle East, and Africa
    2.Diversification of product mix
    3.Partnerships or alliances with other firms
    Starbucks has the opportunity to expand in the Middle East and Africa, where the firm currently has minimal presence. The company also has the opportunity to expand in Asia, where economic growth rates are high. In addition, even though Starbucks already has a considerably diverse product mix, further diversification can help improve its competitive advantage. Partnerships and alliances can also strengthen Starbucks Coffee’s competitive position. This part of the SWOT analysis shows that Starbucks has major opportunities for global growth.
    Threats Facing Starbucks (External Strategic Factors)
    In this aspect of the SWOT analysis model, the focus is on external factors that could reduce business performance. The main threats to Starbucks Coffee’s business are:
    1.Competition from low-cost coffee sellers
    2.Imitation
    3.Independent coffeehouse movements
    Low-cost coffee from firms like McDonald’s and Dunkin’ Donuts effectively compete against the more pricey Starbucks products. Also, other companies can imitate the business. Many competitors have already imitated Starbucks and succeeded, such as Stars and Bucks, a coffeehouse in the Palestinian Territories. There is also a growing social movement supporting independent coffeehouses and opposing large coffeehouse chains like Starbucks. This part of the SWOT analysis shows that Starbucks must ensure competitive advantage amid potential negative effects of the identified threats, especially imitation and competition.

    Q 5.With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?

    Consumer Decision Making
    The “Consumer Decision-Making Process” is what every single customer goes through before trying out a new product or brand. It is quite essential to know how the customer comes to its final decision- buying or not buying.

    This Exhibit shows the single steps of that process. Of course, not everybody will have the same need nor information. All these steps are depended on cultural, social, individual and psychological factors.

    The effort- and time investment depends on what the customer wants to purchase. More time and effort will be invested on more expensive goods. Since Starbucks sells beverages and food, the decision making process is not as complex as it would be when buying a house or car.

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  37. Pelan Ghaffoori
    20168719
    Marketing

    1-Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    The anti-trust legislation made by the European Union through articles 81 and 82 of the EC treaty, is meant to limit what businesses in their member countries can and cannot do in order to ensure that all competitors have an equal chance of producing a product, reaching the market and making a profit. As much as this legislation is for a noble cause, it might negatively affect Starbucks in particular the branches it owns in EU member states bound by the EC treaty, in a way that Starbucks would not be able to reach their full total revenue potential due to the limitations imposed by the legislation.
    2-In performing a customer analysis, can we estimate the cost of lost customer??
    Yes, we can estimate the cost of lost customer. Identify the profit lost because of lost customers – In business, it is customary to calculate opportunity cost. The same applies to lost customers. How much profit are you losing when you are losing customers? To go a step further, companies can also calculate the lifetime value of lost customers. For Example – A tailor loses one customer. If he would have given that customer an excellent service, he would have probably retained that customer for a long time. So what would have been the lifetime value of this customer? It would be huge.
    3-One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Two main risks of diversification are that too big variety of goods: first of all, complicates the choice of the consumer that leads to purchase of the cheapest and clear product. And too big assortment can lead to emergence of large material supplies that will affect profitability.
    4-What are the major opportunities and threats facing Starbucks?
    Opportunities.
    – New products and services that can be retailed in their cafes, such as Fair Trade products.
    – The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge.
    – Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.
    Threats .
    – Fierce competition from cheaper alternatives: Dunkin’ Donuts and McDonald’s are two other huge multinational companies which directly compete with some of the products that Starbucks sells.
    5-With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    The buying process is starting with need recognition.
    Probably the Starbucks have customers not just because of quality the coffee, they also sale the good atmosphere, relaxing music at background, great aromas and friendly baristas. Starbucks coffee has unique names. But sometimes it can confuse the customers.
    Starbucks increase the diversity of menu, they add new snacks, new beverages, reusable mugs, alcohol it makes the customer to spend more.
    Vertical Chain Supply or vertical integration:
    Starbucks location strategy focuses on urban centers, especially those with large middle and upper class populations, most of its cafes are located in populated areas.

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  38. Karolina Ivanova
    Student number:20166406
    Department: Tourism
    Assignment #1

    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.

    • The company is not sufficiently represented in Europe. Of the more than 20,000 Starbucks coffeehouses, only about 10% are located in Europe, the Middle East and Africa. So, in territory of Malta its coffee houses in general are absent, though the given country is the important tourist center for Europeans. In the summer, many young people study here, and therefore such catering networks as McDonald’s, Burger King, KFC, etc. are widely represented. This is an obvious untapped potential and a market where the company can develop in the medium term.

    • Another promising area is the Teavana tea brand. Obviously, not everyone drinks coffee. If a group of five people meets at a coffee house, two of them will prefer another drink. This drink may well be tea.

    • The corporation strives for vertical integration. The first step was a coffee plantation in Costa Rica. This will reduce costs and control the quality of raw materials.

    2. In performing a customer analysis, can we estimate the cost of lost customer?

    • Calculate the coefficient of turnover of customers (Churn rate).
    On the other side of the retention there is an outflow – when customers stop buying from you. The calculation of the percentage of clients’ turnover is as follows:

    3 Departed customer = 2.9% Customer turnover
    104 End customer

    3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?

    • As we can see, Starbucks is the leader in the industrial roasting of coffee beans and the world’s leading retailer of coffee specially selected varieties with points of presence in 65 countries. The company buys and fries high-quality coffee, which then sells on its own coffee shops along with hand-made coffee, tea, other drinks and a selection of fresh treats. The Company also sells a number of related products and grants permission to use its trademarks through other channels, such as licensed stores. In addition to its core brand, the company offers products and services under the following brands: Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos. The company belongs to the consumer sector.
    The Company’s goal is to maintain the Starbucks brand as one of the most recognizable and respected brands in the world. To achieve this goal, the Company continues to monitor the expanding global network of its coffee houses, opening new stores both in developed markets where the Company is already firmly present, for example in the US, and in newer markets that demonstrate higher economic growth rates, such As China .Using the experience gained in the implementation of the traditional model of its coffee house, the Company continues to offer consumers new types and varieties of coffee and other products in a variety of forms and new categories through various channels. In addition, other key components of the Company’s business strategy are a global responsibility strategy, commitment to coffee-related commitments and communities in which the Company conducts business, and the Company’s desire to be the preferred employer for its employees.

    4. What are the major opportunities and threats facing Starbucks?

    • Till today, the development strategy of Starbucks has yielded positive results, but some analysts doubt that it can be used further. What is the problem? Some critics believe that the company exploits its trademark too widely. “At a Starbucks coffee house, coffee with milk costs more than three dollars because it is supposed to be a premium product,” says one such critic. “Therefore, when you are served the same coffee with the Starbucks label for free on the plane, this cannot but surprise “. Others fear that the development strategy is too large-scale and Starbucks will not be able to allocate resources between units, and its activities will become too dispersed. Since Starbucks is global and quite popular, the main threat is competition in the market. So for example, the company Dunkin Brands, sells enough coffee in his cafe to be a serious threat to competitors. In turn, Starbucks took a strategic move and merged with Green Mountains to offer a capsule co-op machine on the market. The machine brews coffee using Green Mountain technology, and works on Starbucks capsules. In this case, both companies used their strengths, complementing each other’s opportunities and winning from joint efforts.

    5. With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?

    Continuous improvement of the supply chain.The company is constantly working to improve the supply chain, which are becoming more vertically integrated. For example, Starbucks recently purchased a 593-acre farm in Costa Rica that would work in Rwanda, Tanzania, Colombia and China. For the development of the chain “La Boulange”, the company acquired the juice producer Evolution Fresh.

    Entering emerging markets.
    The company is interested in entering emerging markets. Starbucks announced expansion of business in Indonesia. It is planned to open 100 places of Starbucks in Indonesia in the next three years.

    Risks:
    The company operates in a competitive and rapidly changing environment. At the heart of the risks is a decrease in traffic to customers, as well as a decrease in the average price value for the transaction. We distinguish the following factors that may affect the financial condition and results of operations:
    The impact of the initiative of competitors and increased competition in reducing the price of products.
    Higher incoming costs (costs for coffee arabica, milk, as well as labor, health care costs and insurance reimbursements).
    Unfavorable economic conditions that affect consumer spending.
    Decrease in the general consumer demand for coffee.
    Adverse consequences from negative information about product manufacturing and the consequences of Starbucks products consumption. Outcomes from ongoing or prospective litigation.

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  39. Ahmad Muhtadi
    Student Number : 20168928
    Department : MBA
    Assignment #1

    1) Businesses generally operate in a network andwhat’s more are not free in light of a few situations that impact their exercises Also actions, for instance elements both from those inside What’s more outside surroundings that Might impact Starbucks incorporates competitors, customers, suppliers, financiers; political, economical, social, technological, environment, What’s more enactment. U. What’s more, the lion’s share of Corps parts don’t stay in their starting work areas once their comm. Constantly Starbucks· home business sector may be pivotal done understanding the interior and outside nature’s domain that impacts the organization Furthermore its development. Espresso Facts indicate that forte espresso deals would expanding Eventually Tom’s perusing 20% for every year Also represent almost 8% of the 18 billion dollar what’s to come for U. S espresso advertise.
    Not all countries welcome big firms because they like to protect their indigenous firms from unfair competition and takeover. Legal issues such as Monopoly and national protectionist laws will affect Starbucks because of its size and its plan of expansion. E.g. Countries like India guard against such practices with a legislation that bars external companies from owning more than 51% in a merger. The more this happens in other countries, the more Starbucks expansion plan is restricted. Thus legal influences are unfavorable for Starbucks. In summary, the PESTEL analysis found that External influences was altogether balanced since Sociological, Technological and Environmental factors were favorable, while the other factors such as Political, Environmental and Legal factors still pose a valid threat. Nonetheless Starbucks· strengths counteracts some PESTEL factors because although it can·t control the external environment, it has become more flexible to change (closing 600 stores in order to adapt) and is quick at exploiting opportunities. As Accenture (theconsultant company) puts it; ´out thinking the competition is useless unless you cannot-execute them as well.
    2) Online networking consolidated for those devotion card facilitates watching those agitate rate, Starbucks must pay thoughtfulness regarding this pointer since it reveals to know what number of reliable clients are lost Furthermore are alerted, much appreciated on exceptional software, At those client may be beginning should lose investment for those brand (e. G. Lesquerella deals Also store visits). Likewise Traynor (2014) underlines, agitate rate must be a standout amongst those the vast majority monitored ends of data so that the organization need the long run to respond will a declining steadfast client so as with bring him over Also minimize those expenses on would In this way. As stated by Fournier et al. (1998), an organization must not “overkill” its client with data and mail them consistently since this prompts client disappointment and reduction for client loyalty, thus this will be not an answer Starbucks if make utilizing on recapture their clients. There will be no true profit for those client Previously, CRM hones since they would fabricated should make them use all the their money; however, they Might be the act that provides for the client those inclination of continuously extraordinary since the organization may be “fighting” to him alternately her. The profit lies in the hands from claiming Starbucks, who through the utilization of these techniques, retains the most extreme reliable clients time permits Furthermore maximises their benefit. Previously, general, we camwood say that association showcasing will be vital to organizations today since organizations have An All the more “human” picture contradicted to mass-marketing starting with the 1920s. Starbucks will be taking care of association advertising to an proficient manner Eventually Tom’s perusing making an intelligent media earth comparative on Online networking What’s more Eventually Tom’s perusing supporting those group keeping soul. Clients like imparting their thoughts for change ahead their website “My Starbucks Idea” What’s more In feel a greater amount steadfast towards those brand.
    3)An full grown industry infers Dependability inside the business environment, moderate innovative progress, a more stupendous accentuation once expense effectiveness and a have should remain imaginative. The question, then, will be how an association for example, such that Starbucks might establish An that’s only the tip of the iceberg proficient progressive structure without restricting their capacity will advance. In the past, an association might concentrate on making An machine bureaucracy; however, this might extremely cutoff Starbuck’s capability should adjust will any Sharp industry natural progressions What’s more their capability will advance. Thus, their structure, systems, and bureaucratic set up must accentuate All the more adaptability with higher levels of self-governance and nonhierarchical coordination. This expanded adaptability camwood make attained Eventually Tom’s perusing eliminating Concerning illustration a significant number positions inside the progressive structure Likewise possible; empowering more terrific correspondence “around those differed business units; Also decentralizing those choice making procedure. With urge efficiency, Starbucks ought to actualize all the incentives dependent upon accomplishment of specified focuses in the 61 structure from claiming budgetary remunerates for advancement. Punishments ought to Additionally make connected should the individuals business units who neglect to help adequate guidelines.
    4) Those general taste for espresso drinkers over America is moving towards the a greater amount expensive organic espresso which represented $1. 3 billion done imports (Restaurant hospitality). This links of the social elements recognized in the outer examination.
    Threats Competition: In spite of the focused danger from those forte espresso segment is minimal, rival starting with different parts for example, restaurants Also other enormous espresso shops at present remain. The overwhelming risk from different rivals for example, such that dunk·n donuts Furthermore particularly McDonald’s which might have been as of late found with offer beneficial espresso for exceptional quality is harming to Starbucks, different dangers that Starbucks might face would rivals need bring down prices, absence of proprietorship for espresso farms, decline Previously, purchaser purchasing power, climbing costs about espresso and milk, immersed market, Ascent done deals for espresso machines to home utilization (Espresso, Nescafe…).
    favorable influence The SWOT analysis then again Additionally demonstrates Starbucks Likewise constantly adjusted too Since it·Strengths and chances need aid ideal same time it·s Shortcomings Also dangers would unfavorable. Ahead closer dissection it Might be said that Starbucks possesses that’s only the tip of the iceberg qualities over Shortcomings What’s more Despite constantly on organizations would bring weaknesses, those certainty that this is inside their inner earth implies that it might progress its policies in place with transform its Shortcomings under qualities. In any case for the threats, steady filtering about its nature’s domain Also screening close rivals if help it clinched alongside Creating methodologies so as will remain aggressive and look after (or On possible) build its business sector stake. Plausibility to extend should a greater amount nations, open particular saves, offer espresso alternately tea pack will huge chain saves, create a bigger tea pack business, make authority espresso ranches, improve those client in-store background, create Starbucks capsules to home espresso machines.
    5) Whether Starbucks necessities should develop another firm with its partner, alternately not. The reply will be not that straightforward. Firstly, Starbucks need a have with hotspot and broil espresso beans, controlling those upper worth chain segments Also accomplishing vertical woodwind. Secondly, Starbucks must open its own espresso saves should work its principle business from claiming running espresso houses crosswise over india.
    A percentage examiners were Actually start with ask: to what extent in front of Starbucks transforms its purpose? Starbucks‟ reply might have been for Howard Schulz Furthermore as much partners will re-invigorate the organization. Under as much guidance, the organization shut down its under-performing outlets Also attained other supply-chain cosset funds amounting to almost $600 million. It refocused the organization on the Starbucks experience. Additional fundamentally, it chose with pay An profit around its stakes. It proclaimed its primary money profits for every offer to 2010: Right away that might have been An true transform for purpose! GREEN STRATEGY: for a number years, Starbucks needed solid approaches for respect to green technique.
    A critical mass of sorts required been arrived at by the early 90s and Starbucks proceeded their Combative methodology from claiming extension under the new thousand years. They wanted to this gigantic extension by hiring Also fabricating ahead of the Growth bend. Typically, they might Employ administration staff for the background with work the measure about saves they foreseen opening in the close future Similarly as contradicted will the individuals right now operating. In September about 1993, they assembled An 305,000 ft. ² cooking plant in Kent, Washington fit about supplying significantly additional saves over they that point worked. They Additionally bought An sprawling nine carpet office building in the SODO, south of the Kingdom region about Seattle’s streamlined zone, for those plan on of settling on it their permanency headquarters, which it remains today.27 this hostility development arrangement might never have taken hold though Starbucks needed not administered those nature for their item and the notoriety they needed for remarkable client administration. They were capable will do this Eventually Tom’s perusing making novel methodologies to inspiring representatives and Eventually Tom’s perusing securing a personal satisfaction supply chain. Starbucks need various abilities yet the ones that permit them with stand separated from alternate forte espresso organizations would their market leadership, unrivaled land locations, and their supply chain operations. Serving those biggest advertise stake in the claim to fame espresso industry provides for Starbucks the proficience with situated business trends, which they have finished in the secret word with drinks for example, the Frappuccino. Their unrivaled retail areas provide for them capable competencies over their rivals. They need saves that are uncovered should territories for substantially higher foot activity and finer nearby demographic compositions. Also, provided for those secondary perceivability connected with their premium retail areas those cosset about their promoting plan may be fundamentally decreased because of the coincidental Notices there storefronts Regularly the table. However, Starbucks’ strongest competencies need aid On their supply chain operations. These operations would better than rivals in the claim to fame espresso industry for a couple elementary reasons.

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  40. Name: Nigar Ismayilova
    Student number: 20166316
    Department: MBA

    A1

    1. Regional integration of markets ( Opportunity )

    2. Improving governmental support for infrastructure (Opportunity)

    3. Product safety regulations ( Opportunity )

    4. GMO regulations outside the United States ( Opportunity )

    5. Increasing employment regulation ( Threat )

    6. Bureaucratic red tape in developing countries ( Threat )
    
7. Tax policy ( Threat )

    8. Employment laws ( Threat )

    –  Employment laws: Though employment laws are meant to protect employees, they tend to affect the viability of organizations such as Starbucks. This is because employment laws try to ensure that employees are adequately paid and are not being exploited. Such however, tend to reduce profits and productivity respectively as costs increase and less time can be expended to produce coffee.

    – Product regulations: Coffee products are required by law to be produced under certain standards. These standards have an effect on quality and quantity. Quality and quantity restrictions have a strong negative implication on profitability through reduction in sales margin per unit as well the number of customers.

    – Tax laws also are important to Starbucks as they have an effect on their income. If the government in which Starbucks operates increases tax rates, this means that the company will be affected as a larger percentage of their income will contribute to the government. It is also of great importance for Starbucks as an international company to understand tax laws of a country before they actually settle for operations. Some countries have strict and higher tax rates for international companies as a way to protect local businesses therefore before settling in any country Starbucks should understand fully the tax laws.

    A2

    Losing a customer means lost sales and revenue.
    In fact, at the start of a business, more customers are lost then gained because of low trust in the product and the brand. Losing a customer has a negative impact on the confidence of the entire organisation.

    * We can try to calculate the projected profit of a customer in their lifetime through using the customer lifetime value method which is calculated as follows (average spending multiplied by number of visits per week)

    * Measuring the retention rate means how often a client is coming back to get service, if that customer decides to stop to come we can project the revenue we would have lost

    * Customer feedback is also important in order to realise the cost of lost customers. This feedback can be obtained from the use of suggestion boxes or even social media since some clients may highlight the services they disliked resulting in them leaving. On social media the number of followers if its declining it can reflect the cost of lost customers.

    A3

    Diversification is about building new products, exploring new markets, and taking new risks. Therefore, a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth.
    Most of the risks which are found on the diversification strategy as far as Starbucks is concerned are as follow:-
    Extra resources because of global competition :
    As organization’s diversification intensify. It means it gets more competition on and challenges in market. To compete with this competition you have to put extra resources. This will expand your supply line, throwing sometimes unnecessary attention and resources ultimately can be crashed somehow.
    Operational Stress, If customers want your new product or service, the requirements to fulfill those sales might strain your ability to operate, making the diversification unwise. You might reduce productivity among employees who must now multitask. Short-term capital needs and debt expense to fund the diversification might be too high. If you produce, store and ship products, your supply chain might not be able to handle the burden. When you consider a diversification opportunity, analyze the affects it will have on your human resources, information technology, production, finances and marketing.

    In late June 2013, Starbucks announced its partnership with Groupe Danone, pairing its already popular Evolution Fresh juices with Dannon Oikos Greek yogurt for the launch of a line of yogurt smoothies. It’s a smart move for both companies, getting the Dannon name out there while at the same time Starbucks gets a boost from the current trendy popularity of yogurt as an ingredient.

    Starbucks Corporation is expanding its Evolution brand by introducing new snack bars under the brand’s Harvest line of products. In addition, its Evolution Fresh will be available in 8,000 cafes and grocery stores by the end of the year.

    Starbucks is known to be providing coffee products, has diversify their business line from its inception to the large various beverages ranging from soft drinks, water, sandwiches, offers breakfast to complement their high quality coffee. Star bucks not exhausted its diversification strategy, it should implement this strategy. Star bucks must differentiate their brands to focus mainly on their primary images or cooperation. Continuation of their first root will increase production for them. 

    1 – The risk relates to market entry costs: capital required for fixed assets, inventories, commercial expenses … These entry costs may be too high compared to the company’s financial capacity.

    2 – The risk relates to start-up losses. They are due to the fact that the product is in the launch phase and that volumes are low, resulting in additional costs due to the lack of economies of scale and learning. Thus, the lack of mastery by a firm of all the skills necessary for the exercise of a new trade can inflict insurmountable competitive disadvantages.

    3 – The risk relates to reaction from competitors already on the market. They can engage in response actions (abrupt price cuts) or raise barriers to entry (blocking the distribution network, imposing large investments).

    4 – The risk relates to product failure. New market might also not be interested with the new product.

    A4

    OPPORTUNITIES
    * Starbucks can manufacture their own capsules machine with their coffee and tea that can be sold at their various cafes in which customers will be able to experience their products at the comfort of their homes.
    * Partnership with Apple, where they offer app based discount coupons.
    * The increasing globalisation of markets provides wider opportunities for Starbucks to expand into new markets; some authors maintain that young people in different countries have more in common than people of different age groups in the same country. This presents “an opportunity to target consumers sharing a common set of values, needs, habits and preferences” .
    * Expansion in Asia, the Middle East, and Africa

    THREATS
    * The use of coffee machines at home can threaten Starbucks products in that people may opt for substitute products rather than paying a lot of money for coffee they can make at home.
    * Cost of coffee beans is expected to rise in the near future.
    * Stiff competition from low-cost competitors such as Costa coffee, McDonald’s and Dunkin’ Donuts. Starbucks sells their products at high prices which focus on high income earning customers disadvantaging the customers who are low income earners from buying the coffee.
    * The increasing emphasis on healthy lifestyles and reducing caffeine intake for people with certain health conditions is a potential threat to coffee house companies 
    * Climate change may well represent a threat to coffee production and hence make the raw material more expensive

    A5

    Vertical integration can be carried out in two ways: backward integration and forward integration. A company that expands backward on the production path into manufacturing is assuming backward integration, while a company that expands forward on the production path into distribution is conducting forward integration


     Starbucks success is achieved through a few factors.
    * Outstanding Quality of the coffee brewed
    * Excellent service provided at the stores
    * Fast growth of new stores all around the world
    * Company Owned Warehousing & Distribution Facilities
    * Coffee Bean Farm in Costa Rica & China 
    Starbucks is best known as a chain of coffee shops. As such, it has various suppliers and inputs it buys coffee beans to make coffee as well as customized mugs and products to sell in its stores. It backward vertically integrated when it bought a coffee farm in China, because normally it would have to buy coffee beans from a coffee bean supplier.
Starbucks chose to buy a coffee farm in China, an area that showed tremendous growth in the number of coffee drinkers. And Starbucks has recently implemented a strategy of backward vertical integration as they have just purchased a 600-acre coffee bean farm in Costa Rica. By doing this, Starbucks hopes to develop proprietary coffee varietals, which could lead to new blends in addition to the 55 blends that are currently being offered. Furthermore, the new farm will facilitate Starbucks with research and development to offer new hybrid coffee beans, and the opportunity to study specific diseases that are devastating coffee bean crops around the world.

    *Outbound coordination. The greater part of its item blend are sold in-store and some through substantial box retailers.
Installment around source through purpose of offer, paid ahead of time Starbucks Cards and portable installments.

    These factors not only have increased the sales but also the reputation among the coffee lovers. Starbucks encounters aggressive competition in all areas of its business activity. The market for each of their business segments are characterized by vigorous competition among major corporations with long established positions and a large number of new and rapidly growing firms.
    Anyway, as Starbucks have a good financial capacity with good strategies; it can overcome all the competitors to shine high as the first class coffee provider.

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  41. Hiwa khdir nabi
    economic dep
    20168790
    1). Government legislation, from the international community, that might affect Starbucks can be presumed to be,
    (1). Coffee purchase regulations (trade regulations)
    Bids to regulate trade and channel support to domestic coffee production have been a huge obstacle to Starbucks. This is because it encountered difficulties in sourcing high grade coffee from cheaper sources (Ambec et al., 2013).
    (2). Income tax (tax regulations)
    A study conducted by Ambec et al. ( 2013), revealed that differences in international tax levels has caused marginally different coffee prices in most retail shops around the world. In countries where tax are numerous and high, Starbucks has encountered challenges in raising the price of its product especially where demand is said to be elastic. This curtails profits and if not that prices are not matched with costs, then operational challenges can be manifesting (Konar & Cohen, 1997).
    (3). Product quality (health and safety regulations)
    The quality of products especially coffee has to be in line with desired health standards demarcated by health officials (Djankov et al., 2006). Failure to do so might attract a penalty and in most cases Starbucks has observe such requirements and this might be a draw back on efforts to make quality products with more caffeine.

    (2). Yes it is possible to can estimate the cost of lost customer when performing customer analysis.

    (3). Potential risks that are associated with diversification are;
    I. Diversification failure: This occurs when the intended product or market in which the firm has diversified into has failed. Such might be highly associated with high sunk costs and potential losses (Gaur & Kumar, 2009).
    II. Reputational damage: Diversification is normally viewed as a manoeuvre of averting challenges. Hence, firms are negatively portrayed to be going through challenges and this has a negative effect on the reputation of the firm (Stimpert & Duhaime, 1997).
    III. Goal incongruences: Diversification requires more resources and time and also for it to be successful firms need to balance resources and objectives between institutions. Challenges however can be observed when goals and prioritise diverge which might lead to failure (Stimpert & Duhaime, 1997).
    – Starbucks can be said to have exploited this strategy and this can be pointed to a high number of stores operating globally (geographical diversification) and more product range which saw it offering various coffee types (product diversification).

    (4). Major opportunities faced by Starbucks are;
    I. It has a more room to run engage in specialization (in store specialization)
    II. It can still expand geographically in more countries
    III. The tea market is still growing
    IIII. it can tap into coffee production
    V. Starbucks can easily influence customers’ in store experience
    VI. Starbucks can also produce its own capsules for coffee machines
    Major threats faced by Starbucks are;
    I. It does not significantly own coffee farms
    II. There is a high number of coffee machines that are being made
    III. The market is getting saturated with a lot of players.
    IIII. Prices of coffee and milk have been on the rise
    V. Consumers have significantly lost their buying power.
    VI. Generally prices of its products have been falling.

    (5). Starbucks buying decision approach involves need identification, information search, evaluation of alternatives, purchase decision and purchase evaluation. Such an approach gives the customer more buying power and provides a platform upon which it can exploit customers’ needs whilst catering for changes in taste and preferences.
    When setting up a vertical supply chain, Star bucks has considered time; costs (set up and transaction costs) and the ability to effectively coordinate activities.

    REFERENCES

    1) Ambec, S., Cohen, M. A., Elgie, S., & Lanoie, P. (2013). The Porter hypothesis at 20: can environmental regulation enhance innovation and competitiveness?. Review of environmental economics and policy, 7(1), 2-22.
    2) Djankov, S., McLiesh, C., & Ramalho, R. M. (2006). Regulation and growth. Economics Letters, 92(3), 395-401.
    3) Gaur, A. S., & Kumar, V. (2009). International diversification, business group affiliation and firm performance: Empirical evidence from India. British Journal of Management, 20(2), 172-186.
    4) Konar, S., & Cohen, M. A. (1997). Information as regulation: The effect of community right to know laws on toxic emissions. Journal of environmental Economics and Management, 32(1), 109-124.
    5) Stimpert, J. L., & Duhaime, I. M. (1997). Seeing the big picture: The influence of industry, diversification, and business strategy on performance. Academy of Management Journal, 40(3), 560-583.

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  42. 1. Government legislation, from the international community, that might affect Starbucks can be categorised to be ranging from taxation laws in which tax levels in other countries are significantly higher which further adds to the burden of operational costs (Berger & Ofek, 1995). When tax effects are compounding operational costs, survival challenges might begin to pull in. Other regulations have been in the form of health and safety regulations in which governments have been imposing restrictions on caffeine composition in coffee. The effects however may translate into a decline in product quality (Loayza et al., 2005). Much however can be felt in the form of employment laws which are either in the form of income tax and minimum working hours. Studies by Berger and Ofek (1995), have greatly shown that high income costs are a major impediment to organizational success. Similar deductions can be made from the effects of trade laws in which regulations have been imposed restriction coffee purchases from certain markets or geographical boundaries. Such form of restrictions have adverse effects on cost efficiency, convenience and quality efforts (Berger & Ofek, 1995).

    2. The cost of a lost customer can be estimated when in performing a customer analysis

    3. The first problems that is associated with diversification is that diversification is not a total guarantee that potential risks will be eliminated (Van Stel et al., 2007). Hence, chances of not succeeding are very high. Secondly, firms have such as Starbucks by diversifying will require a huge amount of financial resources which must be distributed equally and according to needs (production requirements). In several cases, the need for resources from geographical and product diversification might be so stern and this might force the firm to raise money in a manner that may alter share ownership and debt structure (Stimpert & Duhaime, 1997). On the other hand, when resources are not distributed according to need and priority delays and frustrations might set in ( Stiroh, 2004).

    4. Opportunities and threats faced by Starbucks are;
    Opportunities
    Threats
    High potency to offer Starbucks capsule for home coffee machines
    Declining prices
    Geographical expansion
    Soaring milk and coffee prices
    Ability to own coffee farms
    Loss of consumer buying power
    Huge room to improve in store customer experience
    Increased competition
    High degree to engage in specialized stores
    Widespread availability of coffee machines
    High growing tea market
    Lack of ownership of coffee farms

    5. Starbucks approach to the buying prices is a bit huge in scope as it now encompasses a lot of elements. For instance, the initial approach still involves identification and recognition of the customer’s needs but there is more opportunities for customer to engage in information whilst still in the store. Moreover, the platform now exist where customers can evaluate their purchase decisions. The following has been considered by Starbucks when it set up a vertical supply chain;
    • Chances to effectively coordinate activities.
    • Estimated set up costs
    • A rundown of transaction costs that are to be incurred.
    • Time it takes to set up the vertical supply chain

    REFERENCES

    I. Berger, P. G., & Ofek, E. (1995). Diversification’s effect on firm value. Journal of financial economics, 37(1), 39-65.
    II. Loayza, N., Oviedo, A. M., & Servén, L. (2005). The impact of regulation on growth and informality cross-country evidence.
    III. Narver, J. C., & Slater, S. F. (1990). The effect of a market orientation on business profitability. The Journal of marketing, 20-35.
    IIII. Stimpert, J. L., & Duhaime, I. M. (1997). Seeing the big picture: The influence of industry, diversification, and business strategy on performance. Academy of Management Journal, 40(3), 560-583.
    V. Stiroh, K. J. (2004). Diversification in banking: Is noninterest income the answer?. Journal of Money, Credit, and Banking, 36(5), 853-882.
    VI. Van Stel, A., Storey, D. J., & Thurik, A. R. (2007). The effect of business regulations on nascent and young business entrepreneurship. Small Business Economics, 28(2-3), 171-186.
    mustafa halfurd hamasameen
    20166408
    economic departmnet

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  43. Mohammed hammouri
    student no 20169036
    Introduced to: dc karen
    Department: tourism and hotel management

    1. Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company.
    Factors affecting the industry
    Prices for substitute goods
    Because of a sharp increase / decrease in prices for substitute goods, preferences of potential visitors may also change, but in the opposite direction. The degree of influence of this factor is quite large, because the differences between the prices of cocoas, teas, coffee drinks and coffee can become quite large and the population will limit the consumption of code and coffee products.
    Income level of the population
    With the increase / decrease of the income level of population and consumer preferences, the volumes of consumed coffee (and coffee products), preferences in the field of confectionery, which we will offer to coffee, can change. The degree of influence of this factor is also significant.
     Preferences and tastes of potential visitors (based on the results of the questionnaire)
    This factor should become decisive in determining the volume of purchase of raw materials for the preparation of coffee (and coffee products).
     Territorial factor
    It is necessary to consider this factor for determining the location of the coffee house. It is best to place the object in the places of greatest concentration of people.
     Technical equipment
    To keep up with the experienced competitors, “keep the bar” at the proper level, and in the future “overtake” them. You will need to introduce new technologies, monitor new products on the market to “defeat” the competitors.
     State policy in the field of import, import substitution
    Because Coffee is not grown in Belarus – prices for ready-made coffee will directly depend on customs duties, limits on imported products, etc. Therefore, under “normal” conditions, a stock of products can be made on the market.
     The level of taxation of the industry
    Taxes – are part of the cost of production, their change cannot be ignored in the conduct of any business.
     Suppliers
    It is necessary to take into account the prices for the confectionery, which they will buy and the prices for coffee, cream, and sugar. It is desirable to find permanent and reliable suppliers, so as not to risk and not to spend too much time looking for new (unverified!) suppliers. But do not “fixate” on the same suppliers, in order not to become dependent on their conditions.
     The amount of rent payments
    Rent is also a significant part among the costs of the enterprise, which is reflected in the price of the finished product. It is important to take this factor into consideration.
     Prices for water, energy, and etc.
    Prices for all types of resources needed to produce a particular type of goods are important in determining the price of the final product.
    2. In performing a customer analysis we can estimate the cost of lost customers in the sense that
    • We can try to calculate the projected profit of a customer in their lifetime through using the customer lifetime value method which is calculated as follows (average spending multiplied by number of visits per week)
    • Another good aspect is measuring the retention rate, how often a client is coming back to get service, if that customer decides to stop to come we can project the revenue we would have lost
    • Customer feedback is also important in order to realise the cost of lost customers. This feedback can be obtained from the use of suggestion boxes or even social media since some clients may highlight the services they disliked resulting in them leaving. On social media the number of followers if its declining it can reflect the cost of lost customers
    3. One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    Answer: A prime risk associated with product diversification strategy is that sometimes getting outside of what you do best isn’t a good strategy. Starbucks, long known for its “grande-double-shot-espresso-skinny-latte-hold-the-foam” drinks, has slowly diversified into other drinks and food without overshooting its reach.People can only drink so much coffee in a day. Even a die-hard fan may only buy one to two drinks a day. With various coffee brands in serious competition for market share, Starbucks decided to branch out. They have done this successfully by identifying their customers as being people who want to treat themselves or grab a drink on the way to work, and have recognized the fact that they could sell not only coffee, but also breakfast pastries, other breakfast items, light lunches, sweet snacks and healthy options for kids. Another risk is that product diversification may result in deviation from the core of the business.
    4- Opportunities for Starbucks (External Strategic Factors)
    This component of the SWOT analysis model focuses on external factors that a firm can use to grow its business. Starbucks Coffee’s main opportunities are:
    a- Expansion in Asia, the Middle East, and Africa
    b- Diversification of product mix
    c- Partnerships or alliances with other firms
    Starbucks has the opportunity to expand in the Middle East and Africa, where the firm currently has minimal presence. The company also has the opportunity to expand in Asia, where economic growth rates are high. In addition, even though Starbucks already has a considerably diverse product mix, further diversification can help improve its competitive advantage. Partnerships and alliances can also strengthen Starbucks Coffee’s competitive position. This part of the SWOT analysis shows that Starbucks has major opportunities for global growth.
    Threats Facing Starbucks (External Strategic Factors)
    In this aspect of the SWOT analysis model, the focus is on external factors that could reduce business performance. The main threats to Starbucks Coffee’s business are:
    a- Competition from low-cost coffee sellers
    b- Imitation
    c- Independent coffeehouse movements
    Low-cost coffee from firms like McDonald’s and Dunkin’ Donuts effectively compete against the more pricey Starbucks products. Also, other companies can imitate the business. Many competitors have already imitated Starbucks and succeeded, such as Stars and Bucks, a coffeehouse in the Palestinian Territories. There is also a growing social movement supporting independent coffeehouses and opposing large coffeehouse chains like Starbucks. This part of the SWOT analysis shows that Starbucks must ensure competitive advantage amid potential negative effects of the identified threats, especially imitation and competition.
    5. The expansion of the specialty coffee industry created a wider array of competitors who offered high quality specialty coffee such as Starbucks. This made it much harder for the players in the specialty coffee industry to differentiate themselves through quality and turned quality into the industry standard. In addition to the increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and has an enormous selection of retailers from whom they can buy. The buyers of specialty coffee do pose a credible threat of backward integration. The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the World Wide Web. With full information, the buyer is in a better position to ensure that they pay a favorable price and receive an appropriate level of quality from the product. The amount of bargaining power that can be exerted by the buyers within the specialty coffee industry has increased as a result of the availability of information regarding market variables. This along with the other previously discussed changes to the dynamics of buyer bargaining power has increased its overall magnitude from the level it was compared to where it is right now.

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  44. Khaled haqouq
    Student number:20169053
    Department :Business administration master
    1_Change within external environments is often caused by changing government regulations or legislation. Identify some government legislation, from the international community, that might affect Starbucks, and comment on the effect it could have on this international company?
    Starbucks as a company is effected by legislations and changes of government but by deep studies it can go through any changes. As an example for this is Chinese markets. It is not easy to occupy a position in Chinese lives if you are not mature but through long experiences , Starbucks can go to the crowded streets and offer tea , the favorite drink for Chinese people, then enter the coffee gradually till it becomes familiar to all new generations in China. The company continues to do so as part of its ambitious expansion plans in China. Given the popularity of digital technology and ecommerce in China, the company plans to build locally relevant Starbucks 4th-place Experience that seamlessly blends its store experience with the digital space. It is exploring strategic partnerships to implement digital innovations in China. The company also opened its e-flagship store in Alibaba’s Tmall (B2C platform) which provides a social gifting option to its Chinese customers. Starbucks claims that its e-store on Tmall registered more than 300,000 fans and became the top performing brand in Tmall’s “Food and Beverage” category in the first month. The company is also focusing on its “Reserve” stores in China which are specialized experience stores, highlighting rare and exquisite coffees that are available in limited quantities globally. These initiatives are aimed towards capturing a higher market share in the region and the company appears to be on target to reach 3,400 stores in China by 2019
    Another example is the middle east area which considered Starbucks as a supporter for Israel and banned the dealing with it but then Starbucks defended herself to be independent and free company not supporting any party and not having any political issues. All Arab countries have Starbucks coffee shops now. All like this brand,
    2_In performing a customer analysis, can we estimate the cost of lost customer?
    consumers could not imagine living without this brand. The authors further found that the following
    Starbucks Coffee Shop is one of the world’s leading companies specializing in the manufacture of coffee and its derivatives, which in a short period of about 40 years has changed the thinking of the peoples of the world towards coffee products in more than 64 different countries. The results show that this rapid growth is the result of a clear strategic message adopted by Starbucks Mission, which usually addresses the concept of the organization’s existence in this type of business and markets. Starbucks’ message “stir and nourish the spirit of man – one person, one cup, in one neighborhood, at a time.” The presence of such strategic initiatives in the business has enabled the Group to lead and direct the global coffee market, thus increasing its market share significantly, The authors further found that the following
    companies had very high employee satisfactory levels which created a friendly and relaxed working
    atmosphere. Starbucks decided to create value for its customers through this matter; the friendly in-storeexperience differed from other fast food stores and helped them gain competitive advantage.
    Kotler believes that customer satisfaction comes from the experience the customer has from purchasing
    or consuming the product/service . After Starbucks’ market expansion during the
    21st century, customers felt that the individual approach of service was neglected and that Starbucks’ main slogan and competitive advantage was lost. While Starbucks’ differentiation technique was high quacoffee and excellent service, customers started shifting towards McDonalds or Costa coffee where theygot similar services for a cheaper price.Since the individual customer service approach is more and more difficult with an increasing demand and lesds time to serve the individual, Starbucks decided to create brand value through the development of communities. Mainly centered on corporate social responsibility, the company attempts to unite its customers under two main causes: protect the environment and encourage fair-trade. Being a manufacturer brand, Starbucks promotes the ethical side to selling farmer quality coffee and this gives the company a certain image. Nowadays, customers generally want to be associated to this type of ethical behaviour, and so as Kasolowsky (2014) explains, customers are willing to pay more for extra service even though they could find the same quality for cheaper elsewhere. This sense of belonging is part of Maslow’s (1943)
    hierarchy of needs, when an individual feels part of a community he or she is happier.
    Such behaviour and customer loyalty is important for the future, as Grissafe (2014) explains in the AmericanMarketing Association journal, individuals create a relationship with brands and word of mouth is very important as it establishes trust. If a mother drinks Starbucks, her child will have a tendency to want to drink the same product as her.
    3_One common way of increasing organisational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy?
    One common way of increasing organisational flexibility is to diversify the product range and the number of
    target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    The flexibility of this company is fascinating . they can create in every crowded point a window . if the area is not interested in coffee today they can offer the traditional drinks then step by step make the coffee common . so the have to deal with many products beside coffee . in addition to mmany markets around the world.

    According to the UK Tea & Infusions Association (2014), the largest per capita tea drinking nation is Britain where 165 million cups of tea are drunk daily versus 70 million cups of coffee. While younger generations may be moving towards new American trends such as having coffee or frappes at any time of the day, Starbucks must adjust their product portfolio and propose more tea.
    Starbucks has taken steps to be a part of the mobile computing revolution. It has worked with Apple and introduced discounted coupons via iPhone apps. They also attempt co-branding and cross selling. Starbucks is well poised to enjoy the benefits of the Smartphone revolution.

    Consumers in the US are also becoming more and more conscious of ethics. This means the brands they buy from should abide by social and environmental norms during production. Consumer awareness is challenging Starbucks.These are the most obvious factors affecting the firm’s business. But there are many other factors seeking attention.
    4_What are the major opportunities and threats facing Starbucks?
    Even though the company had performed exceptionally up to 2007, profit margins slowed after this time. The situation was considered important enough for the company‟s founder, Howard Schulz, to be re-appointed in early 2008 as Chief Executive Officer (CEO) in addition to his role as Chairman. Jim Donald, the former CEO, left the company. Essentially, Schulz took the view that the company had lost its way, especially in North America. It was no longer the distinctive Starbucks experience of the past. According to an email leaked onto the web, he wrote that the coffee chain was „watering down‟ its brand by opening too many „sterile, cookie cutter‟ stores that lacked character and soul. The memo was headed the „The Commoditisation of the Starbucks Experience‟ and argued that the company‟s expansion from 1,000 stores to 13,000 outlets over the 10-year period to 2007 had weakened the brand. „We desperately need to look into the mirror and . . . make the changes necessary to evoke the heritage, the tradition and the passion that we all have for the true Starbucks experience.‟ But it was not just the downgrading of the Starbucks experience that was a problem. McDonald‟s Restaurants had begun a new strategy of opening coffee bars in its outlets. The competition was increasing. Starbucks‟ share price dipped dramatically as a result of all this news in early 2008. This meant that, not only was the company not paying share dividends, but it was also not seeing any growth in the share price either.

    5_With further reference to Starbucks, how have they approached the buying decision process? What factors have they considered in creating a vertical chain of supply?
    Backward vertical integration can be defined as a firm increasing the number of value chain stages that move them farther away from a product’s or service’s ultimate customer.
    Starbucks has recently implemented a strategy of backward vertical integration as they have just purchased a 600-acre coffee bean farm in Costa Rica. By doing this, Starbucks hopes to develop proprietary coffee varietals, which could lead to new blends in addition to the 55 blends that are currently being offered. Furthermore, the new farm will facilitate Starbucks with research and development to offer new hybrid
    .coffee beens, and the opportunity to study specific diseases that are devastating coffee been crops around the world.

    Raw Materials (Coffee Beans): Coffee bean farming is not vertically integrated into Starbucks; the company purchases coffee beans from farmers. Starbucks choose to outsource farming due to the low potential hold-up problem. For its coffee, Starbucks uses only high-quality Arabica beans, instead of regular commodity and lower quality robusta beans. Since there are a lot of market participants trading Arabica beans (i.e. farmers & Arabica beans buyers), there is an established market price. Moreover, farm land has a low degree of asset specificity, and therefore farmers’ investments do not depend only on Starbucks as their buyer. Both of these allow both parties to contract without high transaction/bargaining cost.
    Furthermore, Starbucks is able to outsource farming because the company is able to reduce the moral hazard problem. Since Starbucks is able to contract with the farmers and is willing to pay more for premium beans , the company can create high powered incentives within the contract to ensure that it will receive high quality beans from the farmers.
    Roasting: Roasting is vertically integrated into Starbucks, such that the company roasts the beans itself . Due to a potential hold-up and moral hazard problem that leads to high transaction cost, it is inefficient for Starbucks to outsource bean roasting. Since Starbucks values the quality of their product at the highest priority and “considers the roasting of its coffee beans to be an art form” , they have strict and high standards for their quality checks. More specifically, they use a blood-cell analyzer to test color of the beans. This requires a high degree of asset specificity such that other companies do not require this equipment to check the quality of their roasted beans and leads to a potential hold-up problem. Moreover, as evidenced by the fact that the Senior Vice President, on a daily basis, checks the quality of coffee samples, Starbucks prefers tight control over quality inspection. Since company’s quality standard is so controlled and strict, it would be very costly to negotiate a contract that would be enough to provide type of maintenance Starbucks requires and prevent a moral hazard problem.
    Distribution & Warehouses: Starbucks is not vertically integrated in distribution and warehouses. It outsources to distribution and warehouses specialists , because there is low risk of a hold problem and low transaction cost for contracting. Market price for distribution and warehousing is established because there are many distributers and many buyers who need their service. Additionally, warehouses and transportation used for distribution (i.e. trucks) are not specifically tied to coffee beans and have really low degree of asset specificity.

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  45. Mohammed Bayer
    20168900
    Banking and accounting department
    Q1. GOVERNMENT LEGISLATIONS THAT MIGHT AFFECT STARBUCKS FROM THE INTERNATIONAL COMMUNITY.
    1. International Trade regulations
    • Tariff and non tariff barriers to business are likely to affect Starbucks and other trade regulations on import and export of resources.
    • When the USA pulled out of the ICA (international Coffee Agreement), a board that set export quotas for producing nations and maintaining fair coffee price, coffee quotas and price controls ended. As a result there has been no standardization of prices and these discouraged farmers. Some gave up in producing the seed and this has affected Starbucks since it reduced the number of its suppliers.
    • High tariffs discourage investment.Starbucks might be affected with high tariffs in different locations they operate in.
    • High tariffs for star bucks will lead to increase in the price of the product to compensate for the high costs, some consumers will then switch to other competitors who offer the product at lower price and there can be as well negative publicity through word of mouth or media.
    2 Employment laws.
    • Starbucks employee wage or salary structure can be affected by employment government legislation that works towards protecting the welfare of employees
    • Among other acts, USA has the Fair Labor Standards Act which sets the minimum wages a worker is supposed to earn meaning to say that Starbuck has to adhere to the wage stipulations if it’s to operate.
    • In as much as they may want to reduce cost of business through low wage/salary structure they are by the law compelled to pay equal to or higher than those stipulated to avoid negative publicity and government penalties.
    2. National Protectionist laws.
    • Protectionist laws protect local businesses from foreign giants and as Starbucks expand into various continents it is to be affected by these laws as the governments try to protect the small local companies from huge foreign investors like Starbucks.
    • Zimbabwe’s Indigenization and Economic Empowerment policy allow 49% foreign ownership among others so if Starbucks is to enter these markets it is definitely affected by such government laws in terms of company ownership and share of profit.
    3. Customer protectionist laws.
    • Nowadays awareness on food consumption and health issues has increased because of various diseases that comes through what people eat and drink. Starbucks has to ensure that it is aware of health laws set and adhere to them by all means possible. That means its coffee making process should reach local healthy standards which might take quite some energy.
    4. Taxation.
    • It is imperative that Starbucks be aware of taxation issues in countries where it wants to set up business. High taxation rates are not conducive for business and some countries tend to have high taxation rates for foreign companies which will greatly affect Starbucks business.
    • Failure to pay tax can have tremendous effects on business and the worst for the business is negative publicity as in the case of Starbuck in the United Kingdom.
    • Strabucks buys coffee bean from farmers in different locations, and if these farmers face high taxes in their business they will increase the price of the bean, which then increase the price of the coffee and some customers will switch to cheaper products.

    Q2. CUSTOMER LIFETIME VALUE METHOD
    The customer lifetime value method (further LTV) is the projected revenue that a customer will generate during their lifetime. According to the Starbucks case study, if we calculate the average spending of a Starbucks customer multiplied by the number of visits per week, we obtain that this customer will bring Starbucks a $14,099 profit in their lifetime. Respecting this prediction, Starbucks should not spend more than this amount in advertising and customer retention techniques, and this budget limit allows them to maintain high profits without excessively spending on advertising. Having a set budget, Starbucks can send promotional messages to their customer and offer them reduction coupons on their favourite products; benefits are mutual, customers purchase at lower prices and Starbucks has a constant cash flow in their stores
    Customer loyalty was highly discussed in the 70s with theories by Jacoby or Jacoby and Chestnut when the distinction between behavioral loyalty and cognitive loyalty was made. In general, the authors agreed that customer loyalty is the act of a non-random repurchase (behavioral loyalty), after following a process of evaluation (cognitive loyalty). At Starbucks, behavioral loyalty is created through the quality of products and good customer service; however, if customer service begins to decrease, there will be a variation in budget necessary to maintain this behavioral loyalty.
    One common way of increasing organizational flexibility is to diversify the product range and the number of target markets. What are the risks associated with this strategy? Have Starbucks already exhausted this strategy?
    • Diversification is considered as a risk of a target market because of the changes in preferences and taste due to increased awareness of the customer.
    • Risk of entering into the markets where there are high entrance costs, the company has to be capable in the funding aspect hence having adequate funds.
    • Another risk is losing money in a new product range maybe in the product development initial stage which will require more capital for marketing and labour.
    • Sales of an existing product may be taken away by the introduction of a new product
    • Risk of product failure. An old or new market may not be interested in the new product
    Starbucks has already ventured diversification of its product range as it is offering other beverages and food instead of offering coffee only for example tea in UK. In Middle East region it has licensing agreements with Alshaya Group which at present operates numerous Starbucks shops in the Middle East and Africa.
    Q4:
    Opportunities:
    • Possibility to expand to more countries
    • Open specialised stores
    • Sell coffee or tea to large chain stores
    • Develop a larger tea market
    • Create official coffee farms
    • Enhance the customer in-store experience
    • Develop Starbucks capsules for home coffee machines
    Threats:
    • Competitors have lower prices
    • Lack of ownership of coffee farms
    • Decrease in consumer buying power
    • Rising prices of coffee and milk
    • Saturated market
    • Rise in sales of coffee machines for home use (Espresso, Nescafe…)
    Q5:
    Vertical integration can be carried out in two ways: backward integration and forward integration. A company that expands backward on the production path into manufacturing is assuming backward integration, while a company that expands forward on the production path into distribution is conducting forward integration


    Starbucks success is achieved through a few factors.
    * Outstanding Quality of the coffee brewed
    * Excellent service provided at the stores
    * Fast growth of new stores all around the world
    * Company Owned Warehousing & Distribution Facilities
    * Coffee Bean Farm in Costa Rica & China
    Starbucks is best known as a chain of coffee shops. As such, it has various suppliers and inputs it buys coffee beans to make coffee as well as customized mugs and products to sell in its stores. It backward vertically integrated when it bought a coffee farm in China, because normally it would have to buy coffee beans from a coffee bean supplier.
Starbucks chose to buy a coffee farm in China, an area that showed tremendous growth in the number of coffee drinkers. And Starbucks has recently implemented a strategy of backward vertical integration as they have just purchased a 600-acre coffee bean farm in Costa Rica. By doing this, Starbucks hopes to develop proprietary coffee varietals, which could lead to new blends in addition to the 55 blends that are currently being offered. Furthermore, the new farm will facilitate Starbucks with research and development to offer new hybrid coffee beans, and the opportunity to study specific diseases that are devastating coffee bean crops around the world.
    *Outbound coordination. The greater part of its item blend are sold in-store and some through substantial box retailers.
Installment around source through purpose of offer, paid ahead of time Starbucks Cards and portable installments.
    These factors not only have increased the sales but also the reputation among the coffee lovers. Starbucks encounters aggressive competition in all areas of its business activity. The market for each of their business segments are characterized by vigorous competition among major corporations with long established positions and a large number of new and rapidly growing firms.
    Anyway, as Starbucks have a good financial capacity with good strategies; it can overcome all the competitors to shine high as the first class coffee provider.

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  46. what type of porter’s strategy would you recommend for an organization that CA+IS=3.5and FS+ES=+4 ?
    please help me to answer

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