Essay Sample on Starbucks' External Factor Evaluation Matrix

1. The political stability of most of Starbucks' emerging market (India and China). 0.2 4 0.8

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2. The availability of numerous sources of Starbucks raw product gives a variety of choices to Starbucks thus able to have control over suppliers. 0.05 2 0.1

3. Few new entrants in the coffee industry coupled with the high amounts of finances required to establish a global coffee business. 0.15 3 0.45

4. Stringent measures for consumer protection, and health and safety standards. Starbucks has already invested heavily in this sector thus it can use this premises to attract new customers. 0.05 4 0.2

5. Education campaigns are ensuring that people are educated thus increasing their employability, especially in its emerging markets.

0.15 3 0.45

Threats

1. Customers are informed of the numerous coffee brands and substitutes available. Customer loyalty thus is threatened. 0.1 3 0.3

2. Rivals are offering their coffee products at a lower price as compared to Starbucks. This poses a threat to its customer base. 0.05 2 0.1

3. The rise of specialty coffee threatens the existence of Starbucks. Consumers can now prepare instant coffee at home. 0.1 4 0.4

4. Increasing price sensitivity of Starbucks customers. A rise in its coffee prices will cause anxiety among the customers 0.15 2 0.3

Total 1.0 3.1

The EFE matrix has resulted in a final score of 3.1 which is way above average which implies that Starbucks has strong capacity to respond to external factors.

An external analysis exposes the potential opportunities and the threats that are within a given company's external environment. The external environment analysis is coupled with a review of the industry which evaluates its attractiveness. The overall analysis helps prepare an external factor evaluation matrix (EFE matrix) which studies, summarizes and evaluates the specific opportunities and threats enumerated according to their importance to the company under review.

Political Environment - political stability

Political environment refers to how governments and their processes intervene in the economy. Of importance is the political stability of countries in which Starbucks operates. This factor directly affects the operation of Starbucks as the business' activities can only thrive in an environment that is politically enabling. Political instability especially caused by elections affects a country economy and supply chain stability (Mohammadian, 2017).

Emerging markets are favoring Starbucks' expansion model. However, most of these markets are volatile due to uncertainty in the political arena. Disruption of stability weakens the economy of a country which will, in turn, affect factors like raw material, labor and also supply chain. The global reach of Starbucks means that its management must be aware of the state of the political environment in each country they have operations.

Economic Environment-Purchasing power of consumers

Economic environment influences the ability of a business to operate and its profitability. The influence of this environment on Starbucks and other companies is of great importance. The amount of revenue that Starbucks generates is dependent on the spending capacity of consumers (Haskova, 2015).

Spending capacity of customers is in turn dependent on the income levels, inflation and economic growth among other factors. Predominantly, consumer purchasing power in a given country indicates the state of the economic environment in that country (Epstein & Buhovac, 2014). For instance, by the end of the 2008 economic crisis, Starbucks overall revenue had decreased by 28%. Consequently, the company had to close approximately 900 outlets and laying off 6700 employees. It's thus essential for the management to cognizant of various trends in the economic environment as they may determine the existence of their branches in some countries especially the developing ones (Haskova, 2015).

Social environment - literacy levels

Spending behavior of consumers varies with their education levels. Education increases chances of people being employed thus have an income which will enable people to seek and purchase products (Epstein & Buhovac, 2014). For Starbucks, the majority of its consumer base is composed of professionals. Due to hard economic times, companies have resulted in laying off some of its employees.

In the recent years, unemployment rates have soared especially in the developing countries. These factors coupled with high retirement rate means that a considerable section of coffee consumers are affected financially thus destabilizing Starbucks revenue generation. The social environment is dependent on the marketing strategies of a company. Starbucks needs to focus its marketing efforts on the millennial generation who will form the most significant share of the working population going forward (Mohammadian, 2017).

Technological environment - Specialty coffee

Technology is fast changing the business landscape through new manufacturing practices, new marketing strategies, and modified distribution channels. Lately, the rise of specialty coffee machines for homes has threatened the company business operations through the increase in the number of substitutes. The changing technological environment has catapulted Starbucks to venture in instant coffee and K-cup lines. Also, in the production department, the company has introduced advanced technologies thus placing it ahead of the competition (Epstein & Buhovac, 2014).

Legal environment - health and safety standards and consumer rights and laws

Companies should know the legal constraints of different countries to operate successfully. For instance health and safety standards are of interest to most governments. Violating these regulations attracts costly repercussions to the involved company. Additionally, going against consumer rights and laws will damage a Starbucks brand name thus affecting its existence in a given country. The company should thus establish clear structures to check that product safety, and consumer rights regulations are followed (Epstein & Buhovac, 2014).

Rivals competitiveness - threat

Rivalry in the coffee industry is relatively high. Among Starbucks' main competitors are McDonald's, Dunkin Donuts and Nestle. Also, the company has to compete with many other small coffee companies (Huang, Chang, Yeh, & Liao, 2014). The competitiveness of these rivals is based on their low pricing models. For example, a package of Starbucks' coffee in the Chinese market costs approximately US$5 while that of Nestle's Nescafe costs around US$0.10. Other competitors employ similar marketing models whereby they target the majority middle-class consumers.

Few new entrants - opportunity

Owing to the saturation and competitiveness of the coffee industry, few new entrants make it through to maturation. Moreover, the industry requires a significant amount of financial resources to establish workforce, buildings and other vital properties. This gives Starbucks an opportunity to cement its influence in the industry. The company can thus limit the number of potential competitors therefore focusing on the already established ones (Huang et al. 2014).

Low bargaining power of suppliers - opportunity

Starbucks' supplier diversity policy works to strengthen the company's control over the suppliers. Also due to the numerous coffee sources worldwide, the company can influence the prices of raw materials. The firm can thus control the prices of raw materials to their advantage (Haskova, 2015).

Buyer power of bargaining - threat

The rise of specialty coffee which consumer can prepare at their homes add to the list of the many substitutes for Starbucks coffee. Also, due to the availability of information, customers are spoilt for choice (Mohammadian, 2017). Therefore, the company can hardly revise its price policy upward without upsetting its customer base who may shift their allegiance to cheaper brands. The high bargaining power of consumers is a threat to the wellbeing of the company.

References

Epstein, M. J., & Buhovac, A. R. (2014). Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers.

Haskova, K. (2015). Starbucks Marketing Analysis. CRIS-Bulletin of the Centre for Research and Interdisciplinary Study, 2015(1), 11-29.

Mohammadian, H. D. (2017). Principles of Strategic Planning.

Huang, H. C., Chang, Y. T., Yeh, C. Y., & Liao, C. W. (2014). Promote the price promotion: The effects of price promotions on customer evaluations in coffee chain stores. International Journal of Contem