Starbucks and the Segments of the External Enviroment
Starbucks and The Seven Segments of the General Environment RHanna October 23, 2011 Starbucks and The Seven Segments of the General Environment Starbucks is one of the most recognizable coffee retail chains in the world. Their brand focuses on high quality coffee using specialized roasting of beans from many countries around the world. The company began in 1971 in Seattle, Washington with one retail store and it grew to over 2,600 stores in 13 countries by the early 2000’s (Schultz, 2011). They now have operations and retails stores in more than 50 countries around the world (Harrer, 2011).
The CEO, Howard Schultz, has developed a mission and guiding principles of how the corporation should handle their day to day business. Starbucks’ mission is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. ” (www. Starbucks. com). Starbucks has faced many economic, social, and competitive challenges along the way. Some of these include new entrants of competitors like McDonalds and Dunkin Donuts who offer similar products at lower prices. However, these competitors have yet to imitate the Starbucks environment of what they call “the third place” (Schultz, 2011).
This will be explained more as we look further into how the seven segments of the general environment have, and still do, affect Starbucks. The general environment can be defined as uncontrollable factors in society that can indirectly affect a firm’s industry. It is important for a firm, such as Starbucks, to continually monitor and assess these changes or influences that are occurring in society. Many companies fail when they do not properly assess these elements that ultimately affect their strategic competitiveness (Hitt, Ireland & Hoskisson, 2011). Let’s begin by looking into their demographic segment.
Starbucks can now be found in almost every community. They strive to bring people and places together (www. Starbucks. com). Some people believe the trend in their consumers show the majority are young college students and professionals in the upper middle class. However, Starbucks wants to provide a comfortable environment where people can meet, conduct business, or just to enjoy a fresh beverage or snack regardless of their income or social status. Each Starbucks is uniquely designed as a “third place”, a place in addition to home or work (Schultz, 2011).
This has proven to be an excellent opportunity for Starbucks and Starbucks can now be found from one region to another. In addition, they offer music and book events in many of their stores in hopes to continue to attract loyal customers (www. Starbucks. com). While they don’t target specific incomes, many of their coffee prices are higher than some of their competitors like McDonalds. McDonald’s is redesigning many of their stores with the same philosophy in mind. They are also trying to develop a more comfortable environment for their customers as well. This could potentially become a threat to Starbucks.
Therefore, if I were CEO, I would consider offering some lower priced menu items, without sacrificing quality, in order to minimize the threats from these other competitors. The next segment, the economic segment, refers to the impact the economy has had on Starbucks over the past few years. After years of company growth and stability, Starbucks found themselves in trouble in 2008 as a result of the declining economy. The employment rate was increasing and people were beginning to hold on to their money and watch their spending. In turn, Starbucks suffered. Their sales decreased and their stock prices began to fall. Schultz, 2011) Howard Schultz, chairman and former CEO, decided to return as CEO to bring about a change in hopes that Starbucks could survive this downward trend in the global economy. His goal was to focus on the customer experience and to bring back the specialty of making the drinks by hand. Unfortunately in 2009, due to the decline in the economy, he was forced to close a few hundred stores which cut thousands of jobs (Harrer, 2011). Since, Starbucks has rebounded and in the 3rd quarter of 2011 has reported record sales and net revenues (www. Starbucks. com).
The downward turn of the economy was definitely an uncontrollable event that caused a threat to the company. However, it also provided an opportunity for the stakeholders to re-examine their corporate structure and mission which forced them to make changes for the betterment of the company by increasing the customer experience. I believe Mr. Schultz did an outstanding job of turning the company around during this time. Had he not made the changes that he did, Starbucks may have failed. The political/legal segment focuses on the influences groups and organization has on the government and how the government influences them as well.
While this country is still faced with a down economy, Starbucks CEO, Howard Schultz, wants to set a trend and “redefine the role of business in society” (Dolan, 2011). He is asking for companies to get involved in the education and training for society’s workforce in an effort to help decrease the unemployment rates and put people back to work. He believes it is the responsibility of the business community “to serve the communities where we do business by helping to improve, for example, the quality of citizens’ education, employment, healthcare, safety, and overall daily life…. ((Dolan, 2011). In addition, The Starbucks Foundation is partnering with finance groups to “lend money to small businesses that aim in creating jobs” (Dolan, 2011). He also placed ads in the New York Times and USA Today asking for Americans to be pro-active for change and not wait for the government to take action. He is asking “Americans to pledge to withhold campaign contributions to members of Congress and the President ‘until a fair bipartisan deal is reached that sets our nation on a stronger long term fiscal footing’ and thousands have taken the pledge so far” (Dolan, 2011).
Shultz is hoping this will influence the government to take action. This could potentially have a major impact on the election and could force the government to find better ways of creating jobs in the U. S. As a CEO of a large global company, this could be seen as a risk for the company as well as opportunities. The company could also be at risk for retaliation from the government. The sociocultural segment can include trends in a change of the work or school environment. Many companies are now allowing their employers to work from home or in remote locations.
In addition, many students are taking more online courses as a result of improved technology. For Starbucks, this could be a threat if people are working or studying from home. They could be less likely to go to a retail store chain if a location is not close. However, this could present an opportunity for expansion to more suburban areas. As CEO, it would be necessary to analyze the number of people in the workforce that are now working from home, as well as, the number of students studying online to see how this could potentially impact sales and revenue. After a thorough analysis, it could be determined if adding additional
Starbucks retail stores, hometown favorites, in local communities could be a long term benefit to the corporation. It is increasingly important for companies, such as Starbucks, to pay close attention the technological segment. Technology is continuously changing and advancing. If Starbucks does not stay on top of the changes, they could be vulnerable to new entrants of competitors. Starbucks offers free wi-fi to its customers at all of its stores. In addition, customers can access Starbucks digital network to access news, entertainment, and even music downloads. There is “something available for everyone” to enjoy (www.
Starbucks. com). This gives Starbucks a competitive advantage. While customers enjoy their coffee experience, they can surf the web, conduct business, or download their favorite tunes. As CEO, it will be necessary to stay abreast of all technological changes to ensure they are offering the best availability for their customers. If they should miss something, it would definitely leave them vulnerable to new competition. The global segment focuses on global market expansion. The U. S. has increased outsourcing its resources to other countries over the past two decades and Starbucks has also increased its trend of outsourcing.
They have agreements with factories and farms all over the world to produce, roast, and package high quality coffee beans and their opportunities globally continue to expand. They have expanded their global market opportunities in almost thirty countries while providing work and an improved quality of life for the farmers and communities in these countries. Starbucks has a tremendous effect on the coffee industry. They have eliminated their use of child labor and treat their farmers with “respect and dignity”. Schultz, 2011) In addition, Starbucks is giving back to these global communities by providing a percentage of the profits from their “Red” products being given abck Africa to help small villages provide food, medical, and water supplies. Most recently, Starbucks has announced that they will begin roasting and producing a new product called “Starbucks Blonde Roast”. This product is aimed at customers who like a milder coffee. Aloso, Starbucks has introduced an instant coffee, “VIA Ready Brew” with the intentions of increasing their market share globally. Anonymous, 2011) These trends of new products and global outsourcing can benefit Starbucks tremendously. They are able to obtain the best roasted beans for their customers and develop new products that make it more difficult for competitors to imitate while giving back to the community farmers who produce them. Starbucks has been committed to an environmental friendly landscape which has helped to improve changes in the physical environment segment. They are committed to recycling their paper or cardboard products. However, the challenge has been in areas where the communities do not support commercial recycling.