Revision : Strategies - Porter's Generic Strategies

Porter’s generic strategies are one of the most popular tools used when undertaking a competitive analysis in any industry. According to Porter (1985) companies can generally choose from two broad strategies, product differentiation or cost efficiency in broad market scope, or they may pursue product differentiation or cost efficiency strategies within a particular customer segment.

To put it simply, companies usually choose to maximise their profit through offering products or services in lower prices, or offering superior quality products or services for higher price. And this can be done for the whole business or for a particular customer segment.

A focus strategy “is defined by its emphasis on a single industry segment within which the orientation may be toward either low cost or differentiation” (Czinkota and Ronkainen, 2007, p.196).

When pursuing a cost leadership strategy the company prices its products or services at a lower level than competition. Cost leadership strategy is associated with engagement in economies of scale and maintaining strict control of costs. Differentiation strategy, on the other hand, focuses marketing efforts on quality and uniqueness in relation to specific aspects of products or services.

There are many advantages product differentiation strategy provides to the business. Product differentiation strategy increases the level of customer loyalty dramatically by mentioning the statistical data according to which US consumer loyalty to a single brand varies from 30 percent in batteries up to 70 percent in cigarettes.

When conducting competitive analysis companies should seek following information: current strategy and future objectives of competitors, assumptions about the industry in which competitors believe, and strengths and weaknesses of competitors.

Example: Application of Porter’s Generic Strategies to Warner Bros.

According to Porter’s generic strategies differentiation in broad competitive scope marks the main competitive advantage of Warner Bros. The company engages in diversification in two levels: the quality of products and their delivery.

The quality of Warner Bros. films and entertainment products are diversified in a way that they attempt to stand out in terms of narrative and nature of ideas communicated through them, as well as, through attracting famous A-list actors and actresses. In terms of delivery and consumption, on the other hand, diversification is achieved through focus on digitisation of media and entertainment.

Moreover, some of the popular series produced by Warner Bros. such as The Bing Bang Theory, Two and Half Men, Mentalist, and Vampire Diaries have attracted acclaim of critics due to high levels of originality on various aspects of the show.

Revision : Strategies - Ansoff's Matrix

Ansoff Growth matrix assists businesses to increase their revenues by offering four different growth options depending on products and markets.

According to the matrix market penetration is a type of growth where the company attempts to increase the level of sales of existing products into current markets.

Product development growth strategy, on the other hand, involves introducing new products into current markets. A situation where a business enters new market with its existing products is marked as market development growth strategy.

Diversification growth strategy can be achieved through offering new products into new markets.

For example, this principle is followed by Warner Bros., although the extent of utilisation of each individual growth strategy varies. Warner Bros. uses market penetration and product development strategies in the US in particular through periodically introducing popular entertainment shows. Due to the following to this strategy for the season of 2012 – 2013, Warner Bros. Television has accounted for more than 30 per cent of top shows on broadcast TV in the US (Annual Report, 2013).

Acquisition of 55 per cent of Shed Media plc, one of the leading entertainment firms in the UK for USD 100 million in 2010 (Annual Report, 2013) can be referred in order to illustrate market development strategy of Warner Bros. Diversification strategy, as discussed above is engaged by Warner Bros. in relation to quality of content and the manners of delivery and consumption of films and entertainment products and services.

Revision : Analysis on Starbucks & The Coffee Industry

For this entry I have decided to make revisions that would be relevant to my exams.

Utilising the knowledge from my previous entries, I endeavour to provide my SWOT, PESTLE and Porter's 5 Forces analyses for Starbucks and the coffee industry.

Starbucks SWOT analysis
Strengths	Weaknesses
Sound financial records No. 1 brand in coffeehouse segment valued at $4 billion Starbucks experience Largest coffeehouse chain in the world Employee management	Coffee beans price is the major influence over firm’s profits Product pricing Negative publicity
Opportunities	Threats
Extend supplier range Expansion to emerging economies Increase product offerings Expansion of retail operations	Rising prices of coffee beans and dairy products Trademark infringements Increased competition from local cafes and specialization of other coffeehouse chains Saturated markets in the developed economies Supply disruptions

PESTLE Analysis

Political

• The key political imperative that Starbucks faces is the concerns over sourcing of its raw materials that has attracted the attention of the politicians in the West and in the countries from where it sources its raw materials. This is the reason why Starbucks is keen on adhering to social and environmental norms and to follow sourcing strategies that are appropriate and in conformance to the “Fair Trade” practices that have been agreed upon by global corporations and the governments of the developing and the developed countries.
• The other political imperative that Starbucks faces is the need to adhere to the laws and regulations in the countries from where it sources its raw materials. This has been necessitated because of activism and increased political awareness in the developing countries, which form the basis for Starbucks’ sourcing strategies.
• The third political imperative, which Starbucks faces, is the regulatory pressures within its home market in the United States because of greater scrutiny of the business processes that multinationals based in the US are now subject to.

Economic

• The foremost external economic driver for Starbucks is the ongoing global economic recession, which as explained in the introduction has dented the profitability of many companies.
• However, studies have shown that consumers instead of cutting down on their coffee consumption are shifting to lower priced alternatives which is an opportunity for Starbucks.
• Of course, the company still has to contend with rising operational and labor costs as the inflationary macroeconomic environment coupled with the falling profitability is squeezing the company from both ends of the spectrum.

Socio-Cultural

• Though Starbucks can offer cheaper alternatives as mentioned previously, it has to do so without sacrificing the quality and this is the key socio cultural challenge that the company faces as it expands its consumer base to include the consumers from the lower and the middle tiers of the income pyramid.
• Apart from this, the “green” and the “ethical chic” consumers who fret about the social and environmental costs of the brands they consumer means that Starbucks has to be cognizant of this trend.
• Third, the retiring baby boomer generation means that spending by the older consumers is likely to taper off and hence, Starbucks would have to lookout for tapping the Gen X and the Millennials as part of its strategy.

Technological

• Starbucks is well poised to reap the benefits of the emerging mobile wave and as it has tied up with Apple to introduce app based discount coupons, it can expect to ride the mobile wave with ease.
• The company has already introduced Wi-Fi capabilities in its outlets so that consumers can surf the web and do their work while sipping coffee. This is indeed an added value to the Starbucks brand and something, which enhances the consumer experience.
• It can also introduce mobile payments and this is something that it is already testing out in pilot locations in the United States.

Legal

• Starbucks has to ensure that it does not run afoul of the laws and regulations in the countries from which it sources its raw materials as well as the home markets in the United States.

Environmental

• There have been several concerns about the business practices of Starbucks from the activists, international advocacy groups, and from the consumers themselves. Therefore, Starbucks has to take into account these concerns if it has to continue holding on to the trust it enjoys with its consumers.

Conclusion

The preceding analysis proves the point that Starbucks is operating in a relatively stable external environment. The main reason for this is the fact that it operates in the Food and Beverages space which means that despite the recession, consumers cut down on the consumption to a certain extent and not completely. Therefore, the task before Starbucks is to lower costs and increase the value so that it retains its consumer base and attracts consumer loyalty.

Porter's 5 Forces

Rivalry among existing competitors is high within the industry Starbucks operates in with major competitors like Costa, McDonald’s, Caribou Coffee, and Dunkin Donuts and thousands of small local coffee shops and cafes.

Starbucks customers possess large amount of bargaining power because there is no and minimal switching cost for customers, and there is an abundance of offers available for them.

The threat of substitute products and services for Starbucks is substantial. Specifically, substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy drinks, whereas pubs and bars can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work environments.

Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas. Moreover, the issues associated with African coffee producers being treated unfairly by multinational companies are being resolved with the efforts of various non-government organisations, and this is contributing to the increasing bargaining power of suppliers.

Threat of new entrants to the industry to compete with Starbucks is high, because it is easy to enter into this market because there are no governmental restrictions or proprietary know-how inhibiting others from entering. Furthermore, the technology is common, easy to access, and relatively inexpensive, making entry to the market fairly easy.