PESTLE analysis is a ‘tool that is used to identify and analyse the key drivers of change in the strategic or business environment’ (De Costa, 2018). The acronym stands for Political, Economic, Social, Technological, Legal, and Environmental factors. PESTLE analysis is easy to implement and is clearly understood and things that are easy to understand are likely to be executed successfully (Parikh, 2017).
Political
When using the PESTLE analysis of the major coffeehouse chain, the first factor that should be considered is political factors. One of the key political factors is the sourcing of the raw material. Locus (2018) states that the company wants to abide by the current environmental legislations, whilst also providing fair trade prices. With regards to the case study, it is mentioned that Starbucks began to follow a new practice whereby they would outbid European buyers for the exclusive Nariño Supremo bean crop. This variety of crop is very limited and grows only in the high regions of the Cordillera mountain range, which makes it greatly sought after by such companies. ‘For years, Nariño beans were guarded zealously by Western Europeans who prized their colourful, complex flavour’ (Case Study, 2018). This implies that there are political factors, which are having an effect on the supply of coffee beans – an essential resource in the coffee making industry.
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Economic
With respect to the economic factors, the case study recognises that Starbucks offers an exclusive benefits package to both part-time and full-time employees. ‘The package includes medical, dental, vision, and short-term disability insurance, as well as paid vacation, paid holidays, mental health/chemical dependency benefits, an employee assistance program, a 401k savings plan, and a stock option plan’ (Case Study). This scheme has its advantages and its disadvantages. On one hand, the economic and tax implications that come with this programme can be deterring. On the other hand, the benefits package provides employees with incentives, which will encourage and motivate them to stay and work for the company. As a result, this will increase employee retention and decrease employee dropout rates and the turnover costs of hiring new employees.
Social
As for the social factors, Locus (2018) states that maintaining a work-life balance, changing family and work patterns and drastic lifestyle changes play a major role in the successful functioning of a business. This increases the likelihood of companies in the coffee industry to sell their products to the target market. However, De Costa (2018) identifies that the continuously changing customer preferences and the population’s growing concern regarding their health is leading to a reduction product consumption. This is poses a threat to the coffee industry, as it will impact the sales of coffee related products.
Technological
With regards to the technological factors, Locus (2018) recognises that Starbucks has made technological advances such as developing its own mobile application and a website for customers with a user-friendly interface. ‘Its partnership with Apple provides discount coupons that makes it customer interactive’. This provided companies within the coffee industry with a wider range of resources and opportunities to reach out to their target market. It also provides internet facility within its outlets.
Legal
When taking into consideration the legal factors, Locus (2018) states that companies within the coffee making market must ensure that it does not go against any regulations when buying raw materials (i.e. coffee beans) or selling the manufactured products across the globe.
Environmental
As for environmental factors, Locus (2018) identifies that even consumers have raised concern about the violation of certain environmental laws. The countries that are producing coffee beans have been experiencing environmental disasters and consequently the damages caused by global warming is increasing. (PESTLE analysis, 2016)
Internal environmental analysis, A VRIO analysis on Starbucks Globally
Starbucks holds a high position in the coffee industry. It has more than 22,000 stores open worldwide. With its primary focus on customer service and product quality, the company has been able to grow and achieve success. One of the reasons for this can be due to its diversity as a brand. There are three prime factors that makes the brand stand out from the rest. Most importantly, it is down to the sheer quality of its products – Starbucks serves only premium quality coffee.
This is crucial, as it has helped the company to globalise and become an international brand with a renowned reputation for quality coffee, excellent customer service and ethics. As a result, this has enabled the brand to gain customer loyalty and dominate the coffee market. This VRIO analysis will present a deeper analysis of the factors that have helped Starbucks to develop such a competitive reputation.
Starbucks has a strong brand image that is formed on the basis of three important foundations: ethics, product quality and customer service. This is clearly seen in the company’s global presence as the organisation has 24,000 stores in over 70 countries. This can be perceived as extremely valuable as this helps the customer base to increase and building a great reputation is also good for marketing. Although some may believe that other competitors can achieve this too, it could be more difficult for them due to the level of financial investment that is required. This suggests that this forte is difficult to imitate because of the investment involved but could be possible in the long-term. Due to this, the company has to be well structured to keep up with this competitive edge that they have.
Another advantageous feature of Starbucks is its unique flavours and quality of coffee. This is because the brand is known best for its quality and countless range of flavours of the coffee products that it serves, which is highly attractive to customers. This is significant because it is another reason why customers opt for to Starbucks, as opposed to other coffee shops. A lot of time and money is invested in the creation and testing of these special flavours. This implies that this would be difficult to imitate because of the prices and intensity of the procedure. This strength needs to be organised as Starbucks’ flavours is what sets them apart and an integral part of its marketing and customer retention strategy.
The other strength of Starbucks is its high level of customer service. This is an essential quality of any business, as the level of customer service goes hand in hand with the quality of its products and helps to maintain a good customer base. Unlike Starbucks’ distinguishing qualities previously mentioned, this feature can be achieved by other companies as well. However, it does require more investment in staff training and a set focus on any principle that is valued by its specific industry. The significance of this is that it is important to prioritise the standard of customer service because this can play a key role in drawing in customers and is what makes Starbucks successful.
Bibliography
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- Parikh, D. (2017). Advantages and Disadvantages of Pestle Analysis. Available: https://www.letslearnfinance.com/advantages-disadvantages-pestle-analysis.html. Last accessed 9th Nov 2019.
- Locus, S. (2018). Pestle Analysis. Available: https://www.nibusinessinfo.co.uk/content/pestle-analysis-example. Last accessed 9th Nov 2019.
- Case Study. (2018). Case Study. Available: https://pdfs.semanticscholar.org/d9d2/86c5a903a91d4e5e6cff565f186f91383a02.pdf. Last accessed 9th Nov 2019.
- Bhasin, H. (2019). Vrio analysis and framework. Available: https://www.marketing91.com/vrio-analysis-and-vrio-framework/. Last accessed 9th Nov 2019.
- Bhanek, D. (2018). Starbucks Strategy. Available: https://prezi.com/rhwbqfw0efqy/starbucks-strategy-the-vrio-framework/. Last accessed 9th Nov 2019.
- Gheereddy, N. (2018). Starbucks Case Analysis. Available: https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf. Last accessed 9th Nov 2019.
- Pratap, A. (2018). VRIO Analysis. Available: https://notesmatic.com/2017/08/vrio-analysis-of-starbucks-coffee/. Last accessed 9th Nov 2019.
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