Question

Overview: Starbucks Coffee’s Five Forces Analysis Starbucks Coffee faces the influence of the five forces, as outlined in Porter’s model. These five forces have varying intensities or strengths based on Starbucks’ position, as follows:

1. Competitive rivalry or competition (strong / moderate / weak force). Why? And list out the reasons.

2. Bargaining power of buyers or customers

3. Bargaining power of suppliers

4. Threat of substitutes or substitution

5. Threat of new entrants or new entry

Answer 1

Porter's Five Forces Model is used to analyze the level of competition in an industry.

Starbucks distinguishes itself from others by quality, taste and customer service.

Below is Porters Five Forces Model analysis of Starbucks:

1. Competitive Rivalry: Competitive Rivalry is Moderate to High for Starbucks because there is monopolistic competition in industry. Reasons - The competitors of Starbucks are McDonald, Dunkin Donuts etc. Competitors are trying to come up with strategies to innovate or specialize the product to attract the customers. There are some products that are unique and help Starbucks to build brand loyalty among customers. Other factor is Starbucks market share that moderate the competition. Starbucks has the highest market share. Quality of customer service is another factor for moderate competition of Starbucks.
2. Bargaining Power of Buyers: In case of Starbucks bargaining power of buyer is Moderate. Reasons: Size of buyers are small and simple buyer does not influence enough. Substitute: Availability of substitute in market. Low Switching Cost: Customers can easily switch from Starbucks because it is affordable.
3. Bargaining Power of Suppliers: The bargaining power of suppliers in Starbucks is Low. Reasons: Bargaining power of suppliers does not have much impact on Starbucks. Policy of Diversifying the supply chain reduces the influence of supplier on Starbucks. Moderate size of supplier is another factor in low bargaining power of suppliers. From the five forces analysis Starbucks does not prioritize the demand of suppliers.
4. Threat of Substitute: Threat of Substitute is High in Starbucks. Reason: Availability of substitute: The products that are served by Starbucks have many substitute in market. Low cost of substitute: customer do not need to spend more for substitute. customer can easily shift from Starbucks to other substitute as it affordable too. Another threat is homemade product that consumer can make at home and switching cost is negligible. By analysis, Starbucks must consider threat of substitute as its prioritize concern.
5. Threat of new entrants: The threat of new entrant is Moderate in Starbucks because of High cost of brand development, Starbucks provide premium quality and have brand loyalty among customers. So developing a strong brand takes time and this make difficulties for new entrants to attract customers. Low switching cost: new entrants can attract customer by using lower prices. Other factor that provide edge to Starbucks is its access to raw material and suppliers. All these factors are responsible for moderate level of threat posed by new entrants.