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Starbucks Company’s Market Conditions and Competition

Starbucks is one of the most popular coffeehouse chains in the world (Lemus et al. 24). The company offers a wide range of products. Despite the fierce competition, Starbucks remains successful owing to its business approach and frequent innovations.

This paper provides a competitive market analysis of the potential success of a new product. While seasonal menus are not new, it is possible to include secret drinks in it: a person buys a cup of coffee or tea with some ingredients (the list of possible flavors will be given) and does not know what they are. In this work, the type of market, the opportunities within it, and factors that influence the company’s business are described.

The coffee market in the USA is close to the oligopoly model: while small coffee shops are present, most coffee products are still associated with several brands. Starbucks is the leader since its market share equals 42.4%; Dunkin’ Donuts, Caribou, Coffee Bean & Tea Leaf, and Diedrich are the primary competitors, and the former is described as the most serious rival with the market share of 25.5% (The Statistics Portal par. 2). Other coffee shops have significantly lower rates. As for the consumers, the majority of them are educated adults aged 25-45, and the number of younger people is also growing; regardless of their age, consumers take into account several factors when they go to a chain shop: image, store atmosphere, goods/services specifications, and prices (Akgün and Yal 129).

The popularity of Starbucks can be explained by the advantages over its competitors and international trade opportunities. The company managed to find its niche 40 years ago, and now it runs its business wisely. The company’s advanced knowledge of production and services is applied to practice in many ways, for example, the quality of all production processes is controlled by Starbucks directly (no partners are involved in processes), and baristas and other employees undergo a proper training (Brooks 40). Starbucks is notable for its creativity: they regularly introduce new products and design tumblers, mugs, and other things (Sam and Cai 208). In this regard, the promoted product will suit perfectly. The collaboration with foreign partners is an important component of the company’s business. There are about 18000 coffee shops in 62 countries (Sam and Cai 207). Thus, expansion creates numerous opportunities for the company.

Just as any company, Starbucks needs to pay attention to the factors influencing demand, supply, and prices. Coffee beans and economic, political, social, legal, financial, and climate risks connected with them become an essential supply issue (Lemus et al. 30). Further, new technologies are significant: they help reduce the prices and improve service quality that will result in demand increase. Customer education is another strategy: informing clients, the company encourages them to buy high-quality and expensive products and establishes relationships. Consequently, people make conscious choices, tend to be loyal to the brand, and generate demand for products.

Providing new ideas and attracting clients, Starbucks arises substantial profit. There are several key factors that affect its total revenue, and the price elasticity of demand is one of them. As it is estimated, the company’s prices are inelastic (Schiller 91). Should the prices raise, a consumer will continue to buy their morning coffee without even noticing that the costs differ.

Further, productivity is also linked with the total revenue. Employees realize that they work for a respectable international company that produces the world’s finest coffee. As a result, they try and meet all the requirements, focus on quality, and boost the productivity. One more factor pertaining to productivity is the workforce climate (Cooper par. 5). To put it bluntly, it is the friendly and warm atmosphere that improves the staff’s working efficiency. A customer has to wait a couple of minutes to get their coffee or another product. Thus, Starbucks manages to serve many persons and benefit.

In the costs structure, the cost of products and store operating expenses (including opportunity costs) account for about 45% in both cases while general, administrative, and store operating expenses are about 10%; in 2013, $2.8 billion was spent in total (Krikorian par. 2).

Among the externalities, the competition on the coffeehouse chains market discussed above and the government public policy are important. The expenditures are also connected with taxes. The tax rates are 34%; in 2014, Starbucks paid $446.6 million (Lemus et al. 30). Marginal revenue and marginal cost are affected. Although the costs are reported to be small, they still tend to grow nowadays (Schiller 106).

To maximize the profit-making potential and increase the presence within the market, Starbucks should adhere to their existing strategies and change the variety of products, not the essence. Secret drinks are potentially advantageous since they will attract customers by the novelty of the idea. Besides, it may become a kind of harmless gambling: people will buy more to see what they got.

To conclude, the competitive market analysis demonstrated that the promoted product might bring benefit. It corresponds with the company’s principles and strategies. Thus, Starbucks can strengthen its position and derive more benefit.

Works Cited

Akgün, Serkan, and Funda Yal. “The Reasons of Young Consumers’ Choice on Chain Café Stores: A Research on Starbucks.” International Review of Management and Marketing 5.3 (2015): 129-134. Print.

Brooks, Bradley W. “Starbucks: Maintaining a Clear Position.” Journal of the International Academy for Case Studies 18.3 (2012): 39-57. Print.

Cooper, Steve. “Make More Money by Making Your Employees Happy.” Forbes. 2012. Web.

Krikorian, Matthew. “Understanding Starbucks’ Cost Structure and Operating Expenses.” Market Realist. 2014. Web.

Lemus, Edel, et al. “Starbucks Corporation: Leading Innovation in the 21st Century.” Journal of Alternative Perspectives in the Social Sciences 7.1 (2015): 23-38. Print.

Sam, Yin, and Y. Cai. “A Study on the Use of Social Media to Understand Consumer Preference: The Case of Starbucks.” International Journal of Management and Business Research 5.3 (2015): 207-214. Print.

Schiller, Bradley R. Essentials of Economics. New York: McGraw-Hill/Irwin, 2015. Print.

The Statistics Portal. Market Share of the Leading Coffee Chains in the United States in 2014. n.d. Web.