Starbucks – Valuation Harvard Case Solution & Analysis

Starbucks - Valuation Case Solution

ECONOMY:

            The economy of the region is stable with a less fluctuating discount rate, due to strong economic policies. The country also has a high GDP, which ensures high productivity in the region. Due to a stable economy, the inflation rate of the country is just under 2%while the demand fluctuation in the region is high because people in the region love change and don’t stick with a patent life.

INDUSTRY:

Industry Life Cycle    

The industry life cycle for Starbucks suggests that the industry is on maturity stage since, the market growth rate is slow. There are numerous companies competing in the same industry. Furthermore, the industry is facing a low switching cost. Moreover, the demand of customers is fluctuating rapidly. However, companies like Starbucks, Burger king etc. are managing to compete successfully in the industry while ensuring that they still lie on the maturity stage of the business to avoid entering in a decline stage. Therefore, it can be said that the industry is on its peak and its standing at a level where the next phase would of decline. (INC, 2012)

Porter’s Five Forces

According to the porter’s five forces, the arena is an average place to work. It is not very attractive since, the competitive forces are affecting the industry aggressively. However, how these forces affect the industry will be discussed in the next section.(MindTools, 2012)

Threat of New Entrant

The threat of new entrants to the industry is low, since a huge capital required to enter the industry. Whereas, prevalent competitors within the industry have a substantial learning and experience curve that discourages potential new entrants. Moreover, all competitors in the industry have achieved economies of scale and they are reducing their fixed cost to increase the overall profits. Moreover, while the industry members have a threat of new entrant since, the product of the industry is not much differentiated. The industry members are offering similar offers, which increase the threat of new entrants. Furthermore, another factor that discourages new entrant is that the brand development in the industry incurs a high cost, which reduces the threat of new entrant to enter the industry. Finally, it can be concluded that the threat of new entrants towards the industry is low or moderate.

Competitive Rivalry

            The rivalry among the industry members is so high since the degree of differentiation is low in the products. Entities  in the industry are competing on the on price in order to steal the market share away from each other. Furthermore, the customer faces low switching cost and has a variety of options to choose from. Finally, it can be said that the rivalry among the industry members is very high, which ultimately affects the profitability of the industry members.

Threat of Substitutes

            The industry is facing a serious threat of substitutes. There are numerous substitutes available in the market in contrast to industry’s product. Moreover, the customer of the industry is face low switching cost by opting for substitutes. In addition, the substitutes are attractively priced and are being aggressively advertised, which increases customer’s focus towards them. In a nutshell, it can be said that threat of substitutes is very strong competitive forces, this impacts the industry negatively.

Bargaining Power of Buyer

            The industry gives high power to buyer since; there are numerous suppliers available for customers to choose from, In addition, there are numerous substitutes available to the customers, which have an attractive price. Moreover, there is a small group of individual buyers, which increase the power of the industry members to bargain with the customers. Ultimately, the power of buyer is high which threatens every competitor from earning above average profits. Finally, companies are working to keep an upper hand over their buyers and to earn more profits....................

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