EXECUTIVE SUMMARY

‘Starbucks represents something beyond a cup of coffee,’ those were the words of the international coffee brand CEO and I couldn’t add more. Starbucks is a source of inspiration, satisfaction and a challenge to many especially due to its unique achievements. The brand did not only succeed in selling Coffee in a tea nation (China) but has also redefined the art of marketing. Starbucks main form of marketing has been the word of mouth contrary to what many may think and what their competitors are doing. Through innovation, unique creativity and taking risks, one single shop that specialized in high quality coffee and brewing products has grown to over 16,000 stores and operates in over 50 different countries. This is not just a normal occurrence but a product of great organization, quality products, well planned strategies and above all genius marketing.

1.0 INTRODUCTION

Success is not an event but is a process; this is a statement that Starbucks has illustrated through its history which has not been solely successful. The company has used the quality of its coffee not only to maintain the loyalty of its customers but also use the customers as their marketing agents. Consciously or unconsciously individuals will always spread the word of a quality product and recommend it to their friends. The company has gone further and enhanced its image through buying its coffee by the fair trade process. The company also boasts as being among the most socially responsible companies in terms of ethics, customer and employee relations, community involvement as well as being environmentally responsible. All these qualities have made its ‘word of mouth’ marketing very successful since the company’s actions speak volumes.

Task 1, The Marketing Process:

The only company that comes close to the success of Starbucks is McDonald, another brand name. It’s not common for a company that is just over 40 years old to achieve such success as Starbucks; it takes more than just marketing. The company’s best period was in the 1990s a period when there were swelling ranks of mid-age professionals and Starbucks provided just what they wanted, ‘an affordable luxury’ (third place) (Mourdoukoutas, 2013). The success however can be attributed to revolutionary strategic marketing plans.

Starbucks first and most crucial strategy was market segmentation; the company focused on the high-end coffee market and never changed its approach even amid pressure (Mourdoukoutas, 2013). The main focus of the chain was comfort and not convenience a factor that helped Starbucks maintains its brand quality as well as have a healthier financial record. The attention given to the execution and service are another great marketing asset for the company. The focus has not shifted since its inception; good coffee, quality service and just the perfect environment to hang around still remain the identities of Starbucks (Schoultz, 2013). The company’s ability of adaptation and innovation is another aspect and through the crowdsourcing platform of ‘My Starbucks Idea’ website the company has been able to swiftly note market trends and customer preference as well as acknowledging the importance of the consumers a factor that further increases customer loyalty (Schoultz, 2013). The company’s launch into the Chinese market was another marketing success story, the company identified the fact that China was a tea country and therefore the introduction of coffee was introducing change and change is what drives sales (Lamb & McDaniel, 2012).

The most successful approach however has been the social media. Starbucks was among the first companies to take up social media as an aspect of marketing and currently has 7 social media platforms. Its website forms the first and most crucial social marketing platform as it gives a preview of the Starbucks experience. This platform has been quite successful as it has enhanced customer relationships, made customer engagement a reality, encouraged sharing a factor that has increased the its public presence and made it possible for the consumers to experience customization (Schoultz, 2013).

 

Task 1:1 Starbucks SWOT Analysis

STRENGTHS Ø  Brand identity Ø  Quality and Variety Ø  Strong Ethical values Ø  Sound Financial records Ø  Employee management	WEAKNESSES Ø  Influence of coffee bean prices on the company’s prices Ø  Increased level of risk in investing in the USA Ø  Product pricing
OPPORTUNITIES Ø  Investing in emerging economies Ø  Two sided approach to home brewing Ø  Extended supplier range Ø  Increased products offering	THREATS Ø  Trademark infringements Ø  Rising prices of coffee beans and dairy products Ø  Increased competition from local cafes in various markets

 

SWOT analysis involves a simple scrutiny of the internal factors (Strength & Weaknesses) and the external environment (opportunities & threats). This method is mostly favoured because of its simplicity, flexibility, integration and synthesis and collaborative qualities (Ferell and Hartline, 2014 ). Starbucks possess a number of strengths key among being its brand identity as it is actually the number 1 brand in coffeehouse segment with a value of over $4 billion (Jurevicius, 2013). Quality and variety are also a strength for the company as the company actually embarks on a worldwide search for quality beans and offers a variety of brand drinks as well as customized ones. The recent financial records have been strength for the company with a 29.16% return on equity. The company has one of the best employee management programs and was actually listed among Fortune top 100 companies to work for and also possesses strong ethical values and ethical mission statement (Friesner, 2014).

Just like any other company, Starbucks also has a number of weaknesses with the main one being the fact that coffee prices have a major influence on the profitability of the company and also overexposure is another weakness. There is also the issue of the increased level of risk in investing in the US where it has most of its operations thus being overexposed. The major opportunities that Starbucks is in the position of exploiting are international and emerging markets such as India which will also increase the company’s stability (Jurevicius, 2013). The company’s two sided approach to home brewing which has been popularized by the Green Mountain Coffee Roasters as well as well as increasing product offerings are also opportunities that Starbucks should exploit (Friesner, 2014). Finally the threats that Starbucks is facing are; rising prices of coffee beans and dairy products, increased competition from local cafes and other coffeehouse chains specializing and trademark infringements.

 1.2 Marketing Objectives

Starbucks mission is ‘to inspire and nurture the human spirit- one person, one cup and one neighbourhood.’ This symbolizes that the consumer is at the centre of all the company’s plans and that is why Starbucks aspires to be a different kind of company. The company has consumer centred products among its key objectives which is evidenced by the ‘My Starbucks Idea’ social platform which aims at incorporating the ideas of the consumers among its products. This has also been evidenced in the company’s ability to adapt to changing trends as well as unrivalled innovation capability which is usually motivated by the consumers.

At its inception the company aimed to be a ‘third place,’ a place where that was affordable yet luxurious. This is an objective that Starbucks have pursued throughout its short illustrious history and through appropriate approach such as appropriate market segmentation and unrivalled quality in products; service and environment it has achieved with ease (Mourdoukoutas, 2013). Incorporation of diversity in all its activities is another objective that has been achieved through the unique marketing approach of using ‘word of mouth’ as its main marketing tool. The company philosophy which is based on creating a community has been of great importance in making this objective and approach a success.

The marketing objectives are of great importance for the long run success and direction of a company as they help the company to take advantage of the most profitable opportunities that may arise in line of operation. The fact that the company is guided by a specific guideline ensures that all the company’s decisions and investment options are within the objectives and therefore issues of marketing segmentation and quality of service of products are catered for. Customer satisfaction is becoming an issue which is of major concern to many organizations since the methods of measuring consumer satisfaction produce different results. A marketing objective therefore out to be flexible enough to provide the opportunity of using varying methods to ensure credible results.

 2.1Starbucks Micro and Macro Analysis

The external environment which is better known as the macro environment is usually a major concern for huge companies and more specifically companies with a luxurious orientation to their products such as Starbucks. The economic situation for instance is always a major concern and the recent recession indicated just how fatal economic slump of an economy can be. The 2008 recession for instance led to Starbucks closing over 900 stores and laying off over 34,000 employees a situation that the company could not have anticipated. Inflation in Africa and Latin America has also been a major issue of concern for the company as it leads to fluctuations in coffee prices.

The political environment is also another issue of consideration for the company as its profitability and stability is dependent on it. The taxes that the government may impose in the sector that the company is operating usually affect the profitability of the company to a large extent. The recent Arab spring for instance really affected the Asian market as well as the coffee prices. Technological factors have also been of importance to the company which is well evidenced on the company’s marketing approaches which use the internet and the social media as a marketing platform. Finally the social factors such as the target market which is usually determined by the financial status or social class also do affect the operations of the coffee chain store.

Starbuck’s micro environment on the other hand involves factors that affect the internal operations of the company. One of the main factors for the success of the company has been its mission statement which has helped in maintaining the brand of the company. The mission statement acts as rule which everybody ought to follow in actions and in spirit. The leadership of the company is another instrumental factor that has been central to the company’s success. The fact that the company’s founder is the CEO has ensured that the dream lives on which has been instrumental in re-strategising after devastating periods such as the recession. Employee relationship is another factor that is of importance and Starbucks has been on the lead in employee management.  The pricing of the company’s products has been an issue and is set to have an impact on its operations as competitors continue gaining formidable market share which means that Starbucks is losing customers or is not gaining new customers. Such internal factors among others are set to influence the organization’s operations.

2.2 Market Segmentation

To achieve success in highly competitive markets such is the case that Starbucks is facing, a company must identify its target market. The best method of identifying it is through market segmentation which involves identification of a group of people who have different products needs and preferences. However, for a segment to be approved it must show substantiality, identifiability and measurability, responsiveness and must be accessible (Lamb, Hair & McDaniel, 2012).

In Starbucks situation, the UK market for instance, the company can use the psychographic segmentation and more specifically the lifestyle segmentation with Starbucks being a high end market quality product but not out of reach of the majority middle income earners. This will make use of the strategic locations which Starbucks paid a fortune to attain. It will also ensure that the brand name is still maintained and a large percentage of the market’s population can identify with it. The Asian market on the other hand offers a different challenge to the marketers due to the high population. The Demographic segmentation and more specifically the age segmentation can be used in the Chinese market to single out the young working class who have a high uptake of western products and culture and at the same time have money to spend on luxurious products that Starbucks offers (McLoughlin & Aaker, 2010).

2.3Targeting and Positioning Strategy

The recent recession which forced the company to undertake a massive rescaling will be a constant factor in the decision that the company will be taking in the near future. Targeting which involve identifying a set of buyers with common characteristic therefore will be a process that will involve extra caution. The choice of the target market may be influenced by factors such as bargaining power of consumers, barriers to entry or even price. The process of target marketing includes three approaches; the differentiated approach which involves designing separate products and marketing them using unique methods, the undifferentiated approach in which the company ignores market segments and target the market as a whole and the concentrated marketing which focuses its efforts to a single market and uses exclusive strategies for each segment (Dibb et al., 1994). Starbucks initially used the undifferentiated approach but this approach should be changed.

The company should position themselves as both a quality and price competitor in the brewed coffees and lattes market segment. These products main consumers are the drip coffee drinkers who are sensitive to both quality and price (Peterson, 2014). The consumers of other products such as caramel macchiato are usually not price sensitive. Therefore Starbucks should use this price sensitive target market to reduce the level of competition. The main reason why individuals may want to shift products is solely because of price since the quality of Starbucks is unmatched. The company should therefore use the most popular coffees to maintain the loyalty of its customers by reducing the prices which in the long run may not have a negative impact on the profits due to high sales and reduced competition.

 

 2:4 Buyer Behavior Impact

The consumers decision on which brand to use is dependent on either emotional benefits, functional benefits or both. Therefore adverts are either designed to influence the emotions or the functional view of the consumer. The approach used by Starbucks has been predominantly emotional as it seeks to fit as an expression of the consumers’ personality or social status.  This was evidenced by the strategic location of the stores as well as the serene environment that the stores offered however this trend seem to be changing. The US market is widely known for its snacking behavior; therefore, the company has a list of kiosks where the consumers buy their coffee along their way to work. This is an approach that is based on functional benefits of the kiosks. The situation is however different in China, the customers there prefer a spacious store with coaches where they have coffee with colleagues and relax in the afternoons (Burkitt, 2012). Therefore the company is set to open stores that are almost 3800 square feet so as to satisfy the consumer behavior.

 

 

3:1 Product Development

One of the main selling points of Starbucks has been the quality of their products, this is factor that has made the company standout way above its competitors. The main reason behind this is the fact that the main source of ideas is the consumers. The second and most important part of the product development process is the employees. These are the individuals who come up and prioritize on the ideas presented by the consumers. The company boasts of about 70 research and development employees which is a major advantage to the company. The company also has centers of innovation other than in the headquarters in locations such as China which makes it possible to have unique localized products. The company’s mission is another important aspect in development of quality products as it emphasizes on customer satisfaction and product quality aspects that each member of the company must abide to (Ved, 2012). Finally the high quality has been achieved through innovation interest in research, emerging technology and a defined market in order to differentiate product or service.

 

3.2 Distribution Strategy

You may wonder how Starbucks manages to continuously provide freshly roasted coffee for its consumers and how the company is able to standardize the international product. Starbucks efficiency starts with the supply chain, through a complex supply program (C.A.F.E), the company is able to monitor the levels of supply and make sure its weekly demands of 70,000 deliveries is met. The distribution channel starts from its six roasting centers where the beans are prepared and distributed to all the branches. This is made possible by a well thought centralized system which ensures that all the 70,000 deliveries are made. The company which among its strategies is to reach the people where they travel, shop, dines or work has multiple partnerships with third parties who share the same commitment to quality as well as values. The relationships are either inform of agreements with foodservice companies, Business Alliances business unit, warehouse club accounts, direct to consumer market channels and international retail store licensing agreements among others. A good example of such a relationship is the partnership with Kraft Foods, Inc. which markets and distributes Starbucks’ ground coffee and whole bean in grocery channel in the US.

 

 3.3 Pricing Strategy

Starbucks is known for its notoriously high prices and one would wonder how the company has been so successful and operates so many stores in an environment where consumers are price conscious. The main reason behind this is very simple; price is also a form of product differentiation. This approach to pricing is known as the premium pricing strategy which is basically a high quality strategy. This approach is used to attain exclusivity as the high price excludes some consumers from attaining the products thus the product being satisfactory to specific class of individuals (Solomon et al, 2002). Another interesting fact to note is that Starbucks never indicates its products in the adverts. The main reason behind this is that price is not among its competitive tools but quality is. The only mention of price is indicating the risks of lower prices, an approach that is used to justify the high prices as being socially responsible and not aimed at maximizing profits or exploiting the consumers.

3:4 Promotional Strategies

Starbucks strikes as one of the most unique and successful promotion strategy case studies. The company has developed a unique and close relationship with their customers by continuously providing the best quality and value for their money. The relationship in return amounts to word of mouth promotion by the consumers which results in the company spending limited revenue in advertising. This does however mean that the company does not investment on promotion; the company uses personal selling, internet marketing, public relations and sales promotion as its strategies.

The biggest platform for internet marketing is the company’s website which provides a platform whereby the consumers can interact with the products. The company also have frequent internet promotions which act as an avenue for promoting the consumers knowledge of the company’s vast list of products. Personal selling mostly takes in the stores through the ever passionate baristas. Public relations on the other hand take place through the organization’s continuous charitable causes which is highlighted by promotional material.

 

3:5Additional Marketing Mix Elements

Other than the above noted elements, Starbucks also employs process, physical evidence and people as part of its tactical tools to achieve its set objectives. One of the outstanding features of Starbucks in its processes is its operation through joint ventures and licensing agreement with business partners. The company’s international operations are made up of retail store licensing operations while its US operations are retail stores, food service accounts and other activities that are within its strategy. The company has also streamlined its operations by having an online license application platform and also has a community website where it receives the customers’ feedback and their suggestions on ‘My Starbucks Idea.’  The company’s long standing logo is a key ingredient of the physical evidence. The company also has an informative website which has all information concerning its activities and the company also stopped using pre-ground beans as part of its strategies so as to ‘bring aroma, romance and theatre’ to its stores. The leadership of the organization is symbolic as the ever permanent inspiration figure of Howard Schultz stands at the helm of its people’s structure. Schultz is actually the inventor of what Starbucks is today and has continued to show exemplary leadership and just below him is the company’s chief executive officer, Troy Alstead who has over 22 years as the company’s partner which is a great deal of experience.

 

4:1Marketing Mix Application

The Chinese market has been a very interesting and successful venture for Starbucks. The market has several segments but the segment of interest is the Age defined segment which focuses on the young working class. This class has a huge potential of influencing the company to influence more in the east where there is less competition and a huge potential. The most important aspect of the marketing mix in this market is the product. There is need to include a Chinese touch to the company’s products a strategy which worked with McDonalds. Though a predominantly tea nation, there cannot lack a unique addition that was probably being used in tea. Another approach is developing a new brand of tea which will make the menu more inclusive. Unlike the US market where the company spends less in advertisement, the company ought to spend lots more in mass media since the social media is restricted in China.  The company should also identify socially responsible activities that it should get involved in so as to increase its publicity as well as acceptance from the Chinese.

The British market also offers another unique psychographic segmentation and more specifically the lifestyle segmentation which focuses on the huge football following. Unlike the Germans the English do not overly associate football with alcohol and therefore the cold winter period can be a major seasonal sales boom for Starbucks by selling hot coffee to the football fans. The marketing mix should mainly focus on two aspects; promotion and products. The only products that can be made during this period are the hot drinks and therefore the focus on the promotions should be specific. The company will also need to use the social media and mass media marketing tools to create enough publicity as this is just a seasonal sale whose success is based on numbers.

4:2 Difference between Marketing to Consumers and Marketing to Organizations

Starbucks being a large corporation, some of its customers are corporations and local businesses. The approach used to acquire such customers is however different from the marketing approaches indicated earlier. Marketing negotiations between companies are usually less emotional and more tasks oriented which is contrary to consumer marketing where emotions play a big role. For instance a negotiation between Starbucks and a Wal-Mart store on the prospects of selling Seattle Beans will be decided on the benefits that Wal-Mart will experience as a result of the sales maybe commission or discounts. Business marketing usually involves more direct approaches to the target market as compared to consumer marketing. Business marketing usually involves a smaller promotional budget. For instance the awarding of Square partnership only involved the cost of advertising the tender and vetting.

 4:3 Difference between Domestic and International Advertising

International markets offer very unique challenges as compared to domestic markets regardless of the home country. The main reason behind this is the large scope of operation that is entailed as well as lack of prior knowledge of the market. Challenges ranging from administrative hiccups, different cultures, different customer reaction and sometimes resistance from the host markets pose a major dilemma for the managers. Starbucks has had its fair share of such challenges but has been largely successful. The main reason behind this has been the fact that the company used a different approach.

Starbucks has generally has been using joint ventures in its approach to global marketing. This involves two companies coming together to pursue a common goal (Kelly & McGowen, 2012). The most recent one has been the joint venture with Tata Global Beverages in 2012 whereby the latter will start opening and operating Starbucks cafes throughout India. Another approach has been franchising whereby Starbucks uses local companies operating under its name to venture the international market. These two approaches have been relatively successful as the brand name acts as an advertising tool and the knowledge of local market trends and culture by the franchising partners is another advantage.

 

5.0 CONCLUSION:

Starbucks is more than a brand name it’s actually a synonym to quality coffee. The success of the international company has however not been a walk in the park but a product of shear hard work, innovation, creativity and effective strategizing. The company has used its greatest asset which is quality as a marketing tool. The idiom that quiet water runs deep has been symbolized by the marketing strategy used by Starbucks. Though not always the most successful tool of marketing, it is the cheapest and Starbucks has used this advantage to invest more in innovation, purchase of quality coffee and most importantly a positive turnover year after year. The coffee selling chain seems to have redefined the marketing field.

 

6.0 Reference

Burkitt, L. (2012). Starbucks Plays to Local Chinese Tastes. Wall Street Journal, 1(1), 1. Retrieved June 6, 2014, from http://online.wsj.com/news/articles/SB1000142412788732478440457814293142772097

Dibb, S. Simkin, l., Pride, w. & Ferrel, O. (1994). Marketing Concepts and Strategies (2^nd European ed.) Boston: Houghton Mifflin Company.

Hanlon, A. (2013). The Segmentation, Targeting and Positioning Model. Smart Insights.   Retrieved 6 June 2014 from http://www.smartinsights.com/digital-marketing-       strategy/customer-segmentation-targeting/segmentation-targeting-positioning-model/

Kelly, M., & McGowen, J. (20132013). BUSN 5 (Student ed.). Mason, OH: South-Western          Cengage Learning.

McLoughlin, D., & Aaker, D. A. (2010). Strategic market management: global perspectives. Hoboken, N.J.: Wiley.

Mourdoukouta, P. (2013, April 25). Starbucks And McDonald’s Winning Strategy. Forbes, 1, 1. Retrieved June 6, 2014, from http://www.forbes.com/sites/panosmourdoukoutas/2013/04/25/starbucks-and-mcdonalds-winning-strategy/

Starbucks Coffee Company. (n.d.). Starbucks Coffee Company. Retrieved June 5, 2014, from http://www.starbucks.com/

Solomon, M., Bamossy, G., and Askegaard, S. (2002). Consumer Behaviour: A European            Perspective. Harlow, Essex: Pearson Education Ltd.

Schoultz, M. (2013). Starbucks Marketing Strategy: Making Social Media a Difference Maker.     Digital Spark Marketing. Retrieved June 6 2014, from        http://www.digitalsparkmarketing.com/creative-marketing/social-media/starbucks-        marketing/

Ved, A. (2012, June 6). What makes Starbucks a stellar Company. Examiner.com. Retrieved June 6, 2014, from http://www.examiner.com/article/what-makes-starbucks-a-stellar-company

 

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