Table of Contents
Marketing is an important activity for business organizations in present time and current paper would evaluate the marketing strategies used by Starbucks in order to make their international expansion. Starbucks Corporation is one of the most renowned coffee chains in the world having headquarters in Seattle, Washington, United States. This paper would evaluate the marketing elements pertaining to Starbucks, STP strategies, marketing mix elements and different situations under which company need to make vital changes in their marketing efforts for capturing higher consumers. These elements would be evaluated and suitably applied in order to help Starbucks to plan and develop their marketing planning process so that company can become successful in their international expansion efforts. Present paper would be divided into four tasks through which entire marketing planning process of Starbucks would be developed.
Marketing can be defined as the process wherein main aim is to attract consumers by offering suitable products & services and earning value through these offerings. It is important for the marketers to understand need & wants of their consumers so that they can evaluate these needs and offer suitable products as desired by them. Managing customer relationship pays the business organizations in longer term as business organizations with good customer relationship would be earning higher revenue through their operations. Process for marketing planning as adopted by Starbucks can be given as under:
§ Current situation analysis: Present situation analysis for Starbucks can be done through internal and external analysis. Internal analysis for the organization can be carried out with the help of SWOT analysis while there are number of tools (PESTEL analysis and Porter’s five force analysis) to examine the external factors impacting business organizations (Best, 2004).
§ Unique marketing strategy: By understanding the internal and external factors for business organization it is imperative to design the marketing strategy. Marketing strategy for Starbucks would include identifying various segments present in the market for their products, target segment for Starbuck and positioning which company wants to adopt in order to portray their image to desired consumer segment.
§ Marketing mix design: By understanding the marketing strategy adopted by company marketing mix elements would be developed wherein products, price, place and promotion activities would be focused. Marketing mix decisions would be taken keeping in mind strategy adopted by the company and target segment of the company.
§ Implementation and control: Marketing efforts deployed by the company would be reviewed in periodic manner in order to understand the real value derived by company through these efforts. Periodic evaluation would be done keeping in mind the actual results against the projected results which company has expected for them.
Strength, weakness, opportunities and threat analysis for Starbucks in current market scenario can be given as under:
§ Starbucks is one of the most reputed coffee brand having image of fine products and services
§ Starbucks has wide presence in more than 40 countries with 10,000 café and 17000 coffee shops
§ Starbucks enjoy healthy profitability of $8.0 million in year 2013
§ Starbucks is appreciated for its employee base who provides exceptional services to their consumers
§ Starbucks charges premium prices for its products due to which company have to face stiff competition from market players such as McDonalds and Costa Coffee
§ Additional products range for Starbucks such as salads and sandwiches are having low profitability
§ There is stiff competition among the Starbucks store located in city which creates negative publicity
§ Excessive expansion has led to self-cannibalization which has diminished long term growth perspectives for the organization
§ Starbucks has opportunity for joint venture in order to get away with the issue of self-cannibalization
§ Usage of technology for making applications for Starbucks and payment would help to get a large consumer base for company
§ Addition of new products as per consumer requirement would add to profitability
§ New distribution channels faced by company offer vital opportunity
§ Stiff competition faced from market players such as Dunkin brand, MCD, CCD and others
§ Rising diary costs creating threat to profitability
§ High amount of investment in stores leads to financial threat
§ Economic slowdown and market saturation are among major threat to organization
Table 1: Showing the SWOT analysis of Starbucks
SWOT analysis provided above for Starbucks offers framework for the development of strategic alternatives for the organization and would help in building strategic perspective for the organization. SWOT analysis is important as it would help in order to achieve objectives decided by Starbucks. SWOT is the foundation for Starbucks in order to evaluate opportunities and threats so as to develop smooth future planning (Blas, 2002).
1.2 Marketing objectives of Starbucks, and how defining those can help a business to develop marketing strategies. How does this contribute to the benefits of costs?
Marketing objectives for an organization are important as they be helpful in order to ensure that marketing efforts are made in right direction. Marketing objectives for Starbucks can be given as under:
§ Development of global marketing mix: For Starbucks it is important to develop the global marketing mix so that company does not only limit itself to particular region but the marketing mix elements should be such that they attract to the global consumers. Global marketing mix development for the organization would be very important as they would help Starbucks in their international expansion.
§ Expansion in international markets: International market expansion is the major source of revenue enhancement for most of the business organizations in present age. International markets do not only allow a business organization to enhance revenue but also develop new products & services which may not be feasible to develop in their existing markets (Jobber, 2010).
§ Adoption of efficient promotional strategies: There would be several promotional strategies used by organizations such as Starbucks but depending upon the marketing control and implementation process it is important that efficient strategies are identified. Starbucks need to identify efficient strategies and invest in these strategies so as to reduce wastage of marketing budget on the inefficient promotional activities adopted by the organization.
§ Understanding consumer needs and want: For any organization prime marketing objective would be to understand need and want of their consumers since once consumer needs are assessed properly then it would help in development of efficient marketing strategy.
Marketing objectives developed by the organization would be helpful in order to define marketing strategy of the company as strategy would work in tandem with the objectives developed. Development of objectives would clarify the target consumer segment and company offering to them. Market orientation evaluated by Starbucks would be helpful in order to collect need and want data for consumers so that marketing objectives of company are in accordance with consumer requirements. Fulfilling consumer need in efficient manner for an organization would require first identifying these needs, secondly to provide efficient services to the consumers and finally to develop smooth supply chain process to meet these requirements. All these would be a considerable cost for the organization and Starbucks need to develop its competitiveness through these activities.
Adoption of the marketing strategy for an organization would heavily depend upon the various market segments present in the industry, target segment which company want to acquire and positioning which company portrays to its targeted consumer segment. Present task would identify the STP strategy as adopted by Starbucks in order to identify their target segment and positioning which company has for this targeted consumer segment.
Macro environmental forces which have impact on the Starbucks marketing decision process can be given as under:
§ Economic factors: Economic factors surrounding the organization would impact on Starbucks marketing decisions such as recession, change in currency prices, inflation rate, per capita income and bank interest rates etc. (Baines et al, 2011). These factors would be having their direct impact on the consumer spending power, market expansion plans of the organization and profitability of the organization. Hence marketing strategy for Starbucks would be developed keeping close eyes on the external economic environment.
§ Legal and political factors: Starbucks have to import several ingredients from different parts of the world such as South Africa and America. Changing tariff, tax structure and political conditions in these countries would definitely impact the Starbucks business model and overall profitability attained by the company. Sustainability of Starbucks business would be determined through legal and political factors changing in external environment.
§ Social factors: Social factor would have crucial impact on business of Starbucks as changing youth culture has encouraged usage of coffee and spending time in café. This would lead to higher amount of revenue for the coffee chains such as Starbucks and young population is more influenced from the popular brands which would encourage sales for Starbucks.
Micro environmental forces of Starbucks having impact on the marketing decision of organization can be given as under:
§ Opportunities: There are several opportunities faced by Starbucks such as expansion in developing countries, expansion in new product segments, technological advances and brand extension for Starbucks. All these opportunities would demand Starbucks to design its marketing strategy in such a way to grab these opportunities and evolve as one of the major industry player in coffee segment (Peter & Donnely, 2007).
§ Threats: There are critical threats faced by Starbucks such as the competition faced from established players, lower preference from consumers due to high price, brand image dilution and local coffee chains in the developing markets. All these threats would be a point of concern for Starbucks and Company need to consider these factors while developing their marketing strategy in international expansion.
§ Strength: Starbucks possess key strength for strong brand image, financial strength, broad product line, high quality product image and human resource as key assets. These strengths for Starbucks would be an important tool in order to implement their marketing strategy. During the marketing planning phase, Starbucks would carry out resource planning and these resources would be vital to implement planned strategy.
2.2 Segmentation criteria most applicable for Starbucks to use for their products in different markets
Market segmentation can be defined as the process in which consumers having different needs, behaviour and characteristics can be categorized under different category. These groups of consumers would require unique product offering made to them so that their needs can be satisfied. There are different variables based on which Starbucks divide entire market and these variables are geographic, psychographic, demographic and lifestyle related. As compared to the all segmentation variables, demographic segmentation process is highly beneficial for Starbucks. Starbucks target consumers who are male or female, age range from 25 years to 55 years, middle to high income range. These consumers form 59% of the total revenue earned by company in all geographies (Chambell et al, 2002). This consumer segment has high income and grows at a rate of 3-4% annually. Second target segment for Starbucks is formed by young consumers in age range of 18 years to 24 years and this segment of consumers add 31% of the overall revenue earned by Starbucks as young consumers perceive Starbucks as the place wherein they can hangout, study and spend good time with their friends. Starbucks target consumers based on their psychographic variables while core segment of Starbucks is formed by the serious coffee lover consumers. Among the two criteria adopted by company in order to identify their targeted consumer segment it is appropriate to make use of the demographic segmentation process because this is visible element and it is easy for the marketers to segment based on this factor.
In order to showcase the target market strategy adopted by Starbucks Frappuccino product can be taken into consideration. Frappuccino product contains ice cream and strawberry and this product is targeted with the highly concentrated consumer segment of Starbucks. For this product Starbucks would target consumers who are in age range of 19 to 29 years and having education as graduate or post graduate degree. There would be four key elements which Starbucks would target in order to attract consumers in this segment and these elements would be brand quality, brand experience, convenient access and perceived health.
Consumer behaviour for the company would be one of the vital factor in order to decide upon the products and services offered. For Starbucks there are mainly four factors which shape consumer behaviour and these factors are personal factor, social factors, psychological factors and social factors. Marketing mix elements for company have been designed in such a way to attract consumers by offering their preferred products and services (Stevens et al, 2005). Positioning of the products offered by Starbucks would be of vital importance as consumers would form the brand image of Starbucks as per the positioning developed by the company. Some of the vital elements shaping strategy for Starbucks would include usage frequency from consumers, benefits offered, ambience of delivery, pricing aspects and quality of product. There would be two important situations which can be considered by Starbucks for affecting consumer preference towards them. These two situations would include consumers looking for high quality product and suitable ambience for the Starbucks store and premium taste of Starbucks coffee as desired by the young consumers.
For the selected product positioning would be such to offer the brand experience, high quality of product, premium pricing, unique coffee taste and friendly store environment wherein consumers can spend time. The first element of the positioning strategy adopted by Starbucks for Frappuccino would be brand experience. Brand experience offered by Starbucks for its consumers would not only include high quality coffee but the pleasant experience created through emotional surrounding in Starbucks café. Experience would be created through offering best in class services through trained employees and soothing environment inside their store. Brand quality for Starbucks would be such that it exceeds consumer expectation and develop loyal consumer base for the company. Pricing would be representative of the quality offered by Starbucks for their premium quality coffee.
Marketing mix is the vital decision element for the present age marketing organizations and marketing mix elements for an organization is tactical and controllable element. Marketing mix elements i.e. product, price, place and promotion is being used by the organization in order to produce desired response from the consumer segment of the company. Marketing mix decision developed by Starbucks is such to attract target consumer segment by keeping in mind their requirements.
3.1 How products in Starbucks are developed in order to make sure that competitive advantage is sustained.
Products mean the combination of service and materialistic offering given by the company to its consumer segment. Starbucks makes use of the product quality, variety, service excellence and brand name in order to differentiate their product offering from their competitors. Starbucks also offers seasonal products such as Frappuccino, gingerbread, cookies and pastries to their consumers as per requirement. Starbuck assesses the consumer requirement and cultural value so as to provide additional offerings such as book store owned by company in US and Canada. Starbucks is focusing its marketing efforts towards products diversification and product innovation by keeping local taste in the products (Kotler, 2008).
Starbucks has its presence in 40 countries with more than 27000 café and coffee shops to distribute their products and services. Store location is chosen in such a way that consumers can be reached efficiently by deploying proper distribution channels. Diedrich’s acquisition has allowed Starbucks to enhance their geographic presence and allows development of big consumer base for the company. Presence in North America is developed by Company with acquisition of Green mountain coffee roaster in year 2011. Distribution strategies of company are in line with the marketing objectives defined by the company so that marketing efforts remain highly efficient. Company has its goal to establish “Starbucks everywhere” so that added convenience can be offered to the consumers of company.
There are different alternatives available for the organizations in terms of pricing and Starbucks has adopted the premium product and premium price strategy for its product offering to the consumers. Company offers unique product and high quality for which high price is charged from the consumers. Price of the product would define the cost to consumers in response to benefits obtained by them from the particular product (Laermer and Simmons, 2007). Pricing for Starbucks is higher as compared to its competitors but consumers are ready to pay higher price since company has premium brand image among their consumers. Starbucks charges premium prices for its products based on the premium product quality and high quality of services offered to the consumers. Starbucks maintain their prices and even after decline in prices of Coffee in US company has not reduced prices for their products. Competitors such as CCD and MCD offers much lower prices as compared to Starbucks thereby offering high competition.
3.4 Promotional activities of Starbucks and how they are integrated and related to marketing objectives of the organization
Starbucks makes use of the integrated marketing mix in order to develop their promotion strategy for attracting consumers. Promotion mix for Starbucks would include broadband media, internet marketing, sales promotion and public relations etc. Out of the total revenue earned by Starbucks company spends approx. 1.6% of the total revenue towards promotional activities. Starbucks develop CRM activities in order to build loyal customer base and obtain their feedback on services and products offered by Starbucks. Print media is being used by Starbucks for their advertisement named “The Time”. For attracting sports loving consumers Starbucks has struck a deal with ESPN for making sports learning centre (Baker, 2008). Starbucks has strong presence on the social media in order to reach to large number of consumers.
People, physical evidences and processes are three vital extended marketing mix elements which Starbucks add in order to attract consumers towards their product offerings. Blue printing technique is used by company in order to improve upon their processes. Starbucks makes use of the Artificial intelligence, forecasting and simulation in order to improve upon the overall processes implemented by the organization. Human resource forms the vital component of the overall strategy for the company (Homburg et al, 2012). Starbucks make huge investment in their human resource by hiring right number of people with right skill set and train them to serve their consumers. Starbucks invest in physical evidences so that consumers can carry a positive image about the brand and Starbucks offers additional features such as Wi-Fi, comfortable chair, trained employees and good ambience in their store. All these elements form the part of physical evidence offered by company to their consumers.
This task would make use of the marketing mix elements designed for Starbucks and usage of these marketing mix elements in different situations faced by Starbucks.
There are two consumer segment selected for the present task i.e. segment A and segment B. Segment A consumers are the young adults in age range of 19 years to 29 years and having educational qualification as graduate or post graduate. Segment B consumers would be in age range from 20 years to 45 years, married, having middle to high income range and professionals. Marketing mix elements for the two segments of Starbucks can be given as under:
§ Product: Product range for this segment would include coffee, CD and other food variety. Starbucks would be looking at highly innovative products as per the market trend in order to develop consumers in this segment.
§ Price: Pricing range for this segment would be moderate and highly competitive as per the market competition. These consumers would not be much brand loyal and may shift the brand in case they experience price are too high for Starbucks (Reid and Bojanic, 2010).
§ Place: Starbucks should provide their offerings through physical stores as well as online stores. Stores should be located near college, malls and other crowded places wherein these consumers would like to visit Starbucks.
§ Promotion: Promotional strategy for this consumer segment would include social media, sponsorship, sales promotion and mass media.
§ Product: Product offering for this segment of consumers would be standard in nature as these would be serious coffee lovers having high brand loyalty for Starbucks brand. Along with coffee these consumers can be served with variety of food depending upon their choice.
§ Price: Pricing for these consumers would be in higher range as these consumers are brand loyal and have high spending income. Pricing for these consumers would be perceived as per the quality of products offered by Starbucks.
§ Place: These consumers would like to purchase through physical stores and these stores should be located in IT parks, business hubs and near official meeting places etc.
§ Promotion: Promotion for this consumer segment would be done through print media such as business magazine, mass media and tie up with corporate houses etc. (Britten, 2012).
McDonald’s can be taken as second organization in present context in order to understand the difference in marketing tactic for the business consumers rather than individual consumers. Pricing offered to the business consumers would be much lower in comparison to the retain consumers due to bulk buying process. McDonald may offer complete range of coffee and food products in order to reduce the prices while individual consumers may demand only for coffee. Further in terms of distribution McDonald may open some store in the corporate house while individual consumers would be served through their store only. Promotional strategies would also differ as the individual consumers would be attracted through social media and mass media while for business consumers corporate tie up, personal selling and other methods can be used (Kent, 2013).
International expansion at present is the core of strategic aspect for Starbucks as North America counts for only 20% of the overall sales for the company. Further company is looking to expand in developing markets for promoting their wide range of products while developed countries are accepting only standard range of products. Some of the key factors which differentiate domestic marketing from international marketing in context to Starbucks would include cultural differences, marketing efforts, joint ventures and consumer preferences etc. In year 1996 Starbucks entered in Japan market by making joint venture with local player named SAZABY (Gregson, 2008). Starbucks makes use of the strategies such as buying competitor’s lease, clustering of services and intentional operations at loss etc. in order to promote their international operations. Mergers and acquisitions is another key strategy which is used by company in their international marketing efforts.
Starbucks is one of the renowned coffee brands worldwide which offer several other product ranges along with coffee. Company is eying on its international expansion in order to enhance revenue and create visibility for its brand. There are four steps for the marketing planning process as adopted by Starbucks and these are assessing current state of company, evaluation of STP, developing marketing mix and control & implementation for marketing efforts. Company at present is into good situation with reputed brand, high quality products and increasing sales. Company has identified consumer segment with young consumers, high income and brand loyalty. Marketing mix has been designed keeping in mind consumer requirements. Finally, Company evaluates effectiveness of their marketing efforts so as to fulfil objectives.
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