Starbucks as a global coffee company which also consist of coffee house chain. The American based company has its headquarters in Seattle, Washington. The company was started in 1971 and in over 40 year of business, the company has become a big global player because of its aggressive expansion approach. The company earned revenue of around 15 billion US dollars in the financial year 2013. The company currently operates in more than 60 countries and is known for its premium brand of high quality coffee and excellent service worldwide. The Unit 2 Starbucks Marketing Principles Assignment focuses on the marketing principles applied by Starbucks to become a global success in such a short span of time.
Task 1: Understanding the concept and process of marketing
Explain the various elements of the marketing process in Starbucks
Definition: According to the Chartered Institute of Marketing, Marketing is defined as “Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably” (Wilson, 2011).
American Marketing of Association defined marketing as an activity which process a message and deliver it to the customers who value the customers, client, partners and society.
SWOT analysis on Starbucks will help identify the marketing process of Starbucks in detail (Jones, P.):
Starbucks and Integrated Marketing Communication: Integrated marketing communication approach is one where all the phase of marketing such as marketing and promotional activities, advertisements, direct or online marketing, developing public relations, etc. all work together rather than working differently. In order to be ahead of its competitors, Starbucks has been able to use Integrated Marketing strategy to great effect. Some important highlights of their strategy are: loyalty program for existing customers, My Starbucks Idea program used to take customer feedback through online, use of social media for involvement of people, launching Starbucks Cares which advertise customer safety features, rewarding people through morning coffee or using mobile application, sending postcards to customers on their birthday, etc (Shimp, 2013).
Starbucks Marketing Strategy:
Product Differentiation: The key marketing strategy adopted by Starbucks to as a result of its SWOT analysis is product differentiation. The company use differentiator such as product mix i.e. selling various varieties of products offering customers ample items to choose from and even customize it (Moon, 2003).
Supreme Customer Service: The Company with its high quality and supreme customer service has been successful in establishing itself as premier brand which makes it unique from its competitors (Moon, 2003).
Alliance and merger: Starbucks believes in merging and acquisition of companies rather than following franchising approach. Teavana, Bay bread, Evolution Fresh are some key acquisitions done by the company in order to follow Product Development approach (Jianfei, 2014).
Geographical Diversified: Starbucks another strategy which makes it different from others is its approach to set business in developed as well as emerging markets and implementing it successfully.
Marketing Audit of Starbucks: Analyzing the last seven years of Starbucks performance, it can be seen that from 2008 till 2011, the company saw a sudden drop in its sales and the revenue was dropped by nearly 10% because of the global economic recession that hit the world. However, the company started to show improvement with growth of around 13% in the year 2012 and the company earned the revenue of 15 billion dollars in the year 2013. The year 2012 was impressive for Starbucks in terms of return on equity and return on assets which increase by 29 and 18% respectively. However, because of Starbucks terminating their agreement with Kraft foods resulted in litigation charge, the company experienced high operational cost.
Evaluate the benefits and costs of a marketing orientation for a selected organization
A market oriented company is one which comprises of one or more departments which analyze the consumer tastes and preferences, their buying behavior, factors affecting their purchasing and their current as well as future needs and then sharing the information across the company to design new strategies in order to meet those requirements.
Key benefits in Starbucks which is a market oriented company are:
- Getting personal with customers: Starbucks understands the importance of making personal relationship with its customer. To make itself look different the company started with different things like writing names on coffee cups, interacting with customers, remembering their name, etc. which attracted lot of customers (Gamble, 2006).
- Add-on services: Starbucks realize the importance of technology and hence the company provide free Wi-Fi service which has become almost a necessity. Thus customers coming to visit Starbucks get access to lot of add on services which are free of cost (Hampton, 2008).
- Opening shops in close proximity: One of the big elements which makes Starbucks marketing process different from others is that the company opens coffee shops in close proximity in a particular region, giving people a false idea that it is present everywhere and compels them to use it (Favaro, 2009).
- Offers and discounts: Starbucks provide exciting offers and discounts in an understated manner so that customer feels special on receiving them. Common offers available to all may not attract people, but offers which looks like they were made only for you make you feel special and your experience more enjoyable.
Costs of Marketing in Starbucks:
Starbucks invests minimum amount in TV advertisements or on internet which helps the company to save on lot of marketing cost which is used by such promotional activities (Partridge, 2011). The company rather invests in cheaper mode of publicity like using social networking sites for marketing, mouth to mouth marketing, opening stores in clusters, etc (Harris, 2014).
In international arena, Starbucks makes sure that their shops are based on local theme and offer local food to attract more people living in those areas. The company does a thorough research on buying patterns of its local customer and offer products based on those researches. Thus, Starbucks make sure that it reach out to common masses in a subtle and unique, cheaper manner thus saving on the cost on marketing to great extent (Schultz, 1997).
Task 2: Be able to use the concepts of segmentation, targeting and positioning
2.1. Show the macro and micro environmental factors which influence marketing decision
Macro environmental factors of Starbucks can be better understood with help of PESTEL analysis (Morais, 2014):
- Political Factors: Starbucks needs to adhere to the rules and regulations laid down by different countries where the company operates and also from where the company source its raw material. The company has to follow the Fair Trade policies which are laid down by the government or regulatory bodies. Moreover, Starbucks also faces pressure from the regulations from the US government which involves huge scrutiny and thus affects the functioning of the company.
- Economic Factors: Economic Recession has a huge impact on the functioning of Starbucks as the company supplies premium brand of coffee which is expensive. During economic crisis, either people avoid spending on coffee or shift to other lower priced alternatives like tea. Thus, based on this study, Starbucks has recently expanded the supply of tea and juices especially in countries which are developing and economic condition is generally low.
- Social Factors: Identifying taste, lifestyle and preferences of consumer in different regions where the company currently operates is of utmost important. The Asian countries, people prefer tea over coffee, which forces Starbucks to supply tea other than coffee in those areas. The increasing purchasing power of people also help Starbucks as people’s rising income makes Starbucks organisation products more affordable thus, increasing its sales.
- Technological Factors: Starbucks understand the importance of technology and thus tries its best to implement in its shops. Free Wi-Fi connection is an important feature which Starbucks introduced inside its shop which comes in handy to the customer. Mobile apps and payment through mobile phones are currently being tested and will soon be provided to the customers.
- Environmental Factors: Starbucks focuses hard to make sure that it carry out its operation in eco-friendly manner. Reduction in the consumption of energy, using water saving technology, using renewable energy sources, recycling coffee cups, etc. are some key areas which Starbucks has adopted to make sure that environment is less affected.
- Legal Factors: It is important for Starbucks to carry out its operation and implement its future strategies in legal manner. The company before setting its foot into a new country or region should be completely aware of the legal laws and rules in relation to new business and should adhere to them strictly to avoid unforeseen circumstances.
Micro environmental Factors affecting Starbucks can be understood with help of Porter Five Force theory
- Industry Competitors: Starbucks faces high level of competition from the local as well as global players. Its main competitors are: McDonald, Costa, Dunkin Donut and other small café and coffee shops.
- Bargaining power of Buyers: Starbucks also faces high bargaining power from the customers as there are lot of other substitutes and other companies running the same business which customer can quickly switch into. The main reason is that the switching cost is nearly zero and hence it is easy for customers to look for other alternatives.
- Bargaining power from Suppliers: Starbucks faces high bargaining power from its suppliers. The high demand for coffee worldwide and its limited cultivation makes it expensive. Moreover, Starbucks purchases quality coffee beans which come at high price. Thus, suppliers hold high bargaining power in the case of Starbucks.
- Threat of Substitutes: Threat from substitute product is medium. The main reason behind this is that Starbucks sells premium coffee which is targeted to people with high income groups. Addictive coffee drinkers will not prefer anything else other than coffee. However, while becoming global players, Starbucks has to make sure that people from all income groups uses its product and hence other substitutes like tea and juices also give tough fight especially in developing nations.
- Threat of New Entrant: Starbucks faces minimum threat from new entrant because the market has become saturated and the investment required for building new stores and purchasing products is huge. Thus, it is difficult for new entrants to give fight to global player like Starbucks.
2.2. Propose segmentation criteria to be used for products in different markets
Segmentation is an important aspect of marketing mix used by the organization. In case of segmentation, companies classify the people or group of people based on certain filtering criteria which helps the company to formulate marketing strategy targeting those people. Some key segmentation criteria used by organizations are (Lin, 2002):
- Geographical segmentation: In case of geographical segmentation, company’s segment the customer based on geographical condition like size of country, population density, climatic conditions, etc.
- Demographic segmentation: Demographic segmentation is used to segment people on the basis of age, gender, lifestyle, size of family, education, religion, income levels, nationality, etc.
- Psychographic segmentation: In case of psychographic segmentation, people are classified based on their personality, lifestyle and social status.
- Behavior segmentation: In this case, people are segmented based on attitudes, innovativeness, and loyalty status.
Segmentation in case of Starbucks:
Starbucks uses Psychographic segmentation to great extent. The company analyzes the changing behavior of consumer and its lifestyle and based on that it introduces new and innovative ideas as per their requirement.
- Lifestyle segmentation: Starbucks uses lifestyle segmentation to great extent. Starbucks recent development is based on the changing patterns of lifestyle especially in USA market. Awareness of healthier lifestyle and shifting from consumption of alcohol to coffee, offering people with common place to meet and get social, offering affordable luxury products, increasing knowledge of people have significantly contributed in the running of Starbucks (Peng-Cheng, 2012).
- Personality: Most of the customers of Starbucks are the ones who are fun loving and looking for luxury products. Starbucks offer premium brand of coffee and also provide great place to meet and spend time together.
- Social: Consumers who hold high social status and have high income groups are the ones which Starbucks looks to target as the company’s products are expensive. It offers great value for money to people and also offer ad-on services to make their visit better.
Starbucks has recently started targeting people who are not hardcore coffee drinker or avoid having coffee by introducing new diversified products like tea, juices, health drinks, summer drinks, etc.
Starbucks also uses geographical segmentation and demographic segmentation to considerable extent. Starbucks open shops which is highly visible and appealing and accessible to maximum number of people. The company also opens shops in cluster in a small area to give a fake feeling to its customer about its existence everywhere. The company also presents different products for different age groups.
2.3. Choose a targeting strategy for a selected product/service
Targeting strategy is the next step after segmenting the market based on one or more than one criteria. Targeting process involves understating the importance and benefits of each segment and based on the study entering into one or more than one segment to gain maximum benefits.
Firstly, Starbucks target people with middle or high income level. The main reason for targeting high income level people is the high price of products sold at Starbucks. Since the company believes in selling high quality coffee, it comes at a price which is not affordable for people with low income levels.
Secondly, Starbucks target people with low age group like twenties, thirties and forties. Starbucks target low age student and mid twenty people through new innovative ideas like technological advancements and making their shops environment similar to student’s hang out place or to study while sipping coffee. The company offer appealing drinks to people lying in the age group of 25 to 45 and making it an intermediate place between work and home.
Thirdly, Starbucks focuses on mostly professional or office going people who like to have a quick refreshing time at their shops while going from office to home after hard day at office to freshen up and swing their mood. A cup of coffee with soothing environment helps them to feel charged up and relax their body. Starbucks make sure that the coffee served by them is of best quality to impress its customers. It also provides other healthier drinks and beverages to accommodate people who are health conscious or avoid drinking coffee.
2.4. Demonstrate how buyer behavior affects marketing activities in different buying situations
Some key areas which show how buyers have affected the marketing activities of Starbucks in different buying situations are:
- Learning Influence: Starbucks has effectively used its learning experience by high and deep study on the behavior of customer and their buying patterns and coming up with new drinks and beverages which fulfil the request of local people. The company has been highly successful in building stores and used its learning to greater extent by being geographically diversified. Starbucks gives customer a feeling of being present everywhere by establishing itself in stores, malls, supermarkets, crowded locations and opening itself in clusters. Globally, the company operates in both developing and developed markets offering diversified products.
- Technological Influence: In the last few years, technological growth has been on a high which has forced many companies into incorporating various technologies into their daily operation. Starbucks also understands the importance of technology and hence, the company offer various facilities to its customers like wi-fi service to fulfil high demand of internet usage. The use of My Starbuck Idea, a website for ser community also came from the changing trend of people shifting on online business (Trainor, 2012).
- Personality: The changing buying pattern of customers has also resulted in Starbucks changing strategy. The increasing conscious of people towards their health has forced Starbucks to come up with healthy drinks and use of healthy raw material like skimmed milk in preparation of coffee. To make sure that the company is able to fulfil requirement of low income group people, the company also started selling tea and other juices without comprising on price and quality of their coffee for which the company is known for, thus maintaining its premium coffee brand image (Paryani, 2011). The company also started selling food items like offering breakfast, cakes along with localized products especially for local people to gain more market because of the increase demand for more than coffee and more demand for value of money.
2.5. Propose new positioning for a selected product/service
The last step after segmenting, targeting and analyzing the buying behavior of its customers is to position your products. An organization needs to position its products in such a way that there is a clear difference between the company and its competitors operating in the same food chain.
On a perceptual map, Starbucks position can be understood by the following figure:
Perceptual Map showing positioning of Starbucks in the market (Czinkota, 1997)
Thus, it can be seen that Starbucks is known for selling high quality products which are high on prices. However, Starbucks soon realized that the transactional marketing approach is being converted into relational marketing during the late 90s. Starbucks quickly adopted that approach as customer relationship not only satisfies the customer but bring delight to the customer. Sometimes, customer gets more than what he or she is looking for which is a significant step in retaining your customer.customer relationship not only satisfies the customer but bring delight to the customer. Sometimes, customer gets more than what he or she is looking for which is a significant step in retaining your customer.
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Thus, Unit 2 Starbucks Marketing Principles Assignment concluded that Starbucks have been a success story in its domestic market working on its own values and competencies which differentiates the company from its other rivals in the market. The company has been able to use the Segmentation, targeting and positioning approach well to keep up with its customers. Starbucks also uses marketing mix strategy well to improve on its customers in the domestic as well at international arena. The company needs to grab the opportunities that are available to it by entering into new markets and making most of the increasing purchasing power of people in developing nations of Asia.
Czinkota, M. R., & Kotabe, M. 1997. A marketing perspective of the US International Trade Commission’s antidumping actions—an empirical inquiry.Journal of World Business, 32(2), 169-187.
Doyle, P. 2009. Value-based marketing: Marketing strategies for corporate growth and shareholder value. John Wiley & Sons.
Favaro, K., Bomberger, T., & Meer, D. 2009. Five rules for retailing in a recession. Harvard Business Review, 87(4), 64-72.
Gamble, P. R. (Ed.). 2006. Up Close & Personal?: Customer Relationship Marketing@ Work. Kogan Page Publishers
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