Starbucks Is The Leading Retailer And Roaster Marketing Essay

My assignment strives to outline the marketing strategic approaches to be undertaken for the next year by the Starbucks is the leading retailer and roaster for brand specialty coffee in the world. It has over7,500 stores located worldwide. As Starbucks continues to expand, it will encounter all sorts of new product markets, with new and demanding customers for unique and appealing products. Entering this new market, Starbucks will face many challenges to compete and to retain brand recognition of its primary products, yet increases awareness of its new product line.

Situational analysis

Company

As Mathew Carmean and his fellows (Sewer, Andy,January 26, 2004 p.70) tell us: “Starbucks is the leading retailer for roaster and brand specialty coffee in the world. It has over 7,500 stores, which are located in the United States, Canada, Europe, Asia and the MiddleEast”. Besides high quality coffee drinks, Starbucks sells bottled coffee drinks, such as Frappuccino andStarbucks DoubleShot.

[ibis]Starbucks revenue is growing by 20% a year and is opening approximately three stores every day.Starbucks is capable of managing its successful operations by having steady market growth. It achievedthis by financing through their cash flow instead of franchising, selling stock or increasing their financialleverage). Its strategy to success is “blanket an area completely.” This approach is to “cuts down ondelivery and management costs, shortens customer lines at individual stores, and increases foot traffic forall the stores in an area,” that gives Starbucks a competitive advantage.

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Customer

At first only professionals and educators went to Starbucks, but now it attracts a much wider demographic of customersincluding people of different ethnic backgrounds and ages. Today, Starbucks has the striking number of 25million visitors in its stores each week. This success is due to the combination of high quality drinksand friendly environment with good music, comfortable chairs, and good services. This creates the”Starbucks experience” which customers can relate to that lead to brand loyalty. In addition, Starbucksneeds to deal with customers’ cultural preferences in all its worldwide locations to maintain customers’ loyalty.

Competitors

To ensure further market growth and be competitive, Starbucks is developing new products for non-coffee drinkers. Starbucks provides its current customers and attracts new customers not only with quality products but also with varieties flavors that customers’ desire. Starbucks’ two largest competitors are Dunkin Donuts and Krispy Kreme, both are national chains. These companies use aggressive price-cutting, up to 20%, for their drinks. Other competitors are small

local coffeehouses, and other coffee brands like Tully’s and Pete’s Coffee. Their direct competitors for the new product line are Orange Julius, Jamba Juice, fast food chains such as McDonald’s and Burger King, and other small coffee alternative providers.

Complementors

Starbucks has teamed up with Bank One to offer the Starbucks Card Duetto Visa. This is a

stored-value card and traditional credit card. Starbucks has also introduced a T-Mobile Hotspot service which allows the Starbucks customer to have access to wireless internet for a fee. Offering more services like the Visa card, wireless internet and customized CD will add more value to the Starbucks experience and help draw more customers to Starbucks which will lead to higher revenues.

Managerial Problem

Starbucks strategic goal is to increase market share of the non-coffee drinker; they have begun byintroducing an extension of a product line targeted to this segment. To ensure market growth, Starbuckshas repositioned one of its current products, the Frappuccino line, this product has been extended toinclude 3 new flavors; Double Chocolate Chip Crème, Vanilla Bean Crème, and Strawberries & Crème,introduced throughout the summer months. Faced with the challenge of entering a new competitivemarket Starbucks must compete to retain brand recognition of its primary products, yet increaseawareness of its new product line by expanding the retail stores in the international markets.

SWOT analysis will help emphasize exactly what Starbucks is doing right or wrong. It will provide us an insight on what the company is good at, and in what areas Starbucks could use assistance. Strengths, Weaknesses, Opportunities, and Threats (SWOT) are described below:

Starbucks SWOT Analysis

Strengths

It is a global coffee brand built upon a reputation for fine products and services.

It has almost 17,000 stores in 49 countries. 

The organization has strong ethical values, commitment to the environment, and community activists.

Weaknesses

The organization has a strong presence in the United States of America with more than three quarters of its cafes located in the domestic market. In order to reduce business risk, expansion is needed.

Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time, and product acceptance will come to a halt eventually slowing growth.

Opportunities

The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge.

Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.

Threats

Starbucks’ success has led to the market entry of many competitors and copycat brands that could pose potential threats. How they combat these threats will determine their future.

Starbucks is exposed to rises in the cost of coffee and dairy products.

Starbucks is a large company with a competitive advantage that is shrinking because of its huge success. This is because Starbucks model has been copied successfully by its competitors and this poses a serious threat to the company. If Starbucks cannot retain its differentiator strategy, it is doomed to fall out of popularity, as it would end up being a store that is selling nothing more than a cup of coffee. 

With majority of its stores concentrated in United States, Starbucks is also limiting its growth and exposing itself to risk. Any negative changes in the domestic market could severely hurt Starbucks viability as a firm. If Starbucks can retain its strengths and build on opportunities, while suppressing weaknesses and extinguishing threats, it will be able to grow throughout the world market.

The SWOT analysis also gives a starting point for a discussion on what Starbucks can do to reduce its weaknesses. Due to its large size, Starbucks sets trends for the industry that can be backed up by the volume of their delivery. Exactly how long Starbucks can dominate the market depends on Starbucks itself. Starbucks has a large number of stores for coffee outlets, all of which are owned outright by the corporation and no franchisees. Minimal revenue requirements have been placed on each store, and those that fall short are closed. The company closed down over 600 stores that fell short of its revenue requirements (“Fiscal 2008 Annual Report”). The large number of stores is a huge asset or a liability, depending on how one assesses the situation. If there is a strong economy and people have disposable income, then there is a benefit on having so many stores to generate revenues. On the other hand, during economic downturns, the vast number of stores will become a huge financial liability. By consistently enforcing revenue requirements for each store, Starbucks will able to maintain or increase its same store sales, and while at the same reducing one of the weaknesses of being so large.

The company has managed to maintain the competitive advantage because it has offered conveniences and an atmosphere customers can enjoy. As long as Starbucks fulfills its customer’s wants and needs, Starbucks will continue to be a leading force in the market. Starbucks should continue to create more value at its stores. Starbucks has created a perception that it is focused not just on profits, but also on societal agendas. The company’s stores have become a medium for people and communities to come together and promote a better place to live in an environmentally conscious society. Starbucks found a niche market where it identified what makes its customers happy, and has delivered it to them. Continuing to accomplish this will allow Starbucks to maintain its competitive advantage for years to come.

Marketing Vision and Mission statement of Starbucks

Mission Statement of Starbucks

“To inspire and nurture the human spirit –

one person, one cup and one neighborhood at a time.”

Vision of Starbucks

 “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.”

Marketing Objectives of Starbucks

To create a Starbucks experience that makes people come for the coffee,

stay for the ambience and environment, and return for the connection.

To build an image separate from smaller coffee chains.

To clearly communicate the values and commitments of the Starbucks

business to their customers, instead of only growth plans publicized in the media.

Marketing strategies Implemented by Starbucks

Growth Strategy

This well-known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth. Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection.

Ansoff’s Product/Market Matrix

Market Penetration

With this approach, Starbucks will try to sell more of the same product to the same customers at a competitive price. Here itwilladvertise, introduce a loyalty scheme, launch special promotions, to encourage more people within the existing market to choose its products, or to use more of it.

By working toward this goal, Starbucks wants to open new stores in both new andexisting markets, expand their product development process, and cater to customers’needs to eventually improve their financial position and dominate market share.

Market Development

With this approach, Starbucks will target new markets or new areas of the market. It will try to sell more of the sameproducts to different people. However,we will target different geographical markets at home, use different sales channels, such as online or direct sales if weare currently selling through the trade, target different groups of people, perhaps different age groups, genders or demographic profiles from our normal customers.

Product Development

With this approach, we will sell more things to the same people with new products. Here we will extend our products by producing different variants, or packaging existing products in new ways.

Starbucks can apply the following product development strategy

Fresh and rich brewed Italian espresso

Offers pastries and other appetizing confections

Sells coffee-related accessories (mugs, coffee makers, cups, espresso, etc.)

Expanded sales into supermarkets of whole bean coffee

Introduction the widely popular drink, Frappuccino, to the public

Strives for satisfied customers and a welcoming environment

Works to have highest standards of excellence in way of business

Offers newspapers and other reading material, popular music, and Internetaccess

Ansoff’s matrix is one of the most well know frameworks for deciding upon strategies for growth.

CompetitiveStrategy

Porter five forces

Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment:

Sources of competitive advantage – are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market – does the company target a wide market, or does it focus on a very narrow, niche market?

Michael Porter’s Analysis of Starbucks

Michael Porter, a Harvard Professor introduces his ideology of the Five Forces model that shapes the competition in the industry.   Each force is interrelated and therefore leads into the other to show the elements directly involved in the further success or ultimate success of the firm.   

Starbucks Coffee Company, throughout its existence since 1971, with its great management team, innovative style of thinking and strong will to succeed in compliance with its mission and vision statements has and continues to overcome its barriers by recognizing such strategic planning as those included in Porter’s five forces model. The model includes such components as Barriers to Entry, Supplier and Buyer Power, Threat of Substitutions, and most importantly the Industry Competitors. Starbucks throughout its existence has addressed each and every one of Porters forces with a positive edge that has greatly contributed to the success of the company. Starbucks took manyrisks and spent capital that it really did not have.   To build a corporation based on intuition and a trip to Italy has undoubtedly paid off in the long run which is evident throughout the year that Starbucks has been in operation.   Howard Schultz, CEO and founder of the company, has stuck to his conviction not to “sacrifice long-term integrity and values for short-term profit.”   He knew if he played his cards right and stuck to his guns it would only be a matter of time that Starbucks would become the world largest coffee industry in the world.   He wanted the company to become and international outlet for coffee consumers which not only included men and woman but also addresses the needs and wants of those of all ages and nationalities, children, students and any other category of people that have and interest in Starbucks diverse product line. With constant dedication to the company’s vision and mission statement and believing in the value of market share and name recognition and how critical they are to the success.

(http://www.oppapers.com/essays/Michael-Porters-Analysis-Starbucks/33231)

Segmentation, Targeting, Positioning

Segmentation

One dimension of segmentation will be demographics (age and household status). Starbucks have to selected married couples age 23 – 50 with children to be our primary target market. According to the research, it is found that these households spend more than other households on non-alcoholic beverages away from home.

The Company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision. Starbucks does not have any special segments or we can say that it is not focusing on a specifically group rather than company is focusing on the people who want to relax themselves by a taking a cup of coffee and company is providing them the environment that the customers want.

Targeting

As the Starbucks is extremely careful ineach step of coffee making, it is trying to maintain a long-standing relationship with its customers and similarly they do not have any real competition threats.Starbucks is will target office workers, with middle to high incomes, who have a desire topurchase premium products.While evaluating the consumer market the conclusion is that the ideal consumers’ economic profile will beUpper Middle Class, Privileged Class, While the age demographics will be Students and Youngsters, Professionals, Families, and Mature Consumers.

Gender and Ethnic or Religious Background is researched to have minimal or no effecton the choices concerning coffee.

Positioning

Positioning is undoubtedly one of the simplest and most useful tools to marketers. After segmenting a market and then targeting a consumer, you would proceed to position a product within that market.

Remember this important point. Positioning is all about ‘perception’. As perception differs from person to person, so do the results of the positioning map e.g what you perceive as quality, value for money, etc., and is different to my perception. However, there will be similarities. This is the main strength of this tool. Marketers decide upon a competitive position which enables them to distinguish their own products from the offerings of their competition (hence the term positioning strategy).

Store Ambience

Goal: To make customers want to linger

Social Appeal-Offer a sense of community, a place where peoplecan come together.

Physical layout

Seating areas to encourage lounging

Appear upscale yet inviting

Aromas

Smoking is banned in all stores

Employees are asked to refrain from wearing perfumes orcolognes, and prepared foods are kept covered socustomers would only smell coffee aromas.

Sounds

Play soothing CDs that are also for sale

Often offer live music

Customer Service

The company sees a direct link between customer satisfaction andcustomer loyalty.

The company believes that employee satisfaction leads to customersatisfaction (Moon).

MARKETING MIX

Product

Starbucks should try to position themselves as a premium product in the coffee industry in Asia bycreating a high standard, introducing innovative products and providing excellent service.They should open new retail stores in the downtown area and also try to maintain the quality control of the coffee beans throughout Asia. Consumers can enjoy theexperience; they encounter at Starbucks, and now for those who seek a high quality non-coffee drink canenjoy the same experience. By introducing these new summer drinks, Starbucks will enjoy an entirelynew segment to market its products in Asia. When looking at the sales revenues for the summer drinks it isimportant to consider that some of the existing customers will inevitably cross over and begin consumingthe new drinks. In the end, the expansion of the product line is a wise decision because of the ease ofadoption to Starbucks reputation for quality as well as the low cost of implementation.

Price

Price and quality determines the value of the product. Therefore, Starbucks have to base their price strategy on the competition of quality.It alwaystries to deliver the high value promised to the consumers. They have to buy the quality beans,give effective and efficient training to staffs, and moreover, make an atmosphere to enjoycoffee. These all justify theirpricing and show how price supported their positioning.

Place

Distribution channels links the organization’s product or service to its consumers; andin a producer-consumer (direct supply) channel, as in the case of Starbucks, maintaining apersonnel relationship with the customers is significant (Brassington&Pettitt, 2000).

However, from a distribution point of view Starbucks has an advantage by sticking on to itswinning store location formula for its new stores (refer case study). Starbucks always selectedhighly visible locations and opened stores as clusters. As demandwill grow, as these store clustersmake them able to manage the increased traffic and to keep their competitive position.In thesame way, they can take care about the services provided in the stores. Starbucks invested heavily in training their staffs and did innovativetactics to manage their human capital. Thus they differentiated themselves in the market byconstantly providing higher quality services

Promotion

One advantage that may set Starbucks apart is the having a solid online marketing program. It should hire qualified online marketing managers to oversee its websites functions and appeal so that consumers to patronize the site will see all the humanitarian work Starbucks is doing and use it as a competitive edge to retain customers and curb product substitution. A search engine optimization campaign should be launched to ensure that anyone searching for terms related to the services Starbucks offers finds the Starbucks website and spends a significant amount of time there. Blogs and forums discussing the humanitarian work of the company may be added to increase consumer awareness of the company’s activities.

Artworks can be designed to boasteach city’s personality, and it is used on traveler mugs and

T-shirts, recruitlocal ‘ambassadors’ from new partners and from customers to promote their brand.The Company is not using advertising but they can use those funds for acquiring key locations and establish a national dominance before others about specialty coffee bars.

Relationship Marketing

Starbucks Relationship Marketing activities can be done in two common ways like internally and externally. For example, internally, relationships are enhanced by introducing a cooperative and goal oriented organizational structure with effective control systems, retaining competent management, employing effective operational processes and international expansion strategies. Employees are  referred to as ‘partners’ with both part and full time staff treated equally by offering both stock options and full medical coverage.

Externally, Starbucks’ core strategy should be centered on building lasting customer relationships through trust and commitment with its stakeholders (Refer case study).

After analyzing the information about what media the target audience prefers, we should come up with the following: newspapers, internet, outdoor, magazines and radio. Two certain types of magazines are mostly used. Those are women’s interest and news and entertainment weeklies. Some of the specific vehicles for magazines will be Better Homes and Garden, People and National Geographic. As for newspapers, it should be locally distributed carriers that run the Parade supplement. The internet usage varied across a wide variety of content. Therefore, a key word association will be the most local choice to select their certain interests as well as the name Starbucks itself. Radio is also another that will have to change as far as format is concerned. This will vary depending on the market the radio is in. They do share common listening times. These times are from 10am to 3pm, Monday through Friday, and 3pm to 7pm on the weekends. Outdoor being another selection of media to reach our target audience it is a way of being in the community as they transit from one place to another. The location of this will be selected based upon spot market rating for the most showings in the specific areas.

FUTURE PROMOTION AND EXPANSION PLANS:

Starbuckswill be launching more branches all over Asia after developing an evenfirmer hold on the local western markets. The expansion will be planned for the nextyear that is 2011. The next targets should be India, Srilanka, Pakistan, and in cities of China.For that purpose again the launch will not be very extravagant, but the alreadyestablished repute in the metropolitan of western and the attachment of TV programsand stars will do the required marketing. Ads will be published in the leadingnewspapers and some bill board advertising should also be done. But overall it will below key marketing activity.Allocated budgetshould be kept in mind while launching the product in the Asia.

Conclusion

As stated earlier, Starbucks historically positioned itself as an upscale brand. Due to the economic downturn and increased competition from large quick-service restaurant chains and specialty retailers, the company sees its profits being eroded. The company introduced new products that would appeal to price-skittish customers and implemented techniques that would standardize its stores and reduce costs. The new strategy carries with it its own risks.

Since Starbucks enjoyed such a rapid growth in its business, the company can expands its stores anywhere in the globe where there is a more profitability. It means that Starbucks stores are as readily available as McDonald’s and as such the Starbucks “experience” the company asserts it provides, might be seen as no different than the experience of McDonald’s. As in the case of appealing to mass market with bottomless coffee, Starbucks’s core customer might move to other stores where they perceive the “experience” is still being provided.

If Starbucks continues to increase its storeswhile measuring and implementing of its various cost cutting initiatives, Starbucks is likely to see increased profitability. The company is also introducing 100 new stores in US, and 200 new stores in International markets, which might positively affect the company provided they are successful. Aggressive adoption of “no-frills” products to bring in new customers could also affect Starbucks’s profitability. Until now, any increase in commodity prices are more or less offset by company’s high prices, but a “no-frills” products would put downward pressure on company’s profitability, and possibly even damage Starbucks image as an upscale brand.

Biblograhy

1) Mathew Carmean, Julie Anstett, Julia Toochette, Joel Ennis, Joey Eaton, Trang P. Huynh ,: 2003

The Starbucks: The Non-Coffee Treat

2) KatieTewell, Bethany Odom, Kelly Snider, December 12, 2006, Starbucks Marketing Plan

3)www.Marketingteacher.com

4)http://www.oppapers.com/essays/Michael-Porters-Analysis-Starbucks/33231