Principles of marketing are used to promote the products to the users. Starbucks Corporation is the largest coffee house globally with stores in 64 locations. It is based in Seattle, Washington and was founded in 1971 as a local coffee shop by Jerry Baldwin (Starbucks: Our Heritage, 2014). The company is successful in rapidly expanding its base from United States of America to other countries. A part from selling tea and coffee the corporation ventured into selling food items, mugs and tumblers, marketing of films, books and albums etc. through its outlets. Starbucks has established its brand image by constant renovation and innovation in its stores and products respectively (Starbucks, 2014). The local flavour and culture in the coffee shop has contributed to attract local customers.
Task 1: Concept and process of marketing
LO 1.1: Elements of marketing process of Starbucks
According to the Chartered Institute of Marketing, the marketing process is concerned with developing a positive image of a product when used by the customer. It requires a considerable amount of planning to produce right products in right quantity at right place and right time (Baines, Fill, & Page, 2013). American marketing association refers marketing as an activity of considerable value to buyer, clients and society to develop, communicate and exchange goodies (Kotler P. , 2008). The key elements of marketing process are suppliers, company, competitors, marketing intermediaries and consumers.
The need and evaluation of SWOT is important to facilitate quick penetration in market where business is to be operated. The strength of Starbuck lies in its global presence, product innovation, quality and profitable business. Based on strengths Starbucks can use it for advertising purposes and weaknesses can be rectified and then can be represented as the improvement in product. Opportunities will help Starbucks identify the locations where extensive marketing planning will give positive impact. It will also help in providing auxiliaries to the customers like selling entertainment related goodies and also in expanding business globally (Starbucks, 2014). The threats in the form of external factors affecting business will help Starbucks in taking up conditions that are beyond its control. The threats are seen in the form of rising cost of dairy and coffee products, competitors coming up with similar model of marketing and product brands as well as younger generation inclined towards fizzy beverages rather than coffee. The SWOT analysis of strengths, weaknesses, opportunities and threat of Starbucks will help the company in setting goals for future.
LO 1.2: Benefits and costs of marketing orientation
The market orientation refers to aligning the company structure and culture to provide excellent value and satisfaction for its customers and efficient performance by the corporation. Here the company’s primary focus is to learn about the consumer needs rather than product innovation (Pride & Ferrell, 2007). It requires high degree of market research and intelligence to respond in a quick and timely manner to customer needs which will go long way in developing relationship with the consumer..
Companies become market oriented to avoid business loss. The benefit of research on marketing orientation has led Starbucks to revamp the brand by enforcing new strategies to reduce the risk of upfront investment by forging partnership model, reinvigorating coffee brand, selling instant coffee and other products from retail stores. The cost of marketing orientation for Starbucks will be huge if it hires private company’s services. This can be reduced by taking consumer surveys when a customer visits the shop. For market orientation activities, a company requires significant costs in building technical infrastructure and resources (Sahaf M. , 2008). The company needs to collect, analyse and use customer opinion and data to create business strategy which will fulfil customer needs of care, quality and service.
The benefits and costs of marketing orientation for Starbucks is that it helps in focussing all employees at all levels to customer centric approach. It helps in obtaining immediate feedback and adapt to the market changes as required by customers in terms of products or changing tastes (Starbucks, 2014). Market orientation has helped Starbucks to include local flavours menu.
Task 2: Concept of segmentation, targeting and positioning
LO 2.1: Micro and macro environmental factors influencing marketing decisions
Micro environment are the internal factors studied theoretically using Porter’s five forces of analysis (Murray- Webster, 2010). These five forces are competitors, bargaining power of buyers, bargaining power of suppliers, threat of new entrants and substitutes.
- Threat of new market entry: for Starbucks, threat of new entrants is low, due to its high influences of market saturation. This fact acts as entry barrier discouraging access to distribution networks because most visible and high traffic locations for setting any new coffee outlets are pre-occupied by chains of Starbucks due to their strategic approach “Starbucks Everywhere”. Also, to compete and capture sizable markets as new entrants against Starbucks would mean huge initial capital which is another noticeable barrier. Further, as customer switching costs for Starbucks are absent that means to attract their customers by a new entrant would mean addition barrier.
- Threat of substitutes: For Starbucks threat from substitutes products or services are negligent because they have wide portfolio of products in non alcoholic category covering almost the entire ranges of beverages such as tea, coffee, juice, energy drinks and drinking water. So, these core products do not face substitute threats directly. Whereas, indirect substitute services for Starbucks such as recreational centres, activity stores, theme parks and malls etc contribute insignificantly as threat.
- Competitive Rivalry: Starbucks faces intensive competition from similar industry firms such as Costa coffee, Caribou, Dunkin Donuts and McDonalds etc in addition to local cafeterias.(Starbucks Corporation Report, 2015)
Macro environment refers to factors like political, technological, environmental etc. (Kotler P. , 2008).
The three macro environments factors that affect the Starbucks are political, economical and social.
- Political factors: Starbucks business operations are influenced by political factors such as the procurement of raw materials which is dependent on stricter norms based on environment and social compliance. Engaging into these norms for sourcing their raw materials is compulsory for Starbucks. Any kind of negligence creates intense political pressure affecting their sales and revenues. Also, Starbucks global image got tarnished when it was charged for tax scandal by UK government. Though the matter settled in Dec 2014 with Starbucks paying £ 20 million to government, but this attitude from government created negative impact on Starbucks. Another example of impact of political factor is the debate and criticism faced by Starbucks on their gun policy issues. In year 2013, Gun Control Advocacy Group led a boycott against Starbucks appealing public to avoid visiting their stores on Saturday’s in US. This incident has hit Starbucks business. Other political pressures are business relationship of Starbucks with countries from where supplies of coffee beans are sourced. The stability of political terms with these countries affects Starbucks trade.
- Economic factors: Starbucks business is even influenced by economic factors. Example, the recession during year 2007-09 globally affected the consumer buying power, thereby decreasing Starbuck’s sales and dropping their revenues by 28% in 2008. This crisis situation even led to closure of 900 Starbucks stores and job cuts of about 6,700 staffs as an overall impact. Another influence is of currency exchange rates. Example, the current strengthening of USD has dropped its global revenues by 92 million during first quarter 2015 generating weak revenues compared to local foreign currencies.
- Social factors: Starbucks faces influences from social factors directly such as by increase in interest in adopting western and European culture and lifestyle, the sale of Starbucks has grown. Teenagers and earning youths in developing countries prefer to socialise in Starbucks outlets. This shift in consumer perception and social attitude shows growth prospects for Starbucks revenues. Another negative influence can be seen from growing concern for caffeine and sugar consumption. This health consciousness can lower Starbuck’s future business by shifting consumer preferences. (Starbucks Corporation Report, 2015)
LO 2.2: Segmentation criteria for Starbucks
Market segmentation helps a company to identify its consumer base by segregating market into segments based on buyer needs and preferences (Ferrell & Hartline, 2012). The segmentation can be broadly classified as macro segmentation and micro segmentation.
Macro segmentation keeps size of organisation, its placement and the kind of industry it is part of in mind. The business attitude changes according to geographic placement of the business like America, Europe, Asia or Middle East based on the cultural preferences. Demographic segmentation relates to age, sex, family, education, social status, religion, income, nationality etc. Psychographic segmentation refers to lifestyle trends and personality traits. Behavioural segmentation tries to understand the response of buyer towards existing and new products like loyalty, readiness, attitude towards product (Ferrell & Hartline, 2012). Multi-variable approach uses different variables to increase the target base which can be differentiated, measurable, actionable, accessible and in substantial amount.
Micro segmentation is the nerve of daily business which makes decisions on quality of product, its delivery, pricing strategy based on location, suppliers and the technical requirements (Ferrell & Hartline, 2012). Macro segmentation will prove beneficial only if micro segmentation is effective .Evaluation of market segments to select one or two is a complex decision making process in the light of several vital factors associated with business.
Evaluation of different markets reveals that younger generation in the group of 18-24 years old constitutes the largest segment which loves Starbucks for their needs of energy boost or concentrate on studies (Starbucks, 2014). So younger generation and geographic location to include local flavours are the two market segments in which Starbucks can work upon.
LO 2.3: Targeting strategy for Starbucks
Targeting refers to selecting consumer market with characteristic products that will fulfil desire of a set of consumer sharing similar needs and tastes. (Ferrell & Hartline, 2012)
A company offering several products among different market segments can decide on whether to offer one common product which is the case in mass or undifferentiated marketing (Czinkota & Ronkainen, 2012). In differentiated or multi-segmented marketing each segment depending upon diversity, maturity, profit and competition receives suitable product. In concentrated or niche marketing company focuses on selecting single segment, studying its behaviour and developing products accordingly. Cost benefit analysis must be done before selecting a targeting strategy.
For Starbucks the different markets present are in the form of consumer loving gourmet coffee, regular drip coffee, bottled coffee, diet coffee with lesser calories, non-coffee products like tea, smoothies etc. (Starbucks, 2014). The target market proposed for Starbucks vary demographically depending upon customer age such as adults (age 25-40), young adults (age 18-24), kids and teens (age 13-17). Example, Starbucks can target these different audiences by applying different strategies. Like, for adults who consists of 49% of Starbucks revenue generation, they can lay focus on planning interiors for Starbucks stores which should promote warm, cosy and status conscious ambience. The store decor should reflect urban lifestyles and trendy patterns. For young adults which generate 40% of Starbucks business, they can promote their outlets as social hangout places. This technology freak group can be targeted when appealed by infusing new tech gadgets and applications in Starbucks business process. Starbucks can promote cool and trendy image to target this audience. For kids and teens Starbucks can bring special sized products in small portions or popular products targeted on tastes and flavours such as different flavoured milks, shakes etc that can be enjoyed by kids with complementary merchandise like small toys, games etc. (Farrell, 2015)
LO 2.4: Buying behaviour and marketing activities
Buying behaviour is the study of consumer behaviour and the processes they use for purchasing and using goods. Marketing activity has a significant effect on the buying pattern of individuals or groups (Strydom J. , 2005). For developing marketing strategy in a business understanding of consumer purchase decision is essential.
Buyer behaviour depends on various environmental factors like cultural, social, personal, psychological etc. (Saxena R. , 2010). Cultural factors relate to inherent values which play a role in decision making. Social factor considers external influences like family and friends affecting decision making. The age of consumer, occupation, monetary condition, personality and lifestyle comes under personal factors. Psychological factors constitute attitude, motivation and perception towards trying a new product.
Marketing activities should be coordinated to influence buyer’s behaviour positively and encourage them to buy new products. Example of buyer behaviour and buying situation:
For calorie conscious people, nutritional information will help them in choosing products. Globally the population is becoming health conscious so fat less products are a hit with youngsters and adults alike and Starbucks can make it, its own strength. They can include flavours and products that are made from low-fat or toned milk. Also, they can use more healthy coffee variants like “clear coffee” which is appealing to health as well as keeps way tooth stains. Starbucks can also choose to offer healthy milk options against cow’s milk like soya milk, almond, rice, quinoa etc to position new health conscious products in addition to their traditional varieties.
Similarly for families with kids, non coffee drinks in the Menu will help. With strategic location planning, used by Starbucks the addition of leisure games at outlet will be an added attraction for kids. Also, to keep kids engaged who accompany their parents the Starbucks stores can plan to have more of open spaces or play zones in addition to their convenient zones. (Starbucks, 2014).
Another example of Starbucks approach for customer buyer behaviour and its marketing activities can be seen from its “my Starbucks idea” campaign. The idea behind this was Starbucks initiative to connect with its customers on active social networking to learn about their preferences and expectations. This campaign has helped Starbucks modify and experiment with their product offers depending on consumer change drive. (Peha, 2010)
To remain profitable Starbucks need to employ business tactics that will attract consumers to Starbucks franchisee locations.
LO 2.5: New positioning for new product or service
A new product or service needs visibility in the market thus the need of positioning arises to give extra thrust to new product (Ferrell & Hartline, 2012) Strategic positioning is essential to remain profitable in market and requires deep analysis of market to understand the consumer needs and offer a product which stands out in market.
Starbucks has positioned itself as high end quality products chain. It is one of the most successful coffee chains globally. They have tried to include local flavours as its main strategy to remain competitive and profitable. The Starbucks outlet locations like airports, busy junctions, and crowded markets are so selected that they receive maximum foot fall. But the prices of their products are tilting towards higher range when compared to competitor’s products (Starbucks, 2014).This approach repels consumers searching for reasonable prices and too many options available to them.
So the proposed approach for positioning of new products by Starbucks is to be reasonably priced at least in college campuses where they cater to younger generation who is mostly in college and looks for variety in the given budget. The outlets in office areas can be made inviting by providing privacy and keeping take away products so that consumer can have it in a go in fast paced life. Health conscious people opt for low calorie products so offer something which is sweet in taste but sugar free as well as low in dairy fat. The advantages of coffee like anti-oxidant, stress buster and anti-cancerous activity can be highlighted in stores and products. This approach of slim concept with medicinal advantages will attract all generations young, middle and elderly equally towards the product.
Task 4: Marketing mix
LO 4.1: Marketing mixes for two different segments
Marketing mix as the name suggests is a strategy used to market a product by a company. Marketing strategy undergoes variation based on the market segment it aims at.
For Starbucks two vital market segments are youngsters in the age group of 18-28 years old and slightly older office going generation in the age group of 28-40 years (Starbucks, 2014). Coffee is the kind of product liked by both men and women alike.
The younger generation is more outgoing and likes to indulge in group activities. They have penchant for latest music and movies. This means Starbucks outlet can include some leisure activities that can be played or enjoyed in a group like organising or sponsoring fashion shows, college festivals, sports and other entertainment activities. The outlet can sell CDs and DVDs and keep LED or LCD monitors showcasing programs liked by youth. Youth gets attracted towards low prices, discounts, freebies and other means of promotion so special offers can be given to them. These joints can suitably be located in college campuses, malls and can be promoted through social media and online retailers.
The family people will be attracted by menu which has things to offer for kids so Starbucks can embrace things liked by kids in their menu to attract them. The elder group prefers mild sugar with fewer calories as they are more health conscious so nutritional information is vital to them and Starbucks can include that in menu or otherwise communicate effectively by staff. Excess of discounts or offers may repel these customers as they create a negative image about the product. Starbucks outlets can be located in office complexes, super markets, hospitals, amusement parks etc. (Starbucks, 2014). This group may be attracted towards activities related to parent and child.
LO 4.2: Marketing products and services to businesses rather than consumers
Marketing products to other businesses like whole seller or retailer requires thorough planning and lucrative schemes (Ferrell & Hartline, 2012). It involves higher volume of transaction so businesses employ several managers to think and plan about business before testing waters.
For Starbucks marketing product to consumer is totally different from marketing it to businesses. In business to consumer system customer is the sole decision maker while in business to business system a group of people are decision makers where each one will have their own ideas about the brand (Keillor B. , 2007). So the process of decision making is also elongated in business to business marketing. This type of marketing calls for long term partnership as lot of money is at stake and changing brands by businesses frequently is not feasible. Starbucks had been successful in exploring business to United Airlines flight, distribution through supermarkets, coming up with coffee ice-cream with Dreyer’s and selling CD’s through its stores. It involves effective communication in the form of trade shows, websites, public relations, direct mails and last but not the least advertising.
Business to business marketing generally occurs between resellers, not for profit organisations or the government bodies. It is also called as organizational marketing. The tangible and non-tangible aspects of business need to be clearly explained beforehand (Keillor B. , 2007). Starbucks marketing product or service to businesses requires incorporation of value added services along with the quality of product so that it can be passed on to the consumer.
|Marketing products/services to B2B||Marketing products/services to B2C|
LO 4.3 Difference between international marketing and domestic marketing
The aim of marketing, whether in domestic market or international marketing is to promote product. It only differs in the boundaries but fundamental principles are the same (Czinkota & Ronkainen, 2012).Domestic marketing is well versed with the culture and taste of people locally. In international marketing target buyer is overseas so company needs to undergo research and analysis of target market in relation to product it wants to sell.
The differences lie in the fact that domestic marketing is limited and may saturate after a given point of time. International marketing has a lot of scope and offers opportunities in the form of newer markets that can be explored (Czinkota & Ronkainen, 2012). For Starbucks, International marketing is more profitable compared to domestic as they have reached saturation in domestic market and currency received is foreign. International marketing uses latest technology to communicate or spread business while in domestic marketing it is of limited use. Starbucks International marketing is dependent on the relation between two countries, one headquarter and the other where business is intended. It also depends on the political situation of the other country and requires understanding of complex trade laws. Starbucks domestic marketing is only concerned with domestic political scenario and it offers little barrier while international marketing is complex in the form of various barriers to be faced like culture, language, customs, traditions, currency etc.
Their international marketing strategy is filled with local flavours of the country where they intend to do business (Starbucks: Our Heritage, 2014). Their promotional strategy is also differentiated and localised. The products offered at the outlet do not follow standard pattern and launched according to the country. The employees involved in planning of marketing strategy are multinational and multilingual that understands local culture.
Examples of Starbucks strategies showing difference in international and domestic marketing:
In US, Starbucks use standard disposable coffee cups to serve beverages and drinks to their customers. But this strategy did not worked out in France where cafe culture is more of traditional. So, they had to face trouble of low acceptance from native customers and hence had to change their servicing patterns in France. Also, new experimented flavours of Starbucks like caramel coffee gained slow acceptance as against classic form of coffee.
Another example can be seen from that in Italy where Starbucks had to diverge from just serving cup of coffee. They had to incorporate serving complementary food with coffee in Italy as is the culture there against the domestic strategies of Starbucks in US. Also Starbucks had to switch to lower pricing strategies for their products as against their premium pricing in domestic marketing to keep off and compete with popular local brands.
The understanding of basic principles of marketing is an essential component of establishing a brand image of a company. Starbucks uses extensive marketing to maintain its existing markets and to enter new markets
Their aim is to increase coffee drinking habit globally to increase opportunities. Consumer surveys, robust supply chain, modern store design, and innovative drinks are used to attract customers. Newer integrative communication techniques like online ordering and home delivery has also helped in expanding the business and made it one of the most successful retail chain in food and beverage industry.
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Baines, P., Fill, C., & Page, K. (2013). Essentials of Marketing. Oxford: Oxford University Press.
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Czinkota, M., & Ronkainen, I. (2012). International Marketing. New York: Cengage Learning.
Ferrell, O. C., & Hartline, M. (2012). Marketing Strategy. New York: Cengage Learning.