Starbucks originally started in 1971. Initially they had narrow focus towards market. They started with roaster and distributer of high quality whole beans and did not sell coffee by cup; the coffee concept was introduced by Howard Schultz, who joined the company in 1982. And slowly they started diversifying by adding new products like espresso drinks, blended drinks, coffee mugs and other coffee accessories.
Market penetration occurs when a company penetrates a current market with its current products, and the outlets increased from 11 in 1987 to 161 in 1972 in the initial growth stage incurred heavy losses. (Starbucks corporation), in 1992 and 1993 Starbucks developed a three -year global expansion strategy the targeted areas which not only had favourable demographic profiles but also could be serviced and supported by the company's operations infrastructure. For each targeted region, Starbucks selected a large city (traffic area) to serve as "hub", professionals team were located in hub areas to support the goal of opening several stores in the hub initially. Once stores blanketed the hub, then additional stores were opened in smaller, surrounding areas in the region. (http://adelino.typepad.com). Starbucks strategy focused on heavily increasing the foot traffic in one specific part of town this will not only cut down on the companies delivery and management time but also it would shorten the waiting lines for customers at each individual stores and hopefully increase overall traffic although Schultz knew that his strategy was risk. But his unique strategy was paid off, clustering its stores in one area helped Starbucks quickly achieve market dominance. With over 20 million regular customers per week. Since company went to public sales have risen roughly 20% each year even though rest of the economy seems to be in slump. One of the other strategies of Starbucks is that it spends less than 1% of annual revenue on advertising, versus the typical 10% of most other retailers.
Market development is a strategy of increasing in new markets. (Marketing concept and strategy, sally bib, Lyndon 5th edition) Starbucks adopted the first- to-market strategy expanding through the Pacific Northwest and then to Chicago and California, providing the success of its concept. (www.evancarmichael.com) as of 2008 Starbucks has 16,635 stores in 49 countries, including 11,068 (6,764 company owned, 4,304 franchised) in the US, followed by nearly 1,000 in Canada and more than 800 in Japan. And so on (http://www.hoovers.com) in recent years Starbucks had begun entering into limited number of licensing agreements for stores locations in areas where it did not have ability to locate its own outlets e.g. restaurants, airlines, hotels, universities, hospitals, business offices, country clubs etc.
Diversification is a growth that occurs when new product are developed to be sold on new market. As explained above how Starbucks initially stated with roaster and distributer of high quality whole beans and how they penetrated in to new markets, they also collide with all kinds of new product markets with new and demanding consumers for unique products. In recent years the company began selling jazz and blues CDs, which in some case were special compilation that had been put together for Starbucks to use as store background music. They also got Wi-Fi facility in the stores.
Product Development Starbucks also adopt market segmentation strategy for various age group e.g. they had Gourmet coffee for which the target group was 18 to 34 years old coffee drinkers what was something more than just coffee caramel, macchiato and gingerbread latte are some examples. Brewed coffee for older age, bottled coffee for people who need take away and this bottled coffee are usually found at grocery stores double shot, caramel, vanilla and mocha frappuccino are some examples. Skinny platform for lower in calories of about 90 calories, skinny cinnamon dolce latte, skinny mocha are some examples. Starbucks developed new products for non coffee drinkers in order to give further market development and be competitive. They attract its present and new consumers not only with quality products but also with varieties flavours that consumers want to taste. (http://www.articlesbase.com) e.g. they started selling fresh pastries and other food item, soda, juices, teas and coffee related hardware and equipment.
Porter's three generic forces: - (Buhalis Dimitrios, E-tourism- information technology for strategic tourism management,) Cost leadership, Differentiation, Focus.
Cost leadership: - the low cost leadership in any market gains competitive advantage from being able to many to produce at the lower cost, in the case of Starbuck the as the quality of the product is excellent hence cost of their product are relatively high as compare to their other competitors. Recently Grind coffee house and McDonalds have penetrated Starbucks market share as well as shifted the price point, McDonalds now offers substitute product for half price of Starbucks. In Today's economy, many people are looking for every conceivable reduction in spending so it puts Starbucks in commodity squeeze (http://www.entrepreneur.com).
Differentiation: - differentiate the product in the classic form; the existing customer begins to differentiate, highlighting their product superiority. Starbucks wants its customers and a potential customer to perceive them as a company that has positive impact on the world. This is the one of the ways Starbucks is using marketing concept to strengthen its marketing strategy of a differentiator. The practical way to know is, in the face of McDonalds, is "nobody makes a latte like Starbucks" campaign (http://businomics.typepad.com).
Focus: - focus strategy is also known as a 'niche' strategy. Where an organisation can afford neither scope cost leadership nor a wide scope differentiation strategy, Starbucks use a focused differentiation strategy to provide high perceived product/service benefits justifying a substantial price premium, usually to select market segment. For example Starbucks does not aggressively market the company through traditional means but instead focused almost entirely on high level marketing and branding of word of mouth and key alliances and partnership (http://digitalcommons.liberty.edu).
Logo - Starting with brand logo the Starbucks logo, the original twin- tailed siren or mermaid was slightly more exposed. However, from an aesthetic standpoint it is interesting to see the two logo side by side. At first glance it's obvious that two major factors have changed the logo, technology and corporate growth. The original features a breasted shrine; it's hard to believe that today a multinational corporate would ever give the green light to such a logo. Perhaps Starbucks is featuring the old logo to remind people that they are authentic, that they have a history that they were not always ubiquitous and disposable and once upon a time they had character (http://www.jameskurtz.com).
Branding - branding is much more than just giving a brand name and signalling to the outside world that such a product or service has been stamped with the mark and imprint of an organisation. It requires a corporate long-term involvement a high level of resource and skills. ( kapferer Jean, The new strategic brand management: creating and sustaining brand equity) the first move in any brand strategy is always a step back; many brand managers ignore the heritage and build brands around current market needs. Schultz knows that history and heritage are grate teachers. Starbucks plays on their strengths ethically sourcing and roasting the high quality coffee on the world, the exclusive focus on their customers; the trust they have built in them and the smart entrepreneurial risk taking, innovation and creativity that are the hallmarks of the company (www.brandingstrategyinsider.com), by this Starbucks has created very loyal customers who continue to return in their shop. Rob frankel a branding consultant says "every brand is rooted in popular culture. That is the difference between advertising and branding. Advertising grabs the customer's minds; whereas branding grabs their heats" (www.brandchannel.com)
Marketing mix - marketing mix can be defined as combination of market elements also know as four P's of marketing mix used in the sale of a particular product. These elements are product, price, place of distribution and promotion. The extended three P's are People, process and physical evidence. All are important in defining and fulfilling a target market. Starbucks primarily focus is to provide outstanding service and products to their customers, while earning their loyalty (www.oppapers.com).
People - Is an essential ingredient to any service provision the use of appropriate staff is essential if the organisation wants to obtain a form of competitive advantage. Consumers make judgement & deliver perception of the service based on the employees they interact with, the staff should have appropriate training & skills, aptitude and service knowledge to provide the service the consumers are paying for. Starbucks firmly believes that their employees are one of their important asset and that its through their high quality workforce that they are able to maintain a competitive advantage. (www.seattle.bizjournals.com). Starbucks realized that its employees mainly baristas were essential in providing excellent customers service. Each and every employee is given exceptional training to use the coffee machines, customer services and so on. Employees are empowered by management to make decisions without having first report to management, and are encourage to think for themselves as an entry of the business. Starbucks avoid hierarchical organisational structure and has no formal organisational chat. One of their main objectives is to ingrain the company's values, principles and culture and to impart their knowledge about coffee and their passion about Starbucks. All the employees share common Goal "we all has this common belief in the product we sell" (starbucks.com)
Process - process refers to the system used to assist the organisation in delivering the service. (Campbell David, Business strategy: an introduction) as Starbucks staff gets excellent training the customers don't have to wait in the queue for long, which most of the customers hate. Because of which they don't lose the customers. The staff knows the names and drinks of the regular customers and hence the process is quite quick. Starbucks believe that "service is more then just pouring coffee into the cup".
Physical evidence: - physical evidence is the element of the service sector mix which allows the consumers again to make a judgement on the organisation (www.seattlebizjournals.com). it refers to the physical atmosphere inside the store, every customer expect clean and friendly environment, physical evidence is an essential ingredient of the service mix customers will make perceptions base on their sight of the service provision which will have an impact on the organisation. Starbucks coffee is made fresh right after the order. The stores start learning the process with the exposure of the stores that the customers are able to see the employees make the order, smell the freshness of coffee, and hear the sound of brewing process. The customers are allowed to customize the product to some extent e.g. decaf, low fat milk etc. The customers get the attentions of Starbucks from the product themselves, the look of the stores from outside, the atmosphere inside and cozy furniture also help stimulate the attentions and eventually lead to the interpretation of rewarding themselves by having good coffee everyday at Starbucks (www.scribd.com).
However all these marketing mix and positioning strategy goes hand-in-hand and they are equally important. Starbucks is using its branding strategy to show that their brand is superior, and they work hard to maintain their superiority. In order to get in to the hearts of the customers, they want customers to experience the beverage and the atmosphere in the shop so that in future they may get their family or friends to the shop. Coz if they state that their brand is superior and if there is no good quality of marketing mix no customers will be attracted to them And hence it's rightly argued by Ries & trout (1986) suggest that 'positioning in not what you do to the product. Positioning is what you do to the mind of the prospect'.
Overall, Starbucks seems to be a strong, well-established and well known company. As the industry leader they have built a strong brand image that has helped them to gain a considerable greater share of the market as compare to their competitors. Management has shown to have the ability to foresee market trends and changes in consumer behaviours. Management of Starbucks also created corporate culture that promotes high productivity levels by their expert employees. Financially Starbucks is stable despite its rapid and continuous growth strategies. They have also built reliable and long-term relationship with their suppliers.
Although Starbucks have an outstanding reputation and have won many awards, they are still facing challenges like any other company.
Starbucks success has led to the market entry of many competitors and copycat brands that could pose potential threats. There are number of coffee shops all over the world and being able to stand out to generate customers in important. Their main competitors are Dunkin donuts, McDonalds and nestle. It is important for Starbucks to know what their competitors are doing, it was found in research that Starbucks charges 25% to 35% more price on coffee products as compare to their competitors like coffee Nero, Costa etc. In which case there is fear to lose the customers, especially in this recession period. Food chains such as McDonalds are waking up to the rich aroma of coffee and are all out to serve coffee in barrels and tonnes in its mass marketing blitz of McCafe'. The customers are getting coffee at friction of what they expect from Starbucks. Schultz has been downing the shutters at hundreds of outlets all over and laying people off in droves. Managers are being asked to look into operational efficiencies. Employees are able to see the difference that is steadily creeping in to the Starbucks culture. From the brand called Starbucks, the question now shuttles across the court to the product called Coffee and if it's worth the premium that it gets charged (www.shveda.com).
Another challenge that Starbucks has been facing in 2008 is the amount of store closer. In July 2008, they announce to the public that they would be closing 600 stores in US. Starbucks stated ' the actual store closure may differ depending on a variety of factor including but not limited to risks related to finalization of third party agreements, expected costs savings, income tax and other benefits associated with the store closure in the anticipated time frame if at all' (www.lindsayecameron.wordpress.com)
Some other challenges faced by Starbucks are several activist groups maintain website criticizing the company's fair trade practice, labour relations and environmental impacts, Raw material cost rising- Starbucks is exposed to raises in the cost of coffee labour and dairy products and adverse changes in exchange rates. US market saturation, coffee price volatility in developing countries etc (www.calarosbay.co).
Some of the recommendations and actions, Starbuck need to take in order to revitalise their brand are as follows.
To differentiate themselves from the competitors, Starbucks must conduct more aggressive promoting. Customers can be rewarded with free equipments of cups of coffee for accumulating certain number of points on their Starbucks cards and coupons. The author recommend that television commercials be created in order to differentiate between Starbucks and their closest competitors like, coffee Nero, McDonalds or Dunkin donuts etc. In order to increase traffic in the stores Starbucks should allow customers to use Wi-Fi service free with the purchase of premium sandwich and special beverage for an hour. Customers should also be allowed to purchase new release music at a discounted rate on release day through their website.
Starbucks should use product differentiation strategy i.e. it should show that their brand is far more superior to their competitors, by providing excellent customer service and product, and reinforcing the idea that they are providing the premium quality of product in the industry. It also should provide premium quality of brewed coffee, coffee beans, selected food items and coffee related equipment. Concentrating fully on food related items. Starbucks should make their customers believe that the premium prices they are paying for the food and services really worth it. In order to differentiate Starbucks as premium brand they should reduce the number of stores i.e. the concept of several stores in 1 mile of radius. Stores in high traffic area should be redesigned. And this design should include a comfortable feel for the customers and encourage large gatherings i.e. they should be able to host gatherings for business meetings, college student groups etc (http://blogs.indews.com). The author's final recommendation regarding product itself is that Starbucks should continue the practice of carrying an extensive line of coffee and coffee beans and to extend the line of food that is offered at the retail stores. The focus should concentrate on fresh baked food, sandwiches etc with natural ingredients. Initially they should introduce it to limited markets and if the products deliver good result then they can be added to permanent menu also they can introduce new flavours of energy drinks and milk shakes as well targeting teen's market.
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