Today, the Indian economy has become one of the fastest growing in the world with an increase in both local and foreign investments. It is against this backdrop that the Starbucks Coffee Company began its operations in India. According to Alonso and Ogle (2010, p.187), Indians have been provided with excellent career opportunities as a result of massive outsourcing being conducted by United States multinational companies.
Due to this, Indians have significantly boosted their income and this has enhanced their overall purchasing power. As explored in this paper, provides Starbucks Coffee Company with an excellent opportunity to develop and grow its business. This paper analyzes the marketing environment, segmentation, targeting and positioning and marketing mix strategies of Starbucks Coffee Company in India.
Anvari, Amin and Seliman (2010) observe that market segmentation is dependent on demographic composition of any given population. As such most companies develop market segmentation strategies that aid them in meeting both the immediate and long term needs of the market. Additionally, the authors emphasize that they develop products that suit the needs of groups within each unique operating environment.
Developing and delivering services that retain customer loyalty and satisfied is the main goal of Starbucks Coffee Company in India. This objective aims at maintaining current customers alongside attracting prospective ones. This tends to work well in increasing profitability, market share, customer equity, and revenue base. Moreover, both the coffee and other beverage products processed by Starbucks target primary, secondary and emerging markets.
On the same note, Assante, Mulaj and Steed (2011, p. 234) point out that globalization has accelerated market segmentation based on geographical variables. As businesses explore international markets, they are compelled to modify their products and services with an aim of capturing the different and diverse market characteristics. As such, Starbucks Company has determined the various needs for its products among the population in India and has seized the opportunity which diverse customers forming the immense population of India present. It is imperative to note that India has a population of over one billion. Hence, this mammoth population provides a large consumer market for Starbucks Coffee products. Besides, due to preference of beverage products, India presents a suitable market for Starbucks coffee products.
Baqir (2010, p. 547) reiterates that market segmentation and diverse needs in the market will continue to be popular based on consumer behaviors based on religion and preferences. It is vital to note there are different religions and people in India with diverse preferences. However, the author argues that this trend is slowly declining as more companies are coming up with products that meet diverse needs of consumers in India. He concludes by indicating that preferences signifies that market needs in terms of geographical variables is gradually gaining momentum in India and this presents a good opportunity for business growth.
Barrows and Powers (2009, p. 370) argue that the changes in demand as well as supply to some extent have heightened the need for continuous market segmentation attempts in order to capture the diverse and sophisticated consumer needs. As a matter of fact, the underlying principle behind marketing is to attract potential customers to a particular brand or product and consequently create loyalty. At times, it is becomes necessary for a business to develop brands targeting loyal consumers. They continue to point out that for Starbucks, market segmentation will continue to be popular based on the fact that consumer behaviors in terms of level of usage are changing.
It is also worthy to mention that the rationale behind market segmentation for Starbucks coffee company is to confront the competition challenges which is present in the Indian market. Chen, Wang and Chu (2010, p.567) indicate that a wide market segment attracts more rapid and rigorous competition among businesses than in the case of sub segments. They further point out that increased competition among firms limits the benefits of mass marketing.Therefore, Starbucks is using marketing segmentation to acquire a strategic niche in the market. Marketing segmentation is greatly advantageous especially to small firms whereby they concentrate their resources to develop a product that would meet the needs of a particular group of consumers who are most of the times ignored by large companies. This form of dissatisfaction might be in terms pricing or quantity.
Needless to say, marketing segmentation, be it by both large and small firms, enables potential and active marketers to establish the hidden needs of their target markets and from this information they get the ideas for improving existing products to capture whatever hidden need is available.
Similarly, through marketing segmentation, firms are able to establish the composition of the most and least profitable consumers and this act as guidance to the firm to avoid future investment in unprofitable brands (Pridmore,& Zwick 2011, p.444). As aforementioned, brand loyalty is an important factor to beat competition, and this is usually promoted via market segmentation, whereby if a business success to satisfy its target customer needs fully, there is a possibility that brand loyalty will be achieved.
Starbucks coffee company has two target markets namely the primary and secondary target markets. In primary target market, Starbucks coffee company targets young individuals, both female and male. The age bracket of this group ranges from 16-18 years. Besides, this company understands that this age group comes from upper and middle class populations and is well educated. Starbucks coffee company has selected and opened shops in locations where this group as well as the highly paid workers are located. This is considered as the best marketing strategy that Starbucks uses to develop loyalty for its brands. In any case, early attraction to Starbucks products by the young generation ensures continuity as well as expansion of its market share.
Starbucks secondary target market includes areas most frequented by tourists. This company being a multinational company, most tourists coming from Japan, Germany, England and the US can easily recognize it. Besides tourists, another secondary target market for Starbucks are the upper and middle class society who like Starbucks products as they are relatively cheaper in India compared to other places.
Selection of location for business is an important marketing segmentation practice that brings benefits to large firms whereby targeting different markets ensures that their brands do not compete against each other but achieves a competitive edge with a competitor’s brand. As such, Starbucks has selected best locations in India to meet diverse needs of its customers. The potential locations where its businesses are located include Nariman point in Mumbai which is a tourist destination. Besides, most call centers, technological companies and the affluent society of high class people are located in this area. Another location is New Delhi. Starbuck shops are located at Connaught Circles. This area, situated near the famous Taj Mahal, forms a large commercial area in India.
One of the strengths at Starbucks is that it makes huge earnings from the businesses it conducts. For instance, its earning in the year 2004 was above $600. Today, it generates over $ 5000 Million. Besides, its products have been considered as the best and its services have earned it a good reputation. Ass such, it has its shops in over 40 countries and boasts of over 9000 shops. It is also imperative too note that since it values its workforce, it has earned respect among many as is considered among top 100 fortune companies.
Inasmuch as Starbucks believes in creativity and innovation, it is vulnerable and frequently falters. The management of Starbuscks understands the importance of creativity and innovation as they play a major role in establishing of new business ventures. However, Barrows and Powers (2009, p. 370) indicate that Starbucks innovation practices often falters because of lack of effective planning strategies and resources.
Besides, Starbucks Coffee Company is only well established in America but lacks portfolio in other countries. Since its establishment, the company has not spread out strongly into other potential markets in other region in the world. This has in turn denied it the opportunity to experience other markets where other similar businesses are thriving and making profits.
One of the credits that Starbucks has is its ability to capture a market. This can be seen in the manner in which it has been able to venture into new markets such as India and Japan and establish effective busuiness. For instance, Starbucks’ move to capture the Indian market springs from its ability to see a market gap and needs that individuals in that market have. Since it has a good reputation from its quality products, moving into such a market and developing its business becomes easy (Pridmore & Zwick 2011, p.444)
Moreover, Starbucks products can be presented at fair trade in the same manner as they can be retailed. Being one of the famous coffee and tea beverage companies in the world, presentation of its products in such events exposes the company to diverse customers. Besides, their new product it intends to try in the market also gets an opportunity to interact with customers. This in turn makes its products competitive.
One of the threats that Starbuck Company faces is its ability to stay in the market for a long period of time. This comes from the backdrop that it does not have a wide variety of products like many other companies. As such, due to the changing trends in the market, there is a possibility that other similar and better products may be introduced to replace coffee and tea products.
Besides, another distressing threat is the rise in cost of prices of commodities. The increase in prices of commodities has become a common occurrence in the market. As such, the prices of dairy products and coffee keep rising and this makes the company to incur high cost of buying such products. It is imperative to note that in order to maintain a competitive edge, it must lower the cost of its products to its customers. Therefore, creating a balance between cost of buying and selling product and still be able to maximize profits becomes a threat to its success.
Chevalier (2011, p.765) points out that due to the increasing competition in the global business environment, the success of a business or an organization will greatly depend on the ability to manage business processes in an effective manner to achieve efficiencies. A firm’s business strategy must therefore be suitable in the sense that through its products, it increases its competitive advantage by developing and building focus on core competencies. Due to the intensive competition and increasing uncertainty in the Indian market, Starbucks Coffee Company has developed sustainable advantage due to its range of ginger and black clove coffee and tea beverages products widely used in different countries.
It is imperative to note that and makes tremendous gains because it has an articulate strategic intent, competencies and resources that are non-substitutable and unique. Additionally, its business strategy has been witnessed in the manner in which it has managed to combine organizational knowledge, integrated technology and coordinated production skills. It is vital to observe that its strategic capabilities transcend both operations which are geographically dispersed and areas of traditional functions through creation of supportive infrastructure via investments.
In terms of customer proposition, Starbucks coffee company’s offerings are of rare quality, and as such, there is significant gain that arises from competitive advantage. Its offerings include customer services that are both informative and informal. Through these offerings, it promotes and provides customers with coffee and tea beverages experience that is distinctive and enjoyable. Additionally, as aforementioned, Starbucks provides its products to its customers in India at relatively low prices thereby creating an enabling environment whereby customers can be retained as well as attracted.
Keys to success and critical issues
One of the key success areas of this business is strategic planning. Ghouri, A. et al. (2011, p. 356) points out that it is the foundation of all management activities. Starbucks has been able to organize its resources to meet the various demands among its customers for its diverse products. It is imperative to note that Starbucks management has been efficient in organizing the necessary resources needed to develop the business and to overcome challenges and competition from other companies.
Besides strategic planning, another key to success for Starbuck has been creation of better working conditions and relationships by building on team work. The performance of its employees or groups and individuals within Starbucks has been a key ingredient to its overall output. Jayashankar and Goedegebuure (2011, p. 465) point out that increased productivity in management and organization has been directly linked to group efficacy. One of the most powerful ways through which groups have increased their efficacy and effectiveness is through team building exercise.
According to Katrinli, Gunay &Biresselioglu (2011, p. 576), marketing entails all those activities that precipitate the knowledge on the availability of certain products and services so that appropriate levels of production can be attained in accordance to the movements in demand and supply. It also features the strategic movement of finished goods and services to various points of sale as dictated by demand. Starbuck coffee company mission focuses on customers unmet needs by bridging the market gap and through its potential offerings. It achieves its superior returns and growth on invested capital by using new offerings to target existing market segments, using existing offerings to target new segments and addressing new offerings and new segments. Most importantly, as a good business, it is in a position of understanding how to meet consumers’ needs.
As Manzerolle and Smeltzer (2011, p.776) document, considering and exploring social issues that may potentially affect the business and creating awareness of its products to consumers boosts the marketing practices of a business. Besides, understanding the various needs of customers and planning to meet them also sets a firm background of ensuring that better and functional strategies are put in place. These needs can be met through engagement of consumers in order to understand their feeling, beliefs, attitudes knowledge and motivation.
As such, Starbuck coffee company marketing objective seeks to understand how psychographics, market mix factors, social class and culture influence the behaviour of consumers. This influences the intentions of its consumers to make purchases. Therefore, actions such as disposal, use, decision, alternative identification and evaluation are methods it applies to meet the needs of consumers. Through feedback it gets from users of its products, it determines what they need. As such, it creates value in its products by offering products, technologies food and beverages that are of value to the target user.
Starbucks coffee company in India seeks competitive advantage and makes financial gains through differentiation in a broad range of market. Differentiation of marketing mix and market segmentation in the marketing field has become important financial strategy to marketers due to their prevalence. As such, they are able to raise finances, increase total revenue and market share.
Jayashankar and Goedegebuure (2011, p. 465) argue that marketing segmentation by both large and small firms enables the marketers to establish the hidden needs of their target markets and from this information they get the ideas for improving existing products to capture whatever hidden need is available. They further point out that, through marketing segmentation, firms such as Starbucks have been able to establish the composition of the most and least profitable market areas. This has also acted as a method of identifying a target market.
As aforementioned, Starbucks coffee company has two target markets namely primary target market and secondary target market. Its primary target market is the young individuals both female and male. The age bracket of this group ranges from 16-18 years. Its secondary target market includes tourists coming from Japan, Germany, England and the US areas most frequented by tourists. This company being a multinational company, most individuals can easily recognize it. This creates brand loyalty and is an important factor to beat competition
4 Marketing mix
According to Katrinli, Gunay &Biresselioglu (2011, p. 576), physical evidence in terms of service delivery plays an important role in determining the quality of service offered to customers. The latter often tend to judge an organization depending on the experience they get from the environment they are getting their services. The product experience of Starbucks tea and coffee products as well as skimmed milk shows a quality that has been viewed as a competitive marketing strategy in the hospitality industry. The commitment of Starbuck in giving quality service is part of its new sustainable development strategy.
According to Liu and Ko (2011, p. 567), pricing has both managerial and methodological implications. It is important to note that what determines the behavioral intentions of customers in the hospitality industry are better products and services, clean and friendly environment, and that high quality services be increased for reasons of profitability. Starbucks has organized its restaurant services and comforts in a manner that it revolves around value perceptions that customers have on risk, image, value and price intentions.
It is important to note that all cafes are faced with a common challenge of pricing. Determining the right type of pricing from a variety of products is a problem that is faced by most businesses. Depending on the type of products or services, businesses face the challenge of costs. For instance, a, higher cost is incurred for a wide range of products with many varieties. Some of the schemes for pricing in starbucks include pricing to meet the requirement of gross margin, markup over total cost and fixed markup over the cost of products and services. Effective pricing strategy is important in setting prices.
A thriving business like Starbuck coffee and Tea Company needs to deliver its services faster and efficiently. This requires a system to be put in place to facilitate efficient service delivery. However, a well devised system and structure may not work well in the absence of a prescribed process. That system is referred to as process and it works well in creating customer loyalty and confidence in the company.
In is important to note that in order for a company to win the hearts of its customers, it must look beyond fulfilling customers’ needs the ordinary way to doing it in a fast, smooth and efficient way possible. Starbucks Company has improved its customer services at its various locations basically to improve the speed and quality of service. Besides, to balance its growth with rival companies, it has improved the functions of its shop facilities such as the reception areas, packaging and areas where customers can be served. Through process, the superior service provision of Starbucks has seen it attract customers as well as tourists and other important business persons visiting India from across the globe.
According to Jayashankar and Goedegebuure (2011, p. 465), marketing and advertising strategies do play a significant role in promoting firms’ products to its existing and potential consumers regardless of the type of market structure upon which a particular firm operates. As such, the choice of marketing and advertising strategies by Starbucks has been crucial in the sale of its products. Concurrently, marketing increases demand and subsequently brand loyalty is created and this is very crucial to maintain market share in competition. Each year Starbucks sets aside some amount of money to run advertisements and do promotions of its products.
According to Katrinli, Gunay &Biresselioglu (2011, p. 576), a promotional channel is only profitable if the extra sales revenue exceeds the input cost of advertising. However, they underscore that it is not easy to calculate how much a specific campaign yields in terms of increased sales. Starbucks promotions and advertisements have led to a positive increase in demand for its products. As such, it has capitalized on this aspect to maintain its market share in India hospitality industry and henceforth maximize its profitability.
5 Marketing research
According to Liu and Ko (2011, p. 567), marketing plays an important role in facilitating exchange between marketers and consumers in any business set up. Furthermore, marketing usually targets meeting and fulfilling the needs of customers in various market segments as well as caring for the needs of shareholders by maximizing returns on investments. Starbucks marketers have several options with respect to consumer group. Those options include using integrated mass marketing to carry out marketing practices and also using a unique marketing mix to target a consumer group.
The concept of marketing is not new to Starbucks business. For example, the rise of free markets, despite of its numerous benefits, posed serious challenges to businesses due to increased competition. As a result, Starbucks idea of marketing was to promote its brand recognition among potential consumers. Initially, firms embarked on mass marketing whereby consumer’s tastes and differences were not differentiated.
To sum up, continuous improvement of marketing programs and progressive quality of service by Starbucks Coffee Company has been key in its achievement and growth in the hospitality industry. While market competition may be rife for such a business organization, it is worth to mention that the overall strengths and opportunities being faced by Starbucks in India are indeed over and above any prevalent weaknesses and threats. Therefore, proper market segmentation will definitely boost the profitability as well as market share of the company. Besides, its good marketing strategies and marketing mix such as process, physical evidence, and promotion as well as pricing have also enhanced its business outlook and boosted its overall profitability.
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