Executive Summary
Since its first store opened on March 30th, 1971, Starbucks has been a trailblazer in providing high-quality coffee in an arousing environment that makes customers feel at home. Since that first cup of coffee, The Company is a shimmering beacon of consistency. Products offered at Starbucks range from a cup of Joe, Frappuccino’s, pastry’s, all the way to after coffee gum. Their baristas are trained to treat every single drink like a process, and the process is to be completed the same way every single time to ensure the customer gets the same great drink every time, or they’ll gladly remake it. Policies like this have caused Starbucks to create strong brand awareness and loyalty among customers, making it the market leader in coffee sales.
The brand is also highly perceived as a socially responsible one, with works like its C.A.F.E. program that helps farmers’ plant coffee beans through loans that help them pay for it. Reasons like this, and the fact that Starbucks has a wide variety of items to choose from, highly convenient, and consistent, make it a must for many coffee drinks and are the reasons why they choose Starbucks over other competitors like Dunkin Donuts and McDonalds.
They focus on their strengths in order to make a profit, which includes brand loyalty, convenience, a diverse product mix, and a wide arrangement of patents and technologies that help them achieve this. These strengths also give Starbucks the appeal of a gourmet coffee, one that many consumers are willing to pay a premium over its competitors. This allows them to maintain a sustainable competitive advantage over their competitors, without having to spend much on advertising. An opportunity that Starbucks can choose to take, they can reach out to new consumers who may not go to the store often or are regulars for their competitors and an attempt to advertise how great their product is and why they should switch over.
Starbucks can be found in most urban centers, even in multiple places, strategically plotted to offer the most convenience to most customers. For that wide array of customers, a wide array of products in order to satisfy the needs of the coffee drinker and the pastry eater. Finally, a price set that may be higher than competitors, but made up for by adding non-tangible value, such as a warm atmosphere and an inviting store.
These marketing mix selections have created many reactions from their main competitors, Dunkin Donuts, and McDonald’s. They have responded by attempting to copy what Starbucks has created, Dunkin has elected to reenact a similar drink to Starbuck’s dark roast flavor, while Mcdonald’s has attempted to imitate their famous Frappuccino’s through the McCafe selections. However, neither has been able to match Starbucks product consistency.
Although the market leader, Starbucks has yet to be satisfied with their results. You see continuing growth from the company, by introducing products that consumers want on their menus, by opening new stores, and by spreading their products across different segments, into grocery stores in packaged goods formed, and even in consumer’s homes through Starbucks k-cups. It is safe to say that Starbucks will continue to grow, and adjust their business practices and their store’s policies and products to the market trend, in order to continue to provide the best, high quality, product to consumers, exactly to their specifications. Every time.
Description of Product
Products and Primary Benefits to Customers
Starbucks offers a range of coffee products including freshly brewed coffee, packaged coffee, tea, food, mugs, and coffee-making hardware. With such a diverse selection of products, Starbucks gives customers the opportunity to choose from many different options when they enter a store. Among these options is the opportunity to visit a store and purchase a freshly brewed cup of specialty coffee or tea.
These particular customers are willing to pay for the Starbucks experience and a skillfully made cup of coffee or tea. Starbucks also offers customers products to use in the comfort of their own homes. With packaged coffee beans and the Verismo machine, loyal Starbucks customers can choose to brew their own Starbucks specialty coffee from home. Many Starbucks stores also sell their specialty made syrups so that customers can achieve the same experience of visiting a local Starbucks from their homes. Through this strategy, Starbucks has been able to effectively immerse itself within the lives of its customers, whether they visit the store daily or they brew their own Starbucks from home.
In addition to freshly brewed coffee and tea, Starbucks sells bottled drinks in its stores as well as in grocery stores. These products include Teavana bottled tea, Starbucks iced coffee, Starbucks iced espresso, and Evolution Fresh cold-pressed juice. Through the company’s implementation of the new Evolution Fresh juices, it has been able to increase its product line while reaching a new market of customers who greatly value the benefits of clean, fresh, healthy drinks.
Brand Perception
Since 1971, Starbucks has managed to build strong brand awareness and loyalty with its customers. Virtually everyone knows what Starbucks is whether or not they have had it before. Along with brand awareness, most people have a positive outlook on the Starbucks brand. The company offers customers a wide range of products, a comforting atmosphere, and ethical standards. The company is adamant about ensuring that their standards of coffee meet ethical and moral standards that their customers can appreciate. Starbucks implemented C.A.F.E. (Coffee and Farmer Equity) Practices to ensure that customers were receiving ethical, high-quality products.
This helped their brand perception by speaking to customers who value ethical and environmentally friendly products (Starbucks, 2015). Through providing coffee that exceeds ethical expectations, customers can feel like they themselves are making ethical decisions, which in turn will increase their self-value and encourage them to continue buying Starbucks products. Along with ethical standards, Starbucks provides an atmosphere, unlike other coffee shops.
Having a cup of Starbucks specialty coffee isn’t just having a cup of coffee, it is having an experience. With great service, wireless Internet, soothing music, and lounging areas, customers are given a complete experience. According to Raghubir, a marketing research professor at NYU, “Starbucks stands for coffee; it’s converted that into an experience…People really have gotten to know Starbucks as the quintessential coffee shop, where they can sit and be welcomed over a cup of coffee” (Tepper, 2013). Through both of these strategies, Starbucks has managed to maintain a loyal customer base with immaculate brand perception.
Why Would Consumers Choose This Product Over Others?
Consumers continue to choose Starbucks products over those of its competitors because Starbucks offers consumers with an inviting environment, a wide variety of products to choose from, a chance to individualize their coffee, and convenience, etc. Starbucks has built brand awareness as well as brand loyalty, which makes consumers comfortable with the brand. They know what it is, they know it can provide the product they’re looking for, and they know they can find a store virtually anywhere. Starbucks is the most common coffee shop in the United States with locations in cities nationwide.
In Santa Fe, California alone, there are 560 Starbucks locations within 20 miles. Starbucks has also established brand loyalty through their rewards program. Many consumers continue to purchase Starbucks products because the company offers different rewards and seasonal offerings to those members of the program. As you continue to visit Starbucks and use your Starbucks card, you can become a Gold Member, which contributes to consumers’ self-worth and provides them with a perception of exclusivity.
Description of Firm and its Strategy
Strengths
Starbucks maintains strong brand awareness and brand loyalty, which contributes to their extremely loyal customer base. It isn’t often that you see an advertisement for Starbucks and that is because they have spent years establishing their brand awareness. With more than 21,000 stores worldwide, Starbucks provides convenience while supporting brand awareness. The company also delivers some of the highest quality products while maintaining ethical standards. Another company’s strength is its wide range of product offerings by which it can cater to a multitude of different markets.
Weaknesses
While many consumers are willing to pay for the Starbucks experience, others are not and the company’s high prices can be a huge disadvantage if other specialty coffee corporations are willing to charge less. The company is also largely dependent on the United States market for much of its income, which could hurt the company if the nation’s economy deteriorates and consumers must cut back on unnecessary expenses. Starbucks could benefit from expanding its worldwide presence.
Sustainable Competitive Advantage
Starbucks has achieved a sustainable competitive advantage through product differentiation. Starbucks offers quality coffee, which customers can individualize in virtually any way while charging a much higher price than many of its competitors. The company is capable of achieving a sustainable competitive advantage because their target market is willing to pay the high price because customers know that Starbucks can deliver coffee that fits their specific needs. Starbucks also differentiates itself from its competitors with quality coffee, a wide variety of product offerings, and a well-designed and welcoming atmosphere.
Market Trends
Gourmet Coffee vs. Non-Gourmet Coffee
According to the National Coffee Association, daily coffee consumption of non-gourmet coffee beverages has fallen 4% in the past year, leaving an average of 35% of Americans who regularly drink non-gourmet coffee on a daily basis. Conversely, daily consumption of gourmet coffee beverages has risen a hefty 4% in the past year, leaving the coffee market at an estimated average of 34%. Needless to say, gourmet coffee is quickly gaining popularity in the eyes of American consumers, and the supplying market is adjusting accordingly.
Mobile Implementation
Another rapidly growing trend is mobile payment implementation. The ‘Starbucks’ app is quickly gaining more and more popularity, as it allows customers the ease of payment with their Starbucks card, which scans directly from their mobile smartphones. The app allows customers to manage their account, reload money onto their Starbucks card, and even tip baristas. Furthermore, Apple has adopted this mobile payment format and implemented it into their own mobile payment application called ‘Passbook’.
This very simple ease of payment is more than enough for Starbucks to continue gaining loyal customers. People are getting much more comfortable with the efficient use of mobile payments, and the trade-off also includes great rewards and discounts for Starbucks Members and Starbucks Gold Members. Starbucks benefits greatly from this popular growing trend because they are now able to efficiently and effectively
monitor customer behavior and further develop products to better suit the demands of consumers.
Falling Price of Coffee Beans
The falling price per pound of coffee beans has had a tremendous impact on the quality and prices of coffee sold in coffee retailers all over the globe. Starbucks, however, saw an even greater profit because the price of their coffee items did not budge. Starbucks made a great profit in 2014 due to these falling costs, but higher net earnings. This, in turn, yielded higher stock prices throughout 2014, which was great news to SBUX investors. According to MarketWatch, Starbucks had an astounding jump from 2013 to 2014’s net income, from $8.3 million to $2.07 billion. However, this must be taken with a grain of salt because the price of coffee beans is sensitive, and can turn for the worse if the price rises.
Shifting Demographics Ratio
Above all, one of the most important trends that can be witnessed today is the large demographic shifts in the market for coffee. According to the 2014 NCA trends report, Latinos generally consume more gourmet coffee beverages on a daily basis more than any other racial group. According to the National Coffee Association, 48% of Latinos purchase gourmet coffee beverages on a daily basis, whereas only 42% of Asians, 32% of Caucasians, and 23% of African Americans consume gourmet coffee beverages daily. The coffee industry’s future landscape will be molded by these demographic ratios.
This is a great breaking point for Starbucks because the population of Latinos in the United States is quite large and takes up a large portion of the population. Additionally, the population of Latinos is predicted to grow even larger than it is now over the next few years, which will certainly serve as a benefit to Starbucks.
Industry Dynamics
To understand the structure and dynamics of the coffee industry and how fast it is growing into our daily lives here are some facts about coffee consumption from the Business Insider:(Goldstein, 2011)
- Worldwide, we drink over 500 billion cups yearly.
- Coffee drinkers drink 3 cups on average daily.
- America’s #1 source of caffeine.
- 90% of coffee production is in developing countries, however, most of it is consumed in industrialized countries. (Goldstein, 2011)
Coffee shops are the fastest growing restaurant business with a 7% annual growth rate. (Holmes, 2004) In 2003, coffee shop sales averaged 550,000 dollars in annual sales, and there were 11,250 locations nationwide. (Holmes, 2004) A little less than a decade later, the estimated retail value was 30-32 billion dollars in sales nationwide. (SCAA, 2012, p.1) There is a significant growth in sales and locations for coffee shops, about 90% growth in both sales and locations.
According to the SCAA(Specialty Coffee Association of America), the coffee market is estimated at 30-32 billion dollars in 2012. (SCAA, 2012, p.2) The boom started about 10 years ago and it is at its peak in the last few years. According to the latest National Coffee Drinking Study from the National Coffee Association, 40% of 18-24-year-olds are drinking coffee each day in 2012. (Coffee shop, 2012, p.4) It is evident the young adults are the key groups of the industry’s targeted market segment.
The significant growth is worldwide. Starbucks for instance had 5,500 locations outside of the United States in 2010. (Coffee shop, 2012, p.1) “In recent years, there has been a huge surge in Arabica coffee demand from large, emerging markets including Brazil, India, and China.(SCAA, 2012, p.2) These countries have growing middle classes which been providing high demand for good coffee and they are competing with the United States to purchase these gourmet coffee beans.”
Also, the consumption in five leading importing countries (France, Germany, Italy, Japan, and the United States) increased by 800,000 bags of coffee from 2010 to 2011. (SCAA, 2012, p.2) It is clear that the growth in the coffee industry is not only in the United States but in the world as a whole. Despite all these facts, one stands out. The taste trend of coffee evolved over time. The modern trend of coffee in America started around the 1970s right about when Starbucks was founded, on March 30th, 1971.
Porter’s Five Forces Analysis
The threat of new entrants to the coffee industry is critical. Since Starbucks offers convenient store locations for quality coffee, McDonald’s used its locational advantages to offer quality coffee at a low price. However, the environmental and the social factor for a new entrant are very intense, due to a broad field. The threat of substitute products is mostly from other caffeine products such as energy drinks, tea, and other caffeinated products.
The increased demand for caffeine has opened the door to many different forms of caffeine such as pills, candy, and even peanut butter. Many drinkable products offer an option to add caffeine. Other than a jittery kick for the day, Starbucks also offers social location and status gain to all of its customers. The price sensitivity for coffee is high. When compared to other necessities of modern life, an argument could be made that there is no actual “need” for an overpriced drink for caffeine.
Since all of the coffee that Starbucks offers come from outside of the United States, it is imported mostly from South America. The bargaining power of the supplier isn’t that high due to bigger corporate coffee bean farms that produce coffee beans at a low cost. However, Starbucks used this opportunity to exercise one of its commonly known Social Corporate Responsibility. (Starbucks, 2015) To team up with larger banks to provide smaller privately owned coffee farmers with a loan to hire their workers before the coffee is harvested. This system is widely known and usually followed by other coffee-producing corporations.
The intensity of competitive rivalry is very high, many coffee shops that are locally competitive are available and also offering baked goods as well. The growth has been steady and fast enough for other giant corporations joined the market and took a chunk of their market share, McDonalds is a great example. The McCafe initiative started in Australia in 1993 and moved to the United States in 2001 to account for the trend of Espresso Coffees. (Rugaber, C, 2001, p.2) Since then McCafe has been one of the largest competitors of the market.
Competitor Analysis
The competitors of Starbucks are divided into two direct competitor categories. The coffee competitors and coffee shop competitors, the main difference is “are they mainly selling coffee.” Some of the competitors like Mcdonald’s and Dunkin Donuts sell great quantities of Coffee but aren’t only focused mainly on coffee. However, Peet’s Coffee and Caribou is a coffee shop very similar to Starbucks and focuses on coffee and are the direct competitors. (Coffee shop, 2012, p.1) Coffee is a beverage and its value of taste is subjective. So putting subjective tastes aside for a while, the next value from coffee would be caffeine intake.
According to a video created by Silverstein, the Caffeine content in the coffee measured cent by cent and ounce by ounce, the Mcdonalds’ coffee had the best value out of the three, Starbucks and Dunkin Donuts.(2014, V1 Since Starbucks is dominating the coffee industry it shows that caffeine content doesn’t matter, then what? The taste? The taste of coffee is subjective, the website “www.coffeereview.com” provides flavor profile of the coffee and general/impartial review.(2015) However, since it also advertises some of the roasters, it is hard to say it is completely impartial.
Even then, the Starbucks coffee’s quality and taste is almost always in the top rated coffees worldwide. Starbucks’ Sustainable competitive advantage isn’t caffeine content or even the taste of coffee, it is the logo. It is the social garment that has developed over time that provides the customers with a whole experience.
Indirect competitors are alternates to the morning routine regarding beverages, such as tea or other caffeinated products. Starbucks has teamed up with Teavana to provide quality tea at each of its stores. Other initiatives of providing pre-roasted beans and Keurig instant coffee is also aimed toward alternatives that people tend to move away from Starbucks store experience. Other competitors have already reacted to these alternatives and already offer homebrew or Keurig cups. (Mcdonalds.com, 2015) Potential competitors are very threatening to the industry due to its demand for coffee. Just as the high level of locational advantage threatened the availability of quality coffee, other companies with high-level locational advantage can enter the market at any time.
SWOT table and analysis
Strengths
Starbucks has many strengths that have resulted in them becoming the pioneer in coffee sales and brand recognition. Throughout the world, the Starbucks logo is among one of the most recognizable, coming in at 61 on the Forbes list of world’s most valuable brands. (Forbes 2014,7) Consistency and Convenience are two of Starbucks biggest strengths, where every time you go in, you can expect the same service and atmosphere in many different locations, often time multiple locations on the same street.
Their Reward program allows members to collect stars to achieve “Gold Card status,” and be eligible to receive a free beverage or food item after 12 items have been purchased. They also offer discounts, free apps, and music for members as an incentive to stay plugged into the app and to attract more customers. It’s also a more convenient way to pay, with having a gift card registered to your account, paying is as simple as opening the App.
They offer a wide arrangement of beverages, baked goods, and small meals for their consumers, but also a wide section of individual freedom, where consumers can customize their drink exactly how they want them, and if they don’t like it, the barista will remake the drink to their liking. If you go into Starbucks not wanting coffee, they also have a diverse product mix between different beverages, including naked drinks and Tazo tea, and also have pre-made sandwiches; salads baked goods, and desserts to appeal to different consumers.
Socially, Starbucks has spent a long time becoming a socially responsible company through its C.A.F.E. Practices. They ensure that customers were receiving ethical, high-quality products by monitoring the process that their beans go through while helping farmers through increased business and interest-free loans for their planting season. Work like this continued to strengthen their brand perception to customers who value ethical and environmentally friendly products.
In addition, Starbucks has patented many of their processes and products, such as their systems for brewing and serving hot beverages, beverage cup patents, all the way down to their disposable lids (FACT). These assets to the company have increased productivity of the baristas and increased value and quality in the eyes of the consumer, which has resulted in increased sales and more store locations, which provides a greater opportunity for Starbucks Growth. These strengths also combat Starbuck’s goodwill as a company and its brand equity to consumers.
Weaknesses
Starbucks is very good at turning its weaknesses into strengths. Compared to other coffee shops, Starbucks tends to be the pricier option. In fact, 73% of Americans think Starbucks is overpriced. (Marco, 2008, 1) This trend has continued throughout the years as Starbucks is still more expensive than Dunkin Donuts, Pete’s Coffee, and also McDonald’s coffee, which offers the most bang for your buck.
Starbucks has turned this weakness into strength as its ability to offer more of a value-based experience to customers when they go and get their coffee. Customers feel more welcomed and are more at ease in the calm atmosphere that Starbucks offers. Also drinking out of a Starbucks cup offers more of a social hierarchy than do the other brands, which brings more customers to Starbucks. These factors contribute to Starbucks charging a higher price and customers still buy the coffee, which results in increased revenues.
Another weakness Starbucks faces is its dependence on the US market. They have grown considerably and taken a large part of the coffee-drinking market, however, this weakness can end up turning into an opportunity for Starbucks and strengthen their operations. Although located in many parts of the world, they have yet to grasp hold of a significant part of any non-US market. If they are able to grow in other countries, such as China, they will not only shrink their dependence on the US market but also become end up increasing their sphere of influence. Based on the huge population China has to offer, sales can go through the roof if Starbucks can infiltrate the Chinese market.
Although the culture has traditionally been a tea-drinking one, Starbucks sees the trend shifting, as they witnessed a 30% revenue increase in China in 2013. (FlorCruz, 2013, 2) Starbucks in China can also focus more on their Teavana brand, to reach out to the large part of the population that still drinks tea, and possibly push that as much as they focus on coffee.
Opportunities
Starbucks has room to grow with many of its current activities that are not fundamental to its operations. Within each store, you can choose to purchase any kind of Starbucks packaged coffee. It appeals to those who want to be able to have Starbucks coffee when they’re at home without having to physically go to Starbucks. It also allows for the company to raise revenues and extend its product line.
These goods started off in Starbucks, and can now be found in most grocery stores as well. Not to mention consumers can also purchase complementary goods that Starbucks sell in-store, such as Keurig brewing machines that brew individualized k-cups, so every person can create the cup of coffee exactly how they like it. Starbucks has created most of its flavors of coffee in-store, and also of their tea available for sale in K-cup form as well for consumers. These opportunities in the packages goods segment spell more growth for Starbucks and them taking over the segment of coffee drinkers that enjoy casually in the comfort of their homes. The growth of Keurig and k-cup brewing systems are becoming more and more frequent, so it’s vital for Starbucks to grab a hold of this segment as well.
As mentioned above, Starbucks still has a lot more room to grow overseas in places like China. They could really market to not only the coffee drinkers in China. The k-cup brewing system will do well in China, and having tea k-cups does not hurt and should be heavily promoted. Starbucks promotions are another opportunity-rich market that they have stayed away from in the past.
They spent roughly 95 million dollars on Advertising in 2013. (Statista) A pretty penny indeed, but compared to one of Starbuck’s top competitors, Mcdonalds, who spent a whopping 988 million in advertising, Starbucks can attempt to reach more potential customers through advertising. Starbucks top marketing executive has stated, “So much of the relationship with the company exists between you and that barista behind the bar, we haven’t been able to conceive of a way for TV advertising to repeat that, to capture the heart and soul of the company.” (Stevens, 2006, 3) However, with Mcdonald’s presence in spending and its consistency as a corporation, Starbucks should consider appealing more through different forms of media, Television ads for example, which Starbucks has never aired.
Threats
Starbucks, like many companies, is always at the helm of the bargaining power of its suppliers. Their coffee bean suppliers could raise the prices they charge them for, therefore hurting Starbucks ‘ profit whenever they so choose to. However, Starbucks has helped combat this by creating their C.A.F.E. program, which helps farmers through increased business and interest-free loans for their planting season. This turns the threat into an opportunity for more growth, as Starbucks has control of the beans that the farmers grow, ensuring that the beans are to Starbuck’s specification and are ethically responsible as well, which is a huge selling point for the company.
It also removes the threat that the farmers with raise prices on Starbucks when they please, since Starbucks is making the loans to help provide for them to harvest the beans. With rising prices of coffee beans as well, having the farmers on their side is a definite plus and ensures that they’ll work with Starbucks to reach a price they can both deal with, especially in times where coffee prices are rising.
Heightened competition is always a threat as well, with competitors like Dunkin donuts and Mcdonalds creating coffee that is appealing to consumers as well. Especially mired in the most recent recession, many consumers started cutting back on spending, and economists expected to see Starbucks revenues drop in favor of Mcdonalds and Dunkin donuts, who have cheaper prices for their coffee and have specialty items as well.
However, that was not the case, as Ted cooper at The Motley Fool said, “McDonald’s may be able to sell coffee, but it will never come close to replicating Starbucks’ menu. McDonald’s best shot at becoming a coffee destination is to go after the price-conscious coffee crowd…” (Time, 2014, 7). Who is this price-conscious crowd? Well, that’s Dunkin donuts, and the past years have shown that of the top 3 coffee juggernauts, Starbucks is clearly first, with Dunkin donuts and Mcdonalds fighting each other in their own price-conscious market, with Starbucks going after their own.
There’s a sense of classism evident in the coffee drinking society, where more upper-middle-class people choose to drink Starbucks rather than the cheaper Mcdonalds and Dunkin, which is another reason why Starbucks was left relatively unscathed by the most recent economic recession. This correlates into promoting the brand that is Starbucks and will only continue to strengthen the brand and bring in new customers.
Finally, Starbucks faces the threat of substitute products infiltrating their market. Items such as Energy drinks, carbonated beverages, and even carbonated water that provide energy and a caffeine rush to consumers can all be a possible substitute for Starbucks. To combat these threats, Starbucks has created a number of products that can be found in Starbucks locations and in many grocery stores as well. Their Refreshers beverage are advertised as “a flavorful, lightly caffeinated beverage made from natural energy from green coffee extract.” (Starbucks promo, 2015, 2) They also have their energy drink version, known as Doubleshot energy drink. With these two additional products available for consumers, it strengthens Starbuck’s market share for beverages, from hot to cold, to high energy and low caffeinated, and so on.
SWOT Analysis
Based on the table, Starbucks is in great shape to continue their dominance in the coffee market and also have room to grow in other emerging markets that have yet to be fully integrated into Starbucks sphere of influence. They have many strengths that give them pioneers in the coffee industry, including strong brand recognition, consistency, and customer loyalty. Their weaknesses have been turned into strengths through their C.A.F.E. program for farmers and helping them turn a profit, providing Starbucks with great beans and added goodwill to their company.
Finally, the threats that Starbucks faces through heightened competition only strengthens them, as Mcdonalds and Dunkin’s donuts are fighting against one another for market share, while Starbucks spends its time introducing new products to tackle new substitutes that consumers may be going to, in order to not lose those customers and increase their sales revenue. Starbucks Company is here to stay for a while.
Segmentation and Targeting
Starbucks segments its target consumers through multiple means. Primarily, they target consumers through age groups. Starbucks’ main target age range is men and women ages 25-40. This target group accounts for almost 50% of its total business. Starbucks also targets consumers based on their income levels. High-income consumers compose the majority of their market, but there are also many other consumers who want to appear wealthy. These consumers play a crucial role in Starbucks’ success because they are attempting to compete with the higher income bracket. This contributes highly to Starbucks’ image as the icon for the wealthy.
Positioning
For entering the global market and increasing the amount of the customers, whose needs the organization can cater to, the emphasis on the company’s quality as its ket trademark feature, and the provision of additional services, is the key competitive advantage of the organization among the companies such as McDonald’s, Denny’s, Dunkin Donuts, etc., because Starbucks has been known for its outstanding quality for years and needs to retain its reputation in order to keep its loyal customers, at the same time attracting new ones.
Despite the fact that Starbucks already has rather a good positioning, the company could use certain improvements in the way that it represents its services to the target customers. Speaking of which, the expansion process, which the organization has been experiencing over the past few years, does not seem to involve targeting new clients, which clearly needs to be addressed. The customers need to know that, though paying a comparatively high price for the products that the Starbucks Company offers them, they receive high-quality services, which they cannot expect from any other firm that works in the same industry.
The company clearly utilizes every single marketing opportunity that is handed to them. Therefore, the approach adopted by the company does not need to be changed. In order to enhance its popularity and attract new customers, as well as retain the loyal ones, the organization will have to cater to the needs of a rather diverse audience. For these purposes, Starbucks will have to design the promotion strategy, which will emphasize the significance of the unique experience that the brand offers the customers, thus, increasing the value of the latter (Grewal and Levy 170). With the above-mentioned approach in mind, the company will be capable of keeping the prices comparatively high.
Therefore, there are very legitimate reasons for maintaining the company’s policy and keeping the prices high, at the same time working on the quality of the product. More importantly, the company will have to expand its services in order to cater to the needs of an even more diverse crowd (Sports par. 2).
Herein the basis for the company’s positioning statement lies – Starbucks should focus on being viewed as the organization with rigid quality standards and, therefore, moderate prices, and an array of additional services, which customers may get for an additional price.
Hence, the quality of the product must be viewed as the key pod (point of differentiation) for the organization to be distinguished among a range of similar companies. More importantly, it is quite legitimate to use the specified POD as the key justification for a comparatively high pricing strategy. The attempt at retaining the target audience by producing the coffee and the related products of the finest quality compared to the products that the competitors are represented by in the target market can be viewed as the keyframe of reference for the organization to base its positioning statement in.
Speaking of the services that the company should provide in order to attract new customers, a focus on coffee, hot drinks, and pastry is required. Thus, it will be possible for the organization to evolve by becoming a part of not only the beverage industry but also the food industry. The step-in question can be related to the approach that the companies such as McDonald’s’ adopt in defining their positioning strategy; however, unlike McDonald’s and Dunkin Donuts, Starbucks pits a very strong emphasis on the quality of the product, which places it at the top of the current food and beverage chains within the industry in question.. Therefore, the key changes made to the positioning should address the target audience and the attempts at embracing an even wider amount of target groups (Grewal and Levy 113).
It could also be suggested, though, that Starbucks should work on developing a brand product that could make it identifiable and, therefore, help it become the leader of the industry. Indeed, unlike the rest of the competitors, Starbucks is mostly associated with coffee, yet it does not have the product that would give the company its definitive look. Therefore, a greater emphasis should be put on the research and Development Department of the organization. It would be wrong to redefine the priorities of the company in terms of its products; however, the creation of a new product, which could become the new trademark of the organization, could be a welcome change of pace. Presumably, the redesign of the coffee capsules could be viewed as the direction for the company to work in.
Marketing Mix
Overall, Starbucks has positioned itself in the market as the top outlet for coffee products. The company seeks to give its clients something greater than just a cup of coffee. Starbucks looks forward to their clients to have a nice experience and to make it a routine. Based on this uniqueness, Starbucks has capitalized as a brand and established itself as the world’s most respected and recognized brands (Misonzhnik web). The company manages to reinforce its positioning strategy and positioning statement in the following ways.
Products
To achieve the standards of a premium product, Starbucks aimed at high standards of providing unique products and providing impeccable services that bring unforgettable experiences (Kotler and Kevin 143). The company expanded its product mix from eight main classes of beverages and seven food classes so that it can maintain momentum and satisfy customer needs. The company is also constantly introducing new products and at the same time wooing tea drinkers through their “Tazo Tea”.
By identifying customers’ needs, Starbucks introduced nonfat milk to its products. The company has seasonal products such as gingerbread latte for Christmas, and strawberry and cream Frappuccino for summer. The company always goes above and beyond to sell Starbucks coffee and cappuccino makers to clients wishing to purchase. These products originate from high-quality ingredients prepared through highly controlled processes involving all the employees.
With respect to ingredients, Starbucks purchases high quality, dark-roast, and whole bean coffee from respectable producers such as Kenya, Costa Rica, Sumatra, and Ethiopia. They also help local farmers through their C.A.F.E. program. High quality controlled processes involve careful monitoring of all steps in coffee production (Kotler and Kevin 129).
Although coffee is the main product and focus of Starbucks, the company has introduced new products to expand its product portfolio. Products such as pastries, sandwiches, salads, and cookies have made their way gradually into Starbuck stores to ensure that they offer a rich variety to clients. In general, the wide range of coffee products allows the company to maintain high standards and a premium quality image supporting its positioning in the market.
Price
Starbucks uses “a more for more” value proposition. At Starbucks, the company achieves value through high-quality raw materials, effective and efficient training for staff, and a perfect ambiance for coffee taking among friends and families. Accordingly, the company charged the premium amount for its products (Misonzhnik web). To many people, the premium price is an indicator of quality. Therefore, pricing based on these factors justifies the high-quality standards purported in the positioning strategy and positioning statement of Starbucks. However, it is important to note that the company has in the recent past introduced additional pricing to keep a competitive edge. For example, there exists a one-dollar bottomless coffee cup that is refillable any number of times and 50 cents less than other Starbuck products (Hines Times website).
Place
Starbucks operates through the direct supply channel whereby they offer direct producer to consumer services (Kotler and Kevin 98). Based on the positioning strategy of the company, this practice is highly critical. For example, it facilitates personal relationships with consumers so that the company’s staff can offer high-quality services and at the same time interact with customers with the view of incorporating their ideas and suggestions into the service delivery process.
The primary objective of Starbucks involves opening cluster outlets in highly visible locations (Misonzhnik web). The store clusters have helped Starbuck manage increasing demand and maintain a competitive position in the market. In the United States, Starbucks tends to open outlets in neighborhoods with potentially high traffic. In addition, Starbucks has outlets in many large stores across the country. The company always looks for an ideal place where individuals, groups, or families on the go or looking to have a break from busy lifestyles or something to help them get through it.
Besides effective practices in locating stores, Starbucks ensures the provision of flawless services in each store. Howard Schultz looked forward to unlocking the romance and mystery of coffee taking (Misonzhnik web). Accordingly, he achieved the feat through baristas that engage consumers in a constructive and fulfilling manner. Over the years, Starbucks invested heavily in training its staff and managing human capital. The ability to provide high-quality services in high-quality stores differentiates Starbucks in the market thus allowing it to remain true to its positioning strategy and statement.
Promotion
Starbucks ‘ promotion strategy focuses on an approach that does not allow it to spend exorbitantly on advertising (Morrison website). They spent roughly 95 million dollars on Advertising in 2013, while Mcdonalds spent 988 million during the same period. Starbucks can attempt to reach more potential customers through advertising, especially to combat Mcdonald’s spending. They also use cash to acquire the best locations, so there are always big community events prior to the opening of new stores. For example, the big community events seek to highlight the personality of locations and endear the stores to the locals (Misonzhnik web).
Innovative advertising on mugs and t-shirt imprints are ways through which Starbucks reaches out to consumers (Morrison website). The “smart partnership” program allows Starbucks to recruit local ambassadors through new partners and customers. Accordingly, the company has many channels through which it can promote the brand. Another critical practice in the promotion of Starbucks products includes the delivery of services in offices without limitations or restrictions on size.
The practice allows the company to promote its brand as one interested in the client’s welfare rather than company profits. The offer to remake a customer’s drink is another effective promotional practice (Morrison). The company shows a willingness in remaking a drink whenever the customer feels unsatisfied with a product, which promotes the company as an establishment that puts its best products forward to the customer.
Starbucks strives to appeal to a diverse customer base through the provision of international coffees and teas. The practice helps in accommodating clients preferring tastes from their motherland as well as locals that like exotic tastes (Kotler and Kevin 128). Accordingly, Starbucks promotes itself as a company that caters to the needs of all customers regardless of their nationalities. Also, their philanthropic initiatives for promotional purposes through significant contributions to nonprofit organizations enables Starbucks to strengthen the brand image and awareness in the benefiting communities (Misonzhnik web).
Finally, Starbuck Cards are effective in using the customers to promote the products of the company. Customers who purchase these gift cards not only show loyalty to the brand but also support free advertising initiatives aimed at attracting new customers (Morrison website). These promotional practices allow Starbucks to fulfill their positioning strategy and promise to customers.
Marketing Metrics
In an effort to measure the level of success in each campaign, Starbucks should utilize various marketing metric tools to monitor and analyze factors such as sales curated, customer engagement, and lead generation (DeMers website). With respect to online-based campaigns, the company can adopt and implement highly rated industry-standard metrics monitoring software. Starbucks can also implement a customer relationship management (CRM) database to effectively manage the company’s customers and leads (Kotler and Kevin 176).
Tracking their return on investments (ROI) of in-store and offline marketing is equally important (DeMers website). The company must use appropriate tools to monitor and analyze sales results achieved during designated campaign periods. Or on a day of free in-store tasting, the company can monitor and evaluate sales trends and store traffic (DeMers website).
Competitors’ Reaction
With competitors like McDonald’s or Dunkin Donuts, who are originally Burger brands or Donut brands, which focus on improving their original products, are now attempting to improve their coffee sales with it.
New food products introduced at Starbucks are meant to catch those customers who do not have enough time to go to different places for their meal and coffee. Starbucks launched its Pike Place blend, a lighter roast which tastes a lot like Dunkin Donuts coffee. In response, Dunkin’ launched a new, more luxurious dark roast to compete with Starbucks Dark Roast flavor. Starbucks also launched small, express-style outlets – forming not only an incursion into Dunkin’s coffee-as-fuel market but also a foray into the McDonald’s express breakfast market, which is the same share that Burger King/Tim Hortons will be looking to consolidate. (Woolf)
McDonald’s have strong brand recognition and creates an open space for families with members in a different age, such as children, teenagers, or elders at a lower price with a wide-ranged choice of menu. Following McDonald’s, Panera is also a café that is spreading, providing baked goods, salads, sandwiches, and soups with roasted coffee and espresso drinks. Compare to McDonald’s, Panera provides a more comforting space, with offerings of free Wi-Fi just like Starbucks does, and is the closest casual dining competitor. Not to mention it may be the fiercest competitor of Starbucks in terms of store ambiance and home-like atmosphere. Panera does not have its view as a fast-food restaurant, but seen as high-quality food at a reasonable price, whereas Starbucks’ products could be considered a bit expensive.
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