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Chapter 3

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  • 1. ****Chapter 3:Marketing statergies**** :Products of company Starbucks is primarily known for selling coffee, but also sells other hot and cold beverages, pastries, sandwiches and other snacks. A "Skinny" line of drinks rolled out in 2008, offering lower-calorie and sugar-free versions of the company's offered drinks which use skim milk and are sweetened by a choice of artificial sweetener (such as Sweet'N Low, Splenda, Equal, or one of the company's sugar-free syrup flavors. Starbucks stopped using milk originating from rBGH-treated cows in 2007.[ In June 2009, the company announced that it would be overhauling its menu and selling salads and baked goods without high-fructose corn syrup or artificial ingredients. This move was expected to attract health- and cost-conscious consumers and will not affect prices. Starbucks introduced a new line of instant coffee packets, called VIA "Ready Brew", in March 2009. It was first unveiled in New York City with subsequent testing of the product also in Seattle, Chicago and London. The first two VIA flavors include Italian Roast and Colombia, which were then rolled out in October 2009, across the U.S. and Canada with Starbucks stores promoting the product with a blind "taste challenge" of the instant versus fresh roast. Many people could not tell the difference between the instant and fresh brewed coffee. Some analysts theorized that by introducing instant coffee, Starbucks would devalue its own brand. Starbucks began selling beer and wine at at some US stores in 2010. As of April 2012, it is available at seven locations and others have applied for licenses.
  • 2. In 2011, Starbucks introduced its largest cup size, the Trenta, which can hold 31 ounces. In September 2012, Starbucks announced the Verismo, a consumer-grade single-serve coffee machine that uses sealed plastic cups of coffee grounds, and a "milk pod" for lattes. On November 10, 2011, Starbucks Corporation announced that it had bought juice company Evolution Fresh for $30 million in cash and plans to start a chain of juice bars starting in around middle of 2012, venturing into territory staked out by Jamba Inc. Its first store released in San Bernardino, California and plans for a store in San Francisco will be launched in early 2013. In 2012, Starbucks began selling a line of iced refresher beverages in its stores which contain an extract from green arabica coffee beans. The beverages are fruit flavored and contain caffeine but, according to the company, "with none of the coffee flavor". Starbucks' green coffee extraction process involves soaking the beans in water. Tea Starbucks entered the tea business in 1999 when it acquired the Tazo brand for US$8.1 million.[48][49] In late 2012, Starbucks paid US$620 million to buy Teavana.[31][50] As of November 2012, there is no intention of marketing Starbucks' products in Teavana stores, though the acquisition will allow the expansion of Teavana beyond its current main footprint in shopping malls.[49]
  • 3. Coffee quality Kevin Knox, who was in charge of coffee quality at Starbucks from 1987 to 1993, recalled on his blog in 2010 how George Howell, coffee veteran and founder of the Cup of Excellence, had been appalled at the dark roasted beans that Starbucks was selling in 1990.[26][51] Talking to the New York Times in 2008, Howell stated his opinion that the dark roast used by Starbucks does not deepen the flavor of coffee, but instead can destroy purported nuances of flavor.[26] The March 2007 issue of Consumer Reports compared American fast-food chain coffees and ranked Starbucks behind McDonalds's Premium Roast. The magazine called Starbucks coffee "strong, but burnt and bitter enough to make your eyes water instead of open" :4ps(Products,price,place,promotion) 4Ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation Great global brands do not succeed across cultures because they are cool or trendy. They succeed because they remain relevant to people inside as well as outside the company – regardless of where they were founded or where in the world they operate. That‟s why, as an organisation grows beyond its home borders, its leaders must be sure to export the company‟s culture as well as its products. This has been Starbucks‟ strength as well as our greatest challenge since we first decided to open a store outside North America in 1996. Back then, none of our senior leaders had any international experience. In fact, we hired a consultant who came in and essentially told us that our plan to expand into Japan wasn‟t going to work. Our no-smoking policy for our stores would be a disaster. Japanese customers wouldn‟t walk around the streets with coffee in a paper cup. But our conviction that we had something universal to offer customers in addition to our coffee – a place to personally connect with others – pushed us forward, and we opened our first store in Tokyo. Fifty-four countries later, our conviction has not wavered, yet more than at any other time in our history, we are asking ourselves how to remain relevant as times change. For our coffee and our food, we have learned that each should reflect regional
  • 4. tastes and traditions but not deviate too far from our core. A vanilla latte in Zurich should taste the same as one in Chicago. In China, Starbucks stores would probably not sell noodles for breakfast; but we would – and do – include popular Chinese flavours such as sesame and green tea in our Frappuccinos. People don‟t want from us what they can get down the block, but they appreciate our efforts to put a local twist on a muffin. Even more important than our products, however, are the company‟s guiding principles of respect and dignity, which fuel the personal connections we try to make with customers. Instilling such internal values beyond a company‟s home country is crucial, but it does not come with a handbook of instructions. It‟s a subtle task, and there are concrete steps we‟ve learned along the way that hold true to any company. These include dedicating enough resources from the outset to put the right culture in place, and launching a new market under the guidance of long-term employees to ensure that like-minded talent is hired. Local leaders can then model the behaviour they want their people to emulate, celebrate behaviours they want to perpetuate and listen to what is important to the people they hire. At Starbucks, spreading our values is critical because it allows our partners (our terms for employees) to deliver our competitive advantage in every market in which we operate. Let me be more specific. Starbucks‟ value to its customers has never been just about great coffee but instead, it has been about delivering a great experience AROUND our coffee. In our stores this comes across in many ways; mainly the familiar relationship that develops when a barista gets to know her customers by name and remembers their favourite drinks, where they work or their kids‟ ages. But a barista won‟t even try to connect with customers unless she first feels positively connected to the organisation. The kind of employee connection I‟m referring to does not come about merely by providing competitive pay and benefits. This engagement results from having leaders at every level whose actions reflect our principles in the daily decisions they make, how they interact with one another and in the unique experiences they create. Leadership that fosters authentic connections takes other forms as well. Managers can get to know their employees‟ career goals and mentor them. They can involve people in decision-making, give them the permission and resources to make their own decisions and always communicate with transparency. Showing sincere appreciation, even a „thank you‟, is also tremendously important.
  • 5. Recently, I attended an event in Shanghai, China, where I witnessed a seemingly small gesture that helps to illustrate my larger point. During a dinner for about 700 Starbucks baristas, store managers and executives, a partner, Marco, was named Manager of the Year. Marco had come from a rural village and, as he stood on stage in front of his peers, someone asked what he would say to his parents back home about receiving the award. As he spoke, he was asked to close his eyes. Then a door opened and a man and a woman walked in, toward the stage. Our team in China had flown Marco‟s parents (who had never been on a plane before) to the meeting to surprise their son. Emotion rippled through the room, and it was an incredibly touching moment. For me, this family reunion was significant not just because of what it meant to Marco. Imagine the domino effect of emotional capital that will build as the meeting‟s attendees go back to work and share the story with their co-workers, customers and friends throughout the region, or even the world. The emotional power of Marco‟s reunion with his parents is universally relevant. I truly believe that any company that effectively fosters a culture where a sense of connection exists INSIDE the company also has the potential to bolster its competitive advantage with customers on any continent. The fact that Marco‟s reunion took place half a world away from our home office in Seattle gives me confidence that we are effectively exporting our culture, as well as our coffee. No company can succeed without differentiated, relevant products and services. But I have long believed that a company cannot exceed the expectations of its customers without first exceeding the expectations of its own people – in any country. Organisations that translate universally relevant values inside and outside the company – to employees as well as customers – are the ones that have what it takes to endure. :STP (Segmentation, Targeting and Positioning)
  • 6. Segamentation Marketing segmentation helps marketers to group their customers and identify the specific needs for each group more precisely. After doing this, resources can be allocated accurately and the marketing mix can be adjusted perfectly. Starbucks uses a combined strategy to break down their own market from others in order to sell their products more effectively. The coffee company mainly uses demographic - and psycho-graphic segmentation. Starbucks focuses mainly on married,well educated men and women with children in the age of 40. Therefore, the coffee house created a mature and high prestige image and also provides beverages and food that appeal to children in order to appeal to their ideal segment. The actual segment turned out to be younger and less educated than expected.The main segment represents women in the age of 18 - 43, 42% of them have children, 33% of them are college graduates and 54 % of them are married. However, Starbucks target market also have common psycho- graphical characteristic. Main Starbucks consumer are college graduates with high income who like to socialize and share a neighbor hood. The coffee house locates its retail stores in central spots of a neighbor hood such as train stations because these spots are easy to reach for everybody in a community. Also, Starbucks practices a concentrated targeting strategy by focusing only one segment which is the gourmet coffee drinker. This is how Starbucks defines its niche and label themselves as a high quality product. After establishing their niche, Starbucks continually expanses its product line to keep its only segment excited.
  • 7. Targeting Who Is Starbucks' Target Audience? by Renee O'Farrell, Demand Media Starbucks owes its success to a well-defined target audience. Starbucks holds around 33 percent of the market share for coffee in the U.S. It sells almost as much coffee as do fast food and convenience stores combined, even though it the bulk of its consumers are in cities or upscale suburban areas. Starbucks has been able to gain such a large share of the market by catering specifically to a well-defined target audience. Adults Starbucks‟ primary target market is men and women aged 25 to 40. They account for almost half (49 percent) of its total business. Starbucks‟ appeal to this consumer age group through hip, contemporary design that is consistent in its advertising and decor, and working to keep its products current as status symbols. Customers tend to be urbanites with relatively high income, professional careers and a focus on social welfare. This target audience grows at a rate of 3 percent annually.
  • 8. Young Adults Young adults, aged 18 to 24, total 40 percent of Starbucks‟ sales. Starbucks positions itself as a place college students can hang out, study, write term papers and meet people. Starbucks appeals to this consumer directly through introducing technology as soon as it comes available, focusing on social networking and actively cultivating a “cool” image. The young adult audience grows 4.6 percent each year. Kids and Teens Kids and teens are also a large part of Starbucks‟ target audience. Together, customers age 13 to 17 account for just 2 percent of Starbucks‟ sales, but most items for kids are purchased by the parents. Whether the focus is on the steamed milk that Starbucks‟ baristas refer to as “babyccinos” or the sugary, caffeinated, whipped cream topped coffee drinks that are so popular with teenagers, kids and teens form a large part of Starbucks business. Kids go there with their parents; both mother and child leave with cup in hand. Teens meanwhile use Starbucks as a place to hang out with friends or study. Starbucks may not cater directly to kids (and risk criticism about the high calorie and caffeine content of some of its drinks) but it does make its products kid-friendly, offering special child sizes for instance. Positionig Mercer (1996) defines segmentation as a process used by companies to target a specific group of customers with different needs, wants and characteristics. For a segment to be viable, it must meet several requirements such as size, identity, relevance and accessibility. In order to have an effective market segment, companies must have a target market, tailored marketing mix and differential marketing strategies. (Jobber, 2001) Starbucks' marketing strategy involved positioning its Starbucks outlets as a place where consumers can spend time other than their home or work. This was done by making each of its stores as comfortable and relaxing as possible by using comfortable furniture and relaxing music in their stores. (John, 2008) Starbucks chose to focus on the geographic, demographics and psychographics of their customers. It is with the information gathered regarding these segments that Starbucks can better serve its customers. Demographics are concerned with the structure of the population in terms of ages, lifestyles and economic factors (Blythe, 2008). Starbucks targets connoisseurs, highly educated relatively affluent, well travelled and technologically savvy with an interest in arts and other cultural events. In addition, by introducing other non-coffee products, they aimed to have wider target market i.e. non-coffee drinkers.
  • 9. Psychographic segmentation involves dividing a market into different groups based on social class, lifestyle or personality characteristics. (Blythe, 2008) Starbucks focuses heavily on charity and the arts, and is making significant efforts to be a socially and environmentally responsible company. To help ensure sustainability and future supply of high-quality green coffees in Central America and to reinforce the Company's leadership role in the coffee industry, Starbucks operates the Starbucks Coffee Agronomy Company, S.R.L, a wholly owned subsidiary located in Costa Rica. Staffed with agronomists and sustainability experts, this first-of-its-kind Farmer Support Centre is designed to proactively respond to changes in coffee producing countries that impact farmers and the supply of green coffee. During fiscal 2008, the Company expanded this sustainability program to Africa by establishing a Farmer Support Centre in Rwanda (Starbucks annual report, 2008). Starbucks also actively participates in AIDS benefits, and for every city that has a store, Starbucks sets up at least one shelter for the underprivileged children and donates money as well (Starbucks.com). By participating in various different positive causes and events, Starbucks gains a lot of favourable exposure and publicity for its brand. Geographically, Starbucks targets areas located in high-traffic, high-visibility locations, to serve as a' hub' for the area. It then opens many other outlets stores in the same area. While the Company selectively locates stores in shopping malls, it focuses on locations that provide convenient access for both pedestrians and drivers. According to Blythe (2005), branding is defined as a process of adding value to the product by use of its packaging, brand name, promotion and position in the minds of consumers. The Starbucks brand has been positioned as upscale and good quality and promoted as such to its consumers. To compete successfully in a target market involves providing the customer with a differential advantage. This involves giving customers something better than competitors (Jobber, 2001). The Company's goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing each customer a unique Starbucks Experience. (Annual Report, 2008) By positioning itself as a specialty premium coffee retailer which sells a wide variety of coffees and other beverages, both hot and cold, together with snacks and sandwiches and a network of over 17,000 stores in 49 countries, gives the company a strong and well known brand image and differential advantage over its competitors. This scale and strong brand give Starbucks a high degree of bargaining power with suppliers and also differentiates its offerings. Starbucks implemented a well integrated market mix to maximize their brand awareness and establish themselves as the best coffee brand to the world and target markets. The 7 elements of the marketing mix implemented by Starbucks can be found in table 3.1 in the appendix.
  • 10. Starbucks were able to achieve market dominance by positioning its price, products, place, promotion, process, people and physical environment in a way which differentiated them from competitors. Starbucks has managed to convince its customers its products are associated with quality, and as a result, the company has been able to differentiate itself from competitors with this perception whilst also charging a premium price for its product. :Distribution Channels although coffee is one of the highest in volume of global trading, the coffee market is very fragmented. This has led to a consolidation process where coffee is handed off from farmer to collector, collector to miller, miller to exporter or broker, and finally to importer. The importer or broker then sells the coffee to large mass-market coffee roasters and producers. Starbucks however, wishes to maintain the quality of its coffee by working back up the supply chain to the actual growers. In doing so the company works on attaining expertise and good relationships with the coffee growers themselves. As mentioned earlier this has resulted in the company attaining its supplies from the actual coffee growers, and thus, effectively bypassing much of the middle market and saving a sufficient amount of funds. Starbucks uses multiple channels (hybrid) of distribution for its products. This means the company utilizes more than one distribution design. Firstly Starbucks sells its products through a direct retail system in company-owned stores. They import and process coffee and then sell it under their own brand name in their own stores. However, Starbucks also sells its products in supermarkets and shopping centers. Additionally Starbucks has distribution agreements with office coffee suppliers, hotels, and airlines. Using multiple distribution channels allows the company to reach a wider market, however, while doing so Starbucks needs to careful with this approach due to the potential for channel conflict.
  • 11. In order to properly evaluate the possibility of bringing Starbucks to Finland, I‟ve made the assumption that Starbucks would be expanding simultaneously to all of the Nordic countries. I had to make this assumption in order to be able to logically and thoroughly consider transportation and supply costs. Since Finland is located on the outskirts of Europe, Starbucks would most likely never consider entering the Finnish market alone. It would be much more logical for Starbucks to enter all of the Nordic countries at the same time as a joint collaboration. This is however very unlikely taking into consideration that Starbucks has so far only entered new markets one country at a time. The reason why I feel that simultaneously entering Scandinavia would be a smart idea is because it would then be possible to situate a warehouse and the top headquarters in one of the Nordic countries, therefore reducing costs considerably. Just a quick thought on the practicalities of bringing my favorite coffee brand to Finland :) :Promotion Strategies Every business can learn from another, especially if a particular business is one that has displayed tremendous success over the years. The Starbucks Corporation and its successful marketing strategies are definitely something that anyone interested in business can learn about. What sort of techniques did the company use, and how were these able to reach out and attract millions of people worldwide? Some of their best strategies are outlined below. “Perfect Cup of Coffee” – Starbucks history has shown that they place a huge emphasis on product quality. Their coffee, even if priced slightly more expensive than expected, is notorious for satisfying customers with its rich, delicious taste and aroma.
  • 12. “Third Place” – From the very beginning, the Starbucks marketing strategy has focused on creating the “third place” for everyone to go to between home and work. Creating this unique and relaxing “experience” and “atmosphere” for people has been very important for the company as they have realized that this is one of the strongest concepts attached to the company, to which customers have been strongly attracted. “Customer Satisfaction” – Customer satisfaction is a very important issue with Starbucks. From entrance to the store to the very last drop of their coffees, it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience. Without a doubt, Starbucks Coffee Company knows the answer to the question, "Why is customer service important." “Creating a Starbucks Community” – The Starbucks marketing strategy has even expanded to create a community around their brand. On their website, individuals are encouraged to express their experiences with Starbucks history, and the company strives to “personally” join in the discussions. This technique was cleverly pointed out by Webolutions: The Strategic Marketing Agency in their “Starbucks Marketing Observations” article. “Smart Partnerships” – Starbucks Coffee Company has been known to create strategic partnerships that demonstrate the fact that another way to grow your business is to partner smart. Over the years, the Starbucks Corporation has greatly increased sales just by using this strategy. “Innovation” – Through the years, the Starbucks Coffee Company has been known to think up creative and innovative ideas to add to their products or services. They‟ve added different flavors to their coffee, more food on their menu, and even became one of the firsts to offer internet capability in their stores. “Brand Marketing” – The Starbucks marketing strategy has always focused on “word-of-mouth” advertising and letting the high quality of their products and services speak for themselves. For years, this has been uniquely Starbucks, and it has played a huge part in making Starbucks Coffee Company a success. The definition of viral marketing speaks to this new word of mouth that Starbucks has run with, and made their own.
  • 13. Starbucks Coffee Company and Marketing It is clear that the company has created greatly individualized marketing techniques to fit the promotion of the Starbucks brand as it applies to the unique concept it was built on. But Adelino de Almeida wrote a blog article named, “Starbucks’ New Marketing Strategy: Advertising Like Everyone Else”, where he discusses how the Starbucks marketing strategy may try to finally follow everyone else‟s marketing. Read his article and the discussion it has created to find out what this might mean for the company. Nevertheless, the Starbucks‟ marketing strategy has led the company to its current success. This fact is enough to realize that there can be much to learn from what this company has achieved to the benefit of many small businesses. Isabel Isidro, managing editor of PowerHomeBiz.com, has written an excellent article that outlines what small businesses can learn from Starbucks. The article is entitled, “Learning from Starbucks: 10 Lessons for Small Businesses”. For more comprehensive and detailed information on this topic, read about the paper entitled, “Catching the Starbucks Fever” (2002) written by Brent Kembell and colleagues. **************************************************************************************