Marketing Plan of Starbucks Coffee Company - Term Paper Example

? Starbucks is the nation's leading coffee chain. It unquestionably dominates the coffee market as well as some ancillary markets. Starbucks are integrated into Safeways and other grocery stores, and Starbucks products are found across marts and big-box stores across the country. Starbucks has become synomyous with coffee. But what has led to their success? While high quality is certainly a factor, success has also been found Marketing Strategies Starbucks' marketing strategies in general are to use their brand name and presence to subtly spread. Their TV and radio marketing mix is unobtrusive: Instead, in-store advertisements will keep people aware of new specials since most people come into Starbucks or have a friend who do. Ansoff's Matrix Current Products New Products Current Market Virtually everywhere: Control almost all US markets and regions, provide coffee Constant innovation for new types of coffee to keep people interested New Market Trying to expand among ethnic populations such as Latina/os, Asians, African-Americans Marketing Warfare Starbucks has an entrenched, defensive position. Although they certainly remain nimble in many ways, keeping ahead of market trends, they are the established power. They can be viewed as a power of light forts. Starbucks losing one, two or even a hundred shops is not a serious threat to its long-term viability. It has low entry and low exit costs since there is no substantial overhead: Office space, baristas and supplies do it. This is an incredibly daunting position for opponents, as Starbucks has both the advantage of mobility and wealth. They can sweep in and stymie opponents by shutting them out of an area and forcing them to compete against multiple Starbucks in the same region. When a competitor does gain an edge, Starbucks can just move its position. Porter's Generic Strategies Starbucks has chosen an overall cost leadership approach. They do have some differentiation from their competitors in terms of innovative drinks, tending not to offer blacker coffees, and so on, but in general, they will offer everything their competition has. And as they move into the lucrative smoothie market, they begin to compete with new foes like Jamba Juice. Their smoothie offerings are much narrower, so there, they are using a differentiation strategy: Go to Starbucks and get a simple smoothie alongside your friends who are getting a coffee, or go to Jamba Juice on your own. Their coffees are more expensive than, say, a gas station black, but Starbucks discovered that people are willing to spend about three to five dollars a day on coffee as long as the coffee is markedly better than a ninety nine cent cup of joe, more convenient, more pleasant and with more amenities. It is meaningless to call them “higher cost” than gas stations because the difference in most consumers' minds between a dollar coffee and a five dollar coffee is minimal: Coffee is a staple, one just gets it. Target Markets Almost everyone above the age of eighteen drinks coffee. Starbucks has market saturation such that they offer their services everywhere from poor inner-city urban areas to poor rural areas to middle-class and rich suburbs. Most food marts, mega-marts and grocery stores have some connection to Starbucks as well. However, Starbucks targets particular demographics clearly in terms of their design. Children. Children don't tend to like coffee, but Starbucks offers hot chocolate and highly syrupy coffee drinks that serve to get children interested in coffee. (This becomes important under both SWOT and PESTLE analysis below). Young urban and suburban professionals. With Wi-Fi offerings, music choices that tend to be of the alternative rock and modern rock varieties, and so forth, they offer good choices to this group. Older professionals. Starbucks offers a lot in terms of quality. An older professional is far more willing than an older blue collar worker to spend three dollars on a cup of coffee provided the cup is better. Starbucks would undoubtedly like to expand among ethnic minorities, particularly the Latina/o market. They will likely start to offer coffee choices that are closer to Mexican and Chicano cultural choices. Marketing Mix Product Mix The Starbucks product mix is mostly various kinds of coffees. In a sense, their business should be considered as a combination of “Coffee” and Other”. “Coffee” products vary according to syrups, sizes, health, etc. Relevant offerings include Caramel White chocolate Mint Seasonal flavors like peppermint, pumpkin spice, etc. Low-fat, non-whipped cream options Their non-coffee options are sources of good income. Hot chocolate, for example, has very low overhead yet makes virtually as much cash per sale as a coffee, which leads to a good profit margin. In essence, the coffee is the honey and the rest of the menu the trap: Starbucks offers coffee, knowing they will make a certain amount of profit off each sale, but then expands that profit by offering options beyond coffee to bring people in outside of normal rush hours and to appeal to different markets. Non-coffee options include Scones Bagels Donuts Breakfast sandwiches Granola and yogurt Other breakfast snacks Bottled water Smoothies Tea Hot chocolate Channel of Distribution Starbucks' bread and butter distribution route is their stores. They thus have a direct model. But Starbucks definitely has a few other distribution strategies. They include Selling their beans for home-brewing Selling products like bottled frappucino mixes and coffee-energy drinks through traditional grocery stores: Indirect Partnering with grocery stores, malls, mega-marts and other business to offer a Starbucks inside the other business: A different kind of indirect Their market exposure is immense simply because they have storefronts everywhere. They have likely come close to market saturation in most US markets. Promotional Objectives Most people have heard about Starbucks. They are either going to like Starbucks coffee or, for whatever reason (too sugary, not a traditional black coffee, too expensive for their preferred coffee budget) are not. Thus, Starbucks' promotional objectives, like many other established players, is not to try to make or break their business but to try to improve profit by informing people of particular product lines and partnerships. Pricing Starbucks makes better profit margins than a gas station ninety-nine cent cup of coffee by providing larger sizes, using large-scale cappucino machines to improve quality for a modicum of wait, and using better beans and syrups than their competitors. Again, Starbucks has found a middle ground where most consumers are willing to spend a slightly higher premium, imperceptibly higher (what's a few bucks?) to many, for coffee, and thus gets a good profit margin. If Starbucks were forced to raise their prices even two dollars due to coffee pricing changes, it is likely that their competitive advantage would fall substantially. Other Analyses SWOT Analysis Strengths Established brand Association with high quality Fair trade brands Green associations Hip, upwardly mobile, liberal Good place for people to hang out, read paper, work WiFi availability Fortune 100 Top Company to Work For: Considered a good employer Massive market saturation Strong corporate culture of ethics protects against malfeasance, assuages shareholders Coffee is pretty much a staple: People need it daily Weaknesses: Aggressive expansion could cause managerial instability May become viewed as a status quo, conservative, non-innovative Goliath 75% of businesses in US: Makes them vulnerable to US risk, downturn Self-cannibalization and self-competition: Starbucks everywhere causes customers to be forced to pick from among Starbucks Opportunities: Tie-ins with musicians, products like Cranium Co-branding Starbucks grocery products: Beans, creamer, syrups, Global operations: India, Pacific Rim Threats: Risk of government regulating sugary drinks targeted at children, especially caffeinated drinks Market changes: Coffee might fall out of fashion [not terribly likely] or people may want a return to simpler coffees Crop volatility, whole business depends on one single crop Fair Trade may not be enough to deter criticism of exploitation of Third World farmers Competitors like Peet's, Seattle's Best Other big companies like McDonald's entering their arena PESTLE Analysis Political Threats of regulation of sugary drinks in wake of obesity and diabetes epidemics Potential embargoes or political sanctions on important trade partner nations Agricultural subsidy debates Fair trade regulations could hamper them; however, it could also improve their position relative less Economic Potential global competitors: Emerging coffee chains perhaps in China, Japan, etc. Reinvigorated classic competitors like Dunkin Donuts who are trying to beat them out in marketing approaches New entrants like McDonald's and Social Always a risk of changing demographics Technological Home-brewing technologies: If a good cappucino maker that can consistently make good, cheap coffee with a variety of high-quality syrups is made and offered at a reasonable price, Starbucks will suffer huge losses Legal Environmental Related problems to their agricultural pipeline such as: Soil depletion Pollution of crops Fertilizer runoff (and associated liabilities) The increasing cost of petrochemicals which can raise their overhead Porter's Five Forces Model Threat of New Entrants Medium Entry into the coffee market is easy and cheap: Low overhead, most costs are variable But people want good coffee, not just coffee: Brand makes everything Bargaining Power of Suppliers Low Tend to be Third World, need to sell at any cost Bargaining Power of Customer Medium Lots of options for coffee... Or are they? At a given point in the morning, Starbucks might be the only good coffee available close by! Coffee is a staple: People need it for energy Threat of Substitute Medium Soda, energy drinks, caffeine pills... But most people just want a cup of coffee Competitive Rivalry Low Starbucks controls the market Read More