Starbucks Related to Pacific NorthWest - Case Study Example

College: Starbucks related to Pacific North West Introduction s are the core element of any business success. Business organizations thus have been aggressive in increasing and retaining their loyal customers. The number of customers a business serves moreover determines the volume of sales it makes. The group of customers a business serves constitutes the customer base, which is the target market of the specific company. To target a particular market, a business organization must understand the specific needs of such customers at that particular time to enhance repeat purchases. Such knowledge enables the development of effective strategies that can fully satisfy such needs to allow for increased retention and attraction of new customers. To succeed in the Pacific Northwest market therefore, Starbucks must position itself strategically through knowing and understanding the needs of the customers in the region, particularly during hard economic times. This report therefore will be attempting to determine the most appropriate strategy for Starbucks to apply in this area, between the pricing and quality strategy, in efforts to retain its huge customer base during hard economic times (Kotelnikov 1). Starbucks Strategic Options for Pacific Northwest Market Considering the modern challenging economy plus the competitive business world, retention of the customer base is crucial for any business success, including Starbucks. If Starbucks fails in satisfying their customers fully, to encourage them to stay, competitors will take the opportunity to meet those needs, thus leading to increased customer turnover rates (Kotelnikov 1). This is a great risk to the company because customer satisfaction and retention drive profits. Managing the existing customer base moreover will cost less, while increasing sales, as compared to seeking new customers. Starbucks business relies heavily on repeat customer purchases and customer loyalty. The company must therefore devote in developing its customer experiences and loyalty. Starbuck thus has to be increasingly strategic in succeeding in different regions, and in this case, the Pacific Northwest market. Identifying the needs of this market will help the company in positioning itself strategically to win customer loyalty, thus retaining its huge customer base. Lowering the prices or continuing to develop the quality of its brand could be the two strategic options Starbuck can choose to succeed in this market (Auch-Roy 17). The Pricing Strategy: Starbucks needs to adjust its prices downwards as trends have shown that the company’s coffee is more price-elastic as compared to coffee demand, which is more elastic, as compared to demand for other beverages. As a result, the coffee drinkers in some parts of Pacific Northwest (i.e. low-income earners) could simply switch to other coffee brands or other beverages, which are less costly, especially during economic downturns (Auch-Roy 17). During the early stages, Starbucks target market included the affluent, well-educated white-collar patrons (i.e. the skewed female), aged between 25 and 44years. With time however, the company has identified its new target market involving the younger, less well educated within the low-income bracket (Salehi 1). Such classification is important in enabling the company to meet the needs of its target market. The previous group of customers was quite able economically, such that the pricing strategy did not matter as much. The individuals could afford the Starbucks products that were highly priced. This affluent group moreover had increased affiliation to the quality value rather than the pricing. One customer for example said, ‘To me, the experience of drinking a latte, machiato, cappuccino, or simply a “coffee of the week” encapsulates the smells, soft decor and friendly greetings from the barista at my favorite coffee shop. Living overseas, I have turned to Starbucks over and over for a taste of Seattle and a feeling of home’ (Welker 1). With the new target group the company is targeting apparently however, the pricing factor is becoming a critical consideration in choosing to purchase Starbucks products during economic downturns. Since their income levels are low, the customers will opt for an alternative, either from a competitor or from a substitute. Starbucks products furthermore are popular for high prices such that the company needs to reconsider lowering the prices to meet the needs of their newfound target market, whose income levels are low and deteriorates during hard economic times. During recessions, the foremost initiative for such cash-strapped consumers is to reduce the coffee expenses or forego the coffee consumption. One customer for instance made a confession when the Pacific Northwest economy was struggling, ‘….In fact, I recently began bringing a thermos of homemade coffee to work every day, rather than stopping at the Starbucks at the train station as I had done for several months not long ago’ (Welker 1). Starbucks therefore must review their business/marketing strategy in Pacific Northwest market if at all they are to retain their current customers. Adjusting their prices downwards would be a recommendable option. Retaining their prices high has seen the business suffer greatly, such that it had to close hundreds of its shops due to loss of customers to competitors (Larson 34). Starbucks coffee shops thus suffered great drops in its sales volumes. The company’s coffee furthermore operates as a normal good such that its demand falls co-currently with income (i.e. demand for coffee falls when the income falls due to economic downturn). Failing to lower prices therefore will greatly harm the Starbucks business that incorporates the higher-end (i.e. highly priced) coffee outlets, a condition that may make the company to lose its customers to the existing and up-coming competitors. Developing the instant coffee product could increasingly help Starbucks against losing its customers to the lower-end coffee retailers. The weak Pacific Northwest economy has adversely affected the customers’ sensitivity to price and demand for the gourmet coffee. Slashing prices for all its coffee products during the recession period and reduced consumer income nonetheless could risk the Starbucks profitability, thereby threatening its market survival (Keiningham et al 2). Diversifying the product line however will allow the company to employ the low-price strategy by providing other lower-end options for their customers. In order to retain its customer base even when the economy is struggling, Starbucks should enlarge its product line to be inclusive of the inferior products or products whose demand rise as income drops. Inferior goods may help Starbucks in maintaining its customer base because the customers can acquire the coffee at considerably low price, although they are popular for poor quality. The new product nevertheless will help the company in responding to the increased competition from the lower-price fast food chains such as McDonald’s Corporation, that previously were not competing within the coffee market (Stawski 50). Such food chains have started providing diverse varieties and blends of coffee, particularly targeting the price-sensitive coffee consumers, who are also Starbucks target. The Quality Strategy: Quality is similarly an important strategy when a business organization is trying to retain its customer base (Larson 17). Starbucks success in the past attributes to the application of this strategy, thereby making the company increasingly aggressive in maintaining the quality of its brand. Starbucks has had the passion for quality and exotic coffee, thus creating the repeat-purchase culture among the consumers. The strategy however may not be effective throughout Pacific Northwest. During economic recessions, some areas in Pacific Northwest are still doing averagely well economically while others are not. The quality element thus may be suitable for some areas while in others it may not. Quality strategy for example could apply in the Seattle area of the Pacific Northwest. Although the economy has been struggling, the area remains extremely economically diverse and the wealthiest market in the region, thus presenting an attractive environment for Starbuck to improve the quality value of its coffee products. This is because the people in the Seattle area view Starbuck as a high profile company such that the quality element of its brand matters greatly as compared to price. In fact, lowering prices for Starbuck products in this region would make the company to lose its loyal customers because they associate low-priced products with poor quality. As the richest region, the targeted group does not struggle in acquiring the Starbuck products since they have high-income levels, manageable even during poor economic conditions. The customer behavior trends in Seattle moreover indicate an inclination and willingness among consumers to try new products particularly gourmet (i.e. provided by Starbucks), regardless of the price (Larson 22). Consumers in this region furthermore are heavy coffee consumers. Such trends create opportunities for Starbuck to devote on the quality element of its offerings in satisfying the needs of the customers in the area. Although the Pacific Northwest has been struggling economically for a long time, even its original stores located in Seattle were extremely successful. The success was linked to the company’s good mix and deep knowledge in production of high quality products that helped in meeting the existing customer needs for high quality coffee products. Consumers in this region moreover are educated on what good coffee entails such that lowering the quality of its products would adversely affect the competitiveness of Starbuck in Seattle (Auch-Roy 4). The customers are always looking for an up-scale shop, where they can gather with friends implying that the quality element is truly critical to the Seattle community. Starbucks therefore has increasingly been developing its quality strategy by developing quality products to avoid negative customers’ perceptions concerning the product. The company closely monitors its stores to promote their ambience and mood to reflect the personality of the surrounding community and neighborhood, which incorporate the affluent people within Seattle. To improve its social responsibility practices, Starbucks burned smoking within its premises and the staffs refrained from the wearing of perfumes/colognes. The already prepared coffee had to have a covering always to maintain its aroma pure (Auch-Roy 10). Such Starbucks initiatives indicate that coffee consumers in this region are extremely sensitive to the quality value of the company’s products such that the company has to up its gears to ensure it maintains the high quality of its brand. Considering such level of sensitivity by Seattle consumers, any negativity from Starbucks would lead to an increasingly negative public image, making consumers to opt for substitutes or competitors thus reducing the company’s customer base. It is important to note that the acceptance of Starbuck’s brand in Pacific Northwest largely generated from its products quality value, besides the diversification of its products (Auch-Roy 11). Consumers in certain areas of Pacific Northwest (i.e. Seattle) are well educated regarding the quality of the company’s brand, a factor that will make them to seek quality products all the time such that if Starbucks fails to meet such needs, customers will seek them elsewhere. Although the quality strategy seems to be effective in this region, Starbucks must always have the ability to convince customers to pay premium prices for the experiences, quality and services they receive. Increasing the perceived product value within the consumers’ eyes will help Starbuck not to lower but increase its prices while maintaining their products affordable. The company can furthermore develop brand loyalty among its customers through innovation and quality as a strategy to decrease the price elasticity of its products even when the economy is struggling (Auch-Roy 15). The quality strategy nevertheless may not suit other areas in the region where Starbuck operates because different trends exist in every state of Pacific Northwest based on race, age and the income demographics. Consumers in other areas such as Oregon or Alaska will have low-income earners, who will be increasingly sensitive to product prices, thus opting for the cheaper coffee products during recessions rather than focusing on quality. In order to employ the quality strategy effectively, Starbucks will have to segment its target customers based on their living environments (i.e. different Pacific Northwest estates), education (i.e. knowledge of the quality products) and income levels that determine the affordability level (Larson 8). Effective customer relationship has been the core element in Starbucks’ business. The form of customer services delivered generally determines whether a particular customer will come back for additional services or not. Starbucks brand developed particularly on one-to-one relationships between the company staffs and the customers (Gulati et al 1). The question however remains whether Starbucks will manage to maintain its business growth co-currently with the quality of its services/products experiences. Conclusion Customer base according to the above argument is critical in facilitating the success of any business organization. The number of customers determines the amount of sales a company makes, the business survival and to some extent, the profitability level. This is the reason why Starbuck should position itself strategically in the Pacific Northwest market to retain its huge customer base, even during hard economic times. Low-price strategy and high-quality strategy are the two major options the company can employ to be effective in this market. Although the company could risk its profitability levels by lowering prices, the same strategy can apply by developing new coffee products whose prices are low (i.e. inferior goods). The strategy will ensure the low-income earners can afford Starbucks products even when the economy is struggling. This strategy gives the different customers (i.e. high income and low-income earners) a choice to access the products they prefer based on their ability in any economic condition. Quality strategy similarly can apply in the Pacific North-west market. The strategy however is applicable to different group of people, such that Starbucks will have to classify its target markets (i.e. various states) based on the income levels, educational level and the specific environment. Some parts of Pacific Northwest have affluent people whose major need is quality while others have low-income earners who are more price-sensitive. In summary therefore, both strategies can apply in this region but must rely on such factors as income levels, environment and consumer education concerning the product (Larson 13). Work Cited Auch-Roy, Herve. The Starbucks Corporation: Past, Present and Future. AmbaiU PEN Journal, 1.1, 1-28, 2004. Gulati, Ranjay, Huffman, Sarah and Neilson, Gary. The Barista Principle-Starbucks and the Rise of Relational Capital: From Coffee Bar to Caffeine Kingdom, Starbucks Proves Relationships are as Important as Physical Assets. Strategy & Leadership Journal, 3.28,1-1, 2002. http://welkerswikinomics.com/blog/2009/02/25/starbucks-instant-coffee-a-sign-of-the-times/ Keiningham, Timothy, Aksoy and Lerzan, Buoye. Customer Loyalty Isnt Enough. Grow Your Share of Wallet. Harvard Business Review, 89.10, 1-9, 2011. Kotelnikov, Vadim. “Customer Retention: Driving Profits through Giving Customers Lots of Reasons to Stay”. E-Coach 10 Sep. 2001:1.1000ventures. Web. 29 February 2012. http://www.1000ventures.com/business_guide/crosscuttings/customer_retention.html Larson, Ryan. Starbucks Strategic Analysis: Past Decisions and Future Options. Brown University Journal, 4.17,1-92, 2008. http://www.strategy-business.com/article/20534?gko=582b3 Salehi, Mehrdad. Starbucks Marketing Plan. Articles Base,1.1,1-23, 2011. http://www.articlesbase.com/international-marketing-articles/starbucks-marketing-plan-5076093.html Stawski, Paul. The Brand Wars Are Over-Guess Who Won?. Brandweek. 52.8, 50. Welker, Jason. “Chicago, Seattle First Markets to Get Instant Starbucks”. Welkerwikinomics 25 Feb. 2009.1.Print. Read More