Foreign Market Entry and Its Implication - Essay Example

?mARKETING Foreign market entry and its implication Starbucks case study [Pick the Contents Executive Summary 3 Introduction/Company Background 4 Market entry 5 Application of the Marketing Mix 7 Distribution 10 Conclusion and recommendations 12 Executive Summary Starbucks is a coffee chain that has operated successfully for the last few decades. This report analyses the economic social, legal, demographic, and regulatory factors that affects the operations of the coffee chain. This is a discussion of how the company has applied the Marketing Mix and the implications of the foreign markets it has entered recently. In particular, the paper looks at Joint Ventures as an example of the company’s market entry into Spain, and its marketing implications. Generally, the company applies market entry modes and marketing mix to build its brand appeal as well as create a unique product appeal and customer loyalty. These choices have long-term implications in the success of the company. Introduction/Company Background Starbucks Corporation is an international company that deals with coffee products, with its headquarters based in Seattle Washington, America. During its commencement in 1971, the company was a retailer and a local coffee roaster; but it has since stretched out swiftly. It has Italian-style coffeehouse chain and it is the world’s largest coffeehouse company, with presence in more than 60 countries and more than 20,000 stores (Starbucks Corporation 2011). It deals with coffee beans, salads, hot and cold drinks, hot and cold sandwiches, snacks, mugs and tumblers, and sweet pastries. In addition, Starbucks distributes some of its brand through grocery stores, including coffee and ice cream. Its other products include markets films, music, and books through the Hear Music and the Starbucks Entertainment division. Scores of the company’s products are either location specific or seasonal. Starbuck’s most remarkable expansion, when it used to open new stores days on end, was in the 1990s till 2000s. The company started establishing oversees stores in 1990s; and currently, roughly third of its stores are oversees (Starbucks 2012). Market entry According to Albaum and Duerr (2011), market strategy comprises of an entry mode and a marketing plan. Numerous entry strategies that an organization can adopt when venturing into new markets and regions are available. Each strategy comes with differing degrees of advantages, disadvantages, risks and legal obligations (Gilligan & Hird 1986). According to Albaum and Duerr (2011), the entry strategy to be adopted should take into consideration company objectives and expectations in terms of volume of business to be gained. The strategy should also take into consideration resources required to effectively implement the strategy and patterns of involvement in other regions. On the other hand, political infrastructure, degree of competitive rivalry within the target market, as well as nature of product to be introduced into the target market should be factored (Yavas, Verhage & Green 1992). Starbucks uses different approaches to market entry, especially in its internalization process. Its entry approach is aimed at satisfying the needs and requirements of every market, seeking to fulfill its traditions and cultures. Presently, the company uses three differently entry methods, including licenses, joint ventures and wholly-owned subsidiaries (Webster 2005). Starbucks entered Spain by signing joint venture agreements with VIPS and El Moli Vell and in 2001. This strategy allow for quicker penetration, risk diversifications and faster entry into new markets. It also helps the business to avoid barriers of entry. Like any other strategy, this strategy has its shortcomings; which include loss of management control and lack of the ability to recover capital invested among other (Yavas, Verhage & Green 1992). Group VIPS is a leading European retail and food service operator, while El Moli Vell is a retail operator of pastry shops and cafes in Barcelona area. In the JV structure, VIPS controlled 82 percent and Starbucks the other 18 percent. Group VIPS formed the JV with Starbucks with the hope that doing so would contribute to its growth strategy. Groups had embarked on an ambitious growth project, with the goal of doubling in size in three years. In turn, Starbucks chose VIPS in an attempt to establish themselves in the community. Starbuck considered the fact that VIPS group understood the local market well, and hence it was seen as a very good opportunity to capture the new market. In addition, both companies shared vision and values, which facilitated the smooth running of the Joint Venture. Many years later, the JV continues to operate and has expanded its business to Portugal and France. There are several other factors that were considered by Starbuck while deciding to form a JV with VIPS Group and El Moli Vell. Most importantly, its partners were established to have reputation and experience in the hotel industry. In addition, both companies were found to regard customer service as an important part of their business, a vision that was shared by Starbucks (Schofield, 2008). The other factor was that both VIPS group and El Moli Vell had integrated human resources in their business, and they had adopted a creative strategy, had rich local knowledge and they had a strong capability in branding. What’s more, both companies had strong financial resources and their products and services were of high quality. Spain is an important landmark for Starbuck, and the maiden Latin market that it entered. This entry was also inspired by Starbucks’ ambitious growth strategy, which came at a time when the company was also entering Austria and Switzerland. When Starbuck entered Spain, there was already a mature and attractive market for coffee products. Ideally, the coffee market was developed and there were an enormous number of traditional coffee stores as well as established and popular coffee chains such as Cafe & Te Gr Compania del Tropico and Jamaica Coffee and Kroxan. In Europe, Starbucks was receiving a remarkable reception from customers, which led to its fast growth (Starbucks 2002). Even so, enthusiastic adoption of Starbucks’ unique coffee house experience by Spanish coffee drinkers was very essential in ensuring successful entry into that market. When Starbucks entered the Spanish market, the company already had an established brand. As such, the company had a strong negotiation power amongst its partners. For example, the company did not have to use any co-branding strategy with the VIPS Group. Starbuck only used its brand concept and lucid position as ‘purveyor of experiences’ to strengthen its brand locally in a short stint (Galli et al. 2010). Although Starbuck received a warm reception in Spain, its coffee culture was poles apart from Spanish coffee culture. For example, Spanish customers are heavy coffee drinkers, though they do not have a distinct coffee culture that they follow. Furthermore, Spanish people do not know a lot about coffee, and they cannot differentiate between different types of coffee. As such, Starbucks instituted initiatives to help the local people learn more about the culture of coffee, including tasting of different coffee types. Application of the Marketing Mix Starbuck can implement a well-integrated marketing mix to help enter the Spanish market, which can be used to establish the company as the most respected and recognized brand in the new market, as well as maximizing its brand awareness in Spain. The four elements of the marketing mix, which can be used to ensure that the needs and wants of the target market are satisfied, include price, product, place and promotion. These elements can be adapted in Spain as follows: Product In the new Spanish market, Starbucks can uphold high quality in all its products, in a way that it can pride on being an outstandingly customizable and adaptable consumer experience. Besides offering specialty coffees such as specialty teas, frappuccinos and mocha lattes, Starbucks can also produce smoothies and fruit drinks to attract the potential Spanish customers that may not be interested in hot beverages such as coffee. In addition, Starbucks can ensure a high level and very accurate customization where the clients can take soy milk as a substitute for regular milk. This includes a preference for a variety of customizable features such as the amount of ‘flavor shots’ that are included in the coffee cocktail. The company can also capitalize on its policy of packaging its products in different sizes, including venti, tall, and grande, which are equivalent to the ordinary small, medium, and large sizes – this can improve the appeal of the products to potential customers. In addition, food items have increasingly become a staple at Starbucks’ stores, and hence this should be introduced in Spain, including pastries, cookies/baked goods, sundae parfaits, breakfast sandwiches and homemade bistro boxed meals. The company should also deal with different retail products such as mugs, thermoses, hot chocolate and packaged ground coffee, so that the Spanish customers can have a variety to choose from. Starbucks product-mix extended from 30 assortments of paraphernalia such as whole bean coffees, coffee makers, and ecological cappuccino. Starbucks should also provide its Spanish market with cappuccino makers and Starbucks coffee for consumers who fancy substituting their existing home coffee makers. Price: Starbucks pays attention to the importance of matching price with quality in determining the overall value of its products and services. What is most important is to ensure that the customers in the new market get value for their money. In other words, the company should ensure that no customer in Spain complaints over the price of the products and services offered, or opt for a rival company because of high prices (Cannon & Morgan, 1990). As such, Starbucks should create a truly unique hospitality experience whereby Spanish customers can be able to enjoy first-class and personalized and customizable services and products, as well as an ultimate relaxed atmosphere essential in enjoying the products and services they purchase. The professed fashionable environment, on top of the lavish, yet affordable glamour of the products and services, can be used to enable Starbucks to set higher prices than its rival companies and still retain customers in its new market. Furthermore, the company’s continuous stress on the quality of its product and services, as well as of its employees is another way in which Starbucks can manage to rationalize its ostensibly expensive products and services (Gu 1997; Ingenbleek et al. 2003). In September, 2010 Starbucks formally declared that the company would be hiking prices due to the increasing price raw materials such as daily, coffee beans, and other raw material. However, to avoid opposition to such moves, the company can focus on maintaining premier quality for its products, or rather ensuring that prices will are constantly subjected to fluctuations founded on a “product-by-product” and “market-by-market basis. Other strategies that can also be tried in Spain include the launch of unlimited refills $1 bottomless 8 oz. cup of coffee, which cost about $0.50 less than the rest of the company’s products. The company should also put into practice value tactics that would give emphasis to low-priced coffee products rather deemed as too expensive for price-skittish consumers. For instance, the company launched $3.95 "breakfast pairings," and highlights $2 brewed coffees rather than the more costly specialty drinks - such stargeies can be introduced in Spain to attract customers (Govindarajan 1989). Distribution Distribution relates to all activities and functions that help in transferring goods and services to the customers. These channels link the company’ products with the end users. Starbucks should use a variety of hybrid distribution channels to link its products and services to the Spanish customers. First, the company can use a direct supply channel, where own retail stores can be used to sell products to the customers. Secondly, the products can be licensed, packaged and sold in other retail stores including groceries and shopping centers in Spain. Finally, the company can form partnership with other like-minded entities in Spain, such as banks and cafes, to help distribute its products and services (Porter, 2008). Ideally, Starbucks stores should be accessible from any neighborhoods where there is an apparent high network of its outlets. Its stores can also be found in many big shopping malls in Spain, where a lot of people frequent for the purpose of dining and shopping. The stores can be located in exceptionally conducive environments for travelling clients and for those who take pleasure in listening to music or reading. The company has also been of late testing "stealth outlets", where the stores name resembles its street of location - this can be introduced in Spain. Also, Starbucks can attempt to "localize" its stores without using the company’s logo on the products, but rather have the particular street address as the brand name (Tartakoff, 2007). In conclusion, Starbucks should form distribution agreements with cafes and carts in hospitals, banks, and office buildings in Spain, to help in distribution of its products. The use of several distribution channels could certainly facilitate Starbucks to reach a wider market in Spain. Promotion Starbucks should further its rather unique way of promoting its products, in Spain, without relying on the typical mediums such as Billboards, newspapers, and T.V commercials. Instead, Starbucks should focus on providing its customers with incentives that foster customer loyalty and retention. These incentives are meant to promote buyer action and enhance company sales. Some of these include: 10-cent discount when customers use their own reusable containers, free app download from iTunes or weekly song, as well as free Wifi internet usage. Also, more interesting is the introduction of the “My Rewards” program, which attracts a lot of customers. This program can be used to receive free tea refills and coffee, free birthday drink, registered green and gold level cards, exclusive offers, soy upgrades, flavor shots, in addition to a free adaptable beverage for every 15 purchases. These are used as incentives for customers’ loyalty and for improving sales (Matzler et al. 1996). Starbucks should also continue utilizing the social media platform to promote its products in Spain. The company uses sites such as Facebook, Istagram, Foursquare, and Twitter to engage its customers, hence promoting its brands. In addition, Starbucks has designed a website (www.MyStarbucksIdea.com), which is used to encourage members to contribute ideas that relates to the activities and brands of Starbucks including menu ideas, promotions, as well as locations and designs of its stores. The other way of promotion that can be used by Starbucks is philanthropy, which can be used to improve its corporate and brand image. community involvement, promoting diversity within the company, ethical outsourcing, youth leadership, as well as environmental consciousness are other ways that can be used to support Starbucks brand – these are especially very successful marketing strategies in the ever-growing socially responsive society (Starbucks 10-k 2008). Conclusion and recommendations The future of Starbucks is promising, especially considering its unique market entry and marketing strategies. These strategies are well designed and they have created a remarkable brand experience as well as positioning the company as a leader in the gourmet coffee industry. In order to continue staring its market, Starbuck must always uphold high standards in its products as well as its ethical policies (Ferguson, 2002). In summary, the entry mode strategy applied by Starbucks is an essential decision particularly in its internalization endeavors. These choices have long-term implications in the success of the company. As such, the management should make efforts to thoroughly assess all the factors that play some part in the process of internalization before plunging into any entry mode. This analysis has also revealed that internal and external factors have played important role in the company’s choice of entry model. Furthermore, it has been realized that external factors are the once that are most influential, and hence their considerations should be given priority when making important decisions (Cespedes and Piercy 1996). Other available strategies that Starbucks may opt to employ include, but not limited to, contracting and licensing, strategic alliances, and setting up a local office in the target market. It is of utmost significance for Starbucks to evaluate the viability of all strategies, weigh costs and risks involved against the benefits a strategy offers before qualifying a given strategy for adoption (Porter 2008; Yavas, Verhage & Green 1992). References Albaum, G. and Duerr, E., 2011, International Marketing and Export Management, 7th edn, Harlow: Financial Times Prentice Hall. Cannon, H. and Morgan, F., 1990. A strategic pricing framework. Journal of Service Marketing, 4, pp. 19-30. Cespedes, F., and Piercy, N. (1996). Implementing market strategy. 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Management International Review, 32 (3), pp. 265-272. Yavas, U., Verhage, B.J. and Green, R.T., 1992. Global Consumer Segmentation versus Local Market Orientation: Empirical Findings, Management International Review, 32(03), pp. 265-272. Read More