Marketing Management in Starbucks - Case Study Example

Introduction Starbucks brand is recognized as the market leader in specialty coffees and other related beverages around the world. The company sellscoffee, Italian style espresso beverages, cold blended beverages, complementary food items and coffee-related equipments. It had more than 15,000 stores worldwide at the end of 2007. The company generated $9.4 billion in revenues, double-digit earnings growth and 2500 new store openings. From the humble beginning of selling coffee beans and brewing equipments, Starbucks has become a coffee empire today. Howard Schultz, Starbucks’ visionary leader, has transformed the company one store at a time. With his sound business strategies, the company has achieved market leadership in the specialty coffee industry. This paper enumerates the different marketing strategies utilized by Starbucks in order to achieve the position that it has held today. It evaluates the different marketing mixes that contributed to the success of the company. The paper focuses on the product & services positioning strategies, pricing strategy, distribution channels and promotion strategies. Target Market In order for a business to grow and achieve market leadership, it must create a strong market orientation. The company must seek to understand the customer needs and develop its marketing strategies in response to those needs. The strategies should aim at attracting, satisfying and retaining target customers. (Best, 1997) When Starbucks initially started, their product portfolio includes dark-roast, whole bean coffee and manual coffee pots and equipments. The company is in the retail business of offering their products to customers who like to brew at home. Their target market is the people from Seattle who are educated on fine coffees. These are type of people who love quality brewed coffees. When Schultz joined Starbucks, he envisioned the company as becoming the Third Place. The Third Place is considered as the place between home and work. The company was now engaged in serving coffee to customers similar to Italian espresso bars. It is in this stage of the company’s life cycle that their target customer also includes people who are educated with college degrees and high annual income. The market segment responded positively to the Starbuck’s marketing strategy such that the company grew rapidly. Schultz and his management team strategically positioned Starbucks as a strong brand that not only spells quality coffee beverages but also a unique experience in which the customer longs for and competitors cannot match. The company tagged this experience as the “Starbucks experience.” (Sinha, 2007) The company focused on creating customer loyalty and gaining bigger customer base through product quality, service quality and image quality. Starbucks has positioned itself as the leader in retailer, roaster and brand of specialty coffee in the world. (Annual Report, 2007) Marketing Mix Products and Services The goal of product positioning is to attract the target customers and to create a good source of cash flow for the business (Best, 1997). Therefore, a key factor in the success of product positioning and marketing mix strategies is achieving a certain level of market share. Product positioning involves product line strategies, branding strategies and new product developments. Starbucks’ original product lines of specialty coffee beans and brewing equipments have expanded to include several coffee beverages, Frappucinos, CDs, and even movies. From an early positioning strategy of becoming the Third Place, the company has aimed to build Starbucks into a destination. All of its products support the foundation of the Starbuck’s coffee experience that the customers have come to love and enjoy. As the company expands globally, Starbucks has created strong brand equity that lends a competitive edge. The brand Starbucks has become the company’s core strength that has built a reputation for the quality of its products and consistent customer experience (Datamonitor, 2009). A strong brand is a competitive advantage for any company. The brand name provides potential benefits to customers such as adding social status and assurance it gives to customers (Blackett, 2003). Furthermore, the name itself is built around the key benefits sought by customers - class and quality (Alpert & Kamins, 1994). Starbucks can be considered as a combination of “star” and “bucks” – star quality and big bucks. It communicates that the coffee is not cheap and the customers are treated as stars. These words guarantee consumer recall and loyalty (Kotler, 1991). In order to further position the company and its brand as the leader in the market, Starbucks have created new products and introduced new tastes in their coffee. The products introduced to the market are adaptations to the needs of the customers. Starbucks invests a great deal of resources to know and understand their customers’ needs and perspectives. With this knowledge and information, the company develops new beverages to exploit the customers’ requirements. The excellent customer service and strong customer relationship in the Starbucks brand is a key contributor to the market position of the company. The company aims to establish long-lasting emotional ties with customers. Employees like baristas make it an effort to get to know the names of their repeat customers and provide their favorite drinks. Management has set priorities that highlight to customers and employees that the Starbucks brand is not a one-time sale, but instead, it is about serving the customer for life. Price Starbucks offers a well differentiated products and services such that it commands a premium price from the customers (Porter, 1985). Many customers are not seeking the lowest price and many are willing to pay a higher price for products that deliver important customer benefits (Kim & Mauborgne, 2005). Starbucks develops an attractive market position by distinguishing their products and services that is meaningful to the target customers’ coffee experience. Since the benefits of the Starbucks experience are highly valued by the target customers, the company charges a premium price relative to its competition. The pricing strategy of Starbucks follows the market-based pricing. Based upon a combination of customer and the benefits the product creates, the premium price of Starbucks’ coffee is set relative to competition to create a superior customer value. The overall perceived benefits from Starbucks’ products, service and brand reputation enables it to charge a higher price and still create a larger value for customers. (Morris & Morris, 1990) Place Starbucks generates revenues from its operation of company-operated retail stores, licensed retail stores and other foodservices accounts that are located in the US and around the world. The expansion of retail stores or espresso bars was based on a matrix of regional demographic profiles and analysis. Each region has a hub in a large city that serves as support for new stores. From the central hub, the stores branched out to nearby markets with demographics similar to typical customer mix. The location of each store is strategically positioned to areas where there is great foot traffic of the target customer mix. Their dense store placement model even allows several stores to be located across the street from one another. The idea of such model is to exploit the potential customers and provide comfort in locating a Starbucks store. Furthermore, the clusters of stores provide awareness and promotion as well as help in managing store traffic while capturing the market. This channel distribution strategy creates an effective marketing system that reaches the target customers’ desired point of purchase, with service level sought by target customers (Cespedes & Corey, 1990). The strategy even produces an effective sales opportunity for the business in cost-efficient manner. Promotion Starbucks don’t advertise because of lack of funds. The lack of advertising was not a good decision for the company. The management was very confident on the brand that they thought advertising would not be necessary. Once the competition catches with the company, they are already losing their market share. Advertising is an effective way to build awareness, comprehension and interest in the company’s products in order to create customer response (Bemmaor & Mouchoux, 1991). However, the company promotes a store through grassroots campaign through a strategically visible location for the flagship store. It plans a big community event during its opening. Loyal customers were given free tickets to the grand-opening event with an invitation to bring their friends. The brand image and reputation of the company is very popular that people are waiting for an opening of a Starbucks store in the local community. Another promotion strategy utilized by the company is tying up their products and services with entertainment promotions. They sponsor books, movies and music releases. This provides more awareness to the customers about the essence of Starbucks which is a coffee-house, is a great destination for inspiration. Starbucks promotion was an avenue to get people of all ages to talk. Summary Starbucks is the best example of the benefits of having a successful marketing management strategy. It has utilized the different marketing mixes in order to create a competitive advantage with the industry’s rival and earn market leadership. The value of marketing strategies for Starbucks lies on market share that it has acquired and the brand reputation it has achieved. With the right mix of product, place, price and promotion strategies, Starbucks has become a successful player in the specialty coffee industry. With its emphasis on valuing the customer experience, it has created a loyal customer base around the world. With its allocation of resources and capabilities in creating a consistent product, service and image quality, Starbucks has grow into an empire that is difficult to imitate and tough to compete with. Bibliography Alpert, F., & Kamins, M. (1994). Pioneer Brand Advantage and Consumer Behavior: A Conceptual Framework and Propositional Inventory. Journal of the Academy of Marketing Science , 22, 244-253. Bemmaor, A., & Mouchoux, D. (1991, May). Measuring the short-term effect of in-store promotion and retail advertising on brand sales. Journal of Marketing Research , 202-214. Best, R. J. (1997). Market-based Management: Strategies for Growing Customer Value and Profitability. New Jersey: Prentice Hall, Inc. Blackett, T. (2003). What is a Brand. In R. Clifton, & J. Simmons, Brands and Branding (pp. 13-26). Oxford: Profile Books Ltd. Cespedes, F., & Corey, R. (1990, July-August). Managing Multiple Channels. Business Horizons , p. 72. Datamonitor. (2009). Starbucks Corporation: Company Profile. New York: Datamonitor USA. Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy: How to Create an Uncontested Market Space and Make the Competition Irrelevant. Boston: Harvard Business School Press. Kotler, P. (1991). Marketing Management (7th ed.). New Jersey: Prentice-Hall. Morris, M., & Morris, G. (1990). Market-Oriented Pricing. Lincolnwood, IL: NTC Business Books. Porter, M. (1985). Competitive Advantage. New York: The Free Press. Sinha, A. (2007). Sweet Spot: How to Maximize Marketing for Business Growth. New Jersey: John Wiley & Sons, Inc. Starbucks Corporation. (2007). Annual Report. Seattle. Starbucks Corporation. (2008). Annual Report. Seattle. Read More