How Starbucks Enjoys a Competitive Advantage - Essay Example

? Table of Content Organizational objectives 2. SWOT and risk analysis 3. Risk Evaluation 4. Market Opportunity options 5. Marketing strategies 6.Strategy implementation – action plan and time line 7. Marketing performance review strategy 8. Meeting legal and ethical requirements 9. Potential stakeholders’ perspective 10. Adjustments to the marketing plan 11. Reference Organizational objectives Starbucks has positioned itself as an upscale brand and has been enjoying competitive advantage. However, competition has become intense and to survive, Starbucks needs to be innovative. Starbucks recognizes itself as a family destination. It has been offering milk and hot chocolate for kids but of late, the company has recognized a growing market segment in teenagers. The teens even now walk in and indulge in 16-ounce Frappucinos that contains a high dose of caffeine (Linn 2007). Since there is a family destination and since teens frequent the stores, they must have products suitable for the age group. Moreover, McDonald's and Denny’s offer high quality coffee menus. To counter competition and to stay ahead of competitive tactics, Starbucks needs to be ahead of competitors. The company, by introducing innovating products for the new segment, could offer products that are healthy for the teens. This objective would be in line with their corporate vision of being a family destination. Moreover, one of their guiding principles in their mission statement is “Develop enthusiastically satisfied customers all of the time” (Kembell, Hawks, Kembel, Perry and Olsen 2002). SWOT and risk analysis Before introducing the product for the new target segment, SWOT analysis would help determine the risks involved. Strengths Global Coffee brand, strong reputation and good products and services It has 17,000 stores in 49 countries Focus on quality and experience rather than on price Strong brand image and a considerable market share. Starbucks offers a place for the teens to hangout, socialize, network and still spend less than what they would pay for a full meal elsewhere (Lockyer 2009). Weakness Starbucks has a reputation for new product development and creativity but they are vulnerable to product market failure. If the new product is not accepted, growth slows down. Clustered stores in existing markets Opportunities Brands that offer a social experience and perceived brand value are gaining market share of the teens segment (Lockyer 2009). Starbucks has been found to be the most preferred destination among teens and the Starbuck brand has appealed to teenagers The buying power of the teens has been growing and they represent 5% of the total population (Koenigsberg and Koen 1994). According to a poll, 13- to 21-year olds spent more than $120 million in 2007 (Lockyer 2009). Threats Intense competition in the coffee market – the main competitors being 7-Eleven, Dunkin Donuts, BIGGBY Coffee, Caribou Coffee, McDonald's, Panera Bread, and Einstein Bagels Duplication or products and strategy is not difficult in the sector Threat of being accused of trying to lure kids looms large as McDonald's too have been accused of luring the children towards unhealthy eating. Risk Evaluation The market for new products for the children exists and Starbucks has a very high chance of success in the market. The teens’ spending has increased and they look for a place to hangout. Products can be offered by Starbucks which would be healthier for them than the existing products they consume now. However, chances of failure do exist mainly because of the threat of accusation of luring the teens towards coffee. Overall, Starbucks could enter this segment and introduce innovative products as the strengths and opportunities far outweigh the threats. However, Starbucks should ensure that their brand image and reputation is not affected as they pursue a strategy for growth and enhanced market share. They must not compromise on quality and adhere to their values and ideals. Parents have also expressed that drinks popular among children are often the most expensive among the options available to customers. This trend is in contrast to the menus of other chains such as McDonalds where kids’ products are often the lowest priced amongst the options available. While Starbucks maintains that parents do not appear to be deterred by these higher prices, Gia (2009) believes that the company is missing the crucial point of targeting parents with tighter budgets, who may instead prefer other cheaper alternatives. For example, a small ‘Frappuccino’ at Starbucks costs anywhere between $3.25 and $3.80 depending on the city while the larger variety is priced in the range of $4.20 - $$5.00 (Michelli, 2007). Market Opportunity options Starbucks should not enter into fresh new ventures to introduce new products. Instead, they should offer these as products extensions from their existing stores. However, on an experimental basis, they could have extension counters at retails stores frequented by teens, for selling exclusively products for teens. While teens go out with parents, they also seek privacy and hence joint ventures with some retailers might be productive. Since Starbucks’ marketing strategy is based on promoting itself as a family restaurant, it would be good to extend the current children’s menu and include new and attractive products. The chain currently offers only hot chocolate and apple cider as beverages for children. However, it would be beneficial if outlets also began serving fruit juice and milkshakes alongside (Burks, 2009). Including more bakery items that are liked by children can also be initiated. Such a strategy will popularize Starbucks and attract more children (Fellner, 2008). Combined with good pricing, parents must be convinced through appropriate promotional campaigns that the revised product offerings would help contain any restlessness and misbehavior among children and allow them to experience some quality time and satisfaction at the outlet. Pahl (2009) conducted some detailed studies on household expenditure on beverages and has found that families spent more on non-alcoholic beverages outside the home. This outcome supports the idea that children can consume the coffee-free version of the ‘Frappuccino’. Marketing campaigns should encourage parents to offer such coffee-free products to children as a reward for passing an exam, winning a soccer game or simply as a gift on special occasions like birthdays. Thomas (2008) believes that children always remember exciting experiences in the past which influence their buying decisions in the future. Thus, it is important for Starbucks to provide its younger clientele with a delightful experience through its products and ambience if it is to attract more children in the coming years. Marketing strategies Product positioning Starbucks has introduced the coffee culture among the adults and the teens have shown inclination towards the same. As of now the products that teens consume a high dose of caffeine, so Starbucks should position itself as a company offering healthy drink along with a place to hang out and socialize. Resources and capabilities To deliver these strategies, Starbucks should have a demarcated area for the teens as they tend to be loud and the existing upscale customers may find it disturbing. This requires Starbucks to enter into joint ventures with retailers where teens frequent for shopping. Market research reports exist that demonstrate that market for coffee for teens exists and hence the exercise for market research can be avoided. Marketing mix This strategy also requires an effective marketing mix with clear marketing communication objectives. Teens have become a part of the regular customer base of Starbucks and hence the marketing strategy must be based on a long-term strategy. Product The existing product range has extended beyond pastries and coffee. They offer products to keep up with competition and satisfy customer needs. In addition, new product for the teens and the children would be in line with health guidelines combined with preferences. They should maintain product differentiation particularly because McDonald's and Dunkin Donuts re low on quality and nutrition (Dannen, 2008). They should add new drinks with flavors that children love instead of reducing the existing drink sizes. Teens do not make healthy choices even if products meant for teens are on offer. Price While demand for coffee is affected by the price, Starbuck has developed its own customer base. Moreover, the purchasing power of the teens is high. Keeping a low price would adversely impact the brand and hence they should not follow the cost-differentiation strategy. Place While they should try and demarcate space in their existing stores through product extensions, they could also experiment selling through retail outlets by having extension counters. They should not appoint franchisees but have their own extension counters. They could have extension counters at teens’ clubs. Promotion Teenagers do not frequent a place just to consume. They seek entertainment value – social networking, meeting and gathering (Lockyer 2009). Hence, all promotions should be geared towards this. On holidays and special occasions, special offers could be announced; viral marketing and social networking platforms like Facebook would help gain insight into their needs. It has become important to first identify and anticipate consumer needs before implementing the strategy. The effectiveness depends on how the marketer communicates about the product to the target segment. One of the primary targets of most coffeehouse chains is to provide an all-round experience to customers within the premises. As part of this strategy, Starbucks has begun offering free internet access through Wi-Fi to customers at its outlets in the United States, Canada, the United Kingdom and a few other countries (Pahl, 2009). By this approach, Starbucks hopes to attract young tech-savvy customers (especially children who are especially fond of internet-based services like social networking etc.). In fact, as many as 90% of Starbuck’s customers are Internet users and have expressed a desire to use these services while having their coffee at Starbucks’ outlets (Michelli, 2007). However, Starbucks began offering free Wi-Fi access only since mid-2010 and it will be a while before such provisions are extended across all outlets. Such provisions will also provide an incentive to parents to bring their children to the coffeehouse and utilize the Wi-Fi services for educational or recreational purposes. This marketing mix has been suggested in line with the corporate objectives of Starbucks so that compromises are not made on quality and brand image. At the same time, the current trends and consumer demands have been considered. Strategy implementation – action plan and time line Implementing this strategy would require identification of the retail outlets that would be willing to allow Starbucks to set up extension counters. Changes would also have to be made at the company stores to demarcate the areas for the teens. This would be available to them only when they are not accompanies by family. Training of employees to cater to the new segment is also essential as they are mode demanding. Apart from space, promotions too have to be done simultaneously. This should be planned in a way that new product launch coincides with some great event such as a social event or a sporting event. Tie-ups could be done with schools and universities to sponsor events where the new products could be launched. Free sample drinks could be distributed on such occasions. These would require at least 3-4 months as it also demands financial investments. Marketing performance review strategy The participation, training and development of employees took longer than expected. It was very difficult to induce the teenagers to have healthier drinks. Monitoring was implemented but was found to be impractical. Parents objected to advertisements as there were accusations of luring the teenagers to the stores. However, teenagers frequent the stores even now. The very idea was to introduce healthier drinks. Teenagers want an exclusive area at the stores they visit with their peers. The adults too find it difficult to enjoy their coffee with noisy teenagers around. While still maintaining the corporate objectives, certain alterations in the marketing mix would have to be made. Meeting legal and ethical requirements Marketers should be able to distinguish between short-term needs and wants of the consumers and the long-term welfare of the society (Wiley n.d.). Coffee and social gathering may be needed by the consumers and Starbuck may gain in business due to this opportunity. However, Starbucks has to think beyond monetary gains and evaluate whether they are actually contributing towards the society. If it is merely for personal gains, it is unethical. Profitability should be integrated with health, ecological and environmental constraints. An organization has to balance society’s welfare against individual needs. Starbuck products, as of now, are addictive. Hence, the products offered to teens should not be detrimental to health and nor should it be against the legal requirements. Advertisements to attract teens should not be deceptive or misleading. They also need to ensure that nutritional value of the products is displayed at the stores or as imposed by the legal requirements. This is essential because the teens are not even aware that the drinks they order contain caffeine. Potential stakeholders’ perspective The employees, one of the most critical stakeholders, have to be involved in every decision as customer service rests on their efficiency. However, there are other stakeholders on who rests the success of the new product launch. The biggest stakeholders in the new strategy would be the existing customers and the parents of the potential customers. Companies such as Coca-Cola and McDonald's have come into heavy criticism for marketing food for children. As parents, the concern is genuine because heavily caffeinated drinks are not good for children or even the teenagers. The Frappuccinos is also packed with calories which again is unsuitable for the children. Their sweetened, caloried and highly caffeinated products would add to weight gain. Moreover, with advertisements teenagers would be lured and then parents would have no control over them. Another concern is that of the existing customers. The customers come to Starbuck stores as they look up to it as a third place from where they operate – after their home and workplace. They look for a place to sit down with close associates or just relax with a book or the laptop. With teenagers and children around the stores would become too noisy and we, the consumers would think of an alternative. Adjustments to the marketing plan Joint ventures might be a better proposition with the existing extension counters. Starbucks has franchisee stores, apart from its company-owned stores. It also has extension counters at retail stores. However, individual stores would have to demarcate space meant for teenagers when they come alone unaccompanied by adults. Stores that are unable to provide exclusive space for teenagers would not be allowed to offer the new product meant for the teenagers. In fact, all stores should be granted the license to cater to teens. Efforts should be to offer this only through company-owned stores. Handling children between 3 and 9 years is not a problem because they would invariably be accompanied by parents. As far as the product mix is concerned, even if healthier drinks are on offer for teenagers, it may not be possible for the store executives to deny them other drinks. To meet this objective, and to conduct ethical business while maintaining profitability and increasing customer base, stores should at least display the nutritional content prominently. The advertisements should focus on a destination for social networking with healthy drinking. Another strategy could be alteration in the price mix. As very low prices could impact the corporate brand, the healthier drinks should be costlier than the regular drinks on offer. This could perhaps, influence the teenagers to go in for the special, healthier drinks introduced exclusively for the teenagers. References Dannen, Chris. "Competition: How McDonald's Will Kill Itself Killing Starbucks". 2008. Web. 08 January 2011 . Kembell, Brent. Hawks Michelle, Kembel Sean, Perry Leonard, and Olsen Luke. "Catching the Starbucks Fever". 2002. Web. 08 January 2011 . Koenigsberg, Paul. and Koen Jennifer. "THE NEW MARKETING DARLING--THE TEENAGER". Discount Merchandiser 94 (1994):11. Linn, Allison. "Starbucks rethinks stance on young customers". 2007. Web. 08 January 2011 . Lockyer, Sarah. "Teens look to spend, socialize at restaurants". Nation's Restaurant News 43 (2009):1-51 ; 10/26/2009, Wiley. "Scope of strategic marketing". Chapter I. Web. 08 January 2011 . Burks (2009), Starbucks. London: ABC-CLIO. Fellner (2008), Wrestling with Starbucks: conscience, capital, cappuccino. Rutgers University Press. Gia (2009), Marketing Strategy of 'Starbucks Coffe'. Berlin: Grin-Verlag. Michelli (2007), The Starbucks experience: 5 principles for turning ordinary into extraordinary. New York: McGraw Hill. Pahl (2009), The Idea Behind the Starbucks Experience: The Main Elements of Starbucks' Strategic Diamond. New York: Wiley. Thomas (2008), New product success stories: lessons from leading innovators. Chicago: John Wiley. Read More