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Prepared for: Starbucks Coffee Submitted: Thursday, 2nd February 2012 Prepared by: ??? Velisya (551496) ??? Aktalisa Tifany (548994) ??? Steffany Ciputri (551288) ??? Gabriela Tiffany (546561) Executive Summary This essay discuss about how Starbucks utilizes its marketing mix in order to gain market share. Starbucks, which has been in the coffeehouse industry for 41 years, face higher competition than before. Even so, Starbucks is able to not only survive through this, but they are able to be “one of the most valuable global brands” (Theodore 2002).
In its maturity stage, they are capable of expanding their consumer base despite the fact of increasing competition. Through the augmentation of their products they could gain consumer loyalty. Starbucks uses price-skimming strategy in which they set higher price compared to others to indicate higher quality. Thus, this shows that Starbucks utilizes its pricing as their signaling device. In addition, Starbucks does not frequently use traditional means of advertising. In fact, they do not spend a lot on advertising and only depend upon their customer through their word of mouth advertising.
Starbucks distributes their product widely in places that enables consumers to easily reach them and for them to reach their customers. It uses vertical marketing system in which it distributes their product through direct and indirect channel. Therefore, by using their marketing mix efficiently, Starbucks is able to increase its consumer loyalty, brand equity and also the rate of adoption. Table of Contents Cover Page1 Executive Summary2 Table of Contents3 Overview4 The External Environment4 Customer Analysis & Evaluation5 Marketing Mix6-10 Product6-7 Price8 Promotion9 Place10 Conclusion11
References12 Overview Starbucks, which first originated from Seattle in 1971, is a company that specializes on its coffeehouses. Providing high quality coffee, good ambience and genuine service to their customers. Over time, Starbucks diversify its products into tea, ice creams, juices and savory delights. However, this essay will only focus on its coffee products. Being the largest in the coffeehouse industry, Starbucks coffee receives massive competition from other producers. This essay will discuss how Starbucks uses its marketing mix to sell and compete against other competitors.
The External Environment With its high level of competition, Starbucks needs to utilize its marketing mix in an even better way. Some of its direct competitors include Gloria Jeans, Hudson’s Coffee and Coffee Beans. Its indirect competitors being Redbull, Monster and Nescafe bottled coffee. Major competitors in the future could be Gloria Jean’s that is now expanding in the market. Starbucks should take into account the replacement products that may threaten the future of their products. These include energy drinks such as Redbull and Monster.
Since it is more widely distributed in convenient stores and has a longer shelf life, these products tend to attract more consumers from the younger generation. As Starbucks has good positioning in the market, it will be difficult for replacement products to take over its market share. Most coffee houses are not only about its coffee anymore, they are also widely known as places for people to socialize, and therefore the location of the Starbucks shops should be easily found and the place should be comfortable. Since it is dealing with food and beverages, it is important for Starbucks to ensure the quality and taste of its products.
Once customers have positive experience with Starbucks, people may spread the positive feedback and promote to people around them, minimizing the need to use mass media promotion. In addition, due to high competition in the coffee house industry, Starbucks has to be cautious in setting its prices. If the price is too high and is beyond consumers’ price range, they might switch to other competitors, and if it is too low, it may signal low quality. Compared to the other coffeehouses, Starbucks has a greater augmentation layer. Now, Starbucks has provided ice creams, alcoholic beverages, teas and juices in addition to coffee.
Not many companies has this wide range of products sold in the market. Customer Analysis and Evaluation The target market for Starbucks Coffee used to be the established customers, which includes the middle to high economic class of the society such as the elderly and the professional workers who enjoys high quality coffee. However, as their business expands, its customers are becoming more diversified. Starbucks’ target market moves towards the “younger, less well-educated, and in a lower income bracket than their more established customers,” (Moon).
Starbucks position itself as a brand which provides high quality products and is environmentally conscious. Nowadays, people are becoming more environmentally friendly due to higher knowledge on global warming. Therefore, Starbucks is able to improve its brand image by using a recycled packaging. Through time, Starbucks reposition itself not to be too concentrated on coffee itself but to diversify their products. This is shown by changing their brand logo in 2011. Because its product is in its maturity stage it is important for them to diversify its products and differentiate themselves against competitors.
Consumers are exposed to different types of goods everyday. They do not always make the same purchase everyday. They make decisions and efforts to choose the products that suit the most. In the purchase decision theory, Starbucks coffee is classified as a minor re-purchase group. The customers make routine purchase of the good without searching for other options. In this case, the customers are said to be brand loyal. Brand loyalty is the result of a satisfying post-purchase evaluation. Starbucks has developed strong brand loyalty and convenience to its customers by providing great distribution and coffeehouse experience.
Furthermore, consumers perceive Starbucks as an environmentally responsible company that sells high quality products. Consumer perception is essential since it influences Starbucks’ positioning in the market. Loyal consumers of Starbucks have influenced others through word of mouth advertising. This tempts other people who are not a frequent purchaser to buy coffee from Starbucks. Those new customers may even become loyal towards the brand if they have a positive post-purchase experience. Product Starbucks has a wide range of coffee products. It has packed coffee beans, cold and hot coffee drink, and blended coffee.
For the packed coffee beans, Starbucks offers Coffee from Latin America, Africa, and Asia/Pacific. For the hot drinks, it has Flat White, Caffe Americano, Cappuccino, Caffe Latte, Caffe Mocha, Caramel Machiato, Brewed Coffee, White Chocolate Mocha, Espresso, Espresso Machiato, Espresso Con Panna, Caffe Misto. For the cold beverages, it has Iced Latte, Iced Cafe Mocha, Iced Caramel Machiato, Iced Americano, and Iced Cream Brulee Macchiato. Moreover, Starbucks also has its Frappucino Blended Coffee that has different flavours such as, caramel, mocha, dark mocha, white chocolate mocha, java chip, and espresso.
During customers’ first purchase, coffee is a shopping product. They search for the brand that suits them the most and compare the qualities of different brands. Then, after several acts of buying, they become familiar with the brand and repeat their purchase (routinised response behavior). Thus, coffee becomes a convenience product that people buy regularly and become loyal to the brand. The loyalty of the consumers increases the brand equity of a product. The core product of Starbucks coffee is the coffee itself. The expected products are the quality, flavor, and aroma.
Customers who purchase Starbucks coffee expect a high quality coffee full of nice aroma and rich in flavor. Starbucks creates a homely atmosphere in its cafe where people can socialize and enjoy their coffee Starbucks coffee is considered to be a highly augmented product. The augmented products are the brand, the packaging, and the intangible service. Starbucks coffee could be considered as a low involvement product because it is relatively cheap and as a daily product, it would not really impact the consumers’ lifestyle. Brand increases customers’ awareness towards a particular product and the ability to recall the product simultaneously.
Starbucks changes its logo over the years. When it first established in 1987, the logo was brown circle with a picture of a mermaid in the middle. Then in 1987, Starbucks changed its logo color into green and add the company’s name. In 2011, Starbucks changed its logo again by removing the company’s name from its logo. The new logo is more eye catchy than the old one. The purpose of this is to catch consumers’ attentions. Starbucks brand is synonymous with high quality and environmental friendly. Starbucks uses recycled packaging for its product. The coffee beans and drinks are packaged in recycled bag and cups.
In 1971, Starbucks first launched its coffee to the consumers. During the introduction stage, only coffee beans were sold. At that stage, it was really risky to start a business because of the high cost and low sales. Moreover, Starbucks needed to encourage their customers to sample its product and build brand awareness by distributing its goods. Innovators were the type of consumers that sample the products. The characteristics for this type of consumers are willing to try new product and risk taker. As time goes by, Starbucks coffee product entered the growth stage and consumers start to recognize the product.
In 1992, Starbucks expanded its market by opening 17,000 cafes in 49 countries that serve hot and cold drinks. They also launched new product: Frapucinno. Frapucinno was first a failed product, nonetheless, customers like it. Starbucks coffee products are now in their maturity stage. The cost drops significantly and sales increases. At this stage, Starbucks maintains its brand differentiation and keeps inventing new products to increase market share. One of it most popular innovations are themed drinks for many occasions such as Christmas and summer holiday which are only available during certain periods.
Furthermore, during the maturity stage, product augmentation is highly important so that sales would not decline. Starbucks should create more types of coffee drink and new flavors. For example, Coffee milkshake and fruit flavored coffee. Moreover, Starbucks should also launch a diet coffee for health conscious consumers. Starbucks should reduce the sugar in their coffee drinks because lately, people are becoming more aware on their health and start to decrease their sugar intake. Price Price is really important since it has huge impact towards the customers, it stimulates customers’ intention to purchase.
Starbucks coffee can be categorized as an expensive coffee compared to other brands. But still, its demand is very high. Firstly, it is because their perceived value and benefits that exceeds the perceived costs. This means the high cost of Starbucks coffee is worth the quality of its coffee. Eventhough Starbucks coffee’s price is higher than others, a lot of customers still keep on buying Starbucks coffee, thus it can be concluded that Starbucks’ customers are less price sensitive, thus Starbucks’ coffee is price inelastic.
Starbucks uses its pricing as their signaling device, they are telling customers that their high price indicates their coffee’s high quality. However, by using pricing as signaling device, Starbucks has to prove this with their product’s performance, and it has been proven through its high quality coffee. Starbucks also uses skimming pricing strategy, which indicates that their products are unique and this is proven by being the only one coffeehouse industries that create Frapucinno. Their duration of skimming strategy depends on competitors and product positioning.
Based on Starbucks situation, their skimming strategy clearly depends on its product positioning since they set their price high in order to position their product as a high quality product. They have proved it for years by providing a high quality coffee compared to their other competitors’. Secondly, due to Starbucks worldwide-known brand, which is associated with its great quality coffee. By seeing the brand “Starbucks”, customers straight away think towards the high quality of Starbucks’ coffee and therefore it gives customers a sense of security by reducing their risk of purchase.
A lot of consumers purchase Starbucks coffee on the basis of its brand name, thus it increases their brand loyalty , therefore affect their overall brand equity to a certain degree. Despite the higher price of Starbucks’ coffee compared to the others, people still buy Starbucks coffee since the benefit outweigh their cost meaning the quality of its coffee worth the cost. Therefore, Starbucks’ brand has differentiated its products and due to this brand loyalty, Starbucks, which its coffee can be categorized as a low involvement good has minimize customer’s cognitive activity and therefore decreases its price.
In this way, consumer behavior overlaps with pricing. Therefore, it can be concluded that due to its high price, Starbucks are targeting group of people with middle to high income. Based on the current situations of Starbucks, they are now in the maturity growing stage, in which the number of competitors has reached its peak resulting in strong price competition that might ignite price wars. Starbucks has been a successful company for long period of time, they have raised high revenue and generate profit. They have raised 10% profits for 3 months to January 2012. Its revenue also increases by 16% to $3. 4 billion. (BBC News 2012)Thus, they are able to eliminate its new competitors by setting a price war. They are able to drop its price and keep it longer than the new competitors resulting in the loss for the new competitors since they are not even able to breakeven. Its post-purchase decision behaviour is such that customers repeat the purchase as a result of positive experience, due to its price that is still affordable and worth the quality of the coffee. Lastly, Starbucks should create more special offers and vouchers so that it will attract new consumers who have never tried Starbucks before.
Promotion Promotion is one of the most important parts of marketing. It is how the company communicates, delivers message to its customers. While other companies pay a large amount of money for their promotions through mass media, Starbucks’ approach in its promotion relies more on its own customers’ word-of-mouth. Unlike perhaps other companies that boast their growth plans and revenues, Starbucks have been trying to promote its values and also its commitments to the community and customers, and word-of-mouth tends to support this strategy (Tewell, Odom & Snider 2006: 18).
Due to its already famous brand recognition in the market, its company image and especially its logo is already well-known. Recently, Starbucks decided to change its logo as a way to rejuvenate its image in the market and also because it is trying to reach wider range of target market. Now, not only it sells coffee, Starbucks has been trying to create and sell more varieties of drinks, foods, ice-cream and even alcoholic beverage (BBC News 2011). This move also serves as a means to reposition itself in the market and to differentiate the company from its competitors, such as Gloria Jeans.
Thus, the word “coffee” is no longer printed in its logo. Not only changing its logo, Starbucks is trying to make its image better through its ‘go-green’ packaging that is environmentally friendly (Tewell, Odom & Snider 2006: 13). It would not only increase its social responsibility which gives positive impact to the nature but also would give a positive boost to the company’s image. Promotion tends to play an important role for a company mostly when it is in its maturity stage.
One reason is that there would be only a little differentiation between that company, in this case Starbucks, and its competitors. Therefore promotion would help customers recall its products when they are making their pre-purchase decisions, and Starbucks is doing this by depending on word-of-mouth promotion. The more Starbucks advertise its product, the more aware the customers would be about it. The interesting displays or banners and vouchers could attract new customers and those that have bought and like Starbucks’ products tend to tell their experience to friends.
At this moment, Starbucks attract more customers’ attention and awareness through the word-of-mouth advertising rather than using mass media, although it does have a website and it can also be accessible through social networking sites. Customers have acknowledged the products and will continue to deliver this knowledge through word-of-mouth. This word-of-mouth advertising is mostly due to the customers’ acceptance and positive reviews, and it has been proven to be an external influence that plays positive and important role to Starbucks.
In addition to all that, Starbucks make other attempts to advertise such as verbal offers by the employees, collection of stamps from each purchase, etc. Overall of Starbucks’ promotion, it mostly applies a ‘word of mouth’ strategy which is a very effective way in promoting their products. Starbucks just spend very little on advertising as its brand is already well known by most people. Place For a product to be able to satisfy consumer needs, it must distributed strategically in places where it is easy for consumers to reach the producers and for producers to do the same thing.
Starbucks distribute its product selectively to more than one but less than all the intermediaries who are willing to carry Starbuck’s Product, exposing their brand in selected outlet that is closely related. Starbucks is a Franchise organization, which uses contractual vertical marketing system. This means that there is a legally binding contract, which keeps the entire Starbucks store together, and works towards the same goal. Starbucks has both direct and indirect marketing channel.
Its direct channel being the Starbucks outlet and its indirect channel being the bottled Starbucks Frappuccino and its instant coffee which is available in vending machines and other convenient stores such as Seven Eleven. Channel selection is very important as it affect other elements of the marketing mix. By distributing enough products for consumers at the time and place they needed, Starbucks is able to strengthen their brand equity. Thus, it minimizes the behavioral effort for purchasing decision and also increases the intangible benefits for consumer, which includes time and place utility.
Through this, Starbucks is able to increase the value of their product. This leads to customers being satisfied and they are likely to advertise Starbucks to others through word of mouth advertising. Peter Maslen (cited in Karolefski 2002), the President of Starbucks Coffee International says that, “[Starbucks depend] on repeat purchase and loyalty [,] we don’t do advertising or traditional marketing, we depend very much on the in-store experience and building loyalty that way. Therefore, by distributing enough products for consumers at the time and place they needed and also providing customers with a good coffeehouse experience, Starbucks is able to improve its brand equity. In the growing maturity stage of its product life cycle, Starbucks dominates the market share. Having a high level of capital to fund their expansion, Starbucks is able to find the right spot where their targeted consumers are located. In fact, as of Decemberr 2011 Starbucks has “more than 17,000 retail stores in over 55 countries” (Starbucks 2011).
Through its expansion, Starbucks is able to provide a relative advantage and better satisfaction for their consumers through convenience. In their growing maturity stage, Starbucks have a wider distribution channel that increases consumer loyalty, brand equity and the rate of adoption. Starbucks has a more diversified customer base over time. To reach an even wider customer base, Starbucks locates its stores conveniently whereby segments of their consumers would be able to enjoy their products. Most of its stores are located in shopping malls and city areas where most of their consumers gather.
Additionally, through its product distribution on indirect channel, consumers with time constraint can easily purchase their product without going to their outlets. When the consumers of Starbucks evaluate their alternatives, they are likely to compare it from the evoked set, for example Gloria Jean’s. In terms of place, Starbucks have a relative advantage, as they are able to distribute their products at many different locations. Customer would be able to save time and it decreases the purchasing effort for customers.
Therefore, Starbucks is able to comply with the changing behavior of consumer who wants everything to be readily available at convenient places. Conclusion Over the past few years, Starbucks is becoming more diversified by producing new products and attracting more customers. Starbucks has uses its marketing mix efficiently and capture a huge share of the market. Currently, Starbucks Coffee is in its maturity stage of its PLC. In order to survive in the market, they have higher augmentation. They also set their price higher than their competitors to indicate higher quality coffee.
Although Starbucks does not spend a lot on advertising, but still its brand is widely known through word of mouth advertising. By widely distributing their products in convenient locations, Starbucks is able to increase its consumer loyalty, brand equity and also the rate of adoption. Starbucks is a good example for other company in the way they use their marketing strategy. By using their marketing mix efficiently, they are capable of gaining consumer loyalty, brand equity and also the rate of adoption. References BBC News. 2012. ‘Starbucks profits rise 10%’. Retrieved January 27, 2012, from http://www. bc. co. uk/news/business-16752929 BBC News. 2011. ‘Starbucks drops its name and the word coffee from logo’. Retrieved January 6, 2011, from http://www. bbc. co. uk/news/business-12125440. Karolefski, J. 2002. ‘Starbucks: Conquering New Grounds’. Retrieved 30 Jan 2012, from http://www. brandchannel. com/features_effect. asp? pf_id=78. Lofthouse, R. (n. d. ) 2011, ‘HOW ONE BRAND CHANGED THE WORLD’ – CNBC Business. Financial & Business News – CNBC Business. Retrieved January 31, 2012, from http://www. cnbcmagazine. com/story/how-one-brand-changed-the-world/1297/1/ Moon, Youngme, and Quelch J. Starbucks: Delivering Customer Service’. Harvard College. Boston: Harvard Business School, 2003. 1-20. Starbucks Company, ‘Starbucks Company Profile’ (PDF file), downloaded from http://www. starbucks. com/about-us/company-information, accessed 31 January, 2012. Tewell, K. , Odom, B. & Snider, K. 2006. ‘Starbucks Marketing Plan’. Retrieved December 12, 2006, from http://www. franklincollege. edu/pwp/BOdom/SampleWorkStarbucks. pdf. Theodore, S. ‘Expanding the coffee experience: Starbucks keeps sales brewing with new products, innovation and global expansion [Electronic version]’. Beverage Industry, 2002. P. 57- 62.