Marketing can be defined as a process where producer of goods or services communicates with value of the product or services to the prospective customers. This communication is essential, since entire selling of the product is based on how effective is the process of marketing (Kotler & Armstrong, 2013). Based on the case study of Starbucks this London college marketing principles assignment report discuss the entire concept of marketing, the process involved in it, and various other aspects which are necessary to understand the importance marketing.
P1.1 Explain the various elements of the marketing process of star bucks
For a business organisation to succeed in its marketing, preparation of a strategic marketing planning is extremely important. Entire process of marketing planning process has been displayed below, and consists of following stages:
- Goal Setting
- Corporate Objective
- Analysis of Current situation
- Marketing Audit
- SWOT Analysis
- Marketing Assumptions
- Creation of marketing strategy
- Marketing objectives and strategies
- Forecast of expected results
- Creation of alternative plans
- Allocation of marketing resources and monitoring
- Marketing budget
- Detailed Action Plan
Two elements of marketing process w.r.t to Starbucks is as follows:
Goal Setting: This phase of marketing process identifies the core mission with Starbucks has established its business. Mission of Starbucks is “to inspire and nurture the human spirit – one person, one cup, and one neighbourhood at a time.” This clearly indicates that how Starbucks has focused on creating a market for coffee which is not only of high quality but is also affordable by people.
Analysis of Current Situation: Market Audit: This phase of marketing process focuses on analysis of the market condition and how a business can establish itself. In this regard Starbucks international expansion strategy can be considered. As a result of market audit Starbucks was able to understand that in order to expand in different geographies it is essential to hire multi lingual and multinational managers who can help the company in its worldwide expansion.
One important component of marketing planning process is SWOT analysis. SWOT analysis is a useful tools for marketers who can utilise it to understand the environment in which a business functions (Friesner, 2011). It is an important tool because it helps the organisation to identify the differentiating factor a product has against the competitor. Other benefits of SWOT analysis are:
- It helps in better understanding of the business
- SWOT analysis helps in addressing the weakness of the organisation
- It helps effective development of business management with goals and strategies to achieve them
SWOT analysisof Starbucks is as follows:
P1.2 Evaluate the benefits and costs of a marketing orientation for Star Bucks
Market orientation approach defines the approach with which an organisation like Starbucks reacts to customer requirements (Narver & Slater, 1990).Thus decision which are taken are based purely on the basis of what customer need, rather than what business assumes or think about the customer. Starbuck’s growth and success to a great extent can be attributed to its market oriented approach.
Since its inception in 1971, Starbucks has evolved as an “anyone can drink coffee’ brand. Starbucks based on its marketing orientation has got following benefits:
- Opened more than 50 outlets in developing countries such as India within span of one year.
- Gained more than 65% of coffee based beverage market share since 2005 onwards till 2012.
- Year-on-year growth of 5% despite of gradually saturating market.
- Rapidly growing brand awareness about Starbucks especially in countries where recently it has started its operations. For example within 6 months of its operation in India, Starbucks got a customer base of more than 75,000.
- Marketing oriented approach has also helped Starbucks in achieving 30% return customer for consecutively 5 years since 2006.
- In a country like Sri Lanka, it became a Super brand within 5-7 years of operations.
- Market orientation has also resulted into enhanced customer experience. For example based on a survey conducted in United States in 2012, more than 80% of the teenagers mentioned Starbucks as their first preference as compared to any other coffee brand.
- Based on the sustained efforts in getting customer feedback, Starbucks has been regularly launching variety of coffee based beverages to cater to different categories of customer. This can be understood by the fact that Starbucks offer more than 14 types of coffees and 4 decafs in their stores across globe.
In general market orientation has helped Starbucks in establishing its brand in countries where it is trying to expand its presence (Miles & Arnold, 2001). In terms of cost Starbucks spent more than 15% of its revenue on marketing budget in year 2012 in Asia region. This reflects the fact that how Starbucks has been aggressively focusing on expansion in growing countries. Based on its marketing orientation Starbucks is expecting to see a growth of 4.5 % from 2013 to 2014 based on its concentrated customer centric approach.
P 2.1 Show macro and micro environmental factors which influence marketing decisions for Star buck
Both Micro as well as Macro environment plays an important role in how Starbucks have planned its segmentation, targeting and positioning strategy.
Micro-environment factors are those factors which are closely associated with the business and has direct impact on the day-to-day functioning of the business. That is why for business organisations it is important that before deciding their corporate or marketing strategy they should conduct a complete analysis of their micro environment.
Following are three micro environment factors:
Competitors: Currently Starbucks has clear dominance in market of United States. It commands more than 75% of total coffee market of US. However considering the fact that Starbucks has been focusing on international expansion, in countries such as India, there are already strong hold of other coffee brands such as Barista, Costa etc. That is why in order to get a strong hold in developing countries, Starbucks has a long way to go, especially due to local market player (Payne, 1988).
Suppliers: Starbucks has been extremely particular about its supplier. In fact Starbucks runs a programme named ‘The Starbucks Coffee Supplier Accreditation Programme’. This concept ensures that suppliers working with Starbucks are adhering to the highest quality of the raw material being supplied by them. Also such accreditation programmes ensures that all the suppliers associated with Starbucks are responsible to community as well as environment.
Sales/Retail locations: Globally Starbucks is present at more than 23,000 locations. With rising rental prices at prime location has forced Starbucks to rethink about establishing its stores in the prime locations of the city. This has impacted company’s marketing strategy. Although it’s already established stores are functioning smoothly and giving huge profit to the company.
Above micro factors have played major role in impacting marketing decisions in Starbucks. Similarly three macro environment factors are:
Macro factors can be defined as those factors that are not closely associated with the business but still have an indirect impact on the business. Such factors can be analysed through PESTEL analysis which includes political, economic, social, technological, environmental and legal factor (Fahy & Jobber, 2012).
Political factor:There are several countries in Asia, where there is no clear policy related to foreign direct investment. This is majorly due to political unwillingness and political reasons. Due to this factor Starbucks has not been able to establish itself as a wholly owned unit in countries such as India.
Social factor:Starbucks in developed countries has become an integral part of people’s lives. Age group of 19-30 is one of the most important customer base for Starbucks. In developing countries Starbucks has entered as more of premium brand in coffee beverage segment, due its premium image, visiting Starbucks has become a life style statement. Starbucks has observed this fact and has accordingly planned its positioning in the market as a premium coffee brand, focusing more on profit rather than volume/number of customers.
Technological:Starbucks has been effectively using various technology platforms such as Facebook and Twitter for creating brand awareness. For example Starbuck’s Facebook page has more than 36 million likes. Thus Starbucks has strategically used such platforms in its business strategy without spending much budget on marketing etc.
Economic:This is a known fact that products offered by Starbucks are relatively expensive than what is offered by rival brands. However rising inflation across globe, has resulted in price rise of essential raw materials such as coffee beans and dairy products. This has impacted the profit margin of Starbucks
Legal:With several new coffee chains coming up since inception of Starbucks, there has been several cases where Starbucks has been accused of practising monopolistic market practises. Also Starbucks has been entangled with several coffee chains from time to time in disputes related to copyright infringement etc.
P 2.2 propose segmentation criteria to be used for products in different markets
Marketing segmentation is an important business strategy which an organisations applies to achieve its business objectives. It can be defined as a process where the organisation divides the target market into relatively meaningful and smaller segments. Starbucks applies demographic and geographic segmentation.
To a great extent Starbucks uses demographic segmentation as a way of selling its products in the market. For example Starbucks considers educated individuals with an average age of 40 years as their ‘core customers’ and average income of more than $80,000. This has been Starbucks’s initial segmentation strategy in US market. Over a period of time, Starbucks has launched several products which target’s children accompanying their parents to Starbucks. That is why Starbucks has started placing items such as fruit drinks, desserts etc. Thus demographic marketing segmentation of Starbucks indicates the fact that it considers not only its ‘core customers’ as its primary segment, but also aims to service people who are associated with its target segment (Walker & Larreche, 2006).
Another important segmentation strategy of Starbucks is geographical segmentation. This strategy is based on segmentation of business on the basis of various geographic location. For example there are certain products which are sold in a specific geography only. Starbucks recently opened its first store in India in its financial capital-Mumbai. However in the Indian menu of Starbucks there are several non-vegetarian products missing which are found in its stores in United States. Design of the store is in sync with local sensibilities, however the core concept of the store remains the same to a level, where a person visiting from US will be able to recognise Starbucks stores easily.Figure 2: Steps in market segmentation, targeting and positioning
P 2.3 choose a targeting strategy for a selected product/service
Market segments reveals capability of an organisation to implement its market segment opportunities. Based on the evaluation of various segments organisations then come up with their targeting strategy. Target market can be defined as a market which consists of set of buyers who share common requirement for a product which the organisation strives to serve. Various stages of targeting is displayed below:Various targeting approach of starbucks
In case of Starbucks it can use differentiated (Segmented) marketing approach. Through this approach Starbucks will be able to sell products for each of its identified segments. For example Starbucks can target customers on the basis of three segments:
Within each of the above categories Starbucks can further differentiate these categories into sub categories. For example within its Drinks category it can have following products:
- Espresso beverages
- Drinks for kids
- Bottled drinks
- Freshly brewed coffee
P 2.4 demonstrate how buyer behaviour affects marketing activities in different buying situations
Buying behaviour plays a major role in success or failure of a product. As an organisation Starbucks should understand that what its target customer expects from the organisation. Understanding the buying behaviour will enable Starbucks in efficient positioning of its products. There are two types of buying situations which marketing managers in Starbucks should consider:
Routinized Response Behaviour: In such buying behaviour, customer is aware about his requirement, and the decision to buy is based on his personal experience or other people’s opinion. In such behaviour customer does not spend much time in searching for an alternative and brand loyalty is more important for the customer. In general it can be said that customer perceives that buying a specific product has low risk. Thus Starbucks should focus on exploiting this behaviour of a customer. Since brand loyalty is already high among the dedicated customers of Starbucks, thus it will be convenient for the company to utilise this behaviour and mould the buying behaviour of its customers.
Limited Problem Solving: This buying behaviour situation is relatively different from the one explained in first point. In this buying behaviour the customer purchases a product as an extension of his requirement or to trial a new extension in the brand or product. Thus Starbucks can launch variety in its cappuccino beverage with varieties such as cappuccino made in skimmed milk, and full cream milk. It gives an option to customer to choose among any one of them and try at least once.
P 2.5 propose new positioning for a selected product/service
Based on customer preference and demographics, Starbucks can accordingly position its products. Positioning is an important strategy of the entire marketing process. Market positioning of a product or company is a way a product or an organisation is placed in its target market as compared to its competitors. Starbucks has effectively used its brand value in order to position itself as the best coffee chain in the world. Due to which despite of many other competitors selling similar products, none have been able to replace Starbucks from its current position. After establishing itself as a coffee based beverage company, Starbucks should focus on positioning itself as a complete beverage shop with nutritional value (Myers, 1996). Currently none of its competitors are in this segment. Products such as low calorie coffee, or sugar free energy drinks etc. can be positioned as a new category of product altogether.
P 3.1 explain how prices are set to reflect Star Bucks objectives and market conditions
Pricing strategy: This factor defines the amount of money customers have to pay to acquire the product. Price helps in determining the value of sales. It is important for the organisation to ensure that before they decide price of a product they should research consumer’s opinion, what they expect, how much they are willing to pay for the product etc., if an organisation is successful to create an image of the product’s high value, then selling a product at higher cost due to its high value will not be difficult (Kotler, 2013).
Value Based Strategy: In this regard Starbucks have clearly achieved the highest price point in the coffee based beverage industry. That is why there is close interconnection between value and pricing strategy of Starbucks. One major reason behind reaching the highest price point is its consistent offering of high quality beverage. However Starbucks is aware of its high pricing strategy. That is why recent it launched $1.00 coffee item to capture a new market segment. In general it can be easily said that due to strong brand image created by Starbucks has helped to command a premium in the coffee business. Its customer do not think twice before buying product from Starbucks. Otherwise also, Starbuck’s quality of product and services is of best quality in the industry, which in a way justify the premium it charges on its products.
P 3.2 illustrate how promotional activity is integrated to achieve marketing objectives
Promotion Strategy:this marketing mix tool is based completely on managing communications with the customers. Based on the promotion strategy businesses are able to gather valuable information, which in turn enables the organisation in better decision making. There are various ways through which promotion strategy can be executed such as:
- Personal Selling
- Direct Publicity/PR
- Sales and Promotion
It is important to understand that associated cost associated with execution of this business strategy is a major component of overall cost or expenses by the organisation.
If a promotion is successful, then it proves to be a huge benefit for the sales of the organisation. Organisations can also focus increasing their promotional activity to tackle the competition. Starbucks has been relatively successful when it comes to the execution of the business strategy. For example, Starbucks has positioned itself as ‘the third place’ which is perfect for relaxing. In order to promote, Starbucks uses Push methodology rather than pull. Which has helped Starbucks to grow on the basis of word of mouth and has also helped the organisation to control its promotional and marketing budget. In fact, Starbucks has been effectively using social media platforms such as Facebook and Twitter to connect with its loyal customers. Below are various innovative promotional campaigns by Starbucks:Figure 4: Promotion on Twitter and Facebookstarbucks twitter page promotion
P 3.3 analyse the additional elements of the extended marketing mix
Three additional elements of the extended marketing mix for Starbucks can be defined as:
Physical layout: Starbucks has ensured that majority of its outlet are located in upmarket or premium points in the city. Considering the point that majority of the customers of Starbucks are from upper class of society, Starbucks has accordingly opened its stores.
Provision of customer service: Customer service is most important aspect of business today. Starbucks not only serves superior products, but also ensures that it services its customer through well trained. It takes regularly feedbacks and surveys from its customers to ensure that in case of any suggestion regarding service, appropriate action can be taken.
Processes: Along with customer services there are various other processes which are involved in the marketing. For example processes involved in handling customer issues, processes of identification of new requirements of customer etc. in this case Starbucks has been focused on its internal processes to ensure that there is no gap in customer expectation and what they deliver to customer.
Porters Five Forces Model for Starbuck Coffee
P 4.1 plan marketing mixes for two different segments in consumer markets
Segmentation as discussed in one of the above tasks, can be defined as a process where organisation on the basis of certain segments or groups of customers having similar type of requirements.
Two different segments for Starbucks are as follows:
Demographics based segmentation: This type of segmentation is done on the basis of various characteristics such age, income, gender, race etc. Assuming Starbucks decides to enter an Asian country where it needs to establish its business (Suthar et al, 2014). In this geography the targeted segment will have following characteristics:
Age group between 18-35 years
Average Income: $25,000-60,000
Professions: students, IT professional etc.
In that scenario marketing mix which Starbucks should apply for a demographics based segment is as follows:
- Product: considering the fact that age group of the target market is in range of 18-35 years. This age groups is extremely about various aspects such as quality of services, final price of the product etc. Also this particular age-group is extremely focused on their taste preference based on the coffee beans. Hence the final product launched in the market should strictly adhere to the standard of quality established by the organisation.
- Price: Considering the fact that initial population in the age group of 18-35 years is studying in college or some institution. In such circumstances it is important for Starbucks to focus on producing products which are not only of best quality, but also offers best value for money for its customers.
- Place: Ideally Starbucks should initiate its operation in a phased approach, and should hire or purchase space at a place which is easily accessible and has significant coffee drinking population around it.
- Promotion: Promotion for this particular age groups has to be focused on themes such as ‘Young Friends’ etc. based on the response to the promotion Starbucks can decide is future business strategy.
Lifestyle based segmentation:This type of segmentation is more or less subset of the demographics based segmentation. This type of segmentation represents requirements of different types of households like parent, children etc. Using the information based on the segmentation, organisation such as Starbucks has been able to analyse that what people do in their free time. Thus by defining the activities, interest of the public needs to invoke towards reaching for foods etc.
Thus marketing mix for Starbucks on the basis of life style is as follows:
Product: Assuming that targeted customer perceive Starbucks as a part of their lifestyle, company can accordingly launch premium products such as rich caramel based coffee, or various types of exotic desserts etc. This will help in catering to customers who are seeking to experience rich and exotic range of products offered through stores of the company.
Price: for a lifestyle segment, pricing strategy will not be a major issue. Important to understand is that customers falling in lifestyle segment are not much concerned about concepts such as ‘Value for Money’ etc. Thus Starbucks should focus on capitalising on this aspect and charge a logical premium over its product. It can then launch range of products explicitly for made for customer falling in the lifestyle category.
Place: Since Starbucks is targeting lifestyle customer, it should accordingly choose the location as well. It should identify prime locations of the city or a particular region which is generally considered as posh area of a city. This will help in boosting the brand image of Starbucks as an upmarket brand, and will accordingly attract new customers.
Promotion: This is one of the most important part of entire marketing mix exercise. Promotion is the core of the entire marketing process. Without an effective advertising and promotion, organisations at times fail in achieving the desired result from their marketing plan or strategy.
Thus in case of Starbucks, it can extensively use social networking website to boost its promotion. These days’ websites such as Facebook.com, or Twitter.com have become an alternative way of promotion this will not only reduce the marketing cost, but will also help in reaching to wider audience. Thus on the basis of above suggested marketing mix, Starbucks can achieve success in lifestyle segment of the customer.
P 4.2 illustrate differences in marketing products and services to businesses rather than consumers
Another important aspect which needs to be understand is the marketing of products and services. Product at time can be bought through impulse purchase action, whereas service takes its own to be delivered. However in this regard it is important to understand that how Business-to- Business (B2B) and Business-to-Consumer (B2C) functions:
|B2B markets are small and vertical markets, which comprises of few thousands sellers. For example Starbucks indulging in trade with coffee bean suppliers is a B2B scenario||B2B on other hand is a large and broad market. Organisation in B2C has thousand to millions of prospect in terms of sales.|
|B2B sales process is complex and defined in months||B2C sales is defined in few minutes, hours or few days, before a consumer decides to purchase something.|
|Cost of sales in B2B is high||Cost of sales in B2C is relatively low except products like house or four wheelers.|
|Brand value is created through personal relationship and loyalty||Brand value is created through advertising mediums|
Various difference in marketing of product and services is as follows:
Trust: in a service based business, an organisation selling its services, based on the faith or trust factor which a customer has from accounts. On other hand quality of the product, requirement of the product and its price etc. drives the marketing of the products.
Time: Marketing of products at times might be time consuming due to entire product life cycle. On other hand services can be delivered instantly.
Wants and Needs: In case of products there are chances of impulsive buying. Whereas services are never an impulsive buying.
P 4.3 show how and why international marketing differs from domestic marketing.
In terms of fundamental of marketing, both International marketing as compared to domestic marketing are same. However there are various differences in both types of marketing such as:
Barriers: International marketing is dependent upon various tariff and non-tariff types barrier. On other hand in domestic market there is no such barrier present. That is why Starbucks has to focus on its pricing strategy when it decided to venture into Asian countries, as compared to United States, pricing had to be tweaked.
Culture: In domestic market culture does not have major impact on the product offerings and marketing strategies. On other hand international marketing has to be done by considering cultural aspects as well. For example range of non-veg products differ in what is offered in United States as compared to countries where there is majority of vegetarian population.
Risk factors: As compared to domestic market, international market is subjected to more risks in terms of political instability, bad debt, investment policies etc. For example Starbucks had to venture in India in alliance with other major business house TATA, due to regulatory issues.
Thus it can be said that there is significant difference in the way an organisation approaches the international marketing and domestic marketing.
Thus based on above London college marketing principles assignment report and discussion, it can be clearly understood that marketing plays an important role in the development and growth of the organisations. Also it is important to follow a proper segmentation, technology and position. Based on these information and other components of marketing mix can be utilised as an effective strategy to gain new customers.