UKCBC Unit 4 Marketing Principles -2

This is solution of UKCBC Marketing Principles assignment help given for HND business course.

INTRODUCTION

Starbucks first started in 1971 in Seattle Washington is one of the best coffee brands all over the world. Within few years they understood the value of variety in coffee and importance of customer service. Instead of providing just coffee they kept a huge variety of coffee and also started selling snacks and coffee beans. Recently they started selling breakfast items as well. By the end of 2009, they have grown from 1 store in 1971 to 16,706 stores all over the world (Case study). Starting from the US, they have expanded in more than 50 countries till now. The reason behind their phenomenal growth is organization common goal of serving the customer in a better manner and satisfying them. By doing this they have created a special brand name and brand image for themselves. Now let us look into the marketing principles which are applicable for Starbucks.

LO 1 Understand the concept and process of marketing

LO 1.1 Explain the various elements of the marketing process

The elements of marketing process can be defined “As a set of controllable tools that the firm blends to produce the response it wants in the target market, so it consists of everything the firm can do to influence the demand for its product” (Kotler and Armstrong, 2004).

Below are the major elements of marketing mix:

The 4 P's of the Marketing Mix

  • Product – It includes the products or the services we are offering to our customer.
  • Price – This part includes the way we decide the price of our products or services so that we can make good profits.
  • Place- It includes the location where we will sell our product.
  • Promotion – It includes the advertising and promotion strategies to increase the customer base.

SWOT analysis

Importance of SWOT - : SWOT analysis is done to find out the internal and external factors affecting the business of the company (Leigh, D. 2006). SWOT analysis is important to find out the strengths and weaknesses. With the help of our strengths we try to capture all the opportunities available in the market and we also use our strengths to face all the external threats. Internal factors are strength and weakness which can be controlled by the organization. While external factors like threats and opportunities cannot be controlled by the organization. Complete SWOT analysis is as follows:

STRENGTHS ·   Market leader ·   Strong financial performance ·   Top performer in Customer Service ·   Years of experience ·   High quality and large range of products WEAKNESSES ·   High product price ·   Negative publicity of management
OPPORTUNITIES ·   Huge customer base ·   Supplier network ·   New product line ·   Use of internet THREATS ·   Intense competition ·   Rising price of raw material ·   Saturated market ·   Other replacement products

 

Strengths

  • Their experience of more than 40 years is a huge advantage they have.
  • They recruit people who have common goals as of organization this result in highly motivated workforce who work hard to provide best possible customer service.
  • They have more than 16,000 stores all over the world but there is no concept of franchise. This enables them to maintain the quality everywhere.
  • Starbucks’ high quality coffee and high quality service makes them a popular brand all over world.

Weaknesses

  • Starbucks price of coffee is higher than its competitors which is a slight turn off for a customer.
  • Starbucks more focus on expanding the business operations left them giving less attention on the internal issues.
  • There has been news of problems between suppliers and management which gives negative image about the Starbucks.
  • Starbucks lacks various marketing strategy, they mostly depend upon worth of mouth marketing. Generally they believe that word of mouth is better than direct advertising which can backfire as well.

Opportunities

  • Customer base is huge which gives them immense opportunity to grow.
  • People like change and they would like more and new options when it comes to food items or coffee. So introducing new product line would increase their opportunities to grow.
  • Technology can play an important role as it can provide ways to monitor supply and purchase raw materials.
  • Use of internet has given awareness among the youth and people, so advertising through social media would boost their reach among.

Threats

  • Competition from local vendors and brands like Barista.
  • There is quite good potential in this business for new entrant which may increase the level of competition.
  • Rise in price of the raw material will result in higher price of coffee.
  • Threat of coffee to be eliminated with traditional tea, juices etc.

LO 1.2 Evaluate benefits and costs of marketing orientation for the case organization

Marketing Orientation can be defined as an approach how an organization develops a new product, there are two approaches which are product oriented and marketing oriented (Onkvisit & Shaw, 2004). When the organization develops its product on its own choice or develops product upon their strength is known as product oriented and in marketing oriented approach, firms analyse the needs of customers before developing the product. In today’s world, customer is the king and to be successful you need to develop products for the people that is why, the chances of success is very low while following the product oriented approach. Starbucks have a lot of variety in coffee as well as the snacks and they keep on introducing new products time to time based upon the market requirement. This shows that Starbucks follows the market oriented approach which has had its effect in the growth they have seen in last few years. Also when you visit and ask for a coffee, you are asked about the type of milk, cream, flavour etc. which shows how much Starbucks are trying to satisfy their customer. Also they offer local beverage like green tea, which indicates that they respect the taste of customer regionally as well. On festive seasons like Christmas stores are decorated according to the Christmas season which helps to attract more customers.

LO 2 Be able to use the concepts of segmentation, targeting and positioning

LO 2.1 Describe macro and micro environmental factors which influence marketing decisions.

Micro and macro environmental factors are the two types of factors which influence the marketing decisions. Micro Environment factors influences the businesses directly. These factors include anybody that can directly influence the business, for example suppliers, employers, caterers, financers etc. While, Macro-Environment factors influence the businesses indirectly; and the organization do not have control on such factors. These include Political, Economic, Social, Technological, Environmental and Legal factors also known as PESTLE and we call it as PESTLE analysis (Kotabe, M., & Helsen, K. 1998).

Political : Political issues such as political environment, law, taxes, policies on economy, trading agreements & terrorism of that particular country are the factors which come in this analysis. It is not about Starbucks but for any organization who wants to enter into a new country. Therefore, before entering into any unknown country organizations should be aware of political scenarios in such countries. The terrorism attack of 9/11 affected the overall business market in US a lot. Also Starbucks buys coffee beans from different countries and if there are sudden changes in taxes or import/export rules, the business would be affected. So it would be better a complete research is done for the political scenario of that particular country.

Economical : The economic issues include the level of inflation, interest rates, income per capita, long term perspectives for economy & unemployment rate. If economic growth of a particular country is slow then the revenue and the profit of organization will suffer. If per capita income of a country is not good then how will they spend on coffee which would be costlier than their local vendor?

Social : These factors include customer satisfaction; reach among the customer, and attitude of local people who will be employed with Starbucks. If the attitude of the staff towards the customer is not good, it will give wrong picture about the company and will affect the company image.

Technical : Technology in this modern age is boon to human race, since its inception we have never looked back; these new technologies are not only saving the money and makes you cost effective but it also saves the requirement of human resources. For example, the prepaid car facility of Starbucks, which can be refilled once by paying money in advance but also you just need to swipe the card when you need coffee, customer don’t need to pay cash every time.

Legal : Legal issues include employment law, working time, age & minimum wages & health & safety regulation. These can be different in different countries; Starbucks should be well informed about these before starting a store in any country.

Environmental : Environmental issue could be related to recycling, energy, water & climate change. Damages done by nature cannot be controlled by any organization but one should avoid opening stores which is prone to such natural hazards.

Porter’s five force model

Porter has identified five competitive forces that shape every industry and every market (Kotler, 2010). These are:

  1. Suppliers – The understanding and commitment between the farmers and Starbucks has been very good, this is one of the main reason which has result in such a growth of Starbucks. They have been getting good quality beans. Starbucks are genuinely concerned about their labour force and re cognizes maintaining vital supplier relations is key to the company’s success.
  2. Buyers – Starbucks’ customer base is quite huge and strong they have created and maintained this with their hard work, good quality and excellent customer service. But it should be understood that buyers cannot be taken for granted if someone comes up with similar quality with low cost which is little difficult then it is possible that the buyers will shift from Starbucks.
  3. Potential New Entrants – This is slightly difficult because Starbucks is already having a huge name in this sector, they are market leader, and challenging them on same ground is not an easy task. They have got the good supplier, best raw material and very good staff and management system, also they are financially very strong. Although there may be new entrants into the market, Starbucks quality brand, uniqueness, commitment and loyalty to their shareholders will have limited impact of any new entrants into the market.
  4. Other firms offering Substitute Products – Starbucks has been doing quite good in terms of fighting with low cost competitors who have substitutes of Coffee, for example, McDonald’s. Also substitute products like health juice, tea etc. can be threat
  5. Rivalry among Competing Sellers – Starbucks is in a class by themselves and typically outshines competition due to their high-quality products and higher cost structure.  Offering such friendly atmosphere and diverse environments than their competitors set them apart and allows them to maintain their culture without much change necessary.

LO 2.2 Propose Segmentation criteria to be used for products in different markets.

Segmentation can understood as specific customers in the market whom organization want to target as the organization feel these people give more value to their business (Wedel, 2000). There are 3 types of segmentation, or it can be said that market segmentation can be done in 3 ways: -

  1. Geographic, which includes customer orientation, regional growth and macro-economic factors.
  2. Demographic, which includes age, gender, education, income and family status.
  3. Psychographic, which includes value, attitudes, factors such as loyalty and order size.

Starbucks uses psychographic segmentation.  They targets customers on the basis of their attitudes and life style, generally they target office goers and college goers. These are youth who have high standard of life style and they usually like to hang out with their group and like to enjoy some quality time with family or friends. Starbucks is now a huge brand and having coffee at Starbucks has become a status symbol for people. Starbucks emphasize on these extra benefits and has kept their charges on higher side which make them costlier but the customer and regular coffee drinkers prefer them on the basis of experience they get. Starbucks don’t emphasize on demographic and should not look to segment on that basis. Doing this will only decrease their customer base.

Starbucks has also used Geographic segmentation and they first targeted major locations in UK and they started expanding in other countries like USA and India. In these countries metro cities were the first target of the company.

LO 2.3 Choose and explain targeting strategy for the product/service in the case organization.

Target marketing is done in 3 ways: - Undifferentiated, differentiated & concentrated (Niche). When Starbucks started its operations they used undifferentiated marketing they created marketing mix for single segment. There motto was single that they will provide their service and product without compromising on anything. Their business strategy was to open as many stores as possible and they have quite successful in that with opening more than 16,000 store worldwide in around 50 countries. Still they have maintained their standards. Starbucks has always placed emphasis on extra benefits such as nice interiors, soft music, happening environment. They always insisted on creating that third place other than home and office where people can fill comfortable. Other than these strategies they also didn’t spend much on advertisement instead they opt for promoting through community centre which they start near the store, they have been successful on the word of mouth marketing.

LO 2.4 Demonstrate how buyer behaviour affects marketing activities in different buying situation

Decision of buying a coffee is not a lengthy decision, it can be instant and impulse, and still there are few factors on which these buying decisions can refer such as Social factors, Psychological Factors and Personal factors. Today businesses are more customers oriented rather than product. Customers are the king today and organizations do every possible thing to attract them. As discussed earlier the power of buyer is high and its buyer’s choice that he/she wants to buy something and from which vendor. Earlier customers were not as much important today because earlier competition was less. But now it is just opposite of what earlier it was. For this companies are going to consumers. Starbucks major consumer base are tech savvy and they use social media very often so appealing through that platform is one of the tool for today’s organizations they can update about new store launch, new product launch, offers, discounts etc. and they can take for feedback from customers directly.

Other than the above factors mentioned earlier pricing is one of the major aspects before purchasing anything. What will be the benefits is it good enough? Starbucks prices are high and everybody knows that but they have made it worth with their customer service and excellent atmosphere. In this case Starbucks manages felt that it is not just the taste of the coffee which affects the buyer behaviour but the service and ambience is the major contributor in shaping the buyer behaviour and hence pricing of the products is done considering the service and the ambience provided to the customers.

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LO 2.5 Propose New market positioning for a selected product/service

The product which I have chosen is Double Chocolaty Chip Frappuccino® Blended Crème. We need to make a positioning strategy for this product to make it popular among a target market.

The target market will be everyone for this product. This product has the flavour of chocolate and more chocolate – something we just can’t get enough of. There’s the rich, creamy taste of mocha-flavoured sauce blended with milk plus chocolaty chips in every sip (www.starbucks.com).  In this product we have a base of Frappuccino cream and on the top of this base we add Choco chips. This makes it very tasty drink. There are other ingredients also which added to this product are whole milk, whipped cream etc.

Positioning strategy should be such that everyone can get connected to it and everyone can see some benefits for them. As we have heard a saying that chocolate is quite good for health and very tasty also famous among all age group because child or old person everyone will prefer to have chocolate flavour drink instead of simple one any day. So I would like to position it as a kind of amazing drink which while excite the taste buds of the tongue. The tagline which they can use to promote this drink will be “Chocolate drink – for everybody…deliciously tasty”.

Customers are very happy with the product and the service offered by the company. It is one of the best coffees in high pricing market. CCD is one of the competitors. Customers have rated Starbucks as one of the best brands in the market. Having Starbucks coffee is like a status symbol for the customers.

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LO 3 Understand the individual elements of the extended marketing mix

LO 3.1 Explain how products are developed to sustain competitive advantage.

Providing better facilities and the products than your competitors makes you different from the competitors and gives you an edge over the competitors which are called competitive advantage. Each of the employees has very strong knowledge of the product and how it is made. This has helped a lot in gaining competitive advantage in the market. They are financially very strong and they have potential of expanding in all the major countries.

Organizations develop some standards or bench marks in particular industry over its competitors who is known as competitive advantage (Pride, W. M., & Ferrell, O. C. 2011). Every organization wants to have extra advantage so that they could lead the market. When we look into the Starbucks, they don’t have cost advantage as they are already higher price than the competitors. But they have variety which all other competitors don’t have also, their customer service is excellent which other competitors are not able to provide. So overall it is the quality and service both which give extra advantage to the Starbucks.

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LO 3.2 Explain how distribution is arranged to provide customer service.

Distribution channel is one of the major components which make an organization successful or unsuccessful. You might be having best quality but it is of no use if you don’t have proper channel to distribute, they need ensure their reach is among the customer is quite good. Starbucks have created such a huge base of customer and the reason behind it is their distribution channel which in this case is their store which is as much as 16000 all over the world. So their reach among the customers is quite deep. As stated “One of the distribution channels is retail store and Starbucks is having plenty of them all over the world” (Thompson & Arsel, 2004).

This distribution channel should be for both backside as well as the front side. It means if they are getting raw material from the supplier pretty well on time, they will be able to sell it to customers quite easily.

Overall we can conclude that Starbucks do not want to leave any untapped channel through which they can reach closer to the people.

LO 3.3 Explain how prices are set to reflect an organization’s objectives and market conditions.

Since its inception Starbucks main objective was to serve customer with quality coffee and quality time at their store, they never tried to be a low cost coffee chain. They knew by placing them as premium coffee chain can be risky decision specially when they started but with their quality of product and extra ordinary service they have made place for them in this segment. And now they have conquered the market.

These are reasons why Starbucks is charging more than its competitors because it focused more on the quality of the product and also on the experience of the customer and has been successful in this (Easton, 2005). They decided that their aim is to create a third place for an individual other than office and home where the person can relax and enjoy their coffee and spend quality time alone or with family or friends. And they have been very successful in that. Their price is high but their customer has become loyal and they like to have coffee only from Starbucks. This is called as Brand power.

Pricing strategy has played a major role in explaining the objectives and goals of the company. It has high pricing strategy which shows that company wants to be the leader in the luxury coffee market. Pricing strategy is for the customers with high disposable income.

LO 3.4 Illustrate how promotional activity is integrated to achieve marketing objectives.

Social media has become one of the major options to promote your product. Starbucks has used social media very well and has gained lots of customers. Company has used all the major social networking sites like Facebook, twitter, YouTube etc. for its promotion. My Starbucks website idea has also helped a lot in gaining success in the market.

Promotional activities can be categorized into two which basically is push & pull strategy. Starbucks uses both of them; push strategy is something in which company promote their products to wholesalers and vice versa in pull that is they directly market to customers. This is known fact that Starbucks spends much less amount on advertising as compared to their competitors. They believe in word of mouth marketing only which has proved very vital in their success.

LO 3.5 Analyse the additional elements of the extended marketing mix

In general, there are 4P’s of marketing which is valid for product marketing, while there are 7P’s in service marketing (Yoo, Donthu & Lee, 2000).

Product:  As usual coffee is the core product of Starbucks but introduction of new product expands the variety they provide.  They have huge product line which include frappe, hot coffee, tea etc.

Pricing: Pricing has been higher than their competitors which are known facts when it comes to Starbucks. The Average price for coffee at Starbucks is around $1.5. But the experience makes it worth.

Promotion: Starbucks marketing strategy has been the word of mouth marketing rather than the advertising. It is said that they spend just 1/10th of the amount what competitors spend on advertising. But whenever they open a new store in a location they distribute printed mugs, t-shirts etc. which helps more recognition in the local.

Place:  Starbucks looks for a place which is convenient to their employees as well as the customers, if it difficult to locate it may happen that customers would not like to visit again, also parking should not be an issue.

Physical presence & People

Starbucks is not just providing the product to the customers but service offering is also a major role in this case and hence physical presence is very important. Manager or the waiters in the store play a very important role in making customer satisfied. They need to be very friendly in nature. Customer should feel the love and care from the people in the company.

When we talk about physical appearance, it can be said that Starbucks are present almost everywhere, in all 50 countries they have 16000 stores which is quite enough to make their presence feel among the customers. Also they have presence on online portals liked Facebook & Twitter. Their presence is so strong that people can identify it by their logo; it is the symbol for the presence of Starbucks.

Starbucks is a people’s brand because its aim and motto is to provide out of the world experience and hence they work hard whole day to make people’s experience very amazing. They have always believed that people are the important part of their business and hence they take care of their employees, farmers, customers etc.

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LO 4 Be able to use the marketing mix in different contexts.

LO 4.1 plan marketing mixes for two different segments in consumer markets

1st Segment

In the current case of Starbucks, they target people between the age group of 25 to 45. Generally who go are the office goers. The marketing mix for them is as follows:

Products

The products offered in this segment are Coffee of various varieties, café vanilla, Caramel frappe, double chocolaty chip, Tea, etc.

Pricing

Pricing has always been on the higher side and it would remain the same as usual. Because the quality of Starbucks is high also the customer service is excellent so this high price is justified.

Promotion

They are mostly dependent on the word of mouth publicity but they do promote through some community outings near the store only. Also they distribute T-shirts and mugs while they advertise on radio & newspaper as well but not as much as their competitors.

Place

They have started from the US and right now they doing quite good in so many countries in the world. There one of the important strategies is to expand as fast as possible, keeping that in mind, they should expand into rest of the countries as well.

New Segment

As discussed earlier, they have their presence in 50 countries, and they are going strong, now there can be some new options, one would be that they should target a new country. Other option could be new target segment on the basis age. They can target kids as well. Marketing mix is as follows:

Products

Starbucks should start a new product line for kids especially. They can start with Chocolate coffee or milk coffee or energy milk drinks for kids. This would increase their customer base. Earlier their majorly was office goers, now they can target teens and kids as well with age of 12-19.

Pricing

As they are starting a new product at the same place so price should be competitive, if they charge $1.5 for a coffee, they should charge $.75 to $1 for the kids.

Promotions

Starting with the radio, newspaper & Television advertisement; after which they should go with other ways which it usually does by creating a community near the store and by providing printed t-shirts and mugs.

Place

They should start with the US, if it works there, they can enter in UK followed by the rest of the countries.

LO 4.2 illustrate differences in marketing products and services to businesses rather than consumers

Here we are talking about difference between B to B and B to C marketing. Selling the product to an organization which will sell our product again is called B to B marketing and selling our product directly to the customers or end users is called B to C Marketing. Starbucks has major presence in B to C marketing as it sells coffee to the end users in its store. But it also sells its coffee to the organizations or other retailers also. B to B marketing involves less number of customers but in B to C number of customers is huge. Revenue from a single customer is more in case of B to B marketing.

The most basic difference between a product and service is that product is tangible while services are intangible (Kotler, 2010), you can own a product by buying it. But Services can’t be owned, they can be only experienced. If we look into the differences between marketing product/services to business rather than consumers, first one would be marketing a product/service to business (B2B) is a lengthy process when compared to marketing a product/service to consumers (B2C). B2C is a simple and emotion based, while B2B is a long procedure and based on logic. When you market to the businesses, you tend to focus on the features of a product or service. When it comes to the consumer, you just need to explain the benefits and if consumers’ requirement is fulfilled they will buy it. In this segment it generally is an impulse decision we call it as impulse buying.

For example in this case product & service is Coffee and Customer service at Starbucks. At Starbucks, Coffee’s taste will be high due to high quality of coffee beans bought by Starbucks and you get extra benefit of nice ambiance at Starbucks including music, good interior and nice customer service. If we look into the concept of B2B & B2C, in this condition, a B2B client would only be interested in the quality of coffee rather than other things. B2B client would take more time in deciding but the order would be in bulk. While, B2C clients would look for his convenience of sitting, good atmosphere and good service also, other than good coffee.

LO 4.3 show how and why international marketing differs from domestic marketing

International marketing & domestic are quite similar to each other, in domestic when you do business the risk is less you have all the idea about the location, laws rules etc. but the scope of growth in domestic is less than that in international, in international marketing the scope is endless. But it is required, when you go in the international market you need to know about the political and economic conditions, so doing the PESTLE analysis (Kotabe, M., & Helsen, K. 1998) would be important because barriers would be high in international which could be traditions and customs, Language, currency etc. Looking into the Starbucks they have been expanding in the international market very fast, but in last few years they have to close some of the stores as well. Starbucks’ strategy has been to acquire space of some other store vendor which has been a very strategy until now.

Conclusion

Starbucks have been quite successful in past few years and they have made an excellent brand name and reputation for themselves by serving their customer better. There most of the strategies have been quite good. But from last few years their business has been quite stable and growth has reached to its maturity level. To regain its growth and profitability they need to put their principles right. They need to emphasis more on advertising rather than just opening the outlets continuously. They already have excellent brand name, identity etc. But they have to maintain their momentum, services & quality to be market leader as always.

References

Easton, E. 2005.Starbucks: Marketing Strategy Analysis. Leigh, D. 2006. SWOT analysis. The Handbook of Human Performance Technology, 1089-1108. Kotabe, M., &Helsen, K. 1998 Global marketing management. New York. Kotler, P. 2010. Marketing management. Pearson Education India. Onkvisit, S., & Shaw, J. J. 2004. International marketing: Analysis and strategy. Pride, W. M., & Ferrell, O. C. 2011 Marketing.

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