This is solution of UKCBC marketing principles assignment that is given in HND business Course. Here UKCBC refers to UK College of Business and Computing.
Starbucks is one of the top brands in retail sector. It sells coffee in various flavours and snacks. Starbucks was started in 1971 in Seattle Washington. Since then they have been growing in quite good speed, from one store in 1971 they have grown to more than 16000 store till late 2009 (As stated in case study), from only USA they have expanded all over the world in as many as 50 Countries and still counting. Their basic vision or aim is to serve customer better, make them comfortable & satisfy them by both their product which is coffee and their service. And this can be noticed in their growth, instead of spending millions on money in advertising they put their money by getting close to their customers, opening more stores, serving better which results in free of cost word of mouth publicity. Through this assignment we will see how Starbucks has grown and how they have got their marketing principles right.
LO 1 Understand the concept and process of marketing
LO 1.1 Explain the various elements of the marketing process
Marketing process can be defined as a process of analysing marketing opportunities, selecting the target markets and developing the marketing mix and finally managing the overall marketing effort (Kotler, 2010). Some of the important elements of marketing process are explained by considering the business strategies of Starbucks. These elements are:
Porter’s five force model
Porter has identified five competitive forces that shape every industry and every market (Kotler, 2010). These are:
- Barriers to entry
The threat of entry is medium to high as capital requirement is very high as it actually depends on the location where the competitor would be opening a store. Also product differentiation is little, because a coffee would ultimately a coffee only. Major companies have already started selling coffee for ex. McDonald’s has started selling coffee. But the positive with Starbucks is that they have experience of around 40 years which won’t be easy to beat.
- Threat of Substitutes
This kind of threat will always be there, doesn’t matter which industry you are. In this case substitutes would be Fresh fruit juice, Soda juice, Alcohol, Wine, Tea. You have to deal with this kind of threats whenever they come, it can be done by 2 ways i.e. either you adopt these substitutes like Starbucks selling tea or you market your product as a better option than substitute. Example-Coffee is better than Alcohol in terms of health.
- Supplier Power
In case of Starbucks power of supplier is somewhat medium because Starbucks is a leader in coffee market and many suppliers would be eager to work with them, but at the same time if some big suppliers decide to raise the price of their raw material it can create some problem for Starbucks. However, Starbucks has started buying coffee beans directly from countries who are leader in growing coffee.
- Buyer Power
Buyers are and will be important for any business as they have power of buying and they have ample options to buy from There are a large number of small operators which can give tough competition but still Starbucks is a brands now and even if Starbucks does a price increase the buyers who like only Starbucks will come again and again.
There are lots of companies who can give tough time to Starbucks, for ex. McDonald’s, Dunkin Donuts, local café etc. There are competitors but Starbucks don’t have rivals of their similar size but still in order to be on top always they need to maintain their standards and services.
SWOT analysis is done to find out the internal and external factors affecting the business of the company (Leigh, D. 2006). SWOT analysis is as follows:
- Strong financial records: - Starbucks profitability have been rising from past few years and in last few years it is over 10%.
- No.1 brand in Coffee segment: - Starbucks is having strong brand name all over the world, the quality and customer service is unmatched.
- High-skilled employees’ team & Management: - Starbucks offers good benefit to its employees and expect the best outcome from them, and their employees with good amount of training delivers the result.
- Experience of around 40 Years: - They can be said pioneers in this segment as they were one of the earliest to start the coffee chain, so the amount of experience they are having is unmatched with anyone.
- High quality and innovation of products: - Not only they have high quality in coffee and coffee beans but they keep innovating new products and product line in coffee and now they launched few food items as well.
- Rising price of coffee beans which influence the profit: - Coffee beans are a commodity hence the price can’t be controlled by the Starbucks, due to weather condition or some other factor price of beans can increase and hence it can affect the profit.
- High product price: - Though Starbucks offers great coffee and great experience to its customer but its pricing is quite high as compared to competitors.
- Negative publicity: - In previous few years the company has received negative reviews for its poor efforts in reducing global warming, tax evasions and poor treatment of some suppliers.
- Large consumer group: - In whole world there are too many coffee consumers, so opportunity for growth is too high.
- Extend supplier network which helps in getting best quality: - As they are a huge group they have the luxury of getting best supplier of the coffee beans.
- Increase product line, although they have quite big product line but it can be expanded to target more people.
- Competitors: - Competition is tough, they have direct competition from local vendor in every country, also brands like McDonald’s, Café coffee day, Barista etc. are giving tough competition to Starbucks.
- Rising price of raw material: - Coffee beans and dairy products are the major raw materials and as discussed earlier, prices of these cannot be controlled by Starbucks.
- Saturated market: - In few economies the coffee market has been saturated and competition is growing tougher for all.
LO 1.2 Evaluate benefits and costs of marketing orientation for the case organization.
When it comes to marketing orientation it works on two approaches which are product oriented and marketing oriented (Onkvisit & Shaw, 2004). An organization should follow market oriented approach only as product oriented approach is not so famous and being product oriented means organization is not open to market changes. When we see at Starbucks they a lot variety of beverages and also snacks and they are doing it based upon the market requirement so we can say that Starbucks follows marketing orientated approach as they have a lot of variety in their products which allows the customer to choose. Also when we visit their website we can see that they have started new concept like customize your coffee in which type of milk, flavour, cream etc. can be decided by the customer. This approach can be better understood by the following example that they focus on market research first & then introduce drinks which suites local tastes. For example, In Asian countries like India, Sri Lanka, and China where Starbucks are active; they have launched local flavour teas, added green tea flavour. Another example, on the festive seasons of Christmas their cups, stores are adjusted to the season spirit and atmosphere & they have red and Christmas decorations on them to attract their audience and customers.
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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.
Factors which affects marketing decisions are Macro & Micro, the factors which indirectly influence the organization and company do not have direct control on them is known Macro Environmental factors. These factors include Political, Environmental, Social, technological legal & Economical Factors also known as PESTLE and we call it as PESTLE analysis.
Political issues can be related to stability of political environment, law, taxes, policies on economy, trading agreements & terrorism. Not only Starbucks but which ever organization wants to expand they should take all the political issues in consideration. For example the terrorism attack which shook the world after 9/11 affected the overall business market in US a lot. Similarly Starbucks buys coffee beans from various countries and if suppose 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.
The economic issues can be the level of inflation, interest rates, income per capita, long term perspectives for economy & unemployment rate. If countries’ economic growth is slow then sale or growth of the organization may suffer. Before entering a new territory all economic related things should be clear. For example if people do not have good per capita income they would not be spending money on drinking expensive coffee from Starbucks.
Social issues could be related to customer satisfaction, ethical sourcing, raising living standards in production & reach among customers. Starbucks would not like to start a store where transportation is difficult for customer as well as employees, while starting a store it is a quite important factor. Also they would have to be ethical in their purchases, processing.
Since the inception of computers the mankind has never looked back, all new technologies are being built for the human being to reduce the wastage of time and manual managing resources. And because Starbucks are financially sound they have very good advantage of being tech savvy. They have prepaid card facility where person can purchase a card and pay amount to recharge that card from which he can buy coffee from any location. Now many competitors have started this.
Legal issue will cover employment law, working time, age & minimum wages & health & safety regulation. These will be different in different countries, so Starbucks should be well informed about these before starting a store in any country. Things like minimum wages or maximum working hours are different. So it is very important for an organization to study and survey well.
Environmental issue could be related to recycling, energy, water & climate change. These generally are micro environmental factors. On the other hand micro environment factors are the forces which are internal or they can be controlled the organization. The factors generally are Company itself, Marketing agencies, suppliers, customers, competitors & Public.
LO 2.2 Propose Segmentation criteria to be used products in different markets.
When it comes to segmentation Starbucks have divided the market on the basis of age and region. Most of the customers they target are from urban area. They present themselves as a premium brand to people who wants good quality services and are ready to pay even if it is little expensive. When we try to understand about segmentation of Starbucks, it can be understood that they use psychographic segmentation which means they target customers on the basis of their attitudes and lifestyle. Starbucks' marketing planning targets college going stylish youth, young office going people. People who are independent who want some good quality time may be alone or with few friends. Due to Starbucks brand name having coffee at Starbucks has become a status symbol. Today people want to show off whatever they wear should be branded, they drive should be branded, what they eat should be from a known good brand and Starbucks had capitalized on that. And what Starbucks is doing that not only they are providing a good quality product which is a coffee but also better experience. If you treat all customers initially and equally and make they feel like they are important no matter they buy 1 coffee or 10 coffee, customers tend to return and brings more customers by doing your free mouth publicity, suggesting their friend to visit and they suggest their friends and the cycle goes on.
It can be said that Starbucks emphasize more on youth but we can say that it means they don’t cater others, in fact Starbucks doesn’t care about demographic segmentation as they serve all age, gender etc. Had they done this kind of segmentation they would have decreased their market share.
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 operation they used undifferentiated marketing strategy and they created the marketing mix for single segment. Starbucks gave their products and services without compromising on quality. Also they are very aggressive in opening stores in various locations which are the reason they have opened around 16000 stores till now and have maintained their standards as well. Starbucks history says it all that they place a huge emphasis on product quality. Their marketing strategy always has been for creating a “third place” for people to go to between home and work. By creating extra ordinary ambience they have forced people to come back again. Starbucks emphasize on customer satisfaction is known worldwide they want their customer should have an amazing experience from the time they enter till the time they leave. Instead of spending money on various advertisements like other competitors their only focus is on buying more and more store they believe and they have been successful on “Word-of-mouth” advertising they work hard in all area and let their product & services do the talking.
LO 2.4 Demonstrate how buyer behaviour affects marketing activities in different buying situation.
As discussed earlier that the power of buyer is very high and it’s buyer’s choice that he can buy anything from the available options and because there are so many options available in market we can say that customer is the king, and if companies want to succeed they need to plan according to the requirements of the customers only.
Earlier customers were not as much important today because earlier competition was less. For this companies are going to consumers. For Ex: - Starbucks major customers are young people who as we all know like to spend more time on social sites like Facebook& twitter now Starbucks have capitalized on this power of social networking sites and created its pages on Facebook & twitter so that people get to know about them can connect with them and feel their presence. With the help of these they can update about new store launch, convey details about it, they can inform about new product, Also they can ask for feedback from customers directly.
Pricing as we all know is one of the most important marketing activities. And to be able to maintain the market share and to ensure good profit the price should be decided. High prices doesn’t attract more people on the other hand keep high prices and offering discounts and starting some festive offers will surely attract people from all over the world.
LO 2.5 Propose New market positioning for a selected product/service.
The product which I have chosen is Classic Whole-Grain Oatmeal. 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 but especially the office goers, who generally miss their breakfast or people who can’t make breakfast early in the morning. The most important meal of the day just got more delicious. Our reinvented oatmeal features a hearty blend of rolled and steel-cut oats and a shorter steep time. Enjoy yours with dried fruit, a medley of crunchy nuts and a sprinkle of brown sugar (www.starbucks.com). This product is very healthy and to make people aware about this won’t be a difficult task.
Positioning strategy should be such that everyone can get connected to it and everyone can see some benefits for them. For obese people and fat concerned people it is an awesome dish with less fat and more nutritional value, for children it is a quite tasty and heavy breakfast. As it consists of dry fruits oatmeal which is good for health so we can target it among all age group because child or old person everyone will prefer to have it. So I would like to position it as a kind of amazing breakfast which will fill your day full of energy. The tagline which they can use to promote this drink will be “Oatmeal breakfast – Healthy & deliciously tasty”.
LO 3 understand the individual elements of the extended marketing mix
LO 3.1 Explain how products are developed to sustain competitive advantage.
When an organization develops some standards or bench marks in particular industry over its competitors then it is called as competitive advantage (Pride, W. M., & Ferrell, O. C. 2011). All organization wants to have this advantage so that they could lead the market. When we look at Starbucks, they already have cost advantage as they are the market leader. They can but items in bulk which could cost less. Also they have a lot of variety which not everyone can provide. If we look at Starbucks and talk about its core competitive advantage it is not only the quality of the product but their service as well. What people want is to sit and relax their coffee in nice environment without any hustle. When we think about Starbucks it is having the entire characteristics nice ambience, sitting place, quality coffee and nice staff. So it is not only about coffee but overall complete package which gives Starbucks a competitive advantage over others.
LO 3.2 Explain how distribution is arranged to provide customer service.
As we know that distribution channel plays quite important role in deciding whether your company would be successful or not. What if you have best quality product but distribution channel is not good and hence it can reach to the customer, what is the use of such quality product? Starbucks as we know have a huge customer base and they have stores around in 50 countries which means the distribution channel should be as good as service. So Starbucks should use more than 1 distribution channel. By doing this they make sure that it is quick & easier for the customers. As they deal with both retailers & wholesalers they need some robust distribution channel. One of the distribution channels is retail store and Starbucks is having plenty of them all over the world (Thompson & Arsel, 2004). As their presence is high they reach customers quite easily.
Also they get beans from various countries import them and process it to sell them in retail store. Starbucks are also present in places like supermarkets and malls where people come to buy general items. People generally finish shopping and likes to sit somewhere so Starbucks have reached out their customer, Overall we can conclude that Starbucks do not want to leave any untapped channel through which they can reach closer to the people.
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LO 3.3 Explain how prices are set to reflect an organization’s objectives and market conditions.
From starting only Starbucks has distinguished them from the other brands, they knew they were expensive but still they wanted to be targeted as a premium brand only and due to all its good and successful work they have maintained this image from years. Their initial target base was middle and upper class only and that’s the reason why they emphasized more on ambience & good environment and hence priced their product costlier than their competitors so that they can maintain their image of stylish and expensive. People generally love to sit enjoy the time and let relax in the soothing ambience with nice music in the store. All this kind of experience makes it worth to have coffee at Starbuck’s store. 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). Brand’s image plays an important role in deciding the buying behaviour of the customer. Even if the price is higher, customer would pay the price if he likes the place/product.
LO 3.4 Illustrate how promotional activity is integrated to achieve marketing objectives.
Basically push & pull strategy are the two strategy that are used as a promotional activity. Starbucks uses both of them, in push strategy they promote their products to wholesalers and vice versa in pull that is they directly market to customers. It is widely known that Starbucks spends only 1/10th of the money on advertising and promotion as compared to competitors, Starbucks has only tried to buy more location as possible and they believe word of mouth publicity and it had been proved in last so many years.
LO 3.5 Analyse the additional elements of the extended marketing mix
In marketing there are 4Ps but in service marketing when have 7 (Yoo, Donthu & Lee, 2000), out which we would be discussing 6 of them.
Product: As usual coffee is the core product of Starbucks but introduction of new product expands the variety they provide. Like the acquisition of Tazo tea which helps them to earn profit in Tea market as well. The type of variety or product Starbucks provide, not body else can offer like it which makes Starbucks undisputed market leader.
Pricing: Starbucks has always kept its prices above its competitors; it has maintained some gap with them. They are expensive still people buy and enjoy their coffee, reason being the kind of experience they provide. But now with economy slowing starting to gain momentum, Starbucks’ main objective must be to keep prices on par with competitors and must not lose their customers to their competitor.
Promotion: Starbucks old policy of opening as many stores it can is working and they would like to continue it as it allows them to reach many customers at one go, also they do some radio advertisement as well, 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: As any business should do Starbucks also 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 : When we talk about physical appearance, it can be assured that Starbucks are present almost everywhere, today they have centres all over 50 countries, 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 believe that people are the important part of their business and hence they take care of their employees, farmers, customers etc.
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
If we look into current scenario Starbucks’ target is people between the age group of 25 to 44. The marketing mix for them is as follows:
The products which are offered to this segment are different café vanilla, Caramel frappe, double chocolaty chip, Tea coffee etc.
Pricing would premium as usual for all products of Starbucks. As the quality of Starbucks is high also the customer service is excellent so this high price is justified.
Right now they promote through some community outings near the store only. They distribute T-shirts and mugs. Also they advertise on radio & newspaper a lot.
This is doing well in the USA and it has its stores all over the place and they have started selling these products in all the major countries like France, China, India, UK, Ireland etc.
It should be started in different country for local people. So, it should be something which relate to them. For Example India, It is having huge population and huge potential of growth. Marketing mix is as follows:
Starbucks should initially start with all the best-selling products with some local famous beverage which can be Tea or coffee. Let’s take Masala Tea, all products would be same but we will start one extra flavour to attract local people.
As it cost more when we expand in new territory pricing needs to be premium to cover the cost of expansion. Simple Masala tea cost around Rs. 10 at local vendor and in hotels around Rs. 50 -150, So Price can be kept Around Rs. 80-100.
Radio, newspaper & Television advertisement can be that major source of advertisement and promotion and after that it should go with other ways which it usually does which is creating a community near the store and by providing printed t-shirts and mugs.
The first target will be the major cities of India like Delhi, Mumbai, Kolkata, Hyderabad etc. after that they can expand into smaller cities depending upon the store location and kind of profit they are getting.
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LO 4.2 illustrate differences in marketing products and services to businesses rather than consumers
There are lots of differences between a product and a services, biggest being Product is a tangible while services are in tangible (Kotler, 2010), one you buy product it is yours but services you buy services but they are not yours. Now coming on to the difference between marketing to business (B2B) and marketing to consumer (B2C), B2B is having lengthy buying process while B2C is quite simple and easy. It can be said that B2B purchase is logic based while B2C is emotion based. When selling to business you need to focus on the features of product and service you sell. While selling you need to give logical use of features and how it will help them. While selling to consumer you need to focus on benefits of the product. Consumers just want convenience and not long marketing presentations.
For example consider this: My product & service is Coffee and Customer service and good ambience at Starbucks. My Coffee will taste great as quality of beans is high and you can enjoy this with nice music and great atmosphere at the store.
If I have a B2B client they will be most interested in the quality & taste of beans and coffee. If I have a B2C client they will be most interested in the benefit Taste and good atmosphere or good service at the store. So it is most effective in marketing if we understand what both markets need in order to make a decision.
LO 4.3 show how and why international marketing differs from domestic marketing
International marketing & domestic are quite different from each other, in domestic when you do business the risk is less you have all the idea about the location, laws rules etc.
But when you go outside in an unknown territory to some different country it is very important to do PESTLE analysis for the country you are targeting (Kotabe, M., & Helsen, K. 1998). Starbucks have expanded like anything all over the world. Generally Starbucks follow various strategies like doing acquisition for local or some other store vendor and starting their own work. Directly buying competitors lease etc.
Overall if we see, Starbucks runs in business environment that requires excellent brand identity & reputation and have won trust of customers as well internal stakeholders. This reputation have built in long time, with the experience of around Starbucks is having.
But now Starbucks should emphasize more on marketing than opening new outlets continuously. Already company is having excellent brand name, identity etc. Starbucks has been doing quite well and will continue to do so. But they have to maintain their momentum, services & quality to be on top always.