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Diploma in Business (Marketing)
Unit Number and Title
Unit 4 Marketing Principles
Starbucks Corporation started its operation in 1971 in Seattle, Washington. The company provides high quality coffee and brewing products across the world. With the increasing popularity and demand of its products, Starbucks has started diversifying into various other beverages and cold products. Although it has vast operation, the company uses minimal advertisement and mainly depends on the word of mouth for publicity. We will examine various marketing strategies of the company in this report.
Starbucks have business spread across various geographical locations and market sizes. For such vast range of business activity, it is important that the decision making authority of the company gives marketing a very important position in the list of priorities. Marketing undertakings in global organisations like Starbucks have the major task of getting a clear understanding of customer needs as well as delivering the services based on those findings. The process of marketing is one of the primary stages, and a very vital step of overall marketing efforts of a business establishment. This step helps in identifying various sides of the business and also in formulating several actions that are helpful in delivering the value from business to buyers. Effective communication in value delivery process is as important as developing the value at intrinsic level. For companies like Starbucks, the customers play a vital role in terms of deciding what the business should change in its approach. The customer behaviour will eventually change the organisational strategy, which will then remain as central strategy in the long term.
Starbucks has been a market leader in understanding the customers’ requirements and effectively translating the findings into action in proper time. The business has set its image strong enough keeping in mind about the coffee buyers hold the Starbucks products with high esteem. The image of company’s service and products has gone much step further than its competitors and has been able to stimulate word of mouth based publicity in the market. In the below mentioned table, we will examine various sides of the business of Starbucks:
Let us look at business of Starbucks through a different framework:
This model is helpful in identifying five major forces in the market which can shape business approach of various organisations.
Threat of entry:
All business face threat from new entrants which eventually competitors for the business. Although the global coffee beverage market is not easier for new entrants to enter, but stiffer competition can be expected within the beverage market itself. Starbucks is having a lot of experience in this field and any company entering this industry won’t be able to provide same service in same price. Even if it does it won’t be easy for them to sustain. Any new entrant may not create much trouble for Starbucks because of huge market share and loyalty of customers who work as a relative immune for the new entrants.
Power of buyers:
Customers are the primary element of business and they hold influencing power that can change the fate of a healthy business. In the coffee beverage market, number of options which can be compared to Starbucks is not readily available in the market. Hence buyers are sticking to the brand. Although small players are acting as alternatives for coffee buyers, the service provided by Starbucks is able to bind the buyers.
Power of suppliers:
In case of large and impactful suppliers, the power to bargain remains with the raw material provider. They possess higher power to bargain with the relatively smaller end users.Starbucks is relatively a bigger player than any of its raw material supplier to give any sort of leverage to the suppliers. However the suppliers also have a certain amount of influence, which is often limited. Moreover Starbucks has access to buy coffee beans and other raw materials from sellers in various countries directly, which makes this market force relatively weaker against the globally powerful retailer.
Threat of substitutes:
Substitutes are the products which are essentially other than the actual product sold by the concerned business. In case of Starbucks, there would be substitutes like Juice, tea or soda. However Starbucks has expanded its product portfolio to have tea and soft drinks through its outlets. The market force is moderate in case of Starbucks.
Competitors in the coffee and beverage market are in constant struggle to claim their respective stake. There are various competitors in beverage market in different location and various product lines. There are indirect rivals, but Starbucks do not have similarly sized competitive rivals (Palmer & Cole, 1995).
Overall, the marketing process starts with developing an understandingabout the market and hence the needs and wants of the customer in the marketplace. Further step is to come up with a schemethat would give a marketing or business strategy which is basically customer-driven. Further it is important to conceptualise a cohesive marketing program which keep value delivery in the core point. Then the process includes building relationship that is profitable in its nature with the customers, and also provides delight to the customers. Finally the marketing process involves capturing the value from consumersin order to generaterevenues and hence retain customers in the long term.
In the global beverage market, the marketing strategies are carried out through various methods and motivations. In the contemporary age consumer beverage market, the beverage products are sold through broadly usage of four types of approaches by the marketers.
Major chunk of players, who are big in size, follow the market orientation strategy to grasp most of the opportunity present, and there are other large players who also follow product orientation. There is third type of approach of approach that is practised by small sized operators, which is sales orientation. Those organisations mainly focus on selling their products without much considering other factors. Starbucks has been famously known for the innovations it makes in its products, which exhibits its product orientated approach. The company also practise marketing oriented approach, which is executed through its marketing decision makers taking down to the business judgements mainly based on the market trend changes and changes seen in the consumer behaviour.
Marketing orientation at Starbucks has been helpful in deciding the product modifications and innovations majorly based on the feedback shared by the buyers, and the business gets the benefit upon the exercise of those marketing exercises.
Broadly it involves cost of implementing the plan, and benefits in reaping better profit and wider product portfolio.
The practise of marketing orientation mixed with the product orientation has to be present so that the equilibrium is kept intact. Because of its vast operation, Starbucks has been practising introducing market specific products in the specific market.
In Asian markets, the company has come up with localised products and markets the products keeping the local culture in mind. The buying behaviour of different customer in different markets is taken into careful consideration by the Starbucks marketers. Based on the customer buying pattern and preferences, the company varies its offering in terms of services and products.
As a result of various long term based marketing orientation, the company invests in marketing activities moderately and more on developing products to suit the needs of customers (Schultz, & Jones Yang, 1997).
These are the factors present in the market or the environment which can impact the business vastly. Outside factors affect the business because of dependency of all type of business organisations. We will use the PEST analysis framework to examine various macro factors and their impact on Starbucks.
Starbucks has operation in various geographical locations and market. Although most of the beverage based revenues come from the USA market, the Asian, European and Latin American markets are also very vital in terms of revenue contribution and long term approach of the business. The company’s global spreading out has taken the political factors into importance. Business in various locations needs approval of the local governments and other authorities. Factors like political situation in a certain country, or in the region for that matter, matters a lot. For example, in the current situation of Israel-Gaza trouble and Iraq-Syria region tension have made doing business much more risky in the region. If Starbucks is not taking into such factors into account, then loss of revenue and security of employees will be a major concern. Political stability is another factor that governs the market behaviour in a region. The government structure decides the stability of the region, and any government that is facing problem from people result in an unstable political situation.
As the range of operation of Starbucks has widened too much longer space, and the variety of customer base and diversity of economies has come into picture. The company sells premium priced coffee and other breakfast items, which needs similarly premium customers to thrive. Pattern of expenditure and overall level of the income among people in an economy mostly decide the ability to spend extra for premium coffee beverages.
Based on the social norms and choice of people, Starbucks will have the level of demand for coffee in various markets. Acceptability of product majorly depends on perception of people about the product and the business establishment as a whole. Although Starbucks offers products which are superior in their quality, requirement of people is very significant that in turn decide the market demand.
Any progressions and developments in the field of technology should be adopted immediately to get the steady image among consumers. In the social networking age, the company cannot afford to give a miss to the trends and fads in the young generation.
In micro factors, the company has three major players to decide its performance:
The company needs the suppliers’ support because of its scale of operation. For coffee beans, dairy products, and containers Starbucks has to depend on the suppliers. If any of the highly demanding raw materials is not good in its quality, then the company has to bear the loss in image.
After all efforts have been taken towards a better business operation, if the customers are not very much favouring the brand, then it is difficult to continue business. Customers are also important for Starbucks as they vastly depend on them for word of mouth publicity.
Other key players in the beverage market are important because of their direct and indirect impact on business of Starbucks. If the competitors are winning in terms of gaining stronghold in any of the product vertical of beverage, then Starbucks will suffer loss of market share. If competitors are taking some innovative steps and Starbucks is not able to cope with the change, then indirectly the customers will realise that the company is laggard (Venkatraman, & Nelson, 2008).
Starbucks can look at its customer base mainly grounded on the lifestyle and the attitude towards life. I would suggest the best segmentation strategy would be psychographic segmentation. This type of segmentation practise helps the company in taking into account about behavioural characteristic of customers and also considering their various preferences. The product offered by Starbucks is basically premium in their price and hence they require premium customers to survive.
The Starbucks beverages have become more tempting and a matter of style for the young users, and business executives also prefer the brand because of the importance it attracts.
Psychographic segmentation is the appropriate way of identifying the customers based on their behavioural pattern. It helps in focusing on the target customers by identifying the consumer preference. We have to identify the proper age group, type of life style, and geographical locations of those groups of customers. Taking these factors into account, psychographic segmentation would be helpful in precisely defining our buyers.
Hence the pattern of lifestyle is main decisive factor and the coffee buyers’ inclination towards premium coffee.
Starbucks has three diverse strategies used to target its customer base: concentrated, undifferentiated, and multi-targeting.
This business strategy helps in enabling the entire marketing efforts of the company to select and focus on a particular segment form the total universe. With a concentrated approach, the strategy helps the company in focussing the valuable efforts always keeping the customer and its need in the mind.
This is strategy used by Starbucks to attract both the earning executives as well as the students who can afford to spend a little extra on the coffee. The expansion of business in various markets has brought this strategy requirement into limelight for Starbucks.
This is not a suggested strategy for a brand like Starbucks. This basically dilutes the customer types and the company cannot decide upon targeting a selected sect of customers, which is not good to put effort in a particular direction.
Based on the three major factors, the company can put its efforts towards targeting right customers.
For any business, the identification of consumer behaviour and taking the right competitive actions are core to address the need of buyer behaviour. Because of the changing buyer behaviour, the company in certain markets can face challenge to generate ample amount of desired revenues.
Consumers are the major impellinginfluence of the all type of business. Hence it is advisable that Starbucks and the marketing strategy of the company should focus on identifying the buyer behaviour. The company can thus modify approach in various buying situations of the consumers. In the present situation, the rivalrybetween the global players in the beverage product segment has been upbeat in terms of innovative coffee serving.
The company image can also take a hit if the business is not able to identify the buyer behaviour. If the company want to one of the major trend setters in the beverage sector, and it wants give their customers a fresh feeling towards the product, then it is mandatory to identify and mould based on their behaviour. The repetitive buying behaviour is very much a trend and matter of loyalty for Starbucks goers. The company has to seize all buying activities of these types of customers and make sure that they come back frequently. Modified re-buying situations are also present widely in the beverage sector. To address this type of buyer behaviour, Starbucks has started offering other breakfast items and widened its product portfolio (Payne, & Rickard, 1997).
We will discuss about the appropriate strategy to position a set of new products for Starbucks. The products are relatively new in the armoury of the global coffee giant. In its latest addition to the product portfolio, Starbucks has added three handcrafted soft drinks: Spiced Root Beer, Golden Ginger Ale, and Lemon Ale.
The company introduced this line of products keeping the continuous innovation forward, and to add new variety of beverages. This can be positioned as a new and customisable drink to the buyers.
Summer is the best season to position this product as one of the “must-have” soft drinks. As the retro styles are coming back into the fashion, these drinks can also become a style statement because of the retro style attached to them.
The main target would be innovators: the buyers who like to taste new type of products as soon as they launch in the market. This type of beverages can also be targeted to the buyers who prefer late buying (Palmer & Cole, 1995).
With core competences of high quality coffee beverages and breakfast products at accessible locations, the comp may has moved on from providing only premium prices products to selling beverages at affordable prices. The marketing activities of the company revolve around its product innovation and customer retention. With less cost and investment, the company has used its brand name and image in the market to succeed heavily.
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