The Marketing Strategy Analysis of Starbucks Corporation

Under today’s ever-changing market, strategic marketing planning has become more and more significant whether of the functional or the fundamental. Especially, although financial crisis leaded economy growth slowdown, it did not cause a serious influence for chain coffee shop. As Howard Schultz said, CEO of Starbucks, â€Å"I don't think we had a business plan for the severity of what has taken place. History demonstrated to us that a downturn in the economy would not affect us, and in fact, we would be recession-proof. (Katie Couric, 2008) Based on Financial Times, Starbucks revealed that strong earnings of $242m of 2008, a jump from the $64m it recorded during the comparable period last year and total revenues for the quarter were $2. 7bn, up 4 per cent from the $2. 6bn recorded during the comparable quarter at the end of 2008. It illustrated that consumers will still pay premium prices for its coffee even in uncertain economic times. Greg Farrell 2010) In this essay, besides demonstrating the concept of strategic marketing, I will take Starbucks Corporation, United States for a case to define its position in this turbulent chain coffee shop market. Then, identify the â€Å"customized mass production† and evaluate how the organization affect and communicate the market. Next, the strategic importance of Starbucks Corporation, United States will be analyzed by various tools such as demand chain approach, SWOT and TOWS, PESTLE, pricing policies and so on with practical examples. Finally, based on these strategic analyses, the recommendations will be available for the organization to improve the competitiveness over this competitive market in the future. Brief history of Starbucks Corporation Starbucks Corporation, United States (NASDAQ: SBUX), the largest international coffeehouse chain company over the world, opened in 1971 by Gerald Baldwin, Gordon Bowker and Zev Siegl in Seattle, Washington, United States. In 1982, Howard Schultz, the present CEO of Starbucks, joined the company as Director of Retail Operations and Marketing. In 1987, Howard Schultz purchased Starbucks chain and rapidly started to expand. The first location outside Seattle was established at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois. In 1992, its initial public offering (IPO) on the stock market with common stock being traded on the Nasdaq National Market under the trading symbol â€Å"SBUX. † In 1996, Starbucks opened first store outside of U. S in Japan. Today, there are more than 15,000 stores in 50 countries all of the world, including with over two thirds in the home market in the United States. The products sold include coffee, beverages, merchandise, and fresh food and consumer products such as coffee beans, Starbucks cups and so on. Besides, Starbucks engages in gaining the brands add value such as business responsibly nowadays that earn the respect and trust of the partners and customers. They claimed that two areas including ethical sourcing, environmental stewardship and community involvement would be focused on. For example, the plan of Starbucks Corporation is that by 2015, all of the coffee will be grown using ethical trading and responsible growing practices. Besides, they also said that by 2015, 100% of our cups will be reusable or recyclable. So, what Starbucks Corporation emphasized is not only the tangible products, but the intangible assets such as brand image or the add value. The development and concept of the Strategic Marketing First of all, I want to define what is ‘market’ and ‘marketing. ’ The word ‘market’ can be referred to the process of exchange controlled by supply and demand, and the price involved. The word ‘marketing’ is the relationship between supply and demand and now favors demand and consumer choice. (Chapman and Cowdell, 1998) Trace back to the origins of modern marketing, it is from the Industrial Revolutions in Britain around 1750 and in the Germany and USA around 1830. The emphasis earlier was on â€Å"how to do it,† with a focus of the technique of marketing. As time goes by, people pay more attention on the philosophy of marketing and influence on stakeholders and society as a whole. Jobber and Fahy, 2009) Therefore, the strategic marketing becomes more and more significant since it can help organizations to find its own position of the competitive market; thus, they just can justify their strategy against whether the existing or the potential competitors. Therefore, organizations should classify the marketing environment including competitive environment (its immediate competitors and customers) and the macro-environment (the wider social, political and economic setting they operate. In order to develop the right strategy whether for short-term or long-term, organizations not only need to know the concept of strategic marketing but also how to use it within the competitive marketing. In addition, fundamental to strategic thinking is the concept of ‘strategic fit. ’ It indicates how organizations match the internal resources and capabilities with the opportunities in the external environment. The strategic model used to evaluate the appropriateness of the vision or decision making of the organizations (Hooley G et al 2008). A competitive advantage can be developed successfully by a suitable and unique combination of capabilities and resources. Nevertheless, organizations should pay more attention to classify the differentiation between resources and capabilities. Capabilities are focused on the learning effect of the organizations’’ possesses, whereas resources is connected to the inputs to production owned by the organizations. In other words, they should seek the appropriate balance between the marketing of functionalism and fundamentalism under this ever-changing market actually. Black Box Method Kotler et al. (2009) explain that the consumer is regarded as a ‘black box' in the sense that the consumer’s behavior is a conditioned response to marketing stimuli. After consumers making decision of purchase, the black box concept in behavior science responses. Because of the external stimulation, the consumers’ decision making process will be affected by the marketing planning and environment. The significance and the strengths of the model is that after consumers processing the various stimuli in their mind, they will react in specific ways. Generally speaking, in the model, the external elements to the consumer will move to behavioral stimuli; however, before a specific behavioral reaction is created, the consumer's decision-making process and personal characteristics will interact with the stimuli. On the other hand, in the ‘black box' model, people can’t get much information about the way human mind operates. The weakness of this model is people still cannot get the ideas of what goes on in the brain and have no ideas about what goes on in there. In other words, through the ‘black box' model the main internal process and influences of consumer’ behavior can be identified when consumer behavior operates, but the way how consumers convert the data, together with the stimuli, to act specific responses cannot be available. So, it is just called the ‘black box' model. (Kotler et al. 2009) The figure is shown the content and process involved in the ‘black box' model. Therefore, in order to understand consumers’ behavior in the market, organizations need to realize the fundamental process of perception and motivation. Through economic analysis and behavioral adds value can help organizations to make the marketing planning (Chapman and Cowdell 1998). Take Starbucks Corporation for example, last year (2009) in order to to maintain its brand image as a premium customer experience, it revealed â€Å"a long term, multi-million dollar† advertising campaign in the US, as it seeks to combat perceptions that its products are over-priced. As Howard Schultz, chief executive, said that they indicated the new â€Å"value focused† offerings had improved customers’ perception of the value of its products and it is based on the company’s research (Jonathan Birchall 2009). Source: Keegan et al. (1992, p. 193) Marketing Demand Chain Approach Demand is the relationship between needs and wants and also can be inferred to producer/supplier and consumer. Whole markets are motivated by demand; consumers can exercise demand by choice freely (Chapman and Cowdell 1998). A demand chain is composed of the organizations which sell products or services. For example, from the customer perspective, the demand chain may be composed by the customers who lead the sales transaction and the suppliers who sell or create the goods. Or from the supplier perspective, the suppliers create or offer the products and the customers buy it. In addition, the market for specific products or service can be defined by a three-dimensional box. The three sides of the box are product purchase, buyer group and buyer location (Chapman and Cowdell 1998). For example, the demand for Starbucks Corporation can be defined using this method. Buyer group could be identified by age, education or salary characteristics – such as students, white collar workers and retired people. Product purchase could identify the range or type the products offering such as beverage, pastries, whole coffee beans, coffee-related retail items and so on. Then, buyer location could be described the locations of buyer groups. Under this complicated and competitive coffee market, the demand chain approach is appropriate for managers to use the concept of identifying the market segmentations. Once the demand is identified, the necessary change and strategic marketing planning of the business environment could be evaluated effectively. The competitive position and market segmentation of Starbucks Corporation ‘Position’ describes the characteristic place in the market and becomes important more and more in a competitive market because it makes the comparisons to be set between organizations, products and services. It also makes the market segmentation to be classified and the competition analysis and market analysis to be connected to an organization’s strategy. The market segmentation is produced by the differences in customer’s needs, wants and attitudes (Chapman and Cowdell, 1998. Take Starbucks Corporation for a case, numerous cheap coffees are available, what is its attraction under this competitive coffee market? The idea can be also referred to â€Å"the role of positioning is to support that process, not to be it. † (Mintzberg et al 2009) The advantage of defining the position is to help Starbucks Corporation both defending itself and attacking the existing or potential competitors by utilizing the strategic tools such as Porter’s generic strategies, Porter’s five forces and so on. For example, using Porter’s generic strategies for the strategic tool shown below, differentiation focus is Starbucks Corporation’s position compared with other competitors. Hence, the suitable strategy could be set by it. Through identifying the position of the market, not only analyzing the competitors but creating competitive advantages is necessary to organizations. Competitor identification is the purpose of competitor analysis and it investigates competitor strategies, objectives, capabilities and prediction of response patterns. In addition, the process is to offer a foundation of competitive advantages, defining their future strategies. Competitive advantages are the resources and skills of the organizations; classification of the organization’s core competences could be available by analyzing those factors (Jobber 2001). â€Å"Customized mass production† of Starbucks Corporation For Starbucks, it is very important that it provides mass customization to their customers. They obey the conception which is every customer is unique. Therefore, both products and services are created to be a unique experience and atmosphere for the customers individually. So, what customer pay for is not just the products or services but including the unique experience and atmosphere. As B. Joseph Pine (1999) said, â€Å"We have shifted from a goods economy (coffee beans in a can) to a service economy (hot coffee at a diner) to an experience economy (coffee sold in a special mug, in comfortable surroundings – Starbucks). † In other words, under an ever-changing economy, what trend the organizations should follow is that converts products into services and then services into a unique and memorable experience. The unique and memorable experience is the differentiation between Starbucks and its existing or potential competitors. Starbucks Corporation’s Strategic Marketing Planning Strategic Marketing Planning includes the competitive position creating of both the organization and its offerings, core strategy decision making and implementing that strategy. The significance of planning marketing strategies for organizations are to make sure that the organizations’ capabilities are appropriate or not and it is not just for short-term but for the long-term (Hooley et al, 2008). Besides, organizations also need the market audit to model and understand the key factors in the marketing environment. A marketing audit could be defined that â€Å"it is an essential tool for the periodic reassessment of any organization’s marketing effectiveness. † It is the way to analyze organizations’ environment, activities and strategies critically, and improve them (Chapman and Cowdell, 1998. ) Starbucks Corporation’s strategic marketing planning starts with marketing audit and it could be divided to three parts, macro environment, internal environment and external environment. Macro environment is examined to recognize the directions and patterns; inter environment is scanned to evaluate the strengths and weaknesses and opportunity and threat is involved in external environment. * PESTEL analysis For macro environment, it could start with PESTEL analysis (an acronym for Political, Economic, Socio-Cultural, Technological, Ethical and Environmental and Legal factors) of the organizations’ environment. Starbucks Corporation tends to classify main drivers which play important role in the strategic marketing planning by its PESTEL analysis. Take the socio-cultural environment for example; identifying the difference such as consumer preferences could shift from coffee to other beverages can help Starbucks Corporation finding the target groups by setting the suitable marketing strategies. In addition, increasing usage of community networks such as Facebook in the technological environment can provide Starbucks Corporation the efficient way to promote the brand on the popular channel nowadays. In other words, organizations can understand the macro environment by using strategic tools and then set the appropriate marketing strategies for not only now but for the future. Appendix-A provides the summaries of Starbucks Corporation’s PESTEL environment * SWOT analysis For internal environment (strengths and weaknesses) analysis, its purpose is to make organizations to get valuable chances and then to enable them taking advantages of them. For external environment (opportunity and threat) analysis, a marketing opportunity is a field of buyer interest and need that organization with high possibility of beneficially satisfying. In addition, an environmental threat is a danger by a negative development or trend that would lead to decrease profit or sales (Kotler and Keller 2009. According to the information of the internal environment and external environment, Starbucks Corporation develops SWOT analysis to classify the key strengths and weaknesses related to opportunities and threats (Appendix-B). Consider this case, the strengths such as strong global coffee brand, differentiated atmosphere and customer base loyalty would let Starbucks Corporation to grow the market share in new markets such as some specific cities with high population density in China. Besides, take the other care for example, facing the threat of more and more competitors are from various channels such as McDonald in the competitive market, Starbucks Corporation develop new strategy to defense it. Last year (2009), Starbucks Corporation embraced customer research surveys and ran its first major advertising campaign (Claire Cain Miller 2010). * TOWS Matrix The SWOT analysis provides the identification of organizations’ strength, weaknesses, opportunities and threats. Nevertheless, according to such an nalysis, it is rarely and static of the development of definite substitute strategies. Hence, the TOWS Matrix is instituted for analysis the competitive situation of organizations or lead to the evolution of four different sets of strategic alternatives. In addition, the TOWS Matrix is a conceptual structure and begins with the threats since organizations try to make strategic marketing planning under the pressure of perceiving danger, crisis, or threat (Koontz and Weihrich 2007). Appendix-B shows the example of TOWS Matrix. Starbucks Corporation plans to spend the majority of its $40m marketing budget to promote its Via brand of instant coffee and Frappucino drinks through grocery stores (Greg Farrell 2010. ) This is the example for the SO strategy of Starbucks Corporation based on the strength of strong global coffee brand and the opportunity of New products/services/ distribution channels. In addition, take the other case for example, in 2009 the New York City’s Department of Health and Mental Hygiene released the results of a study about the ordering habits at 115 Starbucks stores in the city. The study, which was conducted in 2007, found that the average blended drink had 239 calories. The average cup of coffee had 63 calories. â€Å"The popularity of blended coffee beverages has grown in recent years,† Dr. Thomas A. Farley, the city’s health commissioner, said in a statement. â€Å"Unfortunately, many of these drinks are loaded with calories. Your afternoon pick-me-up may be weighing you down. † After that announcement, Valerie O’Neil, a vice president at Starbucks, said in a statement: â€Å"We offer wholesome food and beverage options for our customers, including blended coffee beverages less than 100 calories. Looking forward, we continue to find helpful ways to deliver information for our customers to make more informed choices. † (A. G. Sulzberger 2009) This is the example for the ST strategy of Starbucks Corporation based on the strength of product diversification and the treats of healthy issue (calories). In other words, by using the TOWS Matrix, organizations can know that how to take advantages of the opportunities. Meanwhile, the impact of weaknesses could be minimized and defense them against threats. By clearly identifying the analysis of threats, opportunities, weaknesses and strength, organizations can make the appropriate strategic marketing decisions actually. Pricing strategies of Starbucks Corporation â€Å"Price may be defined as the value (measures by whatever means is appropriate) given to a product or a service by a market. The price of a product or a service refers to the term by which it can be acquired, and may be expressed in monetary or non-monetary terms (Chapman and Cowdell 1998). In organizations, designing pricing strategies effectively not only needs a systematic approach but also a complete understanding of consumer psychology and then just can set or adapt prices appropriately (Kotler and Keller 2009). Consider the case of Starbucks Corporation, last year (2009) they announced a new pricing scheme. It included the price decreased of many of its popular products such as brewed coffees and lattes. This action is in order to confront the danger of the other organization with offering lower price coffee such as McDonald’s stealing price sensitive customers (Claire Cain Miller 2009). However, in this article written by Claire Cain Miller in the New York Times, it also mentioned Starbucks increased some drinks’ price including Frappuccinos and caramel macchiatos. The reason is that Starbucks thought there are less competition from rivals in higher-end more complex drinks. Starbucks is attempting to make the most profit from its loyal customers who are desired on its products and expecting they will patronize Starbucks continually. Jobber and Fahy (2009) stated that positioning strategy is one of the key factors influencing price-setting decisions. Positioning strategy includes the creation of a differential advantage and the preference of target market. These factors affect price enormously. In addition, price is the main element to make great influence to the marketing strategies since it is the only factor of the marketing mix that impact on the generates revenue directly. Indeed, the pricing strategy plays a very important role of organizations because it is can be a good indicator of its future growth potential.