Will the Starbucks maintain its market leadership over Mc Cafe - Essay Example

? Table of Contents Chapter No 01 …………………………………..02 Chapter No 02 History of Starbucks……………………….02 Chapter No 03 Overview of Starbucks……………………..02 Chapter No 04 Target market of Starbucks Corporation...04 Chapter No 05 History of Mc Cafe………………………....06 Chapter No 06 Overview of Mc Cafe……………………....07 Chapter No 07 Target market of Mc Cafe Corporation.....07 Chapter No 08 Market leadership…………………………09 Chapter No 09 What is market leadership………………..09 Chapter No 10 Advantages of market leadership………...10 Chapter No 11 Who’s the market leadership?....................12 Chapter No 12 Will Starbucks carry on being alive as market leader? …………………..………..14 Chapter No 13 References…………………………………16 Abstract Nowadays the market of the coffee providers is emerging at a rapid speed, partly owing to the increasing number of consumers and coffee lovers. Starbucks is known as the leader of the coffee providers and is deserving of the repute it receives as the star of the market. Now the primary question which is raised here is; “Who is the leader and will be in future as well?” Another well established and well reputed brand is Mc Cafe which is the creation of repute firm McDonalds. Following is an extensive analysis to deduce which of the two firms will remain the undisputed giant in the years to come. History of Starbucks In the time when world around us is extremely fast paced and competition in the market has squeezed every firm in the industry and where only survival of the fittest is possible, a giant market leader in the coffeehouse industry pops up in head, Starbucks Corporation. Starbucks was founded by three partners Jerry Baldwin, Zev Siegl and Gordon Bowker in 1971 in Seattle, Washington. Starbucks is by far the largest coffeehouse company in the world and it is still expanding at a rapid pace (Spanogle et. al. 2007). Starbucks went international in1990 for the first time when they inaugurated a store in mid 1990s the time during which the firm was opening a new store every single day and this speed of expansion that carried on into 2000s and now approximately around one third outlets of Starbucks corporation are overseas. Starbucks had expanded up to one sixty five outlets in 1992 at the time of its initial public offering (Abrams, 2003). Over view of Starbucks: Starbucks sells a wide range of coffee and other beverage products in order to provide a delightful experience to its customers. Its products mainly include drip brewed coffee, espresso -based hot drinks and coffee beans. Starbucks has restricted itself to coffee products but it also produces salads, hot and cold sandwiches, Panini, pastries and snacks which provide the consumers with what the company calls a “distinctive Starbucks experience”. The success and growth of Starbucks Corporation can be attributed to a person who saw the potential and opportunity in the product when no one else did: Howard Schultz. This aspiring entrepreneur was appointed as the marketing head in 1982 and upon his return to United States from Italy, he realized the opportunity that could materialize into the repute that Starbucks today has. The following words are attributed to him: “Lets create a community gathering places like the great coffee house of the Italy in United States”. Although his idea was not highly appreciated by the top management at Starbucks, nonetheless they did allow him to experiment this new idea at one of their retail stores (ABA, 1997). Moreover, the new idea proved to be a huge success and that’s when Schultz started another company with the name of ll giornale. In 1987, Schultz convinced a group of local investors to buy Starbucks when its original owners decided to sell their coffee business along with the name. Schultz incorporated Gionrale outlets with Starbucks and finally started with the conversion of six shops into graceful and comfortable coffeehouses. This was the turning point in the history of Starbucks; it started to expand to different cities, went international and witnessed a phenomenal growth which no other company in coffee industry had ever imagined (Mitchell, et al. 2003). With the passage of time, Starbucks Corporation has diversified itself into numerous other products and brand extensions which mainly includes offering Starbucks coffee on flights of several airlines, giving the customers an option to purchase Starbucks coffee online to give them more convenience and production of premium coffee ice cream with Dreyer’s. Lastly, Starbucks is a perfect example of how a small coffee shop became an internationally recognized corporation with more than 10,000 locations worldwide serving customers an experience of excellence (Mc Daniel and Gates, 2007). Target Market of Starbucks Corporation: Starbucks Corporation is the market leader in the industry of coffeehouses. The company which initially started in 1971 from a small retail outlet in Seattle has now grown to more than 10,000 locations with world wide customers in over forty countries. The success and growth behind Starbucks mainly relies upon its aggressive marketing techniques which has earned Starbucks its name and recognition. Moreover, Starbucks has not only maintained the quality of its product with the passage of time but also the brand image of the company’s products has helped them substantially in securing the market share and conquering every market they targeted. The strategy of Starbucks has remained steady over time which is to position itself as a fancy brand and characterize itself not only as a coffee seller but a place where customers are provided with a rich experience. This technique employed by Starbucks of providing a distinctive experience to its customers has remained its unique selling point over time (Kotler and Armstrong, 2009). Initially, Starbucks target market was young students and social classes who were able to afford an expensive and an upscale brand of coffee but gradually with expansion it diversified its target market to include all individuals from relatively upper strata of society. The company’s tactic is not only to provide coffee drinks and other products to its customers but in fact it gives them an opportunity to take a break from their hectic schedules and relax in a comforting and peaceful ambiance. Though Starbucks coffee is slightly expensive as compared to its competitors but the company believes in premium pricing because they are primarily concerned with the high quality of their products and the customer service in order to gain loyalty from their customers who do not come to Starbucks for a usual cup of coffee but instead aim to experience little pleasures of life that Starbucks provides to its customers through its spacious outlets and amiable environment. Attributes of faithfulness and loyalty from customers are undeniably huge assets for Starbucks which is essentially why the majority of the regular customers are reported to shop at Starbucks at least thrice a week (Kourdy, 2009). Moreover, high proportion of target market of Starbucks comes from urban areas that are more educated and well settled and are willing to go an extra mile to buy relatively expensive coffee. Apart from this, students in large universities are also major consumers of Starbucks and provide a competitive edge to the company over competitors like Tim Hontons, Dunkin Donuts or McDonalds. Additionally, Starbucks innovative strategies have assisted them significantly in order to grab the market share. In times when expedient service is crucial for sales, Starbucks came up with pre-order and pre pay service for its customers through either phone or Starbucks website. Secondly, the concept of drink through and other creative strategies are perfect demonstration of how Starbucks successfully attracts its customers. Furthermore, a major reason for Starbucks success is attributed to company’s dedication and concern over customers’ satisfaction and contentment. Lastly, Starbucks involvement in community activities has garnered the company more respect from the customers and it is now known as a brand having positive affiliations in the community which eventually strengthens its market share as well (Keichel, 2010). Mc Cafe History: Mc Cafe is a subsidiary of the fast food giant McDonalds which is the worlds largest chain in fast food restaurants initially founded by a businessman Ray Kroc in 1955. Outlets of McDonalds can be found in over 120 countries with serving of over sixty million customers every day and employing 1.5 million people across the globe. Mc Cafe was originally launched in Melbourne, Australia by Ann Brown who was also a licensee of McDonalds in year 1993. Mc Cafe is a coffeehouse chain which not only sells coffee but also sells drinks, soups and sandwiches. Mc Cafe was a huge success, it is documented that some of the outlets of Mc Cafe were generating fifteen percent more revenue than a regular McDonalds outlet. Mc Cafe also became the largest brand in coffee shop in Australia and New Zealand by year 2003 (Keegan and Green, 2010). Mc Cafe grew at an enormous rate, and by 2007 there were over 1300 outlets worldwide which is a tremendous achievement keeping in mind the fact that Mc Cafe is a relatively smaller part of overall giant McDonalds. Its outlets have spread to countries as far as Japan, USA, South Africa, Spain and Ukraine etc. McDonalds has been a strong support in terms of financing, entrepreneurship and idea visualization and implementation from the very beginning for Mc Cafe. This is a pivotal force of backing for Mc Cafe so it’s operating in a highly competitive and saturated market where giants like Starbucks and Dunkin Donuts have already secured a big chunk of the market share. Mc Cafe provides its customers a vast assortment of coffee drinks from which they can choose according to their taste and preferences. They have the option to select between several coffee choices which include cappuccinos, lattes, and iced and hot mochas. They’re made with ingredients like steamed milk and whipped cream while real chocolate is also added to enhance the taste of its products. Moreover, there are a huge array pastries and desserts also available at Mc Cafe (Ireland and Hoskisson, 2008). Over view of Mc Cafe: McDonalds came up with the idea of Mc Cafe in order to provide its customers with an experience to explore new choices and options every time they visit the outlet. People are already familiar with the brand name of McDonalds so the venture was based on adding a unique angle to their every single visit as now they would be provided with more options and choices. The prices offered by Mc Cafe are slightly higher and that is due to the prime taste, quality and convenience customers get with the product (Grant, 2010). Lastly, Mc Cafe is an entirely separate entity from McDonalds; though they share the same entrance, Mc Cafe has a different ambiance including cozy couches, fancy tables and an upscale assortment of furniture etc. Mc Cafe has a huge potential market in the coffee industry which is yet to be tapped and with its relatively affordable prices and backing of McDonalds; it will eventually expand to every nook and corner of the world. Mc Cafe is not only targeting upscale social class but is also catering to the middle class customers of McDonalds, who would like to augment their fast food meals with a cup of latte or cappuccino and are hence providing a huge market for Mc Cafe (Brown, 2008). Target Market of Mc Cafe: Mc Cafe is a subsidiary of the worlds largest fast food chain restaurant McDonalds which is now located in more than 120 countries with above 31,000 locations. In year 2007, McDonalds was earning revenue of one twenty billion dollars and with a market share of 19 percent leaving behind its competitors by margin like Subway and Burger King. Mc Cafe is a coffeehouse owned by McDonalds which serves a wide range of coffee drink, hot and cold sandwiches and smoothies etc. It was launched by a licensee of McDonalds in Melbourne, Australia in 1993 and since then it has grown at a rapid pace. Mc Cafe entered the market of coffee and other drinks to cater to the needs of McDonalds existing customers and at the same time tap the potential in the market which was being dominated by coffee giants like Starbucks. Although, competition between Starbucks and McDonalds had started long time ago but with Mc Cafe things have become more intense. Till this time, there are over 1300 outlets of Mc Cafe which are serving coffee drinks, soups and healthier sandwiches. Moreover, the introduction of coffee products through Mc Cafe has helped McDonalds to penetrate those market segments which have not been reached by Starbucks already; especially after the downturn of economy in year 2007 and 08 when people started to rethink about purchasing a cup of coffee for four dollars which is the price of Starbucks coffee, Mc Cafe found an opportunity to cater to the needs of this discouraged market segment of Starbucks as well by providing them with relatively inexpensive coffee drinks. Another untapped and potential segment of the market for Mc Cafe is breakfast consumers of McDonalds who might not feel satisfied with the normal coffee drink but would want to compliment their meals with either latte or cappuccino. Additionally, Mc Cafe has an advantage over its competitors because customers are tempted to pair up their drinks with the meal they buy from McDonalds. If Mc Cafe keeps the prices of its products in the range of customers then there is a high potential to be tapped in this segment as well. It will not only include young students and educated professionals from the urban areas but will include every single individual who visit McDonalds to purchase a meal. The idea of lower priced coffee products has proven to be highly successful for Mc Cafe in European countries like Germany. While people think that the same success might not be attained in US or in parts of the world where Starbucks has already saturated the market, there is still a huge customer base in these regions who feel irked by high prices of Starbucks and would switch if they are provided with a substitute at an affordable price (Grewal and Levy, 2009). Market Leadership: A good strategist seeks not only to “win the hill, but hold on to it”, said Subash Jain. In today’s world of Globalization, market Leadership is all about reaching the zenith and maintaining top position across the board. Big brand names like Microsoft, Apple, Mc Cafe and Starbucks are some of the key exemplars, which successfully incorporated the strategies of market leadership. What is Market Leadership? A company or firm that holds the highest profit margins or the largest market share in a particular industry whether it’s pertaining to goods or services is a market leader where market leadership is all about maintaining that market share. The co-founder of Apple, Steve Jobs has suggested that anyone who wants to become a market leader should own and be in command of the relevant technology in whatever market he is in, either through patents or any other proprietary cover. He furthermore emphasizes on the fact that market leadership is attained by a swift adoption of better technology whenever it is available regardless of the fact that any other organization is using it or not. So, if you want to become a market leader, be the first one to get hold of it and make your product an industry standard, let others to follow you (Kennedy, 2000). Market leadership is a predominantly valuable and germane concept in today’s world of internet, where the first movers in new-fangled markets can promptly achieve monopolies for their products and services. Advantages of the Market Leadership Market Leadership is all about enjoying and reaping the benefits which other second tier participants can only dream of. Market Leaders always benefit from their innovative products and services along with their effective niche marketing. Being a trendsetter, a market leader always comes up with a premium price of the products and services. Production cost is usually lower due to the economies of scale. Furthermore, lower cost of sales and short sales cycles due to market knowledge and automated inclusion of product appraisal give full opportunity to the market leaders to win laurels in their particular industry. Another advantage of Market Leadership is that product lifecycle is relatively longer due to its innovative nature where customers’ loyalty allows market leaders to sell their products to existing and new markets. Market Leadership allows third party product porting and support free of cost, owing to the monetary gains to the third party developers. Some other advantages of Marketing Leadership include effortless access to the target customers where customers always wait for a new and improved version of the products and services offered by the market leaders. Publicity through electronic and print media becomes easier and effective due to prior satisfaction of the customers. Market Leadership is all about looking forward rather looking back where market leaders are risk takers and they do not limit themselves to one thing. Their entrepreneurial capabilities make them tall amongst all. This is the reason why their business partners sell their products on the back of their greater market presence. As a result, market leaders usually get the largest chunk of the overall profits pie, allowing them to capture further market dominance. A company or firm that holds the highest profit margins or a largest market share in a particular industry whether it’s pertaining to goods or services is a market leader where market leadership is all about maintaining that market share. The co-founder of Apple, Steve Jobs has suggested that anyone who wants to become a market leader should own and be in command of the relevant technology in whatever market he is in, either through patents or any other proprietary cover. He furthermore emphasizes on the fact that market leadership is attained by a swift adoption of better technology whenever it is available regardless of the fact that any other organization is using it or not. So, if you want to become a market leader, be the first one to get hold of it and make your product an industry standard, let others to follow you. Market leadership is a predominantly valuable and germane concept in today’s world of internet, where the first movers in new-fangled markets can promptly achieve monopolies for their products and services. Who is the market leader? Starbucks or Mc Cafe For an industry to thrive, it must contain together a strategy as well as a stable competitive benefit over its opponent. The initial MC Cafe store was opened by McDonalds in 2001 and closed within a year. Later some 10 MC Cafe were opened in the U.S but still it is not known as to how many more stores were opened there. In 2003, a new unique strategy was initiated by McDonalds which is called the “Plan to Win”. This strategy was aimed at the company gradually remodeling its stores by the plastic stalls like booths with the softer and calmer colors of lighting and big bold chairs of bright color. Furthermore, they also installed the wireless internet, adding further to their services. One of the important steps of McDonalds is that it offered the testing samples of its coffee on a very wide scale to people in 2005 and received a huge positive feedback. In 2006, this coffee wag replaced by a much stronger blend and then McDonalds launched it as a premium roast in its stores. The Consumer Report magazine brought good news for McDonalds as they rated the drip coffee of McDonalds much enhanced testing than of Starbucks’. A significant hurdle that McDonalds faced is the perception of the people at that time was that it is a fast food restaurant that is child friendly, and aimed essentially for children’s’ entertainment. For others, McDonalds is like a third home intended for the people flanked by home and work. Starbucks is still the market leader and the McDonald is still walking through its growth phase. This is made-up on the points of the fight to become stable between Starbucks and Mc Cafe, as Starbucks is making more profit as compared to cost margin of Mc Cafes: Starbucks has 58.5% gross profit and Mc Cafe has of just 30.3%. In order to further validate this conclusion, an extract from a case study based on the progress and journey of Starbucks can be provided: Greenberg and Schultz then drew up plans to raise an initial $400,000 in seed capital and another $1.25 million in equity—enough to launch at least eight espresso bars and prove the concept would work in Seattle and elsewhere. The seed capital was raised by the end of January 1986, primarily from Starbucks and two other investors who believed in Schultz and his ideas, but it took Schultz until the end of the year to raise the remaining $1.25 million. He made presentations to 242 potential investors, 217 of whom said no. Many who heard Schultz's hour-long presentation saw coffee as a commodity business and thought that Schultz's espresso-bar concept lacked any basis for sustainable competitive advantage (no patent on dark roast, no advantage in purchasing coffee beans, no way to bar the entry of imitative competitors). Some noted that consumption of coffee had been declining since the mid-1960s, others were skeptical that people would pay $1.50 or more for a cup of coffee, and still others were turned off by the company's hard-to-pronounce name. Being rejected by so many potential investors was disheartening (some who listened to Schultz's presentation didn't even bother to call him back; others refused to take his calls). Nonetheless, Schultz continued to display passion and enthusiasm in making his pitch and never doubted that his plan would work. He ended up raising $1.65 million from about 30 investors; most of this money came from nine people, five of whom became directors of the new company. Will Starbucks carry on being alive as the market leader? Due to the immense use of coffee into today’s world, millions and trillions of people from different continents of the world blossom their morning, noon times, after noons, evening and nights with the use of coffee. Due to this huge use of coffee consumers, a huge competition exists between different coffee providers. As Starbucks entered into the market firstly, and is seen by many as the trademark first player, it remains established as the top mark of coffee provider. Still now while the opposition has stirred in, I determinedly consider that Starbucks has the capability to be the market leader. This statement is based on subsequent facts which were noticed while conducting a small survey of how the regular coffee drinkers perceive the answer of this question to be. A small questionnaire with only a few questions was used to collect some primary data. They participants were all those people who take coffee at least 5 times a week. Around 60 percent of them prefer Starbucks over any other coffee brand. Almost 70% of the sample 50 coffee drinkers who belonged to various walks of life believed that they would prefer drinking Starbucks coffee in future too, for many reasons. The top three reasons offered were: Quality maintenance over the years, the extras Star bucks offers and Great Taste. The results of this small sample survey are highlight the following points: It is said on to the information that Starbucks before now have a foremost share of their amenable market. They are also in a state that they can buy their competitors but the Mc Cafe still is not in this position. The major fact is related with the concession type idea, that the Starbucks have greater resources and they can purchase huge quantity of raw material at lower price and as result the providers will give them concession. This furthers helps to tapered down the competition. Starbucks also provides many benefits that get attraction by the consumers. These are that Starbucks provided free Wi-Fi, Starbucks network and many journals free of cost. This new additional bonus for customers will enlarge Starbucks’ high quality likeness in their eyes. Even with the announcement of this offer the sale of the Starbucks rose up to 4%. 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