Starbucks Retail Stores - Essay Example

Starbucks Retail Stores Critical Examination of the Positioning Strategy How Successful Have Starbucks Been in the Use of the Retail Marketing MixAnd Other Relevant Conceptual Approaches In Appealing to their Target Consumer Segments? What Future Strategies Would You Recommend To the Management Team of Starbucks? Student Name School Abstract The purpose of this report is to present a critical evaluation of the present positioning strategy of Starbucks retail coffee shops in the United Kingdom, with target groups taken into account. Different marketing and promotional tools are examined in detail and recommendations are made for future strategic developments to enhance the Starbucks brand on the UK market, and also worldwide. The Starbucks brand has an established worldwide recognition that has to be further developed on a local level. In its retail operations the company is vastly benefiting from international know-how, achieved competitive economies of scale and successful brand recognition. Further growth can be achieved by various strategies centred on products and markets. Close attention to consumer needs will make the brand promise consistent with market expectations and will strengthen brand identity. Starbucks’ long-term objective is to become the most recognised and respected brand in the world. This involves intensive retail network expansion, development of speciality products, growth into new consumer segments, and exploiting opportunities that will strengthen the brand and improve positioning among chosen target groups. Report The Coffee Retail Market and Starbucks Coffee Shops In some countries the coffee market has expanded more than threefold since 1995. Consequently, there has been an expansion in the market and a growth in high streets coffee houses (CIM case study). The UK market is dominated by branded coffee chains. There are four major competitors in the branded coffee shop sector – Starbucks, Costa Coffee, Caffé Nero, and Puccino’s. What is typical for all branded coffee chains is the attempt to position themselves as delivering premium coffee to differentiate their activities from other foodservice retailers (Mintel, 2005). Starbucks coffee shops have been operating since 1971 and the company is US based. In May 1998 Starbucks entered the European market through acquisition of 65 Seattle Coffee Company Stores in UK. Today Starbucks have 482 stores in the United Kingdom; and nearly 1 500 coffee houses altogether in 31 markets outside North America. Starbucks purchases and roasts high-quality whole bean coffees and sells them along with Italian-style espresso beverages, a variety of pastries and cakes, and coffee-related accessories and equipment, primarily through company-operated retail stores. Worldwide Starbucks sells whole-bean coffees through a specialty sales group, a direct response business, supermarkets, and online at www.sturbucks.com. Furthermore, Starbucks produces and sells bottled Frappuccino® coffee drink and a line of premium ice creams through joint venture partnerships, and offers a line of premium teas produced by its wholly-owned subsidiary, Tazo Tea Company (source: Starbucks Coffee Company). Starbucks Business Strategy The company’s objective is to establish Starbucks as the most recognised and respected brand in the world. To achieve this goal, the company plans to continue to rapidly expand its retail operations, grow its speciality sales, and selectively exploit opportunities to strengthen the Starbucks brand. Starbucks Coffee Company UK is a subsidiary of Starbucks Coffee Company. Although operating with more than 460 coffee shops there, Starbucks is a single business company, meaning that the company won their retail outlets. Issues on ownership and vertical integration are important because of the growing power of retailers over the last 25 years (Mayer, R., 1998). Focus of power for brand development has shifted from producers to retail outlets and is enhanced by increased need for convenience and accessibility, and also rising share of sales of retailers own brands. In the Starbucks case, retail coffee outlets are the main focus of the manufacturer’s activities, being the bone of the vertical integration strategy. Starbucks Positioning Strategy Positioning has been defined as “the art and science of fitting the product or service to one or more segments of the brand market in such a way as to set it meaningfully apart from competition.” (Ayer, 1976) Therefore positioning is about how the target market perceives Starbucks products and services, especially when compared to other competing products. The position of Starbucks products and services is very important in communicating benefits to consumers and differentiating them from other competitors. Starbucks, like other speciality coffee chains have basic “product class” positioning (Belch, 2003), meaning that they differentiate their more sophisticated coffee products against the non-branded undifferentiated coffee shops. Within this product category, Starbucks positioning strategy is more consumer-focused, rather than competition-focused. Consumers are segmented by their consumption habits, mostly related to inherent demographic characteristics – age, sex, income, and occupation. Starbucks value propositions are then expressed through communication and promotional strategy to attract selected target groups. Positioning could be briefly described as the “Starbucks Experience – it’s about passion for a quality product, excellent customer service, and people” (Schultz, H., 2005). Coffee Shops Consumers Mintel research (2003) indicates that the use of coffee shops has become a habit among distinct sections of the public. Women are particularly attracted to the non-threatening, singles-friendly environment that coffee shops offer. The success of coffee shops has been based on a youth friendly, inspirational clientele. However long-term trends show that non-coffee drinking is becoming more popular among young people. Older consumers have not been specifically targeted, yet these adults are among the most likely to be consumers of specialised coffee products. Research results show (Mintel, 2003) that coffee drinking increases with age, and that this is the case for both in home and out of home drinking. Additionally the number of coffee drinkers aged 55 – 64 is expected to grow the most, as the baby boom generation moves into that age group. Another curious fact is that there is a sharp jump in the percent of regular coffee drinkers in the age of 25-34, therefore the coffee industry should focus on capturing more young people as they enter adulthood (McCabe, J., 2004). Furthermore, the British are ideal customers because about 80% of them stay in the store to drink their coffee. That gives Starbucks and other coffee chains the chance to sell them food. (Coles, M., cited by Yunker, J., 2005). Starbucks positioning strategy is targeted at the mobile affluent youth, meaning young people, spending large proportions of their dispensable incomes for products they associate with status, independence, and self-fulfilment. As further detailed in the text, Starbucks promotional messages are specifically targeted at those consumer groups. There are two considerations when targeting younger consumers – one is high volatility of their preferences and behaviour – in this segment loyalty levels are low, when it comes to coffee-shop houses trend and “sexy appeals” are key drivers for increased consumption. The second issue is decreasing coffee-consumption, as healthy life trends continue to expand. This means that this consumer segment, although primary target at present, is less likely to drive further growth in the retail category. Successful segmentation criteria suggest that market segments should be big enough to justify attention, easily accessible for promotional activities, and actionable, meaning that they could be triggered to mutual beneficial and company-profitable behaviour (Belch, 2003). So, to support its strategy for brand development and network expansion, Starbucks should carefully investigate into those segments with highest growth potential – older consumers, women, and people aged 25-34, when they change their coffee consumption habits. Starbucks Marketing Mix Being consistent with promises given and actions taken is crucial for Starbucks brand positioning. Integrated marketing communications involve coordinated marketing mix elements discussed below. Branding There is no doubt that Starbucks is an established, easily recognizable and well-known brand in Britain. Branding is by far one of the most powerful marketing tools, because successful brands develop long-term relations with consumers, and establish unique position of the products and services in the consumer’s mind. Starbucks brand relationship with consumers is emotional, meaning it involves people on an emotional level. It is achieved through a consistent long-term policy of BTL activities, such as national PR events, and local community initiatives, trying to establish the Starbucks outlets as the coffee shops of first choice in the neighbourhood. All present and future marketing tools should be used to build on the established expressive relationship. Product According to Gilbert, retailing as a product is a combination of services, quality of goods, merchandise, brand name, and store layout like atmosphere and space usage. The core product in Starbucks coffee shops remains the same – warm and cold coffee beverages, tea, and pastries. The actual product, speciality coffee, is what differentiates Starbucks from other non-branded retail chains – by adding flavour and making the products more sophisticated and more appealing to individual tastes. The augmented product (Christopher, 2003) is about delivering promised values for unique experience with high-quality products, premium service, personalised approach, and relaxed atmosphere. The company have extended their portfolio with other offerings – pastries and other food items, also juices and coffee making equipment and accessories – known as a “product extension” strategy. A rough competitor research suggests that when it comes to speciality coffee chains, all competitors have similar product offerings – speciality coffee (mostly Italian style coffee), food offerings, and coffee-related products; quality issues, and fair trade considerations. While stores vary in their product mix depending upon size and location, their core product range remains the same. What differentiates Starbucks branded coffee shops from other competitors is stress upon quality of own produced coffee beans, unique coffee variations, identifiable café atmosphere, and more personalized, more personal positioning of Starbucks coffee shops as the local community centres. There is a range of product strategies Starbucks could use in order to differentiate from other competitors. One good initiative that should be continued is country-specific product development. Starbucks UK have local product-development teams that already helped introduce marmite sandwiches, Strawberries and Cream Frappuccino and other products, specifically prepared for the taste of the British consumer. Such strategy can bring the Starbucks brand closer to local communities. It will successfully differentiate specially prepared products for local tastes from competitive Italian style coffees, and position the Starbucks as a personalised, closer to the native British brand. Another strategy for differentiation is introducing other products that could fit to the target market profile, such as the already implemented in some cafes wireless Internet access for mobile consumers; or offering music disks appealing to the 25-34 age groups, following successful experience of Starbucks, USA. Starbucks also need to address the issue of declining consumption of coffee among present target groups. One option is to launch branded soft drinks or juices and other healthy alternatives, to respond to recent tendencies. Another alternative is to expand its speciality of decaffeinated hot drinks or drinks with smaller coffee concentrations. Furthermore, Starbucks should consider the older coffee consumers as a potentially growing segment and adjust products that can appeal to this age group. This could be done by introducing special coffee flavours, home-style cakes, free recipes etc. Reusable branded packaging can attract environmentally-involved consumers – by promoting social responsibility associated with the brand. Price Competitive pricing, changing demand, and supplier cost levels are all factors that influence Starbucks pricing decisions. Intense competition on the retail level does not allow for big price differences. Recent changes in consumption levels associated with higher petrol prices and pessimistic consumer expectations have lowered national demand levels, and run the risk of long-term negative impact on price setting policies. As regards supply, there are a limited number of countries producing coffee beans which puts pressure on price levels and makes coffee beans suppliers more powerful negotiators. Still, Starbucks buys about 1% of the global coffee crop. Economies of scale due to larger quantities are beneficial for Starbucks pricing strategy, as compared to other competitor brands. Additionally, Starbucks buys more than half of its beans directly from farms and co-ops, eliminating payments to middlemen, thus lowering costs of raw materials. Starbucks pricing strategy should be consistent with brand positioning. Prices should be set higher than those in conventional non-branded coffee shops, and should be competitive to prices in other speciality coffee chains. Prices should not be set too low, as high price levels have the psychological effect of perceived higher quality. People visiting Starbucks do not only pay for the physical product – coffee – but also for the comfort, relaxed atmosphere, premium service, and special overall experience, associated with these places. Lower-than-competitors prices, e.g. through market penetration pricing, can be used to launch new product lines or product categories and to encourage trial and adoption. This strategy was used when initially wireless internet was introduced in Starbucks coffee shops in the United Kingdom – meaning free trial internet for mobile consumers. Additional price cuts can be introduced to stimulate purchases for specific target groups, and in specific time periods, when general consumption drops, e.g. early afternoon consumption. Place Starbucks strategy is to reach customers where they work, travel, and shop and dine. Starbucks has a retail expansion policy through acquisitions and new shops openings on central, high-traffic locations. One major difference between Starbucks Coffee Company UK and its competitors is that Starbucks actually own their retail coffee outlets. This allows for greater control over the retail operations and avoids party conflicts within the distribution system. Furthermore, this strategy allows for increased competitiveness due to centralized supplies, systematic marketing efforts and unified managerial know-how. Company operated retail outlets comprise the major percentage of Starbucks total revenues. In that respect issues regarding category management are more appropriate when alternative distribution channels are discussed – such as developing relationships with key retailers and building on company presence in a category (e.g. Frappuccino bottled products), so as to be seen as the “preferred supplier”, a strategy adopted by another international company selling FMCG (Whitehead, 1997). For brands sold through these channels other distribution channels can also be considered, thus decreasing the power of other retailers and the influence of competitive brands. These could be joint initiatives for direct marketing communications, using web-based sales, direct mail order or other activities also having the overall effect of reduced promotional costs. The location of the coffee shops has become a key factor which influences the way people choose to visit them. Starbucks place coffee shop locations in the most highly visible and highly trafficked street corners. This serves two purposed. First, each Starbucks retail shop represents an advertisement of the brand itself by using company logo, and appropriate and recognizable exterior. The second purpose is to trigger impulse purchases by locating stores near cleaners, video rental stores or other frequently visited places. The concept of distribution can be further developed in terms of appropriate location. Starbucks coffee shops can be attached to other businesses or organizations, such as business and office centres, grocery retailers, schools or bookstores with increased visibility to specific target groups – such as working professionals, women, and older people. An alternative distribution strategy for Starbucks coffee and coffee-related products is via direct marketing channels – online sales or direct mail order – directly managed by the company. Promotion Starbucks objective is to become the most recognised and respected brand. A successful brand will promote customer loyalty and enhance brand recognition, and needs to be supported by a range of promotional tools increasing brand visibility. Dewar and Schultz (1989) claim there are forces on the retail market level that should be incorporated when discussing promotional brand strategy – meaning growing importance of sales promotions, declining cost effectiveness of mass advertising, lower levels of consumer brand loyalty etc. In their promotional mix Starbucks have used a range of promotional tools, ranging from mass media advertising, to local sales promotions, events management, and socially-responsible community targeted activities. Provided young mobile and affluent people are the focus of promotional activities, catchy advertisements and creative promotion consistent with brand values, have been used to create brand awareness. One example of creative product launch is the introduction of the Frappuccino iced-coffee drink brand in 1999 to Britain through the use of humour-based promotional campaign. The campaign included ads featuring a mythical employee “Billy” ridiculed by his co-workers for drinking Frappuccino, also newspaper, magazine, billboard ads acknowledging that the drink is “the work of a genius, not a loser”, and parallel promotion carried out in the stores. (Goldsmith, Ch., [n.d.]). Sales promotions activities, such as “coffee-of-the-day”, or special holiday offers, can be effectively used to stimulate consumption over a short period of time in order to smooth seasonal dips or entice consumers to make further purchases. Sales promotions at Starbucks rely mostly on the so called “sales pull techniques” (Belch, 2003) incentivising the consumer to buy. On the other hand, sales push techniques in the company operated coffee shops are transformed into an employee-oriented company culture, treating employees as “partners”. Other initiatives, successfully launched in the US can also be launched in the UK – such as creating personalized disks to support the personal appeal of Starbucks coffee shops to young people, and direct marketing techniques to stimulate brand awareness. Mail order catalogues and sales through the company website are viewed as a cost-effective way to support the Starbucks brand where it is already present, and as a means of increasing brand awareness in markets where Starbucks are expanding. Older people can be specifically targeted through local promotional campaigns, such as special price offers or coffee brewing and cake making contests. Social Responsibility Social responsibility, and in particular consumer and community considerations play central role in the process of Starbucks brand positioning. It is acknowledged that Starbucks coffee shops are active members of local communities. Starbucks coffee shops are found on “the near-by corner”, being 200 in London alone. Through a consistent policy of community-directed events and wide-spread initiatives, Starbucks have continuously supported community growth and added to community satisfaction. There is a list of recent examples. The “Bookdrive” initiative is running for a third consecutive year where Starbucks customers donate books to local schools, nurseries or hospitals. “Timebank” is another community-targeted endeavour, involving individuals in various local activities. The “Workwise” program is targeted at employability of young people. Starbucks “ethical coffee” was initiated along with other retail shops promoting “Fairtrade” principles. Acknowledging that Starbucks coffee shops are not merely coffee traders, but are active members of the local communities, has long-term benefits for the company in terms of brand positioning. Such activities generate goodwill and publicity, and affect attitudes of all consumer groups. Therefore these programs should be continued and expanded, with the support of other organisations, such as schools, banking institutions, consumer groups etc. People In the retail coffee shop industry employee professionalism is an integral part of the service through the art of personal selling. More than 5 000 people work for Starbucks in UK. Employees need to be well-trained and well-aware of Starbucks mission and objectives – to become the most recognized and respected brand in the world. Excellent customer service thus adds value to brand positioning. Conclusions and Recommendations The strengths of the Starbucks brand include international know-how, advanced brand recognition, quality raw materials, premium speciality coffee products, good shop locations, personalized service, special attitude and community-oriented social policy. Still, markets and consumers are not static; therefore brand-supporting activities should be continued, and adjusted to changing market developments. 1. Consider changes in consumer behaviour. Reduced coffee consumption among younger people and healthy life style tendencies can be counter forced by introducing health-related products such as branded juices, decaf beverages and recyclable packaging. On the other hand target groups with growth potentials should be actively targeted – such as older people, women, and working professionals aged 25-34. 2. Continue retail expansion strategy. Locations have to be carefully chosen with stress on high-traffic and good visibility. Outlets should be opened where target groups such as older people or women are easily accessible – near grocery stores, schools and other frequently visited places. Shop exterior and interior should be easily recognizable, with special attention to space, merchandising and design. 3. Select and develop product range. Specific local products are more likely to appeal to older consumers. Introducing coffee-related products and services can be viewed as a further attempt to position Starbucks coffee shops as the most respected local brand. These could be special flavours, health-related products, recipes and advices for home-brewing, or life-style products such as music disks. 4. Develop promotional techniques, consumer-specific. BTL techniques, already successfully used by the company should be continued – such as local community events, and national initiatives. ATL and mass advertising can be used support brand name and for introduction of new products in new channels, nationwide. References 1. Ayer’s, (1976), Ayer’s Dictionary of Advertising Terms. Philadelphia: Ayer Press 2. Belch, G. and Belch, M., (2003), Advertising and Promotion. Market Positioning. 3. CIM, (2003), Marketing Planning, Exam Case Study, CIM UK 4. Dewar, R. & Schultz, D., (1989), The Product Manager: An Idea Whose Time Has Gone. Marketing Communications, pp. 28-35. 5. Christopher, D., and Peck, H., (2003), Marketing Logistics. Oxford. Butterworth-Heinemann. 6. Gilbert, D. (2003), Retail Marketing Management. FT-Prentice Hall: Harlowl 7. Goldsmith, Ch., [n.d.], Starbucks Hits a Humorous Note in Pitching Iced Coffee to Brits., The Wall Street 8. Junker, J., (2005), Starbucks Thrives in the UK and Tea Suffers. Published at: www.corante.com 9. Mayer, R., Ellis, (1998), Castration, Coercion and Confusion?: Casting Doubts on the 3Cs of Category Management. Derby, University of Derby, Academy of Marketing Conference. 10. McCabe, J., (2004), Is There Any Hope Out There. Published at: www.teaandcoffee.net 11. Mintel International Group (2003), Coffee Shops Research. Published at: www.marketresearch.com 12. Mintel International Group (2005), Coffee Shops – UK. Published at: www.marketresearch.com 13. Schultz, H., (2005), Company Profile. Published at: www.starbucks.com. 14. Starbucks Coffee Company, (2005), www.starbucks.co.uk, Corporate website 15. Whitehead, C. (1997), An Investigation into Category Management Practices. Derby, University of Derby, Unpublished Dissertation. Read More