Marketing Planning - Assignment Example

?Marketing Audits a) Appraise the processes and techniques that Starbucks could use when auditing marketing environments. Back in 2008, Darren Herman, made what is now known as one of the most cutting edge data-driven market test in the history of advertising and marketing. He decided to run 27 different marketing offers through Web ads for Vespa, the scooter company (Clifford, 2009). He packaged the different marketing offers differently. Some ads were rectangular, some square, some static and some were dynamic. He also worded the texts differently. Some dangled the benefit, some the direct offer, some contained a pricing cut, some concentrated on branding and gave away free items such as T-shirts. The goal was to determine the best motivation for customers that would make them purchase the car or, at the very least, show some interest on the product. They determined that the price discount is the best motivation. The $0 down offer resulted to 71 percent more direct responses than all of the other marketing offers they’ve launched in the past. He also went further by getting looking at where the customers came from, what they do, and their gender (Clifford, 2009). Mr. Herman used the data to convince Vespa that the $0 down is the most effective marketing offer and it is what should carried by the advertising agency. From the glory days of the glamorous Madison avenue, marketing has always been about creative images and catchy taglines but the current utilities available to businesses are allowing the collection of data to predict behaviour, determine climate of marketing environment and discover the most effective business strategy that to increase branding and revenues (Brennan, 2008). Such innovation could readily allow Starbucks to change its marketing strategy as dictated by the market. It is a true market – led strategic change. The effectiveness of Starbucks marketing card could also easily be measured through PEST (Political, Environment, Social, Technological) assessment. Political assessment measures how government-imposed policies affect the business of Starbucks either by forcing it to change its set up, paying the government more by way of taxes, or changing actual product specification and retail stores policies. Economic assessment would involve an analysis on how the general economic health of the country and world affects the business of Starbucks. The Social assessment is a critical aspect because it examines the mainstream culture and how society will react to a product. Technology also affects the business. As new equipment and processes are developed, creating new products and producing the existing line becomes easier and more efficient. All these factors play a part in the marketing and affect the profitability of the company. b) Apply organisational and environmental auditing techniques to Starbucks. Starbucks is one of the very few companies who have the opportunity to establish an intimate relationship with its consumers (See figure 2 to see how Starbucks uses its IT) because of the different government policies that allowed it foster. It was able to advance its products, exercise freedom on designing marketing problems, advertising materials, and design its retail stores to reflect the image of freedom it projects. It is necessary to determine exactly how the US government was able to support this growth through the policies it set up such as business laws, taxes, employee rights, and others. For example, Starbucks enjoy big tax breaks on its environmental efforts. It has long supported recycling and the use of sustainable materials. It also provides incentives to customers who use their own cup when they go to Starbucks. Such efforts earn Starbucks as much $5,000 tax incentives for every $100,000 investment. The rate changes from state to state but nearly every State in America provides incentives. It can also enjoy tax incentives provided to big corporations. It is possible for Starbucks to measure the effects of these policies further by setting up a data-centered measuring device and see how consumer frequency and revenue is affected whenever there are changes in government imposed policies. The data-centered market analysis may also help in the Economic assessment. The biggest threat that any business faced was the economic plunge several years ago. Although the country is now recovering, it hasn’t done so fully. This would also equate to lower consumer purchase. The Asian economic crisis also affects Nike since its goods are manufactured in Asia. The labor costs and material prices are going up. In 2008, it closed 600 stores and laid off more than 12,000 employees (Merced, 2008). This means that there will 600 less areas where Starbucks could earn and market their products and 12,000 people that has less purchasing power. One thing that works for Starbucks is the demographics of America. Starbucks caters to Young Adults, 18-35. The Young Adults make up more than 50 percent of America’s population (US Census, 2011). Further, it is also the population that earns the highest. Technology has helped Starbucks greatly. It is not just in their product development and production but also their marketing efforts. Having the ability to track each customer can help them increase the frequency of purchase of each customer. Currently, Starbucks revenue is retail oriented. Each customer usually buys one cup. The Starbucks card is obviously geared towards regular customers for them to even have a reason to have a card exclusive to Starbucks. They could easily analyse data sales by determining which areas have the most numbers customers that make the most number of purchases in a month. This would easily drill down the areas where it will be economically viable for Starbucks make initial investments. Once that is determined, Starbucks will need to find out what card features would make it attractive to customers. Traditional strategies such as surveys could work as an initial study to come up with a list of possible features to put in the card. It would even be a significant to do a qualitative analysis to determine if there are other similar programs that are implemented in the market by direct and secondary competitors. The survey and competitive analysis would give Starbucks some insights on how the market is responding to specific marketing programs. See figure 1 to see how data would allow a business to respond better to market demands. A data-dependent marketing environment auditing process could drastically change the way marketing strategies are planned. Barriers to Marketing Planning Starbucks is a relatively young company and the brand image it has projected through the years has almost never changed. It has also been very loyal in its core product, coffee. This same consistency may also be the number one barrier to any market planning. All company innovations have been based on beverages. Thus, any other form of marketing, sales and advertising will only result to insights on how the market reacts to different beverage innovation and limited insights on how the market reacts to other marketing programs especially on customer retention programs. Base studies are very important in establishing trends and analysing possible market reaction to certain marketing programs (Hatton, 2000). For a company like Starbucks that have such a legacy and a long standing relationship with the market, marketing insights would have been extremely helpful in designing future marketing programs. There is also shortage on intelligent data collection, data monitoring and data interpretation. One of the greatest barriers in data collection is privacy issue however, some of the biggest companies have already devised ways on how they can collect data from consumers without invading the privacy of customers. Starbucks could have very well utilized data collection systems and processes in order to develop a higher level of familiarity with their customers without compromising customer privacy. Right now, the lack of systematic data collection and interpretation is a major barrier in a data driven marketing plan (Jabber, 2010). Starbucks is now forced to first collect the data before even beginning to design a marketing plan. There is also a great imbalance on market distribution. More than 75% of the company’s stores are in the USA (DataMonitor 2010). This means that the business risk is also highly concentrated on the U.S. A program like the card is not a high risk business venture but it will still require capital expenses. However, it has an international brand recognition. Blythe (2006) emphasized the importance of consistency in branding and marketing for a global brand because any program that is launched in the U.S. will be heard of in other countries and expected to be rolled out. This is specifically problematic provided many expansions are failing. Japanese operations, for example, are experiencing some decline in sales and many stores are closing. This development would hurt productivity of any marketing program. There is a long standing issue on employee efficiency. Employee efficiency is, perhaps, the most important contributor in company productivity (Hollensen, 2003). As of 2010, Starbucks reports one of the lowest employee efficiency (Sullivan, 2003). They recorded a $71,544 revenue per employee. The industry average is $110,841 (DataMonitor, 2010). They have a $5,294 income per employee compared to the $9,500 per employee average (DataMonitor, 2010). Such inefficient employee performance specifically affects how marketing programs could eventually affect the business. Starbucks should start setting up an intelligent data collection, monitoring and analysis system. A three-month trend would not be as accurate as a 12-month trend but it would still greatly help in understanding market behaviour and predicting market performance of new products. Data collection should cover basic demographics such as gender, location, and purchase trend. This includes the average spend a single consumer makes, location of the purchase and time of day. Once these basic demographics are in place, it would be easier for Starbucks to trace how each consumer reacts to different marketing stimulus and, eventually, predict general market response. The company should also take a second look at employee programs and how to maximize employee productivity. This would involve other departments that are not traditionally into marketing programs. Human Resources, for example, would be in the best position to review and determine what is causing low productivity. Whether it is inefficient sales process or dissatisfaction with company benefits and privileges, the determination of what’s causing low productivity would help in maximizing effectiveness of marketing programs. The Marketing Plan a Why Starbucks Need to Innovate Starbucks remains to be the biggest coffee shop brand and no single brand is likely to beat them in the near future but a collective of small coffee shop just might do the trick. In 2005, a small coffee shop in Portage Avenue in Winnipeg called Daily Grind Coffee on a 1,500 square foot space. The challenge was obvious, they were the new kid on the block. They were unknown and there were hundreds of other eating and coffee options around including several Starbucks stores. So he did the one thing big institutions like Starbucks can’t do, he differentiated his shop by offering the home element. He offered a home atmosphere and offered homemade soups, dishes, and coffee (Litz 2010). This is a strategy that is duplicated by other smaller coffee shops. It is least likely that Daily Grind Coffee will put Starbucks to the ground but a couple of thousands of smaller coffee shops might hurt them bad enough to push them to close hundreds of stores. Last year, they closed 600 stores, even with vibrant efforts to come up with new coffee flavours and pastries. It is this competitive strategy that forces Starbucks to come up innovate both in product and branding. c) Techniques that Starbucks Could Use When Developing Products The one thing that Starbucks has or could afford to have that smaller coffee shops can’t afford is an intelligent system of data collection, monitoring, and analysis. This system could easily cover all their stores because they already have an existing infrastructure that connects all stores. The infrastructure is currently designed to monitor and track financial and inventory transactions. The same system could easily be used to determine trends and market response to different marketing programs. Starbucks is also one of the top three biggest fanbase on Facebook, the other two being Coca-Cola and Linkin Park. What is even more astounding is the fan participation on their site. With no stimulus, fans mention their brand, post photos of themselves inside a Starbucks coffee shop. Starbucks can easily utilize their SNS sites to develop new products, new services or come up with general brand improvements. In fact, they should use free technologies offered by Google to track down every mention of Starbucks in any part of the Web at any time. Google has a free API that allows any brand to see every single mention of their brand. If Starbucks can take this data and create a program on their end to intelligently analyse it, they would be able to determine what kinds of changes they could be making with their brand, one that has a greater possibility of success than those that came from their laboratories. d) Recommendations for Pricing, Distribution and Communication of New Products within Starbucks There is no reason for Starbucks to cannibalize its existing customers by creating more products that will be purchased by the same customers. It will not encourage customers to increase their purchase. It will only motivate them to change the product they are buying. The key is in producing new products that are more affordable and will cater to the emerging Young Adult market. High school students who may not have the same purchasing power as the employed ones may develop the habit of going to Starbucks early and when they get to be employed, they can continue this habit and shift to the more expensive drinks. As such, these products should be distributed to areas that are closer to where the tweeners are and even residential areas where children will be allowed to go even without supervision. This will also streamline the need to communicate the products extensively down the line of Starbucks. e) The New Product Instead of growing vertically, Starbucks would better off to grow horizontally by acquiring smaller coffee shops that will continue to run as an independent alternative coffee house. Many companies, such as Google, find that horizontal growth allows them to explore greater white space (Dibbs, 2006). This way, they will not cannibalize their current market and without losing the opportunity to capture new market segment that is being explored by smaller coffee house (Mullins, 2009). Creation of a New Brand They can opt for small coffee houses that hold several branches across the US such as Caribou Coffee which is worth $170 million dollars. Their stocks are worth $8 per share (Boscheratto et al, 2010). Buying off companies like this will cut administrative costs without losing Starbucks can merge administrative costs of both organizations and have separate incomes. They can also merge the R&D and their distribution system. They can also choose to acquire even smaller coffee shops such as the Daily Grind Coffee. Such a set up will require total independence from Starbucks in operation including marketing. See figure 4 for coffee shop market share. These smaller coffee shops can have a smaller price point than Starbucks which will capture a bigger segment that Starbucks is unable to serve since it needs to maintain a global standard in image, pricing, and delicacies. There are a lot of customers from the lower social classes and they are bigger than the upper class. This means that Starbucks will open its business to a larger market. Market Analysis Summary Among the big coffee brands, Starbucks gets 75 percent of the market share but the compounded market share of all small coffee houses is 50 percent of the total coffee market (Isidro, 2004; Iwata, 2006). This is also the industry that is steadily growing even during the economic slump. The Northern part of the U.S. is the biggest coffee consumer. They favour brewed coffee over other gourmet coffee and they specifically value great service. The smaller coffee shops that Starbucks will acquire should offer the same homey environment that has been the main selling proposition of smaller coffee shops. Market Segmentation The alternative brands will reach out to the lower earners, students, and others who simply prefer alternative venues to relax. The choice for brewed coffee is pretty much universal among all market segments which allow Starbucks better integration in their operation. See figure 1 for the target market segment. Target Market Segment Strategy Since the smaller shops will serve as the alternative brands, Starbucks should choose locations that are remote from their other Starbucks branches. Acquisition should vary in location to accommodate student-heavy areas, smaller commercials areas, and even residential areas. Market research shows that these are discerning customers that gravitate towards better tasting coffee with no regard for the brand and the rest are simply unable to go to bigger ones because of the price. Industry Analysis The coffee industry is steadily growing at a steady rate of 2.5% annually in the United States. In 2010, total sales went up to $1.5 billion with gourmet coffee representing 45%. Areas that have long winter are also a conducive location for gourmet coffee consumption. On the other hand, those that have long and hot summers also encourage people to buy iced coffee and other cold beverages. Competition As of December 2010, 45% of total coffee shops in the US are small. Their total sales go up $7 Billion of the total $14.5 Billion total coffee shop revenue (Iwata, 2006). Starbucks will be able to stop competing against small coffee shops and let their alternative brands take care of that segment. By allowing the smaller brands to operate independently, coffee shops will be able to establish a more intimate relationship with the segment. Ethical Issues a Identify the ethical issues in marketing for Starbucks Starbucks has been vigilant in their pursuit to be acknowledged as a company with great concern to the environment, to children’s rights, and rights of their employees. However, the controversy that started about how they are treating coffee harvesters remains in the memory of the market. Back in 2008, they were openly talking about progressive capitalism and giving their employees stock ownership plans and great health benefits. Coffee pickers in Guatamela, where their coffee comes from, cried foul for being paid two cents a pound for picking berries. These are the same berries that are used to sell it for $9 a pound in the US market. f) Describe the implications of ethical issues on the marketing mix for Starbucks This may seem irrelevant but Outsourcing process is a big issue in every country especially when it involves violation of human rights. Many advocate that supporting a product, brand or company also means they are supporting all its business practices. Guatamelans call it a slave plantation. It is a poor country and Starbucks is taking advantage by dangling job opportunities that pay less than one percent of what Americans would get had the plantation been in the U.S. The outcry reached America and it prompted many to stop going to Starbucks. Starbucks downplayed the issue and hardly made any comment on it. In fact, they addressed it by highlighting other corporate social responsibility issues. To a certain degree, the strategy worked since the issue is hardly talked about now. However, this could be a problem with the alternative brands who often associate their brand with a “homey” atmosphere which includes fair treatment towards their employees. g) Investigate the ethical issues for Starbucks with one other organisation within the same market but offering slightly different products/services. Green Mountain Coffee Roasters is the biggest competition of Starbucks both in revenue, imaging and quality of products. Green Mountain boasts of using pure eco-friendly materials and employs eco-friendly processes. It is the only fully organic cafe brand. This might fully clash with Starbucks that uses environmentalism as an advocacy but uses non-organic ingredients and processes. Figures Figure 1: How data allows faster response to market demands Adage, 2011 Figure 2 Use of IT in Starbucks Berger et al, 2004 Figure 3 Starbucks Global Performance Khattab et al, 2006 Figure 4 US Coffee Shop Distribution Mintel, 2010 References Adage, 2011. 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[online] Available at: http://academic.mintel.com.ezproxy.lib.utexas.edu/sinatra/oxygen_academic/search_results/show&/display/id=226476 [Accessed 9 October 2011] U.S. Census, 2011. People and Households. [online]. Available at: http://www.census.gov/main/www/popclock.html [Accessed 2 January 2011] Read More