The Importance of Marketing Concepts in a Real-World Business Scenario - Case of Starbucks - Essay Example

? Starbucks Introduction The key purpose of this essay is to underpin the importance of marketing concepts in a real world business scenario. The essay will try to shed some light on the use of marketing concepts, such as product, place, price, promotion, segmenting and identifying target market and integrated marketing communication mix, in order to address real world business challenges. Starbucks has been selected by the study as a sample organization for conducting analysis on use of marketing concepts in order to design a holistic marketing strategy by organizations. Thematically the essay can be divided into three sections, 1- description of theoretical background of marketing concepts, 2- brief introduction of Starbucks and 3- relevance of marketing concepts for Starbucks. The next portion of the essay will describe theoretical background of marketing concepts. Marketing Concepts Research scholars such as Burrow (2011), Sandhusen (2000), and Mercer (1996) have stated that organizations need to decide marketing strategy in terms of marketing mix, segmentation and target market, in order to become successful in competitive business environment. Kotler et al (2009) have pointed out that organizations need to change marketing mix such as product, price, place and promotion in accordance with the situational perspective, in order to achieve competitive advantage. Kotler et al (2009) have tried to establish link between implanting right marketing strategy and competitive advantage model proposed by Michael Porter (1980, 1985, and 1991). Elements of marketing mix can be explained in the following manner: Product Companies manufacture new products in order to match steps with the ever-changing nature of consumer demand. Organizations develop products through multiple stages like generating idea about new products by using primary and secondary research; selecting the potential idea through idea screening, testing the concept of product development with the help of feedback of customers, analyzing the business aspect of the product development such as market volume, price estimation, market size calculation etc., launching the product in small market segment in order to test acceptance of the product, manufacturing the product on commercial basis after achieving success in test marketing phase and finally commercializing the product. Ansoff matrix can be used in order to understand the significance of product concept in marketing. (Source: Stone, 2001, p. 51) According to Ansoff matrix, companies develop product strategy due to four reasons, 1- increasing market penetration by existing products in existing markets with an intention to decrease risk factors associated with entering new market, 2- developing new products for the existing market in order to achieve competitive advantage over competitors, 3- launching an existing product in new markets in order achieve business growth in foreign shore without investing huge amounts of capital in new product development, and 4- launching new products in new markets in order to create brand awareness among customers. Mintzberg et al (2003) have stated that companies need to decide the product portfolio in accordance with the demographic and societal trends of a particular country. Price Companies decide the price of products in accordance with macro environmental characteristics of market and in some cases organizations decide the price of products in order to enhance brand image. For example, Apple use premier pricing policy or assigning high price on products in order to show class and aristocracy, while Wal-Mart uses cost orientation strategy in order to offer everyday merchandises at everyday low price (EDLP) to customers. Adopting EDLP model has helped Wal-Mart to achieve price competitiveness over their competitors. Place Companies decide distribution strategy in order to distribute products to customers. Organizations design distribution channel backed by retailers, wholesalers, online sales channel, c&f agents, company sales executives etc., in order to increase customer reach of the product. For example, Zara uses the following satellite distribution channel for offering fashion apparel to customers of Mexico, Brazil and Argentina: (Source: Palladino, 2010) Promotion Companies use promotion strategies or integrated marketing communication strategy backed by tools like direct marketing, sales promotion, advertising and public relation in order to generate awareness about the product among customers. For example, Adidas used ambient advertising strategy or placing billboards in absurd places in order generate awareness among customers (Tibbs, 2010). The next section of the study will discuss about the business operation of Starbucks Company in order to create thematic background for this essay. Starbucks: A Brief Overview Starbucks Corporation is a renowned multinational coffee company which is headquartered at Seattle, Washington, U.S. The company was founded by Zev Siegl, Gordon Bowker and Jerry Baldwin in the year 1971. In the initial phase of business, Starbucks started its operation with a single store coffee restaurant located in Pike Place Market of Seattle (Starbucks, 2012a). The company has established strong distribution throughout the USA with the help of 6700 owned stores and 4080 licensed stores. The coffee giant has established its strong presence in global market with the help of more than 20,000 retail stores. Product portfolio of the company comprises food items, various coffee drinks, hot drinks, beverages etc. As of 2011, the company has achieved a market capitalization of US$37.84 billion and sales revenue of US$ 13 billion (Yahoo Finance, 2012). Starbucks is facing competitions from big players like Dunkin' Brands, McDonald’s, Nestle and Wendy's International, Inc. Strategic map for Starbucks competitive position can be depicted in the following manner: (Source: Brown, 2011) It is evident from the strategic map that Starbucks has strong market position in terms of product diversification in comparison to their competitors. Recently, Starbucks has shifted their focus on market diversification strategy in order to enter into emerging markets, such as India and other South East Asian countries. The next section of the essay will justify the importance of marketing concepts in real world business practices by analyzing marketing strategy of Starbucks. Relevance of Marketing Concepts Starbucks Corporation has changed the traditional marketing concept in order to achieve competitive advantage over other companies. The company never aggressively focuses on marketing their brand and product portfolio, rather Starbucks Corporation focuses on achieving sales revenue by controlling activities of their franchise partners. Theodore (2002) has pointed out that Starbucks Corporation has achieved market leadership position by satisfying customer triads or improving quality, service and value for money aspects of products. An astonishing fact is that Starbucks focuses very little on promotional aspects, such as direct advertising, public relation activities etc. for selling its products. Isidro (2004) has pointed out that strategic alliances with other brands have helped Starbucks to create a sustainable and growth driven marketing strategy. According to the scholar, Starbucks form strategic alliances with social groups and small companies in order to expand their footstep in new markets and simultaneously increases brand equity among customers. The juxtaposition of its marketing strategy and strategic alliances has helped Starbucks to achieve sustainable competitive advantage over business rivals. For example, Starbucks established strategic alliances with NAACP in the year 2006 in order to fillip the potentiality of NAACP’s effort for creating social and economic equality among unprivileged section of the society. Alliance with NAACP has helped Starbucks to promote their brand without using extra efforts for advertising the brand among potential customers. The study will use another example of strategic alliance between Starbucks and Barnes and Noble bookstores in order to understand the unique marketing strategy of Starbucks. In 1993, Starbucks established a partnership with Barnes and Noble bookstores in order to open in-house cafeteria inside the bookstore. In 1996, Starbucks established strategic alliance with PepsiCo in order to distribute Frappuccino products to customers; the strategy has helped the company to create a holistic distribution network without investing money for appointing distributors or own sales executives for distributing Frappuccinos (Isidro, 2004). Strategic alliance between Starbucks and Airlines companies has helped the company to sell products to airline passengers without investing a single Penney on developing integrated marketing communication channels. Theodore (2002) has revealed that, Starbucks has designed grocery store based distribution channel for selling coffee products by establishing strategic partnership with one of the major business rivals for the company such as Kraft foods. Isidro (2004) has noted that Starbucks uses corporate level strategies, such as related and non-related diversification in order to push the brand. For example, a strategic partnership between Starbucks and i-Tunes has helped the company to organize “song of the week” program, the program has helped the company to increase brand awareness among music lovers. It is clear from the above discussion that Starbucks has successfully adopted non-traditional marketing strategy, such as strategic alliances and franchisee model, in order to achieve competitive advantage over their business rivals like Kraft foods, McDonald’s, Dunkin' Brands, and Wendy’s International, Inc. Therefore, now it is the time to analyze marketing strategy of Starbucks on the grounds of traditional marketing concepts like designing marketing mix for a particular market. The study has selected VIA Ready Brew (VIA) of Starbucks in order to address the pertaining issues of the assignment in a focused and precise manner. Product (Source: Starbucks, 2012b) Starbucks has designed VIA Ready Brew (VIA), an instant and “microground” coffee segment to serve the demands of customers who have little time to wait for a freshly brewed coffee. Customers can prepare VIA Ready Brew (VIA) coffee by opening the packet of VIA, then mixing the granules with hot water in order to make instant and freshly brewed coffee. Starbucks has launched VIA brand in the USA and the UK market as a social identity brand which can augur very well with lifestyle of youth generation. Sales revenue earned by the company by launching VIA brand has crossed the mark of $1 billion within the last two years. Price Starbucks has used mid-premium pricing policy in order to set price of the VIA brand. The brand was priced at $0.59/ 12oz for the UK market, while market rival Nestle has priced Nescafe at $0.12/ 12oz. Starbucks has used premium pricing policy in order to reflect premium image of the product to customers and show “authenticity” associated with the positioning statement of the brand. Starbucks strategically priced the VIA brand lower than the other competitor brands, such as Dunkin Donuts and McDonald’s, which costs $1.65 and $1.35 per 12oz serving. Starbucks used the above mentioned pricing policy in order to make the brand relevant to customers who purchase products after doing a cost benefit analysis. Starbucks has used a low price for the VIA brand in the UK market because a high price of the item might not attract British people who drink instant coffee frequently. Place In 2009, Starbucks launched the VIA brand in the UK and in 2010, the VIA brand was launched in countries like Japan, Philippines, Canada and UK. The company has distributed the VIA brand through retail channels, such as food, drug and mass merchandiser (FDM); company owned retail stores; c&f agents etc. Starbucks has appointed Acosta for distributing the VIA Ready Brew (VIA) coffee in the USA while R.H. Amar & Co. was appointed for handling distribution activities in the UK market. Starbucks decentralized its distribution activity in order to decrease the threat of cultural misunderstanding and ethnocentrism. Promotion Starbucks has used promotional strategy backed by in-store sales promotion, TV/print advertising, digital campaigns and social media marketing in order to generate awareness about the brand among young generation. Conclusion It is evident from the above discussion that companies use marketing concepts as a basement for formulating marketing strategy. Although the importance of elements of marketing mix has changed with the evolution of non traditional marketing strategies, companies still use concepts like positioning, segmentation and targeting as groundwork for formulating both traditional and non traditional marketing strategies. The study will explain the importance of segmentation and positioning by using the example of VIA Ready Brew (VIA) coffee brand of Starbucks. Customer Segment & Target Market Primary target market for the VIA brand is the middle to high income group of young generation and working professionals in the age group of 18 years to 34 years who are accustomed with a busy lifestyle and like to consume coffee on the basis of convenience. Starbucks segmented the market on the basis age, lifestyle and occupation in order to decide marketing strategy. Positioning VIA brand was positioned as premium instant coffee product for both the UK and the USA customers. Starbucks positioned the VIA brand in such a manner so that it can compete with market leaders such as Nescafe Orig of Nestle. It is evident from the above examples that Starbucks has used the traditional marketing concepts in order to launch the VIA brand in global market. Implanting marketing concept has helped the company to achieve strong market position in the UK, the USA and other parts of the world. References Brown, H., 2011. 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