Marketing: Principles and Perspectives - Case Study Example

SMEs Marketing Strategy Introduction Starbucks is a leading coffee retailer which operates on the global scale. Starbucks regional officers in Florida follow corporate strategies and mission of the entire organization. For Starbucks, marketing planning encompasses the perspective of the future, the types of objectives established, and the strategies and tactics to be employed. Through marketing planning, the fundamental strategies of the business enterprise are conceived on the basis of market needs, forces, and opportunities; and marketing is implemented as a philosophy of business operation and a way of corporate life. There are several reasons for the increasing attention marketing planning is receiving. First, the availability of improved marketing intelligence has facilitated planning. Second, utilization of the computer and various mathematical models has made an impact. Third, managements are becoming more scientific and organizations are now more complex with a broader diversity of products. Fourth, business outlays are larger and risks are often greater, all of which factors necessitate planning. Background The company was opened in Washington in 1971. Its founders were jerry Baldwin, Gordon Bowker, Alfred Peer. Howard Schiltz joined Starbucks in 1982 and proposed a new marketing mix: the idea was that the company should sell coffee beans and espresso drinks on the national scale. In two years, Starbucks expanded its business and bought Peet’s. In 1987, Starbucks opened its first outside store. Since 2000, Starbucks expanded its global presence and opened new stores around the world. Today, Starbucks has 8,505 stores worldwide. The company states that its mission statement is more than a strategy approach but a philosophy of the company. The mission is to "establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow" (Starbucks Home Page 2008). . While this freedom from any constraints may be attractive, it also creates challenges in tackling segmentation and targeting issues. One approach in this situation is to start with an examination of consumer motivations and goals in using a product category as a basis for identifying gaps in marketplace offerings. This consumer insight is the basis for developing a product or service that addresses unmet goals. Starbucks illustrates this approach. When Starbucks was conceived, coffee manufacturers were focusing on the rational benefits of their brands such as the superior taste attributable to a particular growing process as a way of competing in a declining market. In contrast, Starbucks created a coffee-based experience in which the range of preparations and atmosphere of the stores encouraged customers to view having a cup of Starbucks as a way of indulging themselves. In essence, Starbucks targeted people seeking an indulgence experience rather than simply coffee consumption (Starbucks Home Page 2008). Strategy and Success Factors Success of Starbucks is based on its unique approach to product mix and brand. On a more everyday level, Starbucks has built a powerful experiential brand. Starbucks stores are much more than a place to purchase a jolt of java (Starbucks Strategy n.d.). They offer a brief reprieve in a hectic day; a chance to inhale the rich aroma of fresh coffee and listen to relaxing music, while tasting a rich, specially prepared brew in the company of like-minded coffee addicts. One hallmark of the Starbucks' experience, and any great experience really, is consistency. Delivering a consistently good experience is a challenge in the retail coffee business. Making a consistently high-quality café latté, for instance, requires, first, brewing two ounces of coffee. Starbucks' guidelines require this to be drawn in 18 to 23 seconds at 90 degrees Celsius and 9 bars of pressure to produce excellent espresso (Starbucks Home Page 2008). Second, the milk must be steamed to 160 degrees Fahrenheit. Most Italian espresso machines contain a single boiler that both heats the water for coffee and makes steam to foam the milk. As a result, drawing the steam for milk affects the heat of the remaining water, which can produce an inconsistent espresso. If the water is too hot, the espresso will taste burnt; water that is too cold will not extract all the flavor from the ground coffee. This does not pose a significant problem in Italy because Italians and other Europeans prefer espresso to café latté and other coffee-based beverages, so little milk is drawn. By contrast, Americans favor milk in their coffee. In fact, Americans drink 500 times more milk than Europeans in their coffee. Starbucks' solution is to use La Marzocco espresso machines (Starbucks Home Page 2008). These machines cost twice as much as more conventional espresso makers because they contain two boilers (one for steam and another for water). Having two boilers, however, ensures that steaming milk does not affect the temperature of the water used to brew coffee. Thus, every Starbucks' café latté can have the perfect ingredients: 2 ounces of coffee brewed at 90 degrees Celsius, under 9 bars of pressure, for 18 to 23 seconds, combined with 10 ounces of milk steamed to 160 degrees Fahrenheit. Such standards produce a remarkably consistent product yet uniquely personal experience. Experience brands are typically labor-intensive. Without careful recruiting, clear standards, training, and the right incentive system, employees will lack the ability and motivation to create the brand experience reliably. Product-development programs are the foundation of corporate planning, since business strategy is expressed in products. A company is no more successful than its product (Perreault et al 76). Thus, product planning is a major top management responsibility that cannot be delegated. Neither a haphazard nor a random activity, it must be planned and programmed. Specific criteria for new products must be laid down; yet the whole new product-development function is one of continuous evaluation and assessment. Organization and control of the product-development function should relate to the stages of new-product evolution that require interdepartmental teams operating on a coordinated basis. Ultimately, the market must be the focal point for all new-product development. New products should tie in as much as possible with corporate resources -- financial, personal, and physical -- and companies should plan to update their product lines on a regular basis (Starbucks Strategy n.d.). Positioning Competition-based positioning focuses strategy on one's position in relation to that of the competition. The effort is to dominate competition on benefits important to consumers. While this approach provides a sound way to build an initial position, once the target attains a basic understanding how the brand relates to alternatives in the same category, brand growth may be achieved by deepening the meanings associated with the brand position. This entails demonstrating more explicitly how the brand relates to consumers' goals and requires insight about what motivates consumers to use a brand (Perreault et al 45). The brand is then positioned such that its essence implies goal attainment. The process by which this can be achieved is termed laddering up, and the product of laddering up is brand essence. While a main focus in competition-based positioning is to situate the firm's brand, in so doing an effort is often made to affect the performance of other category members. Brand positioning might serve to make competitors' attractive brands seem deficient. This goal may be achieved by introducing a new benefit to the category. Starbucks' positioning of coffee as a destination rather than a product made other coffees seem ordinary and unexciting. Alternatively, introducing a comprehensive position might make less complete offerings seem deficient. In other instances, brand positioning might be undertaken to muddle the reason for consumers to purchase a category and thus undermine consumers' interest in the category (Bearden et al 71). Competition-based positioning can be represented by the positioning triangle. The triangle provides a visual representation of the two key facets of positioning: membership and point-of-difference. Membership in the category is developed by highlighting benefits that are points of parity with other brands in the category, or by relating the brand to a category exemplar. Providing a rationale for believing a benefit gives consumers a reason to trust a membership claim. This rationale typically takes the form of some physical characteristic. Once a brand has achieved membership in the category, its advantage over other category members is presented in terms of a benefit(s) that represent a point-of-difference. Again, a rationale might be provided to enhance the likelihood that consumers will believe the brand's point-of-difference (Bearden et al 98). SWOT An important foundation for understanding the internal capabilities of a company is the ability of the manager or marketer to match strengths and weaknesses with industry opportunities and threats. The strengths, weaknesses, opportunities and threats (SWOT) analysis is a commonly accepted tool used by managers to assess the current capabilities of their organizations. In essence, it provides a structure for their analysis (Bearden et al 55). For Starbucks, its strengths are unique resources, skills of its workers and leaders, and ability to compete on the market. Product leadership means creating a competitive edge through new offerings in the marketplace. Starbucks therefore focuses on continuous innovations and has a rapid product development process. Even when its importance is appreciated, understanding consumers is often approached through a conventional wisdom that needs rethinking. The main weakness for Starbucks is seasonality in purchases. Increases oil prices and market instability lead to resources deficiencies. Opportunities are major favorable situations in the environment. For Starbucks opportunities are stable position of the market and possibilities to enter foreign countries. Coffee in an international product so Starbucks does not have to adapt it to local conditions. The threats for Starbucks are increased market instability and changes in legislation outside the USA (Starbucks Home page 2008). 4 P’s Starbucks pays a special attention to product and unique brand image of the company. Starbucks proposes customers a wide product range including hot chocolate, espresso, brewed coffee, Frappuccino, bottled beverages and milk. Product strategies may be a reaction to competitor's moves and consist of adjustments of current product lines, or they may involve the development of new products. The former are mainly defensive moves and the latter mainly offensive. Most companies use the defensive strategies to improve the profitability of existing lines and develop new products to meet competitors' lines. However, the offensive strategy of introducing a new product to stimulate a new or unrecognized demand has the greatest payoff potential in future profitability and market position. Some companies develop the reputation of being the first to research and develop a particular idea and bring it to the market. They establish themselves as product and industry leaders. Product policy serves three main functions: (1) it provides information for product line decisions; (2) it gives executives a supplementary check on product plans in addition to the usual estimates of profits and losses; and (3) most important, it guides and directs the organization's activities toward corporate goals. Good product policy is based on a careful investigation of such resources as management, financial strength, rawmaterial reserves, physical plant, location, patents, public acceptance, specialized experience, and personnel (Bearden et al 2004). “At Starbucks, we sample coffees from around the world – more than 150,000 cups a year, in fact. We have to taste that many because we seek only the finest, richest and most interesting beans” (Starbucks home Page 2008). The main office of Starbucks located in Washington and the company owns with 15,012 stores in 44 countrie. More dramatic, though less frequent than market evolution, is the case where one firm redefines value of the product through either a breakthrough technology or a breakthrough strategy. The mobile phone is an example of a value innovation that has lead to profound changes in competitive strategies and thus consumer learning. Although we often associate value innovation with technological breakthroughs, strategic innovations can also be a vital source of value innovation. Starbucks offers an excellent example. Coffee is one of the world's oldest commodities (Perreault et al 73). In order to sustain its strong brand image, the company develops promotions and advertising programs. For Starbucks, advertising is an effective vehicle in stimulating the growth of many parity products. Although different brands of peanut butter, detergent, bottled water, analgesics, and cough remedies do not have unique benefits, they often have quite different market shares. Advertising for these largely undifferentiated brands accounts for their market share dominance. The main types of promotions are free samples and coupons. Advertising involves TV and radio ads, press and the Internet ads (Hollensen, 87). Price – Starbucks establish a premium price for its products. Prices are based on both costs and market influences. In essence, maximum prices are governed by market factors and minimum prices by costs, and as they change, so should prices. The tendency exists, however, to maintain prices once they have been established. It should be noted that it is not the actual price or price change that is so significant, but rather the customer's perception and interpretation of these changes (Kotler and Armstrong 132; Starbucks home Page 2008) Product Differentiation Product differentiation may be concerned with minor variations, adjustments, or adaptations in a product, such as in varying the kinds of filters in cigarettes, filter flows in automatic washers, or chrome molding or grills on cars. It may also be imparted by varying the package or color of the product. Or it may be achieved through a totally redesigned product or a technological breakthrough, as in the use of transistors in electronic products. Companies that differentiate products are faced with the need to instill an image in the minds of customers that distinguishes their products from others and causes the customer to react more favorably toward them. This might be the result of the image of the company itself, its distributors, or the product per se (Kotler and Armstrong 165). Product differentiation gives marketers a share of a broad, horizontal market, whereas market segmentation tends to result in cultivation of a market position in depth. Given the analogy of a layer cake, product differentiation seeks to secure a layer of the cake, whereas segmentation seeks a wedge. Market segmentation often results from substantial growth. After markets are developed on some general basis, they reach the point where additional effort tends to yield diminishing returns, and attention is given to specific market segments that become large enough to be attractive. By cultivating specific market segments, companies seek to make use of a greater opportunity to maximize customer satisfactions. “We have coffees from Latin America, Africa and the Pacific. The climate, geography and growing conditions of a region will give a coffee its own distinctive flavour. For expample, coffee from Africa will typically display a sparkling citrus flavour whilst coffees from Sumatra have earthy herbal notes” (Starbucks Home Page 2008). The rituals surrounding it are well established in many countries as are buyers' preferences. For instance, more darkly roasted coffee beans are preferred in southern Europe while a somewhat lighter roast is preferred in the north. Americans have strong preferences for coffee, too; lighter roasts are preferred to darker roasts and drip brewing is common, yielding a weak brew by southern European standards. Despite these preferences, Starbucks is redefining coffee in North America, using that typically southern European brew—espresso. The technology to brew espresso is well established, but its appeal in North American has been limited. But through the concept of the coffee bar, Starbucks is reeducating North Americans about coffee and is creating a coffee culture. As a result, many people are abandoning their old concepts of coffee—as a weak, drip-brewed beverage—and replacing it with the Starbucks-crafted concept of the Italian coffee bar. The least obvious case of consumer learning is when products and competitors remain stable, unchanging for years, perhaps decades. “People have celebrated this magic bean from the time of discovery in ancient Arabia. The roasting techniques and brewing methods may have changed since then, but our love of coffee has continued to grow. We would like to share that passion with you” (Starbucks Home Page 2008). A lack of innovation and the absence of new competitors may lead you to believe that there is no buyer learning occurring. In both laundry detergent and ice cream, for instance, product benefits have remain unchanged for years, there have been few innovations, and virtually everyone is familiar with major brands in both categories (Kotler and Armstrong 39). Recommendations For Starbucks, it is important to take into account that marketing plans and action are rooted in a logical consideration of an uncertain future. The complexity of the factors facing marketing managers makes decision making a risky, frustrating, subjective process. For most decisions, an extensive set of choices confronts them. Yet, for any specific company, the number of feasible alternatives is limited. Decision constraints exist. Marketing actions are confined to a fixed range of possibilities and the responsibility of the decision maker is to choose within this realistic range (Kotler and Armstrong 134). Decision constraints may be organizational, environmental or personal. Organizational constraints depend on the scale and type of company operations. External or environmental constraints stem from such factors as the socioeconomic, technological, political, psychological, and physical aspects of the company's environment. Personal constraints depend on the personality and characteristics of the decision maker. Marketing decisions are often made from a different basic perspective than decisions in other organizational areas. The perspective of the marketplace is adopted, and the marketing executive tries to perceive his alternatives and decisions through the eyes of consumers. Marketing decision-makers should think in terms of strategies they can select, events that might occur, the probability of occurrence, and the resulting payoff of the intersection of each strategy and event. To do so, they can apply conditional reasoning. Decision makers can assume that they have selected a given strategy, and that a given state of nature exists (Kotler and Keller 176). Conditional on these factors, they can estimate the payoff likely to occur. Payoffs can be measured in terms of net dollars, which include allowances for various types of intangibles such as dealer good will, salesman's morale, and product image. Such payoffs should be estimated on some adjusted net basis by deducting the relevant costs from the estimated gross payoffs for particular acts and states. For example, decreasing profits or sales volume, increasing sales costs, and costs of distribution are not problems -- they may be symptomatic of problems. Effective decision making is based on the operational definition of problems. The feedback of information on a regular basis provides the marketing manager with information for assessing and reevaluating market position. Phase two of the decision processes is concerned with the determination of alternatives. In attempting to make a decision and solve problems, marketing managers, either explicitly or implicitly, must specify available alternative solutions. The solutions perceived will be limited by management's insight, creativity, and experience. Although no manager will perceive all the choices available, this is not a severe handicap (Perreault et al 54). Starbucks should pay attention to the fact that the final phase of the decision process concerns the actual choice or decision. Here the executive assesses the evaluated options, applies his executive judgment, and chooses a course of action. Once a choice is made on the basis of particular criteria, it might not prove to be the best decision after the fact, owing to unforeseen or unexpected circumstances. However, whether a decision is a good one or a poor one really depends on future situations and evaluations. All a decision maker can do is reach the best possible decision, given his incomplete information at a point in time. Making marketing decisions is a subjective process (Kotler and Keller 75). The decision maker must exercise judgment in specifying problems and their dimensions, in associating probabilities and payoffs with various courses, and in assessing outcomes. Starbucks should take into account that the process is one of narrowing the field of possible actions until the choice of the best one is achieved. Various tools and techniques that formalize these processes are useful, but insight and creative abilities are still among the greatest decision-making assets of executives. Increasing risks usually open opportunities for greater returns. Confronted with the problem of balancing the acceptance of estimated risk with estimated payoffs, marketing executives must decide whether to take additional risks and to what extent the risks will enhance profits. Extreme decision situations are relatively easy to handle. For example, if a company is strapped for money, and if a wrong investment decision may threaten its very existence, then the criterion of least risk may be adopted (Perreault et al 34). Changes in life styles and market environment have had a direct impact on goods and services produced, expenditures, and the consumption process. For example, the effect of increased leisure time, suburban living, shopping centers, automatic vending machines, automobiles, television, and widespread geographic shifts on consumer wants and needs is pronounced. The shift from rural to urban populations, the growing number of women employed in industry, the decrease in the length of the work week, increasing productivity, and higher incomes all shape consumer behavior and, hence, market opportunity. Purchasing decisions are affected by the customer's life space (Perreault et al 99). The life space may be segmented into an action and an orientation space. The action space refers to the arena and methods by which transactions take place, including organizational constraints imposed by business. The orientation space includes numerous economic, psychological, and source factors influencing buyer behavior. Uncertainty exists in the purchasing-consumption cycle, since present purchases are made for future consumption. The consumer purchasing agent (housewife) is constrained by limited resources and information. Somehow estimates must be made of the values expected by a variety of people from future consumption of goods purchased currently. This includes evaluating a myriad of products and services, translating them into purchasing decisions, and doing so efficiently (Kotler and Keller 165). This process may even be more complex for some industrial goods. It is relatively easy to state that the function of business is to satisfy customer wants and needs. But customers do not specify the products they will desire and, in fact, do not know their future wants. Strategy and Cyssess strS Works Cited 1. Bearden, W. O., Ingram, Th. N., LaForge, L.W. 2004, Marketing, Prentice Hall. 2. Hollensen, S. (2007), Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition. 3. Kotler, Ph., Armstrong, G. (2005). Principles of Marketing. Prentice Hall; 11th edition. 4. Kotler, Ph, Keller, K. 2005, Marketing Management. Prentice Hall. 5. Perreault, W.D., Cannon, J.P., McCarthy, E.J. 2003, Marketing: Principles and Perspectives. McGraw-Hill/Irwin; 4 edition. 6. Starbucks Home Page. 2008. Retrieved July 2008 from www.starbucks.com/ 7. Starbucks Strategy. N.d. Retrieved 03 July 2008 from http://www.sba.pdx.edu/faculty/tomg/marseille/Starbucks/tsld003.htm Read More