Marketing Plan for Starbucks Coffee - Case Study Example

Marketing Plan Table of Contents Marketing Plan 1 Table of Contents 1 Introduction 3 About the Company 4 Market Analysis 4 Internal Environment 4 Strengths 5 Weakness 5 Opportunities 6 Threats 7 External Environment 7 Political 8 Economical 8 Sociological 10 Legal 10 Technological 11 Summary 11 SMART Marketing Targets Objectives 11 Short Term Objectives 11 Medium Term Objectives 12 Specific 13 Measurable 13 Achievable 13 Realistic 13 Time Bound 14 Marketing Plan 14 Marketing Mix 14 Product 14 Price 14 Place 15 Promotion 15 People 15 Process 16 Physical Evidence 16 Conclusion 16 Recommendations 17 References 19 Introduction The twenty first century is often termed as the age of competition. This has been largely accounted to the aspect of globalisation which has eroded the geographical boundaries of nations and transformed the entire globe into a single global village. The aspect of free trade zones and economic deregulation has also paved the way for foreign direct investments. This has led to a flurry of organizations who are trying to reach out to every potential market on the globe. This has also triggered a wave of competition among the market players so as to grab a share of the market. The emergence of developing nations like China and India also has offered numerous business opportunities for business organizations. In order to maintain profitability and sustainability it has become essential for business organizations to ensure efficiency in their business processes. International expansion is a highly complex term and requires long term strategic vision and mission on the part of the organization intending to undertake an international expansion strategy. The present study would focus upon the marketing plan of an organization for an international expansion strategy. The organization selected for the purpose is Starbucks Coffee and the nation selected for expansion is India. The choice of both the nation as well as the organization assumes significance considering the fact that Starbuck’s is one of the largest chains of coffee shops around the world. The choice of the nation assumes even greater significance considering the economic might and the market potential of the nation. About the Company Starbucks Coffee made a humble beginning in the year 1971 when it began selling bean and processed coffee in a small store in Seattle USA. Over the years the company has established itself as one of the leading coffee stores of the world serving more than a million customers though a dedicated presence in over 50 nations spread across 17000 cities across the globe. The company is presently listed as a public firm and its stocks are being actively traded on the bourses of NASDAQ stock exchange in USA. The brand portfolio of the firm includes “Starbucks Coffee, Seattle’s Best Coffee, Tazo Tea, and Torrefazione Italia Coffee” (Starbucks, 2011, p.1-2). The main aim of the firm to provide the best coffee to the customers using the best raw materials sourced ethically and processed at the firm’s own processing unit. The international expansion strategies include partnerships as well as licensing. The success of the firm could be analysed from the fact that it operates successfully in nations having diverse culture and traditions maintaining an extremely high quality standard. In spite of the large business presence the company maintains high ethical standards which is revealed from the fact that it has been rated as one of the most ethical companies of the world for the fourth consecutive time by the Ethisphere magazine (Starbucks-a, 2011). Market Analysis Internal Environment The analysis of internal environment can be done by identifying the strengths, weakness, opportunities and threats faced by an organization. SWOT analysis is a useful tool that can help in analysing the internal environment of an organization. Strengths The biggest strength of Starbucks Corporation lies in its strong brand image which has created a strong positioning of the firm in the minds of the customer. Presence in large number of nations also adds to the brand image of the organization. The brand image of the organization could be analysed from the fact that the brand has been consistently rated as among the top 100 best known brands by the magazine Business Week. The valuation of Starbuck’s brand has been has been pegged at approximately 3099 million dollars as of 2006. In addition an efficient marketing strategy also constitutes one of its biggest strengths. The firm uses an innovative marketing mix to target its customers through a wide range of marketing communication channels such as TV, print media etc. A sound financial background of the organization also emerges as one of the strengths of the company. The profit and revenue margins of the company have witnessed a northward trend for many consecutive years. The financial efficiency of the firm could be analysed from the fact the returns on investment and equity were reportedly higher than the figures of the industry. Starbucks also scores high on ethical issues as it is consistently been rated as one of the most ethical organizations of the world. This has a positive impact on the positioning of the firm as it imparts a socially responsible image of the organization in the minds of the customer. Finally the huge operations of the firm in numerous nations adds to the strengths of the firm as a multinational organization (Datamonitor, 2008, p.5-6). Weakness Compliance is one of the areas which are a considerable weakness for the organization. There have been numerous litigations against the firm both in terms of violations of business contracts as well as labour issues. The company has been embroiled in many legal disputes involving labour laws. This has made the firm unattractive for prospective employees. This has far reaching effects on the organization as people form an important part in the service delivery. Presence of well trained and motivated employees is therefore very crucial to the success of the firm as they are the ones who come in direct contact with the customers. The second major weakness of Starbuck’s lies in its small product portfolio comprising only of tea and coffee. The company has been in the business by innovating different recipes of coffee and tea. High dependence on a single product is considered to be of great risk as a shift in the customer’s attitude towards the product would hamper the business interests of the company. Finally the productivity level of the employees is considerably low for the organization as the average revenue per employee is lower than that of the average figures for the industry as well as its competitors (Datamonitor, 2010, p.6-7). Opportunities The major opportunity for the organization lies in exploring new markets which have high potential for the company. The company already has presence in all the growing markets including China and Brazil. Recently the firm entered the Russian market with a joint venture partnership deal with a local partner. Opportunities also arise from unexplored nations like India which has a high potential for the organization. A report by data monitor reveals that the coffee market is expected to grow by almost 12 percent in the year 2010 which shows tremendous potential for Starbucks to explore and sustain its business interests. The diversification strategy of the firm also offers opportunity for the organization to sustain its profitability. Recently in 2007 the company entered into a joint venture with Concord music to create a new brand named Hear Music. The CD’s for the recording held under this banner would be sold through the coffee shop’s outlets across the world. Finally a strong demand for coffee constitutes the main opportunity for the company. In USA alone the coffee industry is expected to grow by about 125 percent till 2010 which shows a good opportunity for the company. Considering the fact that Starbuck’s has a forty percent market share in the nation the strong demand leads to greater advantage for the organization in the medium to long term period (Datamonitor, 2010, p.7). Threats The most significant threat for Starbucks remains the large scale competition in the consumer markets. Starbuck’s faces stiff competition from different market players in almost all its markets. Moreover, with the advent of small coffee outlets in high potential areas like malls has compounded the level of threat to the organization. High cost of raw material (coffee) has emerged as another significant threat. The interesting part of this is that the prices show high degree of volatility. Finally the aspect of handling local culture and sentiments is also an area of threat for the company. Recently the organization’s outlet in Forbidden City, China faced turbulent time due to protests following the disregard of the local culture and traditions by the company. Considering the fact that Starbuck’s operates in many diverse regions with varying culture and traditions this could wreck havoc on the business prospects and the international business strategy of the firm (Datamonitor, 2010, p.8). External Environment The external environment of the firm is affected by the political, economical, sociological, legal and technological aspects (Campbell & Criag, 2005, p.501-502). In order to make an international expansion the firm must first conduct an external analysis of the consumer market. In the context of the present study an external analysis of the Indian consumer market would reveal the attractiveness and the potential of the Indian market with regards to the business prospects of the organization. Political India is the largest democracy of the world and has a very stable ad democratically elected government. The central government controls the aspects related to FDI in the nation. The government machinery is headed by the president who is closely assisted by the prime minister and his council of ministers and is directly elected by the people for a five year term. The nation is divided into 28 states and seven union territories which are headed by the provincial governments who are also elected democratically. The administrative division of the nation is divided into executive comprising of the president and the prime minister with his council of ministers, judiciary comprising of the Supreme courts and other lower courts. The legislative wing is comprised of the parliaments which enacts the laws of the nation. The government has been pursuing a policy of economic liberalisation and has formulated policies that tend to encourage foreign direct investments in the nation (CIA, 2011). The nation has a single window clearance system for foreign investments like coffee shops. In addition a hundred percent FDI is allowed in this sector which provides good impetus for Starbuck’s to explore the lucrative Indian market (Ministry of Commerce and Industry, 2003, p.9-10). Economical India is considered to be among the fastest growing economies of the world. This is evident from the GDP growth rate of the nation which is pegged at 8.3 percent as of 2010. The GDP in terms of purchasing power parity is approximately 4.046 trillion US dollars which represents a good purchasing power of the citizens of the nation. This is important considering the fact that the business prospects of organizations like Starbuck’s coffee largely depends upon the levels of disposable income of the individuals of the nation. The nation is also one of the few trillion dollar economies of the world with the official GDP levels reported at approximately 1.43 trillion US dollars. The nation’s per capita GDP figure stands at 3400 dollars as of 2010. Being the second largest populated nation, India boasts of having a large pool of talented labour force which is pegged at approximately 478.3 million as of 2010 (CIA, 2011). This is critical for service based organizations as their brand image is largely dependent upon the skill set of the employees in the nation. The low cost of labour and real estate in the nation also makes it as an attractive destination for investment. Figure 1: Consumption tends of Coffee in India (Source: Coffee Board of India, 2010) The figure above shows clearly reflects the growing popularity of coffee in India. This is a good trend for Starbuck’s considering the fact that Indian is being largely perceived as tea loving. The coffee consumption board also predicts a much larger increase in the consumption levels in the near future. Sociological India is the second largest populated nation of the world and represents a unity of diverse culture and traditions. According to the CIA, approximately 29 percent of the total population is urbanized with a growth rate of 2.4 percent on an annual basis (CIA, 2011). This is important for Starbuck’s considering the fact that its target market segments would largely revolve around the urban consumers. The Indian public has been traditionally perceived to be of a tea loving nature. However with the aspect of globalisation and liberalisation coupled with economic growth and FDI the perception has changed as more and more individuals are shifting towards coffee. This has largely been possible due to the large scale influence of the Western nations of the psychology of the urban Indians. International chains like Costa Coffee are planning to expand their operations in a major way (Govindan, 2010, p.4-5). The median age of the population is also stated at 25.9 years which represents a good opportunity for Starbuck’s as it targets mostly young aged people who form the main target market for the organization (CIA, 2011). Legal India has a fair and impartial judicial system comprising of the Supreme Court which is the apex court of the nation. High courts and the session’s courts constitute the lower courts. The judicial system of the nation is based on the traditions of the English common law. The nation has accepted the jurisdiction of the International Court of Justice with certain objections (CIA, 2011). Presence of impartial judiciary is essential for n organization as various legal issues are involved when a firm starts its business operations in a new market. The judicial system in India serves to make it one of the most attractive areas for investment. Technological Technological aspects play a key role in the success of a firm in the business market. India is considered to have some of the best talents as it has a large number of educated individuals. The nation also has made tremendous strides in the field of information technology which has highlighted its position as a technology super power. All these aspects reveal large scale opportunities and positive indications for organizations like Starbuck’s which are largely dependent on technological advancements. Summary The analysis of the internal and external environment of the organization reveals considerable opportunities for Starbuck’s to grow and expand in the Indian consumer market. The company can easily leverage its skills and expertise so as to gain a favourable market share in India. The next sections would contain a marketing plan which would include framing up marketing objectives as well as a suitable service mix for the organization. SMART Marketing Targets Objectives The short and medium term objectives of Starbucks are stated below: Short Term Objectives To enter into a joint venture partnership with a local firm. To develop a segmentation strategy Targeting a particular segment Effective brand promotions Enter the market beginning with metro cities To achieve breakeven point by 3 years To recover 40 percent of the initial expenses Medium Term Objectives Penetrating the market by entering into Tier 1 and Tier 2 cities Expanding operations in metro cities by increasing the number of outlets by 20 percent Launching diversified products like music CD’s To recover the remaining percentage of initial expenses and induce greater revenue spending To increase promotional expenses by 20 percent. In order to achieve success in a business it is essential to have a set of objectives that would serve as a guiding principle for the organization in the future years. It is essential that the objectives framed are sustainable and achievable. SMART is a tool that helps organizations in developing proper objectives. SMART is an acronym for Specific, Measurable, Achievable/Agreeable, Realistic and Time bound (Kelly & British Standards Institutions, 2004, p.80). Specific Specificity of objectives implies that the objectives must be very clear and present a direction to the organization. It also implies that the objectives provide a clear indication of the way of achieving the objectives. In case of Starbuck’s coffee the objectives clearly state the action plan for example the company is highly specific in its mode of entry which is a joint venture partnership. It is also specific in terms of the locations in the medium as well as short term as it would only target select metro cities in the short term and tier 1 and tier 2 cities in the long term. Measurable The short as well as medium term objectives are also measurable in the sense that the objectives can be easily measured in quantitative terms. This would help the firm to analyse whether it is meeting the objectives in a desired manner. The short and medium term objectives of Starbuck’s corporation clearly suggest that the objectives can be easily quantified. For instance, the objectives state a three year target for achieving a breakeven point. In addition cost and locations can also be measured quantitatively. Achievable The analysis of the short and medium term objectives reveals that the targets set by the firm are achievable. Strategies like joint venture partnerships are highly popular in India and have achieved considerable success. The firm has also set reasonable revenue targets based on the market potential of the nation. Realistic Starbucks has set up objectives that are also largely realistic. The large pool of talented employees and a joint venture with a local partner would very well be used to achieve the objectives. Time Bound The time bound nature of the objectives could be analysed from the fact that every strategy has a time frame attached to it. For example the aspect of recovering initial capital expenditure as well as attainment of breakeven point is largely time bound. Marketing Plan Marketing Mix The marketing mix in case of service based firms like Starbuck’s are largely governed by the ‘7 S’ of marketing. The 7S is an enhanced version of the product mix and it includes three extra elements namely People, Process and Physical Evidence in addition to the normal four elements of Product, Price, Place and Promotions in the product mix of an organization. These three factors serve to address the product mix of an organization and link it to the intangible nature of services which make it more complicated than a normal product mix (Jack, 2005, p.177). Product The main products of Starbucks would include different and innovative coffee based drinks. In addition the company outlets would also serve tea and other related drinks along with cakes, and pastries that would serve as complementary products. In addition the firm would also sell CD’s under its newly developed brand named ‘Hear Music’ in the medium term. Price Starbucks would follow a moderately high pricing strategy. The pricing strategy would be based upon the prevalent market rates of products in the coffee shops of its competitors. Initially attractive price discounts would be offered to attract customers to its shop. In addition a price bundling strategy would be adopted to club various products. Pricing is very important in the Indian market considering the fact that Indian customers are highly price sensitive. Place Starbuck’s would initially target the metro cities of India namely, Mumbai, Kolkata, Delhi, Bangalore, Ahmadabad, Pune, Hyderabad and Chennai. These are the largest cities of India and have considerable growth potential considering the fact that the disposable income levels are generally higher for these cities. Moreover Western culture and influence are also higher in these regions which make them as strong contenders for initial expansion. After the success of the coming years the company would make a foray into the tier 2 cities which have good potential. Promotion The promotional strategies for the firm would be a mix of advertising using both print as well as television media. An effective promotional mix would include using celebrities to promote the products and services of the company. A brand ambassador could be chosen from some eminent personalities of the nation including film stars and sportspersons. It is also essential that the promotion mix includes the local culture and sentiments of the local people. The strategy of thinking globally and acting locally could be used to take care of the local sentiments of the target market individuals (Morley, 2002, p.35). People People include the employees of the organization who actually deliver the service to the customers. Presence of well trained and motivated employees is absolutely essential considering the fact that they are the ones who are in direct contact with the customer. An effective and quality training of the employees would help in generating good relationships with the customers in line with the firm’s global brand image. A large pool of talent in India would also serve to add value to the firm’s service offering. This would also induce repeat purchase which is very essential for the sustainability of firm’s like Starbuck’s whose business prospects largely depend on a loyal customer base. Process Process includes the manner in which the service would be delivered to the customer. Use of the technology would enable an efficient process which would deliver a good value to the customers. In cse of Starbuck’s an effective process would include reduced waiting time at the coffee shop for orders being served. In addition electronic billing options would reduce the need for manpower and would provide a fast service with reduced waiting time. Just in time delivery systems would also serve to reduce the waiting time of guests. Physical Evidence This is the only tangible part of a service offering and hence involves considerable importance. Good physical evidence would include a good ambience such as light music, greetings and compliments to the guests etc. A touch of local culture and traditions would also go about a long way in ensuring a good brand image of the organization in the minds of the customers. Conclusion The analysis of the internal and external aspects reveal considerable opportunities for Starbuck’s to establish its presence in the Indian consumer market. A good demand for coffee coupled with a buoyant economy would help in getting good business for the organization. In addition a strong and stable government practising pro active measures to boost foreign investments would also serve to fulfil the business interests of organizations like Starbuck’s. The internal analysis of the organization also reveals considerable strengths that could be used to leverage the opportunities shown by lucrative consumer markets like India. A joint venture partnership strategy would also be beneficial in the initial years as the local partner would have a good understanding of the market conditions in the nation. Use of an effective service mix coupled by an efficient promotional campaign would help in establishing a good image of the firm in the minds of the customers. However the key for success lies in effectively taking care of the local beliefs and sentiments of the individuals. This is considerable important for nations like India which have a strong cultural heritage. Recommendations In order to tap the market opportunities it is essential for the firm to adopt a good service mix. The firm should lay stress on the use of its effective and formidable brand image to generate a favourable positioning for the organization. A good service mix should be the essence of the firm’s international expansion strategy. This would include an attractive product mix that would serve to innovate the firm’s product offering. In addition to these, aspects like good employee training would ensure the presence of a motivated and talented staff which would help in building a favourable positioning of the firm in the international market. Starbuck’s must also integrate its services with high end technology which would help in providing more value to the product offering of the firm. In addition the firm must also try to include efficiency techniques like total quality management and just in time frameworks to make its processes more customer friendly. The firm must also strive towards creating good ambience at its coffee shops which would make it more attractive to the target market segments. These aspects would help in building a good customer relationship which is absolutely essential for ensuring customer loyalty. Reward programs like loyalty cards and corporate tie ups would also help in developing a good relationship with the customers and would also ensure revisits by the customers. Last but not the least a ‘glocalisation’ strategy must be adopted so as to include the aspects of local cultural and sentiments of the individuals. This would not only help the firm in achieving its business objectives but would also generate sustainable competitive advantage in the long run. References CIA. 2011. The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html. [Accessed on March 10, 2011]. Coffee Board of India. 2010. Coffee Data. [Online]. 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