International Marketing Operations of Starbucks - Case Study Example

International Marketing Operations of Starbucks Table of Contents Company Background 3 Nature of business 3 Current level of International activity 4Current marketing environment 4 Evidence of International expansion strategies 5 Cultural issues, trading conditions and environment 6 Key elements of the International marketing mix 7 Market definition and segmentation 7 Branding 8 Pricing 8 Marketing communications and promotional strategies 9 Distribution and transportation management 9 Ethical considerations and criticisms 10 References 11 Company Background Starbucks Corporation is a US $13.3 billion Seattle based company which is well known international provider of quality coffee. Starbucks serves millions of customer everyday through its 18000 retail stores spread over 60 countries. (Starbucks, 2014) With employee strength of 200,000 the company has spread across almost all the continents in the planet. It is noted for providing quality coffee which is sourced from Latin America, Africa and Asia. The sourced coffee is blended & roasted at Starbucks facilities to create a range of coffee blends & single origin coffee products (Starbucks Corporation, 2014). Starbucks coffee company mentions its commitment towards the society in its company profile while it seeks to strike a balance between profit margins & corporate social responsibility. The main focus on commitment is with respect to three basic focal areas. They are ethical Sourcing, environmental stewardship and community involvement (Hill and Jain, 2007). Nature of business Starbucks Corporation started as a provider of quality coffee which customers could enjoy in specially designed star bucks coffee shops (Austin, 2006). The environment was so created to enhance the customers affinity towards coffee as well as enjoy the company of friends & family over a cup of world`s best brewed coffee which were available in different blends & flavours at the Starbucks counter. Later Starbucks diversified into retailing of different blends of roasted coffee beans which were procurement from Africa, Asia & Latin America after a lot of quality checks (Curry 2009). This Starbucks established itself as the reseller of quality coffee beans throughout the world. Recently Starbucks has ventured out into new markets & introduced new product lines. Starbucks has started to offer Starbucks coffee onboard United Airlines flights. Starbucks also ventured into the retailing of tea through its own Tazo Tea Company. Starbucks introduced an innovative channel of distribution of quality coffee beans through online retailing through its very own e-commerce portal. In the past Starbucks had only sold its merchandise through its own stores, but recently in a bid to boost sales and improve its profit margins Starbucks has started to distribute coffee beans through supermarkets too. To improve the brand cognizance and increase footfalls in Starbucks stores it has recently started selling CDs in its retail stores too. Current level of International activity The mission statement of Starbucks Corporation reads “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow” (Welsh, Raven and Al-Mutair, 1998, p. 195). Thus true to its word Starbucks is leaving no stone unturned to fulfil its mission of being the best coffee provider of the world. Starbucks opened up stores in almost all the continents of the world but the company adapted local tastes & cultures. This helped the company to come out with innovative products and add to their existing product lines and also improve the footfalls to their stores worldwide. Starbucks has a high reputation in the international market for providing quality coffee beans & equipments which is the main reason for its success in markets other than Americas. There are several reasons for success of Starbucks in international markets. Starbucks ensures the availability of world`s finest coffee in its stores through sourcing from Arabia, Africa & other local markets with a strict quality control policy (CEO, 2004). Starbucks quality standards are kept very high. Coffee beans which are not fresh & stored for over a week are donated to charity. Every Starbucks employee is properly trained & educated to align themselves to the company`s policy of quality assurance (Starbucks Corporation, 2014d). Current marketing environment Starbucks has a massive geographical presence around the globe and has a 36.7% market share in the United States of America. It has started operations in around 60 countries. (Starbucks Corporation, 2014a) Starbucks is acknowledged as the most respected brand in the coffeehouse segment and features in the top 100 brands of the best global brands of 2013 (Geereddy, 2013) Starbucks efficiently leverages its huge brand equity through merchandizing of products. Thus a strong position in the market and brand recognizance allows Starbucks to achieve significant competitive edge, over its other competitors, in its strategy of further expansion into international markets and also leads to higher growth in international as well as domestic markets. Over the years, Starbucks has achieved in a lot of success in supply chain management through economies of scale, advanced distribution channels and healthy supplier relationships (Bhaskaran, Polonsky, Cary and Fernandez, 2006). The company`s business is currently divided into two divisions. They are the US division and Starbucks coffee international. Under this structure the company is split into three divisions: Asia- Pacific and China; the Americas; EMEA which includes Europe, the Middle East, Russia and Africa. It entered the Indian market with its maiden coffee stores in Mumbai & New Delhi in 2012. It entered the Vietnam market in 2013 and is still expanding in newer territories. Each of the divisions is headed by a president who reports to the CEO of the company who works from the Starbucks headquarters in Seattle. An example of this strategy of Starbucks is introduction of Green Tea Latte in Starbucks, Japan. This helped Starbucks to appeal to a large tea drinking population in Japan & also improve the company`s profit margins. Evidence of International expansion strategies As the Puget Sound Business Journal pointed out that the free WiFi being provided at all Starbucks stores across the US has increases the footfalls in the stores. The introduction of Starbucks Cards & Starbucks Visa cards has increased the brand cognizance of Starbucks drive through service. The chairman & former CEO Howard Schultz help open more than 10000 outlets worldwide all controlled by the headquarters in Seattle, thus giving confidence to the company to expand in even further unknown areas (Sewer, 2004; Koehn, 2001). Mulligan & Authers (2003) pointed out that Starbucks entered South American markets in 2003 and now have a significant fan following in the continent. The company has shaped the coffee drinking habits of the local population through adapting to local cultures and friendly trained staff. Fowler, Singer and Fackler (2003) pointed out that Starbucks entry into the Chinese market is lined with troubles due to the local population`s affinity towards tea but Starbucks carefully entered the market through strategically selecting store locations where middle class Chinese can be influenced to have quality coffee. Starbucks entered Japan where consumers were not accustomed to take away coffees or followed interior no smoking policy but Starbucks helped change the tastes of the local population through quality coffee in stores located at strategic locations. The company also adapt to local culture by introducing tea in the product portfolio of Starbucks. Starbucks entered France with stiff resistance from local consumers who preferred having coffee in traditional coffee houses. Bur American tourists along with local population started having popular Starbucks products like caramel coffee in Paris thus driving sales in Starbucks France. The United Kingdom is the second largest market of Starbucks after the USA. But cheap imitations of Starbucks coffee have reduced the profit margins of Starbucks UK. The company is countering it by providing superior service to customers and retailing branded coffee beans and coffee making equipments. Cultural issues, trading conditions and environment Many academic studies emphasis that there is an effect of culture (Hofstede, 1991) on perceptions of consumers and this suggests that service offerings are required to be adapted by food providers (Furrer, Liu and Sudharshan, 2000; Hoare and Butcher, 2008). Starbucks adapted to local cultures & traditions wherever they expanded. It included adding new product lines to suit local tastes. Starbucks generally evaluate the perception of the target market segment to understand the need of the present time and endeavors to provide value to the customers through its propositions. To offer services according to the needs and perceptions of the consumers leading to success of any food business it is very important to understand how customers evaluate services (Laroche, Ueltschy, Mark and Yannopoulos, 2004). Starbucks has high customer retention percentages in all locations wherever they have expanded to. This is mainly due to high level of satisfaction of Starbuck`s customers. Service quality is directly correlated to customer satisfaction and inversely correlated to customer loyalty (Lovelock and Wright, 2002; Hong and Goo, 2004). Starbucks have implemented loyalty-based incentives for loyal customers to drive customer retention through the Starbucks Rewards programs and Starbucks Card. The Starbucks Card is part of a program that ensures convenience and increase the frequency of customer visits. Starbucks stores are friendly towards community, highly dependent on recycling and reducing waste (Starbucks Corporation, 2014b). Thus they generate a lot of goodwill in communities where they function. Starbucks has specific guidelines that it follows while sourcing of coffee which are responsibly grown and ethically traded. Starbucks also works with farmer communities for their sustainable growth and continuous supply of quality coffee. They also educate farmers to improve coffee growing methods and increase their yield. Starbucks also source cocoa from the world`s poorest regions but help to improve the living conditions of the farmers through community building programs and strict adherence to ethical sourcing guidelines. Starbuck also encourage use of recycled products in their stores worldwide to promote the cause of environmental protection (Starbucks Corporation, 2014c). Key elements of the International marketing mix Starbucks international marketing mix is in line with the philosophy of the company of providing value to its customers at optimum prices (Kotler and Armstrong, 2010). Price at Starbucks is evaluated on the basis of value it provides to the customers and the competitor prices for the same product. At Starbucks Product quality is not standardized for higher level of output and they give the most importance to ensure that their products are of the highest quality. The Place where Starbucks stores are located are the most prime and strategic places at all locations across the globe. They are located in highly visible locations near a happening place. Promotion of Starbucks stores are generally done through word of mouth of satisfied customers and also through online social media. Starbucks also has a mobile app through with it carries out its promotional activities (Onkvisit, Sak and Shaw, 2004). Market definition and segmentation Since Starbucks` store main product offering are take away coffee; the Starbucks market is mostly defined by the daily Commuters or those people who travel to and fro from work, go for shopping and deliver goods. The Starbucks also includes the captive consumer or people who work or stay in places which don`t allow or provide for opportunities to look for refreshments or generally have refreshments from stand (Kartajaya, 2008). At the macro level the Starbucks Corporation is segments its market on the basis of geography. It is currently divided into two divisions. They are the US division and Starbucks coffee international. Under this structure the company is split into three divisions: Asia- Pacific and China; the Americas; EMEA which includes Europe, the Middle East, Russia and Africa. At the micro level market segmentation is done on the basis of type of consumers. One market segment is the commuter consumers for whom Starbucks is just a drive through coffee house. They are the people who travel to and from work or have coffee/ lunch breaks. The other segment is the captive consumer segment. This segment generally refers to people who reside in campuses or places which restrict their free movement to coffee stores and generally fulfil their requirement needs through vendor machines (Chew, 2014). Branding Starbucks branding exercise deals mainly with formation of customer brand cognizance and improving brand recognizance among its target market segment. Starbucks doesn`t brands products on the basis of price. It strictly follows value based pricing strategy. Branding in Starbucks is generally undertaken with respect to product attributes and product benefits. Starbucks also indulges in a lot of brand development activities like it has introduced line extensions in the existing products like Short, Tall, Grande etc. Starbucks has also introduced merchandisers like tumblers, bottles and mugs to induce brand extension. Starbucks have expanded their product mix through a venture in Tea and fresh offerings with an effective acquisition strategy. This has effectively improved the brand image of Starbucks as now it appeals to a larger audience. To further its brand and expand its target segment Starbucks has started selling its coffee products and merchandizes in supermarkets. There is great market demand for this merchandise and thus Starbucks has a great opportunity to monetize their brand. Starbucks is in itself a powerful brand which it leverages through horizontal product line extension and also product diversification while preventing any brand dilution (Berry, 2000). Pricing There are two types of pricing approaches through which Starbucks sells its products. One of them is value based pricing which is based on value the goods or services delivers to the customers with respect to the perceptions and requirements of the customers. The second is competition based pricing in which process of goods and services is based on the competitors` price for the same product. Starbucks prices its products in similar price ranges with respect to its competitors so as to attract more price sensitive customers. Starbucks believes in value for money so it provides more benefits to impress consumers. Starbucks also employs some product mix pricing strategies. The most prominent among them is product line based pricing in which Starbucks prices different product lines according to the prices of the specific products in local market and their value proposition to the customer. Starbucks also ensures that none of its products are sold at a loss. So through cost based pricing it maintains a minimum profit margin for all products. Starbucks also employs psychological pricing though which Starbucks leverages the brand value of some world renowned Starbucks products like caramel coffee and prices them at a premium (York and Bryson, 2008). Marketing communications and promotional strategies According to Schiffman and Kanuk (2004, p. 145) experience is an important factor which affects brand loyalty which is emphasized by “The power of a brand resides in the consumer’s mind from both lived (purchase and usage) and mediated (advertising and promotion) experiences”. Thus communications and promotion are equally important as the quality of product or service. Starbucks has an extensive communication and promotion strategy which helps it to reach its target segment and other segments as well. Starbucks indulges in three kinds of advertisements to inform the customers about its product offerings. Reminder advertisements help customers to recollect the brand name of Starbucks again and again thus the customers always keeps the brand in his consideration set. The other type of advertisements used by Starbucks for their promotion is Informative type where discounts and sales promotion activities are communicated to the customer. The last kind of advertisements is the most effective technique through which Starbucks communicates the value proposition of its products to the customer.Starbucks indulges in Advertisement specialties through contests and coupons which increase brand cognizance and brand recognizance. Starbucks indulges in a lot of community building programs through its CSR policy and also encouraging recycling through use of recycled products. Starbucks also uses its image to invite celebrities whose pictures are circulated to all stores throughout the world to use the celebrity image to build the brand. Starbucks also uses the Social Media like Facebook to engage the youth with the brand. Distribution and transportation management Starbucks sources coffee from around the world with only the best coffee allowed to reach the customers. Since Starbucks has a freshness policy such that no coffee can be sold after it is more than a week old at the stores. A lot of pressure is put on distribution and transport management to ensure the replenishment of the spent stock at proper time. Starbucks operates four coffee plants in the United States. It also has production facilities at Amsterdam, Netherlands and processing facilities at Portland, Oregon for its subsidiary Tazo Tea Company. Starbucks also outsources its production to 24 other manufacturers located in Europe, Asia, Latin America and Canada (Starbucks, 2014).   Ethical considerations and criticisms As Kissinger (2013) pointed out that Starbucks has been linked to a few cases of unethical sourcing of quality coffee from some of the world`s poorest regions. Starbucks in recent times has also been accused of compromising on quality to enter newer markets through joint ventures and also outsourcing production facilities to other third parties. But Starbucks Corporation has taken major steps in ensuring that all coffee or tea it sources is ethically sourced. It has laid down a policy for ethical sourcing which it follows in all sourcing transactions. This policy is based on helping the coffee growers` sustainable development and community building which will not only improve the living conditions of the farmers but also ensure continuous supply of quality coffee. Starbucks keeps a strict quality check on all operations that Starbucks outsources to other third party manufacturers thus ensuring that only the best coffee reaches the loyal customers of Starbucks in all its stores throughout the world. References Austin, J. E., 2006. Starbucks and conservation international. President and Fellows of Harvard College. Berry, L. L., 2000. Cultivating service brand equity. Journal of the academy of marketing science. 28(1), pp. 128-137. Bhaskaran, S., Polonsky, M., Cary, J. and Fernandez, S., 2006. Environmentally sustainable food production and marketing: opportunity or hype. British food journal. 108(8), pp. 677-690. CEO, S., 2004. How Starbucks works with ngos. California Management Review. 47(1), pp. 92. Chew L. P., 2014. Marketing management. Harvard: Harvard School of Business. Curry, J. E., 2009. A Short Course in International Marketing: Approaching and Penetrating the Global Marketplace. World Trade Press. Fowler, G. A., Singer, J. and Fackler, M., 2003. Concerting the masses: Starbucks in China. Far eastern economic review, 166(28), pp. 28. Furrer, O., Liu, B. S. C. and Sudharshan, D., 2000. The relationship between culture and servicequality perceptions: basis for cross-cultural market segmentation and resource allocation. Journal of Service Research, 2(4), pp. 355-371. Hill, C. W. and Jain, A. K., 2007. International business: Competing in the global marketplace. New York, NY: McGraw-Hill/Irwin. Hofstede, G., 1991. Cultures and organizations. New York: NY, McGraw-Hill. Kartajaya, H., 2008. New wave marketing. Jakarta: Gramedia Pustaka Utama. Kissinger, G., 2013. Starbucks and Conservation International case study. Reducing Risk: Landscape Approaches to Sustainable Sourcing. Washington, DC: EcoAgriculture Part­ners Koehn, N., 2001. Howard Shultz and Starbucks coffee company. Harvard School of Business. Kotler, P. and Armstrong, G., 2010. Principles of marketing. New Jersey: Pearson Education Laroche, M., Ueltschy, L. C., Mark, S. A. and Yannopoulos, P., 2004. Service quality perceptions and customer satisfaction: evaluating the role of culture. Journal of International Marketing, 12(3), pp. 58-85. Lovelock, C. and Wright, L., 2002. Principles of service marketing and management. Upper Saddle River: NJ, Pearson Education Inc. Mulligan, M. and Authers, J., 2003. Coffee culture comes to coffee growers. Financial Time, pp.14. Onkvisit, S. and Shaw, J. J., 2004. International marketing: Analysis and strategy. London: Psychology Press. Schiffman, L.G. and Kanuk, L.L., 2004. Consumer behavior. 8th international ed. Upper Saddle River: NJ, Pearson Education/Prentice-Hall. Sewer, A., 2004. Hot Starbucks to go. Financial Times, 149(1), pp.58. Starbucks Corporation. 2014. Ethical Sourcing. [online] Available at: < http://www.starbucks.in/responsibility/sourcing> [Accessed 10 May 2014]. Starbucks Corporation. 2014a. Our Heritage. [online] Available at: < http://www.starbucks.com/about-us/our-heritage> [Accessed 10 May 2014]. Starbucks Corporation. 2014b. Public policy and internal standards. [online] Available at: < http://www.starbucks.com/responsibility/learn-more/ca-supply-chain-act> [Accessed 10 May 2014]. Starbucks Corporation. 2014c. Starbucks investor relations. [online] Available at: < http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome> [Accessed 10 May 2014]. Starbucks Corporation. 2014d. Store Design. [online] Available at: < http://www.starbucks.com/coffeehouse/store-design> [Accessed 10 May 2014]. Read More