Conducting a Marketing Analysis for Starbucks UK - Case Study Example

Conducting a Marketing Analysis for “Starbucks UK” Executive Summary The current project deals with analysis of the food and drinks market in the UK,along with opportunities and challenges that this market would face in the recent future. The project primarily focuses on the operations of Starbucks and ways in which it has maintained market share and created a base of loyal customers over the years. The project focuses on the value chain of Starbucks and ways whereby the logistics department, marketing and sales department add to the value of the company. The paper comprises an empirical study and analysis of competition prevalent in the food and drinks industry and ways in which these competitors are gradually becoming a threat to the existence of Starbucks. A comprehensive look into the segmentation and the target market of Starbucks is followed by an analysis of the 7P’s of marketing, which has been used by Starbucks for their operation worldwide. A smart objective for Starbucks has been set for this project and few recommendations have been enumerated in order for the company to formulate plans for tapping the market, which would enable Starbucks to successfully compete in the ever changing market. Contents Contents 3 Introduction: Company Profile 4 Value Chain Analysis 4 Food and Drinks Market 5 Competitor Analysis 6 Objectives 7 Segmentation Targeting and Positioning 7 Customer Value Proposition 8 Marketing Mix 9 Recommendations 10 Conclusion 11 Reference List 12 Introduction: Company Profile Starbucks UK has commenced their business in 1971 with a mission to inspire and nurture the human spirits – one person, one cup and one neighbourhood at a time (Starbucks Coffee Company, 2011). They believe in serving the best possible coffee by growing them as per the highest standard of quality, using ethical sourcing practices. Founded by Jerry Baldwin, Gordon Bowker and Zev Siegl, Starbucks is already a giant in its sector, operating in more than 50 countries (Starbucks Coffee Company, 2011). They went public in 1992 and are listed in NASDAQ. Over years, they have conducted their business responsibly as well as ethically and have managed to earn the trust of customers, partners and neighbours with the sole objective to satisfy their customers’ demand (Conservation International, 2012). The products offered by Starbucks are coffee, tea, frappuccino beverages and smoothies. Recently, Starbucks have partnered with Apple to collaborate and sell music as well as provide a new kind of coffeehouse experience to the customers (Lingley, 2009). The report is aimed at analysing the marketing environment of Starbucks. The marketing analysis will involve application of value chain analysis other tools of marketing. The stress will be more on the marketing mix of the company and recommending the company some better ways to do business and achieve better results. Value Chain Analysis This analysis determines aspects of the operation that create value for the firm along with those, which do not. This analysis is crucial because the company would earn above average return only when the value created would exceed the cost incurred. The primary activities of Starbucks: Inbound Logistics: Starbucks involves company agents to choose the coffee beans and also to communicate regarding quality standards of the product to suppliers and organising the supply chain management (Dudovskiy, 2012). Operations: Starbucks operate in more than 50 countries in two ways; through direct operation of company stores and also by licensing (Dudovskiy, 2012). Outbound Logistics: The distribution of the product is generally done through stores without any intermediaries for Starbucks (Shah and Halligan, 2009). Marketing and Sales: Starbucks have traditionally never invested considerably in advertising or promotional campaigns, unlike many other big companies. They instead have high reliance on quality of the product that they offer and the subsequent positive word-of-mouth generated (Lee, 2010). Service: Starbucks have always emphasised on impeccable service, given the fact that the customer base is premium who expects a service well-aligned to their status. The company boasts of loyal customers as they have successfully achieved the desire consumer level through their service. Food and Drinks Market Technology forms the key force in the present market. A recent research conducted by KPMG indicates that the most significant impact is made by engaging the consumers through social media and digital channel (KPMG, 2013). The back office is also evolving as the research showed that respondents had stressed on the plan of implementing cloud computing service in their operations (KPMG, 2013). In another report, it has been found out that the food and drinks manufacturing industry has been contributing 18% revenue of the total manufacturing sector in the UK. Operating with 400, 000 employees, this industry is able to contribute to 16% of the workforce in manufacturing sector. UK exports £19 bn of food and drink products to the trading partner, Europe (Food and Drink Federation, 2014). The UK food and drinks industry spends over £350mn into R&D by virtue of which they produced over 16000 new products in 2013 (Delloite, 2014). Another report suggested that with the growing disposable income of people in emerging market, the opportunity of strengthening market position of the industry is immense. The report recognises challenges that would be encountered by the industry in achieving these opportunities by working upon the critical future uncertainties associated with the industry. Competitor Analysis The major competitors of Starbucks are Costa and Cafe Nero. Costa Coffee is one of the renowned companies of the world. The company acts as a major competitive force in the UK industry. It has been observed that over the last few years there has been stiff competition between the major coffee players (Global Exchange, 2011). In the similar way Cafe Nero, is one of the family owned business which has flourished after their robust marketing efforts and high level of acceptance by the customers (KPMG, 2013). Objectives The following table shows the SMART objectives of Starbucks. S SPECIFIC Increase profit and sales M MEASUREMENT Increase in 5% profit and 10% sales A ACHIEVABLE The target is assumed to be achievable R REALISTIC Given the brand image of Starbucks, the target is realistic. T TIME The time to achieve is assumed as 3 years Segmentation Targeting and Positioning Segmentation & Targeting Starbucks generally uses demographic and psychographic segmentation (Starbucks, 2011). Demographic segmentation is splitting the market into sub groups, according to customer’s age, income, gender, ethnicity or religion; whereas psychographic segmentation mainly deals with dividing the market, as per consumer’s lifestyle (Starbucks, 2011). Starbucks generally focuses on well-educated families in the age group of 40. As a result, they have established a prestigious image. Through psychographic segmentation, Starbucks appeal to high income college graduates, who are fond of socialising and sharing a neighbourhood (Delloite, 2012). Positioning Positioning of a product implies introducing a product in a market, where it is competent to beat competition. Starbucks has positioned themselves as a destination with entertainment for satisfying customers by providing them with a unique coffee shop experience, despite presence of competitors posing threat to its existence. Starbucks needs to work upon their positioning strategy (Playing the Point, 2013). Presently, they are operating in the High Price-High Quality sector (marked by oval), but in order to stay in the competition and achieve success in emerging markets, they require to offer products for the sector marked by the rectangle, representing High Quality-Low Price in the diagram below (Geereddy, 2014.). Figure.1 Market Positioning Map High Quality Low Price High Price Low Quality (Source: Author’s Creation) Customer Value Proposition This is a very important aspect for every business. Every company must have a compelling value proposition. This is the most important phase of marketing because it is very difficult to sell a product or service if its value cannot be articulated. The process of creating the value proposition has three stages (Loeb, 2013). Identifying Customer Benefits. Linking those benefits to the existing mechanism for delivering value. Mapping the basis for differentiation. Starbucks has a well knitted value proposition. Their value proposition focuses on brand strategy, which was captured by the phrase “live coffee” (Bhagat, 2013). Through this brand strategy, they try to enhance the daily lives of customers with an experience that they desire. The three components of the brand strategy are to provide the best coffee possible to customers with customised services, along with an atmosphere that would allow a sense of community to the visitors (Bagley, 2013). Marketing Mix Marketing mix is very crucial for any business as this determines offerings made by a brand to the public. Similarly, Starbucks also has a well thought marketing mix in place. Product: Speciality of Starbucks lies in coffee and related beverages. The different flavoured tea is available under the categories of Tazo Tea and Chai Tea. Besides these, Starbucks also have a variety of espresso and latte to offer to their customers. The company should consider introducing a line of organic drinks to add to their portfolio (Friesner, 2014). Price: Starbucks has its products priced in the premium range so as to suit their target customers. They price their coffee according to size and the tea according to the number of tea bags used. They can set price of the new product following the penetrative pricing strategy. This would enable them to achieve more sales and people would not mind paying more, once they are assured of quality and standard of the product (Dutta, 2011). Promotion: Starbucks, similar to several other big companies, follows innovative and creative promotional ways (Maclaran et al., 2012). A community website to gather feedback from the customers is being started. They have reward programmes and stored-value cards for customers. Starbucks should spend on advertising so as to grab further attention and in turn increase their reach and target market (Friesner, 2014). People: Starbucks has properly staffed their operation with people with proven track records. Starbucks must always focus on conducting training and knowledge sharing sessions, which would enhance skills of the employees for coping with changes in the present business market. Physical Evidence: The famous Starbucks logo has successfully related customers with the brand over the years. The green colour highlighting the logo can also be adequately articulated, if they want to extend into the organic drinks section. In addition, they already have some catchy lines to attract customers, such as; “It’s not just coffee. It’s Starbucks”. The company might frame an equally catchy phrase to promote the new products other than coffee (Davenport, 2009). Place: In spite of starting operation in the UK and establishing huge presence in the USA, Starbucks must now consider venturing into the emerging markets. They have recently set their foot in China and India by opening few stores. They must strategically place their stores all over these countries to earn greater revenues and effectively reach out to the market. Process: Generally, Starbucks operate through joint venture and licensing. They may contemplate to operate through franchisee, which would again increase their market reach, thereby enabling them to generate greater sales. Recommendations Starbucks, with near about 18000 stores worldwide with approximately 13000 in America, is presently in an enviable position. Yet, there are ample areas, where the company need to work upon so as to attain a better position in the market. Certain recommendations for Starbucks to achieve a better position are: Starbucks must concentrate more upon extending their business in emerging countries. The opportunities for them would increase significantly, leading to increase in income of people in these countries, thereby raising the demand (Rogers, 2001). In its plan to expand globally, the company needs to transfer the core competencies from one country to the other and build the profit drivers gradually in the countries. Changes in lifestyle would lead more consumers to shift towards snacks and beverage, which is why Starbucks must include certain healthy product offerings in its mix (Mullin, 2010). Price of coffee beans is subjected to fluctuation. Due to instability in price of the coffee beans, the price to be paid by customers for coffee also changes. This volatility can be addressed by Starbucks through hedging strategies, so that future price changes can be tapped effectively (Sandhusen, 2000). The growth strategy can be achieved by Starbucks by extending business to the semi-urban places by way of lowering price (Buvat and Welch, 2014). The distribution of products for Starbucks is traditionally done through their own stores. They must have shelf space in retail stores and huge departmental stores, which will increase their distribution (Hastings, 2011). They can also consider developing their technology and launching mobile applications whereby coffee can be ordered from Starbucks. The company can even undertake initiatives like, coffee on demand, through which home delivery of products can be facilitated (Gupta, 2009). Conclusion Starbucks has been successful over years with their differentiation strategies and word-of-mouth promotions (Davidow, 1986). In the present world, where competition is increasing every day, there lies a doubt whether or not Starbucks can maintain their legacy with the same strategies, which they have been practicing so far. Studies have proven that the company’s competitors are currently performing better as they have taken routes that have been avoided by Starbucks. Heavy marketing with the help of special promotions and advertisements are providing the competitors with an edge over Starbucks (Kumar and Tyagi, 2004). In order to keep their brand name and market share intact, Starbucks need improvise upon ways to conduct business. The recommendations that have been enumerated in the project might help the biggest coffee seller to formulate ways in which they can tap the markets and consequently, bring along improvements, in terms of revenue and share (Conservation International, 2014). Reference List Bagley, R., 2013. How to develop a compelling value proposition. [online] Available at: [Accessed 19 June 2014]. Bhagat, A., 2013. Different value propositions and customers. [online] Available at: [Accessed 19 June 2014]. Buvat, J. and Welch, M., 2014. Starbucks: Taking the Starbucks experience digital. [pdf] Capgemini Consulting. 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