Marketing Strategy of Starbucks in the United Kingdom - Case Study Example

Market research: Starbucks UK Summary The paper is focussed on discussing the marketing strategy of Starbucks in the United Kingdom (UK). In the following sections, history and company profile of Starbucks have been briefly explained. Following that, the food and beverage industry of the UK and its present scenario have been highlighted. In the third section of the paper, Segmentation, Targeting, Positioning and Customer Value Proposition analysis of Starbucks have been undertaken. Next to that, various market strategies employed by Starbucks in the UK has been discussed elaborately. Lastly, recommendations have been added so that the company can improve its performance in the country in near future. Introduction: Company profile The inception of Starbucks dates back to 1971, when the multinational coffee chain of American origin opened its first coffee shop in Seattle, Washington. During those days, the company was mostly in roasting and retailing of whole bean and ground coffee, spices and tea. In 1982, the company was joined by Howard Schultz, the retail and marketing operations director. The director travelled to Italy, where he observed the concept of espresso bars and coffeehouse culture and decided to implement the same for expansion of Starbucks (Starbucks, 2014). Ever since, the company grew swiftly and in 1991, it became the first private company in the United States to offer stock option programs. In 1992, the company went public through Initial Public Offerings. The company is listed in NASDAQ and its current market capitalization is $43,049 million with approximately 753 million outstanding shares (NASDAQ, 2014). Presently, the company is spread across 60 countries with a total of 19767 stores across the world as per data reported on September, 2013. Starbucks sells a number of products such as, different blends of coffee, handcrafted beverages and fresh eatables such as, sandwiches. Alongside, it also sells accessories and merchandises such as, coffee mugs and packaged goods. Starbucks entered in the United Kingdom in 1998 and within 2011, it operated around 607 stores and 128 Starbucks licensed stores in the UK. However, the company faced certain tax related problems in the country (Starbucks, 2014). The following sections will discuss marketing strategies and planning undertaken by the company in order to operate in the UK, its prime competitors, target market and strategies related to product development. Analysis of food and beverage market of the United Kingdom In 2009, sale of coffee in the UK generated revenue of approximately $1235 million, of which 80% comprised instant coffee. Recent studies show that the beverage and food market witnessed a number of new entrants in past two decades. According to Yahoo finance (2014), revenue value of the total coffee shop market of the UK is £68 billion. However, the café market is highly dominated by three coffee chains, namely Costa Coffee, Starbucks and Caffé Nero. Collectively, they control about 54% of the UK’s coffee chain market. Starbucks enjoys certain advantages in the UK market because of growing preference of individuals towards café that serve food and non-alcoholic beverages such as, coffee, smoothies and tea. The coffee culture has been embraced tremendously well by the UK consumers. Costa coffee is so far the largest coffee chain operating in the country and has around 1670 stores. On the other hand, Starbucks has around 790 stores and that of Caffé Nero is 560. It was observed that in 2013, the sale of branded coffee chain grew by 9.3%, while the aggregate sale rose by 6.4%. From the above data, it is clearly understandable that the main competitors of Starbucks UK are Costa Coffee and Caffé Nero; however, it is worth mentioning that the local coffee shops are also growing at a rapid rate and can prove to be major threats for the company (Houlder, 2014). Segmentation, Targeting, Positioning and Customer Value Proposition Market segmentation is one of the important marketing strategies generally employed by retail companies and brands for understanding their target consumers. A market can be segmented on the basis of demography, psychological needs, psychographic needs and geographical locations. Starbucks usually apply demographic, geographic and psychographic segmentation. The target consumers are primarily of the age group 18-45 years who are male as well as female. These individuals are mostly students and employed individuals. Starbucks is mainly located in areas that are close to offices and educational institutions such as, college and university campuses. The psychographic aspect of the company is that due to its high brand value and reputation, individuals connect the brand to their lifestyle (Dibb and Simkin, 2001). Targeting is to define the group of consumers who will buy the company’s products. These consumers are also called Target market. Starbucks not only serve coffee, but also a number of complimentary food items such as, sandwiches and other ready-to-eat products. In the UK, consumers in their fast life prefer quick bites and eatables that they can have on the move. As a result, the main consumers of Starbucks are young adults, teenagers and adult of age group 35-45 years (Armstrong and Cunningham, 2012). When the target market is decided, the next important decision is to determine the position to be occupied by the products in mind of the consumer or target market. Presently, Starbucks is positioned in the UK as a luxury brand that boosts the social status of individuals. Moreover, seasonal offerings by the Starbucks stores uphold the company as an innovative delight for several consumers (Kalafatis, Tsogas and Blankson, 2000). Consumer value proposition (CVP) is defined as the aggregate tangible and intangible pleasure that a consumer derives from a product in exchange of certain price paid to the company. Higher CVP adds competitive advantage for a company as the probability of repurchasing increases. Starbucks enjoys high CVP in the UK because of the variety and quality of blends it serves in the beverage section, complimentary eatables and quality ambience (Anderson, Narus and Van Rossum, 2006). Marketing review of current activities: 7Ps of marketing mix Similar to STP (Segmentation, Targeting and Positioning), marketing mix is an important marketing tool used by companies in product planning and development. Marketing mix plays an important role in product life cycle. There are mainly four elements of marketing mix known as 4Ps, which can be further elaborated to 7Ps. These 7Ps are Product, Price, Promotion, Place, People, Process and Performance or Physical evidence (Goi, 2009). i. Product Starbucks has always given priority to minute details while creating their products. By products, the current paper indicates at variety of coffee blends (hot and cold) and other related beverages that the company sells to consumers. Nonetheless, the core product of Starbucks is coffee, while the other products such as teas, smoothies and eatables are complementary in nature (Forbes, 2013). ii. Price The main competitors of Starbucks are Costa Coffee and Caffé Nero. It was observed that Starbucks employs competition pricing strategy to sell products in the country. The competitive prices of cappuccino of all three companies are given below: Starbucks Tall: £2.15; Grande: £2.50; Venti: £2.75 Costa Coffee Regular: £2.15; Medium: £2.45; Large: £2.65 Caffé Nero The company has dual price for takeaway and drink-in products. Takeaway: Small £1.85; Regular £2.20; Grande £2.50 Drink-in: Small £1.90; Regular £2.30; Grande £2.65 iii. Promotion Promotion mix mainly comprises advertising, personal selling, sales promotion, public relation, direct marketing and online marketing (social marketing). The promotional techniques of Starbucks include digital offering (online or mobile coffee-ordering), loyalty programs and seasonal innovative offerings and attractive ambience. In addition, the company builds public relation through various environmental campaigns and charities and social marketing over Facebook and Twitter (The guardian, 2014). iv. Place Presently, Starbucks has a number of stores as well as licensed stores to sell its products in the UK and these stores are well-placed so as to attract maximum number of consumers. Even so, Starbucks should also establish franchisees in the UK as they can be controlled better than licensees. v. People According to Brassington and Pettitt (2006), consumers of a product or service often determine its performance. For instance, the number, type and attitude of consumers at Starbucks will determine the strength of its marketing strategy and product performance. vi. Process Process implies various administrative and bureaucratic activities of an organization. In Starbucks, the processes involve serving in-store consumers, taking and delivering online orders, managing rush hour demands, management of accounts and rewards and above all, maintenance of quality. vii. Performance/ physical evidence According to the Booms and Bitner Framework, performance should be supported by physical evidences. This provides scope and opportunities for improvement in future. In Starbucks, physical evidences can be explained in terms of innovative ambience and personal touch in products (name of consumers on their cups) (Brassington and Pettitt, 2006). Existing Product Management and New Product Development The marketing strategies for existing products are very different from that of new products as these are two different stages of Product Life Cycle. For managing its existing products, Starbucks needs to take into consideration the existing features, brand perception, benefits, consumer satisfaction level and price of the product. Based on these factors, the company can modify its products, increase the price and change the product outlook. The product should be modified with an intention to increase its popularity and consumer satisfaction. Promoting existing products to consumers is a difficult task as they generally have a matured market. However, in this regard, Starbucks can promote the product to consumers by explaining them necessity of the modification for improvement in product and better service (Smith, Collins and Clark, 2005). New product development can be advantageous as well as disadvantageous for a company. New products are generally developed by a company so as to meet changing consumer preference and target broader audience base. An important aspect that the company needs to consider is quality of the product, which should be superior or equivalent to the existing products. The pricing strategy of the product can be market penetration, market skimming and competitive pricing, depending upon way adopted by the company to position the product. Competitive pricing is not considered suitable for new products as substitutes of new products are generally less. For example, if Starbucks is introducing a new drink (coffee or other beverage section), then it can promote the product to in-house consumers through posters and banners. Alternatively, the company can serve the drink as a complementary one or at a promotional (discounted) price (Krishnan and Ulrich, 2001; Ulrich, 2003). Recommendations Considering current scenario and marketing activities of the company, the following recommendations can be suggested regarding its marketing and overall strategic decisions: i. Acquisition and retention It has been observed the in the UK, Starbucks has a number of direct stores and licensed stores. Nonetheless, the company does not have any franchisee in the country. The main advantage of franchisee is that the company can exercise better control without disclosing its trade secrets. It can also earn profit with limited efforts. ii. Product development In order to earn competitive advantage, the company can undertake new product development strategy as well as strategies related to innovative changes in existing products. Starbucks is an American company, which needs to consider that the preference and taste of American consumers and that of European consumers are different. Consequently, the company can recreate existing products and/or introduce new products, keeping in view the consumers’ demand. iii. Distribution channels Although Starbucks has an elaborated complex supply chain management system with a number of integrated distribution channels, the company can consider developing local distribution channels in order to reduce overall cost of the product. The company will be able to reduce total cost of sale by involving local suppliers and distribution partners, thereby providing better service to consumers at lower cost. iv. Innovation Innovation is considered to be the key driver of success in a business. It is important for Starbucks to incorporate innovative strategies in its services and products for gaining competitive edge. The company can change the store interiors at regular intervals to add fresh touch. Furthermore, it can create new products for the target audience as well as add innovative touch to improve service deliveries. v. Price Mechanism Starbucks follows competitive pricing strategies; but to have a better consumer base, the company should apply penetration pricing along with competitive pricing. Penetration pricing will help to attract consumers of local businesses, who avoid Starbucks due to high cost. In addition, the company can also apply market differentiated pricing, thereby charging slightly higher price in comparatively affluent neighbourhoods and business locations. Conclusion In this paper, the current and required marketing strategy of Starbucks in the UK has been discussed elaborately. Also, a brief analysis of the country’s food and beverage market has been done so as to realize the competitive advantages of Starbucks therein. In this regard, various diagrams related to the marketing tools employed in this paper have been attached in the appendix. Reference list Anderson, J. C., Narus, J. A. and Van Rossum, W., 2006. Customer value propositions in business markets. Harvard business review, 84(3), pp. 90-91. Armstrong, G. and Cunningham, M. H., 2012. Principles of marketing. Australia: Pearson. Brassington, F. and Pettitt, S., 2006. Principles of marketing. New Jersey: Pearson Education. Dibb, S. and Simkin, L., 2001. Market segmentation: diagnosing and treating the barriers. Industrial Marketing Management, 30(8), pp. 609-625. Forbes, 2013. Starbucks and McDonalds Winning Strategy. [online] Available at: [Accessed on 02 July 2014]. Goi, C. L., 2009. A review of marketing mix: 4Ps or more? International Journal of Marketing Studies, 1(1), pp. 50-79. Houlder, V., 2014. British coffee chain market heats up. [online] Available at: [Accessed on 02 July 2014]. Kalafatis, S. P., Tsogas, M. H. and Blankson, C., 2000. Positioning strategies in business markets. Journal of Business & Industrial Marketing, 15(6), pp. 416-437. Krishnan, V. and Ulrich, K. T., 2001. Product development decisions: A review of the literature. Management science, 47(1), pp. 1-21. NASDAQ, 2014. Starbucks Corporation Institutional Ownership. [online] Available at: [Accessed on 02 July 2014]. Smith, K. G., Collins, C. J. and Clark, K. D., 2005. Existing knowledge, knowledge creation capability, and the rate of new product introduction in high-technology firms. Academy of Management Journal, 48(2), pp. 346-357. Starbucks, 2014. Starbucks company profile. [pdf] Starbucks. Available at: [Accessed on 02 July 2014]. The guardian, 2014. Store Wars: Caffè Nero and Starbucks. [online] Available at: [Accessed on 03 July 2014]. Ulrich, K. T., 2003. Product design and development. India: Tata McGraw-Hill Education. Yahoo Finance, 2014. Food & Beverage Sector News. [online] Available at: [Accessed on 02 July 2014]. Appendix Figures Figure 1 (Source: Author’s creation) Figure 2 (Source: Author’s creation) Read More