Marketing Analysis: Starbucks United Kingdom - Case Study Example

Marketing Analysis: Starbucks United Kingdom Executive Summary The research paper has focused on marketing activities of Starbucks in the U.K. Despite being a very popular and successful business organization, trade of Starbucks in the U.K. is experiencing increased revenue, but declining profitability with time. It is found that the firm primarily implements standardized business strategy in the U.K. and the products are priced mostly through value based strategy. However, the research paper shows that increased competition within the restaurant industry and declining real discretionary spending powers of individuals in the U.K. have created barriers for the company’s commercial expansion. At this juncture, the company can resolve the business problems by incorporating certain changes. The research will prove that new pricing strategy, increased business internationalization and a more detailed vertical integration process can facilitate the company’s growth in long run. Contents Introduction: Company Overview 4 Nature of Business 4 Marketing Mix 4 4 P Analysis 5 Starbucks Business Environment 6 Current Marketing Environment 6 Starbucks Branding 6 Market Segmentation 7 Marketing Process 7 Pricing and Communication Strategy 7 SWOT 8 PESTLE 10 Recommendations 11 Conclusion 12 Reference List 13 Introduction: Company Overview This report will focus on Starbucks Corporation, a popular multinational publicly traded organization, which engages in global coffee producing and selling. It is based in Seattle, Washington. Since its inception in 1971, the company has expanded across several international branches and operates in more than 64 countries (Starbucks Coffee Company, 2011). In 2013, it was estimated that the company owns 18000 retailing outlets and recruits more than 200000 employees around the world (Starbucks, 2014). As of 2013, the aggregate revenue of Starbucks was US$ 14.89 billion and net operating profit was US$ 325.4 (Starbucks, 2014). This research report will analyze marketing activities of the company in the U.K. the analysis is rational because; despite increasing revenue, the company is experiencing declining profitability trends in the U.K. Nature of Business Starbucks is a popular coffee producing company that sells variety of brewed and in-house coffees flavours in the U.K. Apart from selling coffee, the company also sells other products such as, cold and hot beverages, sandwiches, snacks and pastries. The coffee and liquid beverages of the company are sold in different standardized measurements, such as, demi, short, tall, grande, venti and trenta (Starbucks Coffee Company, 2011). Most of the coffee beans used by Starbucks are procured from Latin American and African countries. The company’s products are sold in its own retailing outlets. The company stores sell pre-packed products and few even offer beer, appetizers and wine in the evenings. Some products of Starbucks are also traded in supermarkets of the U.K. such as, Tesco and Sainsbury. The business channels of Starbucks external to its retailing stores are commonly known as speciality operations (Lee, 2010). Marketing Mix The marketing activities conducted by Starbucks in the U.K. market are explained by the following 4P analysis model. 4 P Analysis Product Starbucks implements the strategy of differentiation in business. The firm not only specializes in selling grounded and brewed coffee of different flavours, but also produces beverages of diverse types for customers in the U.K. Tazo and Chai are two popular categories of tea sold by the company (Lee, 2010). It also offers variety of espresso and latte. In 2012, the company had launched a new kind of coffee known as Verismo (Lee, 2010). Price The company implements premium pricing strategy. It tries to maximize the Veblen effect in business, where consumers are convinced that products prices are high owing to superior quality. The coffee is priced by the company according to sizes ordered and tea is priced based on the number of tea bags used by a customer. Place At present, Starbucks conducts business operations in 64 countries worldwide such as, those in North America, Africa, Asia and Europe. Starbucks aims to extend its business branches in emerging markets such as, China (Lee, 2010). It conducts business in different places through licensing, direct investment and franchising. Promotion The company has primarily used word-of-mouth promotional strategy. However, it is presently promoting the brand name over social media across the U.K. and other markets. The company has also introduced special reward programs and discount customer member cards for loyal buyers. The recent “Tweet a Coffee” promotional activity of Starbucks was conducted over internet and the platform used was smart phones (Lee, 2010). The firm primarily promotes the brand through Twitter. Production The company’s products are produced with the help of superior technologies. It procures fine quality rare coffee bean products primarily through fair trade agreements from diverse geographical locations. The firm owns several roasting plants in the U.K, thereby experiencing a wide base of vertical integration. Starbucks Business Environment Starbucks tries to expand in the U.K. through sustainability. It acquires coffee beans from farmers on the basis of fair trading and in turn enhances their welfare. For instance, the company finances community building programs for farmers and provides them with financial aids for educational purpose. Starbucks also encourages usage of recycled products in business. It follows specific guidelines for coffee sourcing (KPMG, 2013). So, it can be claimed that the business environment of Starbucks helps to enhance its brand value in the market. Current Marketing Environment Starbucks is a popular multinational coffee producing company in the U.K., which owns a high brand value therein. Owing to strong market position, the firm is able to generate high revenue in the U.K. Moreover, by expanding the scope and scale of its business internationalization process, Starbucks aims to enhance brand value for a wider base of customers in long run (Lee, 2010). The company enjoys advanced channels of product distribution and maintains healthy relationships with suppliers. The consumer products group division of Starbucks helps to distribute products in the U.K. market. Starbucks Branding Starbucks establishes prices of its products on grounds of attributes and benefits. The company implements value based pricing strategy in business and enhances branding value by introducing several brand extension programs through launch of new merchandisers. Furthermore, the company tries to expand its existing product lines by implementing product mix strategies in business. Selling of products and merchandizes of the company in supermarkets of the U.K. is also a part of the branding strategy. The company engages in promotional acts through social media sites such as, Twitter. The branding strategies of Starbucks are framed after adequate market research (Lee, 2010). Market Segmentation Starbucks implements demographic market segmentation strategy across marketplaces of the U.K. Under this strategy, the company targets potential buyers in terms of demographic factors such as, age and income. It primarily targets customers between 25 to 40 years old (Starbucks, 2011). However, the company stores mainly target middle and upper middle income customers. Marketing Process Figure 2: Marketing Process (Source: Author’s Creation) The marketing process followed by Starbucks in the U.K. is presented in the above flowchart. Through this process, the company aims to expand market penetration rate in the U.K., offer high quality products to customers, create a superior working environment and achieve enhanced profitability (Lee, 2010). Pricing and Communication Strategy Starbucks implements value based pricing strategy in business. The company claims that the products are expensive because of superior quality. It maintains strict quality control programs and ensures presence of standard coffee sourcing lines (Lee, 2010). The communication strategy of Starbucks tries to enhance the level of stakeholders’ engagement within business. Advertisements, publicity, new product launches, social and public sponsorship and sales promotion related activities form part of the firm’s marketing communication program (Lee, 2010). SWOT Strengths Starbucks experiences high brand value in the U.K. Experiences a long learning curve in business Aggregate revenue of the company is increasing with time Owns highly skilled and productive workforce (Sandhusen, 2000) The coffee beans of Starbucks are also sold by other popular companies through license agreements such as, Aramark Foods and Services (Lee, 2010). Owns a wide in-house speciality service branches in supermarkets, shopping malls, hospitals, airlines and country clubs of the U.K. Trades products offered through joint venture agreements with other renowned companies such as, PepsiCo and Dreyer Grinds Ice-cream. Produces products with superior technologies and uses attractive packaging systems. Conducts business operations ethically and sustainably across various marketplaces. Opportunities The company can further expand business in urban and rural locations of the U.K. The company can launch a new line of organic beverages for health conscious affluent customers (Lee, 2010). Starbucks should expand the scale of its own coffee beans production and become less dependent on external market suppliers. Starbucks should expand sales and try to lower costs by experiencing economies of scale in production The company should establish new trading relationships with other retailers Starbucks can procure labour and other resources at lower costs from developing economies while operating in the U.K. (Rao, 2004). Weakness After the recession of 2008, the company’s revenue growth has declined and profit market has fallen. The business of Starbucks is still primarily dependent on a single competitive advantage, which is selling coffee. The profit generated is greatly regulated on the procurement prices of its coffee beans. The prices of coffee beans fluctuate with variations climatic conditions. The premium prices of products render them less competitive in the market. The company’s brand image in the U.K. is adversely affected due to negative publicity regarding its tax evasion activities (Lee, 2010). Threats Rising prices of dairy products and coffee beans is increasing operational cost of the company The markets of developed economies such as, the U.K., are becoming saturated Increased rivalry within the industry is lowering market share of Starbucks. The companies like, Costa Coffee and Coffee Nero, are potential rivals of the company in the U.K. (Lee, 2010). The firm is also facing numerous problems such as, legal infringements and supply disruptions. The rapidly changing tastes and preferences of consumers have forced the company to invest more in innovation purposes. PESTLE Political Starbucks’s business in the U.K. is subjected to political rules imposed by the U.K. CAP Codes Institute. Superior relationships of the U.K. with tropical countries in the world help Starbucks to easily procure raw materials from the latter. New acquisitions and venture contracts are framed by the organization in the U.K., along with assistance of the government. Nevertheless, the government of the U.K. has introduced open door policies of foreign trade and has in turn helped to stimulate Starbucks internationalization process therein. Economical The aggregate demand for food and drinks in the U.K. have substantially enhanced with the essence of improved living standards of individuals. After emergence of the global financial crisis in 2008, it is found that real per person income value and aggregate employability of the individuals have fallen in the U.K. This has lowered discretionary spending powers of the buyers. Hence, consumers presently prefer to consume less expensive coffee and beverage products in the market, thereby adversely affecting the business of Starbucks (Schmidt, 2010). Social The individuals of the U.K. have high living standards and spend a large proportion of their income on entertainment purposes. This has helped to enhance business returns of Starbucks in the country. Moreover, aggregate population of the country has gradually increased due to excessive in-migration. Visiting coffee shops is a part of corporate and youth culture of the country. All such factors have helped Starbucks to expand in the U.K. Technological The government of the U.K. has invested large sums of money to improve overall technological base. So, while conducting business in the U.K., Starbucks could acquire new technologies, which would help to enhance brand value through increased innovation and creativity (Richter, 2012). Legal The U.K. legal authorities impose strict controls on corporate firms operating in the nation and often penalize them, if found guilty. Starbucks could not expand successfully in the U.K. during the initial days due to certain legal issues. The legal authorities claimed that the organization had used money and influence to built its branches in strategic locations, thereby creating artificial barriers for small scale coffee companies in U.K (Mullin, 2010). Environmental The individuals of the U.K. are extremely conscious about protecting and preserving the environment. The brand value of a company in the country significantly depends on its socially responsible activities. In order to augment brand value, Starbucks conducts several environmental and social welfare maximizing activities. Recommendations The company should expand its business branches in emerging markets such as, China and Russia. It can then procure factor services from these markets at lower cost in the U.K. The company can introduce a new range of premium priced organic products for the affluent customers (Porter, 2011). Starbucks should introduce competitive pricing strategy for majority of its products, which will render them more competitive in the market compared to the rivals such as, Costa Coffee. The company should expand its own coffee growing facilities and become less dependent on external suppliers (Maclaran, et al., 2012). Apart from word-of-mouth promotion, the company should invest money for other promotional activities such as, sponsoring sports events or television shows, in order to augment brand popularity in the U.K. markets. Conclusion In present business environment, commercial activities in all major industrial segments have become highly competitive in nature. As a result, firms should try to enhance brand value and revenue in the market through effective marketing management process. It is the process involving anticipation, identification and satisfaction of customers’ requirements by a firm on grounds of its own profitability (Gupta, 2009). From the above analysis, it can be claimed that Starbucks has achieved sufficient commercial success in the U.K.; yet, increased competition, recession and other adverse market uncertainties are lowering growth potentiality and profit of Starbucks therein. In order to eradicate such problems, the company should make certain alterations as per the recommendations. Reference List Gupta, S., 2009. Sales and distribution management. New Delhi: Excel Books India. KPMG, 2013. Food and beverage industry outlook survey. [pdf] KPMG. Available at: [Accessed 30 June 2014]. Lee, K., 2010. Case Study: Starbucks coffee. [pdf] n.p. Available at: [Accessed 30 June 2014]. Maclaran, P., Saren, M., Goulding, C., Elliot, R. and Caterall, M., 2012. Critical marketing. London: Routledge. Mullin, R., 2010. Sales promotion: How to create, implement and integrate campaigns that really work. New Delhi: Kogan Page Publishers. Porter, M. E., 2011. Competitive advantage of nations: creating and sustaining superior performance. London: Simon and Schuster. Rao, K. R. M., 2004. Services marketing. New Delhi: Pearson Education India. Richter, T., 2012. International marketing mix management: theoretical framework, contingency factors and empirical findings from world-markets. Berlin: Logos Verlag Berlin Gmbh. Sandhusen, R., 2000. Marketing: Barron’s business review series. New York: Barrons Educational Series. Schmidt, C., 2010. Report for venture investors: on the emerging market: personalised nutrition. Munich: GRIN Verlag. Starbucks Coffee Company, 2011. Starbucks company profile. [pdf] Starbucks. Available at: [Accessed 30 June 2014]. Starbucks, 2011. Segmenting and targeting market. [online] Available at: [Accessed 30 June 2014]. Starbucks, 2014. Starbucks. [online] Available at: [Accessed 30 June 2014]. Read More