Starbucks Market Review - Report Example

Starbucks Market Review Starbucks Market Review Introduction As the largest coffeehouse in the world, the Starbucks is synonymous with coffee; high-quality coffee. The company’s brand image is unlike any of its rivals’. Starbucks is not just a coffee retailer; it is a culture and a very profitable one at that. Prior to its establishment in 1971, coffee drinking was not as fancy as it is now. The company’s founder, Howard Schultz, made coffee drinking trendy and fashionable using a unique business model that made branding its top priority. Currently, Starbucks relies on its brand image to dominate the market. In fact, millions of people around the world buy the company’s products because of the visibility and richness of the brand. It would be misleading to argue that the company sells the best coffee in America, let alone the world. There are probably thousands of coffeehouses that sell better coffee than Starbucks, but the business has ensured that it remains the most recognizable out of a multitude of competitors. Analysis Starbucks represents what a successful differentiation focus approach should be. The company’s differentiation strategy is aimed at providing premium products to high-end customers who do not care about price if the product is high-quality. Starbucks is, in essence, a premium, focused selection retailer that sells different coffee and tea brands to consumers who love those products at a premium price. It makes thorough use of this strategy and focuses most of its marketing and advertising efforts to making this approach work (Akdeniz, 2014). Having affirmed its position as the market leader in superior coffee, the company does not see the need to adopt aggressive marketing techniques similar to its competitors. Instead, it has embraced niche marketing and word-of-mouth advertising to stand out from the competition. This is still part of its differentiation strategy; if it wants to look unique it must be distinct at all levels. Starbucks does not employ intensive marketing strategies that make it look “desperate” for customers because consumers who know premium coffee do not need prodding to be part of the culture. Since its establishment, Starbucks has stuck to this mantra religiously, and this is what has given it an air of exclusivity that other brands lack. The target market has only served to reinforce this strategy, and it is worth noting that the company has not changed its target market since it started operations (Hess, 2013). Within the first decade of operations, the company had already firmly entrenched its philosophy of superiority and captured the market it wanted. By the 1990s, Starbucks was seen as “third home” for many consumers. The “third home” slogan comes from the notion that after the house and the office, Starbucks is the next best place one can spend their time. Critical examination of the global coffeehouse segment shows that the company stands out in this regard. Perhaps there are other firms that offer similar benefits, but they lack the global platform Starbucks has. From Tampa to Tokyo, high-end consumers have taken to the company’s cozy and welcoming nature. Starbucks has also made extensive use of partnerships to promote its brand subtly instead of plastering it all over the media in markets it is not even interested in. It uses little or no direct marketing through advertisements and other types of promotions. Although it has an email distribution list, only its customers can register for it (Sisodia, Wolfe, & Sheth, 2014). In summary, it does not bandy the brand in the hope that it will capture more consumers and grow its market share. Currently, it uses a combination of partnerships (with like-minded companies), ethically conscious outfits and forays into general customer markets. These are augmented by great customer experience and brand integrity, which are visible in all its stores across the world. Alliances are a central component in Starbucks’ corporate marketing strategy. In fact, its strategic partnerships have been cited as a major platform for its enduring growth and success. Partnerships are the biggest supporters of Starbucks’ brand visibility. The company forges alliances with businesses and social entities at all levels, and this gives it more recognition. The result is a better brand image, reputation, and frequent visibility to millions of potential customers. In 2006, for example, the company partnered with the National Association for the Advancement of Colored People (NAACP) to further both groups’ visions of socioeconomic equality (Wheeler, 2013). Any donations made to the NAACP by Starbucks are premeditated and included in the company’s annual marketing plan. Another revolutionary partnership 1993 saw the company join forces with Barnes and Noble to become its official in-house coffeehouse. Barnes and Noble, a Fortune 500 company, helped market Starbucks to its large customer base and strengthened its image of exclusivity. Other notable alliances have roped in ice cream manufacturers, United Airlines, Kraft Foods, and hotel chains. However, the biggest and most profitable partnership to date has been with the entertainment industry, particularly the music segment. Currently, the company is one of the most influential music vendors in the United States. It is extremely discerning in the song titles, and the collection is small, but it offers its selection at a premium. Starbucks has also collaborated with Apple on the iTunes platform, a partnership that yielded the “song of the week” concept (Katie, 2013). However, in spite of the profitability of music and food mergers, the company enforces and sticks to its spine: superior coffee and superior customer coffee experiences. The company has displayed a high affinity for strategic partnerships and has assimilated, accepted, and profited from such alliances in terms of financial gain and progressive marketing. Starbucks has an excellent grasp of product differentiation and brand image, two factors that have propelled it to the top of the global coffeehouse segment. It has exploited consumer perception better than its rivals, by developing and selling an inflated lifestyle to accompany its products. In reality, Starbucks’s so-called premium coffee is not entirely superior to its competitors. As a matter of fact, they taste basically the same. The target markets, the customer experience, and the reputation are the only major differences between the rivals (Stead & Stead, 2013). For high-end consumers, the perception is that they would rather have premium coffee at Starbucks’ homely outlets than at Dunkin Donuts or McDonald’s. They prefer the exclusive setting and service offered at Starbucks to the mass market-oriented service of competitors. This is one of Starbucks’ greatest successes in terms of marketing. It has used differentiation to create the impression that its products and service are the zeniths of coffee retailing. The company also understands that its success is heavily dependent on its brand value (that it guards jealously) and image. As previously mentioned Starbucks charges higher than average market prices for its products. At first glance, this appears to clash with its growth plan. However, deeper examination reveals that unlike other companies that would fail with this strategy owing to the consumers they target (mass market), Starbuck can get away with inflated prices because it focuses on premium customers (Baaghil, 2013). The company is based in a sector with a monopolistically competitive industry structure, and this has allowed it to control its premium prices. It has set a benchmark for its coffee and identified customers who do not give much consideration to inflated prices so long as they receive superior service and products. Starbucks makes extensive use of its logo and trademarks. The company’s logo is always visible in all its activities and representations, so much so that even consumers who do not subscribe to its methods are aware of its existence and activities. Starbucks’ main rivals are other specialty coffeehouses and fast food outlets (e.g., McDonald’s) that have the resources and experience to go head-to-head with the company in its marketing and product development. In recent years, large American rivals have launched massive onslaughts on Starbucks’ core markets and made it harder for it to continue dominating the market as it used to (Wheeler, 2013). However, despite some competitors offering much lower prices to venture into Starbucks’ market share, the company has retained most of its market presence because its consumers still buy into its slogan of superior service, products, and “the higher the cost, the better the product.” Although some consumers do not want to spend “insane” sums of money on Starbucks’ coffee when Panera Bread and others are offering similar products at lower prices, high-end customers do not buy into this. Conclusion Starbucks has been successful because of its excellent differentiation strategy. As this paper shows, although the company does offer high-quality products, they are not as special as they are marketed. The key lies in its strong adherence to exclusivity and uniqueness. Also, unlike other coffeehouses like Dunkin Donuts, Starbucks has been differentiating itself for close to half a century now, so rivals have a lot of catching up to do. Based on industry figures and statistics, it is clear that the only major threat to the company’s dominance would be rivals that manage to demystify the exclusivity slogan or offer extremely superior products and customer experiences to the same target market. However, this seems unlikely at the moment. Starbucks continues reinventing itself through differentiation and innovative marketing strategies that would take some doing to beat. References Akdeniz, C. (2014). More than coffee: The secrets of Starbucks success. New York: On Demand Publishing LLC. Baaghil, S. (2013). The power of belonging: A marketing strategy for branding. S.l.: iUniverse. Hess, E. (2013). Smart growth building an enduring business by managing the risks of growth (Unabridged ed.). New York: Columbia Business School Pub. Katie, J. (2013). Starbucks strategy. Munich: GRIN Verlag GmbH. Michelli, J. (2013). Starbucks leadership lessons: 2 e-book bundle. New York: McGraw-Hill Education. Sisodia, R., Wolfe, D., & Sheth, J. (2014). Firms of endearment: How world-class companies profit from passion and purpose (2nd ed.). Upper Saddle River: Pearson Education. Stead, W., & Stead, J. (2013). Sustainable strategic management (Illustrated ed.). Armonk, N.Y.: M.E. Sharpe. Wheeler, A. (2013). Designing brand identity: An essential guide for the whole branding team (4.th ed.). Hoboken. N.J.: John Wiley. Read More