The Marketing Strategies Used by Starbucks - Essay Example

Running Head: Starbucks Starbucks Inc. Analysis and Section # of Introduction to the Company: The company was founded in the year 1971, opening its very first coffee store in Seattle, Washington. Current chairman and chief executive officer Howard Schultz joined the company as the head of marketing and retail operations in 1982. He founded a company that provided espresso and coffee varieties brewed from starbucks’ beans. In 1987 Howard Schultz bought the company with the help of local investors, and it became Starbucks Corporation. The company at the time had 17 coffee stores, including in Chicago and Vancouver, B.C. The company at the time (according to Starbucks annual report for the year 2008) is operating in 49 countries all over the world. By the end of 2008, Starbucks had 16,680 stores, over 11,000 if which are in United States. The range of products provided by starbucks is growing on regular basis. It currently sells brewed coffees, espresso and espresso based drinks, frappuccinos, different varieties of tea, ice creams and other hot and cold drinks. Starbucks also sells different types of snacks, including sandwiches at some of their stores. There are also mugs and other merchandize for sale at some of their stores. Starbucks entertainment is also a very important part of their stores. it provide latest books, magazines and music albums to its customers in their selected stores. Starbucks stores are also connected with wireless internet facilities, so the customer can also enjoy free internet connection on his portable computer while enjoying his coffee. Macro Environment Analysis Industry Overview: Starbuck is part of the “Special eateries and Catering services industry” and is catering for the leisure sector (Hoover’s online). This is a well established industry and is relatively stable. It fits within the largest population segment of disposable income spending on food and beverages. Steady growth in this industry has resulted in many new companies entering the competition. There are relatively few political influences and the industry is little effected by the small changes in the social and technological factors if the environment. Economic environment was solid but due to the current depression the situation is currently subdued. But according to the current requirement of convenience the demand of eating out has suffered relatively less, and the food service industry is growing steadily. PEST Analysis Political influences: Political influence that most concern this industry is the government imposed changes in the minimum wages of the employees. Special eateries and catering services usually are able to easily train their employees to perform their jobs of preparing food or serving coffee. Most of the time there is little requirement of previous experience or an academic qualification. This practice allows the companies to hire minimum wage or slightly above employees. Therefore companies that are the part of the special eateries are sensitive to any change in the minimum wage imposed by the government, because it can majorly affect their labor costs. Other political influences may include regulatory restrictions or licensing restrictions that can be changed or added by the local governments or the state. This may also include antitrust policy of the government regarding mergers or acquisitions. Another factor can be the relationship between government of United States and the coffee producing nations. Since Starbucks is operating on a international scale, therefore any political conflict in any of the countries where starbucks is operating can also influence the industry. Other potential influences can be change in the government rent control; it can affect the prices of housing in the area and possibly labor costs. Change in the Labor laws can also affect the relationship between the employer and the employees. There can also be a number of other influences like tax based determination etc. Economic influences: As I mentioned above, that because of the constant demand for convenience means constant demand for food and beverages therefore the overall economic environment of the special eateries and catering services is relatively stable. But because of the current financial crises, like all industries this industry has also suffered. During the peak of the crises, Starbucks corporation suffered a 28 percent loss in their annual profits at the end of the first quarter of year 2008, and their plans of opening new stores was affected. But we are now entering a period of recovery from the current recession and the industry is again back on the track. “An increase of 5.9 percent in the net profit margin of the industry was recently recorded”. Yahoo finance. (n.d.). Retrieved from http://biz.yahoo.com/ic/713.htm   Another source of concern is the economic relationship between the producers and the domestic purchasers. If we consider the coffee segment of the special eateries industry, then it shows that the coffee producing nations have a great influence on the purchasing companies. There is always the concern for the companies in the industry, that the coffee producers may form an alliance or a cartel-type organization, which may result in the artificial inflation of the coffee prices. For example we know that Brazil and Colombia are the one of the biggest coffee producing nations, any trade alliance between them can affect the prices of coffee bean in United States. Social influences: Socially speaking, the industry has to deal with perceptions of the local population towards coffee. going out to eat and drink at a good place after a hard day at work is a social norm that is unlikely to change dramatically. There is also the need of have good coffee during your work hours to sustain yourself. The social factors that can affect the industry are the change of taste of the consumer towards breakfast items, like bagels or sandwiches. These are the food items that compliment the drinks they go with like coffee. if there is a change then it is likely that the coffee industry might suffer. Although there is always a risk of a social change in trends and tastes, but from the steady demand that is projected it seems unlikely that there should be a concern for the special eateries industry. Technological Influences: Technological trends are unlikely to majorly affect the special eateries and catering services industry because it mainly involves the process of purchasing goods and preparing food from it to serve to the consumer. But on the other hand advancement in technology can affect the marketing process of the industry; promotion through electronic media and advertising and serving customers online. This is a very important factor considering the amount of business that is done online every day. Production and distribution process may also be influenced by the change in technology and introduction of new machinery. For example a new espresso machine may produce more cups of espresso at the same time or may produce better quality of espresso. Micro Environment Analysis SWOT (strengths, weakness, opportunities and threats) Analysis Strengths: Starbucks Corporation has created a successful differentiation of product and experience over the competition and added a value proposition that has been a continuous success.  Starbucks is dominant in the specialty coffee market, attracting its targeted segment and maintaining its niche market.  Growth and expansion, both in US an internationally, have been tremendous ever since, though the concentration of stores in some places has led to a little market cannibalization.  The company has a dedicated and strong relationship with its workforce and a great employee benefit program. Both these factors serve to keep employees involved and enthusiastic, thus maintaining a great level of customer service.  The Starbucks Foundation is now a well known social entity, and has begun to mobilize as a community-minded organization serving the local area of which the Starbucks is a part as well as other generally impoverished communities. Weaknesses       Starbucks Corporation’s only weakness so far is its inability to have cash available for future expansion.  Debt financing can be considered as a major obstacle for Starbucks.   Also, their ever growing product line can also be seen as a weakness, a departure from their long-term vision. It can also negatively influence the strategic objectives previously agreed upon.  Their operating strategy is not very transparent, leading to concerns about the Company’s future. Opportunities       Starbucks is the giant of their industry and they have previously seized any opportunity that came their way. They now have the opportunity to target the lower income population of the world a launch another brand of coffee that may make a few compromises in the current quality but may be able to provide affordable prices. This way starbucks may have a new market to compete in and they can successfully provide competition to McDonalds and Dunkin Donuts.  In addition, their various specialty products that compliment coffee and the environment have a great potential of penetration in the international market. Expanding Starbucks on the international level is still their greatest opportunity. Due to the sudden boom in the information technology, there are many places in the world that have now heard of starbucks and tapping those potential places is still their greatest opportunity. Threats       Starbucks Corporation is very dominant in its industry, but has several major vulnerable points that make it susceptible to potential harm.  Among those vulnerabilities is their lack of ownership in the coffee supply, especially in Central and South America, the problem of concentration of stores in some areas, and possibly the uncertainty of a few new ventures.  The Green coffee bean prices can be subjected to considerable price fluctuations. These fluctuations may be caused by multiple factors acting at once, including environment, political and economic conditions in the respective countries etc.  Certain organizations and associations may be formed that may affect the green coffee bean prices in the future.  Export quotas or trade restrictions, by the producers or even by the International Coffee Association, can also have a substantial affect.   Another major threat to Starbucks is their aggressive growth strategy. the expansion is very complex and a small miscalculation or unforeseen problem may create a big damage for the corporation.  Competitors: Specialty coffee shops, doughnut shops that may also serve drinks and cafés and restaurants all can be included as the Starbucks competitors. On the other hand if you just consider the specialty coffee house industry, Starbucks has no aggressive rival and holds a very comfortable and dominant position. The closest thing to a rival that Starbucks has right now is Caribou Coffee. Caribou coffee has 415 coffee stores in the United States, which is no match for the 11,000 plus stores of starbucks (less than 5 percent). But all this does not mean that Starbucks has no competition at all. Starbucks as a corporation has no strong competitor, but each neighborhood starbucks store may have their own competition in the form of a number of independent or small chain coffee houses. McDonalds, in 2006 upgraded its coffee and started to cater for the consumers who demand good quality coffee. Thus coming in competition with Starbucks. The coffee sales of Mc Donalds increased by up to 15 percent in the year 2006. McDonalds has more than 14000 stores in the United States and their international presence is much more dominant than of the starbucks. McDonalds also have the advantage of having a considerable traffic of customers for the varieties of its well known and popular breakfast options, and enjoying their coffee that compliments it. Furthermore McDonalds announced, in January 2008, that all of its 14000 locations all over the United States will be installed with coffee bars. It must also be noted at this point that McDonalds offer their coffee at cheaper rates than Starbucks. And they also have undertaken marketing campaigns recently that are quite aggressive and bring this fact to highlight. On the other hand Starbucks may also have a slight advantage from all this success of Mc Donalds, because the coffee that McDonalds brew at their locations comes from Seattle’s Best Brand Coffee, which is owned by Starbucks. And we should also remember that Starbucks is marketing to provide good coffee that can be enjoyed in a relaxing friendly environment and McDonalds offer coffee on the go, which is cheaper. So it is a possibility for both of them to co-exist in this huge market. Dunkin Donuts is another competitor to Starbucks, and they also have a sizeable force of over 5000 stores in the United States. But the situation is same as that with McDonalds here. Dunkin Donuts also market themselves as providing good coffee on the go, rather than a place where you can come and relax, or get your work done if you have to and enjoy good coffee while doing so. Starbucks Mission: “To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time.” (Starbucks mission statement, 2009) In order to fullfil their Corporate Social Responsibility, Starbucks have also given their environmental mission statement: “Starbucks is committed to a role of environmental leadership in all facets of our business.” (Starbucks mission statement, 2009) Company Analysis: By placing retail stores and coffee houses in high traffic areas that have high visibility, Starbucks is planning to achieve maximum marketing penetration. Due to the flexible size and varieties of format of stores, they can be found in almost any setting; from retail centers to supermarket ares and from University campuses to office buildings. Because of the convenient locations of the stores the customers can range from tired students to corporate professionals that are very particular about their taste and demand their own preferred style and flavor of coffee Starbucks wanted to create the enthusiasm of coffee in Americans like that of the Italians( as observed by Howard Schultz when he visited Italy in early 1980s and returned with an inspiration). Starbucks wants to provide a comfortable and seductive atmosphere and to make their bars not only a coffee selling store but to be perceived as a social destination. The stores are all more or less similar in their decorations and style. They are not very fancy places and not rough either. They are portrayed as smooth and relaxing to the comfortable. The daily newspapers are available in each store. There is a good collection of music and wireless connection is available to any customer with a laptop.  According to Howard Schultz, chairman and CEO of the company (Business Week, November 18, 1991 edition), “We’re not just selling a cup of coffee, we are providing an experience”. Starbucks corporate strategy can be put concisely in a few words: To achieve maximum market penetration To create a comfortable, attractive social atmosphere To offer good quality product to the customer To provide a good working environment To achieve profitability in the process It should be mentioned here that the company had a very rapid growth strategy that was incurring many different problems. in the year 2007, when Howard Schultz was reinstated as the chief executive of the company he agreed with it, and promised a more careful and calculated growth strategy from then on. (The Starbucks business strategy is same as the corporate strategy because the company is a single business entity and focus on a same form of product in all its stores) Social Media Strategy: After the return of Howard Schultz, to re-juvinate Starbucks, the coffee giants now are placing their focus on a social media strategy. it is something that they have failed to do previously bringing their brand very close to losing its face. And as part of their social media strategy they have launched a campaign called “My Starbucks Ideas”. It is a forum that will invite fans, customers and critics a chance to express their opinions or share their criticism. The main focus will not only be the coffee but the ways to over all improve the “starbucks experience”. Recommendations: Starbucks are the world giants in the coffee and beverage industry. From their current position we can safely assume that their strategy is highly effective. In the beginning the company had a very strict growth policy. The company also wanted to make sure that all their store are improved before going to on to open new ones. Considering the present situation it is the best recommendation that I can give to Starbucks; to maintain and improve their existing stores first and then and only then thinking of opening new ones. I will also recommend Starbucks to launch new joint ventures in as they have done with apple iTunes and borders book stores. the joint venture with Pepsi of launching their Frappuccinos in disposable beverage bottle was a great idea. The same idea should be applied to number of their other products, and especially, their cold tea. To fight the ever growing threat of McDonalds Starbucks can form an alliance or a partnership with any of the big breakfast and dinner chains. That’s how they can fight McDonalds in their own backyard. One of the most important thing is to maintain the culture and environment of the company and its attitudes towards its employees, this will ensure the essence of Starbucks, through out any future expansion. References Association, A. M. (1996). Marketing Wars. Crains Detroit Business , 1-8. Etzel, M. J., Walker, B. J., Walker, S., & Stanton, W. J. (2000). Marketing. New York: McGraw-Hill Education. Profitable Marketing: Starbucks, McDonalds and Marketing Strategy ... (n.d.). Retrieved September 13, 2008, from Adelino Typepad: adelino.typepad.com/adelino_marketing/2007/01/starbucks_mcdon_1.html Swerdlick, M. (Summer 2008). Marketing Initiatives Build Brand Awareness. (AN 32186258). Marketing Health Services , 8-9. Read More