Starbucks - Targetting, Positioning and Marketing Mix

CONTENTS

Title

Page Number

1. INTRODUCTION

1

2. TARGETING

1

3. POSITIONING AND MARKETING MIX

2

3.1.PRODUCT

3

3.2.PRICE

3

3.3.DISTRIBUTION & SERVICE

3

3.4. PROMOTION

4

4. CONCLUSION

1. INTRODUCTION

4

The Starbucks Coffee, Tea, and Spice Company was founded in Seattle in 1971 by Jerry Baldwin, Gordon Bowker and Zev Siegl, with a vision to educate the consumers about fine coffees. Starbucks began to expand when Howard Schultz took it over in 1987. His plan was to re-create the Italian espresso bar experience in America by making a personal relationship between consumers and coffee. Within years, they grew from a small, regional business into the undisputed leader in the speciality coffee industry by buying only the best quality coffee and providing an unmatched store experience (Stanley, 2002). “To inspire and nurture the human spirit — one person, one cup, and one neighbourhood at a time.” ---Starbucks Mission Statement from their website Ever since its establishment there has been a sharp growth in the company performance. According to their 2008 annual report (from Starbucks website), they have nearly 17,000 stores in 49 countries. This report deals with the targeting and positioning of Starbucks when it was launched and how decisions on marketing mix supported that positioning.

2. TARGETING Coffee consumption in the U.S. has been trending down since 1960’s (refer case study). So Starbucks was extremely cautious in selecting its target markets. A target market, according to Kotler and Armstrong (2004), consists of a set of buyers who share common needs or characteristics that the company decides to serve. The decision of selecting target segments can be assessed by looking at market factors, competitive factors, and political, social, and environmental factors (Jobber, 1995). Price, bargaining power of customers and suppliers and barriers to entry all comes under the market factors, and in the case of Starbucks, their coffee was expensive and they were trying to re-create a new coffee culture in America. Hence, they have low barriers for entry. Since they were extremely careful in each step of coffee making, they tried to maintain a long-standing relationship with their suppliers (Stanley, 2002) and similarly they did not have any real competition threats. Starbucks targeted office workers, with middle to high incomes, who had a desire to purchase premium products. Schultz wanted Starbucks to become the ‘Third Place’, the place between home and work where people could gather, relax and interact with one another (refer case study). So they were vigilant about their quality control to meet the high expectations. Also they paid a great deal of attention to the details of the store – everything from the layout, to the furniture, to the music (ibid.). Moreover, they were in the ‘introduction’ stage in the product lifecycle. Target marketing can be done in three different ways; undifferentiated, differentiated and concentrated. Concentrated (or niche) marketing directs its efforts towards a single market segment and creating and maintaining an exclusive strategy for each segments (Dibb et al., 1994). Another approach to the market, known as differentiated (or segmented) marketing, approach the mass market by designing separate products and marketing

programs for the different segments (Boyd & Walker, 1990). In undifferentiated (or mass) marketing, the firm ignore market segment differences and target the whole market with one strategy (Kotler & Armstrong, 2004). When Starbucks launched, they used this undifferentiated marketing strategy and they created and maintained the marketing mix considering the market as a single segment. A major difficulty in using this targeting strategy is developing the brand to satisfy all consumers (ibid.). Starbucks used their services without compromise in quality for attaining this. Moreover, they were aggressive in the market by opening 15 new stores in 1988; 20 in 1989; 30 in 1990; 31 in 1991; and 53 in 1992 (refer case study).

3. POSITIONING AND MARKETING MIX After deciding its target markets, the company must decide what position it wants to occupy in their target market. A product’s position is the way the product is defined by consumers on important attributes such as price, quality, competitor, product class, application and so on(Kotler & Armstrong, 2004). Companies tried to position their products in such a way as to distinguish themselves from the competitors and give them the greatest strategic advantage in the target market. By the time Schultz acquired Starbucks in 1987; transactional marketing was being replaced by relationship marketing. Profit from retained long term customer relationship became the key of marketing and business. Relationship marketing aims at delight rather than satisfaction of customers. And Starbucks realised public opinion, even though it takes longer to cultivate, when energised can help pull the company into the market (Kotler, 1986). Fig. 1 shows the position of Starbucks on the perceptual map.

High Starbuc

Low

High

Price

Quality

Low

Fig. 1: Perceptual map (Adapted from Czinkota et al. (1997))

3.1. Product

Starbucks tried to position themselves as a premium product in the coffee industry by creating a high standard, introducing innovative products and providing excellent service. Schultz knew how perishable coffee was and they were so fanatical about quality control, and hence they carefully monitored each and every step of coffee production. They bought dark-roast, whole bean coffee from places like Sumatra, Kenya, Ethiopia and Costa Rica; roasted them in their own plants; and sold only through company-owned stores (refer case study). They used total quality management (TQM) in which all company’s people are constantly involved in improving the quality of products (Kanji, 1996). Usage of nonfat milk and introduction of Frappuccino made a significant presence in the balance sheet of Starbucks. Moreover, they provided seasonal offerings, such as strawberry and cream Frappuccino in the summer and gingerbread latte in Christmas, were introduced. Gradually food items such as cookies, pastries, sandwiches and salads made their way into the stores (ibid.). Later they went on to develop new products with other companies. This shows how cautious Starbucks was to keep their standard high and maintain their premium quality image. 3.2. Price The amount of money a buyer must give to the seller for a specific quantity of the product is the price of that product and usually consumers use this as an indicator of quality (Dalrymple & Parsons, 1986). Price and quality determines the value of the product. When launched, Starbucks was expensive and was positioned in accordance with that. They always tried to deliver the high value promised to the consumers. They bought the quality beans, gave effective and efficient training to staffs, and moreover, made an atmosphere to enjoy coffee, meet fellow people and ‘take a break’ from the busy life. These all justify their pricing and show how price supported their positioning. 3.3. Distribution & Service Distribution channels links the organisation’s product or service to its consumers; and in a producer-consumer (direct supply) channel, as in the case of Starbucks, maintaining a personnel relationship with the customers is significant (Brassington & Pettitt, 2000). However, from a distribution point of view Starbucks got an advantage by sticking on to its winning store location formula for its new stores (refer case study). They always selected highly visible locations and opened stores as clusters. As demand grew, these store clusters made them able to manage the increased traffic and to keep their competitive position. In the same way, they took care about the services provided in the stores. Howard Schultz aimed to unlock the romance and mystery of coffee in coffee bars, and he knew how important the role of baristas in achieving that. Baristas ability to engage the customers was the heart of Starbucks experience. Starbucks invested heavily in training their staffs and did innovative tactics to manage their human capital. Thus they differentiated themselves in the market by constantly providing higher quality services.

3.4. Promotion

All marketing activities that attempt to stimulate buyer action or sales of a product can be considered as promotion (Shimp, 1997). Starbucks used to organise a big community event prior to the opening of its stores (refer case study). Artworks were designed to boast each city’s personality, and it was used on commuter mugs and T-shirts. They also recruited local ‘ambassadors’ from new partners and from customers to promote their brand (ibid.). They didn’t use advertising but they used those funds for acquiring key locations. Starbucks tried to establish a national dominance before other speciality coffee bars comes into the picture.

4. CONCLUSION “We aren’t in the coffee business, serving people. We are in the people business, serving coffee” --- Howard Schultz (Serwer, 2004) Starbucks claimed their leadership by focusing on a strategy of new products, a stronger connection with customers as the Third Place and expanding store locations in the United States and abroad (refer case study). They never compromised on their quality and service standards and maintained their customer relationships with utmost care. This report analysed the target markets and positioning strategy of Starbucks while it was launched. Also, it shows how the marketing mix variables (product, price, distribution and promotion) along with services supported their positioning. Today, Starbucks is in cities all over America and in 48 other countries. The level of success achieved by Starbucks holds some important lessons and some much needed inspiration to the business world.

REFERENCE 1. Boyd, H., & Walker, O. (1990). Marketing Management: A Strategic Approach. Boston: Irwin. 2. Brassington, F., & Pettitt, S. (2000). Principles of Marketing (2nd ed.). Harlow: Prentice Hall. 3. Czinkota, M., Kotabe, M., & Mercer, D. (1997). Marketing Management: Text and Cases. Massachusetts: Blackwell Business. 4. Dalrymple, D., & Parsons, L. (1986). Marketing Management: Strategy and Cases (4th ed.). New York: John Wiley & Sons. 5. Dibb, S.; Simkin, L.; Pride, W; Ferrel, O. (1994). Marketing Concepts and Strategies (2nd European ed.). Boston: Houghton Mifflin Company. 6. George, W., & Barksdale, H. (1974, October). Marketing Activities in the Service Industries. Journal of Marketing , 65-70. 7. Jobber, D. (1995). Principles and Practice of Marketing. London: McGrawHill Book Company. 8. Kanji, G. (1996). Can Total Quality Management Help Innovation? Journals Oxford Ltd , 7 (1), 3-9. 9. Kotler, P. (1986, March-April). Megamarketing. Harvard Business Review , 117-124. 10.Kotler, P., & Armstrong, G. (2004). Principles of Marketing (10th ed.). New Jersey: Prentice Hall. 11.Serwer, A. (2004, January 26). Fortune Magazine. Retrieved October 23, 2009, from CNNMoney: http://money.cnn.com/magazines/fortune/fortune_archive/2004/01/26/358 850/index.htm 12.Shimp, T. (1997). Advertising, Promotion, and Supplemental Aspects of Integrated Marketing Communications (4th ed.). Fort Worth: The Dryden Press. 13.Stanley, A. (2002). Starbucks Coffee Company. 1-28. 14.Starbucks Case Study

15.Starbucks website. Retrieved October 23, 2009, from

http://www.starbucks.com