The success of starbuck

The success of starbuck

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Terms Of Reference

This report was commissioned to examine the use of the marketing mix and the contribution of the design function in the success of Starbuck. This report is presented to Dr. Daniel Wade Clarke and the due date is 22nd February 2010. Recommendations are provided in the end.

Procedure

Organisations own literature has been used in this report. Online textbook and newspapers has been followed to complete this project report. 

Nature Of The Organisation

Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with more than 15,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim - wherever there is a demand for great coffee.

In 1970 the first Starbucks was open. The name comes from Herman Melville's Moby Dick, a classic American novel about the 19th century whaling industry. The seafaring name seems appropriate for a store that imports the world's finest coffees to the cold, thirsty people of Seattle. In May 1998, Starbucks successfully entered the European market through its acquisition of 65 Seattle Coffee Company stores in the UK. The two companies shared a common culture, focussing on a great commitment to customised coffee, similar company values and a mutual respect for people and the environment. (Source www.starbucks.co.uk )

Marketing Mix And NPD's Relation To Starbucks?

The marketing mix concept is one of the core concepts of marketing theory. According to Rafiq and Ahmed (1995, p.4) that in recent years, the popular version of this concept McCarthy's (1964) 4Ps (product, price, promotion and place) has increasingly come under attack in different marketing contexts. Because 4Ps do not take sufficient account of people, process and physical evidence in service marketing. In particular Booms and Biter's (1981) extension of the 4Ps framework to include process, physical evidence and participants, has gained widespread acceptance in the services marketing literature. Furthermore Jobber (2004, p.21) adds to this “ In services ,people often are the service itself; the process or how the service is delivered to the customer is usually a key part of the service, and the physical evidence should be considered as a separate element in the services marketing mix”. Nevertheless, there is no absolute reason why these extensions cannot be incorporated within the 4Ps framework.

The elements of the marketing mix are the followings;

(1) Product

(2) Price

(3) Place

(4) Promotion

(5) People

(6) Processes

(7) Physical Evidence

Product

The Product decision involves deciding what goods or services should be offered to a group of customers. Brassington and Pettitt (2003, p.25) state that “it is about not only what to make, but when to make it, how to make it, and how to ensure that it has a long and profitable life”. Clearly product is the important element any company will needs to consider product features/ benefits, branding, packing and after-sales service after its development. Coffee is at the heart of Starbucks history. Starbucks sample coffees from around the world - more than 150,000 cups a year. Coffee is the core product of Starbucks as defined by Brassington and Pettitt (2003, p.268) “core product represents the heart of the product, the main reason for its existence and purchase”. It is coffee which provides the functional or psychological definition of Starbucks towards its customers.

Below is the diagram of Strategic thrust model, which is effective in marketing planning. Starbucks is using two marketing strategies towards their products. 

First one is Product development and second is Market development. According to Jobber (2004, p.47) that product development involves improving current products or developing new products for current markets. As we know Starbucks offer convenience and non durable products in the form of coffee, when it comes to product development they are continuously differentiating their product (coffee) in the form of mild, smooth and bold categories, which increases their product line although their core product is the same. Starbucks also offer merchandise and gifts and fresh food just to increase their product range or product mix for the competitive market. This type of newness can be called new to the company, a significant innovation for the market. Furthermore Jobber (2004, p.47) also explains market development when current products are sold in new markets. This may involve moving into new geographical markets, as Starbucks has done moving into European market segments. But sometimes these strategies can be costly for example they have divided their coffee into three categories and they are getting their product from different regions which can be more costly then the product itself. Guardian (18th February 2009) reported that in the second half of 2008 Britain and the US fell into recession because of the credit crunch, but that so many other countries tumbled in even quicker. Germany's economy contracted by 2.1% in the fourth quarter of year 2008, Italy's by 1.8%, Britain's by 1.5% and France's by 1.2%. All are significant, the worst for decades and worse than the US's 0.9% fall in the same period.

Starbucks seems heavily exposed in countries such as Britain and the US, where consumer confidence and spending have shrivelled. But it also has plenty of stores across mainland Europe so no doubt they have experienced a cooling off in demand as cash-strapped consumers opts for cheaper drinks.

Price

Brassington and Pettitt (2003, p.392) explains price in a more interesting way according to them “price might seem to be the least complicated and perhaps the least interesting element of the marketing mix, not having the tangibility of the product, the glamour of advertising of the atmosphere of retailing”. Price however, play a very important role in the lives of both marketers and customers, and deserves as much strategic consideration as any other marketing tool because of it company receives some units for the actual product or service which is being marketed. 

Starbucks main competitors are Costa coffee and Caffe Nero to compete with them Starbucks applies competition based pricing strategy. According to Brassington and Pettitt (2003, p.452) it's very dangerous setting prices without knowing what is happening in the market, particularly with respect to one's competitors. There are two aspect of competition that influence an organisation's pricing. The first is the structure of the market and the second is product's perceived value in the market. When a product is more differentiated then its competitor's product the more autonomy the organisation has in pricing it. Hence Starbucks has a range of different product they have slight advantage over their competitors and for that reason buyers come to value its unique benefits.

However sometimes setting a high price then your competitors is not a good tactics. According to Times (24th July 2008) Starbucks is peddling the worst coffee at the highest prices according to a survey of the big three coffee houses on Britain's high streets. The Which? Magazine survey that choosing the world's largest coffee chain (Starbucks) instead of an independent shop for your cappuccino three mornings a week will cost you £126 a year.

Coffee Prices

Starbucks

Medium cappuccino £2.29; single espresso £1.40

Costa Coffee

Medium cappuccino £2.27; single espresso £1.33

Caffe Nero

Medium cappuccino £1.80; single espresso £1.25

Clearly setting high prices will not only effect Starbucks position in the market but also it will result a down turn in the demand curve. In another example The Observer (18th October 2009) reveals that at Starbucks, a slice of chocolate cake costs £2.30 and a small English breakfast tea is £1.40. But a pack of four cupcakes costs £2.99 from Marks & Spencer and a box of 80 Fairtrade Extra Strong tea bags is £1.89. So clearly it is not only the core product which is expensive but also the other product range as well.

Place

According to Jobber (2004, p.634) “product need to e available in adequate quantities, in convenient locations and at times when customers want to buy them”. Producing products that customers want, pricing them correctly and after that made them available, is necessary for any business. But for that accurate channel strategy is very important for any business. Starbucks has their own of distribution channel. A channel of distribution is very important element. All products whether they are consumer, industrial goods or services require a channel of distribution. Starbucks apply consumer channel strategy in which producers have a direct contact to consumer. According to Jobber (2004, p.637) producer use this strategy to cut out the distribution profit margin. The consumer and manufacturer deal directly with each other. Direct selling is more effective then involvement of a distributor. The following present direct supply channel or producer direct to consumer.

Starbucks has more than 15,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. Starbucks has coffee stores in every part of the UK. Guardian (21st January 2010) reveals that Starbuck's UK management reckons that the chain will end the year 2010 back above 700 stores compare to its current 661 stores. However intensive distribution of the product (Starbucks stores) is not a good strategy because Starbucks has to compete in all sorts of markets in the same time, which is very costly in the current economic climate. The second most important thing, which is Starbuck lacking, is the franchisees. According to Brassington and Pettitt (2003, p.473) “A franchisee holds a contract to supply and market a product or service to the design or blueprint of the franchisor (the owner or originator of the product or service)”. Starbucks want to expand their business in the whole word a franchisee will be best available solution for them. McDonald's is an indication of the level of detail covered by a franchise agreement then why Starbucks are not following the same path as their other companies are following. National or regional advertising in addition to any undertaken by the franchisee can play an important role in building a stronger system brand identity.

Promotion

According to Jobber (2004, p.18) promotional mix involve advertising, personal selling, sales promotions, public relations, direct marketing, and internet and online promotion. By which we can easily made aware the target audience of the existence of a product or service, and the benefits it confers to the customers. Marketing communication is a very important element; no organisation can afford either the financial or reputational damage caused by poorly planned or implemented communication campaigns. Starbucks use all of the promotional mix ingredients to target their audience they made good use of internet and online promotion. They target their audience through social networking website such as FaceBook and Twitter. They also use YouTube for their promotion and other social campaigns. Starbucks is also using social and cultural aspect of the environment for their sale promotions and public relations. Brassington and Pettitt (2003, p.587) explains that “Social and cultural aspects of the environment will mostly have an impact on the message element of communication”. According to Guardian (2nd September 2009) Starbucks has launched a multimillion-pound ad campaign promoting its ethical values as it makes the vast majority of its UK coffee Fairtrade. Clearly they are using a social issue to make public relation with their target audience, and also Shared Planet (Guardian 2008) the Starbucks initiative launched in year 2008. It's a collection of goals, by 2015 they promise to have all their coffee ethically sourced and all their cups recyclable.

Starbucks is using these issues to defend their selves against the environmental campaigners. According to Guardian (2nd September 2009) at Starbucks millions of litres of water are wasted in its coffee shops every day, contradicting its much-boasted green credentials. An investigation by the Sun revealed that over 23.4m litres of water are poured down the drains of 10,000 outlets worldwide due to a policy of keeping a tap running non-stop; Which is totally unfair because on oneside Starbucks run its campaign to save the earth and on the other side they are doing things which are against their campaign.

People

Brassington and Pettitt (2003, p.28) describes that services often depends on people to perform them, creating and delivering the product as the customer waits.  It is dependent upon people and interaction between people. Rafiq and Ahmed (1995, p.7) adds that “Marketing managers therefore need to manage not only the service provider-customer interface but also the actions of other customers”. For example, the number, type and behaviour of people will partly determine the enjoyment of a meal at a Starbucks coffee store.

Therefore observation of everything in the surrounding of stores environment is very important for any organisations. Especially it is more important for Starbucks because they are their own producer and retailer so anything lacking in the consumer attraction can easily put a bad image on Starbucks brand name. If there is any need for training it will be the best solution for getting service delivery from employees.

Processes

Processes are all the administrative and bureaucratic functions of the organisation. In the process mechanisms there are flows of activities by which services are acquired. Marketers, therefore, have to ensure that customers understand the process of acquiring a service (Rafiq and Ahmed, 1995, p.7). Performance of the product can be separated from the customer but on the other hand, the customer cannot be separated from an experience good. Therefore his degree of involvement in the process of interaction is always high towards the final product (Moorthi, 2002, p.266). Adding to this by Brassington and Pettitt (2003, p.28) marketer also has to think carefully about how the service is delivered, and what quality controls can be built in so that the customer can be confident that they know what to expect each time they consume the service product.

In Starbucks there are number of process mechanisms, which involve customer serving, telephonic customer services, online shopping, and Starbucks reward card. Well designed processes are needed as the service is delivered to ensure that the customer gets through with minimum fuss and delay and that all elements of the services are properly delivered. Process is all about quality improvement of any service which Starbucks provide.

Physical Evidence 

Physical evidence in the Booms and Bitner framework refers to the environment in which the service is delivered and any tangible goods that facilitate the performance and communication of the service. Physical evidence is important because customers use tangible clues to assess the quality of service provided (Rafiq and Ahmed, 1995, p.7). The physical environment itself is instrumental in customers' assessment of the quality and level of service they can expect, for example in Starbucks stores. In fact, the physical environment is part of the product itself. The need for offering physical evidence is high. In the case of Starbucks the intangible (Service delivery) comes first and the tangible (final product coffee) later. Newness of the environment (Starbucks Stores) can also have a positive effect on customer's purchase decision. Starbucks announcement to redesign its stores in UK will put a positive effect on their brand name as well as their customer involvement (Guardian October 2009).

Conclusion

Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with more than 15,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim - wherever there is a demand for great coffee.

Starbucks exclusively divided their product in to three categories, which increases their product line, Starbucks also offer merchandise and gifts and fresh food just to increase their product range or product mix for the competitive market. This type of newness can be called new to the company, a significant innovation for the market. Starbucks is also involved into new geographical markets, as Starbucks has done in Europe moving into new market segments. But sometimes these strategies can be costly.

Starbucks apply competition based pricing strategy. Hence Starbucks has a range of different product they have slight advantage over their competitors and for that reason buyers come to value its unique benefits. Starbucks is peddling the worst coffee at the highest prices according to a survey of the big three coffee houses on Britain's high streets. Starbucks has their own of distribution channel. However intensive distribution of the product (Starbucks stores) is not a good strategy because Starbucks has to compete in all sorts of markets in the same time, which is very costly in the current economic climate. National or regional advertising in addition to any undertaken by the franchisee can play an important role in building a stronger system brand identity.

Starbucks use all of the promotional mix ingredients to target their audience they made good use of internet and online promotion. Starbucks is also using social and cultural aspect of the environment for their sale promotions and public relations. Starbucks is using these issues to defend their selves against the environmental campaigners. Starbucks needs to focus on their because they are their own producer and retailer so anything lacking in the consumer attraction can easily put a bad image on Starbucks brand name. If there is any need for training it will be the best solution for getting service delivery from employees. Starbucks needs continuous improvement of their processes mechanism. Physical evidence is important because customers use tangible clues to assess the quality of service provided. Starbucks announcement to redesign its stores in UK is good strategy which will put a positive effect on their brand name as well as their customer involvement.

References

Booms, B.H. and Bitner, M.J. (1981), “Marketing strategies and organization structures for service firms”, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 47-51 [Accessed: 20/02/2010]

Brassington, F. and Pettitt, S. (2003) Principles and Practice of Marketing: 3rd Edition: Pearson Education Limited [Accessed: 17/02/2010]

Jobber, D. (2004) Principles and Practice of Marketing: 4th Edition: McGraw-Hill International (UK) Limited [Accessed: 17/02/2010]

Kotler, P. (2003) Marketing Management 11th Edition: Pearson Education Limited [Accessed: 17/02/2010]

Moorthi, Y.L.R. (2002), “An approach to branding services”, Journal of Services Marketing, Vol.16 (3), pp.259-274 [Accessed: 21/02/2010]

Rafiq, M. and Ahmed, P.K. (1995), “Using the 7Ps as a generic marketing mix: an exploratory survey of UK and European marketing academics”, Marketing Intelligence & Planning, Vol. 13 (9), pp. 4-15 [Accessed: 17/02/2010]

The Story of Starbucks [online] http://starbucks.co.uk/en-GB/_About+Starbucks/

[Accessed: 15/02/10]

Times Online, (24th January 2008) Best coffee on high street? Not Starbucks by Nico Hines [on-line] http://www.timesonline.co.uk/tol/news/uk/article3245914.ece

[Accessed: 18/02/2010]

The Guardian, (6th October 2008) Starbucks wastes millions of litres of water a day by Angela Balakrishnan [on-line]

http://www.guardian.co.uk/uk/2008/oct/06/water.drought

[Accessed: 18/02/2010]

The Guardian, (5th October 2008) Starbucks to redesign shops [on-line]

http://www.guardian.co.uk/lifeandstyle/wordofmouth/2009/sep/18/starbucks-rebrand-branding-coffee

[Accessed: 18/02/2010]

The Guardian, (November 2008) Regular or decaf ? - America decides [on-line]

http://www.guardian.co.uk/lifeandstyle/wordofmouth/2008/nov/04/foodanddrink1

[Accessed: 18/02/2010]

The Guardian, (18th February 2009) Starbucks row: It's off the boil almost everywhere by Ashley Seager [on-line]

http://www.guardian.co.uk/business/2009/feb/18/starbucks-britain-failing-economy

[Accessed: 18/02/2010]

The Guardian, (2nd September 2009) Starbucks ads trumpet Fairtrade move by Mark Sweney [on-line]

http://www.guardian.co.uk/media/2009/sep/02/starbucks-fairtrade-advertising

[Accessed: 18/02/2010]

The Observer, (18th October 2009) Dinner party too costly ? Let them eat cake by Huma Qureshi [on-line]

http://www.guardian.co.uk/money/2009/oct/19/dinner-party-costly-eat-cake

[Accessed: 18/02/2010]

The Guardian, (21st January 2010) Starbucks legend delivers recovery by thinking smaller by David Teather [on-line]

http://www.guardian.co.uk/business/2010/jan/21/starbucks-howard-schultz

[Accessed: 18/02/2010]