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Starbucks Company- Marketing Report

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					Contents




Executive Summary…………………………………………………………………………… 4


Introduction……………………………………………………………………………………. 5


The Market Environment:


Geographical Market……………………………………………………………………………. 6


Business…………………………………………………………………………………………. 6


PEST-G Analysis……………………………………………………………………………….. 7


The Competition:


Main Competitors………………………………………………………………………….…… 9


Sales and Profit Trend…………………………………………………………………….…..….9


Market Share……………………………………………………………………………….…….10


Target Markets…………………………………………………………………………….…..…12


The Company:


Sales and Profit Trend…...............................................................................................................13


Market Share………………………………………………………………………….................13


Business Sector…………………………………………………………………..………….…..13


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Project Focus……………………………………………………………………………….……14


SWOT Analysis…………………………………………………………………………….……15


The Company’s Marketing Strategy:


Segmentation………………………………………………………………………….……….. 17


Targeting……………………………………………………………………………………….. 17


Positioning………………………………………………………………………………….….. 18


Differentiation…………………………………………………….……………………….…… 19


Growth Strategy…………………………………………….…………………………….……. 19


The Marketing Mix:


Product…………………………………………………………..….…………………………. 20


Price……………………………………………………………………….………………..…. 20


Place………………………………………………………………………………………..…...21


Promotion………………………………………………………………………………….…... 21


People, Processes, Physical Evidence………………………………………….………..….…. 23


Evaluation of the Company’s Strategies & Tactics:


Evaluation of the Company‟s current position………………………………………..…….….27


Evidence of Company‟s Success……………………………………………………….……....27



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Prospects for Future Growth ………………………………………………………..………30


Conclusions…………………………………………………………………………..……...32


Appendices……………………………………………………………………………..…...33


List of References……………………………………………………………………..……37




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Executive Summary



This report aims to evaluate the marketing approach undertaken by the STARBUCKS COFFEE-

the world‟s number one specialty coffee retailer, with currently more than 17,000 coffee shops in

over 50 countries.


The report includes an analysis of the market environment of the Company, its marketing and

promotion strategies, a SWOT analysis as well as an evaluation of the prospects for future

growth and success.




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The Starbucks Story- Introduction




                                    Started as a single store in

                                    the Seattle‟s historic Pike

                                    Place Market on March 30,

                                    1971, it has today, grown to

                                    serve millions of customers

                                    every day, in more than

                                    17,000 locations in over 50

                                    countries, becoming a

                                    premier roaster and retailer

                                    of specialty coffee in the

                                    world.




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The Market Environment




The Geographical Market:


Starbucks competes in the global arena - the largest coffeehouse company in the world, with

17,133 stores in over 50 countries- 11,068 in the US and the rest 6065 distributed in over 50

countries.




Business:


Starting from being a mere roaster and retailer of whole beans and ground coffee, tea and spices

in a single store in 1971, Starbucks has expanded rapidly to be a leading retailer and roaster of

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branded specialty coffee & the largest coffeehouse company in the world selling brewed coffee,

espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, sandwiches, pastry,

snacks, and ice-creams.


http://www.starbucks.com/about-us/our-heritage




PEST-G analysis:




Political Factors –


           The UK government encourages globalization and supports free trade open society.

           The political relationships between the US and the UK has been marked by close

           friendships and working alliances.

           Both the countries share enormous trade and economic relations.




Economic factors –


       Member of the WTO, the World Bank, the IMF, G8, the EU, the UN, the BCN as well as

       the OECD.

       The Economic Crisis of 2007 left as many as 7.8% of its total population unemployed.

       The current Inflation rate in the country is as high as 3.1%. However, the BOE targets to

       bring it down to 2%.

       The interest rate has been kept as low as 0.5% to encourage investments.


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       The government does not impose any trade barriers.




Sociocultural Factors –


       Population has increased steadily over the years and is now over 60 million.

       About 67% of the total population in UK ranges between the 15-64 age group.

       The spending pattern on consumption of goods and services has risen significantly.




Technological Factors –


       Improvement in technology may result in lower cost of production as well as production

       of higher quality of coffee beans.

       It is expected that further growth and technological advancements will continue in the

       coffee brewing world over the next few years.




Green –

       Significant increase in concern among people on environmental issues.

       Increased customers‟ use of reusable cups.

       Developed recycled-content cup sleeve as a way to protect customers from hot beverages

       and avoid the waste of „double cupping‟.

       Launched a new plastic cup that has less of an environmental impact than their original

       plastic cups.


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The Competition



The Main Competitors:


          Includes a total of 11,063 outlets of branded chains as well as independent and non-

          specialist operators

          UK‟s branded coffee sector itself includes 4,158 outlets, with a total market of £1.6b

          in 2009

          The dominant players in the UK branded coffee sector are:




http://www.coffee-explorer.com/en/coffee-press-news-articles/coffee-news-articles/4183-

project-cafe9-uk-.html




Sales and Profit Trend:


In the following chart, we compare the revenues earned by each of the companies:




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While all the competitors enjoyed an increase in revenues over the years, Starbucks encountered

a fall in its revenues in 2009, showing that its revenues were now been taken over by its

competitors.




Market Share:



               Fig.1: Market Share in terms of Revenue in
                                 2007



                                           30%                                Starbucks
                          45%                                                 Costa
                                                                              Café Nero
                                          17%
                                    8%                                        Others




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               Fig.2: Market Share in terms of Revenue in 2009




                                           26%
                                                                              Starbucks
                        44%                                                   Costa
                                                                              Café Nero

                                           21%                                Others
                                   9%




           Fig.3: Market Penetration in terms of no. of outlets in
                               UK in 2009




                                          23%
                           31%                                                Starbucks
                                                                              Costa
                                                                              Café Nero
                            13%                                               Others
                                         33%




Over the years, Costa‟s market share increased mainly due to the increase in the outlets. Though

Café Nero saw a very small increase in its market share, it ranked the highest overall in key

performance indicators from among the three brands, as per a survey conducted by Allegra.


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Target Markets:


        Similar products offered at all the three outlets. Even the ambience created in the stores

        of all the three brands is relatively the same.

        All the three brands seem to target the same population, and hence the intense

        competition between them.

        However, the comparatively low prices and the good quality products offered at Café

        Nero‟s seem to encourage the price skittish customers at its stores as well.

        Starbucks offers coffee making equipment and other merchandises which make up 18%

        of its total revenues. Costa and Café Nero do not offer the same.




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The Company




Sales and Profit Trend:


According to table 1, while Starbucks revenues increased from 2007-2008, it has seen a decline

in its revenues during 2008-2009. This is mainly due to the growing popularity of Costa among

the locals, as well as the entry of new competitors in the sector. Even the introduction and

success of cheaper coffees offered by Dunkin Donuts and at McCafé can be reasoned for the

decline.




Market Share:


Starbucks market share declined from 30% to 26% while its major competitors, Costa and Café

Nero‟s share increased over the period. This shows that Starbucks needs to bring out some major

changes in its marketing strategies to improve its brand image and sales in the UK market.




Business Sector:


According to the survey conducted by Allegra Strategies,


           The branded coffee shop sector in UK outperformed the sector as a whole increasing

           turnover by 4.7% to £1.6b in 2009.

           Growth in the number of outlets halved in 2009 compared to 2008.

        Branded coffee chains are visited more frequently than ever before.

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        About 11 million people now visited a coffee shop at least once a week.

        However, despite maintaining growth, this has led to increased competition and

        downward pressure on sales.


http://www.coffee-explorer.com/en/coffee-press-news-articles/coffee-news-articles/4183-

project-cafe9-uk-.html




Project focus:


The company now focuses on:


        Expansion: Announced plans to open 30 more stores in UK. However, it also plans to

        close down those outlets which aren‟t successful.

        http://www.bakeryinfo.co.uk/news/fullstory.php/aid/6318/Starbucks_announces_UK_exp

        ansion_plans.html

        Increased product portfolio- Launched Starbucks VIA ® ready brew in U.K. and

        inclusion of skinny beverages to target the health conscious market.

        http://news.starbucks.com/news/starbucks+via+begins+expansion+with+uk+and+japan.h

        tm

        To serve at lower prices- Introduction of "value strategies", like „breakfast pairings‟

        which included popular breakfast items paired with a coffee and served at a cheaper

        price.




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SWOT Analysis of Starbucks:


Strengths:


               Reputation for high quality products and services offered

               Well trained as well as satisfied employees

               Cafes located in high visibility locations which attract customers

               Product diversification – sells products other than coffees and lattes, like snacks

               High brand loyalty




Weaknesses:


        Too much focus on expansion that focus on outlets already set up is less.

        High priced products

        Growing number of competitors

        Dependent on the revenues earned from its outlets located in the US.




Opportunities:


        New distribution channels – Sales of Starbucks branded products in supermarkets and

        departmental stores. Also, customers can purchase their products online from their

        website

        Expansion into overseas markets.


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        Inclusion of healthy snacks and fruit juices to capture the health conscious market


Threats:


        Exposed to rises in the prices of coffee and dairy products

        Competition from fast food outlets like McCafe and Dunkin Donuts which also sell

        coffee at lower prices in a no nonsense manner

        Economic conditions may make consumers unwilling to pay high prices

        Increasing health consciousness among consumers


http://marketingteacher.com/swot/starbucks-swot.html


http://www.scribd.com/doc/3972739/Starbucks-Swot-Analysis




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Company’s Marketing Strategy




Segmentation:


The target market for Starbucks in the early stages of development for Starbucks was the

affluent, well-educated, white-collar patrons between the ages of 25 and 44. However, over time,

the market research teams recognized a growing market of younger college going population.

Hence, for the purpose of defining the target market, the following market segments were

established:


Age groups      : College going students/ Teens

                 Professionals

                 Retired people

http://www.scribd.com/doc/31432750/Assginment-starbucks

Targeting:




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Positioning:


Starbucks products have always been perceived with a prestigious image. With their high quality

products, unique tastes, friendly environment, and conveniences, customers are willing to pay a

premium price for its products.




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Differentiation:


In order to grow, Starbucks differentiates itself from its competitors and offer points of

difference that encourage customers to come to Starbucks rather than go to its competitors. The

“points of difference” are:


        Brand Experience: At Starbucks the atmosphere which engulfs you is in itself a great

        experience.

        Brand Quality: Recognized for exceeding expectations by the quality of their products

        and their service over all its years of operations.

        Broad product portfolio: Keeps up with the market needs. E.g., when it saw the

        increasing popularity of energy drinks, it came up with its own version of energy drink.

        Convenient Access: Starbucks stores can be found almost everywhere and is easily

        accessible.




Growth Strategy:


        Starbucks strongly believes in the „Being Everywhere Approach‟ and implements this

        strategy by increasing the number of its outlets.

        When it saw the increasing health conscious trend among its customers, it tried to fulfill

        the needs by including healthy snacks and fruit smoothies in its menu.




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The Company’s Marketing Mix




Coffee is sold just about everywhere and thus, being in a competitive industry, Starbucks has to

follow the differentiator strategy in its marketing principles or else, risks losing market share to

its competitors.




Product - Starbucks offers its customers a broad array of products to try satisfy many of its

customers various needs and wants. Under drinks, it offers brewed coffee, chocolate beverages

like hot chocolate, smoothies made with real fruits, Tazo teas for those who prefer tea,

Frappuccino‟s, espresso beverages like lattes, cappuccino, mochas etc. as well as bottled drinks

for those people who would like a drink on the go. Under food items, it offers sandwiches, Panini

& wraps, ice creams, yogurt parfaits, salads, bakery items like muffins, doughnuts and scones,

breakfast items like oatmeal as well as fruit & snack plates. It offers coffee making equipment as

well as other Starbucks paraphernalia. The company also markets books, music, and films

through the Starbucks Entertainment division and Hear Music brand.




Price - Starbucks price their products higher than most of their competitors. The products are

priced higher due to perceived upscale image attached to its brand. The company has also

recently introduced "value strategies" - For e.g., "breakfast pairings" which included popular

breakfast items were paired with a coffee and served at a cheaper price targeted to bring in price

skittish customers.


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Place - Starbucks is the biggest coffee retailer in the world with more than 16,000 outlets in over

50 countries. Typically their stores would be found in high traffic, high-visibility locations like

office building, shopping malls, grocery stores, and retail centers. It increased its distribution

channels by offering many of its products through super markets and general stores as well as

through its website.




Promotion - Starbucks media spend on promotion is typically very less when compared to other

companies of their size. They depend more on word of mouth than through conventional

advertising. It uses philanthropy as a means of promotion. The statement, “Starbucks is all about

the human connection” is a powerful representation of what the company represents. It sent

about 2,000 volunteers to Louisiana to help locals get their lives back on track after Hurricane

Katrina, and in several communities laid sod, and planted over 1000 trees. In this way, Starbucks

makes its customers and potential customers to perceive them as a company that has a positive

impact on the world.


One of the promotions that Starbucks uses is the Starbucks Card- a prepaid card which not only

makes it simpler for customers in handling cash but acts as a promoting tool through a referral

system bringing in new customers. The card not only shows brand loyalty, but it also provides

the company with free advertising. By purchasing the card, the customer also gets many rewards

(shown below).




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http://starbucks.co.uk/en-GB/_Card/




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People, Processes, Physical Evidence:


In Starbucks, every barista hired receives at least 24 hours training in the first two to four weeks,

while the Management trainees needed to attend classes for 8 to 12 weeks since their training

goes much deeper, covering not only the information imparted to baristas but also other details

on store management.


Also, to make sure that Starbucks' stores measured up to standards, the company uses "mystery

shoppers"- a procedure in which Starbucks sends people who pose as customers and rate each

location.


http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html


http://www.scribd.com/doc/3923360/Starbucks-Marketing


http://www.starbucks.com/menu/catalog/product?drink=brewed-

coffee#view_control=product&drink=bottled-drinks&drink=brewed-

coffee&drink=espresso&drink=vivanno-smoothies


http://blogs.indews.com/marketing/starbucks_marketing_mix.php




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Product Life Cycle:




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Evaluation of the Companies Strategies and Tactics




Evaluation of the company’s current position:


According to the research conducted by Allegra, the recession did not adversely affect the sector.

Starbucks still dominates the branded coffee shop sector in UK. However, the emergence of

many other similar coffee-shops as well as the aggressive competition it faces from its close

competitors may take over a piece of its market share. Being in a competitive industry with

absolutely no switching costs for its customers, Starbucks would need to continue keeping up

with the market needs and provide a variety of distinguished products of high quality to

differentiate itself from its competitors.




Evidence of the company’s success:


Starting from a single store, Starbucks has grown to be a premier roaster and retailer of specialty

coffee, serving about a million customers in over 50 countries. This massive expansion in itself

boasts the success of the company.


Starbucks has always dominated the branded coffee shop sector in UK. Though in 2009, it lost a

part of its market share to its competitors, it still dominates the sector. Also, huge revenues

earned from the UK sector have a great effect on its total earnings.




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Given below is the list of rewards which were earned by Starbucks recently:




http://assets.starbucks.com/assets/starbucks-recognition-jan2010.pdf




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Prospects for future growth:


Starbucks competitive advantage is shrinking in recent times because its model has been copied

successfully by its competitors and this poses a serious threat to the company. Starbucks created

such an image in the minds of its customers that it not only offers coffee but rather a rich

„experience‟. This "experience" has in fact become the company's main selling point. Starbucks

is doomed to fall out of popularity if it is not able retain this differentiator strategy, as it would

end up being a store that is selling nothing more than a cup of coffee.


Starbucks also intends to close down those outlets which have been continuously making losses

while opening in areas which it considers to be profitable. Hopefully, it would be able to

maximize its profits through this strategy.


It also started offering lower price products targeted at the price skittish population. The

increasing health consciousness among people led to Starbucks introducing oatmeal, healthy

snacks, salads and fruit smoothies in its menu.


All these changes in the strategy may prove advantageous for Starbucks and increase the

prospects of a good future for the company.


http://blogs.indews.com/business/starbucks_marketing_strategy.php




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Porters Five Forces Analysis:




http://www.scribd.com/doc/35821131/Star-Bucks




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Conclusion



To sum up, Starbucks positioned itself as an upscale brand. However, due to the economic

downturn and increased competition from large quick-service restaurant chains and specialty

retailers, the company saw its profits as well as its market share being eroded. The company

would have to take necessary steps if it wants to retain its market share.




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Appendices



        Extracts from the annual report of Costa:




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        Extracts from the website of Café Nero:




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        Extracts from the annual report of Starbucks (also explains how the revenues earned from

        UK were estimated):




        As we can see from here, the revenue earned from international operations as in 2009 for

        instance is $1,986,900,000. It is also briefed that approximately 66% of net revenues

        from international operations are from those earned in Canada and UK. Taking 66% of

        1,986,900,000 (1986900000 * 66/100 = 1,311,354,000). Dividing the amount by 2

        (equally between Canada and UK) we get approximate revenues from UK as

        $655,677,000. Converting this amount to pounds, using the exchange rates as on

        22/10/2010: US $1 = £ 0.6380     £1 = US $ 1.5674; we get £418,321,926.

        Similarly, it was 71% of total revenues in 2007 and 69% in 2008.



        The figures for the market share of the companies were calculated as below:

        The total revenues earned in the branded coffee shop sector in UK is 1.3£b in 2007 and

        1.63£b in 2009.

        http://www.caterersearch.com/Articles/2007/05/24/313851/UK-coffee-market-set-to-

        double-over-the-next-10-years.htm



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        http://www.coffee-explorer.com/en/coffee-press-news-articles/coffee-news-articles/4183-

        project-cafe9-uk-.html

        The figures were then calculated using the formula of market share of a company in the

        industry:

        Revenues of the company/ Revenues of the whole industry * 100




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References


http://miranda.hemscott.com/ir/wtb/pdf/Annual_Report_and_Accounts.pdf


http://www.caffenero.com/Downloads/Caffe%20Nero%202008%20Annual%20Report.pdf


http://www.britishcouncil.org/tvetarabia-uk-statistical-information.htm


http://www.britishcouncil.org/tvetarabia-uk-social-trends.htm


http://www.economywatch.com/inflation/rate/current.html


Exchange rates as on 22/10/2010: US $1 = £ 0.6380      £1 = US $ 1.5674


http://www.pdftop.com/view/aHR0cDovL2ZhY3VsdHkud2FzaGluZ3Rvbi5lZHUvcnNtY3BoZ

XIvQ2hhcHRlciUyMFBvd2VycG9pbnRzL0x1c3NpZXIzZUNIMDUucHB0


http://www.scribd.com/doc/9683015/Starbucks-Campaign-Market-Analysis


http://www.scribd.com/doc/20580798/Starbucks-Rev-2-LATEST


http://www.scribd.com/doc/3923360/Starbucks-Marketing


http://www.academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag-

catching-the-starbucks-fever.html


http://www.coffee-explorer.com/en/coffee-press-news-articles/coffee-news-articles/4183-

project-cafe9-uk-.html


http://www.docstoc.com/docs/22680600/PEST---Analysis


http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=118

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http://www.docstoc.com/docs/18234523/Starbucks-Marketing-Strategy


http://marketingteacher.com/swot/starbucks-swot.html


http://marketingteacher.com/swot/starbucks-swot.html


http://www.scribd.com/doc/4939593/Starbucks


http://www.scribd.com/doc/25781010/Starbucks-Targetting-Positioning-and-Marketing-Mix


http://www.scribd.com/doc/31432750/Assginment-starbucks


http://www.rodenberg.nl/publications/publications/COSTA_COFFEE_vs_STARBUCKS.pdf


http://www.caterersearch.com/Articles/2007/05/24/313851/UK-coffee-market-set-to-double-

over-the-next-10-years.htm


http://www.instituteofhospitality.org/news/eNews11/Third_Wave_Coffee


http://www.coffee-explorer.com/en/coffee-press-news-articles/coffee-news-articles/4183-

project-cafe9-uk-.html


http://annualreport.whitbread.co.uk/


http://www.starbucks.com/menu/catalog/product?drink=brewed-

coffee#view_control=product&drink=bottled-drinks&drink=brewed-

coffee&drink=espresso&drink=vivanno-smoothies


http://www.scribd.com/doc/35821131/Star-Bucks


http://blogs.indews.com/marketing/starbucks_experience.php



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