Starbucks Corporation marketing mix involves the product determination, pricing considerations, channels of distribution, and promotions adapted by the company to ensure that the desired level of sales will be achieved in Starbucks’ target markets.
The company’s products and services include:
Italian-style espresso beverages
Cold blended beverages
Roasted whole bean coffees
Non food items:
Seasonal novelty items
Starbucks Corporation product strategy involves the generation of new products and the enhancement of existing products. This strategy achieves both the advantage of introducing product evolution within the company and the retention of old and existing products that symbolizes the Starbucks tradition. The company’s retail sales mix was roughly 61 percent coffee beverages, 15 percent whole-bean coffees, 16 percent food items, and 8 percent coffee-related products and equipment. The product mix in each store varied, depending on the size and location of each outlet
With coffee as its main product, Starbucks continues to introduce new goods so that consumers spend more time and money in their stores. In addition to coffee, Starbucks also offers coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers, and other accessories for sale. Food products include pastries, hot and cold sandwiches, salads, breakfast sandwiches, and tea. As of 2001 Starbucks began to offer wireless Internet to patrons and later this year, plans to increase the stores music products by implementing CD burners to enable customers to sample online music from its subsidiary HearMusic.
The introduction of new products in the company is demonstrated through the promotion of the following products: the ready-to-drink Starbucks Doubleshot, Starbucks Ice Cream, and Starbucks Coffee House Blend brand. The RTD drink Doubleshot is a new Starbucks product aimed to satisfy the needs of consumers who are always in a hurry. Thus, Doubleshot is a Starbucks product that is “the ideal way to start a busy day!” Meanwhile, Starbucks had moved to expand its supermarket sales of ice cream (available in 6 flavors), the Doubleshot, and their whole beans. The special signature brand House Blend Coffee of Starbucks introduces a new way wherein home-based consumers will also enjoy the goodness of Starbucks coffee. This product comes in different flavors (ranging from African, Arabian, to French Roast flavors), customized to fit the coffee-lover’s taste and need for new, yet, equally delicious taste of the traditional Starbucks coffee.
Starbucks continuously researches and implements new products as well as enhanced its existing products in order to create diversity and added features to the traditional lineup of coffee beverages and services. Customers play a large part in this; feedback has been the catalyst for many new products and services currently available through Starbucks. An example of the company’s product strategy with its existing products is the introduction of the Tazo Tea and Crème Frappuccino beverages in the traditional Starbucks menu list. Adding extra features in the beverages enhances Starbucks’ famous product, Frappuccino. That is, new flavors and variations of the said product were introduced. Furthermore, Frappuccino blended beverages have become accessible to consumers with the introduction of the bottled Frappuccino. These product strategies focused on the product’s packaging, making the product commercially available everywhere, especially where Starbucks retail stores are not available.
With the introduction of prepaid purchase cards and the ability to preorder via the telephone and online, Starbucks has enhanced their ability to assist consumers with orders and purchases. Starbucks also introduces seasonal drinks to its menu for the holidays, the Pumpkin and Gingerbread lattes have become staples of the holiday coffee repertoire.
Starbucks Corporation’s pricing strategy is largely based on competition, especially since many specialty coffee shops are emerging after Starbucks’ success in the commercial market. In 2004, prices of nine chains in eight cities, including Seattle, were compared to see how the coffee company fared against companies such as Tully’s Coffee Corp, Peet’s Coffee & Tea, and Coffee Bean & Tea Leaf. The result: Starbucks regular coffee was 4 percent less expensive and its iced blended drinks were as much as 30 percent less expensive when compared with specialty competition. Increased milk and green coffee bean prices are primarily responsible for higher overall prices.
In October of 2004, Starbucks increased retail prices for beverages by an average of 11 cents per cup. Starbucks last price increase, during August of 2000, was an average of about 7 cents per cup in August 2000. With whole bean prices ranging from a minimum of $8 and a maximum of $18, Starbucks coffee are in the average price range for the specialty coffee market. These prices are maintained throughout the company’s retail stores in America. International prices, however, tend to be lower or higher due to currency adjustments and variations in exchange rate. By marketing their products and developing a culture, it is not the price consumers focus on but the value of the products.
Starbucks’ wide range of business activity allows it to utilize numerous channels of product of distribution. The company adapts the vertical channel integration so that distribution of the company’s wide range of products and services will be effectively distributed to the consumers. Starbucks specifically adapts the Corporate Vertical Marketing System (or Corporate VMS) wherein a corporation owns and operates its own production facilities, warehouses, and retail stores.
Starbucks Corporation uses coffee beans which are directly produced for the company. Through the company’s funding, coffee farms in Mexico and Latin American nations are cultivated according to Starbucks’ quality standards. Establishment of the company’s own coffee farms reduces the problem of quality coffee beans often encountered by specialty coffee shops like Starbucks. Under the company’s supervision, coffee beans are produced and categorized according to their unique taste and quality: the Fair Trade blend, Organic, Farm Direct (commonly produced in Costa Rica), and Conservation, which is cultivated primarily in Mexico.
Another advantage in Starbucks’ distribution strategy is that the company does not allow franchising; rather, licensed stores are only allowed, giving the Starbucks Corporation full control of the management and operations of the retail store. This policy is applied in both domestic and international business operations of Starbucks. This strategy is used in order to maintain the quality of Starbucks coffee despite the different locations and environment in which the store is located. The Starbucks strategy aims to introduce to consumers to the original Starbucks coffee taste regardless of nationality. Using the Corporate VMS allows Starbucks Corporation to have a significant degree of control over the entire distribution system. Ensuring that the company’s products adhere to the Starbucks’ standards beginning with the raw ingredients and concluding with the finished product.
The Starbucks Company has had notable success in identifying top retailing sites for its stores. The company has the best real estate team in the coffee-bar industry. It is also recognized for its’ sophisticated system which enabled it to identify the most attractive individual city blocks and the best store location. The company’s site location track record is so good that as of 1997 Starbucks only closed 2 of the 1,500 sites it had opened (McGraw-Hill, 1997).
“Today the company that weaned us away from the free mud in the office kitchen and hooked us on $3 tall double caramel macchiato (with nonfat milk, please) has 5,945 stores in the United States and 2,392 more overseas and in Canada” (Stone, 2005).
Starbucks Corporation primarily relies upon news stories, conferences and public service announcement to gain publicity about the company’s products and services. Starbucks promotes new product lineups or new promotions through press releases and conferences, and is often used when launching a print and/or broadcast advertisement about a new or enhanced product.
Starbucks utilizes public service announcements and sponsorships as its main publicity strategy. Through the promotion of programs and activities that aim at the company’s sense of ‘social responsibility,’ Starbucks Corporation is able to project to the consumers the good and quality product that the company is producing and distributing in the commercial market. Examples of these programs that promote Starbucks’ social responsibility to its consumers are evident through its community building programs, Starbucks Foundation, and environmental preservation programs. It sponsors community-building programs through its local support programs (funded by the Starbucks Foundation) such as the establishment of Seattle Hometown and Zion Preparatory Academy, and grants such as library grants for the company’s literacy program and funding projects.
Print ads and broadcast (television) are the primary media source Starbucks uses in its advertising campaigns. Examples of Starbucks’ advertising campaigns are TV ads that promote the bottled Frappuccino and Starbucks Doubleshot products. These ads are both 15 minute-ads that are strategically played ‘back-to-back’ for greater brand and product retention. Starbucks mainly uses product rather than institutional advertising. Because of the audiovisual appeal of TV ads, most of the company’s advertising campaigns are through the broadcast media. Furthermore, the accessibility and flexibility of the television medium allows everyone to receive information about Starbucks and its products. Similarly, print media are also used because of Starbucks’ business employees/executives target market are primary consumers of newspapers, allowing the company’s dominant consumers to gain access to information about Starbucks’ new products. Both media are therefore useful in proliferating the Starbucks Coffee Company and its wide range of products.
Personal Selling Strategy
One of Starbucks’ main business operations is the distribution and offering of the company’s services through the Office Beverage Service and Office Delivery Service. These personal selling strategies provide small business offices a continuing supply of Starbucks coffee without going into the nearest Starbucks coffee shop. The Office Coffee Provider service offers the traditional Starbucks coffee using a special thermal brewing system that will be supplied to the office (consumers). Starbucks coffee in retail packs are also available and can be delivered to establishments interested in using the company’s products through the Office Delivery Service. These two services provide additional convenience to consumers.
Sales Promotion Strategy
Although Starbucks introduces many short-term promotions to increase sales, its Starbucks Card is a special sales promotion program that helps consumers to buy Starbucks products online as well as at outlets. Purchasers of this Starbucks Card can take advantage of the company’s special promos and deals, which includes discounts, special gifts and rewards, and other Starbucks freebies. Such benefits are exclusively distributed to Starbucks Cardholders.
Starbucks marketing information has been consistently accurate. When it has been wrong, sales have exceeded expectations. Based on the SWOT analysis and industry research, Starbucks current marketing decisions have been extremely effective and timely. They are targeting the global market, primarily in the Pacific Rim and Europe. They have increased pricing with little affect on demand. They have also improved their distribution and protected themselves from a slow US market. Their products have been consistently updated based on consumer demand. Success can be somewhat deceiving. Starbucks may have “left money on the table” by not being more aggressive, more targeted to local segments and not concentrating their efforts toward the global market.
Starbucks Corporation’s Mission Statement: “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles”, and its strategic planning seem to be in line. The objectives for sales and revenue have consistently been achieved. The critical issue for Starbucks is the decline of the US hot drinks market. To take advantage of the company’s strengths and considering the weaknesses, opportunities, and threats we recommend the following marketing strategies.
- Revamp product lines to meet specific location consumer demands both regionally and globally.
- Use aggressive advertising to reduce the risk of increased competition and mitigate the risk from the downturn of the US hot drinks market.
- Leverage the company focus on Corporate Social Responsibility in marketing its brand image.
- Focus expansion on additional overseas markets (Europe)
- Increase pricing if the price of coffee rises in 2006-2008.
- Continue to expand in the US market to mitigate the threat from competitors.
- Continue to add additional non-food/beverage products and services to increase sales and meet higher level customer needs.
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