Table of Contents
Product line extension
Instant coffee data
Starbucks Via Market Strategy
Customer profile and SWOT analysis
Individual critical reflection
Starbucks is known for the qualitative varieties of products, the exclusive and friendly environment, the helpful and very polite personnel, the information and training on the products and the participation of management in building relationships with customers.
Starbucks have more than 16 blends and types of coffee made of coffee beans Arabica, a large variety of beverages prepared instantly, tea Tazo ®, Starbucks DoubleShot ®, freshly baked pastries, chocolates, savoury delicacies, sandwiches, salads, etc. (Starbucks 2010)
Also, at Starbucks a customer can buy coffee specialty products such as coffee machines espresso, coffee grinding machines, mugs and other items related to coffee and tea and CDs, which are original proposal gifts.
Starbucks was a case study, for many businesses in the area of exclusive coffee shops. However, the founder of Starbucks Howard Schultz, in February 2007 decided to close 600 Starbucks stores.
Many researchers argue that the rapid growth of Starbucks has destroyed the value of the brand (Lynn 2008:41-43). In addition they provide the following reasons for the decline of Starbucks (Hoovers 2009):
First, the category of customers who have adopted the principle, supported and appreciated the atmosphere of an exclusive 'club', where they could relax and enjoy a quality coffee, felt as a 'minority' so they switched to other exclusive brands. And this happened, because from some point onwards, the new Starbucks stores gave priority to another customer group, those of - grub and go - which required speed to service (Briggs 2008:21).
Secondly, to enrich its product range, it created many new and different flavours. This has resulted in undermining the 'dignity' of the Starbucks brand, for those who appreciate quality coffee. In addition, the Starbucks staff had to fight every day to serve the impatient customers many different flavours from a complicated menu. This resulted for the staff and the manager of the store to have no time for dialogue with the loyal everyday customers. Another important factor was the expensive [premium], price of take away coffee.
Third, the opening of many new stores and the launching of a multitude of new products has created a false and artificial growth. Such strategies have changed the priorities of management, rather than seeking the quality of the service and the increase of sales from year to year (Lovelock, Wirtz 2010). This is heavy work for retail, i.e. when the store manager has to earn loyal customers to increase the frequency of orders - sales. The fact that new stores opened in close proximity to one another made the above even more difficult. By contrast, it led to the cannibalism of the brand, leading to a decrease in the morale of the executives of the stores.
None of the above would have happened if Starbucks had stayed in their original form i.e. the exclusive cafe with the friendly atmosphere and staff, and above all, good quality coffee.
The founder of Starbucks (SBUX) Howard Schultz returned to the helm of the company assuming the post of the chief executive in early 2008, just a month after the outbreak of the worst recession in decades. It was the most appropriate time to implement the new strategy to turn the company around.
Starbucks launched the last quarter a new ad campaign, while it is experimenting with new ideas such as new original stores in Seattle and new instant coffee products (Adamy 2009:B8). Then he announced that thousands of stores in 52 countries of the world are going to be renewed.
The main objective is to have more viable stores and to look less global and more local. The first stores with the new philosophy have already opened in Seattle-a crash test for the rest of the world. Until today the opening of a Starbucks in an area meant for the residents of the area the transformation of it into a yuppie paradise. What changed then?
The brand of Starbucks which became less obvious and visible. The main elements, such as warmth, comfort and earthy colours of the stores remain the same. The same strategy will be applied in Europe when the campaign of renovation will start. However, there are many factors, which would make Starbucks comeback difficult.
One problem that remains is the strong competition from McDonalds (MCD) and Dunkin Donuts which challenge Starbucks with their own high-quality coffee products. However, in the short term, this challenge may have helped the company. The competitors' ads seem to have fueled consumer interest in coffee and Starbucks in particular (Hoovers 2009).
The results of only one quarter do not mean that the challenges from the competition go away. In the long term, "it is inevitable that McDonalds and Dunkin Donuts will get a share of the market from Starbucks", argues John Langston, an analyst at Hodges Capital Management (Hoovers 2009).
With revenues decline, the improvement in the profits of Starbucks was the result of reductions in costs. The cuts are very deep, affecting the quality of products and stores. However, the company should go on and increase its sales, which is very difficult since the whole world is in the middle of a global economic crisis.
The consumers review the ways to spend their money. Recently, it has been notice that there is a greater willingness on the part of the consumers to spend more on "affordable luxury". This does not mean that the economy has improved. However, as it is argued "people are tired of depriving themselves of all pleasures”.
Nevertheless, how long will Starbucks continue to benefit from improved consumer confidence, without having the economy fully recovered?
At the same time, there are still questions about the long-term prospects of Starbucks, but there are also additional questions for the impact of competition and the success of Starbuck's business abroad.
Product line extension
Product line extension is when a company “introduces additional items in a given product category under the same brand name, such as new flavours, forms, colours, ingredients or package sizes.” (Kotler 2002: 478).
Starbucks launched instant coffee (Starbucks Via) which is part of its product line extension (Starbucks, 2010). Instant coffee was criticized negatively since it was considered as low quality coffee. However, Starbucks Via as a product line extension is used as means for Starbucks into entering into new market segments by using the successful Starbucks brand.
The reasons for launching Starbucks Via is first that Starbucks wants to enter the European markets, especially UK where instant coffee is not perceived negatively but on the contrary, many people consume it. At the same time, it is a way of responding to the current economic recession since Starbucks Via has a lower price than a cup of coffee served at a Starbucks store. Offering a low end product is a much better solution than lowering the price of high end products and therefore, harm the brand image (Mazzarol et al. 2007:1475-1494) However, it could be notice that this unfortunately happens to the high end products (i.e. lowering the prices) e.g. latte coffees since Starbucks had been criticized as having very expensive prices. If Starbucks goes on lowering prices then it could reach the prices of Dunkin Donuts and this is not the profile that it wants to have.
The appropriate marketing direction for Starbucks Via should be to make it popular but not too popular since this will lead to cannibalization of the other Starbucks coffees. Starbucks is associated with slow coffee drinking and relaxation. It should connect this aspect with its instant coffee and so its brand image will not be harmed (Taylor 2009:11). At the same time, it should focus on market segments that use to drink instant coffee.
A further product line extension of Starbucks Via would be to offer it cold in the way that Nes Café Frappe is offered and has been a great success in the Mediterranean and other European Countries (Macarthur 2006:1-41). This ice coffee should be aligned with the marketing strategy of Starbucks Via, the only difference would be that its promotion would reach its peak during summer months. It should also focus on a different target market (people that want to feel young and relaxed).
Instant coffee data
The market of instant coffee is approximately $ 17 billion. The big players in this market are Kraft’s Sanka, Folgers and Nestle’s Nescafe. Although US consumers are not very keen on it (actually they think of instant coffee as “white trash”), still in countries like Brazil and England instant coffee is widely consumed (Wallop 2010).
Even so, in US, according to 2006 data, 40,000 tons a year are sold.
In Germany, 14,000 US tons are sold a year, and the same customers who buy it they also regularly drink brewed coffee. In France 60% of people and 68% of people in Spain drink instant coffee regularly.
British are heavy instant coffee consumers. However, from “ 2005 to 2010, sales of cheaper instant coffee in Britain fell, and in 2009, the £140 million pounds spent on cheaper instant coffee was outpaced by the £149 million pounds spent on upscale ground coffee” (Wallop 2010).
- Quote paper
- Fotini Mastroianni (Author), 2010, Starbucks. Evolution of the Company's Marketing Plan, Munich, GRIN Verlag, https://www.grin.com/document/345121