Starbucks key of success is the ability to change the concept consumers had about drinking coffee. With more than 6000 outlets across the world (2003 numbers) and the intention of increasing them in the near future, the company has transformed coffee into a lifestyle accessory with as much elegance as the latest fashion. However, their way to success was not so easy and if we go back in 1971, we will find that coffee didn’t look like it was a great business. There were no signs of getting better, either. Coffee consumption in the United States had peaked in the 1960s, but by 1971 it was on the decline. Most Americans drank something called “coffee” that came ground up very finely in vacuum-sealed tins. Nevertheless, there was appeared tiny Seattle based chain with innovative idea of how to do business that in a few years changed the vision about the process of drinking coffee not only in USA but worldwide. Starbucks has evolved into a great success due to their implementation of Integrated Marketing Communications.
What is integrated marketing communication? For many, IMC is concerned with the harmonization of customer oriented promotional messages. Duncan and Everett (1993) suggest IMC has been referred variously as orchestration, whole egg and seamless communication. It is regarded by some as a means of combining the tools of the promotional mix in a more efficient and synergistic manner. Increasingly IMC is seen to include all consistent interactions a stakeholder has with an organization (Shultz and Schults 1998) and therefore any definition needs to include or refer to concepts such added value, relationship marketing, corporate blending and with it, the blending of internal and external communications.
One of the primary motivations why Starbucks moved towards IMC was the reduction in costs that it was possible to realize through this approach. The rise in some media costs, most notably television through 1990s, the proliferation of media opportunities and the splintering of audiences has led to a reappraisal of the communications strategies used by organizations and a reformulation of their promotional and media mixes. By reducing their reliance on above-the-line media and by attempting to move towards the use of media-neutral mixes to deliver consistent messages that cut through the increasing clutter, Starbucks has moved, if unintentionally, towards some form of integrated marketing communication activity.
Agreeing a definition of IMC is proving elusive but one of the more popular, simple and intrinsically satisfying views of IMC is that the messages conveyed by each of the promotional tools should be harmonised in order that audiences perceive a consistent image of a product or organisation. One interpretation of this perspective is that the key visual triggers (design, colours, form and tag line) used in advertising should be replicated across the range of promotional tools used, including Point-of-Purchase (POP) and the sales force. At another level IMC is about the integration of some of the promotional tools. One such combination is the closer alliance of advertising with public relations. Increasing audience fragmentation means that it is more difficult to locate target audiences and communicate with them in a meaningful way. By utilising the power of public relations to stimulate word-of-mouth communication about brands and advertisements.
Basically, we see that Starbucks’ success was built on two things: the store experience (Starbucks’ image) and the quality of its product – it really is a better cup of coffee The first one is so sacred that on Starbucks employees initiative the chain even prohibited smoking in its stores in Vienna, where cigarettes and coffee are inseparable, because Starbucks doesn’t want anything to interfere with the seductive scent of fresh-brewed espresso. That’s why top-management of Starbucks deeply believed that employees make the store that they work in. A Starbucks employee needed to be very knowledgeable, communicative, and helpful to the customers. Customers need to know the difference in the new roasted coffee Starbucks will offer. Well-educated employees will surely handle this requirement. Starbucks need to use strong cultural incentives to drive the identification of opportunities.
In Starbucks all employees are called “partners,” signaling a level of responsibility maintained by few companies with sales in the billions of dollars. Anyone who has an idea uses a one-page form to pass it to the senior executive team–and gets a response. When the company pursues an idea, its author, regardless of tenure or title, is typically invited to join the launch team as a full-time member. New-style marketing organizations, by contrast, hire marketers not for jobs but for two broad kinds of roles: those of integrators and specialists.
Integrators are marketers with broad skills who coordinate the delivery of products and services to the market from beginning to end. Specialists–more narrowly focused marketers with specialized skills–can be mobilized quickly to provide the particular expertise a given opportunity team requires. Starbucks is one of them and finding its way of capturing the market it will surely pay high attention to the recruitment process.
If communications are to be used effectively then there is a need to communicate aspects of the direction in which the organisation intends moving and how it intends to achieve this. In other words, the business philosophy and its aims and objectives, often expressed formally through mission and vision statements, need to be communicated to particular audiences in a way that is synchronised and co-ordinated with the organisation’s other communication activities. At a strategic level IMC has at its roots the overall business strategy of the organisation.
Using Porter’s (1980) Generic Strategies, if a low cost strategy is being pursued then it makes sense to complement the strategy by using messages that either stress any price advantage that customers might benefit from or at least do not suggest extravagance or luxury. If using a differentiation focus strategy (e.g. Waitrose) then price should not figure in any of the messages and greater emphasis should be placed on particular attributes that enable clear positioning.
In case of Starbucks mission sounds like this:”Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow”. The development of the mission statement was the start of the company’s marketing management initiative. Starbucks overall objective in the eye’s of the leaders was defined. This mission does not want to jeopardize the quality, ambiance, or service due to expansion into a global marketplace.
Besides writing a mission, Starbucks has outlined their guiding principles,
which they follow in their business:
1.Provide a great work environment and treat each other with respect and dignity;
2.Embrace diversity as an essential component in the way we do business;
3.Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee;
4.Develop enthusiastically satisfied customers all of the time;
5.Contribute positively to our communities and our environment;
6.Recognize that profitability is essential to our future success.
There can be little doubt that the elements of the marketing mix, however configured, also communicate (Smith 1996). The price and associated values; the product, in terms of the quality, design and tangible attributes; the manner and efficiency of the service delivery people, and where and how it is made available, for example the location, retailer/dealer reputation and overall service quality, are brand identity cues with which recipients develop associations and images, which in turn through time may shape brand reputations. It is suggested, therefore, that IMC cannot be achieved just by saying the same message through a variety of promotional tools. Effective communication underpins the stability and quality of relationships. While the origins of IMC might be found in the inadequacies of the prevailing structural conditions, an understanding of what IMC is or should be, is far from being resolved and is evolving as the industry matures.
The elements involved in IMC are many and numerous. Depending upon the perspective an individual might adopt, those elements might range from a simple configuration of the promotional mix through to a fully integrated and culturally driven mission and corporate strategy.
Starbucks chose the second one (Product Concept) and their success over the past 25 years has a lot to do with the quality of the product, which has attracted a loyal and growing following among consumers. The retail strategy has been to put a coffee shop on every corner and to make fresh-brewed coffee by selling only the highest-quality products and charging a premium price. However, the product mix has changed significantly over the years, with beans accounting for about 15% of the chain’s sales and company needs to remember this entering the Russia market. Meanwhile, Starbucks is expanding its offerings, with a line of ice cream for supermarkets and a joint venture with Pepsi Cola to market Frappuccino.
At the same time, the company continues to develop sales in alternative outlets, including foodservice and non-traditional retail sites as United Airlines, Holland America cruise line, Seattle Kingdome, an Alliance with Barnes & Noble bookstores, among others. Stoking the niche for seasonal drinks, Starbucks added caramel apple cider and white chocolate mocha just in time for the holiday and winter months. This year’s lineup of new summer beverages will be announced in a few weeks.
The last cornerstone of the marketing strategy of Starbucks is clustering. The company locates stores within close proximity in the world and it should do it the same way in Russia. Clustering is becoming important because company’s objective is to become a household name and it can be reached by fierce expansion and high coverage. Starbucks must open their doors and be in the Russian market before anyone else. This would give them a great fist-mover advantage. Once consumers experienced Starbucks service, quality coffee, and ambiance of their stores there would be a great switching cost for the consumer to go anywhere else. The success of becoming a household name worldwide is now close to reality.
The company received very high profits. However, Schultz measured his success by not compromising Starbucks ideals to maximize profit and was doing it very successfully. To keep up with this expansion Starbucks opened three manufacturing plants to relieve itself of the large transportation and storage costs. This decision really improved Starbucks’ distribution of the product. Starbucks could now distribute faster, fresher, and more product to many more of their stores. The plants also allowed them to enter the supermarket coffee sales industry in the spring of 1998 and will allow to dominate in the Russian market.
To accomplish the goal of being a household name brand coffee in Russia, Starbucks should choose to implement an expansionary strategy (as they are doing in any other country). Starbucks should use the first-mover element to jump in and gain consumer loyalty. With its fierce expansion, Starbucks should try to open new stores at a rate of more than one per day. This strategy will allow Starbucks to enter a Russian market and win consumer loyalty before anyone else can. After visiting a Starbucks, switching costs for the consumer will be extremely high due to the great service and quality that Starbucks can assure. Their decision to open three manufacturing plants to distribute their product more efficiently was essential to accomplish this strategy.
Prior to these new plants it was difficult and costly to deliver the quality of the product. Starbucks saved a great deal of money by using this new distribution method. They no longer have to pay for the shipping and storage of the product. With Starbucks expanding globally, the only adjustment they might want to consider is a plant overseas to help distribution there. The decision to enter the supermarket coffee sales market was a huge step for household recognition in USA and they probably should do this in Russia.
Two thirds of the world’s coffee is sold in stores for home consumption. Not only will they be able to reach millions of coffee consumers, but also this will ensure a great distribution channel that will help lock out some potential competitors. Consumers can now enjoy great quality coffee at home or by stopping in a local store. This is a key step in ensuring that Starbucks becomes a household brand name. The only adjustment Starbucks must consider is that they are in a new industry with huge competitors such as Maxwell House, Folgers, and many others. Starbucks must make sure that the organization stays with its mission statement.
In accomplishing the market development strategy of promoting the company’s range of services to a wider audience the work group fitted to the theory of the Kotler’ marketing mix. Hence the allocation of the 4 P’s, product, price, place and promotion.
Having determined the desired markets that the company would compete in the next step was organising a promotional strategy in these area. Following the apportionment of a marketing budget discussions were held in order to decide the best way of using this allocation. In this idea of market development the company would attempt to sell its range of services to a wider market.
Starbucks should have a unique promotional strategy in Russia:
·Only $300,000 million on advertising annually;
·Relies on ubiquity and word of mouth;
·In comparison, McDonald’s spends $3-4 million annually in Russia;
·No commercials on TV
The price as regards building contracting is largely determined by the amount of margin to be added to the build up of the estimate for the project. Price is almost always considered as being the single most important factor for the client as 99% of contracts are let to the lowest bidder. “The setting of the correct price is of enormous importance in marketing – both in getting the product accepted by the target market, and in generating sufficient revenue for the organisation.”
Starbucks pricing policy is also unique. It’s expensive. In USA you’ll pay about $2 for a regular coffee and $3-4 for a specialty one. In the Russian market the numbers will differ but the point will stay the same (expensive).
As for place, there is one good phrase about it: “Starbucks is caffinateing the world” (5,689 stores in 28 countries. And the product itself is always been paid high attention by Starbucks. “The aroma of our coffee is one of our competitive advantages; it is one of our products, ” says Mr. Hong, manager of Chineese Starbucks division. “You cannot have a complete Starbucks experience if you have smoky air. We need to win people over on the importance of aroma.
Nevertheless, before entering the Russian market Starbucks need to realize that there were some pitfalls:
1.Although Russian marketers evidence the trend of increasing coffee consumption in Russia, more than 50% of population prefer to drink tea and don’t like coffee, at all.
2.The volume of Russian coffee imports is equal to 100,000 tonnes (2003) and will increase 10-20% per year basing a good economic situation to Russia
3.Most Russian coffee drinkers use instant or soluble coffee, with this category accounting for 76 percent of imports.
4.Of coffee drinkers, 91 percent drink both coffee and tea with only nine percent drinking only coffee, he said. Coffee drinking is concentrated in European Russia and the south near Turkey and Armenia, which have strong coffee traditions
5.Even with the increase in imports this year, Russia’s per capita consumption of coffee will only be 650 grams, compared with four kg in Brazil and 10 kg in Scandinavia
However, if look at Chinese market, which has like Russian one a history of drinking tea and low level of coffee consumption and see how it all changed after Starbucks entered the market, we may assume that the same situation will repeat with the Russian market because of Starbucks power of brand.
In order for Starbucks to become a brand name in Russia, they must not stray from the strategy they set forth in the past. Their commitment to the mission statement, their employees, and expansion is what got them where they are. To stray from these ideals would prove tragic in their goal of world recognition. In order for Starbucks to develop in Russia they must remember the success factors they used in the United States. Should Starbucks stay loyal to their own beliefs they can only grow bigger. With stores opening all the time in new markets, Starbucks’ greatest challenge is managing its phenomenal growth. Their market is affluent, conscientious and discriminating. They want to know what Starbucks is giving back to the communities they infiltrate and markets they dominate.
Starbucks is not a perfect company. But it is a company who has managed to make the voyage to success without compromising key principles of the guiding vision. The voyage ahead is more treacherous. Will Starbucks be able to maintain the integrity of its vision. I hope so.
2.Kevin Lane Keller, “The Brand Report Card,” Harvard Business Review, 78:1 (January-February 2000): 147-157
3.Ralf Leszinski and Michael V. Marn, “Setting Value Not Price,” The McKinsey Quarterly, 1 (1997): 99-115
4.Paul Betts and John Thornhill, “Starbucks steams into Italy,” Financial Times, October 22, 2000, p. 7. Story is on Starbucks entering the Milan market
5.Niraj Dawar and Amitava Chattopadhyay, “The new language of emerging markets,” in “Mastering Management,” Financial Times, November 13, 2000, pp. 6-7
6.Ralf Leszinski and Michael V. Marn, “Setting Value Not Price,” The McKinsey Quarterly, 1 (1997): 99-115
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8.Olson, Dave. “Plantation to Cup” Starbucks: A Passion For Coffee. Menlo Park: Sunset Publishing Corp.,1994, pp. 16-19, 22.
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10.Mintz, Sidney W. “The changing roles of food in the study of consumption.” Consumption and the World of Goods eds. John Brewer and Roy Porter, 261-73. London: Routledge, 1993
11.Jay Belt, “Wired Angels Espresso Cafe” Hanford, California, February 26, 1999
12.Rice, Paul D. Market opportunity assessment for Fair Trade Coffee. Prepared for Transfair USA, February 1997