Starbucks coffee a case study Essay
Starbucks coffee a case study
1. INTRODUCTION OF STARBUCKS COFFEE
The company, Starbucks Coffee was initially incorporated in the year 1971 by 3 entrepreneurs in Seattle where the business of the company is mainly selling whole bean coffee. Throughout the years of 1990s, Starbucks Coffee under the leadership of Howard Schultz, the company had expanded and growth rapidly with several efforts done. Starbucks coffee started its global expansion from year 1996 opening its first store outside of North America in Japan. Opening globally made Starbucks Coffee Company to record total net revenues of USD 9.8 billion for its business sales and operation. One of the Starbucks Coffee Company globally expansion market is Malaysia Food and Beverages Industry.
Starbucks Coffee Company expanded to Malaysia in year 1998. The mode of entry of Starbucks Coffee Company to Malaysia expanding and operating its business through the mode of licensing. Berjaya Corporation Berhad is the company that obtained the license to operate Starbucks Coffee Company locally. Berjaya Starbucks Company Sdn. Bhd. Is formed and jointly owned by Starbucks Coffee International and Berjaya Corporation Berhad. Starbucks Coffee Malaysia opened its first store on 17th December, 1998 at KL Plaza Bintang, Kuala Lumpur.
The business of Starbucks Coffee Malaysia basically are selling of espresso and coffee beverages, non-espresso and coffee beverages, coffee-related accessories and equipment, gift and merchandise, souvenirs, pastries and confessions. To date, in Malaysia itself, Starbucks had more than 141 stores operating the coffee business, and more than 700 stores across six Southeast Asian markets, including Indonesia, Malaysia, the Philippines, Singapore, Thailand and, most recently, Vietnam.
2. WHAT IS MARKET SEGMENTATION
Market segmentation is a process of dividing a market into distinct groups of buyers with different needs, characteristics, or behavior that might require separate products or marketing programs (Kotler and Armstrong, 2006). Initially Starbucks was based as a Socio-Economic segmentation base in consumer markets as it has concentrated on social class particularly the business class people, those who are working at the office and wanted to have a cup of coffee with good atmosphere and facilities. Starbucks also had segmented his market by geographic and demographically by selecting the store location where they can find the educated and coffee lovers (Dibb and Simkin, 1996).
2.1 SEGMENTATION OF CONSUMER MARKET OF STARBUCKS COFFEE
2.1.1 GEOGRAPHICAL SEGMENTATION
Starbucks in Malaysia is operated by Berjaya Starbucks Coffee Company Sdn Bhd., a joint-venture between Starbucks Coffee Company and Berjaya Group Berhad. From its first store opening in Kuala Lumpur on 17 December 1998, It has expanded to Sabah and Sarawak and surpassed the 140 stores milestone in January 2012. Now into our 14th year operation, Starbucks has grown not only to become the favorite coffee place for Malaysians but also a productive member of communities across the country. In its efforts to adapt as the world rapidly evolves, Starbucks Malaysia introduced the new drive-thru concept stores with consistency in mind. This new platform gives customers the option to enjoy their favorite coffee on the go, or at the store should they prefer to stretch their legs and relax. In Malaysia, Starbucks drive-thru concept stores are located in Johor Bahru, Shah Alam, Cyberjaya, and Petronas Kajang along the highway as well as Penang, the northern region of peninsular Malaysia.
2.1.2 DEMOGRAPHIC SEGMENTATION
This divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality. Demographic factors are the most popular bases for segmenting customer groups. Starbucks targets both males and females, mainly 18-44 year olds, but really does cater for everybody’s needs. And because young children don’t usually drink coffee, Starbucks offers a range of non-coffee beverages to cater for the whole family. Starbucks history has shown that they place a huge emphasis on product quality. Their coffee, even if priced slightly more expensive than expected is notorious for satisfying customers with its rich, delicious taste and aroma. Local sensitivity must be taken into account, as there difference in Ethnicity in Malaysia, the Chinese, Indian-Malays, and Malays. It is essential for Starbucks to understand the cultures and norms of Malaysia in their promotional campaign.
2.1.3 PSYCHOGRAPHIC SEGMENTATION
Basically, it is the process of dividing the market based on the way people think. Psychographic segmentation includes variables of personality, motives, lifestyles, and social class. Psychographics are based on the customer’s activities, interests and opinions, so it’s basically how they spend their time, what their preferences and priorities are and how they feel about events and issues. In Malaysia, Starbucks has gone a great length in providing daily inspiration for all their customers one day, one moment, and one cup at a time.
Starbucks organize exciting events such as Halloween and Holiday parties as well as hold regular new product launches to further strengthen the Starbucks experience. Starbuck partners know their regular customers by name, send them birthday greetings, and remember their favorite beverage. During major festive such as the Chinese New Year and Hari Raya Aidilfitri, Starbucks celebrate with their customers by offering beverages that appeal to local market. Starbucks incorporate elements of these festivals in the way they greet their customers and decorate their stores to lift up the festive spirit.
2.1.4 BEHAVIORAL SEGMENTATION
Consumer decides on which brand they want to choose based on the functional benefits, the emotional benefits, or both (Jobber and Fahy, 2006). The function or performance benefits of the brand are important to consumers, but they also choose particular brands because it can be used to express their personality, social status, or affiliation (symbolic purposes) or to fulfill their internal psychological needs, such as the need for change or newness (emotional purposes) (Solomon et al., 2002). Some researchers present purchasing as a problem and are often presented as the buyer decision-making model: problem recognition, information search, evaluation of alternatives, purchase, post-purchase evaluation (Jobber and Fahy, 2006). For high involvement products, such as high priced products/services (economic risk) and products/services visible to others (psychological and social risk), the consumer often goes through an extended decision-making process that includes all these steps.
However, with the prices ranging from RM12 for a basic espresso to over RM22 for hot lattes, Starbucks’ prices are among the highest in the Malaysia, but in the general scheme of things coffee is a low-involvement product. This means that consumer are often engaged in a limited decision making process, or they may see coffee buying as an impulse purchase or a routine purchase. Additionally, if consumers are loyal to a specific brand, they would tend to buy coffee without much information search or evaluation of alternatives (Jobber and Fahy, 2006). Starbucks is trying to get consumers to get more involved in the product in several ways. First, Starbucks is marketed as a status item and so it is more high involvement (has more economic, psychological, and social risk) than unbranded coffee or cheaper coffee from Subway or McDonalds.
Second, the company is using various campaigns, such as ‘Bold Coffee’ campaign and the ‘Via’ taste challenge recently conducted in the UK to get consumers to come into the store continually and try its products. This is a good use of buyer behavior theory, which predicts that customers may switch brands just to try something new (Jobber and Fahy, 2006). By providing customers with a new flavor to try each week, Starbucks actively manages customers’ natural inclination to try new things. And by emphasizing its socially responsible behavior, Starbucks is also providing consumers with more benefits on which to evaluate its products. Starbucks is also making good use of consumer buyer behavior theory by building a really loves coffee strong brand to which customers are loyal, meaning that these customers do not even consider other brands when they are going for coffee, they will immediately choose Starbucks because it is the coffee for anyone who really loves coffee.
2.2 POSITIONING STRATEGY FOR STARBUCKS COFFEE COMPANY.
According to Mullins and Walker (2010), brand positioning can be defined as the image that the marker intends to put into the consumer mindset comparing with other brands and the ways the brand is placed in the consumer mindset. It can be said as the way a company would like the consumer to see of its company product or service. In the case of Starbucks Coffee, the company had positioned the brand into the mindset of its consumer as “Third Place” environment. The “Third Place” environment refers as the place other than workplace and home that an individual can visit to relax, gather or socialize with friends and family.
Therefore, Starbucks store is often decorated and filled with warm and comfortable climate such as nice sofa, Wi-Fi services, music and books offered to consumer. Additionally, Starbucks also positioned its brand of a quality-oriented product and services. Quality product refers to its finest coffee beverages and service refers to its environment, professionalism of its barista in brewing the finest coffee and the way its treat the customer. Starbucks Coffee understand the important of brand positioning in the consumer mind as the customer will not revisit if the product or service offered would not satisfy their taste and preference on coffee.
2.2.1 MICHEAL PORTER GENERIC COMPETITIVE STRATEGIES
Starbucks Malaysia is operating its business in the local food and beverage industry by adopting the Michael Porter Generic Competitive Strategies which intends to specify the company game plan to compete in the industry while maintaining its competitive advantage over its rivalry. The company in Malaysia is practicing the differentiation strategy. Commonly, Starbucks is well known for its quality of coffee. It has its high quality sources of coffee bean and plantation. These made the company different from the local company that does not serve quality but price as they main advantage. The company is differentiating the nature of the business from local coffee company such as Old Town White Coffee.
Starbucks developed the concept of Third Place to sustain its consumer by inserting the perception of Starbucks Coffee store as their third place other than working environment and home. It intends to generate the sense of belonging of its stakeholders and thus enhancing the relationship with them, retaining them and attracting new potential non-coffee market. In brief, Starbucks Malaysia is operating the business in Malaysia using the differentiation strategy in term of quality of the coffee provided and the comfort environment offered to its consumers to enjoy the life other than working and home environment.
2.2.2 CORPORATE SOCIAL RESPONSIBILITIES STRATEGY
Today, operating in the dynamic business environment, company has to response shortly to consumer taste and preference. Environmental issues have now becoming a concern for consumer before making purchase decision. They are now more aware and alert than before seeking environmental information about a company’s product contributing their efforts to preserve the environment. Starbucks, as one of the world leading coffee company, is facing controversy of coffee towards the health of human being. For this reason, Starbucks Malaysia, has adopted the corporate social responsibilities strategies as one of their marketing management practices before the issue is highlighted widely. Starbucks Malaysia has its decaf coffee powder to reduce the impact if caffeine towards the health of its consumer. Consumer can order coffee brew from caffeine or decaf coffee powder. Additionally, Starbucks Malaysia is also offering its consumer choice of milk to brew the coffee.
Consumer can either order their coffee using low fat milk or low fat soymilk. In term of stakeholder interest, Starbucks Malaysia treats their employees as partner by offering them comfort working environment. The employees can take a short break after a working hour of 5 hour, free beverages to reward its employees daily up to 5 cups of beverages. Starbucks Malaysia also is committed to the origin of the coffee product, the environment and the communities. Lots of efforts done to realize the corporate social responsibilities strategy to ensure the confidence of consumer towards the company such as Coffee Sourcing Guidelines, Conservation Coffee, Fair Trade Certified Coffee, Organic Coffee, Starbucks and CARE as well as their global corporate social responsibilities reporting which further address the stakeholder’s interest of environment and community in details.
It is clear that Starbucks widest use of marketing tool is through word of mouth marketing as customer will help the company to share and spread the quality product offered. However, for the reason of coffee health and environmental and communities concern nowadays as a result of globalization, consumer nowadays demand more on the product that they purchase. They demand more on intrinsic value that they could enjoy buying a company’s product while extrinsically enjoying the product of the company.
In the case of Starbucks, to provide finest quality of coffee signify that the premium price placed for its coffee and this will slowly weaken down its competitive position in the market especially during global financial meltdown. To overcome or slower the process, the company switch the focus of the consumer on price but to raise their awareness on Starbucks efforts done to the environment and community in reflect on their premium coffee price compare to the competitors. As a result, corporate social responsibilities strategy is nowadays a good marketing management practices that a company can adopted to sustain its market position and share in the industry.
3. THE ROLE OF MARKETING MIXES OF STARBUCKS COFFEE TO ACHIEVE THE RIGHT COMPETITIVE ADVANTAGE.
The marketing concept of 4Ps was formulated by McCarthy in 1975. The 4Ps is an element used to represent products, prices, promotion and place in the marketing mix. For over decades, these elements have been adopted as the root from which marketing plans are developed. In any case, with recent attention offered to service marketing in recent years, theorists have developed extra Ps to the basic concept. Fifield and Gilligan (1996) are the authors who recognized the need to include over variables – process, physical, and people to form the 7Ps of service marketing –, but only the initial 4Ps will be used to illustrate how marketing mix stimuli in Starbucks influence cognitive process, affective and behavioral response of customers as the company deals more on products rather than services. These 7Ps are:
1. Product – features, quality and quantity
2. Place – the location where the products are sold, number of outlets. 3. Price – strategy, determinants, levels.
4. Promotion – advertisement, sales promotion, public relations 5. People – quantity, quality, training, promotion.
6. Process – principles, automation, control measures. 7. Physical- cleanliness, décor, ambience of the service
Florence (2013) stated that one of the main corporate objectives of Starbucks is to create standard taste, irrespective of the country or location where they operate in. The company is of the view that while standardization is essential for reducing operation cost, adapting to the local environment they operate in is important for business success. As such, there concept of “Its mission is to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” has been the founding principle of business management in Starbucks. Although Starbucks offers the same blend of coffee in terms of ingredients and taste standards across the world, their products are designed to feature the culture, cuisine and customs of Malaysia. Thus, this is why the coffee shop is still the most preferred across country.
These examples are how the company has designed its business strategy to focus on the local needs of its market, instead of adopting an international menu. By focusing on the local needs, the company is communicative a cognitive mind of value which the customers no matter where they might be across the globe will use in processing their purchase decision. As the company offers beverages and foods that are locally made, the customer value is increased in the sense that customer can be sure of having meals that meet their local taste.
In that case, the affective behavior is increased and this led to increase in customer loyalty and repurchase decision. When customers travel abroad as well, there might be a sense of cognition that Starbucks is the place to be – for tasking quality coffee internationally – as this is the value the company constantly communicates to its customer. For instance, the sells locally made white coffee in Malaysia, while they sell the pure black coffee in Brazil. The snacks are also different and tailored to the market’s taste with local Malaysian ingredients used in Malaysian restaurants and the local ingredients of other countries used in their respective outlets in those countries.
Currently, Starbucks has 18,000 restaurant outlets in 60 countries across the globe (Florence 2013). The company still continues its focus on management of capital, which is an illustration of its effective, prudent and strategic expansion. The increase potential for growth in the international market has been learned from its operation in the USA. This strategy has created a benchmarking gap between the company and its competitors. However, there is a need to understand the importance of looking back and using the past experience to build on even more lucrative restaurants. Such local and global presence of the company is used in communicating the message of availability.
While the company is focused on business expansion as a means of increasing profitability, the expansion process is communicating to the market that Starbucks is easily available and accessible. As such, the customers can be assured that no matter where they might be, there is always a chance of having Starbucks around. This form of marketing communication enhances the cognitive processing in the sense that customers can easily visualize Starbucks whenever they fell like going out to have some meals as the company is communicating that they can easily be found around their homes.
In that case, it increases the affective behavior with a strong mental image of accessibility and availability. In some of their outlets around the states such as Kuala Lumpur, Sabah, Sarawak, Melaka, and Penang, Starbucks function 24/7 and this further enhances convenience on the customer’s side. As such, it can be seen that the company has been successful in enhancing positive behavior and attitude towards its brand. Starbucks is readily available in most of the major shopping malls and airports in Malaysia, as well as side corners across certain residential areas in the country and this makes them highly accessible.
Florence(2013) also stated that the company has realized that notwithstanding its cost saving approach that is inbuilt its standardization process, success can only be obtainable by being able to adapt to economic conditions in the different markets they maintain business operations in. This is actually what is happening with the company’s implementation of its pricing strategy which is focused on localization instead of globalization. This is also in line with the company’s business model of think global and act locally. For each country, there are rigorous pricing concepts that can be used to determine the right price for such market. These processes have been described as:
1. Selecting price objectives;
2. Determining demand;
3. Estimating cost;
4. Analyzing competitor’s cost, prices and offer;
5. Selecting appropriate pricing method; and
6. Selecting the definitive price.
The above processes are the framework which the company uses in designing prices for its products across countries. The overall pricing objectives of Starbucks is to increase market share in each of the countries it operate in and this is the barometer used in setting prices for each of these market (Florence 2013). Such an approach whereby the company sets price according to market value is the best option. This is because, there are variations in earnings across the globe, and standardizing the pricing process wills an ineffective measure. For instance in the USA, the pay for 1 hours could be $5, and the same amount could be the pay for 3 hours in Malaysia or 6 hours in the Philippines, and even higher in some of the developing world.
Therefore, while the US employ can afford to spend $5 on a meal, this might be possible in the countries where the pay is actually lower. In view of that, Starbucks is communicating value per price by adopting a localized pricing option in Malaysia. This is because, the international customers will perceive high value for the products offered in relation to the American market, but will be paying a lot cheaper for the same quality. Overall, this will increase their affective behavior towards the brand and offer them numerous reasons to choose Starbucks over its competitors like Oldtown White coffee and Coffee bean companies. As such, it can be stated that it is significant to note that the company has been adopting numerous localized strategies in relation to the marketing mix discusses, and the reason behind such is to increase brand loyalty and subsequently increase their global market share. The company also adopts pricing to communicate value in the sense that its high price is a representation of higher quality over other brands.
The final context that will be discussed is the issue of how promotion influences cognitive, affective and behavioral attitudes of customers towards Starbuck. Promotion is also known as the marketing communications mix, and it was developed, who also stated that it comprises of five major tools as:
2. Direct marketing;
3. Sales promotion;
4. Public relation; and
5. Personal selling (Kotler 1994).
By adopting these tools, Starbucks also localizes its marketing communications strategy, as the company seeks to meet the enormous demands of cultural and environmental differences that exist across Malaysia. It was Florence (2013) who stated that it would naïve of the company or any other company to ignore the fact that differences exists amongst markets in relation to culture and customers, as the ignorance or acknowledgement will have high influence of the performance of brands. Although the company focuses on promoting its corporate image global, it advertises its products by adopting the Maxim of “branding globally, advertising locally” (Sandler & Shani 1991) as it’s promotionally strategy. For instance, in Starbucks UK advertisement, English footballer such as Alan Shearer are used as the company’s figurehead in promotion of its products, while the company also uses Fabien Barthez (the international goalkeeper of France) for its advertisement in France.
In terms of setting, the environment of Starbucks in China features mostly big round tables which is a representation of communism in china – allowing customers to dine with their families, while the American setting is more of single and settings, which represents the American view of individualism. Overall, the promotional strategy adopted in Starbucks is yielding the same effect as other marketing mix discussed above. The fact from this analysis can be stated that, the company has been able to develop the right approach towards strategically managing its operations across the globe by thinking globally and acting locally at the same time.
The effects of such is that it provides customers with quality and positive information in which they can use for their cognitive processing and this will positively influence their affective behavior. The reason for that is that customers will view Starbucks as respecting their values in terms of culture, customers and cuisines, as well as being caring by pricing their products to suite their economic condition in their country. In that case, the customers will be positively affective towards the brand and this is the main reason behind its global success.
4. HAS THE MALAYSIAN KOPITIAM RESTAURANTS ACHIEVED SUSTAINABLE COMPETITIVE ADVANTAGE IN THE BREWING INDUSTRY?
Malaysian Kopitiam restaurants has achieved sustainable competitive advantage in the brewing industry especially Starbucks Coffee as it has successfully franchised in many states in Malaysia as well as globally. Malaysian Kopitiam restaurants (Starbucks Coffee) has achieved sustainable competitive advantage by so many ways. Firstly, Here at Starbucks, they have groom talented partners (employees) with their outstanding training and development programs. Most of their store partners are food service professionals and college students, and what they all have in common is their passion for great coffee and quality customer service, which ultimately helps them bond as a family and build satisfying careers at Starbucks. The commitment of Starbucks’ partners is a major reason why they are recognized as the leading specialty coffeecompany and the industry benchmark across Malaysia.
Secondly, in Malaysia, Starbucks has gone to great lengths toprovide daily inspiration for all their customers one day, one moment, and one cup at a time. Starbucks organize exciting events such as Halloween and Holliday parties as well as hold regular new product launches to further strengthen the Starbucks experience. Their partners know their regular customers by name, send them birthday greetings, and remember their favorite beverage. For customers who prefer their beverage with a personal touch, Starbucks also provide wireless internet access at all their stores nationwide to make visits to Starbucks a truly relaxing and enjoyable experience.
Thirdly, Starbucks is also very proud to have a collaborated with Persatuan Kebajikan Hope worldwide Kuala Lumpur, for the opening of a free pediatric clinic in May 2005. The clinic, on the Island of Penang, aims to provide specialist pediatric care to children from urban poor families who not be able to afford specialized medical consultation and treatment for these children. Consultations are provide pediatricians and child specialists on a voluntary basis,while our partners volunteer their time in the administration and upkeep of the clinic.
Starbucks organizes the Charity Movie screening and Charity Gold Championship annually to help sustain the costs of running this clinic. Lastly, in its efforts to adapt as the world rapidly evolves, Starbucks Malaysia introduced the new drive-thru concept stores with consistency in mind. This new platform gives customers the option to enjoy their favorite coffee on the go, or at the store should they prefer stretch their legs and relax. In Malaysia, Starbucks drive-thru concept stores are located in Johor Bharu, Shah Alam, Cyber Jaya, Petronas Kajang along the highway as well as Penang, the northern region of Peninsular Malaysia.
Starbucks claim their leadership in Malaysia Kopitiam restaurants by focusing on a strategy of new products, a stronger connection with customers as the third place and expanding store locations in Malaysia. They never compromised on their quality and service standards and maintain their customer relationships with utmost care. Starbucks is commited to offering the world’s finest coffee while enriching Malaysian’s lives one cup at a time. Today, Starbucks Coffee is cities all over Malaysiaand in 48 countries. The level of success achieved by Starbucks holds some much needed inspiration to the business world.
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