Strategy and Positioning Paper
Strategy and Positioning Paper
Starbucks is preparing to launch the new Frizzo hand crafted soda. This paper will include an overview of Starbucks and their products. It will also include a SWOT analysis and a competitive analysis of the organization and offering using the Porter’s five competitive forces model. It will include the criteria used to segment the market and select a target market that will include geographic, demographic, and psychographic, and behavioral factors. Next it will include a description of the targeted market and the needs that cause the target market to buy. Finally, it will include a written positioning statement.
Starbucks legacy began in 1971, in Seattle’s Pike Place market as a roaster and retailer of whole bean and ground coffee, tea, and spices (“Starbucks”, 2015). The company was sold to Howard Schultz 1987. His vision to bring the Italian coffee bars and the romance coffee experience to the United States became a reality; he was determined to make it a one of a kind company. The Starbucks name was derived from the first mate in Herman Melville’s Moby Dick, and their emblem was influenced by the sea featuring a twin-tailed siren Greek mythology (“Starbucks”, 2015).
Today, Starbucks has the privilege to operate in 21,878 retail stores in 66 countries. Starbucks stores are a gathering place for customers to meet with friends and family while enjoying quality service and an inviting atmosphere. Starbucks customers can expect to get more than coffee, with their wide selection of premium teas, baked pastries, and other healthy delicious foods (“Starbucks”, 2015).
According to “Starbucks” (2015), Starbucks mission is to “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time” (Our Mission). The company believes in the importance of building an everlasting business, and it strives to have a balance between profitability and a social conscience (“Starbucks”, 2015). In every step Starbucks takes, it is always performed through the lens of humanity. The company is very adamant about ethically sourcing the highest quality of coffee, caring for the planet through environmental stewardship, and getting involved in their communities.
According to “Statistics and Facts on Starbucks” (n.d.), “Starbucks has generated by far the most revenue and the largest number of stores worldwide within the coffee chain industry (para.3). It became the second most valuable fast food brand worldwide in 2014, coming right under the only global giant McDonald’s (“Statistics and Facts on Starbucks”, n.d.). Starbucks has come a long way, and it has no intentions of slowing down.
Description of the Product
Innovation is in Starbucks DNA, they are always thinking about how to serve their customers better. A company that began as a roaster and retailer of coffee beans and ground coffee, tea, and spices, is now an all-American global company coffee chain. It is now, serving hot and iced coffee beverages along with other exceptional products such as teas, and smoothies. Starbucks introduces a new refreshing drink away from coffee and tea. It wanted to know if it can be more than coffee to its customers, by introducing the New Frizzo Handcrafted Soda. This machine is a breakthrough in carbonation technology delivering a unique soda experience.
The soda experience is nothing like the sodas customer’s purchase in a store. Fizzo ensures every ingredient is carbonated to maximize the real flavor (“Starbucks News “, 2015). In addition, the new Fizzo machine comes with a fizz adjuster, to adjust the right amount of fizz in each beverage. And better yet, it is made by hand the moment the customer orders it. The new Fizzo sodas come in three different flavors the Golden Ginger Ale, Lemon Ale, and Spiced Root Beer (“Starbucks”, 2015). Fizzo drinks only have 100 calories in a Grande size (16 fl. oz.), and 80 calories in a Tall size (12 fl.oz). They are a special summer treat to any customer who wants to enjoy a refreshing soda any day of the week. The new Fizzo cold drink is available at all local Starbucks locations.
Operating efficiencies and strong growth lead to superior financial performance 2014 was just considered one of the best financial years for Starbucks. Starbucks revenue increased by 10%, approximately 1599 additional stores were opened, profit and operational margins have grew and their cash flow continued robust despite the vast growth.
In China, Starbucks has the rapidest growing store network as opposed to their competition
In the year 2011 they were only 570 Starbucks locations in China, now there are currently 1,367. There are more Starbucks locations than Costa Coffee and Dunkin’ Donuts combined; However, McDonalds still leads with over 2000 locations.
Leading brand in the coffee market, valued at $5.2 billion
Starbucks has a leading brand reputation because of their excellent coffee and outstanding customer service. Its brand is the most valuable brand the in coffee market and is valued at $5.2 billion.
The great Starbucks experience
One of Starbucks’s strongest advantages is the experience a customer experiences when visiting Starbucks. They cater to their customers with impeccable blended coffee, first-class music, welcoming staff and just and all around warm atmosphere, which results in incomparable customer service.
The effective use of the Starbucks Card, loyalty program, and mobile applications, to simplify the ordering process and to promote continual purchases
The Starbucks Card is a stored reward card and is convenient to use when making a purchase at Starbucks locations. Along with a quicker checkout time, customers who use their cards to pay for their items also receive points for their purchases. The Starbucks Rewards Program lures consumers to return to Starbucks and, of course, make continuous purchases. Going above and beyond the Starbucks Card, there is now a mobile application, which allows customers to pay with their Smartphones. Over 6 million customers use their Smartphone to make purchases weekly.
Too dependent on their profits within the Americas Division
American Division including the United States, Puerto Rico, Brazil, Canada and other America countries makes up for the 73% or $11.98 billion of Starbucks total sales. Out of the 14,191 stores in the America division, 11,962 stores are located within the United States. Making the United States their most relevant market.
The cost of coffee beans has a considerable impacted on profits
Profits and the price of coffee greatly depend on the cost of coffee beans. Coffee beans are considered an uncontrollable commodity, and due to unreliable weather conditions, hedge funds and many other elements, Starbucks is unable to estimate the price of its coffee and their company’s profitability.
The price for a cup of Coffee
Starbucks has incredible coffee and an amazing customer experience which allows them to charge more for their product. On the other hand, McDonalds McCafe premium coffee is priced significantly lower than Starbucks.
The corporation regularly receives negative exposure over its poor efforts of becoming environment-friendly company and tax evasions. Starbucks has not paid taxes for years 2009 through 2011 in the United Kingdom and other European Countries for the revenue of £1.3 billion.
Grow the Teavana store network
Tea is categorized as a healthy drink and the demand for Tea is rapidly increasing in the world. Tea is the most popular manufactured drink consumed in the world (Mac Farlane, 2004). Sales of tea products have grown from $1.84 billion to $10.41 billion in 2013 within the United States (The Tea Association of the U.S.A, 2013).
Branch out their supplier network
Currently, Starbucks does not grow their coffee beans; they purchase them from a variety of suppliers, which are primarily bunched in Arabia, South America or Africa. In order for Starbucks to guarantee critical product for their operations in Asia, they should branch out their supplier network and ease the dependence of good or bad harvests from their current supplier locations. Starbucks should consider extending its supplier system.
A growth of an emerging economy
There are vast opportunities for coffee sales in India, in which Starbucks only has a minimal amount of restaurants.
Possible rise in the price of coffee beans because of unpredictable weather disasters
Coffee beans are the chief material used, and coffee makes up about half of the total company’s sales. Therefore, the profit margins are to some extent reliant on the cost of the coffee beans. In 2011, the cost of coffee beans skyrocketed to $3 a pound (Kollewe, 2011). Over the past few years, pricing has been very unpredictable.
Starbucks has been implicated in several instances over its illegal use of its trademark, which can be pricey and harmful for Starbucks.
Potential upcoming change in some of the top executives
Since 1985, Howard Schultz has been a very productive and reliable CEO, who managed to develop Starbucks into on the biggest restaurant chains in the world. Along with Howard Schultz, there are many other key executives who have been employed at Starbucks for more than ten years and they have all contributed to the success of Starbucks. The danger here is that many of these key executives are in the age category for retirement. During his attempt to leave in 2008, Starbucks convinced Troy Alstead to stay because he was the most qualified candidate to fill the position of Howard Schultz as CEO. Unfortunately, Troy Alstead left Starbucks at the beginning of 2015 (Callan and Giammona, 2015). This change could possibly be a threat to the weaken Starbucks management capabilities.
Porter’s Five Competitive Forces
Starbucks is a competitive organization, and the Porter’s five competitive forces are as such. Starbucks customers have a hefty amount of bargaining power, and there is a small amount of customers who will not go elsewhere due to high prices, even though, there is a vast amount of choices available to them. The threat is substantial with alternate products and services. Alternative for Starbucks Coffee include tea, soft drinks, juices, water and energy drinks, and pubs, and bars can be areas for customers to meet someone and spend their quality time away from home and work environments. There is no threat of new company’s in the coffee business trying to compete with Starbucks.
The market is highly saturated, and the substantial amount of financial resources needed to build stores and buy properties are necessary in order to enter the market of the coffee making business. Starbucks and the suppliers have a higher bargaining power because the consumer demand for coffee is high at the universal level. Coffee beans can and will be produced only in certain areas. African coffee producers are being treated unfairly by worldwide companies, and the issues are being resolved with the efforts of various non-related government organizations and this increases the bargaining power of the suppliers.
Criteria use to Segment the Market
Starbucks decides to choose the demographics and psychographics lifestyles of their customers. The information collected pertaining to these segments suggests that Starbucks can better serve its consumers. Psychographics are primarily based on the consumer’s activities, opinions, and interests, it is how their consumers spend their time, what their favorite drinks are and what their priorities are, also how they feel about certain current events and issues. Psychographic research is together related to psychological research, especially when it comes to personality and attitude measurements. Though the factors such as personality and behavior are often used to describe marketing segments, the consumer’s demographic characteristics should be used to evaluate the size of the target market and to reach it efficiently.
Demographics is items such as sex, marital status, occupation, education, and income. Starbucks targets both male and female consumers, mainly 25-40 year-olds. Starbucks does not relate to a younger crowd because children under the age of 18 do not drink coffee. Starbucks company has positioned themselves in a way that it can recognize something different in their products from competition this gives them an advantage in association to their competitors.
The mission of Starbucks is that they want to inspire and nurture the human spirit, one person, one cup, one neighborhood at a time (“Starbucks”, 2015). Their strategy is customer based this allows them to give the best customer service possible. As Starbucks continue to hold onto their sustainable competitive advantage, they hold onto the customer and employees satisfaction. Starbucks is a worldwide company that has slammed the competitors operations, and it looks as if the company will last forever. Their power over the consumer and competition has shown that Starbucks is the king of the coffee industry.
Description of Target Market
Starbucks target market is to focus on being most known and respected brand in the world. The luxury coffee industry is very competitive, but Starbucks offers the most favorite hot and cold beverages that can be addictive. Starbucks target market ranges from young teenagers, college students, and adults. People of all ages go to Starbucks to enjoy their favorite drink even if it is just coffee. Customers are more willing to pay for lavish coffee products now more than ever, with that in mind, Starbucks aggressive growth in USA and worldwide have begun targeting almost every demographic to be a leader in coffee drinks. McDonalds and other chains try to cash in on the money in the lavish coffee business.
There are smaller coffee shops in the market place offering similar products, but Starbuck’s has a great deal of buying power giving them a competitive advantage. McDonalds has a customer base that is enormously large and now has the alternative to get their coffee where they get their breakfast. McDonald’s cup of coffee is less expensive than Starbucks and is one of Starbucks biggest competitors in this economy; Starbucks provides a luxury drink, but that will be what people cut back on when they want to save money. Unfortunately, Starbucks has closed of over a hundred Starbucks stores in recent years.
Emotional and Logical Drivers
Starbucks emotional and logical drivers provide a great atmosphere to get together for coffee or the unique flavored hot or cold beverages. Customers can come to Starbucks to study, meet with friends, or read a book. The furnishings usually consist of plenty of tables, chairs, and a welcoming atmosphere. Starbucks offers free Wi-Fi and always has plenty of electrical outlets for laptop chargers. These amenities start a trendy atmosphere consistent with the potential of social meeting places. The Starbucks locations worldwide offer the same experience as the locations in USA. Starbucks has the advantage to promote and advertise same menu items people can try worldwide and even customize some the of menu items to fit the local community tastes.
According to the O’Farrell (2015) website, “Starbucks’ primary target market is men and women aged 25 to 40. They account for almost half (49 percent) of its total business. Starbucks’ appeal to this consumer age group through hip, contemporary design that is consistent with its advertising and decor, and working to keep its products current as status symbols. Customers tend to be urbanites with relatively high income, professional careers and a focus on social welfare. This target audience grows at a rate of 3 percent annually” (Para 2).
Based on a personal consumer’s standpoint, many customers return to Starbucks every morning not because their coffee is the best quality. Most of the people in my circle, including myself, used to purchase Starbucks coffee because of the experience that it goes into the purchasing process. It is no surprise that the company uses millions of dollars to study the experience the consumers encounter in each and every step they take before getting a coffee in their hands. Furthermore, a lot of customers including myself enjoy the reward; who would not want to enjoy a nice brewed coffee before a long day? Lastly, I would say purchasing a Starbucks coffee exhibits some egocentric drive or personal, or perhaps shows a level of the individual’s social economic and of course, we cannot leave out the social energy!
Starbucks is not just the number one specialty coffee retailer in its industry for no reason. And it is not just because of their high market cap rate. The corporation serves their famous coffee drinks, their food items and roasted beans along with their coffee accessories, and teas. Starbucks markets its coffee through many military installations around the world, grocery stores including Target, bookstores like Barns and Noble, and other varieties of licensed brands food and beverage products.
Additionally, although countless studies and research are put into solving and resolving target issues, one of the most outstanding resolutions that Starbucks ever demonstrated was in January of 2008. According to “Nbc News” (2015), “Howard Schultz said Monday (January 2008) he is taking back the role of chief executive, replacing CEO Jim Donald as part of a plan to turn around the struggling chain of coffee houses.
Schultz, in a letter to employees posted on the company’s website, said Starbucks would slow its United States growth and close underperforming locations, restructure its management organization, and continue to expand globally.”(Para 1-2)
The “Spider Book” (2015) website listed that among the many competitors Starbucks has to war with; McDonald’s is leading the global market competitor’s list. Costa Coffee, Coca-Cola, Caribou Coffee Costa Express, and Coke are also amongst the list of competitors in that order.
One of the most enthralling advantages that Starbucks have over any of its competitors is the experience. Not anyone of the other competitors could compete on any given day the amount of returning customers that stay and enjoy the social environment that Starbucks proudly offers. Starbucks has achieved their goal of attracting people to come and visit.
Starbucks is preparing to launch the new Frizzo hand crafted soda. Their targeted market will be consumers from 18 – 40 years of age. Starbucks has
the advantage because they are already popular. People already gather at Starbucks to enjoy high quality drinks and food items and to enjoy the Starbucks experience. They have comfortable large couches, free Wi-Fi, phone charging station, and rewards program for loyal customers. Some consumer have made Starbucks part of their normal routine which will allow Starbucks to stay in business for a long period of time.
Callan, J and Giammona, C. (2015) Starbucks’ Operating Chief Will Go on Leave After 23 Years. Retrieved from https://www.bloomberg.com/new/2015-01-08/starbucks-coo-alstead-takes-leave-from-chain-after-23-years.html Kollewe, J. (2011) Coffee prices expected to rise as a result of poor harvest and growing demand. Macfarlane, A and Macfarlane, I. (2004). The Empire of Tea. The Overlook Press. p. 32. Nbc news. (2015). Retrieved from http://www.nbcnews.com/id/22544023/ns/business-us_business/t/starbucks-chairman-schultz-returning-ceo/#.VTX9ZEJppnE New Fizzio™ Handcrafted sodas. Made just for you. (2015). Retrieved from http://www.starbucks.com/ O’Farrell, R. (2015). Chron. Retrieved from http://smallbusiness.chron.com/starbucks-target-audience-10553.html Perreault, W. D., Jr., Cannon, J. P., & McCarthy, E. J. (2011). Basic marketing: A marketing strategy planning approach (19th ed.). New York, NY: McGraw-Hill Irwin. Starbucks . (2015). Retrieved from http://www.starbucks.com/ Statistics and facts on Starbucks. (n.d.). Retrieved from http://www.statista.com/ Spider book. (2015). Retrieved from http://spiderbook.com/starbucks-competitors.html The Tea Association of the U.S.A (2013). The State of the U.S. Tea Industry 2013. Retrieved from http://www.teausa.com/14654/state-of-the-industry Wong, Vanessa. (2015). Now Brewing: Starbucks Soda. Retrieved from http://www.bloomberg.com/
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 22 September 2016
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