Coffee has always been regarded as the preferred beverage during the 1950s. However, its superiority was surpassed by soft drinks as the country’s favourite beverage in the mid-60s as observed from Fig. 1. The reason for its decline is that coffee is often regarded as “old fashioned” beverage for older people with limited options: regular or decaf (Source: Starbucks Story 0502. p. l). Consequently, the coffee industry was experiencing a vicious cycle of brand identity crisis where heavy discounting and promotions were the norms as customers tried to shop on price as coffee has been reduced to commodities. Therefore, there was a significant decrease in the gross profit margins where there was 1% profit per cup and this trend forced management to reduce advertisings budget.
To exacerbate the situation, management resorted to reducing product quality by gradually increasing the proportion of African beans from 5% to 15%, using puffing technology to fill 16 oz. containers with 13 oz. “fast roast” beans, and even packaging high-end coffee in standard jars to reduce complexity (Egan, Golovcsenko, 2002).
Fig.1 Cups of Coffee per person per day (Source: US Bureau of the Census)
Despite the ferocious competition in the coffee industry, opportunity still exists in “gourmet coffee” where coffee buying decision-process can be driven by quality, image, and service. To succeed in the present market situation, companies must reinvent a commodity by taking something old and tired and common as coffee and weaving into it a sense of romance and community around it. This is Starbuck’s key to success where they have rediscovered coffee by introducing a whole new menu of coffee and the ability to create a kind of “third place” to home and office where customers can escape, reflect, read, chat, or listen.
The coffee industry has a high intensity of competition; it is a saturated market. Starbucks’ direct competitors include: Diedrich, Brewsters, New World, Seattle’s Best, Gloria Gears, etc (Source: Starbucks Story 0502. ppl) and also there are other substitutes which include restaurants, non-specialty coffee shops, other caffeine products, etc. Coffee price is very volatile and also that coffee distribution system is very complex.
2. SWOT analysis of Starbucks brand
* Strong brand image:
> Brand projects a sophisticated and somewhat European image
> Starbucks is often associated to be the connoisseur of coffee
> Enhanced brand image perceived by customers due to many advantageous strategic alliances (refer to Fig. 2)
> Starbucks rapid national and international expansion to focus on high-reaching and high-visibility locations has enhanced their visibility (refer to Fig 3)
> Starbucks has been successful in the promotion of their Espresso-based line (e.g. Frappucino and Mochaccio)
> Well-trained and knowledgeable staffs are quick to respond to customers’ claims and queries
; Starbucks has been successful to convey the message that they are offering luxury coffee at an affordable cost
; Moreover, Starbucks intention in creating the “third place” has been successful as many customers feel that Starbucks offer a sense of community and the place to be other than their own respective homes and offices (refer to random interviews conducted below)
; Renowned cafï¿½ dï¿½cor (art evocative of coffee origins), warm bars with comfortable seating opportunities, music, newspapers, and contemporary crowd
* Wide range of coffee offered (e.g. espresso-based coffee)
* Existing loyalty program (e.g. Starbucks’ cards) (https://www.starbucks.com/card/) – Access date: 23/3/04.
* Associated with high quality coffee
Fig. 2 Starbucks’ many strategic alliances have increased its brand image significantly
(Source: Starbucks Annual Report 2003)
* Costs: beverages are premium priced (refer to Fig. 4) than competitors
* Image of Starbucks may appear too corporate and boring due to the similarity in designs and offerings
* Burnt coffee taste (may be too acidic for some consumers)
* Only licensed music is played (may appear to be monotonous)
* Limited menu (no doughnuts, etc.)
* No drive-thru
* Not in rural markets
* Lack of marketing (no commercial on TV, only spend $30 million dollars annually, and high dependence on word-of-mouth form of advertising) (Starbucks annual report, 2003).
Fig. 3 USA and International Growth (Source: Starbucks Annual Report 2003)
Fig. 5 Range of prices for coffee
Fig. 4 Starbucks’ prices compared to its direct competitors (Source: Wall Street Journal, 14/10/1996)
* The ability to increase Starbucks’ existing customers base spending by introducing new products (e.g. cakes)
* Strong customers base
* Has become the most recognized brand in the world
* Increasing Starbucks cultural adaptability by creating coffee that can be identified with the locals (e.g. Kopi Tarik in Malaysia)
* To capitalize on international expansion to penetrate into the local market
* Increasing quality of life, disposable income, and level of education in many of international public, particularly the Asian market
* To provide wireless Internet access for connectivity
* To extend its brand into other product types
* To grow its retail and specialty operation
* To find new distribution channels
* Cultural resistance (Anti-American goods and products)
* Strong local presence from existing coffee brewers (e.g. Coffee Bean in the Southeast Asia)
* Volatile coffee price
* High dependency on suppliers
* Complex distribution systems (e.g. to prevent the beans from being oxidised)
Brand image positioning
Brand communication encompasses all forms of communication, actions and activities that influence and impacts the relationship between the customer and the brand (Schulttz ; Walters, 1997, p.6). Thus, the concept of how the organisation communicates with its customers is expanded and enhanced. No longer is brand communication simply what the organisation develops, delivers and pays for. Instead, it is what the customer and prospect receives about the brand from whatever source. It is this customers-focused approach to brand communication that differentiates marketing and brand communication from the functional activities of the organisation such as advertising, sales promotion or direct marketing.
Further, brand communication includes all aspects, elements, activities and functions of the brand, including product performance, distribution, placement, advertising and customer service (Shimp, 1990, p. 126). These comprise the customer’s physical use perception and understanding of the brand as a product or service. It is these elements that define and differentiate one product or service from another. Thus, brand communication includes the product or service itself and the packaging, distribution channel and media communication and beyond.
Since that Starbucks operate in the differentiated segment where customers are willing to pay a premium for the price of their products, it is important for Starbucks to convey the right image and this can only be achieved by a well-defined brand management process. Strabucks’ total brand management process is outlined in Figure 6 which involves Starbucks’ management trying to add value in every aspect of its products to its customers. Consequently, by carefully protecting their brand images to the customers, Starbucks has captured a higher market share due to a relatively stronger brand image to its direct competitors (Please refer to Fig. 5).
Fig. 5 Starbuck’s brand image relative to its competitors
Fig. 6 Starbucks’ total brand management process
Analysing target and relationship
Middle to High Income
Low to Middle Income
Middle to High Income
Low to Middle Income
Note: P = Professional Workers; S = Students; F = Family; O = Old people
The highlighted cell denotes the target market for this marketing campaign
Firstly, the market is divided based on Starbucks’ predominant operational location, i.e. locally in US and overseas. On the next level, segments are divided based on the consumers’ level of income. Lastly, target market is divided based on the different types of consumers with different needs and requirements. On the opposite segmentation axis, different segments are charted according to consumers’ purposes in going to Starbucks. Eventually, one distinctive segment is chosen as a distinctive marketing communication plan needs to be in place for unique segment.
Since marketing for the local US consumers will be different to marketing to overseas market due to different prevailing cultures, it is imperative to focus on one country and tailor marketing campaigns for other countries. Since, Starbucks’ beverages and products are premium priced compared to its direct competitors (refer to Fig. 4), targeted segment should be middle-to-high-income consumers.
Moreover, to focus on all types of customers will not be feasible due to different approaches required for each segment. Bearing this in mind, the professionals segment is selected. Their needs in having Internet access while having coffee at the same time or even to have clients’ meetings in a calm environment have to be addressed by the marketing plan. The image of creating Starbucks to be the “office-on-the-go” complete with wireless Internet access will be appealing to the masses of professional workers in the urban area.
Determining MC objectives
Prioritise SWOT findings
In setting objectives, marketers need to determine what needs to be accomplished in order to address and leverage the key SWOT findings (Duncan, 2002, p. 213). Since resources are limited, it is important to prioritise the issues that need to be addressed immediately.
Firstly, in terms of Starbucks’ strength as a brand, it has a strong brand image with inherent corporate identity. This along with its high visibility in every major city in USA can give Starbucks an advantageous head start in attracting professionals to choose Starbucks as their preferred meeting places alongside with all its amenities. Furthermore, the brand is associated with the place that provides high quality coffee with knowledgeable service staffs that will appeal to professionals who are meeting with their clients, etc. These benefits have to be continuously
maintained for Starbucks to preserve its brand’s competitive advantage. However, a high proportion of Starbucks’ customers are family with children, which signify Starbucks’ strength in attracting a diverse customer base. However, it is important for Starbucks to convey more of a corporate image in order to attract professionals (i.e. its identifiable target).
Secondly, in terms of weaknesses, Starbucks has to address the limitation of their menus. It has to begin providing more localities food and beverages (i.e. products that can be identified with the locals – coffee ‘tarik’ in Malaysia, etc.). This will take higher priority compared to the premium priced beverages as this marketing communication plan is targeted towards middle-to-high-income individuals. Moreover, the ‘snob’ effects can be advantageous; as professionals would like to set the perception to the clients that they do not meet in some ‘cheap’ establishments.
For opportunities, Starbucks should prioritise their resources to make all the Starbucks places to be able to offer remote connection. This will increase their appeals to professionals as they will need to log into the Internet while having meetings or even just to stay longer in Starbucks. Length of stays is directly proportional to the level of consumption by an individual. However, the installation of wi-fi bases will be long.
In spite of all this, Starbucks still do need to prioritise their threats and address them accordingly. The highest priority will be to deal with the issue of competition both from local cafï¿½ as well as hotel lounges.
Create 80% awareness among target audience (professionals)
High quality coffee
Convince 80% of target audience that Starbucks coffee is the most prestigious of all coffees in its category
Corporate brand awareness
Create a 20% increase in the proportion of professional in the customers base
Create a 10% increase in Starbucks’ menu offering
Availability of Internet
Make at least 50% of all Starbucks premises to have wireless services by end of 2004
Get 10% customers from local competitors to convert
The first three steps of Zero-based planning have been completed. Starbucks’ SWOT analysis has been carried out to identify the critical issues, which have been prioritized. This is in consideration of limited resources to address all issues immediately. Furthermore, by targeting a specific segment, marketing communications plan can be made more effective as different segments will require unique approach. The next steps in the zero-based planning involve developing strategies and rationales, budgeting, timing and scheduling, test marketing MC mixes, and evaluating its effectiveness.
Crane, E. (1992), Marketing Communications, Decision Making as a Process of Interaction Between Buyer and Seller, (2nd), John Willey and Sons, Inc. United States of America.
Duncan, T. (2002), IMC- Using Advertising ; Promotion to Build Brands, University of Colorado-Boulder, McGraw Hill Higher Education, United States.
Egan, M., Golovcsenko, M., King, S. (2002), Starbucks Story, Ronald Press Company, New York.
Schultz, D., Walters, J. (1997), Measuring Brand Communication, Association of National Advertisers, Inc, United States of America.
Shimp, T. (1990), Promotion Management and Marketing Communications, (2nd), the Dryden Press Holt, United States of America.
http://www.census.gov/ US Bureau of the Census/ – Accessed: 22/03/04
http://www.starbucks.com/card/ – Accessed: 22/03/04
http://www.starbucks/ annualreport2003/ – Accessed: 22/03/04.
IMC: Integrated Marketing Communication (Assignment # 1)