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Starbucks – Marketing Management Perspective Case Study


Introduction & Background

After the post World War II trends of doing business have been changed. There are changes inside and outside businesses, and this is because businesses have started to identify and face serious challenges. Business environments are changed as the scope of the environment is expanding rapidly (Ferrell & Hartline, 2010).

Presently, organizations have recognized marketing as an important business function. To survive the challenges of globalization, diversified customer needs, modernized market trends, and international competition organizations admire the concepts of marketing management. The purpose of this study is to assess and evaluate marketing principles in light of modern business challenges.

The direction of this study is to apply the concepts in perspective of a practically existing company Starbucks. This is to construct a bridge between theoretical models and practical application of diversified marketing tools (Kotler & Keller, 2012).

Starbucks, a global chain of coffee shops and stores that has achieved a long way in the international business, is going to be part of the assessment in this report. This is to demonstrate of how a globalized company works on marketing tools and utilizes each tool to build its place in the international market (Starbucks, 2011).

Literature Review

In recent times, where businesses are most diversified marketing has received multiple definitions. The experts define it as a social and managerial tool. According to Kotler, “Marketing is a process of exchanging values. It is a process by which individuals and groups obtain of what they want and need by creating and exchanging values.

It is a method of action to build and maintain relationships with the target audiences” (Kotler & Keller, 2012). Alderson’s research has played a significant role in extending the above explanation by Kotler. Alderson along with Bagozzi have described five conditions of exchange (Lamb et al., 2011).

“They explained that there must be at least two parties; each party has a value for each other, both parties are opened for communication, each party is free to accept or reject the offer, and each party believes in the relationship with each other” (Lamb et al., 2011). These are the five Alderson’s conditions, which are important to prolong the exchange process described by Kotler in his definition.

The literature highlights such conditions as updated version of general theory of marketing, which fundamentally talks about the exchange process and parties’ relationship (Lamb et al., 2011). In all such definitions, marketing is not just limited to promotion, advertisement or sales, but it is a continuous exercising process that corresponds to the provision of goods and services.

Building up of trust, value, and recognition of commodities lies in the scope of marketing as a business function. Hence, marketing is a business oriented and customer driven activity, which never ends until both domains get satisfied (Lamb et al., 2011). According to Kotler and Armstrong, marketing is a business function that makes up the modern marketing system.

The system constitutes of multiple elements in which a business performs its marketing activity (Ferrell & Hartline, 2010). The experts have suggested that in the modern marketing system there are four major segments. The segments include suppliers, competitors, marketing intermediaries, and end users respectively. In this system, end users are the target audience while suppliers, competitors, and marketing intermediaries are the manageable segments.

To meet needs and wants of the end users companies search for their competitive advantages in all respective areas (Riaz & Tanveer, 2012). This is to generate value among customers and competition for the rivals in order to dominate the market system. In experts’ opinion, the spectrum of marketing is broad as it includes the entire chain from where a business process starts.

Consumers, competitors, and suppliers all are part of the system and have to be included in a marketing function and operation (Kotler & Keller, 2012). Based on the proposed market environment, there are different factors that affect such environment. According to Donovan and Henley, there are precisely external factors that affect the marketing environment.

The factors include political, economical, social, technological, legal, and environmental, which are influential and should be part of the assessment (Ferrell & Hartline, 2010). To address such influential factors enterprises work on strong marketing strategies (Ferrell & Hartline, 2010, pp. 101). These include strategies based on marketing principles, concepts, theories, and models, which analyze external business environments and address them deliberately and comprehensively (Ferrell & Hartline, 2010).

According to the Alberdeen Group Boston (a research firm), enterprises which scan external environments are able to increase 26% of their return on investment. This is because such firms are well aware of their environments helps them construct viable marketing strategies (Lamb et al., 2011, pp. 103). So, analysis of the environment is necessary; it is an important part of the marketing process as it leads a business to decide its marketing campaign and strategy (Lamb et al., 2011).

For analyzing, scanning and examining the market environment, marketing as a function offers different analytical tools and models. The modern literature highlights the importance of such analytical tools, especially, market segmentation which assesses extended market environments (Kotler & Keller, 2012). According to Kotler, market segmentation is a complete scanning package.

This strategic tool permits division of the market in different segments so specific marketing campaign can be developed. According to Doyle (1995), hyper competitions and growing challenges of economies have brought firms to market segmentation. It is a tool that highlights each and every thing of the market including customers, their behaviors and their changing product needs and wants.

Grouping customers with respect to their needs and demographics all becomes possible by applying market segmentation (Ferrell & Hartline, 2010). According to the modern marketing literature, consumers are the target audience for any business and strategists use analytical tools just to analyze their situation and response.

Analyzing consumer behavior is very important for businesses especially for those, which operate in highly competitive environment (Ferrell & Hartline, 2010). According to Berry and Kunkel, understanding customers need by assessing their preferences, perceptions, and behaviors is viably important for businesses. Without knowing of what consumers want and what they prefer, businesses cannot produce highly competitive goods (Foxall, 2001).

This requires an assessment of consumer psychology, which can be done by assessing consumer behavioral models and theories. According to Utility Theory, consumers are natural interpreters; they judge products and services on the basis of the benefit they are going to retrieve. Similarly, consumers look after their self interest and this is the rationale they set for buying goods and services (Bray, 2008).

According to Foxall (2001), consumers have different approaches on decisions. Some consumers are economic, psychodynamic or cognitive due to which their buying preferences change and become diversified. This is a challenge, which modern marketers face, especially, when they are dealing with large population of customers and the continuously changing market trends (Bray, 2008).

According to the modern literature, SWOT model is one technique that can be used for effective market analysis. SWOT model is a combination of internal and external factors analysis (Karppi et al., 2001). It includes analytical components of strengths, weaknesses, opportunities, and threats that indicate the position of a business in any new market place.

In several empirical evidences, SWOT model provides a basis of business expansion (Karppi et al., 2001). It provides the stance and position to intrude into a new market system. According to Karppi study (2001), organizations use SWOT model to assess market segments. They use it to interpret market scenario, dimensions and the conditions in which they can bring the entire benefit (Karppi et al., 2001).

Once the analysis gets completed, the next phase of marketing is formulizing strategies. One of the strategies includes the marketing mix model proposed by Neil Borden. As per Borden’s explanation, marketing mix is an extensive marketing strategy (Riaz & Tanveer, 2012). It is a strategy that helps to sustain business products and services for a large aspect of time.

Borden’s marketing mix model got an extension from Kotler, Armstrong, and Saunders who described it as a submerging marketing tool. According to Kotler and Saunders (2008), marketing mix is a set of controllable submerging tools, which are used to generate response in a respective target market. These submerging tools are the 4Ps (product, price, place and promotion) which are controllable, adjustable, and can be redesigned according to the situation of the market (Riaz & Tanveer, 2012).

Marketing itself can be performed online or offline depending upon the nature of the business and the scope in which customers of a business lie. As per the modern literature, enterprises have adapted methods of online marketing. This is because of the increasing number of digital customers who require digital modes of marketing to get attracted and anticipated (Ferrell & Hartline, 2010).

In modern academics, e-marketing is viewed as a modern business practice. The literature describes e-marketing as a digital mode of marketing to promote ideas, information, goods, and services. According to Strauss and Frost (2001), e-marketing “is a use of electronic data and applications for planning and executing the conception, distribution and pricing of ideas, goods and services.

This is to create exchanges, which are satisfactory for organizational and individual goals” (Gohary, 2010, pp. 216). Further literature highlights communication as an important function of marketing. It includes the model of marketing communication mix, which integrates the mix of advertisement, sales promotion, public relations, and direct marketing for customer response feedback and communication (Ferrell & Hartline, 2010).

Analysis – Starbucks Marketing Management Perspective

Company Overview

Starbucks was initially a small business enterprise – a company started off with a base store in Seattle Pike Place Market (1971). As time evolved the company pioneered bean coffee, tea, and spice selling, and it became one of the leading multinational companies. Today, the company has a established name, image, and repute in more than 50 countries across the world.

Presently, the company is looking for expansion for which it has chosen Dubai coffee market as a new way forward (Starbucks, 2011). Dubai is a recent target market of Starbucks, which is an open market with great opportunities for expansion and investment. The strategists have devised strong marketing plans for the company, which are going to be applied for marketing the company in Dubai.

The analysis performed in this report will evaluate Starbucks’ approach to the UAE market. It is to assess how the company evolved with the market risk, challenges, and opportunities (Starbucks, 2011).

Dubai Market- Segmentation (Strategic Options)

For approaching Dubai market, Starbucks will first have to understand the market situation. Dubai is a busy place, which invites people from all around the world mostly Europe and Central Asia. Most of the people in Dubai are work oriented as vast majority of individuals come to Dubai either for jobs or doing business. In such busy place, there is a huge demand of coffee and tea.

People working in white collar jobs prefer to have coffee at least once or twice a day (Euromonitor, 2012). In the last three years, coffee and tea consumption has increased to a great level in Dubai. There is an increase in the consumption of coffee and tea by 85%. Individuals from all age groups (young and adult), genders (male and female) and cultures (multiple ethnicities) admire coffees in Dubai, which shows that it is a diversified coffee market that requires an extensive marketing approach from Starbucks (Euromonitor, 2012).

Among strategic options there are different factors to be considered by managers. The target audience / population (valuable-compensable), blend of products (product mix), and the pricing mix are important strategic options for Starbucks’ managers. In Dubai’s perspective, the target audience should be both adult and young, office workers, students, and tourists respectively.

The product mix should include both cappuccino and espresso along with bakery products like muffin, pan cakes, and cookies, which are specialties of Starbucks. Similarly, the price should be with respect to Dubai market, which is extensively low and highly competitive (Euromonitor, 2012).

Market Analysis

In recent times, Dubai is projecting an extensive amount of growth in the Coffee retail sector. According to Euromonitor International, this market has shown the fastest growth rate of coffee by volume and revenues. As per annual projections, total coffee volume of sales will grow by 80% from 2009 to 2014, which is a great sign for new coffee brands of the region (Euromonitor, 2012).

Presently, there are numerous international coffee brands, which are operational in UAE. They are selling bulks of coffee just to promote the coffee chain culture and tradition. This culture is precise in UAE where several international brands like Costa Coffee, Coffee bean and Tea Leaf, Barista, Blenz, and Starbucks are working to establish the trend.

As per the Euromonitor’s report, brands are about to receive a heavy population of customers in the coming days. This recognizes a great opportunity and prospects for upcoming brands in the region (Euromonitor, 2012). The market is demanding low cost producers. Dubai, which is the hub of Coffee making, cannot accept high cost producers.

The trend is there for coffee making and hence, it does not allow high cost producers to survive or sustain. In this case, Starbucks will have to work on price cuttings. A deliberate cheap price offer will work out in Dubai and its large low price setting (Euromonitor, 2012).

Marketing Mix and Extended Product Life Cycle

As per the literature, marketing mix is a significant technique of marketing. It is a method that applies to communicating brand’s products and services to the respective target audience of the market. Dubai, which holds a cross-cultural setting, may require an effective marketing mix strategy. A strategy that can communicate Starbucks’ products to Dubai market will be the one that can carry the cross-cultural segment (Morgenstern, 2010).

Considering people of all age groups, genders, and cultures will devise a strong marketing mix strategy. It should be precise with covering all customers’ population, their preferences and behaviors. This will align Starbucks products and services with customers’ perception and expectation, which will effectively extend the product life cycles of Starbucks in the region (Morgenstern, 2010).

Product

On the very first, Starbucks should offer Cappuccino and Espresso. These are strengths of the company and can hit as a success in the diversified cross cultural system of Dubai. The Italian Style Espresso with milked steamed topping and Cappuccino with Latte will definitely work out for customers. In the selection of premium teas, which are supplementary products of Starbucks, the company can offer lemonades and iced tea.

This will bring a unique and valuable package for customers as they will find a blend of coffee, tea, and beverages all in Starbucks offerings (Morgenstern, 2010). Excluding trademarks or specialties (Cappuccino-Espresso) never works out in marketing especially when a company (Starbucks) has to capture a diversified cross-cultural market “Dubai” (Morgenstern, 2010).

Price

In Dubai, where there are loads of coffee shops at each corner would hate to pay more than $3 for a coffee or tea. In this low price scenario, Starbucks will have to cut its prices which are perceivably high at other parts of the world. The popular $ 1.50 brewed coffee and $2 Cappuccino and Espresso of Starbucks will work out in this manner.

Meanwhile, in labor and cost-intensive goods like coffee beans, dairy and raw materials the company can raise its prices which are generally raised by other producers as well (Morgenstern, 2010).

Place

Dubai being a place of travelers projects different places of marketing and placement. Starbucks as an intruder of Dubai market can pick the most popular places of the region. Opening convenience stores at Burj Dubai Boulevard, Marina, Oud Mina, Uptown Mirdiff, or 21st Century Tower on Sheikh Zayed Road will allow distinctive promotion of Starbucks in the region. Apart from targeting popular places, the company can access hotels, shopping malls, and city towers for direct marketing and promotion (Morgenstern, 2010).

Promotion

Being an internationally recognized company, Starbucks can subject to both modes of marketing (offline and online). In Dubai, where there is a huge population of customers Starbucks can acquire My Starbuck Website, which is already in place and is used by Starbucks administrators all around the world. Apart from all, there are different media gates like newspapers, magazines, and billboard advertisements, which can be utilized for offline marketing and promotion (Morgenstern, 2010).

In strategizing promotional campaigns for Dubai, Starbucks administrators can also utilize channel management. It is an activity that maintains company status by developing interaction between customers and the company. By spreading network channels such as text messaging, internet, retail stores or franchises, Starbucks can develop interface communication which is viably important for promotion and advertisement (Morgenstern, 2010).

Understanding Buyer’s Behavior

Dubai is a diversified consumer market. People from different ethnicities and cultures come across to adjust in Dubai. All ethnicities such as European, Pakistani, Indian, Thai, Filipino, Syrian and Indonesian are found in Dubai and this situation diversifies buying range, needs, and behaviors of Dubai’s food customers (International Markets Bureau, 2010).

Coffee is an important segment of the food. It is the most demanded food item in the region. In such diversified behavioral system, Starbucks will have to come up with a differentiated product range. A range which suits all customers’ perceptions and behaviors will be the successive one in the region.

Hence, a right product mix for Starbucks includes Cappuccino, Espresso, premium teas, and beverages. Such scheme will prolong and be well suited if offered with a sustainable pricing mix campaign (competitively low) (International Markets Bureau, 2010).

Marketing Communication Mix Analysis

Starbucks has been quite successful in its integrated marketing approach. The approach carries direct marketing, advertisement, sales promotion, and public relations at one row of application. The same integrated approach of Starbucks should be adopted in UAE as there is a need of multi cultural market interaction, which can be worked out via Starbucks integrated marketing communication (Sargent, 2012).

SWOT Analysis

According to the literature review, SWOT analysis is viably important for businesses. It is most decisive model as it uncovers company’s (Starbucks) real position to step into a new market place (Dubai).

Strengths

In UAE, the real strength for Starbucks is its image. In past, the company has been recognized for its quality products and services, which have made its name in the international business market. By maintaining conventional SOPs and brand image, Starbucks will have a full fledge chance to excel in Dubai’s market. These are fundamental strengths that should be sustained in the new market segment (Starbucks, 2011).

Apart from brand image, Starbucks has competitive advantage in view of employee wages. The company pays above than the market level, which adds to the strength and repute of the company. Furthermore, access to high quality resources allows the company to hold its strength in quality coffee manufacturing and services (Starbucks, 2011).

Weaknesses

In conventional appearance, Starbucks lacks in low price market. Its brand image and repute makes its products relatively expensive in the market. This definitely is not going to favor Starbucks in Dubai where there are low price seeking customers who look for the cheapest coffee goods and services. Additionally, customers do not spend much time in gauging coffee bags or tea bags.

They simply buy coffee, which is cheap and liked by the market. Hence, Starbucks products, which are traditionally high in price will have to be lowered in respect of Dubai’s low price market which demands for low price goods and services (Starbucks, 2011).

Opportunities

The recent rise of Dubai’s coffee retail market indicates that Starbucks has viable opportunities in the region. The place is a “Coffee Hub” which offers permanent doors to new brands and investors in the region. By asserting partnerships and mergers Starbucks can join the profitable region of UAE – Dubai. This may require experts’ opinion on how the investment can be made, planted, and organized (Starbucks, 2011).

Threats

Among all threats facing the company, one major threat is market entry by new rivalries. Many coffee brands are making ways in Dubai’s market, which is definitely a risk factor for Starbucks in Dubai. Apart from new entrants there are established rivalries such as Costa Coffee, Coffee bean, Tea Leaf, Barista, and Blenz, which are further threats for Starbucks and its products (Morgenstern, 2010).

The risk is great but it can be minimized if managed through product differentiation, marketing mix, and pricing mix models. These are fundamentals of risk management essentially required by a company like Starbucks to proceed into large market segment – Dubai (Euromonitor, 2012).

Conclusion and Recommendations

Upon analyzing the literature and Starbucks case study, it can be concluded that marketing tools are highly significant for a business. When a company expands or plans to enter a new market place, it requires extensive marketing tools to analyze the new market system and situation.

Market environments with have high competition, high risk, and significantly cross-cultural setting may require extensive marketing tools for market orientation. This is what has been identified in Starbucks’ case study, which implies adaptation of marketing tools and operations.

Models such as SWOT analysis, marketing mix model, marketing communication, and channel management are decisively recommended. Such models are important parts of a strategy and they should be utilized by businesses to formulize their effective marketing campaign.

The same has been identified in Starbucks’ case where the company applied marketing models to expand into a new market region of Dubai. It used models of SWOT, marketing mix, pricing, and differentiation to intrude into the new market place effectively, and progressively. Hence, marketing models identified in the literature and in the Starbucks case study are highly recommended and suggested.

List of References

Bray, J. 2008, Consumer Behavior Theory: Approaches and Models, Research Report, Bournemouth University Publications: Dublin.

Euromonitor 2012, . Web.

Ferrell, O & Hartline, M 2010, Marketing Strategy, Cengage Learning: Mason.

Foxall, G 2001, Foundations of Consumer Behavior Analysis, Research Report, Sage: London.

Gohary H 2010, E-Marketing- A Literature Review From a Small Business Perspective, International Journal of Business and Social Science,1, pp.215-44.

International Markets Bureau 2010, The United Arab Emirates Consumer Behaviour, Attitudes and Perceptions Toward Food Products, Research Report. AAFC Canada: Ottawa.

Karppi, I, Kokkonen, M, & Smith, K 2001, SWOT analysis as a basis for regional strategies, Research Report, Nordregio: Stockholm.

Kotler, P & Keller, K 2012, Marketing Management, Pearson Education: New Jersey.

Lamb, C, Hair, J & McDaniel, C 2011, Essentials of Marketing, Cengage Learning: Mason.

Morgenstern, K 2010, Marketing Mix of Starbucks, GRIN Verlag: Munich.

Riaz, W & Tanveer, A 2012, Marketing Mix, Not Branding, Asian Journal of Business and Management Sciences, 1, pp.43-52.

Sargent, C 2012, Ten Most Intriguing, Research Report, National Resources Council of Maine: Augusta.

Starbucks 2011, Company Profile, Company Document, Starbucks Coffee Company: Seattle.

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