Strategy on market segmentation targeting and positioning of Starbucks

A BRIEF REPORT ON: Starbucks

Strategy on Market Segmentation Targeting and Positioning with the Marketing Mix

1.0 Introduction:

The Starbucks Corporation was founded by three entrepreneurs at the place called Seattle in 1971. Initially they were selling of whole bean coffee in one Seattle store and by the year 1982 the business had grown tremendously and has opened five stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. When the Starbucks started its business it was only a small retail coffee shop as like the other coffee shops. The main vision of the Starbucks owners was to educate customers about the fine coffees and feel the smell of the Dark roasted coffee, selling just the coffee was not their aim as the coffee was sold in the USA since 1960's (Starbucks case study).

Howard Schultz was recruited as the manager of retail and marketing and it was Howard who brought new ideas to the owners, but he was turned down. Schultz in turn opened his own coffee bar was named Il Giornale in 1986 based on Italian coffee cafes, selling brewed Starbucks coffee. By 1987, Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $4 million and changed the name of his coffee bars from Il Giornale to Starbucks. His intention for the company was to grow slowly with a very solid foundation. For the first two years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1991, Starbucks sales increased by 84% and the company were out of debt. Starbucks grew to 20 stores by 1988. By 1996 it grew to 870 stores with plans to open 2000 stores by the year 2000.

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2.0 Marketing stategy of Starbucks:

Marketing strategy is carrying out segmentation, targeting and positioning. Doing the detailed understanding of the marketplace into strategic decisions and the targeting of appropriate customer groups. This targeting should emphasise on any differential advantages and adopt a suitable positioning within the target segments (Dibb and Simkin, 1996). Starbucks has adopted a Differentiation strategy it is a strategy which seeks to provide product or service that offer benefits and should be different from competitors that are widely valued by customers. The aim this strategy is to achieve advantage by offering better products or services at same or higher price. When Starbucks was launched there were many coffee bars in the United States at that time but Starbucks wanted to stand unique from the others. Marketing has powerful potential to contribute to the highly important aspects of the organisational competitiveness, namely innovation (Kerin, 1992) and competitive analysis (Varadarajan, 1992) and Schulz wanted to innovate and recreate the experience of the Italian coffee bar culture. Starbucks mainly focused on the strategy of new products, a stronger connection with the customers as the Third place and expanding store locations in the United States and abroad. Starbucks has followed the simple STP process (Segmentation, Targeting and Positioning).

2.1 Segmentation:

Market Segmentation is a process of dividing a market into distinct groups of buyers with different needs, characteristics, or behaviour that might require separate products or marketing programs is called Market Segmentation (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 a 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).

2.2Targeting:

After a company has defined market segments, it can enter one or many segments of a given market and should make decision about how many and which customer groups to target (Dibb and Simkin, 1996). Target Marketing is a process of evaluating each market segment's attractiveness and selecting one or more segments to enter (Kotler and Armstrong, 2006). The concept of target marketing is a logical implication of the basic philosophy of marketing (Lancaster and Massingham, 1993). A company should target segments in which it can profitably generate the greatest customer value and sustain it overtime. Starbucks wanted to develop a reputable relationship with the customers, Most of companies enter in a new market y serving a single segment, and if this proves successful than they add more segments, initially Starbucks did the same thing targeted the parents with the young children and it was hit concept and it has added more segments by including Teenagers and developed its product range also (Kotler and Armstrong, 2006).

2.3 Positioning:

Once the company has decided which market segments to enter it should decide what positions it wants to occupy in those segments. Market Positioning is arranging for a product to occupy clear, distinctive, and desirable place relative to competing products in the minds of target customers. A products position is the place that the product occupies relative to competitors in consumers minds. Here in this case the Starbucks has developed a unique market position for their products because if a product is to be exactly same like the others on the market than consumers would have no reason to buy it. Starbucks has positioned themselves in the market as a highly reputed brand (Kotler and Armstrong, 2006). In this case Starbucks has planned his positioning in such a way that it distinguish their products from competing brands and give them the greatest strategic advantage in their target markets. Starbucks has a descriptively simple statement to inspire and nurture the human spirit-"one person, one cup, and one neighbourhood at a time". Starbucks positioning strategy was customer base so that it can give the best service more than what the customers expect. Starbucks has gained a competitive advantage over customer satisfaction and employee satisfaction as Starbucks had developed its positioning strategy based on the customer and provided the utmost facility in terms of layout, furniture to the music, and in terms of employee satisfaction Starbucks make employee as a partners and gave them a personal security with a freedom to participate in the every decision of the business and make it successful (Porter & Miller, 1985, Porter, 1998).


3.0 Developing Marketing Mix:

One of the major concepts in the modern marketing is once the company has decided its overall marketing strategy than it should plan the details of the marketing mix. "Marketing mix is the set of controllable, tactical marketing tools (product, price, place, and promotion) that the firm blends to produce the response it wants in the target market" (Kotler and Armstrong, 2006). Starbucks has a made good decisions on marketing mix tools

3.1 Product:

"Product means the goods and services combination the company offers to the target market". Starbucks has used Brand name, Quality, Variety and Services as their Product tool which can be concluded by this statement, Starbucks with a good Brand name provides best Quality and with the Variety of Products, it has adopted Quality improvement strategy (Kotler and Keller, 2009). Initially Starbucks started with the coffee than it has included non-fat milk, cold blended beverages. Later on stated seasonal offerings such as strawberry and cream Frappuccino, gingerbread latte with some food items like cookies and pastries. Before launching the products Starbucks was getting the approval of the customers.

3.2 Price:

"Price is the amount of money customers have to pay to obtain the product". Though the Price of the Starbucks was higher than the other coffee shops, the customers were ready to pay the amount because Starbucks has developed a luxurious image with all the facilities inside the store. Starbucks as a good Brand have offered more benefits and facilities and the best quality of products to justify their higher prices (Kotler et al, 2006).

3.3 Distribution and Service:

Starbucks has a good distribution channels initially it was selling coffee beans and doing wholesale business for local restaurants. In terms of service and location Starbucks opened the stores in a such a way that it can reach to targeted customers and it has also gave more stress on giving the best customer service by spending a lot of money by training its employees (Starbucks case study).

3.4 Promotion:

Starbucks initially did not use the advertising tool for promotion but it was the Public relations and the Personal selling tool that helped the Starbucks to achieve its target (Kotler et al, 2006).


4.0 Conclusion:

This report gives an overview of the Starbucks history when it was started and then it shows that how it has applied its differentiation Marketing strategy successfully in the coffee market. It has adopted the STP Process i.e. Segmentation, Targeting, and Positioning strategy ad it also shows that how successfully Starbucks has implemented its Marketing Mix strategy in terms of price, product, distribution, service and promotion to support its positioning strategy (Starbucks case study).


References:

  1. Dibb, S., Simkin, L. (1996), "The Market Segmentation", New York: Routledge Ltd.

  2. Kerin, R. (1992), 'Marketing's contribution to the strategy Dialogue Revisited', Journal of the Academy of Management science, Vol. 20, Issue. 4, pp. 331-334.

  3. Kotler, P., & Armstrong, G. (2006), 'Principles of Marketing', (11 ed.). New Jersey: Prentice Hall International, Inc.

  4. Kotler, P. and Keller, K.L., (2009), "Marketing Management", (13th Ed.). New Jersey: Pearson Education, Inc.

  5. Lancaster, Geoffrey A., & Massigham, L., (1993), "Marketing Management", UK: McGrew-Hill International Ltd.

  6. McDonald, M. & Dunbar, I. (1998), 'Market Segmentation: How To Do It, How To Profit From It', 2nd Ed, London: Macmillan Press Ltd.

  7. Porter, M. E and Millar, V.E., (1985), 'How Information Gives You a Competitive Advantage', Harvard Business Review (July-August 1963):149-174.

  8. Porter, M. (1998), 'Competitive Advantage: Creating and Sustaining Superior Performance', 2nd Edition, The Free Press.

  9. Starbucks
    Available from:
    www.Starbucks.com

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