SID: 1070156

Starbucks Marketing Mix Strategy

CHEONG KAH HOE

12th DECEMBER 2011

SID :

1070156

Module Code / Occ / Year BC230001S / GM1 / 2011/2 Module Title Module Element To be marked by Work count International Business 010 - ASSIGNMENT 3000 WORDS MR. Zubair Hassan 3220

SID: 1070156

Table Content

1. 2. 3. 3.1 3.2 3.3 3.4 4.

Introduction Marketing Mix 4P Marketing Mix Strategies used by Starbucks in Overseas Markets Product Price Promotion Place Appendix

SID: 1070156 1. Introduction Starbucks Corporation is one of the largest food and beverages multinational enterprises (MNEs), its industry included restaurants, retail coffee and tea, beverages, entertainment and etc. Starbucks operate in over 50 countries and it has more than 17,000 stores in the world (Starbucks Company Profile, 2011). Starbucks starts its first store in Seattles Pike Place Market, at 1971 (Starbucks Company Profile, 2011). After 25 years, Starbucks opens the first store outside of North America in Japan. At present, Starbucks is the largest coffeehouse in the world. In this competitive era, business corporations tend to be globalised in order to maintain their competitive strength. However, every market has their own culture and policy which has become barriers for the multinational enterprises (MNEs) when they are entering overseas markets. Therefore, Company must carry out a specific marketing strategic for each different market in order to successfully penetrate into a market. The reasons why Starbucks is chosen for investigation in this assignment is because Starbucks have been successfully operation at overseas and it can be sustainable corporations in the worlds, as Starbucks got an award and recognition of Global 100 Most Sustainable Corporations in the World at 2010 (Starbucks Company Recognition, 2011), however, Starbucks also got the No 1 Best coffee award and recognition at 2009 (Starbucks Company Recognition, 2011). 2. Market Mix Marketing mix is the set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the market (Kotler and Armstrong, 2008). The marketing mix consist of everything the firm can do influence the demand for its product. There are four variables known as product, price, place and promotion (Kotler and Armstrong, 2008).

SID: 1070156 Product means the goods and services combination the company offers to the target market (Kotler and Armstrong, 2008). Price is the amount of money customers have to pay to obtain the product (Kotler and Armstrong, 2008). Promotion means activities that communicate the merits of the product and persuade target customers to buy it (Kotler and Armstrong, 2008). Place includes company activities that make the product available to target consumers (Kotler and Armstrong, 2008). 3. Marketing Mix Strategies used by Starbucks in Overseas Markets 3.1 Product Product-mix is one of the factors made Starbucks become more competitive against its competitor, such as brewed coffee, hot chocolate, espresso and teas (Starbucks, 2011). Moreover, Starbucks provide the blended beverages in order to target non-coffee drinker. Starbucks also serves oatmeal, juice, ready-to-eat pastries, salads and sandwiches, muffins, and cakes to satisfy more customer needs (Coursework.info, 2010). Starbucks product can be categorises into either standardize or differentiate. Besides that, Starbucks always implement their product with standardization, but some other countries of Starbucks are slightly not standardizing the product due to other reasons or factors. For instance, Starbucks used cream milks in India instead of skim milk. India residents will prefer more cream added in their coffee, but not skim milk (Paunikar, n.d.). It is because dieting is not popular at there. If the beverages have skim milk, they will feel like deceived (Paunikar, n.d.). In additional, they also prefer put spices like ginger or black clove in their tea or coffee (Paunikar, n.d.). National fruit of India is mango, so that, mango is one of flavours that Indians like. Starbucks has improved upon the menu for discerning Indians palate (Paunikar, n.d.).

SID: 1070156 In order to fulfill the customers requirement and satisfaction, Starbucks has created some special product with different flavor and taste to suit different type of consumers. For examples: In China, resident usually like to drink tea, it is their transitional and consider as a huge Chinese tea drinks market (ChinaRetailNews, 2010). As Starbucks had been actively to expanding in China, therefore, it is using a differentiated strategy to create a new product line Chinese Tea as flavor, such as Mudan White Tea, Oriental Oolong Tea, Jinxuan Tea, Biluochun Green Tea to match the local customers (Starbucks China Website, 2011). Furthermore, Starbucks also provide their own zongzi during the Dragon Boat Festival and moon cakes during the Mid-Autumn Festival (Cnngo, 2010). Besides that, Japan director of corporate and marketing Norio Adachi said that "The food wasnt goodthe items were too big and the texture was dry" (Sanchanta, 2010). Therefore, the company tried to focus on Japanese tastes and deliberate on news recipes (Sanchanta, 2010). Starbucks are seasonal offerings such as Sakura Steamer (steamed milk with syrup, invoking the Japanese name for the cherry blossoms currently in season) and a Roasted Green Tea Latte (Sanchanta, 2010). Moreover, name of Starbucks instant coffee Via Ready Brew also changes to Via Coffee Essence (StarbucksMelody.com, 2010). Malaysia is one of the Muslim country, Starbucks get the certified Halal by Jabatan Kemajuan Islam Malaysia (JAKIM) to expand Muslim markets (Starbucks Malaysia Website). All beverages and food served in Malaysia are safe for Muslim consumption (Starbucks Malaysia Website). Muslim aversion to pork so that religion is also one of the reasons which affect the product created or developed. In additional, the previous and existing logos of Starbucks used in packaging are not suitable for branches near to holy mosque in Saudi Arabia and Mecca due to religion and government (Flickr, n.d.). The Muslim consumers over

SID: 1070156 there believe that naked siren is morally inappropriate (Fox, 2011). According to AndFarAway, the following picture had shown the Starbucks logo design in the world and Saudi Arabia.

Source: AndFarAway, 2011 *

SID: 1070156 3.2 Price The value of product is relying on price and quality (Anon, 2010). To distinguish Starbucks from other competitors 'premium price' is one of the main factor (Coursework.info, 2010). Therefore, price of Starbucks are slightly higher than competitor. Customer are willing to spend the budget for their service and products, because Starbucks provide the high quality products, comfortable environment, unique tastes and conveniences for customer to 'take a break' in their busy life (Anon, 2010). However, Starbucks in Japan have drop the selling price from 230 yen to 190 yen as well as shrunk the size of pastries (Sanchanta, 2010), this is because coffee industry in Japan have a deflation prices and very competitive in market, and also it is a big challenge for Starbucks to keep the consumer loyal for this situation, so that Starbucks reduce the product price to attract back more customer (Sanchanta, 2010). As this reason, Starbucks are using the competitor pricing strategic, to achieve lower costs than other competitor in market while maintaining the product quality. Regarding the Starbucks at India, Starbucks bought the raw material from the local Indian farmers in order to save the costs and keep the quality of product, and the most important things is to reduce the transport fee or delivery fee (Paunikar, n.d.). If Starbucks Company bought the raw material from host country and transports it into India, the delivery fee is the main reasons that causing the cost to increase, as this reason the product selling price at Starbucks in India can be cheaper (Paunikar, n.d.). Besides that, Starbucks in Malaysia are created a new flavour product, called Frappuccino, it only offer at happy hour (5pm to 7pm) on weekdays and available from April until May 2011(Appendix 1), during that time customer can enjoy the half price offer to own it (Facebook Starbucks Malaysia, 2011). Based on this case, Starbucks are using penetration pricing strategic, in order to capture market share price for a new product are set below average cost in

SID: 1070156 special time (Wall, Minocha and Rees, 2009). However, Starbucks also come out another new product, called VIA Ready Brew, and this product launched by a difference pricing strategic (ZhiJing, 2010). Instant coffee product in Malaysia market is not truly with "premium style" compare to Nescafe's Gold Blend (ZhiJing, 2010). Therefore, Starbucks used a skimming pricing strategy for settle this product (ZhiJing, 2010). For example, 20 sachets with 20g each of Nescafe's Gold Blend is selling RM 12.95 (ZhiJing, 2010), compare with Starbucks is offering 3 sachets is RM8 and 12 sachets is RM28 (Appendix 2). Average price Nescafe's Gold Blend is RM 1.54 and Starbucks VIA is around RM 2.33 till RM 2.66, obviously it is higher than other competitors (Facebook Starbucks Malaysia, 2011). 3.3 Promotion Promotion is via marketing activities such as encouraging the action of buyer to purchase the product in order to achieve its target market sale (Shimp, 1997 cited in Anon, 2010). The advertisement cost of Starbucks is slightly lower than other competitor such as McDonald, Subway, KFC and etc.

Source: Moore cited in Anon, 2010*

SID: 1070156 According to the chart, Starbucks market share is position on the sixth and has the least spending on the media advertisement (Mora, Lewis and Lind, 2011). However, Starbucks customers have a strong loyalty. They have their own way to build up strong relationship with customers, such as through the internet, Starbucks Cards, Social network and so on (Mora and Lind, 2011). The Usage of Information Technology (IT) plays an important role in a strategy of promotion via website, included Starbucks Gossip, My Starbucks Idea, Starbucks Newsroom, Starbucks Melody and Starbucks home page in each country, a lot of new products will be displayed on these kinds of websites rather than television (Mora, and Lind, 2011). Customers will get to know the new products and would try to own it. Starbucks can easily collect the consumers responses via the website; it is the biggest marketing sources for Starbucks (ZhiJing, 2010). For example, the new product instant coffee VIA Ready Brew promotes in Malaysia is through the Social networks (Appendix 3) whereas in US is using free sample and taste test (Shah, 2009 cited in ZhiJing, 2010). In comparison, the language of website used in US and other country is absolutely different, with a similar culture background it can be using the same language to perform in the website, such as US (Starbucks, 2011) and UK (Starbucks United Kingdom Website, 2011) are using the same style and layout of website (Appendix 4) to perform it. However, countries with different language and background will always prefer to use their own mother tongue language to perform it in the website, such as China which uses Chinese as the main language in the front webpage (Starbucks China Website, 2011). Technological infrastructure of the county is one of the reasons to influence the promotion towards the consumer (Wall and Rees, 2009). For

example, promotions in India focus on the two under testing locations (Mumbai and New Delhi) through direct mail for promotional coupons, billboard advertising on the roads, and delivery services to big companies and business centres by offering sales brochures (Paunikar, n.d.). Starbucks is giving back to the

SID: 1070156 community via sponsor scholarship for the local students and this can enhance the company in earning more positive images (Paunikar, n.d.). Starbucks Japan launched the value promotions at the same day when customer can use 100 yen to have a second cup after purchase a coffee beverage in January until end of April (Sanchanta, 2010). It is a successful promotion; therefore, Starbucks tried to extend the death line from April to August (Sanchanta, 2010). Starbucks Cards is one of the promotions used in Starbucks. Starbucks Cards had presented the customer brand loyalty and a lot of promotion. Starbucks can promote their products and free advertisement via a card (Boscheratto, et al., n.d.). Moreover, Starbucks also provide a card to MNEs sales, they can use these kinds of cards to a gift their client or reward their employee (Boscheratto, et al., n.d.). In Malaysia, when customer are purchased 8 packets of 250g whole bean coffee or 12-pack VIA Ready Brew, they can get the a complimentary 250g whole bean coffee or a 12-pack VIA Ready Brew, it can bring new customers (Starbuck Coffee Company Malaysia, 2011). 3.4 Place (Distribution) Starbucks store can be obviously found in any surrounding crowd in hightraffic and highly visible locations, such as suburban retail canters and downtown, airport terminals, and office building (Coursework.info, 2010). Starbucks are provided a good environment for customers to enjoy their reading, listening to music, free WIFI and meeting (Boscheratto, et al., n.d.). Furthermore, Starbucks also concern about the services in their coffee shops (Anon, 2010). Starbucks Chief Executive Howard Schultz believe that baristas can provide a Starbucks experience for their customers, therefore, they are focus on their staffs training in order to provide more higher quality services (Anon, 2010). As demand grew, Starbucks enable to keep their competitive position through manage the grown crowd and traffic and provide a good services in the stores (Anon, 2010).

SID: 1070156 Regarding to the strategies of entry mode, Starbucks through selects a people who are local business leader to become partners is also one of the global expansion strategies (Santamara and Shuang Ni, 2008). However, Starbucks are often implementing three entry mode strategies, which are licensing, joint ventures and wholly-owned subsidiaries, the following table 1 shown some of the example of the entry mode used at different countries (Santamara and Shuang Ni, 2008). Table 1

SID: 1070156 Source: Merrill Lynch and Starbucks Homepage cited in Santamara and Shuang Ni, 2008, p.23* Based on the table above, in UK, Starbucks decided to use a whollyowned subsidiary as the entry mode (Santamara and Shuang Ni, 2008). The reasons why Starbucks used this strategy as entry mode due to the global management efficiency requirement and management risk attitudes (Santamara and Shuang Ni, 2008). However, Starbucks are using licensing as the entry mode in New Zealand, because Starbucks are lacking of knowledge of this new market and also barriers in cultural differences, so that Starbucks chosen a low control licensing as entry mode instead of using high control entry mode such as a joint venture (Santamara and Shuang Ni, 2008). Moreover, Starbucks in Spain chose joint venture as entry mode is because Spanish market had a great potential for Starbucks, so that Starbucks want a high degree of control instead of using a low degree control of entry mode (Santamara and Shuang Ni, 2008). For the aspect of stores layout and design, Starbucks are mention that Sustainable design and build methodologies are part of our DNA (Starbucks, 2011). Therefore, Starbucks are tactfully cooperating with their partner and adapt the local market make it more localization (Santamara and Shuang Ni, 2008). For instance, one of the Starbucks outlets in Hong Kong are used "Bing Sutt" retro design (LifeStyleAsia, 2009) and in Singapore are used reclaimed Railroad Sleepers concepts to design (Starbucks Singapore Website, 2011). However, Starbucks outlet in Japan is provided a smaller serving with offer more seats than others countries, and in Spain it has outside terraces as well (Santamara and Shuang Ni, 2008). Moreover, one of the outlets in Hangchow (tourist attraction in China), Starbucks are increase 180 square feet garden in outside shop and provide almost hundreds of seats for tourist (Starbucks China Website, 2011). In addition, in Malaysia, Berjaya Corporation is the only one company that had Starbuckss license (ZhiJing, 2010). Starbucks launch the new product VIA Ready Brew directly through the retail shops only whereas trains and flights and is one of the channels (ZhiJing, 2010). For example, VIA was launched with Easy

SID: 1070156 Jet in UK, and in US launched with Airline flights (ZhiJing, 2010). When the product is achieving the growth stage, Starbucks can refer upon case and try to partnering with other distribution channel to launch their instant coffee. 3. Evaluate the entry modes of Starbucks As previously said, Starbucks are using tree type of entry modes to enter overseas markets (Table 1). Table 2 will show that pros and cons of using different entry mode. Table 2

Source: adapted from Hill Charles, 2007 cited in Santamara and Shuang Ni, 2008, p.17* In 1996, Starbucks opened their first coffeehouse in overseas Japan through 50/50 joint ventures with a Japanese retailers and restaurants called SAZABY Inc (Lim, 1995; Starbucks Company Timeline). Starbucks used this entry mode because it can reduce the financial risk and particular Japanese culture (Collegetermpaper, n.d.; Docshare.com, n.d.). Besides that, according to Japan Investment Council in 1996, capital of foreign companies cant be lower than 50%. Before Starbucks entry to Japan, they hired a blue-chip consulting firm to guild them, but the consultant said they will not be success due to culture problem (Appendix 5) such as they believed Japanese wont be caring a beverage in the street because it was impolite in Japan culture (UW Business

SID: 1070156 School, 2003 ; Anon, n.d.). Therefore, Starbucks chose a similar business culture and similar view company to be partnership in Japan (Anon, n.d.). Base on the Japan case, Starbucks uses the joint venture in other similar countries such as Spain, China Shanghai, Hong Kong and so forth. In 1997, Starbucks entered the first European country which is United Kingdom; UK became a springboard for expanding to the Europe (Pettigrew, 1999 cited in Santamara and Shuang Ni, 2008). The fastest way to enter

efficiently the new foreign market is through acquisition; therefore, Starbucks own 100% of the share subsidiary as an entry mode (Santamara and Shuang Ni, 2008). There are a lot of factor to influence Starbucks to use this entry mode, because them lacks of the knowledge and culture distances in UK market (Santamara and Shuang Ni, 2008). Secondly, in order to gain knowledge in new market and desire to expand to European market as soon as possible, Starbucks decided to use their huge capital to acquire the Seattle Coffee Store (Santamara and Shuang Ni, 2008). As the same reason, Starbucks also used the same strategies in Thailand and Australia. In 1998, Starbucks sold its license to Berjaya Corporation Berhad at Malaysia. The licensing is a primary stage for the company to enter the foreign market due to the uncertain new market, economic and government policy and so on (Santamara and Shuang Ni, 2008). Advantages of this entry mode such as lost cost and risk for the licensor. Moreover, require for foreign company set up in Malaysia should partner with local company or shareholding for local minimum must hold 30% or above (Qadkam, 2011). Comprehensive all the internal and external factor, Starbucks decided to use licensing for certain country such as China Beijing, New Zealand, Middle East and etc. Kathy Lindemann, SVP of Operations for Starbucks International said that Our approach to international expansion is to focus on the partnership first, country second, as this reason can know that choosing a local business partner is very important for them. The success of Starbucks now proves that Starbucks

SID: 1070156 has made the right decision for the entry mode and partnership as I already mention above. 4. Conclusion Starbucks unquestionable is a successful company, within 40 years of short period it already developed with an extraordinary business in the world. Furthermore, currently years of Starbucks keep going to improve their product and also try hard to fulfil the consumer satisfaction. This report had shown how does the marketing mix of strategy (product, price, promotion and place) using in the overseas markets. Nowadays, Starbucks more prefer in selecting any location where around nook and corner in every road of city. Starbucks also provide goods and services for every customers and community for public who are coming to Starbucks for chat, meet up or even work. Starbucks Chief Executive Howard Schultz said that, We arent in the coffee business, serving people. We are in the people business, serving coffee (Anon, 2010), it is the philosophy of Starbucks.

(3220 words)

SID: 1070156 Appendix 1 Starbucks are using penetration pricing strategic for the new product Frappuccino.

Facebook Starbucks Malaysia, 2011. Starbucks Malaysia. [image online] Available at: <http://www.facebook.com/photo.php?fbid=10150581639095333&set=a.387371 350332.361500.296802010332&type=3&theater > [Accessed 4 November 2011].

SID: 1070156 Appendix 2 Starbucks used a skimming pricing strategy for the new product VIA.

Facebook Starbucks Malaysia, 2011. Starbucks Malaysia. [image online] Available at: <http://www.facebook.com/photo.php?fbid=10150798766830333&set=a.387371 350332.361500.296802010332&type=3&theater> [Accessed 4 November 2011].

SID: 1070156 Appendix 3 Starbucks launch their new products VIA at Malaysia through Facebook.

Facebook Starbucks Malaysia, 2011. Starbucks Malaysia. [image online] Available at: <http://www.facebook.com/photo.php?fbid=10150862724725333&set=a.387371 350332.361500.296802010332&type=3&theater > [Accessed 4 November 2011].

SID: 1070156 Appendix 4 Similar Layout and design between US and UK.

US Starbucks Website Starbucks United Kingdom Website, 2011. Starbucks. [image online] Available at: < http://starbucks.co.uk/ > [Accessed 4 November 2011].

UK Starbucks Website Starbucks, 2011. Starbucks. [image online] Available at: < http://www.starbucks.com/> [Accessed 4 November 2011].

SID: 1070156 Appendix 5 Schultz notes that the blue-chip consulting firm said Starbuck would not success in japan.

UW Business School, 2003. Starbucks Corporation: Competing in a Global Market. [online] Available at: < http://faculty.bschool.washington.edu/skotha/website/cases%20pdf/starbucks_Int l%20copy.pdf > [Accessed 30 November 2011].

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SID: 1070156