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October 30

Marketing Principles

2013
Author name: Gabriel Novac

Contents

UK College of
Business and
Computing
HND Level 5

Background on Starbucks............................................................................1
Task 1.1.......................................................................................................2
Task 2.2.......................................................................................................3
Task 2.1.......................................................................................................4
Task 2.2.......................................................................................................7
Task 2.3.......................................................................................................8
Task 2.4.......................................................................................................9

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Task 2.5.....................................................................................................10
Task 3.1.....................................................................................................11
Task 3.2.....................................................................................................12
Task 3.3.....................................................................................................12
Task 3.4.....................................................................................................13
Task 3.5.....................................................................................................14
Task 4.1.....................................................................................................15
Task 4.2.....................................................................................................16
Task 4.3.....................................................................................................17
Conclusions...............................................................................................18
References................................................................................................19

Background on Starbucks
Starbucks is a large international chain of coffee shops that does business in more than 60
countries and serves its customers in approximately 18,000 retail stores. The mission of
Starbucks is to inspire the human spirit one person, one cup and one neighborhood at a time
(Starbucks, 2013). The products that Starbucks sells are coffee products, handcrafter
beverages, merchandise, fresh food and consumer products. According to Starbucks (2012),
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the brand portfolio includes the Starbucks Coffee, Seattle`s Best Coffee, Tazo Tea, Evolution
Fresh, la Boulange and Torrefazione Italia Coffee.

Task 1.1
Marketing process
Marketing is defined by Kotler (2012) as the process of meeting customer needs profitably.
The marketing process is the process by which the company analyses the needs and
requirement of its target customers and brings to market products and services that fulfill
these needs. According to Kotler (2012), the marketing process contains four different parts:
situation analysis, marketing strategy, marketing mix decisions and implementation and
control.
Within the situational analysis stage, Starbucks thoroughly analyses the internal and external
environment of the company in order to assess the factors of influence that could affect its
long term plans. The internal environment includes the employees, management and
shareholders of Starbucks. The external environment is composed of the microenvironment
(competitors, customers and suppliers) and the macroenvironment (political, economic,
social-cultural, environmental technological and legal factors) (Mankiw, 2012). Management
tools that are commonly used for studying the internal environment are the SWOT analysis,
Porter`s (1985) Five Forces Model and stakeholder analysis.
The tools that managers use for analysing the external environment are the SWOT analysis
and the PESTEL analysis. In Starbucks case, one of the most important steps when
performing the situational analysis stage is to assess the needs of the customers. The company
does that via customer questionnaires, focus groups, complaint forms and social media
messages (Starbucks, 2013). Customer feedback is an essential part of the continuous
development of the company and its product line. Additionally, Starbucks` marketing team
performs the stakeholder mapping and human resource strategy analysis (Starbucks, 2010).
The second step in the marketing process is to develop the marketing strategy. As the best
opportunities to serve the customer needs are found, it is time for the company to create a
strategic plan that should include the strategic resources, the constraints and the strategic
goals of the company. At Starbucks, the marketing strategy is developed in three stages:
marketing segmentation, targeting and positioning. Segmentation refers to the process of
splitting the existing and potential customer base into groups that have similar characteristics
and requirements. For example, in Starbucks` case, the target market for flat what coffees is
busy professionals who do not have time to serve a large coffee and that want a quick
refresher (Starbucks, 2012).
SWOT Analysis
The SWOT analysis is a method to analyse the strengths, weaknesses, opportunities and
threats that a company faces (Kotler, 2012). SWOT analysis is frequently used to summarize
and illustrate the most important internal and external factors of influence that are found
during the situational analysis. The internal factors are summarised by using the strengths and
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opportunities while the external factors are summarized in the opportunities and threats
section. The SWOT analysis of Starbucks was performed by summarizing collected
information from the Annual Reports for the years 2011 and 2012 and by using the State of
the Snack Industry Report from Wisconsin School of Business (2010).
Strengths

Weaknesses

Great customer service policy and employee


training
Valuable brand portfolio
Financially powerful and with low debt
Present in more than 60 countries

The business is in a low growth stage on the


product life cycle
Lack of growth in main markets
No disruptive innovations in the last 3 years
that could generate high growth

Opportunities

Threats

Expand to high growth countries


Develop the brand portfolio
Stimulate the existing demand via clever
marketing

Increased competition on the existing markets


Low growth and price wars in markets in
which the company operates
Coffee culture could decline in popularity

Following the SWOT analysis, Starbucks should expand the markets in which it is currently
operating by looking in high growth countries such as Romania, Bulgaria or high growth
Asian countries. Additionally, the company should fight competitors by means of product
innovation, product differentiation and promotional activities. Furthermore, as the tastes of its
customers change or become more sophisticated, Starbucks should receive feedback and
develop products that cater for the needs of its customers.

Task 2.2
Marketing Objectives
The marketing objectives of Starbucks are: to increase the awareness and the value of its
brand portfolio via promotional activities, to increase the market share on its established
markets, to capture market share from its competitors, to enter new markets via geographical
expansion and product launches and to increase the product portfolio of the company
(Starbucks, 2013). To each marketing objective Starbucks assigns a quantifiable target and a
time scale to achieve the target. For example, capture at least 10% of the coffee shop market
share in Romania by December 2013. However, these targets are internal and are not
published by the company as it is proprietary information.
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Setting clear marketing objectives and defining marketing objectives is an important step of
the marketing strategy as is give the company the opportunity to develop targets and time
frames, it aids in the creation of budgets, it gives performance criteria for different
departments, managers and employees and it creates a common company-wide strategy. The
marketing objectives that Starbucks has should also include targets that are related to
customer service, relationship marketing, quality assurance and service and customer care
(Smith, 1996). Setting marketing costs normally involves defining quantitative and
qualitative targets in the following areas: customer satisfaction, quality of products or
services, relationship marketing and financial return on the marketing campaign. In regards to
Starbucks, the company has a number of quality standards that, as part of the marketing
strategy, are to be maintained and improved. As an example, the shop floor should always be
clean and smell nice, the tables should be cleaned after each customer leaves the coffee shop,
the grande cappuccino should weigh exactly 320 grams and the grande Americano
should weigh 400 grams. An emphasis on maintaining and improving these standards within
the marketing plan will help on the operational level. Even though this imposes some costs
associated with measuring, monitoring and imposing discipline, it is justified on the long term
because it may bring competitive advantages.
According to Kotler and Keller (2010) there are a number of marketing philosophies that can
be identified. This marketing philosophies or concepts refer to the emphasis, focus and
weight assigned to the organisation, the business units of the organisation, its customers, its
stakeholders and the society. The competing concepts recognised in the modern marketing
literature include: the production concept, the product concept, the selling concept, the
marketing concept and the holistic marketing concept. The production concept holds that
customers will prefer products that are widely available and cheap (Kotler and Keller, 2010).
The product concept suggests that customer will prefer the products with the highest quality,
performance or most innovative features. The selling concept considers that customers have
to be approached by using an aggressive marketing campaign in order to achieve high sales
growth. The marketing concept is a modern philosophy focused on identifying and satisfying
customer needs. Finally, the holistic marketing concept takes into account the needs of the
customers, but also goes on to address the needs of the society. In this respect, Starbucks`
focus is on holistic marketing because it tackles complex issues such as relationship
marketing, integrated marketing and social responsibility marketing.

Task 2.1
Kotabe and Helsen (1998) consider the micro-environmental factors as the factors of
influence of a company that can be directly managed and changed by the organisation. The
organisation can shape and defend from the micro-environmental factors. These factors are
internal (such as the human resources, the management and the corporate culture) or external
such as the customers, suppliers, partners and other stakeholders. The microenvironmental
factors are audited and analysed using the stakeholder mapping, Porter`s Five Forces,
Marketing Research, SWOT analysis, internal audits, management reviews and quality circles
(Kotabe and Helsen, 1998). The macroenvironmental factors are the external factors that
affect the business activities of an organisatioSn, but cannot be influenced by the
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organisation. These factors of influence are analysed by using the PEST analysis which
incorporates political, economic, social and technological factors.
Microenvironment Factors
1. Shareholders As the holders of capital in the business, Starbuck`s shareholders are an
important factor of influence. The shareholders that hold stock with voting rights are allowed
to draw votes in the General Shareholders Meetings and propose a new board of directors
composition, pay packages, strategic directions and other issues. For example, a large
institutional shareholder that takes active involvement in the management of organisations
such as Carl Icahn`s investment vehicle, could acquire an important stake in the company and
advocate for a different senior management (that would implement other strategic plans),
higher dividends or a greener policy. Additionally, besides the power to influence Starbucks
at a strategic level, the shareholders are also entitled to the residual profits of the company
and to the dividends. Therefore, Starbucks` management should make financial decisions that
are to the long term benefit of its shareholders, and also take into account the needs of other
stakeholders.
2. Competitive Forces According to Porter`s Five Forces Model, the main factors that shape
the competitive environment are the bargaining power of suppliers, the bargaining power of
buyers, the existing competition on the market, the threat of substitutes and the threat of new
entrants (Porter, 1991). Arguably, the threat of new entrants on the coffee shop market is
high, because the barriers to entry on the market are generally low. From a financial,
technological and intellectual capital point of view it is relatively cheap and straightforward
to open a coffee shop. However, due to its size, brand and other competitive advantages,
Starbucks has the tools to impose premium prices and achieve lower costs than its
competition. Secondly, the threat of substitutes is low in the short term, but high in the long
term. The coffee-drinking social-cultural trend is currently very popular and is unlikely to
change in the short term. However, in years, people may develop taste for other beverages
such as shakes or tea and other methods of socializing. Thirdly, the existing competition on
the market is usually high in the markets in which Starbucks activates. For example, in
London, there are a large number of small independent coffee shops that charge value prices
and offer good quality coffee and a number of large coffee shop chains that charge premium
prices and offer decent quality coffee such as Starbucks, Costa Coffee, Caf Nero and EAT.
Starbucks` main competitors are the large coffee shop chains and any marketing decision that
it makes needs to take into account the competitive position and moves of its rivals. For
example, if a new type of beverage such as the Matcha Latte proved popular with customers
in the Barbican Area, Starbucks was quick to introduce the Starbucks Matcha Latte in the
same area (Starbucks, 2013). The drink proved popular with a certain market segment and the
company decided to offer the drink in the majority of its shops.
3. Suppliers The suppliers of Starbucks influence the business dealings of the company in the
following ways: they affect the costs of goods sold, they can influence the quality of the
products and services supplied by Starbucks and they can support or vilify the image of the
company. For Starbucks, an important aspect of its brand is that the company purchases
coffee from approved ethically sourced, responsibly grown Fair Trade suppliers (Starbucks,
2013). According to Starbucks (2013), all the coffee that it purchases is Fair Trade and almost
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93% of the coffee purchased was ethically sourced. To show how important the sourcing of
coffee is to Starbucks, the company has developed the Coffee and Farmer Equity Practice
which outlines the organisational approach to sourcing high-quality coffee while promoting
social, environmental and economic standards (Starbucks Global Responsibility Report,
2012).
Macroenvironment Factors PEST Analys
1. Political - The political factors that may affect Starbucks are the government policies toward
foreign investments, fiscal policies, labor laws, health and safety regulation, environmental
legislation and others. Starbucks, in the UK was put under considerable political pressure
when it was revealed that the company has not paid enough taxes on its UK revenues due to a
fiscal loophole. The company booked its profits in Ireland where the profits are taxed at a
very low rate. According to the Guardian (2012), Starbucks has paid only 85 million in tax
over 14 years of operation in the UK, despite having revenues of more than 3 billion in the
same period. Due to public outcry, followed by political pressure, the company offered to pay
20 million extra in tax by not claiming some deductions (BBC, 2012). However, the UK
government is discussing ways in which to review the fiscal code so as to limit the
deductions that international companies can make to countries with low tax regimes and this
may reduce the after tax profits of Starbucks.
2. Economic the economic factors that are most likely to affect the economic growth, the
inflation rates, the currency exchange rates, the unemployment rates, the disposable income
and the interest rates in the countries in which it has a presence. Some of the economic
factors will affect the demand side of company (the amount of money its customers are
willing and able to spend on Starbuck`s products and services) while the rest will affect the
supply side of the company (the capacity of Starbucks to serve its customers). For example,
the disposable incomes of the population affect the willingness and ability of Starbucks
customers to purchase coffee and other products by limiting or expanding the amount of
money they have for such purchases. Due to the economic crisis, the incomes of Romanians
have decreased in real terms and therefore the amount of money set aside for coffee
consumption lowered. This is also due to the fact that Starbucks` coffee is a non-essential
product and has high price elasticity (when the price increases, the demand decreases more).
The interest rate that financial institutions charge for loans have influenced the ability of
Starbucks to serve its customers by increasing or decreasing the company`s expenses with
investments, research and development, supply chain and other capital intensive business
areas. The lower the interest rates in a country, the more economically feasible will be for
Starbucks to invest in new stores and put more money into research and development.
Additionally, the low interest rates generally make dividends more attractive and therefore
the company would be able to offer lower dividend rates and keep more of the profits to
reinvest in its operations.
3. Technologic Recent technological developments that have influenced the marketing
decision of Starbucks are the easier communication with customers via social networks and
instant messaging services, the expansion of mobile platform marketing channels and the
increased use of internet for marketing purposes. In this respect, Starbucks has allocated more
and more of its advertising and promotions budget for the internet platforms, including its
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own website. In regards to the mobile platforms, Starbucks has invested in three main mobile
applications that its customers can use to stay in touch with the company: Starbucks for
Android which allows its users to browse the offers of Starbucks, Square Wallet which makes
payments with mobiles in Starbucks possible and a special application for iPhone users
entitled Starbucks for iPhone (Starbucks Website, 2013).

Task 2.2
It is more sensible and profitable for companies to use market segmentation as part of the
marketing activities because it allows them to extract more value from different categories of
customers (Tzan, 2007). This is because by segmenting, Starbucks is able to address the
needs of certain segments of the market in a more effective way and therefore creating more
customer satisfaction. Market segmentation entails the separation of customer groups in
segments based on geographic, demographic or psychographic characteristics (Kotler and
Keller, 2010). The geographic characteristics offer the possibility of creating market segments
for customers in a country, region, city or even neighborhood. For example, customers of
Starbucks in Romania are more likely to purchase lattes and less likely to purchase matcha
lattes than customers in the UK (Bock and Uncles, 2002). Therefore it is more sensible for
Starbucks to put marketing focus on lattes rather than on matcha lattes in Romania. The
demographic characteristics include the income, family size, age, social status, job
characteristics, family composition, gender, religion, ethnicity and nationality (Kotler and
Keller, 2010). Finally, the psychographic characteristics are the personality traits, values,
beliefs and attitudes of individuals. For example, Starbucks positions its products as ethically
sourced and obtained from fair trade suppliers to appeal to the individuals that value
corporate social responsibility and environmental protection.
To expand on the previous example, take the markets for hot beverages served in coffee
shops, in which Starbucks is an important presence. An appropriate segmentation criterion is
the geographic criteria. For example, two different market segments are the customers of
Starbucks in Bucharest, Romania and the customers of Starbucks in London, United
Kingdom. The geographic segmentation makes sense not because of the distance between the
two locations, but because it underpins different economic, social-cultural, behavioral and
personal characteristics of customers. Firstly, customers in Bucharest are less used to have
coffee for takeaway and more used to consume the coffee in store as a social event. Besides
enjoying a coffee as a social event, London customers also take coffee on the go rather
frequently. Secondly, the average Londoner has more purchasing power with his/her income
than the average individual from Bucharest and therefore can afford to purchase more coffees
from Starbucks. Starbucks in Bucharest has to compensate for the lower individual demand
and appeal to a larger number of people. On the other hand, Starbucks in London can afford
to build lengthy relationships and loyalise its customers via promotions, loyalty points and
other offers. Thirdly, the tastes for hot beverages for customers in Bucharest are sensibly
different from the tastes for hot beverages for customers in London and therefore Starbucks
needs to adapt its offering.

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Another segmentation criterion for Starbucks customers is a psychographic characteristic. As
an example, for the sandwiches section, the coffee shop chain could use the following
categories of customers: the customers who enjoy a quick meal made out of quality
ingredients, but enjoy it at value prices and the customers who are very interested that the
ingredients in the sandwich to have certain nutritional value, to be exotic and to be
ecologically grown. The first category would attract the value range of sandwiches that such
as the ham, brie and tomato sandwich and baguette while the second category would attract
the premium range of sandwiches such as the ethically source salmon bagel. It is worth it to
segment the customers in this manner, because, by producing different types of sandwiches
and by having a customised marketing mix for these sandwiches, the company can extract
more value from the customers.

Task 2.3
The second step in the marketing planning process is the market targeting process. According
to Kotler and Keller (2010) the targeting strategy involves the developing and applying of a
customised marketing mix for the identified market segment for the purpose of obtaining
more value from the customers. According to the same authors the available targeting
strategies are niche marketing, concentrated marketing, differentiated marketing and
undifferentiated marketing.
In regards to the sandwich range, Starbucks could find it profitable to take advantage of
certain trends and undertake a niche marketing strategy. For example, the coffee shop has
researched the market and found that people would pay premium prices for exotic sandwiches
and that a popular type of sandwich in the specialty shop was the Chicken Ban Mi. This is
made with Maui Chicken skewers, iceberg salad mix, cucumber, orange peppers, rice vinegar,
Hoisin Sauce, Soy Sauce and Cilantro (Spark Recipes, 2013). The company has created a
different marketing strategy for this type of sandwich by customizing the elements of the
marketing mix. Firstly, the sandwich was created with ingredients that are very different from
the usual ingredients. The packaging used included elements of Thai design and symbols and
differentiated it from other products. The label clearly showed that the name of the sandwich
is Chicken Ban Mi and its ingredients so that people are not confused about its nature. The
new product was promoted as a premium product that catered for the needs of more
adventurous foodies and it advertising influenced people to have a go (Starbucks, 2012).
The distribution of the product was similar to the other products, except for the display. The
sandwich had its own separate place in the display window and it was also located in the
premium sandwich section. The price was slightly lower than the premium sandwiches but
higher than the regular range of sandwiches (Starbucks, 2012).

Task 2.4
By analysing the buyer`s behaviour, Starbucks can find methods to deliver more value by
addressing the needs of its customers in a more efficient and profitable manner. The decision
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making process of buyers is composed of five main steps: problem recognition, information
search, evaluation of alternatives, purchase decision, and post-purchase behaviour. To take
Starbucks` case, let`s say that a group of individual need to meet over a cup of coffee and
have a quick snack.
The first step in the buyer behaviour process is that the individuals recognise the need for
coffee and snacks. The second step is to search for information on companies that offer coffee
and snacks. They might search online, they might search on the street for appealing coffee
shops or one of the group individuals might persuade the other to choose a particular coffee
shop. Thirdly, the most promising alternative is chosen by the group based on a number of
criteria such as proximity to the current location, mix of products, price range, customer
service, cleanliness or other criteria. Next, the decision to visit Starbucks is taken as it is the
closest coffee shop, with coffee and sandwiches that suit the tastes of all the group members
(or most of them) and with affordable price ranges for the persons with smaller budgets. Each
member decides what to purchase. Finally, the post purchase behaviour includes the time
spend in the coffee shop, any complaints or regrets for going to Starbucks or positive
feedback. For other goods or services the post-purchase behaviour includes servicing,
guarantees and help with using the product.
According to Kotler and Keller (2010), the behaviour of customers is influenced by
individual factors such as social-cultural factors, demographic factors and personal factors

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and environmental influences such as economic, technologic and legal influences. The
demographic factors include the age, income, generation, social status, family, ethnicity,
nationality and others. A woman with children that enters a Starbucks could be interested in
offering healthy drinks and snacks for her children. On the other hand, her children might
pressure the mother into buying high-calorie chocolate bars and fizzy drinks. A more senior
person would possibly enjoy more traditional snacks such as an English Breakfast Tea with
biscuits. However, it is not wise to generalize these without proper research.
Two basic models that try to explain the psychological influences of individuals during the
buyer`s decision making process are Maslow`s Hierarchy of Needs (1954) and Herzberg`s
Two Factor Model (1966). According to Maslow (1954), the underlying motivation behind
human decisions is linked to the different needs of the individual. These needs can be
classified into lower order needs such as the need for food, water, shelter and security and
higher order needs such as the need for belonging, love, friendship, status and
selfdevelopment. The model implies that individuals will look to satisfy their lower order
needs first and then their higher order needs. For example, busy office people with little time
to spare and hungry for a quick snack would first look to satisfy their hunger and thirst before
thinking about the need for socializing. However, as there are a large number of coffee shops,
the need for food and drinks is not that urgent and they might place great importance on the
ambient and customer service of Starbucks. Secondly, Herzberg`s (1966) Two Factor Model
implies that there are two categories of influences on the buyer`s behaviour: the satisfiers
and the dissatisfies. Companies should first address the potential dissatisfaction factors and
then work to enhance the satisfying factors. For example, according to this model, it is more
important for Starbucks to insure that the shop floor is clean and that the products are not
expired and then to address issues such as customer service and the ambient in the coffee
shop.

Task 2.5
The positioning of a product or service is the final step of the marketing planning process.
After Starbucks has researched and analysed the market, segmented the market and
developed targeting strategies, it needs to implement a positioning strategy for its products or
services. The product that is to go through a new positioning strategy is the Espresso coffee of
Starbucks. The product will be re-positioned to address the needs of busy professionals
between 18 and 64 years that need an extra shot of energy. The new strategy is outlined in the
following table:
Product
The main different between this type of Espresso and the regular one will be
the size. Starbucks will add two extra shots of Espresso in the double
Espresso to make a total of four shots. This will provide the equivalent
caffeine content of a 500 ml can of energy drink and is safe for healthy
individuals with high energy consumption. The new product will be called
Espresso The Big One and will be offered in store in a special red cup with
a thunder bolt in it and for takeaway in a red cup with The Big One

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Price

Promotion

Placement

written on it and struck by a thunderbolt. The drink will be made just as the
regular Espresso drinks are made.
The price of The Big One will be slightly lower than twice the price of a
double Espresso. Currently, the price of a double espresso in Romania is 8
Lei and therefore the price of The Big One will be around 15 Lei. This
will reinforce the idea that the drink has double the caffeine content and will
create the impression that the company offers a bit of value when purchasing
larger sizes.
The new product should follow the general promotion techniques of
Starbucks. The company does not regularly engage in advertising and
promotion through mass channels such as television or radio (Starbucks,
2010). However, the company could promote this new product via some PR
stunts such as showing in the newspaper some stars sipping from The Big
One. Additionally, the new drinks could be promoted in store via signs,
banners, a special placement in the drink list and through coupons and
offers. Furthermore, Starbucks should also go for word of mouth promotion
and encourage people to talk about The Big One on social media
platforms and on discussion forums.
The placement of the product will be similar to the placement of other
drinks offered by Starbucks. However, as mentioned before, in the first
months, the drinks should occupy a special place in the drinks list and it
should be clearly visible that this is a completely new offering.

Task 3.1
As shown by Barney (2007), competitive advantage is created by achieving points-of-parity
and points-of-difference with the competitors and by creating sustainable barriers to entry for
potential new entrants on the market. The points-of-parity are the individual characteristics of
the marketing mix that are considered as standard on the specific market. For example,
Starbucks should take into account that it is considered as normal for a coffee shop to offer a
range of different types of coffee such as latte, cappuccino, Americano, espresso and flat
White and a coffee shop that does not offer this range could lose many customers. On the
other hand, to achieve points of difference, Starbucks should create difference within the
marketing mix elements. Compete by creating different or innovative products, by having a
different pricing strategy, by having a more efficient distribution chain or by appealing more
to customers via effective promotional campaigns.
The first step in developing products with sustainable competitive advantages is to engage in
market research. This helps Starbucks analyse the needs of its potential customers,
preferences regarding the marketing mix and segmentation criteria. The second step is to find
a consumer segment that can offer value and growth for the company. This could be the
healthy food consumer segment or people that enjoy Indian cuisine or young students. The

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next step would be to use the researched differences and apply them on a product range. In
this respect, Starbucks can create a Chicken Teriyaki sandwich for the customer segment that
enjoys Indian cuisine. The competitive advantages would be in this case from having a
product range that addresses a wider array of tastes and therefore attracting more customers.
Other sources of competitive advantages can be created by having a more efficient
distribution chain. As opposed to a small coffee shop such as Mario`s Coffee Shop near
Grange Hill Station, Starbucks achieves lower costs per kilogram of coffee due to its
advantages of scale and sources its coffee only from responsibly and ethically produced fair
trade coffee. In this way, Starbucks has higher profits and its brand is boosted by the
corporate social responsibility.

Task 3.2
Distribution is one of the elements of the marketing mix and it refers to the processes and
methods of putting the end product on the market and displaying it. According to Kotler and
Keller, distribution of products and services should be arranged so as to create customer
convenience and availability. Customer convenience means that the customer should spend as
little resources as possible in obtaining, using and disposing of the product or service.
Customer availability is achieved by making the product available to as many customers as
possible. In this respect, Starbucks aims to position its coffee shops as close as possible from
its most lucrative customers. This entails for Starbucks the positioning of its coffee shops near
large shopping centers and near business areas and districts. In London, Starbucks can mainly
be found on high streets, in shopping malls and near the business areas of London (such as
the Square Mile) (Starbucks, 2012).
According to Kotler and Keller (2010), companies can choose from number of distribution
channels: direct selling, distributors, wholesalers, retailers and agents. A distribution channel
is a unique method of transferring the end product or service from the producer to the user. In
Starbucks` case, the company uses a number of distributors and wholesalers for some of the
products that it retails and direct selling for the products that it makes. For example,
Starbucks might purchase the chocolate bars that it sells from a producer, a distributor or a
wholesaler. On the other hand, Starbucks makes and sells its coffees directly, in store.

Task 3.3
Price is another important element of the marketing mix and is the element that mostly
influences the demand for a product or service. The prices of products and services ultimately
determine the end revenues of the company. The price of a product is the total economic
value that a buyer is willing to part with in order to buy, use and dispose of a product. For a
customer of Starbucks, the price of a coffee includes the monetary value of the coffee (the

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actual money spent to buy the coffee), the time spent to buy the coffee and the opportunity
costs of buying the coffee.
According to Kotler and Keller (2010), in generally, the higher the price of a product or
service, the lower the demand for the product or service is. However, there are some goods
such as status goods (such high end cars or jewelry) where the inverse relationship does not
hold. With this in mind, as Starbucks coffee is seen as a cool and fashionable place to drink
coffee, the company can afford to charge premium prices without having to worry much
about declining demand (Harrison et al, 2005). This is the premium pricing strategy. Other
pricing strategies include psychological pricing, predatory pricing, value pricing, perceived
value pricing, optional product pricing, cost-plus pricing, promotional pricing and niche
pricing (Best, 2013). One example of psychological pricing for Starbucks products is the
price of cappuccino: 1.99. There is a psychological bias that makes individuals perceive
1.99 as closer to 1 than 2 and companies are using this bias to make the products look
more affordable. Perceived value pricing is when companies take the customers` perceptions
on the value of a product and use them in setting a price. For example, the variable cost of
producing a cappuccino is normally no more than 15 20 pennies per drink. However, as
customers are willing to spend as much as 3 per one drink, it is better for Starbucks to take
advantage of this. Furthermore, the company needs to recover fixed costs as well and
therefore the total cost per coffee might be considerably more than 15 pennies.
The price of a product is a very complex decision and is made by senior managers. They take
into account information from the marketing department (perceived value, competitive
situation, prices of competitors, promotional strategies and macroenvironmental issues), from
the operational department (cost of production, cost of distribution, end product price,
requirements from the suppliers), from the financial department (breakeven price, forecasted
revenues and costs, analysis of economic feasibility) and from the shop floor (customer
feedback, complaints, suggestions and empirical evidence). However, even having a large
amount of complex information, taking a pricing decision involves some measure of intuition
(Kotler and Keller, 2010).

Task 3.4
According to Kotler and Armstrong (2012), marketing communication includes the means by
which firms attempt to inform, persuade and remind customers directly or indirectly about
the products and services they wish to sell. Marketing communication tends to increase the
brand equity by shaping a distinct product image and by establishing the image in the
memory of its customers. The marketing communication mix consists of six major categories
of communication methods: advertising, sales promotion, events and experiences, public
relations and publicity, direct marketing and personal selling (Kotler and Keller, 2010). Of all
the promotional mix elements, the company uses advertising in print, events and experiences,
public relations and word-of-mouth marketing. The ads of Starbucks are mostly in
newspapers that have as main audience well-off intellectual people. As a complement to the

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ads, the company sometimes does public relations activities and sponsors newspaper articles.
Furthermore, Starbucks is also involved in many corporate social responsibility events such
as supporting Children`s SOS Villages in Greece (Starbucks) and this brings the company
considerable brand equity. On the other hand, Starbucks has also suffered from negative
publicity from the exposure that the company is using legal loopholes to pay less tax in the
UK (BBC, 2011).
According to Starbucks (2010), the vision of the company is to create a third place besides
home and work, where people can spend quality time and socialize. According to Fellner
(2011) this strategic objective of Starbucks is so successful because it appeals to a large
number of customer segments and therefore can address the needs of many potential
customers. Additionally, due to the proximity of Starbucks coffee shops to shopping areas,
business districts and educational establishments, the company has created availability and
convenience for its main customer segments. Another successful marketing strategy of
Starbucks is to develop strong brands and distribute them through major retailers. For
example, the company has been successful at creating and penetrating the instant coffee
market with the VIO brand (Starbucks, 2012). Finally, as part of its promotional efforts,
Starbucks has been successful at developing relationships with its customers via the
Starbucks Loyalty Card.

Task 3.5
In addition to the initial four elements of the marketing mix, marketing managers also take in
to account three additional dimensions: the process, the people and the physical evidence
(McGrath, 1986). They are especially relevant to the companies that activate in the services
sector. Starbucks could be thought of a company that activates in the services sector because
it offers experiences rather than actual products (the products offered have little value in
themselves).
The process marketing dimension is concerned with the procedures, standards and methods of
work. The processes that are used at Starbucks are very well documented as part of the ISO
9001:2008 quality assurance standard. For example, the company has a standard procedure
for dealing with customer complaints that involves dealing with the complaint at different
levels of the company. If an employee or a team at a lower level fails to offer a satisfactory
resolution to the customer, only then the issue is escalated to a superior. Another example of
clearly documented process is the one of making coffees. The employees need to follow the
procedure exactly and take into account the standards of the coffee. For example, the latte
milk needs to be creamy and be weightier that the cappuccino milk which needs to be frothy.
The people of Starbucks include the back office personnel from the account and finance
department, the operations and logistics department, the strategic management department,
the human resources department and senior management and the front office personnel such
as the shop managers, supervisors, customer hosts and baristas. For the company, the most
essential to the customer experience are the front office personnel because they are the ones

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that come into contact with the customers most often. It is in their power to offer a great
experience to their customers or a lousy one. As such, Starbucks acknowledges the
importance of customer facing employees and offers them training and development
programs that are aimed to increase the knowledge, skills and experience (Starbucks, 2012).
Furthermore, the company offers them clear career paths and perks for working at Starbucks
such as daily allowances and bonuses for achieving targets. This improves the morale and the
motivation of the employees.
As it is essentially a service company, the surrounding physical evidence within store is an
important factor in building the customer experience. This includes elements such as music,
dcor, chairs and tables, shop floor layout, in-store signs and directions, layout of the display,
product information, uniforms of the employees and other physical elements that may
contribute to the experience of customers. The majority of the aforementioned elements are
documented and standardised at Starbucks. For example, the uniform at Starbucks is provided
by the company daily, is professionally cleaned and ironed and it is consistent with the
corporate design (Starbucks, 2010). The uniform that is used depends on the function of the
employee: managers, baristas and customer hosts have different types of uniforms (Starbucks,
2010).

Task 4.1
The product range that is used for the purpose of this exercise is the espresso. The espresso is
simply the regular coffee with no added water, milk or other elements. The two segments of
the market are the university students in an area and the caffeine intolerant people. Following
are two customised marketing mixes for each of the two segments:
Marketing mix for the university students

Product: The characteristics of the espresso for university students are the same with the
regular espresso: it is served for takeaway in small cups that are Starbucks branded. It comes
in two different sizes: single and double. It is served with no added milk and water. On
request, the barista can add one extra shot of espresso at the cost of a single espresso.
Price: The espresso is the cheapest coffee as it requires the least number of ingredients and is
the quickest coffee to make. The price of a single espresso in Romania is 6 Lei, while the
price of a double espresso is 10 Lei. This makes the prices affordable for Romanian students
and offers them value as opposed to other coffee shops which charge higher prices.
Promotion: The espresso does not receive special promotion as it is the basis for all coffees
produced in the coffee shop. All customers who enter a coffee shop expect it to have espresso
in the product range. However, a recent promotional campaign of Starbucks promoted the use
of Kenyan sourced coffee and showed an espresso cup within the advertisement. The
Starbucks coffee is promoted to students via student publications and coffee shops that are
located in campus. Additionally, from time to time Starbucks offers special promotions to
students via the loyalty card (Starbucks, 2010).

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Placement: The placement of the espresso is similar to the placement of other coffees served
by Starbucks. The coffee beans are sourced from its approved list of importers and
distributors and the coffee is produced and sold in-store.
Marketing mix for the caffeine intolerant people

Product: As the product is for caffeine intolerant customers who want to experience the
coffee drinking ritual without the possibility of drinking caffeine. As such, the espresso is
made with decaffeinated coffee. Otherwise, the same product sizing is available: single and
double. The packaging of the decaffeinated coffee is distinctive, with a different colour on the
cup than the regular espresso so that it can be distinguished.
Price: The price of the decaff espresso should be slightly higher than the regular espresso. As
the price of a regular espresso in Romania is 6 lei and of a double espresso is 10 lei, the price
of a decaff espresso should be 7 lei and the one of a double decaff espresso should be 11 lei.
Promotion: The promotion of this niche product should be done within specialty
communication channels such as magazines that focus on medicine, healthy living magazines
and TV shows, in-store advertisements and radio advertisements.
Placement: the placements of the decaff coffee should be distinctive. It should occupy a
distinct place in the drink list and it should be clear that the coffee does not have any caffeine
content. Otherwise, the decaff coffee is to be sold within store, same as the other types of
coffee. The decaff coffee beans are to be sourced from the same importers and distributors as
the regular coffee beans.

Task 4.2
Marketing for individual consumers and marketing for businesses require two very different
marketing strategies as they have distinct characteristics. The consumer market consists of
individual consumers with low purchasing power and high heterogeneity while the business
market consists of organisations that acquire goods and services used in the production of
other goods and services that are sold, rented or supplied to others (Brennan and Canning,
2010). According to Kotler and Keller (2006) the following major differences between
organisational marketing and consumer marketing exist: there are fewer and larger buyers,
there is a closer supplier-customer relationship, professional purchasing, several buying
influences, multiple sales calls, derived demand, inelastic demand, fluctuating demand,
geographically concentrated buyers and direct purchasing.
Next to Starbucks, the company that markets its products mainly to organisational buyers is
Maven Foods. Maven Foods is a London based, catering company that offers its services for
business meetings, receptions, business events, fundraisers, buffets and lunches. Some of the
food options include Lunch Bags, Hot Buffets, Sandwich Lunches and Business Lunches
(Freeindex.co.uk, 2013). As opposed to Starbucks, the company markets its products and
services to fewer and larger buyers. Its client list includes a small number of companies in the
Square Mile which are regular buyers and a large number of companies that are occasional

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buyers. On the other hand, Starbucks has a large number of individual buyers with smaller
purchasing power and with lower value orders. Starbucks` customers do not have the
purchasing power and the ability to negotiate prices and customised delivery conditions. On
the other hand, depending on the contract size, the customers of Maven Foods do have the
ability to negotiate contractual terms. For regular customers of Maven Foods, the relationship
between the catering company and its client is normally closer as there are special procedures
and contracts that take away the need to discuss each time contractual terms. For example,
two businesses may use a contract of delivery template for each time the company supplies
food for an event and have regular discounts for large orders. On the other hand, it is less
possible to establish business relationships with Starbucks` customers as investing too much
money could prove unprofitable. Starbucks invests in creating customer relationships mainly
via its loyalty card system (Starbucks, 2010).

Task 4.3
Marketing in an international context is different because the internal and external business
environment differs. For example, there are considerable differences in the political,
economic, social-cultural, technologic, environmental and legal environments between the
UK and Romania. Because Starbucks has a large international presence and it operates in
more than 60 countries, the organisation needs to customise its marketing strategy based on
the national and regional characteristics. According to Kotler and Keller (2010), marketing in
an international environment brings the following issues: the company is exposed to more
competition, the company has access to a wider, broader and more complex set of customers,
the company needs to abide by the environmental conditions of the respective geographical
area, the company has to account for language differences, the company needs to be careful at
business etiquette and that international marketing helps spread business risks.
For example, in Romania, Starbucks has adapted its marketing mix to the internal and
external environmental conditions. It uses a local importer and a number of local distributors.
However, the coffee is sourced from the same producers as the Starbucks in the UK. The
supply chain is more complex due to the limitations of Romanian transport (it is more
effective to transport the coffee to logistic center in Transylvania and thereon distribute the
coffee) (Starbucks Annual Report, 2008). The pricing strategy in Romania is adapted to the
purchasing power of Romanians, the economic conditions in Romania, the competitive scene
and the value of the initial investment. Therefore, the prices of Starbucks coffee in Romania
are lower than the equivalent prices in the UK. The products are not adapted to the Romanian
cultural and social characteristics because this would negate the western cultural appeal
(Romanians tend to be attracted by the western life-style and its values). Promotional
strategies tend to focus more on price promotions such as coupons, loyalty card offers and
discounts rather than new products or advertisements. In this respect, similarly to KFC,
Starbucks has used the standardization strategy and not the adaptation strategy.

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Conclusions
The marketing strategy at Starbucks is very complex and requires a considerable amount of
information and analysis. This is because the company is very large in size and any decision
has a large effect on the bottom line of the company. As it has been successful in creating
brand awareness and positive brand images for its brand portfolio without investing large
amounts of money in promotion, the company should continue its formula of success and
adapt it to the changing environmental conditions.

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