Marketing mix strategy and implementation

Marketing Mix at Starbucks

Marketing Mix Analysis

The coffee shop industry in the Untied States is percolating with opportunities, according to Mintel Research (2006). Starbucks is the dominant leader in this industry, followed by regional competitors Diedrich Coffee and the many individually owned and operated coffee shops throughout the metro area and the nation. Starbucks is the company being profiled in this analysis, using regional competitors Dietrich Coffee and Coffee Bean and Tea Leaf Company as the two competitors included to complete the comparative analysis and competitive benchmarking as is necessary for completing a marketing mix analysis.

The core products of each of these companies are beverages, bakery items, and increasingly light lunch items including sandwiches and salads. Starbucks has successfully moved into this arena by offering light lunches and a wider variety of items than is the case with its two competitors, Dietrich Coffee and the Bean and Tea Leaf Company. Starbucks has test marketed vitamin-enriched caffeinated drinks in the U.S. And regularly test markets drinks specific to regions of the world. In Sydney, Australia for example the company completed a test market for a Banana Creme Frappacino that did very well during the summer of its introduction, 2006. Baird (2006) sees high growth opportunities throughout China for Starbucks and continued growth domestically.

Segmentation Strategies

Coffee Bean and Tea Leaf Company, Dietrich Coffee and Starbucks each rely primarily on demographic segmentation in defining their target markets of prospects and customers. This is the easiest and most cost-effective approach to integration for all three companies as the U.S. Census provides a wealth of demographic data by census tract, and using Geographic Information Systems (GIS) applications, it's possible to analyze demographic data and define the census tracts that have characteristics or attributes that lend themselves to more coffee consumption compared to others. The links http://www.gis.smumn.edu/pages/GradProjects/MarrosR.pdfshows an example of how Starbucks is potentially uses GIS software to map income by Starbucks location in the Chicago area. This area of the country is generating more GIS-based analysis of Starbucks segmentation than any other area in the country or the world right now.

Income is by far the easiest demographic variable to use in defining segments, as age, occupation, and profession tend to correlate highly to income. Starbucks realizes however that to distance themselves from their competitors they need to have a focus on the self-concept and behavior of customers as well, and this is called psychographics.

While psychographics segmentation is primarily and attitudinal variable, it can be predicted through analyzing a series of demographic and lifestyle spending variables. Dr. Peter Haas, Technical Information Manager for the Center for Neighborhood Technology (www.cnt.org) also in Chicago is building statistical models to measure gentrification in neighborhoods. Simply put, gentrification refers to the rejuvenation of older and more run-down parts of cities, aiming them more attractive to wealthier and upwardly mobile couples and families. Dr. Haas did some fascinating research on the gentrification of inner city Chicago neighborhoods and the corresponding rise in Starbucks locations. His work and analysis is in the graphic titled Starbucks Coffee Shops as an Indicator of Gentrification.

Starbucks' segmentation is also globally-focused, as can be seen from the world map shown in the following graphic. Segmenting globally has raised an entirely new set of revenue opportunities for the company, which expects by 2009 to have the majority of its revenue generated outside the United States. Investment analysts tracking Starbucks agree with this assessment. The backlash against globalization from western corporations is a major issue for Starbucks global growth plans, and their approach to highly customizing their stores and hiring only local workers, giving them health insurance, profit sharing, and respecting local customs has helped make globalization successful to this point.

There is an abundance of work going on inside Starbucks right now to bring GIS expertise in-house to aid in their segmentation planning based on taking both demographic, psychographic and attitudinal segmentation criteria overlaid against potential market areas.

Marketing Mix Analysis

The following is an analysis of the marketing mix for Starbucks compared to Dietrich Coffee and Coffee Bean and Tea Leaf Company.

Product

Starbucks' ability to continually innovate new products is central to its lasting competitive advantage in this area. That combination of innovation and focus on being able to executive product delivery globally is a sustainable competitive advantage. Starbucks has steadily grown their cold and hot drink menu equally in terms of product offerings, and continues to experiment with light lunch, mainstay bakery items, and seasonal fruit and bakery goods.

The approach to this product strategy however is muted and not as pronounced on their website as it is in their stores. The majority of revenue growth in Starbucks however comes from recently added drinks, according to Mintel Research and DataMonitor. This is also supported by Baird (2006) and their investment analysis.

Comparably, both the Coffee Bean and Tea Leaf Company and Dietrich Coffee rely on the higher-priced and correspondingly higher margin drinks. The product strategies at both of these competitors are decidedly focused on the higher end of the market, the segments where Starbucks is positioning the Vendi class of hot drinks and the Frappacino line of "fancy" drinks.

Starbucks' two competitors are relying on these higher-end beverages, both pictured with mounds of whipped cream, as dessert replacements and communicating their product strategy as being one of an affordable luxury. Starbucks' senior executives

Price

Pricing is the most powerful differentiator there is and Starbucks uses it sparingly to retain their profitable business model. For Starbucks, their strategy of having classes of products that overlap each product category is critical. Their approach to "blanketing" the price points of competitors with three different sizes of each drink and the successful up-selling and cross-selling strategies that occur in stores all contribute to the company's revenue growth and corresponding profitability. What Starbucks does best with regard to its pricing is not try and test the elasticity of price, but rather looks to create price-quality relationships with each of their brands and offerings.