Starbucks Marketing Plan: US Growth and China Expansion

Executive Summary

This marketing plan is for Starbucks, designed to guide the company toward its revenue and growth objectives. The plan focuses on the cash cow market of the United States and the high-growth market of China as twin means by which the company's overall strategic objectives will be achieved. These two markets work in concert because the cash generated in the United States is essentially used to finance the rapid expansion of the company into the Chinese market. Starbucks is positioned as a premium coffee seller in all of its markets, with a very strong brand, and those are the fundamentals around which the marketing program must be developed.

The marketing strategy in the United States is incremental in nature, focusing on finding growth in key markets and in large metropolitan areas where saturation is insufficient. The program will be based on empowering local managers to engage in additional promotions, store openings, and the development of social media and other emerging marketing channels.

The Chinese strategy is based on more aggressive growth, making the building of organizational infrastructure critical. The company also needs to understand its target market and undertake a marketing program that seeks to build the brand. Starbucks in China will need to focus on same-store sales but will primarily be built on social media and efforts to form a coffeehouse habit among younger Chinese consumers — the new and rapidly growing middle class in that country.

Environmental Analysis and Target Markets

The marketing plan also includes specific success measures for the company and its initiatives. Concrete numbers are attached to the objectives and will be used to evaluate the success of this plan and to implement effective controls that identify what works and what does not.

There are several elements to the external environment, including the economic, social, political/legal, and ecological environments. Each can have an impact on the marketing of an organization. For Starbucks, these need to be considered on a global scale, because the company operates around the world. In the economic environment, the US economy was only recovering slowly from a slump, though there had been sufficient recovery for the majority of the Starbucks target market. It is also worth considering the economic growth trajectory of China, since it is a major growth market for the company (White, 2012). The Chinese economy had been growing rapidly in recent years but had become unsteady — a function of rising inflation, increasing costs, and significant wealth inequality (Qing, 2013). Thus, the economic environment was moderately favorable, with some growth, but the risk of a slowdown in China called into question the company's aggressive pursuit of that market.

The political and legal environments are generally favorable. In the United States and around the world, Starbucks will occasionally deal with minor legal actions — normal for any large company — but has had little difficulty in the political environment. There is some concern about intellectual property rights, especially as Starbucks expands into developing nations where IP protections are weak. However, this has not yet proven to be a major obstacle to growth.

The social environment is generally positive. In North America, consumers are deeply engaged in the coffee ritual, and Starbucks has been able to leverage that to great success over the years. While Asian markets have traditionally been oriented toward tea, Starbucks has been able to trade on offering a "third place" away from small apartments, which appeals to many people in Asia (Bhushan, 2012). The company has therefore demonstrated the ability to overcome challenges in the social environment by targeting attributes of its stores beyond the coffee itself.

The technological environment does not necessarily affect Starbucks' coffee production, but it does represent a significant change in the marketing capabilities of the organization. Social media in particular has changed the way people communicate, which can have significant implications for marketers. Thus, the technological environment is generally positive for the company.

Starbucks targets a broad range of consumers in order to generate billions of dollars in revenue. The coffee market skews older (ages 30–65), with consumption increasing with age, while the younger audience is still forming coffee habits. Starbucks targets the younger end of the key coffee demographic in both the US and China. The market is slightly younger in China because younger consumers there are more likely to be interested in Western products and experiences. The target market also skews toward upper-middle income and higher, which reflects the company's premium positioning.

The psychographic profile of the target market is fairly broad. Starbucks offers a mainstream product and experience and does not stand out among a particular consumer type beyond "typical." That said, such consumers tend to be brand loyal and repetitive purchasers — habitual coffee users who order the same drinks at the same locations. They purchase Starbucks because they perceive it to be of higher quality than alternatives, and the brand carries aspirational appeal. It is not regarded as the best coffee in the world, but it holds a strong reputation that draws many consumers. While some express a preference for Starbucks over competitors, location and convenience typically drive initial purchase decisions.

SWOT Analysis

At present, Starbucks is seeking to grow its market, increase brand recognition, and build market share across all of its markets. With respect to growth, Starbucks is primarily focused on emerging markets like China and India. Its major established markets — the US, Canada, and the UK — function as a cash cow, helping to finance expansion in high-growth markets. In growth markets, creating brand awareness is the most important strategy. In established markets, the company is focused more on defending market share and achieving incremental gains in same-store sales. These two different strategies reflect the very different characteristics of the markets in which they are applied.

Current market performance has generally been strong. Starbucks remains the largest firm in the industry and holds one of the more valuable brands in the world, which it leverages for growth in foreign markets. However, Starbucks is still seen as a luxury item in the US, where the brand suffered an image decline in the mid-2000s and into the beginning of the recession. Overall, the company has been successful, but room for further growth remains. Starbucks also faces a tougher challenge in defending its home market share given competition from several other players, which will ultimately place price pressure on the coffee business.

Starbucks has several strengths from which it can gain advantage. The company has strong leadership from Howard Schultz, whose return brought about the company's recovery and guided it to its current success. Another strength is the brand, which has become one of the most valuable and recognizable in the world. The Starbucks brand is often ubiquitous in the markets in which it competes and has been extended to retail and institutional coffee markets, both of which are very large (Porjes, 2011). The company has perhaps the strongest brand in coffee across nearly all of its markets.

The success of Starbucks is also based on operational excellence. The company has developed what it calls the "Starbucks Experience" — the in-store experience that many competitors have sought to emulate. The ability to deliver this experience consistently has allowed the company to translate its business model all over the world, including to nations without a history of coffee drinking. Starbucks has made several acquisitions in juice, tea, and pastries in recent years in the hope that it can apply this operational excellence to adjacent industries.

There are several weaknesses that could undermine the company's ability to succeed in the future. The first is its reliance on Howard Schultz. As valuable as he is, the company has not demonstrated the ability to succeed without him, making leadership development a significant weakness. Another weakness is the company's vulnerability during economic downturns. While Starbucks courts habitual coffee drinkers, disrupted routines can cause even loyal customers to defect. A third weakness is the company's difficulty breaking out of its core business. It attempted breakfast food with little success and failed at branching into music as well. Overall, there is little evidence that Starbucks can be anything other than a coffee company.

Despite these weaknesses, there are a number of strong opportunities. The most significant is the one Starbucks is already pursuing: international expansion into emerging markets. The company has a strong focus on Asia and the Middle East but is weaker in Europe, has a limited presence in large markets like Brazil, and is a non-factor in other emerging markets such as South Africa. There is, therefore, significant room for international growth.

Another opportunity lies in applying Starbucks' operational excellence to other businesses. Starbucks succeeds not because it brews the world's best coffee, but because it runs its stores exceptionally well. There is a possibility that opportunities will emerge — particularly in quick service — that the company can capitalize on.

Beyond these opportunities, Starbucks must also address several threats. As a premium product, Starbucks is vulnerable to consumer downtrading during periods of economic uncertainty. Competitors around the world emulate the Starbucks model, and should any emerge as a superior performer or develop stronger branding, Starbucks could find it difficult to maintain market share.

Another threat is more existential in nature: the supply of coffee beans threatened by climate change. Coffee is grown in relatively sensitive bioregions near the equator and is subject to pests, erosion, and the effects of a changing climate. Starbucks has already responded in part by becoming a major advocate for action to curb climate change (Starbucks, 2013). The best-case scenario suggests that two-thirds of suitable coffee-growing habitat may be unable to support the plant in the future, underscoring the urgency of this issue for the company (Fiegl, 2012).

Overall, the company has considerable opportunity around the world, which outweighs the pessimism that such analysis might generate. Starbucks is well-positioned to manage problems that may arise, especially if it is flush with cash from successful launches in high-growth foreign markets.