Starbucks Marketing Strategy

An introduction to Starbucks

The first Starbucks was opened in 1971 with its name inspired by the classic tale Moby Dick which reminds people of the sea adventure of the early coffee traders. The coffee store belonged to three US businessmen - Jerry Baldwin, Zev Siegl, and Gordon Bowker but later changed hand to Howard Schultz. Inspired by a trip to Italy, Howard turned Starbucks into an espresso-based coffee brand. The rest is history - within 50 years, Starbucks has grown into the biggest coffee chain in the world.³

The company's mission since its establishment day had always been to "inspire and nurture the human spirit - one person, one cup, and one neighbourhood at a time". After redefining the way coffee is consumed in America, Starbucks has been on a journey to conquer the coffee landscape worldwide.⁴

Starbucks marketing strategy

Starbucks marketing mix is an important tool for the company to promote the right product at the right place and at the right time. But let's first look at its overall market segmentation and targeting:

Market segmentation and targeting

Starbucks segmentation strategy consists of demographical segmentation based on age, income, gender, and ethnic background as well as psychological and geographical segmentation.

The main demographic groups are between 25 and 40 with a high income and 18-24 year-olds from wealthier families.⁵

Due to its premium brand image, Starbucks targets customers of the middle and upper-class who can afford to pay more for luxurious coffee. These customers also enjoy a cosy, peaceful environment where they can gather and relax with friends and loved ones.⁵

Starbucks product strategy

Starbucks' main product is coffee - produced by a few handpicked master roasters with over 150 years of experience. They use 100% Arabica beans to produce the highest quality for coffee lovers.

In addition to in-store coffee, Starbucks provides various coffee roast options for those who want to enjoy the drink at home. There is also a range of other beverages such as smoothies and tea, food such as snacks and baked goods, as well as merchandise.⁶

The premium quality, a wide variety of products and top-notch customer service are important competitive advantages for Starbucks in the crowded food and drink industry.

As a multinational company, Starbucks adapts its products to suit local tastes and preferences.

Starbucks place strategy

Starbucks sells its product in a uniquely designed store for each location.

Starbucks has also introduced "Starbucks on the go", a premium self-service beverage solution with a collection of tasty hot drinks. It can be added to the workplace and public environment for people to make their own drinks.⁸ For those who don't feel like waiting in a queue, Starbucks provides an option for customers to place the order in their app, then collect them at any time convenient.

Starbucks promotion strategy

Starbucks promotion strategy is unique and rarely relies on any advertising model. Traditional advertising formats such as billboards, newspapers, and magazines are not used by Starbucks to attract potential customers. Instead, the company believes in the use of Word Of Mouth and creative promotional campaigns.⁹

To cultivate brand loyalty, Starbucks launches Starbucks Rewards and Starbucks Cards. The Starbucks Card provides the company with free advertising every time a customer purchases a gift card and gives it to their friend, family, or business partners. With Starbucks Rewards, customers can redeem free drinks by accumulating stars. In the UK, you can get 3 stars for every £1 spent. With 150 stars, they can get a drink of choice for free.¹⁰

Starbucks price strategy

Starbucks employs a value-based pricing strategy across the globe which is based on customer perception of the product value, which allows it to enjoy a tangible profit over the years. Three key factors making this possible is "specific product differentiation, communication, and understanding value". In addition to profits, value-based pricing helps Starbucks build a strong base of loyal, high-income customers and reinforce a premium brand image.¹¹

The price of Starbucks coffee not only varies in size and type but also with countries and cities. The following table shows the price of the same Starbucks coffee in different parts of the world:

Price for the same cup of Starbucks coffee around the world, StudySmarters Original, based on Voucher Box¹²

An analysis of Starbucks marketing strategy

Let's take a look at the different aspects of Starbucks marketing strategy.

Cross-cultural implementation

The marketing strategy is created and adapted in different parts of the world. The first step in entering a new market is to gather as much knowledge as possible about its religion, culture, perceptions, tastes, beliefs, preferences, attitudes, and values. After this, the company is able to develop unique product offerings and store layouts to match the local taste and preferences. The advertising strategy is also localized for the interest of customers whereas stores are placed in high traffic and high visibility locations to maximize customer reach.

To ensure a standardized operation on a local scale, Starbucks sets up a robust system for recruiting and training baristas & store managers. They search for experienced local business associates who can help them enter the market quickly and effortlessly. Their goal is to spread American coffee flavours all around the world and build a diverse international business portfolio.

Quality and connection

Starbucks prides itself on the quality of its products. Not only is the coffee beans selected from the best source but also the barista must undertake extensive training. In addition to the original offering, Starbucks adopts local beverages and foods to fit in with different cultures. This is often well perceived by the customers and increases their loyalty to the brand. Another aspect of Starbucks business is to reinforce human connections, which is reflected in the cosy and friendly atmosphere in each of its coffee houses.

Pros and cons of Starbucks marketing strategy

Starbucks marketing strategy comes with various advantages:

• The high-quality coffee is a unique selling point that allows Starbucks to sell at a premium price and earn a higher profit

• The friendly and cosy interior atmosphere matches Starbucks' target customers who are educated, high-income office workers and students who need a place to study, gather, and interact with their friends and loved ones.

• Uniquely designed stores and adaptive products enable Starbucks to attract local customers in the beginning and give them a chance to get to know Starbucks culture.

• Local partnerships in foreign markets provide knowledge and experience to help Starbucks quickly enter the new market and avoid complex regulations.

• Starbucks stores are situated in high traffic areas which give the brand more visibility and a chance to make sales.

However, there are still some negative aspects to Starbucks marketing strategy:

• The premium pricing strategy can cause Starbucks to lose a good portion of customers, especially those in developing countries.

• Partnering with local businesses means that the company has to split its revenues by receiving a lower profit.

• There are also high costs associated with the internationalisation process, such as location, taxes, wages, training programs

• With the typical product – coffee and snacks, Starbucks face a prominent threat from companies like Dunkin Donuts & McDonalds. Not to mention the rising number of local coffee shops and eateries.

Starbucks is a multinational company that enjoys its success from an innovative and unique marketing strategy. The strategy makes up of four pillars: Premium products, value-based pricing, uniquely designed stores, and word-of-mouth advertising. Beyond marketing mix, Starbucks' open attitude and adaptability to markets worldwide are key to its enormous success.

References:

1. Statista, Net revenue of Starbucks worldwide from 2003 to 2021, 2021.

2. Statista, Number of Starbucks stores worldwide from 2003 to 2021, 2021.

3. Time Out San Francisco, 2011.

4. Starbucks, Our company.

5. Sabrena Khanum Binti Nawab Zadah Khan, Starbucks Market Segmentation and Targeting, 2018.

6. Starbucks, Products.

7. Days Translations, How Starbucks Adapts to Other Cultures, 2019.

8. Branded Solutions, Starbucks on the go.

9. Dexter Lee, It’s time for Starbucks to Change, 2017.

10. Starbucks UK. Starbucks Cards.

11. Abhiyash Jain, Starbucks prices products on value not cost. Why, 2020.

12. Natalie Keegan, COFF UP! The different prices you’ll pay across the globe for your favourite Starbucks coffee will shock you, 2017.