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Starbucks & Luxury Brands

Starbucks & Luxury Brands

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Published by Sreerag Gangadharan
Assignment work in MBA
Assignment work in MBA

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Published by: Sreerag Gangadharan on Jan 25, 2010
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11/08/2012

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Liverpool Business SchoolMarketing Management
1.INTRODUCTION
The Starbucks Coffee, Tea, and Spice Company was founded in Seattle in 1971 byJerry Baldwin, Gordon Bowker and Zev Siegl, with a dream to educate the consumers aboutfine coffees. Starbucks began to develop when Howard Schultz took it over in 1987. His planwas to rebuild the Italian espresso bar experience in America and to make a personalrelationship between consumers and coffee. Within years, they grew from a small, regional business into the undisputed leader in the speciality coffee industry by buying only the bestquality coffee and providing an unmatched store experience(Stanley, 2002).“To inspire and nurture the human spirit one person, one cup, and oneneighbourhood at a time.”---Starbucks Mission Statement from their websiteEver since its establishment there has been a sharp growth in the company performance.According to their 2008 annual report, they have nearly 17,000 stores in 49 countries. Thisreport tries to explain the challenges in marketing luxury brands, the perspective of Starbucks as an affordable luxury, the plight of Starbucks in 2008 and an analysis of themeasures taken by Starbucks to retain their spot in the coffee retailing industry.
2.LUXURY BRANDS
Luxury is something that is a gratification of desire rather than a requirement. Soluxury brand is a symbol of recognition and status. Contrary to normal products, the demandfor a luxury product highly depends on the increased income of the customer; that is luxury product has a high income elasticity of demand(Ward, 2008). Creativity, craftsmanship,exactness, high quality and premium pricing are those features often associated with luxury brands. Thus, customers are provided with satisfaction as well as psychological benefits suchself esteem, prestige and a sense of high status. However, Danziger (2005) argues a changein perception in customers about the luxury brands in the past and the present. The author identifies old luxury was about the attributes, features and quality of the product and much of its appeal was derived from status and prestige while new luxury is about the experienceembodied on the goods and services they buy, not only on ownership or possession. This point to the importance of identifying and tackling challenges in marketing luxury brands.
 
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Liverpool Business SchoolMarketing Management
3.CHALLENGES IN MARKETING LUXURY BRANDS
The success of the business depends on the selection of the target market. Hence,segmentation and targeting becomes a major challenge for marketing luxury brands. Luxury products try to market themselves in the upper class, high income society as they are thecustomers who intend to differentiate themselves in the society (Stegemann, 2006).Conventional luxury products marketing have been forced to rethink about its targeting because of the increase in wealthy public, emergence of internet and other technologicalforces (Seringhaus, 2002). Luxury products are positioned as an esteemed product inMaslow’s hierarchy and so it has to deliver the requirements which possess a self-esteem,recognition and status. Marketing mix can be used to discuss the various challenges in themarketing of luxury brands:
Product:
Luxury product has got a central role in the marketing mix. It should differentiateitself from the competing products in its quality, legacy, integrity, price, and rareness. Theaura of luxury products is more appealing to the customers than its exclusiveness. Quality of the product comes from either the use of expensive raw materials or by the use of complicated and elongated processes. Legacy describes the privileged connection of the product with the past; relation to the history and tradition which lies far behind the craze of fashion. Even though a luxury product can boast all the above qualities, it still has to face thechallenges from fake brand names.
Price:
The pricing method of a luxury brand is entirely different from that of an ordinary brand. The main factor to be considered while pricing a luxury brand is the customers andwhat kind of price they can afford. The company need to decide their market should be nicheor broad in their pricing strategy. A Rolls Royce falls into a niche market with highlyrecognisable customers like the British Royal Family while an upper class Mercedes Benzfalls under a broader market as an affordable luxury to most of the high income customers.Another factor to be considered is the cost of the present products and brands in the market.High prices are derived in comparison with the products and services delivering similar functionalities. A major challenge to luxury brands is that they can never start or be part of a price war. Once the price is reduced so that anyone can afford, the product will become toocommon, the customers will lose confidence on that product. The product will not beconsidered as a luxury product from that point. However, in the opinion of Lei (2009), priceis the only constant characteristic of a luxury brand. Another challenge could be the use of flexible payment systems like credit cards, which gives the customers a higher buying power.
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