StarbucksTATAAllianceMarketingStrategy

ByMartinaKancheva
UniversityofBath

AccordingtotheHarvardBusinessSchool,afterStarbucksfirstenteredoneofthemosttea
lovingcountries(England)in1998,teasalesfellevenascoffeesalesroserapidly.By2008,
annualsalesofcoffeeinBritainhadexceededsalesoftea.India,whereStarbucksplansto
penetratethisyear,isalsonotahabitualcoffeedrinkingnation.Thecurrentpaperaimsto
proposeastrategyforenteringtheIndianmarketwhilethetakingintoaccountlocaltastes
andlifestyle.

The analysis begin with an overview of the Indian Coffee Retail Market; continues with
examiningthestrengthsoftheStarbucksbrandandthebenefitsofajointventurewiththe
India's largest coffee producer and exporter. The report will finally propose the most
effectivemarketingstrategyforStarbuckstoentertheIndiancoffeeindustryandgetapiece
ofthe'marketpie'.

1.SituationAnalysisoftheIndianCoffeeRetailMarket

As coffee shops may be nearing saturation point in the US and Europe, Starbucks has
identified the potential to expand in emerging markets like China and India. The coffee
industryisexpectedtocontinuegrowingthroughatleasttheyear2015andevenlongerin
emergingmarkets(Lingle2007).

As there no framework that provides a full

picture of the dynamics within a particular
market, a more holistic approach will be
adopted. Economic, Legal and Sociocultural
factorswillbeexaminedfromaPESTELanalysis
and the Power of Suppliers, the Threat of
CompetitorsandtheThreatofSubstitutesfrom
thePorterFiveModel.
Picture1:PortersFiveForcesModel
1.1.EconomicFactors

TheIndianeconomywillexpandanestimated6.5percentthisyear,thefastestpaceamong
developingAsianeconomiesexcludingChina,accordingtoJanuaryestimatesfromtheWorld
Bank (Agrawal and Sharma, Bloomberg 2012). TheReserve Bankof India projects seven
percent growth for the twelve months ending March. As sales contribution in the US has
declinedinthepastdecadetolessthan70%inthelastfiscalyear,Starbucksisexpandingin
fastdevelopingmarketslikeChinaandIndia.

India is one of the emerging markets throughout the world that is becoming a spending
orientedcountry.ThepersonaldisposableincomepercapitainIndiahasdoubledbetween
200001 and 200910 resulting in improved purchasing power (Deloitte 2011). Thus, its
upperandmiddleclassesaremoreabletospendmoneyoncoffee,beveragesandfoodin
coffeehousesthatmightnothavebeenthoughofasanecessityinthepast.

1.2.LegalFactors

Indias government on January the 10th raised the ownership limit to 100% for foreign
retailers selling a single brand, a decision benefiting companies including Starbucks
(Passport,Euromonitor2011).However,StarbucksandTATAwillpossessequalsharesinthe
ventureasbothcompanieswillbothbenefitfromsuchanalliance.

1.3.SocioCulturalFactors

Indiaisatraditionalteadrinkingnation(Vasudha2011,pp.2)whichisprovenbythefact
that69.9%ofthehotdrinksmarketisdominatedbytheteaindustry(Figure1).


Figure1.IndiaHotDrinksMarketSegmentation

EventhoughinIndiateawasthecommonbeveragefortheupperandmiddleclasses,now
coffeeisbecomingastatementofwealthandprosperityamongthetraditionalsectorofthe
Indian population, i.e. people more resistant to changes (aged above 30) (Bose, Reuters
2012).Thisphenomenonmightbeexplainedbythefactthatasmoreandmoreeconomies
head towards industrialization, those economies also begin to be influenced by
westernization.

Westernization is also easily adopted by the younger generation in India (1825 years).
Researchshowsthat72%ofcoffeeshopscustomersarestudentsandyoungprofessionals
(Euromonitor 2011). The popularity of specialist coffee shops among youths as a place to
socialiseregistered18%growthin2010;withaveragetimespentonatablehigherthatin
other countries. Spending capacity of youth of India is increasing, as well as their brand
consciousness.60%ofIndiaspopulationisbelowtheageof30leadingtopopularizationof
brandsandproducts(Deloitte2011).

As illustrated above, there is a market potential subject to dual economies, i.e. targeting
boththemodernsector(youths)andthetraditionalsector(nationalisticindividualsresistant
tochanges)(Nuttall2011).

Intheprocessassessingthegrowthopportunitiesinthespecialtycoffeeindustry,onemust
alsoexaminethecompetitivelandscape.

1.4.BargainingPowerofSuppliers

Themajorthreatinthespecialtycoffeeindustryisthepowerthatsuppliershaveoverthe
priceofcoffee.Arabicacoffeepricessoared77%in2010whichcausedconcernstocoffee
retailers (Murphy 2011). Arabica coffee is one of the most sold brands of coffee in the
specialtycoffeeindustry.Withpricesforthattypeofcoffeeskyrocketing,ithurtthebottom
lineofcompetitors,especiallythosethatthriveonalowcoststrategy.However,Starbucks
strategy can be regarded as charging premium price for premium product; and it is
supplyingcoffeeformtheirpartner,sothepowerofsupplierscanberegardedasweak.

1.5.CompetitiveRivalrywithintheIndustry

The second threat is from specialty coffee competitors that Starbucks will face when it
enters the Indian market. Wellestablished coffee shops chains, such as Caf Coffee Day
(CCD)andBarista,enhancedtheirpanIndiapresencein2011.In2010,CCDandBaristahad
970and200stores,respectively,andtheyaimtocontinueexpandinginthenextfewyears
(Datamonitor2010).Meanwhile,severalrelativelynewplayers,suchasCostaCoffee,Coffee
Bean, Gloria Jeans and Java Coffee, are trying to get a piece of the pie in Indian coffee
retailing.Boththesefactorsdroveontradeconsumptionoffreshcoffeebeansin2010,with
volumesgrowingby12%(Datamonitor2010).Ontradesaleshaveemergedastheprimary
sales channel for fresh coffee beans, in the absence of any substantial offtrade
consumption.However,thepopularopinionwasthatwithonlyabout1500cafestheINR
20billionmarketprovidedenoughroomforgrowthandcouldaccommodatemoreplayers.
(Vasudha 2011) Even that major players started expanding, there is potential for further
growthintheIndianCoffeeRetailMarket.

1.6.ThreatofSubstituteProducts

A third relevant threat in the case of Starbucks entering India is the threat of substitute
goods. For instance, consumers may opt to reduce their caffeine intake due to health
concerns,whichwillinfluencecoffeeconsumptionsomewhat.Insuchcase,herbalteaand
functional drinks can be potential substitutes. However, considering the increased
consumption of coffee in recent years, it is unlikely that such substitution would
substantiallyimpactuponsales.Overall,thethreatofsubstitutesintheIndiancoffeemarket
mightbeconsideredasmoderate.

2.Starbucks

ThissectionaimstoexaminethestrengthsoftheStarbucksbrandandcriticallyevaluatethe
rationalebehindtheiralliancewithTATA.

2.1.SWOTAnalysis

SWOT analysis will be used to evaluate Starbuckss Strengths, Weaknesses, Opportunities

andThreats.

Strengths

Weaknesses

Leading retailer and roaster for brand

High pricing which not everyone can

specialtycoffeeintheworld;

afford;

Brand image with the motto The

Starbucksrefusestoguaranteethatmilk,

StarbucksExperience;

beverages, chocolate, ice cream, and

17000storesacross57countries;1500

bakedgoodssoldinthecompanysstores

inChinaalone;

are

Strongbalancesheet;

ingredients;

One of the strongest franchises in the

FocusedmoreonUSdomesticmarket;

world with more than 6 500 licenses

Starbucks Workers Union was made

free

of

geneticallymodified

shopsintheworld;

because some employees complain

Starbucksisknownforprovidingsuperior

about the management style within the

productsandservices;

company;

Have loyal customers in every country

NoexperienceincountrieslikeIndia.

thathasentered;

Sophisticated

atmosphere,

music,

interiordesignandartwork;

Havealotofflavoursvariation;

Limitednumberofstrongcompetitors;

Highmarketshareandmarketgrowth.
Opportunities

Threats

Highconsumerisminemergingmarkets;

Easier to penetrate market because

less on good that are not regarded as

Starbucks is selling as experience, not

necessities;

justasimpleproduct;

Many of Starbucks coffee are using

organicbeans;

Globalfinancialcrisismadepeoplespend

Increasinghealthconcernofthenegative
effectofcoffee;

Starbucks domination is driving small

SomeofStarbuckssbeansareharvested

cafesoutofthebusiness;

in Indonesia island of Sumatra and

Threat of substitute products in cultures

Sulawesi. Starbucks are purchasing at

where there is a strong preference for

premium prices to support local

tea,

community and sustainable production.

like

China,

India

and

UK.

Starbuckspaysanaveragepriceof$1.20
per pound against the commodity
averagepriceof$0.400.50perpound;

FairTradeProductscanbeoffered.

Table1:StarbucksSWOTAnalysis

AfterexaminingthestrengthoftheStarbuckscompany,oneshouldexaminethestrengths
ofthejointventurethatStarbuckswillenterwithTATAGlobalBeveragesGroup.

2.2.TheJointVenturewithTata

StarbucksenteringintotheIndianmarketwillbeintheformof50/50jointventurewiththe
TATA Global Beverages Group. Share prices of both companies soared following the
announcement of the pact. (Vasudha 2011, pp. 10) This is the first time Starbucks is
enteringthemarketwithalocalpartnerandwillbecobrandingtheirstoresandproducts
with their counterpart. The Indian outlets will be called Starbucks TATA Alliance. The
partnershipwillenableanexpandedrangeofbeverageofferingsforIndianconsumers.One
of these being the Starbuckss premium tea product Tazo that will be available in Indian
outletsrenamedasTATATazoTea.

Themajoradvantageofthealliancewillbethattheknowledgeandunderstandingofthe
Indianmarketcanbebroughtby TATAGlobalBeverages.(Vasudha2011,pp.10)Entering
intoastrategicpactwiththeworldslargestintegratedcoffeeplantationcompanyshould
enable Starbucks to ensure sustainable profit growth in India. Also, TATA Tea is the tea
market leader with 18.4% share. Starbucks will also benefit from TATAs experience in the
Indianmarketregardingdifferenttastesindifferentregions;thusmakingsureitoffersthe
mostpreferableblendofbothteaandcoffeetocustomers.

Apartfromproductandlocalpreferencesknowledge,StarbuckswillbenefitfromTATA
Globalsinfrastructure.InIndia,thereisthechallengeofbalancinghigherrentalsand
profitabilitygiventhelackofinfrastructureinIndiaalongwithinflatingrealestateprices.
StarbucksisastepaheadofcompetitorsduetotheiralliancewithTATAGlobalGroup.TATA
hasalocalknowledgeontherealestatemarketandtheyhaveopportunitiestoleverage
theircapabilitiesinthisarea.StarbuckswillbeabletouseTATAscurrentinfrastructureto
effectivelygrowthebusiness.

TATAGroupwillalsobenefitfromthepact.TATAsexperienceinretailingisnotsufficientto
openacoffeeretailshopontheirown;so,byenteringinsuchalliancetheywillgainavast
amountofknowledge.Also,TATAGlobalBeveragesproducesbottledHimalayanwater
whichmightbeofferedinStarbucksstoresaroundtheworld.

Starbucks should also consider the possible disadvantages of such joint venture. After
gainingenoughknowledgeinretailingindustryandknowingtheIndianmarketbetter,TATA
mightdecidetocompetewithStarbucksinsteadofworkingwiththem.Inaddition,potential
conflict might occur regarding the strategy of the alliance and how it should be managed.
Suchjointventuresmightalsoaccruesignificantcostsofcontrolandcoordination;andon
topofthat,profitissharedwithapartner.

3.MarketingStrategy

TheHarvardBusinessSchoolFramework(Figure2)(Comrie2012)willbeusedasamodelto
explainthemarketingstrategyinthecurrentproposal.

Figure2.HarvardBusinessSchoolFramework

ThemarketinganalysiswasconductedinSection1.

3.1.CaptureValue

In this section, tools and techniques will be used to explain how Starbucks can create and
capturevaluefortheirproducts.

3.1.1.MarketSegmentation

Apartfromthedemographiccharacteristicspresentedinpartoneoftheanalysis,marketers
should also consider psychographic variables such as interests and lifestyles. In general,
IndiascoffeeculturehaschangedthewayyoungIndianssocialise.Inacountrywherethere
isalimitedbarculture,andwheredrinkingalcoholisstillnotallowedinmanycircles,ithas
provided an acceptable and safe outlet for people, particularly young Indians, to share a
drink(Vaidyananthan,BBC2012).

As mentioned earlier, coffee is becoming a statement of wealth and prosperity among

peoplewithhighdisposalincome,i.e.individualsinemployment.

3.1.2.TargetMarketSelection

Themarketingstrategywillfocusontargetingbothgroupscollegeanduniversitystudents
(aged1825)intheshorttermandworkingprofessionals(2540)inthemediumtolongrun.
Also,touristandfrequentflyerswillbeatargetaudienceinthelongrun.

3.1.3.ProductandServicePositioning

It is essential to have a unique selling point to position Starbucks above competitors

(Pickton 2005). In TATAStarbucks customers will be able to rely on genuine service, an
invitingatmosphereandasuperbcupofpremiumcoffeeorteaeverytime.

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3.2.SetMarketingObjectives

In order to make the marketing communications objectives as comprehensive as possible,

the SMART approach has been used, to ensure the objectives are specific, measurable,
achievable,realistic,timedandtargeted:

The proposed strategy provides a plan for TATAStarbucks to open 50 stores by the end of
2012inmajormetrocitiesandsecondtiertownsofferingpremiumcoffeeexperiencetothe
primarytargetgroupofstudents(aged1825)andworkingprofessionals(aged2540).

3.3.MarketingMix(4Ps)

ThemarketingmixwillbeexaminedtodetermineStarbucksTATAuniquesellingpoints,i.e.
theuniquequalitiesthatwilldifferentiatetheirproductsandservicesfromthoseof
competitors.

3.3.1.Product

AnilDharker(2012),aMumbiancolumnistandsocialcommentatorinIndia,pointsoutthat
whenaforeignplayerseesacommercialopportunityandentersthenewmarket;andthen
itadaptsgivingMcDonaldsasanexample(Vaidyanathan,BBC2012).However,thisshould
notbethecaseandStarbucksshouldhaveaclearstrategyabouttheirproductrange(both
drinksandfood)itisgoingtoofferpriorenteringtheIndianmarket.CostaCoffeeShopsin
India, for instance, offers products like Apple Pie Latte, Latte Caramellato, Coconut Hot
Chocolate,etc.suitedforIndiantaste(CostaCoffeeIndiaonline2012).Therefore,Starbucks
should adapt their drinks in order to cater local preferences. Ice coffees should also be
includedinStarbuckssmenuasIndianshaveastrongpreferenceforthembecauseofhigh
temperaturesduringsummer.

However, one should not ignore the fact that India is a tea loving country even though
people prefer to consume tea at home because finding a perfect cup of chai outside is

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really tough," said Smiti Singh, a Bangalorebased software engineer, who drinks at least
four cups of tea a day (Madhok, Reuters 2012). TATA Tea (a unit of the softwaretosteel
TATAconglomerate)istheworldssecondlargestbrandedteacompany,sotheirpremium
teaproductsshouldbealsoofferedtocustomersapartformtheTazoTea.

ThebiggestdistinctionisnorthIndia'spreferenceforbread,meat,andchai(tea),compared
to the south's preference for rice, pulses, and coffee. Foodwise, paninis, sandwiches and
wrapswithmeatbutnotwithbeef.ThecowisconsideredsacredbymostHindusandhence
beef is considered taboo in the majority of Indian states. Predominant food option in the
southshouldbethebistroboxeswithriceandpulses.

3.3.2.Place

The first Starbucks locations are scheduled to open in August in New Delhi and Mumbai.
TATA Starbucks might consider the option of opening on the 15th of August, Indias
IndependenceDay.StarbucksTATApartnershipisexpectedtoopen50storesinthecountry
by the end of 2012. Starbucks also plan to explore the retail properties of Croma, Star
Bazaar, Trent and Indian Hotels belonging to the TATA Group to open stores and also to
rope in another franchisee for standalone cafes in the future. (Vasudha 2011) This is an
efficientwayoftargetingindividualsonbusinesstripsinNewDelhi,forinstance,whoprefer
to go to a place which is familiar for a cup of coffee; or tourists, who do not want to
experiencethelocalculture.Asaninternationalbrand,Starbucksshouldalsoopenkiosksat
airports; thus, not depending solely on Indian tastes and preferences as airports are
occupiedwithpeoplefromallovertheworld,whowillrecognisetheStarbuckslogo.

In Mumbai (most populous city in India) Starbucks should position the stores mainly in
shopping centres, cinemas, near universities or cultural venues as it is commercial and
entertainmentcapitalofIndia.

Coffeeshopsnormallyclosearoundelevenoclockatnight,soStarbucksshouldconsiderthe
option of closing at midnight or even one oclock in the morning; thus, becoming the

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preferredvenueforyoungpeople.Also,providingsomeguitarforjamsessionsorkaraoke
nightsonFridayorSaturdaymayattractevenmorepeople.

Ascoffeechainsareseenasplacestosocialiseandpeopleaged2540willbealsoatarget
group of the Indian population, Starbucks may consider opening a new type of Starbucks
coffee called Starbucks Lounge, for example. The atmosphere in the lounges will be more
relaxedandtheinteriormoreexpensive;thuswealthyindividualswillbeabletoshowtheir
class.

Ingeneral,expertsfeltthatlargestcafchainsinIndialikeCCD,BaristaCoffeeandQwikys
are targeting the same locations, mainly the large cities. Geographical expansion has huge
possibilities as cities are not saturated and the market is not limiting at all. Therefore,
StarbucksTATA should aim to gain competitive advantage in smaller cities as well in the
medium to long rum as people there are more likely to be brandloyal as opposed to
customersincosmopolitancities.

3.3.3.Promotion

PromotionalactivitieswillnotbeanalysedindetailsastheyshouldbeinlinewithStarbucks
promotions worldwide. Besides, retailers in India rely heavily on wordofmouth (personal
communication).TheStarbucksCardwillbeintroducedaconvenientwaytopayforyour
drinksandearnrewardsforyourpurchase.Furthermore,instorepromotionsaccompanied
bynewproductssuchasdrinksandaccessoriessourcedfromtheregionsshouldbepresent
inIndiaaswell(Vasudha2011).

Even though it is highly unlikely for a coffee chain in India to advertise on TV, Starbucks
mightconsiderthatidea.IntheUS,therearethreeplacesthattheaverageAmericanspend
his time during weekdays at home, in the work place and in Starbucks. So, they should
somehowshowthewesternlifestyletotheIndianandaTVadvertisementatthedayofthe
launchshoulddothejob.

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Furthermore, it is the first 50/50 joint venture for Starbucks; so, both Starbucks and TATA
Groupwillbenefitfromcomarketingactivities.

3.3.4.Price

Historically Starbucks has retained it US pricing model in almost every market they have
entered, but should they follow the same pattern in India? Starbucks should adopt their
pricingbasedonthedemandformtheIndianconsumer.AfteranalysinganalysedtheIndian
market for hot drinks and the price elasticity of products, probably the prices of products
shouldbeatleast30%lowerthanintheUS.

Conclusion

If Starbucks can adapt to the peculiarities of the Indian market, coffee may soon become
manyIndianscupoftea.

Based on the analysis presented above, the current proposal contradicts Levitts
globalisationtheorysuggestingthatcompaniesmustlearntooperateasiftheworldwere
onelargemarketignoringsuperficialregionalandnationaldifferences.(Levitt1983,pp.
92)InIndiaF&Bandretailtypicallyisveryclosetolocalcultureandtaste(Vasudha2011);
thus, the so adaptation or glocalisation strategy should be adopted (Robertson 1994).
Glocalisation will serve as a mean of combining the successful Starbucks strategy in
providingtheemotionalneedsaroundtheworld(Vasudha2011)whiletakingintoaccount
localtastes.

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