Management research project

Project proposal

Project proposed:
Recession Marketing Strategies: How the STARBUCKS able to sustain the down turn in
2008-09.

Description of project in brief:

During the economic down turn many organisations were in state of loosing the market share
and profit margins and were on the verge of bankruptcy. Even in the tough situations like
these some organisations sustained their market and profits because of their marketing
strategies. Study of these organisations will hep us in better understanding the marketing
importance during the recession. One of such company is “Starbucks Corp.”.

Objective of the Project:

The aim of the project is to evaluate the marketing strategies that have to be adopted during
the recession period and to study the marketing strategies adopted by of Starbucks Corp. to
sustain during the Recession.

Methodology:
The Methodology used in the research are descriptive analysis and statistical analysis based
on the secondary data.

Limitations of the study:

Since of Starbucks Corp. is not there in India this study has to be done in U.S context with
reference to the consumer behaviour in the country.
Availability of data is through secondary sources since direct contact with the organisation
for data is not possible.

Faculty guide name: Deepika M.G

A V N Rahul Varma
(09BS0000003)
Signature of the Student
Recession:

Recession is a normal part of the business cycle. It is the significant decline in activity across the
economy, lasting longer than a few months. It is visible in industrial production, employment, real
income and wholesale-retail trade. As a result of such a wide-spread global recession, the economies
of virtually all the world's developed and developing nations suffered extreme set-backs and
numerous government policies were implemented to help prevent a similar future financial crisis.

In marketing the recession is a phenomenon of decreasing demand for raw materials, products, and
services. Recession requires marketing managers to modify their marketing strategy and action in
order to stay both profitable and consumer-responsive. This generally means adapting the marketing
mix and/or changing the target markets. The global recession of 2008-2009 brought a great amount of
attention to the marketing strategies used by many large and small firms to sustain in the market.

Recession Marketing:

To spend or not to spend on the marketing during the hard times is the major concern for the
organisations around the world. The general learning suggests that increasing marketing spend during
times of recession can produce long-term gains that more than compensate for the investment
required.

Companies that increase their marketing investment when most others are cutting back have an
opportunity to substantially improve the standing of their brands. The reason that marketing pays off
during a recession is that competition for customers’ attention is reduced. There likely are fewer
advertising and marketing programs, which mean less clutter and less need to create the all-too rare
home run marketing programs.

Competitors will be spending less. Further, competitors with new products or effective programs
might postpone their introduction or fail to fund them adequately. Competitors will have been thrown
off their rhythm. So, aggressive marketing strategies during the recession period will enhance the
sales of the organisation. Increasing the marketing investment will help the organisation to sustain
during down turn by short term and long term strategies.

The strategies like maximising the current value and potentially hurting brand equity and future value
is the short term strategy while chasing current value and also maintaining brand equity with current
prospects and activating latent equity with potential prospects, which may increase future value.

The organisations in order to sustain in the down turn should consider the Re-Alignment & Re-
packaging of products and Services, promote products people need, evaluate the pricing strategy,
recession pricing tactics, loyalty programs, loyalty tactics, evaluating the advertising and finding new
ways to advertise with the help of technology, finding the right talent, cost-cutting.

The organisations should know the consumers behaviour to whom they target and the changes that are
inevitable because of recession in their behaviour would help the organisation to re-position the brand
in the minds of customers. Even the customer loyalty programs will help great extent to retain the
customers and attract new customers.

To be successful during the down turn the organisations should focus on their competitors, their
brand, their customers and their communications.

Some examples of the marketing strategies

 During the Great Depression, Camel cigarettes and Chevrolet seized market share from rivals
with their aggressive advertising.
 At the same time, Kellogg beat Post.
 Sears stole the market from Wards during World War II.
 Revlon and Phillip Morris gained market share in the 1970s recession while Avon and
Hershey lost shares.
 Taco Bell and Pizza Hut took market share from McDonald's during the 2001 recession and
 Dell became a household name.

Starbucks Recession Marketing Strategies:

Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington,
United States. Starbucks is the largest coffeehouse company in the world, with 17,133 stores in 49
countries. Starbucks Entertainment division and Hear Music brand, the company also markets books,
music, and film. Many of the company's products are seasonal or specific to the locality of the store.
Starbucks-brand ice cream and coffee are also offered at grocery stores.

The company planned to open a net of 900 new stores outside of the United States in 2009, but has
announced 900 store closures in the United States since 2008.Starbucks has been a target of protests
on issues such as fair-trade policies, labour relations, environmental impact, political views, and anti-
competitive practices.

Some of the methods Starbucks has used to expand and maintain their dominant market position,
including buying out competitors' leases, intentionally operating at a loss, and clustering several
locations in a small geographical area. Starbucks' marketing strategy involves positioning the local
Starbucks outlet as a "third place" (besides home and work) to spend time. The service scape and the
service environment, creating the unique and relaxing “experience” and “atmosphere” for people has
been very important. Because the company realized that this is one of the strongest concepts attached
to the company, to which customers have been strongly attracted.

Howard Schultz in 2008 is appointed as new CEO of Starbucks. His was to realign the brand to its
core principles. The first visible step of change and realignment was a temporary closure of 7100
stores for three hours in the U.S in order to arrange a training programme for baristas to improve the
quality of the service. Starbucks recognized, that the motivation level of these key figures decreased,
which had an impact on the perceived service quality. Further the wide product range, including warm
breakfast sandwiches was contradictory to the coffee atmosphere and the unique Starbucks
experience. The agenda for sustaining the sales are

 Realign the customer relationship: In the past it’s appeared that the machines used broke the
relation between the barista and the customers, especially this relation was something hat
distinguishes Starbucks from an ordinary coffee chain. Therefore Schultz announces to
replace these machines with semi-automatic espresso machines in order to rebuild this
relationship.
 Reinvention of brewed in-store coffee: Starbucks is to introduce new blends of whole beans
and other coffee products such as the new Instant-coffee “VIA”.
 Reward Loyalty: reward loyal customers by the means of different free offers such as free
selected syrup and soymilk with a beverage purchase, free brewed coffee refills, free beverage
with whole bean purchase, etc. The aim of this programme is to monitor the consumption
behaviour and keep the customer loyal to the brand.
 Integrate customers: In order to show the importance of the individual´s contribution to the
brand. In particular this is demonstrated by the launch of mystarbucksidea.com
 Strengthen relationships: strengthen relationship with the suppliers to reduce the cost and
increase the profits.
 The new bundle of breakfast sandwiches and coffee, priced competitively to a McDonalds’
Value Meal.

The marketing strategy of Starbucks Corp., from instant coffee to new menu boards that leave off
drink prices, show how the company is adjusting its expansion strategy the economic downturn.

The market has changed and consumers are focusing on cost savings. Starbucks has long offered
affordable coffee beverages. Highlighting these options does not destroy the coffee experience.
Perhaps Starbucks could connect the two better in its advertising, such as having the CEO on
screen stating “we are all in this together, we are going to stand by you throughout your hectic
day with a hot coffee to stimulate America.”
References:

 http://web.ebscohost.com/ehost/detail?vid=5&hid=11&sid=8298e2d7-9b21-4c5f-9d6f-
af607ca09bce%40sessionmgr11&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d
 http://online.wsj.com/article/NA_WSJ_PUB:SB123723335325646025.html
 http://www.wiglafjournal.com/marketing/2009/04/is-starbucks-in-an-existential-
wilderness/
 http://www.wiglafjournal.com/marketing/2009/04/is-starbucks-in-an-existential-
wilderness/