CONTENTS

Title Page Number

1. INTRODUCTION 1

2. TARGETING 1

3. POSITIONING AND MARKETING MIX 2

3.1. PRODUCT 3

3.2. PRICE 3

3.3. DISTRIBUTION & SERVICE 3

3.4. PROMOTION 4

4. CONCLUSION 4
1. INTRODUCTION

The Starbucks Coffee, Tea, and Spice Company was founded in Seattle in
1971 by Jerry Baldwin, Gordon Bowker and Zev Siegl, with a vision to educate the
consumers about fine coffees. Starbucks began to expand when Howard Schultz
took it over in 1987. His plan was to re-create the Italian espresso bar experience in
America by making a personal relationship 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 best quality coffee and providing an
unmatched store experience (Stanley, 2002).

“To inspire and nurture the human spirit — one person, one cup, and one
neighbourhood at a time.”

---Starbucks Mission Statement from their website

Ever since its establishment there has been a sharp growth in the company
performance. According to their 2008 annual report (from Starbucks website), they
have nearly 17,000 stores in 49 countries. This report deals with the targeting and
positioning of Starbucks when it was launched and how decisions on marketing mix
supported that positioning.
2. TARGETING

Coffee consumption in the U.S. has been trending down since 1960’s (refer
case study). So Starbucks was extremely cautious in selecting its target markets. A
target market, according to Kotler and Armstrong (2004), consists of a set of buyers
who share common needs or characteristics that the company decides to serve. The
decision of selecting target segments can be assessed by looking at market factors,
competitive factors, and political, social, and environmental factors (Jobber, 1995).
Price, bargaining power of customers and suppliers and barriers to entry all comes
under the market factors, and in the case of Starbucks, their coffee was expensive
and they were trying to re-create a new coffee culture in America. Hence, they have
low barriers for entry. Since they were extremely careful in each step of coffee
making, they tried to maintain a long-standing relationship with their suppliers
(Stanley, 2002) and similarly they did not have any real competition threats.

Starbucks targeted office workers, with middle to high incomes, who had a
desire to purchase premium products. Schultz wanted Starbucks to become the
‘Third Place’, the place between home and work where people could gather, relax
and interact with one another (refer case study). So they were vigilant about their
quality control to meet the high expectations. Also they paid a great deal of attention
to the details of the store – everything from the layout, to the furniture, to the music
(ibid.). Moreover, they were in the ‘introduction’ stage in the product lifecycle.

Target marketing can be done in three different ways; undifferentiated,

differentiated and concentrated. Concentrated (or niche) marketing directs its efforts
towards a single market segment and creating and maintaining an exclusive strategy
for each segments (Dibb et al., 1994). Another approach to the market, known as
differentiated (or segmented) marketing, approach the mass market by designing
separate products and marketing programs for the different segments (Boyd &
Walker, 1990). In undifferentiated (or mass) marketing, the firm ignore market
segment differences and target the whole market with one strategy (Kotler &
Armstrong, 2004). When Starbucks launched, they used this undifferentiated
marketing strategy and they created and maintained the marketing mix considering
the market as a single segment. A major difficulty in using this targeting strategy is
developing the brand to satisfy all consumers (ibid.). Starbucks used their services
without compromise in quality for attaining this. Moreover, they were aggressive in
the market by opening 15 new stores in 1988; 20 in 1989; 30 in 1990; 31 in 1991;
and 53 in 1992 (refer case study).
3. POSITIONING AND MARKETING MIX

After deciding its target markets, the company must decide what position it
wants to occupy in their target market. A product’s position is the way the product is
defined by consumers on important attributes such as price, quality, competitor,
product class, application and so on(Kotler & Armstrong, 2004). Companies tried to
position their products in such a way as to distinguish themselves from the
competitors and give them the greatest strategic advantage in the target market. By
the time Schultz acquired Starbucks in 1987; transactional marketing was being
replaced by relationship marketing. Profit from retained long term customer
relationship became the key of marketing and business. Relationship marketing aims
at delight rather than satisfaction of customers. And Starbucks realised public
opinion, even though it takes longer to cultivate, when energised can help pull the
company into the market (Kotler, 1986). Fig. 1 shows the position of Starbucks on
the perceptual map.

High
Starbucks

Low High

Price

Quality Low

Fig. 1: Perceptual map (Adapted from Czinkota et al. (1997))

3.1. Product

Starbucks tried to position themselves as a premium product in the coffee

industry by creating a high standard, introducing innovative products and providing
excellent service. Schultz knew how perishable coffee was and they were so
fanatical about quality control, and hence they carefully monitored each and every
step of coffee production. They bought dark-roast, whole bean coffee from places
like Sumatra, Kenya, Ethiopia and Costa Rica; roasted them in their own plants; and
sold only through company-owned stores (refer case study). They used total quality
management (TQM) in which all company’s people are constantly involved in
improving the quality of products (Kanji, 1996). Usage of nonfat milk and introduction
of Frappuccino made a significant presence in the balance sheet of Starbucks.
Moreover, they provided seasonal offerings, such as strawberry and cream
Frappuccino in the summer and gingerbread latte in Christmas, were introduced.
Gradually food items such as cookies, pastries, sandwiches and salads made their
way into the stores (ibid.). Later they went on to develop new products with other
companies. This shows how cautious Starbucks was to keep their standard high and
maintain their premium quality image.

3.2. Price

The amount of money a buyer must give to the seller for a specific quantity of
the product is the price of that product and usually consumers use this as an
indicator of quality (Dalrymple & Parsons, 1986). Price and quality determines the
value of the product. When launched, Starbucks was expensive and was positioned
in accordance with that. They always tried to deliver the high value promised to the
consumers. They bought the quality beans, gave effective and efficient training to
staffs, and moreover, made an atmosphere to enjoy coffee, meet fellow people and
‘take a break’ from the busy life. These all justify their pricing and show how price
supported their positioning.
3.3. Distribution & Service

Distribution channels links the organisation’s product or service to its

consumers; and in a producer-consumer (direct supply) channel, as in the case of
Starbucks, maintaining a personnel relationship with the customers is significant
(Brassington & Pettitt, 2000). However, from a distribution point of view Starbucks
got an advantage by sticking on to its winning store location formula for its new
stores (refer case study). They always selected highly visible locations and opened
stores as clusters. As demand grew, these store clusters made them able to manage
the increased traffic and to keep their competitive position. In the same way, they
took care about the services provided in the stores. Howard Schultz aimed to unlock
the romance and mystery of coffee in coffee bars, and he knew how important the
role of baristas in achieving that. Baristas ability to engage the customers was the
heart of Starbucks experience. Starbucks invested heavily in training their staffs and
did innovative tactics to manage their human capital. Thus they differentiated
themselves in the market by constantly providing higher quality services.

3.4. Promotion

All marketing activities that attempt to stimulate buyer action or sales of a

product can be considered as promotion (Shimp, 1997). Starbucks used to organise
a big community event prior to the opening of its stores (refer case study). Artworks
were designed to boast each city’s personality, and it was used on commuter mugs
and T-shirts. They also recruited local ‘ambassadors’ from new partners and from
customers to promote their brand (ibid.). They didn’t use advertising but they used
those funds for acquiring key locations. Starbucks tried to establish a national
dominance before other speciality coffee bars comes into the picture.
 5. CONCLUSION

“We aren’t in the coffee business, serving people. We are in the people
business, serving coffee”

--- Howard Schultz (Serwer, 2004)

Starbucks claimed their leadership by focusing on a strategy of new products,

a stronger connection with customers as the Third Place and expanding store
locations in the United States and abroad (refer case study). They never
compromised on their quality and service standards and maintained their customer
relationships with utmost care. This report analysed the target markets and
positioning strategy of Starbucks while it was launched. Also, it shows how the
marketing mix variables (product, price, distribution and promotion) along with
services supported their positioning. Today, Starbucks is in cities all over America
and in 48 other countries. The level of success achieved by Starbucks holds some
important lessons and some much needed inspiration to the business world.
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