Starbucks, a Market Analysis
Starbucks is a major, world wide coffee retailer specializing in a variety of brands of blend coffee and iced beverages, among other related products. Within the market sector Starbucks exists stands several competing companies such as The Coffee Bean & Tea Leaf and Caribou Coffee. Each company shares similar strategies, appealing to a similar demographic, and hails themselves as the high-end of coffee-based shops/cafes. They also share a similar promise of quality ingredients and service. The difference is, while a company like Starbucks focuses on the behavior of consumers to market their product, a company like Caribou coffee relies on the taste and quality of their product, and The Coffee Bean & Tea Leaf rely on location and ease of access.
Starbucks was selected as the primary company to analyze due to its immense popularity and success over the last decade. It has become one of the most iconic symbols of coffee. A whole culture has developed from this famous chain. In the 1970’s, the first Starbucks opens. The origins of the name come from Herman Melville’s Moby Dick, about 19th century whaling industry.
Starbucks offers more than 6,500 self-operated and licensed stores in over 38 countries outside the U.S. And 10,924 stores in the U.S. (Starbucks Coffee Company, 2011, p. 1) . It all began in 1971 when the Starbucks Coffee Company formed a long-standing commitment to ethically sourcing and roasting high quality arabica beans and brewing top quality coffee. As of 2013, the company reached global recognition and has become the premier roaster and retailer of specialty coffee in the world. “Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup” (Starbucks Coffee Company, 2011, p. 1) Their stock market value as of 2013 is $51.64 billion with 2012 revenue of $13.29 billion.
Starbucks is apart of the restaurant industry with specialization in coffee, tea, and baked goods. Starbucks is what some consider a fast food franchise because drinks and food served there is made or ready-made and available within a short time period. Like other franchises of its kind, it focuses on specialty drinks and fast service. Although it faces stiff competition from other retailers like Dunkin Donuts and now McDonalds and Subway, they have managed to maintain a loyal and consistent customer base.
Their commitment to quality service and removal of GMO ingredients ensures customers they are getting more for their money when they buy from there. Along with fast service and a range of products, Starbucks offers what other fast food chains lack, free wifi, and an inviting atmosphere. In fact, most fast food chains try to promote a clean and inviting image when showcasing their stores. Like Subway and McDonalds, Starbucks has adopted a uniform look throughout all of their stores.
And like Subway, they have also offer franchising opportunities, although they do not offer if for everyone and are strict with who becomes a franchiser. All in all it is very difficult to remain popular in an ever-expanding market. The coffee drinking culture has increased and expanded with special interest in high-end coffee. People do not just want fast and tasty coffee, but also coffee that is healthy and comes from a sustainable and fair trade source. Like with all fast food chains, customers now want better ingredients from the food they buy and expect that in their fast food. Starbucks has maintained and set forth high standards for their food and drinks by eliminating high fructose corn syrup from most of their products and keeping GMO ingredients from their baked goods.
Marketing segmentation allows marketers to group and classify their customers as well as identify the specific needs for each group with higher accuracy (Weinstein & Weinstein, 2004, p. 12). Starbucks like Caribou Coffee and The Coffee Bean & Tea Leaf, has adapted several marketing strategies in order to gain and retain customer loyalty and satisfaction. One of the main marketing strategies a company like Starbucks employs is psychographic segmentation. Psychographic segmentation consists of dividing consumers from a market into groups based on social class, lifestyle, or personality characteristics (Mayo, 1977, p. 34). This kind of strategy allows for appropriate allocation of resources proper adjustment of marketing mix.
The primary segmentation criteria Starbucks uses is psychographic segmentation. The company targets customers based on their lifestyle choices, and attitudes concerning ‘fairtrade’ food (Yu & Fang, 2009, p. 1273-1285). The main group Starbucks advertises for is the “serious coffee drinker” or someone who prefers an upscale market coffee. Their intended age group is 40 and above, although most of their customers are 15 and above with concentration in young women. They also seek customers with income of $90,000 and above, although most of its customers make around $25,000 and above.
The way they attempt to advertise to this specific group is through commercials and other promotional material that demonstrate and reflect the quality of the coffee it serves. Starbucks makes sure to state their coffee is fair trade and their beliefs on fair trade as well as displaying its dedication to providing excellent customer service with fast and well crafted food items. New and holiday coffee blends that have words like “Dark Roast” or “Blonde” offers customers variety and brand appeal. Ingredients and roasting techniques are also listed on their website to offer customers ways to make it at home along with products they can buy and use at home.
Customers that prefer companies like Starbucks also want companies to show corporate social responsibility so Starbucks also seeks to develop products that demonstrate their socially conscious attitude. They include advertisements that talk directly to those consumers who are interested in changing the world, by providing how and where they’re coffee beans are sourced. This recent development began early this fall of 2013. “As the consumption of coffee increases and consumers are increasingly curious about the origins of their food, Starbucks is launching a campaign focused on the quality of its coffee beans and how and where they’re sourced ” (Morrison, 2013, p. 1).
Adding to focus on a target demographic, Starbucks also wants to appeal to everyone and does this by branding itself as a lifestyle brand and serving several products for the non-coffee drinker who still wish to be apart of the Starbucks’ social environment. Their Frappuccino blended beverages, teas, sandwiches, and baked goods offer options for just about anyone on any budget with expensive drinks and inexpensive items such as muffins or fruit. This STP strategy appears to be effective, including serious coffee drinkers, socially conscious coffee drinkers, and non-coffee drinkers by accommodating all their common needs through distinct and successful marketing positioning itself as a high price-high value brand.
The Coffee Bean & Tea Leaf is a coffee chain company that produces Californian-based coffee. Founded by 2 people, Mona and Herbert Hyman in September of 1963, it has many locations including internationally with main stores in San Francisco, Phoenix, Las Vegas, Honolulu and stores in east Asia, among others. Like Starbucks “Coffee Beans stores” have the option of being franchises. These franchises are typically found outside of California. Much of their success internationally has come from franchisers like Victor Sassoon who, from Singapore, expanded the company Coffee Bean & Tea Leaf’ throughout Southeast Asia including Singapore, Malaysia, Vietnam, and many more.
They want to appeal to wide demographic and accommodate the needs of current society in order to ensure more customers and maintain customer satisfaction that is why they offer Wi-Fi Internet access at virtually all company-owned stores and franchise stores similar to Starbucks. The company began installation of the Wi-Fi units in mid-2008 with wireless service offered as free and no requirement of registration or payment of any kind. They know what customers want, convenience, quality product, and ease of access.
That is also why a lot of their franchises are located in busy areas such as malls.This marketing strategy attracts customers in high volume through high visibility. Master franchising and high traffic areas help promote and successfully maintain their appeal. Although The Coffee Bean & Tea Leaf is not as successful as Starbucks, it still maintains a healthy sized customer base with effective marketing strategies.
Caribou Coffee shares several similarities to Starbucks. Like Starbucks and The Coffee Bean & Tea Leaf, Caribou Coffee Company offers franchising. It also sells its own products like whole bean coffee and ground coffee to supermarkets and grocery stores and a website where people can buy their products online. They also offer Keurig cups like Starbucks so people can brew their coffee at home with ease.
Caribou may not be no where near as popular as the previous two companies, but they are gaining customer loyalty through quality product and ease of access to their products. Their franchise model also allows for easier expansion in markets they would otherwise have a hard time advertising to. In order for them to expand even further, they need more investment on advertising and a more varied menu for non-coffee drinkers like Starbucks does.
In fact, Starbucks is the most successful of its niche market. Compared to other restaurants that specialize in coffee beverages, Starbucks stands alone as the most popular with the highest revenue. Even though their prices are among the highest for coffee beverages, customers continue to buy their products including in supermarkets and online. The successful marketing of Starbucks as a status item.
They also create high level of variety through consistent introduction of new flavors and products. Consumers prefer more variety and higher quality ingredients when they pay more for a product and with Starbucks offering those two things, it’s no wonder it has achieve such status in recent times. Does that mean it’s the perfect choice for everyone?
I personally would not purchase from this company on a consistent basis. I do however like that they offer free Wi-Fi and several non-coffee options but do not appreciate the high price for average tasting coffee. In fact most of the coffee is not organic and they still use high fructose corn syrup in some of their mixes. Although they are showing more interest in revealing how their coffee is sourced and where they buy and grow their coffee, it doesn’t appeal to me as much as making my coffee at home with ingredients I know are organic.
I won’t lie and say I have not tried their products. I myself bought one of their coffee bags in my local supermarket. I purchased the blonde roast, which was alright, but did not taste as good as Dunkin Donuts coffee which is cheaper. I do like the brand in general and appreciate their prompt service and variety, but do not see the point in buying high end priced coffee if it does not taste high end. Ultimately I’m not a serious coffee drinker and even if I was, I would probably just buy gourmet coffee from a company I know represents what I want, organic, fair trade, and fair priced.
In conclusion the primary segmentation criteria used by Starbucks is psychographic segmentation, focusing on customers based on their lifestyle choices and attitudes as well as their income. This however should also be modified to include marketing strategies that involve appealing to a lower budget and people who want organic, all natural products. A lot of their products are still not chemical free with the majority of their coffees not certified organic. With a growing sector in the market who demands chemical free, organic products, Starbucks could definitely benefit from this move.
They took steps towards this kind of mentality but revealing sourcing and location information for their coffee and listing the ingredients of the products. The future of coffee and coffee shops like Starbucks looks bright with more and more people looking to drink coffee-based beverages. Creating adverts and promotional material geared towards the growing trend of organic will invite an increase in loyal customers and reduce brand switching by offering a wide variety of products and special, organic coffees regularly. Starbucks’ marketing strategy continues to be its primary means of success within a highly competitive industry.
Along with the organic trend, social responsibility appears to also be on its way to becoming a necessary addition to any successful marketing strategy. Starbucks already has a mainly positive image with most of its consumers. Going into the future, it is important that Starbucks positions its brand as an experience that not only offers quality products, but also a reasonable price if desired, and ethically and socially responsible products that promote organic farming and reduction of harmful chemicals so as to entice new customers.
Mayo, E.J. (1977). The impact of the consumer’s psychographic and demographic characteristics on buyer behavior: A comparative analysis of psychographics and demographics as segmentation variables in a rail passenger market. Ann Arbor, Mich: Xerox University Microfilms.
Morrison, M. (2013, September 20). Starbucks Launches Campaign Focused on Bean Quality | News – Advertising Age. Retrieved from http://adage.com/article/news/starbucks-launches-campaign-focused-bean-quality/244263/
Starbucks Coffee Company (2011). Starbucks Company Profile. Retrieved from http://globalassets.starbucks.com/assets/F62C45CD8A8B4699BEFC60A2618F0431.pdf
Weinstein, A., & Weinstein, A. (2004). Handbook of market segmentation: Strategic targeting for business and technology firms. New York: Haworth Press.
Yu, H., & Fang, W. (2009). Relative impacts from product quality, service quality, and experience quality on customer perceived value and intention to shop for the coffee shop market. Total Quality Management & Business Excellence, 20(11), 1273-1285. doi:10.1080/14783360802351587
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