An analysis of the marketing strategies of Starbucks in Malaysia

Author: Iloka Benneth Chiemelie

Published: 2nd of April 2014

1.0 INTRODUCTION

Marketing management is fast becoming an integral part of the business process and this is based on the understanding that marketing involves the adoption of necessary strategies required to ensure that the value of any given product or services are communicated to customers and as such make these customers persuaded to go for these product. The way a company positions itself is without a doubt important as it can be the link between the company’s failure and success. There are numerous cases of success in which marketing has been accounted responsible for the company’s growth and this is based on the underlying fact that since the value of any business is centred on offering its services for success and making profits from such sales, then the business are expected to adopt necessary strategy towards ensuring that such approach becomes a success in the organizational setting.

On that account, it can easily be seen that marketing is an integral part of any business process and this accounts for the need for companies to align their productivity with what is actually demanded in the market in order to ensure that they are capable of meeting these demands. The benefit of meeting the demands of customers comes with high notes to the company as accounts recorded in this view have linked such with increased growth and profitability. This is because when the needs of customers are well meet, they will be loyal to the company and the end product is that their repurchase intention will increase, as well their recommendation for the services or products offered by this company. As such, it can be seen that meeting the needs of customers have a direct influence on the profitability of a company.

The need to offer customers what they want is most significant in the fast food industry. This has been heavily influenced by the increase in globalization and internationalization of firms, which has make the market very competitive by giving customers more quality at reduced price. Pricing is basically the main factor that is used for competition in this market, as it is a measure of what customers can obtain and for how long they can be able to obtain that. The implication now becomes that a customer who is able to obtain higher brands today might not be well positioned to do so tomorrow because of some economic reasons.

On that account, this paper is designed to understanding the marketing strategies of Starbucks, by illustrating how the company has been able to adopt the marketing mix is creating a higher ground for competition of its brand in Malaysia and other countries that they maintain presence in.

2.0 ABOUT STARBUCKS

The story of Starbucks began in 1971. Back then, the company was a roaster and retailer of ground coffee and whole bean, tea and spices and had only one store in the Seattle’s Pike Place Market.  But currently, the company offers its products to millions of customer in 60 countries with its 18,000 retail stores.

The first make in Herman Melville’s Moby Dick is where the name Starbucks was coined from. The company’s logo is also an inspiration from the sea, which features a twin-tailed siren from ancient Greek Mythology. Its mission is to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

Starbucks offers a range of products that customers can enjoy at their stores, at home or on the go. These products include: coffee – with more than 30 blends and single source of premium coffee, homemade beverages - Fresh‐brewed coffee, hot and iced espresso beverages, Frappuccino® coffee and non-coffee blended beverages, smoothies and Tazo® teas, and merchandize, free beverages and foods and other consumer products. In 2011, Starbucks recorded its highest revenue ever with $11.7 billion annual revenue generated. The company’s corporate store also grew by 8% and it is one of the reasons behind the massive revenue generated.

3.0 THE IMPLEMENTATION OF MARKETING MIX IN STARBUCKS

The marketing concept of 4Ps was formulated by McCarthy in 1975. The 4Ps is an element used to represent products, prices, promotion and place in the marketing mix. For over decades, these elements have been adopted as the root from which marketing plans are developed. In any case, with recent attention offered to service marketing in recent years, theorists have developed extra Ps to the basic concept. Fifield and Gilligan (1996) are the authors who recognized the need to include over variables – process, physical, and people to form the 7Ps of service marketing –, but only the initial 4Ps will be used to illustrate how marketing mix stimuli in Starbucks influence cognitive process, affective and behavioural response of customers as the company deals more on products rather than services. These 7Ps are:

1.      Product – features, quality and quantity

2.      Place – the location where the products are sold, number of outlets.

3.      Price – strategy, determinants, levels.

4.      Promotion – advertisement, sales promotion, public relations

5.      People – quantity, quality, training, promotion.

6.      Process – principles, automation, control measures.

7.      Physical- cleanliness, décor, ambience of the service

3.1 Product mix

Florence (2013) stated that one of the main corporate objectives of Starbucks is to create standard taste, irrespective of the country or location where they operate in. The company is of the view that while standardization is essential for reducing operation cost, adapting to the local environment they operate in is important for business success. As such, there concept of “Its mission is to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.” has been the founding principle of business management in Starbucks.

Although Starbucks offers the same blend of coffee in terms of ingredients and taste standards across the world, their products are designed to feature the culture, cuisine and customs of the market they operate in (Florence 2013). Thus, this is why the coffee shop is still the most preferred across countrie.

These examples are how the company has designed its business strategy to focus on the local needs of its market, instead of adopting an international menu. By focusing on the local needs, the company is communicative a cognitive mind of value which the customers no matter where they might be across the globe will use in processing their purchase decision. As the company offers beverages and foods that are locally made, the customer value is increased in the sense that customer can be sure of having meals that meet their local taste. In that case, the affective behaviour is increased and this led to increase in customer loyalty and repurchase decision. When customers travel abroad as well, there might be a sense of cognition that Starbucks is the place to be – for tasking quality coffee internationally – as this is the value the company constantly communicate to its customer.

For instance, the sells locally made white coffee in Malaysia, while they sell the pure black coffee in Brazil. The snacks are also different and tailored to the market’s taste with local Malaysian ingredients used in Malaysian restaurants and the local ingredients of other countries used in their respective outlets in those countries.

3.2 Place

Currently, Starbucks has 18,000 restaurant outlets in 60 countries across the globe (Florence 2013). The company still continues its focus on management of capital, which is an illustration of its effective, prudent and strategic expansion. The increase potential for growth in the international market has been learned from its operation in the USA. This strategy has created a benchmarking gap between the company and its competitors. However, there is a need to understand the importance of looking back and using the past experience to build on even more lucrative restaurants.

Such local and global presence of the company is used in communicating the message of availability. While the company is focused on business expansion as a means of increasing profitability, the expansion process is communicating to the market that Starbucks is easily available and accessible. As such, the customers can be assured that no matter where they might be, there is always a chance of having Starbucks around. This form of marketing communication enhances the cognitive processing in the sense that customers can easily visualize Starbucks whenever they fell like going out to have some meals as the company is communicating that they can easily be found around their homes. In that case, it increases the affective behaviour with a strong mental image of accessibility and availability. In some of their outlets, Starbucks function 24/7 and this further enhances convenience on the customer’s side. As such, it can be seen that the company has been successful in enhancing positive behaviour and attitude towards its brand. Starbucks is readily available in most of the major shopping malls and airports in Malaysia, as well as side corners across certain residential areas in the country and this makes them highly accessible.

3.3 Pricing

Florence(2013) also stated that the company has realized that notwithstanding its cost saving approach that is inbuilt its standardization process, success can only be obtainable by being able to adapt to economic conditions in the different markets they maintain business operations in. This is actually what is happening with the company’s implementation of its pricing strategy which is focused on localization instead of globalization. This is also in line with the company’s business model of think global and act locally.

For each country, there is rigorous pricing concepts that can be used to determine the right price for such market. These processes have been described by Vignali et al. (1999) as:

1.      Selecting price objectives;

2.      Determining demand;

3.      Estimating cost;

4.      Analysing competitor’s cost, prices and offer;

5.      Selecting appropriate pricing method; and

6.      Selecting the definitive price.

The above processes are the framework which the company uses in designing prices for its products across countries. The overall pricing objectives of Starbucks  is to increase market share in each of the countries it operate in and this is the barometer used in setting prices for each of these market (Florence 2013).

Such an approach whereby the company sets price according to market value is the best option. This is because, there are variations in earnings across the globe, and standardizing the pricing process wills an ineffective measure. For instance in the USA, the pay for 1 hours could be $5, and the same amount could be the pay for 3 hours in Malaysia or 6 hours in the Philippines, and even higher in some of the developing world. Therefore, while the US employ can afford to spend $5 on a meal, this might be possible in the countries where the pay is actually lower.

In view of that, Starbucks is communicating value per price by adopting a localized pricing option. This is because, the international customers will perceive high value for the products offered in relation to the American market, but will be paying a lot cheaper for the same quality. Overall, this will increase their affective behaviour towards the brand and offer them numerous reasons to choose Starbucks over its competitor. As such, it can be stated that it is significant to note that the company has been adopting numerous localized strategies in relation to the marketing mix discusses, and the reason behind such is to increase brand loyalty and subsequently increase their global market share. The company also adopts pricing to communicate value in the sense that its high price is a representation of higher quality over other brands.

3.4 Promotion

The final context that will be discussed is the issue of how promotion influences cognitive, affective and behavioural attitudes of customers towards Starbuck. Promotion is also known as the marketing communications mix, and it was developed, who also stated that it comprises of five major tools as:

1.      Advertising;

2.      Direct marketing;

3.      Sales promotion;

4.      Public relation; and

5.      Personal selling (Kotler 1994).

By adopting these tools, Starbucks also localizes its marketing communications strategy, as the company seeks to meet the enormous demands of cultural and environmental differences that exist in the markets they operate in. It was Florence (2013) who stated that it would naïve of the company or any other company to ignore the fact that differences exists amongst markets in relation to culture and customers, as the ignorance or acknowledgement will have high influence of the performance of brands. Although the company focuses on promoting its corporate image global, it advertises its products by adopting the Maxim of “branding globally, advertising locally” (Sandler & Shani 1991) as it’s promotionally strategy.

For instance, in Starbucks  UK advertisement,  English footballer such as Alan Shearer are used as the company’s figurehead in promotion of its products, while the company also uses Fabien Barthez (the international goalkeeper of France) for its advertisement in France. In terms of setting, the environment of Starbucks in China features mostly big round tables which is a representation of communism in china – allowing customers to dine with their families, while the American setting is more of single and settings, which represents the American view of individualism.

Overall, the promotional strategy adopted in Starbucks is yielding the same effect as other marketing mix discussed above. The fact from this analysis can be stated that, the company has been able to develop the right approach towards strategically managing its operations across the globe by thinking globally and acting locally at the same time. The effects of such is that it provides customers with quality and positive information in which they can use for their cognitive processing and this will positively influence their affective behaviour. The reason for that is that customers will view Starbucks as respecting their values in terms of culture, customers and cuisines, as well as being caring by pricing their products to suite their economic condition in their country. In that case, the customers will be positively affective towards the brand and this is the main reason behind its global success.

4.0 RECOMMENDATION

From the above analysis, the implementation of 4Ps for gaining market advantage through the adoption of numerous strategies that better aligns the business objectives with the needs of the market in order to gain improved profitability by meeting the needs of customers have been illustrated with the case of Starbucks as a contained in this paper. From the above analysis, it was noted that the company has been able to position themselves in all markets they maintain presence in by adopting a number of strategies that best aligns their business activities with the needs of customers. For instance, the company locates its outlets in an easy to identify locations, makes the foods well-tailored with what is obtainable from their country of location, promotes their products vividly by adopting the signature of numerous celebrities in their markets to attract new customers and retain existing ones, and price their products based on the economic powers of the country they exist in.

However, the above analysis also shows that the company prices its products relatively higher than that of their competitors and this is based on their company’s idea of communicating value through higher prices. However, this strategy risks the company’s chances of success especially during period of economic downturn and it is based on the understanding that their competitor might be able to adopt price advantage as a competitive force by pricing their own products relatively lower, which will definitely shift the attention of customers and risk the company’s chances to retain existing customers or even to attract new ones. On that note, it is recommended that Starbucks should consider readjusting their pricing strategies as it would highlight their potential as power house in the industry and also present the image of high quality and low price to the customers, which will directly influence their performance positively.

5.0 CONCLUSION

Numerous researches have supported the idea that understanding the cognitive processing of customers’ in relation to how they influences their affective behaviour and purchase intention is very important (e.g. Peter & Olson, 1999; Van Osselaer & Alba, 2000; Van Osselaer & Janiszewski, 2001; Keller, 2003). The main reason provided by these researches for such claims is that cognitive processing is used by the customer to strategically position the brand in his or her mind. Additionally, the position a brand maintains in the mind of the market is very important because it directly influence their purchase decision. For instance, when a brand maintains the position of high quality at lower price, there are high chances of the brand being preferred over its competitors when it comes to purchasing products and services offered by this brand. There, the researchers claims are right and corporations must put more efforts in understanding the attributes customers use to associate there brand improve these attributes in cases where they are poor in order to ensure that they gain competitive advantage of their competing brands.

This is in line with practices that were found to be obtainable in Starbucks. Form the above discussion, it has been illustrated that the success of the company is not as a result of mare chance, but through the adoption of numerous strategies that include a well-integrated marketing mix which is centred on understanding what customers want and apply necessary strategies towards ensuring that such customer needs are meet. Basically, the notion presented from the above discussion is that the company is all about satisfying customers’ needs and they are willing to do whatever it take sot make sure that such becomes a success. A good example comes in the form of the company focusing their service offerings on their local marketing rather than their coveted cuisine which has been successful over the years.

As noted earlier in the discussion, it was stated that such a practice will be beneficial to the company who adopts it as it would lead to a subsequent increase in customer loyalty, which will increase their repurchase intention and as such increase the profitability of the business. This is because the sustainable growth established in the Starbucks venture can be accounted for their continued interest in satisfying customers’ need, which also resulted in their high level of profitability. In conclusion, it will then be stated that marketing is an integral part of any business success, but the factor behind such lies deeply in the company’s ability to understand what the customers want and provide such wants, and this can easily be visualized through the adoption of a clear marketing mix.                                           

REFERENCES

Fifield, P. & Gilligan, C. (1996), Strategic Marketing Management, Butterworth-Heinemann, Oxford.

Florence (2013), “Starbucks: International products branding analysis.” Available at: http://s3.amazonaws.com/files.posterous.com/temp-2010-11-24/yDHyFxeeagjtjBysIpgipGhvqDsEimgHdGAeifEwayAxAbIozmspJokbcynq/Starbucks_Product_Strategy_Review.pdf?AWSAccessKeyId=AKIAJFZAE65UYRT34AOQ&Expires=1364513514&Signature=sRl7FJaLIz4fscLDAIkalWC1DRM%3D [Accessed on: 29/03/2013].

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Van Osselaer, S.M.J. and Janiszewski, C. (2001), “Two ways of learning brand associations”, Journal of Consumer Research, Vol. 28 No. 2, pp. 202-23.