Critical analysis of Marketing Tools that can be used by Starbucks to evaluate its competitive marketing environment.
Wakib Ullah (MBA, BA, HND)
Chester Business School
Marketing is a process in which a desire for a product or service is developed through research and diagnostic tools. In order to establish a desire for products or services in the market, every organisation must develop strategies by using marketing tools (Dibb et al, 2012). Marketing tools allow organisations to analyse its competitive marketing environment and assist to gain competitive advantage (Kurtz, 2012). Baines et al (2011) say that ‘a marketing plan is the key output from the overall strategic marketing planning process’. The importance of using marketing tools in order to develop strategy that leads to successful marketing plan is undeniable. Starbucks is used as a model organisation below to demonstrate how diagnostic marketing tools can be utilized to evaluate competitive marketing environment.
The mission of Starbucks is to establish themselves as the premier purveyor of the finest coffee in the world while maintaining their uncompromising principles while they grow (Starbucks.com, 2014). It is easily understood from the mission point of view is that Starbucks is planning to gain the highest market share in the coffee industry. In order to gain highest market share, Starbucks will need to understand its competition. ‘Michael E. Porter identified five competitive forces that influence strategies in a model called Porter’s Five Forces’ (Kurtz, 2012). Porter’s Five Force theory delivers a framework ‘that enables organisations to analyse their industry in a way that takes competitors’ activities into account’ (FME, 2013). Kurtz (2012) also mentioned that, Porter’s Five Forces framework identifies five threats such as potential new entrants, bargaining power of buyers, substitute products, bargaining power of suppliers and rivalry among competitors.
Coffee industry has been here for a long time now. Organisations enter and depart in coffee industry all the time. Sandwich shops like Subway and Greggs are also providing premium coffees in an affordable price (Maitland, 2014). McDonald’s also entered into the market recently (Kurtz, 2012). Supermarkets have also started developing their own coffee brands. To understand the new entrants in coffee industry, it is mandatory to consider whether economies of scale are required or not. It requires a set up cost and continuous running costs for entering into coffee industry. New entrants may be restricted through government and regulatory policy (Baines et al, 2011). For example, oil and gas exploration companies are regulated strongly by government. If Starbucks was an oil company, they would have needed to think about the rules and regulations.
Baines et al (2011) described that, ‘in any industry, there are usually substitute products and services’. He also mentioned that many company fails to understand the threat from substitute products. It may become fatal in the near future. For example, Tea industry could be threat for coffee industry. There are also caffeine drink industry which is rising. These substitutes can become a possible threat for Starbucks. Consumers think about the switching costs, availability of the products and price-value comparison when they get attracted to substitute products (Kurtz, 2012). For example, if a consumer finds tea cheaper or caffeine drinks more valuable, it will be a disaster for Starbucks.
It is very important to analyse suppliers and their powers in order to understand how they can influence the industry. According to Starbucks.com (2014), its coffee beans are mainly supplied from Asia-Pacific region. They also get supply from Latin America and Africa. Baines et al (2011) says that ‘in an industry where there is a large number of suppliers, the buying company have the bargaining advantage’. As Starbucks does not rely on a single supplier, it has advantage over suppliers. Starbucks can focus more on the quality. It also allows Starbucks to gather raw material on a reasonable cost. If Starbucks didn’t have many suppliers, it would have faced ‘high switching costs, economic, resource, and time costs associated with using another suppliers’ (Baines et al, 2011).
Buyers play an integral role in any industry. According to Kurtz (2012), ‘if consumers have the opportunity to replace a company’s products with goods or services from a competing firm or industry, the companies marketers may have to find a new market, change prices or compete in other ways to maintain an advantage’. From Kurtz’s opinion about the buyers, it can easily be understood that buyers have immense bargaining power. To overcome this threat, most companies try to provide ‘after-sale service, product/service customisation’ (Baines et al, 2011). For example, Starbucks could provide extra services such as gifts, reward points and community service etc. in order to keep buyers happy.
Rivalry among existing competitors is extremely high in the coffee industry. Starbucks competes with major organisations such as Costa, McDonald’s, Dunkin Donuts and local shops. In order to achieve higher competitive advantage, Starbucks will need to differentiate its products from competitors. They can also improve their customer service efficiency. According to Kurtz (2012), McDonald’s is providing cheaper coffees to consumers. It will effect sales of Starbucks coffee. In order to win this barrier, Starbucks might need to use low price strategy.
To understand an organisation, it is essential to analyse internal environment (products, profits, marketing activity, staffs and capital etc.). If Starbucks doesn’t investigate its internal environment, it will be impossible to make effective marketing plan. According to Kurtz (2012), ‘marketers need some kind of portfolio performance framework’ to evaluate its strategic business units (SBU). He also agreed to ‘a widely used framework which was developed by the Boston Consulting Group (BCG)’. BCG Matrix allow businesses to maintain its portfolio by considering the relative market share position and industry market growth (Armstrong & Kotler, 2003). The BCG Matrix identifies 4 quadrants such as Question Marks, Stars, Cash Cows and Dogs based on the position of an organisation.
According to Kurtz (2012), ‘Stars represent units with high market shares in high-growth market’. Those businesses who are in this position generate considerable income. But ‘they often need heavy investments to finance their growth’ (Armstrong & Kotler, 2003). For example, Samsung Mobile will have to invest a lot money in order to keep their position in the market.
Cash cows are regarded as low growth but high share businesses (Armstrong & Kotler, 2003). In this position, organisation is the leader in the market but there is a very low growth in that particular industry. They will need to invest in a new industry to make more profit. For example, Google generates a lot of money from search engine but they invest a little amount of money in new product development such as Google Glass and etc.
‘Question Marks achieve low market shares in high-growth market’ (Kurtz, 2012). In this position, an organisation will need to penetrate the market or target another market segment in order to survive. For example, Ford has sold Jaguar and focused on making commercial vehicles.
According to Starbucks.com (2013), business of Starbucks has been increasing in a high rate. So it can be easily understood that it holds a high position in sales growth rate. Coffee industry is also increasing in a high rate every year (Maitland, 2014). As Starbucks belong to Star position, it will have to invest heavily.
There is another diagnostic tool which can also be used to evaluate the possible marketing activity. Dibb et al (2012) recognises it as ‘the product-market matrix’. It is also widely known as Ansoff matrix. This matrix provides solution for every organisations. From chart 5, it can easily be said that Starbucks belongs to present products and present markets part (Starbucks.com, 2013; Maitland, 2014). The Ansoff matrix advises Starbucks to choose a strategy called ‘market penetration’. This particular strategy leads to increasing sales in present market with existing products (Dibb et al, 2012). Starbucks will need to penetrate market through aggressive advertising and promotions.
To conclude, it is easily understood that these tools play a vital role in the life span on an organisation. By using these tools, an organisation could assess its competitive marketing environment and establish a successful marketing plan. Both internal and external environment of an organisation influences its success. If an organisation make a marketing plan without assessing its environment, it would fail immediately. By understanding Starbucks’s competitive environment, it can be suggested to them to use tactics such differentiation, market penetration, low price strategy or invest heavily in order to meet their objectives.
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