Chapter 7: Business Marketing

This chapter, the final chapter of the semester, is on business marketing.  This specific type of marketing is of goods and services to individuals and organizations for purposes other than personal consumption.  An example of business marketing are the market for the Starbucks coffee machines which are used to make the coffee for their customers.  Since these machines are not being used by the Starbucks customer themselves but instead it creates the product which their customers consume, it is a business product and is marketed to the Starbucks business.  They are also business products since it is used to manufacture other products, being the coffee which is then sold to the consumer.

After the launch of the new Verismo machine, which is a multi-purpose, single serve, coffee machine by Starbucks, and the larger model carries more water to make multiple cups, it may become easier for small offices and people of small businesses to create their own coffee.  This makes it convenient for them and overall may be more cost efficient then purchasing a specialty coffee everyday.

Now business products generally fall into one of 7 categories, depending on their use.  These 7 categories are: major equipment, accessory equipment, raw materials, component parts, processed materials, supplies, and business services.  For Starbucks, an example of a business product are the coffee machines mentioned earlier.  These are part of the major equipment category, since it's a capital good.  Another business product of Starbucks are the coffee beans used to make the coffee, which is a type of raw material.  Raw materials are unprocessed extractive or agricultural products.    These are also business products because it becomes a part of another product, in which the organization sells.  Other examples of raw materials for other businesses are items such as corn, wheat, fruits, and vegetables.

The use of strategic business alliances, which is a cooperative agreement between business firms and may take form of: licensing or distribution agreements, joint ventures, research and development consortia, and partnerships, is an area of marketing strategy that Starbucks frequently uses.  According to chron.com, which is the Houston premier local news provider, the list of business alliances Starbucks has includes Barnes and Nobles, PepsiCo, United Airlines, Kraft, and NAACP.  "According to Rebecca Larson, assistant Professor of Business at Liberty University, Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers.  In 1996, Starbucks partnered with PepsiCo to bottle, distribute, and sell the popular coffee-based drink, Frappacino.  A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the Starbucks logo on the cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in grocery stores.  In 2006, Starbucks formed an alliance with the NAACP, the sole purpose of which was to advance the company's and the NAACP's goals of social and economic justice," stated within the Houston Chronicle piece.

Chapter 8: Segmenting and Targeting Markets

Within a market which is defined in our marketing textbook as people or organizations with needs or wants and the ability and willingness to buy, are market segments, which is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. 

Market segmentation is a very resourceful strategy for organizations to fulfill their mission and gain profits.  This is the process of dividing a market into meaningful, relatively similar, and identifiable segments or groups.  Starbucks uses demographic segmentation (markets by age, gender, income, ethnic background, and family life cycle) as well as geographic segmentation (markets by region of a country or the world, market size, market density, or climate) and psychographic segmentation, which can link with demographics.

According to an article on chron.com (the Houston Chronicle), Starbucks holds around 33% of the market share for coffee in the U.S.  Starbucks has been able to accomplish this by catering to a specific target market.  Stated in the article, Starbucks' main target market is men and women between the ages of 25-40, which accounts for almost half (49%) of its total business.  Customers within this range tend to have high income and professional careers.  This group grows at a rate of about 3% annually.  Young adults, aged 18-24, are the next large group that Starbucks targets.  They bring in about 40% of Starbucks' sales and Starbucks "positions itself as a place college students can hang out, study, write papers, and meet people."  They appeal to this group through the growth of technology and innovative ideas.  The young adult group grows at about 4.6% each year.  The last group which are apart of Starbucks' target market are kids and teens, ages 13-17.  This group accounts for about 2% of Starbucks' sales but lots of items are bought from the parents of the kids.  Starbucks targets this group by offering certain drinks that appeal to them.

As stated earlier, Starbucks also uses geographic segmentation.  Starbucks is located all around, specifically in upscale locations, near offices, and near many college campuses.

After a company decides what is their target market and market segments, it should choose what positions they should occupy within those segments.  Positioning within a market is developing a specific marketing mix to influence potential customer's overall perception of a brand, product line, or organization in general.  Starbucks has positioned themselves as a highly respected brand.  The Starbucks company has become positioned in a way that it can distinguish their products from competition, which gives them an advantage once again.  Going back to their mission, they want "to inspire and nurture the human spirit - one person, one cup, and one neighborhood at a time."  Their positioning strategy is customer based, which allows them to give the best customer service.  As they continue to do this, they hold onto their sustainable competitive advantage in terms of their customer satisfaction as well as their employee satisfaction.

Chapter 11: Developing and Managing Products

Over the last four decades, Starbucks has developed new products and continues to do so.  A new product is new to the world, the market, the producer, the seller, or some combination of these.  This can include new-to-the-world products, new product lines, additions to existing product lines, improvements or revisions of existing products, repositioned products, or lower-priced products.  Starbucks is very innovative when it comes to their products, whether it's their seasonal coffees, their iced beverages, or their coffee/espresso makers.

An innovative, new Starbucks product are the Starbucks Refreshers, which is a product that uses green coffee extract (a natural source of energy), resulting in thirst-quenching, low-calorie, refreshment with a boost of natural energy from caffeine and fruit juices.  This makes Starbucks the first to bring green coffee extract innovations to customers, on a global scale nonetheless.  According to Starbucks' newsroom, this gives the company an opportunity to introduce a new offering globally and continue to expand through innovation.  This also extends their product line of coffees, making more variety for customers to purchase.

Another example of an innovative product, which recently was released, is the Starbucks Verismo System.  This is a machine that makes both coffee and espresso.   The machine features three different pod types -- espresso pods, coffee pods and milk pods that can be combined in a number of ways to make custom drinks.  If a consumer invests in this system, price range is from $199-$399, then they may save on buying coffee everyday from Starbucks in the long run.

Because these items have just recently been introduced into the Starbucks product mix, they are just in the introductory stage of the product life cycle.  As reactions start to increase amongst the Starbucks customer and people start to buy or reject the products, then the product will be in the growth stage.  If they last the growth stage, then they may just complete the cycle into the maturity stage and all the way to the decline.  For the Starbucks Refreshers, people seem to have mainly positive reviews on the taste.  According to a blog called YumSugar, their tasters thought the drink had a "crisp, fresh taste" adding it was "ideal for pop lovers who want a healthier alternative."  While some praised the "nice fizziness level," others still pulled down the voting average, claiming the beverage was "too reminiscent of Red Bull" and the "pungent, syrupy sweet smell" was overwhelming.  It is still rather early to tell seeing it just came out this year. 

 

As for the Verismo System, someone from the Huffington Post stated, "Somehow Starbucks has learned the art of coffee making through this machine. It made a latte better than I've ever had in a Starbucks coffee shop" and for espresso making, someone said from the same news source "I tried the espresso and the house blend.  I'm not someone who's that familiar with Starbucks espresso, but I would say the espresso from the machine tasted as genuine and close to the real thing as I could ask for.  At no point did I feel the slightest inkling of being duped into drinking fake or knock-off espresso. It was tasty, and I already feel slightly more productive at work."  From these reviews, it seems Starbucks is using innovation as a key strategy to continue to gain profit and make their customers happy with the products they offer.  Huffington Post couldn't have said it better, "The verdict: We were a little surprised at how much we liked this machine. If you like Starbucks coffee and you want to drink it at home, this is the ticket."  This view would be ideal if all of their innovative products had the same reaction.

2011 Annual Report

Chapter 16: Intergrated Marketing Communication

When Starbucks redesigned their logo, they reached out to several of the Starbucks rewards members regarding the change.  The email provided a link and was available for mobile viewing.  The timing was an important element because in order for the message to be unique, it had to be received before the official announcement.  They also used a video with Howard Schultz explaining the reason for the redesign (video found in previous blog post).  Lastly, there are sharing icons so the reward members can spread the word to other prospective members and there can be a flow of communication about this news.  These are some elements of integrated marketing communication.  The rewards members were viewed as special customers worthy of a pre-announcement.   As one observer pointed out, "the timing also helps deflect attention from a price increase announcement."

Starbucks does a good job with integrated marketing communication because not only do they reach out to their customers through email, they also use many of the social networking sites as a form of advertising and letting people know what is going on within the company.  Although they have a large Twitter and Facebook audience,  they have found their voice in these channels and it's appropriate and consistent with who they are as a brand.  Lastly, direct mail is the delivery mechanism for rewards.   Despite all their online communication, the old fashioned postcard is still the "gift basket" for delivering reward benefits.  Customers look forward to the solid black postcard because they know it's treat time.

 As previously discussed in the first week of September, Starbucks has a sustainable competitive advantage because even though they sell a product, which many companies offer as well as street carts, they are very consistent with how the coffee is made and the service they give their customers.  Many people continue to purchase their products at higher prices which proves their advantage is sustainable to keep loyal customers, gain prospective customers and keep them all happy.

Starbucks is using a QR program which allows consumers to learn more about various coffee products.  QR codes are newer to the marketing world and haven't quite taking off as some other marketing endeavors have.   Unfortunately these codes have an unappealing look to them, but it can be quite effective if used properly.  With the new program, Starbucks uses QR codes in their ads and stores to promote information in an interactive way.  Since the consumer has to physically scan the QR code with their device, the motivation to actually read and take in the information about the coffee they are learning about is there.

The promotional mix -- the combination of promotional tools including advertising, public relations, personal selling, and sales promotion to reach the target market and fulfill the organization's overall goals -- is used rather effectively within Starbucks.  Again, Starbucks doesn't overload their consumers with advertisements but when used, they try to have quite an impact on their customers.  









They also use a bit of sales promotion through online sources and as reward loyalty members.  As for personal selling, whenever I walk into a Starbucks location, they make sure to get your name when ordering and that builds a sense of personal selling.  Their vibe is emitted to the customer and makes each individual feel special in some way.

ENJOY SOME STARBUCKS ADVERTISEMENTS, since they're not heavily saturated through our everyday lives.

Chapter 10: Product Concepts

A product is everything, whether it is favored or not by the consumer, that a person recieves in an exchange.  Even though Starbucks coffee is not quite as inexpensive as let's say the corner cart, since Starbucks merits little shopping effort and it has wide distribution areas in order to sell large quantities of it to achieve profit goals, I would say it fits the mold of a convenience product.  Also, Starbucks coffee, among other products sold at Starbucks, are specialty products because many loyal Starbucks customers are very reluctant to accept alternatives.

Starbucks has a vast product mix (all the products a company sells) such as coffee, tea, breakfast and lunch products, as well as espresso and coffee machines.  As time progresses, more innovative ideas come about.  Some of the product mix is shown in the image below:

Source - Janice Ho's Blog: http://sites.cdnis.edu.hk/students/001771/2012/02/21/classifying-starbucks-products/

As a brand, Starbucks has built their company to differentiate from the competitors.  According to the Starbucks website, I've provided a bit of history on their brand mark (logo), which is the elements of the brand that cannot be spoken.  "Back to 1971, when Starbucks was first coming to be, in a search for a way to capture the seafaring history of coffee and Seattle’s strong seaport roots, there was a lot of poring over old marine books going on.  Suddenly, there she was: a 16th century Norse woodcut of a twin-tailed mermaid, or Siren.  There was something about her – a seductive mystery mixed with a nautical theme that was exactly what the founders were looking for.  A logo was designed around her and their long relationship with the Siren began." Their logo, which has been renovated to commemorate their 40th anniversary (video to the left; picture at beginning of post shows evolution of the logo), maintains their heritage and now Starbucks has dropped the "Starbucks Coffee" from the logo and has let the woman come out of the circle.
History and Information on the Starbucks brand mark

Also, Starbucks has made it a point to take its successful offline branding strategies and begin them online.  Their online image and messages have stayed consistent with their brand values, which are honesty, sincerity, and connecting with its consumers on a level unlike any other brand. The offline, more personal Starbucks culture has taken to the airwaves of the internet and social media.

Lastly, Starbucks is a global brand since it does obtain at least a third of its earnings from outside the U.S. and it is recognizable outside of the U.S. to other consumers.  It was number 88 in the top 100 best global brands of 2012, according to Interbrand.

Chapter 18: Sales Promotion and Personal Selling

Starbucks' first card was launched in November 2001.  The first rewards of any kind was launched in April 2008.  The first generation of Starbucks rewards had no “levels.”  You just registered a card and earned free soy milk, free breve milk, free syrups, a free tall beverage with a pound of beans, and free refills.  Then in November 2008, Starbucks launched a gold card where customers pay a $25 annual fee and got 10% off of their purchases.  This meant by the end of 2008 and through most of 2009, Starbucks offered two side by side programs - the free program and the new, paid program.  The 10% off program, which had a $25 annual fee, did not include the free milk changes, free syrups, and all the free perks.   The 10% off card was phased out, one year after its initial launch.  In October 2009, after realizing that having two overlapping programs which didn't relate to one another didn't work, Starbucks announced the current MyStarbucksRewards program, which offers three levels: A “Welcome” level, a “Green” level, and a “Gold” level.  This program launched in January 2010 and the updates to the program occurred on October 16, 2012.

Explanation of MyStarbucksRewards program:

Welcome Level ~

Use your card once, earn your first reward. Sweet!
Something to Drink or Eat On Your Birthday
Get a little extra birthday love with a free drink or food reward on your big day
Green Level ~
Five Stars puts you at Green.  
Besides your free birthday drink or food reward, you also earn Free Refills in the Store.
Paying with your registered Starbucks Card gets you brewed and iced coffee and tea refills at no charge during your visit at a participating store.
Gold Level ~
Collect 30 Stars within 12 months and you’re Gold. 
Once you reach Gold, keep those benefits for another 12 months by earning another 30 Stars. With Gold, you get all the Welcome and Green benefits plus Free Drink or Food Reward Every 12 Stars
Use your Starbucks Card 12 times and the next one’s on us.
Also, you receive a personalized Gold card.  Your barista will know you're somebody special when you place an order.  Be sure to opt in to get special offer and coupons via mail, email, or text message.

Use your free reward to redeem any handcrafted beverage or any food item of your choice. All food items in participating stores are eligible for the free reward, with the exception of multipacks, trays, whole bakery loaves and food items specific to the Starbucks Evenings menu.

This is a form of sales promotion within Starbucks, where marketing communication activities, other than advertising, personal selling, and public relations, in which a short-term incentive motivates consumers or members of the distribution channel to purchase a good or service immediately, either by lowering the price or adding value.  This specific form is a loyalty marketing program, designed to build a long-term, mutually beneficial relationship between the company and its key customers.  It is also a frequent buyer program, a loyalty program in which loyal customers are rewarded for making multiple purchases of a particular good or service.  According to our marketing textbook, at one point, gold level members were notified that they could purchase rare coffee beans grown on one farm in the Galapagos.  The coffee, selling at $12.50 for half a pound, sold out in less that one day, showing that gold-level members are willing to use their benefits.

Lastly, Starbucks also uses sampling within their locations and outside as a form of sales promotion.  This allows the consumer the opportunity to try a product or service for free.  If the consumer likes the certain product, they will most likely purchase it then or at a later moment if the product is still available, since it tends to happen with a limited product or a trial product.

Sampling some Starbucks coffee in Times Square

Starbucks Unofficial Fan Site - Questions answered about the Reward Program

Starbucks Coupons