Chapter 17: Advertising and Public Relations

According to AdvertisingAge, "Starbucks has long been something of a curiosity in the marketing world because it has spent so much less on traditional advertising than other big chains.  And yet, it's been doing better than what almost anyone expected from it a few years ago."

As shown in this ad campaign video, Starbucks focuses on word-of-mouth promotion.  CEO Howard Schultz makes it important to relay the information and give the customer the experience they expect from Starbucks.  Here and there, consumers encounter advertisements in magazines, train stations, buses, newspapers, or a few commercial ads.  Starbucks also promotes within other companies (as shown in the video below).



Also stated in AdvertisingAge, certain marketing initiatives for Starbucks includes social-media efforts and advertising for certain new or seasonal products (Frappacino and Pumpkin Spice Latte are a  few examples).  Starbucks has had a digital scavenger hunt featuring Lady Gaga and promoted for its 40th anniversary, with one example having MyStarbucksSignature, a website which lets customer create customized drinks.

Starbucks uses product advertising, showing the benefits of a specific good or service, and some pioneering advertising, a form of advertising designed to stimulate primary demand for a new product of product category.  Most of Starbucks advertising is a form of competitive advertising, designed to influence demand for a specific brand or product.  Starbucks doesn't show competition in their ads however, as other companies may in using competitive advertising form.  Even though these ads are out there, the frequency of them are not as vast as other company ads, particularly coffee companies (Dunkin' Donuts, McDonald's McCafe, etc).  Starbucks wants to remind the customer the pleasent experience once walking into a Starbucks and enjoying their product.

     

Explained in an earlier blog post on Chapter 6, Starbucks has a lot of product placement within TV shows and movies, such as Sex and the City, I Am Sam, Devil Wears Prada, and many more (check out Few Starbucks Feature Films for some more).  Product placement is a public relations strategy that involves getting a product, service, or company name to appear in a movie, television show, radio program, magazine, newspaper, video game, etc.  This increases the advertising and promotion of that particular product, service or company.  This has been increasing over time since advertising is easily ignored. 

Now in the case of emergencies, a company always has to be prepared for any repercussions at hand.  Starbucks had an advertising mishap where they had been advertising for their TazoCitrus drinks and the advertising was struck as familiar to the 9/11 attacks (shown to the right), especially since it occurred shortly before the ad would've released.

In a press release shortly after the ad had been seen, it was stated: "We deeply regret if this ad was in any way misinterpreted to be insensitive or offensive, as this was never our intent.  The poster, promoting Tazo Citrus and Tazoberry beverages, was designed to create a magical place using bright colors and whimsical elements such as palm trees and dragonflies."  Starbucks Press Release 6/16/2002

The ad was pulled and replaced with this:

Chapter 15: Retailing

Retailing is the major part of the sales process of a good or service.  Everyone encounters a retail location at least a few times a week, whether it is a supermarket or department store.  Starbucks falls into the category of a specialty retailer, which is a retail establishment specializing in a given type of merchandise.  Coffee or other morning beverages are Starbucks' main merchandise.  Starbucks is also classified as a chain store, which is a store owned and operated as a group by a single organization.  In North America, most of the Starbucks locations are company operated.   However, the company sometimes has licensing arrangements with companies who provide the right to use particular locations that would otherwise not be accessible.  For example airports, grocery chains, colleges/universities, etc.  Some people see Starbucks as a franchise, which is incorrect.  Starbucks’ subsidiary (a company controlled by a holding company) Seattle’s Best Coffee, does franchise the operation of its cafes and kiosks.  As of the middle of 2008, the subsidiary had over 540 cafés in the U.S. as well as nearly 100 espresso bars.  But since Starbucks' stores are run by the company and not combined with independent ownership, it remains a chain coffee shop.

I have visited several Starbucks locations and now that I attend Borough of Manhattan Community College, I visit a smaller location on Chambers St. right outside of the 1, 2, and 3 trains.  At the beginning of the semester, I was a bit skeptical in going to that location since it is rather small but since it is Fall season, that means Pumpkin season!  I don't go to Starbucks all the time but when it's pumpkin season, I love to have their Pumpkin Spice Latté.  I visited the Starbucks during a high traffic part of the day, around 2:00pm when most people are on lunch break, and there was a huge line.  They had an associate come over to me, take my order, and speak it into a microphone for the baristas to make the order.  When I visited the cashier, I just had to tell them what it is I told the associate taking the order on the line, pay for my order, and since the associate on the line took my name, I just had to wait for my name to be called.  It was a rather quick process and I think it's pretty organized, even though I get worried if they get too many orders at once and mine may be forgotten.  Where I used to work in SoHo, there was a Starbucks on the corner and because of the high congestion and smallness of the location, they also did the same process and it always worked, at least for me.  The people who work at Starbucks care about their customers and makes sure they are assisted as quickly and nicely as possible.

As most people may notice, there are Starbucks locations all over the city, some within a block from each other.  Starbucks looks for densely populated urban communities for its stores.  There are even Starbucks coffeehouses located in Target locations as well.  This is a great marketing strategy and helps them build their company.

Chapter 6: Consumer Decision Making

When an individual buys a product, there is a process which occurs for making their decision.  This is the consumer decision-making process, which includes: recognition, information search, evaluation of alternatives, purchase, and post purchase behavior.  Now not all of the steps are exactly necessary or even taken.  For example, a person may not even purchase the item or some consumers may not need to do the information search. 

Starbucks' consumers rely mainly on the recognition step and even the information search if it is a new consumer.  When a person is thirsty and needs their daily fix of coffee, they are responding to their stimuli.  An individual can be walking by one of Starbucks' coffeehouses and their senses become aroused, which could be enough to indulge in a coffee, or morning beverage/treat in general.  If a consumer needs the information search, they can receive this information from word of mouth.  Many of Starbucks' loyal customers speak very highly of the brand and the quality of the coffee.  Even though the price points are about $2.00 or more than say a Dunkin' Donuts coffee, Starbucks' locations are more convenient to have access to then one of their competitors.

Now within the decision-making process, perception of a specific product is considered by marketing managers.  Perception is a process all people take part in as we move through the course of events in our daily lives.  When we meet people, make business decisions, evaluate performances, or pass judgments, our perception surrounding such events helps us persuade our next course of direction.  Starbucks focuses on their employees and the effects they give on the consumer, as mentioned in previous blog posts.  Starbucks has been successful in modeling guidelines to direct employee behavior and shape corporate perception to help in its success.  Consumers perception must start from the perception employees view about the company.  If the employees decide this is the place to be for them, then the energy will be given to the consumer and they will return.

The consumers' post purchase evaluation process is probably the most important out of the five steps taken because it requires the decision of whether or not to buy that particular item again.  This decision to purchase a product at Starbucks, because of all the research and the variation of products they offer, can be done in one store visit.  Starbucks gives a good motive for customers to return because if you are unsatisfied with your drink, then you will be offered another drink and even given a coupon for a free one.  Again, the customer service in Starbucks is what makes the experience.  The employees make sure that the customer receives what they ask for in a personal way which makes a customer feel like they are the only person Starbucks is attending to and caring for.  As Howard Schultz, CEO, stated to Fortune Magazine, “We aren’t in the coffee business, serving people.  We are in the people business, serving coffee."

An advantage marketing managers take into consideration when selling a product and making sure the consumer continues to buy the particular product is looking into specific primary or secondary membership groups.  Consumers are influenced by people around them, whether from their similar cultures, values, personalities, attitude, etc.  Starbucks focuses a lot in spreading their brand name by word of mouth.  They have some commercial ads but what mostly works for them is to be recommended by someone consumers know.  They also take opinion leaders, which by textbook definition is an individual(s) who influences the opinions of others.  Starbucks does this by being featured in many shows and movies.  This has helped them grow their credibility and gain return customers.

Chapter 5: Developing a Global Vision

In order for a company to be successful and fulfill their mission, a vision for the company must be made.  Specifically, a global vision is ideal because the company will recognize and react to international marketing opportunities, use effective global marketing strategies, and become aware of threats from foreign competitors in all markets.  Starbucks utilizes great global marketing strategies, which is why their global vision is successful.

Starbucks uses the same retailing formula worldwide but product offerings may differ depending on the "local tastes."  The advertising strategies within the company are more local and differentiate rather than are standard throughout the world.  Starbucks focuses on profitable growth.  When opening a new location/s, the company will generally open in important locations where it incorporates fastest growing economies.

Starbucks did begin in North America but needed to globalize.  According to www.slideshare.net, "with just 20% of the world's coffee consumed in North America, Starbucks had to aggressively sell its offerings in countries that already have dedicated coffee or tea drinkers."  Starbucks first foreign expansion occurred in 1996 and developed their first market with Japan, with the help of SAZABY Inc., a Japanese retailer and restaurateur.  Their initial strategies in expanding was buying out competitors' leases, operating at a loss, and opening several locations in a small geographical area.

After their expansion in Japan, Starbucks began globalizing into the U.K.  The company bought out Seattle Coffee Company and with that capital obtained, used it to take over prime locations.  Some did operate at a loss, but mistakes are to be learned from.

Of course with any vision certain risks need to be taken and issues have to be faced.  In Japan, Starbucks faced possible ridicule of their product seeing how the Japanese claimed they would never buy take-out coffee in paper cups.  This was proven wrong by Starbucks; about 30% of its customers drink take-out coffee in the throwaway cups.  In France, many older, traditional people looked down upon the American culture of this coffee franchise.  The French are used to their cafés.  Fortunately for Starbucks' benefit, younger French people joined many American tourists in the Starbucks locations and have added to the company's progress.  

In China, there is some difficulty in moving coffee since so many people prefer tea.  Starbucks' locations in China are coffee houses, which empower the Chinese middle class to openly display their new lifestyles and maintain Starbucks' beverages as affordable luxuries.  These are just a few issues this company must face when expanding globally (there's also Italy and England as a few more examples).

With Starbucks merging and acquiring new prospects came benefits.  The company expanded into different countries around the world and took over companies, which helped their success.  Even in September 2006, their rival Diedrich Coffee sold most of its company-owned retail stores to Starbucks.  This shows their strive and strength to overcome the competitors.  Starbucks realized that committed and motivated human resources were the key to leading a successful business.

In regards to the employees and job outsourcing, where a company sends U.S. jobs abroad, Starbucks and CEO Howard Schultz, believes even though it is more expensive to have the jobs in America, he'd rather that then have the tasks taken on from someone in another country.

A quote from Schultz shows a perfect example on the views of globalizing and what his people mean to him and the company: "We remain highly respectful of the culture and traditions of the countries in which we do business.  We recognize that our success is not an entitlement, and we must continue to earn the trust and respect of customers every day."  He also states, "The relationship we have with our people and the culture of our company is our most sustainable competitive advantage."

Slides on Starbucks Marketing Strategies (Source)

Chapter 4: The Marketing Environment

Starbucks' Target Market
Starbucks' target market is mainly adults, men and women, from the ages 25-40.  This consists of almost half of Starbucks' consumers and grows at a rate of 3% annually.  Even though this is the majority of Starbucks' business, the consumer also ranges from young adults 18-24 (40%), which grows at 4.6% annually, and even kids and teens 13-17 (2%), which most products are bought from the parents.

A main reason why Starbucks is so so successful today and continues to grow is because the people of the company takes many factors into account.  These include: social, demographic, economic, technological, political and legal, and competitive factors.

The people within the Starbucks company, management and staff, feel they have a responsibility to give back to the community.  Ever since they opened their first store in 1971, they dedicate themselves to show a balance between profitability and social conscience (social factors).  There is a whole area behind just the coffeehouse where they offer community service, create jobs for those in need, and youth action programs to prevent violence among young adults.  They are also very involved in keeping the Earth green and certain environmental factors, such as recycling and reducing waste, energy, water, and climate change.
Starbucks - Environmental Responsibility

Because Starbucks is a global company and is expanding the retail stores throughout the world, they focus on all demographics.  Although the prices of their products are more than say a street cart, they do provide some low-cost items for those who still want the quality of their coffee.  That said, if we take a look at the average income of an American household in 2011 (Per Capita Personal Income U.S.), it was calculated to be $41,663.  That suggests that Americans can buy specialty coffee drinks from an expensive, quality-oriented organization such as Starbucks.  This also covers certain economic factors Starbucks faces.

Starbucks has kept up to date with the technological factors.  For instance, they developed the Starbucks card, which is basically a pre-paid reward card.  This keeps repeat customers and as a person bumps up rank in the program, they receive greater benefits.  Everything is stored within the system and when a Starbucks employee sees a customer with the Starbucks card, special treatment is delivered.

Political/Legal factors, which affects Starbucks as a company, include the stability of the countries where Starbucks purchases its coffee and natural resources.  They receive their coffee beans from countries all around the world, even places that have many natural disasters: tsunamis, earthquakes, and wars.  If any of these events occur in a country where they are expecting their coffee from, Starbucks may not be able to produce coffee and profits will drop.  Also, Starbucks is environmentally friendly, as stated earlier.  They have to consider how to protect the brand aspect in everything they do, from providing a living wage that makes it to farmers and have production with low pollution rates.

I have mentioned in a previous post about certain competitive factors which Starbucks faces everyday.  The fact that Starbucks' products are generally more expensive then elsewhere (Dunkin' Donuts, street carts, etc.) a few reasons why Starbucks tends to strive is because it is a place for everyone, their ambiance is unique, and they're consistently convenient.  Starbucks is also very innovative and they're always finding a way to reach out to the community, which is very promising to the customers they serve.

Being a Responsible Company

Chapter 3: Ethics and Social Responsibility

In most companies, part-time employees are less valued as workers, or maybe more valued from the view of management of the company in the sense where they can be let go quicker without the usual repercussions of a general layoff to a full-timer.  Also, part-timers generally don't have the same benefits as full-time employees have.  Starbucks doesn't follow this standard, which is rare for a company (Costco is a noticeable exception as well).  Most companies increase the hiring of part-time employees, or contingent workers, since they are payed less and because of the previous reasons stated.  This can be viewed as an ethical problem or issue within a company because then the workers may feel it's immoral and they feel under appreciated compared to a full-timer.

As Howard Schultz (CEO) grew Starbucks, he vowed to build "the kind of company my father never got a chance to work for."  When Schultz was just a child, his father had broken his ankle and was out of the job without any health insurance.  This was a fear his family had to face.  His basis on how he now leads the company is from this story and makes Starbucks a more ethical place to work for.  He cares for his employees.  Schultz is a leader in offering comprehensive benefits for part-time workers and this has been central to Starbucks' success.  There is a downside to this aspect of Schultz's moral view though.  The Starbucks Corporation has been seeing double-digit increases in health costs.  Schultz feels that the trouble goes beyond spending.  "We can't be the kind of society we aspire to be when we have 50 million people uninsured.  It is a blemish on what it means to be an American," Schultz says.  He then reached out to Jim Sinegal, CEO of Costco who also gives benefits to part-time employees, to seek advice for what to do if numbers keep increasing in health benefits but not in correlation to profits.  Schultz feels taking away the benefits is not an option and he will do what he can to keep his commitment to his employees. 

In contrast to the USA, 36 other countries where Starbucks operates, health care is basically funded by the government rather than the company itself.  Schultz has gone to Washington but came back discouraged and his next idea was to bring together a meeting for the CNBC to raise awareness of the issue, but it was put off.  With this information and the difference the US has compared to other countries, we lie with the question: should the US follow in the footsteps of many countries where they offer health care from the government rather than the company themselves?

The story of CEO Howard Schultz is an example of an ethical and moral workplace.  All companies should follow a code of ethics, which is a guideline to help marketing managers and other employees make better decisions.  There are law enforcement agencies, such as EEOC (Equal Employment Opportunity Commission), which guarantees employment for all races, genders, backgrounds, etc.  If a company was to not state they are a EEO company, there would be big ethical problems and it would cause investigations into that particular company.  Starbucks makes their employees happy to work for them, part-time as well as full-time.

Starbucks Business Ethics and Compliance

Starbucks - Environmental Responsibility

Chapter 2: Strategic Planning for Competitive Advantage

The community at a Starbucks coffee shop

In order for a company to grow and maintain a successful business, a standard has to be made to live out the mission of that company and keep their consumers satisfied. There must be a strategic plan made, which consists of the managers creating and sticking to a particular structure between the organization's objectives and resources as well as the changing market opportunities. This plan will be set for the company to sustain its business and it must include ways to have an advantage against its competitors.

As stated in part of their full mission statement, the people of Starbucks are more focused on the customer being able to go to a Starbucks whenever necessary and feel like it is a natural part of the daily routine, which for many it has become.  Starbucks is also concerned about the quality of their coffee, their partners, their customers (as stated previously), their stores, the neighborhood, and their shareholders.  This is the first step of establishing a strategic marketing plan: by creating a mission statement, which the rest of the plan should follow through and achieve the goals of the company.

Now, because no company is perfect and nothing is ever just in plain black or white, marketers must prepare the situation analysis, or what's referred to as the SWOT analysis, in order for the business to strive.  In doing this, the people in charge of this area of the company, must point out the Strengths, Weaknesses, Opportunities, and Threats.  Starbucks' has many strengths, and the major important ones are listed: 
~ product diversification
~ established logo, developed brand, copyrights, trademarks, website, and patents
~ company operated retail stores, international stores (no franchise)
~ valued and motivated employees, good work environment
~ good relationship with suppliers
~ industry market leader
~ customer base loyalty
~ widespread and consistent
~ knowledge based
~ strong board
~ strong financial foundation

With strengths comes weaknesses because again, no one and nothing is ever perfect.  Here are some of Starbucks' weaknesses:
~ size
~ lack of internal focus (too much focus on expansion)
~ ever increasing number of competitors in a growing market
~ self cannibalization (refers to a situation where a new product "eat" up the sales and demand of an existing product)
~ cross functional management
~ cleanliness
~ product pricing (expensive)

Following this pattern of the SWOT analysis, Starbucks has a list of opportunities and threats to consider as well.  A main opportunity Starbucks has is the expansion into retail operations such as department stores (Macy's, Bloomingdale's, etc.) and creation of new products.  A major threat against the Starbucks company are its competitors, such as Dunkin' Donuts, McDonald's McCafé, and even street carts.  One way Starbucks is different from its competitors though, and other major companies in general, is by not having a great deal of advertisements on billboards, in newspapers, or even posters in places where you would expect to see advertisements.  This is a part of their marketing strategy, or should I say an uncommon marketing strategy.  Most of Starbucks' advertising is by word of mouth, which has worked with the company seeing how rapidly the business has grown.  This is all included in the marketing mix (sub category of promotion) of the latter part of the marketing plan.

After the SWOT analysis, or situation, is defined, the objectives have to be listed.  This goes back to the the mission of the particular company and how to work through those objectives in establishing a target marketing strategy.  Within the marketing strategy is the marketing mix (product, place/distribution, promotion, and price).  After all of these areas are covered, the business can begin implementing the plan and get ready for evaluation and control.  Once a business begins working though the marketing plan, they can sense that even though there are steps to follow, areas will intertwine and link with one another.

With creating a thorough SWOT analysis, Starbucks is able to have a sustainable competitive advantage, which is an advantage that cannot be copied by the competitor.  Starbucks' ideals and sense of responsibility is a big part of the consumer value it delivers.  As they continue this and find new ways to add to this emotional value associated with their brand, it increases their sustainable competitive advantage.  Lastly, even though other coffee producers and retailers may be able to match the quality of Starbucks' roast, it will be difficult to match the brand in which Starbucks has created.  The intangible value is what creates their brand loyalty.

Source regarding SWOT Analysis

Definition of Market Cannibalization