MARKETING STRATEGY PLANNING

“THE CASE OF THE STARBUCKS COMPANY”

PART A

Term of Reference

You are require to study marketing strategy in theory and apply your learning on a case
study as part of your marketing(MARK 306) assessment. Your objective is to formulate three-
years strategic marketing plan for Starbuck Company and present it in a written management
report in not less than 2000 words by Thursday, 26th May 2011 at 1000 hours the latest. The
information you need on the company has been given to you at the beginning of the
Semester. You may find the following outline helpful for your report

PART B

MARKETING STRATEGY AND STRATEGIC PLANNING

Marketing Strategy

In order to convert ideas into strategies, and strategies into action, we often recommend a
structured Strategic Marketing Plan. This would include a full evaluation of client and
competitor analysis, product and pricing strategies, market segmentation and positioning
strategies as well as clearly targeted promotional, exhibition and PR activity. Marketing can
be very cost effective providing it is focused properly, and the Strategic Marketing Plan
provides that focus.

 Strategic Marketing requires

 Detailed understanding of market needs, and
 Proactive use of competitive intelligence at the corporate as well as SBU’s
levels
 Strategic Marketing
 Focuses on what the firm do best at the SBU level
 To secure and maintain a sustainable competitive advantage
Key Elements of Marketing Strategy Formulation

 The strategic 3 Cs
 Customers, Competitors & the Corporation
 Environment analysis -- PEST
  Strategic Marketing Decisions
 Where to compete
 How to compete
 When to compete

Strategic Planning

Strategic Planning is the managerial process of developing and maintaining a strategic fit
between the organization's objectives and resources and its changing market opportunities.

Developing a strategic marketing plan takes work. It requires a firm understanding of the
markets you plan to sell to, the products you and your competitors offer, your business
objectives, and finally, your marketing budget.

Part One- Market:

Objective: Identify and learn about the market segments you currently target and wish to
target in the future– what motivates them to consider your products, what is their buying
process, how do they consume media and how can we leverage former customer into longer
term value for the business.

Steps to Accomplish:

 Learn Current Market Segmentation- Geographic, Demographic, Psychographic,

Behaviorial
 Profile Market Segments- Revenue potential, Market share potential, Profitability
potential, Lifetime customer value
 Market Research- Primary (research you've commissioned on your own) and
Secondary (industry research)

Part Two-Product:

Objective: Learn about the current portfolio of products and new product introductions being
planned, primary and secondary uses, usage differences by market, core product benefits,
competitors and competitive differentiators, seasonality, historical offers and measurement,
lifecycle plan, profitability, complementary products in portfolio or outside portfolio, pricing
and profitability.

Steps to Accomplish:

 Product management presentations on above

 Sample analysis and review
 Competitive analysis and technology trends
 Usage and satisfaction research- primary, secondary
Part Three- Business Objectives:

Objective: Understand key business initiatives, market conditions and revenue goals that will
guide decision making.

Steps to Accomplish:

 This year's Business Plan – define objectives for the business in the short and long-
term.

Part Four- Marketing budget, Prior efforts & results, other planned tactics & timing:

Objective: Learn the parameters of the marketing plan including budget, previous efforts and
success measurements, planned tactics such as committed resources, major sales
campaigns and tradeshow events.

Steps to Accomplish:

 Marketing meeting to review information and develop calendar of know tactics and
market touch points.

Market Plan recommendation will include:

At the completion of this four step process, you should assemble a complete integrated
marketing plan based on your business objectives, market segments, market research,
product offerings, competitive positioning, and history of marketing success. This document
should contain:

 An overview of learnings, challenges and trends

 Customer and prospect constituent groups
 Key market touch points and communications strategies
 Tactical recommendations
 Measurement
 Budget, Return, ROI

It is highly recommended that the plan incorporate a certain level of flexibility at the tactical
level. As with any marketing campaign strategy, tactics should incorporate split tests, review
and rework of marketing tactics. Budget should be repositioned to support marketing
campaigns that show the greatest success.
PART C

THREE- YEARS STRATEGIC MARKETING PLAN FOR STARBUCKS

The plan for the first year

The first strategy for the company should be the acquisition of an updated Uniform Franchise
Offering Circular. This will enable the company to offer franchises to new franchisees that will
be willing to open up business units in new potential markets. The current state of having no
Uniform Franchise Offering Circular hampers the local expansion of the company. This is
because it is left with only one option: which is to open company-owned stores.

However, we note that the company owned stores are disadvantageous for Krispy Kreme
Doughnuts. This is because they increase the company’s operating costs and increase the
chances of incurring losses if the stores perform poorly. Additionally, the company owned
stores pay no royalties and franchise fees to Krispy Kreme Doughnuts. Therefore, the
acquisition of the Uniform Franchise Offering Circular and new franchisees should be
coupled with closure of poorly performing stores. This will cut the company’s operating costs
that result from under-performing stores.

New established stores should also be given a characteristic design that will be associated
with the brand of Krispy Kreme Doughnuts. This characteristic identity will serve to market
the brand locally.

Secondly, along a similar line of action; the company should reduce its current percentage of
payment for royalties under the area developer program and the associate program. This
action will serve to stimulate the local expansion by attracting franchisees that will enjoy
higher proceeds due to the reduced payment of royalties and franchise fees.

The plan for the second year

The second year plan should involve an introduction of complementary products such as
coffee and soft drinks. This will offer more variety to the customers and increase the volumes
of sales. This program should also include a full roll-out of the complementary products
throughout all the stores in the company’s network. The new products are will increase sales
and revenue that will further prompt expansion.

In addition to the complimentary products, the company should introduce more varieties of
doughnuts. This will give the customers a wide array of choice that will keep them loyal to the
company because it offers them a change. The company should also introduce healthier
varieties of products because the population is getting conscious each day on issues that
pertain to fast food effects on health. This should include the development of low calorie
doughnuts.

Smaller satellite stores should be designed for under-performing stores in order to cut
operational costs incurred from larger, poor performing Krispy Kreme stores. A similar design
should be used for new ventures in areas with a limited market capacity. The smaller satellite
stores will have less expenditure on capital and will run on a low operational cost. This can
favour further inexpensive expansion.
 The plan for the third year

The plan for the third year should include an increase in the local marketing campaign. This
will serve to increase awareness about the company to the general public. The campaign
plan should be more active than the normal marketing of the brand. In order for the company
to achieve this goal it will have to increase the rates of contributions from its network of
stores. Thus, developers and associates should contribute more than the usual 1% and 0.25
% contribution that they make to the advertising agency in charge of marketing.

The company should also increase its non-traditional package sales to grocery stores,
convenience stores and mass merchants. This can be realized via a strong marketing
campaign that will target this section of the supply chain. This will be especially useful for
places that the company may find store establishment highly expensive or poor performing.
This should also incorporate private labelling and unlabelled sales to grocery and
convenience stores.

Starbuck should also consider introducing supply chains for overseas networks of branches
in order to maximize revenue gains that accrue from its supplies delivered to the international
branches of stores.

Starbuck should also try to limit the number of franchise stores so that they should not be
more than the company’s own stores. This is because they may hamper its expansion due to
uncontrolled closures. Therefore, the company should consolidate much of its production to
the company stores. This is clearly depicted by the closure ratio of domestic stores (among
the 71 local store closures 60 of them were from the franchises whereas; closed company
stores were only 11).

The company could also source more capital in the third year to further its expansion.
Considering the fact that starbuck is a corporate company this should be done by a rights
issue to be offered to the public.

In order to finance the corporation’s expansion the company should cut down the number of
its employees in the top management. This can be made possible combining duties carried
out by the many presidents and vice presidents that the company has in its organizational
structure.

EXCUTIVE SUMMARY

Starbucks is a major coffee house, with in excess of 16,000 outlets of wide; it is the largest
global coffee organization. However, despite the rapid growth under the leadership of
Howard Schultz, and the internal strengths of the company, which include a high level of
differentiation, good employee relations and strong branding, companies also face a number
of challenges, including difficult economic conditions as well as an increasing level of
competition. The paper advises a strategy to increase the level of differentiation and support
the brand for further product development for sale in both the coffee shops, as well as
through the retail stores that the company is a ready utilizing the strategies related
diversification. It is also recommended that the organization increase the level of fair trade
coffee that is being purchased in response to changing social awareness in the target
market.
1.0) CORPORATE MISSION STATEMENT

1.1) COMPANY VISION

To inspire and nurture the human spirit one person, one cup and one neightborhood at a
time.

1.2) COMPANY MISSION

To Establish Starbucks as the premier purveyor of the finest coffe in the world while
maintaing our uncompromsing priciple while we grow.

1.3) COMPANY VALUES

1.4) COMPANY COMPETITIVE ADVANTAGE

Starbucks is a company that has differentiated itself by convincing consumers that it

is selling more than a cup of coffee. Further, their brand image is associated with a sense of
community activism. Starbucks feels that if they can identify with customer's societal
endeavors, they would be differentiating themselves on these principles. A company's ability
to adapt to changing markets wants and needs is a key to its survival. Starbucks is a great
example of a company that has done a tremendous job in this area. The company managed
to maintain the wants and needs of the customers at the top of its list, and through a
differentiated strategy earned incredible revenues from a readily available commodity,
coffee. 
2.0) OBJECTIVE SETTING

2.1 ) FINANCIAL PERFORMANCE

During the fiscal year ending September, 2001, reported revenues were $2.649 Billion. This
was over $500 million higher than the previous year. Reported gross profit increased over
$100million from 2000 to $581 million. Starbucks reported 2001 Operating Income of
$252.5million, and Total Net Income $181.2 million, both figures increasing substantially from
the previous year (Starbucks Corporation).

Starbucks Corporation has quite a few very strong financial ratios, which we will now look at.
The P/E ratio (profit/earnings) in 2001 was 49.08, which is far superior to the Industry
average of 27.58 (Ratio, 2002). Starbucks EPS, earnings per share, of 81.79 is over five
times higher than the industry average of 12.67 (Ratio, 2002). The quick ratio, which relates
total current liabilities to cash, marketable securities, and receivables of 1.48 is a strong
figure. Starbucks Corporation's Current Ratio of 0.91 is stronger than the industry average of
0.56. As the Current Ratio is the company's current assets / current liabilities, this indicates
that Starbucks Corporation has the ability to satisfy it's current liabilities with it's current
assets, and with the ratio of 0.91 it is a signal of financial strength. Some other ratios found
from Multex.com include a Return on Assets of 11.31, a Return on Investment of 14.52, and
a Return on Equity of 14.86. Starbucks ROA, and ROI are both stronger the industry
average, but the ROE is slightly weaker than the industry average of 17.80. Inventory
Turnover ratio is 11.48, which indicates that Starbucks Corporations inventory is highly liquid,
and its operating cycles are very healthy (Ratio, 2002). This ratio is one more strong
measure that Starbucks is a corporation that has exhibited strong financial performance.

2.2) MARKET BASED PERFORMANCE

2.3) PROJECTIONS

2.4) CORPORATE OBJECTIVE

2.5) MARKETING OBJECTIVE

2.0) SITUATION ANALYSIS

3.1 MARKET REVIEW

3.2 ) A SWOT analysis

Strengths

• Dominates the coffee businesses in United States, emerging successfully around the globe.

• Research and development capabilities leveraged to strengthen product portfolio.

• Best services at their outlets.

• Part of licensed stores and markets.

• Clustered units of the company

• Well behaved with employees.

• Research and development progressively going on.

• Good collection of music at outlets to attract customers for a living experience.

Weaknesses

• The company’s major share is in U.S and other countries are lagging behind, so the
expansion is not homogeneous.

• Over reliability on beverages.

• Least attention is paid on the innovation of other company products.

• International operations face difficulties because of lack of concentration.

• Though leading market organization yet lacking a strategic group.

Opportunity

• The company has the opportunity to expand its global operations. New markets for coffee
such as India and the Pacific Rim nations are beginning to emerge.

• Co-branding with other manufacturers of food and drink, and brand franchising to
manufacturers of other goods and services both have potential.

• Cost reduction initiatives such as rationalizing of global retail network to improve margins

Threats

• Starbucks is exposed to rises in the cost of coffee and dairy products.

• Increased minimum wages affect operating margins

• Discretionary spending negatively impact margins

• Increasing health consciousness among Americans could reduce demand

• Continued threat in the coffee competition

3.3 KEY ASSUMPTIONS

As Starbucks embarked on the aggressive expansion of C.A.F.E. Practices towards meeting

its goal of supplying the majority of its coffee through the program by 2007, there were a
number of internal and external challenges. Internally, Starbucks would have to address its
informationsystem issues. Externally, Starbucks had to find an effective way to communicate
and interfacewith its low-tech suppliers.
The opportunity, however, was tremendous. If Starbucks was able to overcome the
implementation issues that it faced, C.A.F.E. Practices could go a long way towards
improvingthe sustainability of its coffee supply chain while at the same time improving
Starbucks’ imageas a socially responsible corporation.

In order to compete against this possible market threat, Starbucks must push to be the first
mover. Starbucks must constantly innovate new products to stay ahead of such competitive
tactics. If they have any chance of stopping the companies from being the innovator, it can
do so by being the innovator itself. Starbucks needs to be extremely aware of what is going
on in the competitive markets. A way they could fight this type of competition is by entering
into agreements, long-term contracts, with the food service companies that they are
competing against. This way their coffee would be sold at these outlets, rather than
competitors, and they would gain access to a new market and increase sales while
decreasing competition. This option would have a chance of harming the companies' brand
image and reputation for quality and its coffee drinking atmosphere. This would, of course,
take much top management debate that would be a "last resort" in the case of an extreme
competitive threat. If, for example, McDonalds entered into a coffee agreement with Diedrich
Coffee, Starbucks could respond by acquiring Diedrich Coffee. Through acquisition
Starbucks would ultimately gain a greater market share, salvage its brand image and
decrease the threat of competition. Another possibility would be for Starbucks to create a
subsidiary that specializes in catering to the food service industry. This would be another way
for Starbucks to compete without the risk of damaging its reputation and brand image.

3.4 KEY INDUSTRY SUCCESS FACTOR

Leadership

If a company wants to do well, it must have effective leadership, which provides motivation,
organization and direction to a company, allowing them to reach their full potential.

Budgeting, Revenue and Profit

factor related to business failure/success is an understanding of cash flow. Without

knowledge on how much money can be spent or is coming in, an executive cannot possibly
ensure that revenue and profit margins stay high or increase because he will not know how
much he can allot for a supply or task. Ideally, an executive should design a budget that sells
each service or product at a profit and which reduces overhead costs.

Innovation and Quality

Successful companies not only make sure their existing products and services are excellent,
but also design new products and services that will meet developing customer needs. This
ensures that the company won't become stagnant over time and will retain and gain
customers.

Vision
without vision, an executive will have trouble determining exactly how to run the business or
develop services and goods. Conversely, vision aids business success because it provides
distinct goals toward which employees can reach. Once employees have goals, executives
can develop ways to motivate them toward those goals and thereby increase morale,
efficiency, productivity and reputation. Successful businesses should try to create an
environment that fosters the business vision. Businesses also should implement technology
as appropriate to make reaching goals for the vision easier.

Customer Service

A successful business thus takes steps to ensure customers are satisfied, which requires
that the business executive or employees gather customer feedback. Employee training will
provide employees with the skills necessary to gather this data and deal with customers in a
positive way.

4.0 STRATEGY FORMULATIO

4.1) CORE STRATEGIES

4.2) GROWTH OBJECTIVE AND STRATEGIES

Starbucks has the potential for finding a new type of growth strategy once the International
growth strategy is no longer beneficial. We believe that in this case Starbucks will need to
concentrate on its core competency, high quality coffee products, and use a Concentration
growth strategy. Starbucks will stay in the same industry, so the two main sub-strategies
would be Product Development, and Product-Market Diversification. It is important to
understand this in the Product Development phase they would need to focus solely on
making their existing products better. The company could demonstrate Product Market
Diversification through research and development, and creativity. The company could be
extra sensitive to changes in customer tastes, and the external environment. In doing so
Starbucks could quickly react to environmental changes and make sure to entice as many
people as possible into their stores. For example, Starbucks could start a line children's fruit
drinks and "yummy" milkshakes which would help bring families into the store. This way the
mothers and fathers could go to Starbucks and get their favorite coffee drink while making
their children happy.

4.3 ) Marketing Mix Objective and Strategies

In order to maximize their brand awareness and establish themselves as the most
recognized and respected brand in the world and within their target market, Starbucks
implemented a well-integrated marketing program that would utilize a marketing mix
(product, price, place, and promotion) that would satisfy the needs and wants of its target
market. The four elements of marketing mix that Starbucks utilized are as follows:

4.3.1) Product Objective and Strategies

Starbucks product-mix expanded from 30 varieties of whole bean coffees to

eco-friendly cappuccino, coffee makers, and other Starbuck paraphernalia. Its
product offerings have also expanded beyond pastries and coffee to oatmeal,
smoothies, and wraps to keep up with the competition and satisfy more customer
needs.

4.3.2) Pricing Objective and Strategies

Starbucks products are priced higher due to perceived upscale image attached to its
brand. The company also began to offer $1 bottomless 8 oz. cup of coffee, with unlimited
refills that cost approximately 50 cents less than any other Starbucks products. The company
is also implementing "value strategies" that would emphasize more on inexpensive coffee
products rather being perceived as unaffordable to price-skittish consumers. For example,
the company introduced $3.95 "breakfast pairings," including popular breakfast items paired
with a coffee, and highlights $2 brewed coffees instead of the more expensive specialty
drinks.

4.3.3) Place Objective and Strategies

Starbucks can be found in any neighborhood where there is a perceived high traffic
for its stores. Starbucks outlets can also be found in-store of various large chains including
Barnes & Noble and Target. Their locations are extremely conducive for individuals that are
on the go and for those who enjoy reading or listening to music. Starbucks has also been
recently testing "stealth outlets", where the store is named after the street it is located on.
The new stores attempt to "localize" Starbucks stores with no Starbucks logo on any of the
products being offered there, and instead have the specific street address as the brand
name.

4.4.4) Advertising Objective and strategy

Starbuct has been focused on “in‐the‐store” relationships. They retain customer loyalty by
providing personalized interactions to their customers. Therefore, the Starbucks counters
usually house large numbers of baristas and general employees who would proactively
communicate and attend to customer needs. Although it has proven to be a relatively
successful strategy, Starbucks needs to counter against McDonald’s marketing approach
that is more aggressive. For instance, McDonalds launched a website that “mocks” the
apparently over‐rated Starbucks coffee, Although Starbucks prides itself in providing a luxury
good (hence “snobby”), they should educate the public more effectively than it currently
does, about the unique characteristics of the Starbucks coffee to assure its customers that
they are paying a premium that is worth the money.

4.4.5) Sales Promotion Objective and Strategies

Starbucks has implemented numerous promotions to reach its target markets. Promotions
are listed as follows:

• One of the promotions that Starbucks has used is the Starbucks Card. Starbucks Card is an
initiative that offers customers the opportunity to promote company's products through a
referral system. When a customer purchases a gift card, it not only shows brand loyalty, but it
also provides the company with free advertising, and brings in new customers. Starbucks
also provides a card for corporate sales, which are used for extrinsic rewards to show
employee appreciation for a job well done, or a gift to client or a vendor. 

• Coffee services delivered to offices without coffee size restrictions.

• Coffees are transported to offices free of additional cost and irrespective of cup size,
making officials permanent

4.0)CONTROL AND EVALUATION

4.1) Budget

• The company has invested the huge budget of U.S $10.71 billion in year 2010.

• Upcoming budget for 2011 would be almost U.S $ 11 billion.

4.2) MANAGEMENT MONITORING SCHEDULE

Monitoring
Each member of the team should watch and see areas where another team
member may be weak. Also if one of the members is weak in a particular area it
should be brought to the attention by that member, to the other members.
Management
The members who have the most experience in a particular area will be required
to help those who don’t out should it come to the attention of the team that aparticular
member needs helpnecessary

References

American Management Association (1956)

http://ebookppt.com/marketing-strategy-and-strategic-planning.html

http://www.marketingscoop.com/strategic-planning-101.htm

http://www.wikinvest.com/stock/Starbucks_(SBUX)