Business_Case_Starbucks

MACAU UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF MANAGEMENT AND ADMINISTRATION AVENIDA WAI LONG, TAIPA, MACAU SAR BUSINESS CASE Marketing Strategy of Starbucks in China Conducted by Group 6 郁嘉奇 瀋譽超 林 允 伍啓鴻 劉章琪 In Partial Fulfillment of the Requirements for the Course International Marketing Submitted to Lecturer Michelle Liu December 9, 2010 Contents Page Chapter 1 Chapter 2 Introduction Starbucks Background Brief Introduction Name Origin Starbucks in China 1 2 2 2 2 3 3 4 6 7 7 10 11 12 12 Chapter 3 Marketing Strategy Market Segmentation Target Market Positioning Chapter 4 Place Strategy The “Third Space” Suggestions Chapter 5 Conclusion The Division of Teamwork Thanks 1 Chapter 1 Introduction There is a saying ‚When I am not at home, I am in the coffee stand; but if I am not in the coffee stand either, I am on the way there.‛ These words are surely from petty bourgeoisies, or known as ‚Xiaozi (小資)‛ The coffee stand in this sentence is not others, but the Starbucks. Based in Seattle, the U.S.A., Starbucks is the largest coffeehouse company in the world, with over 17,800 stores in 49 countries. Among all the stores, 11,000 stores are in the US, constituting the overwhelming majority. Starbucks came to Mainland China in 1999. After years of expansion, the total number of stores in Greater China is over 600 now. Starbucks adopt a place strategy named ‚third space‛ in China. This report will analyze the current situations of Starbucks in China first, to find out the segmentation, target market and position (STP) of Starbucks. And then we explain the ‚third space‛ strategy and show how it works together with the STP situation. In the ending we make some suggestions to Starbucks and draw a conclusion. 1 Chapter 2 Starbucks Background Brief Introduction Starbucks is the largest chain coffeehouse company in the world, with over 17,800 stores in 49 countries. The first Starbucks store is opened in Seattle, the U.S.A. in 1971. Starbucks provides various products, most are related to coffee, such as drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and panini, pastries, snacks, and items such as mugs and tumblers, etc.. Name Origin The name of ‚Starbucks‛ is from a novel Moby-Dick by Herman Melville. This novel is about a story happened in a whaleboat. In this novel there is a chief mate named Starbuck. He has a clear mind and love drinking coffee. It is easy to associate this with a story of adventure on sea looking for high-quality coffee beans. And a personality of being clear-minded is also concerning to the white-collar crowds. Starbucks in China The first Starbucks in China came to Beijing in 1999. The first Shanghai store opened in 2000 and they come to south China in 2002. Right until today, there are already more than 200 branch stores in Mainland China. 2 Chapter 3 Marketing Strategy Marketing strategy usually has three steps that are market segmentation, target market and positioning. These processes are shown as follows. Market Segmentation •Divide the market using proper segmentation variables Target Market Positioning •Choose suitable target markets to the segmented markets •Give the target markets the most suitable position Market Segmentation There are many methods of segmentation, via demographic variables, psychographic variables, behavior variables, benefit variables and ethic variables. Here we analyze the Starbucks’ segmentation through the former three segmentation methods; the latter two is unsuitable to interpret in the Starbucks case. Demographic segmentation According to demographic segmentation, the customer of Starbucks can be briefly divided to two groups.  People aged at 18 – 25, undergraduate college student or college graduators, the one or one’s family getting a good pay, cannot leave the Internet.  People aged at 25 – 35, college graduators, getting a good pay, like Internet. Psychographic segmentation According to psychographic segmentation, the customer of Starbucks can be briefly divided to two groups.  The upper circles pursuing lifestyle, mind sublimation and brand symbol. They like making decisions themselves.  The middle circles pursuing fashion, personal style. They have a vivid personality. 3 Behavior segmentation According to behavior segmentation, the customer of Starbucks can be briefly divided to three groups.  People that like drinking coffee. Drinking coffee is their habits; they know how to evaluate and appreciate coffee. They are sensitive to quality and service.  People sometimes drinking coffee. They have a limited knowledge about coffee; sometimes they’ll buy coffee at grocery stores or supermarket. They are sensitive more to price.  People seldom drinking coffee. They nearly care nothing about coffee. The reason that they enter the Starbucks may be that they want to enjoy other kinds of drinks or the environment and the service. Target Market To cover the segmented markets, there are several market models. Starbucks sells not only the coffee products, but also the value conveyed by coffee. Snacks, coffee cups, music are all selling in the Starbucks stores. So their market model is to cover the market fully, with all kinds of products. M1 P1 P2 P3 Marketing Models of Starbucks Starbucks is always try to make the customers feel comfortable and relaxed from its coffee and environment. So the main target market of Starbucks is not ordinary people, but the office workers who really want to enjoy and relax. The primary customer of Starbucks is from upper-middle class, but the range of customers in operation actually is wider than the anticipation. Of course, all the customers who come to Starbucks are asking for the same thing – spiritual enjoyment. The following shows the main target market of Starbucks. M2 M3 4 Officers – Starbucks always is the best place for officers to drink a cup of coffee to relax and make them more energetic to work. Because Starbucks has everything they want. Young People/Students – Starbucks is considered as a trendy brand. It’s always popular to the young people who chase after fashion. Including students, many young people like to go to Starbucks to have a drink, have a chat or surf the Internet to relieve the pressure from their study or work. Although Starbucks’ products are set as high-price product, its ‘payable luxury’ makes the people who have no income like students can also buy the drink they want. Shoppers – Starbucks is also considered as a rest station of shipping center. After a kind of shopping, shoppers usually want to go to Starbucks to have a break. Traveler/Foreigner – As a traveler who comes to a strange place, Starbucks is the most and the only similar place. After searching for something unknown, it’s relaxed to drink a cup of similar coffee in a different environment. Coffee Lover – In order to satisfy the different demand of different customers, Starbucks consists to make coffee with the best materials by the best way. Meanwhile, Starbucks’ strategy named ‘one at a time’ can make sure the coffee is the freshest and the most delicious. That makes Starbucks can perfectly satisfy every coffee lover. Furthermore, foreigners in China can’t be neglected. The Starbucks in China is much less than in other countries and the foreigners want to continue their habits of spending time in Starbucks. They are the main customers in the Starbucks located at where foreigners live or gather. 5 Positioning The positioning shows how you differentiate your product in the mind of customers. Starbucks is different, not only a coffeehouse, but a place of enjoyment brought by coffee. In this place there are coffee, special coffee cups, snacks, music and elaborately decorated rooms. They even don’t make any advertisements. That’s their ‚experiential marketing‛, showing how they are charming and different from the competitors. So the position of Starbucks is to provide the customers with a complete experience in Starbucks, whether it is about coffee or not about coffee. In this experiential marketing, you taste more than coffee. You spend your leisure time there and make social interactions. The following picture shows what people can experience, and what will be the marketing key point in each experience. Reasons of Entering Starbucks Family/friends gathering Lovers talking Personal enjoying Position Fashion Lifestyle Leisure Romance Mystery Oasis of the soul Taste sense Visual sense Auditory sense Tactile sense Experiences they want to get Emotional Experience Social Experience Experiences they will get Increase brand value become frequenter Experiences satisfying to their social needs Styled inner design Soft light Gentle music High-quality coffee Special environment Marketing Key Point Enhance the brand image continuously Build up their customer loyalty Personalized service and regular activities More Standardized menu and service Atmosphere Experience Sensuous Experience Components of Starbucks’ Experiential Marketing With a position of giving the customer the complete experience, Starbucks becomes the customer’s third life space, not home or workplace. This will be explained in the following place strategy of Starbucks. 6 Chapter 4 Place Strategy The “Third Space” In short, the place strategy of Starbucks is the ‚third space‛. But what is ‚third space‛' It is not home, not your workplace but another place where you can chat, rest and conduct business negotiations. Actually this kind of place is very common, just like McDonald’s or KFC. But these two places are limited for it’s too quick and noisy. And you’ll choose these places only during mealtimes. How about other time' The Starbucks will be your right choice. Where should the ‚third space‛ be' In this report we have mentioned that the target customers of Starbucks are mainly office workers; they have no enough spare time to find a Starbucks branch. Very often, Starbucks expands their business without advertisement. So Starbucks are often located in the places where the flow of customer traffic is high and near the urban center of a city. Besides, Starbucks like to occupy one specific area fully, to avoid competitors entering this area. In addition, the site selection of Starbucks cares about future development and overall planning. Here we take Guangzhou for example, to explain the above aspects. Yuexiu Traditional Business Area Taojin North Tianhe CBD Zhongshan Avenue Shamian Starbucks in Guangzhou ( stands for a Starbucks Branch; stands for a metro station) 7 As is reflected in this picture, the branch shops of Starbucks in Guangzhou are mainly concentrated on North Tianhe CBD and Yuexiu Traditional business area, and of course, near the metro station. The two areas are also where high-grade office buildings, residential estates and hotels locate, and where there are many middle-class people. We make a summary of this picture as follows. 1. In North Tianhe CBD, Starbucks are so intensive that two branches are within just less than 500 meters. This shows another aspect of Starbucks’ place strategy that they want to occupy one area fully. It doesn’t matter that competition occurs in the branches of Starbucks. The purpose is to never leave the competitors chances. Besides, this strategy is beneficial to the customer; they don’t have to walk a long way to reach Starbucks. 2. And then we move on to Taojin Branch, Zhongshan Avenue Branch. The two branches started their business when the nearby metro line 5 and bus rapid transit (BRT) system are under construction. And now the traffic facilities are finished, the two branches are operating very well. This shows Starbucks take future development into their consideration in the place strategy. 3. Finally the Shamian branch exists oddly. There are no office buildings, and it is definitely not the busy downtown and far away from the metro station. However, there are many foreign consulates in Shamian. They are part of Starbucks’ target market in China. To continue the habits of spending time and money in Starbucks in Guangzhou, the embassy officers won’t miss the Shamian branch. 8 The first branch is located in the Good World Plaza on the Huanshi East Rd. And here we analyze the details of Starbucks’ place strategy. La Perle Baiyun Hotel Garden Hotel Surroundings of Starbucks at Good World Plaza Symbol: - residential estates; - Starbucks; - top hotels; - shopping center; - office building; - metro station. - administrative institution; In a detailed analysis, we can find near the Starbucks there are all kinds of buildings. Baiyun Hotel and Garden Hotels are the top-level hotels in Guangzhou. La Perle is an expensive consuming place. And there are many office buildings and residential estates near the Starbucks. People entering these places often have a stable income and pursue for a high-quality life. They will also have high chances entering Starbucks as their ‚third space‛. In general, the current place strategy of Starbucks is to locate at shopping centers, office buildings, top residential areas and traffic nodes. Starbucks pays attention to future development and small group in target market as well. This matches with the position and target market of Starbucks. 9 Suggestions The place strategy works well. But there is no perfect thing in this world. After a further study, we make some proposals for Starbucks. 1. Be braver in opening new branches. a. Open more Starbucks in the city center. Now in Mainland China, there are 122 branches of Starbucks in Shanghai, 75 in Beijing and only 37 in Shenzhen and 25 in Guangzhou. The number is smaller in other cities. But Taipei has over 100 branches and 118 in Hong Kong. They are all big cities, but in China the Starbucks is evidently not easily accessible. b. Open stores in subcenters. Cities are always expanding. The place where people live and work are usually far away. 2. Take more kinds of people into consideration. a. Take students into consideration. Students may sometimes don’t have the consuming ability, but they’ll sure have the consuming intentions. They’ll come to Starbucks even when they don’t have enough money. So it’ll be pretty good if a Starbucks appear in the university town of the cities. b. Open more branches where foreigners like to gather. The Shamian branch is a good example, but it is still not enough. Yangshuo, Sanya needs Starbucks for there are many foreigners. c. Take administrative institutions into consideration. The government officers in China have the consumption ability, and often they are always sitting in the office doing nothing. Starbucks helps them to kill time. 3. Start temporary shops during specific times. Open a temporary coffee stand during big events. There is nobody in the convention center in Guangzhou in ordinary days. But when a big event begins, such as Canton Fair, an international commodities fair, Starbucks become indispensable. It takes time to make such a conclusion for an international company, but it is really a good alternative. 10 Chapter 5 Conclusion With a background of quick global and domestic expansion, Starbucks takes several measures to help itself survive in the fierce competing environment. This article uses three segmentation latitudes to analyze the market segmentation of Starbucks, and then shows how to cover the segmented market, that is, the target market. From the target market we can get the position of Starbucks, the ‚experiential marketing‛. ‚Experiential marketing‛ is a unique weapon for Starbucks. The history of Starbucks helps it accomplish that. What Starbucks provides is not coffee, but a complete series of customer experiences. This also helps to contribute to customer loyalty. This position leads to the place strategy of Starbucks, to be the third life space for customers, the right and regular place for rest, chat, and business talks. We take Starbucks in Guangzhou as an example in this report to show how it works. Starbucks has a goal of open 1500 branch stores in Greater China within the future five years. Obviously, the current number of branch stores is far from satisfied. To achieve this goal, Starbucks should have more open eyes, to be braver to enter a new city, and open a new store in China. 11 The Division of Teamwork The Division of our teamwork is listed as follows. Content Division 2. 3. 3.1 3.2 3.3 4. Company Background Situation Analysis Market Segmentation Target Market Positioning Place Strategy 瀋譽超 伍啟鴻 林允 劉章琪 郁嘉奇 Thanks Big thanks to Lecturer Michelle Liu, for her helpful guidance Thanks to every team members, for the efforts they have paid And thanks to everyone related to this project 12