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Company Overview

Describe about the Strategic Marketing Management of Hospitality?

This paper focuses on analyzing the current position of Starbucks by conducting market analysis. PESTEL analysis has helped in getting an insight regarding the macroeconomic condition. Additionally, SWOT analysis has contributed in identification of the strength, weakness, threat and opportunities of the organization. Marketing plan has been developed for launching new product the marketing plan includes identification of the target market, market segmentation and marketing mix strategies. Effective strategy is essential for maintain the position in the intensely competitive market and ensuring future growth in the international market. Financial forecast has been presented at the end of the paper.

Starbucks is one of the leading coffee shops which started its journey in 1971 with a single store in Seattle. Presently the company has 21,878 outlets across more than 65 countries. Starbucks offer the finest coffee of the globe that is grown, prepared and served by the experts. Mission of the organization is to inspire as well as nurture the human spirit – one person, one cup and one neighborhood at a time. The company has been focusing on serving the best coffee to its customers. The major aim of the company is to use coffee that is grown under the best standards in terms of quality by adopting ethical practice. The organization sends its representative to the coffee farms of Africa, Latin America and Asia in order to ensure superior quality coffee beans that are grown ethically are used by the company. Starbucks believe that its employees are at the heart of the Starbucks experience (Starbucks Coffee Company, 2015).

Products:

Starbucks offer wide range of exclusive products which can be enjoyed by the consumers in the Starbucks stores, at their home or on the go. The company has been offering more than 30 blends and single origin premium coffees.  The product range includes fresh brewed coffee, smoothies, espresso beverages, refreshers, teas and frappuccino etc. Moreover, Starbucks offer fresh salads, baked pastries, oatmeal, fruit cups, sandwiches etc. The consumer products of Starbucks include coffee beans, ready brew, ground coffee, ready to drink tea and coffee beverages etc (Starbucks Coffee Company, 2015).

Financial Position:

 In 2013, net revenue of Starbucks has been estimated to be $ 14.9 billion and it has enhanced by 12% in comparison to 2012. Cash flow from operation has increased by $ 1.1 billion from the previous year. The financial statements of the company clearly indicate that the company has been encountering significant growth. The company has achieved highest sales growth in China and Asia Pacific region (Investor.starbucks.com, 2015).

Sustainable Business Practice:

Starbucks have always focused on maintaining a balance between profitability and social conscience. The company has adopted a holistic approach in order to source best quality coffee ethically. Starbucks have been supporting farmer loans as well as forest conservation programs for fostering a better future for the farmers and better place to leave.  The company is committed to the environment and it cares for its planet through water and energy conservation along with recycling.

Products

International coffee market has experienced significant transformation over the last fifty years.  According to International Coffee Organization, global consumption of coffee has been increasing at the growth rate of 1.9% per year over the last fifty years. The growth rate has increased to 2.4% since 2000.  United States of America European Union and Japan account for the principal share of the global demand of coffee. Domestic consumption in the coffee exporting nations has significantly increased over the last few decades. In the traditional importing market of coffee has encountered slight decline in the annual growth rate of consumption. Despite the population growth, increase in coffee consumption in the traditional markets has been estimated to be weak.  On the other hand, in the emerging markets, the demand for coffee has been increasing significantly. It has been expected that the emerging markets will be important source of growth in the global consumption in near future (International Coffee Organization, 2014).

According to the market research conducted by the National Coffee Association of USA, it has been observed that Americans are shifting to the gourmet coffee and 34% consumers in USA prefer gourmet coffee beverages (National Coffee Association, USA, 2014). Espresso based beverage and regular coffee prepared with gourmet coffee beans are receiving growing popularity in US and it has grown by 3% from the previous year (Brown, 2014).  On the other hand, trend has reported that consumption of non-gourmet beverages has declined by 4%. According to the report published on the trend of coffee consumption, it can be clearly identified that the consumption is declining. Additionally, it has been recognized that popularity of tea is rising and the rising price of coffee is one of the major reasons behind it (Mitchell, 2015). Additionally, tea has lot of health benefits and growing concerns about health can be considered as a major reason for preferring tea. Presently 59% American drink coffee regularly and it has been found that younger people in US drink fewer cups coffee daily (Fortune, 2015). On the other hand, coffee industry of Australia has been expecting significant growth in near future (Bowling, 2015). 

Competitive Rivalry

Starbucks have been operating in the monopolistically competitive market. It has been observed that Starbucks have been able to achieve significant brand loyalty despite of the inflated price. From the market analysis it has been observed that the company has been maintaining good control over its high price. The high quality coffee has helped the company in differentiating form its competitors.  The major competitors of Starbucks are the specialty coffee shops and the quick service restaurants. However, the present trend has clearly indicated that consumers are looking for lower priced beverages. Hence, Starbucks will encounter decline in sales as consumes will shift to the shops offering good quality at lower price (Jeffs, 2008).

Bargaining Power of the Suppliers

Starbucks believes in ethical sourcing and it focuses on integrating sustainability into their supply chain. High quality and ethically grown coffee beans are sourced from the different regions of Africa, Latin America and Asia.  Starbucks capitalizes the advantage large market share and size of the organization. The bargaining power of suppliers is low as Starbucks maintain fair trade and its brand name attracts the suppliers to get associated with the organization.

Financial Position

Bargaining Power of the Customers

Bargaining power of the customers is one of the important factors that influence the strategy of the organization. Starbucks offers wide range of high quality products and its brand value easily attracts as well as retains customers. However, as the customers are getting various alternatives, they can easily switch to other brands offering lower price without making compromise on quality. Hence, the bargaining power of the customer is moderate in case of Starbucks.

Threat of New Entrants

Entrance of new market players is significantly reliant upon the level of barriers to enter into the market. In case of beverage industry, the barrier to entry is quite low and the initial investment is not very high. Hence, it is very easy to penetrate the market. However, for the new market players, it will be very difficult to compete with the market leader like Starbucks. Therefore, it can be concluded that in case of Starbucks, threat of new entrants is moderate.

Threat of Substitutes

Threat of other substitutes also plays a major role in reshaping the strategy of an organization. In case of Starbucks, the threat of substitutes is high.  For instance, fresh fruit juice, packaged fruit juice, energy drinks and tea are the substitutes of coffee. Especially, tea has been receiving growing popularity across the globe. Health consciousness is rising and consumers have identified the health benefits of tea. Hence, it can be stated that the threat of substitute is high for Starbucks (Grigg, 2002).

PESTEL analysis is a strategic management tool which provides significant insight to the macroeconomic environment. In the following table six external factors have been briefly discussed in order to provide an overview of the macroeconomic environment of Starbucks.

Factors

 

Political

§  Starbucks have been encountering major concern related to the sourcing of raw materials which has attracted the political attention. Hence, it is important adhere to the norms of that nation for conforming to the fair trade practice (Sadler, 2003).

§  Starbucks has been operating in different nations across the globe and it has been encountering regulatory pressure from different nations.

Economic

§  Global economic slowdown especially in the European market has been a major concern for Starbucks. It has been affecting the profitability of various organizations.

§  Recent trend has indicated that people are shifting to other beverages form the high priced coffee. 

§  In different nations, labor cost and other operational cost vary and the company needs to develop its strategy according to the market situation.

Social

§  The company may focus on targeting broad market in different economy which will require lowering the price of the products. Consequently, the quality of the product will be compromised in this case.

§  The social factor of different economy has clearly indicated consumer’s preference for low priced products which must be considered by the firm (Parasuraman, 1987). 

Technological

§  Advancement of technology has been shaping the demand of the consumers. Starbucks has been offering Wi-Fi in the outlet for attracting the young generation.

§  Mobile app has been receiving rapid popularity and Starbucks has adopted it to provide convenience to its consumers.

§  Additionally discount coupons have been generated in association with Apple (Vrontis and Kogetsidis, 2008).

Environmental

§  Environmental impact of the business activities must be reduced. Hence, it is important for the business firm to be well aware of the business activities and ethical practice.

Legal

§  In each territory, Starbucks need to ensure that its activities comply with the legal framework.

Coffee market is highly competitive and the competition analysis provides a clear scenario of the position of Starbucks in the market. Starbucks have been operating in the monopolistically competitive market. It has created a standard for its product and it has been controlling the inflated price. High brand image of Starbucks differentiates its products from its competitors. High quality and ethically sourced coffee are the major reason behind the success of Starbucks. There are various coffee shops in the market and those are the principal competitors of Starbucks.  Costa Coffee, Dunkin Brands, Pete’s Coffee and McDonald’s are creating pressure on Starbucks. In terms of location, Starbucks encounter major challenges from the restaurants and ready to drink coffee shops located in the prime locations (Kotler, 2000). The intensity of the rivalry has been increasing and Starbucks will encounter major issues in gaining new customers as well as retaining them. Competitors of Starbucks have participated in a price war which can significantly affect the profitability of the firm.

SWOT analysis helps in identification of the internal strength and weakness of the organization along with the external threat and opportunities. An organization must focus on improving the weakness and capitalizing strength as well as opportunities for enhancing the overall business performance.

Strength

One of the major strength of Starbucks is its wide range of products offered to its customers.

Sustainable Business Practice

Starbucks strongly believe in sustainable business practice and it focuses on the ethical sourcing of raw materials (Loureiro and Lotade, 2005).


The company values it employees and considers them as partners.


Starbucks have focused on mass advertising which assisted in establishment of the brand name.


The research and development team of Starbucks has been working on strengthening its product portfolio which satisfies customers having different needs.


Strong brand name, value and brand loyalty has provided significant advantage to the organization (Grant, 2011).


Effective customer relationship management and branding strategy of the company has contributed in the success of the organization.

Weakness

Starbucks has been majorly focusing on coffee and retail. However, it is very important to diversify for achieving greater market share as well as expansion of the business.


Starbucks have focused on differentiating its product by offering best quality coffee. However the price is too high that the consumers may forego the premium experience by switching to other products with lower price.


Starbucks is significantly reliant on the domestic market, i.e. US market.

Opportunities

Starbucks have ample opportunity to expand in the emerging market as the trend has demonstrated the growth rate of coffee consumption has increased in the developing economies.


Starbucks have an opportunity to expand its product mix and achieving large market share by adoption of effective marketing strategy (Harrison, 2005).


Use of mobile app can help in enhancing the business as it offers greater convenience to the customers.


As Starbucks already have a powerful brand image, it can focus on leveraging it for venturing product diversification and brand extension.

Threat

Starbucks have been encountering significant threat due to increased competition. For instance, Costa Coffee, Dunkin Brands, Pete’s Coffee and McDonald’s have been creating significant pressure on the brand.


Price volatility in the international coffee market can be considered to be a major threat for the organization. Starbucks do not have a control over it, but it can affect the profitability of the organization.


Starbucks is significantly reliant on the developed economies and the market is becoming saturated.


Lifestyle and the taste of the consumers are changing and the customers prefer healthy products. Demand for coffee has been declining in the developed nations (Mohr, 2013).

SWOT analysis of Starbucks have clearly indicated that the company ample opportunity to expand its product line. Analysis of the market has indicated that the consumers are becoming increasingly health concerns. Negative impact of drinking coffee has been identified by the consumers. Moreover, it has been found that tea has been receiving significant popularity in the developed nations. Though Starbucks have some other beverages such as tea and fruit juice, the major product is coffee. As the consumption of coffee is declining, Starbucks must focus on launching new products. As tea and fruit juice are the principal substitutes of coffee, Starbucks can plan launching wide variants of tea and fruit juice. Presently, Starbucks has been offering brewed tea, latte and iced tea. New variants of tea and nutritious fruit juice must be offered by Starbucks. It will focus on highlighting the nutrition value and health benefits of these products (Hawkins, Best and Coney, 2004).

Market Analysis

Target Market

Target market for the new products will be the health conscious consumers. The company must target thee people who will be loyal and thus brand loyalty can be achieved. Moreover, it will also include existing customers of Starbucks. It will include the younger generation who drinks fewer cups of coffees and the adults. Starbucks will target the office goers who consume soft beverages and they can afford expensive products (Winer, 2004).

Loyal Customers

Starbucks will target the regular customers or the loyal customers. Starbucks can promote the health benefits of the newly launched products and capture the exiting market.

Young Adults of Age Group 18 -24

Young adults do not prefer coffee as they have identified the negative impact of drinking too much coffee. Moreover, they cannot afford the high price of coffee. Hence tea and fruit juice will be a preferred option for the young adults belonging to the age group of 18 – 24.  

Adults of Age Group 30 – 55

Adults are also the principal target of Starbucks. People belonging to the age group of 30 -55 are switching from coffee to other beverages. Hence, targeting this wide market would significantly help in boosting the market share of Starbucks. Additionally, the office goers can easily afford the expensive products of Starbucks and the health benefits of tea and fruit juice will attract and retain these people easily (Sheehan, 2011).

Marketing mix has major four elements that help in determining the marketing strategy of the organization. In the following table, the marketing mix elements for launching new products have been presented.

Marketing Mix Elements

Strategies

Product

Starbucks will expand the product mi for offering healthy beverages to the target market. It has been observed that the lifestyle and preference of the consumers are changing and consumption of coffee is declining in the developed economies while tea has been receiving increasing popularity. Consumers are becoming more health concern. Hence, Starbucks will launch tea and fruit juice. Wide range of tea such as different variants of iced tea, latte, herbal tea, black tea etc can be offered (Chernev, 2012). Moreover, fresh fruit juices of all popular fruits must be offered to the customers. In the packaged tea and fruit juice, the nutritional value must be written. The research team of Starbucks must focus on developing new products continuously according to the preference of the customers.

Price

Starbucks have adopted premium pricing strategy for its other products. In this case, it can adopt premium pricing strategy as it is considered to be significant part of the brand. Starbucks seems to define the status of the consumers. Hence, premium pricing strategy will be appropriate for Starbucks. However, price of tea will be lower than coffee as consumers are looking for low priced beverages (Winer, 2004).

Place

These products must be made available to all the stores, especially in the developed nations. Moreover, loose leaf teas can be made available online which will be convenient for the customers (Anderson and Vincze, 2004).

Promotion

Promotional strategy must focus on highlighting the major advantages of tea and fruit juice. The advertisement campaigns must communicate the nutrition value and health benefits of these products. Newsletter must be send to the registered customers. Additionally, advertisement must be published on social media for attracting the target market. Marketing campaign must be conducted for promoting healthy lifestyle (Cravens, Lamb and Crittenden, 2002).

Particulars

2014  (Base Year)

2015

2016

2017

         

Total Net Revenue

 $     16,447.80

 $       18,750.49

 $  21,375.56

 $    24,581.90

Revenue Growth

 

14.00%

14.00%

15.00%

Total cost of Operations

 $     13,635.00

 $       15,680.25

 $  17,953.89

 $    20,557.20

Operating Profit

 $       2,812.80

 $         3,070.24

 $     3,421.67

 $       4,024.70

Increase in Operating Profit

 

9.15%

11.45%

17.62%

 Total Net Revenue & Operating Profit

Conclusion

Starbucks has been operating in the monopolistically competitive market and extensively focused on the domestic market. The trend of coffee consumption has indicated that consumption of coffee is declining. Hence, Starbucks must launch wide range of healthy beverages which will include tea and fruit juices. An effective marketing strategy has been designed and it indicates that the company will encounter revenue growth of 14% in the first year and the operating profit will be enhanced by 9.15% in 2015.

References

Anderson, C. and Vincze, J. (2004). Strategic marketing management. Boston: Houghton Mifflin.

Bowling, D. (2015). Grind it up: competing in the crowded cafe sector. [online] Hospitality. Available at: https://www.hospitalitymagazine.com.au/beverage/grind-it-up-competing-in-the-crowded-cafe-sector [Accessed 19 Mar. 2015].

Brown, N. (2014). 2014 Coffee Consumer Trends Report: More Gourmet, Single Cups. [online] Daily Coffee News by Roast Magazine. Available at: https://dailycoffeenews.com/2014/05/09/2014-coffee-consumer-trends-report-more-gourmet-single-cups/ [Accessed 19 Mar. 2015].

Chernev, A. (2012). Strategic marketing management. [Chicago, Ill.]: Cerebellum Press.

Cravens, D., Lamb, C. and Crittenden, V. (2002). Strategic marketing management cases. Boston, Mass.: McGraw-Hill.

Fortune, (2015). U.S. coffee drinking grinds lower. [online] Fortune. Available at: https://fortune.com/2015/03/13/coffee-drinking-declines/ [Accessed 19 Mar. 2015].

Grant, R. (2011). Contemporary strategy analysis. Chichester: Wiley.

Grigg, D. (2002). The worlds of tea and coffee: Patterns of consumption. GeoJournal, 57(4), pp.283-294.

Harrison, J. (2005). Exporting a North American Concept to Asia: Starbucks in China. Cornell Hotel and Restaurant Administration Quarterly, 46(2), pp.275-283.

Hawkins, D., Best, R. and Coney, K. (2004). Consumer behavior. Boston: McGraw-Hill Irwin.

International Coffee Organization, (2014). World coffee trade (1963 – 2013): A review of the markets, challenges and opportunities facing the sector. London, United Kingdom: International Coffee Council, pp.1-13.

Investor.starbucks.com, (2015). Annual Reports | Investor Relations | Starbucks Coffee Company. [online] Available at: https://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual [Accessed 19 Mar. 2015].

Jeffs, C. (2008). Strategic management. Los Angeles: SAGE.

Kotler, P. (2000). Marketing management. Upper Saddle River, N.J.: Prentice Hall.

Loureiro, M. and Lotade, J. (2005). Do fair trade and eco-labels in coffee wake up the consumer conscience?. Ecological Economics, 53(1), pp.129-138.

Mitchell, D. (2015). This Is the Drink People Are Getting Instead of Coffee. [online] TIME.com. Available at: https://time.com/3747930/coffee-tea/ [Accessed 19 Mar. 2015].

Mohr, P. (2013). Changing Consumer Behavior and Influencing the Food Environment. CFW Plexus.

National Coffee Association, USA, (2014). 2014 National Coffee Drinking Trends - National Coffee Association. [online] Ncausa.org. Available at: https://www.ncausa.org/i4a/pages/index.cfm?pageID=924 [Accessed 19 Mar. 2015].

Parasuraman, A. (1987). CUSTOMERâ€ÂORIENTED CORPORATE CULTURES ARE CRUCIAL TO SERVICES MARKETING SUCCESS. Journal of Services Marketing, 1(1), pp.39-46.

Sadler, P. (2003). Strategic management. Sterling, VA: Kogan Page.

Sheehan, B. (2011). Marketing management. Lausanne, Switzerland: AVA Pub.

Starbucks Coffee Company, (2015). Mission Statement. [online] Available at: https://www.starbucks.com/about-us/company-information/mission-statement [Accessed 19 Mar. 2015].

Vrontis, D. and Kogetsidis, H. (2008). Environmental analysis as a means to customer satisfaction: the case of Starbucks in Cyprus. JIBED, 3(3/4), p.188.

Winer, R. (2004). Marketing management. Upper Saddle River, NJ: Prentice Hall.

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