Marketing Mix at Starbucks Marketing Term Paper

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There is an abundance of work going on inside Starbucks right now to bring GIS expertise in-house to aid in their segmentation planning based on taking both demographic, psychographic and attitudinal segmentation criteria overlaid against potential market areas.

Marketing Mix Analysis

The following is an analysis of the marketing mix for Starbucks compared to Dietrich Coffee and Coffee Bean and Tea Leaf Company.

Product

Starbucks' ability to continually innovate new products is central to its lasting competitive advantage in this area. That combination of innovation and focus on being able to executive product delivery globally is a sustainable competitive advantage. Starbucks has steadily grown their cold and hot drink menu equally in terms of product offerings, and continues to experiment with light lunch, mainstay bakery items, and seasonal fruit and bakery goods.

The approach to this product strategy however is muted and not as pronounced on their website as it is in their stores. The majority of revenue growth in Starbucks however comes from recently added drinks, according to Mintel Research and DataMonitor. This is also supported by Baird (2006) and their investment analysis.

Comparably, both the Coffee Bean and Tea Leaf Company and Dietrich Coffee rely on the higher-priced and correspondingly higher margin drinks. The product strategies at both of these competitors are decidedly focused on the higher end of the market, the segments where Starbucks is positioning the Vendi class of hot drinks and the Frappacino line of "fancy" drinks.

Starbucks' two competitors are relying on these higher-end beverages, both pictured with mounds of whipped cream, as dessert replacements and communicating their product strategy as being one of an affordable luxury.

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Starbucks' senior executives

Price

Pricing is the most powerful differentiator there is and Starbucks uses it sparingly to retain their profitable business model. For Starbucks, their strategy of having classes of products that overlap each product category is critical. Their approach to "blanketing" the price points of competitors with three different sizes of each drink and the successful up-selling and cross-selling strategies that occur in stores all contribute to the company's revenue growth and corresponding profitability. What Starbucks does best with regard to its pricing is not try and test the elasticity of price, but rather looks to create price-quality relationships with each of their brands and offerings.

Dietrich and Coffee Bean and Tea Leaf Company on the other hand are using a series of pricing decisions today to differentiate from Starbucks. Dietrich uses price elasticity as a lever for example on its lower-end coffees, plummeting the price down to test the pricing "floor" of this market. Their approach is actually costing them greater levels of margins and lost business. For Coffee Bean and Tea Leaf Company, their approach is to stabilize all prices and use the up-sell and cross-sell opportunities their product-laden stores provide for. it's clear from their pricing strategies for drinks are meant as "loss leaders" to bring customers in to purchase products in stores.

The bottom line on pricing is that Starbucks is using pricing as a differentiator to align their products to specific segments, connoting price-quality relationships. The two competitors are using pricing in the way many companies use price - as the differentiator itself, where the elasticity of demand is tested through plummeting.....

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