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BCPM 2 – PRINCIPLES OF MARKETING

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Lesson 7 – Customer-Driven Marketing Strategy: Creating Value for Target

Customers

Activity 7
Assume you work at a regional state university whose traditional target market,
high school students within your region, is shrinking. This segment is projected to
decrease over the next ten years. Recommend other potential market
segments and discuss the criteria you should consider ton ensure that the
identified segments are useful.

Write your answer here

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Group Activity 2: Submit answer on a yellow paper or bond paper. You may
submit a handwritten or computerized output. Make sure to indicate you group
member and number on the space provided.
1. In a small group, visit a grocery store and examine the brands of breakfast
cereal. Using the bases for segmenting consumer markets, identify the
segmentation variables a specific brand appears to be using. Summarize the
segmentation and targeting strategy for each brand. Identify brands with
similar positioning strategies.
2. Form a small group and create an idea for a new business. Using the steps
described in the chapter, develop a customer-driven marketing strategy.
Describe your strategy and conclude with a positioning statement for your
business.

Lesson 8 – Products, Services, and Brands: Building Customer Value

Case 2: Answer the questions briefly but concisely. Each answer is

worth five (5) points

STARBUCKS: Learning from the Japanese Experience

GROUNDED HISTORY
In 1971, entrepreneurs Jerry Baldwin, Gordon Bowker, and Zev Siegl
launched the first Starbucks in Seattle’s Pike Place Market. These entrepreneurs
opened a retail store selling only the finest coffee-brewing
equipment to brew only the highest-quality, whole bean
coffee. They believed that such a store could satisfy the few
coffee enthusiasts who had to order coffee from Europe and
convert other coffee drinkers to the gourmet coffee
experience. To differentiate its coffee from the bland,
dishwater-like store brands, Starbucks scoured the globe for
Arabica beans grown above 10,000 feet in altitude by a
carefully selected group of growers in countries like Sumatra, Kenya, Ethiopia,
and Costa Rica. The company focused on Arabica beans, rather than
cheaper robusta beans, because consumers could brew the Arabica beans
at higher temperature thus, producing richer coffee flavor.
Despite early success, Starbucks remained a small time Seattle operation until
the company hired Howard Schultz as its marketing director in 1982. In 1983,
Schultz, while travelling to Italy, visited a coffeehouse and realized that
Starbucks future was not in retailing coffee beans and equipment but in
servicing freshly brewed coffee by the cup in its own coffeehouses. Schultz saw
that the coffeehouse strategy would allow Starbucks to differentiate itself from
other vendor of beans and equipment that were springing up. Further,
although more people were developing tastes for gourmet coffee, many
people did not have time or equipment to brew specialty coffee properly. By
brewing the coffee in its coffeehouses, Starbucks could use the proper
equipment and well trained employees to produce the best possible coffee in
an environment that enhanced the coffee drinking experience. And, offering
the coffee by the cup made the experience convenient for the busy Seattle
businesspeople who were Starbuck’s prime customers.

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In 1987, Schultz became president of Starbucks and began to reshape

its image as a p[prelude to rapid growth. He updated the company’s logo
from an earthen brown color to green. He worked to shape Starbuck’s
coffeehouses to a blend of Italian elegance and American informality. He
carefully designed the store to “enhance the quality of everything the
customers see, touch, hear, smell, or taste.” He wanted the store to be a
“personal treat” for the customers, providing a refreshing break in their day or
a place to relax at night. To achieve this goal, Schultz and his manages
invested in employee training and a strong employee benefit program so that
they could attract and retain skilled employees who could enhance the
customer’s experience. By late 1990s, Schultz strategy was paying off
handsomely. By the end of 1997, Starbucks has added 30,000 employees since
Schultz joined the company and was hiring 500 employees a week. Sales have
almost doubled from $700 million in just 1996 and to over $1.3 billion by 1998. A
typical Starbucks customer visited his or her favorite store 18 times a month.

CROSSING CULTURES
Despite Starbucks’ dominance of the U.S market, Schultz realized that
American consumers accounted for only 20% of the world coffee market. If
Starbucks were going to achieve its goals, it had to venture into foreign
markets. Japan and Singapore were the company’s first venture abroad in
1996. While it had initial success overseas, Starbucks soon faltered. In 2002,
Starbucks lost $3.9 million in Japan, its most important overseas market.
Starbucks’ British operation has lost money after five years despite efforts to
jump start growth. In March 2003, it ended Swiss and American joint venture
because of slow sales, and closed six stores in Israel, citing recession and the
Middle East conflict.

WHAT WENT WRONG? THE JAPAN EXPERIENCE

When Starbucks opened its first Japanese café in Tokyo’s fashionable
Ginza district, it was an overnight hit. Starbucks appealed to “New Japan”.
Many of its patrons were 20-30 something women who liked its premium coffee
and its trendy, nonsmoking environment. Its outlets were also favored by
Japanese who wanted a taste of American without having to buy hamburgers
and French fries.
By early 200, Starbucks had more than 200 stores in Japan, and was profitable
two years ahead of schedule. In 2002, Starbucks opened another 117 outlets.
By mis-2003, it had 466 stores in Japan, with another 70-75 additional outlets
due to open during the business year. Yet, while sales growth in Japan doubles
between 1998 and 2002, same store sales fell 17 percent in 2003. Starbucks
Japan stock lost two-thirds of its value between 2002 and 2003.
One reason for the recent reversal may be that Starbucks was
cannibalizing its success with too many stores. One reporter wrote, “It happens
with increasing frequency here in Japan. You’re invited for coffee at the local
Starbucks, only to hang up the telephone and cry” ‘Oh no, which one?”.
Starbucks may be running up against brand fatigue with its “Starbucks
everywhere’ approach. However, Japan’s Chief Financial Officer argues that
it has to grow to satisfy its customers. “When we self cannibalize, we keep the
customer and keep the sale. The brand is transforming from a trendy brand to
an everyday brand and when that happens they (customers) expect seats.
They don’t want to wait in line. There is such a thing as being too busy.” Yet,

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finicky Japanese consumers are another source of concern; Japan is notorious

for its food fads. When Cinnabon opened, hundreds line up. For a few years, it
was Belgian waffles. Milky coffee became a must have in 2002. When will green
tea frapuccino lose its shine? Indeed tea and teahouses are making a
comeback in Japan. Numerous tea brands have recently emerged; many
heavily advertised using popular actresses or models to reinforce the idea that
drinking tea is cool.
Tough and cheaper competition also present challenges. Coffee
sipper like Tokyo secretary Ritsuko Oomi started frequenting the Ginza
Starbucks in 1996. Now, she says “I never go to Starbucks if I can help it. The
coffee tastes artificial.” Her favorite brand is Tully’s coffee, a Seattle rival.
Similarly, Miki Kobari, a 31-year-old bank teller, explains as she nursed a
cappuccino at Tully’s, “I used to go to Starbucks two or three times a day, but
not anymore. I just don’t think its worth the high prices it charges, especially
since the coffee is just OK, not great.”
Tully’s where customers are allowed to smoke, plans to grow its store
network, about a fifth of Starbucks size, via franchising. However, their rapid
expansion has left Starbucks and Tully’s with escalating materials, labor and
rental and administrative costs which both are trying to control. To lower sales
and administrative costs, Starbucks implemented a computer system tracking
employee and customer number sat each outlet and sales according to
operating hours. Starbucks is also planning to find local suppliers to maximize
store-level efficiency. About 40% of Starbucks products are imported, and such
items as dairy based products have particularly high import duties.
Local rivals have also begun appearing, adopting Starbucks like
practices. Doutor, which had 1,222 stores by March 2003, appeals to “Old
Japan”. Its low cost no-frills coffee houses called Excelsior Café allow customers
to smoke, With Japan’s deflationary environment, Doutor’s lower prices appeal
to wage-stagnant workers. In a lawsuit-averse country, Starbuck brought legal
action against Excelsior after the latter used the same green font and round
green logo as Starbucks. (Excelsior has changed the “E” to “C” on its sign to
blue and replaced the green circular logo bolder with a blue one.)
Starbucks may have also an image problem relating to its food. “The
food isn’t fresh and the selection isn’t good,” said Tomoko Yokoyama, a 24-
year-old insurance employee. “Starbucks isn’t a place I would go for lunch.”
Starbucks Japan’s president said that ovens would be installed to improve its
food offerings.

CONCLUSION
Nonetheless, it is too soon to write off Starbucks’ overseas expansion. A
recent Japan Times editorial on Starbucks noted” If it only tweaks its
development plan and upgrade its brews and buns, it could well percolate
back to the top of the heap.’ Thus, Starbucks is opening drive-thru outlets to
cater to customers who use cars often. Until now, it has opened stores with
walking distance of major public transport facilities and other easily accessible
sits. The company also launched a value card program allowing customers to
make purchases and reload existing cards at its outlets. The card will speed up
payment and customer service at busy outlets. Starbucks will also purchase a
bulk order initiative for its business customers who desire the cards for gift giving
and incentive program. It is studying the introduction of a loyalty program in
Japan.

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Clearly, the silver lining in all this is that Starbucks can apply the lessons
in Japan to the rest of Asia, where there is still much room for expansion. China
and India in particular presents major markets of the future.

QUESTIONS FOR DISCUSSIONS:

1. What is the core product that Starbucks offers? What are the actual and
augmented levels of that product

2. How would you classify the Starbucks product using the marketing
considerations for consumer product? What individual decisions has
Starbucks made?

3. How has Starbucks dealt with the issues of Brand equity, customer equity
and brand positioning?

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4. Is Starbucks a product or a service? How are the concepts of service

marketing important to Starbucks, particularly in a Region like Asia?

5. From its Japanese experience, how has Starbucks dealt with the issues it
faces in international marketing?

6. From its Japanese experience, what marketing recommendations

would you make to Starbucks as it continues its Asian expansion?

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Activity 8
A product’s package is often considered a “silent salesperson.” It is the
last marketing effort before consumers make a selection in the store. One
model that is used to evaluate a product’s package is the view model: visibility,
information, emotion, and workability. Visibility refers to the package’s ability to
stand out among competing products on the store shelf. Information is the type
and amount of information included on the package. Some packages try to
simulate an emotional response to influence buyers. Finally, all product
packages perform the basic function of protecting and dispensing the
product. Select two competing brands in a product category and evaluate
each brand’s packaging on these dimensions. Which brand’s packaging is
superior? Suggest ways to improve the other brand’s packaging.

Write your answer here

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BCPM 2 – PRINCIPLES OF MARKETING
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Lesson 9 – New Product Development and Product Life-Cycle Strategies

Insight 4: Google
Read the whole article. An insight is a reflection on the things you have
learned from the topic. Write in no more than 250 words.

Write your answer here

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Aklan State University – School of Management Sciences

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Aklan State University – School of Management Sciences