Mcdonald's and Starbucks Compairson : Establishing Their Brands to Fit Local Markets

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

Since Starbucks entered the coffee retail business, the company has made many trade-off business decisions. The first major trade-off was made when Howard Schultz wanted to acquire present day Starbucks from three entrepreneurs Baldwin, Siegel and Bowker. Therefore, Schultz prior to the acquisition made the trade-off to open his own coffee bar in 1986 instead of staying at Starbucks as the manager of retail sales and marketing. A bold feat, Schultz was able to replicate success and was offered to buy Starbucks for $4 million. At the time of the acquisition, many investors, including the former Starbucks owners, would not expect that the American consumer would pay a premium for coffee products. Schultz, after calculating the opportunity cost, was convinced that Starbucks would become a large coffee chain not only in the United States but internationally too. Reflecting this approach, Schultz’s trade-off worked. Starbucks, according to our book has revenue exceeding $13 billion and nearly 200,000 employees. The company has also expanded to 40 countries with 17,000 stores (Hill et al., 2015).

Founded in 1985, Starbucks is one of the largest coffeehouse companies in the world with over 16,000 stores in 50 countries. This report evaluates major internal and external factors affecting Starbucks using various analytical techniques. Based on the Starbucks brand in UK, it identifies suitable marketing strategies for Starbucks to expand its business in the UK market within the next two years. In line with the chosen marketing strategies, recommendations for the marketing mix are discussed.

Starbucks has created a competitive advantage with their product quality by setting themselves apart from their competitors. “The Company has stayed with the upper-scale of the coffee market, competing on comfort rather than convenience, which is the case with its closest competitors, McDonald’s and Dunkin Donuts” (Mourdoukoutas, Panos). Consumers believe they are receiving a better product and experience when they purchase from a Starbucks as opposed to another large food service company that may sell coffee.

It’s a known fact that Starbucks is one of the leading brand in the market.When we analyse the market we find that Mcdonald 's and Dunkin are the competitors in the same product segment. So comparing Starbucks with these competitors will throw light on its grey areas, process and competitive edge in the market.

REFERENCES•www.mcdonalds.com, accessed on 18 July, 2008•www.mcdonldsindia.net, accessed on 18 July, 2008•en.wikipedia.org/wiki/McDonald's, accessed on 19 July, 2008•http://www.associatedcontent.com/article/263943/mcdonalds_strategic_marketing_mix.html?cat=4, accessed on 19 July, 2008•www.kfc.com, accessed on 25 August, 2008

Specific target audience: In the 1990’s, Starbuck primarily targeted towards the affluent, well-educated, white-collar patrons (skewed female).

When Howard Schultz launched Starbucks, its main targets were the competitors and the customers. Schultz’s brand aimed at gaining dominance in the coffee industry in addition creating a Italian coffee shop feel in the United States (Buchanan & Simmons, 2009). The strategy of Starbucks was based on new products, listening to customers wants and ensure future expansion (Buchanan & Simmons, 2009). In creating convenience for customers, Starbucks created stores almost on top of eachother. They hinged on the idea that, they did not want to lose out on a sale if a line was too long. This action, of placing stores in heavy populated areas, basing need on projected growth of an area caused some decline in sales during economic trouble with the economy. The 2007 recession, failure of subprime mortgages, increased competition from McDonald 's McCafe brand, and Dunkin Doughnuts all led to a decline in sales for Starbucks in the fourth quarter of 2007 (Buchanan & Simmons, 2009). To attempt to regain market share and recover after the

Starbucks can follow some strategies to differentiate their product even more that will lead to vary their menu prices. For example, Starbucks might create “saving menu” by selling some products at a lower prices to attract even more customers. Also, Starbucks might take into consideration the strategies of opening “Starbucks carts” that open in smaller express places that don’t fit for a whole store. Those “Starbucks carts” will attract even more customers because it is easier to get access to. “Starbucks carts” may provide the customers with low cost products to draw larger market base. To be a best cost provider in the market will allow Starbucks to be the most attractive company in the coffee market internationally. Thus, Starbucks will have a competitive advantage over its rivals by fulfilling the needs of a huge customer base in the market, by providing a high quality products and provide products with the best costs.

McDonald’s, in addition to several other fast food vendors like Burger King, Dunkin’ Donuts, Panera Bread and independent coffee houses remain Starbuck’s toughest competition (Adamy). McDonald’s began introducing its espresso beverage products in 2001, and offers its product at a price between two and three dollars to compete with Starbucks between three and four dollars a cup coffee (Adamy). Similarly, Dunkin’ Donuts has recently implemented a plan to expand nationally (Adamy). On average, Dunkin’ Donuts coffee products cost approximately 20 percent less than Starbucks’ (Ball and Leung). In response, Starbucks has announced recent

Starbucks’ lead in the specialty coffee industry exemplifies the result of deftly executing a well-planned business strategy. Moreover, Starbucks is well positioned for what is expected to be a continuing rise in the popularity of specialty coffee products. The question before Starbucks’ leadership, however, is what avenues will lead to Starbucks’ goal of remaining true to its core, the highest quality coffee products while providing a “total coffee experience” for its customers?

As a well-established coffee retailer and over 35 years of success, Starbucks is at the maturity stage in the product life cycle. It is in this stage that Starbucks needs to shift gears and focus on marketing program modifications by increasing the number of customers and customer visits (Kotler, 2009, pg. 185). While improving service will attract first-time customers and retain current ones, further marketing modifications will need to be made if it wants to continue to grow. More advertising, distribution, sales promotions, and personal selling are a few of the ways to modify the marketing program.

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

Question 1:When Howard Schultz launched Starbucks, who was the target market and how was Starbucks positioned to appeal to this target market?

1. What factors in the global environment provide opportunities or threats for Starbucks? How do Starbuck’s strengths and weaknesses match up to its opportunities and threats?