User:Puimao/sandbox

MICROECONOMICS PROJECT

Starbucks (Tampines Mall) Retail Outlet Study

1. Information on the retail outlet

Starbucks (Tampines Mall) is a store that focuses on providing high quality coffee within an environment that acts as a place for customers to feel at home and to take a break from reality or work. Starbucks offers a great range of products, focusing mainly on coffee or tea in particular. Other products consist of oatmeal, toasts, sandwiches, muffins, puffs and other beverages like hot chocolate. In addition, mugs and tumblers are also sold as gifts. There are a total of 71 outlets in Singapore that are evenly spread out across the island, with a majority of the outlets being strategically located in shopping malls. (Starbucks Singapore, 2011)

2. Products and customers


 * Description of what retail outlet sells

The main product sold is coffee and tea, but there are also food items such as oatmeal, toast and bread for breakfast. Muffins, puffs and sandwiches are also available at the outlet. Starbucks (Tampines Mall) sells gifts like mugs and tumblers as well.


 * Profile of target customers

The age range of Starbucks consumers would be is around 16-45. As Starbucks’ targeted group are the young college students and the working adults who use the place to meet up, socialize or relax after a long day at work or office. The products that Starbucks sells are value for money but they are not that cheap and affordable to all. Therefore, teenagers below the age of 16, who usually do not earn an income themselves, would not be able to purchase from Starbucks often. As for people above 45 years of age, they would prefer traditional coffee sold outside Starbucks which is much cheaper and affordable. However all of the above does not apply to coffee lovers who do not mind paying more to enjoy good quality coffee. The income group of Starbucks consumers would be moderate income families, with a monthly income of about $500 per capita or more.


 * Customers Segments

The outlet targets both males and females as it caters to everybody’s needs. This is because for young children who don’t usually drink coffee, Starbucks offers a range of non-coffee beverages to cater for the whole family.

3. Demand and supply


 * Demand: Prices of related goods (substitutes)

With the increasing number of promotions for McCafe boasting of having lower prices for good quality products such as coffee, tea and deserts, firms like Starbucks that charge premium prices may find themselves losing customers. Due to the more economic prices, consumers will be more willing to patronize McCafe. This leads to a decrease in demand for Starbucks products as shown in Figure 1.


 * Demand: Income

An economic crisis can cause consumers to experience pay-cuts. This means that consumers will have a lower income and hence, lower purchasing power. This decreases the demand for Starbucks products which are charged at premium prices as consumers would want to reduce their cost of living and purchase cheaper products.


 * Supply: Number of suppliers

An increase in the number of suppliers can affect the supply of products available at Starbucks. Starbucks will be acquiring an essential supplier, La Boulange a privately-owned company that manufactures its own bread and pastries in 2013 (Annie & Nathalie, 2012, ¶1). By doing so, Starbucks has acquired its own production capability. Therefore, this increases the amount of bread and pastries available in outlets as shown in Figure 2. above.

4. Pricing and promotion


 * Elasticity of coffee

The prices of Starbucks products generally remain unchanged. One of the determinants of price elasticity of demand for the products sold in Starbucks is the closeness of substitute products. For example, coffee in Starbucks is priced relatively high due to the small amount of substitutes available. Their only competitors that are selling close substitutes near the area are McCafe and The Coffee Bean. Hence consumers have lesser substitutes to turn to. Thus, the price for coffee in Starbucks is price inelastic.


 * Elasticity of pastries and sandwiches

As mentioned before, Starbucks do provide a wide range of pastries (cakes, muffins, brownies, puffs) and sandwiches. These items have many more close substitutes sold in other retail outlets near Starbucks, such as Yamazaki, Bread Talk, Four Leaves, Bakerzin and McCafe. The wide range of close substitutes give customers more choices to choose from, therefore the price elasticity of demand for the pastries and sandwiches is elastic.


 * Pricing strategy

Starbucks charge very high prices for their products, as their products are perceived as unique by their consumers. Furthermore, Starbucks provides quality service and a comfortable environment to their customers to indulge in their food and beverages. Starbucks takes advantage of these factors to price their product higher to earn more revenue.


 * Non-priced determinants

Non-price determinants of demand will affect the pricing of products. Expectations are one of the following examples. When customers are expecting Starbucks to have promotions such as 1-for-1 Frappuccino, they tend to buy fewer products. Therefore the demand for their products would decrease for that period of time. Another non-price determinant of demand that will affect the pricing of products is tastes and preferences. In order to satisfy and draw more customers, Starbucks continuously introduces new products such as new Frappuccino flavours. This increases the demand for their products as customers would purchase and try their new products.

5. Competition


 * Competitors

Tampines mall has several shops selling coffee. MacDonald sells similar products such as cakes, breads and coffee as it aims to focus on this segment of their business over the years. Kopitiam also sells coffee and bread, though much of its main focus is on the food present in the food court. Around its neighboring vicinity, at Century Square, The Coffee Bean and Tea Leaf sells coffee, cakes and breads as they also specialize in these products. Other competitors such as Old Town White Coffee, The Coffee Nation and Highlander can be found within Singapore.


 * Similarities and differences

The products sold by Starbucks are similar to its competitors in terms of the types of products being sold, for example, coffee, tea and bread. However, it is unique due to product differentiation by Starbucks allowing it to charge premium prices. We would classify these products into monopolistic competition. This is because they have many sellers, low barriers to entry and slight product differentiation. Medasanianus (2010) said that the market structure of Starbucks is a monopolistic competition. In the coffee industry, many producers and consumers exist, the goods and services are mixed, but firms are still able to differentiate their, products. Starbucks is a textbook example of a monopolistically competitive firm: many sellers, low barriers to entry and slight product differentiation.

Starbucks has several marketing strategies including 'Perfect Cup of Coffee', 'Customer Satisfaction’, ‘Third place’, ‘Creating a Starbucks Community’, ‘Smart Partnerships’, ‘Innovation’ and 'Brand Marketing’ which are key to its success today (VoteforUs.com, 2002).
 * Market strategies


 * Perfect Cup of Coffee

Starbucks is known to place huge emphasis on its product quality. Being able to charge at high prices and attract customers who enjoy its rich, delicious taste and aroma of its cup of coffee.


 * Customer Satisfaction

Starbucks is highly involved and concerned with customer service. They believe that it is best to make their customers feel a sense of belonging through serving the best coffee and providing services that make them feel at home (Starbucks Singapore, 2011).


 * Third Place

Starbucks provides a comfortable environment and ambience for customers, creating a third place to go to between home and work. (Starbucks Singapore, 2011)


 * Creating a Starbucks Community

Customers are encouraged to express their experiences with Starbucks on the website in which Starbucks will strive to personally participate in these discussions.


 * Smart Partnerships

Starbucks makes smart, strategic partnerships which increases their sales and productivity. For example, their plans on acquiring La Boulange.


 * Innovation

With creative thinking, Starbucks was able to come up with new flavors of coffee, more food items, and supply internet connection in its outlets.


 * Brand Marketing

Starbucks is confident of their product quality and this will let it prove its worth. Customers who enjoy their products will encourage others to patronize at Starbucks.


 * Sales strategies


 * Promotions

Promotions such as Frappuccino happy hour allows customers to purchase a Venti-sized promotional Frappuccino and get another free at limited time periods. To promote its organization and appeal, Starbucks came up with a commercial to encourage people to help their community. (Starbucks, 2009)


 * Prestige Pricing strategy

Starbucks sets the prices of its products at high price to attract prestige orientated customers. However, they guarantee to serve all customers with top quality coffee at all times.

6. Suggestions and conclusion

In the long run, Starbucks might want to sell more variety of food, including meals so that people can go there for more than just coffee. This will attract more teenagers to come as many teenagers like to try different types of food from different places. By providing them with more options to choose from, Starbucks will be able to increase its profit. It will also prevent itself from losing its profitability as a business in the long run.

The company can hire new staff to get new ideas for products to be sold. This will give it an advantage over competitors as competitors will not be able to keep up with the constantly increasing number of products sold. Therefore its market share will not decrease as customers will continue to come to Starbucks to purchase products that are exclusive to Starbucks customers.

To improve its marketing strategies, Starbucks can also provide a few computers for customers to use for a limited period of time. This will attract more working adults to patronize the outlet as they would be able to use the computers for working purposes such as checking emails. The limited time for each customer is to prevent hogging of the computers.

In summary, the Starbucks outlet at Tampines Mall is doing well now. The future market in the next 10-20 years in terms of customers will most probably increase to include the elderly. Currently most of the elderly prefer traditional coffee however when the current working adult generation ages, they will prefer Starbucks products as they will be used to it. The new generation will also try coffee as they hit their teenage years as they will be urged by their peers to try it. Furthermore, as Singapore continues to develop the number of foreigners coming in will continue to increase and people will also have a higher purchasing power, reducing the chance of people being unwilling to pay. This shows that there is high profitability for Starbucks in the long run.

As for suppliers, since Starbucks has acquired one of their suppliers, they may continue to do so, to reduce costs in the long run and prevent cost increase from suppliers when the firm shows higher profitability.

However, rent might be increased which may serve as a problem. With Singapore having less space, rental costs might increase as more businesses would bid for the place, causing prices to increase. Since rent prices cannot be controlled by the business, they can only try to increase profits by raising prices or increasing the quantity sold to reduce the effect of rising cost of rent.

The company can hire new staff to get new ideas for products to be sold. This will give it an advantage over competitors as competitors will not be able to keep up with the constantly increasing number of products sold. Therefore its market share will not decrease as customers will continue to come to Starbucks to purchase products that are exclusive to Starbucks customers.

References

Annie & Nathalie (2012). Starbucks to Expand Food Offering With La Boulange Bakery Acquisition. Retrieved from http://online.wsj.com/article/BT-CO-20120604-712647.html

Medasanianus (2010). Market Structure and Supply and Demand of Starbucks.

Retrieved from http://www.oppapers.com/essays/Market-Structure-And-Supply-And-DemAnd/526134

Starbucks Singapore (2011). Our stores.

Retrieved from http://www.starbucks.com.sg/store-locator.html

Starbucks Singapore (2011). Mission statement.

Retrieved from http://www.starbucks.com.sg/mission-statement.html

Starbucks (2009). Starbucks asks Are you in? Featuring MC Yogi.

Retrieved from http://www.youtube.com/watch?v=0xAwKBywrEk

VoteforUs.com (2002). Starbucks Marketing Strategy. Retrieved from http://www.voteforus.com/starbucksmarketingstrategy.html