Market Segmentation

Market Segmentation Essay Sample

All coffee lovers were potential market for Starbucks. However, Starbucks segmented market based on coffee connoisseurs who are also interested in experience and environment around coffee consumption. Target Market Selection

Starbucks’ targeted market was the coffee enthusiasts who would love to have a ‘Third Place’ to hangout and relax either in group or solitary. Especially affluent, well educated, white collar patrons (skewed female) aged between 24 and 44. Product and Service Positioning

Elite experience of coffee consumption with convenience and personal touch. 4Ps

Product & Service

Starbucks management envisioned a simple beverages business as ‘Experience’. Hence their product concept was much more widened than mere coffee vending. Starbucks has adopted the ‘Live Coffee’ mantra which is to build business around the coffee consumption experience. Hence the product and services offered by Starbucks were more focused around offering elite experience. Continuous product innovation was most significant factor in Starbuck’s sales growth. New product introduction through rigorous R&D, business validation, and acceptance from partners helped Starbucks to effectively manage the wide product portfolio.

Starbucks believes in creating strong customer patronage by offering personalized service and achieving higher customer satisfaction levels. Starbucks extended the service offerings by introducing some key programs such as ‘Stored-Value Card’. Such innovative service offerings led to increased visits and reduced transaction time (which is one of the major customer satisfaction parameter). Another add-on service offered by Starbucks was the wireless internet service.

Place / Channel

Starting with one coffee shop at Seattle, Starbucks has expanded over 5000 outlets across the world. Selection of point of sale was done very methodically by matching the demographics of area with profile of typical Starbucks drinker, amount of coffee consumption in the area, competitive analysis and real estate options. Starbucks deployed three tier channel of distribution. Firstly company operated outlets where the store was managed by Starbucks. Secondly non-company operated retail channels, such as hotels and airlines, contributing to 15% of total revenue. Thirdly, 18% of the revenue was contributed by domestic retail store licenses in places where Starbucks did not have retail space. Some part of revenue was contributed by miscellaneous source such as joint ventures, grocery store.


‘Word of Mouth’ publicity and ‘point of sale materials and local store marketing’ has been the main promotion strategy for Starbucks throughout these years. The firm has spent minimal amount on the advertising. The fast paced expansion from 140 stores in 1992 to over 5000 stores by 2002, created a huge brand recognition and brand awareness in the market.


Starbucks has been maintaining stable prices in spite of continuous increase in number of offerings. Their typical price range of common beverages was approximately from $1 to $4. Whereas high end offerings were priced between $5 and $12.

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