The Brand Extension Marketing Plan Marketing Essay

Published Date: 23 Mar 2015

Starbucks has grown from a little coffee house established in Seattle, Washington to a multi-million dollar corporation. Starbucks has over 10,000 stores located all over the world. Starbuck's mission is to become the most recognized and respected brand in the world. Starbucks has established the brand name in their store locations, but they have also branched out to include grocery or discount stores. Starbucks marketing mix includes the pre-bottled Frappuccino drinks, but they have not gone into the drink mix market. The new brand extension will help them to branch into the drink mix market. The drink mix will be called the Starbucks Refreshers Strawberry Lemonade Mix (SRSLM). This mix will be easy to use, convenient, and great tasting. SRSLM will start with the strawberry lemonade flavor but could branch out into other flavors as popularity in the drink mix grows.

The benefits of the drink mix would be that it is easy to use with small portable containers of liquid. The consumer could just open the bottle and pour it into a water bottle, shake it and go about their business. SRSLM target market would include health conscious people, busy people, and moms on the run, and consumers who travel a lot. The target market for SRSLM is for people who want to be able to select healthy choices but something with good taste.

The SRSLM is the perfect drink for them because of the portability. This bottle design will make it so that consumers can easily pour it into their water bottles and take it anywhere. The mixes are better for you then drinking sugary sodas or artificial juice drinks. It is the perfect drink mix for busy, fast paced consumers. The customer's needs for the SRSLM would include an easy to use packet. The consumer would have the convenience of getting the drink mix at the local Starbucks stores. The product may be distributed into grocery stores, if it is deemed popular enough to create a profit.

If the product gets distributed into the grocery stores, it could become even more popular. The great tasting Refreshers product that is unique. It is not the same old flavors that are currently in the stores. Customers really appreciate the versatility and unique flavors that Starbucks has to offer. SRSLM value proposition would include the ease of use. This includes the fact that the bottles are easy to handle and pour into water bottles. SRSLM would be offered in the local Starbucks store for easy access. SRSLM may be offered in grocery stores later down the road.

SRSLM has a great taste and a unique combination of flavors that are not currently offered by other drink mixes. SRSLM sales are projected to increase over the next five years. The second year of distribution, it is expected to increase by 2%. The fourth year of sales, Starbucks should expect an increase in sales of 4%. The sales are expected to increase over the next five years, but after the fifth year, there may be a decline in sales because the competitors will start to produce product similar to Starbucks SRSLM. SRSLM is expected to break-even in the third year of distribution. Starbucks would have to produce 565,958 units in order to break-even in that year. This is based on the price of the product staying at $4.00 wholesale price.

SRSLM keys to success would be that Starbucks would continue to develop new flavors of drink mix in order to keep ahead of competitors. Starbucks would need to branch out and distribute the SRSLM into other markets, such as grocery, department or convenience stores. Starbucks could advertise their product by offering samples at their stores. This would help customers to develop and interest in their new product.

SITUATION ANALYSIS

Since the early 1970's, the gourmet coffee industry has been growing in America. Starbucks has been a leader in this industry since 1971. Starbucks has continued to grow and open more and more stores. Starbucks are currently in a good place to continue to grow. Starbucks need to continue to develop new products and branch out into other industries. With new products and more expansion, Starbucks could develop into a globally prosperous organization.

2.1 Market Summary

Starbucks has enjoyed major success over the last few years. The customers that Starbucks target include 45% females and 55% males. The average age are 36 and earn around $65,000 a year. Starbucks are usually college educated and drink around 15 cups of coffee a week. This target group is the ones that generally consume the products that Starbucks sells and enjoy the home town café feel of their stores.

The coffee shop market is projected to continue to grow over the next few years. The analyst project the industry will continue to grow and will not peak until 2015. Starbucks contribute this to the different types of coffee bean. These beans offer a variety of flavors depending on where it is grown and the climate of the area. Starbucks is in a good position to boost the growth of the coffee business. Starbucks are currently enjoying a market share of 22.5% this year. The "summertime" drink brand extension could only increase Starbucks growth. The Refreshers Strawberry Lemonade mix is a refreshing twist on what Starbucks already offers their customers. This brand extension would compete with the grocery store instant drink line. Even though, this is not a coffee product, it was developed to help Starbucks increase their brand. The projected growth of the Refreshers Strawberry Lemonade mix could be a ROI increase of 5% over year 2013 in sales by the end of 2014.

2.1.1 Market Demographics

The profile for the typical Starbucks customer includes the following demographics, geographic and behavior factors:

• Demographics

Starbuck's customers include young, intelligent people. The customers include people who are into the wireless internet arena. Starbucks are people who are in the working class and who need a quick coffee break away from the office. The customers will visit the stores anywhere from five to eighteen times a month. The average age range is from thirty-five to forty years old. The average gender breakdown includes 45% female and 55% male.

• Geographic

Since Starbuck's established their stores in 1971 on the west coast, Starbucks have grown globally to have over 4,000 locations worldwide. Starbucks have stores in over thirty countries. These countries include the United States, Germany, Australia, and Europe. Starbuck's currently have stores in every major city in the United States and are planning to expand to other countries. Starbucks recently worked out a deal with Ethiopia to open a Starbucks in that country.

• Behavioral Factors (Psychographics and Lifestyle considerations)

Customers enjoy coffee and a friendly atmosphere. The customers spend money on coffee and enjoy the coffee house style. Starbucks are busy business men and women who are do not have a lot of time to spend waiting for service.

2.1.2 Market Needs

Starbucks provides the customers with good specialty coffee and drinks with a coffee house atmosphere. The Starbucks Company wants to combine their specialty coffee with the busy lifestyle of the customers. Starbucks want the customers to be able to get in and out quickly, but Starbucks want them to stay in the store, if Starbucks have time.

The customer needs are as follows:

• Good specialty brewed coffee and drinks.

• Easy accessibility to their store locations.

• Nice friendly employees, who greet you with a smile and "hello".

• Fair prices for their products, this includes the products offered in the grocery stores

The customer value proposition is as follows:

• Starbucks provides customers with good specialty coffee and other drinks.

• Starbucks have stores in every location for easy access.

• Their employees are friendly and helpful.

• Starbucks prices are competitive with other specialty coffee houses in your area.

2.1.3 Market Trends

Starbucks sells specialty coffee and drinks. The coffee industry has always been very popular since it was introduced in the early 17th century. The consumers that drink coffee are diehard fans of the brew and, like smoking cigarettes, have trouble giving it up. This is the reason for the long term market trend involving the coffee industry. The specialty coffee industry has been around since 1970 and has not fallen in the market. The specialty coffee industry is also a long term trend not likely to diminish anytime soon.

There is currently a popular trend for drive-thru coffee stores. This has become popular among Starbucks as well. Starbucks has over 540 of these locations and Starbucks have become very popular with long lines. Most people enjoy the convenience of the drive-thru because Starbucks do not have to leave their vehicles. This type of coffee house will continue to grow in the long term because consumers want this type of atmosphere.

The other long term trend for Starbucks includes organic coffee, specialty drinks, smoothies and other drink variations. Starbuck's growers have come up with many different types of coffee bean to make new flavors of coffee. Starbucks have invented many different types of drinks, like chai tea, chai tea lemonade and fruit smoothies. Starbucks has decided to market their products through catalogs, in grocery stores and other retail stores to increase their market shares.

2.1.4 Market Growth

The specialty coffee market is growing by leaps and bounds. The statistics show that over 109 million people drink coffee daily and over 53 million drink it sometimes. Within the next few years, the consumer coffee industry could grow by 9% to 10%. Starbuck's analysts estimate their revenue growth to be over 1.4 million in fiscal 2012. Starbucks plans on moving into some more of the international markets like China, Brazil and Russia to increase their market share and make them more competitive.

2.2 SWOT Analysis

The SWOT analysis below shows the key strengths and weaknesses within the company and describes the opportunities and threats facing Starbucks.

2.2.1. Strengths

• Very loyal customer base, Starbucks keeps their customers happy and returning.

• Very loyal employee base, Starbucks employees enjoy working there and are happy to be part of the experience.

• Starbucks is very committed to social issues. Starbucks have foundations to contribute to issues like literacy and clean water.

2.2.2 Weaknesses

• Starbucks has developed conflicts with other stores in the retail market. The retail malls, which Starbucks has opened stores in, sometimes open later then other Starbucks stores, because of this, the other retailers have stated that Starbucks is trying to take advantage of the area culture.

• Starbucks does not advertise their products. This could be a major disadvantage with other companies that do advertise.

• Starbucks has grown over the last few years. This could cause them to become too overgrown within an area. Too many stores could mean fewer sales in one store versus another.

2.2.3 Opportunities

• Starbucks would need to develop new areas to expand globally. This is the only way to continue to grow and increase profits. Starbucks could expand to Asia or Africa.

• Starbucks could develop co-brands with other well know food or drink manufacturers. This could include making liqueur in conjunction with Jim Beam.

• Starbucks could increase their loyalty brand by issuing loyalty cards.

2.2.4 Threats

• The cost of supplies could cause Starbucks to have more expenses than normal.

• Starbucks could face a number of volatile factors that would cause problems. This could include weather, political and economic conditions of the world.

• Starbucks has a great number of competitors in the coffee market. Starbucks would need to keep growing and become more innovative in order to stay ahead of the competition.

2.3 Competition

Starbucks has many competitors in the coffee house market. The current competitors include Dunkin Donuts, McDonalds, Tim Horton's and Krispy Kreme Donuts. These competitors are working to get a strong hold on the coffee market. McDonalds has recently introduced the coffee lattes and smoothies. Dunkin Donuts has always had coffee, but Starbucks have recently introduced the coffee in the grocery stores. Seattle's Best has always been a competitor of Starbucks and Starbucks have recently opened stores in the same markets. Tim Horton's is a big competitor of Starbucks in the northeast. Horton has pastries, donuts and specialty coffee just like Starbucks. Krispy Kreme Donuts has had coffee and recently started offering lattes. So, Starbucks will need to keep innovative with their marketing in order to stay ahead of the competition.

Customers prefer to shop at Starbucks because Starbucks purchase high quality rare coffee bean grown all over the world. This is coffee that is not found in normal coffee houses. Starbucks offer different versions of the Italian espresso. Starbucks has introduced rare drinks such as Frappuccino. Starbucks customers are always greeted with a smile and a "Good Morning, afternoon or evening". This friendly atmosphere and the environment of the stores is what people want.

Starbucks will compete with the other coffee companies by quickly expanding their market. Starbucks can compete by continually introducing new products or product lines to the public. Starbucks can continue to have a welcoming atmosphere that customers want to see. This will help them to grow and continue to profit.

The marketing mix for Tom Horton's looks like the following:

• Price - Tom Horton's prices are usually 2-4% less then Starbucks.

• Place - Tom Horton's was started in Canada. Starbucks have over 3000 locations in Canada and over 500 locations in the USA. Most of their revenue is in the Canadian Territories.

• Promotion - Sales and promotion are done through their website. Advertising is done in magazines, newspaper, billboards, television and radio.

• Product - Tom Horton has a strong brand image throughout Canada and the northeastern US. Starbucks reinvent themselves as their customer change. Starbucks offer products such as pastries, sandwiches and homemade soups.

2.4 Product Offering

Product/features/benefits

• Good tasting, flavorful, responsibly priced products. When a customer tastes Starbucks products, they will return again and again.

• Convenient store locations are in every major city and town, friendly atmosphere and quick service.

• Innovative products that are unique and offer great taste.

• Products use environmentally friendly materials. The packaging would be made with recycled cardboard.

Starbucks has established itself as a manufacturer of unique products throughout the global market. Starbucks has been a recognizable brand logo that people look for when they are out on the town. Starbucks has furthered their brand name by establishing themselves in grocery stores, retail stores, airports, rest stops and business offices. The new product of SRSLM will only enhance the Starbucks brand name.

The five different elements of the Brand Equity Valuator Model as Starbucks apply to their brand are as follows:

• Differentiation - Starbucks continues to differentiate themselves from other stores by reinventing new and unique drink and food products. Competitors are always trying to come up with drinks that are just as good with little success.

• Energy - The Starbucks brand is moving with great momentum right now. Starbucks are striving to establish more global markets for their products. Starbucks are looking to move into Africa at this time.

• Relevance - There is a great amount of breadth of the brand's appeal. The coffee market is high right now and Starbucks brand is highly desired.

• Esteem - The brand hold itself to a high esteem. Starbucks care about the environment and offer contributions to several good organizations throughout the world.

• Knowledge - The customers are very knowledgeable about the brand. The brand is well known all over the world.

The figure below shows the brand strength is energized by combining differentiation, energy and relevance. Relevance and esteem combined makes up brand stature. The power grid is developed when you combine the energized brand strength and the brand stature; this power grid shows the cycle development of a brand. Starbucks energy is in the leadership area, higher than others. The differentiation is declining, due to competition increasing. Per the model below, the Starbucks brand could be declining. Starbucks would need to rebuild their brand equity by developing new products that consumers would purchase. Starbucks could increase their brand equity by developing a new brand extension, such as new "summertime" drinks. Starbucks is known for coffee, which is usually associated with winter and the cold, but Starbucks could develop a new summertime drink that would attract customer anytime of the year. This could increase Starbucks popularity all year long.

2.5 Keys to Success

• Products that satisfy the needs of the consumers. Starbucks needs to keep reinventing themselves in order to keep competitive.

• The ability and opportunity to open new stores in new markets. Starbucks needs to continue to explore the global market for new areas of opportunity.

• Continue to be friendly and inviting to consumers. Their stores need to have the inviting atmosphere that attracts consumers.

• The ability to stay one step in front of the competition with new and unique products.

2.6 Critical Issues

Starbucks needs to continue to make customers happy by developing improved customer service. Starbucks could help to improve in this area by serving customer quickly. The employees need to be very friendly and attentive. Starbucks could help employees be more productive and attentive, by treating their employees with respect and training. Starbucks need their employees to be satisfied in order for them to satisfy the customers. Starbucks could increase their social standing by getting involved in more community projects. Starbucks could help in under developed countries to increase their social networking.

Currently, Starbucks products follow the fashion life cycle. The product follows a social trend that cannot be predicted. These products can be compromised if consumers start looking for new trends to follow. The products are currently entering the end of the growth stage. With the introduction of the new summertime brand extension, this could help to boost the product line and slow the decline.

The points of parity for the Starbucks brand include good coffee, quick service and friendly atmosphere. The other points of parity could be the new great tasting drinks. The points of difference are quality, unique coffee bean and other products not usually associated with a coffee store, such as ice cream, chocolate and mints.

MARKETING STRATEGY

3.1 Mission

Starbucks fundamental goals are to provide the customer with high quality coffee all the time. Starbucks has developed a high standard for the purchasing, roasting and delivering the coffee to the customers. Starbucks knows that profitability is important in order to strive and further grow the business. Starbucks wants to contribute to the good will of the community and environment. By establishing these business fundamental goals, Starbucks can continue to offer quality coffee products to their customers at all times.

Starbucks business is defined as a restaurant, beverage retailer and entertainment business. They sell coffee and tea beverages to customers. Starbucks sell coffee, hot drinks, cold drinks, coffee beans, salads, sandwiches, pastries, snacks and tumbler mugs. Starbucks has an entertainment division that will market books, music and films. Starbucks also distributes their coffee and ice cream to local grocery stores for purchase.

Starbucks value proposition for the "water crystal" brand is to provide the customers with special coffee experience that would add value to their lives. Starbucks wants to add an uplifting experience to the customer's lives. Starbucks wants to create an experience surrounded by ambience in conjunction with the human spirit, community, and the need for people to gather together and socialize.

Starbucks fundamental goals for the "water crystal" brand are to provide the customer a good tasting product; that is convenient and easy to use. This brand extension will increase the market share for Starbucks by furthering their brand name in grocery stores or retail stores.

3.2 Objectives

The main marketing objectives for the Strawberry Lemonade Crystals are as follows:

• TSLC would increase the total market share over the next 4 years, with an expected increase of 5% within the next 2 years.

• TSLC will increase the market positioning by expanding the drink division into the retail stores within the first 2 years of operation.

• To continue the Starbucks image for drinks that are good tasting and convenient. Starbucks will conduct surveys to measure this within the first year of distribution and then every year after.

• To increase customer awareness of Starbucks environmental efforts to reduce waste by developing small drink packets that you can put into your water bottles, therefore reducing environmental waste. The impact of the environmental affects will be measured by conducting analysis to determine the waste savings within the first 3 years of distribution and then continue to analyze this data every year after for 6 years.

The crystal drink mix market size held approximately $300 million sales in 2005. The crystal drink market has increased to 10.71 million units in North American in 2012. This market is expected to increase even more through year 2015. There is a global market for TSLC, the Asia Pacific (in particular China and Japan) market held 38% of the global market share for crystal drink mixes. Western Europe held a market share of 1000 million in sales, Germany, Italy and the UK follow up the market share. The Starbucks locations are visible in all these locations, so it would be easy for them to establish the new crystal drink mix product in these areas.

Starbucks current global market share is approximately 6% over other coffeehouses. The new product will help Starbucks to build on their product image. Starbucks would increase the brand name and reputation throughout the global market. Starbucks will set a goal for TSLC to help grow their market share to 10% over the next 4 years.

3.4 Target Markets

Starbucks specific target market segments include the following:

• The customer demographic will include college students, busy working class, sports enthusiasts, and health conscious.

• The geographic segment areas where customers want fast and easy ways to make drinks on the go.

These target markets are optimal for Starbucks new product because they include customers who are willing and able to purchase TSLC. These customers are very busy and are looking for easy ways to make drinks on the go. The customers like the ease of having crystals that they can add to water and then take out with them.

The demographic segment of TSLC can include customers that want an easy product to use. The customers are sports oriented, outdoor oriented people who generally do not like drinking sodas. The customers are health conscious and are looking for good healthy alternatives.

The geographic segment could include areas within the global market. These areas will include US markets and International markets. Analysts have determined that crystal drink mixes are very popular in the United States and overseas. The main areas of popularity are China and Japan. These areas are becoming geared to the young and educated, so these easy to use products are very popular.

3.5 Positioning

To active, busy health-conscious drink mix consumers, who have little time to wait at gourmet health stores, TSLC are the premier crystal drink mix that gives consumers a better taste with an easy to use packet. TSLC offer benefits over any other brands because it has combined unique flavors with easy to use packets. With TSLC, you will be able to get easy to use packets to put in water for the on-the-go active customers.

TSLC will be different from other brands by offering a unique flavor drink mix with easy to use packets. These packets can be distributed with just enough crystal mix to flavor a 16.9 oz water bottle. The consumers can open the packet and put it into the water when they are on the go and cannot mix a pitcher of drink.

TSLC distinguishing feature would be the easy to use packets. These packets will be the feature that would entice the customers to purchase this product.

3.7 Marketing Mix

Product

TSLC would be considered a convenience good because the product can be used with minimum effort. The Starbucks Tazo strawberry lemonade could be considered an impulse or emergency good. The reason for this is because the consumer could want drink mix to put in their water when they are running out to exercise or go to work. The Tazo strawberry lemonade crystals will be different from other brands because this product has a unique flavor and is easy to use. The Starbucks brand name is known for great tasting unique drinks, so this product will continue this brand but with a twist of the easy to use packets.

The TSLC will have more customer value because the packets are small, therefore there is less waste. The crystal packets will be premeasured and will be more economical. The target market segment requires easy to use packets and great tasting healthy drinks. The TSLC give the customer the easy to use packets with a unique tasting healthy drink mix.

Price

Starbucks is known for quality, higher priced products. The TSLC will be priced 2% above other brands of the same type. The TSLC are convenient, economical and unique tasting. The target market is willing to pay premium prices for the gourmet flavors. This is the value proposition in conjunction with the target market, the Tazo strawberry lemonade crystals price could be adjusted depending on the geographical market.

The price objective for TSLC is to be a product-quality leader because Starbucks brand is perceived to have great quality, good taste, and status in the drink industry. The Starbucks brands are considered the leader in quality, luxury and premium price and have a substantial customer loyalty base. The customer demand for the new product will be low at first, until customers can taste the product, then the product is expected to increase in popularity within the first year. Starbucks has a number of years' experience in producing, distributing and brewing coffee, but they have very little experience in producing, distributing and making crystal drink mixes. Starbucks would use target costing in order to determine the costs of production. Target costing will be determined be based on competitors prices and demographics. Starbucks closest competitor, in the drink mix industry, will be Crystal Light drink mix. Crystal Light's products vary in price from $3.49 per box to $4.00 per box. Starbucks will set their price at around $3.50 per box for wholesale to $4.50 per box for retail sales.

Starbucks would use the pricing method of the going rate pricing for this new product. The going rate pricing is determined by the major competitor's prices. The going rate pricing is the best pricing method because Starbucks is not currently in the crystal drink mix business. This pricing method would help them to set a price that would encourage customer sales and keep Starbucks brand loyalty. The final price will be based on the impact of price on other parties. Starbucks Tazo strawberry lemonade crystal drink mix price will have an effect on the stakeholders, competitors and customers. These factors will be what determine if the price is best for the company. This price will need to create profits, as well as increase stakeholder equity. The brand extension price will be adapted using the differentiated pricing method. The differentiated pricing method will be based on location pricing. The selling product locations will determine the price and the TSLC will be sold at a couple of locations. The urban areas, where Starbucks is very visible, will have higher priced products. The rural areas, where Starbucks is not very well known, will have the lower prices.

Place

TSLC will be very popular among health conscious, young, busy, educated people. The TSLC value proposition will be geographically established in retail stores in order to accommodate the target market. Starbucks will use the pull strategy in order to market the Tazo strawberry lemonade crystals. The pull strategy uses advertising and promotions to increase sales of the new product. Starbucks will use promotions such as free samples, flyers and coupons in order to entice customers to try the new product.

TSLC channel design would be based on lot size. The household channel would purchase a lot size of two or more. The channel objective would be as a perishable product since the crystals could go bad over time. This type of product channel would need direct marketing in order to sell the products. Starbucks would need to use samples and coupons in order to get consumers interested enough to purchase the product. Starbucks type of intermediaries would be the channel of retail stores or online purchases. Starbucks can make this product available online, in-stores and in their Starbucks locations. Starbucks would use the intensive distribution intermediary. This would increase the chance of TSLC becoming a known brand of Starbucks. The intensive distribution could limit the profits but since Starbucks has a good customer loyalty following, it should not hurt their brand name too much.

Starbucks E-Commerce marketing practice is associated with E-marketing. The E-marketing of Starbucks is described as an established brick and click company. Starbucks is an established company, but they have a website for customers to view products they sell online. The customers can purchase products online or view the products they sell.

Starbucks is a retailer by definition; they manufacture and sell products at their store locations. Starbucks is considered a specialty store because they have a very narrow product line. The TSLC will be sold in supermarkets, convenience, discount and superstores. Starbucks will sell Tazo strawberry lemonade crystals in a combination of supermarkets and Starbucks store locations.

Promotion

TSLC would use the persuasive advertising to sell this new product brand. Starbucks would use this advertising to create an advertisement that would remind customers of Starbucks brand. This persuasive advertising will increase the brand name and create buying power for their new brand extension.

Starbucks will choose to advertise through the internet, signage and word of mouth. Starbucks will get involved in the local community in order to promote the new products they offer. This is why Starbucks have such a big consumer loyalty base, because of the community work. Starbucks will advertise through word of mouth based on their customer loyalty base. This type of media vehicle will be most cost-effective and has proven successful in the past for Starbucks.

In evaluating the results, Starbucks would use the sales effect research method. They will continue to analyze sales of the Tazo strawberry lemonade crystal drink mix to evaluate how the customers are responding to the advertising. Consumers will determine whether the product will be profitable or not. Starbucks will use the historical approach when evaluating advertising. To determine whether sales will be successful, Starbucks will correlate past sales with current advertising.

3.8 Marketing Research

The objective of the research is to determine whether Starbucks could branch out into the crystal drink mix market. Starbucks wants to know they could increase their market share over the next 6 years. In order to determine these facts, Starbucks would need to conduct market research. Starbucks could analyze the cash receipts, sales and distribution information in order to determine the effects of the market shares.

Starbucks will use survey research to determine whether the product is successful or not. Starbucks can ask customers to call a number on their receipts and do the survey. The survey will be given to a select number of customers. The initial survey will be given out to 100 customers. This number was chosen because not all the customers are going to do the survey. By given the survey to one hundred people, there is a margin of error in case all the customers do not call to do the survey. This way there will still be enough feedback to determine whether the new product is successful or not. This will be a telephone interview with an automated system. The system will ask specific questions about the new product and the system will give each answer a rating, such as 1=most satisfied to 5=most dissatisfied.

The survey will be implemented 12 months after the first production of the drink mix hits store shelves. This will give the customers a chance to try the drink mix out and determine whether they like the concept or not. Starbucks uses the telephone survey in their store locations right now to determine how well they are doing among customers. They will first introduce the Tazo strawberry lemonade crystal drink mix in Starbucks store locations. By introducing the drink mix at their locations first, they can control the survey. Since they currently use this type of survey, Starbucks can evaluate the outcome with little impact on profits.

4.0 FINANCIALS

4.1 Break-even Analysis

The following section will show that Starbucks Tazo Strawberry Lemonade Crystals financial overview in conjunction with the related marketing activities. Starbucks will analyze the break-even, sales, expense forecasts and show how these forecasts link to the marketing of this new product.

Starbucks will estimates first year sales revenue for the Tazo Strawberry Lemonade Crystals to be $800,000. The sales price would be on average $4.00 per unit. The variable costs will be an average of $1.65 per unit. This will calculate to a contribution margin of $2.35 per unit.

Starbucks has determined that the estimated sales volume would be 200,000 units during the first year. The first years estimated fixed costs would be $1,000,000. If we use the contribution margin method to determine the break-even point, the loss for the first year will be ($430,000).

Total per Unit

Sales (200,000 units) $800,000 $4.00

Less Variable expenses $330,000 $1.65

Contribution Margin $470,000 $2.35

Less Fixed expenses $900,000

Net Operating Income ($430,000)

Given the information determined above, Starbucks will need to sell 382, 980 units in order to break-even during the first year. This break-even was determined as follows: $1,330,000/$4.00-$1.65=565,958 units. The break-even analysis is based on the wholesale price of $4.00 per unit. The variable costs were determined to remain $1.65 per unit. The break-even should take place in the second year of distribution.4

Total Per Unit

Sales (565958 units) $2,263,832 $4.00

Less Variable expenses $933,832 $1.65

Contribution Margin $1,330,000 $2.35

Less Fixed expenses $1,330,000

Net Operating Income $0.00

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The break-even analysis shows that Starbucks Tazo Strawberry Lemonade Crystals sales will continue to increase. Starbucks should plan to achieve the goal to break-even by the 3rd year of operation.

2. Sales Forecast: lst year by month; 2nd and 3rd years by quarter

Starbucks Tazo Strawberry Lemonade Crystals sales forecasts are as follows:

|Year 1 |Jan |Feb |Mar |Apr |May |Jun |Jul |Aug |Sep |Oct |Nov |Dec | | |2010 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 |17,000 | | | | | | | | | | | |Year 2 |1st Q |2nd Q |3rd Q |4th Q | |Year 3 |1st Q |2nd Q |3rd Q |4th Q | | |2011 |51,000 |51,000 |51,000 |51,000 | |2012 |53,040 |53,040 |53,040 |53,040 | | | | | | | | | | | | | | | | | | | | | | | | | | | |

The forecasts reflect sales to increase for 2% in the 2nd year, 4% in the 3rd year. This would increase Starbucks brand image. The forecast assumes that the demand for this product will continue to increase. After year three, there could be a decline in sales due to the fact that competitors will produce products similar in nature.

Starbucks could develop some risks with offering the Tazo Strawberry Lemonade Crystals. Starbucks new brand could appeal to the health conscious, busy customers. The new product could skew Starbuck's brand name. Starbucks is known for high quality brand experience at their locations; this new product is very different. The new product could be considered a low end product which is not consistent with their normal drink offerings. The price of Starbucks new product is only around $.08 per serving, this is much less than the normal drink offerings at Starbucks. This could help Starbucks with profits, but could confuse the customers about whether the product is really a Starbucks product or not. This could cause Starbucks brand equity to diminish.

The most important components of sales performance for Starbucks would include the target market which include healthy, busy, on the go consumers. This would represent the best chance for sales performance. Starbucks would need to continue to lower costs, increase brand equity and continue to make customers number one. This is important to continue to profit with the new product.

5.0 CONTROLS

Starbucks will monitor expenses and revenue by analyzing financial reports on a monthly basis. These reports will tell Starbucks how the new product is performing and if it is profiting or not. The reports that would be reviewed are the sales report, cash flow report, advertising reports and distribution reports. These reports would tell Starbucks about the efficiency of the new product.

Starbucks will access marketing effectiveness by performing a strategic control analysis. The strategic control analysis would include running reports such as marketing effectiveness rating, marketing excellence reviews and company ethical and social responsibility reviews. Analyzing all of these reports will tell Starbucks whether or not the company is following the best marketing strategy.

Starbucks will assess changes in the market environment by conducting market audits. These audits will study the market environment, objectives, strategies and activities. This analysis will show opportunities and create recommendations for improving the market strategy to increase sales of the new product.

5.2 Marketing Organization

The person in charge of overseeing the production, marketing and implementing the brand extension marketing plan would be Clarice Turner, Senior Vice President of the North Division. She will be working in conjunction with the Carl Sweat, Senior Vice President of Global Beverages. There will be special teams set up within the corporation in order to bring all the marketing, distribution, production and marketing plan together. All of the work will be closely monitored by Howard Schultz, Chairman, President and CEO of Starbucks.

5.3 Contingency Planning

Difficulties and Risks:

â-ª Problems entering a new target market. Starbucks is not familiar with the crystal drink mix market. May cause brand equity issues. Starbucks will monitor these risks by reviewing the sales reports, distribution reports and cash flow reports. Starbucks will adapt to losing sales by decreasing fixed expenses and increasing advertising of the new product.

â-ª Entering an established competitor market. Starbucks will be entering a market where Crystal Light and other competitors have established their brand names. This could cause some problems with getting customers to switch to Starbucks brand crystals. Starbucks will monitor these risks by analyzing competitor market reports to determine how well they are doing in the market. Starbucks will adapt to these adversity by increasing brand awareness by issuing coupons or putting up advertising displays.

â-ª The worst case scenario would be that Starbucks will determine that they cannot compete in the crystal drink mix market. They would end up liquidating the business and taking a profit loss. Starbucks will monitor these risks by analyzing the monthly reports including the sales report, distribution report, market share reports, financial reports and market audit reports. They will adapt to these changes by cutting back on fixed expenses, slowing distribution, increasing advertising and following the competitors prices.