Experiential Marketing – A case study of Starbucks

This research aims at verifying that the experiential marketing is not only atheory, but a practical strategy which can help an international coffee chain stabilize therepurchasing rate

Experiential Marketing – A case study of Starbucks

Abstract

We extend our heartfelt thanks to our instructor, Ling-Hui Hsu, Ph.D., the assistant

professor of Department of English at Ming Chuan University who herein her expertise and always provide support and opinion for our study at the leisure time, and with her

professional skill and experience shared for us Her valuable suggestions helped all of us to apply and comprehend the theories and help us to get more details for our paper

Starbucks is the top to become the most famous coffee chain store in the minds ofcustomers These researchers attempt to find out why Starbucks has been able to gain a lead

in coffee chains This research aims at verifying that the experiential marketing is not only atheory, but a practical strategy which can help an international coffee chain stabilize therepurchasing rate of customers and reach operational success

Table of contexts

Chapter One: Introduction 1.1 Background……….3

1.2 Motivation……… 4

1.3 Purpose of This Study……….5

1.4 Value of This Study………6

Chapter Two: Literatures review 2.1Coffee Chains……… 7

2.2Marketing Strategies……… 7

2.3Customer Relationship Management……… 8

2.4Schmitt’s 5-Stages Experiential Marketing Strategy……… 8

2.5 Consumer Behaviors Analysis……… 14

2.6 Customer Satisfaction……….15

2.7 Customer Loyalty……… 16

2.8 Satisfaction Affects Loyalty……… 16

2.9 Hypothesis……… 19

Chapter Three: Mythology 3.1 Participants……….21

3.2 Procedure………21

3.3 Material……… 22

3.4 Statistical Treatment ……… 22

Chapter Four: Data Analysis 4.1 Reliability Analysis……….23

4.2 Demographic variable……….27

4.3 Testing hypotheses … 28

Chapter Five: Discussion and Conclusion 5.1 Discussion……….………… 32

5.2 Further Suggestion……….….35 References

Attachment1

CHAPTER ONE INTRODUCTION

1.1 Background

In recent years the growth of coffee shops has been accelerating in Taiwan According

to TCFA statistics, there were between 5,800 and 6,000 coffee shops in each county ofTaiwan in 2005 However, more and more coffee chains such as Starbucks, Is Coffee, Ikariand Dante have established their distinct features Coffee chain stores have resorted to effectgathering, selecting, using and retaining the relevant knowledge from the varied types ofinternal stakeholders and external sources to become more competitive (David, 2007)

Furthermore, relation between coffee chains marketers and customers is getting closertoday Transactional marketing or benefits marketing, focuses on price competition andindividual transactions (Strazdina, 2000) Coffee marketing environment is changing.Marketers have been using scientific strategies to determine their marketing strategy.Experiential marketing emphasizes customers’ action in marketers’ strategy making

Figure1.1: The flow chart of research processes

In this research, the first step is to define the focus of the study The second is anattempt to review literatures on experiential marketing Following the review is design ofquestionnaires Finally, data collected will be analyzed to explore how Starbucks influencespurchasing behavior of customers

1.2 Motivation

Experiential marketing is a study of the gap between the intended effect and actualresponse of customer Starbucks uses experiential marketing as a case example to affectcustomer loyalty in their products (Li, 2007,) In recent years, coffee has gradually accountedfor a larger percentage in beverage market More and more coffee chain stores are around in

the city to form fierce competition Those coffee shops have lots in common When it comes

to coffee chain store, what comes to mind for most people is a goddess image, the logo ofStarbucks Starbucks has made it to the top to become the most famous coffee chain store inthe minds of customers It might be easy to name a couple of reasons behind the success ofStarbucks, such as nice store design and good advertising programs However, it is believedthat the success of Starbucks is not quite straight forward as it seems These researchersattempt to find out why Starbucks has been able to gain a lead in coffee chains

Nowadays, society is a huge experiential machine The goods should contain theelements of experience and the process of shopping also needs (Liou, 2004) The pleasantexperience through shopping process is the major trend of the marketing in the future.Experience is the result of a certain product brings out people’s identity of that product and itcan totally show their style and taste In sum, the Experiential Marketing helps the marketer

to demonstrate their style and taste and it is going to be the essential marketing strategy in thefuture

1.3 Purpose of This Study

Experiential marketing is an interaction among customers, marketing team, andproducts It’ not based on traditional expectation What has been created is true brand loyaltyfrom customer to gain the ultimate competitive advantage (Reichheld and Schefter, 2000)

There is little information available on how experiential marketing is directly related to thecoffee chain store Starbucks Most of the research conducted previously on Schmitt’sexperiential marketing is related to hospitality To minimize the selected range by focusing

on the operation of Experiential Marketing in one chosen coffee chain store, Starbucks, theother coffee chain stores have been excluded in our research The purpose of this research is

to explore the relationship between the reasons for customers’ loyalty to Starbucks and thetheoretical concepts of Schmitt’s experiential marketing so as to determine whetherexperiential marketing can be used to explain Starbucks’ success

1.4 Value of This Study

The trend in experiential marketing has broken away from the traditional marketingstrategies to create a new relationship between customers and marketers (Grundey, 2008).The key concepts of experiential marketing are to include customers in decision making andput customers as the focus in strategies forming This research aims at verifying that theexperiential marketing is not only a theory, but a practical strategy which can help aninternational coffee chain stabilize the repurchasing rate of customers and reach operationalsuccess

CHAPTER TWO LITERATURE REVIEW

2.1 Coffee Chains

Each Starbucks chain insists on giving consistent quality service According to studies,coffee chains have enabled the creation of large numbers of similar outlets that deliverrelatively standardized products and services in an efficient way (David, 2007) Coffee chainmeans that every coffee shop of the organization carries the same products and services.People can visit any coffee shop of the organization and enjoy the same products The key tocompetitiveness is to effectively gather, select, use and retain the relevant knowledge fromvarious types of internal stakeholders and external sources (David, 2007) The success of thecoffee chain is that they integrate the internal and external sources

2.2 Marketing Strategies

A marketing plan contains a set of specific actions required to successfully implement

a marketing strategy Marketing strategy determines the choice of target market segment,

positioning, marketing mix, and allocation of resources (Peter & James, 1987) Once relationship marketing starts to become a trend, many try and offer to provide a framework

for it, and most of them simultaneously (Strazdina, 2000) Strategy marketing is called thestrategies of 4P’s product, price, promotion and place (Chiou & Jyh-Shen, 2001)

2.3 Customer Relationship Management

Customer relationship management is related to customer life (acquire, enhance,maintain) (Kalakota & Robinson, 1999) Starbucks provides a humanized leisure place wherecustomers can enjoy the relaxing store atmosphere Transactional marketing or benefitsmarketing, focuses on price competition and individual transactions (Strazdina, 2000) Inorder to compete with other coffee shops, Starbucks provides some rewards to customersfrequently For example, during anniversary celebration periods, customers are rewarded by

“the buy one get one free” campaign

2.4 Schmitt’s 5-Stages Experiential Marketing Strategy

Sense

Sense marketing focuses on five senses, which are vision, hearing, smelling, taste andtouch (Schmitt, 1999) Senses are transducers from the physical world to the realm of themind Sensory systems code for four aspects of a stimulus: type (modality), intensity,location, and duration Certain receptors are sensitive to certain types of stimuli Receptorssend impulses in certain patterns to send information about the intensity of a stimulus Thelocation of the receptor that is stimulated gives the brain information about the location of the

stimulus The duration of the stimulus is conveyed by firing patterns of receptors (Kolb &Whishaw, 2003) The satisfactions and joy from sense perception create not onlysupplementary value for products but also experience of sense perception.

If managed well, sense marketing makes it possible for customers to distinguishcompany and product, stimulating customers' sense experiences and delivering values tocustomers In order to create a positive image, marketing personnel need to pay attention tothe main elements, styles and theme The visual identity of a corporation or a brand is oftenthe most important component in invoking attitudes, associations, and customer responses, aphenomenon that Louis Cheskin called “sensation transfer.” Therefore, it is often the sensoryexperience that attracts a customer to a corporation or brand and that needs to be considered

in making a strategic decision The key strategic objects can motivate its’ customers to buy itsproduct, and deliver value to customers’ recognition The key success of sense experience is

to assure consistent provision of positive impressions and to create diversity (Schmitt, 1999).For example, interior design, decoration, and jazz music in a Starbucks coffee shop

Feel

“Feel marketing is the strategy and implementation of attaching affect to the companyand brand via experience providers (Schmitt, 1999, p118).” Clearly, positive or negativefeeling will affect the product or service which is consumed According to Schmitt, affectiveexperiences have mood and emotion “Moods are inspective states (Schmitt, 1999, p122).”

For example, employees at a Starbucks store would remember the names of customers andthe preference of each frequent customer That usually makes consumers surprised andbrings customers good feelings Such a nice gesture is all the better since it is was unexpected

on the part of the customers Mood may occur in specific stimuli, even consumer can’tdiscover that For example, noisy music in a coffee shop puts customers in a bad mood

“In contrast to moods, emotions are intense and stimulus-specific affective states(Schmitt, 1999).” Based on the Schmitt theory, there are two types of emotion: basic emotionand complex emotions Basic emotions comprise the base of our affective lives, such likechemical elements Basic emotions can be found in every part of the world For example,different cultures have similar facial expressions Complex emotions are blends andcombinations of basic emotions Most marketing-generated emotions are complex ones(Schmitt, 1999) Schmitt suggested sixteen types of consumption emotions Such as anger,discontent, worry, sadness, fear, shame, envy, loneliness, romantic, love, peacefulness,contentment, optimism, joy, excitement, and other items (gully, proud, eager) In Starbucks,face to face interactions are important between consumers and employees Consumers feelcomfortable and relaxed when they enter the Starbucks Customers can find comfortablesofas and warmhearted service which make consumer feel good

Think

“The objective of Think marketing is to encourage customers to engage in elaborative

and creative thinking that may result in reevaluation of the company and products Thinkmarketing has the potential to tap into-and sometimes guide-major “paradigm shifts” insociety, as people rethink old assumptions and expectations (Schmitt, 1999, p138).”

Schmitt conclude the think principle to be: a sense of surprise, a dose of intrigue and asmack of provocation To surprise customers is important because it is the key to customers’creative thinking Surprise creates delight and surpasses customers’ expectations Then,intrigue led customer’s curiosity that they may come up with what Starbucks is and how itworks What was and what will be? In short, intrigue is getting customers to think at timesabout the product and brand In the final phase, a smack of provocation got consumers’attention and inspired them to discuss It depends on what the marketer’s intention and whatthe goal is

The essence of Think marketing is to appeal to customers’ creative thinking about acompany and its brands It will let marketer evaluate their company and products anew.When people refresh their expectations and assumptions, Think marketing may arousecustomers’ different thinking to Starbucks and can it be related to this marketing strategy?How and in what way does Starbucks want customers to rethink their products and service?

ACT

“ACT marketing strategies are designed to create customer experiences related to thephysical body, longer-term patterns of behavior and lifestyles as well as experience occurring

as a result of interacting with other people (Schmitt, 1999, p154).”

Act experiences were mostly ignored in the traditional marketing There are eightpoints to Act marketing strategies The main concept of Act experiences is based on threecategories, Physical Body Experiences, Lifestyles and Interact

First of all, Physical Body Experiences is that people’s flesh, motor actions and bodysignals can affect and stimulate the physical desires produced by environment Flesh is also asource for people to experience a subject besides what you see and what you smell, such asgetting a haircut, a manicure or a massage Motor actions demonstrate how people’s thoughtscan be affected by nonverbal actions One of the domains of motor actions is actionsstimulated by the environment, and the other domain is the actions from inside the person

“Body signals are a factor of evolutionary actions since the dawn of man People are aware ofapproach and avoidance, preference and dislike, domination and submission, and how thosesuggestions affect our reactions (Schmitt, 1999, p163) ”

Secondly, Lifestyles, “in the marketing literature, lifestyle refers to the person’s pattern

of living in the world as expressed in the person’s activities (Schmitt, 1999, p165).” Thework that marketers should do is to sense and lead people towards the lifestyle experience.The way that marketers influence lifestyles is by inducing acting without (much) thinking,using role models and appealing to norms

Third, “Interact do not occur in a social vacuum Instead, people’s behavior dependsnot only on their outcome beliefs, attitudes, and intentions but also beliefs of reference groups

and social norms (Schmitt, 1999, p167).” The Act experiences are more focused on themedium An example of a medium could be buying things online or in a retail store Anotherexample would be using e-book or read a real book.

Relate

“Relate marketing actions by relating the individual self to the broader social andcultural context reflected in a brand (Schmitt, 1999, p171).” Relate connect with other group,which include lifestyle, gender, or more extensively, other ethnic groups However, thisoutcome is not the most prominent in building relationship between customers and brand.The meaning of relate marketing is to make people relate to other individuals, the wholegroups, even cultures by brand

“The purpose of relating to others seems to be motivated by a need for categorizationand a search for meaning (Schmitt, 1999, p175).” When people describe themselves in terms

of certain individual traits, they not only describe identification but also contrast withanother Relationships may form with kin relations or social roles Steven Pinker (1997)defined two relations differences on “the love of kin comes naturally; the love of non-kindoes not (Pinker, 1997, p 429).”

Another Related element is cross country value In different cultures, the strategy ofmarketing should be sensitive enough to approach customers and avoid the taboo Forexample, the global enterprise Pepsi has been prudent in selecting the spokesmen from

different areas or countries The reason is that those spokesmen can be related to thecustomers’ life Customers can see the pop star that they are familiar spoke for themerchandise; not the person who is from other country that they barely know For Starbucks,small tokens and treasure have constantly been introduced to customers as gifts or souvenirs

to drawn customers closer to Starbucks

2.5 Consumer Behaviors Analysis

Marketers want to create an emotional attachment between customers and what theyare selling They want to offer customers an experience, not just sell goods or services(Silverman, 2005) Experiential marketing focuses not only on selling goods but oncustomers’ feelings, so the marketer would take it serious about the relationships betweencompany and customers Experiential work determines the suitable client objectives thatinteract with the brand not as the marketing team had initially expected (Liu, 2006) Ratherthan selling brand only, experiential work aims at selling the service which is closer tocustomers The gap involves customer’s satisfaction formation in repurchase loyalty (Olsen,2007) After receiving the service, customers feel great and want to enjoy the service again

2.6 Customer Satisfaction

The definition of customer satisfaction (Kotler 2003) is: “Customer satisfaction is aperson’s feelings of pleasure or disappointment resulting from comparing a product’sperceived performance in relation to his or her expectation (Kotler 2003, p81).”

Customer satisfaction includes rational point of view and emotional point of view Thefollowing are differences between rational point of view and emotional point of view Inrational point of view, customer satisfaction is the result of a series of psychologicalassessment results (Chruchill & Surprenant, 1982) In emotional point of view, customersatisfaction is an immediate emotional response of customers (LaTour & Peat, 1979).Rational point of view of satisfaction defined the level of satisfaction is the individualperceived performance, and personal expectations of the product Customer satisfactionwhich is generated in the process of comparing the two cognitive (expectations andperformance) is an evaluation If the performance transcends or is equal to previousexpectations, consumers will have satisfaction (Westbrook, 1980) In addition, customersatisfaction is achieved when consumers think the product or service received is beyond theirdreams in emotional point of view (Westbrook, 1980)

2.7 Customer Loyalty

A quick indication of customer loyalty is repeated purchase (Newman & Werbel, 1973)while becoming less receptive to the competitor’s offerings (Fitzell, 1998) What is often

involved is customer commitment (Bloemer & Kasper, 1994) and trust, after an initialexperience of customer satisfaction (Bennett, Härtel, & McColl-Kennedy, 2005).

2.8 Satisfaction Affects Loyalty

Jones and Sasser (Jones & Sasser, 1995) reveal that higher levels of customersatisfaction do not necessarily correspond with higher likelihood to repurchase a product orservice In both highly competitive and less competitive markets, Jones and Sasser find thatcustomers who are merely satisfied are nevertheless prone to defection in high rates, whileonly those who are completely satisfied are more likely to buy again (Jones, 1995)

Figure2.8.1 Six Representation of Satisfaction and Loyalty

The relevant literature shows that the satisfaction-loyalty relation is not well specified.Six of the many and diverse possible associations of satisfaction and loyalty are shown infigure 2.8.1

Oliver (1999) shifted the focus away from customer satisfaction toward anothervariable of interest: customer loyalty According to Oliver, loyalty signifies not therepurchasing of a product, but the repurchasing of a product despite situational influences thathave the potential to cause switching behavior For satisfaction to affect loyalty, frequent orcumulative satisfaction is required so that individual satisfaction episodes become aggregated

or blended (Oliver, 1999)

In Oliver's (1997) framework of loyalty forming, consumers are theorized to becomeloyal in a cognitive sense first, then later in an affective sense, still later in a cognitivemanner, and finally in a behavioral manner (Oliver, 1997)

Cognitive loyalty

This stage is referred to as cognitive loyalty, or loyalty based on brand belief only.Cognition can be based on prior or vicarious knowledge or on recent experience-basedinformation; the depth of loyalty is no deeper than mere performance

Affective loyalty

At the second phase of loyalty development, a liking or attitude toward the brand has

developed on the basis of cumulatively satisfying usage occasions, which reflects thepleasure dimension of the satisfaction Commitment.

Cognitive loyalty

The next phase of loyalty development stage which influenced by repeated episodes ofpositive affected toward the brand This commitment is to the intention to rebuy the brandand is more akin to motivation

Action loyalty

Study of the mechanism by which intentions are converted to actions is referred to as

"action control" (Kuhl & Beckmann, 1985) The action control paradigm proposes that this isaccompanied by an additional desire to overcome obstacles that might prevent the act Thisengagement is repeated, action inertia develops, thereby facilitating repurchase

2.9 Hypothesis

It is hypothesized that the five strategies module of experiential marketing would positiveimprove the relationship between firms and customers But How Starbucks has employed thetheoretical concepts of experiential marketing in promoting their products? The following isthe hypothesis of this study:

 Customer satisfaction affects the customer loyalty.

 Five senses and customer satisfaction have positive correlation

In answering the above hypothesis, the researchers will examine whether Starbucksworked well on relationship between firms and customer Furthermore, it is hypothesized inthe current research that the five strategies module of experiential marketing will helpStarbucks expand customers and revenue

Chapter Three Methodology3.1 Subject

The purpose of our case study is to examine how experiential marketing hasbeen workingfor Starbucks The study was designed to test whether customer satisfaction affects customer loyalty, and whether five senses and customer satisfactionare related

3.2 Procedure

The questionnaire was posted on Free Online Survey Questionnaires Research website The questionnaire was in Chinese

Within two weeks, 100 voluntary respondents completed the questionnaire online

We only accept questionnaires from people who have been to Starbucks and purchased because it’s for sure that they had experience the services personally from Starbucks; thus, the subject of this study was insured And four questionnaires were discarded because their responses to one of the questions indicated that they had never catered Starbucks This questionnaires survey was carried out from February 21st to March 4th.