COMPETITION

STARBUCKS VS COSTA COFFEE

Costa Coffee is part of the British leisure group Whitbread. With around 500 coffee stores in the UK and another 150 around Europe and the Middle East, Costa Coffee has been a brand to reckon with in that region. But compared to the global market leader Starbucks that entered China in 1998 and already has around 180 outlets in China, Costa Coffee entered the Chinese market in December 2006. Unlike Starbucks, Costa Coffee entered into a joint venture with the Yueda Group based in Jiangsu Province. The logic for such a partnership is quite simple - the Costa Coffee brand being a new entrant to the Chinese market would take a long time if it went alone but a partnership with a local company would allow Costa Coffee to leverage the partner's knowledge of the local market and customers. As attractive as it may sound, such partnerships do come with a price.

Costa's future in China will depend heavily on its partner. Currently, it is the Yueda group that will drive Costa's business. With its Italian image in Europe, Costa aspires to capture that very Italian aura in the Chinese market as well. But such a strategy raises a very crucial question about brand experience. One of the reasons that customers pay a premium to consume coffee at a cafe is for the experience. Chinese customers, especially in affluent cities such as Shanghai would aspire to identify with a global brand portraying a global image. Starbucks has been fairly successful in exploiting such a customer need.

Costa Coffee, with its Chinese partner, could face the risk of customizing the brand a bit too much. Such a step would jeopardize Costa's market aspirations. Even though the joint venture could allow Costa Coffee to understand the market faster, it would have to tread its path carefully.

It would be interesting to watch Costa's future path, given that Starbucks plans to expand in China very aggressively in the coming years and open thousands of new stores yearly. Who wins in the war between a global brand and a joint venture between a European brand and a Chinese company is ultimately for the Chinese customer to decide. But as long as Costa Coffee ensures that its brand essence and experience is not compromised, Starbucks can expect some competition.

What opportunities Starbucks has for differentiation (any touchpoints for value creation)? 

Starbucks has appealed to such a wide target market, it seems every product introduced will be an instant success (sodas, teas, ice creams, pastries).  As the most innovative company, it is no surprise that the new technological addition, the Starbucks Card, boosted sales and helped growth during a time when the economy was struggling.  “Starbucks went back to basics, and they have approached the basics with a science and intensity that no one has ever done before.

Here are the opportunities of Starbucks for differentiation:

·       Launching new products/product extension (e.g. tea, healthy, premium, co-branding)

·       Capturing new markets (retailing) and new consumer groups

·       Selling more whole coffee beans and equipment

·       Develop in non high street areas

·       Expansion into retail operations

·       New distribution channels (delivery)

·       New products

·       Distribution agreements

·       Brand extension

·       Emerging international markets

·       Continued domestic expansion/domination of segment

Sources:

[1] Sunday Times: How Starbucks colonised the world (2008), http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article3381092.ece

Starbucks & Customer emotions

Why Love Starbucks????

2 inShare

ShareIt’s the typical hype cycle.

• A new product or service is introduced.
• It grows exponentially to take over an industry.
• Everyone loves it.
• Accordingly, they all can’t stop talking about it.
• It goes viral and the media picks up on it.
• It gets bigger.
• Then people find that it will not solve ALL their problems.
• They begin to talk it down because it’s ‘in’ to talk it down.
• The media picks up on it again, whips around 180° and begins to tear it down.
• Then at some point, it all levels/evens out.

Starbucks is at this point now — they rode the hype roller coaster over the past number of years. But I still love them.
Why?  They fit perfectly into my business model. I run a 21st century business:

1. I have a home office where I coach.
2. I have a professional office in Stamford where I meet clients, hold workshops, and coach.
3. I’m regularly on the road to travel, meet new people, network, and bump into friends and colleagues.

Starbucks is perfect for #3. I have a special place to stop off and hook into my email and network (free wi-fi). Their products are consistent from store to store, so I always get my Venti Zen Green Tea (with only one teabag) for $2.07 (a deal). Their staff is always polite, engaging, and sometimes even fun to interact with. I meet clients in-person to go over their strategy for 2011 instead of dragging them down to my office. And I write my daily blog (as I am doing right now).

What does this mean to you? Well . . . Starbucks is a business entity that I love. In 2011, how can you position your business to make your clients LOVE you? Think about it:

• Do you deliver a consistent customer experience where you make your client feel comfortable? Do you develop a ‘safe space’ where they can grow, relax, expand, and grow their business or career?
• Do you provide a flexibility to allow them to personalize their experience?
• Do you offer various locations (physical and virtual) to allow them to use your products and services?
• Do you try new ideas, new products, new services?
• Do you have a loyalty/membership program to reward and retain your best customers?
• Do you have an upsell area to get your clients to buy more stuff?
• Do you partner with related industries to grow your business?

You might not like Starbucks and that’s fine. That’s not what this post is about (it’s how I love Starbucks). But you can’t argue that they have a compelling model that scared market leaders like McDonald’s and Dunkin Donuts to mimic a lot of their offerings.

WHY HATE STARBUCKS???

Of course, lots of people like Starbucks. You don't build up a worldwide empire of more than 2,200 locations with a business plan that doesn't appeal to anyone. And Starbucks is far from the worst corporate neighbor the world has seen, with an environmental mission statement, progressive labor benefits and a host of cooperative charitable activities.

Still, a lot of people clearly hate Starbucks. Which is particularly interesting, given that coffeehouses in general don't typically inspire that type of extreme emotion. When was the last time you heard someone say they hated Java Man in Hermosa Beach or Sacred Grounds in San Pedro? Probably never. You either love those places, or you just don't go there. Hatred seems reserved for Starbucks and its corporate imitators.

So why do people hate Starbucks so much? The answer is readily available by just walking into one.

The interior of your typical Starbucks is a classic example of co-optation. The company has succeeded by taking elements of the coffeehouse counterculture and marketing it to masses in a more generic form. Instead of original art on the walls, you have graphic ensembles created by a team of artists for every location. Instead of the eclectic musical tastes of the staff, you hear quirky jazz selections which are available on a Starbucks CD if you want to listen at home. And instead of the coffee drinks and unique blends of your typical independent coffee house, you have the Frappuccino®.

Something always seems false in a Starbucks. Most coffeehouses encourage people to stay as long as they want, but most Starbucks near me have 15-minute limits on all parking spaces. Most coffeehouses encourage people to hang out and play board games. Starbucks will sell you a board game. Most coffeehouses have a unique environment.

All Starbucks look the same on the inside, even the one down the street from me in the barely-disguised former Kentucky Fried Chicken building. When you see a person in a Starbucks hunkered down with a notebook at a table -- not an unfamiliar sight in a coffeehouse -- you are tempted to wonder if the novel he writes will be the literary equivalent of the faux environment in which he sits. More likely. he is just doing his Social Studies homework.

Garrison Frost

ENGAGE WITH STARBUCKS!!!!

Though Starbucks has done some effort on building meaning customers relationships and engagements. It seems like customers’ engagement of other coffee brewing companies like Dunkin’ Donuts is doing better than Starbucks. In terms of fan community, Starbucks seems to have a remarkable group of followers, and a comparable reluctance to engage them in storytelling.  The company sends out frequent emails, but these are usually no more than announcements of a new flavor, or of an offer promoting reduced prices.

So people may feel frustrated when they receive email from Starbucks.  Customers who like Starbucks would prefer hearing the stories of the baristas who make the coffee, the buyers who source the product in exotic places, or to see pictures and hear tales from the lives of the people who pick the beans.  As a fan of storytelling and imagery, they want to “feel” and smell the coffee, not just know it is on promotion.

In addition, customers would like to read stories of outstanding customer experiences, of great service, of humorous experiences, of why people go to their favorite Starbucks and what they feel when they are there.  For a company such as Starbucks, getting consumers to share their stories would be a relatively easy task. But for the time being, customers’ engagement in the company is merely in the functional level.
In sending out promotional messages, Starbucks is still putting their product and the promotion of their product at the center of story.

Sources:

[1] Fan engagement at Starbucks and Dunkin’ Donuts, http://www.johnsadowsky.com/?p=670

[2] How Starbucks Builds Meaningful Customer Engagement via Social Media,

http://www.openforum.com/idea-hub/topics/marketing/article/how-starbucks-builds-meaningful-customer-engagement-via-social-media-1

differentiation in the coffee industry: Big Brands

WHAT CAN BE DONE IN COFFEE BREWING INDUSRTY TO DIFFERENTIATE THEMSELVES?

As coffee-brewing industry is competitive, companies need to differentiate themselves in order to survive. Line management is a significant issue for coffee houses as often the demand is concentrated in the early mornings.

Starbucks

Starbucks has been able to achieve customer service efficiency by introducing automatic espresso machines.  According to Michelle Gass, Chief Merchant of Global Product, Starbucks, efficiency is a key driver in customer satisfaction, as customers “want their beverage in under three minutes.” Interestingly, however, it appears these efficiencies must be balanced with creating a mystique around the coffee experience and having an awareness of the consumers’ price-value ratio.  For example, Starbucks customers, who pay a premium for coffee, seem to miss the elaborate process of brewing and drink creation.  Starbucks’ CEO recently expressed a concern that the brand was becoming “watered down” and such gains in efficiency threatened to commoditize the brand. Technology is impacting this industry in the form of increasingly sophisticated home brewing machines that are able to at least replicate, if not beat, the quality of coffee prepared at many of these stores. Though it is unclear of the impact of these machines on the coffee players, this is an area of increased growth and one for these competitors to monitor.

Starbucks’ strategy

Starbucks does not compete on price but rather on the complete experience customers get while visiting the coffee shop.  Embracing its value beyond extraordinary coffee, Starbucks tries to make a business out of human connections, and celebration of diversity and culture.

Starbucks focuses its retail selection on the “best places in town” and its outlets can be found in the center of almost every famous city in the world ranging from Cologne to Los Angeles. As mentioned, the firm focuses on high-traffic, high-visibility locations.  While Starbucks selectively locates stores in shopping malls, it tries to focus on places that provide convenient access for pedestrians and drivers.

Starbuck’s overall goal is to establish its brand as one of the most recognized and respected ones in the world. Therefore the enterprise plans to continue the rapid expansion of its retail ~ and grow its specialty operations and to selectively pursue other opportunities to leverage the brand through the introduction of new products and the development of new channels of distribution.

Costa

Costa Coffee is part of the British leisure group Whitbread. With around 500 coffee stores in the UK and another 150 around Europe and the Middle East, Costa Coffee has been a brand to reckon with in that region. Let’s say,in the China market, compared to the global market leader Starbucks that entered China in 1998 and already has around 180 outlets in China, Costa Coffee entered the Chinese market in December 2006. Unlike Starbucks, Costa Coffee entered into a joint venture with the Yueda Group based in Jiangsu Province. The logic for such a partnership is quite simple - the Costa Coffee brand being a new entrant to the Chinese market would take a long time if it went alone but a partnership with a local company would allow Costa Coffee to leverage the partner's knowledge of the local market and customers. As attractive as it may sound, such partnerships do come with a price.

Costa’s strategy


Costa Coffee is set to adapt its ad strategy to focus on generating emotional engagement, starting with promotions for its new Costa Light variant. 


Costa Coffee is using a new strategy of emotion-led marketing to promote its new Costa Light drink (see right). The campaign for the drink, features ads promising ’All the love, none of the handles’ to tap into consumer concerns about consuming too many calories in their hot drinks.

The move to offset diet guilt marks a change in creative approach for the brand. Until now, Costa’s creative work has concentrated less on emotional appeal and instead tried to set the brand apart from its rivals, such as Starbucks or Caffe Nero. It’s “7 out of 10” campaign claimed that in taste tests more than twice as many consumers preferred Costa cappuccinos to the Starbucks equivalent (see one of the ads below).

In competing with Starbucks in the Chinese market, Costa’s ambition is to have one-third share of the coffee chain market of China, according to a recent company announcement. Starbucks signed an agreement with Maxim Group, its long-term partner, to take over 100% of its ownership in certain provinces, hence it now has full control of more than half of its Chinese retail stores.

Meanwhile, Costa is taking a much different approach. It has signed a cooperation agreement with the Beijing Hualian Group, a leading Chinese retailer, betting on rapidly entering high-end business complexes through the retailer’s 70 supermarkets and department stores as well as 10 shopping malls. To shorten the opening time of its new stores, Costa also gives its China office plenty of autonomy, just like its American rival.

Sources:

[1] COFFEE WARS IN CHINA: STARBUCKS VS. COSTA, http://www.worldcrunch.com/coffee-wars-china-starbucks-vs-costa/4086

[2] Costa Coffee adapts ad strategy to boost emotional appeal of Costa Light variant, http://www.marketingweek.co.uk/blogs/pitch-blog/costa-coffee-adapts-ad-strategy-to-boost-emotional-appeal-of-costa-light-variant/3030686.article

ASSOCIATIONS for Brand Managers

WHAT KIND OF ASSOCIATIONS ARE AVAILABLE FOR BRAND MANAGERS TO WORK ON?

Consumer’s perception of what a brand stands for is essential in determining the industry growth. When Starbucks was first created, its CEO’s vision was to create a “third place” for Americans.  Americans already spent considerable time at home and work and his vision was to provide a third place for Americans to not only drink coffee but to invest significant personal time.  For this reason, industry marketing efforts are closely tied the image/lifestyle projected by the chain.

                                             

For example, in an effort to respond to Starbucks’ dominance, several competitors have attempted to differentiate themselves from the “upscale, pseudo-European” store by projecting different lifestyle brands.  Caribou Coffee, for example, projects a more rugged image via its stores’ mostly wooden interiors that feel like “an Alaskan lodge. “Further, the corporation promulgated its alternative lifestyle by associating itself with Apple during its 2006 " Wake Up and Smell the Music" promotion.  Caribou’s CEO described the partnership as synergistic due to the fact that “We′re both challenger brands.”

Sources:
[1] Starbucks’ Homepage; www.starbucks.com
[2] Blanca Torres, Peet′s Future is Percolating, Contra Costa Times

STRUCTURE IN COFFEE BREWING INDUSTRY

WHAT MAKES THE STRUCTURE IN COFFEE BREWING INDUSTRY CHANGING?


1. Expansion/Growth


Domestic and international expansion makes coffee brewing industry to grow tremendously. The key channel of distribution in this industry is “company-operated stores located in high-traffic, high visibility centers,” and industry competition is structured around vying for market share by opening new retail shops in cities around the world. Starbucks, for example, opens on average three stores a day and has already made significant inroads into countries like Japan, the UK, Australia, the Middle East and Latin America.


2. Product/Service Innovation


Product innovation also leads to such changes. Serious coffee shop contenders now offer a product selection broader than the traditional cup of coffee. National chain and even local coffee shops boast menus including coffees, teas, hot chocolate, pastries, bottled water, and even sandwiches. A factor that contributed to Starbucks’ ability to surpass early coffee house entrants, such as Gloria Jeans, has been the company’s extensive R& D. For example the company has been able to sustain and grow its customer base by launching a new seasonal drink each year and also via its $400 million bottled drink business. Importantly, product innovation for Starbucks includes not only factors regarding customer acceptance but also the extent to which the product would fit into a store’s “ergonomic flow.”

Equally critical to the structure of the coffee industry has been the role of service innovation. An example of such innovation that has been hugely successful was the introduction of SVCs – store value cards. Starbucks Coffee and Peet’s Coffee now offer customers pre-paid cards which not only shorten transaction times for customers but can also bring in new customers via gift cards and supply stores with valuable customer data. Schultz, CEO of Starbucks, has called this innovation “the most significant product innovation since Frappuccino. “Service innovation is also impacting the industry in that companies are now required to offer a diverse set of services including music, drive-through services and newspapers to stay competitive.


3 Collaboration/Partnership


Collaboration and partnership is another driver that ties into the industry’s focus on growth. Starbucks was the first to realize the benefits of partnering when it reached out to powerhouse brands like Pepsi, Barnes and Noble, Nordstrom, Kraft and United Airlines to create new products, reach new customers and enter new channels of distribution like grocery, cruise lines and the airline industry. These alliances, in short, allow for innovation, channel extension
and even geographic extension (in the case of Starbucks’ alliance with Japanese retailer Sazaby.)