Costa Coffee vs Starbucks – Differentiation

Differentiation is when a company provides different offerings to suit different customer wants, which in turn allows them to create a competitive advantage.  This seems simple right?  No.  Not only is competitive advantage vital for survival in the U.K’s saturated coffee market; but how a company goes about differing its products also provides plenty of scope for failure, as well as success.  Starbucks and Costa Coffee are long-term competitors in the coffee market – however, recently they have implemented new marketing tactics.  Who will come out on top?

 

Costa Coffee has recently decided to acquire Coffee Nation, the operator of nearly 1000 self-service coffee machines for £60 million.  These are position for convenience – railways, for instance, are littered with these machines where busy customers can quickly grab a cup of coffee.  Hence, the firm wishes to rebrand these self-service points as ‘Costa Express’.  Obviously, the firm benefits from high-volume, low-margin sales: they are differentiating themselves based on speed.

Starbucks, on the other hand, are aiming to differentiate based on quality.  They have decided to lengthen their product line by using an ‘upward stretch’, where high quality and more expensive items are introduced: the company is introducing coffee made using rare, luxurious coffee beans.  Thus, unlike Costa Coffee, they are aiming to compete using a low-volume, high-margin sales approach.  And when I say ‘low-volume’ I mean low; the beans were grown by just 12 farmers, and there is no telling when the next harvest will be.  This being tied in with the firm’s 40th Birthday to align quality to its corporate image.

There are clearly benefits and drawbacks with both of their strategies.  Costa Coffee have used a relatively low-risk form of market development – market penetration hybrid strategy.  They are essentially targeting the same customers, but whose needs change according to their location.  This enables the firm to continue to sell to business executives on their way to and from work, by offering speed, and then on their lunch-break, by offering premium priced cakes and sandwiches.  The use of a multi-brand strategy, moreover, emphasises this contrast.  Thus, they hope the presence of self-service machines will not affect their cafe’s brand equity if they can convince their consumers to position the two services separately.

However, despite their best efforts, chances are the more successful Costa Coffee are at emphasising the speed of Costa Express, the less customers are likely to perceive their cafe as high-quality.  This is a complete contrast to Starbucks. Starbucks aims to deliver the best possible coffee to customers, regardless of time.  Early adopters may have to wait up to a year for the next harvest!  But, even when the product is available, each customer will the experience of watching a specially trained barista prepare their coffee which will take around 4 minutes for a single cup.  Lets hope consumers find the coffee good enough to be worth the wait.

Evidently, a premium price tag will be used to cover these large labour expenses.  Despite this, the product will never be profitable – there are not sufficient supplies of coffee beans to allow the drink to reach the maturity stage of the product life-cycle.  The drink will literally move from introduction into decline, with no scope for extension strategies.  The benefit of upward stretching through product development, therefore, is clearly to develop a reputation for high-quality that generates long-term revenue.  Hence, create long-term customer loyalty.

In the short-term, Starbucks is also able to generate hype around their exclusivity that can create a short influx of customers, at the expense of Costa Coffee’s sales.  These new consumers may then try other drinks and products if the brand-swap encourages variety-seeking buying behaviour.

Overall, one cannot really call one strategy more successful than the other. Costa Coffee clearly aim to maximise their profits; Starbucks aim to develop their brand around quality.  In both respects I feel they will both achieve their aims.  However, to a budding-marketer, Starbucks seems to be creating a more sustainable marketing strategy that will prove to be more competitive in the long-term.  This is being combined with other optimist approaches.

© Joshua Blatchford, author of Manifested Marketing, 07/03/2011.

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6 Comments

  1. I’ve been reading through some coffee blogs and it seems to me, all the pro Starbucks punters seem to prefer the banoffyknickerbockerglorymarshmallowcremedelightlattes, whilst Costa appears to be favoured by grown ups, who actually like the taste of the coffee and probably don’t drink WKDs at the weekend.

    Reply
  2. CLH

     /  March 28, 2013

    It appears your prediction was wrong. Strabucks is stuck with a bad reputation whilst Costa is now known as the better quality and friendly of the two. Just shows how quickly things can change.

    Reply
    • May I ask what country you are referring to? Although I am not a drinker of coffee myself, I thought that Starbucks and Costa are considered to be equally good in terms of quality. But the former seems to attract a younger customer, while the latter seems more popular with adults.

      Reply
  1. Costa Coffee – Differentiation « Manifested Marketing
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  3. Starbucks – Related Diversification | Manifested Marketing - Marketing Blog

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