Starbucks – Related Diversification

Starbucks is a global coffee chain, originating from the U.S. . The business has been pursuing a long-term strategy of diversifying its core offering beyond beverages; this is designed to help differentiate the brand, which is very important considering coffee is almost a commodity.  The latest development is that Starbucks now plans to increase its focus on food. In the U.S. Starbucks is now serving La Boulange pastries – a bakery that the firm acquired for $100 million – and Evolution Harvest granola bars – again acquired for a tasty $30 million. Across the sea in the U.K Starbucks has launched a new food range, with the ‘Duffin’ doughnut/muffin hybrid serving as the flagship product.

This post will look at the benefits and drawbacks to Starbucks of expanding into the food market.

Diversification is just one of four growth strategies of the Ansoff Matrix (below), which shows the four ways a firm can increase sales:

1. Market penetration – is growing sales of existing products in existing markets.  For instance, Starbucks have started writing names of customers on coffee cups.  The intention of this is to increase sales as a result of greater customer satisfaction.

2. Product Development – intends to increase sales by launching new products into an existing market.  An example of this would be Starbucks introducing a new premium coffee made with rare and exclusive beans.

3. Market Development – is growing sales by launching existing products into new markets.  Starbucks are a great example of this by having coffee shops all over the world.

4. Diversification – is launching new products into a new market, potentially increasing sales by a significant amount.  However, this is the most risky strategy.  Starbuck’s latest plans to launch a new food range is a diversification strategy because the firm is using a new product to tap into a new market for meals.

Until now, their food range has only been intended to compliment their beverages and not a significant source of revenue or consumers’ meals.  As this form of diversification is very similar to their current product range and market, it is considered ‘related diversification’.

 
Despite the risk, why do Starbucks want to diversify into food?

Grow Sales!  As mentioned earlier, diversification has the potential to rapidly grow sales.  Particularly for Starbucks, the new food range can become a major source of revenue.  Sales of food items have been flat for the past three years, however the coffee chain is aiming to increase sales by 30%.  Food items also help increase the spend per customer in store, which is important for coffee outlets that are limited by the amount of customers that can be seated.  Therefore this is a more efficient strategy than increasing the amount of consumers visiting Starbucks.

Spread uneven demand.  Currently peak sales for Starbucks occur in mornings and afternoons for coffee breaks; an emphasis on food encourages consumers to visit their outlets at meal times.  Consequently, it will be easier for Starbucks to manage their capacity and not have to use inconvenient shift patterns.

Gain a competitive advantage.  It goes without saying that the coffee shop market is extremely competitive.  And there are no signs of competition becoming less severe: McDonalds have now decided to enter the coffee market to diversify their offering.  To an extent, expanding into the food sector is almost a retaliation from Starbucks, aiming to steal hungry coffee consumers.

Diversification is the last available strategy to grow sales for Starbucks.  The coffee shop market is far too saturated for market penetration strategies to grow sales significantly – the benefits of market penetration are often short term anyway.  Starbucks have an incredibly vast range of drinks, which means that there is very limited opportunity to develop further products.  Lastly, the chain has over 20,000 outlets in 63 countries, again, limiting the possibility to grow sales through market development.

To quickly recap, Starbucks’ plans to diversify is one of the Ansoff Matrix growth strategies. The alternative strategies to grow sales are market penetration, market development and product development.  The benefits to Starbucks are to grow sales, spread uneven demand and gain a competitive advantage.  This strategy is also suitable for Starbucks because they have exhausted the ability to grow sales through the other means.

 

© Josh Blatchford, author of Manifested Marketing, 07/10/2013

Cadbury – Classical Conditioning

Cadbury is a confectionery brand originating from Birmingham in the United Kingdom.  The firm has been owned by Mondelez International since 2012, after acquiring the brand from Kraft Foods.  Cadbury is most famous for its Dairy Milk Chocolate and its use of purple wrappers that have become synonymous with the firm.  The particular shade of purple Cadbury use is known as Pantone 2865c and is very much part of the brand’s identity; the color has been used since 1905.  However, this could now be subject to change.  Cadbury has lost a legal battle with Nestle, regarding the trademark of the color.  A trademark is a unique design, expression or sign that identifies a product.  Unfortunately for Cadbury, the UK Court of Appeal has ruled that the color purple is not distinctive enough to qualify as a trademark.  Consequently, the color Pantone 2865c can now be used by other confectionery manufacturers.

But why is this such a big problem for Cadbury?

This post will look at how a color becomes associated with a brand and the potential damage the court’s decision can cause Cadbury.

The process of brand identity association can be best explained by Pavlov’s Classical Conditioning theory:

When consumers see the color purple, their main thoughts are of luxury, high quality and royalty: all of these are positive associations with the color.  Before the association with purple, back in the late 19th Century, Cadbury would have been just recognized by consumers as a confectionery manufacturer when presented with their products or advertisements.

In the early 20th Century, Cadbury decided that they wanted their brand to be associated with the same qualities as the color purple.  The brand embarked on a long – albeit highly rewarding – process of pairing the Cadbury brand with purple.  This involves an integrated marketing communications strategy and coordination of the marketing mix to use the color purple as much as possible and in consistent formats over a long period of time – over one hundred years!

As you can see, when it comes to Cadbury the one color any consumer would immediately associate with the brand is purple.  This has been reinforced – or ‘paired’ – over many years to entrench the color into the brand’s identity.  The result of this is that consumers’ responses to Cadbury and purple become merged.  Thus, when exposed to a Cadbury’s chocolate bar or marketing they see and think of purple and then of luxury chocolate; or when consumers are presented with purple, there is a good chance that Cadbury may come to their mind and subsequently luxury chocolate.

If you really want to drill-down into the fine details of how this ‘pairing’ process works (which I do!), then we need the help of something called Balance Theory:

1. Balanced state without pairing

The first triangle shows the consumer’s state of mind before classical conditioning has taken place.  The consumer associates purple and luxury (etc.) to be associated with one another; this is because of societal norms and culture.  However, Cadbury is not considered to be linked with the color purple and thus not luxury either.

2Unbalanced state during pairing process

This second triangle is the consumer’s state of mind during Cadbury’s branding campaign.  At this point in time, the consumer has been exposed to plenty of marketing stimuli containing the color purple.  Hence, the consumer now believes there is a connection with Cadbury and purple – yet still no link with Cadbury and Luxury.  But this is an unbalanced state, which a consumer cannot remain in for a long period of time.  Namely, it is illogical to believe luxury and purple are synonymous, and that Cadbury and purple are associated together, but not Cadbury and luxury.

3. Balanced state after successful pairing

The consumer was exposed to further marketing stimuli to build a stronger bond between Cadbury and purple so that their state of mind becomes so confused they undergo an attitude change.  Therefore, they reconcile the previous ‘unbalance’ by associating Cadbury and luxury together; now all three constructs are related, which is a logical response.

So why is the trademark loss of the purple Pantone 2865c so disastrous?  There are two main reasons:

1. Improved authenticity of copy-cat products – as pictured above, if generic alternatives to Cadbury can now use the exact shade of purple it increases the chances of consumers mistaking the two, therefore Cadbury lose sales.
2. Damage to reputation – if cheaper products start using Pantone 2865c on a mass-scale, this purple may lose its association with luxury.  Instead, it could – in the consumer’s state of mind – become paired with poor quality.  In this case, all of Cadbury’s marketing will back fire on them!

In summary, purple has become associated with Cadbury as a result of consistent and integrated marketing communications.  The ability of generic or cheaper brands to use this exact shade of purple makes it harder to identify Cadbury’s products and potentially damages the Cadbury brand.

© Josh Blatchford, author of Manifested Marketing, 05/10/2013

Coca Cola – Global Marketing Communications

The Coca-Cola brand has been ranked by Interbrand as the world’s most valuable at $77,839 million.  But what has lead to the creation of such a strong brand?

It would be next to impossible to name one reason for this; however, as suggested by Interbrand, the Coca-Cola corporation has managed to consistently strike a balance between leveraging the traditional values associated with the drink and supporting this with innovative marketing campaigns.

Heinz has also grown its brand through a very similar method: strong heritage, augmented by exciting campaigns and new products.

The latest innovation from Coca-Cola is the ‘Share a Coke’ campaign that has recently launched in the United Kingdom (U.K.). The said campaign entails bottles and cans being printed with customer names in place of the traditional Coca-Cola logo.  The aim of this is to primarily to engage consumers in the brand, particularly through social media.

Customisable Coke Can

Regarding social media, consumers are encouraged to share their bottles digitally on Twitter using the hastag ‘ShareACoke’ or through the ‘Share a Coke’ Facebook app.  The latter allows consumers to create their own digital bottle and share it with friends (see below).  Furthermore, kiosks, in town centres and shopping malls, will be created to allow consumers to create their own custom cans or bottles, in the case that their name is not one of the one hundred and fifty being mass-produced.

 

While the same programme has already been a success in Australia and New Zealand, will simple a ‘copy and paste’ of the campaign work for the U.K. market?  I think for the most part, it will.  However, despite  the below video giving the impression of an unqualified success there is not such thing as a perfect campaign…

Some marketers (see comments section) have criticised the campaign for simply being ‘lame’, while others – more constructively – allude to the idea being too novel.  As Coca-Cola Great Britain managing director, Jon Woods, identifies, there is an inherent risk of replacing the brand name.  According to Kotler’s model of a ‘product’, a given product is composed of not just the tangible item that is purchased, but also intangible benefits, such as branding.

Therefore, for this campaign to be a success, the increase in consumer engagement – generated by featuring a name on the product – needs to off-set the decrease in brand-derived benefits – lost via the removal of the ‘Coca-Cola’ logo.

Hence, given the power of a brand, particularly one of this statue, to influence consumer consumer behaviour this truly is a risky decision.

Additionally, I believe that the campaign’s call-to-action is rather weak.  Namely, it is a bit ambiguous whether you are supposed to buy a drink for yourself – with your own name on it – or a drink for a friend – with their name on it.

On this point, there may be a missed opportunity here to try and promote non-digital sharing.  Perhaps there could have been a multi-buy offer to support the campaign?  Such an offer might have re-enforced the encouragement to buy a drink for friends, rather than purely rely on the novelty of the campaign.

One last piece of criticism I have is regarding Jon Woods’ claim that ‘no other brand has gone to this level of personalisation’.  In fact, as you can read here, Starbucks has already used a very similar tactic on a global scale.

Share a Coke Facebook App

I think, simply, the question boils down to: ‘Do people care about having a name on a product?’.  In New Zealand and Australia this was a resounding ‘Yes’. As these markets are similar, the campaign will probably be replicated successful in the U.K.; consumers are starting to share their drinks over Twitter.

There is one final issue I will briefly touch upon.  Namely, will more and more companies start replicating national campaigns from one region into another?  To an extent this might be seen as a cost-effective way to ‘think globally, act locally’ and customise global campaigns more efficiently.

What do you think: will the campaign work and  will more corporations start to replicate national campaigns in several regions?

© Joshua Blatchford, author of Manifested Marketing, 05/05/2013

Kellogg’s – Product Range Filling

Last week I made a post about Domino’s Pizza and brand stretching; this week, however I want to discuss the complete opposite: product range filling.  One of the world’s most recognisable cereal producers, Kellogg’s, have just announced a new brand of cereal to join their product range.  ‘Mini Max’ is a cereal positioned as a healthy breakfast that is particularly appealing to young children – it is low in saturated fat, salt and sugar, while also high in fibre.

Unlike Domino’s Pizza’s plans to extend into gourmet pizzas, Kellogg’s have decided to launch a whole new brand (the alternative approach would be to modify an existing cereal, Frosties for example, and make a healthier version, possibly ‘Frosties-light’ or ‘Frosties-fibre’).  Moreover, they are targeting the same market.  This is not lowering their product range to a budget-consumer nor is it a premium product – the new brand, Mini Max, will have similar pricing to Kellogg’s’ other cereal brands.

The benefit of creating a whole new brand identity to market the healthy cereal is that it is much easier to convince the target market of the product’s benefits.  While Domino’s Pizza will have difficulty in trying to get customers to change their perception of the firm as high-quality, by creating the new brand – ‘Mini Max’ – a separate identity has been created from Kellogg’s’ other products.  Hence, no matter how much junk is packed into their other products, parents are unlikely to be deterred from purchasing Mini Max; consumers have no pre-conceived perceptions.

However, there is a drawback to product range filling.  Namely cannibalization; this is where a new product does not increase total sales but instead steals sales from the other items in a firm’s product range.  This could easily happen with Kellogg’s.  Not only does the firm plan on the Mini Max brand becoming worth more than Frosties, the new healthy cereal may prompt parents to re-consider purchasing their normal cereal over health concerns.  It is this habitual buying behaviour that is vitally important for Kellogg’s to create cash-cows, like Frosties.

Although Domino’s Pizza also risks cannibalisation, this is far less of a problem with upward brand stretching.  Albeit cannibalisation may mean few new consumers are attracted, if existing customers suddenly start purchasing the pricier gourmet pizzas, overall sales will still increase.  The worst damage cannibalisation does is during a downward brand stretch; consumers start paying less than before for similar products.

Ultimately, these past two weeks show two different examples firms can use when introducing new products.  Although they both have their drawbacks, I personally think that product range filling, undertaken by Kellogg’s, is a far less riskier strategy that is more likely to work.

© Joshua Blatchford, author of Manifested Marketing, 24/08/2011

Rockstar Energy Drinks – Product Line Filling

AG Barr – the parent company behind drinks such as Irn Bru, Tizer and Rockstar energy drinks – has recently announced the launch of ‘Rockstar Pink’.  This is supposed to be the first energy drink on the market that specifically targets female consumers.  They have segmented this market as the health-conscious  female who requires an energy kick; hence, the product contains only 10 calories, zero sugar and  smaller can size.  It also comes with a straw, according to the firm’s website, that means girls’ lipstick will not get smudged.  This form of market penetration is known as ‘product line filling’, where the depth of their product portfolio is increased by offering consumers greater variety.  Although AG Barr plans to use extreme sports sponsor ship and sampling at sports events, I am pessimistic that the drink will be a success.

Albeit they have identified an untapped niche in the market,  I believe they are still being too broad in their targeting.  They are attempting to target the product for sports and for nightlife usage – occasional segmentation should focus on one occasion and one occasion only, such as Coca-Cola’s recent repositioning.  The risk is that by attempting to appeal as both a sports product and for leisure use, Rockstar Pink becomes positioned by consumers as unsuitable for neither occasion.  If you look at the width of Lucozade’s product range, which has had a far greater market dominance, you can see the  differentiation between Lucozade ‘Original’ and ‘Sport’.  I feel a much more appropriate strategy would be to focus purely on recreational usage and compete with mixed-drinks in nightclubs by positioning the product as a healthier alternative to vodka and Red Bull/Coke.

Another potential pit-fall, I believe, could be the packaging of the product.  While this is seemingly straight-forward: take an ordinary can, make it smaller and then make it pink, it is integral to competing with other products at the point-of-purchase and portraying the benefits of the product.  On the one hand, the pink colouring makes the product stand-out.  But does it really reflect the core purpose of the drink?  It does not look healthy at all – the intense colour is synonymous ‘artificial colouring’.  In contrast, the sugar-free version of  ‘Rockstar Original’, below, looks much more healthier and cleaner.  All the pink colouring does is show who the company intends to sell to – this eliminates any male consumers, who may also be health-conscious.

However, I guess the included straw does have at least one benefit to females wearing lipstick.  The problem?  Avoiding lipstick smudges is the wrong benefit!  Females taking part in sports or clubbing – the firm’s targeted occasions – are not going to care about their lipstick.

The last issue with ‘Rockstar Pink’ is common to all product line filling decisions:  cannibalisation.  This is when the launch of a new product simply replaces the sales of existing products with the new products.  If you take a look at the Rockstar product line, there are at least three products that could witness a decline in sales as females shift to ‘Rockstar Pink’: ‘Sugar Free’, ‘Zero Carb and ‘Roasted Light Vanilla’.  And we are assuming here that the product is successful, which I am highly sceptical of.  Moreover, their already extensive product range makes failure even more likely.  This is because they essentially already have products that offer the same benefits that the new drink offers; they even come in smaller sizes than ‘Pink’s’ standard 12oz can.

It seems to me as if AG Barr have broken a fundamental rule of branding.  Namely, they being too broad in defining who their core customer is.  This results in a product that appeals to no one for using during no particular occasion.  In such a mature and competitive market, there is a right time and reason for each product; by trying to be the right product for several occasions and reasons you always end up being second-best.

© Joshua Blatchford, author of Manifested Marketing 30/05/2011

 

I also want to mention that the official domain for the blog is now http://www.manifestedmarketing.com

Coca-Cola – Repositioning

Coca-Cola have recently launched a new advertisement that will air each Saturday evening on ITV.  The aim of the latest marketing campaign is to reposition the Coca-Cola brand as a meal-time accompaniment: their key message emphasised is “meals taste better with Coca-Cola”, which will be featured in the majority of their marketing material.  Where as, the television advertisements will feature the lines “Saturday night tastes better with Coca-Cola and ITV1”.

This is evidence of behavioural segmentation, based on occasion.  This is when a large market, such as for Cola, is broken down into sub-sections according to when the product is used or purchased; in this case, Coca-Cola want consumers to associate meal-times with the drink to build up product consumption, and thus sales.   Hence, this is a market penetration strategy.

This is a very simple and clever move.  It is a relatively low-risk approach to generating sales: effectively encouraging consumers to purchase more of the product – as meal times require large quantities of drink – it is an efficient way to boost sales.  This is because it is unnecessary to completely re-brand the drink, which is costly and can go disastrously wrong. With Coca-Cola, however, the combination of a long-term differentiation strategy and a strong corporate brand make this unnecessary.

Although repositioning strategies often only generate short-term sales, this approach may be an exception to the rule; the tie-in with ITV, who have recently began airing ‘Britain’s Got Talent Again’, is likely to generate long-term loyalty.  This is because their occasional segmentation, which has identified families as a target market, may encourage weekly usage: families get together each Saturday with a meal and enjoy T.V. in the evening with one-another.

This seems very 1950s-60s to me – families sitting down together, and enjoying each other’s company.  Perhaps Coca-Cola is alluding to the brand’s traditional connotations?  This is likely to be the case given the company’s recent 125th anniversary.  One could even go as far to say that the company is using the stereotypical, happy 1960s family as an aspirational group for mothers: if mothers want the perfect family, the thoughts of family meals enter their heads first and then closely followed by Coca-Cola.

Ultimately, this is a very simple strategy.  But if you look at it closely, it is psychologically very, very powerful.  There is a snatch, however.  Just how true is it that families sit-down together for meals in a modern society?  Moreover, is it necessarily the mother who will make the purchase decision?  Another issue to consider would be the health issues: as fast-food places always offer discounts on fizzy drinks along with meals and, consequently, Coca-Cola could become more associated with takeaways than traditional meals?  But, then again, this would still increase product consumption…

© Joshua Blatchford, author of Manifested Marketing, 13/06/2011

Budweiser – Market Penetration

In the fiercely competitive alcoholic drinks market, almost every brewer is on the look out for any opportunity to increase their sales – they are resorting to limited moves to such market penetration strategies, targeting existing markets and consumers.  Diageo, the distributor of Budweiser in Ireland, wishes to capitalise on the early summer in order to win market share.  The company has just launched an app for smartphones that measures the temperature across Ireland.  If the temperature in a given location exceeds 20°C, consumers in that area will receive a free drink from any 2,500 participating pubs.  See this video for a full description of how the service works.

Normally, various forms of price promotions – and any short-term adjustments to the marketing mix – are over-looked as trivial and insignificant.  This latest campaign, however, has more depth that your ordinary marketing stunt for several reasons.

Firstly, it is great to see a company that realises simply using web 2.0 or social media technology is no longer innovative: it is what you do with new technology that defines creative digital marketing.  Just about all of Budweiser’s competitors use the latest tech developments to enhance their marketing – I have previously written about Barcadi’s pit-falls here.  But this is a truly original idea.  And when something is new people want to share it with others; the whole benefit behind market penetration is to stimulate the market, which is best done through word-of-mouth.  Hence, consumers, and their friends who may have hitherto not tried the drink, will be closely watching the ‘Ice Cold Index’.

As soon as those temperatures rise enough, you can be sure everyone will be using all forms of instant and web messaging to spread the word.  This leads us to my second point: this simple move is effective enough to take advantage of external opportunities and mitigate any threats.  Any good marketing decision should involve a SWOT analysis – this is no exception.  The opportunity may be trivial – like the good weather – but the threats posed was much more serious.  Budweiser risks loosing significant market share over the summer, particularly in Ireland, where the warm weather is traditionally greeted with a cold glass of Cider or Pimm’s.  Therefore, Budweiser is effectively directly competing with these summer time market leaders with what is known as a market challenger strategy.

And what is the best way to compete?  Turn your weaknesses into strengths – this is the other benefit of doing a SWOT analysis and the third and final reason why Diageo’s strategy is more clever than your average promotion.  The Budweiser brand has been repositioned for the summer – away from its irrelevant American heritage to be more lifestyle and ‘feel-good’ focused.  Consumers see brands as an extension of themselves, and the summer this what they aspire to be.

Of course, however, it is hard to say whether or not this will have any long-term effect.  Yes, they can encourage people to try Budweiser, but can Irish drinkers really be torn away from their favourite drinks for good?  Thus, there is a degree of risk with even the simplest of marketing penetration strategies.  Now that I think about risk, surely the biggest risk – and the most likely to happen – is simply the weather turns bad and no one even gets to try a free Budweiser…

© Joshua Blatchford, author of Manifested Marketing, 02/05/2011

Costa Coffee – Differentiation

I have previously written about how Costa Coffee has chosen to compete with Starbucks by differentiating itself based on speed of service.  Check out the post here.  Well Whitbread, the parent company behind Costa Coffee, looks determined to deliver an even more consistent strategy with its latest decision to open drive-through outlets – akin to fast food.  Six outlets, the first of which opens next month, will be ready through out the coming year.

Although I have previously said that I feel it is a poor decision to position Costa Coffee as convenient – rather than high-quality – coffee, I do think this a good decision by the firm.  Not only because it is consistent in terms of their long-term growth strategy, but because it increases Costa Coffee’s competitive scope.  Albeit, their main competitors are Starbucks, Cafe Nero and the like, on the road – at service stations – the cafe also competes against fast-food outlets.

Both coffee and fast-food satisfy the same need for commuters traveling by car: a quick no-nonsense stop for refreshment, and back en-route to their destination.  Hence, Costa Coffee is now in the same competitive environment as McDonald’s and KFC.  Costa Coffee have already stressed their speed of service and have focused recently more on high-margin food.  But more importantly, this no longer comes at the expense of quality by changing who they are competing with – thus altering who customers compare them to.  Costa Coffee could only offer a faster service than Starbucks if it compromised its quality image; however, since fast-food outlets have an even worse reputation for quality, Costa Coffee can compete with fast-food drive-throughs on both quality and speed of service.

The danger of positioning these new drive-through outlets as supplying higher quality food with faster service is, however, that there is no positioning at all: consumers know the food at Costa Coffee is not great anyway and during peak demand they not have the resources to maintain a consistently fast service that fast-food outlets can.

© Joshua Blatchford, author of Manifested Marketing, 26/04/2011

Nestle – Market Penetration

Nestle is one of the world’s largest confectionary manufacturers.  Although this may at first appear to be a good position to be in, it in fact means that Nestle’s marketing strategy has to be particularly competitive.  Thus it must be proactive to external change, formulated and – last but not least – it must support the wider corporate strategy, a critical success factor for large, multinational corporations.  This is necessary just to maintain the company’s global competitive position as a market leader, let-a-lone increase sales.  Nestle’s latest move to consolidate its position – and compete with Cadbury, McVities and Mars – involves a market penetration strategy using its popular ‘Aero’ chocolate bar.

Market penetration involves trying to boost, or maintain, sales of an existing product to the current market.  This often involves minor product tweaks; this strategy, thus, offers minimal risk albeit the pay-off is limited.  Hence, this strategy is ideal for large firms with maturing products how need to simply maintain their competitiveness, like Nestle.  It should come as no surprise then to see that the Aero chocolate bar has already been modified numerous times – different sizes (targeting different occasional uses), different flavours and even brand extension  into hot beverages and ice creams.

The latest ‘enhancement’ to the Aero bar is to extend the brand further; this Easter a new ‘Aero Biscuit’ will be launched.  Although this sound like product development, rather than penetrating a current market, it is still a relatively low-risk strategy.  This is because the fundamental differentiation strategy used by Nestle to position Aero as a ‘lighter’ and ‘healthier’ chocolate bar remain as part of the actual product – the core and augmented product benefits are also relatively similar to the traditional bar.  Hence, Aero Biscuits will contain fewer than 100 calories a pack and continue to target young women by emphasising the brand’s association with bubbles and air, both of which have light-weight and weight-loss connotations.

All of these past strategies must, however, be viewed in the long-term.  And by that I mean consider how this fits into Nestle’s wider strategy.  Firstly,  it maintains sales of Aero by generating new interest in the brand and generate short-term sales.  This is called an extension strategy, which aims to prolong the life span of a mature product to prevent a decline in sales – thus, the product can continue to fit in the firm’s wider product portfolio as a Cash Cow.  While this appears to be a  short-termist tactic, it does actually work in the long-term: variety seeking consumers will notice and try the new Aero variation and then return to become a habitual customer of the original Aero chocolate bar.

Furthermore, market penetration aids Nestle’s competitive strategy.  Does hearing of a light-weight chocolate snack with a crispy biscuit centre sound familiar? If so you may be thinking of Maltesers.  Not only is the core product fundamentally the same, the actual and augmented features are strikingly similar: they both offer a ‘light’ chocolate snack that appeals fundamentally to women consumers.  Moreover, Cadbury’s’ Whisper chocolate bar makes use of the connotations of bubbles to create a very similar offering to Aero.  This highlights just how ruthlessly competitive Nestle’s market is; although it is a market leader, it still needs to defend its brands from market challengers.

I appreciate that Nestle’s latest move is nothing out of the ordinary or particularly innovative, but it highlights the fact that the best strategies used by the best firms are those that are tried, tested and proven.  Some may call this bureaucratic or inflexible marketing, but I think it is refreshing to hear a company going back to basics.  Perhaps more firms need to focus on traditional marketing, as opposed to devoting too much time to social media?

© Joshua Blatchford, author of Manifested Marketing, 19/04/2011

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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