Coffee Drinking Habits in the UK - Case Study Example

Outline of key facts about coffee drinking habits in UK Demographics of UK Total Population = 60.975Million as on mid 2007. Average Age = 39 years Number of Children under the age of 16 = 20% of the total population Working Population = 62% of the total population 52% of the working population is under 40 years old Market Size - Coffee Market share of Branded Coffee Chains= 30%1 No. of branded coffee chains' outlets in UK = 3,0002 Average Annual Growth Rate= 15% Segmentation Effectively, the market segmentation is done on the basis of psychographics where mostly working class individuals are targeted. As mentioned above that 52% of the working population is under the age of 40 and average age is of 39 years therefore considering this fact, Starbukcs have virtually 20 million to segment on and target the market. An important element into the market segmentation is of the disposable income of the consumers also. UK has an average per capita income of $ 45,000/ per year. Such high per capita income provides enough income available to consumers to spend on average $5 on drinking coffee at the branded coffee chains in the country. Consumer Buying Behavior UK's market is predominately penetrated by tea and fruit juices and tea is the third largest non-alcoholic beverage used in the country. However, trends are changing as a new coffee culture is emerging in the country. Most and most consumers now prefer coffee because of the relaxed experience offered by the branded coffee chains. Initially, the trends emerged in the urban areas of the country however, it is picking up in the rural areas also thus the future may provide a much bigger market to cater. It is however, important to note that due to current economic crisis in the country with the possibility of negative growth in 2009, the consumers may reduce their spending on something which can be produced in their own homes too. It is also critical to note that consumers are increasingly becoming ethical in nature and prefer such organizations which offer products and services which are based on the sustainability products. As discussed in the case study that Starbucks leave its water taps open all the time give the whole issue a more ethical dimension and indicate that the future consumer buying patterns may be shift towards having more ethically responsible organizations with an strong sense of conserving the natural resources of the planet. Product Development Starbucks is predominately American in taste and it has been strong speculated that the growth can doubled if the taste is tailored according to the European flavor preferred in EU region. Europe, as a region has a very strong tradition of drinking coffee according to their own individual tastes and consumers are certainly missing that element into the coffee cup offered by Starbucks thus the product development trends may be directed towards creating the coffee tastes which suit the European consumers. Significance to Starbucks The market intelligence or market research is critical for the success of the firm because it provides them a larger base of information to decide upon where to invest or not thus market information basically provides insight into as to how to spend their money wisely and the information is used to the maximum benefit of the firm. (Callingham). From a marketing perspective, understanding the market is one the key steps in order to make an entry into the market. Understanding the market therefore provide a deeper insight into the size of the market. Based on this, marketers often tend to segment the same into different niches according to their individual target market based on different factors such as demographics, psychographics etc. As discussed above that almost 20 million people living in UK belong to working class with different levels of incomes earned therefore Starbucks has virtually a market which has 20 million customers to satisfy and with the increase in trends for preferring coffee over the traditional non-alcoholic drinks such as tea and fruit juices, the speculations are that the market for branded coffee chains is going to double in next decade. The historical growth rates in the coffee market suggest that the market presents ample opportunity for the firm to tap into this market deep as there is a gradual shift into the buying behaviors of the consumers in the market. It is also important to note that the number of visits per week to the coffee chains is increasing therefore there is also a very strong chance of creating permanent base of customers through special loyalty programs. The above information therefore provides Starbucks and opportunity to better understand the market and position its strategies according to the market trends. Further, it is also critical to note that such information provides a deeper insight into the future trends which may take place especially in buying patterns of the consumers. Product and Pricing Approaches Product Approach Starbucks offer different products aimed at different groups of customers based on different factors. There are six favorite beverage products offered by Starbucks including following: 1. Espresso Classic 2. Caffe Americano 3. Caff Latte 4. Cappuccino 5. Caffe Mocha 6. Caramel Macchiato 7. Fresh Brewed Filter Coffee The above are some of the coffee tastes offered by Starbucks at its various stores in UK. The firm has typically targeted at producing the top quality products which are far superior to other brands of the coffee. For this purpose, the company historically used finest quality whole beans coffee to produce. The initial history of the firm suggests that it concentrated on selling equipments which were meant to brew only highly quality coffee beans. In order to distinguish itself from the competition, it concentrated on using Arabica beans which are considered to be of highest quality. In effect, the product development approach of the company has remained focused on the quality besides offering a rich experience to offer. In effect, the approach of Starbucks has been to delight its customers through offering a 15 minutes relaxation break rather than offering a cup of coffee to drink. However, due to competitive pressures from the various other quarters such as Cost Coffee, McDonald's, Dunken Donnuts etc, the basic approach of Starbucks for preparing its products at low costs may come into action. Fast food chains such as McDonald's are offering 1$ menu in order to play on economy of the consumers by offering cheaper products by cutting costs on other overheads so that the consumers may continue to enjoy same quality products at low cost. Starbucks, due to intense pressures therefore is considering re-tailoring its strategies to better suit the consumers who like to enjoy relatively inexpensive cup of coffee at the same quality. (Vann) Pricing Approach While defining the pricing approaches, it is critical to understand the concept of pricing first. A price is considered as the total money paid by a consumer for getting product or service however, on a much bigger scale it is the actual value paid by the consumer in exchange of enjoying the benefits of any good or service. This concept defines pricing in a much bigger context and is more in relevance to the Starbucks because Starbuck's strategy is not only based on selling the coffee but it sell a whole new experience to its consumers. This therefore, means that the value achieved by the consumers through exchanging may be higher or lower depending upon their individual experiences. Generally, pricing strategies or approaches are based on four different situations i.e. economy, penetration, skimming as well as premium. Based on above four situations, firms attempt to charge different prices for their products and services. Further, the intended objectives of the pricing also play a critical role in deciding the prices. Starbucks has the larger brand appeal in UK market as compared to other branded coffee chains however, due to its product quality leadership; the pricing has been set on premium as besides offering coffee, Starbucks offered a much greater experience to its customers by offering a neat and aesthetically good environment to enjoy. The premium prices are charged where there is a strong uniqueness attributed to the product i.e. the unique selling proposition of the product is such that it markedly distinguishes it from the other brands selling on the market. However, this premium pricing is based on the psychological pricing basis because by charging premium prices, Starbucks attempt to play with the emotions of the consumers rather than allowing rationality to be involved in pricing process. It is because of this reason that the prices differences between the different sizes of the coffee cups offered by Starbucks are low because the initial prices are set at premium whereas the add on are offered at relatively lower prices in order to emotionally engage consumers to stick to a certain taste or size based on the margins gained in different coffee products. It is also however, to understand that due to entry into the market by other competitors such as McDonald's and Dunken Donnuts, Starbucks is expected to offer economy prices by either cutting down the prices or offering free give away in order to consolidate its existing market share. Many also believe that Starbucks may offer loyalty programs in order to radically retailer its pricing approaches. Promotional Strategies Promotional strategies form a combination of different strategies and tools which are used by the organizations to direct their offerings in more precise and targeted way. In order to successfully open and new store at New Castle upon Lyme, Starbucks therefore need to take into account different factors before designing its promotional strategy. First important element to understand and comprehend is the fact that the cultural values in New Castle may differ from other parts of the country as New Castle is considered as the home of one of the world's famous Earl Grey Tea. Thus the region is famous for its tea drinking habits and in presence of such important trend; it may be difficult for the firm to readily capture the market with more ease. In order to tailor a suitable program for launching the new store in New Castle, following promotional program may be followed: Advertising Advertising is considered as the non-personal but paid for communication made by the organization towards its consumers. As such in order to maximize the benefits of such expenditure organizations often target their specific target market. For opening up a store for Starbucks, following advertising program may be initiated: 1. Advertisement to be appeared in the local Newspapers. Full page newspapers ads shall be appearing in the major dailies of the city. The advertisements will be specifically directed at making an announcement for opening of the new store. Information regarding the opening up of the new store will also be advertised on the UK website of the company. 2. A series of public relations events would be undertaken in order to familiarize local population about the opening of the new store. This will include briefing the local newspapers regarding the plan of action for opening of the new store as well. This will also be aimed at creating for voluntary goodwill for the company by highlighting the sales promotional activities to be undertaken at the time of opening of the new store. 3. Sales promotional activities shall include offering free give away items to first day customers besides a discount program will be initiated for those customers who would register for our loyalty program. Works Cited 1. Callingham, Martin. Market Intelligence: How and why Organizations Use Market Research. New York: Kogan Page Publishers, 2004. 2. Vann, Michael. "Starbucks - Just Say No." 2008. The Vann Group LLC. 05 January 2009 . Read More