The UK Marketing Strategies of Caffe Nero and Costa Coffee - Essay Example

Running head: UK marketing strategies of Caffe Nero and Costa Coffee 14th April Introduction Given the stiff competition in the contemporary business environment, local and global companies have adopted various marketing strategies as a means of facing off their competitors. In UK, the high demand for coffee has resulted to establishment of quite a number of outlets by established companies including Costa Coffee, Caffe Nero and Starbucks. The UK coffee shop sector has enjoyed a continuous growth for the last 16 years and it has emerged to be one of the most successful sectors in the UK economy. The UK coffee sector generates more than £7.2 billion total turnover annually. Costa Coffee which is the leading company has 1,770 outlets; Starbucks has 790 outlets while the third company, Caffe Nero has 560 outlets. The three remains the leading brands controlling 54% of the coffee market. One of the notable aspects that make the UK coffee shop market to be robust is the predictable nature of the coffee consumption pattern in the country. For example, Allegra Strategies definitive report indicated that one out of five coffee shop customer must visit the outlet every day. This makes the producers to adopt effective strategies aimed at creating strong positive consumer-brand relationship resulting to the expansion of the market. This paper aims at comparing and critically analyzing the UK marketing strategies of Caffe Nero and Costa Coffee. Caffe Nero Caffe Nero is a European based company that is headquartered in London. Having being established by Gerry Ford in 1997, the coffee house has expanded its market as a way of increasing the number of customers and raising sales. Currently, Caffe Nero operates in UK, Cyprus, US, Ireland, Poland, UAE AND Turkey. One of the major aspects that make the company to remain competitive and face off Costa Coffee and other rivals in the UK market is product diversification. For example, in addition to traditional Espresso-based brands, Caffe Nero has introduced brands such as Frappe, Fruit Boosters, Hot Chocolate Milano, Latte, Caramelatte, White Chocolate and pasta salads among others. According to Mulhern (2009), for any company to have a competitive edge, it must invest in research and development as well as brand innovation. Caffe Nero has also adopted an effective marketing mix that takes into consideration the needs of the UK consumers. Marketing mix Product As noted earlier, Caffe Nero has significantly invested in various brands. With more than 20 types of brands, Hilton (2013) indicates that the company has been in a position to meet the needs of its customers. In addition, the strong brand name, which is one of the strengths, has made the company to be ranked in the first position in UK consumer choice for the last 8 years. Even though the company specializes on Italian espresso, it has included drip coffee in its Boston menu in order to meet the requirements of the local taste. Caffe Nero concept management is focused at core product and thus it has the opportunity to provide quality brands. Place Caffe Nero has established a number of outlets not only in London, where it is headquartered but also in five other countries. With the increased competition in the UK market, Caffe Nero has noted the need to establish more branches in Boston, Quincy and Cambridge. Within the three regions it has 489 coffee shops making it possible for customers to easily access their brands. According to Simon (2012) a notable innovative idea that the coffee house has came up with is the use of store locator that the consumers can use to identify the Caffe Nero locations. The consumers need only to enter their city or town online and search. Price Caffe Nero provides high quality paper at reasonable prices. This serves as a major incentive that makes the growers to maintain high standard. Notably, the coffee house buys high quality raw materials from farmers and then pays them fairly. Similarly, the company offers low prices to the customers although it is competitive and entails profit. The table below indicates the prices of some of the common brads that Caffe Nero serves in its outlets. Brand Americano Cappucino Latte Mocha Espresso Espresso double Herbal tea Chocolate Price 1.80/2.05 1.95/2.35 1.95 2.05 1.55 1.85 1.55 2.05 Promotion Caffe Nero adopts outdo methods of promoting its brands. These include roadside sheets within the central London, wrapped taxis, and bus supersides (David and Acker, 1988). Product life cycle Given the extensive marketing strategies by Caffe Nero, most of its brands are well established in the market. The brands are now at the maturity stage. Bob (2014) depicts that the aim of Caffe Nero is to maintain the market share that it has created since it was established. Being the most competitive time for the company brands, Caffe Nero should invest effectively in the marketing in addition to the product modification in order to attain a competitive advantage. Portfolio analysis As the result of emerging trends where demand for coffee in UK is raising, firms have turned into diversification of product portfolio. In its case, Caffe Nero has continued to produce more brands for example in 2007, it launched various specialty coffee based drinks that included caramelatte and White Chocolate among others. Other products that are enjoyed by the Caffe Nero consumers include sandwiches, foraccia wraps, paninis, pasta, salads, cakes and pastries among others. Importance of marketing for Caffe Nero In UK coffee market, as noted by Adams (2013) competition remains fierce. With 10.8% of the entire market, Costa Nero is behind Starbucks (25%) and Costa Coffee (20.7%). There is large customer base and the three major competitors produce brands that can be substituted. This means that Caffe Nero should improve brand awareness to increase their sales. Another notable issue is that there are no barriers to market entry. This implies that Caffe Nero will further face competition (Hochbaum, Moreno-Centeno, Yelland, Catena, 2011). It is therefore necessary for the coffee house to initiate extensive marketing for example through the internet to appeal to the tech savvy potential customers and young consumers. Caffe Nero market segmentation The theory relating to market segmentation is that individuals with different characteristics may need the same brand in different forms or reasons. Caffe Nero aim is to meet the requirements of its customers in the UK market. The company adopts two forms of segmentation as noted below. Geographical During its entry in new area, the company targets large towns since the demand for coffee tends to high in these regions. Additionally, large towns are busier raising the possibility of more customers. Demographic Caffe Nero focus at middle aged people and busy professionals who require ready foods based on their tight schedule. Costa Coffee Costa Coffee is a British based coffee house. Being headquartered in Dunstable, the company was established in 1971 by Bruno and Sergio who were brothers. The company operates in 30 countries an aspect that makes it to offer stiff competition to Caffe Nero. Given the large number of customers, the company has invested in product diversification to include Costa Express, which is a chain of coffee machines, Costa Coffee Club and roaster among others (Short Lict.com, 2015) Marketing mix Product One of the factor that has made Costa Coffee to have a higher market share than Caffe Nero is that it has highly invested in its brand. Guy (2013) indicates that the name ‘Costa Coffee’ is the signature of the company and it refers to luxury, perfection and excellence globally. Another way that makes Costa Coffee products to be highly demanded as compared to Caffe Nero is that it serves the best coffee using an actual Italian style. This makes it to enjoy a very strong positive relationship with its consumers. Core products for Costa Coffee are Costa ice, Coffees and hot beverages like Hot Chocolat, Mocha and specialty drinks. On the other hand, complementary products which seem to be core for Caffe Nero are sandwiches, salad, cakes and pastries. Place Within the UK market, Costa Coffee has around 1,755 outlets while in foreign countries it has 1,106 stores. This is an indication that it has quite a large number of customers that it serves. As compared to Caffe Nero that targets large towns, Costa Coffee stores are established in areas like airports, bookstores, Odeon cinemas, Tesco stores and home base among others (The Telegraph, 2015). Price For Costa Coffee, price is not a priority as indicated by Caffe Nero. Costa Coffee major focus is quality of services and products. The company indicates that the high prices are justified by unique taste of products as well as excellent services. The table below indicates the Costa Coffee prices for similar brands from Caffe Nero Brand Americano Cappucino Latte Mocha Espresso Espresso double Herbal tea Chocolate Price 1.95 2.15 2.15 2.45 1.45 1.80 1.95 2.35 Promotion The strong customer awareness that positively impacts on Costa sales is based on its effective promotion. The company uses good communication avenues including TV, street marketing, and digital means to convey good brand image (Mittal and Frennea, 2011). However, main communication is done by word of mouth. This is contrary to the outdoor advertising strategies such as fleets of wrapped taxis that Caffe Nero uses in its London based promotion campaigns. Product life cycle As noted earlier, Costa Coffee has been in operational for over 40 years. This implies that it has diversified its product lines resulting to development of its brands. This implies that the company is in its maturity stage just like the Caffe Nero. This is the factor that makes the two companies to engage in cut-throat competition. Portfolio analysis The competitive advantage that Costa Coffee enjoys is based on the strong portfolio locally and globally. For example, as compared to Nero where beverages are mostly sold via counter, Costa Coffee has invested in 3,500 express vending machines (The independent, 2015). The Costa Coffee Club is a loyalty scheme that is maintained by the company to allow members to access their goods and free coffee. The company also has invested in quite a number of brands in the UK market. Importance of marketing for Costa Coffee Given the rising competition from Starbucks and Caffe Nero, Stolley (2015) indicates that Costa Coffee will need to maintain the loyalty customers it has. This implies that the company just like Nero will need to adopt unique marketing strategies in UK and extensive advertising to make its brand remain the choice of the customers. Costa Coffee market segmentation Costa Coffee segments its market according to the demographic. The adults and the busy professionals are major targets who accounts to 45%. Similarly, youth and students are also targeted resulting to 30% of the company sales. Conclusion Based on the above discussion, it is clear that in comparison to Caffe Nero, Costa Coffee brands have strong impact mostly due to their quality products. For example, while Caffe Nero value low prices, Costa Coffee values quality and the high prices it offers are offset by the quality of their brands (Kotler and Philip, 2011). The increased market segment for Costa Coffee is based on the fact that it operates in more than 30 countries and it has many outlets in UK. As a result, the company enjoys many customers who are loyal towards the company products. Another distinction between the two companies is that Nero values outdoor methods while Costa Coffee identifies word of mouth communication mostly by its existing consumers. The portfolio analyses of the two companies indicate that Costa Coffee has invested more in brands as well as coffee machines making the accessibility of its products easier. References Adams, G. 2013. The man who founded Costa Coffee - then sold out for a fraction of its value now - insists hes not bitter. So... WHY does Mr Costa refuse to drink his own coffee? . Daily Mail. Retrieved 12 April 2015. Bob, H. 2014. Prices London Coffee Shop Chains 2014-Starbucks, Costa, Caffe Nero. Available from http://www.londontoolkit.com/blog/eats/coffee-shop-chains-in-london/ David, A and Acker, F.1988. Developing Business Strategies. New York: John Wiley and Sons, 1988 Guy, A. 2013. The man who founded Costa Coffee. dailmail.co.uk. Hilton, R. 2013. Caffe Nero organizes pirate-themed treasure hunt for St Lukes Cheshire Hospice appeal. Crewe Chronicle. Retrieved 12 April 2015 Hochbaum, E., Moreno-Centeno, P., Yelland. Catena. A. 2011. Rating Customers According to Their Promptness to Adopt New Products, Operations Research 59(5): 171-183. Kotler, A and Philip, G. 2011. Principles of Marketing. New York: Pearson education. Mittal, V and Frennea, C.2011. 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