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The product under consideration is specialty coffee. Specialty is a unique product both in the United States and international markets. Although competition in the coffee service industry is very stiff, one of its most impressive features is the ever-increasing demand. Interestingly, the same demand still shows immense potential in the mature markets such San Francisco, Portland, Seattle, and many others. The same potential exists in the rest of the United States. A look at the foreign market also reveals a demand structure that calls for further investments and strategic marketing to penetrate the market and get and get a share from traditional providers. For example, Italy one of the preferred specialty coffee destination in Europe has about 200,000 coffee bars for a population over 60 million people (Raynolds, 2012). If one was to compare the United States with Italy, the two show that there is as much potential in the United States as it is elsewhere. The United States has about 15,000 specialty coffee bars, serving a population of about 300,000 people (p. 407). With the statistics in mind, there is huge potential for specialty coffee, notwithstanding the intense competition from traditional market players.
Specialty Coffee in Terms of the Four Utilities of Customer Value
Specialty coffee is not different from other products in terms of providing the best value for the target customer. The local and international market already has a set quality pedestal upon which the business may be judged. Utilities of customer value for specialty coffee essentially explains what the business intends to do to compete favorably (Woodruff, 2010).
Form utility: Form utility for specialty coffee fundamentally stems on two main aspects: the techniques of transforming the coffee to the best possible quality, possibly a quality that should get high reviews than market expectations; and the manner in which it is served. The inputs included to spice up the coffee makes a whole difference because it embodies the customer’s ultimate experience. The recipes used should be multicultural to integrate the need to create the highest value for the customer with different cultural aspects of the market. For instance, spicy and creamy spices could work best for the Italian and French markets. In whatever way the customer in a particular market wants it to taste represents they quality they deserve. Thus, the preparation stage takes all these fundamental aspects into play. Advertisements should also inform customers about the ingredients to make a whole difference. Value creation through form utility calls for more simple but innovative ideas.
Possession utility (also referred to as elementary utility); the transfer of specialty coffee to the customer is in form of a service. Value creation actually lies in the quality of the coffee and the quality of service during open hours of coffee outlets. Strategies to encourage customers to derive the value created through possession utility can be done through posters, billboards, social media networking and audio-visual media. The market has stiff competition, but customers are out there looking for a different experience altogether. The next stage is to facilitate the exchange by availing vouchers in good time for online customers coupled with a proactive staff provide real time services at the outlets. There are several ways that specialty coffee business can create value through possession utility. One of them is using aggressive social media campaigns and running commercials on pop television channels. Advertising creates the needed awareness, which is barked with the best quality services of quality coffee at all the outlets. Guerilla marketing is instrumental for creating the highest possible exposure that competitors may not be using. Customer can only derive the value of specialty coffee once they are aware of the difference it makes from the rest in the market after the consume it.
Time utility: Time utility entails bridging the time gap between the actual utility of a product and its production. There are two vital strategies to fulfill time utility for coffee customers: having outright prices for suppliers and customers as well; and establishing long-term contracts with coffee suppliers. There should be no shortage at any given time. The coffee industry already has an established reputation as a real-time services industry. Entering this market requires that the business has an efficient supply chain system that keeps supplies at par with market expectations.
Place utility: Coffee cafes are popular outlet for customers. Location of these serving points facilitates value creation for customers. Target place could be near cinemas and recreation centers where customers do not have to walk or drive for a while to get a café or a coffee shop. Furthermore, the competitive market requires more innovativeness to improve the customers experience during service delivery. This includes internet access for customers, soft music, and any other services that would enhance customer experience.
The Target Market for Specialty Coffee in the United States and Europe
The Target Market in the United States (the home market)
Coffee is the most popular beverage in the home market. Americans spend an estimated 30 billion dollars yearly to have a cup or more of hot coffee. Thus, the target market cuts across the population. The market is divided into two: the regular market, consisting of students and business people; and the high-end market consisting of the middle and the upper classes who can afford to get a hot cup of coffee in a three-star or five-star hotel. The high-end market is ideal for established brands. Start-ups can do well with the regular category because it also generates as much revenue as the up-market customers. Considering that the business intends to grow by establishing a customer base that identifies with its specialty coffee brand, people aged 18-25 are the target market due to their heavy consumption of coffee on a daily basis. The business should take advantage of this age range because they are active and adventurous. They may easily identify with the brand if the quality fulfils their value expectations. Another target market on the domestic market is the extra ingredient customers. Most people who love extra ingredients can pay an extra premium to have a coffee-based beverage customized based on their description. Sufficient research on health ingredients would be vital for identifying the best ingredients for such customers.
There is also a significant share of the market consisting of customers who want to whole bean coffee. This is ideal for households because families use grounded coffee to have a fresh hot cup whenever they want. They should be in different flavors because customer’s preferences vary from different regions of the country. In some instances, a mix of Arabica and Robusta can serve this need to enable customer get their varying tastes.
The Target Market in Europe
The European market for specialty coffee is dominated by few elite roasters. However, this does not close the market for small businesses that want to expand to this market. As mentioned above in the introduction, Italy and France have the huge number of coffee bars, but they are also in need of premium seller who will cater for the middle calls and the regular customers in work places. Quality coffee is available but provision of different flavors of coffee-based beverages is a market niche. The number of coffee enthusiasts keeps rising most of who want a different taste from the traditional brands. New coffee businesses in Europe should actually focus on exploiting a particular market niche rather than competing with traditional providers.
Competition in the Specialty Coffee market in the United States and Europe
Few roasters dominate the European buyer power of specialty coffee. The aggregate total coffee imports of Europe are twice the imports of the United States (Raynolds, 2012). To date, small producers do not have as much leverage in Europe as in the United States because they are considered to be lacking sufficient value addition potential. The United States specialty coffee market has four leading players: Procter and gamble, Kraft, Sara-Lee, and Nestle. Starbuck’s is the leading firm in terms of manufacturing and also a dominant player in specialty coffee. The huge players focus on up-market consumers. They also market a variety of other consumables other than coffee. Thus, the regular market presents the niche that small and middle sized coffee providers with exporting potential can exploit. Real competition lies in coffee processing. There are many processing firms in the U.S. market including those that market specialty coffee. However, the huge market of coffee consumers provides the greatest potential due to the increasing popularity of the specialty coffee.
In Europe, traditional coffee brands still have a high huge market share. The big players take advantage of their economies of scale. Smaller coffee firm exploit the many coffee preferences. In Europe, the preference market is gross and firms provide customized coffee quality based on the individual demands of the customer. Nonetheless, the stiff completion from traditional market players does not lock out the potential for new innovative specialty coffee businesses.
Using the Segmentation, Targeting, and Positioning (STP) Approach to Market Specialty Coffee in Foreign Markets
The STP approach entails segmenting the market, choosing the target market, and then implements a marketing mix that suits the identified market segment. The marketing mix used varies from every market segment on the foreign market. The factors that define a market segment are: the consumer cultures in relation to the product, the purchasing power of the target population, and the availability of efficient communication tools that facilitate marketing campaigns.
Specialty coffee is increasingly becoming popular on the global market. However, unlike the home market where the patterns of coffee consumption are similar in all the states, foreign markets require an elaborate segmentation process. Effective marketing for specialty coffee in foreign market follows nine steps that would facilitate market penetration. They include:
Defining the organization’s target market for coffee-based beverage drinkers in the region
Creating segments based on income distribution and orientation to specialty coffee consumption
Evaluating the segments created in (2) above based on a set criteria
Constructing relevant segment profiles
Carrying out an evaluation of the attractiveness of each of the segments
Selecting a specific target market
Developing a marketing positioning strategy
Developing and executing a marketing mix to the specific market
Carrying a regular performance review.
Environmental Factors and Trends that Might Affect Sales in Foreign Markets
Climatic conditions: favorable climatic conditions in coffee producing areas increase the availability of coffee (Ponte, 2002). For instance, most countries prefer Arabica coffee to Robusta coffee. In case, production of Arabica falls due to unfavorable climatic conditions, a replacement with Arabica cuts sales.
Political trends: Investing in countries with high government intervention in business may reduce sales. For example, countries that have protectionist policies tend to pass policies that make it expensive for foreign firms to operate. When specialty coffee from foreign is more expensive than local coffee brands it is likely to cut sales especially for low-end customers.
Economic trends: economic changes include issues such as a change in taxation regime, inflation, unstable interest rates, and currency fluctuations. These factors have a direct effect on the price of coffee beans, which subsequently affects the price of coffee. High prices are associated with low sales.
Technological factors: improved technological applications ease the management of supply chains. As long as it is not expensive to apply modern technology in foreign markets, supply chains will be shorted so that extra savings are invested in setting competitive prices.
Developing, Executing and Measuring Marketing Campaigns Based on the 4P’s of Marketing
The 4P’s marketing mix is vital in testing the effectiveness of the marketing strategies adopted. They include product (service), place, price and promotion (Constantinides, 2006). The 4Ps work in relation to each other. Applying each of them in isolation would lead to marketing success.
Product: The specialty coffee is the product on the market. The main aspects the business ought to satisfy are: enhanced features for maximum customer experience; different retail sizes affordable to different market segments of the foreign market; and strategic differences that make the coffee different the one offered by competitors.
Place: the location of the outlets must be easily accessed by prospective customers. The business needs to understand and access the distributions channels in the foreign market to facilitate strategic marketing campaigns.
Price: Considering that a foreign market may not have the same features as the U.S. market, price is a very important marketing tool. High-end customers may not be price sensitive. However, in a foreign market, the business needs to have a strategy to cater for low-end customers who are price sensitive. They might be the greatest source of turnover.
Promotion: the dominant media that targets more customers serves as the main channel creating consumer awareness. The timing of running commercials also matters depending on the socio-political uniqueness of a foreign market.
U.S and International Ethical Considerations
Ethical considerations involve different aspects of the U.S. and foreign markets that define acceptable business practices in the beverage industry. They revolve around issues of pricing, corporate social responsibilities to coffee farmers, working conditions, and corrupt practices. Pricing considerations on the foreign markets are based on the same considerations of as those affecting pricing in U.S. Markets. They should be based on the overall parent company objectives, customers, costs, and government regulations. In foreign markets, however, there other additional factors for examination before settling on particular price level.
Other ethical considerations for both the U.S. and foreign market are: 1) engaging in foreign corrupt practices; 2) employees of a coffee firm abroad are also under the provisions of the Foreign Corrupt Practices Act (FCPA); 3) Adherence to the requirement to keep extra financial statements make it difficult for concealment of any unethical financial practices; and 4) enforcing fines imposed on the directors of a the business.
Constantinides, E. (2006). The marketing mix revisited: towards the 21st century marketing. Journal of marketing management, 22(3-4), 407-438.
Ponte, S. (2002). Thelatte revolution'? Regulation, markets and consumption in the global coffee chain. World development, 30(7), 1099-1122.
Raynolds, L. T. (2012). Consumer/producer links in fair trade coffee networks. Sociologia ruralis, 42(4), 404-424.
Smith, G., & Hirst, A. (2001). Strategic political segmentation-A new approach for a new era of political marketing. European Journal of Marketing, 35(9/10), 1058-1073.
Woodruff, R. B. (2010). Customer value: the next source for competitive advantage. Journal of the academy of marketing science, 25(2), 139-153.
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