costa coffee differentiation strategy costa coffee differentiation strategy

Costa Rica. It is imperative to note that the level of competition continues to intensify as companies continue being innovative owing to the advancement in technology. Whitbread being the parent company of Costa Coffee is already present in different lines business in the hospitality industry. Therefore, the OC certification is exclusively awarded at the farm level. The company listens to what the customers need and responds to that. Change). The process design of Costa Coffee is designed based on its strategy, which is differentiation. Therefore, the process designs help the company to produce products that are unique and specific to various customer needs. It is well-established that international markets are crucial in determining the domestic prices of commodity products, especially in small countries with open economies (Igami, Reference Igami2015). On the other hand, the international green coffee price variable, IP, only varies with time, but not across the groups of the panel (therefore, IPi (rc)t=IPt). Selective targeting strategy is used by the Costa coffee as being present in 29 nations which are geographically separated, following selective strategy is helping the company in catering to the needs of the customers and introducing new products accordingly. They are essentially targeting the same customers, but whose needs change according to their location. Coefficient 10 shows that, as expected (hypothesis H4), higher prices have been paid for organic than for a conventional coffee. 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. Costa. The Costa Coffee website also allows its users to place orders online which can be delivered via a delivery partner in that region. Therefore, quality Most of its stores are found in the busy streets of the countries in which it is operating. Coffee farms located in Tarraz region are located from 1,100 to 1,900 masl and the coffee coming from this region is classified as SHB arabica by the Costa Rican Institute of Coffee (Arce and Linnemann, Reference Arce and Linnemann2010; Castro-Tanzi et al., Reference Castro-Tanzi, Dietsch, Urena, Vindas and Chandler2012), which leads us to expect that coffee produced in Tarraz is, on average, higher quality and thus is sold at higher prices, as we state in our next hypothesis: H3: Coffee growers located in the Tarraz production region obtain higher prices than in other production regions. The most important marketing strategy followed by the company is to get word of mouth publicity from its customers as the brand Costa coffee not just provides coffee but also the experience. They are an example of a marketing mix, or the combined tools and methodologies used by marketers to achieve their marketing objectives. Coca But, even when the product is available, each customer willthe experience of watching a specially trained barista prepare their coffee which will take around 4 minutes for a single cup. This article has been researched & authored by the Content & Research Team. (COCAFE, 2019) and the cooperatives themselves. Costa Coffee Company Analysis. In addition to expansion, Costa Coffee also focuses on innovation and differentiation as key components of its global strategy. Concepts strategic management and competitive advantage, international edition. However, an increasing number of them are pursuing alternative strategies involving product differentiation, which include geographic indications of origin, gourmet and specialty, as well as environmental certifications such as: OC, FT, Eco-friendly or shade grown, among others (see, e.g., Lewin et al., Reference Lewin, Giovannucci and Varangis2004). The reason is that, in a highly competitive global coffee market, quality coffees are increasingly in demand and high-quality coffee can receive better prices than FT certified coffee. This study provides some insights that can help come up with some recommendations in terms of farmers' strategies and in terms of public policy. As the company continues to predict and anticipate more growth, it also plans for its capacity expansion. Section 2 presents the conceptual framework and the hypotheses to be tested, and section 3 explains the methodological aspects, including the econometric approach, the variables considered, and the data sources used. And, more specifically, (ii) What differentiation strategies used by coffee growers are more successful in obtaining better prices? As a result, the productivity of plantations falls, generating a double crisis for producers, as the effects of the price reductions are aggravated by those of lower productivity (Renard, Reference Renard2010; Eakin et al., Reference Eakin, Tucker, Castellanos, Daz-Porras, Barrera and Morales2013). Regarding external factors, as expected, the domestic coffee berry prices have reacted directly to fluctuations in the international market. This is a much more effective and affordable way to reach your customers and generate business. Costa Coffee's target demographic Costa coffee uses a mix of geographic and demographic segmentation strategy to target the customer and satisfy their needs. Retrieved from https://ivypanda.com/essays/costa-coffee-company-analysis/. It was founded in London, England in the year 1971 by Italian brothers Bruno Costa and Sergio Costa. In what follows, we detail each of the factors under consideration. Then in 1995 Costa was sold to Whitbread The Coca Cola company purchased the brand from Whitebread company for $5 billion in 2019. Does Fair Trade Coffee Help the Poor? Costa coffee also sells it coffee vending machine under brand Costa express. Starbucks aims to deliver the best possible coffee to customers, regardless of time. (iii) using natural substances for disease, pest and weed control, rather than synthetic pesticides and herbicides, (iv) minimizing the use of fossil fuels in the production process, and. (2020, March 27). Costa introduced the first Costa Skip to document Ask an Expert Sign inRegister Sign inRegister Home Ask an ExpertNew My Library Discovery Institutions University of London King's College London University of Reading The employees of Costa coffee are trained to follow a highly professional and polite behavior with its customers. This apparently surprising result merits further discussion. Within this system, we take a specific price indicator for Other mild arabicas, which is how Costa Rican coffee is classified (ICO, 2011). https://ivypanda.com/essays/costa-coffee-company-analysis/, IvyPanda. In addition, the company should have equipment that is up to speed with the current technology, as this will help in product development and innovation (Ginter, Duncan & Swayne, 2013). You can use them for inspiration, an insight into a particular topic, a handy source of reference, or even just as a template of a certain type of paper. c Given that logIP does not vary between the groups of the panel, controlling for temporal effects was not carried out because the international price (logIPt) captures these effects. Its brand of coffee has an Italian origin, which is a differentiation strategy. It has the right equipment to handle the level of productivity it needs at any given time. Our results reveal that coffee prices are clearly related to coffee attributes, some of which are intrinsic characteristics of the coffee itself and others are more easily managed by growers. Costa Coffee have used a relatively low-risk form of market development market penetration hybrid strategy. (Reference Jena, Stellmacher and Grote2015) show that FT certification does not necessarily imply better prices for coffee growers (see also Bacon, Reference Bacon2005; Haight, Reference Haight2007; Weber, Reference Weber2007; Omidvar and Giannakas, Reference Omidvar and Giannakas2015). The market share by turnover of the company in 2012 stood at 44.1% that marks an increase of 3.7% from the previous year. Upper Saddle River, NJ: Pearson Prentice Hall. The products offered by Costa coffee are priced at premium range because of its brand value and high quality. Setting up a small roastery in Fenchurch Street, they committed to crafting the finest quality coffee. It produces in high volumes. See also Varangis et al. It is important to bear in mind that our analyses are restricted to prices. Many of its products are not considered healthy by some customers. Obviously, the firm benefits from high-volume, low-margin sales: they are differentiating themselves based on speed. To determine the most adequate approach, the pooled, fixed effects and random effects (RE) versions of the two specifications (equations (1) and (2)) were estimated. It is a fully owned subsidiary of a company known as Whitbread, which it fully controls. Most of the organizations that are operating in the industry are highly innovative, thereby increasing the magnitude of competition (Costa, 2013). It is involved in CSR activities and has set up Costa foundation to get associated with coffee-growing communities around the world. It is highly innovative, thus it continues to position itself for future competition. 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. This law is intended to solve the market failures due to this information gap and to establish equitable relationships between mills and growers in such a way that the price that mills pay for coffee berries must be based on the international prices they get. (Reference Hethcote, van Zonneveld, Solano, Mndez and Vsquez2016) studied a successful diversified system mixing coffee production with tomato and sweet pepper in a Turrialba coffee region of Costa Rica. Strategic management of health care organizations (7th ed.). Alternative activities such as ecotourism and rural tourism could also be encouraged and incentivized, not only as a complement to coffee production, but also as a means to promote the care of nature and local culture (Heyne and Vargas-Camacho, Reference Heyne, Vargas-Camacho, Azara, Michopoulou, Niccolini, Taff and Clarke2018; Howitt and Mason, Reference Howitt and Mason2018). Varangis, et al. Hostname: page-component-75b8448494-2jmwc This shows how its people strategy in its marketing mix has been important in its success. To address these problems, we use the Panel Corrected Standard Errors and the Prais-Winsten estimator, which allows us to correct the problems of heteroscedasticity and autocorrelation following a first-order autoregressive process, even when the panel data is not balanced (Baltagi and Wu, Reference Baltagi and Wu1999; Freybote, Reference Freybote2016), as is the case in this study. The largest coffeehouse chain being Starbucks and then followed by Costa Coffee. UK chain Costa has been ranked the worlds second strongest brand in the restaurant sector, overtaking US rival Starbucks. (Reference Lyngbk, Muschler and Sinclair2001: 205) show that the average three-year productivity mean of organic farms was 22 per cent lower than that of conventional farms. What Is The Difference Between Product Management And Brand Management, Collaborate with Non-Competing Businesses, Flyer in the right places, to the right people, Grab their attention with promotional banners, Reach out to customers with feedback cards, Mix in offline marketing strategies such as promotions and local partnerships, Run a Facebook advertising campaign on social media. Operations management: theory and practice (11th ed.). Given this variability and the importance of prices for coffee growers, it seems relevant to ask what factors matter most in determining coffee prices and, ultimately, the profitability of this activity. It should maintain and improve on this trend for it to be well positioned for future competition. Whitbread is financially strong having properties/infrastructure to support Costa coffee. Also, the Costa Rican Coffee Institute and the Ministry of Agriculture have designed a strategy to reduce carbon emissions in the coffee sector. The location of Costa Coffee has been a favorable factor towards its success. The company offers a lot of variants and flavours in coffee. However, a fully fledged profitability analysis of OC should also account for the fact that organic production entails some reductions in productivity per hectare. Quizzes test your expertise in business and Skill tests evaluate your management traits, Costa Coffee SWOT Analysis, STP & Competitors. Costa Coffee has been a leader in product development (Costa, 2013). (Reference Jena, Stellmacher and Grote2015) in Nicaragua. Has data issue: false First, we consulted the websites of the Fairtrade Coordinator for Costa Rica and Panama (2020) and the FLOCERT customers information (FLOCERT, 2017). Hence, create long-term customer loyalty. Marketing mix Here is the Marketing mix of Costa Coffee. The use of technology was a huge boost in the service portion of their vertical integration. The pandemic impacted the sales as stores were shutdown, but were later opened for takeaways. For example, Ruben (Reference Ruben and Ruben2009) claimed that in the current dynamic framework of quality upgrading and higher coffee prices, FT comparative advantage can become eroded in the Costa Rican coffee market (see also Senz-Segura and Ziga-Arias, Reference Senz-Segura, Ziga-Arias and Ruben2009). There is an important difference, though. (2020, March 27). WebThe business strategy is a collaboration of the broad differentiation strategy and focused market niche strategy. To obtain this certification, FT producers must comply with certain environmental and social standards, which include paying a fair price to farmers, transparency and accountability, commitment to non-discrimination, ensuring good working conditions, facilitating capacity building, respect for the environment, and creating opportunities for economically-disadvantaged producers (Ruben, Reference Ruben and Ruben2009). Moreover, the coffee culture is still new to the developing nations and in the developed nations there is a lot of competitions between the local, national, and international players. where uit is a random term and the rest of the variables are as previously defined in table 2. This will be enabled by the fact that the company keeps data for its operations. Babin (Reference Babin2015: 99) concluded that when addressing agricultural development crises, the promotion of agroecological practices that cut costs may be as good a strategy or better than one that focuses on enhancing yields or establishing price supports. The employee makes sure that each customer is treated politely and with a smile. This has been observed at Costa Coffee. For instance, a company that is allocated in a well-populated area is likely to do better than one that is located in a scarcely populated area because the former has access to more potential customers. As mentioned earlier, Costa Coffee operates in an industry that is highly competitive. We focus on two environmental certifications that we consider to be particularly relevant in the Costa Rican coffee sector: FT and OC. In this regard, Blackman and Naranjo (Reference Blackman and Naranjo2012) found that organic certification in Costa Rica significantly reduced use of chemical pesticides, fertilizers, and herbicides and promoted the adoption of organic fertilizer. For example, in a study of coffee production in the district of Agua Buena, Costa Rica; Babin (Reference Babin2015: 99) concluded that Fairtrade price premiums were inconsequential in providing support for smallholder resistance to land-use change out of coffee production. a Breusch-Pagan Lagrange Multiplier Tests. Mercatus Center's Global Prosperity Initiative. Pelupessy and Daz (Reference Pelupessy and Daz2008) argued that the optimal growing altitude in Central America is between 1,200 and 2,100m above sea level (masl). WebCosta Coffee has successfully implemented the differentiation strategy by offering a wide range of high-quality coffee blends, food items, and customer service experience. B., & Hesterly W. S. (2010). Financial risk reduction programs and business education would also help coffee growers to learn how to cope with fluctuations in coffee prices. The company listens to what the customers need and responds to that. Furthermore, Pelupessy and Daz (Reference Pelupessy and Daz2008), Sick (Reference Sick2008), Rettberg (Reference Rettberg2017) and Prasad (Reference Prasad2019) have reported that low international coffee prices also entail higher levels of unemployment, poverty, migration, violence and corruption in coffee-producing regions. Costa Coffee (2014). These new consumers may then try other drinks and products if the brand-swap encourages variety-seeking buying behaviour. The management of Costa Coffee is also composed of highly skilled personnel, which further increases the level of quality assurance. must. It is an industry whose entry is not very complicated, thus many companies with similar products can join. After starting as a distributor of roasted coffee, Costa Coffee started retailing coffee in the year 1978. Also as a part of its promotional strategy of new products the company provides free samples to its customers to get the review about product and increase it purchase intention. The company leads the park in most of the countries in Europe where it operates. We structure our discussion according to external variables, intrinsic quality variables and differentiation strategies available for growers. Strategic management: Value creation, sustainability, and performance. Second are some intrinsic characteristics that are related to coffee quality, but difficult or impossible to modify by coffee growers, such as altitude or the yield of coffee berries. Moreover, the International Coffee Organization established a general price indicator system based on prices of the different types of green coffee that are marketed around the world. They define the strategy that the organization is to employ. Organic is a characteristic of coffee and its production process. March 27, 2020. https://ivypanda.com/essays/costa-coffee-company-analysis/. Some part of the FT price premium is used to generate indirect benefits to producers and their relatives, such as technical assistance, credit facilities, or social projects in the communities, and these actions are not reflected in the final price of coffee berries; see, e.g., Sick (Reference Sick2008) and Dragusanu et al. https://www.gopromotional.co.uk/blog/how-to-identify-market-segments-and-select-target-markets/ in the US. We address the following questions: (i) What are the main drivers of coffee prices in Costa Rica? Specifically, it creates a consignment mechanism in which prices paid to farmers by coffee mills must be a function of the seasonal average final price, production costs and processing yields (Asamblea Legislativa de Costa Rica, 1961; Adams and Ghaly, Reference Adams and Ghaly2007; Dragusanu et al., Reference Dragusanu, Montero and Nunn2021). Second, the horizontal integration strategy through the purchase and processing of coffee berries in several producing countries and in the specific case of Costa Rica, in most producing regions provide MCCs a stronger bargaining power. In this framework, low-carbon coffee production could be a mechanism to improve market access while rendering environmental benefits in coffee-growing regions (see, e.g., Valenciano-Salazar et al., Reference Valenciano-Salazar, Andr and Martn-de-Castro2021). Barney, J. Mission- To save the world from mediocre coffee. Product design is significant because it helps the organization in differentiating its products. For your business to thrive you need to know who your customer is. It contains thousands of paper examples on a wide variety of topics, all donated by helpful students. Also the products offered by cafe are the physical evidence for this coffee house. US Dollar Cents per pound.Source: Authors' elaboration based on ICO statistics. The company believes in giving wow moments to its customers with its main product coffee. Each unit has its own employees (Costa, 2013). "Costa Coffee Company Analysis." 2. Regarding the specific environmental differentiation strategies that we have focused on, we find that organic production tends to get higher prices, while FT mills do not report having paid higher annual average prices, which suggests the necessity of further research for a fully fledged analysis of coffee differentiation strategies. Regarding the group of intrinsic quality variables, note first that yield (the amount of green coffee obtained from a bushel of coffee berries) is positively related to berry prices (coefficient 2), as suggested in hypothesis H2, which cannot be rejected either. In 2017 coffee production accounted for roughly 0.28 per cent of gross domestic product (GDP) and 8.17 per cent of agricultural GDP (ICAFE, 2017). On the other hand, the goals of the organization are an integral part of its strategic management. Additionally, Weber (Reference Weber2007) and Omidvar and Giannakas (Reference Omidvar and Giannakas2015) showed that saturation of the world FT coffee market can lead to a reduction in growers' welfare since cooperatives cannot obtain the FT price premium for all the coffee that they sell. Generally speaking, target markets usually fall into one of three segments: demographic, geographic, and psychographic. Weaknesses of Costa Coffee Costa Coffee is a premium brand. Nevertheless, the organic price premium compensates for these lower yields in such a way that, excluding organic certification costs, net income was similar for both groups. In the United Kingdom, Costa Coffee owns about 1750 restaurants and approximately 3500 Costa Express. The various products are designed based on the occasions and the time of the year, as well as customer needs. Figure 1. Required fields are marked *. The mission of Costa Coffee is to produce the best coffee in the world and become the best/ leading coffee business (Costa Coffee, 2014). This is being combined with other optimist approaches. Figure 2 shows that, in the period between 1990 and 2017, domestic coffee prices in Costa Rica followed a very similar trend to that of international prices. US Dollar Cents per pound. In Costa Rica, Dragusanu et al. It has positioned itself on the product basis, where it ensures that quality wise every cup of coffee leaves a lasting impression on the customer. The division of income and surplus along the coffee commodity chain, Studies in Comparative International Development, Tropical commodity chains, forward integration strategies and international inequality: coffee, cocoa and tea, Review of International Political Economy, Multinational enterprise, internal governance, and industrial organization, Sustainability and firms mission in a developing country: the case of voluntary certifications and programs in Costa Rica, Journal of Environmental Planning and Management, A critical analysis of the agronomic and economic sustainability of organic coffee production, Fair trade coffee enthusiasts should confront reality. Forecasting can either be qualitative or qualitative. Differentiation is when a company provides different offerings to suit different customer wants, which in turn allows them to create a competitive advantage. Costa Coffee has recently decided to acquire Coffee Nation, the operator of nearly 1000 self-service coffee machines for 60 million. Costa coffee also markets its merchandise to companies and florists. In fact, as noted by Talbot (Reference Talbot1997, Reference Talbot2002), multinational coffee companies (MCCs) tend to integrate most of the value-added processes along the coffee production chain (vertical integration), and also tend to carry out agro-industrial processes in different countries or different regions in the same country (horizontal integration). Costa Coffee clearly aim to maximise their profits; Starbucks aim to develop their brand around quality. Quality control refers to measures that are taken to reduce or to eradicate errors in production completely. Sourcing our coffee beans sustainably We make careful choices about the coffee we buy, working with the Rainforest Alliance to source 100% of our famous beans to their high standard. Around 8 million tons of coffee were exported from producing countries in 2019 (International Coffee Organization, 2020), which makes coffee one of the most traded food commodities worldwide (Girotto et al., Reference Girotto, Pivato, Cossu, Nkeng and Lavagnolo2018). The Wooldridge test and the Wald test reveal the presence of autocorrelation and heteroscedasticity in our data. (Reference Naranjo, Pieters and Alpzar2019) point out insurance as a relevant channel to foster private investment, and also to reduce the vulnerability of coffee farmers to shocks. It offers coffee that is unique from what is offered by most of its competitors. The names and other brand information used in the Marketing Strategy & Mix section are properties of their respective companies. Costa has various designs of products, which have helped it secure the large market in which it operates. Therefore, FT certification can be one additional channel of coffee sales in international markets, which may complete the cooperatives' portfolio of clients, mainly when the world production rises. McDonalds is also emerging as a competitor in the industry. Evidence from Jinotega, Nicaragua. Costa coffee also sells its products to businesses and caterers for example the company sells its vending machines to corporate offices and colleges under the brand name of Costa express. In the latter group, we focus on two cases that are particularly relevant in the Costa Rican coffee sector: Fairtrade (FT), which is a company certification, and organic coffee (OC), which is a product certification linked to coffee quality and the technology used to produce it. London, UK: Pearson Education. Agricultural policies in Central America promote high altitude coffee cultivation, as HB and SHB coffee enjoy more prestige and better prices in international markets (Castro et al., Reference Castro, Montes and Raine2004; Pelupessy and Daz, Reference Pelupessy and Daz2008). It seems relevant to assess the effectiveness of these strategies as compared to more traditional variables such as production costs and productivity. Costa coffee globally focuses on its people ie employees and customers. The company needs to keep a close relationship with the customers to get first hand feedback from them. Every business organization should have its goals and objectives, both for short term and for long term survival.