Malaysia Campus Nottingham University Business School MBA Programme

Course : Marketing Course Code : N1DM04 Module Convenors : Nelson Oly Ndubisi

Assignment Title: Exam Coursework : Marketing Plan For Starbucks VIA In Malaysia

ZHIJING, EU (UNIMKL-004151) Date: 14th January 2010 COPY I

[Word Count : 2522 Words – Excluding Abstract , Section Headings , Table Headings and Appendices]

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Abstract The instant coffee market within Malaysia is an attractive market to enter given the growing coffee culture locally. The market is currently dominated by Nescafe and a few other domestic brands with specific localised products. Starbucks has an opportunity to introduce a new instant coffee product that is uniquely positioned against it’s competitors. However the key risk that needs to be managed within the market mix is the dilution of the brand identity as Starbucks has always been associated with premium coffee and this is in contrast to the instant coffee market which has traditionally been viewed as “down-market” of the gourmet segment. Key areas of attention within the marketing plan to ensure success would be the consistency in the promotional messaging strategy and a development of appropriate distribution channels as Starbucks will be entering a mature market as a late-comer. [141 words]

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Contents 1.Introduction........................................................................................................4 2.Market Evaluation...............................................................................................5 2.1 Market Environment Analysis.......................................................................5 2.2 Competitive Landscape For Instant Coffee...................................................7 2.3 Market Trends..............................................................................................8 2.4 SWOT Analysis..............................................................................................9 2.4.1Strengths.................................................................................................9 2.4.2Weaknesses..........................................................................................10 2.4.3Opportunities.........................................................................................10 2.4.4 Threats.................................................................................................10 3.Marketing Strategy...........................................................................................12 3.1Brand Positioning.........................................................................................12 3.2 Target Marketing........................................................................................12 3.3 Marketing Mix.............................................................................................12 3.3.1 Product.................................................................................................12 3.3. 2 Place/Channel......................................................................................13 3.3.3 Promotion.............................................................................................13 3.3.4 Price.....................................................................................................14 3.4 Implementation of The Marketing Plan.......................................................15 4.Conclusion........................................................................................................17 5. References.......................................................................................................18 6. Bibilography.....................................................................................................19 6. Bibilography

List Of Figures & Tables
Figure 1. Mean Frequency of Beverages Consumed Daily By Population ( Norimah et al 2008) 5 Figure 2. Coffee Consumption Relationship To Purchasing Power (Kendrik 2008) 5 Figure 3. Malaysia Coffee and Tea Markets 2005-2013 (BMI 2009) 6 Figure 4. Five Forces Analysis On Instant Coffee Competitive Landscape 7 Figure 5. SWOT Analysis On Starbucks For Instant Coffee Market 9 3

Table 1. Marketing Plan Implementation Strategy Over Time 16

1.Introduction
Starbucks in Malaysia is jointly owned by Berjaya Corporation and Starbucks Coffee International and has enjoyed a healthy growth within the Malaysian market since it’s first outlet opened in 1998. At present, there are 119 stores thru out Malaysia (Starbucks Malaysia Website 2010). In Berjaya corporation’s most recent 2009 Annual Report, it was stated that there was a 14% increase in revenue from previous year due to the continued growing acceptance of the brand and products as well as new outlet openings. This paper outlines the current state of the instant coffee within Malaysia in context of a planned launch of “VIA”, Starbucks’s new line of instant coffee thru the analysis of the potential market size, consumer preferences, market segmentation and growth areas for the soluble coffee market within Malaysia. The paper also analyses the local competition scenario within the instant coffee market and recommends a marketing plan to successfully launch and sustain the growth of VIA.

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2.Market Evaluation
2.1Market Environment Analysis
Malaysia has a strong hot drinks culture. A survey (Norimah et al 2008) that showed that the average Malaysian drinks 1.58 cups of coffee daily.

Figure 1. Mean Frequency of Beverages Consumed Daily By Population ( Norimah et al 2008)

Coffee drinking culture has been cultivated by the continued expansion of retail cafe businesses of both international brands such as Starbucks , Coffee Bean & Tea Leaf that bring in the “cafe culture” from the West and other domestic brands such as Old Town White Coffee that build on the local “coffee-shop culture” (Euromonitor 2008). Further research (Kendrik 2008) shows a positive correlation between the GDP per capita and the amount of coffee consumed. This means that as the economy of Malaysia grows, the market will begin to “thirst” for more coffee products.

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Figure 2. Coffee Consumption Relationship To Purchasing Power (Kendrik 2008)

The coffee market is a sub-set of the “Hot Drinks” market sector which can be further categorised into instant coffee and ground coffee. According to a industry report (BMI 2009), total coffee sales in Malaysia total to approximately 61 Mil USD in 2008 and is set to be a growth market as seen in Figure 1

Figure 3. Malaysia Coffee and Tea Markets 2005-2013 (BMI 2009)

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2.2Competitive Landscape For Instant Coffee

Figure 4. Five Forces Analysis On Instant Coffee Competitive Landscape

Based on Porter’s Five Forces Analysis, the threat of substitutes is high in the Malaysian market given the propensity of Malaysian drinkers to prefer tea (Norimah et al 2008) and the wide alternatives available in the form of malt or soy based drinks. As the coffee bean commodity market is an mature open market, the bargaining power of suppliers is low. The threat of new entrants is high given that in the past few years, many domestic players have entered into the instant coffee market. Affordable pricing and localised products were identified by one industry report (Euromonitor 2008) as key drivers for the increased prominence of the domestic coffee brands.

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Industry rivalry is medium. Nescafe stands out as one of the major competitors and is purported to currently command up to 70% of the local Malaysian market share in the coffee segment (Adam 2009) and the instant coffee market players have developed quite specific value offerings based on the additional ingredients or style of coffee preparation. The bargaining power of consumers is high given that instant coffee is readily available thru various distribution channels and both private individual consumers and large wholesale buyers (E.g Food & Beverage Outlets) have a very wide range of brands to choose from and will make comparisons.

2.3Market Trends
The coffee market can be divided into consumers segment by where the coffee is drunk , In-Home vs Out of Home ; and type of product , Soluble (Instant) vs Ground coffee. Three market trends worth noting are firstly the anticipated growth of the out of home segment based on a recent study by Nestle (As reported in Bernama Press 2009), where Malaysians currently spend 35 per cent of their total food and beverage expenses out-of-home. Secondly, instant coffee market caters quite specifically to local tastes. This can be witnessed by the behaviour of Nestle , the market leader, who in 2009 (Chan 2009) also introduced a range of instant hot drinks targeted at local tastes to compete directly with other domestic brands who have specialised in domestic flavours such as “White Coffee” or “Kopi-O”. Thirdly, “health branding” is a prevalent in the sector. For example, the anti-oxidant benefits of coffee have been actively promoted (Nescafe Professional Website 2009) and other brands have also incorporated herbal additives such as longifolia (Tongkat Ali) or healthier sweeteners such as oligofructose.

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2.4SWOT Analysis

Figure 5. SWOT Analysis On Starbucks For Instant Coffee Market 2.4.1Strengths

Starbucks is the market leader in Malaysia. The brand equity of Starbucks is high as it is perceived a premium quality brand and therefore this such as VIA. should translate into a positive association with any product extensions

The core strength of Starbucks has been it’s ability to create a relationship with the customer by marketing the “consumption experience”. As quoted by the Howard Schultz, the CEO, Starbucks is not in the coffee business serving people but in the people business serving coffee (Sellers 2005).

The challenge with VIA is whether the coffee “experience” can be mapped onto a product which traditionally has been a low involvement product for most consumers.

Starbucks also has upstream supply chain management expertise in

sourcing high quality raw ingredients from it's retail activities and enjoys a

STRENGTHS: •Market leader with sector in Malaysia •Establish brand rec with premium qual •Strong corporate i environmental stew involvement
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strong corporate image due to it’s efforts in ethical sourcing, environmental stewardship and community event involvement.
2.4.2Weaknesses

Starbucks is a late entrant into the soluble coffee market as this is a crowded brandscape where there are many other brands in the market both from international competitors such as Nescafe and also domestic firms such as Old Town Coffee. Starbucks is also disadvantaged by it’s lack of direct experience in managing the supply chain for instant coffee distribution. At the moment it only markets roast coffee beans via it’s retail outlets. The premium image of the Starbucks brand could also be a weakness as price sensitivity in the instant coffee market is higher when compared to the retail brewed coffee market and Starbucks may be perceived as a highly priced brand compared to other local brands.
2.4.3Opportunities

The economic slowdown has not left Malaysia unaffected. Store on store sales growth for Starbucks retail outlets were reportedly lower for the year 2009 and this trend is expected to be similar for the 2010 period (Berjaya Corporation Annual Report 2009). Therefore the sale of instant coffee as an alternative source of revenue for Starbucks can be viewed as an opportunity for the firm to weather the crisis and at the same time extend the product line. The VIA brand positioning as an equivalent substitute for gourmet coffee also potentially opens up new market segments. For example, price conscious consumers may experiment with VIA and decide that they would like to switch to gourmet retail brew. VIA could also spread brand awareness quicker and grow demand in areas with a lower concentration of Starbucks retail outlets.

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2.4.4 Threats

The launch of VIA carries the risk of jeopardizing the brand equity of the core Starbucks brand as the growth of the soluble coffee market could potentially cannibalise sales from Starbuck’s retail outlets who then go on to switch to competitor instant coffee brands. The extension of the product line into a new market may also cause a loss of focus on the core business of retail brewed coffee if resources are not balanced. This can be exemplified by the McDonald’s “McCafe” concept store which has already been launched elsewhere in the Asia Pacific region. Furthermore , Nestle also stands out as a clear “global” competitor who already has experience in other markets overseas in counter competing with Starbucks (Andrejczak 2009 and Roe 2009) and may have a retaliatory strategy ready.

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3.Marketing Strategy
3.1Brand Positioning
The launch of VIA will need to be consistent with the brand positioning objective to market it as a new and exciting innovative product that is an equivalent substitute for freshly brewed gourmet coffee for people on the move or working in locations remote from Starbucks retail outlets.

3.2 Target Marketing
The initial target market sector for VIA will be the existing clientele of the retail Starbuck outlets – middle to high income urbanites who place an importance on taste, quality, ambience and the consumption experience.Therefore VIA will focus on “creating” new demand from these existing consumers who up till this point may not have tried “gourmet” instant coffee.

3.3 Marketing Mix
3.3.1 Product

The taste and convenience aspects of the product will be critical.Research should be conducted in the trial phase to understand what features consumers would value. For example, would solubility in cold water be important and what packaging would be the most convenient (E.g. Fits neatly in shirt pockets) The level of product information will also be reduced from usual Starbucks packaged coffee beans as typically less is said about ingredient origins for instant coffee. The packaging should also highlight the innovative microground process. Sizing should be via an easy to tear “stick” sachet with multi-packs sized for travel. It will be unlikely that VIA will be offered in loose power “jar” packaging as this does not fit the “on the move” image.

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Given that the only flavours available are Italian Roast and Colombia there is a temptation to extend the flavours offered but a counter positioning of simplicty in offerings could be used to address this issue.
3.3. 2 Place/Channel

Within Starbucks Malaysia, there is no direct merchandising or distribution experience outside of the retail outlets .However Berjaya Corporation ,a major shareholder in Starbucks Malaysia franchise, should be able to leverage on it’s extensive businesses experience elsewhere within the food and beverage sector to make headway into new distribution channels. VIA should adopt an exclusive distribution strategy thru the Starbucks retail outlets. This allows for a very strong level of control and flexibility during the initial launch of the product. A complementary tactic would be to market VIA thru channels that fit with the on the move image such as airlines or trains. For example in the US, VIA was marketed on United Airline flights and in the UK, thru EasyJet. Later in the growth stages, Starbucks may wish to consider partnering with a premium supermarket chains or grocery stores who have a complementary brand image of fresh foods to allow the sale of VIA at their outlets.
3.3.3 Promotion

Initially, during the launch stage, secrecy and speed will be key to success to avoid pre-emptive moves by other brands such as Nestle who would already have developed retaliatory strategies elsewhere. Instant coffee can be considered as a reasonably passive product in contrast to the Starbucks brewed coffee which has a very strong service element associated with it.Therefore an integrated marketing campaign needs to be implemented to ensure a “customer relationship” can be built via the use of online communities in the existing Facebook and Twitter social networking sites.In addition to this, other strategies used in the US

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market (Shah 2009) to achieve this sense of coffee experience has been the taste test and free samples. Message consistency will be very important as VIA has to balance the message that it is just as good as brewed coffee against the fact that Starbucks still wants VIA consumers to frequent the retail outlets. Further down the road, there is also a chance for Starbucks to leverage on it’s corporate identity by integrating VIA into it’s larger scope of environmental stewardship by creating a recycling campaign around the product.
3.3.4 Price

At present, there are no equivalent premium instant coffee products at which to benchmark a suitable price for Via. A cursory survey of prices at local supermarkets seems to indicate that premium coffee tends to be of the “roast and ground” variety. The pricing strategy is a clearly a price skimming strategy with an emphasis on setting a price that is high enough such it complements the high quality. Therefore a skim pricing strategy could work as there is currently no true “premium style” instant coffee product within the market other than Nescafe’s Gold Blend . This product which currently retails at RM12.95 for 20 sachets of 20g ,could serve as a reference marker for the initial price setting. A pricing strategy that offers rewards for loyal Starbucks customers would work well to cement the relationship between the instant coffee and retail brew sectors. This could be a simple modification of the loyalty card system that is already in place at the retail outlets or this could work in reverse where customers are offered complimentary drinks if they collect enough VIA wrappers.

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3.4 Implementation of The Marketing Plan
The marketing plan is outlined briefly in the Table 1 below.
Stage Trial (0-3 mths)
• Conduct initial surveys based on focus groups from existing Starbucks clientele on most valued features

Launch (3-6 mths)
• Emphasise the quality aspects and the innovation in product development

Growth (6-12mths)
• Maintain the quality

Sustain & Defend (12mths onwards)
• Introduce new flavours • Reinvent the packaging

Product

Price

• Survey the market to identify the price ranges within the instant coffee market

• Price skimming - Premium pricing that will set it apart from other economy pack brands

• Price skimming with potential for discounts related to purchase of main Starbucks products

• Maintain the price skimming strategy with flexibility for price changes depending on competitor reactions

• Maintain secrecy and speed of the implementation to avoid retaliatory attacks

Promotion

• Free samples in stores • Taste tests • Leverage on the online community presence

• Consistency in messages and monitoring impact on retail stores

• Integrate the brand image of VIA with the parent brand in terms of CSR activities

Place/Channel

• Explore and develop distribution channels available to the Berjaya parent company

• Exclusive Distribution - Offer VIA exclusively at Starbucks retail outlets • Other channels should match the "on the move" element • Product Awareness • Positive Consumer Online Feedback

• Selective Distribution - Offer at "premium" supermarkets

• Maintain Selective Distribution

Focus KPI-s

• Time To Market • Actual vs. Plan Pilot Trial Costs

• Sales Growth

• Market Share • Sustained Sales • New Product Innovation

Table 1. Marketing Plan Implementation Strategy Over Time

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The implementation of the plan relies heavily on the appropriate allocation of resources , monitoring of progress and ensuring that there is sufficient flexibility to cope with the anticipated competitor reactions against the introduction of VIA by either emphasing their lower prices , discrediting Starbuck’s claim of equivalent quality or promoting their larger product flavour range.

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4.Conclusion
The instant coffee market within Malaysia is an attractive area for Starbucks to enter into. However the key risk that needs to be managed within the market mix is the dilution of the brand identity as Starbucks has always been associated with premium coffee and this is in contrast to the instant coffee market which has traditionally been viewed as “downmarket” of the gourmet market. This issue extends to the issues of brand positioning and distribution channels where Starbucks will be entering a mature market as a latecomer whereas most of their competitors in th instant coffee sector have already established their brand identity. This move would develop the demand for gourmet coffee and capture the instant coffee drinker market as well as serve as a revenue buffer for the core business of retail brewed coffee. With the right marketing strategy, there is the potential to capitalise on Starbuck’s brand equity to extend the product successfully.

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5.References
• Adam ZR 2009, 18th June, Nestle: Coffee is good, thanks to the antioxidants, Available From <http://www.btimes.com.my/Current_News/BTIMES/articles/nescdf/Article/ind ex_html> [ Accessed 13th January 2009] Andrejczak A 2009, 18th November , Instant-coffee war: Nestlé takes aim at Starbucks, Available From <http://www.marketwatch.com/story/instantcoffee-war-brewing-nestle-vs-starbucks-2009-11-18> [ Accessed 13th January 2009] Berjaya Corporation , Annual Report 2009 , Available From <http://www.berjaya.com/annual2009.htm> [ Accessed 13th January 2009] Bernama Press 2009, 13th October, Nestle Seeks To Double Share In Out-OfHome Market , Available From <http://www.bernama.com/bernama/v5/newsbusiness.php?id=446642> [ Accessed 13th January 2009] Business Monitor International 2009 , Malaysia Food & Drink Report Q4 2009, Available From <http://digitalibrary.mida.gov.my/equipmida/custom/indReports/agro/2009/FoodDrinkReportQ42009.pdf> [ Accessed 13th January 2009] Chan J 2009, 19th November, New range of Malaysian-style coffee launched , Available From <http://thestar.com.my/metro/story.asp? file=/2009/11/14/central/5102621&sec=central> [ Accessed 13th January 2009] Euromonitor 2009 , Hot Drinks in Malaysia 2009 : Executive Summary , Published May 2009 , Available From <http://www.euromonitor.com/Hot_Drinks_in_Malaysia?print=true> [Accessed 13th January 2010] Kendrik F 2008,Nescafe Presentation To Investors, Available From <http://www.nestle.com/Resource.axd?Id=B65395A2-C76C-42B2-A7D66648A3A66BF5> [Accessed 13th January 2010] Nestle Professional Website : Health & Nutrition : Antioxidants, Available From <http://www.nestleprofessional.com/Australia/en/Insights/HealthandWellness/ Pages/Antioxidants.aspx> [ Accessed 13th January 2009] Norimah AK et al 2008 , Food Consumption Patterns: Findings from the Malaysian Adult Nutrition Survey(MANS), Mal J Nutr 14 (1): 25 - 39, 2008, Available From: <http://www.nutriweb.org.my/publications/mjn0014_1/mjn14n1_art2.pdf> [Accessed 13th January 2010] Roe A. 2009, Jun 8 , Starbucks and Nestlé become instant enemies , Available From <http://www.komonews.com/economy/47066722.html> [ Accessed 13th January 2009] Sellers P 2005 , “Starbucks , the next generation” Fortune 4/4/2005, Vol 151, Issue 6 p20 Shah A, 2009 , Inside The Mix - Starbucks strives for instant gratification with Via launch, Available From <http://www.allbusiness.com/marketing18

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advertising/marketing-advertising-channels/13550953-1.html> [ Accessed 13th January 2009] Starbucks Website 2010 , Starbucks In Malaysia , Available From <http://starbucks.com.my/en-US/_About+Starbucks/Starbucks+in+ %28your+country%29.htm> [ Accessed 13th January 2009]

6. Bibilography
• Ching LH (1990), Coffee Products Sdn Bhd in JA Quelch, SM Leong, SH Ang and CT Tan (1996) Cases in Marketing Management and Strategy- An Asian Perspective , Prentice Hall Singapore • Gbadamosi A. 2009, Low-income consumers’ reactions to low-involvement products, Marketing Intelligence & Planning Vol. 27 No. 7, 2009 pp. 882899

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