Strategic Planning in the Australian Coffee market

Strategic Planning in the Australian Coffee market Industry/Market definition The Australian Coffee Industry comprises all the firms that offer products for sale that are derived from coffee beans. There are pure coffee products, ie whole and ground coffee beans, and instant coffee products. Each kind of product has its own target market. A market is the set of all actual and potential buyers of a product (Kotler et al 1998, p885). The pure coffee market consists of all the actual and potential buyers of whole or ground coffee beans. The instant coffee market consists of all the actual and potential buyers of instant coffee. For the purposes of this assignment, I will focus on the instant coffee market in Australia. Part1 Macroenvironment The marketing environment within which a company operates is dynamic. Its consists of a microenvironment, and a macroenvironment. The microenvironment is the forces close to the company that affect its ability to serve its customers. The macroenvironment is the larger societal forces that affect the whole microenvironment, (Kotler et al 1998, pp885-886) The macroenvironment consists of six types of forces: demographic, economic, natural, technological, political and cultural forces. A companys marketing strategy must take into account changes and trends in these environments that can present opportunities or pose threats. A successful firm is one that regularly modifies it marketing mix and strategies to adapt to these changes (Czinkota et al 2000, p17). Below I will outline the six macroenvironmental forces, and how they may affect the instant coffee market in Australia. Demographic environment Demographics are the study of human populations in terms of size, density, location, age, sex, race, occupations and other statistics (Kotler et al 1998, p105). The demographic environment consists of all the aforementioned demographic variables, and their ability to affect the Australian instant coffee market. The importance of the demographic environment lies in the fact that all demand for a product derives ultimately from people (Cannon 1998, p41). Kotler et al (1998, p113) noted that demographic developments have transformed the Australian marketplace from a mass market into more fragmented micro-markets differentiated by age, sex, geography, lifestyle, ethic background, education and other factors. Recent demographic trends in Australia are a better-educated and more white-collar population, increasing ethnic diversity, and changing age structures. The implications of such changes are that organisations must now design products and marketing programs for the specific micro-markets they wish to target. While all demographic variables have the potential to affect the instant coffee market in Australia, the area of particular significance is the emergence of ethnic micro-markets. Ethnic communities now make up a significant and growing part of the Australian population, who have clear product and brand preferences (Bradmore et al 1997, p88). Thus, there is now demand for a wider variety of coffee styles to suit ethnic tastes, which requires the development of new products and marketing strategies. For example, since ninety-five percent of all coffee drunk by Italians is espresso, (Barton 2000), many companies have developed instant espresso products. Economic environment The economic environment consists of the factors that affect consumer buying power and spending patterns (Kotler et al 1998, p113). Factor include income and employment levels, inflation levels, savings and credit conditions, the value of the Australian dollar and so on. This aspect of the macroenvironment is important to the Australian instant coffee market, as it is to any market, because consumers must have the purchasing power to back up their desire for the products. However, since non-price factors, such as branding, are a significant basis for competition for coffee products (IBIS World 2000, p8), changes in retail coffee prices will not have a huge effect on the market share of any one manufacturer. Despite that, economic factors that do affect the Australian coffee market include the value of the Australian dollar. Virtually all coffee beans are imported, and their prices vary with changes in the relative exchange rates (IBIS World 2000, p15). A low value of the Australian dollar, as is the present case, drives up input prices for manufacturers, which may be passed onto consumers. Furthermore, the Association of Coffee Producing Countries, which accounts for three quarters of world coffee-bean production, has announced plans to restrict the output of beans, which would mean it could control prices (Crawford 2000, p1). The effect of this possible price control is not yet known, but it could drive smaller manufacturers out of the market if the price increases are too high. Also, another issue is the level of disposable income of Australians. With an increase in income, consumers are increasingly likely to purchase higher quality products rather than to simply purchase more. Thus there is a growing market for higher quality and priced instant coffee. As noted in the IBIS World Report for C2179 Food Manufacturing, higher income facilitated the successful introduction of specialtycoffee products. (IBIS World 2000, p7). The GST is not applicable to coffee products, but GST on pure coffee products served at commercial premises could increase the market potential for instant coffee. Natural environment The natural environment concerns the natural resources that are needed as inputs by marketers or that are affected by marketing activities (Kotler et al 1998, p116). Today, there is a growing awareness of the need to preserve our planet, and that includes the need to protect our natural environment from the potentially harmful affects of industrial activities. Since coffee producers make use of the natural environment, there is a potential for this aspect of the macroenvironment to be quite significant to the Australian coffee industry. Consumers, more than ever, are beginning to boycott products that have been manufactured in such a way as to damage the environment. This is putting pressure on manufactures to ensure all procedures are environmentally friendly, or risk losing market share. Such issues that involve coffee manufacturing are the use of pesticides and chemicals, pollution from manufacturing plants, excessive water use in the production stage, and the effect of farming the land in regard to future erosion and depletion of natural minerals. Also, the supply and price of coffee beans to the Australian Coffee market is at the mercy of the natural elements. The IBIS World (2000, p27) Industry Report stated that coffee bean prices are forecast to increase sharply(as)the result of poor seasonal conditions in Central America and low stocks. Technological environment The technological environment is the forces that affect new technologies, creating new product and market opportunities (Kotler et al 1998, p889). Since coffee was discovered in around 1000AD (Nescafà © 2000), the methods used to grow, harvest, process and manufacture coffee products has certainly evolved. The use of irrigation systems, fertilisers, machinery in the harvest process, and the introduction of automated, computer controlled equipment (in Australian processing plants) has raised efficiency and, in many cases, has also improved product quality (IBIS World 2000, p25). However, the most recent influential forces concern advances in manufacturing processes, and developments of new coffee machines for home use. New technologies had made it possible for Australian instant coffee manufacturers to produce a wider range of products, of higher quality. For example, Nescafà © have recently introduced a new instant Cafà © Latte range, and also new instant Espresso. Also, using freeze-dried technology, instant coffee has a significantly longer shelf life than any product in the pure coffee market, which is a significant advantage. However, over the past few decades, the development of inexpensive coffee perculators and plungers has increased the attractiveness of pure coffee products, often at the expense of the instant coffee market. For example, Melitta House of Coffee recently introduced a coffee maker that makes 10-15 cups of coffee as quickly as boiling a jug. Lastly, the advent Internet shopping is allowing consumers to make purchases on-line, and from foreign suppliers, thus posing a threat to the size and profitability of the Australian coffee market. Political environment The political environment consists of the laws, government agencies and pressure groups that influence and limit various organisations and individuals in the society (Kotler et al 1998, p887). Like in all markets, organisations that operate in the Australian instant coffee market are subject to laws that regulate virtually all aspects of their business, including such areas as food and health safety, pollution emissions, and advertising and labelling requirements. However, the political environment does not have large impact on the Australian coffee market. Cultural environment The cultural environment consists of the institutions and forces that affect societys basic values, perceptions and behaviours (Kotler et al 1998, p882). Changes in Australian culture, and the emergence of varied sub-cultures can have a large impact on the instant coffee market in Australia. As Hugh Mackay, chairman of Mackay Research Pty Ltd stated: Anyone who is serious about communicating with contemporary Australiansneeds to understand the most contemporary trends in attitudes and behaviour. (Bradmore et al 1997, p62) Recent trends in Australia that are having a particular affect on the instant coffee market are the redefinition of health and associated anxieties about diet, fitness and stress, and the recent emergence of a young Australian coffee culture. Australians are, more than ever, concerned about their health. There is a wealth of research linking caffeine to many ailments, and thus, this is increasing demand for the healthy alternative decaffeinated products. There is also the threat the consumers could boycott coffee products all together, and switch to another beverage, such as tea, which is well known for its positive health benefits. In addition, the market for all types of coffee is benefiting from an era of coffee in AustraliaA real coffee culture is growing. (Miller 2000, p3) People are not only drinking more coffee, but becoming coffee connoisseurs. Coffee is no longer just a product, but a means of self-expression. As a society we are placing the emphasis on quality, not quantity, and as such consumers are buying more exotic instant coffees (Bannister 2000, p17). There has also been an emergence of many different subcultures. A subculture is a group of people with shared value systems based on common life experiences or situations (Kotler et al 1998, p123). Today, there is wide range of subcultures, particularly those based on nationalities, which is leading to demand for a wider variety of products. Part2 The marketing mix: How it is used by two companies to target the australian instant coffee market. There are many organisations that operate within the instant coffee market in Australia. Each company positions themselves with a unique marketing mix that is aimed at specific segments of the market. Kotler et al (1998, p57) defines the marketing mix as the set of controllable marketing variables that the company blends to produce the response it wants in the target market. The variables of the marketing mix are the four Ps: Product: the goods-and-service combination the company offers to the target market (Kotler et al 1998, p57). Price: the amount of money customers have to pay to obtain the product (Kotler et al 1998, p58). Place (Distribution): involves company logistics and marketing activities concerned with the making and distributing the final product (Kotler et al 1998, p58). Promotion: the activities that communicate the merits of the product and persuade the target customers to buy it (Kotler et al 1998, p58). This includes advertising, publicity, sales promotions, personal selling, direct marketing and sponsorship. I will focus on the marketing mix of Nescafà © and of Robert Timms. Nescafà © Nescafe products are produced by Nestle. Necafe holds a vary large share of the instant coffee market in Australia. Marketing mix outline Product There is a range of Nescafà © products available (see Table 1 below). Price The prices of the Nescafà © products have been listed in Table1: Nescafà © products and price. Place (Distribution) The Nescafà © product range is available in all large supermarket chains (Safeway, Coles etc). Smaller, independent grocers or stockists generally have a smaller range that would include Nescafà © Blend 43. Promotion a variety of promotional techniques. This includes: Large scale advertising They advertise their products in a wide variety of print, broadcast and display media. Their most recent nation wide advertising campaigns were the Open up with Nescafà © series, and the Nescafà © in the morning series. Sales promotions Nescafà © regularly runs contests that coincide with new product launches or advertising campaigns. Recent promotions were * win $1000 every morning for a month * Win the Nescafà © Latte Lounge to promote the new latte range Nescafà © also use point of sale promotions, have cash-back offers, and have give-aways. Eg. a free Nescafà © mug was given away with every purchase of 500g of Blend 43. The mug was the same type as that used in the Nescafà © in the morning advertisement series. Sponsorship: Nescafà © sponsors the * Nescafà © Big Break competition which will give away $180,000 to young people (aged 16-21) with original and achievable ideas. * Nescafà © Short Film Awards which offers a total of A$50,000 in cash awards to short film makers. There is a student category in this competition. Nescafà © also has an Australian website (www.cafe43.com.au) where information on all products, competitions and events can be accessed. Marketing mix analysis Nescafà ©s marketing mix is aimed at a large and varied segment of the instant coffee market. They could be considered the Myer of the instant coffee industry. The most obvious segments of the market they target are: * Young adult cafà © culture segment: They target this segment with their new latte range, along with the advertising, sales promotion and the competition to win the lounge seen in the advertisements. * Upscale, quality driven, higher income consumers: Their Nescafà © Gold range, and exotic tastes such as Alta Rice are aimed towards such consumers, where the price and qaulity are higher than that of the general blends. * Middle-class consumer (no age target): Nescafà © targets such a large segment with their Blend 43, Mild Roast and Espresso products. The consumer gets an economical benefit, as well as a quality product. Furthermore, Nescafà © attempts to tap into the ethnic segment using their Espresso and exotic blends. In their advertisements for espresso, they use local Italian actor, Nick Giannopoulos. In general, since Nescafà © has the largest range of instant coffee products in Australia, and has such a powerful brand name, they have a consumer franchise they gain brand recognition and demand consumer loyalty. In particular, their most popular product, Nescafà © Blend 43, is seen as the peoples coffee. In their advertisements, they use actors of varied age, gender, occupations and ethnicity. Robert Timms: Robert Timms is Australias oldest coffee company. It is the leader in the coffee bean market (Bannister 2000, p17), and has only entered the instant coffee market over the last couple of years. Marketing mix outline Product Robert Timms offers coffee bags (which work in the same manner as a tea bag) in four styles: Cafà © Style Espresso Italian Style Espresso Mocha Kenya Style Royal Special The coffee bags are a mix of ground and instant coffee. They also have: * Presmoto: Gourmet Freeze Dried Coffee. * Molto: Gourmet Granulated Coffee Price Robert Timms coffee bags are sold in: * packs of 8 for $2.35, or * packs of 18 for $4.83 I was not able to find the price of Presmoto and Molto soluble coffee as I could not find an outlet that stocks it. Place Robert Timms coffee bags are available in all large supermarket chains, but sporadically in independent stores. I am not aware of where the gourmet soluble coffee can be purchased. It was not available in any large supermarket I have visited. Promotion Robert Timms has only begun extensive promotion since early 2000, after remaining relatively low in profile. They do not promote the coffee bags or gourmet instant coffee specifically, but rather they promote the brand name. Promotional tools used by Robert Timms are: Large scale advertising Robert Timms most recent nation wide advertising campaign was the Think it over with Robert Timms series, which is seen on broadcast, print and display media. Sponsorship Robert Timms is the official coffee supplier to the 2000 Olympic Games. Robert Timms also has a web site (www.reoberttimms.com). It mainly has information on the history of the company and it products. Marketing mix analysis Robert Timms positions itself in the instant coffee market as a provider of the very highest quality coffee products. The company prides itself on its heritage. As it states on its web-site: We are a dedicated group of Australians producing coffee, coffee related products and services that are comparable to the very best in the world. http://www.roberttimms.com/about/index.html Opens in a new window The company has targeted its instant coffee products to the high income, quality driven segment of the instant coffee market. The quality of their products is reflected in the prices, which are expensive, and the packaging, which uses the stylish combination of black and gold. Furthermore, through their role as official coffee supplier to the Olympics, they are also associating themselves with the pursuit of excellence and the Australian spirit. Their promotional campaign Think it Overwith Robert Timmsà ¢Ã¢â‚¬Å¾Ã‚ ¢ creates a relaxed, yet sophisticated feel about the company and their products. The premise behind the campaign is best summed up on their web-site: Take some time out of your busy day to enjoy our coffee and you too can Think it Overwith Robert Timmsà ¢Ã¢â‚¬Å¾Ã‚ ¢ Reflect on the day, make the right decision at work or just decide to relax. Its up to you. http://www.roberttimms.com/think_it_over/index.html Opens in a new window Thus, while their marketing mix is targeted at high-income consumers who want high quality, they made sure they did not exclude a large share of the market by appearing overly elitist. Nescafà © vs. Robert Timms The marketing mix of Nescafà © and the marketing mix of Robert Timms are quite different. These differences reflect the different positioning of the two companies, and the segments of the market they were aiming to capture. Whereas Nescafe has targeted a larger percentage of the market, with quality but affordable products, Robert Timms has targeted a narrower segment with gourmet, expensive products. Generally, Robert Timms and Nescafà © are no real direct threat to each other. While they do both compete in the high quality, gourmet end of the instant coffee market, Robert Timms is clearly the highest quality product, and consumers must pay for this. What Nescafà © is offering is a more affordable alternative. Conclusion The instant coffee market in Australia is subject to the demographic, economic, political, cultural, natural and technological forces of the wider macroenvironment that it operates within. Each of these forces has the potential to change the marketing environment, and create opportunities and pose threats to the market and those who operate within it. What companies must do is monitor these environments to adapt its marketing mix accordingly. In the Australian instant coffee market, different companies have quite different marketing mixes, as can be seen when comparing Nescafà © and Robert Timms. These differences do not mean that one is more effective than the other, but rather they reflect the different marketing strategies adopted by each company to capture the market segments they feel the company can best serve.