Marketing Plan

for
Costa Coffee
 CONTENTS

Executive Summary....................................................................................................1

1. Introduction............................................................................................................. 2

2. Situational analysis.................................................................................................3

2.1. PESTEL Analysis.................................................................................................3

2.1.1. Political............................................................................................................. 3

2.1.2. Economic.......................................................................................................... 3

2.1.3. Sociocultural.....................................................................................................4

2.1.4. Technological....................................................................................................4

2.1.5. Environmental...................................................................................................5

2.1.6. Legal................................................................................................................. 5

2.2. Porter’s Five Force Model....................................................................................7

3. Objectives and Strategies.....................................................................................10

3.1. STP Analysis......................................................................................................10

3.2. Strategies (SWOT & TOWS)..............................................................................12

4. Implementation (Marketing Mix)............................................................................14

4.1. Promotion.......................................................................................................... 14

4.2. Price................................................................................................................... 15

4.3. Product.............................................................................................................. 15

4.4. Place.................................................................................................................. 16

5. Control and Evaluation..........................................................................................17

6. Conclusion............................................................................................................ 18

Reference................................................................................................................. 19
Executive Summary

Currently, coffee is the most popular drink in the world, consuming more than
400 billion cups of coffee a year, and coffee is the world's second-largest
trading product after oil in terms of volume. In the coffee market, Costa Coffee
was established in 1971 and is now Britain's oldest and the world's top 5
coffee chain. This paper makes a macro and micro analysis of the industry
environment by means of PESTEL and Porter's Five-Forces model, and make
the market segmentation, targeting and positioning for Costa Coffee.
According to TOWS model analysis, Costa Coffee has two goals in the UK
market, one is to expand the product category, and the other is to seize the
foreign student market. In the meantime, according to the Marketing Mix
theory, developed a marketing strategy. Finally, it is suggested that the
company can establish a database system, which can make more accurate
strategy through data collecting and analyzing, and play a role in supervision
and management.

(Source: Costa, 2017)

1
1. Introduction

Coffee originated in the 1880s and was produced in Australia (Peasley &
Johns, 1990). Nowadays coffee is becoming an essential part of daily life, and
this article analyzes and sets up marketing strategies for the Costa Coffee,
which is one of the best coffee brands in the UK.

The number of coffee-shop in UK (2016)

(Source: BloomBerg, 2016)

Costa coffee is the biggest coffee-chain in UK which is a part of Whitbread UK

with about 2000 restaurants in UK with and over 6000 vending facilities and
3400 stores worldwide. The major competitors of Costa in UK include
Starbucks, Nero and Coffee Republic.
2. Situational analysis

2.1. PESTEL Analysis

2.1.1. Political

The political transformation of UK government in 2010 brought differences in

the policies including the taxation regulation. The Value Added Tax(VAT) rate
was increased from 17.5% in 2011 to 20% in 2014 (Costa Coffee, 2015). This
has notably risen the price of the Costa products. However, higher VAT
usually means lower sales numbers.

Regional integration is a global trend nowadays and also an opportunity for

Costa's expansion. Also, most governments around the world are upgrading
infrastructure, which creates the good chances for Costa to enter new
markets. Although the focus of this paper is mainly the UK market, the
regional integration is still an important factor that Costa need to take into
consideration.

2.1.2. Economic

The unemployment is always a dilemma in Europe, the buying power of the

people is limited. When the unemployment rate is high, people will spend less
money on non-essential products and it is not a good message for the coffee
industry.

The economy started to recover in 2010, but the VAT rate and the inflation
rate at that time boost the price of commodities.

In response to this situation, Costa Coffee had to reduce the cost during the
economic crisis in order to retain the customers and maintain the market
share. But Costa has to pay enough attention to the quality of the products
(Liang and Wu 2012).

2.1.3. Sociocultural

The growing living standard raises the demand for high-quality products from
Costa. The organisation has to maintain the quality and increase the variety of
products and services.

With the increase in white collar jobs and IT jobs, coffee shops are also
considered as a place of non-official meetings due to its environment. Also,
the decrease in alcohol consumption heightened the sales of coffee in the UK
(Liang and Wu 2012).

2.1.4. Technological

Though coffee is not a high-tech industry, technology is still a significant

factor. With the implementation of technology, Costa creates competitive
edges in productivity and efficiency in its coffee brewing department. Costa
has also started to use technology in the management with new Electronic
Point Of Sales (EPOS) system (Mukerji, 2010), and improved its selling
strategy with e-commerce methods.

2.1.5. Environmental

It is necessary for Costa to focus on the eco-environment. Costa should focus

on the long-term sustainable development plan.

The company has made a lot of effort to protect the environment.

Costa’s paper cups come from the sustainable wood pulp from forests in
northern Europe. Their smart coffee machines will go to sleep when they’re
not needed, which helps towards reducing the carbon emissions. In 2012
Costa coffee was given the first international environmental accreditation for
any Coffee Roastery (Costa, 2017).

2.1.6. Legal

Costa has always followed the patterns of business regulations and works on
the improvement of security and well-being of employees and consumers.

Costa also signed with Food Standard Agency (FSA) to guarantee that they
produce healthy food (Whitbread, 2016).

The following chart shows an overview of the PESTEL analysis of Costa

Coffee:
(PESTEL Analysis)
2.2. Porter’s Five Force Model

The following chart is the overview of the Five Forces analysis of Costa
Coffee:

Power of Customers. Costa's environment is very comfortable, which is one

of the reasons many consumers choose this brand, at the same time the price
is equal to Starbucks, which is considered to be a luxury brand. With the
improvement of the quality of life and the quickening pace, more and more
British people accept and love the elegance, romantic leisure and life art of
coffee. Thus most ordinary consumers are less sensitive to coffee price and
care more about service quality.

The bargaining power of buyers is also among the most significant forces
affecting Costa Coffee’s business. Customers can easily shift from Costa to
other brands because it is affordable to do so. Customers can also stay away
from Costa if they want to, because there are many substitutes. Thus, this
aspect of the Five Forces analysis model shows that the bargaining power of
customers should be among Costa Coffee’s top-priority challenges.

Power of Competitors. There are three major coffee chains in the UK,
including Starbucks, Costa and Nero. The success of Starbucks comes down
to its unique marketing aesthetics.Its style and sensory recognition are deeply
loved by consumers. This is largely due to its comfortable and concise
storefront environment. When the environment becomes the first factor
considered by people, the taste of coffee is less important. There is no doubt
that the British national coffee brand is Costa. Costa takes red for its main
hue, whether it is a wall or a cup, and when you walk into Costa you feel a
sense of celebration. In the eyes of the British, Nero is the cheapest and most
delicious coffee. Nero foods are relatively healthy and also offer free
newspapers. The baristas are more friendly, and you can order the coffee you
want.

Power of Suppliers. Like many companies, Costa is not directly trading with
suppliers, such as coffee farmers, but with exporters, which have a lot of
resources to make their bargaining capital. Therefore suppliers have some
bargaining power. While due to the size of Costa is very big, is one of the
important customers, supplier always maintained close relations between,
Costa purchases largely affect the supplier's revenue (Walby, 2007).
Therefore, relatively reduce the bargaining capital supply chamber of
commerce. Its one-time purchase volume is extremely huge, the supplier
needs to give profits to keep its purchase quantity.

The suppliers do not have much impact on Costa. The large overall supply
lessens the effect of any single supplier on the company. Thus, based on this
aspect, Costa Coffee does not need to prioritize the concerns or demands of
suppliers.

Threat of New Entrants. It shows that new entrants have significant but not
strong effect on Costa Coffee’s business. New entrants can compete against
Costa because of the moderate costs of doing business and supply chain
development. However, new entrants find it difficult to compete against
established brands like Costa and Starbucks because it is very costly to
develop a strong brand.

Threat of Substitutes. Tea and alcohol are both threatening substitutes, and
the British love of black tea is well known. In the afternoon, drinking a cup of
black tea is definitely a wonderful experience. Fruit juices, fizzy drinks, these
are also popular with young people. Customers can easily shift to substitutes
because they do not need to spend for the shifting process. In addition, many
of these substitutes cost less than Costa’s products. Thus, Costa must
consider the threat of substitutes.
3. Objectives and Strategies

After being acquired by Whitbread in 1995, Costa also embarked on a

relatively clear path to standardizing interlocking. It overtook Starbucks in
stores in Britain in 2010. In fy2014, Costa's turnover increased by 20%,
opened 334 new stores, and was highly concentrated in overseas markets.
British stores consistent stable growth, increased from 2009 in 2009 to 1931
stores in 2014, in addition, because the British coffee market competition is
intense, Costa stores overseas market expansion speed in recent years
(Panengah & Wandebor, 2013).

3.1. STP Analysis

Philip Kotler noted that target marketing usually requires three steps, namely
segmentation, targeting and positioning (Ambinakudige & Choi, 2009). The
STP strategy illustrates the fact that enterprises are not omnipotent, it cannot
take into account all the market demands, the best way is to identify customer
groups or segments that have the same needs and desires.

In view of the increasingly fierce competition in the coffee market, the

competitive landscape is gradually evolving, which requires the dynamic
grasp of the market and the integration of psychological factors into the basis
of market segmentation. According to the demand for rigid coffee
consumption in different western countries, Costa coffee breaks down the
following requirements for consumers:

The first, white-collar workers and business operators with coffee

consumption habits, they have acquired taste and brand recognition and hope
to improve their taste and quality of life.
The second is to use the coffee shop as a social behavior area, such as
friends gathering, business negotiation and other needs. This kind of person
focus on the environmental requirements of the cafe, good environment can
make it stay clear and sane, which is more conducive to work.

(Source: Costa, 2017)

Finally, a lot of customers in the role of psychological, think that even if the
income is not high, occasionally drinking a cup of coffee can give people a
sense of level, which will give people a certain degree of satisfaction.After
evaluating different market segments, Costa coffee now chooses the strategy
of market specialization, in the whole product line, all products revolve around
coffee, such as coffee, coffee ice cream, and even coffee cups, which cater to
the needs of many specific customers. However as the company aims to
capture half of the UK's market share in the future, it can gradually develop
into a model that covers the market completely.

Based on the above views and the internal data of the company, it can be
seen that the two goals of Costa coffee can be aimed at: Expanding the
target customers & Expanding the product line.
3.2. Strategies (SWOT & TOWS)

Costa in its parent company's Whitbread group strong background support,

not only won the group's Marriott hotel brands such as sales channel, also
famous retailers to set up a partnership with various industries, in the UK,
Costa stores are opened in the best position, mainly concentrated in the big
shopping mall, airport, in the crowded place such as the university. In
international operation, select the local partner with channel advantage,
improve the core competitiveness of the enterprise. Summarize the following
figure:

(SWOT Analysis)

Nowadays more and more young people choose to drink coffee in many
places. The number of students coming to study in the UK is also increasing,
and it is important for the expansion and brand establishment of overseas
markets to help consumers not only help the UK's local coffee sales.

This table gives an overview of the overseas (Non-EU) student population in

the UK:

(Source:HESA)

The following table shows the TOWS analysis of Costa:

 (TOWS Analysis)

4. Implementation (Marketing Mix)

The following Gantt chart will give a schedule time-table of several tasks in
the marketing plan (one year):

4.1. Promotion

In terms of promotion, Costa can consider a membership system, and the

more money people have in their member cards, the more discounts they will
receive. Promotions can also be made according to seasons and festivals,
such as Christmas packages at Christmas time.
 (Source: Costa, 2017)

4.2. Price

According to the previous analysis, people's loyalty to the brand is much

higher than the price sensitivity, so there is no need to fight price war for
market share. At the same time, refer to the consumers' psychology, cheap
things often mean low quality (Albarracin et al. 2004).

4.3. Product

According to the last section, Costa is recommended pay more attention to

the overseas student market. As a result, the fresh menu needs to be
designed, more different products should be delivered. The company should
make research to identify the target customers’ preference and create various
kind of drinks to cater them.

For example, the overseas student from Malaysia, India, Indonesia may like
cold drinks because of the climate in their home country. So it is a good idea
to offer ice-coffee and other beverages like ice-tea and ice-juice at the coffee
shops especially the ones near the university houses.
 (Ice-coffee)

4.4. Place

Costa is recommended to seek more strategic alliance and establish a long-

term relations with other cooperations, like gas stations on the highways,
bookshops, brand stores, hotels, and also hospitals. Costa's strategic alliance
is mainly a combination of different industries (Reinecke et al. 2012), which
emphasizes the complementarity and coordination between industries in its
international operation and development.

With the increase in white collar jobs and IT jobs, coffee shops are also
considered as a place of non official meeting due to its environment. With the
change in trend, Costa moved in partnership with the bookshops to adapt to
the social change and that has contributed to the increase in the sales of both
Costa and bookshops.

It is worth emphasizing that while Costa is particular about enjoying the

service in the store, if it wants to expand the traffic hub business, it might as
well try out the outside business. Customers at transportation hubs often wait
for planes or trains to take time off causing having no time to appreciate the
coffee shop environment.
5.

5. Control and Evaluation

For the above marketing strategy, Costa coffee can build a database of
customer management, which is a very simple and practical way to manage
customers in the big data era. The database will record the basic information
of customers, the preference of coffee, and Suggestions on the brand. The
establishment of the system can be very good analysis customer demand,
and out of the database, data analysis, for example, may find that some
customers will come three times a week, always choose the same taste of
coffee, some customers will only when promotional discounts will visit. Can
also according to certain big customers to establish a separate file
management, such as for a university can build a back-end data system
alone, the administrator can through the network be the latest product
information and promotional schemes such as targeted delivery to customers.
The customer can evaluate and advise the service according to his condition
after enjoying the service. The company can also refer to these customers'
Suggestions to improve the product and service quality.
6. Conclusion

Overall, Costa coffee has done well in the UK and is well received. As can be
seen from the above analysis, the UK market still has great potential to be
created. In order to meet the requirements of more people, Costa can
consider the product more bidding, developed more taste and style of the
coffee, also can produce more well-made with coffee as the theme of related
products. To expand market share, although has held the British market first,
the market share of international students is very small, can be in this part of
the group making the personalized marketing plan. At the same time
strengthen the brand added value propaganda, keep and enlarge own
advantage.

(Source: Costa, 2017)

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