Vishwadeep Kuila gives his analysis and recommendation on the CCD case:
In order to get a feel of what customers of Café Coffee Day would recommend, I did some quick-and-dirty surveys, asking the current customers of CCD, what they thought the café chain should do.
I really did not have to go for a large survey as 100 per cent of the customers surveyed said CCD does not need to do anything as Starbucks is too premium and it won’t affect CCD.
While this may be music to the ears of the coffee chain’s head of marketing, my take is a little different. If we just step back a little and understand where Starbucks will get its customers from, we may think differently. Starbucks will definitely not get the new entrants to this category. It would therefore pluck the upper end of CCD customers, who have the affordability to frequent Starbucks.
Anything premium also has relevance occasionally. Therefore there would be another set of these CCD customers who would regularly visit CCD, but go to Starbucks on some important occasions.
Third, and an important set, would be a little older.Working customers, who rarely visit CCD, because they don’t belong to that noisy crowd. CCD, with its Lounge format, has tried to address this segment but my take is they will be one of the first to try out Starbucks, given their affordability index. So, clearly, from the response of the customers and the gap in pricing between CCD and Starbucks, there does not seem to be an immediate threat to CCD.
However, if Starbucks opens up, say, 500 outlets in next few years, they will cross paths and Starbucks will either effectively upgrade a large chunk of customers to its brand or it will come down on price and attract the customers of CCD.
It would be much easier for Starbucks to come down the price ladder than CCD going up this ladder. So CCD always faces the threat of Starbucks lowering its price and hitting it if it is not able to upgrade its customers.
As head of marketing at CCD, I would look at protecting myself and keeping growth going by focusing on two areas:
Value Differentiation:
The customers of CCD have been used to paying a certain amount during their visits to the outlets and are not looking at a lower amount. Hence, I would not recommend cutting prices of any of my products, but figure out how one can give more to the customer for the same price.
This would increase the value perception of CCD vis-à-vis Starbucks, without having to cut down on revenue by reducing price. It will also give the customer a clear reason to choose CCD more often than Starbucks. In the short to medium term this will cause more stickiness among CCD customers.
Brand Differentiation:
Currently CCD is aimed at a younger crowd compared to Starbucks, but would its customers see going to Starbucks as being fuddy-duddy?
At present, the answer is no. So, can CCD connect with the youth to such an extent that even if Starbucks brings its pricing closer to the former in the heat of competition, CCD’s customers will not be moved? This is what we call brand polarisation.
CCD will need to position itself away from Starbucks in such a way that Starbucks is seen as an older people’s place and not so happening for the youth.
All inputs on brand will have to focus single-mindedly on making this happen.
And this would be the only long-term protection against a player such as Starbucks with deep pockets and the ability to manipulate the market. The simple example is like the difference between a Merc and a BMW.
On features and price both are comparable. But the psychographic profile of their customers is very different. Possibly one of the reasons why BMW beat Mercedes in India despite being a later entrant.
Now, does that sound too simple and obvious? Yes it is. And most of the time, the solutions are simple, maybe so simple that we fail to recognise them as possible solutions.