At this juncture, CCD would be ill-advised to ignore changes in the market. Starbucks’ international expansion strategy is aimed at quelling the incumbent mass-market competition in the geographies it enters. The first indication of the execution of this ploy is the ultra-low prices in India, compared to other countries.
As of now, Starbucks has an aspirational positioning with premium prices compared to existing players, and stores that are one of the most extravagant in its global chain. The strategy is very similar to one followed in China initially — it is all about increasing the brand’s visibility. But with time, this approach will change and growth will be driven by crowding out competition. CCD requires a multi-pronged approach to tackle the Starbucks’ expansion.
Starbucks has a clear advantage when it comes to funding. Limiting the geographical scope of competition will help CCD defend its stance more powerfully, instead of spreading its resources thin.
CCD should concentrate its efforts on building competitive barriers in the southern States. With CCD’s established strong presence and higher brand familiarity, these States offer substantial advantage over the northern States.
Open new stores to crowd out major south Indian cities like Hyderabad, Chennai and Coimbatore. Bangalore presents the best example of the impenetrability of CCD’s incumbent advantage. With more than 400 CCD outlets, Starbucks has almost no venues through which it can gain a foothold in the market. Given the higher propensity for coffee-drinking in south India, the brand can do with minimum diversification into other beverages like tea, offering high resonance with its core business.
Corporate coffee-break
Ramping up efforts to push CCD dispensing-units in offices will help improve brand familiarity and reduce consumption of Starbucks from outside the office doors.
We think this is critical because, unlike their western counterparts, Indian office-goers are less prone to buying take-away coffee to work, especially when it is priced at about Rs 150 a cup. In-house coffee is the lifeblood of these employees.
Increase penetration of brand in mass market
Expand channels into retailing by selling coffee bean/powder and brewed coffee products like cold-coffee in high-end retail markets/hypermarkets. The packaged coffee should be sold in 100 gm or higher weight units. Do not fight with mass-market players like Nestle. Keep it at a premium price — this is about creating an aspirational product that keeps the brand alive in the consumer’s mind.
Aggressive TVC campaigns, sponsoring reality shows and door-to-door discount coupon distribution will help improve brand visibility and trial purchase. Sponsoring public events can be used to engage media — another way of brand promotion.
Retreat from premium outlets
Decrease the number of premium CCD outlets. Most clientele in these stores are country-hoppers who will rapidly switch to Starbucks lounges if one opens nearby. With low consumer loyalty, and the inability to maintain a competitive advantage, targeting this segment is not viable.
Widen positioning
Campaigns like the ‘Sit Down with CCD’ promotion are designed to target the 16-35 age bracket. While this segment has a high degree of brand loyalty given the high price elasticity of consumption, other segments ought to be explored.
Cafes should be positioned as family hangouts rather than as exclusive places for young people. This should be promoted through product portfolio expansion into slightly cheaper coffees, which are also milder. A new line of kid-focussed beverages will go a long way in helping broaden the customer-base for this segment.
The main problem with this strategy is the clash between the current target base — the 16-35 age group — and the proposed customer segment, which includes children and their parents.
This conflict can be resolved by creating a store-wise ambience variation. The negative effects can be further mitigated by creating a flank-brand with a different name.
Not price conscious but value conscious
The brand needs to clearly communicate a tangible value addition to the coffee drinking experience at CCD. We recommend changing the character of the promotions to focus more on the products themselves. Even a ‘refreshing beverage’ positioning, like the one adopted by Coca-Cola, carries a powerful message. Introducing a slew of low-priced treats like McDonalds’ Aloo-Tikki burgers and veggie pops will help attract footfall into the shops. We recommend the Rs 20-30 price range for these products, in line with McDonalds.
(Kanupradeep Subramanian and Srishti Shaw are pursuing a PGP programme in management at IIM-A)