Table of Content 1 Table of Content 1.0 Introduction ······················································································ 3 1.1 Industry Information ····················································································3 1.2 Company Information ··················································································4 2.0 STP ································································································ 5 2.1 Segmentation ································································································5 2.2 Targeting ···········································································································6 2.2.1 Segment Characteristics ···························································································· 6 2.2.2 Competition ·············································································································· 7 2.2.3 Company Fit·············································································································· 7 2.3 Position and Value Proposition ········································································7 3.0 Value Discipline ·················································································10 3.1 Operational Excellence ·················································································· 10 3.2 Customer Intimacy ························································································· 11 3.3 Product Leadership ························································································ 12 4.0 Business Model Canvas ············································································13 4.1 Starbucks ········································································································ 13 4.2 Costa Coffee ···································································································· 17 4.3 Analysis ··········································································································· 20 5.0 Value Chain ······················································································21 5.1 Starbucks ········································································································ 21 5.2 Costa Coffee ···································································································· 22 6.0 Aligning Employee Value ·········································································24 6.1 Starbucks ········································································································ 24 6.2 Costa Coffee ···································································································· 24 6.3 Analysis ··········································································································· 24 7.0 CSR & Creating Shared Value ···································································25 7.1 Starbucks ········································································································ 25 7.2 Costa Coffee ···································································································· 25 7.3 Analysis ··········································································································· 26 8.0 Recommendations ···············································································27 8.1 Starbucks ········································································································ 27 8.2 Costa Coffee ···································································································· 28 9.0 Reference ························································································29 2 1.0 Introduction With the development of economic and changing lifestyles, coffee market becomes more popular in China. This report is designed to compare the value creation process and value delivery strategy of Starbucks and Costa Coffee (Costa) that are two biggest brands in china coffee market. Firstly, this report applies STP to identify the targeting segment and value proposition of these two brands. Secondly, value discipline is employed to analyze how the value created for consumers. Thirdly, this report implements both business model canvas and value chain to describe how these two brands deliver values to target customers. Fourthly, this report compares the employee value, CSR and shared value of Starbucks and Costa. Finally, based on the analysis, this report concludes several recommendations for Starbucks and Costa respectively. 1.1 Industry Information High speed growth of Chinese economy has changed people’s lifestyle and consumption habit, consumers are increasingly emphasis on leisure activities and personal happiness. Also, consumers prefer to spend leisure time outside in public venues like coffee shops. These changes cause the boosting consumption of coffee in China (Passport, 2017). Besides, purchasing power has greatly increased because of higher household disposable incomes (IBISWorld, 2016). The rising consumer interest in the coffee culture in China has increased coffee consumption in China. Although drinking tea is a traditional culture in China with a long history, drinking coffee becomes more fashionable among Chinese young customers (Passport, 2017). 3 1.2 Company Information Starbucks is an international coffee and coffeehouse chain based in Seattle, it entered the Chinese coffee market in 1999 and expanding aggressively. In 2015, it had 1,026 company owned stores in mainland China (IBISWorld, 2016). The Chinese coffee shop market is at the growth stage, and Starbucks accounted the biggest market share which gained market share of 9.2% in 2016 (IBISWorld, 2016). Costa is the largest coffee shop chain in the UK, it accounts for 6.5% of total Chinese coffee market share in 2016, ranked behind Starbucks. By 2015, it had 1,026 stores in China (IBISWorld, 2016). Costa uses joint venture ownership model to established two Costa Restaurant managers in China to reach customers in different regions. According to MarketLine (2015), Costa offers similar products to Starbucks, and it localized offerings as well. 4 2.0 STP 2.1 Segmentation This report employed a combination of demographic, psychographic, geographic and behavioral to segment the coffee market into four categories. Firstly, the category one is ‘Coffee Connoisseurs’. This category indicates the consumers who seek for high quality coffee. Secondly, the category two is ‘Coffee Fashionistas’. The category is consisted of consumers who have modernized lifestyle. These consumers enjoy the relaxed atmosphere in a café but still require the quality in some degree. Thirdly, the category three is ‘Environment Explorers’. The category is composed of the consumers who focus more on the environment of a café and whether a café can provide an individual place for business negotiation or daily chatting. Finally, the category four is ‘Thirst Seekers’. This category includes the consumers who recognize coffee as a drink and seek for all types of coffee to solve the thirsty problem. The information in the table is collected from reliable online databases like Ibisworld and Marketline. 5 2.2 Targeting 2.2.1 Segment Characteristics According to Nan (2014), coffee as a west-style food is a symbol of modernization. Hence, ‘Coffee Fashionistas’ will prefer café than the other bars since these consumers seek for modernized lifestyle. Meanwhile, ‘Coffee Fashionistas’ also contains a large number of returnees who are used to the western style café during the experience in western country. Hence, ‘Coffee Fashionistas’ is considered to be the largest consumer group in China coffee market. In addition, the growth rate of china coffee market is still high during the past decades. As a result, to maintain the profitability, it is necessary to follow the consumer trend in the market. 6 Table 2: Coffee statistics for China (International Coffee Organization, 2015) 2.2.2 Competition According to IBISWorld (2017), current internal competition in china coffee market is medium but the trend is still increasing. Moreover, external competition is still a key factor that will influence the market since more fast- food restaurants like McDonald’s begin to sell coffee. 2.2.3 Company Fit Starbucks and Costa all claim that both coffee and consumers are the core values of organization. Moreover, as international brands, these two brands have strong brand identity especially among the returnees. Based on the target evaluation, it is obvious that ‘Coffee Fashionistas’ is the segment for both Starbucks and Costa to target on account of both the size and requirements of ‘Coffee Fashionistas’. Through targeting this segment, these two brands can not only maintain the profitability and competitive advantages in china coffee market but also realize the organizational mission and values. 2.3 Position and Value Proposition Figure 1:Positioning Map of China Coffee Market 7 Table 3: Value Proposition of Starbucks 8 Table 4: Value Proposition of Costa Coffee In response to the requirements of the target segment, the positioning map illustrates two key elements in the positioning strategy of Starbucks and Costa --- quality and relaxed environment. By applying the customer value proposition, these two elements are also recognized as the key value propositions of these two brands that the report will discuss about.