SCHOOL OF BUSINESS AND MANAGEMENT

ABP Post Graduate Diploma in Business Management

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“Strategies Leading to Competitive Advantage”

Table of content

1. An outline of the strategic plan for Costa coffee

1.1 Risk management concepts ........................................................................................3

1.2 BCG matrix. ................................................................................................................4

1.2.1 Focusing the major segments.............................................................................5

1.3 Human Resource Management...................................................................................5

2. The impact of risk factors on strategic business management activities

2.1 Competition of the rivals.............................................................................................7

2.2 Treats of the new entrants...........................................................................................7

2.3 Treats of the substitutes...............................................................................................8

2.4 Bargaining power of suppliers....................................................................................8

2.5 Bargaining power of buyers........................................................................................8

3. Ansoff Matrix analysis on Costa Coffee company

3.1 Marketing the existing products..................................................................................9

3.2 Marketing the newly developed products.................................................................11

4. Benefits of globalization and influence of the information technology

Benefits of globalization and influence of the information technology..........................15

5. Conclusion. .............................................................................................................16

References......................................................................................................................17

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1. An outline of the strategic plan for Costa coffee

Sergio and Bruno Costa are considered as the founders of the Costa Coffee. The business was

born in 1971, Newport Street in London. At present, it has developed as Costa Roastery which is

producing the same unique taste in their product as earlier. But the uniqueness of the business is

being continued with offering the warm welcome for their customers while serving the variety of

tastes by the baristas who are offering excellent customer care service.

1.1 Risk Management concepts

Financial risk management can be considered as an important element in strategic planning. It

can be identified as generating an economic value for a business in order to manage the risk

exposure by using the financial instruments. The critical thing is credit risk and the market risks

are being focused rather than considering the other risks. In this task, the requirement is to

identify the sources of risk, methods of measuring and also the planning.

Financial risks for an organization can be arising in three major ways (EbS global, 2010).

1. Changes of prices of commodities, exchange rate changing and market price.

2. Due to the transactions with vendors, other organizations.

3. Internal failures of the business such as staff, systems and processes.

Referring to the Costa coffee business, changes of prices of the raw materials and the scarcity

may be a problem in the future. This can be influenced with the changes of the market prices. To

overcome that problem, it should be needed to have a continuous supply of commodities without

any hassle. In terms of that, it is required to build strong international business relationships with

the countries that are producing raw materials for the product. On the other hand it is also

possible to create plants which are producing raw materials for the business.

Referring to the Costa Coffee, there may be a risk due to the transactions with the other

companies. For an example, if a marketer purchasing the products from the company and

modifying them in order to create a different product such as newly flavored ice coffee there

would be a risk on Costa coffee company. Therefore, it’s important to deal with care when

dealing with such organizations. The company policies should be made according to that.

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It is also important to manage the human power as well as the technology without disturbing the

achievement of the goals of the business.

1.2 BCG Matrix

BCG matrix can be considered as a popular management tool which is being used for portfolio

management. According to that model, there are two major dimensions such as market growth

and the market share. The principle behind that is if a product possesses a massive market share,

it is beneficial to the firm. Figure 1 explains about

the BCG matrix.

Figure 1: The BCG Matrix

Source: www.12manage.com

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1.2.1 Focusing the major segments

According to the BCG matrix, there are four major segments can be identified in the portfolio of

a business which can be symbolized as stars, cash cows, dogs and the question marks.

Stars show the high growth and high market share. Referring to the Costa coffee, it refers the

leaders of the business who generate high amount of money. The reward of the stars may be cash

cows. Therefore, Costa coffee company should pay attention to reserve the market share in their

business.

Cash cows show the low growth and the low market share of a company. It can be explained as

the stars of yesterday who, the founders of the business. Considering the Costa Company, to

serve in the business it is required to have a high profit and cash generation. Otherwise, if the

growth is low it may lead to lower the investments.

Low business growth along with low market share can be symbolized as dogs. Considering the

Costa coffee company, it is required to minimize the influence of this element in the business. It

is also required to avoid the rescue plans which are expensive.

Combination of high business growth along with low market share can be symbolized as

question mark. Low market share may lead to create high cash demands and ultimately lower

returns. Considering the Costa Company, it is required to create plans to increase market share of

the company.

1.3 Human Recourse Management

Human resource management can be identified as the whole process of acquiring, evaluating and

compensating the work force of a business and addressing the health and fairness concerns. The

importance of the HRM to a business can be explained as “You can get the capital and erect

buildings, but it takes people to build a business” (Thomas J Watson, 1935). The HRM manager

should focus on the basic functions of HRM such as planning, organizing, leading, staffing, and

controlling (Gary, 2006).

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When considering the planning as a vital element of HRM, it may include establishment of goals

and the standards, developing the procedures and rules, development of the plans and

forecasting. Referring to the Costa Coffee Company, the ultimate goal should be the effective

survival of the business environment and become the market leader in the industry. By 2004, it

has possessed 20 % revenue of the industry. Therefore, through a better strategic planning it can

be achieved the leader in the industry. Figure 2 explains the percentage revenue in the coffee

shop sector.

Figure 2: The percentage of revenue in the industry of Costa coffee 2004

Source: http://www.costa.co.uk

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2. The impact of risk factors on strategic business management activities

Porter’s five forces model can be identified as the framework in relation to organizational

analysis and organizational strategy development. It refers to the competition from the external

sources in the business environment. Figure 3 explains the Porter’s five forces.

Figure 3: The graphical illustration of the Porter’s five forces

Source: www.wikipedia.org

2.1 Competition of the rivals

Among the other businesses, restaurant industry can be considered as a highly competitive

industry in all the terms. There may be number of small scale, medium scale and the large scale

businesses for the same products and service. Referring to the figure 2, the major rival of the

Costa Coffee business can be considered as Starbucks Company. But, the Costa Coffee company

had introduces high street premium quality coffee based on the theme “on the go” in variety of

locations (Costa coffee, 2011). With that process, it can be able to reach almost all the customer

segments as they expected. Since, this industry is extremely aggressive, the Costa Coffee should be up

to date with different customer taste and wide range of customer preferences.

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2.2 Threat of new entrants

In the restaurant industry, it is hard to enter the industry and establish a distinct brand name. To

establish such a brand, huge capital should be needed in terms of market research and

development. The well established companies with massive brand names may make it more

difficult to enter new organizations. For an example, McDonalds can be considered. Therefore,

the new entrants like Costa coffee company should be able to cope with the price competition

from chain restaurants.

2.3 Threat of the substitutes

Comparing the Costa coffee company with McDonalds company, MacDonald may capability of

serving their customers with variety of products in terms of beverages such as Coca Cola.

Therefore, Costa coffee company should also introduce variation for their products with serving

their uniqueness. At present, there are variety of products are being introduced by the Costa

Coffee company such as ESPRESSO, RISTRETTO, AMERICANO and MOCHA etc (Costa

coffee, 2011). But, the product variation should be extended much more.

2.4 Bargaining power of suppliers

The bargaining power of the suppliers with in the restaurant industry would be relatively minute,

except the major ingredient of the product may not available readily.

2.5 Bargaining power of buyers

The relative strength of the customers can be considered as low in the restaurant industry.

Therefore, it is also common for the Costa Coffee Company.

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3. Ansoff Matrix analysis on Costa Coffee company

The Ansoff matrix can be identified as a tool of management that can be used to examine the

product and market strategy for a business. It explains that the growths of a business rely on the

new products and existing products in relation to the newly developing market and existing

market. Figure 4 explains the graphical representation of Ansoff matrix.

Figure 4: The graphical illustration Ansoff Matrix

Source: http://www.tutor2u.net

3.1 Marketing the existing Products

Marketing process of existing products can be sub divided in to two categories.

1. Marketing an existing product to an existing market

2. Marketing an existing product to a newly developing market

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Referring to the figure 4, market penetration strategy should be implemented during the

marketing process of existing product targeting an existing market. Referring to Costa Coffee,

the best option to get market penetration is by the process of attracting the non users of the

product. This can be achieved by the various advertising programs. For an example, “the

monkey-typewriter” advertisement that was made by Costa coffee is saying about their superior

quality of the product and services.

Marketing an existing product to a newly developing market can be achieved by the market

development strategy. It may focus the non – users of the product in the currently existing

market segments and also customers in the new segments. Considering the Costa Coffee, the

target market can be explained as follows.

Profile Market Segment

Economic Middle class, Upper middle class and

Privileged class

Professional classification Students, Young Professionals, Mature

Professionals and Retired personnel

Age Teenagers 16 - 19 years, Young Adults 18 - 25

years, Adults 25 – 50 years and Mature 50 and

above

Marital and Familial Status Married with Dependants, Married with

Children, Single, Single with Dependants and

Married

Ethnic and/or Religious Classification African American, Latin-American , European

Christen, Muslim, Hindu Other

Asian and Caucasian

Table1: Market segmentation of Costa Coffee

Source: The marketing report on Costa coffee, 2008

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Depending on that, it’s clear that Costa coffee had addressed wide range of market segments

since from its foundation. By 2004, the market segmentation can be explained as below. The

achievement of the market segmentation can be understood by that statistics.

Figure 5: The market segmentation of Costa coffee in 2004

Source: The marketing report on Costa coffee, 2008

3.2 Marketing the newly developed products

Marketing process of existing products can be sub divided in to two categories.

1. Marketing the newly developed products to an existing market

2. Marketing the newly developed products a newly developing market

The strategy behind the marketing new product to an existing market is that product development

process. The product can be identified as a set of benefits which are being offered for exchange.

Possibly, it can be both tangible and intangible. Referring to the Costa Coffee Company, as well

as serving typical finest coffee, it has variety of new alternatives such as hot chocolates, iced

coffees, tea infusions and frescatos (Costa Coffee, 2011). By following their business slogan “on

the go” the coffee shops in variety of locations have been established with the superior quality of

customer care. Those things may lead the company to achieve the product development strategy.

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Diversification is the strategy behind marketing a new product to a newly developing market.

Increase the profitability of the business is the goal of this strategy through an increased volume

of sales from new product and also targeting the new markets. It can be explained as the

expansion of the target segments through a new product. For an example, in earlier times, Costa

coffee was served for European community. But, referring to the stats in 2004, they have

expanded their target segments to touch non Europeans such as Asians.

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4. International trade and globalization of the Costa Coffee

Application of the Porter's diamond

Porter’s diamond model can be considered as an economical model in relation to

competitiveness of the businesses at distinctive locations.

Figure 6: The Porter’s diamond model

Source: www.wikipedia.org

Referring to the components, factor conditions may include capital resources, physical resources,

infrastructures and human resources like factors which are playing a vital role for the

competitiveness of a business. For an example, well trained expertise baristas can be identified as

the working force of Costa Coffee.

Demand conditions may lead to create competitive advantage for the company in the home

market. Because they may put the pressure by demanding innovations and it may lead to creation

of more innovative products than the rivals. For an example, referring to the Costa coffee there is

a wide variation of products targeting the home customers such as ESPRESSO, AMERICANO

and MOCHA etc. to meet the demands of the customers.

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Supporting industries may support the innovation and internalization process by producing

inputs for that. Costa coffee company is associated with the dairy industry and the soy milk

industry in order to make its innovations such as hot chocolates.

Rivalry is also an important determinant of the Porter’s diamond. If the rival is putting more

pressure on a particular business, to cope with that the company may go for innovations and new

strategies. Referring to the Costa Coffee Company, they are expanding the location of the outlets

in order to increase the number of customers than the Starbucks Company.

Government may influence with the business by affecting key factors of production, legislation

and the competition between rivals at local, regional, national and international level.

Chance can be considered as an element without control of the firm. Those can be both

beneficial or create losses for the businesses.

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4. Benefits of globalization and influence of the information technology

Globalization is beneficial to a business in many ways. Considering the media, it plays a vital

role in the organizational development and also in terms of reputation of an organization.

Because of that, the globalization is critical, because global media connects the citizens in the

globe together. The increased flow of communications permits vital information to be shared

between individuals and corporations all over the world. Information and communication

technology is being a widely used term in the last decade. Advancements of the information

technology have made the global citizens get closet via the internet based e marketing, email and

telephone based demand and supply chain. That would lead to form the establishment of both

local and also the international relationships for an business.

Globalization may have the capability increase the free trade between nations. Because of that, it

may be facilitate and accelerates the transportation of goods and people. It may be more

beneficial to an organization also. Not only that, it may promote the entrepreneurship in relation

to both local and foreign investors.

Globalization facilitates the declining the cultural barriers in terms of both locally and

internationally. Therefore, the concept of global village may get improved. Establishment of the

global village concept may be vital for an organization to achieve their business facets.

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5. Conclusion

Referring to the Costa coffee, in order to increase its product line it is required to have more

variety of customer choices. For an example, like Pizza hut or McDonalds breakfasts and other

snacks can be introduced at regional Costa coffee shops. In e this case quick and better service

should be offered by serving the uniqueness of the Costa Coffee Company.

Associating with that, special meal packages can be introduced by including cakes, pastries,

Gatos and verity of coffee based products etc. in that process, all the age based market segments

can be reached through the special offers and small gifts for the participation.

Similarly, the Costa coffee company can provide special sales promotion programs by being the

sponsor of the cultural and other festivals. By using that, they can promote their brand name and

product variation in long term.

Referring to the marketing mix of Costa coffee, it is clear that the company can be said to be

`global’ by combining elements of internationalization and globalization. They have reached this

by digesting the saying, `think global, and act local’

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