A Case Study Of Coffee Business In Malaysia
Introduction
San Francisco Coffee Malaysia started the business since 1997 in Malaysia, since then then coffee shop become one of the popular coffee shops in Malaysia. Due to more and more coffee shop, such as Old Town coffee shop, Secret Recipe, Coffee Bean, Starbucks and etc. set up in Malaysia in recent year, thus San Francisco Coffee Shop Malaysia may facing numerous challenging on their business. Appropriate marketing strategy and plan may help the company to generate more sale and profit, which to sustain their business, and help the company to growth.
San Francisco Coffee Shop is one of the popular coffee shops located in Kuala Lumpur city, where to target the middle and upper class adults. The coffee drinks selling in the coffee shop slightly expensive compare to some of the local coffee shop, but still have gain support from the customers due to the good quality of the drinks, foods and service. Most of the regular customers are enjoy staying in the coffee shop because of the comfortable atmosphere and environment.
Coffee is one of the Malaysian’s favorite drink, serve as breakfast drink in the morning, during tea break time at work, or while relax and enjoying the holiday with friends. Numerous coffee shops have open due to the needs and demand in the market. At the same time, more compatitors are come to the market and threaten to this business. Marketing strategy and plan seem necessary to help the business survive in the market.
1.0 SWOT Analysis
A SWOT analysis summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development (Johnson, Scholes, and Whittington 2008) Including the internal environment analysis (Strengths and weaknesses), and the external environment analysis (opportunity and treats).
For this coffee shop, their strengths are, well established since 1997, and most of the coffe shop outlets start-up in good location. The organization has very clear statement to build upon its reputation in providing the good quality product and service, that’s no doubt that the company have well staff training. Other than that, the coffee shop provide a very comfortable atmosphere for the customer to enjoy their coffee there, with relaxing music and quite environment.
However there are few weakness on this business, which including the price, say the foods and drinks of the price are a bit expensive compare to some other local coffee shop. Another weakness that need to be taking action is the management are not sensitive in profit oriented, the business taking a long period for break even, the possible reason is either product didn’t making profit or the management didn’t manage well on the cost and expenses on the business. Other than that, reputation and popularity are still weak compare to other famous brand of competitor such as starbucks coffee.
The external issues also bring benefits and impacts to the business, the PESTEL analysis may help to analysing the opportunity and treats from the external issues, such as Political, Economic, Social, Technology, Environmental and Legal. Urbanization in the country may lead to numerous opportunity in the market such as increase sale, when more people moving to the city and increase the demand. According to the research source from The World Bank, Malaysia among Most Urbanized Countries in East Asia (The World Bank, 2015)
The implementation of the GST (GOOD SERVICE TAX) by the government may affect the sales going to decrease. Other than that, when the economy downturn, also threaten to the business. But on the other hand, these issues may creating the market opportunity on sachets packaging instant coffee which price is cheaper, and the demand on the cheaper coffee such as instant coffee powder is going to increase, which created the opportunity for the company to extend their business in the production of sachets packaging coffee. The legal issues such as increasing employment regulation may increase the legal issues to the company.
2.0 Segmentation, Target and Positioning
Market segmentation divides a market into well-defined slices. Market segment content with a group of buyer or user that have common in set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. (Kotler & Keller, 2016)
2.1 Segmentation
The segmentation can be categorized into geographic, demographic, behavioural and psychographic. The geographic segmentation on San Francisco coffee shop in Malaysia is mainly in urban city. Based on the customers information, the majority segmentation is the middle or upper class and working adults which is 70%, the second segmentation is college students which is 20%, and others 10%, age group is from 20 years old to 60 years old, man and woman.
Consumer’s behaviour
Based on the observation, most of the existing customer come to enjoy their cup of coffee with a good atmosphere and facilities. Some of them relax to chitchat with friends and colleagues there, some of them have meeting appointment in San Francisco coffee shop.
2.2 Targeting
For time being, the main target group will be middle or upper class and working adults, which also the group that holding strong purchasing power. Therefore most of the coffee shop branches are setting at business centre in the city. The second target segmentation group is the college students who like to spend in the coffee shop.
2.3 Positioning
Since the business start-up in year 1997, the company emphasized they are provide a very good quality and service, relax and cosy environment for the coffee lovers. (San Francisco coffee, 2016) Their good service includes speedy, polite and friendly staff to serve to the customers where allow the customers to enjoy their cup of taste good coffee in a very comfortable environment. The added advantage is the foods selling in the coffee shop also delicious and receive a lots of good comments in the social media and blogs. The coffee use the slogan “OUR “1” RULE”, to explain how they keep the quality of the coffee, and how they keep the satisfaction from the customers.
Competitors
There are numerous competitors in the market such as Starbucks coffee, Coffee bean, Pacific coffee and etc. Figure 3.1 shown the comparison map of San Francisco Coffee and Starbucks coffee, where San Francisco Coffee still need to improve their weaknesses, in terms of the promotions that startbucks offer to the customers and futhermore lots of the starbucks outlets located in the center of city, which is convenience for customers.
Figure 3.1 Red color line represent San Francisco Coffee, and the green line repesent Starbucks coffee. (Brand Footprint)
3.0 Marketing Performance Forecast
There are 30 of San Francisco coffee shop outlets located in Kuala Lumpur and Selangor in Malaysia. Frome the marketing performance forecats report that, the total sale value in year 2016-2017 is about RM3600, 000.00, which is the total revenue from all the San Francisco Coffee Shop outlets in Malaysia. This report proposed that another 20% of profit increment on each year until 2019. Which mean the target sale revenue on year 2017-2018 is RM 4320,000.00, and the target sale revenue on year 2018-2019 will be RM 5184,000.00.
There are 12% of the total sale revenue are the gross profit gain at year 2016-2017, which is about RM 300,000.00. After 12 months, the target of the gross profit will be increase another 20%, which mean in year 2017-2018, the target gross profit will be RM 518,400 and add on another 20% to the gross profit after a year, which mean the target firgure on gross profit will be RM 622,080.00 on year 2018-2019.
From the report on marketing performance forecast, the main profit contribution from the major market segmentation group are contributed about 70%. The gross profit from the market segment group 1 (middle or upper class and working adult group) is about RM 210,000.00. There are 20% of the profit come from the market segment group 2 (college students) and 10% of the profit come from the market segment group 3 (others). Some of the outlets which located in the business centre such as Menara OUA, The Sphere, KLCC and etc, will generate higher revenue to when compare to the other outlets.
From the sale report shown that the major profit product in San Francisco Coffee Malaysia is the coffee drink which is about 70%, this have proved that coffee is still the main product where bringing the biggest sales and profit to the company, by aim for bigger profit, focus on the main product seem to be an ideal strategy for the company. Other product that bringing profit to the company is the foods that selling in the coffee shop such as pasta, sandwich, salads, cakes and etc. and the foods have contributed about 27% to the sales revenue.
Another 3% of the sales revenue is contributed by other products such as the merchandise items such as cups, flask and etc. Probably the merchandise items are not bringing a big profit to the company, however, it did serve other purpose in the business such as advertising and promotion purposes.
4.0 Ansoff Matrix
H. Igor Ansoff first introduced his work, the Ansoff Matrix in his article “Strategies for Diversification” in the Harvard Business Review (1957). Ansoff matrix is the strategies for one company to enhance their business by using four different ways. Ansoff believed, in order to retain the market position, the company should keep continuing change and growth. The strategies here are for the purpose of 20% gross profit increase for the coming 3 years planning propose in this marketing report, Which come from 1% from market penetration, 5% from market development, 10% from Product devepment and 4% from diversification.
4.1 Market Penetration
Most of the typical idea on Market Penetration strategy include cut down the price, increase distribution where to bring more sale and generate more revenue. Basically, it’s the idea by using the existing product to extend the current market by target the same market segmentation. Market Penetration applied because it is the lowest risk and easier to manage strategies among the other where helps the company be able to manage the financial risks. That’s why some of the stable company prefers the Market Penetration strategy. According to one research on some famous company, some of the company like BMW, Toyota, HSBC and etc, prefer to engage in relationship marketing activities to retain their high lifetime value customers. The main reason is because, come out the strategy to retaining existing customer is always much cheaper than attracting the new customers (Lynch, 2003).
Enhance the existing product to attract the existing customers to buy more also one of the useful strategies to increase sale. For Example, in special season or occasion, some of the special and new flavour of coffee may introduce to the customer. The initial plan on selling special drinks may help to increase 1% gross profit for this 3 years planning. The major target segmentations categorized into 3 groups, middle or upper class and working adults (70% of the target sale revenue), college students (20% of target the sale revenue), and others (10% of the target sale revenue).
However, there are some risks that cannot be overlook, the main risks of the product might be hard to attract to the customers, therefore the R&D departments need to design the products that can be attract to the customer. Other than that, the customer may not know about the special drinks being sell in the coffee shop, therefore, the marketing department may need to fully utilize the website, social media and media to advertise the special drinks.
4.2 Product Development
Product Development strategy proposed in this marketing plan is to choose the bestselling coffees flavours and sells it as instant coffee in sachets packaging. According to the research about coffee consumption in East and Southeast Asia from 1990-2012, found coffee consumption is predominantly of soluble coffee and instant coffee (International Coffee Council, 2014) This plan is to target 10% of the increment profit from selling this new product for coming 3 years, the segmentation also remain the same.
4.3 Market Development
The market development strategy here is to suggest the company set-up more outlets in those shopping centre located in the city, in order to reach and attract the new segmentation, such idea may develop new market with different types of customers, such as student, tourist, housewife and etc. However, this proposal only target 5% profit increase, which is lower when compare to the product development plan.
The possible segmentation will be working adults 50%, families 30% and students 20%. Since these are the new set-up outlets in very different locations, the market segmentation may no longer remain the same; the figure forecast also may change from time to time. Another bigger risks on this strategy is the cost is too high, the company may need longer time to making profit and break even. Therefore, appropriate and effective strategy on how to save cost on the branches set-up is necessary.
4.4 Diversification
Diversification is the most risky marketing strategy because the company may possible to face uncountable issue and face unknown circumstances. Some of the scholars showed that related diversification is more profitable then unrelated diversification. (Macmillan et al, 2000; Pearson, 1999).
Diversification strategy proposes here is to sell books, magazines and original CDs in the coffee shop. The reason to propose selling books because it provide a convenience way for some of the customer to enjoy reading their favourite books and magazine while having a cup of nice coffee in San Francisco Coffee shop. Due to countless possibilities and uncertainties, this strategy is only target 4% of profit increment contributes to the profit in coming 3 years.
| Product Risk Assessment | Risk Management /Mitigation |
Too many kinds of books | The company may do research to check which type of books is the major segmentation’s favorite. |
| Market Segment Assessment | Risk Management / Mitigation |
Possible to damage the brand name | Come out the strategy to emphasized on the brand footprint. |
The main risks on diversifying the business is, it may confuse the customer, and giving the message that the business no longer specialize, therefore to keep emphasize on the brand footprint is important. Other than that, it would be a challenge for the company to select which types of books and magazine should be sell in the coffee shop, to overcome this concern, market research on what is the customer’s favourite should be carry out.
5.0 Marketing mix
In order to carry out the marketing strategies and plan in to actions, there are several elements need to be well-organized and efficiency, this group of elements call the Marketing Mix. In microeconomic theory, marketing mix is originally come from the first P (price) (Chong, 2003). Sometime how much of the sale in one business determinated by how much of the price that set from the company. Nowsadays the marketing mix consist of more than just one elements, in fact, there are more elements in the marketing mix to bring out the ideal results.
McCarthy, the person who proposed the marketing mix tools into four major elements, which included product, price, place and promotion (Harrell and Frazier, 1999). It also referred as the “4ps”, which convert the marketing strategy plan into action in one company. (Bennett, 1997). Nowadays, the marketing mix is defined as a set of controllable tools from the marketing strategy plan, where help the company lead to desired results in the targeted market. (Kotler P. , Armstrong, Wong, & Saunders, 2008)
Adebisi (2006) defined promotional mix as “any marketing effort whose function is to inform or persuades actual or potential consumers about the merit a product possess for the purpose of inducing a consumer to either start buying or continue to purchases the firm’s product.”
The 7ps mention here is to find out what is the current position of these 7ps (product, place, price, promotion, people, process and physical evidence), and the future actions should be taken to ensure all the strategies and plans are running smooth to reach to the final goal.
Market penetration
In market penetration strategy, the main product to focus still the coffee drink, but which the enhance and modified version. The goal of product enhancement or product modification is to reach to the consumer’s need and generate profit for the company, therefore, research and development of the product are required to keep continue execute by the company. Beside the important of the quality of the product, it is crucial to calculating the cost of the product.
In order to design the special drink during specific period, the ingredients have changed, for example, more ingredients to add-on in the drink, thus cost of the drink also may increased. Packaging also important in order to attract the customer, for example special cup design for the season drink sell in the coffee house.
There are few suggestions for the main marketing mix on market penetration strategy. Lower price definitely may attract the customers willing to try on the product, however, increase the price of the seasonal drinks may help the company to generate more revenue and profit. Therefore, the decision of how much of the price may determinate the sales revenue, and the final decision to set the price is very important from the management. Seasonal beverage is only available on a very short-term period; the management may need to find out how to making profit from the product.
Promotion is one of the key factors in the marketing mix and has a key role in market success. Promotion is used to ensure that consumers are aware of the products that the organization is offering. (Adebisi, 2006). The important of promotion is to deliver the information to the customer or to attract more customers to buy the drinks. New brochure design, advertisement banner on the website may help to bring the awareness of the product available on the market. There are numerous ideas of promotion to increase the sale of the seasonal drink in the coffee shop, for example, provide special gift, “Buy 1 Free 1” promotion and etc. Printed material may helps to attract the customer to buy the product for example, Christmas card give to the customers who buy the special drink during christmas season.
People in the 7ps of marketing mix means the service provide by the staff, and maintain good service always the priority of the company. Training also should be continuously provide to ensure to deliver the best service to the customer. Other than that, Christmas decoration may bring the joy feeling in the environment where have serve the physical evidence’s purpose.
Market Development
Product and price on Market Development plan are remains the same, even thought the target market segments are might have change. The company will choose some potential places, such as some of the popular shopping centre to set up the coffee shop outlets. Service (people) still one of the selling points on this business, therefore, for the coming time, appropriate training still will keep continuously to make sure reach to customer’s satisfaction.
For time being, the customers are satisfy with the ordering and drinks and food deliver process, however, in order to improve the paying process, a mobile apps paying system will suggest where to increase the sale and good feedback from the customers. For those new coffee outlets that set up in the shopping centre, comfortable atmosphere (physical evedence) still the selling point in this coffee business.
Advertisement on the new outlets open are required in order to deliver the good news to the public, other than that, some of the activities may organized in order to attract the new customers. (promotion)
Product Development
For the Product Development strategy, there are few actions plans are require to be execute. Research found that the design of the product strategy may determinate performance of the company. (Tantong, Karande, Nair & Singhapakdi, 2010) In order to increase the sale value by targeting the same market segment, product enhancement plan require to be proceed, such as the new sachets packaging instant coffee. Price for the sachets coffee should be cheaper than the coffee selling in the coffee shop. Sachets packaging instant coffees are design to sell in 3 sachets or 5 sachets in one box, to attract those customers who keen trying out the product.
Advertising and promotion activities are require to plan in order to reach to the public, these activities include posting on the website and social media, poster and brochure printings or media advertising. The new instants coffee are selling in the coffee shop and distribute to some of the supermarket (place) to beat other competitors.
Diversification
The diversification strategy in this marketing plan required all the 7ps of marketing mix elements workings accordingly,
The new product proposed to sell in the coffee shop have to be select carefully, and based on the customer’s favorite and choice. Price of the books and magazines are selling the same price with the market price, however, profit of the new products are necessary. All these new products are selling in the coffee shop, for the coffee and books lovers to read in the comfortable atmosphere environment (place & physical evidence). Other elements of the marketing mix such as the service (people), payment process should be remain the same.
The conceptual map on the 7ps marketing mix have shown all the actions and plan require to be execute in order to carry out the goal of the Ansoff Matrix strategies that proposed in this report.
6.0 Cross-functional
The cross-functional between marketing and others divisions in one organization, is aim to achieve the goal of the business plan, which mean the marketing plan required to coordinated with financial, production, procurement, personnel, R&D plans and the short and long term corporate strategies and objectives. (Homburg, Christian & John, 2000) Other than that, in order to make the marketing strategy and plan is running smooth, the marketing department have to make sure the internal communication is working perfectly fine, and all the other departments are cooperating well with the marketing department.
The main role of the operation department is to provide the best practice process and ensure the organization is running well. The marketing strategy did not work out, if the operation department did not cooperating to improve the productivity and efficiency according to the marketing plan.
Sale and marketing department have to working hand in hand closely in order to reach to the mutual goals, customers satisfaction and generate sales revenue are their priority. Sale person is the person who serves the customer directly, thus they can tell more about the customers than any other. They provide the details information about the customer to the marketing such as the sale report, the market segmentation, the potential customers and etc. Sometime, sale persons are the first person to get customer’s feedback, where to help the marketing manager to design a better strategy and marketing plan.
Most of the marketing proposal and plan are treat it as the investment decisions, when a new product decision is made; financial instruments and criteria should be used to evaluate the investment (Morgan, Clark & Gooner, 2002) In simple words, marketing decisions are heavily depends on the yearly finance reports. In some case, the advertising and promotion events execute by the marketing require finance manager approval to proceed. Therefore any communication breakdown within this two department may lead to serious negative consequences.
The role of the R&D department is to produce a better product on the market, which aim to beat the competitor, good sales are based on the product’s uniqueness and strengths, which mean the major link between this two division is all on new product development, any misunderstanding between these two departments may delay the production process, or lead to unsuccessful business plan.
Marketing needs the public relationship to helps them to disseminate favourable news to the public, other than that, public relationship helps to build a strong relationship on different divisions, including the suppliers and customers.
Conclusion
According the SWOT analysis, even though the company is popular in Malaysia, and provide good service and good quality of the product, however the company needs to come out more strategy on how to generate bigger profit for the coming years, and find solution on how to shorter the break-even period. There are few suggestions on how the company generate more profit by using the Ansoff Matrix strategy. This proposal suggest that 20% profit increase in each of the year on coming 3 years by planning and execute the Ansoff Matrix strategy.
Some of the new products are propose where may help to increase the sale and profit such as sachets packing instant coffee, and selling books and magazine in the coffee shop, other than that, set-up few more new coffee outlets may help the business growth as well. Even though the strategies and plans seem helps for the business growth repidly for the coming 3 years, however there are risks on these strategies as well, modify and sell the existing product is the lowest risks strategy, and selling completely different market product bring the biggest risks, to overcome all these issues, the company should come out solution and taking actions to minimize the risks. Beside that, the 7ps Marketing Mix are required to be well-organized on the in action plan, in order to achieve the target goal of the marketing plan.
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