Horizontal Differentiation in the Uk Coffe-Shop Market

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Horizontal Differentiation in the UK Coffee Shop Market
“In the presence of horizontal product differentiation, there is a tension between the desire to weaken price competition and the desire for increased market share.” Explain this statement. Critically evaluate its implications for corporate decision-making regarding the specification of products by analysing, in the context of real-world industry of your choice, the product specification chosen to serve the same market by each of two or more industry rivals.

Coffeehouses first came popular in the UK in the mid-17th century with the first ones being established in Oxford in 1650. In the mid-1990s Seattle-based coffee shop conglomerate Starbucks successfully entered the UK market,
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This market dominance shows just how important the larger chains are in the coffee shop market.” (Keynote, 2012).
For the purposes of this essay, due to the dominance of Costa and Starbucks and their ever-increasing share of the market, in terms of both value and volume, the coffee-shop market in the UK is assumed to be a duopoly. There is, however, a fairly significant number of smaller chains and independent operators within the market, (Keynote, 2012). However, a Hotelling model or a product differentiation model where the competition within groups (independents) is more important than the competition between the groups, can justify this simplification. (Zaouras, 2012).
Starbucks and Costa have competed over the past decade in terms of the number of the outlets that they have; however, in 2009, Costa opened its 1,000th store in Cardiff, making it the biggest coffee chain in terms of volume in the country (Keynote, 2012).
Starbucks and Costa mainly offer the same menu; however, it can be implied that it is the way they position their brand and specify their products that drives these differences in consumer preferences.
In 2011 Costa Coffee has decided to acquire Coffee Nation, the operator of nearly 1000 self-service coffee machines for £60 million. According to (Blatchford, 2011), by this company positioned its products for convenience – these machines have been installed at railway stations and

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