Market Segmentation : A Study Of Popular Coffee Chains

With time the small industry of coffee has modernized into a multibillion dollar industry that surrounds the world. With the growth of the industry there has been many world wide changes. Over the past 30 years coffee shops have jumped to the front of the public culture. New coffee shops have changes the face of American cities along with British, German, Colombian, Kenyan and Indonesia towns to name few. (Coffee a comprehensive guide to the bean, the beverage, and the industry) Around the world coffee has become part of the daily culture and coffee shops have grown to accommodate the massive demand that people ask for. Without the growth of the industry there would be a shortage of the product and many would have to go without their beloved beverage. In the United States alone there has been a massive increase in the number of coffee shops. In 1980 the number of coffee shops was a year 2,000 and by 2008 there was an astonishing 27,715. (Coffee a comprehensive guide to the bean, the beverage, and the industry) This was an increase of over ten times in the short time. 11,000 of those stores, almost half, were Starbucks one of the biggest coffee brands in the worlds. The growth of Starbucks is due to the work of Howard Schultz a worker for the company before they became as massive as they are today. Starbucks started very small in Seattle, Washington in the mid 1970’s. Howard bought out the owners and then went on to turn the small company into a massive corporation. (Coffee a

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

What Is Market Segmentation? Market segmentation is a way of dividing the market into groups of consumers/customers which share similar features

According to Horner and Swarbrooke (2005: 39), Segmentation may be defined as the process of dividing a whole market into subgroups or segments for marketing management purposes. Market segmentation is the division of the overall market for a service into various categories with common characteristics. In response to different segments, organisations facilitate the available resources to achieve greater efficiency, in order to satisfy specific needs of customers.

The first opportunity is that over 50% of eighteen year olds and older drink 3 or more cups of coffee per day in the United States. This group of coffee drinkers consists predominately of college students and career professionals who adding the morning cup of joe to their study time or work schedule. Currently in the coffee industry, competition is minimal for Starbucks, which has allowed Starbucks to capitalize on one of the biggest industries in the world behind crude oil. This

By 2003, the number of retail specialty coffee shops, cafes, kiosks, coffee carts, and roasters in the United States reached over 17,000, equating to nearly $9 billion in sales. According to the Specialty Coffee Association of America, 16 percent of adults in the United States drink coffee from one of these specialty outlets daily. (“Organo Gold”, 2008).

Starbucks will be the first come in your mind when you want to have a cup of coffee. Don’t you feel curious about why is Starbucks so successful? This report explains how Starbucks take advantage in consumer purchase decision making process, how does Starbucks attract customer, how does Starbucks segment its market and new trends in society affect purchasing process.

In order to market the product into the market successfully, marketers need to have some marketing strategy to enter the desired market and make profit. Market segmentation is the process of dividing a market into subsets of consumers with common needs or characteristics (Schiffman et al., 2011). Understanding the market size and segmentation is valuable, but the keys to effective targeting is to know just how valuable specific consumer groups are, and being able to quantify the impact of consumer trends ( Berry, 1999).

Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and applications

KFC uses segmentation method to targets it consumers from Britain due to geographical and behavioural determinants.“In the UK, we drink approximately 70 million cups of coffee per day” - Mintel Coffee UK 2008 Report. “In 2012 the estimated turnover for coffee shops was £5.8 billion” - Allegra Strategies UK Retail Coffee Shop Market Report Dec 2012. “We have become a nation of coffee lovers and even coffee geeks” said Jeffery Young of UK coffee week. In this way, KFC has successfully target their first generation B2C consumers and as well as addresses on corporate social

This market dominance shows just how important the larger chains are in the coffee shop market.” (Keynote, 2012).

Coffee, a cup of Joe, Java or brew, it goes by many names. It can be your morning jump-start or even used as an afternoon pick me up, to be enjoyed alone or with the company of others. It is a drinkable source of energy that is enjoyed in the United States and in many other places around the globe as well. It’s no wonder that coffee is such a popular commodity. Companies such as Starbucks and Peet’s Coffee have revolutionized the coffee shop industry in the United States by making it easy and convenient for consumers to purchase single-serving cups of coffee on a regular basis. Not only is the service quick and convenient, but it also allows consumers the ability to personalize their drinks to make it to their desired preference, making it a more enjoyable experience rather than just having a cup of instant coffee at home. In this paper, I will be exploring the coffee shop industry, which will be defined as firms who sell single-serving cups of coffee to their consumers.

The coffee industry has become a very competitive and expanding market segment in North America, including companies like Dunkin, McDonalds, Nestle, Burger King, Caribou Coffee, and Costa Coffee. The top leading coffee corporation in this market is Starbucks with Dunkin and McDonalds trailing close behind. This corporation has reached a maximum 36.7% market share, well above Dunkin ranking at 24.6% and McDonalds at 19%, with Starbucks and Dunkin making up over 60% of the market share (Geereddy, 2013: see appendix 1). Starbucks is a retailer, roaster, and marketer of high-quality whole bean coffee. With more than thirty blends of specialty coffee, hand-crafted beverages, smoothies, and teas, Starbucks’ mission is to inspire and nurture

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

Market segmentation is an approach used by a company to select their target market and provide data for a marketing plan. “Market segmentation consist of a two-step process; naming broad product markets and segmenting these broad products-markets in order to select target markets and develop suitable marketing mixes” (Perreault, Cannon, & McCarthy, 2014, p.97). There are 4 categories pertaining to market segmentation; behavioral, geographic, demographic, and behavioral.