Launching a New Coffee Product in the Greater London Region - Assignment Example

Business Decision Making Business Decision Making Introduction United Kingdom is a huge market. Where on one hand it has turned out to be a growing and stable market for some industries, on the other hand, it has also let down a few industries. Hot drink industry in the United Kingdom, particularly London, has shown growth and stability in a profound manner. The coffee industry alone has shared a huge market share. New coffee franchises and retailers have launched themselves in the UK, particularly London. The existing coffee retailers and manufacturers are enjoying a sustainable market share in the UK as well. The aim for this research is to study and identify whether launching a new coffee product in the greater London region will be a right decision or not. In order to study the topic, a research is conducted on the coffee market of London to analyze the emerging market trends. This would help in presenting a report to the senior management for the introduction of a new coffee-based drink for coffee shop customers. Task 1 (a) Primary Research As the product development coordinator of the coffee packaging company it is important that I should conduct primary research. This would help in determining the consumer profile, their preferences, attitudes and buying behaviors related to coffee. This information would be collected through survey questionnaires. The survey would be conducted on a random sample and not systemic one. Random sampling will allow the marketer to thoroughly analyze the consumer preference and behavior as everyone will have an equal chance of being selected (Winston, Stevens, Sherwood, & Dunn, 2013). On the contrary, random sampling might also generates some errors such as the sample might not be best suitable for the product, etc. Moreover there is no control in random sampling technique. It should be noted that all the data for the consumer profile, preference and buying behavior will be gathered with the help of primary research i.e. through survey questionnaires. Survey Questionnaire a) Demographics Questions 1- What age group do you belong to? 18-24 □ 25-34 □ 35-45 □ 2- What is your gender? Male □ Female □ 3- Marital status Single □ Married □ Divorced □ 4- What is your ethnicity? White □ Hispanic □ African □ Asian □ Other □ 5- What is your primary language? English □ Spanish □ Arabic □ Other □ __________ 6- What is the highest level of education you have completed? High School □ College □ University □ 7- What is your profession / employment status? Student □ Unemployed □ Employed □ 8- What is your current household income? Below 5000 £ □ 5000 -10,000 £ □ 10,000£ or above □ 9- Which of the following best describes the area you live in? Urban □ Suburban □ Rural □ 10- Do you use Internet? Sometimes □ Always □ Never □ b) Consumer Preference 1- You prefer coffee to tea. Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 2- You prefer brewed coffee over instant coffee Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 3- You prefer coffee at coffee houses. Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 4- You prefer economically priced coffee Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 5- You prefer a particular type of coffee Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ What type of coffee you prefer? Roasted □ Latte □ Cappuccino □ Espresso □ Americano □ c) Consumer Buying 1- You like to buy coffee from a particular brand Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 2- You like to drink coffee on a regular basis Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 3- You like to drink coffee for its taste Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 4- You try out new brands of coffee from time to time Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ 5- You think there is a need of new coffee product Strongly Agree □ Agree □ Neutral □ Disagree □ Strongly disagree □ Consumer Preference Task 1(b) Secondary Research After gathering the primary data and analyzing the consumer preferences etc. the data related to market will be collected and analyzed through secondary research. In the secondary research the data will be gathered with the help of studying market reports related to coffee drinks (Giovannucci & Koekoek, 2003). Furthermore, the secondary research will also identify and analyze some basic elements of coffee industry such as market competitiveness, which are the main competitors, what the market structure is, and how the shares of the coffee market are divided into the key players. All this will be studied with the help of secondary sources such as journal articles and market reports that will be studied through online data banks such as IBIS World, Data Monitor, etc. Furthermore, there are numerous helpful market reports that are relevant to this research, available on the Internet (Winston, Stevens, Sherwood, & Dunn, 2013). Task 2 Data Analysis Primary Data Gender The researcher has made use of Network Diagram using questionnaires as primary resources. The first section of the questionnaire identifies demographics. Analyzing the questionnaires it can be determine that about 100 participants were selected for the research, the average ratio of the genders was 62 percent of woman and 38 percent man. It shows that the number of woman was greater than the number of man visited coffee shop on an average. Fig: 1.1 Ratio of Males and Females visiting coffee shops Employment status The participants were asked about their employment status. The questionnaires show that the individuals that often visited coffee shops were mainly employed individual and students, however the visit of unemployed individuals is also evident from the results. The outcomes of the statistics show 36 percent students visited coffee shop, 46 percent employed individuals visited coffee shops, whereas only 18 percent of the unemployed individuals visited coffee shops. Fig 1.2 Ratio of employed status of visitors Household On an average the household income of the individuals having income below £5000 was 39 percent, 33 percent of the participants had income range between £5,000 per month to £10,000 per month and only 26 percent had the income more than £10,000 per month. Hence, it can be determined from the results that the individuals having household income below £5,000 to £10,000 per month on an average visited coffee shops more often. Customer Preferences The participants were asked about their preference of coffee over other beverage. The participants were queried about their preference of coffee over tea or any other beverages. The response indicated (mean of 3.19) that the individuals were neutral about the preferences for coffee over tea and other beverages. In addition, the respondents were asked if they preferred brewed over instant coffee. The descriptive results of the questionnaires show a mean of 2.37 showing agreement of the participants towards brewed coffee. The preference for the coffee houses was also queried. The results of the responses indicate the mean of 3.14 shows that the responds were neutral about visiting coffee shop for the coffee. The pricing of the coffee was also questioned to the individuals, the outcome of the results (Mean = 2.14) show that the preference of the participants towards the economic pricing of the coffee. The respondents agreed that the economic pricing of the coffee has greater preferences of visitors. Customer Behavior Customer’s behavior and attitudes towards the preference of coffee varies among customers, on the basis of characteristics, income, climatic and demographic characteristics. The questionnaire elaborates about the customer’s behavior and attitudes towards coffee preferences. The statistical results show that the customers were neutral about their preferences for the particular coffee brand, where as most of the respondents visited coffee shop on regular bases with their partners, school mates and friends on their ways to office and schools. It shows that the individuals on regular basis prefer the coffee houses. In addition, the respondents were asked if they liked the coffee because of the taste. The results show a mean of 2.09 indicating agreement of individual to choose the coffee because of its taste. Moreover, the respondent were neutral to try new coffee brands but strongly agreed that they wanted to try new coffee product with innovative flavors and taste. Correlation Analysis Age Customer Preferences 0.045595 Customer Behavior -0.07647 Analyzing the relationship between age and customer preferences and behavior it can be identified that the age and customer preferences had insignificant relation as the co-efficient was 0.04. On the contrary, the correlation of age and customer behavior is also insignificant as the coefficient was -0.07. It can be determined that the preference of visitors is not significantly influenced by the age factor. In the similar manner, the customer behavior towards coffee and coffee houses remains to be insignificant. It clearly indicates that the age does not affected customer preferences and behavior. House Hold Income Pricing (preference) 0.7029 Visits (behavior) 0.1862 The second major aspect that was analyzed was the relationship between the household incomes and pricing, coefficient of 0.72 indicates that the relationship between household income and pricing of the coffee had significant impact on the choices of customers. On the other hand, the household and visits to the household was also significantly influenced by the household income. It clearly indicates the income level of the individuals significantly impacted the choices of customers to visit coffee houses. Moreover, the pricing also influences the choices of customer in the coffee shops. Secondary Data The data collected from secondary sources such as market reports on the UK coffee industry presents a number of findings. According to the United Kingdom Food and Drink Report, the coffee values in the UK have increased over the past years and are likely to increase within the coming years (Business Monitor, 2014). According to the report, the sales of coffee are slightly disturbed by the increasing trend of herbal teas etc. However, it is because of the increased coffee chains that has bagged attention of the consumers towards coffee and also created awareness. The table below shows that although tea sales have remained constant for the past decade, the sales of coffee have grown profitably over the past years (Business Monitor, 2014). Figure 1 (Business Monitor, 2014) Tesco and Waitrose have been an effective platform for Coffee giants such as Starbucks and other famous companies who sell their coffee through them. Furthermore, it should be noted that Costa and Italian based coffee franchise Lavazza has also shared the UK coffee market in a successful manner (Jenkins, 2012; Business Monitor, 2014). These coffee franchises have been trying to take over the UK coffee market by introducing new products and services for their consumers. This suggests that the coffee market of London is stable and companies are enjoying a good market share. The table below presents the utilization of coffee in UK over the past years and in the coming years (Business Monitor, 2014). Figure 2 (Business Monitor, 2014) Furthermore, the market analysis as presented in the Hot Drinks Industry Profile: United Kingdom reveals that the hot drinks industry in the United Kingdom is enjoying a steady growth. According to the report, the coffee consumption alone resulted in total revenue of $1.4bn. It should be noted that the revenues generated by coffee alone is equivalent to 50% of the entire hot drink market. According to the report, it has been the most lucrative segment in UK’s hot drink market (Market Line, 2013). Thus, the secondary data analysis clearly states that London is a great market for a new coffee product or franchise (Luttinger & Dicum, 2011). The data findings clearly illustrates that the coffee market of UK is a growing market, while there are possible chances that the market will expand in the future according to the market reports. Task 3 Report Senior Management, ABC Coffee Packaging Industry London. Introduction of New Coffee-based Drink for Coffee Houses As the product development coordinator of ABC Coffee Packaging Industry I am delighted to inform you about the positive market survey regarding the introduction of our new Coffee-based drink for coffee houses. The accompanying report presents a comprehensive response to all the requirements that were drafted by the senior management in our discussions over the last few weeks. After conducting a research on a sample of 100 individuals, randomly selected from London it is assessed that London is a suitable and profitable market for introducing a new product. The research and the data collected, both primary and secondary, suggests that people are inclined towards drinking coffee in London. According to the primary data, it was revealed that consumer try coffee because of its taste and because of its quality. It was also revealed that majority of the audience was in favor of drinking coffee at coffee houses. This suggests that a new coffee-based product for coffee houses will be a smart step for the company (Luttinger & Dicum, 2011; Giovannucci & Koekoek, 2003). A greater part of the audience preferred coffee to tea. This was also reported in (Business Monitor, 2014), that coffee has a better market share than coffee and is growing at an enormous speed. Furthermore, it was also studied that most of the audience preferred brewed coffee as they go out to coffee houses. This is because they want their coffee to be freshly brewed. Pricing was found as one major factor that plays its part in the promoting the coffee industry in London. It was also identified that the audience showed neutral response towards specific coffee type. This suggests that they prefer anything, which is interesting and has some kind of distinction. They showed positive attitude towards new products and brands and responded that they would like to try new coffee products (Winston, Stevens, Sherwood, & Dunn, 2013; Jenkins, 2012). The market reports on the UK coffee market also suggested that the existing coffee franchises in the country are doing well financially. They share a huge market and are trying to overcome the market by introducing new products for the consumers. Coffee giants like Starbucks, Costa, Lavazza, etc. are doing well in London and the rest of the UK (Jenkins, 2012). Thus, it can be said that the aforementioned information clearly indicates that introduction of a new coffee-based product for coffee houses is the right decision. The product should however have some distinctive taste and should freshly brewed as the audience has shown positive response towards it. Furthermore, the quality should be maintained at low pricing. The detailed project plan for the introduction of the product is discussed below. The company can introduce its new product in the London coffee market as it is a growing one (Market Line, 2013; Luttinger & Dicum, 2011) Furthermore, the inclination of audience towards coffee in the city clearly shows that they will show positive response towards the new product if provided with enhanced quality, distinctive taste, and at affordable prices. Since, the coffee houses have a positive response from the coffee lovers therefore it is suggested that the new coffee-based product will turn out to be profitable for the company and will quickly overtake the coffee market of London. Sincerely, Product Coordinator. Task 4 On the basis of the findings of the market data and information, ABC company will introduce the new coffee based product for coffee houses to meet the demands of the local coffee market of London. The refreshing taste and finest quality of the brewed coffee of ABC coffee manufacturing company will improve customer’s choices for coffee and bring an innovative experience for coffee houses with unique tastes. It is predicted that the innovation of the coffee product will allow the organization to attain better positioning in the market. The major target for the organization are the main coffee houses located in the different regions in London, mainly targeted audience will be employed and students who would stop by the coffee houses and enjoy the unique taste of brewed coffee. Projections ABC coffee manufacturing company aims to attain significant growth in its cash flow by introducing a new coffee based product. It is predicted that the inclusion of the new product in the product line will allow the company to improve its performance and profitability in long run. The main focus of the organization is focused to improve quality and taste of coffee for its customers at competitive prices. However, the market conditions show that the climatic changes would significantly influence the preferences of coffee. Thus, it is essential that the ABC company should maintain the balance between the supply and inventory turnover of the product due to which the company will ensure that the average turnover of the inventory shall remain between 45 days. It is because if the turnover of the product will decline it can cast negative impacts on the cash flows of the organization that can lead to serious problem. Seeing the market condition, the company will focus on credit sales more to facilitate customers and increase the sales of the product. The company projects that the introduction of the new product will increase 14 percent of net profits, while controlling marketing costs. The basic assumptions for the project plan is dependent on the following assumptions: Tough competition in the market with slow growth in the economy None of significant change in technology and equipment Assume easy access to debt equity capital to maintain financial plan for the organization General Assumption Year 1 Year 2 Year 3 Plan Month 1 2 3 Current Interest Rate 12.25% 12.25% 12.25% Long-term Interest Rate 6.75% 6.75% 6.75% Tax Rate 17.2 17.2 17.2 ProForma Cash Flow Year 1 Year 2 Year 3 Cash from Operations       Cash Sales 2,186,601 2,351,541 2,573,024 Current Borrowing     29,559 Sub total cash inflow 2,186,601 2,351,541 2,602,583 Expenditures       Cash Spending 322,008 322,008 322,008 Bill Payment 1,633,772 16,777,517 17,773,221 Subtotal Spent on Operations 1,955,780 17,099,525 18,095,229 Principle Repayment of Current Borrowing 23,160 26,435   Long term liabilities repayment 27,430 29,329 31,339 Cash spent 2,006,370 2,005,289 2,126,568 Net Cash Flow 180,231 296,252 467,015 Cash Balance 280,231 576,483 1,052,498 Sales Forecast   Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Sales                   Restaurant $116,330 $126,271 $132,163 $150,898 $142,787 $153,458 $164,320 $190,700 $184,871 Coffeehouse $14,525 $14,525 $16,800 $16,800 $19,800 $19,800 $22,770 $22,770 $26,185 Total Sales $130,855 $140,796 $148,963 $167,698 $162,587 $173,258 $187,090 $213,470 $211,056 Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Restaurant $101,350 $102,363 $103,386 $105,419 $104,420 $105,850 $106,908 $108,850 $107,350 Coffeehouse $4,357 $4,357 $5,040 $5,040 $5,940 $5,940 $6,831 $6,831 $7,855 Subtotal Direct Cost of Sales $105,707 $106,720 $108,426 $110,459 $110,360 $111,790 $113,739 $115,681 $115,205 References Aaker, D. A., & McLoughlin, D. (2009). Strategic Market Management: Global Perspectives. Chichester: John Wiley & Sons. Adocock, D. (2000). Marketing Strategies for Competitive Advantage. London: Wiley Publisher. Business Monitor. (2014). United Kingdom Food & Drink Report. London: Business Monitor International. Donovan, R., & Henley, N. (2012). Principles and Practice of Social Marketing: An International Perspective. New York: Cambridge University Pres. Gilligan, C., & Wilson, R. M. (2012). Strategic Marketing Management. Burlington: Elsevier. Giovannucci, D., & Koekoek, F. J. (2003). The state of sustainable coffee: a study of twelve major markets. New York: International Coffee Organization . Jenkins, L. (2012). Coffee Remains a Growth Market. Caterer & Hotelkeeper, 202 (4727), 62-63. Luttinger, N., & Dicum, G. (2011). The Coffee Book : Anatomy of an Industry from Crop to the Last Drop. New York: New Press. Market Line. (2013). Hot Drinks Industry Profile: United Kingdom. London: TATA Global Beverages Ltd. Winston, W., Stevens, R. E., Sherwood, P. K., & Dunn, J. P. (2013). Market Analysis: Assessing Your Business Opportunities. New York: Routledge. Read More