Comparative Advantage of Broadway Cafe over Starbucks - Assignment Example

The Broadway Cafe Introduction Since 1952, Broadway Café was able to monopolize the coffee industry in the neighborhood. Recently, Starbucks is planning to open a new store few blocks away from Broadway Café. Given that employees of Broadway Café are worried about its impact over the business profitability, this report will discuss the comparative advantage of Broadway Café over Starbucks as its potential competitor. Even though Broadway Café is able to gain benefit from being the first coffee shop in the neighborhood, there is a strong chance that Starbucks will be able to grab the customers of Broadway Café because of its business advantages related to advanced technological and economies of scale. As part of developing a new business strategy for Broadway Café, Porter’s five forces will be used in examining the external environment of the business. Eventually, the Café’s critical success factors that contribute to the development of its comparative advantage will be identified and tackled in details. External Environment of Broadway Café New Entrants Establishing a coffee shop business requires very minimal capital requirement. Therefore, coffee is widely sold within the neighborhood not only by large-scale restaurants but also the local fast food chains and grocery stores. Since the threat for new business entry is very high, market competition within the coffee industry is very tight. Rivalry among Existing Competitors The threat of product substitution and barriers to entry is high. In line with this, we should consider that Broadway Café is selling specialized coffee products which are incomparable to instant coffee products or other brand-less brewed coffee sold in supermarkets, grocery stores, and fast food chains. In the absence of Starbucks Coffee operating within the neighborhood, rivalry among existing competitors is low. In case Starbucks would become operational and eventually become one of the close competitors of Broadway Café, the rivalry among the existing competitors is high. Threat of Substitute Threat of substitution is high since the valued customers of Broadway Café could easily purchase brewed and flavored coffee from its close competitors like Starbucks or from nearby fast food chains. Aside from competing with Starbucks, coffee drinkers could also decide to simply purchase low-cost instant coffee that are readily available from the local supermarkets and grocery stores. Bargaining Power of Buyers Considering the options that buyers have when it comes to purchasing coffee products, the bargaining power of buyers against Broadway Café is very high. In case Broadway Café’s valued customers becomes less satisfied with the coffee quality and services delivered to them, each one of them has the advantage to decide on purchasing their coffee either from the local fast food chains that offers coffee or directly from Starbucks. Bargaining Power of Suppliers As a result of globalization, the bargaining power of suppliers is low because Broadway Café has the business advantage of purchasing its coffee products from highly competitive supplier who could offer the company with high quality coffee beans at a discounted price. As a result of purchasing coffee bean products by bulk, Broadway Café could easily sell a wide-range of coffee flavors at the lowest possible price. Comparative Advantage and Critical Success Factors of Broadway Café over Starbucks In relation to high coffee bean quality, affordable coffee prices, and reliable customer service, the critical success factors of Broadway Café include the company’s strong brand equity and brand image (Bennett & Rundel-Thiele, 2005; Yoo, Donthu & Lee, 2000). In line with this, keeping the customers satisfied is one of the strength of Broadway Café. Over the years, the company managed to deliver what its customers want. Since Broadway Café was able to monopolize the coffee business within the neighborhood for a long period of time, the company was able to establish and maintain a good business relationship with its customers. Eventually, the business relationship between the Café and its valued customers has led to the development of strong brand association and brand loyalty (Bennett & Rundel-Thiele, 2005). Yoo, Donthy & Lee (2000) explained that brand equity which is strongly associated with the development of brand awareness and perceived quality could lead to the increased customer loyalty to the brand. Therefore, Broadway Café’s ability to establish strong brand equity will serve as the foundation of the business’ comparative advantage over Starbucks. Conclusion and Recommendations One of the best and most effective ways in keeping the customers loyal Broadway Café is to increase its brand equity. Likewise, strengthening and communicating Broadway Café’s competitive advantage plan to its employees will help win employees’ strong support in implementing the proposed business plan and continuously improve the service quality given to its valued customers. The risk for new business entry and threat of substitution is very high. To increase Broadway Café’s competitive advantages against its close market competitors, it is advisable for the company to offer free coffee samples to its potential customers followed by gathering feedback on the taste and quality of coffee. In case its target consumers are not satisfied with the coffee sold by Broadway Café, it is necessary for the company to require strict coffee quality control when purchasing its supplies from its accredited suppliers. By offering good quality coffee product at a reasonable market price, there is a strong possibility for Broadway Café to keep its valued customers loyal to the brand. As explained by Baltzan & Phillips (2009), the use of online selling could significantly minimize the threat of product substitution by creating a “cost” to the public consumers (p. 23). Given that the threat of substitution is high, Broadway Café should develop new marketing strategies to enable the company reach out to its target consumers. For instance: Rather than purely depending on the sale of coffee from its retail coffee shop, the company could consider selling its coffee products online via Amazon.com among others. Considering that the close competitor of Broadway Café is Starbucks, the company should consider the use of focused strategy by offering new coffee flavors sold at a relatively low market price as compared to Starbucks. To avoid reaching the recession point in business cycle, Broadway Café should continuously develop new coffee flavors to give its valued customers a reason to keep on visiting Broadway Café. The offering of reward or loyalty programs could also encourage its customers to continue patronizing Broadway coffee products. For instance: Broadway customers will receive a free cup of coffee after purchasing its 12th cup. *** End *** References Baltzan, P., Phillips, A., & Haaq, S. (2008). Business Driven Technology. 3rd Edition. McGraw-Hill/Irwin. Bennett, R., & Rundel-Thiele, S., 2005. The brand loyalty life cycle: Implications for marketers. Journal of Brand Management , 12, pp. 250–263. Yoo, B., Donthu, N., & Lee, S., 2000. An examination of Selected Marketing Mix Elements and Brand Equity. Journal of Academy of Marketing Science , 28, pp. 195-211. Read More