Essay: Caffe Bene Disrupts Korean Coffee Shop Market.

The assignment is based on the case from case study from ACRJ – “Caffé Bene Disrupts the Stagnating Korean Coffee Shop Market” case study.

(a) Discuss the competitive forces in the coffee retail industry in Korea OR Singapore.

(b) Identify the distinctive capabilities of Caffe Bene outside of Korea and discuss if

the company is market-driven.

(a) Explain Caffe Bene’s marketing strategy in the retail coffee market in Singapore, Malaysia, Thailand OR Indonesia.

(b) Examine Caffe Bene’s CRM strategy and its contribution to its success in the selected country.

(a) Discuss positioning strategy of Caffe Bene in your selected country and compare this in relation to its two competitors.

(b) Voted the best coffee brand in Korea, Caffe Bene has opened outlets in South East Asian countries as part of its international expansion. Examine the channel strategies of Caffe Bene in the country you have selected

(a) Develop an appropriate marketing communication strategy for Caffe Bene in Singapore, Malaysia, Thailand OR Indonesia to target the youth market. Include relevant components of marketing promotion in your answer.

(b) Illustrate a two-dimension perceptual map of the Caffe Bene brand versus its competitors in your selected country. The x-axis is “Perceived Price” and y-axis is one attribute of your choice. Explain the positions you have selected.

Competitive forces in the coffee retail industry in Korea

This assignment has been developed based on the case study of “Caffé Bene Disrupts the Stagnating Korean Coffee Shop Market.” Based on this case study 4 major questions had been answered in this assignment. These questions are mainly related with analyzing competitive force of Korean coffee retail industry and identification of the distinctive capabilities of Caffe Bene outside Korea. In the next question, the marketing strategy of and CRM strategy of Caffe Bene in Singapore had been discussed. In the next question, the positioning strategy of Caffe Bene in comparison with its two competitors and its channel strategies have been assessed in Singapore. In the last question the marketing communication strategy of Caffe Bene in Singapore to target youth market has been discussed along with different components of marketing promotion. A two-dimensional perceptual map has been provided for Caffe Bene brand versus its competitor.   

With the help of Porter’s five forces analysis, the competitive force in the coffee retail industry in Korea can be examined. They are  mentioned below:

Competitive Rivalry (High)

With the presence of many global and conglomerate owned coffee brands such as Starbucks, Ediya Expresso, Caffe Bene, Angle-in-US, the competition of coffee retail market has become cut-throat (Kim et al., 2016). For this reason, it is estimated that, within next few years, the growth trend of Korean coffee market will reach saturation. There is a table given below to indicate the intensive rivalry in Korean Coffee retail market.

 

Figure 1: Brand shares in coffee market in Korea

(Source: Lee & Park, 2014)

Bargaining power of suppliers (weak)

It has been found that suppliers do not have much impact on coffee business in Korean. Cuong and Toan (2016) stated that availability of many suppliers have reduced the power of suppliers of coffee industry. In addition, just like Starbucks, most of the companies have developed policies to diversify their supply chain (as most of them follow Starbuck’s business strategy). It has also reduced the influence of suppliers on the coffee business in Korea.    

Bargaining power of customers (high)

Three external factors have major contribution in the high buying power of customers in coffee retail industry in Korea.  They are such as:

• Lower cost of switching for customers
• Availability of many substitute products due to the presence of many brands
• Small size of the individual buyers

Threat of New Entrants (Moderate)

• A new company needs moderate cost to enter in the coffee market and conduct business in Korea.
• The cost of supply chain of Korean coffee industry is also moderate
• Due to the availability of many renowned coffee brands like Starbucks, a new coffee shop has to make high amount of investment for brand development (Shi, 2016). The saturating Korean market is also another major reason behind it.

Threat of product substitution (High)

Not only products, but also the business and marketing strategies can be substituted easily in the coffee retail market of Korea. After the entry of Starbucks in the Korean market, many domestic companies started to follow its strategy of “Benchmarking American style” coffee shop. Many companies have also copied the marketing strategy of Caffé Bene and providing high variety of coffee products in their menu (similar to Caffé Bene) and promoted their products through media (Park et al., 2015). Hence, it can be stated that, the chance of products, services and marketing strategy substitution is very high in Korean coffee retail market.    

Distinctive Capabilities of Caffé Bene

The major capabilities of Caffé Bene have been discussed below:

• One of the major success factors of the coffee chain is its differentiation from other brands through product placement (PPL) in popular television programs.
• In order to survive in the highly competitive market of Korea, the company has used different business model compared to its competitors. It helps the coffee shop to outperform its competitors. Instead of developing “benchmarking American-style” coffee shops, the company has used European café atmosphere mixed with the spirit of a traditional Korean social gathering place (Park et al., 2015).
• The company is focused on using celebrity marketing to increase its presence in Korea.
• The company has the financial capability to develop ample amount of coffee shops in Korea. Presently, Caffé Bene have largest number of coffee shops in the country (Park et al., 2015).
• The company has included wide range of products along with different types of coffee. Italian gelato and Belgian waffles are also added in the menu. It increases customer attention. Hence, it can be stated that product diversification is also another major capabilities of the company.

 

Figure 2: Sales organization design

(Source: taken from Seminar 6)

It can be stated that, the company Caffé Bene is highly product driven rather than market driven. It has been found from the seminar 6 discussion that market focused design is used when a business unit serve more than one target market. In that case, companies have to focus on fulfilling all the needs of different customer segment is a given target market (Karunaratna & Crouch, 2016). It is due to the facts that, in this case each customer purchase at large volume. It is quite opposite in the case of Caffé Bene.  The customers of coffee chain are small group of individuals with small individual purchasing capability. The company is mainly focused to attract the youth customers of Korea. Hence, the company used more product driven approach. It focuses of product differentiation, category management, brand management and development of new-product teams (Hidayat, 2016).  

Products

Caffé Bene has tried to differentiate it in-store menu form any of the conventional coffe shops. In order to maintain high quality of the coffee beans in the market of Singapore, the company imports coffee beans from Brazil, Colombia and Kenya. Karunaratna and Crouch (2016) mentioned that Caffé Bene Singapore has almost similar menu compare to that of the South Korea. However, in order cater the local palate, the company has added some tweaks in its products. The food offering is smaller in Singapore compare to Korean market. Waffle, Ice Bingsu, Honey Bread, Coffee, Tea and Yogurt Smoothies are the major products of Caffe Bene in Singapore (Park et al., 2015). Exclusive to outlets of Singapore, non-Korean-ish gourmet selection of salads and wraps such as Salmon Mayo and Japanese Soba are provided to attract the office crowd of Singapore. Lee et al. (2016) argued that the sweetness level of bingsu is decreased in Singapore. For this reason, it is no as rich as one can be found in Korea. The nuts used in the bingsu were imported from various countries.  The company provides medium roasted coffee in Singapore to preserve the unique taste of coffee beans, even after the drink cool down.

Promotions

Due to its late entrance in the coffee retail market of Singapore, the company needs ways to gain attention of coffee-drinking customers. The company majorly used Celebrity marketing and Product Placement to gain its position in the coffee industry of Singapore. In addition, the company also included offers and discounts on their products to gain attraction form the customers of Singapore. For example, the company provides 20% discount on all beverages and provide an extra scoop of gelato free. It helps to penetrate the coffee market of Singapore and gain attention of their customers (Carvalho et al., 2016). The company has also used social media marketing for promotion in Singapore. The management team has opened Facebook account named “Caffé Bene Singapore” to develop proper interaction with the local customers.  

Marketing strategy of Caffé Bene in the retail coffee market of Singapore

Caffé Bene uses various innovative customer engagement strategies to reach customers throughout Singapore. After the opening of first Caffé Bene store at Vivocity of Singapore, the management had decided to adopt similar customer engagement strategy just like South Korea. The coffee chain started to run “Caffé Bene On-Air Music.” It is an in-store music radio program initiated as customer engagement tool in Korea (Park et al., 2015). The same strategy is used in Singapore as well. In this program, music is played as requested by customers via Facebook page, Website or Short Message Service (SMS). This is still an exclusive experience that customers will not find any other stores. Every requested song by customers are played twice in a day, at every Caffé Bene stores of Singapore. In addition with that, during the last day of every month, the management of Caffé Bene invites one customer to become the DJ for one day.

The management team also tries to listen to the ideas and thoughts of customers. The company has developed a Facebook page, where customers of Singapore can share their thoughts and point of view about the products and services offered by the company. In addition, Just like Korea, the company held “Bene Best Idea Proposal” event every month, in every stores of Singapore (Cha et al., 2016). In this event, customers and franchisees of Singapore can give suggestions and proposals to the company for business improvement. Based on that, the management team selects the beast ideas for five major categories. They are such as distribution, product, service, interior, events, service and miscellaneous. Some of these ideas are implemented by the company and even become successful.  “Bene Best Idea Proposal” event is also suggested by a Korean patron, which has become a highly successful customer engagement strategy. The company also held various other customer engagement events related with naming, character design, cuo design and the theme songs. All these innovative CRM strategies help the company to gain attraction of customers of Singapore and once again helped the company to become successful in a foreign country.      

Caffe Bene has used product differentiation strategy to enter the market of Singapore. In order to differentiate its coffee from its competitors like Starbucks and to ensure high quality of coffee, Caffe Bene imported coffee beans from some selected areas such as Brazil and Columbia. The coffee chain has also diversified its non-coffee menu by adding Italian gelato and Belgian waffles. It was well communicated in positioning strategy of Singapore as a “Multi-dessert cafe.”   It has been found that, most of the conventional coffee shops in Singapore offers muffins, bagels, cookies and small cakes. Park et al. (2015) stated that, most of these coffee chains are highly influenced by Starbucks coffee shop. They have also adopted Starbuck’s American style coffee shop environment.  Hence, in order to get separate place in the mind of customers, Caffe Bene adopted European style environment. They develop their coffee shop a place of social gathering for the local customers of Singapore. Along with adding Italian gelato and Belgian waffles, the company has added some tweaks in its products to cater the local palate of Singapore. Non Korean salads and wraps such as Salmon Mayo and Japanese Soba are provided to attract the office crowd of Singapore. It also helps the company to meet the desire customers, who prefer traditional taste of Singapore (Cha et al., 2016).  

Positioning strategy of Caffe Bene in Singapore and its comparison with its competitors

Two major competitors of the Caffe Bene are Starbucks and Jewel Coffee. Starbucks has position itself in Singapore as a symbol of being rich and luxury. Starbucks has first introduced the “American style coffee shop environment.” In addition, it is also known for its high quality coffee and cookies as well. It is a place, where people like to spend their time with family members and friends. On the other hand, Jewel Coffee has positioned itself as a “grab-and-go” coffee shop. Majority of the office goers love this coffee shop to have a quick boost in between their work.

From the Seminar 5 discussion, it has been found that channel strategy selection includes three major stages. They are such as distribution channel selection, intensity of distribution and channel configuration. Nguyen et al. (2016) stated that, there are mainly three types of distribution channels available. They are such as conventional marketing channel, vertical marketing channel and horizontal marketing channel. Vertical marketing system can be defined as the management of distribution channel by one organization. It can be divided in three segments. They are such as ownership, contractual and administered relationship.  It has been found that the company Caffe Bene used franchising system for the market of Singapore. It has been found from the seminar 5 discussion that, channel strategy of Caffe Bene is an example of vertical marketing system (contractual). Distribution intensity of the company in Singapore is “selective.”   

 

Figure 3: Selection of Channel strategy

(Source: taken from Seminar 5)

There are two major reasons behind the selection of franchising model by the company. Firstly, even though during the time of financial crisis, many people suffer from financial problems, there are still many people in Singapore to invest in promising ventures. Chintagunta et al. (2016) stated that Baby boomers of Singapore, who are near the age of retirement prefer to invest in profitable business. Due to a good brand image, Caffe Bene has easily become their target of investment.  Secondly, other leading coffee brands such as Starbucks do not franchising model. Most of the investors of Singapore prefer to invest in an already-developed business to minimize the risk of investment (Stanford, 2016). By implementing franchising model, the company provides the opportunity to these investors of Singapore to invest in their expansion plan at minimal risk.      

Due to the late entry in the coffee shop market of Singapore, the company needs an appropriate strategy to gain the attraction of youth coffee-drinking customers of the country. In order to get s sustainable position in the market of Singapore, the company needs to develop an appropriate communication strategy that can increase brand awareness quickly and effectively. The CEO of the coffee chin, Kim decided to celebrity marketing and product placement strategy. These marketing communication strategies helped the company to become the leader of coffee retail market of Singapore. Percy et al. (2016) stated that, it not only helps the company to gain the required attention from the customer but help to gain the status of one of the best coffee franchises available in Singapore. The company has developed partnership with an entertainment firm of Singapore.   Many famous actors and actresses endorse advertisement for the Coffee chain. Even the coffee shops of Caffe Bene are started to being used in many films and Dramas, which make it more popular among the young generation Singapore. Especially female customers between the age group of 20-30 are highly impressed by this marketing communication strategy.

Channel strategies of Caffe Bene in Singapore

In addition, the company organizes various customer engagement programs as well.  The coffee chain started to run “Caffé Bene On-Air Music.” It is an in-store music radio program initiated as customer engagement tool in Korea (Park et al., 2015). Every requested song by customers are played twice in a day, at every Caffé Bene stores of Singapore. In addition, with that, during the last day of every month, the management of Caffé Bene invites one customer to become the DJ for one day. The coffee chain held “Bene Best Idea Proposal” event every month, in all its stores of Singapore (Nguyen et al., 2017). In this event, customers and franchisees of Singapore can give suggestions and proposals to the company for business improvement. Based on that, the management team selects the beast ideas for five major categories. The management applies some of these ideas and even some of these strategies become successful (Voigt et al., 2017). The management team of Caffe bene also tries to listen to the ideas and thoughts of customers. During the business expansion of Singapore, social media marketing has become an important part of their marketing communication strategy. At that time, the coffee chain has developed a Facebook page, where customers of Singapore can share their thoughts and point of view about the products and services offered by the company. Based on that, the management team selects strategies that are feasible with their business plan and implement them in their business.   

The two-dimension perceptual map for the coffee chain Caffe Bene and its major competitor has been provided below. In this two-dimension perceptual map, x-axis is considered as “Perceived Price” and y-axis is considered as quality of coffee products. The perceptual map is provided below:

Figure 4: Two-dimension perceptual map for the coffee chain Caffe Bene and Starbucks

(Source: Created by Author)

In justification of this perceptual map, it can be stated that Starbucks has always focused on providing high quality of products. In order to maintain the quality of products, the company import coffee beans form some selected regions like Colombia and Brazil. For this reason, the production cost of the company is also high. Hence, the company has decided to set high price of its coffee products. Hence, the company has positioned itself for the high-end market globally and for Singapore as well.

In case of Caffe Bene, it has been found the initially during the starting of its business expansion in Singapore, the company was focused on quality as well. However, due to the adoption of franchising strategy, the company has to face severe quality related problems. Most of the franchises have reduced their operational cost in expense of the quality of the products (Park et al., 2015). It helps the company to reduce the cost of products compare to its competitors like Starbucks. However, it has been found that the company is using medium roasted method, while dark-roasted coffee differentially perceived by the customers for its strong and bitter taste. Hence, the position of Caffe Bene, in the two-dimension perceptual map is justified.      

Market Communication Strategy for Caffe Bene in Singapore to Target the Youth Market

Conclusion

In this assignment, eight major questions have been answered based in the case study of Caffé Bene. In the first section, the competitive forces of coffee retail industry of Korean have been discussed. Along with that, distinctive capabilities of the coffee chain have been analyzed. In the next section, marketing strategy and CRM stragy of Caffé Bene in Sinagpore have been analyzed. The third section is about positioning strategy and channel strategies used by the company in Singapore. In the last section, marketing communication strategy used by the Caffe Bene in the market of Singapore has been discussed and a two-dimension perceptual map for the coffee chain Caffe Bene and its major competitor.

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