Business Plan: California Coffee House
Business establishment entails several considerations and analysis in identifying the suitable business model that the business should take as well as establish the market status for the purpose of guided strategic planning. In that respect, this analysis seeks to demonstrate the process of creating a business plan beginning with identification of the business location with the rationale for its choice, explanation of finance sources and the business’ nature. The plan further provides a competitive market analysis by application of porter five forces model and finally providing suitable marketing strategies for the business.
- Business model location
The business will be a coffee house known as “California Coffee House” focusing on sale of regular/roasted coffee with location in California City in USA. California has been one of the most populated as well as fast growing cities with the growth mainly taking place in the suburban areas. (CIA, 2013) The city’s choice as the suitable location was based on various factors including the following.
- Demographics: With a population of 8,175,133 people by 2010 statistics, the city is the most populous in USA hence have a substantial population to sustain business growth. (US, 2013)
- Economic: The city has a per capita income of $19, 269, with a household median income of $47,038. (US, 2013)
- Finance sources
The business model will be created with financing raised from business partners as equity financing. In respect to the high interest rate on loans in US, the credit financing alternative would be much expensive hence a choice for equity funding. Further, US’s sources of credit financing and public equity financing is highly inaccessible for new business startups. (US, 2013)
- Business nature
In establishing the business, a private company model will be applied to provide better management structures that will simplify the management and leadership of the business in order to enhance quick response to the market changes. A private company will also reduce the number of stakeholders that needs to be consulted in decision making. (US, 2013)
- Competitive Analysis
In analyzing the coffee market’s competition, the Porter five forces model is applied in evaluating market status in respect to the existing rivalry, new entrants, substitutes, suppliers bargaining power as well as buyers bargaining power. This analysis will be the basis of the marketing strategies that the business will apply in the market. (Porter, 1980)
- Existing Rivalry
Coffee market in California is marked by high competition defined by rivalry between existing diverse businesses including brands like Starbucks, MacDonald Restaurants, and Dunkins Donuts as well as several coffee shops discussed as follows
- Competitive advantage is enjoyed by established brands like star bucks for their well known products.
- Level of advertising expense is high in the market with each brand seeking to inform its customers the special features of its brands. (Bernhard, 2001)
- Competitive strategy application in the market increases competition among the leading businesses that mainly use differentiation to capture their niche markets.
- Online and offline competition is intensive with businesses taking their business models online where customers have easier access to the brands information. (Porter, 1980)
In respect to existing competition, the business will seek to differentiate its brand in order to cut a niche for itself with a different market segment as well as adopt online retail marketing for a competitive advantage. (Kotler & Armstrong, 2004)
In respect to the substitutes, the coffee market is analyzed in reference to the various aspects of the substitutes that could significantly define the market’s competitiveness.
- The coffee market in California has a great number of substitutes ranging from soft drinks, tea as well as mineral water.
- The available substitute’s in California market presents a formidable competitive threat with their close propensity to buyers as they are extensively availed through various retail channels.
- Switching costs between substitutes and the coffee brands are low hence an opportunity to attract customers from the substitutes as well as being easier to lose customers to substitutes.
- Some of the substitutes in the market have relatively lower prices which could easily attract customer from the coffee market.
- Product differentiation is the key competition tool in the coffee and substitutes market with each product business seeking to establish a unique brand that serves specific customer needs hence curving a niche for itself.
- Coffee is unique to its customers compared to substitute products hence customers’ loyalty to the product makes substitution more difficult as substitute products are highly differentiated from the product hence not serving close needs. (Porter, 1980)
In addressing the substitutes’ competitive factor, the business will ensure that there are adequate outlets in the city to increase its brand’s accessibility. In addition, customer loyalty programs will be introduce in order to increase switching costs hence retain customers. (Kotler & Armstrong, 2004)
- New entrants
Coffee market is one of the most profitable but one that has several barriers to new entry from several factors including
- Economies of differentiation which is achieved when firms have highly differentiated their brands such that new entrants would find it difficult to march the differentiation in order to curve a niche market for themselves.
- The market also has high sunk costs in terms of the high investments required in acquiring the special equipments which can only be used in coffee processing and service. (Wallengren, 2013)
- Capital needs for business start up in the coffee house business is high considering the equipments and brand building that is required for competitiveness.
- Existing products’ customer loyalty is also a great barrier to the coffee market entry. This is due to the high differentiation for the brands that seeks to deliver unique value that earns customer trust and loyalty making it difficult for new entrants to easily capture a market. (Porter, 1980)
In addressing difficulty of entry into the market, the business will seek to raise adequate capital and engage in products’ differentiation to deliver unique value to its target segment.
- Suppliers bargaining power
Inputs suppliers are great determiners of a business’s competitiveness in a market from their significance in determining how efficient it is in delivering products and services and the cost at which it does that. In that respect, the various factors that determines their bargaining power relative to the business are as follows (Kotler & Armstrong, 2004)
- Suppliers switching costs are high in the market since businesses seeks to create long-term partnerships with suppliers for high quality coffee delivery.
- Differentiation of the suppliers that various suppliers provide gives them a significant bargaining power over businesses.
- Coffee market inputs in California have no close substitutes hence the businesses having limited choices which increase suppliers bargaining power against them. (Wallengren, 2013)
- Suppliers in the coffee market have a significant network that provides significant strength and bargaining power from their ability to connect businesses with coffee farmers. (Porter, 1980)
Increasing bargaining power relative to suppliers will entail establishing strategic networks with key suppliers and coffee farmers in order to guarantee efficient supply and
- Buyers bargaining power
Buyers bargaining power determines the price that the sellers can charge to the customers and is dependent on various factors.
- Coffee has numerous substitutes like tea and soft drinks whose availability in California provides buyers with a significant bargaining power.
- Products’ differentiation is a means that coffee businesses seek to establish bargaining power over the buyers by providing unique brands.
- Substitute’s prices in the market are significantly low providing buyers cheap alternative products hence a relatively higher bargaining power over the coffee sellers.
- Price elasticity of coffee’s demand is high due to substitutes, availability hence giving buyers a significant bargaining power over businesses.
- Coffee has a significant number of buyers in California hence the concentration gives the seller bargaining power due to the lower coffee sellers’ concentration relative to the buyers.
- Marketing strategy
The suitable marketing strategies for California Coffee House will entail position the business suitably in consideration of the market’s competitive landscape as established by the Porter’s five forces model as follows.
The current regular coffee in the market contains additives which are a source of health concerns. Thus, California Coffee will deliver a new brand of pure regular coffee to be named “Pure Regular Coffee” whose mark will be a natural taste. This will be a differentiation factor in targeting a market segment of the aged customers who have a great concern of the health effects of additives in the current brands. (Brodie & Little, 1997)
Pricing will consider the high competition in the market hence deliver “Pure Regular Coffee” as a low cost brand that will seek to attract low income earners as well as address the problem of low cost substitutes. (Kotler & Armstrong, 2004)
Distribution of the coffee brand will be through the coffee houses which will be strategically located strategically within the California City targeting the urban customers. In addition, there will be an online order system through which customers can place an order for the brand and have it delivered to their location. (Klaus & Maklan, 2013)
Promotion will be done with an objective of informing and persuading the target segment to buy the product. This will be done through advertising, packaging as well as sample promotions. Advertising will mainly be through the traditional media through which the aged segment can be easily reached. Brand packaging will be done to create a favorable brand image with the target group through provision of materials that provide contents’ details in order for customers to identify the quality of the brand that meets their needs hence their need to identify with it. Sample promotions will be done in the coffee houses in designated times in order to introduce new customers to the brand. (Brodie & Little, 1997)
With the considered business environment in California, the suitable business model for a coffee house has been identified to be a private company owned coffee house that is financed with equity funding from business partners. Coffee market in California has been demonstrated to be at advanced stage with high competition by evaluation of all elements of Porter five forces. Therefore, suitable identified marketing strategies for the new business include those meant to address the high competition to establish a competitive advantage against the competitors.
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