Market entry strategy for Elixa cold coffee product to Australia

Exporting a Ready-to-Drink Cold Coffee Product to Australia

The following details a market plan to export a ready-to-drink cold coffee product to Australia. The product is similar to Starbucks Frappuccino, which is the market leader in the industry in America, having around 90% market share. The product is named Elixa and will be manufactured and sold in America as well as exported to Australia.

Australia as the Export Country of Choice

There are several reasons why Australia has been selected as the country of choice. Firstly, it is important to recognize that the product will also be sold and marketed in America. Australia has been chosen because of the seasonal variation compared to America, because the market leader Starbucks has not established a market in Australia, because it is a stable market and finally, because Australia is an Americanized market.

Firstly, the seasonal variation is important. As a cold product, the sales peak in summer. Because it is an off-the-shelf product with limited shelf-life the product must be continually manufactured. With the product being sold in America and Australia, the seasonal variation evens out. The peak in America coincides with the trough in Australia and vice versa. The end result is consistent demand. This means that manufacturing can be consistent.

Secondly, Starbucks has not established itself in Australia. In America, Starbucks is the market leader with around 90% market share. This makes it difficult for a new product to break into the market. Exporting to Australia is an opportunity to be the market leader in that country. This will help ensure the product delivers a consistent income and an acceptable return-on-investment for the money spent on product development and advertising. The new product can establish itself in Australia to develop that income, while slowly working its way into the American market.

Thirdly, Australia is a stable market, with political and economic stability. Australia is already a significant trade partner of America, with Australia ranked 15th in terms of exports and imports with America (Ball & McCulloch 51). Figures for 2000 show that Australia has a GDP of $445.8 billion, a GDP real growth rate of 4.7% and a per capita GDP of $23,200 (U.S. Department of State). Overall, Australia is a good market economically and in terms of future growth.

Finally, Australia is an Americanized market, aware of American culture and with many similarities to the American market. These similarities mean that product and promotional programs developed for the American market would be equally effective in the Australian market. This effectively spreads the cost of product and promotional development.

Overall, the similarities between the markets and the link between America and Australia will allow for a smooth entry of Elixa into the Australian market. The Australian market is also an economically promising one, while at the same time being low risk. Entering the Australian market also spreads the risk of Elixa by allowing it to operate outside of the Starbucks-dominated American market, but without the problems of integration that various other international markets would require.

Elixa as an Export Product

There are several reasons why Elixa is a good export product. The first reason is based on the fact that the major expense is for marketing and product development. If the product can reach a larger market, the cost of this marketing and development is spread over more product sales, achieving a cost per unit saving.

Secondly, as noted earlier, the American market is dominated by Starbucks Frappuccino. Competing in this market is difficult, especially with the brand name recognition advantage Starbucks has. Exporting is a means of breaking into this market with sales in Australia able to sustain the brand while it develops itself in America. Starbucks does not have the market dominance in Australia, giving Elixa the opportunity to dominate that market.

Elixa's sales are cyclical, peaking in the summer months. Exporting to Australia is a means of evening out American demand with Australian demand. The end result is that production remains constant throughout the year, allowing for the company to manage its manufacturing operations more effectively.

Finally, the ready-to-drink cold coffee beverage is one with a growing market. It is also a standard product with a wide potential market where no changes in the product would need to be made to enter new markets. This is beneficial as there would be no requirement to either develop the product to suit other countries or to sell the idea of the cold coffee drink to other foreign markets. The exporting to Australia could be the first step in an international exporting program, with the company later expanding to export to Europe and Asia.

Profile of the Industry

The ready-to-drink cold coffee product is a new market, one established by Starbucks with the introduction of their Frappuccino. This product was first introduced across America in 1997. By the end of 1998 Frappuccino dominated the ready-to-drink coffee category with 90% U.S. market share and a yearly sales growth of 150%. Frappuccino has effectively created a product category that previously did not exist (Fischer). In 2002, it was reported that the growth of the ready-to-drink category had continued at a near double-digit rate and now sits at around U.S.$400 million. Of this market, Frappuccino has 90% market share (Reuters). These figures and the similarity between the American and Australian market suggest that Elixa is capable of being as successful in Australia as Frappuccino is in America.

To analyze the industry further, Porter's five forces model will be applied. This involves considering supplier power, barriers to entry, threat of substitutes, buyer power and degree of rivalry.

The bargaining power of a supplier is high if there are only a few large suppliers, if the supplier's product is unique, if there is a threat of the supplier integrating forward and if the industry is not an important customer of the supplier group. These criteria do not apply to Elixa since all the required supplies are standard and readily available. The packaging, coffee, milk and other ingredients can all be obtained from various suppliers. In short, the product has its value added by the production and marketing, rather than with the inputs required. This means that the bargaining power of suppliers is low.

Possible barriers to entry include economies of scale, product differentiation, capital requirements, cost disadvantage regardless of size, access to distribution channels and government policy. Economies of scale apply to the situation, with Elixa needing to achieve significant sales to offset the cost of marketing and product development. This economy of scale will be achieved by exporting the product to Australia while breaking into the American market. Product differentiation also applies because of Starbucks Frappuccino and their domination of the American market. Starbucks has the brand recognition that gives them a considerable advantage in terms of brand loyalty. Elixa will have to spend heavily on advertising to overcome this barrier. Exporting to Australia is a means of overcoming this brand loyalty, since Starbucks does not have the same brand recognition in Australia. Capital requirements are also an issue with the majority of upfront costs needed for advertising and product development. Cost disadvantages regardless of size and access to distribution channels also apply to the situation. Starbucks may have a cost advantage due to their experience in the market. They also have access to distribution channels via their partnership with PepsiCo. This will be a factor that Elixa will have to overcome. Government policy is not likely to be an issue since Australia and America are major trading partners and the product is not one that is likely to encounter government control.

The threat of substitute products is an issue. Elixa competes with carbonated drinks such as Coca Cola and Pepsi, bottled sports drinks like Gatorade, non-coffee off-the-shelf milk products and non-carbonated juice products. Elixa has a significant advantage however, in being a coffee product. A significant amount of the population are routine coffee drinkers. In summer, Elixa is an alternative to the hot coffee products and as such, has a large market of potential customers.

The bargaining power of customers is low and so this is not a major issue in the competitive environment. This low bargaining power is because the product is differentiated from others in the market and it is not concentrated in a few large buyers.

The degree of rivalry in the industry is an issue. The direct competitor Starbucks has a significant market share in America allowing them to cut their prices or to increase advertising to prevent Elixa from successfully entering the market. The indirect competitors such as Coca Cola and Pepsi are also large competitors with the ability to cut prices or increase advertising. The one benefit Elixa has over these competitors is that it is focused only on the ready-to-drink cold coffee product. Starbucks also have their retail stores and their hot coffee products as part of their product mix and Pepsi and Coca Cola have a large range of products. This specialization gives Elixa an advantage as it can focus on one area. Exporting to Australia also helps with reducing the problem of rivalry, since Starbucks is not focused on the Australian market and, while Pepsi and Coca Cola operate in the Australian market, they also operate in almost every other country in the world. They are less likely to see Elixa's entry into Australia as a major threat and so also less likely to take action to prevent Elixa's successful entry. Elixa can then develop a marketing campaign and slowly begin to enter the American market, while the sales in the Australian market help it remain competitive as a whole.

Description of the Product

The product is an off-the-shelf cold coffee drink. It will be available in four flavors and come in one 500 mL size. The product will be marketed as an alternative to hot coffee in summer and an alternative to carbonated drinks.

Target Market Characteristics

Target market characteristics can be divided into demographics, psychographics, behavioristics and geographics.

Demographics

Age range: focus on the 18 to 40 age bracket.

Sex: product targeted to males and females, though with a bias toward the female market.

Family: single, newly married or with children.

Income: focus on mid to high earners.

Occupation: focus on professionals and white collars employees, though also extends to students and young workers.

Education: bias for college educated.

Psychographics

Social class: focus on lower middle, upper middle and lower upper.

Lifestyle: young, busy, relaxed, single, trendy, sophisticated.

Personality: ambitious, part of a lifestyle set, achievers, socializers.

Values: focus on style, image and current trends.

Behavioristics

Purchase occasion: purchased regularly as an addition to a lifestyle, as a means of relaxing and as a drink to enjoy in place of other carbonated soft drinks and in place of hot coffee products.

Benefits sought: convenience, enjoyment, relaxation, style.

User status: bias towards coffee drinkers.

Attitude towards product: positive and enthusiastic, seeing Elixa as an addition to a lifestyle.

Geographics

All regions across Australia, but with a focus on the major cities and on coastal towns.

Marketing Changes Required

The marketing changes required relate to labelling, packaging and language.

Firstly, the labelling and packaging of the product needs to satisfy Australian requirements for food products. This will involve registering the product and gaining approval based on Australian food guidelines and providing the labelling Australian guidelines require. The packaging will also need to be suitable for transport.

Secondly, the language needs to be in Australian English instead of American English, with both spelling and wording needing to be checked to ensure it is correct Australian English. This also relates to the advertising campaigns for the product.

Product Positioning

The product will be positioned as a summer alternative to the hot coffee product. The hot coffee product has the image associated with it that it helps you get through your day. Having a cappuccino with friends or relaxing with a strong coffee are ingrained images that Elixa does not have to create. Elixa will uses these ingrained images and focus on providing an alternative in the hot summer months, when a hot coffee is not a suitable option.

The position then will focus on the product as a lifestyle addition. This is particularly aimed at the middle-class, young, professional market that are interested in their appearance and in enhancing their lifestyle. To reach this market Elixa will be positioned as a convenient means of enjoying the pleasure associated with coffee drinks.

Pricing and Exchange Rate Issues

One American dollar equals around two Australian dollars, creating some exchange rate issues. The product would have to sell for twice the American price to achieve the same income. The nature of the product and its unique place in the off-the-shelf drink market does mean it can be priced higher than other alternatives such as Coca Cola and Pepsi. This is based on Elixa as a coffee product and an alternative to hot coffee. Hot coffees and cappuccinos sell for a significantly higher price than carbonated drinks, so Elixa can be priced between the two.

The majority of the value is added to the product by the advertising and brand building associated with the product, rather than by the manufacturing process. This means the wider the market the product can reach, the more cost-savings can be achieved. This makes the exchange rate issues worthwhile, since Elixa is in a position to dominate the Australian market.

Promotional Plan

The promotional plan will focus on the target market of middle-class and higher coffee drinkers and young professionals. The message will be based on presenting the product as a lifestyle enhancing product and specifically as an alternative to coffee in summer.

The promotional plan will involve placing advertisements in magazines that reach these target markets, such as young women's magazines like Cosmopolitan. The promotional plan will also involve billboards and television advertisements.

The advertisements will focus on the social and lifestyle issues, such as showing a group of young people sitting drinking Elixa at the beach. This presents the summer image and the social image. It also implies a comparison between sitting with friends at a cafe having a coffee and sitting around informally with friends. The cafe scene is one that has meaning for people and suggests the social side of the coffee drink. Having this scene recreated but in a more relaxed setting puts the focus on Elixa as being a friendly addition to a lifestyle. Showing the beach represents the coastal living of Australia.

Other ads can also focus on the city living of Australia. This can depict the same scenes but rather than have the beach as the setting it will show other cultural events such as sitting in a park or sitting at the art gallery enjoying Elixa with friends. These scenes also focus on the social aspect of coffee drinking, target the young professional group and focus on Elixa being a more relaxed way to enjoy a coffee drink.

Distribution Issues? The product is being marketed as an alternative to the hot coffee so needs to be as readily available as a hot coffee product. The product needs to be available in all retail stores, cafes, service stations and needs wide distribution. In short, anywhere that stocks Coca Cola should also stock Elixa. To achieve this, distribution will need to be managed by partnering with a company in Australia that can distribute the product to this wide range of retail outlets.