Sunday, May 23, 2010

No. 6: Essential of business

Starbucks moved into the instant coffee business and introduced packaged instant coffee under the brand name of VIA in the U.S. and Canada. As part of the strategy to shore up the sluggish sales cause by stagnant economy worldwide, the company introduced packaged instant coffee for less than one dollar per package, appealing the low price and convenience to consumers. The company sells this product not only at its coffee shops but also at retailers. When the main business slackens, many companies often plan to sell a new product outside of its business domain to the existing customers, and they mostly introduce a reasonably-priced product in the initial stage. Occasionally, however, the popular-priced product impairs the brand image that the company established after many years’ hardship.

A company is often too proud to ask itself if a new product that bears the same brand name but does not belong to the existing business domain attracts consumers. Starbucks coffee is not the same coffee offered by McDonald’s. The former is higher in price than the latter because consumer can enjoy it in the refined and polished atmosphere in exchange for a little bit higher price. That is, Starbucks’ coffee is a product organized by coffee and the atmosphere created by customers. You can drink instant coffee in office and extract coffee using imported coffee beans at home. What is more, Starbucks has to consider seriously the profit margin it has to pay to distributors, wholesalers, and retailers. It is absolutely necessary to give them a good profit margin to make them profitable. None of the three players are interested in a product that cannot give them a fancy profit margin. That is, a low-priced product cannot impress them well because it gives them a low profit margin. It is important to know that marketing packaged instant coffee through the distribution channel is essentially different from making consumers enjoy delicious coffee in the well-organized atmosphere.

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