Horizontal Differentiation in the UK Coffee Shop
Market
Horizontal Differentiation in the UK Coffee Shop Market
“In the presence of horizontal product differentiation, there is a tension between the desire to weaken price competition and the desire for increased market share.” Explain this statement. Critically evaluate its implications for corporate decision-making regarding the specification of products by analysing, in the context of real-world industry of your choice, the product specification chosen to serve the same market by each of two or more industry rivals.
Coffeehouses first came popular in the UK in the mid-17th century with the first ones being established in Oxford in 1650. In the mid-1990s Seattle-based coffee shop conglomerate Starbucks successfully entered the UK market, which resulted in other chains making similar moves and, by the end of the 20th century, the coffee shop sector had experienced a boom, with a multitude of chains appearing on the market (Keynote, 2012). Although the majority of the coffee shops offer the same variety and quality of coffee, largely, customers prefer to visit one particular major chain of coffee shop above all others. The coffee shop chains engaging in horizontal product differentiation can explain this.
The following essay aims to explain why in the presence of horizontal product differentiation, there is a tension between the desire to weaken price competition and the desire for increased market share. Furthermore, implications for corporate decision-making of Starbucks Coffee Company and Costa regarding the specification of products will be critically evaluated. In order to do so, product specifications chosen by these two major chains to serve the coffee-shop market in the UK will be analysed.
According to Church & Ware (1999), “products are horizontally differentiated if consumers have heterogeneous preferences regarding the most preferred mix of different attributes – there is no agreement among consumers regarding which particular product or brand is
“In the presence of horizontal product differentiation, there is a tension between the desire to weaken price competition and the desire for increased market share.” Explain this statement. Critically evaluate its implications for corporate decision-making regarding the specification of products by analysing, in the context of real-world industry of your choice, the product specification chosen to serve the same market by each of two or more industry rivals.
Coffeehouses first came popular in the UK in the mid-17th century with the first ones being established in Oxford in 1650. In the mid-1990s Seattle-based coffee shop conglomerate Starbucks successfully entered the UK market, which resulted in other chains making similar moves and, by the end of the 20th century, the coffee shop sector had experienced a boom, with a multitude of chains appearing on the market (Keynote, 2012). Although the majority of the coffee shops offer the same variety and quality of coffee, largely, customers prefer to visit one particular major chain of coffee shop above all others. The coffee shop chains engaging in horizontal product differentiation can explain this.
The following essay aims to explain why in the presence of horizontal product differentiation, there is a tension between the desire to weaken price competition and the desire for increased market share. Furthermore, implications for corporate decision-making of Starbucks Coffee Company and Costa regarding the specification of products will be critically evaluated. In order to do so, product specifications chosen by these two major chains to serve the coffee-shop market in the UK will be analysed.
According to Church & Ware (1999), “products are horizontally differentiated if consumers have heterogeneous preferences regarding the most preferred mix of different attributes – there is no agreement among consumers regarding which particular product or brand is
References: 1. Blatchford, J. (2011). Costa Coffee vs Starbucks – Differentiation. Available: http://manifestedmarketing.com/2011/03/07/costa-coffee-vs-starbucks-differentiation/. Last accessed 6th Apr 2013. 2. Church, J and Ware, R. (2000). Product Differentiation. In: Tom Thompson Industrial Organisation: A Strategic Approach. United States of America: Mc Graw-Hill. 367-422. 3. Keynote (2012) Coffee & Sandwich Shops: Market Assessment 2012 Available: http://www.keynote.co.uk.ezp1.bath.ac.uk/market-intelligence/view/product/10512/coffee-%26-sandwich-shops?highlight=coffee+%26+sandwich&utm_source=kn.reports.search. Last accessed: 8 Apr 2011. 4. Our Starbucks Mission Statement. (2013) Available: http://starbucks.co.uk/about-us/company-information/mission-statement. Last accessed 8th Apr 2013. 5. Self-serve costa coffee for your customers. (2011) Available: http://www.costa-business.co.uk/costa-express/. Last accessed 8th Apr 2013. 6. Zaouras, M. (2012). David vs. Goliath: Product Differentiation and Chain-Stores ' Effects on Independents. Available: http://www2.warwick.ac.uk/fac/soc/economics/candidates/zaouras-jmp.pdf. Last accessed 7th Apr 2013.