Market Expansion Strategies for Coffee Shop

This assignment analyzes the strategies needed for a coffee shop called Marvin and Smith's to expand into a new market. It examines issues such as gaining competitive advantage through cost leadership, product differentiation, or defensive strategies. The analysis also considers financial aspects like utilizing current assets, exploring debt funding, and improving profitability by reducing indirect expenses. Additionally, it highlights the importance of analyzing the external business environment for favorable conditions during expansion.

BUSINESS ESSENTIALS

Table of Contents
INTRODUCTION...........................................................................................................................1
ASSIGNMENT ...............................................................................................................................1
1. Research for selecting country...........................................................................................1
2. Marketing Mix....................................................................................................................2
3. Impact of different issues...................................................................................................4
4. Analysis of financial information.......................................................................................5
5. Summary.............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
According to the topic there are various essential components which are to be considered
for the expansion plan by each business unit. Similarly, Marvin and Smith want to expand their
coffee shop in the country of European Union. So the report will help in selecting the country,
the marketing mix strategy, the various related issues which can take place while expansion.
ASSIGNMENT
1. Research for selecting country
In the present scenario, the coffee shops are growing rapidly and it has also become the
favourite place for public. They can spend their time at coffee shop easily. Therefore, the
demand of coffee has been increased in the market. Marvin and Smith's coffee shop is also
looking for the same(Huang and Sarigöllü, 2014). They want to expand their business into the
country of European Union (EU). But they want to select that county which can supply coffee
beans at the affordable price so that they can generate more profits. They are finding the location
(country) where the demand is high.
As per the requirements of Marvin and Smith, the country Denmark of EU is suitable for
expansion plan as compared to other countries. The demand of coffee in Denmark is very high.
People like and prefer to go to coffee shops. On the following grounds, justification can be done
for the selected country with respect to the expansion. Logical consideration –The people of Denmark are having highest purchasing power.
They live life in a luxurious way and do not compromise in it. They prefer to go for
hangout, party or spent their time into the coffee shops(Riasi, 2015). They go for high
quality products. And similarly with the services that means good and high quality.
Marvin and Smith maintain their quality and provide better services to the customers. The
youth is highly attracted towards coffee shop. If M&S (Marvin and Smith) expand their
business in Denmark then the response would be positive from the side of people. Ethical consideration – On the ethical ground, the people are very ethical in this country.
Ethical consideration involves individual and at societal levels. The individual gets
influenced by the code of conduct of business Laws of the country reflect the way of life
of a society or community. The laws in Denmark are very ethical and fair. Hence, the
ethos of the society can be taken as the basis of those laws . The other business units offer
their products and services at fair prices with good quality. Business cannot cheat on the
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part of manipulation, unfair trade practices etc. with the people in such an ethical
environment of the country. So, both the business and people perform their duty and does
not cheat others.
 Structural challenge – The infrastructure of Denmark is very advance format. They use
advanced technology in their regular life. The comfort level is high in terms of
availability of products and services. The scope of growth is very high, if business adapt
with the changing environment(Dess, McNamara and Eisner, 2016). M&S has to identify
the location and develop structure for easy availability to the people. The infra-structure
and the interior of the shop attract people. The new business unit has to create awareness
about their products and services which they are offering to public.
Therefore, it has been justified from the above research that Denmark would be
appropriate country for the expansion plan of Marvin and Smith. So that they can grow their
business with sufficient profits.
2. Marketing Mix
As coffee shops are included in the service industry so their marketing mix consists of 7
P's in comparison to product marketing mix of 4 P's. The service marketing mix assumes that its
service is a product(Berger and Roman, 2015). Therefore, three more P's have added on this
which shows and required for the optimum delivery of service. The 7 P's of marketing mix are as
follows:
 Product – The product for service marketing mix is its services which are intangible in
nature. Usually, the blue print of service defines the service product. Like in coffee shop
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the product of service is coffee. Therefore, the service product has to be designed with
care and as per the requirement of the customer. The quality service in the restaurant
attracts more customers. M&S has to design its service product in a differentiated manner
as compare to other competitors so that customer can find something new and
worthwhile. The services of the company should be provide effectively and efficiently. Place – The suitable place for offering services is where the service product can be
available easily. So, the cost of acquiring that product is less and business can maximize
its profit margin. The surrounding location also affects the business activities. So, M&S
should go with appropriate location, like it can expand in Copenhagen (capital of
Denmark). The procurement of coffee beans is not so high in cost and easily available.
Hence, the cost of service product would be minimized and can offer it at reasonable
price. Price – Pricing of service is more difficult than setting price for product. In products, the
direct and indirect cost can be easily added in determining the price. But in case of
services, people can be priced only for that the services which they are rendering. So,
M&S should adopt that pricing strategy which is beneficial for business as well as
society(Lu and et.al., 2016). It can adopt pricing at a premium strategy. As people of
Denmark are highly spendable in the luxurious things so they can prefer to premium
prices. Promotion – The more critical factor in service marketing mix is promotional activities.
In this case, generally the brand of service which makes it apart from its counterpart. In
this case of expansion, M&S should go with such promotional strategy which attracts
customers and they can know about the products and services which are offering by
them. Something different as compare to other competitors affects the customer more. It
can go with social media advertisement. People – The persons or employees who are providing services fall into the element of
people in the service marketing mix. Like in restaurants, the waiters who serve the
customers are come into direct contact with them. So, this affects customer directly when
they give feedbacks. M&S must hire skilled employees so that customer can get better
services. Company should control absenteeism and employee turnover rates which
negatively affects the performance.
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 Process – The process of service includes the way in which a service is delivered to the
final customer. The process element of marketing mix should be like delivery of service
is optimum and without a loss of quantity. M&S must adopt a process of service in which
it can offer its product and service in a very effective manner.
 Physical evidence – As it has been said earlier that services are intangible in nature. To
make customer experience better the tangible elements are also delivered with the
service. Like in a coffee shop, which has tables and chair, the lightning ambience all
these are to be included in the physical evidence. This makes the services more valuable
and different. Therefore, M&S should develop its infra-structure in such a manner so that
customer can feel that the offered services are worthwhile.
The above mentioned elements of marketing mix can help to company for its upcoming
project. And get to know about what it should go for more effectively and efficiently.
3. Impact of different issues
Expansion in different country is not an easy task. Business like Marvin and Smith has to
face different types of issues for wider geographical area. The issues are interlinked with each
other. The impact of issues and its interlinking are discussed below:
Gaining competitive advantage – Taking advantage in the competitive market is very big
challenge for a new business. Every business is continuously seeking for the competitive
advantage in the existing marketplace(Sorkin and et.al., 2015). The correct analysis of this issue
can lead to business at highest position. There are various ways through which Marvin and Smith
can take competitive advantage in new market. Some of the ways are as follows: Cost leadership – This tool can be used when business is able to offer same quality
services as its competitors but at lower price. Most of the time cost leadership strategy
proves successful for the new business. It is in the hands of business that how they
manage their cost with standard quality. The company can cut-down its cost by adopting
near location for acquiring the product. Like in case of Marvin and Smith's coffee shop
they require coffee beans from the supplier, they can select that supplier which is offering
best quality product at lower cost. Differentiation – The another option for gaining competitive advantage is through
product or service differentiation apart from competitors. Business like M&S can
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differentiate themselves in terms of advertising, offering services or interior design etc.
This strategy can be proved successful when its implementation is correctly.
 Defensive strategies – This strategy is closely related to the cost leadership and
differentiation strategy. Because in some sense, it allows business to further distance
itself from its competition to maintaining competitive advantage what it has gained. This
strategy can be beneficial if the competitor is more powerful.
Personnel and managing staff – Management of personnel and staff in service industry (like
hotels, restaurants, etc.) is most important thing, as these are the essential part of the business.
They directly deals with the customer and feedback from customers are totally depend on the
services which has rendered by them. Marvin and Smith manages its staff and personnel very
effectively. Their staff are satisfied with all the aspects and work sincerely at their coffee shop. If
any conflict arises among the staff members then the manager of the business resolves it
immediately. But in case of expansion it must have hired with good quality personnel with
required skills. So that they can survive in the new market.
Both the issues which have mentioned above are interlinked. As if company focuses only
on gaining competitive advantage and put more work load on staff or employees for positioning
into the market then the staff get stressed and might be they don't perform as well. It also can
happen that staff turnover take place which directly affects the service oriented businesses. And
on the other side, if company focuses only on managing staffs then it may happen that it loose
opportunity of taking competitive advantage. Therefore, company has to manage both the issues
equally. By adopting competitive advantage company can build its position in the new market.
4. Analysis of financial information
By analysing the financial position company can identify its liquidity in cash and overall
profitability. This will be helpful in identifying the funds which are available in the company and
how much are require for outsider loan. The ratio shows the financial status of the company
which affects its expansion plan.
Ratio analysis of Marvin & Smith’s statements for the year of 2015 is as follows:
Particulars Formula 2015
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Profitability ratio analysis
Gross profit 208000
Net profit 26800
Sales revenue 360000
GP ratio GP / net sales * 100 58%
NP ratio NP / net sales * 100 7%
Liquidity ratios
Current assets 35400
Inventory 8000
Current Liabilities 6200
Quick assets 27400
Current ratio CA / CL 5.71
Quick ratio Quick assets / CL 4.4
Return on capital [Net profit/ (total 25.09%
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employed (ROCE)
assets- current
liabilities)]*100
As per the above calculations of profitability and liquidity ratios, it can be assessed that
M&S's gross profit ratio is 58% and net profit ratio is 7%, which shows the direct expenses are in
controlled as compared to indirect expenses. Company needs to improve its net profitability ratio
with minimization of its indirect expenses and try to earn from indirect incomes, like through
investments it can generate income in form of interest. And as far as liquidity ratio is concern of
the company, then it is having high liquidity(J. Parrino and K. Greenslade, 2014). Its current
ratio is 5.71:1 which is very high as compare to the ideal ratios which is usually at 2:1. And its
quick ratio is 4.4:1 is also very high in comparison to ideal ratio which is normally at 1.5:1. Both
the ratios of liquidity leads to high availability of cash in the company.
Return on capital employed (ROCE):- It is profitability tool to determine efficiency and
profit earning capacity of firm by determining ratio of net operating profit to employed capital.
However, it is beneficial for gaining long term profitability of organization to sustain its good
reputation of market. On the behalf of this, return on capital employed tool, manager of entity
makes decision for further business operations.
For the purpose of expansion it can easily use its liquid cash into new project. If still
require funds then it can go for debt loan from commercial banks or financial institutions where
interest rates are reasonable. M&S is required to increase its net income through new expansion
plan. It has to work up on its sales promotional strategies so that its sales go up in the new
market. By using the debt instrument it can manage its solvency level. In the balance of new
business then its liquidity and profitability should be maintained. Company can manage its fund
efficiently through liquidity and also from debt.
5. Summary
Marvin and Smith's coffee shop can go for expansion plan. It can expand its business in
the country of European Union i.e. Denmark. On the basis of logical, ethical and structural
consideration this country would be best for expansion strategy. The business has to comply with
the 7 P's of service marketing mix which are product, price, place, promotion, people, process
and physical evidence. If company focuses on these components then it will definitely grow into
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the new marketplace of Denmark. The more appropriate place for new project is Copenhagen
which is the capital of Denmark. It can go with the social media advertisement for its
promotional strategy. As people are more depend on new technology which provides them lot of
information about the new products and services which are available in the market.
The process of delivering services must be applied effectively so that the footfalls of
customer may increase. And also put focus on the physical evidence like structure and ambience
of the shop should be attractive to the customers(Tsai and et.al., 2016). While entering into new
market with existing product and services, company has to face different issues which are
interrelated. Issues like gaining competitive advantage and managing personnel and staff are
interlinked. According to the above analysis of financial information company can expand its
business by using current assets into it. And can go with debt funding if the requirement of fund
is more. But company needs to improve its net profitability by reducing its indirect expenses.
In the new market it has to perform at the best level by adopting different strategies of
competitive advantage like cost leadership, product differentiation strategy or defensive strategy.
For expansion Marvin and Smith's coffee shop would require various resources from the society
and environment. Company would require to analyse the external environment which affects the
operational activities of the business. The business environment should be favourable in case of
expansion.
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REFERENCES
Books and Journals
Huang, R. and Sarigöllü, E., 2014. How brand awareness relates to market outcome, brand
equity, and the marketing mix. In Fashion Branding and Consumer Behaviors (pp. 113-
132). Springer New York.
Riasi, A., 2015. Competitive advantages of shadow banking industry: An analysis using Porter
diamond model. Business Management and Strategy. 6(2). pp.15-27.
Dess, G. G., McNamara, G. and Eisner, A. B., 2016. Strategic management: Creating
competitive advantages. McGraw-Hill Education.
Berger, A. N. and Roman, R. A., 2015. Did TARP banks get competitive advantages?. Journal
of Financial and Quantitative Analysis. 50(06). pp.1199-1236.
Lu, I. Y. and et.al., 2016. Multicriteria decision analysis to develop effective sustainable
development strategies for enhancing competitive advantages: Case of the TFT-LCD
industry in Taiwan. Sustainability. 8(7). p.646.
Sorkin, J. E. and et.al., 2015. SEC issues Staff Legal Bulletin after four-year comprehensive
review of proxy system. Journal of Investment Compliance, 16(1), pp.63-65.
J. Parrino, R. and K. Greenslade, K., 2014. Tweeting corporate disclosures: SEC staff issues
guidance permitting hyperlinks to cautionary statements and legends in social media
communications. Journal of Investment Compliance, 15(3), pp.28-31.
Tsai, J. and et.al., 2016. Lymph node ratio analysis after neoadjuvant chemotherapy is
prognostic in hormone receptor-positive and triple-negative breast cancer. Annals of
Surgical Oncology. 23(10). pp.3310-3316.
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