A Proposal For New Database Marketing For Second Cup Table of Contents &Team Members: ? History ? Philosophy ? Objectives ? Target Market ? Situation and SWOT Analysis ? Strategy ? Tactical Requirements ? Database Requirements ? LTV Estimation ? Conclusion ? Appendix The Team ? Tulika Roy ? Sibil Samuel ? Arnab Banerjee ? Gunvir Singh Sethi ? Amanjot Singh Sandhu A New Database Marketing Proposal: A research on History Second Cup started as a company in 1975 as a shopping mall kiosk that only sold whole bean coffee. Second Cup still lags behind in sales and international representation after all these years.
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In the Canadian market, however, Second cup has become the largest Canadian owned specialty coffee retailer. Second Cup has spread to 360 coffee shops across Canada and 15 coffee shops internationally in countries such as Turkey, Lebanon, Kuwait, The United Arab Emirates, Saudi Arabia and Oman. (Second Cup Coffee, 2000) The Second Cup’s menu has over 30 premium coffees, specialty beverages as well as complimentary food items. In 2002, Second Cup became part of the Cara operation family chain of restaurants. (Second Cup: Our Story, 2008).
Philosophy “Our philosophy is to continually improve our business by revisiting our products, systems and procedures: developing new products and services; improving facilities; sustained training; effective marketing; and more efficient purchasing. Most importantly, Second Cup has a unique understanding of how to bring coffee to the people across different cultures, locations and environments. Our team brings forward a passion for coffee and we expect it to be yours too”. This is the philosophy that Second Cup believes in and wants their customers to know.
Objectives Second Cup is mainly an all Canadian cafe brand that serves different types of coffee products, drinks and foods in order to satisfy its customers’ varied needs. Their main objective is to provide their customers with an unique cafe experience and in doing so they has to follow some other sub-objectives such as: ? ? ? ? ? Maintaining their brand image through good services quality products. The consistency in providing services and quality products, so that every customer get the same experience in a Second Cup Cafe anywhere in the world.
Second Cup is the leading specialty coffee brand in Canada as well as in the world which they have maintained for a long time. Second Cup has a proven design and concept which makes them unique from other coffee shops. They aim to acquire customers through quality of product and satisfaction. Target Customers/Market Second Cup’s target segments are the early twenties to their mid to late thirties. This bracket consists of a mix of generation Y and X consumers, and is concentrated primarily between the two generations. Their primary clients are women. They contribute to the Foster Parents Plan to help children in developing countries.
They also provides a wide range of fat free or low fat items, in an attempt to attract customers who are trying to maintain a healthy lifestyle. The main focus of Second Cup is in capturing the morning office goers. Now according to census women are significantly increasing in the total workforce in Canada. That may be the reason for Second Cup to be a bit biased in targeting mainly the female coffee drinkers. The age groups they target are between 25-34years. This doesn’t mean that they don’t want male customers, it is just strategy to target women office goers who normally commute in the morning.
With its vast range of products to serve people with, Second Cup consists of a varied range of customers. Situation Analysis Company and Product Analysis Second Cup’s concept is in line with Starbucks and it offers a unique coffee experience. Second Cup stores are furnished and are often filled with people studying and meeting for a coffee. Competitively speaking, from a financial standpoint, Second Cup is not performing as well as Starbucks. However, the company is growing and presently has nearly 300 stores in Canada. Metropolises such as Toronto and Montreal have a heavier concentration of
Second Cup stores and are often located very close to Starbucks cafes. The coffee served in Second Cup is also high quality and the drinks available strongly rival those in Starbucks. In the past decade there has been an explosive growth of 157% in the area of coffee shop market. Canadian coffee market share, new companies have limited to no space for growth in North America. Second Cup’s market share at the Canadian market is about 8%. Upon these facts and analysis there is an unlimited growth possibilities in the coffee market in Canada.
There are different factors that do influence in the purchase of coffee from these outlets and the the way these coffees are priced. Customers are reluctant to get coffee from these outlets as the prices are too high than the coffees that could be made at home. There is a huge conflict between the pricing of coffees at these places and homemade ones. Coffee shops are determined to serve the best quality coffees which are been imported from South America and Africa, due to the rise in oil prices transportation charges have also been increased.
And also due to different global climatic conditions the prices of these gourmet coffee beans have been increased. Competitive analysis There are different types of competition in the market for coffee. There are usually a multitude of coffee shops of different types and ownerships to supply for the highly concentrated demand. The most important Canadian competitor for Second cup would be Starucks and Tim Hortons. Starbucks and Second cup is priced almost equally with same competition level.
But Tim Hortons is centered around price oriented marketing strategy, although Tim Horton’s does not provide the options of ordering high-scale, espresso type coffees, it is a significant competitor when it comes to attracting the regular consumers who might be less knowledgeable about coffee and only acknowledge the price difference. There are also other small competitors. Other, less significant, competitors in Canada are Timothy’s, Le Caffuccino, and other locally owned small size coffee shops, with their main competitive edge being their small size and the personality associated with each shop.
Marketing Strategy Positioning Strategy Second Cup’s logo and image is becoming recognizable in Canada. Second Cup is sometimes considered to be “Canada’s Starbucks”. Presently Second Cup is beginning to sell its coffee to Canadian supermarkets. Conveniently pre-ground, pre-packaged coffee is available at the kiosk. Currently, Second Cup is a hit in the Middle-East even though it is uniquely Canadian. The success that Second Cup is seeing in the Middle-East is due to market intelligence, clever promotion of a Canadian product and strong partnerships in the region.
While successful branding is all about establishing standards, following procedures and being consistent, Second Cup has had to make some adjustments to suit the demands of its new clients. While only about 30% of Canadian clients stay in the cafe to consume their purchases, 90% of Middle Easterners do. As a result, cafes there are larger, and the design and layout are modified, with a focus on comfort rather than volume and speed. This is unique because Second Cup’s positioning in the Middle-East is different than the positioning in Canada. Product strategy Second Cup presents their products in a different light.
It focuses and invests most of its resources in portraying the ideal Canadian coffee shop with an inviting interior design. Although providing fresh and good quality coffee for their clients is one of their priorities, the utmost essential for Second Cup is the overall experience of buying and enjoying the coffee. Second Cup Ltd. utilizes a contractual vertical marketing system for its distribution channel. Second Cup Ltd has chosen to franchise retail outlets, as opposed to maintaining complete control over them. Over ninety per cent of the retail outlets are franchised out, making it Canada’s largest specialty coffee cafe franchisor.
In order to maintain consistency and high quality service, Second Cup has provided its franchisees training and instructions for how to make its menu items. Second Cup has no long-term contracts with coffee bean suppliers and thus has little control over the price they may have to pay for coffee at any given time. They rely heavily on the historical relationships they have built with suppliers to guarantee the availability and quality of the coffee they obtain. (David Bloom, 2007). Second Cup does less advertising. Established in 1975, Second Cup has built its reputation on quality coffee and loyal patronage through word of mouth. Strauss, 2008) Second Cup, their growth strategies focus on Product development due to their already extensive market positioning. They consider their macro strategies to be the core focus of their cafes. Second Cup, however, is slowly gaining ground in the Canadian market, thus diminishing the monopolistic nature of Starbucks and evening out the competition. SWOT Strengths Canadian brand Market share leadership Strong brand equity Strong financial position Established logo Company operated in franchises across the world Widespread and consistent Established well over seas
Weakness Product pricing (expensive) Over leveraged financial position Ever increasing number of competitors in a growing market ? Opportunities Emerging markets and expansion abroad Online Product and services expansion Continued domestic expansion of segment Treats Product diversification Competition (restaurants, street carts, supermarkets, other coffee shops, other caffeine based products) Price wars Consumer trend towards more healthy life World situations like oil price increase, political conditions. Tactical Requirements A feature is simply a characteristic of a product. A benefit explains what the customer has to gain by using the product. – Anyone can make a list of a product’s features. But it takes a bit of work to convert each of those features into benefits. – A handy trick you can use is to add the phrase “which means… ” to the end of each feature. Features(F) & Benefits(B) F: Second Cup operates more than 360 cafes across Canada. B: Canada’s largest specialty coffee retailer. It’s easily accessible to the customers. F: Canadian Second Cup locations offer free wireless internet access. B: Second Cup targets the working people / students without hampering their work.
F: Second Cup is an International Brand. B: There are Second Cup franchises in the United States, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, Lebanon, Jordan, Egypt, the United Arab Emirates, Turkey, Syria and Cyprus . F: Second Cup Coffee attained Grader Certification through the Coffee Quality Institute (CQI). B: Second Cup is now licensed to assess and grade coffee quality; will continue to focus on sourcing, evaluating, and delivering the finest Arabica coffees to Second Cup’s guests. F: The Second Cup Income Fund was listed on the Toronto Stock Exchange (SCU.
UN) on December 2, 2004, through an initial public offering. B: This shows that Second cup has expansion and leverage on their business agenda. F: Second Cup has a number of business partners who have chosen to serve Second Cup’s coffee. B: AIR CANADA: Second Cup Corazon® coffee is served exclusively on all Domestic and International flights. DELTA HOTELS: Second Cup coffee is offered in all Canadian Delta Hotel restaurants, lounges, and bars. ROYAL FAIRMONT: Second Cup coffee is served in-room at all Canadian Pacific flagship properties of Royal Fairmont. Offers And Fulfillments
Second Cup offers free, unlimited Wi-Fi for the students, freelancers, professionals and everyone else who need internet and need a comfortable environment to stay connected. Second Cup Launches Foster Parents Plan Water -Pours support into clean water for children in coffee-growing countries. The Second Cup Ltd. has developed and introduced Foster Parents Plan pure spring water, new bottled water that will help Canadians provide children in developing countries with access to clean drinking water. Second Cup also celebrates different occasions like Mother’s Day.
Introducing Special Green Tea for Mom’s good health. Latte, Biscotti and Me! – Second Cup offers Dream Honeymoon for a Valentine’s Day Proposal Second Cup also hold contest for its customers. Like Toronto Couple wins $10,000 Honeymoon in Latte, Biscotti and Me Contest. Second Cup offered a contest where lucky winners would attend the Hollywood premiere of Marie Antoinette and have a chance to meet director Sofi a Coppola and actress Kirsten Dunst. The contest drew 8,900 entries; a strong number considering contestants had to purchase a blender drink before signing
Customer communications process and deliverables Second Cup has built its reputation on quality coffee and loyal patronage through word of mouth. The customer service process has conventionally occurred by face-to-face contact. Spending more time with the customers and giving them their requirement. Good services by understanding their customers and timely deliverables, which includes efficiency and effectiveness. Second cup also engage their customers by engaging them in various activities like arranging contest and offers for various occasions.
Compliance with privacy laws and ethical business practices Second Cup, The Second Cup Ltd. logo and other identifying marks of The Second Cup are and shall remain the trade-marks and trade names and exclusive property of The Second Cup Trade Marks Inc. , and any unauthorized use of these marks is unlawful. Other trade-marks on this website are the property of their respective owners. All content on this website is the copyrighted property of The Second Cup Ltd. (or, in certain cases, other users of this website or third party content providers) and is protected by international copyright law.
However, the company is growing and presently has nearly 300 stores in Canada. Metropolises such as Toronto and Montreal have a heavier concentration of Second Cup stores and are often located very close to Starbucks cafes. The coffee served in Second Cup is also high quality and the drinks available strongly rival those in Starbucks. For example, the caramel Coretto is a drink Second Cup offers that has no real equal in any other coffee shop. Essentially, this reveals why there will always be room for other coffee shops other than Starbucks: they can’t provide every drink.
Also, Second Cup offers an oasis concept, where they are the neighbourhood safe place to meet. Second Cup Ltd. utilizes a contractual vertical marketing system for its distribution channel. Second Cup Ltd has chosen to franchise retail outlets, as opposed to maintaining complete control over them. In doing this they believe that they allow for each location to differ from each other just enough to better suit the wants of consumers in the area. Over ninety per cent of the retail outlets are franchised out, making it Canada’s largest specialty coffee cafe franchisor.
Retail locations are generally located in high traffic areas; however the vast majority of stores are located in Canada. In order to maintain consistency and high quality service, Second Cup has provided its franchisees training and instructions for how to make its menu items. Second Cup has no long-term contracts with coffee bean suppliers and thus has little control over the price they may have to pay for coffee at any given time. They rely heavily on the historical relationships they have built with suppliers to guarantee the availability and quality of the coffee they obtain.
This may cause the consistency of the coffee to be questioned. Second Cup has also made attempts to become a multi-channel distributor, selling its coffees in select supermarkets Analysis Of Consumers Second Cup Ltd. tends to target consumers in their early twenties to their mid to late thirties. This bracket consists of a mix of generation Y and X consumers, and is concentrated primarily between the two generations. When it comes to gender, however, it appears that Second Cup appeals to a clientele that is primarily female, with women making up almost eighty percent of the patrons.
Second Cup has made moves to stay current with the social trends of consumers. Although not officially fair trade, Second Cup insists that it pays a premium that far exceeds the market price for coffee, in an effort to ensure that those who produce it are sufficiently paid. They even go a step further by contributing to the Foster Parents Plan to help children in developing countries. Second Cup also provides a wide assortment of fat free or low fat items, in an attempt to attract customers who are trying to maintain a healthy lifestyle. Creative Elements
Second Cup’s logo and image is quickly becoming as recognizable as Starbucks in Canada. To some it is considered “Canada’s Starbucks”, but to many more it is a certifiable coffeehouse that serves unique blends and tasty pastries. Its image is quaint and can be considered the “neighbourhood oasis”. Presently Second Cup is beginning to sell its coffee to Canadian supermarkets. Customized merchandising units offer a broad selection of Second Cup’s superior range of products from premium exclusive blends to popular flavoured coffees. Customers can purchase whole bean coffee or grind it to their own specifications in-store.
Conveniently pre-ground, pre-packaged coffee is also available at the kiosk. Currently, Second Cup is a hit in the Middle-East even though it is uniquely Canadian. The success that Second Cup is seeing in the Middle-East is due to market intelligence, clever promotion of a Canadian product and strong partnerships in the region. While successful branding is all about establishing standards, following procedures and being consistent, Second Cup has had to make some adjustments to suit the demands of its new clients. While only about 30% of Canadian clients stay in the cafe to consume their purchases, 90% of Middle Easterners do.
As a result, cafes there are larger, and the design and layout are modified, with a focus on comfort rather than volume and speed. This is unique because Second Cup’s positioning in the Middle-East is different than the positioning in Canada. Second Cup presents their products in a different light. It focuses and invests most of its resources in portraying the ideal Canadian coffee shop with an inviting interior design. Although providing fresh and good quality coffee for their clients is one of their priorities, the utmost essential for Second Cup is the overall experience of buying and enjoying the coffee.
Second Cup promotes vigorously their “independently owned and uniquely Canadian” image, something their main competitor, Starbucks, could never strive to achieve. Equally, Second Cup always pushes for higher sales in its coffee and tea accessories so as to further promote their products in the homes of their consumers. Database Requirements Second Cup does not need to keep a database for its customers because it doesn’t need to make individual relationship with customers. Although it is profitable from marketing point of view as relationships lead to customer loyalty and acquisition, keeping database is very expensive.
Companies like Second Cup have lot of customers and keeping all the information about them is too much consuming and non-economical. For gathering data they prefer doing market surveys and offers for customers. Recently Second Cup did a strategic program in which they structured their products more efficiently through market surveys, hoardings, and advertising in radios. LTV and Referral Program The Life Time Value (LTV) of customers of Second Cup is shown and explained below with an excel chart.
According to the data below if Second Cup does a Referral Program then their LTV will increase till 8th year(it is assumed the program is for 10 years) after that the LTV starts declining. So Referral Program should be proceeded with till 8th year. The Budget for the Program will be 143,700,000 (assuming Second Cup has 10,000,000 customers and they are doing areferral program on 2,000,000 customer). Taking all the assumptions into consideration, the figure below shows the LTV in the Acquisition Phase and Referral Program Phase. Second Cup Life Time Value Analysis 1.
ACQUISITION PROGRAM # Customers Retention Rate Spending Rate Total Revenue Variable costs % Variable costs $ Acquisition Costs ( $20) Total Costs Gross Profit No. of years ( for discount rate calculation) *Discount Rate ( Risk factor =2) Net Present Value Profit Cumulative NPV Profit Acquisition Program LTV Year 1 1,00,00,000 100. 00 $1,00,00,00,000 44% $44,00,00,000 $10,00,000 $44,10,00,000 $55,90,00,000 0 1. 00 $55,90,00,000 $55,90,00,000 $56 Year 2 46,00,000 46% 122. 00 $56,12,00,000 41% $23,00,92,000 0 $23,00,92,000 $33,11,08,000 1 1. 16 $28,54,37,931 $28,54,37,931 $62 We target to acquire 1,000,000 new customers ) Year 3 23,92,000 52% 138. 00 $33,00,96,000 38% $12,54,36,480 0 $12,54,36,480 $20,46,59,520 2 1. 35 $15,20,95,363 $15,20,95,363 $64 Year 4 13,15,600 55% 145. 00 $19,07,62,000 34% $6,48,59,080 0 $6,48,59,080 $12,59,02,920 3 1. 56 $8,06,60,672 $8,06,60,672 $61 Year 5 8,02,516 61% 150. 00 $12,03,77,400 27% $3,25,01,898 0 $3,25,01,898 $8,78,75,502 4 1. 81 $4,85,32,857 $4,85,32,857 $60 Year 6 5,45,711 68% 162. 00 $8,84,05,163 23% $2,03,33,187 0 $2,03,33,187 $6,80,71,975 5 2. 10 $3,24,09,953 $3,24,09,953 $59 Assumption for Interest rate for Discount Rate Calculation Year 7 3,92,912 72% 180. 00 $7,07,24,130 21% $1,48,52,067 0 $1,48,52,067 $5,58,72,063 6 2. 44 $2,29,32,255 $2,29,32,255 $58 Year 8 3,26,117 83% 210. 00 $6,84,84,533 18% $1,23,27,216 0 $1,23,27,216 $5,61,57,317 7 2. 83 $1,98,70,117 $1,98,70,117 $61 Year 9 2,86,983 88% 233. 00 $6,68,66,993 14% $93,61,379 0 $93,61,379 $5,75,05,614 8 3. 28 $1,75,40,676 $1,75,40,676 $61 Year 10 2,75,503 8% 96% 250. 00 $6,88,75,873 11% $75,76,346 0 $75,76,346 $6,12,99,527 9 3. 80 $1,61,18,893 $1,61,18,893 $59 2.
REFERRAL PROGRAM ( We target to use referral program on 200,000 customers) # Customers targeted for Referral program Referral Rate Referred customers Retention Rate Retained Customers Total Customers Spending Rate Total Revenue Variable costs $ Variable costs % Referral Program Costs ( $10) Acquisition Costs ( $20) Total Costs Gross Profit Discount Rate Net Present Value Profit Cumulative NPV Profit Referral Program LTV Year 1 20,00,000 0. 0% 0 100% 2000000 2000000 $140 $28,00,00,000 $12,32,00,000 44% 20000000 $5,00,000 $14,37,00,000 $13,63,00,000 1. 0 $13,63,00,000 $13,63,00,000 $68 Year 2 2000000 6. 0% 120000 46% 920000 1040000 $150 $15,60,00,000 $6,39,60,000 41% 10400000 $0 $7,43,60,000 $8,16,40,000 1. 16 $7,03,79,310 $7,03,79,310 $68 Year 3 1040000 7. 0% 72800 52% 540800 613600 $160 $9,81,76,000 $3,73,06,880 38% 6136000 $0 $4,34,42,880 $5,47,33,120 1. 35 $4,06,75,624 $4,06,75,624 $66 Year 4 613600 Year 5 392704 Year 6 276856. 32 Year 7 191307. 7171 Year 8 140228. 5566 Year 9 118633. 3589 Year 10 106888. 6564 9. 0% 55224 55% 337480 392704 $170 $6,67,59,680 $2,26,98,291 34% 3927040 $0 $2,66,25,331 $4,01,34,349 1. 6 $2,57,12,379 $2,57,12,379 $65 9. 5% 37307 61% 239549. 44 276856. 32 $180 $4,98,34,138 $1,34,55,217 27% 2768563. 2 $0 $1,62,23,780 $3,36,10,357 1. 81 $1,85,62,701 $1,85,62,701 $67 1. 1% 3045 68% 188262. 2976 191307. 7171 $190 $3,63,48,466 $83,60,147 23% 1913077. 171 $0 $1,02,73,224 $2,60,75,242 2. 10 $1,24,14,762 $1,24,14,762 $65 1. 3% 2487 72% 137741. 5563 140228. 5566 $200 $2,80,45,711 $58,89,599 21% 1402285. 566 $0 $72,91,885 $2,07,53,826 2. 44 $85,18,247 $85,18,247 $61 1. 6% 2244 83% 116389. 702 118633. 3589 $210 $2,49,13,005 $44,84,341 18% 1186333. 89 $0 $56,70,675 $1,92,42,331 2. 83 $68,08,505 $68,08,505 $57 2. 1% 2491 88% 104397. 3559 106888. 6564 $220 $2,35,15,504 $32,92,171 14% 1068886. 564 $0 $43,61,057 $1,91,54,447 3. 28 $58,42,594 $58,42,594 $55 2. 4% 2565 96% 102613. 1101 105178. 4379 $230 $2,41,91,041 $26,61,014 11% 1051784. 379 $0 $37,12,799 $2,04,78,242 3. 80 $53,84,815 $53,84,815 $51 LTV with ACQUISITION Program LTV with REFERRAL Program Change in LTV ( Referral Acquisition) Year 1 $56 $68 $12 Year 2 $62 $68 $6 Year 3 $64 $66 $3 Year 4 $61 $65 $4 Year 5 $60 $67 $7 Year 6 $59 $65 $6 Year 7 $58 $61 $2
Year 8 $61 $57 ($4) Year 9 $61 $55 ($6) Year 10 $59 $51 ($7) $68 $68 $62 $56 $64 $66 $65 $67 $65 $61 $60 $59 $58 $61 $61 $57 $61 $55 $59 $51 LTV with ACQUISITION Program LTV with REFERRAL Program Change in LTV ( Referral – Acquisition) $12 $6 $3 $7 $4 $6 $2 1 2 3 4 5 6 7 8 ($4) 9 ($6) 10 ($7) Years Conclusion The Referral/Loyalty program if undertaken will give impetus to the Lifetime Loyalty of the customers. Instead of keeping huge Database Second Cup can do this Referral Program for acquiring customers and also to keep their loyal customers and increase their lifetime value.
Therefore our proposal will be that for Second Cup the loyalty program will be a good choice to get an upper hand in the coffee market because the revenue will be good for the next 8 years. Second Cup equally considers their macro strategies to be the core focus of their cafes. Converging most of their resources and energy on customer, operational, and product excellence, they create an upscale environment which generates feelings of richness and luxury, thus driving the prices and quality up-the-roof.
Starbucks is still succeeding in overshadowing most of its competition in the United States. Second Cup, however, is slowly gaining ground in the Canadian market, thus diminishing the monopolistic nature of Starbucks and evening out the competition. It is still to be seen if the Canadian market will react in a similar way as the American market, or if, in fact, Second Cup will succeed in overpowering Starbucks’ American popularity to gain superiority in Canadian markets.
APPENDIX LINKS USED http://www. secondcupincomefund. com/2006_Annual_Report. pdf. http://findarticles. com/p/articles/mi_m4021/is_2002_April_1/ai_87109753. http://www. itworldcanada. com/a/Daily-News/00f3373f2cb8-43d6-8835-7a0e5047320b. html http://www. coffeeresearch. org/market/exportation. html http://www. strategymag. com/articles/magazine/20070401biz. html? word=second%20cup http://www. coffeeresearch. org/market/exportation. html