Identifying Your Competitive Set = Solutions

Link to the student activity: Identifying Your Competitive Set

Note: This is a FREE solution – which is provided for instructors’ review when considering a GITM Membership.


Suggested Solutions/Teaching Approach

1 = What did you identify as the core need of coffee and what benefits does it provide for consumers?

There are multiple possible core needs that students could identify. In regards to core needs, we looking at the main need that is being provided by the product. Some possibilities are:

  • Fast, easy, pick-me-up morning beverage
  • Energy-boosting beverage
  • A morning social drink

Some of the key benefits of instant coffee are:

  • Energy boost
  • Refreshing
  • Easy to prepare
  • Convenience
  • Relative low cost
  • Socially acceptable
  • A social beverage
  • Some health benefits
  • Tasty
  • May suppress appetite?
  • Helps people maintain mental attention
  • Provides a nice break
  • May improve a person’s mood
  • Helps people stay alert/awake
  • Black coffee is low in sugar/calories
  • Black coffee works well in many diets
  • Flexible with taste – by adding sugar, milk/cream, flavorings
  • And so on

2 = What is the list of competitors have you identified for the coffee manufacturer?

For direct competitors of instant coffee, this will vary substantially by country, but some of the core brands would include:

  • Nestle
  • Maxwell House
  • Starbucks (instant coffee, not in-store)
  • Folgers
  • Lavazza

For indirect competitors (substitute products), who also meet the same core need:

  • Tea
  • Energy drinks
  • Sports drinks that promote energy and reinvigoration
  • Cola drinks
  • Milk
  • Water
  • Other flavored drinks
  • Coffee milk-based drinks (served cold)

For non-beverage competitors, (substitute products), who potentially are replacement product for instant coffee:

  • Snacks or candy bars that contain caffeine
  • A morning cigarette
  • Breakfast cereal – especially eat-on-the-run variations
  • Cup of instant noodles
  • Cup of instant soup

For out-of-home competitors, again these would vary by country country, but would include:

  • Starbucks
  • McCafe (McDonald’s coffee)
  • Small and independent coffee outlets
  • Coffee vending machines
  • Soda vending machines
  • Restaurants and cafés and diners, serving breakfast

Teaching note: again it is important to keep the teaching objective in mind, which is to get students to have a broader view of competition. Therefore, the various selections of competitors are less important, provided that the students have been thinking broadly and have touched on competitors from each of the above categories.

3 = Which of those competitors, do you think, have been particularly successful in winning a greater share of coffee purchases (at your firm’s expense)?

It is UNLIKELY that direct competitors (other brands of coffee) have had a substantial impact on their sales revenues. While there is always some slight shuffling in market shares in mature markets, substantial market share changes are relatively rare – so we can generally rule out me-t0o competitors as being a major impact.

From the indirect competitors list, we would probably identify energy drinks as having a key impact on our market. Energy drinks are typically consumed earlier in the day (much like coffee) and obviously positioned around providing energy and generally contain caffeine. Therefore, in many regards, they are a variation of coffee. Obviously, they have become enormously popular, growing overall share from instant coffee.

In the same vein of energy drinks, we have also seen the emergence of energy-based candy/snack bars (often associated with diets or fitness) these are somewhat like an energy drink in a food form – and therefore become an indirect competitor of coffee.

From the non-beverage list, we could identify on-the-run breakfast foods. These have emerged in recent years in the form of breakfast bars and drinkable breakfast cereal. They provide a morning pick me up, fast and convenient, relatively low-priced, and several are positioned as being healthy. In combination of these benefits, they provide a good alternative to the morning coffee.

And finally, most of the out-of-home competitors would be a concern. These offer the convenience of somebody else making the coffee, generally using high quality ingredients, providing a social and comfortable environment, and enabling the purchase of related food products.

4 = Given your competitive set, identify the opportunities and threats of this broader competitive landscape.

In Q3 above, we identified key threats from:

  • energy drinks
  • energy bars/snacks
  • on-the-run breakfast foods = breakfast bars and drinkable cereal
  • and a whole host of out-of-home competitors that provide higher quality coffee and other benefits

Some of the potential opportunities (always to minimize these threats) could include:

  • Becoming a supplier to some of these firms
  • Extending the brand into some of these product categories
  • Opening dedicated retail stores

In addition to the above ideas, other opportunities for growth include:

  • Launching products targeting higher quality focused coffee consumers
  • Tapping into the coffee pods/machines market, where people make higher quality coffee at home
  • Launching a more diverse variety of products – flavors, varieties, related products

5 = What would be dangers to a firm of defining their competitive set too narrowly (that is, focusing on like-competitors only)?

This is a key learning point for this activity. In this case if we looked at direct competitors only, we would probably not have much cause for concern and expect that our market share would remain relatively stable – which would be a BIG mistake.

By expanding our concept of what a competitor is and looking beyond me-too direct competitors, we have a much better understanding of the marketplace and are able to identify the threats more clearly.

As we saw in this activity, sales revenues are most challenged by energy drinks, new forms of breakfast foods, and the expansion of retail coffee chains. Therefore, marketers need to be reviewing their market from a much broader perspective and this will help the navigate the challenges of their true competition.


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