IDENTIFYING KEY TARGET AUDIENCES FOR COFFEE SHOP EXPANSION
Background
Company S is a coffee roasting company and wholesale distributor, generally partnering with regional cafes. While brands like Dunkin Donuts inhabit one end of the coffee shop spectrum with their emphasis on the functional attributes of coffee, Company S positions itself on the other end with coffee that attempts to touch upon all five levels of the value-hierarchy.
As many other coffee companies, Company S has begun to position itself as a “third place,” neither a home nor a work environment, and embraces coffee-drinking as an experience above functionality. Company S also emphasizes fair trade and direct trade coffee. Most of all, Company S believes that quality is more important than quantity, which is why it invests so much time and money into the overall process. All the components--sourcing, producing, roasting, etc.--are meticulously executed to ensure the best flavors and experience. The brand focuses on detailed variables that might affect the overall outcome: location of the coffee farm, constant temperatures while roasting, variety of coffee trees, and more.
To remain competitive, Company S wants to expand its own chain of coffee shops. Who should they target?
Research Objectives
Gather and analyze data about consumer attitudes and behaviors with regards to coffee
Classify similar coffee consumers into segments
Provide actionable insights and identify key segment(s) for Company S to target in its expansion
Methods
Survey
A survey was designed to gather information in order to better understand the audience and segment individuals into similar groups, or clusters.
The variables below address opinions regarding multiple aspects of coffee and coffee shops:
I primarily drink coffee for its caffeine content
The price of coffee influences my decision to purchase it
It is important the the coffee I purchase is fair trade
I enjoy the atmosphere of coffee shops
I do not care about how my coffee is processed
I prefer to brew my own coffee at home
I like to have food with my coffee
Survey participants included twenty-one (21) young adults, primarily college students aged 18 to 22*. Participants were asked to respond on a 5-point Likert Scale — with answer options ranging from “Strongly Disagree” to “Strongly Agree.”
Cluster Analysis
IBM SPSS Statistics’s agglomerative hierarchical cluster analysis function, as opposed to k-means clustering, was used to identify key groups of similar individuals. Unlike k-means clustering, hierarchical clustering does not make as many assumptions about the data distribution (e.g. number of existing clusters). Both methods calculate the distance between pairs of data to measure similarity. The more similar points are, the closer they are. Nearby points are thus grouped together into clusters.
Results
Survey Responses (Clustered)
Five total clusters were identified based on the output.
For each cluster, the mean of the responses to each variable was calculated to identify characteristic attitudes and behaviors of each cluster.
Below are the clusters, as well as a brief description of each (click to see more details for each cluster):
+ Cluster 1 - Energy Enthusiasts
Respondents appear to value the core benefits of coffee and coffee shops
All respondents “strongly agree” that they consume coffee primarily due to its caffeine content and are rather price-sensitive. Coupled with their prioritization of caffeine, one can infer that the respondents look for basic utilitarian properties over other attributes such as the café environment. This group also did not find it “important that the coffee [they] buy is fairtrade” and “[did] not care about the way that [their] coffee was processed." These two variables fall into the “basic product” level of the value-hierarchy, and do not seem to significantly concern these respondents.
+ Cluster 2 - Service Seekers
Respondents appear to value convenience in addition to the coffee's core functional benefits
While they all “agree” that that caffeine is the primary reason they purchase coffee, their purchases are not as influenced by price. Instead, their average response to Variable 4 indicates that they enjoy the atmosphere of coffee shops, and their average response to Variable 6 indicates that they do not prefer to “brew their own coffee at home.” This implies that they like the basic product, as well as the environment that it comes with.
The basic product function may be what they are primarily seeking, but the atmosphere, and perhaps convenience, is a bonus that they appreciate, especially since they do not prefer to brew their own coffee at home. However, their preferences for additional attributes do not seem to extend beyond the self; they do not regard Variable 3 (fairtrade values) or Variable 4 (coffee processing) pivotal to their decision to purchase coffee.
+ Cluster 3 - Coffee Experiencers
Respondents appear to value add-ons like the coffee shop atmosphere and attributes like coffee processing, but care less about the core benefits
This group of respondents did NOT primarily purchase coffee for its caffeine content. They seem to be more interested in other factors like taste and quality, as they do consider and care for the way coffee is processed. Their responses to Variables 4 and 7 show that they enjoy the coffee shop atmosphere and prefer to have food with their coffee. While preference for food pairings may be due to factors like caffeine-sensitivity, the correlation of Variables 4 & 7 suggest the relation to ambiance. Like the first two clusters, their decisions do not appear to involve considerations beyond their personal impact, excluding the outlier Respondent 17.
+ Cluster 4 - Conscientious Coffee Lovers
Respondents' decision-making processes are affected by many variables, including ones that do not impact themselves directly
Caffeine content plays a sizable but not necessarily primary role in the respondents’ decisions to purchase coffee, and respondents are fairly price-sensitive.
This cluster’s most characteristic traits are that the group cares about the product’s impact on others, like foreign workers, involved in the coffee-making process, and it is the only group that seems to prefer brewing coffee at home.
These individuals are likely very conscientious and thoughtful when it comes to making decisions to purchase coffee.
+ Cluster 5 - Convenience & Quality Seekers
** Respondents seem to care about both convenience of coffee shops and coffee processing**
This group is slightly inclined to agree with the statements regarding caffeine, price, and fair trade influence. The strongest preferences emerge from their average response to Variables 4 & 6 -- they enjoy the coffee shop atmosphere and prefer NOT to brew coffee at home by themselves. These responses reflect a preference of coffee-brewing services, possibly for convenience. Since they also enjoy the coffee shops atmosphere, these respondents are likely to go to a coffee shop to purchase their coffee. Unlike Cluster 2, however, the respondents also care about the coffee's processing, suggesting a preference for quality.
Dendrogram
This dendrogram is a type of tree diagram that visualizes the clusters.
The horizontal axis represents the distance (dissimilarity) between clusters, while the vertical axis represents the respondents.
Recommendations
For the purpose of demonstrating a possible course of action, the recommendations section assumes that the above results are representative of the population.
However, it is worth highlighting that the participants in this study are all of a similar demographic — comprised primarily of upper middle class undergraduate students between the ages of 18 and 22.
For a real-life application — so that the company may have comprehensive data to make the most effective decision — this study should be replicated with a greater number of participants from backgrounds that are representative of the market’s population.
As the objective is expansion of physical coffee shop locations, Company S should target areas of high potential growth — namely Clusters 2 & 5.
Members in these segments will likely boost sales since they enjoy the atmosphere coffee shops and care about coffee processing. However, they prefer to brew coffee themselves at home, so they will likely favor having physical “third place” location.
A distinguishing variable that will contribute to Company S’s success is its emphasis on sustainability and fair trade. Though Cluster 2 & 5 individuals show a moderate preference for this. According to Mintel, increasingly more consumers rely on businesses to be sustainable and fair. These people feel that it is the responsibility of the business to minimize their negative impact and make the world a more just and environmentally-friendly place. As of 2018, the top American chain coffee shops are Starbucks and Dunkin Donuts — neither of which are as sustainable or fair trade-oriented, with a measly 8.5%** of Starbucks’ coffee being fair trade. This is a good time for Company S to begin its expansion.
Clusters 2 & 5 also valued the coffee shop atmosphere. Company S may want to further investigate what kind of atmosphere is most favorable. It is assumed that the respondents’ attitudes are based on their personal experiences. A follow-up survey could be sent out to respondents classified as Clusters 2 & 5 to identify specifics.
Company S should also address components of service to appeal to Clusters 2 & 5, since this target segment does not prefer to brew their own coffee and will likely be on the lookout for a more professional brewing experience.
While Cluster 4 seems to match perfectly with Company S’s values, this segment is likely to have already been captured. This segment also seems to prefer to brew its coffee at home, which is unlikely to help the company expand its chain of coffee shops as much as other clusters and would be better targets of a campaign for at-home brewing.
**Starbucks claims that their coffee is 99% ethically-sourced, but Fair Trade America has certified only 2 of their coffees