Folgers Coffee: A Marketing Study Term Paper

Introduction

Folgers is a subsidiary of the Proctor and Gamble Company. The coffee is in direct competition with other coffee brands as well as teas. The coffee culture is growing with new coffee machine purchases up 16% each year. The coffee machines are “closed” systems designed to be used in businesses (Tait, p1).

It is rumored that Proctor and Gamble may sell Folgers and their Duracell Battery subsidiary. It is not clear who would purchase either subsidiary or why Proctor and Gamble feel they should sell those subsidiaries.

Folgers is in direct competition with Nestles, Kraft Foods, and Starbucks Coffee.

Target Market Behavior

While marketing coffee, Folgers is actually asking customers for brand loyalty. They are marketing the name “Folgers” when they market their coffee. The jingle “The best part of waking up is Folgers in your cup” indicates that “Folgers” should be in your cup versus coffee. People are motivated to buy coffee at home as the work environments offer coffee. Coffee is addictive so purchases for the home are an obvious result of workers wanting to continue their coffee consumption when they get home

The decision-maker to purchase coffee for the home is most often the wife who shops for the family. Thus the wife is the more dominant in the coffee type purchase decision. Buyers are motivated by advertisements and marketing campaigns. They are also motivated by the coffee they are exposed to at work. Oftentimes the buyer becomes accustomed to the coffee they drink at work and wants the same for their home. Lastly, buyers are motivated by cost. If the marketing campaign uses value pricing there is more of a chance that the product will be purchased by the target market. Most purchases are rational especially if value pricing is used. But, brand loyalty will keep some buyers if pricing goes up.

Brand loyalty is built during marketing campaigns. It is easy to get customers accustomed to buying a brand by recognition. Folgers make this easy by providing identifiable packaging. Folgers uses the color red extensively in its marketing and store displays. Package design and color draw brand-loyal customers to their preferred product. An exception to this rule is the decaffeinated coffee that is packaged in green indicating that it is decaffeinated. This color is used industry-wide.

Target Market

The target market for Folgers coffee is as varied as the coffee brands themselves. Folgers are targeted toward morning coffee drinkers and those who drink coffee at work. Premium variants are designed to pull in those who buy specialty coffees. Folgers try to value price their coffee to under-price other specialty coffees. Folgers has seen significant market growth in ground coffees. But, instants remain a strong sell. Nestle and Kraft continue to dominate the instant coffee market.

The part of the target market includes the growing affluent population in the United Kingdom (MarketResearch.com, p1). The aging population of the UK favors coffee as well as those who see the beneficial health advantages of drinking coffee. This target market looks for innovation and has a taste for premium blends (MarketResearch.com, p2).

The target market is maintaining a steady growth rate, especially in volume purchases. The ground coffee market is gaining on the instant market. Pod (coffee pot) technology adds to the value of the coffee.

Office workers as well as affluent workers tend toward drinking coffee. Like cigarettes, coffee becomes an addiction and these workers need to continue to drink coffee to feel right during the daytime.

Marketing Environment

The readily available supply of coffee would influence sales greatly. Folgers needs to keep store shelves stocked, and restocked, to keep up with sales. Special positioning drives sales so Folger’s distributors need to via for key positioning on shelves. It is known that Nestle and Kraft dominate the market so market studies need to include these brands.

Economic conditions could drive sales of Folgers coffee because Folgers attempts to underprice its competitors. If Folgers can maintain quality at a lower price chances are that it could garner a larger market share if coffee prices rise. Demographics support that more people are drinking coffee and as they join the aging population they are more apt to stay brand loyal.

One would expect that a hot beverage would be the preferred drink in cold weather and cold drinks in warmer weather. Coffee drinkers don’t seem to change over to cold drinks though. Coffee is very much part of their routine and so they are more apt to stick with coffee.

Differentiation can drive purchasers to buy a certain product. Folgers can continue to win the market by differentiating. This means that Folgers needs to accomplish the following:

• Important-Folgers needs to deliver a highly valued benefit; in this case, it would be its low price as compared to its competitors.
• Distinctive-Folgers is a distinctive brand supplied as “crystals” in the instant coffee market.
• Superior-Folgers value to price ratio continues to be economical. This could be lost if another coffee brand under prices Folgers.
• Pre-emptive-Folgers quality and price need to be not easily copied by competitors.
• Affordable-Folgers coffee under prices competitors but not at the cost of value.
• Profitable-Folgers currently is not as profitable as it should be. Underpricing has backfired in that some people don’t want to buy the ‘cheapest’ coffee.

Product Component

This product may be purchased on impulse because of the underpricing that takes place. For the most part, this product is purchased most by those who are brand loyal. This product is a convenience product and a specialty product. The convenience is found in the instant crystals product. The specialty product is found in the ground Folgers choices available. Both the crystal and ground coffees are available in decaffeinated form. New product ideas might be found by looking at the coffee shop market within the United States. Specialty shops may offer a product that is easily replicable in the instant or ground market. First on the shelf would probably bring in first sales but as other competitors market their own versions underpricing and quality will keep Folgers in the market. Packaging is unique to Folgers and follows industry standards.

Marketing Research

Market research would include quantities of orders, sales records, and sales records of competitors. Market research could include the survey method in coffee cafes. Coupon returns should be tallied and added to the overall research report. A good research method would be to strategically place “pods’ where coffee drinkers gather and have a taste test survey available. Market research may include placing test products next to brand products that sell well and placing test products next to competitors’ products. Sales of test products could drive future product placements.

Market Segmentation

There are two distinct market segments that could be marketed to. The first segment includes the instant coffee brand-loyal customers. The second segment includes drinkers of specialty coffees. It is wise to aim for the market majority and not a market minority. If the marketer assumes that everyone would buy the lower-cost coffee then the marketer will be disappointed. Brand loyalty plays a big part in the coffee selection. Specialty coffees that meet, or beat, the quality of high-priced specialty coffees will sell well.

In the United States coffee dominates the hot drinks market. Off-the-shelf ground or instant coffees sell well as many Americans drink coffee at home as well.

Competition

Other companies and brands competing for the same customer base include (MarketResearch.com, p3):

• Nestle
• Kraft
• Starbucks Coffee

Most of the competition comes from Nestle and Kraft Foods. Folgers has introduced ground specialty coffees and competes with existing specialty coffees by value pricing.

Population growth and economic growth drive coffee sales. Economic demand comes from cafes, restaurants, hotels, and other businesses. If the economy is strong then these businesses tend to do well. A slump in the economy means that sales to restaurants, hotels, cafes and other businesses will go down as well.

Despite the poor economy coffee sale continue to do well. The market is tight though with stiff competition for coffee sales. As the following chart shows coffee growth and sales are expected to stay pretty even through 2012 (Hoovers, p2).

To remain competitive Folgers must manage its costs well. That means keeping expenses low such as coffee bean prices that it will accept (Hoovers, p1):

“First Research Opportunity Rating

The First Research Opportunity Rating is First Research’s estimate of industry performance vs. industry risk over the next 12 to 24 months.

• Demand: Partly driven by consumer income
• Need expertise, good marketing
• Risk: Slowing economy limits spending on non-essentials”

Distribution Component

Proctor and Gamble are thinking about either selling the Folgers subsidiary or having Folgers run as an independent company. This would affect costs and the distribution of the products created by Folgers. Folgers would be responsible for the direct distribution of its product rather than piggybacking the product on other Proctor and Gamble distributions.

In the domestic market (United States) Folgers Coffee is distributed with other proctor and Gamble products rather than using an independent distribution system. If the Folgers subsidiary is sold then the subsidiary will need to set up shipping for its coffees.

Price Component

Coffee prices tend to go up and down depending on the cost of the coffee beans. Coffee beans tend to rise in price when growers demand higher prices. For example, in December the Arabic variety went up in price:

“Procter & Gamble said this week that it was considering hiking the list prices for its Folgers range of coffees by six percent, according to press reports.

The cost of coffee rose sharply in December 2007, particularly for the Arabica variety, with the monthly average International Coffee Organization composite price up by about three percent to $1.18 per pound (lbs) over the same costs in November” (Merrett, p1).

Promotion Requirement

The promotion component for this product uses the push promotional strategy. The product is provided to stores that accept a portion of the profits for placing the product on store shelves in such a way that the product will sell. Advertising stresses price. The price is used to undercut the competition. Folgers advertises the same value product for a lower price. The most important advertising objective for Folgers at this time is to promote its specialty coffees alongside its competitor’s products. Value pricing should deliver profits as Folgers can produce an equivalent product for a lower price. Audience selectivity is crucial to sales of the product. Folgers is shooting for sales to brand loyalists and new customers buying their new specialty coffees. The primary advertising medium is on-the-shelf advertising followed closely by television ads.

Conclusion

Coffee drinkers are a solid customer base. Folgers has garnered the instant coffee market but has stiff competition in the ground and specialty coffee markets. Folgers’ major competitors are Nestle and Kraft Foods. Although a final decision has not been made yet by Proctor and Gamble, Folgers may have some major changes coming in the near future. Proctor and Gamble may decide to sell the subsidiary or let the subsidiary function as a separate company. If this happens then the supply structure and fair-trade issues would need to be addressed.

There is some reluctance among Proctor and Gamble stockholders to commit to future purchases of Folger’s stock if Proctor and Gamble decide to sell the company. According to a Wall Street Journal article dated February 13, 2008, Proctor and Gamble stockholders will have the option to trade in their stock for Folger’s stock (Wall Street Journal, pB4A)

Folgers may benefit from some more market research. Market trends indicate that the coffee market is experiencing steady growth. Folgers should take advantage of the steady growth by trying to win some of the new market shares. Folgers should take note of the fact that ground coffee usage is gaining on instant coffee usage. Folgers should also take advantage of the popularity of “pod” technology.

Works Cited

Hoovers, Inc. 2008. Web.

Kotler, Phillip. (2003). Marketing Management. Prentice Hall. Upper Saddle River, NJ USA.

MarketResearch.com. (2008). Coffee-UK (1213800). Web.

Merrett, Neil. (2008). Breaking News on Beverage Technology & Markets. Beverage Daily.com. Web.

Tait, Leonie. (2006). Sales Of Coffee Machines Growing in the UK. Web.

Wall Street Journal – Eastern Edition; 2008, Vol. 251 Issue 36, pB4A, 00p.