China Resources Enterprise applies different strategies to different brand name in the
beverage industry. Cost Leadership Strategy is applied in the “C’estbon” while
Differentiation Strategy is used in “Pacific Coffee”.
Cost Leadership Strategy
Cost Leadership Strategy is a set of activities producing goods or services at the
lowest cost and the customers can be benefited by the low price. Firms normally use
this strategy selling standardized goods (with competitive levels of differentiation) to
a board customer segment. “C’estbon” consists of two products: purified water and
mineral water. Two Product lines with little distinction can create more value to
customers and increase their satisfaction. CRE lowers the production cost by
improving its primary activities. In the operation level, economies of scale can be
achieved by mass production of standardized bottle water. Lower production cost
results in lower selling price which attracts consumers to purchase. In the outbound
logistics level, cost can be lowered by utilizing the extensive distribution channel of
In terms of rivalry with existing competitors, CRE may experience a little more
advantages than its enemies because it can make use of its extensive distribution
channel to lower the cost. Lower price gives incentive to the customers. In terms of
bargaining power of buyers, they have a high bargaining power because the
switching cost is low. In terms of bargaining power of suppliers, CRE enjoys a higher
bargaining power because they produce a huge number of products each year. Their
suppliers tend to keep this giant customer. In terms of potential entrants, there are a
myriad of potential entrants for the beverage industry, especially foreign investors,
because the beverage industry is fast-growing which provides opportunities. In terms
of product substitutes, there are a number of product substitutes, like soft drinks or
Differentiation Strategy is a set of activities producing products or services that
customers perceive as being different and valuable to them. Firms produce products
or services differently from their competitors and target specific customer segment.
Since extra value is created for customers, higher premium price can be charged.
‘Pacific Coffee’ targets customers with higher income and people who pursue good
quality of life. It differs from its competitors by offering high quality coffee, good
services and comfortable environment. Since Chinese has admired the culture of
foreign countries for a long time, ‘Pacific Coffee’ has made use of this opportunity to
extend its business. Customers are willing to pay more for the enjoyable experience
provided by them, so Pacific Coffee can earn above-average return.
The major existing competitor of Pacific Coffee is Starbucks. Starbucks is a giant
coffee retailers in the world, so there will be an intense competition between two of
them. The uniqueness of differentiated products lowers the bargaining power of
customers because they become less sensitive to the price changes. In order to offer
customers with high quality coffee, good quality of coffee beans are necessary. This
increases the bargaining power of suppliers. In terms of potential entrants, there are
maybe a lot of potential investors because of the fast-growing coffee market in China.
However, as Pacific Coffee and Starbucks enjoy first mover advantage which poses
difficulties to the new entrants. Lastly, if people drink coffee to increase energy, other
energy drinks may become product substitutes of coffee. It won’t be a problem if
people drink coffee for enjoyment.