Instructions: No summary need For each

cases

1-Give 3 issues from the article the issues must be state as a marketing focus they must be

state as question. One marketing concepts

for each issue statement. Avoid general question

2-analyse: apply the marketing concepts,

show understanding of the marketing

concepts used for each concept one

paragraph of each. Prove expertise in

marketing. The emphasis should be on

describing what know about the marketing

concepts and applying the marketing

concepts to the specific case dealing with.

Organize the analysis aground each issue.

Support points with evidence from the

case. Do not use other company to explain

the marketing concept use the company in

the case.

3- recommendation: respond the questions

of issues for each issues

statement. Recommendation should solve

the issues and should make sense given the

analysis. Be sepecific in the

recommendation. It should be clear what

the protagonist in the case should do.

Reference:LAVAZZA: THE CHALLENGES OF FOREIGN MARKET ENTRY IN A

BRAND-INTENSIVE INDUSTRY'

Luigi Lavazza SpA (Lavazza) was the largest coffee maker in Italy, often analogously referred to as Italv's favorite coffee, and the seventh-largest coffee roaster in the world. Founded in Turin, Italy, Lavazza had a 125-year-old legacy with deep roots in Italian coffee culture and was primarily known for ils espresso blends-

a burnerstone or the coffee culture

in Italy and the rest of Europe.3 Since the 1980

after Lavazza ventured into global markets, it had seen tremendous growth, and by 2020, more than 70 per

after Lavazza ventured into global markets, it had seen tremendous growth, and by 2020, more than 70 per

cent of Lavazza's global sales came from overseas markets.* Despite its success in global markets, Lavazza

was finding it difficult to make its mark in the United States the largest coffee market in the world, worth

more than US$8.1 billion, and the second-largest market for Lavazza (see Exhibit 1). After establishing its

North American subsidiary in 1989, Lavazza entered the US market in the 1990s using strategic

partnerships with restaurants and hotels to cater to US consumers. But even with its thirty years of

experience in the US market and a strong global brand, Lavazza continued to struggle in the US market,

earning total revenue of $110.8 million across all of its segments, representing a market share of less than

1.4 per cent." By September 2021, as competition in the global coffee industry intensified, Lavazza could

no longer afford to be complacent with its performance in the US market, and it sought to increase its

market share. However, Lavazza faced a key strategic decision: should it try to introduce US consumers to

the Italian way" of drinking espresso coffee, or should it come up with a new brand identity and a new portfolio

of products that were more aligned with the tastes of US consumers?

LUIGI LAVAZZA AND AN EMPHASIS ON INNOVATION

In 1895, the founder of the company, Luigi Lavazza, invented the art of blending coffee by mixing coffee

of different origins and then roasting it, often customized to the individual tastes of his customers. This

required Lavazza to source coffee beans from multiple geographical locations dispersed globally, an

unusual strategy for a grocery shop coffee seller at the time. However, Lavazza's blended coffee soon

became a sensation with local coffee consumers and led to the company's eventual success. By 1927,

Lavazza had transformed from a small-scale commercial enterprise into a family company.

Staying true to the vision of its founder, the company philosophy continued to emphasize product quality

and innovation through to the latter half of the twentieth century. Unlike most family firms, Lavazza continued to spend heavily on research and development. In 2018 alone, Lavazza spent more than 2.5 per

cent of its revenues on research and development.& In the 1970s, Lavazza introduced vacuum-sealed

packaging for its coffee beans and coffee grounds to prolong their freshness.' Overseas export of coffee

often led to significant degradation of the aroma and taste of the ground coffee and remained a significant

challenge for sellers of roasted coffee blends. To overcome this issue, Lavazza introduced vacuum-sealed

packaging for ground coffee, which soon became the de facto industry standard. This new and innovative

form of packaging meant that Lavazza could sell a variety of custom blends to a wide range of consumers,

each with different tastes and budgets.

Lavazza's third innovative breakthrough came in the 1980s when it started to explore international markets

for expansion and growth and opened its first overseas caf in France in 1982." Through the 1990s and

2000s, Lavazza sought to use its age-old expertise in coffee blending to its advantage and aid its expansion

in the global market by undertaking extensive market research and investing in a lab dedicated to

formulating new coffee blends that changed in response to consumers' evolving tastes.'? Based on local

consumers' tastes in coffee and consumers' willingness to pay, Lavazza offered a wide variety of coffee

blends at different price points. By the early 2000s, Lavazza had succeeded in making caf-quality coffee

and Italian-inspired cafs a global phenomenon and was present in more than 140 countries. In 2020, global

sales contributed to more than 70 per cent of Lavazza's overall turnover. 13

Despite Lavazza's popularity in global markets, its cutting-edge technology, and its emphasis on innovation,

the US market remained elusive for the coffee maker. Its US strategy of partnering with local restaurants and

bars did not result in any notable success. In 2015, Lavazza shifted away from the business-to-business (B2B)

segment and its partnerships with restaurants and cafs and instead began to focus on the household coffee

market and selling its products directly to consumers through local grocery chains such as Publix Super

Markets Inc. (Florida) and Costco Wholesale Corporation.' The roasted and packaged coffee beans and

coffee grounds were imported from Italy and distributed in the United States. This strategic shift in focus did

lead to some success for Lavazza in the United States. In 2020, its retail segment grew by more than 22 per

cent in the United States, with a market share of just over 1 per cent. However, this success paled in

comparison to the performance of its peers, such as Folgers Coffee (Folgers), which had a market share of

over 25.1 per cent of the US household market, and Starbucks Corporation (Starbucks), which had had a

market share of over 12.4 per cent of the US household market in the same period. 'S Lavazza also continued

to perform poorly in the United States in terms of brand awareness and consumer appeal. Even with extensive I

marketing and brand awareness campaigns, in a survey conducted by Statista in 2017, where coffee consumers

were asked about their preferred brands, Lavazza ranked eighteenth-

-far behind all of its major rivals. 16

LAVAZZA'S GLOBALIZATION STRATEGY AND BRANDED CAFS

When entering foreign markets, Lavazza tended to acquire and utilize local roasters and brewers to cater to

the tastes of local consumers. It adopted this strategy in both mature and emerging markets, with notable

success.!7 To serve mature markets such as France and the Netherlands, Lavazza acquired Carte Noire and

Merrild. Similarly, Lavazza acquired the coffee companies Fresh and Honest Cafe and the Barista Coffee

Company Limited to enter India, an emerging market. This expansion strategy underscored the recognition Company Limited to enter India, an emerging market. This expansion strategy underscored the recognition

that different coffee markets had distinctive features and diff}ing consumer demands. The acquired assets,

however, were rebranded to fit Lavazza's brand identity. These acquisitions and rebranding helped Lavazza

to tailor its offering to the local market while remaining true to its core philosophy of serving authentic Italian

coffee and keeping its global brand identity consolidated. In 2013, Marco Lavazza, the vice-president of the

Lavazza Group, noted, '

"We want to give the right idea, that when a customer comes in, they are coming into

a real Italian store. Everything links together because, at the end of the day, we only have one brand. We want

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to give customers a positive association with that brand. They have to find quality and consistency wherever

he or she goes..

We have one brand, and it's our surname, so it really has to be perfect."18

Besides innovations in ground coffee tailored to local markets, Lavazza's strategy in the European market

had also been to open Lavazza cafs that were designed to demonstrate the coffee maker's creativity and to

emphasize the rich taste of its espresso blends. Brightly lit and featuring a contemporary design with golden

panels, Lavazza cafs symbolized opulence and aimed to provide Lavazza's consumers with a holistic

experience.!' The caf baristas were trained to serve precision in a cup of coffee, and offered consumers

food suggestions to complement their coffee choices-

-all a part of Lavazza's "coffee design experience."

Opening boutique cafs proved a successful strategy for Lavazza in entering the broader European market.

In 2021, Antonio Baravalle, chief executive officer (CEO) of Lavazza, said, "When you're building a brand,

you need all contact with customers: at home, in the office, in cafs and bars.

We need the combination In 2021, Antonio Baravalle, chief executive officer (CEO) of Lavazza, said, "When you're building a brand,

you need all contact with customers: at home, in the office, inpafs and bars. .... We need the combination

of all touchpoints."2 Naturally, Lavazza cafs also served as venues for product introduction and as points

of sale for Lavazza's household products. In addition, Lavazza built and leveraged a community of bar

owners by providing them with the training to test and serve coffee. These coffee bar owners became an

integral part of Lavazza's success in Europe, as they helped to control the quality of the customized,

handcrafted single-serve coffee and became local brand ambassadors. By 2015, Lavazza operated fifty

training centres globally, in which more than 30,000 individual bar owners were trained.21

LAVAZZA BRAND AND INNOVATIVE MARKETING

In the 1950s, as TV advertising soared, commercials became the proving grounds for creative professionals.

Emilio Lavazza, then CEO of Lavazza, leveraged this visual medium and synonymized Lavazza coffee

with the elegant Italian way of drinking coffee. Ad slogans such as "Lavazza coffee the more you down,

the more it picks you up,

"Any time's the right time," "Coffee makes everything better- even Heaven

and "From Italy with passion" had enormous mass appeal and helped Lavazza to become a global brand,

which itself remained distinctly Italian. 22

Continuing its streak of marketing innovations, Lavazza also pioneered the use of celebrity endorsements,

art exhibition patronships, and sports tournament sponsorships in the industry.23 This helped Lavazza's

brand identity become intricately linked with precision, authenticity, creativity, and innovation. In 2019, at

an art exhibition sponsored by Lavazza, Francesca Lavazza, a member of the Lavazza board of directors,

emphasized that the sponsorship of art exhibitions represented "not only a progressive and crucial step

towards supporting and enhancing arts and culture but also a reaffirmation of our role as ambassadors of

creativity, innovation, and sharing."24

LAVAZZA'S US STRATEGY: EMPHASIZING ESPRESSO BLENDS AND LOCAL ALLIANCES

One of the key ingredients of the success of the Lavazza brand in Europe was Lavazza's wide array of

espresso blends, which had become synonymous with the brand itself. This was unsurprising considering

Lavazza's roots in Italy, home to espresso drinks. Lavazza sought to replicate the success of its espresso

blends in the United States by persistently marketing them to US consumers. In line with its global strategy,

Lavazza formed an exclusive partnership with the 2015 US Open tennis tournament to enhance its standing Lavazza formed an exclusive partnership with the 2015 US Open tennis tournament to enhance its standing

in the US consumer market, and this partnership continued into 2021.25 Lavazza also sponsored several art

exhibitions in the United States, including several at the Solomon R. Guggenheim Museum in New York.

These marketing decisions emphasized Lavazza's espresso blends' authenticity, perfection, and precision.

In August 2015, at the commencement ceremony of the US Open, Giuseppe Lavazza said, "The agreement,

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which forms part of the internationalization strategy pursued by the Italian company and brand, underlines

our intention to make the United States our second home and to consolidate the relationship between

Lavazza and expressions of excellence the world over."26 Lavazza also stated that The [US Open]

Championships provide the greatest opportunity to showcase the excellence of our core product espresso,

as well as our innovative flair in the form of exclusive new recipes and skill in training baristas to Lavazza's

exacting standard. 327

There seemed to be a mismatch in Lavazza's product-market fit. Among US households, drip coffee was

the most popular non-alcoholic beverage, and ground coffee and single-cup coffee were the leading market

segments in the US coffee market. 28 Moreover, US consumers tended to drink less concentrated forms of

coffee in larger quantities and often preferred flavoured coffee drinks (see Exhibit 2). Lavazza had a

competitive edge in relation to its peers because its product portfolio could cater to both bulk ground coffee

and single-serve coffee consumers.? In 201 5, Ennio Ranaboldo, then CEO of Lavazza North America, said,

"What we were really missing was a significant grasp of the American consumers' minds. As much as we

love espresso, it's drunk by a minority of consumers. Already the ability of expanding the lineup to include

other specialty beverages was a major achievement. Now, we have a full lineup of drip coffees tailored for the American consumer. 330

However, despite this acknowledgement, Lavazza could not reap the benfits of its strong product portfolio

in the US market. Its continued emphasis on its espresso blends belied its vast portfolio of products more

suited for US consumers, 31

Lavazza's attempts to convince US consumers to change their coffee preferences by leveraging its strategic

partnerships with restaurants and grocery chains across the US market also remained unsuccessful, for two

reasons. First, most restaurants and hotels served Lavazza coffee under their own brand and used their own

signature recipes, reducing Lavazza's visibility among US consumers. Second, the most important segment

of the US coffee market was the specialty coffee bars that emerged from the coffee shop revolution led by

Starbucks. Success in the specialty coffee bar segment also meant success in the household consumer

segment. Leading household brands such as Dunkin' Donuts LLC (Dunkin'), McCaf, and others were

present in both the coffee bar and ground coffee segments.3 However, unlike its peers and despite the

success of its boutique cafs in Europe, Lavazza had a negligible presence in the specialty coffee bar market

in the United States.

After relying on key partners to cater to US consumers for twenty-five years and failing to make a mark,

Lavazza's management decided to take direct charge of their US operations.3 In 2018, Lavazza also

acquired Mars Drinks, the beverage division of Mars Inc., for $650 million and renamed it Lavazza

Professional to directly serve its US consumers. Soon after, Lavazza's retail sales in the US market grew

by over 17 per cent in 2019 and 22 per cent in 2020.34 However, Lavazza's marketing strategy failed to

reflect the more inclusive product portfolio of the company. Even as Lavazza tried to position itself as a

premium coffee brand in the United States, it aggressively marketed its espresso-based beverages to US

consumers. Commenting on the competition from Starbucks and Folgers in the US markets, Baravalle said,

"Compared to these giants, we are small potatoes. The only thing we can do is be very careful about our

identity.

And we focus only on coffee. "35

LAVAZZA AND THE CHANGING INDUSTRY ENVIRONMENT

Lavazza primarily competed globally in the ground coffee market within two segments the household

market and the B2B market. The former direct-to-consumer retail channel made up 60 per cent of Lavazza's global revenues, while the latter B2B sales accounted for the remainder. Given the industry standards,

Lavazza was overexposed in the B2B segment, and it made sense for Lavazza Professional to focus on this

segment exclusively. Lavazza Professional concentrated on creating custom coffee machines and coffee

products for its business customers according to their requirements of space and taste,36 and it ran special

marketing campaigns in conjunction with its B2B customers."

Beginning in 2020, Lavazza sought to cross-leverage its learning from the B2B segment to serve its

household market segment. Lavazza's household segment had witnessed tremendous growth in recent

years, outperforming analyst expectations and offsetting Lavazza's losses in the B2B segment. As the

COVID-19 pandemic hit globally, Lavazza's B2B sales declined sharply amid lockdowns and office

closures. Lavazza's B2B sales in the United States alone fell by over 66 per cent in 2020.38 Despite the

intensifying competition in the global coffee market and significant losses in the B2B segment due to the

pandemic, Lavazza posted a 15 per cent growth in its retail business globally in 2019.39

Further, as the pandemic rendered many individuals housebound and unable to visit their favourite local

baristas, consumers increasingly gravitated toward purchasing more sophisticated or specialty coffee

machines. Coffee machine sales became the next avenue for growth for Lavazza (see Exhibit 3). To

capitalize on this opportunity, Lavazza started to customize its coffee machines, which had primarily been

sold to business consumers, to reduce costs and make them affordable for the household market. Even with

such customization, the specialty coffee machines sold by Lavazza usually cost around $200.40 Eyeing the

potential of this market and the hurdle of high costs, Lavazza launched a coffee-pod subscription service,

first in Europe and then in the United States, which enabled its consumers to lease Lavazza coffee machines

for significantly lower prices and served to increase sales of Lavazza's single-serve coffee pods.41