Starbucks Internationalization in Recent Years
With the first coffee shop opened in Sydney CBD, Starbucks entered into Australian market in July of 2000 and then expanded rapidly to 85 coffee shops in the following years. However, in August of 2008, Starbucks Coffee Company Australia announced to shut down more than 60 of its 85 coffee shops and to date it has scaled down to 22 opened in Sydney, Brisbane, the Gold Coast, the Sunshine Coast and Melbourne (Starbucks 2010).
This writing will focus on the analysis on the attributes of Starbucks’ products and marketing, and identify the opportunities and threats facing the Starbucks Australia. The second part of the analysis also draws attention to the changes in social economy, competitors’ move and the main trends in the hot drink market. Based on the findings, recommendations are offered, aiming to help Starbucks gain competitive advantages in Australian marketplace and long run sustainability in a larger social context.
In terms of coffee products and service quality, the cafe market in Australia is extremely mature and competitive. It is understandable that consumers’ expectation towards the newly-introduced coffee brand has been exalted high, especially when they are charged with premium price (Marketing Lessons 2010). However, the exotic coffee brand does not bring specialty to the local coffee culture as expected, the consuming experience stay mediocre. Meanwhile, products do not suit Australians’ coffee tastes (Marketing Lessons 2010).
Starbucks’ positioning in Australian cafe market has departed from the consuming needs and patterns of the local customers. Dismantled with the uniqueness it possessed and its success in the US and other Asian countries, Starbucks Australia seems to be as ordinary as one of the numerous choices for customers in Australia (Coffee Break and review 2008), and people never genuinely felt the necessity to go to a Starbucks shop. Evidently, Starbucks overestimates its points of difference, as well as the customer-perceived value of its services (Marketing Lessons 2010).
To compete out in Australian Cafe market, Starbucks needs to find new ways of creating competitive advantage to differentiate itself from local market competitors. What could make Starbucks special? It could be the menu including items catering customers’ special needs in coffee tastes, or the store environment which makes customer feel comfortable to sit in and enjoy the time, or the excellent service offered by people. Or it could be the combination of all the specialties makes the consuming experience unique.
Datamonitor (2010) points out that the core competence of Starbucks is the quality of products. However, it is far from enough, because the best coffee and best equipment in the world could only make 20 percent of success, just as Ed Charles (2007) describes that success of product and service is 80 percent due to the performance of staff, and they must be trained to perform at their best both on products and service to maximize the perceived value of customer.
More specifically, customers’ perceived value is related to both tangible benefits such as price, product quality, service, convenience and price, as well as intangible benefits concerning reputation, aesthetics, social and emotional needs like self-enhancement and sensory pleasure needs. Quality service performed by staff could highlight both tangible and intangible benefits of customers. The attributes of the quality service in coffee shop can be demonstrated by thinking of the best consuming experience you could ever imagine.
When entering a clean, well-furnished coffee shop with attractive decoration and cozy ambience, customers are recognized by friendly employees and greeted by own names. Order is made in an attentive manner, and fulfilled accurately and timely. Coffees with appealing aroma are served at moderate temperature and they are great and unique in taste. Market players could acquire some of the attributes depicted in the scenario to survive in the marketplace and their service quality varies depending on the competency of the service staff.
What customers need is consistent quality services, which is discovered in the report by Chen and Hu (2010) that if customers feel confident that they can have a consistent quality consumption experience each time they come, they tend to choose the same coffee shop to enjoy their coffee. And such favorable attitude towards the service they have received could evolve into customer loyalty, since the essence of customer loyalty is, as Barnes (2001) depicts, “all about how you make them feel”, vice versa.
Customer loyalty may result in consistent purchasing behavior of the brand over time. Therefore, it could be concluded that the all-round quality service performed by staff with high consistency could be the competitive advantage of Starbucks, which can make it special and achieve long run sustainability in Australian market. In light of this finding, Starbucks Australia should devote more efforts to human resources management. More specifically, a series of human resource practice could be designed and implemented to strategically improve employees’ competency and working attitude.
For example, staff training could help them be more competent to perform all tasks involved up to standards and with high consistency and staff motivation could boost morale and let them know what is expected of them in a quite specific way. Both staff training and motivation could increase employees’ satisfaction to the extent that they are willing to exert effort to perform the service well and taking initiative to improve the service quality. It is supported by a study that a 5 percent increase in staff satisfaction can result in 1. 3 percent increase in customer satisfaction (Kleinman 2007).
By improving the service performance of each staff, which is as Kleinman (2007) defined ‘employee-centered outcome’, Starbucks could achieve higher customer satisfaction, which is ‘organization-centered outcome’, and as the customer satisfaction accumulated and boosted, Starbucks would successfully deliver its positioning as ‘best coffee with premium service’ to the Australian market. And the company’s competitive advantage lies in its human resource management which includes a combination of human resource practice to increase employees’ competency and willingness to render consistent quality service to customers.
Compared with the strategies which focus on price, menu and store environment, strategies on HRM would be less susceptible to imitation, since it is intangible and tacit and it is hard for competitors to know the exact HRM practices which could be replicated Additionally, the human resource management (HRM) practices should be facilitated with other non-HRM measures. For example, particular resources related to improving the service quality should be prioritized and allocated by the management to enhance the service performance.
If Starbucks managed to acquire the quality service and achieve high customer satisfaction and loyalty through its competitive advantage in human resource management, it could have stayed profitable even during tough social economic condition and keep competitors away from its marketing territory. Since 2007, customer’s consuming confidence was dramatically decreased due to the economic recession and they spent money with more discretion as a result of or threatened by unemployment, bankruptcies and degraded credit. The decreased confidence of consuming caused the curbed spending which in turn resulted in pressure on the company’s margins’ (Datamonitor 2010). Such tightening of consumers’ spending has encouraged defection. McDonald’s, for instance, has already made small forays into providing decent coffee, and achieved some successes (Economist 2008). To retain customer, Starbucks need to stress on premium service quality to achieve high customer satisfaction and further differentiate its products and service from McDonald’s, so that existing customers feel attached to the unique consuming experience in Starbucks and reluctant to defect.
Although McDonald’s could offer decent coffee with a reasonable price, the premium consuming experience and series of HRM practice behind the strategy will be the major barriers for McDonald’s. Like most other coffee products, Starbucks’ products contain caffeine, dairy, sugar and other active compounds. It is proved by public research that excessive consumption of these ingredients may lead to variety of health hazardous. The health issues are increasingly calling for public awareness and the public are suggested by doctors and experts to choose foods with discretion and reduce the frequency or quantity of intake.
Such trends of food choice will reduce the demand of Starbucks’ beverage and food product (Datamonitor 2010). Noticeably, despite the threats from the health issues against the coffee products, a report by Parker (2005) reveals that the coffee demand in Australia will keep increasing from USD268. 57 million in 2006 to USD307. 13 million in 2011. This can be partly explained by the research (Luciano et al. 2005) that people’s preference to coffee beverage is genetic in Australia, and it is different from their preference to tea which is affected by the environment.
It is understandable that although people’s consuming concept is becoming increasingly health-oriented, they still maintain their coffee-drinking habit. In this sense, Starbucks could retain the coffee demand by adding more decaffeinated coffee beverages and other coffee products incorporated with healthy components. The overall increase in coffee market could be seized if Starbucks manage to tune in the market trend by adjusting their coffee product structure.
According to the research by Chen and Hu (2010), one of the attributes of the coffee industry is that it is highly competitive and homogenous in terms of services and products, and the availability of alternatives to the customers can be considered as an important attribute in decision making of purchasing. Therefore, Starbucks could offer a wide range of selection of coffee products as well as other beverages like tea and juices. This proposal of strategy could be justified by the finding that Wong (2010) mentions in her report.
The culture of hot drinks in Australia has been evolved towards heath, and consumers are becoming mature while choosing the beverage in better taste as well as showing their preference toward premium products in both coffee and tea categories. The estimation by Datamonitor (2010) of the overall growth in the hot drink market in the next five years is 9. 1 percent, which will increase from AUD1350 million in 2008 to AUD1473million in 2013. Noticeably, the emerging tea market will increase by 8. 1 percent, from AUD437million in 2008 to AUD473million in 2013.
To optimize the profits, Starbucks could bank upon such trend and launch new products featured in tea category. Tea product can serve its market among the health conscious Australian consumers well in the next few years, due to its healthy and medicinal benefits. There is another marketing feature draws our attention. As discovered in the research by Luciano et al. (2005), women consume more beverages than men and show a lower preference for coffee than men, but higher preference for tea, which implies that the primary driving force for tea consumption is its appeal to women.
This feature drives Starbucks to develop more tea products to cater for women’s preference in taste. By adding ingredients in women’s favor and making the beverage attractive in color and design, Starbucks just launched a series of tea products (Starbucks 2010) to attract more female customers. At the same time, Starbucks has creatively combined the tea with coffee (Starbucks 2010) to create a product with specialty, which introduces a different way of enjoying coffee and tea product and also is an effective ay to surprise and delight their customers continuously. To be successful in the competitive Australian market, it is necessary for Starbucks to focus more on the human resource management practices to achieve sustainable and competitive advantages, which make their staff more capable and motivated to perform outstanding services with high consistency, so as to restore brand specialty in the marketplace. It is also important for Starbucks to be alert to all the changes in the market, as customers’ consuming habits and preferences in taste are always changing.
The product structure, according to the market trends and new marketing strategies, should be adjusted to seize the opportunity facing the company. Just as Cairns put it in the report Starbucks (2008), the company needs to put the specialty to the market and grows with its customers. The winner could even proactively guide the market trends and foster the new consuming needs of customer to boost profitability. This requires the market player to be consistent in quality service performance but active and creative in marketing changes.
