Starbucks Australia and the lesson of knowing your target audience

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In 2008 Starbucks announced they were closing 61 of its 84 Australian outlets. A spokesperson for the company admitted that business had been slow and Australia had a “very sophisticated coffee culture” (Emerson, Tibbitts 2008)

First of all, it appeared that Starbucks had failed to gain a detailed understanding of Australian coffee culture and consumption. It is common knowledge that Australians love good coffee. And therefore have high standards of the product. “Australia already had a well-established coffee culture through espresso when Starbucks arrived. It had to compete with cafes that provided a similar product of equal or better quality” (Hurst 2014). Considering this Starbucks needed a detailed strategy that looked at ways it could have better targeted its customers through segmentation, targeting and positioning.

Market segmentation suggests that a company can’t please all its customers so should focus on a segment of them (Iacobucci 2014). The problem was they wanted to appeal to everyone (Business Think 2010). This was not a good strategy considering the complexity of the market they were entering. If seasoned snobby coffee drinkers were too much of a hard sell then they needed to find a niche market who weren’t already consumed by the local product.

Geographic segmentation is important to consider in this case. It is where a company will segment groups according to distinct geographic preferences based on values, attitudes and lifestyle (Marketing91, 2016). So although it had thrived in the US and China with no real existing coffee culture (Patterson, Scott, Uncles 2010) the needs and beliefs of Australian consumers were much different. It needed its product offerings to suit the preferences of the local culture.

Targeting suggests a company will pursue segments that make the most sense to the firm (Iacobucci 2014). Mescall (2010) suggests the company essentially alienated any potential target market by trying to dictate how its coffee should be consumed but also offering products that were unfamiliar and decidedly different from what was accustomed. Berg (2008) notes this is where brands such as McDonalds have done well by tailoring its menu to local tastes hence creating interest to its target audience.

Positioning was a crucial factor too in the failure of the chain. It is the concept of a brand occupying a distinct position in relation to competing brands in the mind of the consumer. It is done by showing the product benefits through the 4P’s of product, price, promotion and place (Iacobucci 2014). Patterson (Business Think 2010) noted Starbucks did not do any above the line advertising instead relying on word-of-mouth to promote its product when few knew much about the product. The location of stores were said to be in poor locations and the coffee was overpriced and poor quality.

Curiously, the problem did not just appear to be that Starbucks was a chain brand compared to an independent café. Other chains such as McDonalds McCafe and Gloria Jeans had been successful in the market (Patterson, Scott, Uncles 2010). So clearly there was a market for this type of coffee but these companies were already established and apparently knew the market better. So how does a company get to the position where they open 84 stores without meeting the demand for customers and then have to close more than 2/3 of them? That is a serious oversight in terms of knowing your customer base.

So what should Starbucks have done?

  • Firstly research into the market especially when entering new territories
  • Don’t assume your customers are all the same
  • Identify segments and target them
  • Tailor products to local taste
  • Advertise and position your brand where your target audience will see you
  • Know your competition
  • Open stores based on demand not anticipation
  • Lastly respect and know your customers because without them your business will not last

 

References:

2014,streaming video, SBS, ‘Why starbucks just cant crack the Australian market’,<http://www.sbs.com.au/news/thefeed/story/why-starbucks-just-cant-crack-australian-market&gt;

Berg C, 2008, ‘Memo Starbucks: next time try selling ice to eskimos’, Sydney Morning Herald <http://www.smh.com.au/federal-politics/memo-starbucks-next-time-try-selling-ice-to-eskimos-20080802-3oyp.html&gt; retrieved April 7,2016.

Emerson D, Tibbitts A, 2008, ‘Starbucks closes 61 shops, cuts 700 jobs’ Sydney Morning Herald <http://www.smh.com.au/business/starbucks-closes-61-shops-cuts-700-jobs-20080729-3mt1.html&gt; retrieved April 5,2016.

Hurst P, 2014, ‘This is why Australians hate Starbucks'<https://munchies.vice.com/en/articles/this-is-why-australians-hate-starbucks&gt; retrieved April 4, 2016

Iacobucci D, 2014, MM4, Cengage Learning, 4th Edition

Marketing91, 2016 <http://www.marketing91.com/geographic-segmentation-segmenting-geography/&gt; retrieved April 5,2016.

Mescall J, 2010, ‘Starbucks in Australia: Where did it go wrong?'<http://www.abc.net.au/news/2008-08-07/32188&gt; retrieved April 4,2016

Neale E, 2013, The official siasto blog <https://blog.siasto.com/4-failures-for-friday&gt; image, retrieved April 6, 2016.

Patterson P, Scott J, Uncles M, 2010, ‘How the local competition defeated a global brand: The case of Starbucks'<https://sysyamnos0915.files.wordpress.com/2013/05/1-s2-0-s1441358209000949-main.pdf&gt; retrieved April 6, 2016.

UNSW, 2010, Business Think, ‘Whatever happened to Starbucks’ <https://www.businessthink.unsw.edu.au/Pages/Marketing-Lessons-Whatever-Happened-to-Starbucks.asp&gt; retrieved April 5,2016

 

By Aston Northfield

Blog name- imablackstar2015

ID – 900168086

 

 

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6 thoughts on “Starbucks Australia and the lesson of knowing your target audience

  1. Hello, I’m Shoko.
    Your topic is very interesting for me, because I wondered why Starbucks is not popular in Australia.
    In my country, Japan, Starbucks became successful and recently it is everywhere, like McDonald’s.
    We don’t have coffee culture, also they lunches seasonal drinks according to our preference, so after I read your blog, I realised Japanese Starbucks thinks about geographic segmentation well.
    Australian coffee culture is sophisticated, so I agree with your recommendation.

    Like

    • Hi shoko,
      Yeah I remembered hearing about the closure of the stores on the news in 2008 and thought it was an interesting case study in what not to do. But basically from my research coffee culture was introduced in Australia by the greeks and turks (If I recall) around about ww2 era and hence due to our European influence coffee culture has really taken off here. I went to the US in 2012 and I quite enjoyed buying a massive ice coffee for about $3US however I noticed that in some of the sweet drinks I tried ie. mcdonalds, tim hortons etc that they use in the drinks use some really strange tasting flavourings (to my taste anyway). If you have tried American soft drinks you might know what I mean about sickly sweet. But I think it has something to do with high fructose corn syrup that gives it a strange taste and I am not used to, and I am told is unnatural and a lot worse for you than sugar.

      Interestingly enough it is hard to get a cup of tea in some places in the US, perhaps more common in the south. But yeah starbucks did not seem to tailor their products to the local market and it seemed to alienate any potential target market. But yeah, it is said that Australians are coffee snobs and therefore wont just drink anything. But I find food culture and geographic segmentation really interesting, its something I would love to study. Id love to visit japan too, it seems like such a unique and interesting culture 🙂

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  2. As per my research and understanding, Starbucks did not pay much attention towards product optimization, it just used what worked in US and tried it in Australia. Unfortunately, what worked in US was bitter, weak coffee augmented by large quantity of milk and some sweet flavored syrup. On the other hand, Australian consumers always loved real espresso, which created a tough situation to sell.
    The second error was when Starbucks tried to impose themselves with multiple stores openings in every city which did not prove to be successful, the reason being, when McDonalds just opened one or two stores, no where near enough to meet the demand. This approach increased the demand and created a high buzz around the brand experience, thus creating artificial scarcity.
    Starbucks is very commercialized and overly Americanized which to some Australians is not a good thing. In respect, to Gloria Jeans, there seems to be a better culture.

    Like

    • Hi,
      No starbucks really did not do their homework, just thinking in a really arrogant way that they could just bring their product to this foreign country and we would just take to it. You really have to know and respect your potential market. I mean personally, I rarely drink hot coffee, I am much more of a cold drink person so starbucks would probably suit me but it is not in my area (geelong). They could have tried opening in a regional area like geelong rather than just trying the big cities. But how they got to the point that they had to close more than 2/3 of their stores is really striking. A local example would probably be the masters chain that failed spectacularly and should be sold off soon, there seemed to be no room in the market for them against bunnings.

      But yeah, I did really want to discuss the idea of creating demand through scarcity because I think this would have been a much smarter business practice. I notice carls jnr has just come to Australia, opening one store in Sydney somewhere so maybe they will try and build demand this way. Yeah starbucks is obviously a chain brand and foreign so a lot of coffee snobs would have been suspicious of it. But yeah, Gloria jeans does seem to have a better grasp of the market as well as the other players who came before starbucks.

      Like

  3. Its really interesting to know that star-buck closed their 61 shops in Australia.But the interesting thing how is it possible a brand who is very popular in many of countries even i belong to country in which there is no star-buck shop but i heard about it as a famous international coffee chain They launched their brand with poor segmentation and positioning.One more thing i observed that here people are not conscious of drinking coffee from a famous coffee brand.People have less time and mostly drink coffee in early morning or in jobs which they drink from near places instead of launching their own brand they need to spread themselves in market by collaborating coles,coles express or such kind of marts.Do you think it could be a factor in slowing down their profit.

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    • Hi,
      I don’t think our market really would have demanded Starbucks to have really partnered with a supermarket because it hadn’t really taken off here. If it had of become really popular then they could have tried something like having their own brand of drinks i.e big m, ice coffees in supermarkets. Perhaps they could have partnered with someone like 7-11 with starbucks coffee machines perhaps. I notice 7-11 are advertising their $1 coffees. Be interesting to know how that is going. Would be interesting to know how much the Starbucks brand in the US has spread to partner with other brands or corporations etc. Basically they needed product offerings to suit the culture, cheaper coffees, they needed to properly advertise and expand at a much slower rate.

      Like

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