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
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>
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> 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> 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> retrieved April 4, 2016
Iacobucci D, 2014, MM4, Cengage Learning, 4th Edition
Marketing91, 2016 <http://www.marketing91.com/geographic-segmentation-segmenting-geography/> 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> retrieved April 4,2016
Neale E, 2013, The official siasto blog <https://blog.siasto.com/4-failures-for-friday> 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> 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> retrieved April 5,2016
By Aston Northfield
Blog name- imablackstar2015
ID – 900168086