Services Marketing

Australasian merchandise ledger 18 (2010) 4147 Contents lists obtainable at ScienceDirect Australasian Marketing daybook journal radicalpage www. elsevier. com/locate/amj How the local anesthetic anaesthetic anesthetic competitor frust treasured a orbiculate blemish The effect of Starbucks capital of Minnesota G. Patterson *, Jane Scott, Mark D. Uncles School of Marketing, Australian School of profession, Univer vexy of NSW, Sydney, NSW 2052, Australia r t i c l e i n f o a b s t r a c t the Statesnised the umber customs duty. Keywords Service checks Service fictitious character globose faulting world(prenominal) c bothing Starbucks burnt umber The astounding developing and blowup of Starbucks is let onlined, twain on a global collection p previous(a) and deep d proclaim Australia. The focus thus shifts to the penetrating closure of three-quarters of the Australian stash a bureaus in gist 2008.S unceasinglyal reasons for these closures be eviscer ated and examined, including that Starbucks all all overestimated their points of diverseiation and the compreh decision value of their adjuvant expediencys their masterfessional personceeds standards declined they disregard some golden rules of supranational commercializeing they expanded likewise rapidly and goldbrickstrained themselves upon an un trance give awaying public they entered late into a exceedingly private-enterprise(a) merchandise they failed to communicate the brand and their credit line mock upling was unsustainable.Key little(prenominal)ons that whitethorn go beyond the speci? cs of the Starbucks case argon the importance of toil mart seek and taking watch of it thinking glob ally hardly performing locally establishing a incompatibleial avail and consequentlyce striving to sustain it non losing slew of what lend oneselfs a brand undefeated in the ? rst direct and the necessity of having a sustainable line of credit manikin.O 20 09 Australian and impudently Zealand Marketing Academy. Published by Elsevier Ltd. for all(prenominal) last(predicate) rights reserved. 1. Introduction Shunned Starbucks in Aussie exit (BBC bleaks, 4 dread 2008) then shifts focus to observe the outcome of the stack a focus closures in Australia, so whizzr offering several reasons for the ill fortune and lessons that some earlier(a)(a)s cleverness learn from the case. 2.Background faint-hearted umber berry and astronomic debt stir Starbucks troubles in Australia (The Australian, 19 haughty 2008) Memo Starbucks side by side(p) while decide contending ice to Eskimos (The Age, 3 August 2008) predilection of defeat for the mugs from Starbucks (Sydney Morning Herald, 31 July 2008) java subtlety grinds Starbucks Australian unconscious process (Yahoo News, 3 August 2008) When the announcement was do in mid 2008 that Starbucks would be finale n azoic three-quarters of its 84 Australian set ups in that location w as mixed reaction. c bear to tribe were shocked, others were triumphant. daybookists utilize e truly pun in the account book to progress to a sensational headline, and it tactile property atmed every wizard had a theory as to what went wronglyly. This case egresslines the astounding pay offth and expansion of the Starbucks brand humanitywide, including to Australia. It * check author. Tel. +61 2 9385 1105. E-mail addresses p. email& star hundred sixtyprotected edu. au (P. G. Patterson), email& one hundred sixtyprotected com. au (J. Scott), m. email&160protected edu. au (M. D. Uncles). Founded in 1971, Starbucks ? rst retentiveness was in Seattles Pike Place Market.By the cartridge holder it went public in 1992, it had 140 come ins and was expanding at a breakneck pace, with a development retention count of an extra 4060% a division. Whilst former chief executive officer Jim Donald cl filmed that we dont pauperization to analyze over the world, during the 1990s and early 2000s, Starbucks were initiative on honest at least one store a day (Palmer, 2008). In 2008 it was claimed to be bolding s change sur look stores a day worldwide. non surprisingly, Starbucks is flat the big(a)st umber chain routewalker in the world, with much than than than 15,000 stores in 44 countries, and in 2007, accounted for 39% of the worlds aggregate specialiser offee signaling gross gross r crimsonue (Euromonitor, 2008a). In northward America alone, it serves 50 billion flock a week, and is at present an indelible quit of the urban adorn. scarce yet how did Starbucks deform such(prenominal)(prenominal)(prenominal) a phenomenon? Firstly, it in(predicate)ly Ameri tail endised the European hot chocolate bean usance some occasion no other hot chocolate house had done previously. Before Starbucks, cocoa in its current form (latte, frappacino, mocha, etc. ) was remote to virtually US consumers. Secondly, Starbucks did non provided s ell umber it exchange an fix.As presentation CEO Howard Schultz explained, We argon non in the umber business component part wad, were in the mint business serving saluteing chocolate (Schultz and Yang, 1997). This epitomised the emphasis on client return such as qualification eye contact and greeting all(prenominal) guest within 5 seconds, 1441-3582/$ touch front matter O 2009 Australian and New Zealand Marketing Academy. Published by Elsevier Ltd. besides rights reserved. doi10. 1016/j. ausmj. 2009. 10. 001 42 P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 leaning tables promptly and call backwards the names of regular guests. From inception, Starbucks purpose was to reinvent a commodity with a superstar of romance, atmosphere, sophistication and sense of community (Schultz and Yang, 1997). Next, Starbucks bring or sod a third personate in multitudes lives somewhere amidst home and work where they could sit and relax. This was a mutation in the US where in legion(predicate) a nonher(prenominal)(prenominal) a(prenominal) another(prenominal) flyspeck t accepts deep brownhouse suppressing consisted of ? lter hot chocolate tree on a hot plate. In this way, Starbucks positioned itself to not just now sell chocolate, except overly offer an bed.It was conceived as a lifestyle java shop. The establishment of the chocolate bar as a social hub, with comfortable chairs and medicinal drug has been just as important a part of the Starbucks brand as its hot chocolate. All this came with a subsidy terms. While concourse were aw be that the beverages at Starbucks were much worthy than at legion(predicate) an(prenominal) javahouses, they still frequented the matters as it was a place to see and be seen. In this way, the brand was widely reliable and became, to an extent, a symbol of status, and everyones essential- rent gear on their way to work. So, not only didStarbucks revolutionis e how Ameri burns drank java, it as well revolutionised how more people were prep bed to pay. Consistency of harvesting crossways stores, and level national boundaries, has been a authentication of Starbucks. Like McDonalds, Starbucks claims that a customer should be able to visit a store allwhere in the world and bribe a cocoa exactly to speci? cation. This legal opinion is echoed by Mark Ring, CEO of Starbucks Australia who state consistency is for sure important to our customers . . . a consistency in the harvest- epoch . . . the boilers suit love when you walk into a cafe . . the music . . . the lighting . . . the furniture . . . the individual who is working the bar. So, whilst thither efficacy be slight deviances between Starbucks in different countries, they all broadly speaking look the resembling and offer the like point of intersection assortment. One way this is ensured is by insistence that all managers and partners (employees) undergo 13 weeks of fostering not just to learn how to get up a coffee, plainly to understand the nuances of the Starbucks brand (Karolefski, 2002) and how to refund on its promise of a peachy hump.The Starbucks formula also depends on location and convenience. Starbucks instituteer worked under the assurance that people ar not passing to visit unless its convenient, and it is this assumption that underlies their mellowedly hard store coverage in many an(prenominal) cities. Typically, clusters of awaylets are assholedid, which has the effect of saturating a neighbourhood with the Starbucks brand. Interestingly, until recently, they consecrate not enmeshed in handed-down advertising, believing their large store presence and word-ofmouth to be all the advertising and promotion they regard.Starbucks management commemorated that a typical and memorable brand, a crossway that do people purport dear(p) and an enjoyable delivery channel would create repeat business and custo mer loyalty. approach with near-saturation conditions in the US by 2007 it commanded 62% of the specialiser coffee reveal trade in North America (Table 1) the family has increasingly looked overseas for return opportunities. As part of this strategy, Starbucks leaveed its ? rst Australian store in Sydney in 2000, before expanding elsewhere within New South Wales and then nationwide (albeit with 0% of stores concentrated in just three states NSW, capital of Seychelles and Queensland). By the end of 2007 Starbucks had 87 stores, enabling it to direct 7% of the specialist coffee shop trade in Australasia (Table 1). By 2008, consumer cognizance of Starbucks in Australia was 90% (Shoebridge, 2008), with apiece outlet selling, on average, double the number of coffees (270 a day) than the rest of Australias coffee shops (Lindhe, 2008). 3. refinement into Asia Starbucks currently ope order in 44 grocerys and even has a small presence in Paris birthplace and inexpugnablehold of European cafe farming. Beyond North America, it has a very signi? ant handle of the specialist coffee shop market in Hesperian Europe, Asia Paci? c and Latin America (Table 1) and these divisions make voiceless revenue contributions (Table 2). It is in Asia that they see the most potential for result as they face increasing matched pinch in their more traditional markets. Half the international stores Starbucks course of necessitates to operate in the next decade will be in Asia (Euromonitor, 2006 Browning, 2008). Indeed, Starbucks has done well in international markets where in that respect has not traditionally been a coffee drinking nicety, namely japan, Thailand, Indonesia and mainland chinaware.In effect it has been responsible for growing the fellowship in these markets. The ? rst Starbucks outside the US opened in Tokyo in 1996, and since then, Starbucks Nipponese stores gain be rise twice as profitable as the US stores. Unsurprisingly then, lacquer is S tarbucks best performing overseas market outside North America. More than ascorbic acid novel stores open each family in Japan, and coffee is now more popular than tea in equipment casualty of both volume and value (Lee, 2003 see also Uncles, 2008).As opposed to their entry into the Australian market, Starbucks do small changes to its formula for the Nipponese market for pillowcase, the invention of a unripened tea frappucino, and the provision of smaller drinks and pastries to accommodate to local tastes. Starbucks arrived in mainland china in 1998 and by 2002 had 50 outlets, and 165 outlets by 2006 (BBC News, 2006), apace neat the nations leading coffee chain. Starbucks now sees china as its key asseverate market collectible to the size and preferences of the emerging middle class. In the AsiaPaci? region, Starbucks command of the specialist coffee shop market grew from 15% in 2002 to 19% in 2007 (refer to Table 2). The total market for cafes in China grew by ove r 135% between 1999 and 2004 to relate US$2. 6 one thousand thousand. It is projected to grow another 144% by 2008 to grant US$6. 4 billion in gross revenue. More specialty coffee shops are opening across China as a middle class with strong purchasing power emerges, although this rise in coffee usance is extremely concentrated in large cities such as Beijing, Shanghai and Guangzhou. Starbucks has said that it xpects China to become its biggest market aft(prenominal) the US and the plan is to open 100 stores a year (Euromonitor, 2006). Signi? empennagetly, certain Western brands are set by Chinese consumers and Starbucks appears to be one of them. A growing number of Chinas viosterol million urbanites favor Starbucks for its standard atmosphere, which is seen as an important signal of service step, Table 2 Starbucks regional gross gross sales exercise by outlets and value 2006. constituent North America Asia Paci? c Western Europe Australasia World % of family sale s (outlets) 79. 0 13. 6. 7 1. 1 100. 0 % of follow sales (revenue in $US) 80. 5 10. 8 7. 7 1. 0 100. 0 Table 1 Starbucks manage of the specialist coffee shop market in each major region. Region North America Western Europe Asia Paci? c Australasia Latin America Source Euromonitor (2008b). 2002 (%) 44 17 15 6 0 2007 (%) 62 21 19 7 18 Source Percentage of ac beau monde sales in each region is calculated from retail sales within this market in 2006, with sales selective information drawn from Euromonitor (2007). P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 43 nd Starbucks design concept rests easily with Chinas consumers, who tend to fuck off with friends while sipping coffee. Its outlets in China ofttimes maintain larger seating areas than average outlets in other countries, and plush chairs and davenports are provided to accommodate crowds that linger. However, success for Starbucks in China is not a given, and they will face several challenges in the coming years. Chinas accession to the WTO has led to the tardy relaxation of the policy governing foreign-owned retail outlets, and this will lead to more foreign investment and thereby competition (Lee, 2004).Several multinationals are followd in selling coffee (including KFC, McDonalds, Yoshinoya, and Manabe), and a number of local brands view recently emerged, some even imitating Starbucks distinctive green and white logo and its in-store air (notably Xingbake in Shanghai). Furthermore, the reduction of import tariffs on coffee will also get a massive foreign investment in coffee. 4. The Australian retail coffee industry Australias taste for coffee is a by- crossing of the waves of immigrants arriving on the countrys shores side by side(p) World War II. European migrants, predominantly Greeks and Italians, were the ? st to establish the coffee culture, which was later embraced more widely in the 1980s. For decades Australians enjoyed a magnetic variation of the lifestyl e coffee run across that Starbucks created from gall in the US. Australians did not need to be introduced to the concept of coffee as many other countries did. Savouring a sunup shape of coffee was already a ritual for many consumers. It is fair to pull back Australias coffee culture as mature and sophisticated, so when Starbucks entered Australia in 2000, a thriving urban cafe culture was already in place.This constituted culture proverb Australians typically patronise smaller boutique style coffee shops, with people willing to travel out of their way for a favoured cupful of coffee, especially in Melbourne where coffee has developed an most cult-like following. For Australians, coffee is as ofttimes well-nigh relationships as it is about the product, signifying that an impersonal, global chain go out would exhaust trouble replicating the intimacy, personalisation and familiarity of a suburban boutique cafe.Furthermore, done years of coffee drinking, many Australian s, unlike Ameri corporation or Asian consumers, grant developed a sophisticated palate, enjoying their coffee straighter and stronger, and without the need to mask the taste with ? avoured, syrupy shots. This love of coffee is easily quanti? ed. The Australian market is worth(predicate) $3 billion, of which $1. 8 billion relates to the coffee sell market. For every cup of coffee consumed out of home, two cups are consumed at home (Australasian Specialty umber Association, 2006). Per capita consumption is now estimated at 2. kg-twice as much as 30 years ago. Whilst Australians are among the highest consumers of instant coffee in the world, they are increasingly buying coffee out of the home (Euromonitor, 2008c). More than 1 billion cups of coffee are consumed in cafes, restaurants and other outlets each year, representing an increase of 65% over the last 10 years. Even between 2000 and 2005, trade sales of coffee have increased about 18%. In 2007, the outgrowth in popularity of the cafe culture resulted in trade volume sales growing at an annual rate of 5%.Some 31% of the coffee sold through foodservice is takeaway, and it is thought that fast coffee will be a growth area in future years (Euromonitor, 2008d). There is also a skip towards larger takeaway sizes, with 400 ml cups increasing in popularity (Euromonitor, 2008d). One susceptibility plead that Starbucks drove these trends, especially in regards to larger sizes. There are almost 14,000 cafes and restaurants serving a classification of coffee types in Australia, and during 2006/07, they generated $9. 7 billion in income (Australian thorax of Statistics, 2008).However, despite these statistics, the coffee business does not guarantee success. As Paul Irvine, co- instaler of Gloria blue jeans notes, Australia is a lump retail market and coffee retailing is particularly tough. According to of? cial statistics, the cafe business is not always pro? table, with the net pro? tability of cafes falling to about 4%. For a cafe to be in(predicate), it has to offer marginally founder coffee than local competitors, and do so consistently. coffee drinkers in Australia are discerning, and they will go out of their way to purchase a veracious cup of coffee.They are not as easily persuaded as people from other countries simply to visit their warm cafe. Secondly, for a cafe to make a pro? t, it take to turn over 15 kg of coffee a week. The national average is 11 kg, so a cafe has to be in a higher place average to begin with to even make a pro? t. Any catechumen needs to understand this before introduction the market. The other signi? cant constraint on pro? tability is the cost of hiring baristas, with a good one costing between $ constant of gravitation and $1500 a week (Charles, 2007). However, it seems that this is a required cost in order to deliver a superior product.The capitulum that then begs to be asked is How well did Starbucks understand this lively coffee culture? Did they under-estimate the relational smell of coffee purchasing in Australia, as well as the importance of the quality of ingredients and the skills of the person devising each cup? Did they overestimate the value consumers attach to the in-store experience and the third place concept? Or did they just look at the statistics regarding coffee consumption and think that operating in Australia was a license to print money? Did they simply see Australia as the next logical step to global command?Starbucks has 87% of the US specialty coffee shop market, and only now is it descent to feel pressure from non-traditional competitors such as Dunkin Donut, 7 Eleven, Mc coffee bar and Krispy Kreme (Burritt, 2007). However, in Australia, the agonistic landscape is different. Gloria denims dominates the high-street part of the coffee retailing market and McCafe dominates the convenience end (Shoebridge, 2008). Other signi? cant competitors include The java Club and unreasonable covered stadium Cafe (an add-on to BP petrol stations) and Hudsons java (see Table 3).All offer a comparable in-store experience to Starbucks, with McCafe from 2007 onwards refurbishing many McDonalds stores to practise the Starbucks experience, albeit at the economy end of the market. 5. Growth grinds to a halt . . . store closures In recent times except things have started to go wrong for Starbucks. Internationally, party earnings declined as capitalstrapped consumers faced drop petrol prices and rising interest rates meaning they have had to pull back on gourmet coffee and other luxuries. Sales fell 50% in the last 2 years, the US share price fell more than 40% over the past year and pro? s dropped 28% (Bawden, 2008 Coleman-Lochner and Stanford, 2008 Mintz, 2008). Consequently, Howard Schultz, the founder and president of Starbucks, resumed the position of CEO in 2008 with the aim of revitalising the business. He dumbed the pace at which stores were opened (and in point fill u p more stores than he will open in the coming year), introduced key performance targets (KPTs) and an employee rewards system in the US, and simultaneously shut down every store in America for three and a half(a) minute of arcs of module training (Muthukumar and Jain, 2008).Customer-oriented initiatives have include the addition of more food, the launch of the Starbucks twit and Starbucks express, and the provision of highspeed wi-? internet access (Hota, 2008). Notably, Schultz acknowledges that the companys focus has been more on expansion than on customer service the very thing that was at the watch of its erratic value marriage proposal. 44 P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 Table 3 contender in the Australian specialty coffee chain market ( shackles arranged in order of the number of stores operating in Australia).Number of stores in Australia Gloria Jeans 500 stratum set up in Australia 1996 moving in sham Price of an espresso c offee (e. g. , ? at white, cappuccino) Regular $3. 25 Small $3. 25 Standard $3. 40 Regular $3. 40 Small $3. 10 Tall $3. 60 Performance highlights and lowlights Franchise Overall Winner, 2005 Franchisor of the twelvemonth Sales rose 18% to an estimated $240 m for 07/08 driven by new-made stores and growth from existing stores The fastest growing cafe brand in Australia and NZ Number of stores up from 60 in 2002 Winner, 2008 sustenance Franchisor of the Year The number of stores reported here includes NZ Plans to open more sitesMcCafe Coffee Club Wild Bean Cafe 488 220 105 1993 1989 2004 Some store-owned, some franchise Franchise split of a franchise with Wild Bean Cafe (BP) Connect Franchise Store-owned Hudsons Starbucks 45 23 1998 2000 Plans to expand store numbers by 2030% 08/09 Prior to closures in August 2008 there were 84 stores had a perceived pooh-pooh quality product Sources Various company reports as at the end of 2008. However, it seems that these measures were in any case late for the Australian operation. On twenty-ninth July 2008, Starbucks announced that it would be closing 61 of its 84 Australian stores (i. . , 73%) by August 2008, resulting in a injury of 685 jobs. All of these stores had been under-performing (8 were in SA, ACT and Tasmania, 28 in NSW, 17 in Victoria and 8 in Queensland). This decline of Starbucks in Australia was not as sudden as many would have us believe and in fact some reports (Edwards and Sainsbury, 2008 Shoebridge, 2008) indicated that by late 2007 Starbucks already had accumulated ventes of $143 million a want of $36 million for that ? nancial year preoccupied $27. 6 million the previous ? nancial year loans of $72. million from Starbucks in the US was only hold out because of its US parents support. Whilst the tumultuous economy might seem an well-heeled scapegoat, with people tightening their belts and eating out less, it is unlikely that this was the mall problem as show upd by the contin uing growth of their competitors. Indeed, coffee is no longer considered a luxury item by many Australians, but rather an affordable part of their daily routine. Instead, there is substantial exhibit to suggest a number of factors feature to bring about Starbucks demise. . 1. Starbucks overestimated their points of differentiation and customer perceived value of their appurtenant service I just think the on the whole system, the way they serve, just didnt arouse to the culture we have here Andrew Mackay, VP of the Australian Coffee Traders Association, in Martin (2008) Whilst there was sign curiosity and hype about Starbucks, after trying it, many Australians chop-chop found that it failed to offer a particularly unique experience that was not offered by other chains or cafes.Given the strong established coffee culture and discerning palates of Australians, the onus product coffee was not seen as particularly different from, say, a latte or short black from a good suburban barista, Gloria Jeans or Coffee Club. Its point of contrariety in Australia, where a coffee culture already existed, had to be in its supplementary or value-adding services i. e. , its unique servicescape, savory customer service, brand picture show and so on (Lovelock et al. , 2007).But was this worth a reward price, especially as the competition began replicating Starbucks in-store experience? Starbucks has since been harshly criticised by Australian consumers and the media. Their coffee has been various(a)ly described as a watered down product, gimmicky, and consisting of buckets of milk. These are not the labels you would choose to describe a coffee that aspires to be seen as a gourmet product. It has also been criticised for its noncompetitive pricing, even being described as one of the most over-priced products the world has ever seen (Martin, 2008).Even the idea of the third place has come under criticism why would you internal to sit around a take a crap lounge r oom drinking a weak and expensive coffee when you can go around the corner and have the real thing? (Wailes, 2008). It seems that Starbucks rapid expansion, its omnipresence, pretty standardised store design and recent insistence on staff achieving various sales KPTs (key performance targets) such as serving x customers per hour, all have to diminish the instore experience. The introduction of sales targets for front-line These closures aphorism 23 stores kept open in prime locations in Sydney, Melbourne and Brisbane.But this begs the question can a 23-store chain be executable for the brand in the long-term? ground on the approximate numbers in Table 3, Starbucks had a 6% share of stores in Australia before the closures this has now work to a share below 2%. Even before the closures, Australasia represented only 1% of company sales (Table 2) and now the ? gure is expected to be much lower. This whitethorn not make much commercial sense as it will be dif? cult to achieve eco nomies of scale in toll of merchandising and purchasing, and such small numbers are totally out of step with the clustering strategy espouse in its strongest markets the US, Japan and China.However, it could also be argued that with Starbucks strategy of global domination, it is unlikely that it will ever close its Australian business entirely. Whilst Starbucks management have been keen to suggest that this decision represents business challenges unique to the Australian market and in no way re? ects the state of the Starbucks business in countries outside of the United States, the US market has also suffered. By September 2008, 600 stores had disagreeable (or were due for closure), with about 12,000 workers, or 7% of Starbucks global workforce affected (Mintz, 2008).It should be noted that the situation in the US has only worsened as a result of the global ? nancial crisis. 6. So what went wrong? Opinions abound as to why Starbucks failed in Australia. Our research suggests the re is some trueness to many of these opinions. P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 45 employees, for example, meant staff and baristas had less time to engage with customers. It began to stray overly far from its grow and the very values upon which the brand was built.Some of these actions were forced upon Starbucks by emerging competitors look toing to imitate the brand, and thus gain a composition of the ever growing lifestyle coffee market. Starbucks points of differentiation were systematically being crumble and, in a sense, the brand that taught the world that coffee is not a commodity was itself becoming one. 6. 2. Declining service quality The brand has also come under ? re for declining customer service as it continue to expand. For example, the quality of baristas is said to have declined as Starbucks widened its pool of applicants in order to strike demand at new stores.Can a 17 year old high school student actually make do with a boutique trained barista with a passion for coffee? By not offering a break off experience and product than emerging direct competitors, Starbucks found itself undermined by countless high street cafes and other chains that were selling stronger brews at lower prices and frequently offering better or equal hospitality. Whilst they may have pioneered the idea of a third place, it was an blowsy idea to copy, and even easier to better by offering superior coffee, ambience and service.Now, with so many coffee chains around, Starbucks have little point of differentiation, even wi-? internet access has become prosy across all types of cafe. Furthermore, while customers were offered promotional rewards for returning to Starbucks, the card-based scheme is no more sophisticated than equivalent me-too cards at Gloria Jeans, Coffee Club, Hudsons and many independent cafes. And as noted earlier, one of the things that set Starbucks apart from the competition i. e. , acknowledging customer s ( oft by name for regulars) within a fewer seconds of go in the store and eriously engaging with them, began to ravel out when Starbucks imposed both customer service and sales targets for its cafes. The imposition of these targets plus an ever widening range and complexity of coffees to remember and make to perfection, meant staff morale and of necessity customer service levels declined. In fact in the USA some staff were so disillusioned with the imposition of sales targets (because it meant they simply didnt have time to engage with customers) they posted blogs openly stating that Starbucks had lost its way.Finally, it appears that Starbucks were not even delivering on their core promise of serving superior coffee in comfortable surroundings, thus liberateing its aid price. By electric switch to vacuum incase coffee, consumers are denied the store-? lling aroma of the coffee beans. The switching of traditional coffee machines to automated espresso machines (which can mak e coffees 40% winged and move customers through the lines more quickly), has also resulted in a loss of theatre (Grove et al. , 2000) for people abstracted to see their coffee do that way and has also had implications for taste.In-store, it has been noted that there are fewer soft chairs and less carpeting, and Starbucks recently lost ground in the service and surroundings category of the stigma Keys 2007 Customer Loyalty Engagement baron (Cebrzynski, 2008). It seems that Starbucks is now less about the quality of the coffee, and is more about the convenience of faster service and being on every corner whilst still charging a premium. 6. 3. Starbucks foreshortend some golden rules of international marketing Ironically, it seems that the very thing that do Starbucks successful in the ? st place, its ability to adjust the real (European) business pretence and coffee tradition to local (US) conditions, is the thing that let it down. Whilst Starbucks has made minor changes to its menu in countries such as Japan and Saudi Arabia, it generally offers the same products all around the world. When the company came to Australia, it brought its American offering, simply bringing what worked in the US and applying it here, without really understanding the local market.But with more than 235 ethnicities speaking more than 270 languages and dialects, companies wanting to get ahead in Australia need to be aware that they are not dealing with one homogeneous market. alas what worked in the US was bitter, weak coffee augmented by huge quantities of milk and sweet ? avoured syrups. Not so much coffee, as hot coffee-based smoothies. For the Australian consumer raise on a diet of real espresso, this was always going to be a tough sell (Mescall, 2008) As McDonalds Australia chief executive Peter bush noted, US retailers that have had trouble making it work in Australia (e. . , Starbucks, Dennys, Arbys, Taco Bell) are those that have introduced formulae developed for US pa lates and for the US way of doing business . . . These formulae have, at best, downhearted relevance in Australia. Peter Irvine, co-founder of Gloria Jeans, also noted that US retailers often arrive in Australia thinking the size of their overseas chains and the strength of their brands in other markets will make it easy for them to crack the local market. Their focus is on global domination rather than the needs of the local consumers.Further, there is a strong sense in Australia of buying local, supporting(a) the community, having relationships with the people you buy from, and supporting ethically-minded businesses. Starbucks clashed wholly with that, whereas local stores can differentiate themselves as being local and non-corporate. Furthermore, some would argue that Starbucks has become a caricature of the American way of life and many Australians turn down that iconography. Many are simply not interested in the super-size culture of the extra-large cups, nor want to be ass ociated with a product that is constantly in the hands of movie stars. . 4. Expanding too quickly and forcing themselves upon an unwilling public In the US, Starbucks started in Seattle as a star store. In a nation bereaved of a genuine cafe culture, that oneness store captured peoples imagination, and shortly became a second store, quickly followed by a third. Before long, Starbucks had become a demand-driven phenomenon, with everyone wanting a Starbucks in their local area. McDonalds grew exactly the same way in Australia, opening just one or two stores in each city nowhere near ample to meet demand thus creating an almost arti? ial scarcity, which created huge buzz around the brand experience. Krispy Kreme did the same. But when Starbucks opened in Australia, they right off tried to impose themselves with multiple store openings in every city adopting the US- mannequin of expansion through store clusters. Australians were not given a chance to discover it. As Mescall (20 08) points out they took key sites, hung huge signs, made us order coffee in sizes and gave the coffees weird names. Starbucks said to us thats not how you drink coffee. This s how you drink coffee. They took the Coca-Cola strategy of being available wherever people looked, but this quickly led to market saturation. Their expansion did not hurt their competitors so much as themselves, and they found themselves cannibalising their own stores. Furthermore, by becoming too common, the company violated the sparing principles of cultural scarcity and the novelty wore off. By having too many outlets, becoming too commercial and too widely utilize, it began to lose its initial appeal of status and exclusivity.It began to have a mass brand feel, certainly not the warm feeling of a neighbourhood cafe. Furthermore, they became more reliant 46 P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 on less af? uent consumers who now, with a worsening economy, are expending l ess, making Starbucks more vulnerable to sparing ? uctuations. 6. 5. Entering late into a highly competitive market In America, Starbucks is a state of mind. In Australia, it was simply another player. Barry Urquhart, quoted in Delaney (2008) From Day 1, Starbucks got off on the back foot.They lacked the ? rst-mover emolument they had in the US and Asia, ? nding themselves the late entrant in an already very developed, sophisticated and competitive market. Indeed, the competitive landscape in the Australian retail coffee market is very different to that of other countries. Here, Starbucks found themselves competing with hundreds of independent cafes and distinguishing characteristic coffee chains (see Table 3), where the coffee was generally better and the staff knew their customers by name. Signi? cantly, they were also the last of the major chains to gain a presence in Australia. 6. 6.Failing to communicate the brand Worldwide, Starbucks rarely employs above-the-line promotion , and this was also the case in Australia. Instead, they maintained that their stores are the core of the business and that they do not need to build the brand through advertising or promotion. Howard Shultz often preached, arm the (Starbucks) brand one cup at a time, that is, rely on the customer experience to generate word-of-mouth, loyalty and new business. But in a market as competitive as Australia, with a consumer whose palate is discerning and whose loyalty often lies with a speci? barista, advertising and promotion was essential to communicate the Starbucks message. The issue is not so much about building ken which, at 90%, is high but to communicate what the brand agency and to give consumers reasons for patronising Starbucks. Their lack of advertising made this branding issue even worse, with many people unable to articulate why they should be loyal to Starbucks. At the same time, competitors were communicating their messages very effectively McDonalds, for instance, is a heavy spending, award-winning, advertiser in the Australian market.Added to which, more subversive counter-messages were coming from those who saw in Starbucks a brand roughneck riding rough shod over the nuanced tastes and preferences of local cultures (Klein, 2000 Clark, 2008). In other words, a range of strong contrary messages were undermining Starbucks own very limited communications. 6. 7. Unsustainable business model Starbucks product line is limited in the main to coffee. Sometimes a new product idea will be developed, such as the Frappucino, but these tend to have limited product life cycles and/or are seasonal.For example, the Frappucino has traditionally made up 15% of (summer) sales, but recently sales have been down, suggesting that customers are already blase with it (Kiviat, 2008). Furthermore, in the instance where other products were offered, people failed to purchase them as they only really associate Starbucks with coffee and generally seek food elsewhere . This is a very different model to The Coffee Club which has much more of a cafe feel to it, or McDonalds which has a enough range of breakfast and lunch/dinner party items that can be complemented by a McCafe latte.Hence the average transaction value at Starbucks is lower than its competitors, and therefrom more customers must pass through its doors to reach the sales and pro? t levels of its competitors. It also creates con? ict with the Starbucks ethos of the third place (and allowing people to sit around for 30 minutes sipping lattes and reading, lecture or sur? ng) versus the need to get people in and out quickly and not take up valuable real estate (which in itself means that the average Starbucks store needs to be much bigger than the average cafe).Unlike most of the other retail coffee chains, Starbucks does not use a franchise model, preferring to exact and ? t-out its own outlets. This means more cash is being spent upfront, and in Starbucks case, more debt accrued. B ut adopting a franchise model would have numerous other advantages than just minimising this. It would mean that local investors, with a good sense of the local market, put their own money into the business and take an spry role in running it and do its direction. 7. What are the main lessons from this case workplace?Several key lessons emerge that should be of interest to both domestic and international marketers. 7. 1. Crossing international borders is risky and clear Starbucks did not do their homework, or ignored their homework Well conceived market research involving both primary and secondary data, including qualitative and quantitative approaches, would have uncovered the extent of the coffee culture that existed in 2000 when Starbucks entered the Australian market. It seems inconceivable that Starbucks management, or at least its Australian representatives, were not suf? iently apprised of the extent to which many consumers were already well acculturated in terms of buyi ng and consuming European styles of coffees such as short black, lattes and cappuccinos, nor the extent to which many customers were in fact loyal to their suburban cafe or competitive brands such as Gloria Jeans. As a late market entrant, Starbucks intelligibly failed to do thorough homework on the market before entry this is a failure in terms of due exertion. Alternatively, they chose to ignore the messages that were coming from any due diligence that they had undertaken.This may or may not have been due to some assertion on the part of Starbucks, or due to the fact that they considered they had a strong global brand which would meet with universal acceptance. An example of where Starbucks did do its homework, and act on it, was in France when it entered that market in 2006, establishing a cafe in the middle of Paris. Research had understandably shown the American way of consuming and socialisation over a coffee was an execration to many French, so Starbucks held back from entering the French market and when they ? ally entered it was with bulky trepidation, expanding at a very slow pace and testing the market at every step. 7. 2. Think global but act local This familiar byword in international marketing should be well understood. While Starbucks had brand sensation as a major global brand, it failed to adapt the product and the customer experience to many mature coffee drinkers in Australia. As noted earlier, all the evidence suggests that it simply tried to transplant the American experience into the Australian market without any adaptation.In particular, it failed to adapt either its core product or its supplementary services to create the intimacy, personalisation and familiarity that is associated with established boutique cafes in Australia. 7. 3. afford a differential advantage and then strive to sustain it A question of strategy that Starbucks perhaps failed to address was, Is our product differentiation sustainable in the long term P. G. Patterson et al. / Australasian Marketing Journal 18 (2010) 4147 47 and does it continue to justify a price premium? As noted earlier, it can be argued that the core product in this case, that is the coffee itself, is essentially a commodity, and that Starbucks coffee, fit in to many consumers, was no different to the competition, and in some cases inferior. Then Starbucks points of difference clearly r germinated around its brand image and supplementary services. It was these supplementary services, such as its unique servicescape and excellent customer service, that they used to justify a premium price. However, as competitors (e. g. , The Coffee Club) quickly imitated the Starbucks experience (i. . , their supplementary services, ambiance, etc. ), by providing premium coffee and an intimate casual experience, Starbucks value proposition began to fade. In other words, their key points of difference could be easily imitated and were not sustainable. set about with this scenario, the onus was on management to re-fresh and evolve any lingering differential advantage that Starbucks might have had or, at the very least, give customers reasons to continue patronising Starbucks through its communications. 7. 4. Dont lose sight of what made you successful in the ? st place As more and more competitors emerged, both individual cafes and chains such as Gloria Jeans and The Coffee Club, competitive pressures forced Starbucks to impose rigid sales targets on their frontline staff including baristas to increase store productivity. However, the imposition of these KPTs and the pressure to serve more customers more quickly meant that Starbucks forgot the very thing that made it unique in the early days, namely, to provide a customer experience in an intimate casual telescope that set it aside from competitors.As more pressure was placed on staff to have higher throughput, this meant that baristas and other employees had little time to engage with customers. In other wor ds, Starbucks forgot about the very things that made it unique in the ? rst place. This is akin to the Wheel of Retailing guessing (Hollander, 1960) where a no-frills retailer stepwise moves upmarket in terms of variety of product, price and more services and within several years ? nds itself competing with the more established premium supermarkets that were the very competitors that they tried to duration themselves from in the ? st place. The only difference with Starbucks is that it reversed the direction of the Wheel by in stages moving downmarket it brought itself into direct competition with cheaper operators and lost sight of what made it successful in the ? rst place. 7. 5. Consider the viability of the business model It has to be questioned whether the Starbucks business model is workable in the long term, or even the medium term. A business model that uses a premium price to justify the excessive ? or space and rarify servicescape, and allows customers to sit in thi s environment for an hour sipping one latte, has to be questioned. Given that Starbucks do not have the array of products that, say, a McDonalds might have and, as documented earlier in this case, therefore do not generate the same sales volumes and revenues, it is hard to see how the Starbucks model is ? nancially viable. 8. Conclusion In summary, it appears on all the evidence that Starbucks not only misjudged the Australian coffee culture but also misjudged the extent of the competition, and failed to adapt its offering to the local market.Furthermore, with the advent of high quality barista training, the approachability of premium coffee beans and the technology to produce a high quality cup of coffee (at a modest cost), restore operators who knew their customers by name, were able to set up business as viable competitors. Starbucks may have been responsible for growing the premium coffee category, but the emergence of Gloria Jeans and the Coffee Club (and McCafe, a premium co ffee shop enter in McDonalds restaurants) turned out to be serious competitors.Finally, questions have to be raised about Starbucks fundamental business model in a market where many small niche players can easily replicate the Starbucks Experience. References AustralAsian Specialty Coffee Association, 2006. 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