Abstract

The basis for Starbucks expansion is outlined in the context
of the Australian economy.
The focal point then shifts to the reasoning for the closure of more than three
quarters of Australian branches during 2008.
In the context of standardisation, reasoning for this is discussed including:
an incompetent understanding of foreign markets, overestimation of brand image,
failure to produce strategic points to express innovativeness.
Key lessons include: The importance of international marketing, establishing a
USP and upholding it, making market research the basis for strategical approach
and the essential need for a business model that Is sustainable.

 

 

 

 

Introduction:

 

Founded in 1971, Starbucks opened its first store
in Seattle Pike Place Market.
By the year 1992, the organisation completed its initial public offering, with
its stores numbering 162.
It was from this point Starbucks experienced rapid rates of growth with its
total stores increasing by 40-60% each year.

 The organisations
first diversified investment beyond that of its primitive business activities
began in 1997, where the Starbucks Foundation was founded in order to aid in
literacy programmes. (2018). 
Following this many other initiatives were taken and the organisation prospered
immensely.

Figure 1 an annual report of the firm’s performance (2018)
shows the steady growth incurred by Starbucks up to the point of its
operational activities in Australia, although positive, it can be denoted that
the slight lag in growth from years 2007-2008 was due to the significant losses
faced in this area.

 

 

 

The country of operations itself – Australia, shows to be
one of the highest-ranking countries to live in on international standards.
This is on the basis of a combination of wealth, education, health and quality
of life.
However despite being the sixth largest countries on the basis of land mass “its
population is comparatively small with most people living around the eastern
and south-eastern coastlines.” (“Australia country profile”, 2018).

Australia has a truly diverse population,
“with about 300 ancestries and speak almost as many languages, including
indigenous languages” 
(“Diversity one of our strengths”, 2018)
A study contributed by the Migration Council of Australia and Independent
economics projected that by 2050 migration would contribute $ 1.6 trillion to
the economy (“Australia in 2050 – Migration Solutions”, 2018).

In industrial terms,
Australia is in the forefront of the financial sector with its four leading
banks being ranked in the top 50 on a global level.
Its abundant resources available via the metal and mining industry also serve
as a line of support (a direct aid in the global financial crisis)
Showing the stability the economy enjoys.

 

 

 

 Factors that led to the choice to operate in
the country,

 

 

Table 1 (Various company reports as at the end of 2008) shows
the high demand for coffee in the Australian market, the success of franchisees
such as Gloria Jeans Is one Starbucks thought it could perhaps replicate, with
an estimated 18% increase in revenue from 2007-2008 giving it figures of $240
million.

The Australian Bureau of research showed there to be almost
14,000 total cafes and restaurants within Australia that generated $9.7 Billion
dollars in revenue during the year 2006/2007 (“8655.0 – Cafes, Restaurants and Catering Services,
Australia, 2006-07”, 2018)

With the three leading coffee retailers, Gloria Jean, McCabe and Coffee Club
having far over 100 stores, it was clear as to why Starbucks presumed that
opening a numerous amount of stores would be a safe option, a false hindsight
based on competitors success led to an overstated evaluation of the market and
an inaccurate risk assessment.
it was therefore due to the previous success that coffee franchises had, and
its continuing prosperity that Starbucks decided to expand, adopting what can
be defined as a market follower approach.
 (“Market Dominance Strategy”, 2018)

Upon analysing the price of a typical expresso coffee, table 1 shows that
Starbucks pricing was in close proximity to its competitors, showing a
favourable economic climate for the company.
Although lower than the USA statistics show Australians still have high levels
of disposable income.  (“Australia
vs United States: Economy Facts and Stats”, 2018)

 

 

 

 

 

 

 

 

 

Entry strategy of
the firm

 

Although a market follower approach was adopted, the primary
entry strategy of Starbucks was one of standardisation, defined by the
Cambridge Business dictionary as
“the process of
making things of the same type have the same basic features”  (Dictionary,
2018)
Starbucks implementation of a standardisation approach meant that
they didn’t focus on building a brand image from a foundational level “instead
relying on their ubiquitous cafés to do the talking” (Kiley, 2006, p. 56)
This had become a strong approach from the company due to its
presence on social media platforms.
By using social media, Starbucks was able to reach out to customers and try to
understand consumer behaviour through this model.
In doing so Starbucks was potentially able to exploit its market to lead to
greater successes “the company has reportedly taken all of the money that it
used to spend on traditional media outlets and shifted it into digital and
social media marketing” (McNamara & Moore-Mangin, 2018)
Arguably the strength of Starbucks standardisation strategy lay in
the implementation of social media and digital marketing and the brand image
that has been built around consumers as a result of this.

Standardisations drawbacks lie in its lack of innovation and
response time to consumers.
“The standard is finished and the market ignores it” (Poler, 2012)
It can be argued that when entering the market Starbucks therefore lacked the
innovation required as a response to this strategical approach.
Figure two (2018)  shows the Unique
Selling Point (USP) implemented by Starbucks within its standardisation
strategy, however simply adding another beverage (flat white) cannot shift the
paradigm to the point it can be considered a new strategy.
The correct approach would have been to try and understand the market segment
along with the socio-economic climate, with a thorough understanding of both of
these It can be argued a more sustainable approach potentially could have been
devised.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reasons for
Failure:

 

Starbucks had been faced with critique for declining
customer service as its expansion continued in Australia. An example of this is
the training and service standards of its staff as the franchise recruited
heavily in order to open more stores.
By losing out on service standards when contrasted to apparent competitors,
Starbucks was bested by other similar retailers with lower product positioning,
on levels of both price and professionalism.
The organisations market analysis wasn’t deep enough with its Unique Selling
Point (USP) in the eyes of consumers being almost completely non-existent.
With high speed WIFI also common across other Café’s along with loyalty card
schemes being implemented by the likes of Coffee Club, Hudson and Gloria Jean (Hicks
& Hicks, 2018) as well as many others.
A shallow market analysis meant that the coffee market was not buying into the
brand image of Starbucks.

With this making, the market fiercely competitive Starbucks
was left with its prominent point of separation from competition being its
individual marking of customers i.e. to write the name of the customer on their
selected beverage.
This level of engagement was lost when high sale targets were imposed upon
employees.
With a lack of what can be considered proper training due to its quick
expansion, morale was swiftly declining with customer satisfaction soon
following. The trigger for this was a complete disregard for the need of HR
(something that is typically considered a cost centre) Reference
With Starbucks pushing from high sales quotas, it was only natural that
management may have considered this to be a commodity.

As if this didn’t take away from the Starbucks experience enough,
the deciding factor was the when the commitment of the organisation to serve
coffee in a comfortable environment was denied “The Customer Experience –
Spotlight on Starbucks”, 2018)
This was as the organisation had changed its machinery to Vacuum packaged
coffee, meaning that consumers cannot have the scent of coffee in the air as
they enjoy their beverage, something that is expected for premium service
positioning (shown in table 1)

The switching of traditional coffee ma- chines to automated
espresso machines (which can make coffees 40% faster and move customers through
the lines more quickly), has also resulted in a loss of ‘theatre’ (Grove et
al., 2000)

 

This chain of events had led to Starbucks losing its place
in the “service and surroundings” survey conducted by Brand Keys 2007 customer
loyalty engagement index (Cebrzynski,2008)

By adopting the efficiency approach of Mcdonaldisation (Ritzer,
2010)

, Starbucks had completely swayed from what its marketing
strategy should have expressed through its customer experience, a significant
factor that led to its spiralling failure.

 

Starbucks entry strategy was something that completely
neglected the stance that is needed in International business.
Although it showed to make slight changes to its menu in various stores such as
its Algarrobina Frappuccino in Peru (Figure 2), this was not the case in
Australia.
Starbucks standardisation strategy was half-heartedly integrated into the
Australian market, meaning it bought what can be defined as a half-hearted American
offering.
With Australia being home to “about 300 ancestries and speak almost as
many languages, including indigenous languages” (“Diversity one of our
strengths”, 2018) Starbucks
failed to attempt in embracing this diversity, not ignore it by offering a
weaker strand of standardisation that it has offered to other countries outside
of the US.

The co-founder of Gloria Jean, one of the most prominent
competitors in the Australian coffee market stated that “US retailers often arrive in Australia thinking the size of their over-
seas 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” (lovelock, 2018)

This presumption in itself is reflective of Starbucks
assumption upon the Australian coffee market.
Starbucks had failed to realise the close knitted relationship that was held in
the Australian coffee chain. With the majority of Australians advocating for
support via buying local coffee to support the community and to hold ethical
business practices (2018)

 

Starbucks was a complete misfit in this system, as the
outsider, its iconic American image that may have appealed to consumers
elsewhere didn’t serve to have the same effect, a complete disregard for risk
as the organisation had overestimated the butterfly effect it presumed its
standardisation strategy would create.

 

Perhaps if Starbucks had
taken the initiative before the likes of Gloria Jean and Coffee Club had
enjoyed such success (highlighted in table 2) then perhaps Starbucks may have
survived its expansion. As shown in table 2, the competition was far too
prominent with the likes of McCafe taking the initiative before Starbucks, they
missed the golden opportunity where penetrating the market was ripe.
As stated by Barry Urquhart  ”In America, Starbucks is a state of mind. In Australia, it was
simply another player” (Daniella
Miletic, 2018)

 

 

 

 

 

 

 

 

 

 

 

 

Reccomendation:

If
Starbucks had conducted their market research appropriately, they would have been
able to uncover the coffee culture that was apparent within Australia beginning
in the late 1990’s and early 2000’s (table 1).
The organisation was not informed well enough of the coffee consumers
preferences and current option of beverages that were commonly available.
With flat whites, expressos and other variations being available at the likes
of Coffee Club and Gloria Jeans, Starbucks failed to appeal their brand in an
innovative light with its product range.
The organisation should therefore be aware of the customs and current market
and relevant factors. Simply put Starbucks should research accordingly to truly
understand the market and formulate an optimum strategy that follows. Its
standardisation approach within the Australian market can almost be seen as
arrogant due to the organisation overestimating its own image.

Starbucks
should have instead adapted in a similar manner as it did in France in 2006 (Sabharwal,
2018)
Due to the French not being as keen on American coffee as other European
counterparts, Starbucks had expanded at a steady pace in order to seize the
market, something that should have also been implemented in Australia.

To
survive in the Australian coffee market, Starbucks should have kept to its one
prominent USP among the likes of Gloria Jean, Coffee Club and McCafe.
Starbucks ability to provide a personalised customer experience in a unique
setting was lost when efficiency and sales targets were deployed as the
priority by senior management.
Staff now lacked the time to engage in this process, instead embracing the
efficiency element of Mcdonaldisation. (Ritzer, 2010)

Hollanders
wheel of retailing hypothesis (“AMA Archives Journals Abstracts”,
1997) encapsulates this ironic set of events.
a retailer eventually moves itself higher in terms of product positioning, and
then will find itself competing with more premium retailers.
These retailers being those that the organisation wished to distance itself
from in the very outset.
Starbucks followed this process in reverse. By lowering its own quality of
service, Starbucks found itself competing with lower level coffee retailers –
the complete adverse effect that was needed for a premium standard retailer to survive
the Australian market.

Starbucks
business model needs to address in terms of long term sustainability. Simply
providing a large space with an upmarket feel for customers to sit and drink a
beverage must be questioned on the grounds of innovation.
In the event that Starbucks product variety is lacking compared to a competitor
like McDonalds  (Jargon, 2018) Starbucks model of business cannot
be seen past the level of that which is generic.

 On a conclusive note Starbucks should embrace
its prominent USP whilst finding innovative grounds to build and develop from
it.
In doing so the organisation should also make sure to research the market
climate thoroughly in order to see the approach needed as shown in France 2006.
(Sabharwal, 2018)
Only under these conditions can its premium service be justified to
consumers and the organisation retain its place in the long term.