LB5301 - Global Marketing

Written Case Analysis Report

Lecturer: Dr. Wang Pengji

Reginald Yesuthasan
13043940

Starbucks: Failure Abroad

Due date: 1 Dec 2014

Word count: 1489

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 Table of Contents

Executive summary3

1. Introduction4

1.1 Introduction to Starbucks ..4

1.2 Case study..4

2. Starbucks in Australia.5

2.1 Country profile and entry strategy.5

2.2 Analysis of the Key Issues.5

2.3 Alternative solution6

3. Conclusion..7

3.1 Lessons from the case study..7

3.2 Recommendations..7

References9

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Executive summary

In 2000, Starbucks with extraordinary desire entered the Australian coffee market. Since

Australia is one the closest countries with United Stated culturally, Starbucks stores were

organised and worked the same as in United States. They entered into a competitive market

and overestimated their point of differentiation. They were thinking globally but was acting

locally; thus, their business model and action plan was unsustainable. Moreover, they brushed

aside the golden rules when doing international marketing. Australians were not impressed by

the coffee culture of Starbucks since they have an ultra modern coffee culture. The people felt

Starbucks wanted to invade and make profit rather than caring about the quality and the

coffee culture. Furthermore, aggressive growth strategy made Starbucks loose most of its

customers.

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1 Introduction

1.1 Introduction to Starbucks

In 1971, Starbucks opened its first store in Pica Place Market located in Seattle with only

selling coffee beans. It was started by Jerry Baldwin, Zen Siegel and Gordon Bowker where

later Howard Schultz joined as the director of retail operations but left in 1985, he purchased

Starbucks in 1987. As of 2014 they are operating across 62 countries with more than 18,000

stores. They became successful by creating a third place in peoples lives.

Starbucks opened its first international store in 1996 in Tokyo, which later on Starbucks

Japanese store doubled the profit than US stores. They entered China in 1998 and has more

than 800 stores now. Starbucks localised the menu to suit the Chinese consumers to be

successful.

1.2 Case Study

The report is about Starbucks: Failure Abroad case study. The case clearly explains about

the failure of Starbucks international expansion into Australia. Besides Starbucks having a

lot of exposure to international market they were overconfident and got blindfolded by

expecting Australian coffee culture to be the same as of United States. Eventually, Starbucks

got into a situation to close most of its shops and a need to redesign a strategy to become

profitable.

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2 Starbucks in Australia

2.1 Country Profile and Entry Strategy

Australia is the sixth largest nation but however, its population is relatively small. It has a

developed modern market economy where in recent years with high-growth, low-inflation

and low interest rates. The cultural diverse society comprise of its native people who arrived

50,000 years ago, and colonised from all around the world.

Australia has a distinctive coffee culture of its own, which is influenced generally from the

extensive Italian migrant population. One of the delightful things the Italians brought with

them is their love towards coffee. There was always been a boom of local cafes roasting their

own coffees and distributing. Mainly, the people prefer the Australian coffee brands as they

are fresh and local.

Starbucks applied its aggressive growth strategy and tried to trouble themselves, by opening

many stores in every city after it entered into Australia. Despite the sophisticated coffee

culture Starbucks opened 85 outlets in Australia risking them into a huge substantial debt.

2.2 Analysis of the Key Issues

Despite Starbucks having a good international strategy and being successful in some

countries, they made avoidable errors in Australia . The key issues for their failure are they

overestimated their point of differentiation and neglected the high value of the local coffee

rivals. They made a rapid expansion and reduced the novelty of their brand. Starbucks

service standards declined and they were undermined by countless street cafes who were

selling stronger brews at lower price, often offering equal or better hospitality.

Their main mistake was to ignore the golden rules of international marketing. Australians

have a strong sense of buying local, having relationship with the people they buy from and

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supporting the community, where Starbucks customer service completely varies with that.

Starbucks after entering, quickly increased their shops as if forcing them upon the unwilling

public. When entering the Australian market they immediately opened multiple stores in

every Australian city and began employing younger, less-experienced staff. which was just

opposite to the strategies of many international companies.

Starbucks entered into an exceedingly sophisticated market. They lacked the advantage of

first mover which they had in other counties, making themselves an late entrant to an already

very competitive and developed market. Starbucks failed to attract customers towards the

brand. They continued to refuse advertising thinking they were the core of the business.

Moreover, communicating what the brand means and giving the reason for patronising

Starbucks is important than brand awareness.

Starbucks business model and marketing strategy was unsustainable. A franchise model

would have worked better for Starbucks rather than itself investing in all the upfront expenses

of new stores. In additional, owning its own stores lead Starbucks to financial pressures.

Local investors with a good knowledge about their local market should have been hired and

take an action role in running and shaping Starbucks direction.

2.3 Alternative Solution

Starbucks has two choices for their business in Australian market: keep running business or

leave the market. In this situation, it is better to go with the choice of leaving Australia. Since

it must shut down two third coffee stores in just eight years after entering Australia, it proved

that Starbucks strategy is not adapting to Australian market, it failed to meet the demand of

customers and wasted too much budget from head company in USA. The more Starbucks

keep running business in Australia, the more lost they will gain. In order words, they entered

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late in a highly competitive market with no market analysis at the beginning, also failed to

communicate its brand to the market, they have no chance in surviving here.

However, we see that, since Starbucks recognised they went wrong, and was aware of their

huge lost in this international expansion to Australia ,and still now remain only 24 stores in

Australia, they may use their final opportunity to take back the market, by changing the

marketing strategy that is more suitable to the Australia, also change the flavour of the coffee

that can fit with Australian taste.

3. Conclusion

3.1 Lessons from case study

When looking at Starbucks failure in Australia, many lessons can be learnt when marketing a

business globally . The market research have to been done before entering into any new

market. When a business is thought for global expansion and after entering a new market, the

services and customer satisfaction should be in accordance with the local culture. The local

culture should be well analysed and differential advantage should be established in order to

strive and sustain it. The main and important lesson learnt for the case study is, the business

mode must be made sure it is sustainable. Every market has its own different structure of

customers demand and also competitors.

3.2 Recommendations

Starbucks could have concentrated on analysing the Australian coffee market and create a

marketing strategy appropriate to it. They can still gain their position back into the market by

gaining competitive advantage, through differentiation because of the type of business they

are in. Moreover, they should have developed a marketing program rather than relying on

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market saturation and word of mouth. Cultural difference played a vital role in Starbucks

failure and rather than global domination they should concentrate on the needs of the

customers. Starbucks should recognised the need to research and understand the beliefs,

values and customer of a society. So they would have known the degree for which they need

a change. Additionally, Starbucks could consider in developing of training staff, so they can

serve best to customers and gain their loyalty. For the remaining of 24 stores in Australia,

Starbucks should widen the spaces, so the customers can sit, relax and enjoy the coffee. Like

that, Starbucks step by step can get the preference for its brand name from the customers

mind, also refresh their brand image and brand identity.

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 References

Ashley, L. (2014). Starbucks was a complete failure in Australia. BusinessInsider. http://

www.businessinsider.sg/starbucks-closing-stores-in-australia-2014-5/#.VHsKKItbzdk.
Retrieved on 29 November, 2014.

Australia Facts. (2014). About Australia. http://www.about-australia.com/facts/. Retrieved on

26 November, 2014.

Daniel, E. & Alex, T. (2008). Starbucks closes 61 shops, cuts 700 jobs.
TheSydneyMorningHerald. http://www.smh.com.au/business/starbucks-closes-61-shops-
cuts-700-jobs-20080729-3mt1.html. Retrieved on 29 November, 2014.

John, M. (2010). Starbucks in Australia: where did it go wrong?. ABC. http://

www.abc.net.au/news/2008-08-07/32188. Retrieved on 27 November, 2014.

Marketing Lessons: Whatever happened to Starbucks. (2010). UNSW. https://

www.businessthink.unsw.edu.au/Pages/Marketing-Lessons-Whatever-Happened-to-
Starbucks.aspx. Retrieved on 25 November, 2014.

Michelle, H. (2014). Can a local operator succeed where Starbucks failed in Australia by
opening more stores?. MarketingManagement. http://www.marketingmag.com.au/news/can-
a-local-operator-succeed-where-starbucks-failed-in-australia-by-opening-more-stores-54136/
#.VHnBa4tbzdk. Retrieved on 28 November, 2014.

Phoebe, H. (2014). This is why Australians hate Starbucks. Munchies. http://

munchies.vice.com/articles/this-is-why-australians-hate-starbucks. Retrieved on 28
November, 2014.

Starbucks Australia. (2014). Starbucks. http://www.starbucks.com.au/The-Starbucks-

Experience.php. Retrieved on 28 November, 2014.

Venessa, W. (2014). Starbucks has a Australia Problem. BusinessWeek. http://

www.businessweek.com/articles/2014-05-27/starbucks-has-an-australia-problem. Retrieved
on 24 November, 2014.