Why did Starbucks fail in Australia? Is it the Coffee or the Marketing Strategy?

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One might think that simply having a top brand name will enable businesses to reach and be successful in any market. Here we are talking about some of the most successful global businesses so you would expect them to know how to make some “cool stuff”. Then why do some top brands fail in some markets?

Most people don’t realize that success of the global brands heavily depends on carefully designed marketing strategies. Identifying and Targeting the correct customer segment and Positioning the product correctly is the key for success of these global brands in new markets (STP in marketing framework).

Customer requirements have become sophisticated and consumer involvement in many purchases is increasing. With various suppliers competing in today’s hyper-competitive marketplace to offer similar products and services, customer base for brands are becoming narrower.

Therefore, success of a brand in a new market depends on how efficiently it identifies and targets the potential customer group and how effectively its product or service is positioned within that group. There is no point in producing the best quality product unless the product is positioned in the relevant group of consumers.

While Starbucks was thriving in other parts of the world as a “premium coffee shop”, it was failing in Australia. A careful analysis reveals that Starbucks’ failure in Australia is attributed to wrong marketing strategy.

Firstly, Starbucks assumed that their brand power will simply attract Australian coffee lovers.  But it didn’t. So, did Starbucks select the correct consumer segment?  Let’s do a quick customer segmentation analysis; Geographically, Australia is a good coffee market with ideal weather (at least in most parts of Australia) to enjoy a good cup of coffee.  Demography around the major cities is suitable for selling coffee with increasingly popular café culture among educated working class people. Starbucks’s price tag is affordable to average Australian coffee drinkers. Considering above, one can assume that Starbucks targeted the correct market segment in Australia. But actually they didn’t. Starbucks failed to understand the mature coffee culture in Australia. Starbucks wanted to be the “Premium Coffee Supplier” in Australia but they didn’t optimize their product to suit the preference of Australian coffee lovers (Mescall, 2010) and tried to tell Australians “how to drink coffee”. Australians taste for coffee has been already defined by the existing rich cafe culture.

One can argue that Starbucks’s problem in Australia is with the product itself. My opinion is that Starbucks targeted the wrong consumer segment in Australia. They targeted premium coffee drinkers but their product failed to impress the very market segment they targeted. Starbucks customers failed to identify the “difference” in Starbucks experience and couldn’t justify paying a premium price compared to the other brands (UNSW, 2010). If Starbucks targeted the average coffee drinkers with a reasonable price, the story would have been different. Starbucks could place it as a premium coffee brand in other parts of the world such as China where café culture in relatively new. But in Australian matured café culture, their target market segment should have been average coffee drinkers.

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Australia’s Cafe Culture (Hubpages, 2011)

Starbucks also underestimated the fierce competition in Australian coffee market and overestimated their brand reputation. Starbucks wasn’t a big enough brand in Australia to gain sufficient publicity via word of mouth which they relied on so their promotion strategy also failed. Targeting the high end Premium Coffee drinkers and opening many stores within a short period is contradictory to some extent. According to Mescall (2010) what they should have done is going slowly by creating an artificial scarcity for the expected “different” Starbucks experience. Opening many stores aggressively is probably not the best way to place a premium brand in the market.

 

References

Mescall, J 2010, ‘Starbucks in Australia: Where did it go wrong?’, The Drum, ABC, Retrieved 09 April 2016, <http://www.abc.net.au/news/2008-08-07/32188>

UNSW 2010, ‘Marketing Lessons: Whatever Happened to Starbucks’, Business Think, Business School, UNSW, Retrieved 09 April 2016, <https://www.businessthink.unsw.edu.au/Pages/Marketing-Lessons-Whatever-Happened-to-Starbucks.aspx>

Hubpages 2011, ‘A quaint laneway of Collins Street in Melbourne CBD. These little laneways are great places to grab a quick bite or relax over a hot cup of coffee’, Collin Street in Melbourne, Hubpages, Retrieved 10 April 2016, <http://hubpages.com/travel/Collins-Street-Melbourne-CBD>

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