When Starbucks undertook its grand entrance into the Australian market in 2000 with a store in Sydney’s business district, success seemed inevitable. The brand had already taken the U.S. by storm, the name “Starbucks” already becoming synonymous with the ubiquity of premium coffee shop culture. The overlap between American and Australian coffee might have been a large geographical barrier to overcome, but as far as cultural barriers went, the expansion seemed destined for success.
But eight years later, Starbucks closed nearly three-quarters of its Australian locations.
Headlines screamed: “Shunned Starbucks in Aussie exit.”
So what happened?
Clearly, Starbucks wasn’t working with a bad product. Its success in the American markets testified to that. And there weren’t any obvious instances of bad luck or misfortune. Instead, Starbucks’ expansion highlighted the cultural gap that can make international expansion challenging. And given that Starbucks Australia eventually started turning a profit decades later, there are some interesting lessons to learn from what went wrong—and how Starbucks turned it all around.
The risk of skipping the necessary cultural research
Most market entry failures start with poor preparation. Starbucks’ foray into Australia proved no exception.
The brand went full-throttle: Starbucks opened 84 Australian stores in just eight years, many in major cities with established coffee markets. However, Starbucks failed to take into account the highly developed coffee culture already present in Australia. After World War II, an influx of immigrants from Italy brought espresso machines and introduced coffee en masse. Australians had already “met” coffee cafe culture.
As the Australasian Marketing Journal reports:
“Australia’s taste for coffee is a by-product of the waves of immigrants arriving on the country’s shores following World War II. European migrants, predominantly Greeks and Italians, were the first to establish the coffee culture, which was later embraced more widely in the 1980s.”
In the U.S., that hadn’t been quite as true. Starbucks had already defined cafe culture. Meanwhile, Australians already had deep-set preferences for strong, artisanal coffee being served in locally-owned shops. In Australia, Starbucks wouldn’t be driving the culture. It would feel more like an outsider selling a familiar product. And its corporate approach felt less authentic (and often, more expensive) than the local cafes.
According to Justologist,
“Australians are spoiled for choice when it comes to coffee” while “the large coffee chains are not dominating the market like Starbucks is in America.”
Australian coffee culture was largely fragmented, not as ripe for national domination as American coffee culture had been.
What Starbucks could’ve done differently
Succeeding in any export market requires companies to clearly define their customer and adapt their approach as appropriate. That begins with thorough market research: a deeper understanding of the cultural context into which you’re exporting your products.
Creating detailed customer profiles
[This content is an excerpt reproduced from the FITTskills International Sales & Marketing course]
Customer profiles are used for product and service adaptations and other marketing decisions. Profiles are also often created for specific segments for the market. Customer profiles are almost certain to be diverse within every foreign market, taking into account income levels, culture, living standards, fashion, religion, politics and general attitudes toward imported products. Include the following 3 sections:
Demographic Portrait
This part of the profile demonstrates a detailed understanding of the organization’s customers and typically includes demographic characteristics such as age, gender, career or job, income, level of educational attainment, geographic location and language(s) spoken.
Estimated Demand
Based on collected research, marketers estimate demand for products and services, and the rate at which the demand is expected to grow.
Purchase Motivation
It is important to understand what motivates customers to buy. Are they looking for savings or a way to simplify their lives? Perhaps they are seeking attention or safety. Why will customers choose the company’s product or service over the competition? Is what they have to offer too inexpensive or too costly? Do they offer something unique? What cultural factors influence the values, preferences and behaviours in this target market?
For more on how to conduct customer research including collecting and analysing data and identifying insights about market segments explore International Sales & Marketing
In Australia, a full profile of coffee customers would have revealed that they weren’t necessarily looking for big-time chains. They valued their independent cafes. They already had their favorite barista-crafted coffee shops. They were fine with a localized, relaxed experience, and didn’t see a need to change
Starbucks had been encouraged by its rapid expansion in the U.S. and may have assumed that success in another western-style country would be assured. Instead, they tried to transplant the American model wholesale. And it was a model that simply wasn’t going to work in a country with a different coffee history.
A flawed international marketing strategy
‘‘I just think the whole system, the way they serve, just didn’t appeal to the culture we have here,” said Andrew Mackay, VP of the Australian Coffee Traders Association.
A key point of issue for Starbucks’ strategy was differentiation. International marketing can get tricky if your brand can’t figure out what makes it different. While the Australasian Marketing Journal notes that Starbucks had an initial spike of interest thanks to the novelty of the store and Australians’ curiosity, it failed to differentiate why it was superior to the already-embedded local coffee culture across the Australian continent.
Starbucks was perceived as having a premium price that required some point of differentiation to justify paying that much for coffee. The extant coffee culture in Australia made that selling point difficult. Other marketing problems—such as the uniformity of the store design—didn’t appeal to Australians the same way they had appealed to Americans.
The rapid expansion strategy also introduced an element of fatigue. While the appeal of a standardized coffee store had legs in America, the uniformity and success of the brand eventually started to wear on many customers. The same was true in Australia, where Starbucks’ rapid entry to the market and aggressive expansion strategy failed to make inroads.
Ultimately, Starbucks was a first-mover in America, while the brand had failed to acknowledge that in Australia, it would simply be another place offering coffee.
Additionally, Australian cafe owners weren’t intimidated by Starbucks. Starbucks’ fast-expansion philosophy might have worked in the United States, but Australian cafes were able to double down on the specialty brews and cozy atmospheres that had already made them popular with the Australian public. In that environment, it was difficult for Starbucks to differentiate itself from the competition.
How Starbucks Australia eventually recovered
A younger demographic eventually came to the rescue. According to Coffee Intelligence, “a new cohort of Gen Z and young millennials are driving coffee consumption in Australia, and they exhibit new drinking preferences that align with what Starbucks offers.”
Starbucks finally found itself aligning with what Australian consumers wanted, which was now an on-the-go lifestyle. Convenience and mobile online ordering systems were becoming preferable to the cozy cafe experience—which played to Starbucks’ strengths.
Additionally, Starbucks eventually shifted from a pure growth strategy to focusing on tourist-friendly locations with more international audiences. Shopping centers and popular commuting destinations proved valuable in this strategy.
In other words, Starbucks eventually found success not in trying to teach Australians to be like Americans, but in finding where its current Australian market already existed, then doubling down on that strategy.
Actionable lessons for exporters
Starbucks made some expensive missteps, but eventually learned some key lessons to enter a new international market:
- Define your customer profile, remembering to keep it local. Don’t assume what worked for your current customer base will work for the new one, too. Use customer profiling to understand demographics, demand, and culturally-driven purchase motivations in the new market.
- Adapt your product or service to fit the culture. Starbucks started seeing more success when it a mobile-driven generation stared drinking coffee. Rather than stick to its old U.S. playbook, the brand eventually shifted to finding its niche, which provided further opportunity to grow.
- Localize your marketing strategy. One-size-fits-all branding can often be a mistake, as you use previous successes to predict future ones. But sometimes, those successes were due to elements that may not exist at the next stage of your expansion.
A powerful “export plan” takes plenty of research, along with generous dollops of patience and humility. Starbucks was able to turn things around by addressing their mistakes and doubling down on customer research and adaptations. Lesson learned? Don’t skimp on your customer profiles and never assume your domestic approach will work in global markets.
disqus comments