Case Study Of Starbucks In Hong Kong Marketing Essay

Chapter 1: Introduction

1.1: Research Background and Motivation

Hong Kong is a cosmopolitan metropolis, it embodies both Eastern and Western traditions. Due to its rich cultural diversity and transnational lifestyle, the city offers a wide variety of international catering which is served in more than ten thousand coffee shops and food outlets.

In recent years, the rapid growth of food and beverage industry in Hong Kong draws more attention from public. According to the results of the 2011 Annual Survey of Economic Activities – Restaurant Sectors amounted to HK$89,300 million in 2011, representing an increase of 6% over 2010, and 12% over 2009.( Appendix A)

Analysed by Food services, in 2010 total receipts of fast food shops increased in value by 8.4% over 2009, this amounted to HK$18,719.6M. Other eating and drinking services increased by 7.4% in value, this amounted to HK$35,100.8M in 2010. (Appendix B) This result obviously shows that snack and beverage industry continues to expand in the market.

“Coffee is a very political commodity”, Roseberry says. Among coffee men, there is a growing interest in social and environmental issues by the coffee roasters of these organizations. Coffee-consuming-world represents a kind of social lifestyle as it is rooted in centuries in the Western countries. Coffee consumption in Hong Kong is 1.1 kg per capita (World Resource Institute). Nowadays, coffee is not just a pure drink for this modern generation, it is also a symbol of new spiritual lifestyle. Eating or drinking in a coffeehouse is not only a demand for coffee’s quality, taste and convenience, but also pursuit of fashionable leisure and elegant lifestyle. In the popular cultural discourses, Starbucks is described as driving out local coffee shops. It imposes a standardized culture on local communities, and invites consumers into a social gathering place. This culture presents the values, beliefs, customs and tastes produced or practiced by this group of people. (Solomon, Marchall & Stuart, 2008)

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Snacking with colleagues or friends after work provides a major socializing opportunity in Hong Kong. Young customers prefer to visit coffee shops for leisure time. Even working people are likely to use the coffee shops as their work places. Coffee shops provide an informal setting for social encounters, and more importantly these structured environments do not command a great deal of time or money from the customers, this is a small but significant move to redefine this new lifestyle in Hong Kong. Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world. There is a total of 17,003 stores in the world (as of 02 Oct. 2011) and 115 stores in Hong Kong, since its first store launched in Central’s Exchange Square in May 2000. (Appendix C)

“Starbucks brings the coffee experience to you!” This is what Starbucks commits, and indeed, it has established as the linchpins of a desirable coffee shop experience, a systematic influence on the socio-cultural. (Craig J. Thompson,2004) In Starbucks stores, people can be immediately associated with a relaxed and intelligent experience, this is just the image of “Experiential Branding” which Starbucks creates. Every aspect from the posters to the Starbucks logo gives the experience it intends to portray. It is the calm atmosphere which the brand presents that not only draws people into the store, but also makes people linger and return more regularly!

What is Experiential Branding? It is a discipline of how consumers understand and define the brands in terms of the experience they deliver and the lenses through which they are evaluated. Experiences are a fourth economic offering. Pine and Gilmore describe in “the Experience Economy” in 2003, if the consumer buys the experience, he will spend time to enjoy a series of memorable events and engage himself in his personal way. Good examples are Ritz-Carlton which offers new value to its customers in hospitality experiences by its welcome gifts; and Apple which provides in-store Genius Bars to build a remarkable experience for its customers.

Yet in 2006, Robert Passikoff argues in his book Predicting Market Success that the 4P Marketing Mix cannot work effectively without Customer engagement, Customer expectations and Customer loyalty(3C). These initiatives have conspired dramatically to take place of 4P Marketing Mix in today’s economic world. Nowadays more and more people focus on quality of life as they are not just living for food and warmth(Pine & Gilmore,1998), they are now looking for a higher spiritual experience which is a kind of environmental service to decrease their stress from work.

Many researches on marketing management are for strategies, products, services, customer loyalty, customer satisfaction, and so on, but not too many on experiential marketing and branding. Although there are a lot of studies and researches on Starbucks, some other well-known companies are even less researched on Customer Experience in Hong Kong. This research will further the previous study structure to investigate the connections among Customer Experience, Brand Image and Customer Loyalty, and hope to find out how Starbucks carries out its commitment and how it strives to win the customer’s loyalty in this competitive market.

1.2 Research purposes

Western lifestyle has been popular in Hong Kong for decades due to its special historical background. The new generation especially, eats out more often than their parents, and these new consumers have created a huge demand for leisure and carefree consumption places. As a pioneer in most new markets in the world, Starbucks seized the new information in Hong Kong and set up its first store in 2000. By May 2008, it had expanded to over 100 stores without spending much cost on advertising for this market! How actually does it attract these local consumers?

Due to the economic development, the improved living standards, “Goods and services are no longer enough” (Pine & Gilmore,1998). Today’s consumers expect more from companies than ever before. The consumer environment has been gradually changed into a new experience economy era. People are seeking for a more spiritual than material experience. Catering has changed to a culture and art as customers pursue a modern and playful lifestyle. To survive in this new competitive economy, the company must not only concentrate on market strategies, brand image, innovation features, service quality, decoration and setting, but also a full range of service process planning, so as to create continuous profits for the business.

Based on this research’s background and motivation, business operators have emphasis on quality of product, innovation of management, and service differentiation to create the customer experience in this keen competitive catering industry. Tom Peters (2007) believes a good brand image can attract the consumer’s recognition and enhance customer satisfaction gradually, to obtain customer loyalty by every positive experience.

This research targets 10 Starbucks stores randomly in Hong Kong, to explore the customers’ experience, brand image, and loyalty, so as to find out what consumers’ experience on this new lifestyle, and gain in-depth understanding to develop effective marketing strategies, and to maximize the customers’ perceived experiential value.

1.4.1. Customer:

It means a party that receives or a person who consumes products or services and he has the ability to choose between different products and suppliers. Robert Passikoff (2006) interprets that usually customers can finally find out below 4P:

The Products(services) that they are interested in.

The Places this product may be purchased.

The Prices are competitive or not.

The power and control of Promotion.

Though, one important point to be noticed is that a customer does not mean a consumer, as there are External Customer and Internal Customer(Tennant,2001). External Customer is not directly connected to the organization. Internal Customer is a person who directly connects to the organization, and they may be stakeholders.

In this research, customer means the person who spends money in Starbucks stores in Hong Kong.

1.4.2. Customer Experience:

It refers to individuals accumulating to produce a kind of experience after a period of time or activities, by this experience, a subjective psychological state will be created(Pine & Gilmore,1998). In this study, the experience is defined as a subjective mental emotional response, evaluation and cognition to Starbucks.

Experience begins with an interaction between the customer and the product or the company(Dinna LaSalle,2003), thus, it cannot happen without the customer’s involvement. Customers spend time and money to get more memorable or more highly valued experiences (Pine & Gilmore,1998), the value of experience lingers in the memories, yet experience results in thoughts or feelings and both can be positive and negative. Marketers manage to develop the positive experience. Moreover, if the company can deliver Value Experience to a customer’s life, that product or service will transcend its ordinary price to become extraordinary or even priceless! (Dinna LaSalle,2003) For this reason, economists summarized the recent marketing and economic research into happiness as “experiences” over commodities and entertainments. (Pine & Gilmore,1998).

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Starbucks creates a calm atmosphere inside its stores to attract people to come in, linger and return. It introduces the concept of the “Third Space” – a space other than home and work, where people can spend time studying, working on their laptops, reading, meeting friends or even holding their formal meetings! All stores have leather couches for those people who prefer to relax in comfort, and for those who want a more structured environment to study or work, there is a choice of tables with hard-backed chairs. Just like Starbucks says: “Life happens over the coffee.”

1.4.3. Brand image:

This refers to the enterprise that provides products, services or engaged in community, it also relates to information and subjective impression in the consumers’ opinion.(Walters,1978)

Starbucks maintains a unique coffee culture, as Zhang Xi says in “Starbucks: The Kingdom of Coffee” (2005), “Coffee comes from west, Starbucks originates in the United States, but the culture of Starbucks coffee is from the world.” This culture starts at the planting of every single coffee bean, as Howard Schultz persists in coffee quality, then merged with the traditional romantic European style of decoration in the stores, it comes out with a brand new experiential corporation culture, which is so-called today “Starbucks Culture”.

Howard Schultz led a speech from the lectern in Shanghai National Accounting Institute on 3 June 2006, he tells the audience that “Starbucks spends very little on advertising or promoting, but Statbucks brand image is recognized by everyone in the world!” This is a practical example to explain when Experiential marketing is done right, the brand can be successful without expensive advertising campaigns or slashing its price!

1.4.4. Customer loyalty:

This is a kind of satisfaction established by a customers’ full acceptance at the intended level. It also results in consumption or other derivative positive support behaviour. Customer loyalty metrics can measure how the consumer engages with a new product or service(Robert L. Desatnick,1988). Peter Drucker says, “Those brands relying on advertisements cannot be better than those relying on customer loyalty”. That’s why without customer loyalty and higher levels of engagement, business cannot be successful.

Below are the examples that to recognize customer loyalty is a great profitable factor:

Starbucks: Starbucks originally opened in Seattle in 1971 as a store that sold coffee beans & equipment. Since Howard Schultz joined the company in 1983, the brand name now owns more than 17,000 stores, in over 55 countries around the world. This is just the best evidence that loyal customers contribute to the rapid growth of the business.

Google: Have you ever noticed that Google’s IPO price was US$85 on Aug 19, 2004? Today it is worth US$ 655.76 per share, that is an increase of 7.7 times over eight years. Its success has great relevance to its “Google Loyalty Programs”.

Apple: How many people could ever have imagined the speed and growth of Apple? From its annual report in 2011, its net sales amount comes to US$46,333 Million, compared to 2010 which was US$26,741 Million, it has increased by 73% within ONE year. It is not easy to find if Apply offers any loyalty programs or discounts, but indeed Apple can win its fans loyalty through its rapidly changing products! It meets customers’ expectations and excitement.