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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)
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.
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).
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.
Chapter 2: Literature Review
If a business aims to keep regular customers, it is understood the most important factor is to provide a good quality of service and product. Starbucks started with a question, "What if you took the quality coffee bean tradition and merged it with the charm and romance of the European coffeehouse?". Starbucks won awards and recognition in 2009 & 2010 by "No. 1 Best Coffee" in Fast Food and Quick Refreshment categories. It has also systematically created a relaxing and romantic atmosphere within its stores. It brings a new consumption trend which verifies the previous practice of good quality service and product is not enough for today's consumers. Is Starbucks romantic experiential marketing strategy really one of the factors to win customer loyalty?
In this chapter, relevant literatures and theories about Customer Experience, Brand Image, and Customer Loyalty are discussed separately.
2.1: Customer Experience
It is an age of time-poor and cash-rich society. The consumer environment has been gradually changed into a new experience circumstance. Pine and Gilmore (2003) have found that consumers expectations are achieved by creating an atmosphere that will attract the consumers to spend money on it. Experiential Marketing mandate is to make every single customer experience a memorable one, so it is a process of identifying, satisfying customer needs and aspirations, it also brings brand personalities to life and add value to the target customers' experience.(Shaz Smilansky,2009) Ever since Schmitt's first proposal on concept of Experiential Marketing, nowadays, this marketing practice has been a business trend in the global market, the practitioners include: Starbucks, McDonald's, IKEA, and more.
Traditional marketing practice is found to be more difficult to attract customers (Schmitt,1999). Today's consumers focus on the experience in the consumption process. Every individual has different expectations and interests. How can all expectations and interests be fulfilled or customers attracted by a product or service? Schmitt proposed the new concept of Experiential Marketing. He believes companies can increase the consumers' perceived value of the consumption through Experiential marketing strategy. Thus, how to develop this kind of experiential atmosphere becomes a very important factor to acquire advantages in the cutthroat competition.
Traditional marketers focus on factual mumbo jumbo, presents view of customers, products, and competition, in their opinion, consumers are rational information processors, they just compare the features and benefits against a standard to reach a decision(Schmitt,1999). Yet the fact is, combining the good of strategic thinking with the bad of the Features-and-Benefits (F&B) approach cannot produce desirable results. Besides, traditional marketing is comparatively narrow, it thinks McDonald's cannot compete against Pizza Hut or Starbucks. For the methodologies and tools considered by traditional marketer, they are analytical, quantitative, and verbal. Nevertheless, there are some positive concepts in traditional marketing strategies, such as objective setting, market segmentation, and strategic positioning. These primary strategies still apply to any other form of marketing as they are the backbone of good marketing decision making. For example, the environmentalist is willing to pay higher price for the goods with environmental or recycle labels, he does not care if this is a branded product or not.
For today's marketers, the essential message is that consumers are not just rational decision makers, they are looking for more entertainment, stimulation, and emotional innovation.(Schmitt,1999) So if the marketer wants to turn a prospect into a customer, he shall have a sense to provide a great customer experience, and hope they will come back to buy more and bring their friends with them.
Traditional marketing strategies emphasis is on performance and effectiveness. However, due to the changes in the new economy, especially in the catering industry, the consumers are not just interested in the food or drink, but they are paying more attention to the atmosphere and environment of the place as they are expecting a pleasant experience in this process of consumption.
We are in the middle of a economy revolution, more companies are using or trying to use experiential marketing.(Schmitt,1999) Experiential marketers treat consumers as rational but more emotional human being, they always expect pleasurable experiences. Schmitt lists five different types of experiences, or strategic experiential modules (SEMs), SENSE,FEEL,THINK,ACT and RELATE. (Figure 2-3) These experiences are implemented through the experience providers (ExPros) such as communications, visual and verbal identity, product presence, electronic media, etc.
There are several methodologies and tools for experiential marketing: e.g. using events to bring customers into contact with products; creating their memorable experiences in various scenarios (Theatre, Game, Television, and so on). What is the differentiation for Starbucks? After several observations and explorations, Jin Cuo Dao (2007) finds out the answer, that is, other coffeehouses are selling products, whereas Starbucks is selling consumption experience. Though all coffeehouses can provide an inherent social ambiance with its relaxing and comfortable setting, Starbucks creates an emotional connection with its customers by interactive service and communications.
Communications and marketing campaigns will dazzle customers' senses (Joseph A Michelli, 2006). They want products that can incorporate them with their unique lifestyles. This kind of experience is related to environment, branding, product presence, Internet and other media, it has a variety of demonstration channels.
'High experiential value product is connected to high price, in most of nowadays consumers' opinion(Schmitt,1999; Zhang Xi,2005). Starbucks coffee costs two to four times higher than other brands, how does Starbucks draw these consumers' attention from other competitors and change their mind to buy coffee from Starbucks? Zhang Xi notices Starbucks emphasizes on the delicate coffee flavour, a typical Western lifestyle, as well as the "Third Space" it creates. In addition, Starbucks management understands customers see every tiny detail in the store, so the competitive advantage occurs when all staff in the company appreciates every trivial aspect of business. During its aggressive expansion period, Starbucks still maintains its quality. By the year of 2011, Starbucks, on average, opened two new stores a day throughout the period of 365 days. This figure explains how amazing Starbucks's profitability and growth are. It is a piece of cake to understand to provide intangible service and tangible products to customers with satisfaction is the biggest value for the service industry.
Summing up the above literatures and theories, the difference between traditional marketing and experiential marketing is that the former focuses on product functions, on the contrary, the latter emphasizes the customers' experience. Experiential marketing thinks it is not just an exchange of product or service with customer, but a unique valued experience created during the consumption.
Strategic Experience Module is to create different experience for individual customer. Schmitt explains (below) in five elements:
Sense includes five sectors: sight, sound, scent, taste, and touch. Sense marketing is to provide aesthetic pleasure, excitement, beauty, and satisfaction through sensory stimulation. These are composed by a sequence of processes as Stimuli, Processes, and Consequences(S-P-C Model of SENSE, Figure 2-4). The interaction also initiates customers' motivation and increases the product value. The key factor of Sense experience is how to get the consumers' consistency of cognition, otherwise the consumers will be easily confused. Just like the fresh, fragrant coffee in Starbucks stores, along with charming jazz music, fantastic decorations, new posters and window dressings, the mixing of all these elements provides the warm, cozy and relaxing atmospheres for the customers to sense. Though all these do not make any change on the coffee taste, it makes customers feel their experience of the coffee so wonderful. From which we can understand, Starbucks formulates an ambiance of enjoying coffee in store, much different from takeaway.
Differentiate Motivate Add value
Stimuli Processes Consequences
Vivid Modality principles Please
Meaningful ExPro guidelines Excite
Cognitive consistency/sensory variety
Figure 2-4: Source: The S-P-C Model of SENSE
Schmitt states three key strategic objectives for SENSE marketing in his book "Experiential Marketing":
SENCE as Differentiator: To produce your product or service in an unusual and special fashion.
SENSE as Motivator: To motivate customers to try your products and buy them without either overloading or under-stimulating them according to three principles: across modalities, across ExPros, and across Space and Time.
SENSE as Value Provider: To provide the unique values to customers after understanding of the consequences of the sensory appeal and what customers want.
FEEL marketing is the implementation of attaching affect to the company and brand via experience providers. Schmitt uses the story of Häagen-Dazs Café to explain how FEEL in marketing works.
Häagen-Dazs Café is designed as a romantic setting where customers can experience the joys of love as well as the pleasures of ice cream, from which we can see how Häagen-Dazs succeeds in linking itself with pleasure and romantic love.
Strong feelings result from contact and interaction. Numbers of consumption situations are associated with affect. Schmitt points out that FEEL marketing appears in advertising, products and their names. When consumers use your products and experience the brand, you will get the most complex emotions such as happiness, satisfaction etc.
Starbucks also wrestles with ways to invite its staffs and partners to fully engage their passions and talents at work every day. Through its Principle one "Make It Your Own", Starbucks has succeeded in creating a unique model to indulge its staff and partners' creative energy and dedication into everything they do.(Joseph A Michelli 2006) The leaders at Starbucks provide a structure of "Five Ways of Being" - Green Apron Behaviour (Stephen Krempl, Vice president of Starbucks Global learning):
Be welcoming: Offer everyone a sense of belonging.
Be genuine: Connect, discover, respond.
Be considerate: Love what you do. Share it with others.
Be knowledgeable: Take care of yourself, each other and our environment.
Be involved: In the store, in the company, in your community.
THINK marketing is to encourage customers to engage in elaborative and creative thinking which may result in a re-evaluation of the company and products.
Joseph A Michelli says, 'Consumers want the predictable and consistent value'. Starbucks leaders demonstrate how they accomplish this mix of the expected and the unexpected, by teaching customers how to describe coffee as well as sharing coffee knowledge with the customers. They have also made a firm commitment to creating an experience of Surprise and Delight in many areas of their business. This, in turn, has a profound effect on loyalty, community, and profit. Customers can experience pleasure from a simple unexpected exchange of information, for this reason the information can enhance positive customer experience and also achieve memorable results.
ACT marketing strategies are to create customer experiences related to the physical body.
Traditional marketing has largely ignored the notion of ACT experiences such as influencing, categorizing, predicting behaviours, and lifestyles. Schmitt thinks it is noteworthy that the initially external norms may become internalized norms over time in the sense of "It is the right thing to do." ACT experiences move beyond the realm of sensations, affect, and cognition, and many results from public interactions. Starbucks embodies the lifestyles of its customers. It has established juice bars which attract a wide spectrum of customer for experiences and values. Customers' special needs are catered with healthy products.
RELATE marketing comes beyond the individual's private sensations, feelings, cognitions, and actions by relating himself to the brand. RELATE is a connection with other people, society, or culture. It is a result from SENSE, FEEL, THINK, and ACT experiences. A successful collection of RELATE products and services is provided by Franklin-Covey's company, which offers a line of Franklin-Covey's books, Franklin organizers, and the Covey Leadership Center, all of these are built on the phenomenal success of Steven Covey's best-selling book, "The Seven Habits of Highly Effective People". They have even opened a line of 7 - Habits retail stores, selling products intended to help people get control of their lives.
Just like above-mentioned, Starbucks has its juice bar in the store, the bar appears on a sensory level with rich descriptions of delicious fruits, it offers a RELATE appeal in terms of its worldwide origins, not just in terms of the health values of the product. It provides a lifestyle with "a unique smoothie blended with juices, purees, and other good stuff!".
Schmitt provides a brief description of the five types of customer experiences which form the basis of the Experiential Marketing Framework. He demonstrates the chart of Experiential Media and executive association as below Table 2-1:
Advertising, external and internal communication and branding, public relations activities, such as magazine, campaign, brochure, press release and annual report.
Visual / verbal identity
Visual or verbal identity to create sensory, emotional, thinking, and action on the brand image, such as product name, trademark and color etc.
Product design, packaging and brand name, so as to attract the right target and get emotional experience.
Event marketing, sponsorship, alliance and partnership, licensing in the TV/movies etc.
Including the external and internal design of the corporate office, retail shop, public space and trade fair, etc.
Web site, electronic media
Its interactive ability creates an ideal forum for customers' communication, entertainment, interaction or exchange of the experience.
They can be the staff of the company, service providers, as well as any related people.
In his book "Experiential Marketing", Schmitt also develops ten hypotheses to examine relationships between experiential marketing, experiential value, and customer satisfaction. The overall outcome suggests that the experiential marketing should induce the customer satisfaction throughout the emotional and functional values which is provided by feel perception, think perception, and service quality.
What is the benefit from Experiential marketing? Below are Shaz Smilansky answers:
It is a fabulous approach for bringing a brand personality to life.
It can create brand advocacy as it drives word-of-mouth through personal recommendations about the brand experience. This often happens when you choose a restaurant, you will ask your friend without a doubt about where to go.
Its campaign can convey sophisticated messages to customers, in comparison it is found hard for traditional marketing to achieve. By such communications, the complex brand values are effectively connected to the inspirational lifestyle of the customers.
4) It can be workable for products and services in the B2B sector as well as B2C sector. When B2B business uses traditional marketing strategy for marketing and advertising, it often finds low returns on investment. An innovative marketer always considers using Experiential marketing as a differentiator, so he can add value for his target audience and consequently build a strong relationship.
How to impress customers more easily, especially in the first meeting? Dale Carnegie suggests to greet people by their names or address their names repeatedly during the communications. He recognizes a person's name may be his most valuable possession. Starbucks leaders encourage staffs to know customers by their names as they understand that customers long to have their uniqueness recognized. Paul Ark, a customer of Starbucks store in Bankok, told of his experience that how Starbucks partner made him feel truly important. He was back to Starbucks Chidlom store two months later, queuing in line to order behind two other customers, when one of the baristas looked over and asked him,"Grande Vanilla créme Frappuccino with raspberry syrup, right?" Paul was shocked, as he noted this experience made a deep impression on him. He was moved by the way how Starbucks staff defined what customer service meant. It is building a one-on-one rapport in order to remember a customer's needs and preferences and creating a smooth and efficient in-store experience.
2.1.2. Relevant Research on Experiential Marketing
Experiential marketing is one of the major subjects recently in the marketing research. There are some researches on experiential marketing, experiential value, and customer satisfaction on Starbucks. In "The Starbucks Experience", Joseph A Michelli tells us that Starbucks has achieved its award-winning corporate culture in large part by Howard Schultz and his leadership team. All Starbucks staff are encouraged to welcome regular customers by their names, and keep their favourites and habits in mind to create the unique Starbucks Experience for customers. The ambiance of the store is set to be a place where people feels comfortable hanging out alone or with friends. Howard Schultz stresses the success of Starbucks is the emotional connection they have built with customers.
Why is Starbucks so successful? Joseph A Michelli concludes (below) with five principles which Starbucks implements:
Make it your own
Surprise and delight
Leave your mark
"Product" or "Service" quality and added value of the future are more and more important. On the other hand, "experience", "branding" and "design" are the core value of a corporate.(Tom Peters,2007) All these will attract consumers' confidence and choice. Starbucks dedicates to service planning in order to meet consumer needs and expectations, even creating a service process called "exploring customer stories", especially when an unpleasant situation occurs, managers are asked to reflect on the customers' experience such as: to name three behaviors that detracted from legendary service; and to tell how to coach your partners in such a situation.
Goods are tangible and services are intangible, but the experience is to create in people's mind which is individual in the physical, emotional, and intellectual participation.(Tom Peters,2007) This "experience" is a business for the stage, it is a product around the consumers and it creates worthy activities for the consumers.
Furthermore to Schmitt's Experiential Marketing strategy for the new economy environment, Andrew Burke (2010) proposes that Blue Ocean Strategy can tap into unsatisfied consumer demand and find uncontested and profitable market place. W. Chan Kim, who is one of the world's leading authorities on business strategy, says "Blue Ocean Strategy" is to create and find new markets that allow a company not to get involved in or bogged down by hyper-competition. The proponents of Blue Ocean Strategy always seek for opportunities for innovation in the new market, and expand in the process by drawing in more consumer expenditure, therefore, in a long run, the business gains profit from such innovations. Starbucks is just one of the enthusiasts of Blue Ocean Strategy that always seeks for opportunities of innovation, its innovative features include: Starbucks Express, pre-paid Starbucks Card, and High speed wireless Internet service.
2.2: Brand Image
A brand image is how a business is perceived or what it stands for, it is designed to be appealing to the public, not for itself. One of the most basic ways of shaping a brand image is to establish and maintain its positive relationships with the general public, this usually begins by offering products and meeting the customers' needs successfully, more customers get satisfied with the consumption experience, then it generates its goodwill.
To prove the power of branding, a researcher monitored brain scans of 67 persons, and found out Coke's strong brand identity trumped the sensations coming from respondents' taste receptors after the blind taste test of Coca-Cola and Pepsi. The participants were split by drink names they preferred, when they were told they were drinking Coke, the regions of the brain controls memory lit up, and this activation drowned out the area that reacts simply to taste cues. This result tells us that customers have brand names on their brain.
In "Corporate Identity", Balmer calls branding as corporate marketing, it has a general applicability to entities, they are corporations as well as business alliances, government departments, or branches of the armed forces. He raises below key questions and constructs to build the corporate image.
In today's competitive economic environment, brand image is acknowledged as having an impact on customer loyalty towards the company. Nguyen & Leblanc (2001) develop a study on the relationship among corporate reputation, corporate image and their effect on the customers' retention decisions. Results of this study tell the degree of customer loyalty has a tendency to be higher if the perceptions of both corporate reputation and corporate image are strongly favorable, in addition, the interaction of these two factors constructs the contributes to better customer loyalty.
Tor Andreassen and Bodil Lindestad (1998) explore the effect of brand image in the formation of customer loyalty, based on the theory from consumer behavior, cognitive psychology, and social cognitive psychology. They also conclude that customer loyalty is driven both by disconfirmation of expectations and corporate image. The characteristics of consumer satisfaction, corporate image, and service quality is also demonstrated by Tor Andreassen as follows:
1) Corporate image and customer satisfaction are not two separate routes to customer loyalty.
2) Corporate image impacts customer loyalty directly whereas customer satisfaction does not.
By its extraordinary "Starbucks Experience" strategy, Starbucks has become the synonym of coffee which is the highest realm in this industry. It presents itself as a leader of coffee industry. (Zhang Xi,2005) Just imagine, you are sitting in a calm Starbucks store locates in the center of the busy downtown, enjoying a cup of aromatic Java Chip FrappuccinoÂ®, looking at the crowded streets through the huge window, with the background relaxing Jazz music. Can't you help but tell the world that Starbucks indeed is a God-sent?
2.3: Customer Loyalty
Customer loyalty is a permanency of allegiance to particular products or services based on their previous experiences and perception.
Customer loyalty is usually composed of three separable subcomponents: investment loyalty, normative loyalty, and affective loyalty.(Allen and Meyer,1990) It is a subsequent activity from Customer Satisfaction, it presents the consumer's fulfilment response on the product or service feature.(Oliver,1997). The consumer derives satisfaction, his goal stems from a belief that he is highly satisfied with his past experience, then he is likely to be a repeat visitor, this means he is a loyal customer (Allenby and Rossi, 2003).
Consumer perceptions and satisfactions with the products or services effect the intentions and actual future use (Molinari,2008; Woodside,1989). When the service or product quality continuously meets customers' demand, it will increase revenue of the business. That's why marketing researchers should pay more attention to the relationships between service quality, customer satisfaction and loyalty. Starbucks leadership has followed its Green Apron Behaviour to successfully create the Starbucks Experience, all these happy experiences produce customer loyalty to its business. From time to time Starbucks conducts surveys on "Starbucks customer experience" to keep its service quality, by which to retain a stronger loyalty from customers.
The development of customer loyalty is a strategic objective for most companies. (Dennis L. Duffy,2003) How to arouse the prospects' interest and lead them to be customers? How to motivate him to make such a decision or behaviour to buy the product or service? Ajzen (1988) says, 'To trigger a perceived behaviour, one needs to incorporate self-efficacy as well as controllability items to ensure high internal consistency'. He proposed a Perceived Behavioral Control (PBC), named the Theory of Planned Behavior, as a determinant of both behavioral intention and behavior: To hold intention constant, greater perceived control will increase the likelihood, so enactment of the behavior will be successful.
Behaviour presents customer's attitude towards the product or service. Lavidge & Steiner (1961) postulate that consumer attitudes are developed through a sequence of mental stages: Cognitive, Affective, and Conative. It starts with beliefs about the brand, then leads to brand evaluation, which in turn leads to behaviour change in the terms of action.
Customer's attitude is abstract construct.(Minas Poulos, 2007) There are three attitude components: Affective component, Cognitive component, and Behavioural component. Cognition and behaviour are influenced by the affective component. Gregg Johnson, the SVP of Emerging Business of Starbucks in United States, thinks the emotional connection leads people to different behaviours much more effectively than any statistical reporting will ever provide.
Consumer loyalty and satisfaction are linked inextricably. (Oliver,1999) Most companies understand the profit impact of having a loyal customer base(Reichheld, 1996). Starbucks leaders understand well that even satisfied customers are looking for more pleasure or play from their purchase. When this mix of expected and unexpected is accomplished, the company will retain customer loyalty.
Why is it so important to win customer loyalty? That is because that it costs five times as much to attract a new customer as it does to retain a current customer(Robert L. Desatnick,1988). Therefore retailers and service providers should strive to create an atmosphere that encourages dissatisfied consumers to seek redress(Robert L. Desatnick,1988). When a company retains just 5 percent more of its customers, its profits increase by 25 percent to 125 percent.(Reichheld and Sasser,1990) To win customer loyalty also means the business has successfully established the relationship with customers(Dennis L. Duffy,2003). In this new consumption era, Starbucks has successfully found the best way to increase the special value of "experience" is through the enhancement of brand image and customer loyalty, thus adding value to the corporate itself.
Furthermore, those customers with high satisfaction may turn to be loyal promoter for the provider of products or services, in contrast, the dissatisfaction will cause customers to leave the business.(Lovelock & Wirtz, 2003) Services offer benefits through access or temporary possession. Important implications also include opportunities to market the goods as a service; the need for more research into how its time is perceived, valued, and consumed. That is why establishing loyalty through customer experience becomes an important business trend.
Creating value for customers will build loyalty, consequently loyalty in turn will build growth and more value for the business, this consequence of value creation along with loyalty makes up the real heart of any successful and long-lasting business institution. (Frederick,2000)
Can loyalty be measured? Frederick's answer is definite, the methodology includes:
High frequency of purchase
Short service time
Less sensitivity to price
He will bring new customers
How to increase customer loyalty then? In their book "Services Marketing", Lovelock & Wirtz explain that the customer loyalty is based on their satisfaction to that enterprise's products or services, services marketing and challenges continue its core paradigm, the assertion of four specific characteristics: intangibility, heterogeneity, inseparability, and perishability, all these make services uniquely different from goods. There are three steps to build the satisfied experience before they become regular customers as Heskett concludes (1994).
To maintain a thriving business, one should possess a steady customer base. (Thomas Jones and W. Earl Sasser,2009) A successful company typically sees the fact that it has a powerful incentive to keep that core group of customers happy. Yet, too many businesses still neglect this loyal customer base in pursuit of new customers. Jones and W. Sasser suggest to take steps (below) to secure the customers' loyalty:
Clearly define your target customers.
Systematically measure customer satisfaction.
Use a variety of measurement methods including: customer surveys, customer complaints and questions, market research, and customer feedbacks.
Translate customer-satisfaction information into loyalty measurements .
Completely satisfy your customers
Kolter (2000) finds the characteristics of long-term customer are:
Provides suggestions and opinions to the corporate
Lower cost of service provided
Easy to accept price increases
He also believes all these loyal customers will bring profit to the business.
According to above scholars' researches on customer loyalty, this study will define the loyalty as: when the customer is satisfied, the positive behaviour being continuous visits or other support actions will derive. Since the loyalty is based on satisfaction, a questionnaire survey on customer loyalty to Starbucks customers will be conducted.
Chapter 3: Research Methodology
This chapter outlines the research methodology used to test the questions and hypotheses, and to satisfy the three research objectives stated in Chapter 1(Figure 3-1). Both exploratory and descriptive researches are conducted.
Exploratory research: secondary data was collected from Internet, government reports, academic journals and relevant reference books.
Descriptive research: a questionnaire was structured and face-to-face interviews were conducted to determine the consumption behaviour of consumers towards Starbucks in Hong Kong.
3.1: Questionnaire Design
The questionnaire is designed in line with the information retrieved from the literatures review and based around the three key areas of the research - Customer Experience, Brand Image, and Customer Loyalty. Data from the questionnaires will be coded and analysed using the Statistical Package for Social Sciences(SPSS) 18.0.
The empirical part of this research used Closed-Ended Questionnaire as a means of data collection by Quantitative Method, the questionnaire content is based on the aforementioned literatures and theories, and in accordance with the characteristics of catering industry. To make sure of validity and reliability, the questions of Consumer characteristics, Customer Experience, Brand Image, and Customer Loyalty are all based on previous scholars' researches, measurements among each other are correlated theoretically and analyzed by SPSS system.
Customer loyalty dimensions
According to Abel Duarte Alonso(2010), atmospherics' impact, product and service components are the core of consumers' decisions to engage in buyer - seller relationships or in purchasing experiences, thus below questions are developed, and Likert scale rating is used to measure from Strongly Disagree to Strongly Agree(Scores from 1-5).
Demographic Statistics variables
Food attitudes are mainly influenced by gender,age, income, education and the income status(Wandel and Bugge, 1997). According to current Hong Kong's Demographic Statistics, consumers' backgrounds are variable by gender, age, occupation, qualification, monthly income, marital status, and place of residence, etc. In this research, people 18 years old or above are the target customers of Starbucks as they are treated as adults who can make their own choices, their opinions or attitudes towards Starbucks should be effective and efficient.
3.4 Research Hypotheses
Hypothesis is to approve the objective of this research, it is tested by ascertaining the factual truth of specific, relevant events, and then organizing them to determine if the presence of the independent variable to have any effect on the dependent variable.(Lynn Silipigni Connaway, 2010) With reference to the foregoing literature review and the extension of conceptual framework, primary data are collected to test the hypotheses and satisfy the research objectives of this study. The framework shows the hypothesized relationships among Customer Experience, Brand Image, and Customer Loyalty.
Chapter 4: Analysis and Findings
To analyze the collected data, excel and the statistical analysis of Statistical Package for Social Science (SPSS 18.0) were applied. Below are different data analysis methods:
Frequency counts and descriptive statistics were used to summarize the result of respondents.
Reliability Test was used to determine the Cronbach's alpha of Customer Experience, Brand Image, and Customer Loyalty.
Pearson correlation coefficient was used to examine the relationship among Customer Experience, Brand Image and Customer Loyalty.
Regarding attitudes towards Starbucks, excel analysis was employed to find out the differences between each of the demographic factors and consumption characteristics.
1) Validity and Reliability
Validity is often accessed along with Reliability, it identifies the degree of correlation between the test and criterion in the research. From the previous mentioned literatures review, the questionnaire statements are adopted from related researches and set up according to this research purpose and model. A test has content validity built into it by careful selection of which items to include (Anastasi & Urbina, 1997), the less random error in the variables, the higher possible correlation between them. For the Reliability and Correlation, the output shows in the SPSS analysis is impressively significant, which means Construct Validity, Face Validity and Content Validity have high reliability.
Given the Likert Scale rating to measure the 36 statements' adequacy and validity in SPSS system, "Strongly Disagree"=1, "Disagree"=2, "Neutual"=3, "Agree"=4, "Strongly Agree"=5; in the Variables and Characteristics section, each choice is given scores from "1" to "4", so each respondent's answer can get the sum of scores. According to the Cronbach's alpha value for accessing the Reliability of scales in SPSS, it is over 0.66 which means comparatively strong.
Cronbach's alpha reliability coefficient normally ranges between 0 and 1. Yet, there is actually no lower limit to the coefficient, the closer Cronbach's alpha coefficient to 1.0 the greater internal consistency of the items in the scale. George and Mallery (2003) provide the following rules of thumb:
"_ > .9 - Excellent, _ > .8 - Good, _ > .7 - Acceptable, _ > .6 - Questionable, _ > .5 - Poor, and _ < .5 - Unacceptable".
The Pearson correlation coefficient measures the strength of the linear relationship between two variables. If the relationship between the variables is not linear, the correlation coefficient does not adequately represent the strength of the relationship between the variables. Because we will deal almost exclusively with samples, we will use the symbol "r" to represent Pearson's correlation. Pearson's "r" can range from -1 to 1. An "r" of -1 indicates a perfect negative linear relationship between variables, an "r" of 0 indicates no linear relationship between variables, and an "r" of 1 indicates a perfect positive relationship between variables. According to the output of P-value in SPSS, ** Significance level of 0.01 (two-tailed) is showed which means these statements in the questionnaire are positively correlated. Table 4-1 shows highly significant "r" = .000.
4.1 Analysis on Customer Experience, Brand Image, and Customer Loyalty
This result has effectively confirmed Ajzen's Perceived Behavioral Control (PBC) theory and Lavidge & Steiner's postulate that behaviour presents customer's attitude towards the product or service mentioned in Chapter two, it also proves customers are satisfied with Starbucks products and service, so they are willing to come back again, this finding not only confirms Oliver says "Consumer loyalty and satisfaction are linked inextricably", but also verifies the Hypothesis 3 that Positive Customer Experience has a significant and positive impact on Customer Loyalty.
It is very common nowadays that usually when people is experiencing an unforgettable event, he will like to keep this excitement forever in his memories. The outcome is strange that most respondents "Disagree" or "Strongly Disagree" to take a picture in Starbucks. Very little says "Agree" and of course none is "Strongly Agree". Is it because Starbucks stores do not provide enough excitement for the consumers or Hong Kong people is too shy to be used to taking photos in the stores? If this is the case, the managers are suggested to not only direct surprises at customers and potential customers, but also extend these to staffs as well (Joseph A Michelli,2006). When the staffs engage themselves more passionately in their work, they will become energized and hence influence the customers from their enthusiasm.
Solomon says consumer's lifestyle is key to many marketing strategies, and the personality influences the way he responds to marketing stimuli, but efforts to use this information in marketing contexts must meet with mixed results. People are free to select the set of products, services, and activities to define themselves and create a social identity they communicate to the others, so Starbucks may develop some relative marketing strategies to recognize consumer groups on the basis of the things they like to do, how they like to spend their leisure time etc, and create the environments most consistent and harmonious with these consumption patterns.
A good customer experience generates positive buzz, while a bad one becomes a lost opportunity sabotaging the brand (Alina Wheeler,2006). Human brand is emotional at its very core, especially women process messaging with more emotion than men. (A.K. Pradeep,2010) Emotions impact upon people's cognitive processes, and they can affect the ability to encode, store and retrieve information(Blaney,1986). This result is found to respond to Hypothesis 3 that Customer Experience has a significant and positive impact on Customer Loyalty. To draw more target customers' attention, especially female customers, Starbucks can explore the landscapes of emotions associated with products, create emotional experiences with nutritional information in suitable place, social setting, and occasion of enjoying the brand or products according to different Product Life-Cycles.
Obviously, the overall results in Brand Image are positive and satisfied. Brands with strong equity have many competitive advantages, such as high consumer awareness and strong brand loyalty, and the brand strength can be quite powerful on the communication. Starbucks is well-known in coffee quality as well as good in service, it has successfully positioned its role in this industry. If to gain more scale of Brand Image, its marketing strategies should be focused on Service-Profit Chain, which establishes relationships between profitability, customer loyalty, and employee satisfaction.
Frederick Reichheld (1996) proposes his opinions for business to increase customer loyalty after his two years' research in customer behaviour, he finds that a willingness to talk up a company or a product to friends or other people is one the best indicators of loyalty because the customers do more than they received of good economic value from that company when they act as references. On the other hand, Werner Reinartz and V. Kumar (2010) agree the best customers are loyal ones, but the loyalty-equals-profitability equation is found very weak after their research during five years, the research findings is that not all loyal customers are profitable, and not all profitable customers are loyal!
4.2 Analysis on customer backgrounds
Buying behaviour is influenced by both personal and social conditions. (Solomon,2006) Segmentation by demographics is very important to marketers, the distribution of wealth determines which groups have the greatest buying power for the business. In the past, most marketers just considered social class segments, but now, more and more consumers buy according to the image they wish to portray, such as social class, lifestyle, or personality characteristics.(Solomon, 2006 )
4.2.3 Summary of customer variables
From the Consumer Characteristics results, most people visit Starbcuks stores for business and joining friends, these two reasons contribute 69% among the 337 respondents; for the companion section, 62.91% visit Starbucks with friends or colleagues, quite less people come here with family members; in terms of the budget on the consumption, 47.18% thinks less than $60 will be the best, while 36.5% are willing to pay $61-80 on their purchasing, conversely very few respondents will pay over $110 in Starbucks; as for how they know this cafè, 62.31% is attracted by Starbucks signboard which means most of them are walk-in customers. To target these core customers, Starbucks must design the stores with dynamic settings to motivate their desire to come in and purchase, as buying decisions are influenced by the desire to engage in the process of conspicuous or curious consumption(Solomon, 2006).
To ensure the business is in the right place for the right customers, one should notice the customs, attitudes, and preferences as the cultures are intensely complex. (Alina Wheeler,2006) Get it right and you can have a successful service or product. (Neil Richardson,2011) Pricing is always one of the most difficult areas for marketers, now that we have found its core target customers' budget is no more than $80, Starbucks may have a closer relationship with these customers and invest more on these developments, launch products as per target customers' needs; if more products display in the show windows are around this price range, Starbucks will undoubtedly draw more target customers into the stores with no difficulty.
4.2.4. Relationship between Variables and all statements
Despite the portion of " Neutral" consumers in these three groups of statements, the fact remains, the majority of the respondents have a positive attitude and cognition of Customer Experience, Brand Image, and Customer Loyalty towards Starbucks. In this section, we discuss the research reports on the above subjects.
As a whole, the respondents have positive attitudes on customer experience towards Starbucks, this result proves that most customers are satisfied with Starbucks products and services. Customer satisfaction is influenced by the interpersonal encounters between customers and employees in a service setting (Wansoo,2009), especially in catering service, quality and customer satisfaction depend on how well the employees serve the clients(Waldemar Schmidt et al,2003). Starbucks Guiding Principles state, 'To treat each staff with respect and dignity, and to embrace diversity as an essential component of their way to do business', this is why the staffs can always work with their hearts to develop enthusiastically satisfied customers. In addition, the big challenge for today's service relies on the excellent service quality and a high customer satisfaction (Hung, Huang, & Chen,2002) because a satisfied customer might become a repeat or regular buyer, and this overall satisfaction has a strong positive effect on customer loyalty intentions (Prayukvong, Sophon, Hongpukdee, & Charupas,2007). Besides this, satisfied customer can be a positive word-of-mouth recommendation and improve loyalty (Torres & Kline,2006). In contrast, a negative word-of-mouth can lead to reduced customer satisfaction, therefore to spread positive word-of-mouth might encourage new customers to the business which in a long term, to contribute to the profitability to the business. (Yu et. al,2005)
Although there are different opinions on brand image, as expected, most of the respondents agree to Starbucks famous brand name, this result also proves that Brand Image has a significant and positive impact on Customer Loyalty. According to Starbucks Guiding Principles in its stores, all Starbucks stores are to provide a unique Starbucks Experience to every customer, from the purchasing, roasting and fresh coffee, as well as delivery of the highest standards of excellence to the customers at all time. Customizing a successful and effective brand, the brand values must be properly identified, and the company must be able to develop a segmentation model (Torsten H. Nilson,2003). Starbucks dominates its specialty-coffee brand all over the world, thus it has made its brand more useful for the customers.
The results on Customer Loyalty tell us that most of the respondents are loyal to Starbucks. As above mentioned, Starbucks managers understand that even very satisfied customers are always expecting more from each visit. When a customer reaches or exceeds the expectative and satisfaction, he or she will likely become a loyal customer, yet this always depends on the personal experience and perception of the quality (Yu, Ley-Yu, & Yu-Ching,2005), obviously non-satisfied customer prefers to buy the product or service elsewhere (DiCostanzo,2008). Likewise, Customer's perceptions of satisfaction quite depend on the quality of products and services that the company offers. In time, this will result in loyal customers and favorable word-of-mouth exchanges (Prayukvong, et al.2007). Therefore, to improve their competitive position, many companies always find their ways to win customer satisfaction over their products and services.(Maztler, Bailom, Hinterhuber, Renzl., & Richler,2004). Starbucks is well known for its high quality product with excellent customer service and shifting its coffee shop experience into "Third Place". This is the way it does to retain the customers loyalty. Accordingly, we can say Positive Customer Experience produces Customer Loyalty to Starbucks, just like Google's loyalty programs contribute a lot to its business success and profitability through its transformative technology to attract customers to join its loyalty programs; similarly, Apple wins its fans loyalty by its rapidly changing products and these loyal customers are the critical success factors to Apple's fast growth.
4.3.1 Discussion on Customer Experience
Every experience has a theme, Pine & Gilmore (2003) point out, so to find out a suitable theme is the core factor for experience designing, they demonstrate five principles to develop such a theme that suggest alternative sizes, shapes, and substances of things:
1) the engaging theme, must alter the guest's sense of reality.
2) the richest venue, has themes that can affect people's experience of space, matter and time.
3) engaging themes, to coordinate space, matter and time into a cohesive and realistic whole.
4) the theme will be strengthened by creating multiple places within a place.
5) the theme must fit the character of the enterprise to present the experience.
The essence of the theme must be concise and compelling, then it will drive all the design elements and staged events of the experience towards a consolidated storyline which can capture the customers entirely and naturally, and the congruent integration of impressions will thereby help to fulfill the theme. With above experience development, Starbucks may implement a customer focus strategy to inspire those 33.71% customers, and hopefully to win their positive attitude gradually.
4.3.2 Discussion on Brand Image
Satisfactorily, 64% respondents have positive attitude to Starbucks brand name. This means the target customers have well understood what Starbucks stands for and what it will deliver to its customers. Brand is obsessed with logos. (Jon Edge & Andy Milligan,2009) Starbucks uses the social media to refine its brand message to connect with the customer base, like in-store events(taste activities), word-of-mouth, Facebook and Twitter (Have It Your Way Frappuccino), and promotions (bring a reusable tumbler, get a free cup of coffee), all these campaigns evolve from a combination of customer interaction. These programs allow the consumers many options to express their opinions and feedback to the business. From all these researches, we can say transparency, quality products, and customer interaction are essential cornerstones to build a successful brand and a good business.
Since Starbucks marketing strategy has been expanded to create a community around the brand, let us review its branding strategy in below points:
1: It states to offer the highest quality of coffee in the world.
2: It focuses on the product quality from the purchasing of green coffee beans.<