Study Of Starbucks In Hong Kong Marketing Essay

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.

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).

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

2.1.1. 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 Marketing

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.

Experiential Marketing

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

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

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

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

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

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:

Experiential Media

Executive Association

Communications

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 presentation

Product design, packaging and brand name, so as to attract the right target and get emotional experience.

Co-branding

Event marketing, sponsorship, alliance and partnership, licensing in the TV/movies etc.

Spatial environment

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.

People

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

Everything matters

Surprise and delight

Embrace resistance

Leave your mark

“Product” or “Service” quality and added value of the future are more and more important. On the other hand, “expe