The History Of Starbucks Coffee Thailand Marketing Essay

Starbucks Coffee Thailand was founded with the idea of bringing the Starbucks Experience to Thai consumers. It is wholly owned subsidiary of Starbucks. From opening of the first store at Central Chidlom on July 17, 1988, the company has expanded everywhere of the country such as Pattaya, Chiang Mai, Samui, Phuket and many more. With consistent rate of growth as of July 2011, Starbucks has 141 stores in Thailand.

Starbucks’ corporate objective is to become the most recognized and appreciated brand of coffee in the world. Starbucks plans to continue to expand its retail operations rapidly in two ways to achieve this goal. First, to higher its market share in the existing markets and secondly, to open stores in new potential markets. Starbucks’ retail objective is to become a leading retailer and coffee brand in each of its target markets by selling the first quality coffees and related products. In addition, Starbucks provides a superior level of customer service, to build a high degree of customer loyalty

The reason why Starbucks chose to expand to Thailand is because, currently, Starbucks exists only in a few foreign countries in Asia such as China, Malaysia, Singapore, Indonesia and Japan. Starbucks felt Asia offered more potential than Europe country. According to one executive, “The region is full of emerging markets. Consumers’ disposable income is increasing as their countries’ economies grow, and most of all, people are open to Western lifestyles.” Finally, coffee consumption growth rates in Southeast Asia are estimated to increase in between 20 percent to 30 percent per year. With this in mind, Starbucks has plans to invest $10 million in developing its Asian operations and up to $20 million with its joint venture partners in Asia.

Starbucks’s main mission is to be global company. In order to achieve it needs, the development strategy that Starbucks implemented to adapt with variety market and local need are joint ventures, licenses and company owned operation. The reason Starbucks has now elected to expand internationally through local joint ventures, to whom it licenses, as opposed to using pure licensing strategy is that Starbucks is eager to let the partners follow Starbucks’ successful formula.

Joint-venture entry mode for Starbucks has three main advantages, local company’s cooperation, low risk and better image for local consumers. First, when a company enters a foreign market, local company’s cooperation is necessary. For example, in a stage of building joint venture in Thailand, Siamese company can negotiate with government agency. Other than this example, local company can support Starbucks in a term of gathering of information, relationship with employees, local partner companies and political systems.

2.0 Analysis

2.1. Gains of entering foreign market

2.1.1 Expansion Strategy

Starbucks is the greatest coffee shop in the world. To become more persistent in the market, Starbucks has developed strategies to achieve it. One of the strategies is to open lot of branches not just in America but also to other country. Thailand is one of the overseas branches. Initially, Starbucks expanded its products to Thailand using licensing strategy through an agreement with the local Thai company, requiring the opening of at least 20 Starbucks coffee stores within five years. But, because the Coffee partners were unable to raise funds from the Thai bank to fulfill the expansion, therefore Starbucks used $12 million to acquire the Coffee partners to gain tighter control over the expansion strategy in Thailand.(Hill,2008) Now, Starbucks Coffee Thailand is a wholly owned subsidiary of Starbucks Corporation. Therefore, it is able to reduce the risk of losing control of the Thailand market. By bringing the Starbucks experience and developing new innovation beverages to Thai consumers, this causes Starbucks Coffee (Thailand) to gain support by Starbucks’ lovers and that drives the rate of expansion rapidly. In the year 2011, Starbucks already has 141 stores in Thailand. (Starbucks’ website, 2009) With entering to the market of Thailand, business of Starbucks can be more stable because they get the new foreign customer. Compare to other brand’s coffee shop, Starbucks is more famous and they have many current customers in different countries since Starbucks has been opened. Build more coffee shops in Thailand will brings Starbucks a better known, can compete against other coffee shops which exist in the market, and be more permanent in the market.

2.1.2 Core Competitiveness

In the Thailand market, Starbucks recognize Chiang Mai and Mae Hong Sorn as an opportunity which its geographic environment was suitable for farming the coffee seeds. Thus, Starbucks Coffee coordinated with Integrated Tribal Development Project (ITDP), so they can get the Arabica coffee beans. In a year, there was being 130 tons of coffee beans produced from all hill tribes through Integrated Tribal Development Project (ITDP). Therefore, Starbucks Coffee can used those high qualities Arabica coffee beans that were sourced from Chiang Mai and Mae Hong Sorn to introduce the country’s first Starbuck Coffee blend which is Starbucks(R) Muan Jai Blend in 2003. (Press Release, 2004) According to the Starbucks customer review website showed that the rating of customers comment to the Starbucks(R) Muan Jai Blend is 4.5/5 that means the responses of customers is good. Moreover, the Starbucks purchase the coffee bean directly with the farmers who grew it with an agreed price. This approach can help Starbucks getting the high quality of the coffee beans that meets Starbucks’ standards because it will guarantee the price of farmers received.

2.1.3 Reputation

A research found that the corporate social responsibility of a company would bring a lot of benefits to the company such as the corporate financial performance, customer goodwill, and corporate reputation. (Nurn & Tan). In an interview between Corporate Citizenship Trend and Sandra Taylor, Senior Vice President of Corporate Social Responsibility, Sandra Taylor said that the commitment of Starbucks in Corporate Social Responsibility with benefit of built a customer’s loyalty and having a strong reputation as responsible company so they are more welcomed by local community. Moreover, the customer loyalty was a driving force behind the Starbuck’s phenomenal growth and long term success. (Corporate Citizenship Trend, 2013). In Thailand Market, Starbucks still conducts commitment in Corporate Social Responsibility. As an example of Starbucks effort in making a positive impact in the neighbouring communities, their partners designed and constructed a colourful and much safer playground for the Duang Prateep Foundation Day Care Centre.(Annual Report, 2009). Furthermore, 5 per cent of the proceedings from Muan Jai blend sales in Thailand and in selected markets will provide the coffee growing community of northern Thailand with assistance in various areas such as school facilities, water drainage or education. The effort of the Starbucks put in doing corporate social responsibility with the reward of the Queen of Thailand gave Lana coffee an award as the best coffee in Thailand.(Thailand Vision Trip, 2010). As a long run, the contribution of the Starbucks in corporate social responsibility would help them enhance their reputation and established a stronger position in Thailand Market.

2.2 Shortcoming

2.2.1 New policy

The limiting customers to a one- hour seating limit policy that was introduced by Starbucks in 2012, was aimed at serving everyone equally. It is to solve the problem of customers not having seats to enjoy their meals especially during the peak hours due to most customers using the tables for work, study and lessons for long hours even though they had finished their meals. ( Oranan Paweewun, 2012).This new policy is a potential critical issue, as in short term it may help to satisfy the customers that have been complaining about insufficient seats but in the long run it might be a potential shortcoming for Starbucks. According to the wall street journal one of the reasons for customers to consume in Starbucks is to meet friends, study and to enjoy the relaxing environment. In addition, Starbucks Coffee in Thailand is becoming a go-to place for long hours especially the high society college students because they provide a more relaxing environment than a library. Therefore, the new policy may cause the consumers to shift to the competitor.

2.2.2 Purchasing Power barrier

Thailand is still consider as a low- wage country with the average salary is approximately 240 bahts a day ($7) therefore most of the Thailand’s consumers are extremely price conscious, preferring lower price over product quality. Moreover, the price of a latte in Starbucks costs $3.4, which is so far beyond the budget of the Thai consumers which equals to almost half of their daily salary. On the other hand, if consumers select other Thai coffee shop such as True Coffee, a cup of latte only costs $1.6.(Cassandra James,2009) This big market price gap of coffee may influence the purchasing power. Then, this purchasing power would be a barrier for Starbucks to build brand loyalty with local consumers and achieve the retail coffee dominance market in Thailand. Therefore, Starbucks’s consumers are mostly dependent on the middle- class, high society peoples, and the tourists who visit Thailand such as the Japanese, Korean, Western tourist and others.

2.2.3 Rivalry competition

The Black Canyon had opened a total of 36 branches as one of the biggest and oldest coffee shop chains in Thailand had been selected by the operators of the Queen Sirikit National Convention Central to cater its high quality coffee for conferences and other events. According to the operator, Pravit Chitnarapong Chairman of Black Canyon (Thailand), the NCC had dealed an agreement under 5 years with them which helps the Black Canyon to boost the Chain’s image as there have been over 1 million visitors to NCC each year. Therefore, it would be a risky for Starbucks because the increasing reputation of Black Canyon will affect them in term of sales, customer’s loyalty, profit and products substitution risk and so on. In fact, there were some customers who wrote comments about Black Canyon and Starbucks in their blog and shared their view. Most of the bloggers’ comment trend chose the Black Canyon as their choice after conducting comparison between Black Canyon and Starbucks. (Pattaya Mail). Customers choose Black Caynon rather than Starbucks because Black Caynon seating is more comfortable which is cushioned seating while Starbucks always not enough seating and the chairs and sofa are few and usually taken,. Besides that, the price and quality of food in Black Canyon is cheaper than Starbucks for example customers spending 85 Baht in Black Canyon can gets mocha with an ice cream, and eat a handsome dish like fish steak, chips and salad for under 200 Baht while spending in Starbucks, a medium cappuccino already charge with 95 Baht.

In additional, Doi Tung coffee had owned 20 shops in Thailand, and its coffee was ranked among the top in the world. In Maxim Vershinin magazine’s interview part, Wincha Promyong, the Doi Tung Coffee Co’s president said that the independent coffee shops are becoming much more popular in Thailand, especially with the locals. Besides that, there were increasing amount of people choosing Doi Tung coffee shops over Starbucks in Thailand. Due to most of the customers who tried their coffee once, usually comes back again. As mentioned above, Starbucks’s consumers are mostly dependent on the middle- class, high society peoples, and the tourists. The ability of Doi Tung to increase attract foreign customers would be a potential risk for Starbucks. Now, there are around 8 percent of our customers which are foreigners according to the Doi Tung Coffee Co’s president. (Maxim Vershinin)

2.2.4 Political risk

On 29, May 1996, Thailand had sign a Treaty of Amity with USA thus American majority owned companies only required to request for the Certificate of Business Operation from the Bureau of Foreign Business Administration and no need a Foreign Business License already can operate their business in Thailand market.(ThaiLawyer) Nevertheless, Starbucks as American majority owned companies so its entry Thailand market barrier will low with the support of this policy. In other word, the competitors of Starbucks also have a low entry barrier as long as their company is an American majority owned companies. This would be a risk for the Starbuck if their main competitor that also is an American majority owned companies also entering the Thai market. Then it will enhance the competition risk of Starbucks in Thailand market. Next, according to the Thailand government tax policy a foreign company that carrying a business in Thailand will charge 30% tax on the profit deriving from business in Thailand no matter the business model is branch, franchise, an office employee’s or an agent. This would be causes Starbucks faced the strategy risk because the 30% tax charge will reduced the company net profit.(Tax rate,2010).Therefore, it may cause Starbucks not enough capital to expand their store in Thailand. But, Starbucks need to follow this government regulation so only can operate in Thailand.

3.0 Recommendation

3.1 Recommendation in strengthening the gains

Starbucks might consider extending its product line. Although Starbucks is specialized in serving coffee and tea, they can add on new products which is compatible with the Thai peoples’ taste and preference. Before Starbucks introduce or launch it’s new product, they can conduct a survey on the acceptance of the new product they are about to bring it out to the people to be on safe side. Example of products that can be introduce are cuisines which is spicy and sour .That would enhance the variety of their offerings and indirectly increasing the profitability of the company.

Besides, Starbucks must provide more work – related benefits to its employees. This is vital as productivity is strongly associated with employee’s satisfaction. In view of the mushrooming of human rights non-governmental bodies and activist around the world, companies that operate in foreign countries must take these issues seriously or face heavy resistance eventually leads to damaged reputation. Hence, Starbucks should conduct more in-depth trainings for employees in order to be relevant with the changing environment. There are many types of training that Starbucks can adopt and implement to their employees. Firstly, the baristas must be given some space and opportunity to come up with innovative and creative ideas by mixing different types of coffee to produce unique and new taste. Starbucks can try to send their barista for more professional performance training in preparing drinks, such as by letting them to learn a few tricks for presenting the drinks to the customers in a more creative way or by giving them training in drawing some cute pattern on the coffee using the cream. This could gain customer attention and increase Starbucks attraction. Secondly, Starbucks should also give their employees a more intensive training on how to use the CRM strategy which is the Customer Relationship Management Strategy. By having thorough and in-depth understanding on the CRM, employees of Starbucks can be more aware on what the customers want and how to satisfy them. This training is very important as in Starbucks’ mission statement, their third mission is to develop enthusiastically satisfied customers all of the time. Not forgetting to revise salary benefits and flexi-time for workers in order to be competitive.

Apart from that, Starbucks can introduce delivery service for its products in designated areas. The delivery service will bring convenience and saves time. Those people who are craving for coffee / tea need not have to frequent the physical outlets to get their beverages instead they can call the hotline and make their orders. With this in place, this might increase the market share as Starbucks can reach more customers due to the ease of getting in touch.

To enhance its reputation and acceptance from the people in Thailand, Starbucks must intensify itself in more corporate social responsibilities activities in that particular country. Starbucks can hold and participate more in charity related event, such channeling resources to help those in need such as disabled people, poor families, people in Haiti, natural disaster victims and so on . The commitment in generosity will ensure its presence felt around the world and creating goodwill for the company.

Starbucks can also consider creating a “Starbucks Community”. It is in a form of company’s forum. Customers can relate their experiences in Starbucks as well as airing their dissatisfaction or complaints .Customers can also share their ideas on what product to come up. The company will personally join in the discussion and understand better the customer’s desires. Starbucks can also identify their opportunities and threat through the forum.

Last but not least, Starbucks should enhance its relationship with its supplier in order to secure the continuous source of fresh coffee beans . Any shortages of supply will interrupt the business of the company as it coffee bean is the main raw material used in producing coffee. Starbucks can by instance seal a deal with a few suppliers which will only be the sole suppliers of Starbucks. To improve the rapport among them , the company must make timely payment under agreed terms and conditions in order to gain supplier’s trust.

3.2 Recommendation on how to improve the shortcomings

3.2.1 New policy

Starbucks in Thailand is facing a shortcoming which raised from the introduced of a new policy of limiting customers to a one-hour seating limit during peak time. According to Sumonpin, (2012), a Marketing and Communications Directors said that in extreme peak-time, staff will ask customers’ not to stay unreasonably long during peak hours. This totally lets the customers felt dissatisfied about the new policy set by management of Starbucks, thus it possibly will reduce the profits of Starbucks. Other competitors such as a Black Canyon coffee restaurant and Doi Chaang Coffee shop which had never set up these types of rule which restricts customers to sit only for one hour during peak time. In order to let Starbucks increase its competitive advantage, we are suggesting Starbucks with more other options. The first option will be investing on renovations to increase the capacity of the current structure. Although it will incur a large sum on the renovations, but in long term period , Starbucks can regain the initial investment cost . That’s simply because they can cater to more customers with more seats and tables. Customers do not feel the hassle of the time seating limit instead they can enjoy themselves and have a good experience in Starbucks. The second options would be acquisition of new shoplots. The cost of acquisition would be much higher than renovation. Through acquisition , Starbucks can expand it’s franchise outlet and might consider choosing a strategic place which is densely populated . This can actually prevent the convergence of customers from different areas to one particular Starbucks franchise. Hence , there will be ease of customer’s flow to Starbucks.This option can also regain it’s acquisition cost with more customer’s visit to Starbucks.

3.2.2 Purchasing Power Barrier

Since Thailand’s consumers are extremely price conscious, who prefer lower price over product quality due to a low – wage country with the average salary. Therefore, we will recommend that Starbucks in Thailand promoting Tumbler for everyone to overcome this shortcoming. According to Starbucks Store (2012), Starbucks in Malaysia had already running with helping every customer to save RM 2.00 on their own favourite beverage for those customers who bring along their own Tumbler to Starbucks. It not only can help loyalty customers to reduce the price, but in the long-run, it’s able to help Starbucks to go green and promote themselves as a company which is environmental friendly. At the same time, customer loyalty will be created through owing a Tumbler, thus, reputation of Starbucks will increase and become a well-known and friendly company.

Next, one of Starbuck competitor in Thailand is Black Canyon. According to James, (2009), the researchers point out that after most of the customers had made a comparison between Black Canyon and Starbucks in Thailand, they will decide to choose Black Canyon to having their coffee or enjoying their food. This is because Black Canyon had introduced member cards to those customers who decided to eat more in their restaurant. In order to let Starbuck in Thailand to increase their competitive advantage, Starbucks can introduce the system of collecting points. It means that every time consumers order the drinks; they will give the card to the cashier and reload the point. Furthermore, the consumer that has the member card will enjoy the privilege or discount. The discount is not eligible to those did not apply for the member card.

According to Cassandra, (2009), research shows that for 100 baht an hour in some Starbucks shops (around $3.20) it’s incredibly expensive, especially in Thailand. The price is ridiculously expensive. Even though Starbucks products are priced slightly higher than it’s competitors, one thing customers need to know and understand is that Starbuck’s coffee is different from others due to the type of coffee beans used and the secret recipe in the brewing process. The quality of the coffee beans used is superb and any penny of the hard earned money would be worth spending. Starbucks should came up with more advertisement through the means of internet(facebook and Twitter) , billboards , newspapers and any other media which can reach the mass to differentiate itself and stress the quality of its coffee is worth the money spent. Hence, this will reduce price sensitive customer turning away from Starbucks for competitor’s product which is cheap but of inferior quality.

Apart from that, Starbucks can implement happy hour for certain period like noon and night where customer’s can enjoy their beverages at half price. Of course, the time limit will be of certain peak hours such as from 12 noon to 2 pm and 7pm – 9pm. This promotion can increase sales volume and customer’s spending.

3.2.3 Collaboration

Starbucks must differentiate itself from competitors to strive well. There should be more innovation and creativity in place to make their products and services more appealing. They might consider restructuring their policies and plans according to changing customer needs and wants. For example , Starbucks can collaborates with hypermarkets and non-retail channels such as United Airlines , Marriott International , Barnes & Noble bookstores and Department Stores by stocking up Starbucks products such as variety of Starbuck’s coffee and teas in packaging, apparatus such as tumbler, Starbuck’s logo cups , coffee maker machines and etc on shelves to reach to wider scope of potential customers. That would increase the market share of Starbucks.

4.0 Conclusion

Starbucks have had a hard time in Thailand due to various issues such as intense competitions from rivalry as well as the limited time for sitting policy implemented. With the recommendations provided, I strongly believe they can strive forward and have a better edge in beverages industry. Starbucks must always be alert with the changing environment and surroundings to better cater for the changing needs of customers. They need to realize that the government policies and rules and regulations might change accordingly, hence came up with analysis whether it is feasible for continuing doing business in Thailand. Even though low cost is not a viable strategy, Starbucks is actually trying it’s best to serve every target market to enable the population in Thailand to enjoy its coffee and tea in terms of introducing usage of Tumbler. Besides, to win the hearts of Thais, they need to have a clear differentiation in terms of product’s characteristics to appeal to potential customers for example comparison of product quality among competitors. Overall, Thailand is a still a potential market with opportunities and good for business expansion due to the rich diversity of culture and a good tourist destination.