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Starbucks’ Failure to Recognize Culture Down Under

Is your organization considering going global, but you’re worried about the risks?

Global expansion requires smart, strategic planning and market research. Oftentimes, global consulting services are used to add the expertise your team may be lacking. Here’s a common challenge some companies face amid new market expansion and tips on how to address it early on.
Failure to Recognize Culture
Cultural nuances can be costly for companies entering a new market if overlooked.  Culture spans all aspects of a country and its people, including the local business setting, consumer preferences, values, marketing (including branding), and the overall market environment.  It is important to conduct thorough research about your target market well in advance of expansion to reduce the risk of failure. 

This research includes gathering intelligence on the local population, cultural norms, customs, preferences, and business etiquette. Local industry experts or business agents may be a good source for this information, but you can also go deeper and interview or conduct focus groups with potential customers, business partners, and other stakeholders.

Your market research will not only help you understand if there is demand for your products or service offerings but also adapt development and marketing to meet consumer demand.

Research about your industry in a new culture allows you to identify opportunities and provides valuable information about consumers. Understanding how to leverage this information to develop your industry value chain and products and services improves your company’s chances of sustainable success.  

“More often than not, brands spend significant sums attempting to expand into new markets only to find that they have either miscalculated the demand, their messaging or the general complexity of working within a new culture”

What happens if you don’t prepare?

Starbucks entered Australia prematurely and without substantial research, failing to understand customer preferences. This resulted in an exit in less than 10 years. Just think about all the resources and opportunities wasted.

Here’s what happened…

Starbucks Failure Down Under

Starbucks opened its first Australian store in 2000.  But, by 2008, they were forced to shutter more than 70%, leaving only 23 of the stores they had opened in 8 years.  The U.S. coffee giant didn’t fully consider the strength of the existing Australian coffee shop market and entered too aggressively, prematurely, and without allowing enough planning to research and validate local tastes and preferences or to build local brand awareness.

Starbucks believed Australian consumers would embrace their products as U.S. and other international consumers do.  Perhaps guided by stereotypes or collective bias, Starbucks did not adjust its offerings to satisfy the taste of Australian coffee drinkers.  They assumed that the same products that worked so well in the U.S. would automatically succeed just as well in Australia. Poor strategic planning resulted in a latte failure.

One might expect a large, global corporation like Starbucks to perform a thorough due diligence process on a new market before entering but clearly, their research was inadequate. Had they done so, the marketing team would have uncovered details about Australians’ coffee tastes, spending habits, and “coffee shop experience” preferences. 

For example, Australian coffee drinkers value coffee drinks with less sweetener and the “coffee shop experience” of sitting down in a comfortable, cozy environment to sip and enjoy their beverage. Aussies also enjoy turning a trip to the coffee shop into a social occasion, where they can hang out with friends or colleagues, whereas many U.S. consumers often prefer a convenient, fast transaction. 

Additionally, Starbucks’ prices were too high.  Aussies prefer a more moderately priced, personalized, and local coffee-drinking experience.

In 2022, many stores closed. While Starbucks continues to have some business in Australia, it is mostly focused on tourist consumption, rather than on locals.  Next time they consider market expansion, they should conduct focus groups with local consumers (to better understand tastes, preferences, and price tolerance). The Starbucks brand, often considered a global success, failed to successfully integrate into the Australian market because it fell victim to a common problem with many companies: making decisions based on instinct, rather than data. Australia’s cultural differences were not identified and addressed, which proved costly for the company.

Even if your organization has a well-known brand at home, you may face challenges in a new market. Regardless of how similar two markets seem to be, it is important to clearly understand the differences and ensure they don’t create a barrier to success. Internally, it’s important to have a team that is sensitive to cultural differences, understands the importance of adapting to the local environment, and embraces clear and open communication. Offering cultural awareness training and support for workers involved in new market development will lower your risk and increase your chances of success. 

Your corporate culture and the blend of cultures within your company tend to replicate the challenges you may face communicating in a new market.  So, learn what you can from your own organization and conduct proper strategic planning and research early on.

Our Washington, DC-based global strategy professionals are well-equipped to support your global expansion goals and look forward to learning more about your needs.

To learn more about strategic planning for a success market expansion project, book a free consultation today.

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