CASE STUDY 10
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Starbucks’ failure in Australia
Paul G. Patterson, Jane Scott and Mark D. Uncles
All authors are from the School of Marketing,
Australian School of Business, University of NSW
In mid-2008 when Starbucks management announced
that they would be closing nearly three-quarters of its 84
Australian stores there was a mixed reaction. Some people
were shocked, others triumphant. Journalists used every
pun in the book to create a sensational headline, and it
seemed everyone had a theory as to what went wrong. This
case outlines the astounding growth and expansion of the
Starbucks brand worldwide, including in Australia. It then
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But just how did Starbucks become such a phenomenon? First, it successfully Americanised the European
coffee tradition—something no other coffee house had done previously. Before Starbucks, coffee in its current
form (latte, frappuccino, mocha, etc.) was alien to most US consumers. Secondly, Starbucks did not just sell
coffee—it sold an experience. As founding CEO Howard Schultz explained, ‘We are not in the coffee business
serving people, we’re in the people business serving coffee’ (Schultz and Yang 1997). This epitomised the
emphasis on customer service, such as making eye contact and greeting each customer within ﬁve seconds,
cleaning tables promptly and remembering the names of regular customers. From inception, Starbucks’ purpose
was to reinvent a commodity with a sense of romance, atmosphere, sophistication and sense of community
(Schultz and Yang 1997). Next, Starbucks created a ‘third place’ in people’s lives—somewhere between home
and work where they could sit and relax. This was a novelty in the USA where in many small towns café culture
consisted of ﬁlter coffee on a hot plate. In this way, Starbucks positioned itself to not only sell coffee, but also
to offer an experience. It was conceived as a lifestyle café. The establishment of the café as a social hub, with
comfortable chairs and music, has been just as important a part of the Starbucks brand as its coffee.
All this came with a premium price. While people were aware that the beverages at Starbucks were more
expensive than at many cafés, they still frequented the outlets as it was a place ‘to see and be seen’. In this
way, the brand was widely accepted and became, to an extent, a symbol of status and everyone’s must-have
accessory on their way to work. So, not only did Starbucks revolutionise how Americans drank coffee, it also
revolutionised how much people were prepared to pay.
Consistency of product across stores, and even national boundaries, has been a hallmark of Starbucks.
Like McDonald’s, Starbucks claims that a customer should be able to visit a store anywhere in the world and
buy a coffee exactly to speciﬁcation. This sentiment is echoed by Mark Ring, CEO of Starbucks Australia,
who stated: ‘Consistency is really important to our customers…a consistency in the product…the overall
experience when you walk into a café…the music…the lighting...the furniture…the person who is working
the bar.’ So, while there might be slight differences between Starbucks stores in different countries, they
all generally look the same and offer the same product assortment. One way this is ensured is by insisting
that all managers and partners (employees) undergo 13 weeks of training—not just to learn how to make a
coffee, but to understand the nuances of the Starbucks brand (Karolefski 2002) and how to deliver on its
promise of a service experience.
The Starbucks formula also depends on location and convenience. Starbucks has worked on the