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Dissertation Chapter 5 - Consumer's Perception towards Starbucks Coffee and McDonald's McCafé Marketing Strategies in Hong Kong: Comparative Research Study

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Consumer's Perception towards Starbucks Coffee and McDonald's McCafé Marketing Strategies in Hong Kong: Comparative Research Study




Coffee drinking, in HK homes, offices, schools as well as casual outside coffee drinking in Hong Kong has turned out to be as common practice as dining as illustrated by the proliferation of coffee shops all around the metropolis and its outskirts, the increased sales of instant coffee variants. More and more people are learning to appreciate coffee drinking not just as an “after dining” practice or morning ritual, but as part of emerging HK lifestyle. Coffee has become convenient and easily available drink. Increased sales of instant coffee and coffee beans and the proliferation of coffee shops have contributed to the growth in coffee sales in both retail and foodservice outlets. Research towards consumer perception of certain marketing strategies of Starbucks and McDonalds Café as there explore as to how coffee business marketing strategies drive competitiveness of the two companies as taken from the perspective of the consumers. The marketing environment of such industry capitalizes on the purchasing power of the public hence the high specifications of marketing strategies, tactics and messaging. The using of patterns and advertising exposure as well as the range of marketing vehicles and venues used by companies to reach the consuming public with advertising and marketing messages contribute to rate and frequency of spending of the consumers. Coffee consumption is highest in the Northeast, where over 60 percent of the population consumed coffee daily in 2005, according to the National Coffee Association where coffee drinkers average 3.7 cups per day (First Research Industry Profile, 2006).  Major products sold by coffee shops include beverages as well as complimentary food items, beverages include brewed coffee and tea; espresso drinks; cold blended beverages; bottled water; soft drinks; and juices.  Food products include pastries, bakery items, desserts, sandwiches, and candy. Many coffee shops sell whole or ground coffee beans for home consumption. Some coffee shops sell coffee or espresso-making equipment, grinders, mugs, and other accessories.  Most coffee shops serve high-quality, premium coffee known as specialty coffee. The consumer perception of product highly affects its decision on what product to buy. The decision process is influenced by the information available to the consumer and the way in which the consumer processes that information. The decision process is also influenced by the consumer's beliefs, attitudes, and intentions as well as many other individual characteristics. Two stages in the decision process are particularly relevant to this study: search – is whether the consumer seeks label information when selecting products and alternative evaluation – whether or not the consumer uses label information in considering product alternatives. Whether consumers will search for and use label information will be influenced by both characteristics of the product and of the buyer. Product characteristics include the extent to which the product's probable performance can be assessed by visual inspection and its complexity, that is, the number of decisions the consumer is required to make about it. In coffee taste run by Consumer Reports magazine in February 2007 McDonald’s, Starbucks’ and Dunkin Doughnuts’ coffee was tested. The magazine proclaimed that McDonald’s beverage was the cheapest and the best (McDonald′s java beats Starbucks, Dunkin′ Donuts, 2007). Also in Feb 2007 marketing powerhouse Brand Keys’ latest Customer loyalty survey looked at Dunkin’ Donuts and Starbucks. The result was that the former one edged out Starbucks for the first time. A reason might be the increased level of automatic machines and bagged coffee at Starbucks which leads to a loss in uniqueness. Customers can’t observe anymore how the coffee is handmade in front of them. Starbuck’s overall goal is to establish its brand as one of the most recognized and respected ones in the world. Therefore the enterprise plans to continue the rapid expansion of its retail and grow its specialty operations and to selectively pursue other opportunities to leverage the brand through the introduction of new products and the development of new channels of distribution (Starbucks’ Financial Statement, 2004). Recent strategic changes within McDonald’s are increasing its potential for rivalry with pure coffee house retailers like Caribou and Starbucks.  McDonalds is looking into day parts penetration as growth strategy. While currently owning the breakfast segment the company wants to take over the afternoon segment (McDonalds, Starbucks Growth Strategy). McDonalds has announced that it will serve specialty coffee beverages like vanilla lattes and caramel cappuccinos at outlets.  Hong Kong customer perceptions of McDonalds Café marketing strategy have also agreed on the following statements,  McDonald's is not specifically targeting Starbucks, McDonald's Café wants customers to associate its famous Mc prefix with fancy coffee of 3.9 percent respondents agreeing, McCafe has the best lattes, iced coffees, and the best hot cocoa, which they call a cocoa steamer of 4.0 percent and also 3.9 percent towards McCafe taste good as HK coffee drinkers is that the crews take the time to pull the shots properly. McDonalds café marketing strategies only goes to show that they can have positive edge over Starbucks coffee only when allow their products quality to innovate in time, recognizing different needs of Hong Kong customers especially when it comes to strong branding and imaging of coffee based brands and to avoid fierce competition with marketing rivals not just Starbucks but also of others working in or not within Hong Kong coffee market structures. In addition, some of the HK customer respondents have placed neutral perceptions on three statements imposed being on the middle thinking when it comes to McDonald's Café coffee initiative, placing threat to Starbucks and other factors like, some perception identified that,  McDonalds café drip coffee can be with awful taste as compared to Starbucks cappuccino and other factors of 2.2 percent, 2.9 percent of statement, Starbucks going after McDonald's for quite some time and Starbucks weakened their brand over the past few years and they are now seeing the consequences also factors pointing to Hong Kong recession for marketing strategy stance, McDonald's has kept up its growth during the downturn. Same-store sales rose 4.3 percent for the quarter that ended March 29. Profits were up 4 percent, to $980 million. Indeed, only one category of the statement that falls under disagree ratio which is of 1.8 percent of respondents perceived that, it doesn't matter whether Starbucks and or McDonald's produce better or cheaper cup of coffee as customer perception is everything and McDonald's will win in these coffee battle hands down. Developing Mc café and Starbucks marketing strategy and mix can be complex process, due to the dynamics of interests and benefits sought by management as Starbucks undertake global market strategies that allow presence of ideal marketing strategy as for example, integrated marketing mix and product delivery systems that provide Starbucks with international success towards HK coffee market and have become competitive marketplace wherein strategic business plan address to factors that have positive impact on Starbucks services. Global marketing strategies should concentrate on entire range of industry environment impacts for example, environmental problems, food and beverages safety and security and or sensitivity to HK coffee business culture, enabling Starbucks to develop amiable international approaches in order for business to fulfill imperative strategic goals and objectives respectively. The impact of Mc café rivalry force created by the competition between specialty coffee retailers is very high such as contrasted to what it was at the time of Starbucks’ rapid expansion, growth of industry has slowed while the number of competitors within the industry has increased. The environment in which Starbucks competes, is the potential for new entrants, economies of scale within the specialty coffee industry have increased as the size of the top players has increased. There is numerous cost disadvantages imposed on new entrants that are independent of the economies of scale considerations. As Mc café industry matures, the ability to access distribution channels and select from the highest quality coffee beans has becoming increasingly difficult. Most of the favorable store locations within the larger metropolitan areas have already been occupied by current competitors within the specialty coffee industry. HK coffee giants had gradually gained good customer preferences over other rivals in form of carbonated soft drinks as Mc café and Starbucks mostly attributed to the health concerns associated with carbonated soft drinks and new market strategy evidence showing coffee as one healthy drink option in HK.


Marketing strategies of Mc café and Starbucks are being located as an emergent set of practices which has distinctive power effects on organizations and subjectivity. Analyses of strategy cannot be reduced either to rationalist accounts of markets and environments nor interpretive understandings of actors' frames of reference. The emergence of 'strategy' as an essential element that needs to be located in specific changes in organization subjectivity, because it is mechanism of power that transforms individual into particular kinds of subjects who secure sense of well being through participation in strategic practices. For Mc café and Starbucks, it can be clear that there is grounding view of strategy as a rational process; such environment based strategy is highly complex, multi-dimensional construct requiring Starbucks interdisciplinary approaches to research and development. In the hospitality industry, it can be complicated by the necessity to consider the impact of international operations of Starbucks over Mc café. Starbucks team into such corporate strategy established the premier purveyor of finest coffee in the world, while maintaining uncompromised principles which is ever growing. The firm principle of Starbucks is seen with its maintenance of great and proven work environment for every staff member into the retail stores. Mc café upholds diversity and promises the highest standards for its products and satisfies customers and gives back to community and environment. Starbucks live by strict growth policy completely dominating market before setting its sights further abroad as the strategy has gained Starbucks the advantage of being one of fastest growing companies there is.  Therefore, it is important for Mc café and Starbucks to always have an update into their external and internal business functioning in order to continue the started success in the industry and have a foundation base as one of the leading coffee specialty business that HK market should look forward to within the coffee industry avenue. Application, awareness and understanding of marketing research and analysis should be at the core of the two HK coffee giants Mc café and Starbucks upon considering future marketing plans and strategy recognized options. 


Customer satisfaction is the extent to which product's perceived performance matches buyers' expectations, one better key to successful and profitable business rests with identifying the needs and wants of the customer and providing goods and services to satisfy these needs and wants. Starbucks, achieve customer satisfaction in HK market, the company should pay particular attention to its customers' cultural preferences and should offer the host market not just coffee but real coffee experience. Starbucks does not implement fancy marketing plan, such as running advertisements on TV or in newspapers. Starbucks did not spend a lot of money on traditional advertisements in order to attract local customers.  Strategically, Mc café and Starbucks chose local HK, Chinese people as its target clients in the long run; Mc café is not selling coffee, but the experience and the western lifestyle of coffee drinkers. Starbucks not only chose high-end office towers and crowded shopping malls but nightclub and bar districts and residential areas as locations for their stores, choosing high-profile location was the most important factor to the success of Starbucks. Starbucks implements its global marketing strategy while also adapting to the local market and promotes itself through coupons, office visits, and free samples to customers, Starbucks spends little on domestic advertising. It considers the store itself the best advertising tool to promote Starbucks. While, Mc café offers educational services to its clients on ordering coffee and drinking coffee then, the Starbucks baristas distribute free coffee samples to people passing by stores in order to attract new clients.

With the extensive growth in the specialty coffee industry, supplier bargaining power has changed in numerous ways, when the first Starbucks was conceived, the farmers from whom Starbucks purchased its premium coffee beans were numerous, small and unconnected to one another. Currently, many of the farmers who sell to Starbucks and other premium coffee chains are united by an initiative known as fair trade certified coffee, which was organized by TransFair USA. Starbucks are given the opportunity to advertise their coffee as being fair trade certified if they purchase from coffee suppliers that are democratically owned cooperatives. (Argenti, 2004)  The initiatives were designed to ensure that the coffee farmers would be compensated fairly for their crops. Their increased unity under this initiative worked as a positive externality by increasing their ability to exert bargaining power over their buyers. The fair trade coffee certification is looked at by consumers in their decision of where to purchase their premium coffee. Mc café and Starbucks comprised the vast majority of sales made by the premium coffee farmers, more restaurants, specializing in array of products than just specialty coffee, have begun to purchase from the premium coffee farmers. Competition increases within the specialty coffee industry, there is greater emphasis on differentiating products through superior quality, coffee beans which are supplied by the farmers are the most important input to the brewing process for a company such as Starbucks, making them increasingly important. For many specialty coffee company's the success is riding on their ability to produce higher quality coffee than competitors, which acts to further increase supplier bargaining power. Mc café and Starbucks had diminished their ability to play one buyer against another, which decreases their bargaining power (Lee, 2007). When comparing bargaining power of suppliers today in the specialty coffee industry to the bargaining power of suppliers during 1980s, it is apparent that suppliers are powerful today.

Research grounded analysis to be applied to the modern specialty coffee industry is the force created by the bargaining power of buyers, primary Mc café and Starbucks customers in the specialty coffee industry remain individual consumers, who neither engage in concerted behavior nor individually purchase in large volumes relative to the total sales of a corporation such as Starbucks. However, effects of losing one of Mc café and Starbucks customers to competitor would not be detrimental to company with sales volume such others. (Adamy, 2008) Neither the individual HK based customers nor coffee drinkers who purchase specialty coffee commit significant fraction of their resources to these purchases makes the buyers less sensitive to price fluctuations and gives the players within the specialty coffee industry more control over pricing. The market strategy of Mc café and Starbucks being part of Hong Kong coffee industry created wider array of competitors who offered high quality specialty coffee The increasing quality standardization of Mc café and Starbucks which specialty coffee has undergone, HK customers might face no switching costs and have an enormous selection of retailers from whom they can buy. The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the internet.

Competitive strategy searches for favorable competitive position at Mc café and Starbucks, functions attractiveness of industry and relative competitive position within that particular industry, as well as alternative activities that an organization can undertake. "Competitive strategy aims to establish profitable and sustainable position against the forces that determine industry competition" (Porter, 1985). Competitiveness is the effort and achievement of long term profitability, above the average of the particular industry within which they operate as well as above alternative investment opportunities in other industries. Mc café is one competitor in the coffee bar market that have recognized brand image as Starbucks. The difference between Mc café and Starbucks and other coffeehouses is that they own all stores and do not franchise. Starbucks store operates in most metropolitan areas and is present in HK and does have direct mail business to serve customers, have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean coffees for the faithful coffee drinkers. Starbucks added light lunch fare to their menu and recently expanded its emphasis internationally as there maybe opportunities waiting in possible joint ventures with other business in HK thus, to design innovative associations with Starbucks' operations.


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Some Other References

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