Why Starbucks failed in Australia
The company opened its first Australian shop in Sydney in July 2000 and expanded rapidly.
Because of its success elsewhere, Starbucks believed that it could ‘copy, paste’ its business model to Australia without customisation. What it didn’t realise was that when it comes to coffee, Australians are spoiled for choice. They’ve been immersed in the nuances of cafe culture since the mid 1900’s, when Italian and Greek immigrants began arriving in droves, bringing espresso coffee with them.
Cafes in Australia were born out of the Italian culture of meeting a friend and knowing your local barista. The cafe was a local meeting place where everyone knew each other and coffee was one part of that experience. By the 1980’s, Australians were fully engulfed in cafe culture and had also grown accustomed to specialty menu items like a flat white or an Australian macchiato.
Starbucks brought with it a very different, American-style coffee culture, which focused primarily on coffee as a product. It had a basic menu and offered a range of sugary drinks, which most Australians didn’t like. Starbucks also charged more than local cafes. Australians responded by opting to pay less for coffee they liked from a local barista they trusted.
By 2008, there were 87 Starbucks stores across the continent, but the company had accumulated losses of more than $105 million and borrowed an eye-watering $54 million from its parent in the US. The same year Starbucks announced it was shutting down 61 stores, two thirds of its Australian business.
Starbucks has since adapted its strategy and re-engaged with the Australian market. However, its story confirms that even if you have a wildly successful brand at home, it won’t necessarily work overseas. That’s because how customers perceive and engage with a brand differs from country to country.
There are several indicators that signal that a company doesn’t have its international product-market fit nailed. These include launching in a new market without:
- A clear value proposition for that specific country.
- Insight into how well a product meets the customer’s desires in that market.
- Confirmation that the company can make sales in that market.
- Get clear on the value proposition for your ideal client in the international market you’re targeting.
- Make sure that your offering solves a problem for that particular client.
- Provide evidence that clients in your target market will pay what you’re asking.
Getting Clear on Your Value Proposition
The easiest way to get clear on your value proposition for a particular client in a particular segment is to create a Value Map, which describes the features of an offering in your business model, in a structured way.
A Value Map breaks a value proposition down into three parts.
Products and ServicesProduct and Services is the list of what you offer – think of it as all the products that your customer can see in your “shop window” – anything they can buy from you.
This bundle of products and services helps your clients get things done or helps them satisfy basic needs.
Your value proposition could be made up of different types of products and services including:
Pain relievers describe exactly how your products and services address the challenges that your clients are facing. They explicitly outline how your offering eliminates or reduces some of the things that annoy your customers before, during or after they try to accomplish a goal, or anything that prevents them from doing so.
Great value propositions focus on challenges that matter to your customers, in particular extreme challenges. You don’t need to come up with a pain reliever for every challenge that your client is facing, you just need to overcome a few extreme challenges very well.
Strong value propositions also recognise that a pain reliever can be more or less relevant to a client, depending on their circumstances.
For example, imagine that you sell a pocket-sized portable speaker with bluetooth capability, a 10-hour battery life and a waterproof case. The speaker itself relieves the pain of picnics and beach visits without hi-fidelity music for consumers all over the world. The waterproof case also relieves the pain of having your speaker ruined by a sudden downpour during a picnic. However, the waterproof case relieves a pain which is far more real for consumers in Britain than for consumers in sunny California.As you create your value map, make sure that you are clear about which pain relievers are essential for your international customers, and which ones are just nice to have. Essential pain relievers fix extreme challenges, often in a radical way and create a lot of value. Nice to have pain relievers fix less significant problems and tend to be features which the product could still operate well without.
A value map also includes value creators: ways in which your products and services create value for clients by helping them attain their desires. Value creators explicitly outline how you will produce the outcomes and benefits that your client expects, desires or would be surprised by.As with pain relievers, value creators don’t need to meet all of your clients’ desires. Focus on those that are most relevant to your clients and on areas where your offer can really make a difference.
Pain relievers and value creators both create value for the client in different ways. The difference is that pain relievers specifically address challenges in the client profile, while value creators specifically address clients’ goals (things that they are trying to get done by using your product).
It’s fine if aspects of your product address goals and challenges at the same time. The real objective is to make it very clear that your products and services create value for your customers, in ways that they care about.
- You identify the goals, challenges and desires of potential clients overseas, that you believe you can address with your value proposition.
- Clients react positively to your value proposition and it starts to get traction in the new market.
- You find a business model and delivery channels in the new country that are scalable and profitable.
To find out whether your product fits with what your Ideal International Client is looking for:
Clients expect and desire a lot from products and services, but they also know they can’t have it all. The key is to focus on the things that matter most to clients and how you can address them.
Once you understand your client and his/her preferences, you’ll be able to work out whether your product as it stands will do the trick, or whether you’ll need to modify it in some way. It will also help you to understand whether you can sell your product or service at a price that makes sense.
Will they pay?
One of the mistakes that I see people making as they try to break into a new international market is that they don’t know before they start whether clients in that market are willing to pay what they are asking.
The customer’s willingness to pay should be at the core of your international strategy, because if something costs a lot to make and distribute but no-one wants to buy it, you can end up losing a lot of time and money. Ironically, most companies postpone marketing and pricing decisions to the very end, when they’ve already developed their products. They begin the long and costly journey of product development hoping they’ll make money on their innovations, but not knowing if they will. The same goes for companies taking existing products to new countries – knowing whether your international customers will pay is often left until the last moment, or overlooked altogether – sometimes with disastrous results.
Most companies develop an offer for an international market like this: they design, then build, then market, then price. I suggest you do the opposite. I believe you should market and price, then design, then build. In other words, design your offering around what people are willing to pay. This is especially relevant if you are going into a country where you are competing with a range of other companies, selling products that solve the same or similar problems.
How do you do that?
The “Will they pay?” conversation…
Whether you’re launching an existing product into an overseas market or designing something new for one, one key step you can take is to have the “willingness to pay” conversation early.
Essentially, this means talking to potential customers about your product or service, finding out which parts of the offering are most valuable for them and getting their feedback on the pricing you have in mind. If you don’t do this exercise early on, you lose the opportunity to prioritize the products that you choose to sell to the new market or the product features that you develop especially for that market. Most importantly, you won’t know whether your potential clients will pay before you make a big investment in a certain strategy.
Gillette’s success in India
I’ll close this blog with a story about Gillette, a company that does international product-market fit and pricing better than most.
In 2009, Gillette razor brands accounted for more than 60% of razor and blade sales in the US and about 70% of the world’s total razor and blade sales. But in India, a market with the potential to be four times bigger than America’s for shaving products, the company had just a 22% market share, because its products were expensive for the Indian market.