BUSI0050 CONSUMER BEHAVIOUR SEMESTER 1 20112012

Pacific Coffee
HONG KONG CONSUMER PREFERENCES STUDY AGAINST STARBUCKS COFFEE: DATA ANALYSIS AND RECOMMENDATIONS

Hong Kong consumer preferences study against Starbucks Coffee: Data Analysis and Recommendations

12/18/20 11

GROUP SCF
Cheryl Adams Claire Mak Benjamin Schoelzel Shravan Sunderraman Mason Tse Cheryl Wong Jason Wong

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Hong Kong Consumer Preferences Study against Starbucks Coffee: Data Analysis and Recommendations
FOR THE PACIFIC COFFEE COMPANY
BY GROUP SCF

TABLE OF CONTENTS
INTRODUCTION.............................................................................................................1 PACIFIC COFFEE COMPANY - COMPANY ANALYSIS........................................1 Company Position...........................................................................................................1 Our Competitor Starbucks Coffee..................................................................................2 SWOT Analysis..............................................................................................................2 SURVEY STUDY METHODOLOGY............................................................................4 Finding the five attributes...............................................................................................4 DATA FINDINGS AND ANALYSIS...............................................................................4 Purchasing Coffee: A High-Effort Decision...................................................................4 Primary Customer Segmentation Analysis.....................................................................5 Fishbein Model Analysis................................................................................................5 RECOMMENDATIONS..................................................................................................7 Recommendations for Sit-in Customers.........................................................................7 Recommendations for Takeaway Customers..................................................................8 Pacific Coffee Company Smart-phone Application.......................................................9 CONCLUSION................................................................................................................10 APPENDICES..................................................................................................................11 BIBLIOGRAPHY............................................................................................................13 Conclusion

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INTRODUCTION
The Pacific Coffee Company (PCC) will soon be marking its tenth year since establishment in 1992 in Hong Kong and its name is now well-known across the city. However, as the brand slowly expands itself across other Asian regions, its position in its home market, Hong Kong, becomes more and more important, acting as the pillar of support to the companys expansion. The local Hong Kong market has become a lot more competitive than it was a decade ago with many new entrants having entered and an always evolving market demand. In this report, we will do a comparison of PCC and its main competitor Starbucks Coffee using primary and secondary data to evaluate PCCs position in the market. Our main analytical tool is the Fishbein compensatory model of attitudes which will be used to answer the question of what PCCs strengths and weaknesses are relative to the internationally prominent brand and we will identify and study two divergently different segments to get a more indepth and comprehensive insight. We will give recommendations based on our data findings for PCCs further development with the aims of gaining a more competitive edge in the industry.

PACIFIC COFFEE COMPANY - COMPANY ANALYSIS

Company Position PCC was established being inspired by the American coffee culture. Over the years, the company has improved its brand reputation in coffee brewing and the company has outstretched into other Asian cities from then now operating in China, Singapore, Macau and Malaysia. PCC currently has a total of 144 coffee shops, yet its main focus is still on Hong Kong with a 100 shops operating there. PCCs company mission is to provide the best of all aspects of its business to its customers, providing The Perfect Cup. The company strives to achieve this from the quality of its coffee beverages, to the comfort of the physical place, to its abundance of food and beverage choices and most importantly, the staff, highly trained to achieve the highest level of customer service excellence. ()
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Our Competitor Starbucks Coffee Starbucks is the worlds largest coffeehouse with 17,009 coffee shops in 55 countries, an operating profit of US$ 1.4 billion and about 40 million customers. Starbucks made its debut in Hong Kong in May 2000 with the first store launched at Central's Exchange Square. By May 2008, Starbucks has opened its 100th store and is now represented with 111 stores.() Starbucks provides American coffee culture throughout the world and consequently has a beverage portfolio less aligned to local needs and cultures, unlike PCC. However, the two companies run parallel to each other with a similar concept of providing American fast coffee, thus providing similar products, services and environment. SWOT Analysis To measure PCCs competency and current position, the use of the SWOT analysis will allow for a view of both internal and external environment of the company.
1. STRENGTHS

PCC has a strong market niche within the Hong Kong market, quenching the thirst of the growing Hong Kong demand for specialty coffee drinks with quality coffee products at affordable prices. Established in Hong Kong as a local company, PCC is highly localized in its knowledge of its customer base and can swiftly respond to the market demand of its selected market segment. Its competitor Starbucks as a global company based in America has the need to maintain a certain level of consistency of its products across the global, lacking the flexibility which PCC has in responding to the local demand. PCC has been able to adopt its prices accordingly and presents a slight price advantage over its competitor Starbucks revolving around PCCs concept of an affordable luxury. PCC is well known for providing free internet access to its customers and maintains the most upto-date technology available for better and easier internet connectivity. The company acknowledges and uses the evolution of technology in responding and serving to the needs of consumers, and have proactively maintained the most up-to-date technological system possible to allow for consumers to easily access the store virtually. PCC stores are also known for their comfortable and well-organized
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environment which can be suitable for a group of friends or for individual working professionals enjoying a cup of coffee over work.
2. WEAKNESSES

PCC is arguably weaker at being creative and in continuously incorporating product development, a weakness especially magnified with the constantly changing and demanding market, creating vulnerability in PCCs market position. This can be due to the companys focus on providing highquality coffees to its consumers and PCC lacks the ability to produce a line of coffee products that are unique and fresh whilst Starbucks continuously develops new products to add to their existing menu, attracting new customers while retaining the old ones.
3. OPPORTUNITIES

PCC has seen continuous growth in revenue despite the high saturation within the market and there are various opportunities for PCC in the technologically-savvy Hong Kong market. PCC has been strategically developing in its e-business aspect that brings a great opportunity. With the increasing influence of technology on our lives and entering a new era of shopping where many consumers are turn to the internet; PCC has a head-start into incorporating technology into its business with its Wi-Fi availability in most stores. If PCC markets and develops its responsiveness to technological advances, it can become PCCs main and core advantage.
4. THREATS

The major threat PCC is faced with are new entrants to the market that offer more diversified and creative coffee products for lower prices. There will continuously be new entrants entering this highly competitive market to try and gain the advantage, and PCC needs to use its expertise and experience in the market to retain its competitiveness. The company may also face difficulties in the price setting due to its stress on providing quality coffee for affordable prices. The company must continuously

evaluate its performance and possibly invest more into research and development to allow for the company to grow at an exponential rate to overcome these threats.
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SURVEY STUDY METHODOLOGY

Finding the five attributes Data collection began with a small sample questionnaire for attribute formation, where a total of 10 respondents were asked to list what the most important attributes of a coffee shop were for them, highlighting the five most commonly cited attributes to be chosen for our further research. The attributes are shown in Table 1 and the results from the questionnaire can be found in the appendix. (See Appendix 1) With these attributes we conducted an online survey collecting information from a total of 56 respondents, answering questions on these attributes as well as secondary information relating to their coffee purchasing habits and other product involvement questions. Convenienc e of location Quick service time Variety of drinks Attribute Price Environme nt Description The cost of coffee drinks Including all aspects of comfortable seating, atmosphere, ambiance and facilities The range of different choices available, as well as the level of customization How easy stores are found and reached How much time is taken from walking into the store to holding your cup of coffee, including waiting time in a line as well as time taken to make the drink
Figure 1. Table showing selected attributes

DATA FINDINGS ANALYSIS

AND

Purchasing Coffee: A High-Effort Decision Although non-intuitive in nature, purchasing coffee is in fact a high-effort decision. This can be seen using the high motivation, ability and opportunity (MAO) framework, which forms the basic building blocks of high-effort decision making. This is backed by the product involvement questions that were asked in our questionnaire, with a high average score of 5.1, indicating high involvement from our respondents towards coffee purchase.

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Motivation is high in a coffee purchase decision as it satisfies not only physiological needs of quenching thirst and energising the person, but also contain social needs of belonging within a group, and even act towards self-actualisation where the coffee, through customization, can be used to represent an ideal-self. High ability is required as most people not only judge basic level factors such as price and location, but also higher level factors such as social acceptability and what each drink would represent. Lastly, opportunity is high, as the opportunity to purchase coffee arises quite often, with some who purchase coffee every day. Primary Customer Segmentation Analysis For our analysis, we pinpointed two major consumer segments of sit-in and takeaway customers which we found to have significant deviations in what they seek for in their coffee purchases. Sit-in Customers Takeaway Customers Majority of group tends to make purchases alone (58% for sit-in customers, 73% for takeaway customers) Majority makes purchases between noon and 6pm, with very few after 6pm More likely to purchase in groups of 2-3 Less likely to purchase in groups of all people (38%) Difference s Purchases less frequently (27% purchase more than once a week) Less utilitarian (uses coffee to satisfy hedonistic needs of getting a nice drink) Fishbein Model Analysis
1. THE FIVE ATTRIBUTES IMPORTANCE RANKING (E I )

Similaritie s

sizes (Small groups:27%, Large groups: 0% ) Purchases more frequently (54% purchase more than once a week) More utilitarian in nature (stronger focus on energizing functions of coffee to wake-up)

As seen in Figure 2, quick service time received the highest importance ranking, followed by environment, variety and convenience of location. The Ei ranking for price is negative, showing that

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consumers feel a need for coffee to be slightly high in price, which can add to its value. The main difference between the rankings of attributes between the two segments was that sit-in customers placed great importance on the environment and variety of drinks whilst takeaway customers gave importance to quick service time.
2. THE PERCEIVED VALUE RANKING (B I )

Attributes Price Environment Variety of drinks Convenience of location Quick service time

Importance (Ei) -1.15 1.48 1.23 1.12 2.38

Figure 2. Table showing attributes and corresponding E i figures

A question on the participants preferred brand in the survey revealed that Starbucks significantly more popular than PCC both for the sit-in and takeaway segments (see Figure 3).

Figure 3. Pie charts showing response to question on Preferred Brand

This highlights a major shortcoming for PCC in its brand reputation and brand loyalty. Applying the Fishbein model of attitude, Starbucks ranks higher for more than half the attributes we studied (see Figure 4), and we can see that Starbuckss rankings for variety of drinks, convenience of location and fast service clearly towers over that of PCC. We should note that the ranking does not necessarily represent real difference between PCC and Starbucks but it is what is perceived by the customer, which is just as, if not more, important as the actual difference.

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The two attributes which PCC does better in are having a lower perceived price and better store environment. The higher ranking for environment for PCC stays the same with regards to both of our customer segments. PCC ranks lower in variety, location and service time for both segments although we found that sit-in customers gave a ranking with larger difference, favouring Starbucks, for variety of drinks, whilst takeaway customers gave a ranking with larger difference for service time, also favouring Starbucks.

Figure 4. Graph showing Fishbein Model rankings combined from both segments

From the use of the Fishbein model, we can see that Starbucks holds perceptibly greater advantage over 3 out of 5 major attributes whilst PCCs has comparatively minute advantages on price and environment and from this we can say that Starbucks has undeniably a better market position compared to PCC with PCCs weaknesses in variety of drinks, store locations and service time.

RECOMMENDATIONS
Recommendations for Sit-in Customers Considering the most important attribute for sit-in customers, we advise for PCC to target revitalizing its environment to widen the advantage PCC has in this attribute. We recommend for PCC to set up Wi-Fi hotspots in all of its locations and to use it as a main marketing point, putting up Wi-Fi Access Here sign and posters. The Wi-Fi hotspot will be set to be available for use for customers after purchase with the password given out at the cashier and changed
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weekly or monthly. Hosting a Wi-Fi hotspot will satisfy the connectivity needs of Hong Kong consumers and will attract more customers and entice them to stay longer. To accommodate the large number of sit-in customers coming in alone, PCC will redesign its store layout by adding more seating areas to its floor plan. Each seating area will consist of two power outlets featuring on/off switches to conserve energy when not in use and PCC will be adding booths and a bar to its floor plan. Each booth will hold up to four people with enough table space for work. The booth will be ideal for both customers coming in groups or individually needing working space. The bar will provide customers with a more intimate caf experience where table space will be limited but suited for people coming in small groups to chat and linger as well as bring customers closer to the staff. Through the new seating arrangement, we anticipate for customers to stay for longer periods. Customers will develop positive feelings towards the comprehensive facilities and flexible environment at PCC which will become a defining aspect of PCC stores, hopefully increasing brand recognition and loyalty. Recommendations for Takeaway Customers PCC needs to tackle the issues of improving overall service time convenience of location, important attributes to the takeaway customer segment and both which we have found PCC are weak in. We recommend an online ordering system and a customer loyalty card system. The online ordering system will be available through PCCs website where the customer will create a login account and be able to pre-order food and drinks. Customers will be able to choose the drink size, drink type, whether its iced or hot, number of espresso shots, add flavour, and milk type. Pick-up location will be limited to a few stores to begin with and pick-up time would be within 15 minutes of ordering. Customers will be able to choose between online and in-store payment methods and a queue specifically for pre-orders will be set-up to ensure that customers with pre-orders will not have to wait long. In terms of the loyalty card, it will be exclusive to repeat customers redeemable with kept receipts of ten purchases over HK$30 within one month. Each card will be identifiable by a QR Code
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located on the back which will link to a customer profile in the Customer Information System. The QR code will also be available for download through PCCs smart-phone app which we will explain in detail later. For every HK$50 spent customers will earn 5 points and with every 50 points customers will be eligible to redeem a free tall beverage at any store as well as other discounts and offers around the year. Pacific Coffee Company Smart-phone Application Over the last half decade, there has seen a sharp rise in the purchase of smart-phones. In a survey conducted by Google, Hong Kong was found to have the second highest smart-phone penetration in the world and it was observed that people from Hong Kong are more likely to look for restaurants and bars on their phones. () It is possible to put this data to use by designing a smart-phone application for PCC. Suggested features of the application are: By using a geo-fence with a small radius (around 500 m) around a PCC shop, the Geo-fencing shop can send a message to anyone who has downloaded the application on his/her phone within the geo-fence. Customers with the application can customize their drinks and place orders Online ordering directly from their phone. When their drink has been prepared, a message will be sent to the customers phone notifying them. The application will provide links to popular social networks, allowing customers to post details about their experiences on websites like Facebook and Twitter. Features like Facebooks Check-In function will be implemented such that the customers can post up their location and drink choice on the web. The application will contain a social function by which customers can add friends to their Coffee-buddy list. The application will send notifications if listed Gift and social functions friends are nearby, and suggest a meeting at the nearest PCC shop. The application will also contain a gift function, enabling customers to gift drinks and other PCC products.
BENEFITS OF THE SMART-PHONE APPLICATION

Intertwinement with popular online social networks

By including geo-fencing and online ordering, PCC can considerably increase the perceived convenience of location and service time. The geo-fence function lets the user know exactly where the

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shop is, and with online ordering, the users drink (and the rest of his/her order) can be prepared before he/she even reaches the shop, reducing the time that the consumer has to wait in queue and thus increasing the apparent service efficiency. Adding the options of drink customization will help with increasing the perceived variety of drinks offered. While adding customization does not really increase the size of the menu, it gives customers the view that there is a larger variety of drinks offered. It can also increase affinity between the brand and the customers. Finally, given the recent growth in popularity of online social networks such as Facebook and Twitter, intertwinement of the smart-phone application with such media provides a good and simple way of publicity, and the social and gift functions act as subtle invitation s to consumers to centre their social activities on PCC.

CONCLUSION
Our recommendations mainly revolve around the incorporation of technology in PCCs business structure to boost the companys position within the Hong Kong market against Starbucks targeting the three aspects, namely convenience of location, service time and variety of drinks, which we found PCC is weaker than Starbucks in. With the increasing importance of technology, especially true in Hong Kong where technology has become an inseparable necessity for most, the smart-phone application is a complete solution to changing consumers perception of PCC through addressing the three weak attributes of PCC. Through its implementation we hope to see the improvement and strengthening of PCCs brand image and loyalty, as well as position in its home and pillar market, Hong Kong, surpassing its strong global competitor Starbucks.

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APPENDICES
Appendix 1 Results from small sample questionnaire on important attributes of a coffee shop Attributes mentioned Count Location (convenience) 7 Comfortable environment/ambience (also included Wi-Fi 5 availability and socket space) Service efficiency/time 5 Price 5 Variety of choices/option of customization 3 Availability/quality of other foods 2 Quality of coffee 2 Friendly staff 1 Appendix 2 Pie charts showing data on Sit-in and Takeaway Customers

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Appendix 3 - Survey questionnaire Online survey can be found at this link: https://docs.google.com/spreadsheet/ccc? key=0AvBUBdd96OyldDNSNG5YY1VLZ2RvbHhIYXB1ekRSaFE Appendix 4 - Raw data results from survey Please refer to excel document attached titled Appendix4-RawData.xls

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BIBLIOGRAPHY

Ahonen, T. T., & Moore, A. (2011, December 12). Smartphone Penetration Rates by Country! We Have Good Data (finally). Retrieved December 15, 2011, from Communities Dominate Brands: http://communities-dominate.blogs.com/a/2011/12/smartphone-penetration-rates-bycountry-we-have-good-data-finally.html

Hoyer, W., & MacInnis, D. (2009). Consumer Behavior, 5th edition. Cengage Learning.

Morwitz, V., Greenleaf, E., & Johnson, E. (1998). Divide and Prosper: Consumers' Reactions to Partitioned Prices. Journal of Marketing Research , 453-463.

Pacific Coffee. (n.d.). About Us Our Profile. Retrieved November 12, 2011, from Pacific Coffee Company: http://www.pacificcoffee.com/eng/aboutus/index.html#04

Starbucks Coffee. (n.d.). About Starbucks. Retrieved November 14, 2011, from Starbucks Coffee Company - Hong Kong: http://www.starbucks.com.hk/en-US/_About+Starbucks/

Wan, E. W. (2011). BUSI0050 Consumer Behaviour Term Group Project Guidelines. Lecture Handout.