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

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Cheryl Adams Claire Mak Benjamin Schoelzel Shravan Sunderraman

Mason TseCheryl Wong Jason Wong

Hong Kong Consumer Preferences Study against Starbucks Coffee: Data Analysis and Recommendations

FOR THE PACIFIC COFFEE COMPANY

B Y G R O U P S C F

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................1PACIFIC COFFEE COMPANY - COMPANY ANALYSIS........................................1

Company Position...........................................................................................................1Our Competitor Starbucks Coffee..................................................................................2SWOT Analysis..............................................................................................................2

SURVEY STUDY METHODOLOGY............................................................................4Finding the five attributes...............................................................................................4

DATA FINDINGS AND ANALYSIS...............................................................................4Purchasing Coffee: A High-Effort Decision...................................................................4Primary Customer Segmentation Analysis.....................................................................5Fishbein Model Analysis................................................................................................5

RECOMMENDATIONS..................................................................................................7Recommendations for Sit-in Customers.........................................................................7Recommendations for Takeaway Customers..................................................................8Pacific Coffee Company Smart-phone Application.......................................................9

CONCLUSION................................................................................................................10APPENDICES..................................................................................................................11BIBLIOGRAPHY............................................................................................................13

INTRODUCTIONThe 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 company’s 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 PCC’s 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 PCC’s strengths and weaknesses are relative to the internationally

prominent brand and we will identify and study two divergently different segments to get a more in-

depth and comprehensive insight. We will give recommendations based on our data findings for

PCC’s further development with the aims of gaining a more competitive edge in the industry.

PACIFIC COFFEE COMPANY - COMPANY ANALYSISCompany 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.

PCC’s 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

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most importantly, the staff, highly trained to achieve the highest level of customer service excellence.

(Pacific Coffee)

Our Competitor Starbucks Coffee

Starbucks is the world’s 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 Coffee) 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 PCC’s 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 PCC’s concept of an ‘affordable luxury’.

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PCC is well known for providing free internet access to its customers and maintains the most up-

to-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

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 PCC’s market position. This can be due to the company’s focus on providing high-

quality 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 PCC’s main and core advantage.

4. THREATS

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Attribute DescriptionPrice The cost of coffee drinks

Environment

Including all aspects of

comfortable seating,

atmosphere, ambiance and

facilities

Variety of drinks

The range of different choices

available, as well as the level

of customization

Convenience of location

How easy stores are found

and reached

Quick service time

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

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.

SURVEY STUDY METHODOLOGYFinding 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.

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DATA FINDINGS AND ANALYSISPurchasing 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.

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

Similarities

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

Differences

More likely to purchase in groups of 2-3

people (38%)

Less likely to purchase in groups of all

sizes (Small groups:27%, Large groups: 0%

)

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Attributes Importance (Ei)Price -1.15Environment 1.48Variety of drinks 1.23Convenience of location

1.12

Quick service time 2.38Figure 2. Table showing attributes and

corresponding E i figures

Purchases less frequently (27%

purchase more than once a week)

Purchases more frequently (54% purchase

more than once a week)

Less utilitarian (uses coffee to satisfy

hedonistic needs of getting a nice drink)

More utilitarian in nature (stronger focus on

energizing functions of coffee to wake-up)

Fishbein Model Analysis

1. THE FIVE ATTRIBUTES IMPORTANCE RANKING (E I)

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

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)

A question on the participant’s preferred brand in the survey revealed that Starbucks significantly more

popular than PCC both for the sit-in and takeaway segments (see Figure 3).

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15%

55%

30%

Sit-ins

PCC StarbucksOthers No preference

12%

56%

12%

20%

Takeaways

PCC StarbucksOthers No preference

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 Starbucks’s 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.

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.

From the use of the Fishbein model, we can see that Starbucks holds perceptibly greater advantage

over 3 out of 5 major attributes whilst PCC’s 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 PCC’s weaknesses in variety of drinks, store locations and service time.

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-2

-1

0

1

2

3

4

StarbucksPCC

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

RECOMMENDATIONSRecommendations 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

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 café 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

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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 PCC’s 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

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 PCC’s 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. (Ahonen & Moore, 2011) It is possible to put this data to use by designing a

smart-phone application for PCC. Suggested features of the application are:

Geo-fencing By using a geo-fence with a small radius (around 500 m) around a PCC shop, the

shop can send a message to anyone who has downloaded the application on

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his/her phone within the geo-fence.

Online ordering

Customers with the application can customize their drinks and place orders

directly from their phone. When their drink has been prepared, a message will be

sent to the customer’s phone notifying them.

Intertwinement with popular online social networks

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 Facebook’s “Check-In” function will be implemented such that the

customers can post up their location and drink choice on the web.

Gift and social functions

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

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

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

shop is, and with online ordering, the user’s 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

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Our recommendations mainly revolve around the incorporation of technology in PCC’s business

structure to boost the company’s 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

PCC’s 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 CountLocation (convenience) 7Comfortable environment/ambience (also included Wi-Fi availability and socket space)

5

Service efficiency/time 5Price 5Variety of choices/option of customization 3Availability/quality of other foods 2Quality of coffee 2Friendly staff 1

Appendix 2

Pie charts showing data on Sit-in and Takeaway Customers

Before Noon31%

Noon to 6pm59%

After 6pm9%Purchase Times

(Sit-in Customers)Before Noon36%

Noon to 6pm53%

After 6pm11%

Purchase Times(Takeaway Customers)

Alone58%

Small Groups

38%

Large Groups4%

Group size(Sit-in Customers)

Alone73%

Small Groups

27%

Group Size(Takeaway Customers)

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0-173%

2-3/week12%

4-5/week4%

1/day8%

1+/day4%

Purchase Frequency (Sit-in Customers)

0-146%

2-3/week29%

4-5/week13%

1+/day13%

Purchase Frequency(Takeaway Customers)

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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Coffee Company: http://www.pacificcoffee.com/eng/aboutus/index.html#04

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