The Milk Tea War: Customer Acquisition for New Entrants in Established Markets
- Business Finesse Insights
- Apr 23
- 4 min read
Updated: May 11
In the realm of consumer behaviour, switching from a familiar provider to a new entrant is often perceived as a risk — particularly in suburban environments where routine and loyalty dominate purchasing behaviour. For businesses entering these markets, customer acquisition hinges on reducing this psychological barrier and strategically positioning themselves to win trust and repeat business.
The Ice Cream Stand Paradigm: Visibility vs. Familiarity
In high-traffic, tourist-oriented environments like beaches or central shopping strips, businesses often cluster together. The classic example is multiple ice cream vendors operating side by side, leveraging agglomeration economics: customer traffic is already proven, and being near a busy competitor can validate the offering and attract overflow demand.
However, this strategy doesn’t easily translate to suburban locations where consumer behavior is driven less by exploration and more by habit. In these environments, customers aren’t seeking novelty - they’re seeking reliability. If a customer consistently buys an $8 coffee from their trusted local café, there’s little incentive to risk spending the same amount at a new store next door, where quality is uncertain.
Real-World Example: Burwood’s Bubble Tea Battleground
Take Burwood, NSW, a vibrant suburb known for its diverse Asian dining and retail culture. On Burwood Road, the area’s premier commercial strip, a new Asian milk tea store has opened next to an established market leader.
At first glance, the new entrant appears to have executed a smart, textbook launch strategy: customers receive a $5 discount on their first purchase if they download the store’s app. This offer serves a dual purpose:
It reduces the perceived risk of trying a new product: the financial commitment is low.
It encourages digital engagement, allowing the store to collect customer data and foster loyalty.
By all visible measures, it’s working: the store has long queues, strong foot traffic, and a highly visible presence. But while this may look like common-sense marketing, it’s important to examine the deeper psychological and strategic mechanics at play and understand why this approach, while effective, is not foolproof.
The Psychology of Switching Costs
In suburban contexts, the cost of switching providers is not purely monetary. Consumers factor in:
Procedural switching costs: the time and effort to try something new.
Financial switching costs: the opportunity cost if the new purchase disappoints.
Relational switching costs: familiarity with the incumbent and trust built over time.
Even with a discount, a poor experience at the new store may confirm a customer’s preference for the incumbent, and once that “curiosity effect” is spent, the new entrant risks exhausting its most valuable opportunity to convert.
The 50/50 Rule: Striving for Equal Consideration
To survive and eventually thrive, a new competitor must strive to be a legitimate first-choice option, not just a temporary curiosity. The goal is to achieve at least a 50/50 share of mind with every passing customer. This won’t happen through presence alone. The perception of reduced risk must be matched by delivered quality.
In this case, the Burwood milk tea store has succeeded, so far, by reducing the initial barrier to trial. But maintaining those queues over time will depend on consistent delivery, operational excellence, and continued brand engagement beyond the first discounted drink.
The Risk of Premature Exposure
An aggressive early push to drive trial can backfire if the product isn’t ready. If early adopters are underwhelmed, they’ll return to the incumbent and likely spread word-of-mouth that cements the status quo. Worse still, the new entrant will have used up its best opportunity to create a first impression.
If a product isn’t yet equal to or better than the market incumbent, it’s often better to refine quietly, build capability, and delay high-visibility campaigns until the offering is strong enough to withstand comparison.
The Long-Term Challenge: Cash Flow and Brand Fatigue
New entrants that fail to convert trial into repeat purchases face two critical risks:
Cash flow strain: Promotional pricing drives volume but may hurt margins. Without repeat business, the unit economics become unsustainable.
Brand fatigue: If a store remains visibly quiet after launch excitement dies down, it signals weakness. Passers-by may unconsciously associate low traffic with inferior quality.
Customer Acquisition in Suburban Markets Requires More than Curiosity
Agglomeration logic may work in tourist hubs, but in local suburbs, the dynamics are different. Winning over customers requires reducing perceived risk, delivering consistent quality, and building long-term engagement. As demonstrated in Burwood, smart promotional strategies can jumpstart a customer base, but they must be underpinned by a superior or at least equal offering to sustain momentum.
For any new entrant, the path to parity with an incumbent isn’t built on hope. It’s built on strategy, experience, and most importantly, trust : earned one customer at a time.
Beyond Milk Tea: Customer Acquisition Principle at Work
While the milk tea case is specific, the principles apply broadly across hospitality - cafés, bakeries, and quick-service outlets alike. In local markets, where customers return regularly, familiarity reduces risk. With price and access equal, most will default to what they know.
To compete, new entrants must reduce the perceived risk of trial. Offers like app-based discounts work not just to attract traffic, but to enable fair comparison. A discount entices trial, gathers data, and encourages loyalty - but only if the product delivers.
Without quality, promotions can backfire. Once customer curiosity fades, it’s rarely regained. Winning in hospitality means more than visibility, it requires de-risking choice and consistently outperforming expectations.
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