Serving high quality coffee to satisfy a rapidly growing interest, our goal is to share the Starbucks Experience with Chinese consumers, one cup, one person and one neighborhood at a time. You must be logged in to view this material casecent.re/p/148714. Yet. Or it could be the new coffee experience. Starbucks Corporation (Starbucks), the world’s largest coffee chain by revenues, was considered a success story in China, where it maintained its unique character of serving premium coffee and succeeded in cultivating the demand for high-price brews throughout China. The model is also extended to a public information setting. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. 149.202.175.42. CNN Business recently observed that “every Starbucks growth strategy is working." Despite Starbucks’ increasing footprint in China, it failed to attract the average Chinese consumer who could not afford it because of its high price. Brand Booming in China, In Spite of Economic Woes,”, Jennifer Duggan, “Spilling the Beans on China’s Booming Coffee Culture,”, Elaine Schwartz, “Why China Wants More Coffee,”. Is Starbucks Sowing the Seeds of Its Own Demise in China? However, with competition growing in the market, can Starbucks sustain its high prices in China? Coffee is not the only cheaper product in the US. manufacturers’profits were hardly astronomical. This service is more advanced with JavaScript available, China-Focused Cases The cheering experience that the customers can have at a Starbucks store founds its great attraction to the community. However, Starbucks also faced criticism for its high prices in China. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. The report echoed a separate critique by the official China Daily newspaper published last week. Starbucks Corp will raise prices for some of its products in mainland China from Jan. 1, a company spokeswoman said on Friday, as surging … This is despite the coffee cups being made in China and sent to the U.S. Whether sold in parched or polluted regions, where few other sources exist, or water-rich places like Manhattan, bottled water fetched a significant markup over the often identical liquid that flows from the taps, its price rising by a factor of as much as 4.000. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. Starbucks pricing strategy can be described as a hybrid of premium pricing, geographical pricing, psychological pricing strategies. The highest volume of price criticism emerged from China where the media . Chee Leng, “The Power of Branding – Starbucks in China,” On Coffee Makers, “Starbucks Defends Higher Pricing in China,”. However, with competition growing in the market, can Starbucks sustain its high prices in China? Starbucks Corp has been charging customers in China higher prices than other markets, helping the company realize thick profit margins, a report by the official China … Ruchi Gupta, “Starbucks Corporation (NASDAQ: SBUX) Might Be Digging Its Own Grave in China,”. Customers are attracted by the Figure 2. In equilibrium, however, couponing increases competition and reduces profits. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. “Starbucks Opens Store on Alibaba’s Marketplace Tmall,” Economy, December 22, 2015. To read the full-text of this research, you can request a copy directly from the authors. To ensure our pricing problem exhibits a well-defined optimum, we use the parsimonious, mixed-logit demand function that allows for flexible substitution patterns across brands and also retains a link to consumer theory. According to Oberoi & Hales (1990), service is an activity which is produced simultaneously with purchase and the service providers are often present and visible to the consumer. increase in the cost of couponing decreases consumer surplus while the impact on profits and social surplus is ambiguous. International Journal of Industrial Organization. View our pricing guide or login to see prices. This case was the Nominated Case Award winner of 2016 Global Contest for the Best China-Focused Cases. “Starbucks and Fair Prices,” Summer Foundation, November 4, 2013, Hillary Dixler, “Chinese State Media Calls Starbucks Too Expensive,”, Hannah Beech, “China Roasts Starbucks: Foreign Brands Come Under Fire for High Prices,”. Of course, price should not be the only key differentiator, and customers won’t buy Starbucks just because of (a high) price. However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. Starbucks is considered a success story in China, as it was able to convert the traditional tea drinkers of the nation to … Starbucks now has 30,600 stores in China and by partnering with Uber Eats and… Our cost of setting up the business in China and our cost of doing business in China is actually more than it’s been in many other markets, so that is why we charge more money [1]. Brand values of Starbucks could be as simple as the product (coffee), itself. For the most part, Starbucks is a master of employing value based pricing to maximize profits, and they use research and customer analysis to formulate targeted price increases that capture the greatest amount consumers are willing to pay without driving them off. Rachel Wang, “Starbucks Price Comparison After the CCTV Attack,” Danwei, October 24, 2013, Anya Kamenetz, “Starbucks Is Too Damn Expensive, Says Chinese Media,”, Patrick Boehler, “After Apple, Is Starbucks Chinese State Media’s Next Target?”, “Starbucks Can’t Justify High Prices in China,”, Lu Chen, “In Attack on Starbucks, Chinese Broadcaster Gets Coffee on Face,”. In China, Starbucks raised the price of its products at different times, which attracted public attention and strong media reaction. Starbucks is considered a success story in China, as it was able to convert the traditional tea … “Starbucks Reports Record Second Quarter Fiscal 2012 Results,” Starbucks Newsroom, April 26, 2012, Casey Baseel, “Starbucks: More Expensive in China Than Japan or America, But Why?”, “Starbucks Accusation Causes Controversy,”, Mia De Graaf, “Chinese State-Controlled Media Zeroes in on Starbucks Accusing Coffee Chain of Overcharging When Compared with Shops in London and U.S.,”, “Starbucks Defends High Prices in China,”, Matt Schiavenza, “Why Is Starbucks So Expensive in China?”. 1999 1st Starbucks Store In January 1999, Starbucks entered the mainland China market by opening the 1st store in the China World Trade Building, Beijing. The case was developed to provide the basis of classroom discussion rather than to illustrate effective or ineffective handling of a management situation. “Starbucks Reports Record Fourth Quarter and Record Fiscal Year 2015,” Starbucks Newsroom, October 29, 2015, Victoria Sgarro, “Coffee Culture Is Catching on in Tea-Steeped China,”, “Starbucks to Add Thousands of Stores in China,”, Venessa Wong, “KFC Thinks It Can Out-Coffee Starbucks in China,”, Ketti Wilhelm, “China’s Growing Coffee Culture,”, Wade Shepard, “Is Starbucks Sowing the Seeds of Its Own Demise in China?”, © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2019, https://www.cbsnews.com/news/starbucks-china-open-2500-new-stores-chinese-customers-coffee-culture/, https://doi.org/10.1007/978-981-13-2706-3_6. Part of Springer Nature. You can request the full-text of this chapter directly from the authors on ResearchGate. But equity analyst, John Zolidis isn’t concerned about Starbucks competition in China. In contrast, the price charged after a disloyal signal has been observed falls as the signal's accuracy rises. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. “Top 10 Coffee Chains in the World 2015,” mba skool, Austin Ramzy, “State Media Call Starbucks Too Pricey,”, Wade Shepard, “Why Starbucks in China Is So Expensive,”. While industry profit and overall welfare fall monotonically as price discrimination is based on increasingly more accurate information, the reverse happens to consumer surplus. Every Starbucks coffee outlet shows a sense of luxury. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. Howard Schultz, CEO of Starbucks, saw China as a primary growth market and had ambitious growth plans at a time when there was worldwide anxiety over the country’s sluggish economy and market turmoil. “Revenue of Starbucks Worldwide From 2003 to 2015 (in Billion U.S Dollars),” Statista. CBN Daily reported. Howard Schultz, CEO of Starbucks, saw China as a primary growth market and had ambitious growth plans at a time when there was worldwide anxiety over the country’s sluggish economy and market turmoil. “Starbucks EPS Jumps 28% to a Q3 Record $0.55 Per Share,” Starbucks Newsroom, July 25, 2013. An, We investigate the impact of price discrimination by a large Chicago supermarket chain. “Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands,” Wang Zhendong, director of the Coffee Association of Shanghai, told CCTV. There are Starbucks (and of course other innumerable cafes) in metropolises like Beijing, Shanghai, Guangzhou, Shenzhen, Xiamen, Hangzhou, and Xi’an, and small coffee houses serving real ground coffee are easy to find in a hot tourist destinations like Guilin, Lijiang, and Yangshuo. China's acceptance of premium coffee may not reach 363 cups annually, however, Starbucks sells premium tea as well. © 2020 Springer Nature Switzerland AG. To maintain competition, Starbucks started with a low cost range at few outlets and to cater the customers who couldn’t be attracted by its high prices. Profit maximization is the process by which a company determines the price and … Starbucks China. Starbucks pursues premium pricing strategy and its products are generally more expensive compared to the competition. First we measure the impact of the chain's current zone-pricing policy on shelf prices, variable profits and consumer welfare across its stores. All rights reserved. Starbucks can’t justify high prices in China Updated: 2013-10-15 09:11 ( Chinadaily.com.cn) Print Mail Large Medium Small. Not affiliated — Howard Schultz, CEO of Starbucks, in 2013. Case Details; Case Intro 1; Case Intro 2; Excerpts <