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Marketing Strategies:

Starbucks in China

LAHTI UNIVERSITY OF APPLIED


SCIENCES
Degree Programme in
International Business
Bachelors Thesis
Spring 2016
Siyu Wen

Lahti University of Applied Sciences


Degree Programme in International Business
WEN, SIYU:

Marketing Srategies: Starbucks in China

Bachelors Thesis in International Business,


appendices

70 pages, 4 pages of

Spring 2016
ABSTRACT

With the rapid development of the Chinese economy, a coffee


consumption market with huge potential develops. China becomes a hot
place that many foreign companies are struggling to enter. Depending on
the expected development of Chinas coffee consumer market prospects,
Starbucks decides to choose the Chinese market as another important
overseas market.
The thesis is carried out in a deductive and quantitative method. The study
consists of two parts: theoretical part and empirical part. The theoretical
part analyses the macro environment of Starbucks with PEST analysis and
points out the strengths, weaknesses, opportunities and threats of
Starbucks in the Chinese internal market with SWOT analysis. In addition,
the 7Ps Marketing Mix proposes appropriate marketing solutions for
Starbucks future development. In the empirical part, the study utilizes the
quantitative method with the use of a questionnaire. The thesis uses a
large number of research and reading literature information, with an
objective to analyse the macro and internal environment of Starbucks in
the Chinese market.
The purpose of the thesis is to develop a marketing strategy system for
Starbucks, which includes the determination of the target market and
marketing mix strategies in Chinese market. Starbucks has high quality
services and provides a rich customer experience, which gives it extremely
high brand loyalty.
Key Words: Starbucks, China, SWOT, PEST, 7Ps Marketing Mix

CONTENTS
1 INTRODUCTION

1.1

Background

1.2

Thesis Objectives, Research Questions and


Limitations

1.3

Theoretical Framework

1.4

Research Methodology and Data Collection

1.5

Thesis Structure

2 ASSOCIATED BASIC THEORY

2.1

PEST Analysis

2.2

SWOT Analysis

2.3

Experiential Marketing Theory

2.4

STP Analysis

10

2.5

Marketing Mix 7Ps

13

3 ANALYSE CURRENT SITUATION OF STARBUCKS

14

3.1

Overview of Starbucks

14

3.2

Overview of Starbucks Development in China

15

3.3

Existing Problems of Starbucks

16

4 MACRO ENVIRONMENT ANALYSIS

18

4.1

Political Environment

18

4.2

Economic Environment

20

4.2.1

Increased Resident Income Level and Upgraded


Consumption Structure

20

Economic Development Indicates a Huge Market


Potential

22

4.2.3

Opportunities of Urbanization and Population

23

4.3

Social and Cultural Environment

24

4.4

Technological Environment

25

4.2.2

5 INTERNAL ENVIRONMENT ANALYSIS

27

5.1

Resources and Capabilities

27

5.2

Core Competence

29

5.3

SWOT Analysis of Starbucks

30

5.3.1

Strengths

30

5.3.2

Weaknesses

31

5.3.3

Opportunities

32

5.3.4

Threats

32

5.3.5

SWOT Matrix Analysis of Starbucks

33

6 EMPIRICAL RESEARCH & ANALYSIS

35

6.1

Results Analysis of Questionnaire

35

6.1.1

Personal Information of Participants

35

6.1.2

Customers Opinions and Evaluation

38

7 STARBUCKS MARKETING STRATEGIES

47

7.1

Determine Target Market of Starbucks

47

7.1.1

Market Segmentation

47

7.1.2

Target Market Selection

48

7.1.3

Market Positioning Strategy

48

7.2

Product

49

7.3

Price

50

7.4

Place

53

7.4.1

Starbucks Direct Sales Mode

53

7.4.2

Location Strategy

54

7.5

Promotion

56

7.5.1

Advertising and Word of Mouth

56

7.5.2

Limited Sales and Charity

58

7.6

People

58

7.7

Process

60

7.8

Physical Evidence

61

8 CONCLUSION & SUGGESTIONS

63

8.1

Answers to the Research Questions

63

8.2

Reliability & Validity

65

8.3

Suggestions for Futher Research

65

9 SUMMARY

66

REFERENCES

APPENDICES

LIST OF FIGURES:
FIGURE 1. Inductive Research (Lardbucket 2015) ................................................ 4
FIGURE 2. Deductive Research (Lardbucket 2015) ............................................... 4
FIGURE 3. Thesis Structure .................................................................................... 5
FIGURE 4. Macro Environment Forces Affecting Firm (Jurevicius 2013.) ......... 18
FIGURE 5. China Urban Per Capita Disposable Income 2002-2012 (China Urban
Per Capita Disposable Income 2015.) ............................................................ 21
FIGURE 6. Engel Coefficient of Urban Residents and Rural Residents in China
2000-2012 (Engel Coefficient of Urban Residents and Rural Residents in
China 2015.)................................................................................................... 22
FIGURE 7. Age Group .......................................................................................... 36
FIGURE 8. Gender ................................................................................................ 36
FIGURE 9. Occupation.......................................................................................... 37
FIGURE 10. Monthly Income (RMB) ................................................................... 38
FIGURE 11. The first caf that comes to your mind when you want to drink
coffee.............................................................................................................. 39
FIGURE 12. The frequency of visiting Starbucks in a month ............................... 39
FIGURE 13. Average consumption amount during one visit in Starbucks (RMB)
........................................................................................................................ 40
FIGURE 14. Price level of Starbucks .................................................................... 41
FIGURE 15. The way to know Starbucks ............................................................. 41
FIGURE 16. Reasons to choose Starbucks ............................................................ 42
FIGURE 17. Personal taste of food in Starbucks .................................................. 42

FIGURE 18. Respondents' satisfaction to the environment of Starbucks ............ 43


FIGURE 19. Respondents' satisfaction to the food and dishes in Starbucks ......... 44
FIGURE 20. Respondents' satisfaction to services at Starbucks ........................... 44
FIGURE 21. Overall evaluation to Starbucks........................................................ 45
FIGURE 22. Starbucks can do better ..................................................................... 46

LIST OF TABLES:
TABLE 1. SWOT Matrix ........................................................................................ 9
TABLE 2. SWOT Matrix Analysis of Starbucks .................................................. 33

1.1

INTRODUCTION

Background

Starbucks has created one of the worlds most valuable brands in just
twenty years. Starbucks was founded in 1971. It is the worlds leading
specialty coffee franchisor and brand owner. This company already has
more than 22,000 coffee shops and more than 200,000 employees in
North America, Latin America, Europe, the Middle East and the Pacific
Rim. Over the years, Starbucks has been committed to providing the
highest quality coffee and service to customers. It creates a unique
Starbucks experience so that Starbucks stores around the world become
warm and comfortable, a third living space for people in spite of peoples
workplace and living accommodations. At the same time, Starbucks
continues to reflect back to society, improve environment, repay partners
and coffee producing farmers through various corporate social responsible
activities. Because of Starbucks unique corporate culture and philosophy,
it has been nominated Most Admired Company by the US Fortune
magazine. (Starbucks 2015.)
There is huge commercial opportunity in Chinas coffee business because
Chinas current coffee consumption is far below the world average level.
According to experts prediction, China will become the worlds largest
coffee consuming country in 2020, if every Chinese person drinks one cup
of coffee per day. Then, the coffee beans market will reach 50 billion US
dollars per year. The whole coffee industry chain will generate hundreds of
billions of dollars markets. Starbucks is optimistic about Chinas huge
market potential and it is actively promoting its entering Chinese market
strategy. Since 1999, the first time Starbucks entered China, it has opened
more than 400 stores in Greater China including Hong Kong, Taiwan and
Macao. Nowadays, Starbucks is actively expanding into second-tier
market in mainland China. It is committed in making China to become the
largest international market outside United States in the near future. At the
end of 2005, Starbucks established its Greater China Headquarter in

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Shanghai, which is mainly responsible for Starbucks strategic
development, marketing and operational affairs in Greater China.
Starbucks growth process is greatly due to its unique values and culture. It
provides customers with a unique Starbucks experience. These values
and culture form the core competence for Starbucks, which makes the
Starbucks expanded worldwide rapidly. (Soupu 2012.)

1.2

Thesis Objectives, Research Questions and Limitations

After years of economic growth in China, social wealth has gained huge
accumulation. Moreover, Chinese enterprises are still at a low level of
competition and lack of core competence. After years of development of
Starbucks, it has become a world famous brand. Starbucks brand
operation mode and core competence is worth studying by Chinese
domestic enterprises. Through the study of Starbucks, the thesis hopes to
inspire Chinese domestic enterprises, which is the objective of the thesis.
The main research question of the thesis is: How can Starbucks develop
its business in China with its marketing strategies? In order to attain the
objective and answer the research question, sub research questions are
as follows:
I: What problems does Starbucks currently encounter?
II: What opportunities does Starbucks have in Chinese market?
III: How does Starbucks carry out its marketing strategies in China?
One of the limitations of the thesis is it cannot deal with other industries
but the coffee industry, as Starbucks is a company famous for its coffee
industry. The thesis cannot be used in other countries because the main
idea of the thesis is to analyse Starbucks marketing strategies in China.
The analysis result from the questionnaire is only a guide for Starbucks in
its future development in China. It still needs a more comprehensive
research. Furthermore, as the thesis is the analysis of Starbucks
marketing strategies in China, it does not mean that the marketing

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strategies of Starbucks will also help other companies doing business in
China.

1.3

Theoretical Framework

The studys theoretical framework is mostly based on theories of


marketing. The theoretical part consists of how Starbucks developed in
China and what marketing strategies it used in those years. To analyse the
company and data from the questionnaire, the thesis uses some basic
strategic analysis tools, such as PEST analysis and SWOT.
Based on the analysis, the thesis sums up the strategies of Starbucks and
summarizes the core competence of Starbucks which comes from its
unique values and corporate culture. According to the classic STP
(Segmenting, Targeting, and Positioning) theory, the thesis analyses
Starbucks market segmentation, target market and market positioning. It
points out the unique charm of Starbucks as an experience-based
marketing strategy.
Last but not least, the thesis combines service marketing and experiential
marketing theory. It summarizes Starbucks marketing mix with the 7Ps
model. The thesis aims to analyse current situation of Starbucks and
proposes measures to reverse its current situation at the policy level and
the strategic level of Starbucks.

1.4

Research Methodology and Data Collection

The thesis must choose an approach of whether inductive or deductive to


use. The inductive approach is an inference of a generalized conclusion
from particular instances and the deductive approach is a conclusion
about particulars following necessarily from general or universal premises.
(Lardbucket 2015.) For this research, the deductive approach is applied
because it goes from general theory to empirical.

FIGURE 1. Inductive Research (Lardbucket 2015)

FIGURE 2. Deductive Research (Lardbucket 2015)

The thesis uses a series of classic contemporary marketing and


management theory and models to analyse marketing opportunities, core
competence and marketing innovation of Starbucks in China. The thesis
applies the SWOT analysis tool to analyse comprehensively the external
environment, competition in coffee industry, internal environment and
prospects of Starbucks. Through horizontal comparison of different
regions, the thesis researches Starbucks marketing strategy in China. And
through comparison of a marketing competitive strategy between
Starbucks and other companies, especially combined with experiential
marketing theory, the thesis studies the Starbucks experience as it is very
important for Starbucks core competence and brand value.
After knowing what approach is to be used in the thesis, the study has to
decide whether to use the quantitative method or qualitative method to
collect data. Quantitative research is more closely aligned with what is
viewed as the classical scientific paradigm. And qualitative research is a
much more subjective form of research. (Wisegeek 2015.) The quantitative
method requires numerical and standardized data to analyse. So the
thesis will collect data by using questionnaire survey. The questionnaire
consists of several multiple choice questions. By collecting answers from
the questionnaire, the thesis will use tables and charts to make
comparisons between data and help the case company improve their
service.

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The thesis uses two types of data sources: primary sources and
secondary sources. The primary sources mainly come from the
questionnaire and the secondary sources are gathered from books,
journals and e-resources.

1.5

Thesis Structure

The study of the thesis is to analyse the marketing strategy of Starbucks


and to find out how Starbucks has succeeded in China. In order to answer
all the research questions clearly, the study is organized as follows:

1. Introduction
2. Literature Review
3. Analyse Current Situation of Case Company

4. Macro Environment Analysis


5. Internal Environment Analysis
6. Empirical Research & Analysis
7. Starbucks Marketing Strategy
8. Conclusions & Suggestions
9. Summary
FIGURE 3. Thesis Structure

The thesis is divided into nine chapters. The thesis begins with an
introduction. The introduction covers the background, objectives, research
questions, theoretical framework and research methodology of the study.

6
Chapter 2 will discuss some basic theory that will be used in the study,
such as PEST, SWOT and Marketing Mix 7Ps. Following is the analysis of
the current situation of Starbucks. Chapter 3 will introduce the
development of Starbucks in China and what problems Starbucks is facing
now. Chapter 4 will use the PEST analysis to cover macro environment
analysis and the coffee industry environment analysis. Chapter 5 will go
through an analysis of the internal environment of Starbucks. This chapter
will find out what resources and capacities Starbucks has. This chapter will
also use SWOT to analyse Starbucks. Chapter 6 is going to use a
questionnaire to do the empirical research and analysis of Starbucks.
Based on deep marketing research, the author will suggest some
marketing strategies that will help Starbucks in chapter 7. Chapter 8 will
answer all research questions, as well as give suggestion for further study.
Chapter 9 will be the last part of the study. It will draw a brief but thorough
summary for the thesis.

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2

ASSOCIATED BASIC THEORY

This chapter is the overall view of theories that will be used in the thesis.
This chapter is divided into three parts. The first part explains macro
environment with PEST analysis. The second part introduces SWOT
analysis, which summarizes and integrates the internal and external
environment of a company. The third part applies experiential marketing
theory, which helps a company to stand in consumer position to think
about development of the company. The next part is the STP analysis that
will help a company in segmenting, targeting, and positioning. Last but not
least, the marketing mix 7Ps is applied to propose suitable strategies for a
company.

2.1

PEST Analysis

PEST analysis is a method helps companies review their external macro


environment. PEST analysis refers to the analysis of the macro
environment and macro environment is generally known as the external
environment that affects all industries and enterprises. Different industries
and enterprises vary a little bit according to their characteristics and
management needs in analysing macro environment. But PEST analysis
generally analyses categories of political, economical, technological and
social aspects that affect a company in a companys external environment.
(PEST 2015.)
Political environment includes the social system of a country, the nature of
the ruling party and the governments principles, policies, laws and
regulations. Political environment is constantly changing, so enterprises
must comply with countrys laws, regulations and political systems in the
society. (PEST 2015.)
Economic environment includes macro economy and micro economy.
Economic factors are the first consideration when an enterprise makes a
decision to develop. When analysing economic environment of an
industry, it is important to look at the economic investment and future

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trends of an industry. In addition, local consumption levels, consumer
preferences and employment are closely related to a companys
economic. (PEST 2015.)
Social and cultural environments include a countrys education and cultural
level, religion, customs, aesthetic point of view and values. Population
environment and cultural background have greatest impact on social and
cultural environment. Religions and customs will prohibit some activities.
Values will affect residents recognition of organization goals, organization
activities and the organization itself. Aesthetic will affect peoples attitude
towards the contents of organizational activities, the way of activities and
the results of activities. (PEST 2015.)
In the past half century, the most rapid changes took place in the
technological environment. Technological environment includes not only
the invention, but also includes new technologies, new processes, the
emergence of new materials, development trends and application
prospects that related production of an enterprise. (PEST 2015.)

2.2

SWOT Analysis

SWOT analysis is a tool for analysing a companys strengths,


weaknesses, opportunities and threats by integrating and summarizing the
company's internal and external conditions. (Guo 2000.) SWOT analysis
combines a companys internal resource with its external environment.
Among them, advantages and disadvantages analysis mainly focuses on
comparing the enterprises own strength with its competitors, and
opportunities and threats analysis focuses on possible impacts on the
enterprise from external environment changes. The fundamental purpose
of this tool is to compare enterprises own strengths, weaknesses,
opportunities and challenges with its competitors, and then select an
appropriate development strategy.
SWOT analysis tool analysis is more structured as it lists related factors of
the enterprise and the key issue is to find a suitable business development

9
strategy. There are three steps in using SWOT analysis in strategic
decision making process.
TABLE 1. SWOT Matrix

Strengths-S

Weaknesses-W

Opportunities-

SO Strategy (Growth-oriented

WO Strategy (Torsion

Strategy)

Strategy)

Threats-T

ST Strategy (Diversified

WT Strategy

Business Strategy)

(Defence Strategy)

The first step: List the company's strengths, weaknesses, potential


opportunities and threats.
The second step: Combine strengths, weaknesses, opportunities and
threats to form SO, ST, WO, WT strategy.
The third step: Screen and select SO, ST, WO, WT to determine what
strategies and tactics the company should take.

2.3

Experiential Marketing Theory

Experiential marketing is the product which comes from certain stages in


marketing development. Dr. Bernd Schmitt says in his book Experiential
Marketing that experiential marketing is based on consumers sense, feel,
thought, act and relate. Although experience is an individual subjective
experience, it can still create a value carrier which is distinct with product
and service. (Wang & Peng 2005, 1.)

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Experiential marketing is a further development of service marketing. Its
emphasis is on providing unique experiences which is based on standard
service. Experiential marketing breakthrough traditional emotional
consumer assumption. Consumers are emotional when they are spending
money, the experience before consumption, during consumption and after
consumption is the key to analyse consumer behaviour and for corporate
brand management. The key to using experiential marketing is through
product design to marketing promotion. Companies must always stand out
in the consumer experience perspective to design. It is important for
companies to consider the feeling when consumers see it and use it. In
todays dazzling market competition, interest demand is not enough to
impress consumers hearts. It is more resonating with consumers when
companies can meet consumers self-esteem and high levels of taste
pursuit. (Sun 2004, 26.)

2.4

STP Analysis

The STP theory (target marketing theory) was put forward by Philip Kotler.
STP theory states that target marketing usually goes through three steps:
segmenting, targeting and positioning. In fierce market competition,
companies cannot put the entire market as their target market. Companies
should select a specific market as their target market based on their
strengths, and form a competitive advantage in this target market. (Kotler
2000.) Target marketing needs to go through three steps.
The first step is market segmenting. According to buyers required products
and marketing mix, the market is divided into a number of different buyers
groups. Market segmenting is a classification process. According to
differences in consumers needs, desire, buying behaviour and buying
habits, marketers apply market research to divide the market into a
number of consumer market groups. Each consumer group is a market
segment. Each market segment consists of consumers with similar
demands. So companies can use personalized products to meet

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personalized demands. Basic methods of market segmenting are
geographic, demographic, psychological and behaviour.
The second step is market targeting. Companies can select one or several
market segments to enter. After doing market segmentation, companies
decide which market segments to choose and to provide service and
products based on the enterprises resources. When assessing the various
market segments, companies must consider two factors. Firstly,
companies need to consider whether the market segment is attractive to
companies, such as the market segments size, growth, profitability,
economic scale and risk. Secondly, companies must consider whether
investment to a market segment is the same with the resources that
companies have.
There are generally three strategies when selecting target market.
I. Undifferentiated marketing strategy. Undifferentiated marketing strategy
is where the company selects the entire market as its target market. The
company only considers market needs regardless of market differences.
The company uses one product, one price and one promotion method to
attract more consumers, such as Coca-Cola. The advantage of this
strategy is that the product is single, easy to guarantee quality, easy to
mass produce and has lower production and marketing costs. (Trout
2002.)
II. Differentiated marketing strategy. Differentiated marketing strategy is
where a company divides the whole market into a number of sub-markets.
The company designs different marketing strategies and different products
for different sub-markets and different consumer needs. The advantages
of this strategy is that it meets different requirements of different
customers, it expands sales, it dominates the market and improves
corporate reputation. The disadvantages of this strategy is that due to
product differentiation and promotion differentiation, it increases the
difficulty of management, production cost and marketing cost. (Trout
2002.)

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III. Focus marketing strategy. Focus marketing strategy is to select one or
few market segments as target market to implement specialized
production and sales after the market breakdown. The advantages of
focus marketing strategy are to benefit marketable products, reduce cost
and improve the visibility of companies and products. But there is a great
business risk because the size of the target market is small. If consumers
demand and preference change in the target market, companies may be
in trouble due to delayed changes. (Trout 2002.)
The third step is market positioning. Philip Kotler states that positioning is
one design for companys supplies and images, which can occupy a
unique position to act in the heart of target customers (Kotler 2000). The
final outcome of the positioning is to clearly show why the target market
will buy the product. Based on positioning theory created by Ries Trout,
positioning starts with product. It is not mean to take action on the product
itself. Positioning means to take action on potential customers
psychologically. Therefore, positioning is a theory that pertains to
customers mind. Trout thinks people should cope with this over-spread
community. Customers will create a ladder in their mind for each
category, then put each brand on each level of the ladder according to
their understanding. Thus, the process of corporate brand building is to
use marketing tools to occupy its own brand on the first layer of the
ladder in peoples mind. However, once a brand has already formed a
ladder in customers mind, it is very difficult to change it. In this case, the
positioning theory tells companies to try to establish a new ladder in
customers mind, then put their own brand on the first layer of the ladder.
(Trout 2002.)
From the meaning and theory of positioning, the core idea of market
positioning theory is market segmentation and differentiated marketing. To
some extent, positioning is synonymous for differentiation. A corporate
brand can be called a strong brand if it is starkly different with its
competitor brands, which directly promotes sales of the products under the
brand.

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2.5

Marketing Mix 7Ps

The marketing theory 4Ps is produced with the proposed marketing mix
theory in 1960s in the United States. In 1953, Neil Borden coined the term
marketing mix in his inaugural speech to the American Marketing
Association. The marketing mix refers to the market demand affected by
market variable or marketing elements. The marketing mix 4Ps means
product, price, place and promotion. Product focuses on the development
of function. The product requires a unique selling point and functional
demands is in the first place of the product. Price is based on corporate
brand strategy and focuses on the value of the brand. Place means
companies do not directly face consumers but focus on building a sales
network. The contact between companies and consumers is carried out
through distributors. Promotion means companies focus on changing
selling behaviour to stimulate consumers, such as buy one get one free.
The promotion is to attract other brand consumers to promote sales
growth. (MBA 2015.)
In 1981, Booms and BItner proposed to add three service Ps in the
traditional marketing theory of 4Ps, which are people, process and
physical evidence. People are directly or indirectly involved in the process
of consumption of a service, which is a very important point of view in
marketing mix 7Ps. Process carries out through certain procedures,
mechanisms and activities, which is a key element of marketing strategy.
Physical evidence includes service environment transferred by service
supply, the ability to carry and express tangible products, invisible
consumer experience of current consumers and the ability to deliver
potential consumer satisfaction. (Marketingmix 2015.)

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3

3.1

ANALYSE CURRENT SITUATION OF STARBUCKS

Overview of Starbucks

Starbucks founded by J. Baldwin, G. Bowker and Z. Sieg in April, 1971,


and was originally only a small retail shop located in Seattles Pike Market
sold coffee beans, tea and spices for business. In 1983, Howard Schultz,
the incumbent president of Starbucks, was just a sales management
employee. He decided to introduce an Italian-style caf and beverages
related business model to the United States after his trip to Europe. But his
business philosophy clashed with Starbucks executives. So Schultz left
Starbucks in 1985 and opened a Italian caf on his own, using Starbucks
roasted coffee beans to make Italian-style coffee. In 1987, Schultz
purchased Starbucks and renamed it to Starbucks Corporation because
Starbucks was in a financial crisis. From that point on, Starbucks gradually
developed from a small coffee roaster retailer in Seattle to the largest
coffee chain store in the United States. Moreover, Americans coffee
drinking habit changed with the rise of Starbucks. American coffee, light
like water, gradually changed to heavy roasting Starbucks-style coffee.
Since the transformation of Starbucks to a professional chain store in
1987, Starbucks continued to develop outside of Seattle and built strategic
alliance with different brands to expand its footprint in North America.
From 1987 to 1992, Starbucks expanded to 190 franchisor stores from 11
chain stores originally. Starbucks total revenue also reflected this
extraordinary pace of development in these three years 1987, 1990 and
1992. The total annual income of Starbucks in 1987 was only 1.3 million
dollars, in 1990 it developed to 40 million dollars and in 1992 it achieved
up to 92 million dollars for total annual income. Not only that, Starbucks
stock was listed on Wall Street in 1992. Due to its stock price stability and
high profitability, Starbucks won the Star Money reputation. After that,
Starbucks continued its rapid expansion. At the end of 1999, Starbucks
had 2,200 chain cafs in the United States. In addition, SCI (Starbucks
Coffee International Inc.) was founded in 1995 and signed a contract with
Japanese SAZABY Inc. as joint venture authorisation way to develop

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Japanese market together. In the following year, in 1996, Starbucks
opened its first caf overseas in Ginza in Tokyo, Japan. From then on,
Starbucks officially set on its international expansion path. From 1996 to
the end of 2000, Starbucks established chain stores in 16 countries
around the world, mainly in areas of Western Pacific coastal countries and
Middle East. (Chen 2005.) In addition, an interesting phenomenon
occurred in that the countries Starbucks selected most were not in
advanced Western countries with a habit of coffee drinking. Instead the
customers were almost all in so-called Third World countries, e.g.,
Philippines, Thailand, China, etc. And further we can also find that these
so-called Third World countries are rather newly industrialized countries or
oil-exporting countries in the Middle East. In addition, Starbucks selected a
countrys capital city or the countrys largest city to open its caf. This
enthusiasm and confidence of untapped market is an important factor in
Starbucks successful long journey.

3.2

Overview of Starbucks Development in China

The China strategy is an important part of the global strategy of Starbucks.


Schultz, Starbucks CEO said Starbucks is optimistic about the huge
potential of the Chinese market and efforts to promote China to become
the largest overseas market outside of the United States.
In March 1998, Starbucks opened its first shop in Taiwan. In January
1999, Starbucks first shop in mainland China was opened in Beijing. In
2000, Starbucks opened its first shop in Shanghai Lippo Plaza. In 2002,
Starbucks opened its first caf in South China, in the Shenzhen CITIC
Building. In 2005, Starbucks entered into second-tier cities such as Dalian,
Qingdao, Chengdu and Shenyang, which opened up the southwest and
northeast market of China. Starbucks has opened more than 500 cafs in
mainland of China, Hong Kong, Taiwan and Macau, of which about 300
cafs are in mainland China.
At the end of 2005, Starbucks founded Starbucks Enterprise Management
(China) Co., Ltd. Shanghai, on behalf of the United States to manage the

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entire Greater China to respond to strategic development, marketing
exploitation and operations. At present, in addition to the eastern region of
China, Starbucks cafs in northeast, north, southwest and south part of
China are managed and operated directly by the Starbucks United States
headquarter. In just a few years time, Starbucks in China has a rapid
development, which begins with license agreement to a joint-solo
investment mode. This reflects the fact that the Starbucks brand has been
universally accepted in China. (Starbucks 2015.)

3.3

Existing Problems of Starbucks

Over the past decade, Starbucks brand value has reduced because of its
pursuit of financial figures and rapid expansion in the world, which is very
dangerous. The thesis analyses three aspects that cause a reduction in
the value of Starbucks brand.
The first aspect is the desalting of Starbucks experience. From the first
Starbucks caf opened in 1986, Starbucks mission has been to do their
best to make consumers feel that its mission is not to just sell coffee, but a
meticulous recreation lifestyle. Starbucks becomes partners with its
employees by ESOP (Employee Stock Ownership Plan). Starbucks
establishes an emotional relationship with consumers. But with the rapid
expansion of Starbucks, the customer experience that Starbucks tried to
bring to decreased that affecting the Starbucks core competence. After
trying the success of Starbucks experience, Starbucks tries to reach its
financial goals by rapid expansion of shops but with a loss of consumer
experience. And the financial result in the third quarter of 2008 showed a
net loss of 6.7 million dollars. (Zhang, 2008.) As a strong international
brand with sell temperament, emphatic experience and culture,
Starbucks sacrifice of customer experience and quantitative expansion let
it fall into a trap.
The second aspect is degradation of service quality. In order to obtain
economies of scale and achieve satisfaction from a financial point of inputoutput ratio, Starbucks must complete service processes as an assembly

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line. But the consequence is that Starbucks previously bring customers
high-quality personalized service is now replaced with standardized
streamline service, which makes Starbucks development similar to a much
cheaper franchisor store.
The third aspect is loss of business culture. Another source of Starbucks
core competence is its enterprise culture with attention to staff. Starbucks
changes its staff from traditional employees to business partners by coffee
beans options and sound health care plan, so that employees become
partners and operators with consistent business interests. Starbucks
leadership creates an intense experience to its partners and partners will
pass dignity and respect to their customers. (Michelli 2007.) This corporate
culture of emphasis on staff is a source of Starbucks core competence.
But with the rapid expansion of Starbucks, the culture of emphasis on staff
is gradually lost. The selection of new staff and staff training are relaxed.
Starbucks previously had two hours of closed shop staff training on a fixed
period (monthly or weekly), and now a lot of cafs of Starbucks have no
idea of this tradition. Previously, all employees working at Starbucks, no
matter where they come from, have to go to Starbucks headquarter in
Seattle for three months training. But now, this tradition no longer exists.

18
4

MACRO ENVIRONMENT ANALYSIS

Macro environment brings challenges and opportunities to companies. It


has a significant impact to corporates strategic decisions. Successful
companies need to continue to observe and adapt to the environment,
react and create new profit models to unmet needs in the market. It is
crucial to analyse the market to determine whether there is opportunity to
choose the right marketing strategy.
The thesis uses the PEST model to analyse the macro environment that
Starbucks is now facing. The macro environment can be divided into four
dimensions: Political, Economical, Technological and Social, which is
called PEST analysis.

FIGURE 4. Macro Environment Forces Affecting Firm (Jurevicius 2013.)

4.1

Political Environment

Political environment includes a countrys international relations, social


system, the nature of the ruling party, the governments principles,
policies, laws and regulations. (Jurevicius 2013.)

19
Firstly, Starbucks, as a US company operating in China, will inevitably
receive the impact of Sino-US relations. If the Sino-US relations
deteriorates, it is difficult for Starbucks to have good development in
China. With the rise of Chinas economy, the attitude of the United States
to China is shifting to corporate. The United States realizes the benefit of
cooperating with the worlds key market China is greater than the benefit
of confronting with China. The US government also recognizes that
although United States is strong, it is not omnipotent, it is unable to cope
alone with the challenges and cannot completely address these issues in
accordance with their wishes. Although China and the US have a history of
conflict in political economy and trade friction, China and the US have
broad prospects for cooperation. Cooperation can lead to a peaceful
international relationship and background for Starbucks expansion in
China.
Secondly, the China is based on the centre of economic construction.
Long-term and stable political environment provide confidence for
multinational companies operating in China. There are more than 400
multinational companies of the global top 500 enterprises settled in China,
which indicates that China, with political stability, in a good development
stage for foreign companies. China is now a member country of WTO
(World Trade Organization), which creates Starbucks a favourable
condition to do business in China. Starbucks, as a multinational company,
can reduce operating costs within the framework of the WTO, such as
reducing tariffs on imported raw materials. This can make Starbucks
control costs more effectively in order to achieve better returns. WTO also
contributes to Chinas economic prosperity, and a prosperous expanding
market brings development opportunities to Starbucks which is targeting a
high-end market. In the non-tariff protection, China is gradually reducing
barriers for developed countries, such as liberalization of the financial
industry permit, which will provide better financial services to multinational
companies to improve their business performance.
Thirdly, Chinas legal environment is gradually improving. In the protection
of patent rights, the fight against unfair competition and consumer

20
protection is being developed into a favourable legal environment to
protect the healthy operation of the economy. Until 2005, Chinese retail
industry is fully opened to foreign investment and the restriction of
multinational retailers in region, equity ownership and quantity is
cancelled. (Feng 2007, 44.) Before the introduction of this legislation,
Starbucks took a cooperative approach in development in China. After the
introduction of this legislation, it paved the way for Starbucks direct
management and liberal legal environment providing more freedom for
Starbucks business model. In terms of administrative intervention in the
economy, the Chinese government is slowly eliminating the role of
administrative intervention in the economy and adopting internationally
accepted comprehensive legislation to regulate and guide the industrys
healthy operation.

4.2

Economic Environment

Economic environment refers to national economic development,


international and domestic economic situations and economic trends, and
industry and competitive environments that corporates face. Marketers
need to look at a countrys economic and trade from short and long term,
especially during the time of international marketing. (PEST 2015.)

4.2.1 Increased Resident Income Level and Upgraded Consumption


Structure
Firstly, the Chinese per capita income and disposable income have
maintained high growth rates. In recent years, with a substantial increase
of Chinas economy, Chinas per capita income has steadily increased
year by year. In 2002, per capita income was 8,177 CNY, and in 2006
10,000 CNY. Substantial growth in Chinas per capita income provides
Starbucks development opportunities. In 2009, urban per capita
disposable income is twice more than it was in 2002. Chinas per capita
disposable income has doubled within seven years and maintained a high
annual growth rate of 12%. Income growth increases growth in

21
consumption and Chinese consumers steady growth in spending has
created a steady growth in the expansion of consumer market. This
growing demand creates development opportunities for Starbucks which is
in the coffee retail business.

China Urban Per Capita Disposable


Income 2002-2012
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0.00

26,959.00
23,979.20
21,033.40
18,858.10
17,067.80
14,908.60
12,719.20
11,320.80
10,128.50
9,061.20
8,177.40
5,000.00

10,000.00 15,000.00 20,000.00 25,000.00 30,000.00

FIGURE 5. China Urban Per Capita Disposable Income 2002-2012 (China Urban Per Capita
Disposable Income 2015.)

Secondly, in recent years, the consumption structure of urban residents


also changed dramatically. The Engel coefficient declined rapidly. Engel
coefficient reflects the general trend of peoples income and expenditure
changes. It has become an important parameter to measure a country,
region, city, and the level of family life. The Engel coefficient of urban
residents and rural residents in 2006 decreased by 1.9% and 3.2% in
comparison to those in 2002. In recent years, Chinas Engel coefficient
decreased faster, the Engel coefficient of urban residents in 2012 is
36.2%. With the Engel coefficients decline and upgrading of consumption
structure, Starbucks that represents high-quality coffee experience is
accepted and consumed by more and more people. After Chinas
consumers meet their food and clothing needs and with an increase of
income, the consumption expenditure increases in high-grade service.
Since the last century, the proportion of Chinese people in the
consumption of coffee shows a rising trend, especially with low-income
people, which brings Starbucks development opportunities.

22

Engel Coefficient of Urban Residents and Rural


Residents in China 2000-2012
60
50
40

49.1 47.7
46.2 45.6 47.2 45.5
43.1 43.7 42
43
42.2 40.4
39.4 38.2 37.7
39.3
37.1 37.7 36.7 35.8 36.3 37.9 36.5 35.7 36.3 36.2

30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

FIGURE 6. Engel Coefficient of Urban Residents and Rural Residents in China 2000-2012
(Engel Coefficient of Urban Residents and Rural Residents in China 2015.)

4.2.2 Economic Development Indicates a Huge Market Potential


Firstly, China is still a developing country in economic initial phase. Since
1997, Chinas economy has entered a stage of rapid development. The
average annual GDP growth rate was close to 10%, while the average
annual inflation rate was only 3%. The trade surplus grew from 334.7
billion RMB in 1997 to 834.7 billion RMB in 2005 and the fiscal revenue
grew from 865.1 billion RMB in 1997 to 3.165 trillion RMB in 2005. The
statistics show that in 2007 Chinas GDP surpassed Germany which
ranked fourth in the world. The per capita GDP is 2,460 dollars ranked 104
in the world and the growth of per capita GDP is strong. According to
economists, this strong growth will be maintained for at least 20 years.
After several years of economic growth in the future, China will move
towards economic maturity and mass consumption stage. Starbucks took
a fancy to the strong growth of Chinas economy at present and future
good situation. This is why Starbucks implemented expansion strategy in
China. (GDP 2015)
Secondly, since the beginning of the last century, Chinas net exports
leading role in economic growth is weak or even negative. China is
initiating a series of economic policies to stimulate domestic consumption

23
to let consumption become the most critical driving force. In recent years,
consumption growth remained at about 16% and still showing a strong
growth momentum. Consumption expansion and stimulating domestic
demand of Chinese macro-level policy also gives Starbucks opportunities.
Economists believe that China has entered a new cycle of economic
growth autonomy. The upgrading of consumption structure depends on
the generation and the rise of Chinas middle class. The National Bureau
of Statistics of China has done a nationwide sample survey of social class.
The survey basically concludes that Chinas middle class increases
dramatically, which accounts for 15% to 18% of overall population. Rapidly
growing middle class consumers prefer to buy high-end fashion goods and
this promotes the upgrading of consumption structure. Currently the per
capita GDP is more than 3,000 dollars. And the middle class are
concentrated in Shanghai, Beijing, Guangdong, Zhejiang and other coastal
areas. According to Maslows hierarchy of needs, these high-income
people have begun to seek the needs of respect (Maslow Hierarchy
Theory 2015). The goods they consume is a pursue of an expression of
self-identity and value, so their consumption expenditures are high-end
fashion goods. This provides Starbucks a growing target markets. These
regions have been close to the level of developed countries and has
become Starbucks market segments in Chinas strategic choice. (GDP
2015.)

4.2.3 Opportunities of Urbanization and Population


Firstly, China is constantly entering the era of urbanization. According to
data from the National Bureau of Statistics of China, in 2006 the total
number of cities was 661 in China, the urban population was 577.06
million which accounts for 43.9% of total population. The level of
urbanization increased 4.8% than it was in 2002. But compared with
developed countries whereby urbanization is 80%. This big gap means
that there is a huge opportunity for development of urbanization in the
future. After 1992, Chinas urbanization process accelerated. The annual
urbanization rate increased 1.19%, which is three times the world average

24
speed at the same period. By the end of 2004, the proportion of Chinas
urban and rural population rose to 80% and in 2010 this proportion was
almost 99%. Urbanization brings markets to Starbucks. With the
acceleration of urbanization, potential customers group have also
increased. Starbucks strategic layout in China corresponds with Chinas
urbanization layout. After opening cafs in Shanghai, Guangzhou, Beijing,
Shenzhen and coastal cities, Starbucks entered central city Wuhan. The
next step planned for Starbucks is to expand to the second-tier cities in
China. (Urbanization 2015.)
Secondly, a large number of population has been one of the most notable
features of China. The National Bureau of Statistics of China indicates that
on January 6th 2005, the total Chinese population is 1.3 billion excluding
Hong Kong, Macau and Taiwan, which accounts for about 21% of the
worlds total population. And the current total fertility rate of 1.8% predicts
that Chinas total population will reach 1.46 billion in 2020. The total
population peak will appear in 2033, which will be about 1.5 billion. With
Chinas economic development, China will be a huge market. In recent
years, the Chinese government accelerated the development of education.
Especially since Chinas higher education enrolment, China is training the
worlds largest population of higher education students. The experience of
a high-quality coffee culture that Starbucks provides fulfils the needs of
highly qualified people. At the same time, as China becomes more open,
the international mobility of the population also increases. There are more
and more foreigners and overseas students doing business and living in
China, which also provides favourable conditions for Starbucks to spread
its coffee culture. (Population 2015.)

4.3

Social and Cultural Environment

Any corporates marketing activities will be influenced and constrained by


certain social and cultural environments. Social and cultural environment is
the sum in the form of a community that includes values, religion, customs
and ethics.

25
Firstly, China is an ancient country with a long cultural history. Confucian
culture is ancient Chinese mainstream culture. And this culture has an
impact on Chinese peoples manners and moral values. Confucian culture
emphasizes harmony between people and advocates and culture.
Schultz had made an assessment of Starbucks service: we are not
engaged in the coffee business and serve customers, but we are engaged
in the people business and provide coffee service to people. (Chen 2005.)
So the environment of Starbucks is as important as its coffee. The pursuit
of interpersonal harmony values is easy to be accepted by Chinese people
that grow up with the influence of Confucian culture. Starbucks culture and
values based on the customer experience coincides with the Chinese
peoples and culture. To meet the aesthetic aspect of Chinese culture,
Starbucks utilizes the dcor of Chinese antique and old-fashioned
teahouses. This makes Starbucks more connected to Chinese consumers
and eliminates negative impact caused by cultural barriers.
Secondly, cultural communication of China and western world makes
China accept many advanced ideas and culture from western world and
forms a strong cultural inclusiveness. With China becoming more open,
Chinas tolerance and acceptance of Western culture also gives marketing
opportunities for Starbucks in China. Especially since the Chinese
economic reform, there are more and more cultural exchange between
China and the Western world. Young Chinese people are in pursuit of a
western lifestyle. Such cultural openness and longing for western culture
makes it easier for Chinese people to accept Starbucks.

4.4

Technological Environment

Firstly, the coffee technology in China is still relatively fall behind,


regardless of raw coffee beans roasting or brewing pressure filtration
technology. Starbucks, as the leader of coffee culture, has more coffee
related technologies which can provide a technical basis to carry out the
promotion of coffee culture in China. Advanced technology not only means
to improve product quality, reduce costs and process reengineering, but it

26
also means unlimited opportunities for innovation. Since Starbucks was
founded, Starbuckss uncompromising spirit of innovation performs in the
pursuit of new technology, e.g., its unique Starbucks heavy roasting,
espresso extraction technology and packaging to preserve coffee. These
practices create coffee technological superiority for Starbucks.
Secondly, Starbucks makes good use of IT technology to provide
customers with a richer Starbucks experience. Starbucks connects itself
closely with the IT and Internet to provide Internet access services to the
customers in store, and through the network promote their coffee culture.
Between 2003 to 2004, Starbucks cooperated with China Netcom and
China Telecom respectively to launch WIFI services. Starbucks constructs
wireless Internet access in each of its caf to bring more experience and
value to customers. In 2007, Starbucks management company integrated
Starbucks website in every region and launched a new website with a
virtual caf to promote Starbucks culture and coffee knowledge and
communicated with their customers. Through the development of
innovative electronic payment tool, it makes it easier for Starbucks
customers to pay at Starbucks. In addition, Starbucks has a good data
platform. In this platform, Starbucks can use computer data processing
technology to understand customers preferences. At the same time that
Starbucks brings perfect experience for customers through high
technology, it also provides comprehensive data on customer preferences
for Starbucks. (Starbucks 2015.)
In addition, Yunnan in China is suitable for planting high-quality coffee.
Nestle and Maxwell House Coffee Company has purchased coffee beans
and other raw material from them. But now almost every coffee bean in
Starbucks are imported. The environment in Yunnan, China is not only
suitable for the cultivation of coffee in quality, but also meets the standards
of Starbucks, which provides greater convenience for Starbucks storage
and transport. Starbucks has made it clear that it plans to establish a long
term strategic partnership between Yunnan and coffee suppliers. This
implements a part of Starbucks global procurement plan. (Starbucks
2015.)

27
5

INTERNAL ENVIRONMENT ANALYSIS

The thesis will analyse the internal environment of Starbucks in resources,


capabilities and core competence. Capabilities and core competence is
the foundation of an enterprises competitive advantage. Resources,
capabilities and core competence progress step by step, but the core
competence is the basis of an enterprises competitive advantage.

5.1

Resources and Capabilities

Corporate resources are divided into tangible resources and intangible


resources. Tangible resources are visible, quantified assets or production
equipment. Intangible resources are long-term accumulated assets that
are rooted in the history of development. Because intangible resources
exist in a unique way and are not easily imitated by competitors,
companies are willing to use intangible resources as a basis of capabilities
and core competence. The intangible resources of Starbucks are listed in
several ways, see below.
Human resource: Starbucks spares no effort in training staff. The highly
authorized trained staff can bring the coffee culture to customers and
communicate with customers more effectively each time. This is the bond
for customers to contact with Starbucks. Starbucks uses highly motivated
and professional trained staff to transfer Starbucks cultural values, coffee
culture and coffee knowledge to customers. Starbucks also brings
customers the unique Starbucks experience. Starbucks human resource
plan is the foundation of Starbucks inside out success.
Innovation resource: Starbucks has been at the front of coffee chain stores
in innovation. The huge success of Starbucks new ideas and innovative
products: Cappuccino, Frappuccino and coffee flavoured beer indicates
that Starbucks has a great advantage in innovation.
Reputation resource: This is not a cup of coffee. This is a cup of Starbucks
coffee. Starbucks coffee has almost become the standard of coffee
industries. Starbucks has a very high brand value, its brand, worth more

28
than three billion dollars was evaluated to be included in the Fortune
Global 100 Brand by Business Week magazine. The reputation of
Starbucks brand is a huge competitive advantage. (Xu & Qiao 2004.)
Capabilities refers to the efficiency of enterprises to allocate resources. In
order to achieve a desired final state, these resources are integrated
together on purpose. Many capabilities basis is built on employees skill
and knowledge. The knowledge of a companys human capital is the most
important capability and will finally become a source of competitive
advantage. The capabilities of Starbucks can be analysed and
summarized in several ways from its functional areas.
Human resource: Starbucks can encourage, authorize, retain employees
effectively. Starbucks turns its staff from employees to become its
enterprise partner by implementing an all employee health insurance plan
and issuing coffee beans options. This greatly motivates employees to
dedicate themselves to work and employees are also allowed full
authority. For example, if a customer knocks over a cup of coffee, the
Starbucks employee can give a new cup of coffee to this customer for free.
This is free even if it is not the responsibility of the Starbucks employees.
So the turnover of Starbucks employees is quite low in the service
industry.
Marketing: Starbucks has effective brand promotion and various products.
Starbucks uses unique word of mouth strategy that creates a worldrenowned brand with no advertising investment. This comes from its
efficient unique shopping experience that delivers to customers, which is
known as the Starbucks Experience. Starbucks Experience creates a high
degree of customer loyalty.
Research and development: It can be said that Starbucks is the quickest
and growing coffee franchisor company to introduce new varieties and is
always leading in the coffee industry. This leads to other cafs imitating
Starbucks. Starbucks invests heavily in research and development, has
established its own scientific laboratory and hires scientists to research

29
Espresso extraction technology. This continued investment in research
and development allows Starbucks to have strong ability in product
innovation and research and development.

5.2

Core Competence

Core competence is being able to bring competitive advantage resources


and capabilities to the enterprise. The concept of core competence is
proposed in the book The Core Competence of the Corporation, which is
written by US professor C.K. Prahalad from University of Michigan
Business School and UK professor Gary Hamel from London Business
School in 1990. From the perspective of the relationship of the product
and service, the core competence is actually implicit in the companys core
product or knowledge and skills inside the service, or the aggregation of
knowledge and skills.
The core competence is the ability of an enterprise to acquire competitive
advantage for long-term. It is the technology and capacity a enterprise has
that can afford the test of time, is malleable and is difficult for competitors
to imitate. (Shi 2002.) There are four identification standards for the core
competence of corporations.
The first one is value. Competence can achieve the value of goods that a
customer values. For example: it can significantly reduce costs, improve
product quality, improve service efficiency and increase customer utility
that brings competitive advantage to an enterprise.
The second one is scarcity. Competence must be scarce and only a few
enterprises can have it.
The third one is irreplaceability. Competitors cannot replace this
competence by other competences. The competence has an irreplaceable
role in the process of creating value for customers.

30
The fourth one is inimitability. The core competence must be unique in one
company and is difficult for competitors to imitate. The competence of
imitability can bring above-average profits for enterprises.
The thesis believes that the core competence for Starbucks comes from
Starbucks unique corporate culture and value. Starbucks corporate
culture has gradually formed since the seventies, which makes it difficult
for competitors to imitate. Corporate culture can enhance staff cohesion
and the employees can get a lot of inspiration and encouragement. Then it
becomes a source of competitive advantage. For Starbucks, the brand is
the external expression of its value and culture. And this brand is created
by Starbucks employees. Starbucks disseminates and consolidates this
culture and value through its excellent employees.

5.3

SWOT Analysis of Starbucks

The sub-chapter will use SWOT analysis tool to evaluate the strengths,
weaknesses, opportunities and threats involved in Starbucks.

5.3.1 Strengths
Firstly, the brand strength. According to Business Week and the
Interbrand released 2014s Top 100 Global Brand list, Starbucks ranked
31, that the brand value increased 25% from the previous. (Wang & Ren
2007.)
Secondly is the coffee technology strength. Starbucks huge investment in
research and development makes it the expert in coffee industry.
Thirdly is the store location strength. Starbucks already occupies relatively
favourable locations in bustling places in large and medium-sized cities in
China. Good location not only brings Starbucks greater traffic, but also
brings the advertising effect. At the same time, the preconception
advantage of Starbucks results in higher barriers and obstacles for new
entrants.

31
Fourthly is the financial strength. Enterprise development is inseparable
from financial resources. Starbucks has an obvious financial advantage.
Starbucks headquarter currently has more than 16,000 cafs around the
world. In 2004, the total turnover was more than 500,000 dollars and the
companys profit reached 600 million dollars. (Starbucks 2015.)

5.3.2 Weaknesses
Firstly, the unstable product line. Starbucks constantly introduce new
products. For example, Starbucks plans to sell ready-to-drink coffee in
supermarkets and sells CD and books in its cafs.
Secondly, comes the management problems of Starbucks franchisor
stores in China. It is a challenge for any corporate to have efficient
management of a number of stores in China. Moreover, Starbucks equity
is complex in China. This equity complexity increases the conflict between
the US management staff and Chinese management staff. Starbucks does
not achieve 100% equity control in its cafs in China and only masters
operational management of most parts of China. The Starbucks in
Jiangsu, Zhejiang and Shanghai still remain under the direct management
of Taiwan Uni-President Group. Starbucks management team from the
United States apparently is not totally familiar with Chinas various
economic and legal environments. So they still need time to adapt to
localization.
Thirdly, the watering down of the Starbucks experience and reduction of
customer service level issue concern. In the time of Starbucks expansion,
it results problems of the watering down of its Starbucks experience..
Fourthly is the high price. The drinks in Starbucks is much more expensive
than other cafs in China.

32
5.3.3 Opportunities
Firstly, Chinas economic development is good. Since the end of last
century, Chinas economic development trend is good, which created a
huge consumer market and gradually formed a huge target market
suitable for Starbucks. In the mean time, Chinas policy on attracting
foreign investment brings an historical opportunity for Starbucks
development in China.
Secondly, since 2005, Chinese law released the control of foreign retail
enterprises direct chain stores (Ministry of Commerce 2005.)
Thirdly is the process of urbanization. The developed cities in China are
concentrated in the coastal areas, that being the first choice for Starbucks
to open its caf. But with the advance of urbanization in China, there are
more cities in China, that may become the potential market areas for
Starbucks.
Fourthly is the great potential of Chinese coffee market. According to
expert analysis, the Chinese coffee market will develop into the worlds
largest coffee market with increase at a rate of 30% per year. While the
Chinese market is still in complex situation, the market is far from
saturated. This market development and market structure brings
Starbucks huge profit expectations.

5.3.4 Threats
Firstly, increased competition. With the opening of the coffee market,
professional competitors begin to enter the Chinese market to seize their
market share., which results in competition for Starbucks, such as COSTA
from Italy.
Secondly, the Sino-US cultural conflict. Starbucks represents American
culture. It creates challenges for Starbucks on how to better reduce
cultural conflicts in a strong Chinese traditional culture.

33
Thirdly, the rise of the cost of raw materials. Chinas CPI is on the rise,
especially the rise in food prices puts pressure on Starbucks cost control
and profit margin.
Fourthly, the imbalance of regional development. Imbalanced regional
development creates peoples income differences, which challenges
Starbucks high price.

5.3.5 SWOT Matrix Analysis of Starbucks


The thesis uses the SWOT matrix to combine the above factors to get
appropriate marketing strategies.
TABLE 2. SWOT Matrix Analysis of Starbucks
INTERNAL
FACTOR

STRENGTHS

WEAKNESSES

Brand

Unstable product line

Coffee technology

Management problems of Starbucks chain


stores in China

Store location
Water down of experience, reduction of
Financial

service level

EXTERNAL

High price

FACTOR
OPPORTUNITIES

SO

WO

Chinas economic development is good

Expanded market share

Concentric diversification

Chinese law released the control of foreign

Brand extension

Direct sales

retail enterprises direct chain store


Brand crisis turnaround
Process of urbanization
Differentiation
Great potential of Chinese coffee market
THREATS

ST

WT

Increased competition

Differentiation

Product line shrinkage strategy

Sino-US cultural conflict

Public relations

Turn off unprofitable caf

Rise of the cost of raw materials

Price rising

Look for lower price suppliers

Imbalance of regional development

Flexible price system

34

According to the SWOT analysis, Starbucks should take the following


strategies.
I.

SO. Utilization strategy,

Starbucks should implement expanded market share and brand extension


strategies by combining Starbucks internal strengths and environment
opportunities.
II.

ST. Monitoring strategy,

Starbucks should implement differentiation, public relations, price rising


and flexible price system strategies by combining the Starbucks strengths
and environment threats.
III.

WO. Improvement strategy,

Starbucks should implement concentric diversification, direct sales, brand


crisis turnaround, differentiation strategy by combining Starbucks
weaknesses and environment opportunities.
IV.

WT. Eliminate strategy,

Starbucks should implement product line shrinkage strategy, eliminate


unprofitable cafs and look for lower price suppliers by combining
Starbucks weaknesses and environment threats.
According to SWOT analysis, the thesis suggests Starbucks to use of
marketing strategy of expanded market share, brand extension,
differentiation, brand crisis turnaround, public relations and concentric
diversification.

35
6

EMPIRICAL RESEARCH & ANALYSIS

The thesis uses quantitative marketing research as the main research


method and make a questionnaire to gather responses from customers.
Using of questionnaire is an effective way to collect customers reviews for
Starbucks. After considering questions in the questionnaire that will help
Starbucks know more about its customers, an online questionnaire survey
is put on the Internet and answered by people who participate in this
questionnaire. According to the feedback from customers and results of
the questionnaire, Starbucks can make improvements to its marketing
method and services.
The questionnaire consists of sixteen questions and all answers are kept
anonymous. The questionnaire is published on the Internet and Wechat
from 14 December 2015 to 18 December 2015, i.e. for five days.
According to the statistical result, there were a total of 113 participants that
completed the questionnaire. The following analysis and suggestions for
Starbucks is made based on the data collected from the questionnaire
survey.

6.1

Results Analysis of Questionnaire

The questions in the questionnaire can be divided into two parts. The first
part is about personal information of participants who answered the
questionnaire, such as age, gender, occupation and monthly income. The
second part is mainly about customers opinions and evaluation to
Starbucks in different aspects.

6.1.1 Personal Information of Participants


In this part, four pie charts are used to illustrate the respondents age
group, gender, occupation and monthly income. All of these four questions
can help Starbucks know more about its customers basic personal
information.

36

Q1:Age Group
1%
10%

1%
6%
Under 21
21-30
31-40
41-50
Over 50

82%

FIGURE 7. Age Group

In the questionnaire, 113 respondents participated. Most respondents are


21-30 years old, which accounts for 82%. On the contrary, respondents
over 41 years old is only 2%. So the main customer group of Starbucks is
young people aged 21-30, which means Starbucks is more popular among
young people.

Q2:Gender

41%
59%

Male
Female

FIGURE 8. Gender

The second question in the questionnaire is the gender of participants.


Female customers are the main customers for Starbucks, which accounts

37
for 59% of the total. To be specific, 67 female and 46 male completed this
questionnaire.

Q3:Occupation

Student

25%

31%

Worker
5%

9%
30%

Office employee
Self-employed businessman
Other

FIGURE 9. Occupation

According to the occupation of the respondents, the pie chart clearly


shows that self-employed business-people and others account for 60% in
total. In contrast, worker only accounts for 5%. Based on the data of
occupation, we can see that self-employed business-people are willing to
choose Starbucks. Since self-employed business-peoples work are
always busy and they need to meet their business partners quite often, so
Starbucks is a good place for them to have meetings and relax after their
busy work. Moreover, self-employed business-people in China have a
higher salary and the price level in Starbucks is much higher than other
caf, so Starbucks is much easily accepted by self-employed businesspeople.

38

Q4:Monthly Income (RMB)


Under 1000

13%
27%

1000-2000
15%

2001-3000
3001-4000

15%

18%
12%

4001-5000
Over 5000

FIGURE 10. Monthly Income (RMB)

Figure 7 clearly shows the monthly income of respondents. There are six
income levels and it shows in the pie chart, the income level of over 5,000
accounts for the largest proportion, which is 27%. The second largest
amount of respondents is from the income level of 2001-3000, which
makes up 18%. Based on the data concerning monthly income, we can
find that most people that choose Starbucks are middle class in China. So
Starbucks can set suitable price for its products and upcoming products
according to the income level of its main customers.

6.1.2 Customers Opinions and Evaluation


This part is about customers opinions and evaluation to Starbucks in
different aspects. There are 11 questions in this part, which consists of
customers purchase opinions, frequency of visiting, average cost and
evaluation about Starbucks food, environment, services and price level.

39

Q5:The first caf that comes to your mind


when you want to drink coffee
Starbucks
Maan Coffee

19%

UBC Coffee

4%
4%

Caffe Bene

6%

3%
1%

57%
6%

Zoo coffee
Costa
DIO Caf

FIGURE 11. The first caf that comes to your mind when you want to drink coffee

The seven cafs listed in Figure 8 are seven popular cafs in China. As
we can see from Figure 8, Starbucks has the largest proportion, which
accounts for 57%. 19% of respondents choose other cafs like some new
opening cafs. The data in question 5 shows Starbucks is still the first
choice for most people in China. This question helps Starbucks to know its
competitors in China and Starbucks can put more effort in marketing
research to attract more potential customers to visit.

Q6:The frequency of visiting Starbucks in


a month
12%

5%
0-2 times
3-5 times
More than 5 times
83%

FIGURE 12. The frequency of visiting Starbucks in a month

40
Figure 9 clearly shows that 83% of respondents visit Starbucks up to two
times per month. Respondents visiting Starbucks 3-5 times makes up 12%
and customers visit Starbucks more than five times accounts for only 5%.
As coffee is still on the way to becoming popular in Chinese peoples daily
lives, so customers who visit Starbucks more than three times are loyal
customers for Starbucks. Starbucks can provide more discounts and
activities for loyal customers to attract them to visit Starbucks more often.

Q7:Average amount during one visit in


Starbucks (RMB)
9%
11%

35%

Under 50
50-100
100-150

45%

More than 150

FIGURE 13. Average consumption amount during one visit in Starbucks (RMB)

Question 7 is about average money amount a customer spends during


one visit at Starbucks. Nearly half of respondents spend 50-100 RMB
during one visit. Following are respondents who spend under 50 RMB
during one visit, which accounts for 35%. On the other hand, only 9% of
respondents spend more than 150 RMB during one visit. So Starbucks
can offer more set meals with combines such as food and drink that cost
around 100 RMB.

41

Q8: Price level of Starbucks


1%
4%
Very expensive
Expensive

46%

Average

49%

Cheap

FIGURE 14. Price level of Starbucks

In Figure 11, respondents opinions about the price level of Starbucks for
expensive and average accounts for almost even. Only 1% of the
respondents believes the price level of Starbucks is cheap. The results of
question 8 can effectively help Starbucks to make some changes in its
further practices.

Q9:The way to know Starbucks


35

Others' recommendation
19

TV
Internet

43

Advertisement

28
21

Movies
Others

55
0

10

20

30

40

50

60

FIGURE 15. The way to know Starbucks

Question 9 is a multiple choice question so respondents can choose more


than one option. Figure 12 shows that 55 respondents know Starbucks
from other channels, which accounts for the biggest part of the total. There

42
are 43 people that choose the Internet as a way to know Starbucks and 35
people know Starbucks through others recommendations. But there are
only 19 respondents who know Starbucks from TV. This bar chart helps
Starbucks to know its advertisement strategy in its future.

Q10:Reasons to choose Starbucks


Prie

3
33

Taste

61

Good environment and atmosphere


18

Good service
Location

26

Other

30
0

10

20

30

40

50

60

70

FIGURE 16. Reasons to choose Starbucks

Question 10 uses a bar chart to illustrate the reasons people choose


Starbucks. More than half of the respondents choose good environment
and atmosphere as being the reason to choose Starbucks. There are 33
people that prefer the taste of Starbucks and 26 respondents are satisfied
with the location of Starbucks. Moreover, only three participants selected
price as the reason to choose Starbucks.

Q11:Personal taste of food in Starbucks


22%

Espresso

9%

Frappuccino
30%

6%
33%

FIGURE 17. Personal taste of food in Starbucks

Coffee
Tea
Other

43
This question is about customers personal preference of food in
Starbucks. It can be seen from Figure 14 that coffee and Frappuccino are
the two most popular drinks in Starbucks and it accounts for 63% of the
total. There are 22% respondents that chose other foods such as bread
and dessert as their favourite food at Starbucks. Last but not least, there
are 9% of the respondents like to order Espresso and 6% of respondents
prefer tea at Starbucks.

Q12:RESPONDENS' SATISFACTION TO
THE ENVIRONMENT OF STARBUCKS
Satisfied

Average

Unsatisfied

71%

DECORATION

29%

TABES AND CHAIRS

64%

35%

RESTROOM

65%

32%

WAITING AREA
ATMOSPHERE
WAITERS UNIFORM

51%

46%

57%
68%

0%
1%
4%
3%

42%
31%

1%
1%

FIGURE 18. Respondents' satisfaction to the environment of Starbucks

The bar chart in Figure 15 displays respondents satisfaction to the


environment of Starbucks. Respondents could choose satisfied, average
and unsatisfied to state their satisfaction to the basic facilities in Starbucks.
The bar chart in question 12 shows that more than half of the respondents
were satisfied with Starbucks decoration, tables and chairs, restroom,
waiting area, atmosphere and waiters uniform. There were no respondents
that were unsatisfied with the decoration in Starbucks. In contrary, there
are 46% of respondents and 42% of respondents that think the waiting
area and atmosphere are average, which will help Starbucks improve its
waiting area environment in its future development.

44

Q13:RESPONDENTS' SATISFACTION TO
THE FOOD AND DISHES IN STARBUCKS
Satisfied

Average

Unsatisfied

76%

FRESHNESS OF THE FOOD

24%

69%

TASTE OF DRINK

31%

66%

TASTE OF DESSERTS

0%

32%

80%

STARBUCKS DISHES

0%

2%

19% 1%

FIGURE 19. Respondents' satisfaction to the food and dishes in Starbucks

Respondents need to give their evaluation to the food and dishes in


Starbucks in question 13. According to Figure 16, an average of 70% of
respondents are satisfied with the freshness of the food, taste of drink,
taste of desserts and dishes at Starbucks. Even more strikingly, 80% of
respondents like the Starbucks dishes. However, there are still 1% of the
customers who are unsatisfied with Starbucks dishes and 2% of
respondents do not like the taste of the desserts at Starbucks. This bar
chart in Figure 16 offers Starbucks a future development idea so to
continue providing good food and dishes.

Q14:RESPONDENTS' SATISFACTION TO
SERVICES IN STARBUCKS
Satisfied

Average

Unsatisfied

WAITING TIME BEFORE FOOD

68%

29%

3%

COMMUNICATION CAPABILITY OF WAITERS

70%

27%

3%

WAITERS' ATTITUDE TO CUSTOMERS

73%

23% 4%

61%

WAITING AREA SERVICES

69%

RECEPTION SERVICE
PROMOTIONAL ACTIVITIES
TAKE AWAY SERVICE

37%

39%
51%

FIGURE 20. Respondents' satisfaction to services at Starbucks

28%
57%
47%

2%
3%
4%
2%

45
In question 14, respondents are asked to give their evaluation to services
at Starbucks. All of the seven services are used in all Starbucks cafs in
China. The data in Figure 17 shows that the waiters attitude to customers
is the best service to customers, which accounts for 73%. The reception
service and waiting time before food service are also good service
considered by respondents, which takes up about 70% of the respondents
satisfaction. However, promotional activities provided by Starbucks only
makes up 39% being satisfied. Thus Starbucks should increase their
promotional activities in its future marketing activities.

Q15:Overall evaluation to Starbucks


0%
1%
21%

21%

Very good
Good
Average
Bad

57%

Very bad

FIGURE 21. Overall evaluation to Starbucks

Question 15 is to find out the overall respondents evaluation of Starbucks.


According to the pie chart in Figure 18, most customers choose good to
the evaluation of Starbucks, which takes up 57%. The proportion of
average and very good are even whether each accounts for 21% of total.
Last but not least, there are only 1% respondents that choose very bad to
evaluate Starbucks. Although 1% is a very small proportion, Starbucks still
needs to pay attention and make improvements to do better in future
marketing activities.

46

Q16:Starbucks can do better


Discount and promotion
7%
8%
39%

Types of food and taste of


food
Service enthusiasm

17%

Location
29%

Other

FIGURE 22. Starbucks can do better

The last question of the questionnaire asks about in which way Starbucks
can do better. The pie chart in Figure 19 illustrates that Starbucks needs to
have more discounts and promotion, which accounts for 39%. Following is
the types of food and taste of food, which takes up 29% of total. As
mentioned before in Figure 11, the price level at Starbucks is expensive,
so it needs to do more promotional activities. And Starbucks also needs to
improve its types of food and taste of food to let it suit better for the
Chinese people.
In summary, the analysis of a questionnaire is a good way for Starbucks to
know more about its customers and is beneficial to Starbucks to realize
what marketing strategies and improvements it needs to do better.

47
7

STARBUCKS MARKETING STRATEGIES

This chapter will use marketing mix 7Ps to analysis marketing strategies
for Starbucks.

7.1

Determine Target Market of Starbucks

There are three methods to determine target market of Starbucks: market


segmentation, target market selection and market positioning strategy.

7.1.1 Market Segmentation


I.

Segment consumer market by geographic.

Megalopolis in China: Beijing, Shanghai.


Southeast coastal economically developed cities in China: Hangzhou,
Suzhou, Guangzhou, Ningbo, Qingdao, Shenzhen.
Inland China relatively developed cities in China: Xian, Chengdu,
Chongqing, Dalian, Shenyang.
II.

Segment consumer market by population.

Lower educational segments with no university education and well


educated segments with university education.
III.

Segment consumer market by behavioural.

Coffee lovers: They drink coffee regularly, have higher requirements with
coffee quality and are willing to learn coffee knowledge and culture.
Random coffee consumers: They drink coffee occasionally and coffee is
not their lives essential drink. They do not have understanding of coffee
knowledge. They tend to prefer the caf atmosphere more than the coffee
itself. They buy coffee because of recreational or social needs.

48
Coffee excluder: They refuse coffee and rarely choose coffee when they
go to a caf. They would rather choose tea or other drinks instead of
coffee.

7.1.2 Target Market Selection


The target market of Starbucks in China is the megalopolis, southeast
coastal economically developed cities and inland Chinas relatively
developed cities. Most of Starbucks consumers are people with higher
education, upper-middle class with higher income, coffee lovers and
random coffee consumers. Starbucks should implement differentiation
market strategy to provide differentiated products and service for different
sub-markets. For coffee lovers, Starbucks should provide ground
Espresso and other coffee drinks with the finest quality coffee beans to
fulfil their pursuit of coffee inherent quality and discerning taste. For young
people whose pursuit is fashion, Starbucks should provide Frappuccino to
fulfil their pursuit of fashion and being cool. For consumers who prefer to
experience Starbucks, Starbucks should provide great music, exquisite
taste decoration, large comfortable sofas, wireless Internet access and
other services to increase consumer demand for experience besides
coffee. Starbucks implementation of differentiation strategy customizes
different products and services for different market segments, which can
better expand the sales and meet different consumers demand.

7.1.3 Market Positioning Strategy


I.

Starbucks Experience,

Starbucks Experience is the combination of romance, luxury that the


middle class can afford, a spiritual oasis and relaxed social events.

49
II.

The Third Place,

Starbucks positions itself to be The Third Place except home and working
place. The goal of Starbucks is to provide a fresh and fashion style social
place for Chinas upper middle class.
III.

Coffee Expertise,

We can use Starbucks as the voice of coffee to spread coffee culture and
knowledge. We can show expertise of Starbucks coffee through educating
target customer groups with high quality coffee.
IV.

Passionate Staff,

We can establish a partner team full of passion by continued spreading of


Starbucks experience and positive image of Starbucks brand.
V.

Enthusiasm to Improve the World,

Starbucks believes and advocates to promote a virtuous circle with a good


start, which is reflected in its relationship with customers, employees,
suppliers, government department and social relationship.

7.2

Product

First of all, it is to achieve differentiation of product and service, form


customer loyalty, so that customers feel greater value to pay a higher
premium of a Starbucks product. Starbucks provides tangible products
such as coffee as well as an intangible spiritual experience. Starbucks
fanatical pursuit of experience creates Starbucks brand positioning. It is
difficult to imitate customers unique emotional feeling and psychological
sensation when they consume Starbucks products. This brings customer
loyalty as well as benefits. Because it is difficult to imitate and copy, it
forms the core competitiveness for Starbucks.
Secondly, Starbucks as a coffee industry leader, its product innovation
strategy is very important. When a successful brand develops to a certain

50
extent, it is bound to be imitated. Thereby, through continuous product
innovation strategy, Starbucks can maintain a sustainable competitive
advantage. Starbucks turns coffee from a normal drink to life taste.
In addition, Starbucks might consider product brand extension strategy to
make Starbucks coffee sell in supermarkets, which heirs ready to seize the
drink coffee market. But Starbucks should be careful with brand extension
strategy. The thesis suggests that Starbucks can consider the primary and
secondary brand extension strategies. The primary and secondary brand
refers to a corporate with a variety of products. At the mean time all
products have a unified brand, Starbucks should name products according
to each products different features. This avoids the brand image desalting
problem and product positioning confusion problem which is caused by
single brand extension. (Dao, 2006.)
Thirdly, Starbucks is implementing its product management diversification
strategy as well as its rapid expansion. Starbucks tried to run bookshops
and restaurant before, but all ended in failure. This is because all these
businesses do not have good correlation with Starbucks original core
competence and resource. It will lead to failure to implement diversification
or brand extension strategy when the correlation with core competence is
small. Blind diversification will bring brand positioning confusion and
corporate resource waste to the company, which causes reduced
corporate brand value. (Zhang, 1998.) As Marketing Professor, Barbara E.
Kahn states, mature developed companies, considered to have special
customer positioning companies, are often in trouble when they attempt to
attract other clients. For the current instability product line of Starbucks,
the thesis recommends that Starbucks does not leave its core strengths
which is based on the experience of the coffee when implementing
diversification.

7.3

Price

There are six steps for Starbucks to set price.

51
I.

Select pricing objective,

As a profit-oriented enterprise, Starbucks choose product quality as an


objective when it first entered the Chinese market. With the changes in the
competitive environment, Starbucks now began to choose a pursuit of
sales growth and market share as an objective. As a unique cultural
marketing company, Starbucks pricing objective is more on a
psychological level. Starbucks wants more than just the coffee, they want
a network or an exclusive club. Thus, the result of pricing is a long-term
pursuit of high profit.
II.

Identify needs,

Starbucks target customers price sensitivity is low and price demand


elasticity is small. Due to the Chinese market being the cultivation stage,
even having coffee prices falling significantly, will not attract more people
to buy coffee.
III.

Estimate cost,

Starbucks operating costs in China is relatively easy to estimate. It mainly


consists of two parts. One part is the trade and transport costs, which is
relatively easy to control because the main raw materials are imported
from the Starbucks US headquarter. Another part is the rent and labour
costs. Rent is occupying an important position to Starbucks. When
Starbucks opens a caf, it will put the rent as an important factor in
calculating the return on investment. Due to the uniform pricing strategy
and limited price upsides in China, Starbucks pricing in China needs to
refer to the target cost management to control the cost within a reasonable
range.
IV.

Analyse cost of competition and price,

Starbucks competitors have lower prices than Starbucks on pricing, so


Starbucks needs more research on how to provide differentiated service
experience to customers to maintain its high pricing.

52
V.

Select pricing method,

Starbucks pricing is based on customers perceived value of the product.


As mentioned earlier, Starbucks implements different strategies to meet
customers need in different customer segments. Starbucks uses different
Starbucks experience to enhance its value, which makes Starbucks
possible to sell its coffee at a higher price.
VI.

Select the final price,

Starbucks uses psychological pricing. Starbucks takes price as quality,


taste and upscale as indicators to meet its target customer features, the
companys culture and value system. A cup of Starbucks coffee in China is
4-6 dollars, because Starbucks has a coffee culture that can be
experienced nowhere else. Starbucks takes psychological pricing by using
coffee culture connotation and experience connotation to cultural
consumers.
Pricing strategy is inseparable from the analysis of target market segment.
Starbucks coffee pricing is high because Starbucks choose people with
higher income, pursuit of taste and fashion, mainstream middle class as
target group. And Starbucks offers fine coffee culture, perfect Starbucks
experience, comfortable third place positioning fulfils its target group. So
the high pricing fits its selected target market.
Starbucks high pricing is inseparable from its Starbucks experience it
brings to customers. When customers buy coffee, they also buy an
experience and a way of life. But at the same time, with Starbucks
expansion, Starbucks encounters crisis of desalination of Starbucks
experience, which leads to its high price positioning being doubted. So
Starbucks should be concerned about the experience and service it gives
to customer as well as expansion. This service and experience is a
powerful anchor for its high pricing positioning.

53
7.4

Place

This sub-chapter will introduce place strategies for Starbucks. There are
basically two place strategies: direct sales mode strategy and location
strategy.

7.4.1 Starbucks Direct Sales Mode


Firstly, the way of place expansion. Starbucks refuses franchising because
the unique Starbucks experience and service standards is difficult to
implement in its franchisees stores. Starbucks high price is actually due to
its brand success. Behind the brand are the people doing business.
Starbucks strictly demand its operators to agree with the companys
philosophy and values and emphasize consistency of service and quality.
But investors franchisee may only use Starbucks as a way to make
money. So Starbucks is not open to franchising because Starbucks wants
to do better control on its quality. Franchisee utilitarian approach will hurt
the brand of Starbucks, so Starbucks does not the implement franchising
development method.
Secondly, when Starbucks entered China, due to legal restriction on
foreign retail business, the way of Starbucks entered China was to grant
power of attorney to a Chinese enterprise that occupies a certain share.
Starbucks granted Hong Kong and Guangdongs power of attorney to
Hong Kong Maxims Group, Taiwan, Jiangsu, Zhejiang, Shanghais power
of attorney to Taiwan Uni-president Group, Beijing, Tianjin and northern
Chinas power of attorney to overseas venture capital firm, which is HandQ
Asia Pacific and Beijing Sanyuan Group. These two companies
established Beijing Mei Da Coffee Co,.Ltd.
The way of doing this is partly because Chinese law does not allow foreign
retail business to have single proprietorship in China. It is also a way of
Starbucks to avoid business risks. But this way weakens Starbucks
control and forms a situation of less independences. With the opening of
Chinese law to full liberalization of foreign retail industry, Starbucks began

54
the approach of buying back shares and to become a wholly owned
company in China in order to better implement control. Since 2003,
Starbucks began to acquire its equity franchise in China and Starbucks
raised its cafs stake in Shanghai and Taiwan to 50%. (Starbucks 2015.)
The advantages of direct marketing mode are to ensure the coffee quality,
employees quality in the cafs and corporate culture. It is because of a
direct marketing strategy, Starbucks can quickly establish its brand in
China and screen itself out from other cafs in China. In order to
guarantee Starbucks Experience that Starbucks bring to customer,
Starbucks has a set of unique values and of corresponding management
system, which is difficult for its alliance business to copy. When Starbucks
first entered China, a joint venture of Starbucks just copied the external
manifestation of the firm culture and did not reach the requirements of
Starbucks. So Starbucks culture and management system determines its
direct sales mode.

7.4.2 Location Strategy


For Starbucks, the business districts success is the key for its rapid
development and also its response to a place expansion strategy of
competition. For a caf, a good place is a kind of competitive resource. If
the Starbucks opens its caf in the busiest section of town, there is no
space for its competitors.
Starbucks caf selection mode is more decided by local Starbucks. The
general place selection process is divided into two stages: the local
Starbucks audit and Starbucks headquarter audit. The local Starbucks
selects of place according to the local characteristics and sends the place
data to the Starbucks headquarter in the Asia Pacific to assist them to
evaluate it. Starbucks global company will provide some standardization
data and tables to be the main criteria for measuring the place. These
standardized data are often analysed from the local Starbucks database.
In fact, the places main decision is in the hands of local Starbucks. Local
Starbucks has a separate expansion unit responsible for the choice of

55
place, including the choice of the place, investigation, design and
instrumentation equipment. Of course there is of constraints agency to
access the local work.
Starbucks positioning determines its location is generally in the heart of
the downtown with many visitors, such as business centre and transport
hubs, which helps customers find Starbucks anywhere. The maturity,
stability and growth of business district are important factors for Starbucks
to consider. Starbucks also breaks the basic business rule of hot repeated
shops within a hundred metres radius. Starbucks opens a number of cafs
in one area to provide more convenience to customers and implement its
expansion strategy. More intensive space occupation is difficult for its
competitors to intervene, which is better to respond to competition.
However, Starbucks place expansion strategy of intensive store openings
is to better respond to competition but brings huge pressure on cash flow.
In the economic boom circumstance, this expansion strategy can help
companies better occupy the market. But in the economic recession, there
exists great risk. So Starbucks place expansion strategy should fit the
overall development of the Chinese economy. When the Chinese
economy in general works well, but the growth rate slows, Starbucks in
China should have steady expansion. In recent years, Chinas urban
housing and rents continue to rise. Starbucks cafs in China basically rent
and do not have property ownership. Starbucks store rent is a huge part in
its operating costs. Especially for Starbucks located in a prime location,
this rent cost is much higher. In recent years, Chinas commercial real
estate rental price has been soaring, and in the long run, with Chinas
economic development, commercial real estate rental price is increasing.
From the perspective of rent, Starbucks operating costs is on the trend of
increasing, which will bring a lot of pressure to control Starbucks operating
cost and bring risks and uncertainty to future profitability. In order to meet
Starbucks expansion strategy in China, Starbucks can consider the
strategy of McDonalds. McDonalds has real estate business besides
selling hamburgers. After McDonalds investigation of an appropriate place
to open its store, it will buy out the property and lease to franchisees that

56
have McDonalds license to operate. Because] of McDonalds strong
brand, there is a big increase in the land price after it opens its store,
which brings great profit to McDonalds. Starbucks is one of World Top
100 Brands, its brand will give added value to bring positive effects of real
estate. So Starbucks can consider real estate strategy to achieve a stable
place expansion strategy.

7.5

Promotion

There are basically two ways of promotion. The following text will introduce
advertising and limited sales promotion.

7.5.1 Advertising and Word of Mouth


Eugene W. Ander Son, from University of Michigan, believes that word of
mouth is informal spread of individual views on products and services,
which includes positive and negative point of views. But it is not like a
formal complaint or appreciation to the company. In short, word of mouth
is the information about the credit and trustworthiness of an organization,
management method, products, and services. It can be spread from one,
but it is the result of long-term business efforts. Good corporate reputation
is the fundamental guarantee for companies to attract customers in longterm. (Jin & Lin 2005.)
Word of mouth is the main way for Starbucks promotion. Corporate
influence expansion needs to rely on spread. The traditional way of spread
is advertising, but Starbucks invests very little on advertising. In the past
two decades, Starbucks investment in advertising costs less than one
million dollars per year. Starbucks develops into Global Top 100 Brand
almost without advertising, which is benefited by word of mouth strategy.
First of all, Starbucks word of mouth begins between its employees. The
employees are regarded as assets of Starbucks. They are Starbucks
sales-people and educators. They effectively promote Starbucks brand
image. Starbucks believes that it should bring the effect to its employees

57
before it brings the enthusiasm and Starbucks cultural values to its
customers. Starbucks employees promotion mode is similar to the
transmission mode of religion. Starbucks uses internal marketing to its
employees to make its employees become the source of word of mouth.
Starbucks is a service brand that mainly sells coffee, the service brand
value is provided by people and is decided by peoples feelings and
experiences. It is easier to get consumers recognition by Starbucks
employees friendly explaining of professional service knowledge, which
forms the word of mouth. Starbucks transfers the budget savings from
advertising promotion to the employees benefits and training, which
maximizes its employees enthusiasm. It is good for Starbucks to provide
better service quality and form a virtuous cycle of word of mouth.
Secondly, Starbucks word of mouth focuses on each customer that has
experienced from Starbucks. The customers pleasant experience at
Starbucks will let them tell their experience to people around them, which
is free advertising for Starbucks. Compared with commercial advertising,
word of mouth is not for profit, but advertising is for the purpose of profit.
Especially in the flood of information, the intensity of advertising is much
higher than the affordability that consumers are able to receive. In this
situation, advertising will lead to consumers psychological boredom and
rejection and advertising does not gain profit. Word of mouth strategy is to
spread the experience after consumption between familiar people, so word
of mouth can better promote consumer buying behaviour. Starbucks
focuses on every detail in that service process to provide customers with
high-quality service to get customers satisfaction and customers loyalty,
which provides the foundation of Starbucks word of mouth advertising.
Thirdly, another way of Starbucks word of mouth is to select the crowd
opinion leaders or consumer groups who are willing to preach new things
to let them understand the benefits of Starbucks products and service.
Once they enjoy Starbucks products and services, they will become
compulsory advocates of Starbucks products. Starbucks regularly
organizes coffee classroom activities to its customers to help them
understand coffee knowledge, identify coffee and taste coffee. This activity

58
can help the intimacy and understanding between Starbucks and its
customers, which also helps customers communicate with each other and
exchange their Starbucks experience. Starbucks uses these purposeful
word of mouth strategies to diffuse its brand reputation.

7.5.2 Limited Sales and Charity


Starbucks occasionally or seasonally forms promotions by limited sales.
The limited sales consist of limited edition cups, seasonal coffee and
festival dedicated modulation integrated coffee. These limited sales
products are a good choice to send to friends and family. Limited sales
give commodity special significance. The limited sales are relatively
scarce, so it increases its values. The way of limited sales improves
Starbucks high-end brand image.
Starbucks often organizes or sponsors charity events like actively
participating in community activities and sponsors poor orphans to narrow
its distance with consumers. This helps Starbucks to establish a good
corporate image and use good corporate images to influence consumers.
The consumers can separate Starbucks from other cafs, which enhances
the visibility of Starbucks and the corporate image.

7.6

People

People is the most important factor in service. People means all personnel
involved in service, which includes employees, customers and other
customers in service environment.
Firstly, Starbucks uses stock options strategy which greatly stimulates the
enthusiasm and creativity of employees. Starbucks success comes from
revolutionary stock options programme that Schultz implements at
Starbucks. Starbucks offers stock options programme coffee beans stock
to all its employees, including part-time employees. With the establishment
of Greater China, Starbucks also began to implement stock options
programme in China. According to 2006 fiscal coffee beans stock options

59
programme, the employees who have the right to operate at Starbucks,
whether full-time or part-time can enjoy this benefits as long as they joint
company before 01 April 2006 and have 20 hours work weeks (Best
Welfare Company 2015). Every employee becomes a partner through this
programme which links every employees performance with the companys
performance. According to these incentive ways, Starbucks turns its
employees to companys partner, which greatly stimulates employees
enthusiasm. So passionate creative employees can provide better quality
service to every customer.
Secondly, Starbucks success comes from its emphasis on the training of
employees. The employees become experts with knowledge of coffee
through training, which makes employees communicate well with
customers and becomes ambassador to disseminate coffee culture and
knowledge. In 2001, Starbucks conducted a total of 1.9 million hours of
training. This means that every Starbucks employee has to accept one
hour of training every day (Starbucks 2015). Every well-trained Starbucks
employee becomes the coffee industry benchmark through coffee
knowledge and dissemination of Starbucks culture.
Furthermore, because of the high-end positioning of Starbucks, the overall
quality of Starbucks customers are relatively high. Because of Starbucks
high price and high quality, it attracts high income people with relatively
high quality. In Starbucks suggestive environment, customers get along
with each other in harmony and pleasant atmosphere. So the Starbucks
third place positioning provides a good happy human interaction between
customers, which strengthens the consumer experience and helps
customers long-term consumption with loyalty.
Employees are an important asset for Starbucks. Employees are always
full of passionate attitude to serve customers under incentive of generous
welfare policy, which provides the most important source and guarantee to
establish good customer relationship and beat other competitors.

60
The thesis argues that the current crisis of Starbucks is its changes in the
human resources strategy. With rapid expansion of Starbucks, there
appears to be a loophole in its management of human resources strategy.
It is not as strict as before on its hiring and employees training, which
leads to the problems of service level drop during the Starbucks
expansion process. The high-quality staff is always the most important
competitive resource for Starbucks. So Starbucks has to increase training
for employees to ensure consumer satisfaction. If the service cannot keep
up, it will result in the loss of customers. It becomes a weakness that is
easy for its competitors to enter. Starbucks should re-adjust its business
resource to deploy more resource on staff training while expanding.

7.7

Process

Process refers to actual process, mechanisms and workflow that is


provided by service (Zeithaml 2004). Starbucks takes standardized
management mode on each Starbucks caf. Starbucks is taking the
direct-sale store mode and only accepts companys joint venture. In order
to ensure that each Starbucks caf uses standardized procedures,
Starbucks refuses individuals to join. The standardization is clearly defined
standards of work in the chain work process, which facilitates staff training.
Every employee of Starbucks has a staff operating manual on codes of
conduct and standards of service processes. All employees have to follow
this manual to complete their work. This can help employees to note every
detail in the service process. For example, the waiting time of customers in
receiving their coffee after the ordering should not exceed one minute
thirty seconds. So when there is changes in employees, Starbucks can
use this manual to make new employees quickly get into working
conditions.
Starbucks provides self-service in their cafs. Customers can find a place
to rest after the ordering and when they hear the waiters call them, they
can go to get their orders. Customers can take what they need in the
seasoning supplies and utensils. The self-service reduces the waiting time

61
pressure of customers, increases customer control and customers can
fully enjoy more freedom.
Starbucks also provides customers with a more personalized service
besides the standardization. Starbucks employees make their service
skills standardized and humane through their training of basic etiquette,
sales skills and coffee knowledge. During the service process, Starbucks
employees should not only demonstrate expertise but also reveal a nature
of being kind and passion of that they want. They should meet the
customers individual needs and deeper emotional needs by providing
special service to customers as well as interaction with customers. This
personalized emotional service process is an important part to bring the
Starbucks experience to customers.

7.8

Physical Evidence

Physical evidence refers to environment provided by service, place for


enterprise contact with its customers and tangible elements of
performance and communication (Zeithaml 2004).
Starbucks logos background is in dark green. Starbucks brand name
come from a sailor named STARBUCK in an American novel Moby Dick.
STARBUCK is a coffee lover and a very characterful meaningful person.
The middle of Starbucks logo is a goddess Sirens from ancient Greek
mythology, who likes to confused sailors with wonderful songs with human
body and fish tail. This implies Starbucks coffee is very attractive.
Starbucks conveys values of romantic experience and dedicated coffee
culture by combining this tangible element.
On the basis of brand image consistency, Starbucks emerges with a
unique style in every Starbucks caf. The caf designed mostly from US
headquarters and will integrate local culture and shopping district features,
which makes sure that each of Starbucks caf has a different personality
in a unified style and beauty. Starbucks is unlike McDonalds, each of

62
Starbucks cafs different design styles fulfil emotional needs of aesthetic
environment for fashion people.
The Starbucks coffee bag is also carefully designed. Starbucks has a
different packing design for each type of coffee. Each type of coffee has its
own mark, portrait, theme colour and graphics. It shows the diversity and
variability in the basic unity of artistic style.
Starbucks employees are young men and women with casual clothes,
which brings energy and happiness to customers. This dressing is a
tangible demonstration and conveys a relaxed lifestyle and pursuit of
elegant culture.

63
8

CONCLUSION & SUGGESTIONS

This chapter will conclude all the findings and results by answering
research questions. Moreover, this chapter illustrates the validity &
reliability. Last but not least, this chapter also makes suggestions for
further research.

8.1

Answers to the Research Questions


I.

What problems does Starbucks currently encounter?

Over the past decade, Starbucks brand value has reduced because of its
pursuit of financial figures and rapid expansion in the world, which is very
dangerous. There are three problems that Starbucks is currently
encounter. The first aspect is the desalting of Starbucks experience. With
the rapid expansion of Starbucks, the customer experience that Starbucks
bring to declines directly, which affects the Starbucks core competence.
The second aspect is degradation of service quality makes Starbucks is
developing in the direction to a way of cheaper chain store. The third
aspect is loss of business culture.
II.

What opportunities does Starbucks have in Chinese market?

The first opportunity is Chinas economic development is good. The


second opportunity is since 2005, Chinese law released the control of
foreign retail enterprises direct chain store. The third opportunity is the
process of urbanization and the fourth opportunity is the great potential of
Chinese coffee market.
III.

How does Starbucks carry out its marketing strategies in China?

The thesis applies marketing mix 7Ps, SWOT and STP analysis tool to
analyse Starbucks marketing strategies in China. The thesis suggests
Starbucks to use marketing strategy of expanded market share, brand
extension, differentiation, brand crisis turnaround, public relations and
concentric diversification to carry out its marketing strategies in China.

64
IV.

Main research question: How can Starbucks develop its


business in China with its marketing strategies?

The analysis of questionnaire is a good way for Starbucks to know more


realistic and comprehensive information about its customers and is benefit
to Starbucks to realize what marketing strategy and improvement it needs
to do in its future marketing development. After the analysis of the
questionnaire, the author lists some suggestions for Starbucks to help it
have better development.
Firstly, based on the data of the research, most customers of Starbucks
are between 21 and 30 and most of them are office employees and selfemployed business-people. Because these two types people prefer to
have meetings and relax after their busy work, so Starbucks can cooperate with more companies and provide separate rooms for business
meeting coffee break.
Secondly, according to the research result, 57% respondents will choose
Starbucks when they want to have a cup of coffee. The result of research
reflects that most of the customers prefer to order coffee and Frappuccino
and many customers will spend 50-100 RMB during one visit. Based on
this data, Starbucks can set more set meals with combines such as food
and drink that cost around 100 RMB and provide more discount and
activities for loyal customers to attract them to visit Starbucks more often.
Moreover, students are also another big group of Starbucks customers, so
Starbucks can offer discounts for students which is also a promotional
activity for itself.
Thirdly, the result of research reflects that the waiting area environment
need to be improved and customers don't want to spend much time on
ordering the food. Starbucks can offer pre-order service by using its mobile
application that customers can pre-order coffee on its mobile application
and do not have to wait.
Fourthly, according to the research result that good environment and
atmosphere is the most important factor that affects customers to choose

65
Starbucks. Most customers choose coffee or Frappuccino during their visit
at Starbucks. It is not enough for Starbucks to provide good environment
and atmosphere, it is also important that Starbucks need to improve its
types of food and taste of food to let it suit better for Chinese people.
Finally, it can be found from the research analysis that large number of
customers know about Starbucks from the Internet and others
recommendation. Based on this, Starbucks can integrate its business into
Internet marketing. Nowadays, online marketing is very popular among
young people in China, especially the Wechat. For this reason, Starbucks
can use its official account on Wechat to put its advertisement and
promotional activities. Customers can look for the nearest Starbucks on
Wechat, make order online and pay their orders on Wechat. Customers
can also contact online customer service to leave their comment and
suggestions.

8.2

Reliability & Validity

All of the data and information in the thesis are collected through books,
published journals and e-resources. The questions in the questionnaire
are company-based and all the answer from questionnaire are valid and
reliable because the respondents do not hesitate to tell their true feelings
as all answers are remained anonymous. Moreover, the analysis result
from questionnaire is matching with the analysis of Starbucks company.
So all in all, the research is reliable and valid and the analysis results can
help Starbucks in its future marketing development.

8.3

Suggestions for Futher Research

One big suggestion for the thesis is the questionnaire can have more open
questions that participates can write more feelings about themselves. The
questionnaire would give a company more information about customers if
more open questions in it and more participates participated in. According
to more data collected from questionnaire, the company can make more
accurate marketing strategies for its future development.

66
9

SUMMARY

With the expansion in demand of Chinas coffee market, more and more
coffee enterprises have entered Chinese market. Starbucks, as the leader
in coffee industry, its unique marketing model has brought enormous
success. Starbucks has created a coffee empire and defined the coffee
industry standards. The success of Starbucks is worth studying by other
companies. Starbucks also encountered crisis during the expansion, which
is also deserves attention by other companies.
The thesis sums up Starbucks marketing strategy and tactics through an
objective analysis of Starbucks internal and external environment and
analysis of Starbucks opportunities, threats, strengths and weaknesses.
The study points out that the core corporate value of Starbucks is based
on customers experience which forms core competencies that is difficult
for competitors to imitate. Starbucks brand is the extension of its values
and culture.
The thesis sums up Starbucks core marketing strategy as an experience
marketing strategy. In todays high-speed economic growth in China, more
and more Chinese accept western culture with an open mind. So the
Starbucks experience marketing strategy is very worth studying.
Of course, Starbucks development in China also face some problems,
such as the failure of diversification, brand value and core competitiveness
reduced by rapid expansion. The thesis tries to propose strategy to
reverse these problems and will continue to focus on the future
development of Starbucks.

67
REFERENCES
Written References
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APPENDICES
APPENDICES 1. Questionnaire for Starbucks customers

Dear customer,
I am a college student who is currently studying International Business
degree program at Lahti University of Applied Sciences in Finland. I am
doing a research on marketing analysis of Starbucks for my thesis. The
purpose of the questionnaire is to collect and analysis the feedback from
customers, and make marketing suggestions to improve customer
satisfaction for Starbucks.
Your answers and suggestions will help Starbucks to improve the quality
of its services. The survey will take you for 5 to 10 minutes to complete
and all participants will remain anonymous.
1Age group.
Under 21
21-30
31-40
41-50
Over 50
2Gender?
Male
Female
3Occupation?
Student
Worker
Office employee
Self-employed businessman
Other
4Monthly income? (RMB)
Under 1000

1000-2000
2001-3000
3001-4000
4001-5000
Over 5000
5What is the first caf that comes to your mind when you want to drink
coffee?
Starbucks
Maan Coffee
UBC Coffee
Caffe Bene
Zoo coffee
Costa
DIO Cafe
Other
6How often do you visit Starbucks in a month?
0-2 times
3-5 times
More than 5 times
7How much do you spend during one visit? (RMB)
Under 50
50-100
100-150
More than 150
8What do you think about the price level of Starbucks?
Very expensive
Expensive
Average
Cheap
9How did you know Starbucks? (multiple choice)
Others recommendation
TV
Internet
Advertisement
Movie
Other

10What made you to choose Starbucks? (multiple choice)


Price
Taste of food
Good environment and atmosphere
Good service
Location
Other
11What kind of food do you prefer to order at Starbucks?
Espresso
Frappuccino
Coffee
Tea
Other
12Evaluate customer satisfaction to the environment of Starbucks.
Satisfied Average Unsatisfied
Decoration

Tables and chairs

Restroom

Waiting area

Atmosphere

Waiters uniform

13Evaluate customer satisfaction to food and dishes at Starbucks.


Satisfied Average Unsatisfied
Freshness of the food

Taste of drink

Taste of desserts

Starbucks dishes

14Evaluate customer satisfaction to services at Starbucks.


Satisfied Average Unsatisfied
Waiting time before food

Waiters attitude to customers

Waiting area services

Reception service

Promotional activities

Take away service

Communication

capability

of

waiters

15What is your overall evaluation to Starbucks?


Very good
Good
Average
Bad
Very bad
16In which way you think Starbucks needs to improve?
Discount and promotion
Types of food and taste of food
Service enthusiasm
Location
Other

Thank you for your time and cooperation!