Market Structure and Starbucks Performance

Case Study of Starbucks in china

The case is about Starbucks’ pricing strategy in China under which the company charged higher prices for its
products than in Western countries. Starbucks is considered a success story in China as it was able to convert the
traditional tea drinkers of the nation to coffee lovers through its premium offerings. The premium pricing strategy of the
company aimed at improving its brand positioning in the Chinese market where the consumers’ perception was that
high price products offered higher quality. However, the pricing strategy attracted criticism from the media outlets in
China that accused the coffee giant of “profiteering” and of discriminating against its Chinese consumers. Starbucks
defended it pricing strategy in China saying that its higher prices were attributable to its higher cost of doing business
in the country than in other markets. Howard Schultz, CEO of Starbucks, saw China as a primary growth market and
had ambitious growth plans at a time when there was worldwide anxiety over the country’s sluggish economy and
market turmoil. However, with competition growing in the market, Can Starbucks sustain its high prices in China?

Starbucks Corporation (Starbucks), the world’s largest coffee chain by revenues, was considered a success story in
China, where it maintained its unique character of serving premium coffee and succeeded in cultivating the demand
for high-price brews throughout China. The premium image of Starbucks in China enabled the company to drive up
the aspirational status of the brand, which in turn made it an affordable luxury item in China. According to Ye Qiu from
Ordos Kangbashi, Western China, “Starbucks got its success because of the quality of coffee it offered and also
because it was more expensive than other prices. The fact that Starbucks coffee shops are expensive and luxurious is
the very reason it attracts the wealthy in the society.” The top management of Starbucks viewed China as a key
growth market despite concerns over the country’s sluggish economy since 2015.

However, Starbucks also faced criticism for its high prices in China. In September 2013, the coffee chain came under
fire from the official Chinese media when it raised prices in its stores in the country.

Starbucks in China

Starbucks forayed into the Asian market in 1996 when the company opened its first branch outside of North America
in Tokyo, Japan. China, being a nation of predominantly tea lovers, Starbucks’ subsequent foray into China was done
with the objective of converting the 1.3 billion tea drinkers in the country into coffee lovers through its premium
offerings. China was far from the world’s biggest coffee market as the average Chinese consumed only 4 cups of
coffee annually compared to Americans who consumed an estimated 441 cups annually. However, China’s young,
fast-growing middle class felt the traditional tea houses of China had failed to keep pace with modern life and culture.
Moreover, the tea culture of the country lacked a “third place” outside of home and work for the people to spend their
leisure time.

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Starbucks entered the Chinese Mainland with the marketing approach of lifestyle branding wherein the brand was
sensitive to the cultural differences of the Chinese market. Realizing the long-standing value of Chinese culture and
tradition, Starbucks worked to enhance the customer’s experience by integrating local customs in store designs and
offering local food and drinks among.

Based on the market structure that Starbucks has in china, will Starbucks be able to
maintain its price today?