FOREIGN TRADE UNIVERSITY

-------***-------

INTERNATIONAL MARKETING

MARKETING MIX OF STARBUCKS IN VIETNAM

AND RECOMMENDATIONS FOR IMPROVEMENT.

Lecturer: Nguyễn Huyền Minh

Nguyễn Quỳnh Chi – 1711140014

Nguyễn Thị Thái Hà – 1711140026 (Group Leader)

Nguyễn Thế Huy – 1711140041

Nguyễn Đỗ Tuệ Minh – 1711140060

Đại Thị Thúy Quỳnh – 1711140074

Vũ Quốc Trung – 1713140088

Hanoi, March 2020

 Contents

INTRODUCTION 4

ANALYSIS 6

I. THE COMPANY 6

1. Introduction to Starbucks and its international expansion. 6

2. Entrance of Starbucks into Vietnam. 7

II. VIETNAM MARKET, CUSTOMER AND COMPETITOR ANALYSIS 8

1. Market and customers analysis 8

1.1 Overview of Vietnam market 8

1.2 Customers’ trends and behaviors 9

2. Competitor analysis 12

2.1 The battlefield of local and international coffee chains 12

2.2 Main competitors 14

III. STARBUCKS VIETNAM’S MARKETING MIX 15

1. Product 15

1.1 Starbucks’s product portfolio in Vietnam 15

1.2 Starbucks’s modifications in products for Vietnamese market. 21

2. Pricing 22

2.1 The premium pricing strategy 22

2.2 The reasons behind this pricing strategies 24

3. Place 26

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 3.1 Physical stores 26

3.2 Online channels 27

4. Promotion 29

4.1 Advertising 29

4.2 Convenient method of payment 33

IV. REVIEW ON THE ENTRANCE OF STARBUCKS INTO VIETNAM 39

1. Revenue 39

2. Marketshare 40

V. RECOMMENDATION 43

1. The survey 43

2. Recommendations 49

2.1 Localization strategy - Product localization 49

2.2 Offering more seasonal drinks or special events that to justify its premium
price point 50

2.3 Improving limitations of Starbucks Rewards Program 51

2.4 Adaptation to new trends 53

2.5 Promoting advertising programs 53

CONCLUSION 55

REFERENCES 56

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 INTRODUCTION
As one the largest F&B suppliers in the world, Starbucks’ history can be traced back to 1971
as a roaster and retailer of whole bean and ground coffee, tea and spices. Back then, the
company was a single store in Seattle’s historic Pike Place Market. From just a narrow
storefront, Starbucks offered some of the world’s finest fresh-roasted whole bean coffees.

Since Starbucks established its subsidiaries “Starbucks Coffee international” in 1995, it

has applied to flexible entry strategies; licensing and joint venture and whole ownership
to expand its business internationally. As updated in the company official website, “With
more than 24,000 stores across more than 75 markets, it’s clear that our passion for
great coffee, genuine service and community connection transcends language and
culture”, it is undeniable that Starbucks has successfully penetrated into different
countries and regions worldwide. The company set its first footprint in Asia-Pacific
region in January 1999 by opening the first store in the China World Trade Building,
Beijing. It took Starbucks 14 years later to officially enter Vietnamese market, while the
company then already had more than 3,300 stores in 12 countries in the Asia-Pacific
region. Entering Vietnam appeared to be a cautious move of the company.

Yet Starbucks has proved they were right to be so cautious. Starbucks Vietnam has not
experienced the fast growth as it has in other countries. After over 6 years in Vietnam,
Starbucks operates 64 stores, while the numbers of stores are roughly 42,000 in China,
1530 in Japan and 340 in Thailand. The story of how Starbucks launched and introduced
their products to Vietnam is an interesting story which is worth mentioning because it
could partly explain why Starbucks and some other F&B brands find it relatively difficult
to compete in Vietnam.

In this report, we will briefly introduce the process of winning the local customers of
Starbucks Vietnam through the analysis of the company, the market and its marketing mix

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(4P) with the secondary data found in different sources as well as the primary data
yielded by a survey of roughly 400 respondents before coming to recommendations for
improvement in marketing activities and finally, a relevant conclusion.

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 ANALYSIS
I. THE COMPANY
1. Introduction to Starbucks and its international expansion
Starbucks was originally found in 1971, named after the first mate in Herman Melville’s
Moby Dick with the logo inspired by the sea, featuring a twin-tailed siren from Greek
mythology. In 1981, Starbucks chairman, president and chief executive officer, Howard
Schultz started to join Starbucks.

In 1983, Howard travelled to Italy and became fascinated by Italian coffee bars and the
romance of the coffee experience. He had a vision to bring the Italian coffeehouse
tradition back to the United States where coffeehouse is made a place for conversation
and a sense of community and to be a third place between work and home. He left
Starbucks for a short while to start his own coffeehouses and returned in August 1987 to
purchase Starbucks with the help of local investors.

Under the management of Howard, Starbucks started to grow very fast. With the stated
mission: to inspire and nurture the human spirit - one person, one cup and one neighborhood
at a time, Starbucks now connects with millions of customers every day with exceptional
products and nearly 24,000 retail stores in approximately 75 different markets.

According to CNBC, the company’s market value was $110.2 billion in the mid of 2019. The
coffee brand also creates its own culture of drinking coffee to its customers, when it has
always believed in serving the best coffee possible and it is their goal for all of their coffee to
be grown under the highest standards of quality, using ethical sourcing practices.

Starbucks can be regarded as a successful model of international expansion and it does

not stop on growing its number of stores worldwide.

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 2. Entrance of Starbucks into Vietnam
Starbucks opened its first cafe in Vietnam in Ho Chi Minh City as part of its strategy to
expand across Asia and plans to add more shops throughout the country in 2013. The
grand opening of the Ho Chi Minh City store marked Vietnam as Starbucks’ 12th market
in the Asia Pacific and adding up to its chain of some 3,400 stores in the area with its first
store in the city’s business district. We will have a brief look at some characteristics of
Vietnam at the time Starbucks launched in the country.

As stated by John Culver, the president of Starbucks Coffee China and Asia Pacific
during the ribbon cutting ceremony, joining in Vietnam was both a proud and challenging
experience to him because Vietnam was one of the most dynamic and interesting markets
in Asia with a number of local rivals known for their strong cafe culture. Vietnam is the
world’s second-largest coffee producer and it has dozens of local chains as well as small
coffee shops on nearly every street corner which present a major challenge for Starbucks
to break into the crowded market with their unique taste of coffee. In addition to local
brands, there are several competitors from other countries existing in Vietnam at that
time, such as the Australian coffee chain Gloria Jean’s Coffees International, the
California-based Coffee Bean & Tea Leaf, and the American fast-food chains KFC and
Burger King. In addition, Nestle instant coffee which is engineered to suit the
Vietnamese palette is sold widely in Vietnamese supermarkets.

At that time, Starbucks already operated more than 3,300 stores across 11 countries in the
Asia-Pacific region, and its entry into Vietnam marks the latest round in a campaign to
attract Asia’s emerging middle classes despite a stagnating U.S. economy. Jinlong Wang,
president of Starbucks Asia-Pacific, commented on an email to The Associated Press that
Starbucks was looking forward to growing with Vietnam’s already vibrant coffee
industry and making a positive impact in the communities where they operate.

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The population of Vietnam was about 90 million and three out of five Vietnamese are
under the age of 35. According to World Bank, the economic growth of Vietnam was
relatively fast compared with other countries, at the rate of 5.4%.

II. VIETNAM MARKET, CUSTOMER AND COMPETITOR ANALYSIS

1. Market and customers analysis

1.1 Overview of Vietnam market

Vietnam is one of the most dynamic emerging countries in the East Asia region and is
expected to continue to grow at a robust pace. According to A.T. Kearney, Vietnam
ranked 6th in the Global Retail Development Index in 2017, raising the country’s profile
to one of the most potential retail markets for investment. Vietnam has experienced a
steady rise in disposable income in recent years, which can be seen in its increasing total
consumer expenditure from US$80 billion to US$171 billion between 2010 and 2019.
Food and non-alcoholic drinks remain the lead in essential spending, accounting for
20.5% of total household spending. It is forecast to grow by 11.6% over the period of
2018-2022 (BBGV, 2018)

Vietnam exports $3.3 billion worth of coffee in 2019, which accounts for 10.5% of the world
in total. Revenue in the Coffee segment amounts to US$5,902 million in 2020. The market is
expected to grow annually by 9.1%. The market’s largest segment is the Roast Coffee with a
market volume of US$5,079 million in 2020. The market is a fierce battlefield for coffee
chains. Many international coffee chains like Gloria Jeans, Coffee Bean & Tea Leaf, The
Kafe…. had given into new, flexible and popular local brands after
years struggling in Vietnam.

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 Graph. The production of coffee in Vietnam by years.

(Source: Statista, 2019).

Starbucks, first entering Vietnam in 2013, has one store for every 1.7 million people in
Vietnam, which is much lower than other ASEAN countries like Malaysia, Thailand, or
Cambodia. Despite being the largest coffeehouse company in the world, with 31,256
retail locations, Starbucks is actually under-performing with less than 3% of Vietnam’s
estimated $1 billion market for specialty coffee and tea shops (CNBC, 2019).

1.2 Customers’ trends and behaviors

Vietnam’s consumer market is constantly evolving, driven by changing consumer
lifestyles, income, and behavior.
a) Vietnam’s new age consumers – Generation Z
The emergence of Vietnam’s next demographic wave of shoppers – Generation Z,
following the Millennials – estimated to make up 25 percent of the labor force, is the
main drivers of Vietnam consumption.
Generation Z is raised when the country was undergoing rapid change, including an
economic boom along with the rise of technology and the internet. They are also exposed
to Western and international cultures at a younger age compared to previous generations.
The country’s young generation is also shifting toward modern lifestyle, and has a

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preference for socializing in public places due to the increasing popularity of cafés as
socialization hubs. This has resulted in better business opportunities for small-scale
investors to expand across the potential regions.

Growing up in a 4.0 era has definitely influenced their decision-making process. With
multiple forms of media, engagement with the online world of consumer media and
products has become popular for many people in this generation. The power of media and
mobile apps can influence spending and direct their purchases based on what they find
online.
Environmental issues and challenges such as climate change, resource scarcity, pollution,
and plastic waste are all becoming increasingly acute, making consumers – especially
younger generations – change their consumption habits towards greener living and are
more likely to engage in brands that are socially and environmentally focused.

b) The explosion of middle-class and increasing disposable incomes

Since 1990, Vietnam’s GDP per capita growth has been one of the fastest in the world,
currently ranked as the sixth largest economy in the ASEAN. Rapid economic growth has
brought about an expanding middle class with rising incomes, which in turn boost
consumer demand.
Vietnam’s middle class, now 10 million households, is growing fast and expected to
reach 17 million households by 2030. Due to the growing household income, consumer
preference is likely to shift towards higher-value products. Vietnamese consumers of
different income levels are especially concerned about the safety and quality of products.
In this sense, they are increasingly willing to pay a higher price, especially to buy
products from foreign brands. The middle-class consumers are also modern, connected,
well informed, and are familiar with e-commerce and mobile payment. Furthermore, their
purchase decisions are increasingly framed by ethics, moral values, health awareness, and
environmental concerns.

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 c) Technology development – 4.0 era
Technology plays an important role in consumer decision-making. Now, customers can
browse and purchase their desired items from everywhere around the world with just a
few clicks on the computer or mobile phone. It also changes the ability of a business to
meet the needs of consumers and to connect and relate with them. According to BMI, in
Vietnam:
● 95% of Internet users watch videos on their mobile, 84% play games on their
mobile and 50% use mobile banking.
● Looking at the population over the age of 15 years old, 31% of them have an
account with a financial institution, 4.1% have a credit card, 21% of them pay bills
or make purchases online and 62% have used their mobiles to do so. Enhanced
usage of smartphones in Vietnam significantly boosts the growth of the mobile
payment market. The mobile payment market in Vietnam has been growing at a
rapid rate, and is expected to maintain this trend during the forecast period.

Graph. The figures of electronic devices uses of the Vietnamses.

(Source: BMI, 2019).

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The rising role of e-commerce in Vietnam is also reshaping consumption - with the
number of internet users rising, people are turning to online retailers, especially when the
new generation is so familiar with Internet and mobile payment. More and more
Vietnamese are using e-commerce to purchase food & beverage directly through the
retailers’ websites or indirectly through popular online apps like Now, Grabfood… due to
high convenience and attractive discounts.

2. Competitor analysis

2.1 The battlefield of local and international coffee chains

A survey conducted in 2015 by Financial Times Confidential Research studied the coffee
preferences of 1,000 consumers in each of the five biggest economies in ASEAN
(excluding Singapore) and found that Vietnam was the only country where Starbucks was
not ranked as the most frequently visited chain. Instead, Vietnamese respondents
overwhelmingly turned to local favourites like Trung Nguyen and Highlands Coffee.

Graph. Southeast Asia’s most visited coffee chains.

(Source: Financial Times, 2015)

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Starbucks really struggles coming to Vietnam because local Vietnamese chains are cheaper, expanding faster and
performing better than their international counterparts. Local chains such as The Coffee House, Phuc Long, Cong
Coffee, and Highlands have extended their dominance by offering affordable prices for a variety of products.

Coffee chain Price range Number of stores

Starbucks 55,000 – 90,000 VND 64

Highlands Coffee 39,000 – 49,000 VND 240

The Coffee House 40,000 – 55,000 VND 145

Cong Coffee 35,000 – 45,000 VND 61

Phuc Long 40,000 – 50,000 VND 45

Table. Comparison of 5 different coffee chains operating in Vietnam

in terms of price and number of stores.
(Data taken from their official websites).

Graph. Revenue of 10 coffee chains operating in Vietnam in 2018.

(Source: VIRAC, 2018).

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 2.2 Main competitors
a) Highlands Coffee
Founded in 2002 by a Vietnamese-American and sold to Philippine fast food giant
Jollibee in 2012, Highlands Coffee now has 240 stores mostly in well-known buildings
and malls and becomes Vietnam’s largest coffee chain in terms of revenues. According to
Euromonitor, in Vietnam, the five biggest coffee chains account for 15.3 percent of the
market share, of which, Highlands Coffee holds 7.2 percent, while Starbucks has less
than 3 percent.
They take a relatively different direction compared to competitors, focusing on coverage
rather than consumer tastes. Highlands Coffee presents a simple menu with quick and
easy-to-choose beverage, but has managed to expand its network by opening stores in
buildings and trade centers in prime locations. Nowadays, Highland can easily be found
in almost all major buildings, shopping malls, big streets or historical sites.
Highlands Coffee offers an atmosphere designed to attract young consumers with
fashionable Western lifestyles. They also have a variety of drinks which are suitable for
all members of a family at a rather higher price compared to smaller local brands, but it is
still considered mid-range and overall cheaper than Starbucks.

b) The Coffee House

In 2018, Nikkei Asian Review rated The Coffee House as one of the fastest-growing
coffee chains in Vietnam thanks to its rich menu, affordable prices, high-speed wifi and
orientation towards catering to young Vietnamese. Local chain The Coffee House saw
revenues double last year and continues to grow.
The Coffee House does not invest in stores in luxurious and premium locations, but
focuses on providing a pleasant customer experience with varying menu of drinks,
reasonable prices, high speed wifi, spacious. Each Coffee House is uniquely designed to
fit the character of its neighborhood and needs of its inhabitants. It has a modern, striking
shop design that appeals to younger customers.

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To compete against thousands of other local brands and suit every tastes and needs of
customers, The Coffee House constantly improves its menu and offers a wide selection of
products, from tea, coffee, macchiato, smoothies or even product packaging. The drinks
are relatively cheaper than other famous coffee chains, which helps it attract a wide range
of customers.
The Coffee House also offers excellent customer experience to stand out from the rest on the
market. Their efforts to provide customers with a lasting impression become evident as soon
as you walk through the door: high service standards, well-trained and dedicated staffs
always available to assist customers with the wide range of creative and tasty beverages.

III. STARBUCKS VIETNAM’S MARKETING MIX

Marketing mix (4Ps) is a classic but never outdated marketing model due to its typicality
and effectiveness in analyzing a marketing strategy of a good or service. In this report,
the formula 4Ps will be analyzed to see how it has been implemented by Starbucks
Vietnam, to determine whether it is effective or not and finally, to initiate some feasible
recommendations.

1. Product

1.1 Starbucks’s product portfolio in Vietnam

In the U.S, Starbucks products can be defined as convenience products because of its
relatively inexpensive and minimal purchasing effort. However, in Vietnam, Starbucks
can be seen as a specialty product because of the brand equity, strong brand loyalty and
reputation setting Starbucks apart from other rivals.

As its strategy when moving into a new market, Starbucks Corporation continues to
innovate its product mix to capture more of the food and beverage market. In Vietnam,
the following are the categories of Starbucks products:

1. Cold brew

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 2. Espresso
3. Coffee
4. Frappuccino
5. Tea
6. Smoothies
7. Baked goods
8. Other foods and beverages
9. Merchandise (mugs, instant coffee, etc.)

The company maintains its signatures in America and other regions in its Vietnamese
menu, with the main product provided still coffee. As reported by the CEO of Starbucks
Vietnam, of the all products, the Vietnamse enjoys cold Green Tea Frappuccino the most
and for hot drink, it is Latte.

Picture. Starbucks menu in Starbucks Duy Tan, Hanoi.

Traditionally, Vietnam coffee shops usually offer two sizes of cups for their customers,
Normal and Large. But Starbucks offered customers with a larger range of three most
common choices, namely Tall, Grande and Venti. Actually, customers also can order a
short, though it is not common in the country. The customers therefore are enabled to
choose the one that most suits their wants.

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 Picture. Starbucks sizes of cups.

The way Starbucks tries to differentiate itself from its other competitors is clearly stated
in its mission written on the company website, emphasizing its approach to ethically
sourcing the highest quality coffee over the entire logistic chain, from the selection of
suppliers to the brewing method to serve its to the customers. Starbucks also makes a
commitment to be responsible to other stakeholders, who are their business partners, their
customers and the entire planet.

Another unique selling point of the company’s promise since the beginning, to not only
celebrate coffee and the rich tradition, but would also bring a feeling of connection. It is
one that is dedicated to inspiring and nurturing the human spirit and committed to serving
the finest coffee, creating an exceptional customer experience, and being a great place to
work. Starbucks is grateful that their partners (employees) help making Starbucks the
company that they are.

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 Picture. Starbucks Vietnam’s stated mission written on their website starbuck.vn.

(Accessed on Feb 22, 2020).

On Starbucks’s website, we can also find its introduction about its menu. The coffee is
promised to be made manually with the finest ingredients.

Picture. The statement of Starbucks about their products on their website starbucks.vn.

(Accessed on Feb 22, 2020).

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In addition to year-round products, Starbucks is constantly refreshing its products and
product lines with seasonal products, limited edition products, festive projects and more,
which are carefully selected or designed to satisfy the needs and preferences of target
consumers worldwide.

For example, for autumn 2014, Starbucks introduced to its menu the seasonal latte the
holiday French Vanilla Latte and Dark Caramel Latte, which was a combination of
Starbucks' signature espresso and French vanilla.

Picture. French Vanilla Latte. (Taken from the company’s website).

To celebrate Christmas 2018, Starbucks Vietnam introduced its Snowball Dark Mocha
which arose the excitement for the snow fights. In addition, Gingerbread Latte was also
first introduced in this occasion.

Picture. Snowball Dark Mocha. (Taken from the company’s website).

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For the summer, Starbucks also offered its special drinks, for instance, Triple Coffee
Frappuccino with strong coffee flavour, Strawberry Cheesecake Frappuccino and Iced
Coffee for the summer of 2015.

To understand Starbucks’ coffee offerings in Vietnam, it is crucial to utilize five levels of

product concept, which is summarized in the following graph:

Figure. Five levels of Starbucks Vietnam’ products,

reproduced from Kotler and Amstrong.

It is likely that Starbucks Vietnam’s customers' expectation is usually equal or above the
expected products, which means they expect a lot of from the products and the services of
the company. The products at Starbucks are premium coffee with high price and meet
global standards. To satisfy traditional coffee drinkers demand, Starbucks assert thought
the quality of coffee bean used, provides convenience stores located in Strategic locations
with Wi-Fi access. Customer choice of Starbucks also relies on the brand itself and its
Western modern lifestyle which keeps a feeling of luxury, which can help to explain why
they are willing to pay more for Starbucks’ products.

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 1.2 Starbucks’s modifications in products for Vietnamese market.

When entering Vietnam, Starbucks decided to mostly stick to its original American style,
with some certain modifications to fit the taste of the Vietnamese.

As it has done in many other regions over the world such as China, Japan, Thailand, in a
greater effort to penetrate into the market and attract the locals, Starbucks added Dolce Misto
into its menu to fit the drinking habit of the Vietnamese. This product is designed
nd
specifically for the Vietnamese, launched since March 22 , 2015. Dolce Misto is a cold
drink created to honor the unique taste of the local coffee culture. It combines the richness
and excellent quality of Starbucks coffee with a sweet dolce flavor for Vietnamese coffee
lovers. “Dolce Misto is designed to bring Vietnamese customers a new flavor and respects
traditional Vietnamese coffee”, said Ms. Patricia Marques, General Director of Starbucks
Coffee Vietnam. She added that the coffee giant was inspired by the local “cà phê sữa đá”,
two years after Starbucks opened its first store in Vietnam in January 2013. In addition,
Starbucks also has Asian Dolce Latte to serve the same purpose.

However, there is skepticism about Starbucks’s move in Vietnam. The offered products
are usually said to be much weaker than the flavour of the Vietnamese traditional coffee.
The difference lies in the fact that Vietnam has stronger Robusta beans with higher
caffeine content as compared to Starbucks’ mild arabica beans. As reported, Starbucks’
arabica beans contain up to 1.5% caffeine while the Robusta beans in the “cà phê sữa đá”
can give drinkers the energy boost they need with a whopping 2.7% caffeine content.
Even Dolce Misto, which is said to be made from French Roast, the most condensed
coffee beans of Starbucks, still a Robusta one. Starbucks states that they don’t want to
deviate far from their unique American-style coffee.

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 A cup of Dolce Misto (left) resembles Vietnamse “Cà phê sữa đá” (right) with two
distinctive layers of milk and coffee and many ices.

The criticism also is that Starbucks restricted its Vietnamese menu mostly to the usual
flat whites and lattes, which is still not sufficient to meet the demand in the market for
traditional Vietnamese coffee. They stated that not adapting its menu to appeal to the
local customers is also Starbucks’s insignificant growth in Vietnam, which can be seen at
the modest number of their stores in Vietnam after more than 6 years of operating,
compared to the other competitors such as The Coffee House or Cộng Café.

2. Pricing

2.1 The premium pricing strategy

The price charged reflects the brand positioning. In America, Starbucks originally aimed
to serve everyone and it is not infrequent to see many Americans, even the homeless
walking along the street holding Starbucks coffee cups. On the contrary, Starbucks in
Vietnam is not affordable to everyone, with the exceptionally high price compared with
other coffee brands. To be more specific, Starbucks applies a premium pricing strategy to
maintain its high-end specialty image.

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According to “Latte Index” of Ben Value Penguin, in 2017, the price of Starbucks drinks
charged for Vietnamese was the third most expensive of 44 countries surveyed (the index
was based on the basic salary and the price of a typical Starbucks store in one country).
This comparative cost of Starbucks products is conducted using data from Euromonitor
International as well as a tool of the World Bank before coming to the conclusion that:
the coffee price was the cheapest in the U.S and the most expensive in Russia (12,32
USD). With the average income of Vietnam, the relative price of a Starbuck cup was 8,18
USD (the price was based on an income scale).

For the absolute value, the typical price of Starbucks ranges from 55.000 to 90.000 VND,
still high compared with other coffee chains in Vietnam.

No. Name of the The typical The highest price The lowest price
brands price range product product

55.000 – 115.000 (Java Chip / 30.000 VND

1 Starbucks 90.000 VND Green Tea Cream – (Steamed Milk / Soy

Venti) Milk – Short)

40.000 – 65.000 VND (Coffee 30.000 VND

2 Phuc Long 50.000 VND Green Tea with Almond (Black Coffee - Ice
– Ice Regular Size) Regular Size)

3 The Coffee 40.000 – 59.000 VND 29.000 VND

House 55.000 VND (Hot Matcha Latte – (Black Coffee -
Regular) Small)

4 Highlands 39.000 – 65.000 VND 29.000 VND

49.000 VND (Matcha Freeze – Big) (Iced Black Coffee –
Small)

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 5 Cộng Coffee 35.000 – 65.000 VND 25.000 VND
45.000 VND (Coconut Chocolate) (Vina-Cano)

Table. The official prices of several coffee brands in Vietnam.

(Data taken from the company’s website. Accessed on Feb 23, 2020).

This price can be one of the factors accounting for the prudent move in the expansion in
the number of stores of Starbucks in Vietnam. Up to March 2020, the coffee chain holds
only 64 stores nationwide, while The Coffee House has 155 stores, Highlands owns more
than 250 stores. The premium price makes Starbucks not attractive to every citizen.

The strategy in increasing the price of drinks is also worth mentioning. To maximize profits,
Starbucks increases the price of some drinks or cup size instead of the whole-grain coffee
products. They wisely offer attractive rates so that customers are encouraged to take the
larger drink cup size. This strategy targets customer behavioral trends, when they always
think that more expensive products will be more valuable. Therefore, Starbucks can easily
maintain its image as a premium brand with it number one product quality.

Lastly, for each level of bigger cup, customers usually have to pay more 10.000 VND, a
reasonable increase compared to the price of the drinks, so they are encouraged to drink
larger cups.

2.2 The reasons behind this pricing strategies

a) High investment cost

This pricing strategy of Starbucks can be explained by their high costs, including operating
expenses, marketing expenses and the initial investment in opening a new store. Starbuck
stores are usually in office buildings, shopping centers or on the densely populated locations
in the big cities. According to website Brand Vietnam, a market analyst revealed

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that Starbucks Vietnam needs more than 2 to 2,5 times that of other coffee chains when
launching a new store, most of the cost can be attributed to the renting fees. As revealed,
a 200 metre-squared Starbucks in Ho Chi Minh city required the initial investment of
215.000 USD, while The Coffee House managed to be at the rate of 40% the above
number. One of the vivid examples, the first Starbucks store in Vietnam is located in one
of Ho Chi Minh City’s busiest roundabouts and is near to a new Burger King restaurant
and Ben Thanh Market which is the center of the city’s tourist trade.

b) Value propositioning strategy

To persuade customers to accept that price, Starbucks focuses on product value by

delivering a message that they serve high-value products to give customers both tangible
and intangible values. From carefully selected high quality coffee beans, the product will
undergo strict processing, with the implementations of well-trained staffs. If customers
love high-end beverage products, it will not be too difficult for them to spend more to
enjoy the good coffee with professional service. However, Starbucks is also aware of the
price-conscious customers, so they have offered discount programs and combos.

Picture. Two breakfast combos offered by Starbucks.

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 3. Place
3.1 Physical stores

In Vietnam customers can easily purchase Starbucks products via its chained coffee
stores located in big cities such as Hanoi, Hai Phong, Ho Chi Minh city. Starbucks’
coffee stores are located at strategic places where their target customers can easily find
and recognize its logo brand such as shopping malls and large buildings as well as other
places whose high population density and high living standard.

Starbucks offers a clear vision which is to build a direct and personal relationship with
customers. This vision leads to the distributions of its products at Starbucks coffees,
online shops, via Starbucks app, and through retailers.

Picture. The distribution of Starbucks coffee shops in Vietnam, found in the company’s

Facebook fanpage. (Accessed on February 23rd, 2020).

In February 2013, Starbucks opened its first cafe in Vietnam in Ho Chi Minh City as part of
its strategy to expand across Asia. In July 2014, Starbucks set its footprint in Hanoi, followed
by Hai Phong city in 2017. Da Nang was the fourth city to have Starbucks stores in 2018.
rd
Updated on February 23 , there are 64 Starbucks coffee shops in total in Vietnam,

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in the busy streets of 4 big cities of the country. The coffee chain is usually frequented by
the young and the white-collar with middle and high income, coming there to work or to
have a chat with their friends.

However, the rate of growth of Starbucks Vietnam is still at a relatively slow-paced,

compared with other competitors such as The Coffee House (155 stores), Highlands Coffee
(more than 250 stores). In an international scale, Starbucks has approximately 352 stores in
Thailand, 365 stores in Indonesia, 1286 in Japan (statista.com) in September 2019.

Picture. Countries with the largest number of Starbucks stores in September 2019.

(Source: Statista.com).

3.2 Online channels

As the Internet grows, Starbucks offers products in online channels using Starbucks App or
via third parties such as Now.vn. In these platforms, customers are enabled to get products
shipped to their designated places within a short amount of time after a few clicks and
touches. This is to prove that Starbucks has adapted quite quickly with the change of time,
technology and market conditions in the time when the demand for online buying is

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rapidly growing. However, these physical stores receive some complaints from the
customers, for example, the limitation in the duration of wifi access time. In Vietnam,
each bill has a code access to wifi in one hour. After this time, if the customers have to
purchase another product to get a new bill, and to some extent, it is annoying to a
proportion of customers. Whereas, other coffee chains such as The Coffee House offer
unlimited and stable wifi.

Picture. The display of Starbuck app.

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 Picture. Starbucks store on Now.vn platform.

4. Promotion
Starbucks is a brand that pays for communications and promotional activities, with a
diverse and creative form of advertising, sales promotion and public relations.

4.1 Advertising
a) Social network

In 2008, Starbucks worldwide started to strongly develop its social network channels. As
a result, it has become the coffee brand discussed the most in the internet. On their arrival
in Vietnam, Starbucks has paid great efforts to build its social network channels from the
beginning. It is also their most frequently used method of communication to advertise its
products and sales promotion events. The firm focuses on managing its Facebook and
Instagram pages to engage target customers with attractive contents and pictures.

In other posts, Starbucks captures the pictures in which their customers enjoy drinking
coffee in the atmosphere full of coziness and laughs to deliver the message of a place
perfect for meets and greets.

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Picture. The display of Starbuck Vietnam Facebook’s fanpage with nearly 435.000 likes

(Accessed on Feb 23rd, 2020).

Each post on Facebook receives a lot of attention from their fans, with the number of
reactions usually around 1,000. Some posts can exceptionally get thousands of reactions
such as the post for Valentine 2020.

Picture. The post received 5.000 reactions for a picture.

(Accessed on February 23rd, 2020).

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Its Instagram account has more than 1.500 posts and is tagged by many customers
sharing their moments with friends and family in the stores.

Picture. The display of Starbuck Vietnam Instagram account with 100.000 followers

(Accessed on February 23rd, 2020).

Picture. An Instagram post for the advertising of a discount event for Valentine 2020.

(Accessed on February 23rd, 2020).

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Starbucks also encourages their customers to interact with their posts by like, share or
comment in order to increase the rate of interactive activities as well as to approach new
customers.

Picture. An Instagram post in which Starbucks suggests the users to tag their friends.

(Accessed on February 23rd, 2020).

b) Press

Starbucks also has press posting news about their products and activities, such as Đẹp
and Thời trang trẻ (magazines for woman caring about beauty and fashion). These
partners’ target readers have similarities to Starbucks’ potential customers: the young
urban citizens with fast-paced lifestyles. These magazines can help to increase the brand
awareness among the potential customers of the company and bring the brand image
closer to a larger proportion of Vietnamese citizens.

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 Picture. Starbucks appears on the press.

4.2 Convenient method of payment

In 2011, Starbucks took the initiative for the new method of payment when they released
their app, allowing customers to make purchases online without having to queue up in
their stores. This method has become hugely successful, and Starbucks Vietnam also
enables its customers to use this app to buy their products. In addition, the users can
enjoy other benefits such as exclusive discount and free drinks for frequent users or the
suggestions based on their previous history purchase.

4.3 Starbucks Gift Card

With this promotion, the company has easily attracted new customers who have never
used Starbucks services. They are friends of old customers and the company uses the
same old customers to advertise for themselves. While not officially offering a slogan for
this “word of mouth” form of care, Starbucks customers can also understand the
dedication and attentiveness of Starbucks service.

4.4 Public relations activities

a) Starbucks and celebrities

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The pictures of celebrities, both foreigners and Vietnamese, holding a Starbucks cup is a
familiar image to lots of customers. The keyword “celebrities drinking starbucks” gives
out 8,630,000 results in Google.

Picture. Miley Cyrus (left) and Thanh Hang (right) with Starbucks products.

For most of the pictures, Starbucks does not have to pay to have celebrities or KOLs to
hold their products and it turns out a free and effective way of communicating about their
products. This arises the feelings of luxury for the ordinary people, and they realize that
there is an easy way to look like the famous person: drinking Starbucks.

b) Corporate social responsibility (CSR) events

As asserted by the company to strongly support community service and create favorable
opportunities for its stakeholders, Starbucks has a number of social public events to
define how the firm undertakes its corporate social responsibility.

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The first stakeholder is farmer – the company’s partner, to whom Starbucks performs
responsible purchasing practices, supporting farmer loans and forest conservation
programs. They believe that by buying coffee this way, it helps foster a better future for
farmers and a more stable climate for the planet.

According to the Benefits & Perks section on their website, Starbucks also cares about
their employees, those so-called “our partners” to receive “an uplifting, encouraging, and
challenging community” with lots of benefits, including health coverage, stock and
savings, paid time off, parental leave, education, commuter benefit, partner assistance.

To the community, Starbucks share their customers’ commitment to the environment by

reducing their environmental footprint through energy and water conservation, recycling and
green construction. Starbucks has interesting programs to advocate a greener lifestyle.

For each purchase in Starbucks, bringing your own cup will get you a discount of 10.000
VND per drink.

They will also work to significantly raise awareness about the impact of plastic waste on
the environment and to encourage the public to reduce their consumption of single-use
plastics, by joining Zero Waste Saigon and leading green developer Keppel Land to
exhibit the art piece of installation made from plastic straws, with over 150,000 being
used that were collected on streets around Vietnam in 2019.

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 Picture. Vneconomictimes.com has a column for the event.

(Source: Vneconomictimes.com).

This action drew a lot of attention as well as advocacy from customers.

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 Picture. A customer’s tweet expressing his support for the event.

(Source: Twitter).

Yearly, Starbucks Vietnam actively participates in the Starbucks’ Global Month of

Service in April with meaningful projects in the neighborhood where they are operating.
For instance, in 2013, Starbucks Vietnam partnered with Nippon Paint Vietnam and
Saigon Projects Company renovated the library of the primary school 15/5 in 1 st district,
Ho Chi Minh city with the activities of repainting the wall and donating a number of new
bookshelves, chairs, lightbulbs and books.

In 2014, Starbucks sponsored the tuition fees for 10 student girls in “Room to Read” in
the hope to help them complete at least high school. In addition, they also joined in a
vocational guidance for high school students in Long An province with “Room to Read”
in the same month.

They also believe in, from the neighborhoods where their stores are located to the ones
where their coffee is grown. To bring people together, inspire change and make a
difference in people’s lives are all part of being a good neighbor.

c) Other events

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In addition to the activities aiming at fostering thriving communities, Starbucks Vietnam
has held a number of other social events to bring people together and to communicate the
image of the company more strongly.

Picture. The list of some events held by Starbucks on their Facebook’s fanpage.

(Accessed on 24th Feb, 2020).

Starbucks Vietnam does not spend too much of their money on these events compared
with some other F&B companies. They mostly organize their own events but not sponsor
for the events held by the third parties to gain more publicity in the media.

However, Starbucks has a number of campaigns to attract customers to their stores,

mostly in the form of discount and free gifts announced in their social network channels
to increase sales. For example, Boxing Day, Back to School promotion, free Starbucks
Moleskine Planner 2020 for required conditions...

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 Picture. Two discount programs for special occasions.

Picture. Free gifts programs.

IV. REVIEW ON THE ENTRANCE OF STARBUCKS INTO VIETNAM

With all of these marketing strategies, how is the overall performance of Starbucks
Vietnam? Is it a complete failure or a flying success? Should it keep on the current
marketing mix or there should be some modifications?

In order to answer the question, it is necessary to take into consideration the key
performance indicators of Starbuck Vietnam such as their revenue and market share in
comparison with its competitors.

1. Revenue

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Data from Vietnam Industry Research and Consultancy (VIRAC) showed that Starbucks
Vietnam’s revenue in 2018 was VND593 billion ($25.78 million), equal to about one-
third of Highlands Coffee. Meanwhile, The Coffee House came before Starbucks, for the
first time, to stand in the second position in revenue with VND669 billion ($29.1
million). However, the return on sales (ROS) of Starbucks was nearly equivalent to
Highlands Coffee (VND27 billion – $1.17 million) in 2018, whereas, The Coffee House
only collected VND2 billion ($86,960). This means that though just making one third of
the revenue of Highland coffee, Starbuck ‘s profit margin is still on the same level with
its competitors, which indicates that the brand is growing efficiently.

Graph. Revenue of some coffee chains in Vietnam from 2015 to 2018.

(Source: VIRAC, CAFEF).

2. Market share

In Vietnam, the five biggest coffee chains account for 15.3 percent of the market share, of
which, Highlands Coffee holds 7.2 per cent, while Starbucks, the second in revenue

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according to Euromonitor, has less than 3 per cent, which is less than half of that of
Highland. This is due to the fact that Starbucks Vietnam is having a problem with
scaling.According to CafeF, by November 2018, they have 41 stores nationwide
compared 233 of Highlands coffee.

Graph. Number of stores of different coffee brands in VietNam by Nov 2018.

(Source : CafeF).

If we make a comparison with Starbucks in other Southeast Asia markets, Starbucks

Vietnam is left far behind in terms of scaling. This is the data for Starbucks per capita in
SEA markets by Jan 2020 according to CNBC.

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 Starbucks per capita in SEA countries by Jan 2020.

(Source: CNBC).

To sum up, Starbucks Vietnam may gain a specific achievement but at the same time they
are struggling with their number one threat, which is the intense competition from the
local favorites. It appears that the performance of Starbucks has not been so impressive.
Gloria Jean’ coffee, another huge coffee chain worldwide, had already failed to conquer
the Vietnam market and thereby, must shut down operations in Vietnam. Lessons must be
learned and adjustments should be taken to ensure that Starbucks will not go into the
same path as Gloria Jean.

Therefore, a question is raised, what are the potential problems and what are the feasible
measures Starbucks can take to improve the situation?

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V. RECOMMENDATION
Competition is harsh in such a market that not only one of the leading countries in
producing coffee but also a major consumer of coffee. Starbucks Vietnam has made a
great effort to expand the market size and compete with other brands, but there is still
room for improvement.
Before initiating some feasible measurements for Starbucks, we have conducted a survey
collecting approximately 400 respondents of people who have already purchased at least
one time Starbucks’ products to gain more insights about what customers are really
thinking about Starbucks. From that source of primary data, we would come to some
solutions to fix the problems of Starbucks’ current marketing strategies.

1. The survey
We created an online survey and used social channel network to call for responses from
February 22 to March 15, 2020. Here is the link to the survey and here is the list of
answers. After 3 weeks of collecting, we have got roughly 409 answers.
We designed this survey to analyze the attitude of the customers who have purchased
Starbucks’ products and what factors drive them the most to buy, as well as what factors
they think Starbucks should modify to improve the customers experience.

a) The demographic factors of the customers

Here are some statistics summarizing the demographic results of the survey:
Ages & Gender:

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Employment status & monthly income

As drawn from the sheet, the number of female customers outnumbers that of the male.
Women may spend more money on the brand than their counterpart, while a portion of
male still prefer sitting on the pavement drinking coffee.

The employed adults older than 24 take the largest proportion in the graph, which
somehow matches the result in monthly income of more than 8,000,000 VND. It can be
explained by the relatively high price of the brand, which followed by this group.
Students with income less than 3,000,000 VND take up a smaller proportion. This can be
attributed to the fact that Starbucks target customer is not mainly student, it is urban and
affluent, often on-the-go white-collar employed people.

Frequency of purchasing:

There is a diversified range of answers with the majority of the respondents responding to the
answer of not being regular visitors (31.5%).

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This raises a question, what factors prevent customers from regularly purchasing in
Starbucks stores?

b) What customers think about Starbucks’s products

We believe that the responses of customers’ opinions about Starbucks collected from the
survey can partly help answer the question.

Factors Results, explanation and comment

The largest percentage goes to the inherent popularity (that the

customers go to visit Starbucks because they are aware of the brand
and its quality beforehand) with nearly 50% and recommendations of
friends and family (46.2%) (this question allows multiple answers).

Starbucks Vietnam seems to inherit from the existing brand name of

Sources of
Starbuck international and they also have a solid foundation of
acknowledgement
reputation so that their name can be well spread through “words of
month”.

On contrary, it appears that the advertisements of Starbucks do not

work very effectively when there is a small fraction of customers
knowing Starbucks through this channel.

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 Customers can tell Starbucks products from other brands due to their
well-known reputation, which implies that customers believe that
going to Starbucks can give them a title – the drinker of an
internationally famous brand.

Starbucks’ value
positioning

Most of Vietnamese customers (67.8 %) say that they agree or totally

agree that they prefer Vietnamese coffee.

Starbucks’
products

It is consistent with some foreseen barriers to Starbucks’ entrance to

Vietnam – a different taste and style of drinking coffee.

Starbucks’ price A few customers agree that the price Starbucks charges is reasonable
compared with other competitors in the market.

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 Customers are not very appealed by the promotion and advertising
campaigns that Starbucks are offering.

Also, the number of customers who feel satisfied with using the cards
to pay the bill is not significant, which indicates that they do not
really enjoy this method of payment.

Promotion,
advertisements
& method of
payment

The crucial These factors are the decoration, the atmosphere and the space in
factors to the Starbucks, followed by the quality of the products. As analyzed from
customers’ visiting the chart, the customers give the highest points (8 and 9) for these
factors, while price and promotion receive the lowest points.

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 This can be explained that although customers do not really enjoy the
American tastes of Starbucks, they do believe in the quality of the
products, as promised by the company. They come to Starbucks for
the services and the space Starbucks offer, which is the augmented
product, as discussed in the previous section.

The answer of change in price is consistent with the final

recommendation that customers give out: Starbucks should do
something to make them feel the price more worth their payment, by
promoting their promotion, advertisements and do some
modifications in their product line.
Customers
suggestions

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 • Conclusion:

Starbucks should be more active on their programs on advertisements and promotion.

Starbucks should modify their products to meet the taste and preference of the Vietnamese.

Starbucks price is regarded as high, so they should take some measures to encourage
customers to spend money without directly reducing price to maintaining their image of a
premium brand, such as through strengthening their promotion programs.

2. Recommendations
Here are some recommendations based on our research to help facilitate this competition
in Vietnam.

2.1 Localization strategy - Product localization

There is a fact that, even some customers who believe in Starbucks still want a familiar
Vietnamese coffee taste. Vietnamese coffee drinks are brewed with robusta beans, which
have a sharper, bitter flavor and higher caffeine content than Starbucks’ mild arabica
beans. Starbucks’ arabica beans contain up to 1.5% caffeine. While Vietnamese
customers who are familiar with the traditional coffee often prefer a stronger dose, the
robusta beans in the cà phê sữa đá can give them the energy boost with a whopping
2.7% caffeine content.

Therefore, providing customers with an option to choose between robusta and arabica
beans can be a solution. Also, they can add some local beverages and bakery to the ir
menu. For example, Vietnamse enjoy lemonade and especially Bánh Mỳ due to their
richness in nutrition and convenience. Developing more locally-relevant products to
appeal to the local customers can help Starbucks to increase market size.

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 2.2 Offering more seasonal drinks or special events that to justify its premium
price point
Being a worldwide brand well-known for its premium coffee and other products,
Vietnamese Starbucks’ average coffee price is higher than the local cafes. This does not
stop customers from visiting Starbucks. However, the frequency of their visits is certainly
affected.
The solution is not to adjust their price (because we know that adjusting price range of a
brand requires to consider many factors) but to make use of special events to justify its
price. There are plenty of special occasions in Vietnamese calendar each year. Occasional
promotion’s effectiveness is proven through the reactions and shares on Facebook posts
whenever Starbucks launches a promotion.

To make these programs more viral, Starbucks should have some influential and popular
cuisine fanpages and KOLs talk about them.

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 Picture. A Starbucks’ discount program on a famous cuisine page.
(Accessed on February 13th, 2020).

2.3 Improving limitations of Starbucks Rewards Program

We can not deny Starbucks Rewards Program is a good marketing personalization
strategy; however, it must go with the conveniences at the same time.

Based on social media complaining comments from loyal customers, we found the
following limitations of the New Rewards Program:

- Once the value is loaded in the card, customers cannot request a refund.
- Customers can only earn Stars (Stars here equal to accumulated points) when they
pay with a registered Starbucks Card. Other forms of payment cannot be awarded.

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 For example, if you purchase a Starbucks product by cash, you can not get Star but
you have to buy a card for 100,000 or 500,000 VND.

(Picture. Complaining comments from many customers on Starbucks Facebook Fanpage)

Generally, this causes customers no longer feel a sense of achievement and causes
differentiation from getting to the gold level. Instead, they feel they are bound and
‘appropriated’ to some extent.
Therefore, Starbucks needs to adjust the policy so that customers can reload and
withdraw money whenever they want. Also they should allow customers to accumulate
points in all forms of payment.

2.4 Adaptation to new trends

Starbucks needs more flexibilities to adapt both product trends and social trends. For
example, when milk tea and peach tea have become favored in Vietnam in recent years,
Highlands Coffee and The Coffee House have quickly updated the two drinks on their
menu to attract more customers.
Besides, social media is a good way to release viral content related to social trends.
Especially in Vietnam, the number of Facebook users is 7th in the world. Making use of
this channel by creating more viral content is an effective way to increase brand identity.
Provenly, Durex Vietnam is a successful case becoming ‘top of mind’ brand in Vietnam
by their marketing strategies.

2.5 Promoting advertising programs

Most of Starbucks’ advertising activities rely on social media networks such as Facebook
and Instagram whereas their competitors are doing really well in other platforms such as
partnership with the third parties, celebrities and KOLs to target customers. For example,
The Coffee House and Highlands Coffee spent money on video clips to celebrate Tet
holiday, which draws attention of many audiences and helps to promote the image of the
company.

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 Image. Videos of The Coffee House and Highlands to celebrate Tet holiday.

Starbucks should also do some viral campaigns to enhance their coverage to a larger area
and customers, which helps to make their image closer to customers.

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 CONCLUSION
After six years of joining to Vietnamese market, Starbucks is now considered to have had
initial successes in both market share and profitability.
It proves that Starbuck has taken its time to research the market, the customer, the culture
and carefully building a suitable brand image, strategy to adapt to Vietnamese market - a
country known for its strong cafe culture, it has dozens of local chains as well as small
coffee shops on nearly every street corner which present a major challenge for Starbucks
to break into the crowded market.
However, the speed of expansion according to the number of stores and the market share
is not commensurate with the huge potential of Starbuck. With the explosion of middle-
class and increasing disposable incomes, this competitive market is going to be more and
more intense.
In order to uphold a sustainable competitive advantage and gain more market share,
Starbucks must achieve its value activities in a way difficult for competitors to replicate
or imitate. The chain should offer more flavors that will be tailor-made to Vietnamese
tastes along with its trademark drinks, while expanding aggressively into Hanoi, Ho Chi
Minh and other cities.
This report is to give insights into Starbucks operating activities in Vietnam as well as some
recommendations to help it grow better. The coming years will be crucial for every brand
and chain operating in Vietnamese coffee market. We hope that in the future, Starbuck will
target more customer segments, provide new products, service and more importantly, with its
global recognition, will introduce Vietnamese coffee at their store in the international
market. “Starbucks is deeply respectful of Vietnam’s long and distinctive local coffee culture
and they know coffee is a national pride for many Vietnamese and as such, Starbucks look
forward to contributing and growing Vietnam’s already vibrant coffee industry” - John
Culver, president of Starbucks China and Asia Pacific.

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