Case 2 – Starbucks

Brief synopsis

The case talks about Starbucks expansion to China. Starbucks is known for their premium coffee and coffee shops’ friendly and cozy environment. Starbucks decided to concentrate on the Chinese market in 1998. Many business started to see China as a great market at the same time. Starbucks penetrated China’s market through a joint venture with Mei Da Coffee Limited in North China. They continued to do joint venture to enter further markets. Chinese partners are crucial for Starbucks because of the regulation imposed on foreign corporation by Chinese government.

Starbucks realized that they needed to appeal to local Chinese taste, hence tailored menu and drinks to meet customer’s needs. Product differentiation and packaging needed to match with Chinese traditional and local tastes. Promotion started to build strong lifestyle symbol, personal luxury was the focus of the brand image. Starbucks kept corporate pricing strategy to keep the premium standard of the product. Starbucks also attracted customers to their cafes by offering air conditioning, comfortable environment and seating, take-out-orders and a vibrant lifestyle place. Starbucks also recruit and train employees well to preserve the brand integrity. Retaining employees by compensation packages and career paths helps Starbucks uphold the good customer service.

In the future, there are many more market shares to gain for Starbucks in China. More stores are hoped to be opened in China. Competition is fierce as Caribou Coffee and Dunkin’ Donut also got to China. Starbucks is paying close attention to demand factors such as income and taste to stay ahead of the competition. Starbucks still represent the Western experience of coffee, thus they have some issues with locating their stores in cultural location.

 

Discussions Questions:

  1. Prepare a SWOT analysis based on the case to support Starbucks’ expansion plans in China. Based on your SWOT analysis, what recommendations would you make to Starbucks’ CEO with regard to the market development growth strategy for this country?

 

Strength: China has a growing middle class which represents new growth prospects for Starbucks.

Weaknesses. China is a big tea consumption company. Coffee is a western drink, which not many Chinese people want.

Opportunity: China has a young and western educated generation of people. They are the potential customers and long term growth for Starbucks. If Starbucks cannot win over the older tea-drinking generation, they still have the opportunity to appeal to the younger generation.

Threats: Starbucks is considered as low-middle class symbol in the West in China. Starbucks is not welcomed inside the Forbidden City. Beijing culture and ancient history are well-respected by majority of the people. An American coffee shop inside the Forbidden City can become an insult for Chinese culture.

  1. Give examples of how Starbucks was successful upon entering the China market. Please use the following videos to frame your response.

 

According to Reuters, Starbucks is successful in China because of investment in people and infrastructure. Starbucks also opened coffee bean farms and processing plants in China. American companies are getting into China to get more profits and growth. Starbucks is trying to convince Chinese to switch from tea to coffee. Starbucks is making sure that investing in people, providing a place for customers to enjoy coffee. Furthermore, the company will grow their own coffee for the first time. They also promised to pay for coffee at a high price to create long term relationships. Customers will want to try coffee and drink coffee more if they know that the coffee is grown in China and not in America. It is a smart move to convince the Chinese to like their coffee, but really it is Starbucks’ that is getting sales.

  1. Compare Starbucks’ U.S. and Chinese strategies. What are the similarities and differences? What generalities can you glean from this analysis to help the company expand into other global marketplaces? Please use the case and the following article to frame your response.

 

Transforming culture and operating approach are two leading changes from American to new market operation like in China for Starbucks. For the first time, Starbucks is growing their own coffee. They strategically chose China, and Yunan in particular. Coffee grow well in Yunan and the beans yield a distinctive taste unlike others. Starbucks also hoped that this taste would suit the Chinese customers because the beans are grown domestically. Starbucks is transitioning to focus on long-term sustainable value like strategic alliance with government, farmers and training their employees. Starbucks used to be built on number of stores, now they are building Starbucks empire on intrinsic value creators such as people and supply chains.

Reference

Levy, Weitz and Grewal. (2014). Retail Management. 9th ed. New York: McGraw-Hill