With margins running between 10 % and 15 %, bottled water was on par with most consumer products, and far less profitable than many luxury goods. Premium pricing strategy holds that sometimes a higher price conveys an image of higher quality or status to the buyer. This case was the Nominated Case Award winner of 2016 Global Contest for the Best China-Focused Cases. It charges 20% higher prices in China compared to other parts of the world. CBN Daily reported. However, with competition growing in the market, can Starbucks sustain its high prices in China? This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. You must be logged in to view this material casecent.re/p/148714. Starbucks said its prices reflect higher costs in China for expenses ranging from coffee and milk to rent and supply chain operations. 217-0098-1 Subject category: Economics, Politics and Business Environment Access this item. View our pricing guide or login to see prices. Starbucks can’t justify high prices in China Updated: 2013-10-15 09:11 ( Chinadaily.com.cn) Print Mail Large Medium Small. Similarly surprising given the economics, consumers who preferred vastly more expensive bottled water over tap nonetheless discriminated between brands almost solely on the basis of price. Brand Booming in China, In Spite of Economic Woes,”, Jennifer Duggan, “Spilling the Beans on China’s Booming Coffee Culture,”, Elaine Schwartz, “Why China Wants More Coffee,”. The case was developed by Debapratim Purkayastha, Benudhar Sahu and S. Venkata Seshaiah of ICFAI Business School Hyderabad and Trilochan Tripathy of XLRI Jamshedpur. This kind of price discrimination is profitable for the individual seller when the cost of couponing is sufficiently low. To maintain competition, Starbucks started with a low cost range at few outlets and to cater the customers who couldn’t be attracted by its high prices. This paper investigates the competitive and welfare effects of information accuracy improvements in markets where firms can price discriminate after observing a private and noisy signal about a consumer's brand preference. CNN Business recently observed that “every Starbucks growth strategy is working." The firm downgraded Starbucks to neutral from buy, and lowered its price target on Starbucks to $68 from $75. The core global café business has grown 6%. Starbucks pursues premium pricing strategy and its products are generally more expensive compared to the competition. Or it could be Starbucks’ success at making its stores the “third living place,” after home and office. 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. Price. Chinese Want Their Starbucks, No Matter the Price, Welcome to the Middle Class, China: The $5 Cup of Starbucks Has Arrived, Starbucks Is Too Damn Expensive, Says Chinese Media, After Apple, Is Starbucks Chinese State Media’s Next Target?” South China Morning Post, Chinese State Media Calls Starbucks Too Expensive, How a Starbucks Latte Shows China Doesn’t Understand Capitalism, Why Starbucks Succeeds in China and Others Haven’t, KFC Thinks It Can Out-Coffee Starbucks in China, Why Are Chinese Media Outlets Brooding Over What Starbucks Is Brewing?” The Cheat Sheet, Starbucks Caught in China’s Crosshairs Over Posh Prices, Starbucks: More Expensive in China Than Japan or America, Coffee Culture Is Catching on in Tea-Steeped China, Starbucks Approaches Recycling Goal with Systems-Based Approach, The Power of Branding - Starbucks in China,” On Coffee Makers, This paper studies sales promotion through coupons in a duopolistic market. In September 2013, the coffee chain came under fire from the official Chinese media when it raised prices in its stores in the country. Rachel Wang, “Starbucks Price Comparison After the CCTV Attack,” Danwei, October 24, 2013, Anya Kamenetz, “Starbucks Is Too Damn Expensive, Says Chinese Media,”, Patrick Boehler, “After Apple, Is Starbucks Chinese State Media’s Next Target?”, “Starbucks Can’t Justify High Prices in China,”, Lu Chen, “In Attack on Starbucks, Chinese Broadcaster Gets Coffee on Face,”. The model is also extended to a public information setting. The case was developed to provide the basis of classroom discussion rather than to illustrate effective or ineffective handling of a management situation. Coffee is not the only cheaper product in the US. For any level of the signal's accuracy, moving from public to private information boosts industry profit and welfare at the expense of consumer surplus. The cheering experience that the customers can have at a Starbucks store founds its great attraction to the community. The coffee beans Starbucks brews in its Beijing stores, as well as other materials like cups and mugs, don't cost any more to import in China than in the United States. “Starbucks Reports Record Fourth Quarter and Record Fiscal Year 2015,” Starbucks Newsroom, October 29, 2015, Victoria Sgarro, “Coffee Culture Is Catching on in Tea-Steeped China,”, “Starbucks to Add Thousands of Stores in China,”, Venessa Wong, “KFC Thinks It Can Out-Coffee Starbucks in China,”, Ketti Wilhelm, “China’s Growing Coffee Culture,”, Wade Shepard, “Is Starbucks Sowing the Seeds of Its Own Demise in China?”, © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2019, https://www.cbsnews.com/news/starbucks-china-open-2500-new-stores-chinese-customers-coffee-culture/, https://doi.org/10.1007/978-981-13-2706-3_6. was very unsatis ed with the high prices of coffee (Kamenetz, 2013). 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. increase in the cost of couponing decreases consumer surplus while the impact on profits and social surplus is ambiguous. Brand values of Starbucks could be as simple as the product (coffee), itself. Starbucks' pricing strategy in China, which the company estimates will be its second-biggest market after the United States by 2014, is tied to local business costs such as … Starbucks now has 30,600 stores in China and by partnering with Uber Eats and… In China, instant coffee is widely sold in China (especially in urban areas). However, with competition growing in the market, can Starbucks sustain its high prices in China? In this sense, Starbucks can be considered as a good example of an imported service since it has created their own culture and markets the premium brand image, which are developed from a foreign country (USA) and replicated in the local markets (Bramantyo, 2017;Chuang, 2019; Starbucks Corporation (NASDAQ: SBUX) Might Be Digging Its Own Grave in China, Spilling the Beans on China’s Booming Coffee Culture, More Expensive in China Than Japan or America, But Why?” RocketNews24, Starbucks Price Comparison After the CCTV Attack, Chinese State-Controlled Media Zeroes in on Starbucks Accusing Coffee Chain of Overcharging When Compared with Shops in London and U.S.,” Daily Mail, China Takes on Starbucks, Biting a Hand That Feeds It, Analysts Say, China Roasts Starbucks: Foreign Brands Come Under Fire for High Prices. First we measure the impact of the chain's current zone-pricing policy on shelf prices, variable profits and consumer welfare across its stores. An, We investigate the impact of price discrimination by a large Chicago supermarket chain. 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. China's acceptance of premium coffee may not reach 363 cups annually, however, Starbucks sells premium tea as well. Part of Springer Nature. Sending out coupons allows the sellers to separate market segments with different degrees of consumer brand loyalty. History. In China, Starbucks raised the price of its products at different times, which attracted public attention and strong media reaction. Starbucks is considered a success story in China, as it was able to convert the traditional tea drinkers of the nation to … Can Starbucks Sustain its High Prices in China? “Starbucks Opens Store on Alibaba’s Marketplace Tmall,” Economy, December 22, 2015. I show that firms charge more to customers they believe have a brand preference for them, and that this price has an inverted-U shaped relationship with the signal's accuracy. Not logged in The case is about Starbucks' pricing strategy in China under which the company charged higher prices for its products than in Western countries. Or it could be the new coffee experience. — Howard Schultz, CEO of Starbucks, in 2013. “Top 10 Coffee Chains in the World 2015,” mba skool, Austin Ramzy, “State Media Call Starbucks Too Pricey,”, Wade Shepard, “Why Starbucks in China Is So Expensive,”. This service is more advanced with JavaScript available, China-Focused Cases All rights reserved. For example, a T-shirt is an easier sell at $9.95 than $10. Serving high quality coffee to satisfy a rapidly growing interest, our goal is to share the Starbucks Experience with Chinese consumers, one cup, one person and one neighborhood at a time. store-pricing policy that is constrained to offer consumers at least as much surplus as a uniform chain wide pricing policy still enables the retailer to generate substantial incremental profits. Brand Booming in China, In Spite of Economic Woes[N/OL]. © 2008-2020 ResearchGate GmbH. There are Starbucks (and of course other innumerable cafes) in metropolises like Beijing, Shanghai, Guangzhou, Shenzhen, Xiamen, Hangzhou, and Xi’an, and small coffee houses serving real ground coffee are easy to find in a hot tourist destinations like Guilin, Lijiang, and Yangshuo. Starbucks pricing strategy can be described as a hybrid of premium pricing, geographical pricing, psychological pricing strategies. Every Starbucks coffee outlet shows a sense of luxury. Cite as. You can request the full-text of this chapter directly from the authors on ResearchGate. Not affiliated Starbucks Corp will raise prices for some of its products in mainland China from Jan. 1, a company spokeswoman said on Friday, as surging … “Starbucks EPS Jumps 28% to a Q3 Record $0.55 Per Share,” Starbucks Newsroom, July 25, 2013. 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. 149.202.175.42. This is a preview of subscription content. Despite Starbucks’ increasing footprint in China, it failed to attract the average Chinese consumer who could not afford it because of its high price. 3 They accused the company of charging higher prices in China than in other countries. “Starbucks Delivers Record Q1 Revenues and EPS,” Starbucks Newsroom, January 21, 2016. In contrast, the price charged after a disloyal signal has been observed falls as the signal's accuracy rises. “Starbucks Reports Record Second Quarter Fiscal 2013 Results,” Starbucks Investor Relations, April 25, 2013, Andy Hill, “Starbucks in Hot Water for High Coffee Prices in China,”, Emily Coyle, “Why Are Chinese Media Outlets Brooding Over What Starbucks Is Brewing?”, Michael Schuman, “How a Starbucks Latte Shows China Doesn’t Understand Capitalism,”, Le Li, “Starbucks Caught in China’s Crosshairs Over Posh Prices,”, Shaun Rein, “Why Starbucks Succeeds in China and Others Haven’t,”. In January 1999, Starbucks opened its first store in mainland China at the China World Trade Building located in Beijing. You may want to spend an extra minute or two savoring your next cup of joe from Starbucks. 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. manufacturers’profits were hardly astronomical. As of May 2016, the world’s … To read the full-text of this research, you can request a copy directly from the authors. “Revenue of Starbucks Worldwide From 2003 to 2015 (in Billion U.S Dollars),” Statista. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. Our cost of setting up the business in China and our cost of doing business in China is actually more than it’s been in many other markets, so that is why we charge more money [1]. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. Nathan Barlow, “China’s Coffee Industry is Brewing,” China Briefing, October 9, 2013, Shuai Zhang, “1 U.S. In equilibrium, however, couponing increases competition and reduces profits. “Why Starbucks Is So Expensive in China,” David Wolf, January 31, 2013. This is despite the coffee cups being made in China and sent to the U.S. Starbucks China. “China’s Not So Hidden Inflation,” RS Bullion, Massoud Hayoun, “China Takes on Starbucks, Biting a Hand That Feeds It, Analysts Say,”, “Chart: The Extra-Caffeinated Cost of a Starbucks Latte in China,”, “Starbucks Raises Coffee Prices in China Stores,”, Gina Smith, “Chinese Want Their Starbucks, No Matter the Price,”, Lauren Alix Brown, “Welcome to the Middle Class, China: The $5 Cup of Starbucks Has Arrived,”, “CCTV: Chinese Pay Higher Price for Starbucks Coffee,”. Starbucks has been leveraging its consumer loyalty and lack of elasticity among its consumers by continuously passing on increases in costs, due to wages and coffee prices, to its customers. Can Starbucks Sustain Its High Prices in China? Customers are attracted by the Figure 2. However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. Using the chain's database to simulate a finer store-specific micro-pricing policy, we study the implications of this policy on profits and welfare. Starbucks defended its 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. About Starbucks ' pricing strategy and its products are sold at much lower prices China. Raised the price charged after a disloyal signal has been observed falls as the premium coffee brand in (... However, with competition growing in the US than in China, even with can starbucks sustain its high prices in china and transportation costs.... Can request the full-text of this chapter directly from the authors that the customers can at. Is So expensive in China, even with tariffs and transportation costs added paradoxically, Starbucks the! Digging its Own Grave in China Revenue of Starbucks Worldwide from 2003 to (. Has positioned itself as the signal 's accuracy rises July 25, 2013 in areas..., in 2013 of charging higher prices in China, ”: 2013-10-15 09:11 ( Chinadaily.com.cn ) Print Large. The competition first we measure the impact of the chain 's current zone-pricing policy on profits and consumer across... Starbucks Corporation ( NASDAQ: SBUX ) Might be Digging its Own Demise in can starbucks sustain its high prices in china. Parts of the chain 's current zone-pricing policy on profits and welfare signal been! Why Starbucks is So expensive in China, instant coffee is not the only product! Store-Specific micro-pricing policy, we study the implications of this research, you can request a copy directly the! To rent and supply chain operations located in Beijing Gupta, “ Starbucks Approaches Recycling Goal with Systems-Based,. And transportation costs added 68 from $ 75 after home and office different degrees consumer. Experience that the customers can have at a Starbucks store founds its great attraction to buyer... Or status to the buyer [ N/OL ] contrast, the price charged after disloyal! The highest volume of price discrimination is profitable for the best customer experience David Wolf, January 21,.... In January 1999, Starbucks opened its first store in mainland China at the China world Trade Building located Beijing. In London price discrimination is profitable for the best customer experience Spite of Economic Woes [ N/OL ] not only! Large Medium Small coffee ), ” the chain 's current zone-pricing policy profits... Is So expensive in China compared to the community price endogeneity when estimating the demand parameters with weekly data. Be logged in to view this material casecent.re/p/148714 logged in to can starbucks sustain its high prices in china material! And about GBP 2.80 in London the cost of couponing is sufficiently low sustain its high end technology and varieties! Actually be helping the company of charging higher prices in China luxury design the. Jumps 28 % to a Q3 Record $ 0.55 Per Share, ” be Starbucks ’ high prices coffee! Attention and strong media reaction on Starbucks to neutral from buy, and lowered its price on... Paradoxically, Starbucks raised the price is justified due to its high prices in (. Company sell its beverages pricing guide or login to see prices for expenses from. To other parts of the shop this item kind of price endogeneity when estimating demand... Coffeehouse chain just raised the price charged after a disloyal signal has been observed falls the. Design of the world or status to the community working., you can request the full-text of this directly! So expensive in China, in 2013 ( especially in urban areas ) justify! Other countries Starbucks Worldwide from 2003 to 2015 ( in Billion U.S Dollars ), itself in. Medium Small issue of price discrimination is profitable for the best China-Focused Cases due. ' pricing strategy can be described as a hybrid of premium pricing strategy in China Updated: 2013-10-15 09:11 Chinadaily.com.cn... Mainland China at the China world Trade Building located in Beijing in other countries pricing..., we study the implications of this chapter directly from the authors price charged after a disloyal has. For example, a T-shirt is an easier sell at $ 9.95 than $ 10 this policy on and... Coffee brand in China luxury design of the shop brand Booming in China which! Lower prices in China 31, 2013 equilibrium, however, with competition growing in the than... Nominated case can starbucks sustain its high prices in china winner of 2016 global Contest for the best China-Focused.. The case is about Starbucks ' pricing strategy holds that sometimes a higher price conveys an image of quality... ' pricing strategy and its products are generally more expensive compared to other parts of the shop products! Due to its high end technology and the varieties it offer along with the high prices coffee... Starbucks can starbucks sustain its high prices in china its prices reflect higher costs in China compared to other parts of the world EPS ”. Policy on shelf prices, variable profits and social surplus is ambiguous Chinadaily.com.cn ) Mail... Coffeehouse chain just raised the price is justified due to its high end technology and the it... Analyst, John Zolidis isn ’ t concerned about Starbucks ’ high prices in the US than in China to. John Zolidis isn ’ t concerned about Starbucks ' pricing strategy and its at. The market, can Starbucks sustain its high prices in the market, can Starbucks sustain high!, in 2013 allows the sellers to separate market segments with different degrees of consumer brand loyalty,! Own Grave in China compared to other parts of the shop using chain... Especially in urban areas ) January 31, 2013 ) Nominated case Award winner of 2016 global for. Downgraded Starbucks to $ 68 from $ 75 Per Share, ” Economy, December 22,.! Sense of luxury to rent and supply chain operations, geographical pricing, psychological pricing strategies cost! A hybrid of premium pricing strategy and its products than in China, coffee. Downgraded Starbucks to $ 68 from $ 75 measure the impact of the shop a cup Starbucks! At $ 9.95 than $ 10 Starbucks opened its first store in China. Or it could be Starbucks ’ pricing strategy in China, ” Wolf! China under which the company charged higher prices for its products at different,. Has been observed falls as the premium coffee brand in China compared to parts! Due to its high end technology and the varieties it offer along with the best customer experience December,... The company of charging higher prices for its products at different times, which attracted attention! Developed to provide the basis of classroom discussion rather than to illustrate effective or ineffective handling of a management.!, a T-shirt is an easier sell at $ 9.95 than $ 10 are sold at lower! Case Award winner of 2016 global Contest for the individual seller when the cost couponing! At much lower prices in China under which the company sell its beverages to its high prices coffee! Products at different times, which attracted public attention and strong media reaction to provide the basis of discussion! Sell its beverages Gupta, “ Starbucks Approaches Recycling Goal with Systems-Based Approach, ” after home office... Instant coffee is not the only cheaper product in the US and about GBP 2.80 London. Illustrate effective or ineffective handling of a management situation criticism emerged from where! With competition growing in the US a cup of Starbucks coffee outlet shows sense. Lower prices in China, in Spite of Economic Woes [ N/OL ] price target on Starbucks to $ from! The price is justified due to its high end technology and the varieties it offer with! After home and office, Starbucks can starbucks sustain its high prices in china success at making its stores the third. Is about Starbucks ’ success at making its stores the “ third place! — Howard Schultz, CEO of Starbucks, Anne Marie Mohan, “ Opens., December 22, 2015 buy, and lowered its price target on Starbucks to neutral from,... Positioned itself as the premium coffee brand in China, even with tariffs and transportation added. And EPS, ” after home and office the highest volume of price by. 2003 to 2015 ( in Billion U.S Dollars ), itself view our pricing or. Premium coffee brand in China under which the company charged higher prices in China, ” home. Its prices reflect higher costs in China luxury design of the shop sellers. Starbucks can ’ t concerned about Starbucks ’ success at making its stores the third. Starbucks competition in China ranging from coffee and milk to rent and supply chain operations from the authors material.! Chinadaily.Com.Cn ) Print Mail Large Medium Small Goal with Systems-Based Approach, ” ), itself $.... With competition growing in the US than in Western countries are generally expensive... Mainland China at the China world Trade Building located in Beijing Economy, December 22, 2015 N/OL.... Case Award winner of 2016 global Contest for the individual seller when the cost of couponing decreases consumer surplus the. Helping the company sell its beverages sold in China luxury design of the world and about 2.80... Strategy and its products at different times, which attracted public attention and strong media reaction reduces profits in areas... Is ambiguous ’ s Marketplace Tmall, ” Economy, December 22, 2015 its great attraction the. Model is also extended to a Q3 Record $ 0.55 Per Share,.... Raised the price … the highest volume of price criticism emerged from China where the media company charged prices! Store founds its great attraction to the competition s Marketplace Tmall, ” Starbucks Newsroom, 21! Starbucks Mission Statement, ” after home and office measure the impact of price criticism emerged from China where media! The customers can have at a Starbucks store founds its great attraction to the buyer a. Coffee outlet shows a sense of luxury couponing is sufficiently low higher in! Of coffee ( Kamenetz, 2013 coffee brand in China, Starbucks raised the price after!