Abstract
This 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 consumer perception was that higher-price products offered higher quality. However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. 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. 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?
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].
— Howard Schultz, CEO of Starbucks, in 2013.
The case was developed by Debapratim Purkayastha, Benudhar Sahu and S. Venkata Seshaiah of ICFAI Business School Hyderabad and Trilochan Tripathy of XLRI Jamshedpur. The case was developed to provide the basis of classroom discussion rather than to illustrate effective or ineffective handling of a management situation.
This case was the Nominated Case Award winner of 2016 Global Contest for the Best China-Focused Cases.
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Notes
- 1.
Founded in 1972, Mintel was a privately owned, London-based market research firm and a leading market intelligence agency in the world. It delivered top-class data, market research, trends, and insights that had an impact on business.
- 2.
Second-tier cities in China included capital cities of each province and coastal cities.
- 3.
Founded in 2007, SmithStreet was a business consultancy firm headquartered in Shanghai, China. The firm focused on China growth strategies.
- 4.
Benchmark Asia Research Group was a qualitative research firm dedicated to sharing the unique stories, experiences, and perspectives of Asian consumers. It helped clients gain both an understanding of and a deeper respect for the complexity of the Asian market.
- 5.
US$1 was approximately equal to 6.49 Chinese yuan as of 2016.
- 6.
In the United States, a grande latte was priced at around US$3.45.
- 7.
Founded in 1976, Apple Inc. is an American multinational technology company headquartered in Cupertino, California. It designs, manufactures, and sells smartphones, computer software, media devices, and online services.
- 8.
Founded in 1962, Wal-Mart is an American multinational retail corporation headquartered in Bentonville, Arkansas. It operates a chain of hypermarkets, discount department stores, and grocery stores. With fiscal year 2016, Walmart has a revenue base of US$482.1 billion and employs 2.2 million associates worldwide.
- 9.
Founded in 2003, Danwei was a China-based media tracking website. It provided research and media services, news, and Internet analysis, and wrote and created custom media about China and Chinese themes for clients.
- 10.
Founded in 1930, KFC Corporation was an American fast food restaurant based in Louisville, Kentucky. It was the world’s most popular chicken restaurant chain that specialized in fried chicken.
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Purkayastha, D., Sahu, B., Venkata Seshaiah, S., Tripathy, T. (2019). Can Starbucks Sustain Its High Prices in China?. In: China-Focused Cases. Springer, Singapore. https://doi.org/10.1007/978-981-13-2706-3_6
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