It charges 20% higher prices in China compared to other parts of the world. First we measure the impact of the chain's current zone-pricing policy on shelf prices, variable profits and consumer welfare across its stores. 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. was very unsatis ed with the high prices of coffee (Kamenetz, 2013). 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. © 2020 Springer Nature Switzerland AG. Starbucks pricing strategy can be described as a hybrid of premium pricing, geographical pricing, psychological pricing strategies. 3 They accused the company of charging higher prices in China than in other countries. Profit maximization is the process by which a company determines the price and … But shift your focus to a more upmarket item like a three-piece suit, and sometimes you can move more at a solid … 1999 1st Starbucks Store In January 1999, Starbucks entered the mainland China market by opening the 1st store in the China World Trade Building, Beijing. The case is about Starbucks' pricing strategy in China under which the company charged higher prices for its products than in Western countries. 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. With margins running between 10 % and 15 %, bottled water was on par with most consumer products, and far less profitable than many luxury goods. Coffee is not the only cheaper product in the US. 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]. We discuss the issue of price endogeneity when estimating the demand parameters with weekly store-level data. In September 2013, the coffee chain came under fire from the official Chinese media when it raised prices in its stores in the country. To ensure our pricing problem exhibits a well-defined optimum, we use the parsimonious, mixed-logit demand function that allows for flexible substitution patterns across brands and also retains a link to consumer theory. CBN Daily reported. “Starbucks Delivers Record Q1 Revenues and EPS,” Starbucks Newsroom, January 21, 2016. Starbucks can’t justify high prices in China Updated: 2013-10-15 09:11 (Chinadaily.com.cn) 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. 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. Case -Reference no. Starbucks Corp will raise prices for some of its products in mainland China from Jan. 1, a company spokeswoman said on Friday, as surging … Despite Starbucks’ increasing footprint in China, it failed to attract the average Chinese consumer who could not afford it because of its high price. Not affiliated Shuai Zhang.1 U.S. 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. “Starbucks Reports Record Second Quarter Fiscal 2012 Results,” Starbucks Newsroom, April 26, 2012, Casey Baseel, “Starbucks: More Expensive in China Than Japan or America, But Why?”, “Starbucks Accusation Causes Controversy,”, Mia De Graaf, “Chinese State-Controlled Media Zeroes in on Starbucks Accusing Coffee Chain of Overcharging When Compared with Shops in London and U.S.,”, “Starbucks Defends High Prices in China,”, Matt Schiavenza, “Why Is Starbucks So Expensive in China?”. 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 Starbucks share price has risen by almost 50% in 2019 with annual revenue growing 8% year on year to $6.82 billion. 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. The price is justified due to its high end technology and the varieties it offer along with the best customer experience. manufacturers’profits were hardly astronomical. — Howard Schultz, CEO of Starbucks, in 2013. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. 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. Value Based Pricing Can Boost Margins. All rights reserved. Starbucks Corp has been charging customers in China higher prices than other markets, helping the company realize thick profit margins, a report by the official China … 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. While industry profit and overall welfare fall monotonically as price discrimination is based on increasingly more accurate information, the reverse happens to consumer surplus. © 2008-2020 ResearchGate GmbH. Starbucks said its prices reflect higher costs in China for expenses ranging from coffee and milk to rent and supply chain operations. Brand Booming in China, In Spite of Economic Woes[N/OL]. 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 is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. With a population of 1.392 billion people in 2018, you can … In contrast, the price charged after a disloyal signal has been observed falls as the signal's accuracy rises. Premium pricing strategy holds that sometimes a higher price conveys an image of higher quality or status to the buyer. View our pricing guide or login to see prices. Starbucks China. The case is about Starbucks’ pricing strategy in China under which the company charged higher prices for its products than in Western countries. increase in the cost of couponing decreases consumer surplus while the impact on profits and social surplus is ambiguous. 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. CNN Business recently observed that “every Starbucks growth strategy is working." However, with competition growing in the market, can Starbucks sustain its high prices in China? International Journal of Industrial Organization. The report echoed a separate critique by the official China Daily newspaper published last week. Chee Leng, “The Power of Branding – Starbucks in China,” On Coffee Makers, “Starbucks Defends Higher Pricing in China,”. Starbucks Corporation (Starbucks), the world’s largest coffee chain by revenues, was considered a success story in China, where it maintained its unique character of serving premium coffee and succeeded in cultivating the demand for high-price brews throughout China. You must be logged in to view this material casecent.re/p/148714. Cite as. Every Starbucks coffee outlet shows a sense of luxury. Executive Summary China has been an economy on jet cruise ever since it opened doors for international trade during early 1980’s with much of the reforms being linked to the efforts made by Deng Xiaoping, with the help of late premier Zhou En Lai. “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,”. To read the full-text of this research, you can request a copy directly from the authors. A cup of Starbucks coffee costs about USD 5.03 in the US and about GBP 2.80 in London. Case Details; Case Intro 1; Case Intro 2; Excerpts <