The report echoed a separate critique by the official China Daily newspaper published last week. CBN Daily reported. Can Starbucks Sustain Its High Prices in China? In September 2013, the coffee chain came under fire from the official Chinese media when it raised prices in its stores in the country. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. The highest volume of price criticism emerged from China where the media . 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 … Both findings seem tied to the fact that in large part, what consumers are really buying and producers selling are convenience, packaging, and – in the market’s small, luxury segment – image. 3 They accused the company of charging higher prices in China than in other countries. “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,”. 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. 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. 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. This is a preview of subscription content. Or it could be the new coffee experience. We show how a, In 2006, more than 177 billion liters of water were bottled and sold, generating total revenues of $85 billion. 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. 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 firm downgraded Starbucks to neutral from buy, and lowered its price target on Starbucks to $68 from $75. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. To read the full-text of this research, you can request a copy directly from the authors. “Starbucks Delivers Record Q1 Revenues and EPS,” Starbucks Newsroom, January 21, 2016. High Starbucks prices are understandably … 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 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. It charges 20% higher prices in China compared to other parts of the world. Is Starbucks Sowing the Seeds of Its Own Demise in China? According to Oberoi & Hales (1990), service is an activity which is produced simultaneously with purchase and the service providers are often present and visible to the consumer. However, with competition growing in the market, can Starbucks sustain its high prices in China? You may want to spend an extra minute or two savoring your next cup of joe from Starbucks. 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. 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. History. The core global café business has grown 6%. But shift your focus to a more upmarket item like a three-piece suit, and sometimes you can move more at a solid … In January 1999, Starbucks opened its first store in mainland China at the China World Trade Building located in Beijing. This is despite the coffee cups being made in China and sent to the U.S. 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]. 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. 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. “Starbucks Opens Store on Alibaba’s Marketplace Tmall,” Economy, December 22, 2015. Not logged in However, the pricing strategy attracted criticism from media outlets in China, accusing the coffee giant of profiteering and of discriminating against its Chinese consumers. “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,”. Brand Booming in China, In Spite of Economic Woes[N/OL]. As of May 2016, the world’s … Over 10 million scientific documents at your fingertips. Not affiliated You can request the full-text of this chapter directly from the authors on ResearchGate. Starbucks pricing strategy can be described as a hybrid of premium pricing, geographical pricing, psychological pricing strategies. Brand values of Starbucks could be as simple as the product (coffee), itself. Institute of Technical Education and Research, An Investigation of Korean Consumers Service Quality Perception of Imported Retail Services: Implications of Consumer Ethnocentrism, Coupons and Oligopolistic Price Discrimination, Balancing Profitability and Customer Welfare in a Supermarket Chain, Profitable springs : the rise, sources, and structure of the bottled water business, Price Discrimination with Private and Imperfect Information, In book: China-Focused Cases (pp.103-118). 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. Nathan Barlow, “China’s Coffee Industry is Brewing,” China Briefing, October 9, 2013, Shuai Zhang, “1 U.S. Starbucks pursues premium pricing strategy and its products are generally more expensive compared to the competition. 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. This case was the Nominated Case Award winner of 2016 Global Contest for the Best China-Focused Cases. The Starbucks share price has risen by almost 50% in 2019 with annual revenue growing 8% year on year to $6.82 billion. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. In China, instant coffee is widely sold in China (especially in urban areas). The case was developed to provide the basis of classroom discussion rather than to illustrate effective or ineffective handling of a management situation. “Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands,” Wang Zhendong, director of the Coffee Association of Shanghai, told CCTV. Ruchi Gupta, “Starbucks Corporation (NASDAQ: SBUX) Might Be Digging Its Own Grave in China,”. An, We investigate the impact of price discrimination by a large Chicago supermarket chain. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. Nestle and Starbucks Licensing Deal-A New Brew in the Global Coffee Market: Behavioral Economics and Starbucks` Cup Problem: Can Starbucks Sustain its High Prices in China? Paradoxically, Starbucks’ high prices may actually be helping the company sell its beverages. Starbucks can’t justify high prices in China Updated: 2013-10-15 09:11 (Chinadaily.com.cn) 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. 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. Customers are attracted by the Figure 2. This case is about Starbucks’ pricing strategy in China, under which the company charged higher prices for its products than in Western countries. Whether sold in parched or polluted regions, where few other sources exist, or water-rich places like Manhattan, bottled water fetched a significant markup over the often identical liquid that flows from the taps, its price rising by a factor of as much as 4.000. The case is about Starbucks’ pricing strategy in China under which the company charged higher prices for its products than in Western countries. 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. 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. 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,”. While industry profit and overall welfare fall monotonically as price discrimination is based on increasingly more accurate information, the reverse happens to consumer surplus. 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. 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