Starbucks product strategy in the Chinese market
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Starbucks product strategy in the Chinese market
- 1. THE BUCHAREST ACADEMY OF ECONOMIC STUDIES FACULTY OF INTERNATIONAL BUSINESS AND ECONOMICS STARBUCKS INTERNATIONAL PRODUCT STRATEGY WITH APPLICABILITY IN THE CHINESE MARKET Scientific Coordinator: Cosmin Joldes Ph.D Graduate: Dima Alexandra Bucharest 2011
- 2. Overview I. Introduction & Objectives II. Theoretical aspects III. Practical aspects IV. Conclusions Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 3. Introduction and objectives First impression matters Image is everything 3000 ads / day 90.000 ads / month 1.080.00o ads / year Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 4. Theoretical aspects and Controversies Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 5. Strategic choices in global marketing Different Communication Same Different Same Product Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 6. Starbucks in China General facts about Starbucks Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 7. Why China? – the land of tea Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 8. Starbucks’ growth strategies in China Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 9. Starbucks changes its strategy and adapts Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 11. 53% have confidence in foreign brands. Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 12. The Forbidden City Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 13. Starbucks goes instant in China Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 14. Conclusions Introduction & Objectives Practical aspects Theoretical aspects Conclusions
- 15. Recommendations Introduction & Objectives Practical aspects Theoretical aspects Conclusions
Editor's Notes
- It is said that first impression matters and clothes make the man. This concept is more and more relevant nowadays because image is everything. We spin around it, making it one of the very important aspects of our lives. The same situation is in marketing, where products have to make their first impression matter of the consumer. Each and every day, the average American is surrounded by almost 3000 ads a day, this means that in a month he scans 90.000 and in a year almost 1.080.000 ads. With this huge numbers, companies must promote efficiently and in an intelligent manner their products and brands so that they will enter and stay in the minds of their customers for a long period of time.The objective of this presentation is to examines the strategies that Starbucks had chosen when entering the foreign market and also presents the main actions that the company had to take in order to form a culture of coffee in the Chinese customer’s mind in order to recreate the Starbucks experience.
- Next, I will discuss about the strategies that a product needs to encounter in order to have fully potential and create an international product and brand.The first obstacle that a company meets in its journey of expanding its product in foreign markets, is whether to standardize or to adapt.designed product for the local market, which is lauched internationally with almost no change. The minor changes that may come can be either the translation of the words or cosmetic changes. There are a number of factors that are in favor of standardization and which are: common consumer tastesMarketing economies of scaleStrong positive country of origin effectAlso, choosing to adapt is not wrong and the following benefits are encountered:Different consumer tastesDifferent use conditionsDifferent cultureDifferent levels of economic developmentDue to the fact that an important issue still remains and that is, to what extent a company should standardize or adapt its product, the best solution is to create a balance between the two of them.
- When a company decides to enter a foreign market, it has to choose between 5 strategies:- product extension – communication extension: advantages of being both the easisest global strategy and the most profitable one. It is used by many companies which desire to sell the same product or brand in all emerging countries, using the same adevertising and marketing campaigns like in the home country. The products which best fit this strategy method, are the industrial ones (B-2-B) because they don’t have such a big impact in culture like consumer products do. product extension – communication adaptation - When a company expands its product in foreing countries, it may observe that the consumers in the respective country have different perceptions regarding the value and the quality of the products from those in the home country. There are also situations in which the product fulfills different needs or addresses to different segments in the market and that is why in order to gain fulol market success the company should try to extend the product, but adapt the communication programproduct adaptation – communication extension - This approach used by companies in order to extend globally refers to the fact that the communication strategy remains the same, but the product is adapted according to the special conditions and usage of products in the foreign markets. Here are taken into account elements as weather conditions, physical dimensions of people and so on- product adaptation – communication adaptation - When there are cases in which both environmental conditions and cultural events differ, this strategy is recommended to be used. - finnaly, product invention - Product invention strategy appears when companies observe that for the emerging markets there is no demand in purchasing the product even though it will extend or adapt. This situations appear in countries with low and limited purchasing power and which unfortunately counts for ¾ of the population on the Globe.
- Presenting all the strategies and elements that a company should take into account when deciding to go international, let’s move to the practical part of the presentation, and that is, the Starbucks product and brand strategy for the Chinese market.I will start first with some general facts about Starbucks:Created in 1971 by 3 students and was called Starbucks Coffee, Tea and Spice1972, Howart Schultz was hires and he represented an important acquisition made by starbucks founders.1985 Schultz acquired Starbucks and joined with its own coffee shop in Seattle. After the merger, Starbucks began to grow and by 2000 ranked 88 th in the 100 Best Global Brands and nowadays is the largest MNC with over 24.000 coffee shops in USA and Canada, over 100 in UK and more than 200 in China, Singapore, Japan…
- Why China? The land of teaEven though Chinese people are known for their tradition in tea consumption for centuries, Starbucks didn’t considered it an impediment. New and in the process of developing market, opportunity to position Starbucks as a leader in this industry of coffee, educate the market about the experience of Starbucks.Studies shown that there is place for coffee in the land of tea.The Chinese market is expanding by 30% each year and for this there is a huge opportunity for Starbucks to enter this market. Chinese people associate the consumption of coffee with better lifestyle, like the Western one and that is the explanation of why consumption is concentrated only in big cities like Shanghai or Beijing.There can be observed a pattern of coffee consumers, there are young, adventorous, open-minded people, having a high standard of living and which want a better lifestyle. This has led to increases in the demand for fresh coffee in disfavor for the instant coffee, which was cheaper.
- Starbucks entered the Chinese market in 1991, in Beijing. For this, Starbucks has set an elaborate but aggressive strategy because it desired to keep its intellectual property rights, trademarks and its personal characteristics. Because Chinese people are so fond of tea, Starbucks hadn’t had such a big success at the beginning, and that is why the company decided to not adapt its products, but to use the standardization strategy. This meant that the products sold were the same as in the home country, USA but instead, Starbucks would teach the Chinese consumers the Starbucks experience and the love for coffee. For this manner, they began by planting brochures on “What’s an espresso” in the store. The main purpose: create a relationship between customers and Starbucks and to create a familiar environment in order for them to feel confortable and bring their family and friends with them at a cup of coffee. Advantages of standardizationImpact of origin effect:Starbucks is serving the best coffee in the world and by maintaining its quality over the products in the Chinese market, customers will tend to see coffee as being an alternative to tea and also to appreciate the best-selling coffee in the world. Common consumer tastes: despite the fact that people are different and have opposite perceptions and opinions, they still have some characteristics in common. Due to globalization youths begin to be open-minded and having the opportunity to travel around the world, they already are informed about the Starbucks phenomenon, so when entering the Chinese market, they are acquaintance with the taste and flavor.
- After several years of selling in China, Starbucks decided to change a part of its strategy and adapted some of its products according to the local consumer’s tastes. They decided to graudally introduce new items in the menu such as food and bakery. On the list there were placed selection of bevarages to best fit the Chinese customer’s tastes and habbits, with products like tea, cheaper pastries, cheescakes, and so on. This decision was taken with consideration to the Chinese culture which points out that people like to eat while they are serving a cup of coffee or tea. Along with beverages and drinks, the atmosphere was completed by playing soft music in the background, which lead to a tranquil environment, where Chinese customers could relax after a hard day at work. Finally, another great decision took by Starbucks in China, was to promote new limited bevarages which targeted the younger customers which are open to everything that is new.With this combined strategy, Starbucks measured a great success in a challenging international market such as China and it’s on the way to transform it in the second biggest market, after the United States of America.
- Starbucks is considered to be one of the most popular brands in China.China represents an attractive market opportunity for Starbucks which still keeps its uniqueness and differences. In a recent study, it had been concluded that 60% of Chinese customers often buy a different brand than the one that they initially wanted to purchase.53% have confidence in foreign brands. From this study we can conclude that Chinese customers can be price sensitive when it comes to brands, having so many brands on the market and chances of purchasing the same brand twice in a row is likely possible. From this study, companies can learn that in order to attain the Chinese customer’s attention and loyalty, they in addition, the method by which the brand reaches the customers must be strategically thought. Due to the culture of Chinese customers, the company decided to inaugurate its own branded tea. Although among the young generation in China it is seen as dashing to consume a Starbucks coffee, inhabitants still living in rural areas, kept the tradition of drinking tea. That is why Starbucks wanted to reach all of the Chinese consumers and for that, the company decided to expand its menus and introduce tea. This strategy brings advantages to the company and to the clients. First of all, it will position the brand in the mind of the inhabitants, which live in regions not so developed. Secondly, the Chinese women that are preoccupied with their health and siluette can choose to drink tea instead of coffee.Starbucks also takes into account the festivals and holidays in order to promote its products. The Dragon Boat Festival is one good example of Starbucks implicationsIn 2010 during the festival Starbucks promoted Dragon Dumplings with five assortments in five different colors and each one of them represented something. For instance, the brown coffee color represents warm love, green indicates persistence, the gold one describes bright future, white color stands for peace and finally, the red one symbolized good luck. These customized products are considered to bring a positive image to the Starbucks brand and to the image of the company, thus Starbucks should always consider keeping an equilibrium between the local brand and the global brand.
- The Forbidden City is situated in the center of Beijing and during Ming and Quing dinasties it served as an imperial palace and in 1841 the inhabitants protested for its closure to the public. In 2000 Starbucks decided to open a small coffee shop in the Forbidden City but the reactions were not as expected. The inhabitants were surprized to see that, due to globalization, a Western company managed to enter a sacred place. At the opening, in september 2000, Starbucks advertised the clasic Americano latte coffee and an image witha filled glass with donuts, banana muffins and cinnamon rings, all of them being symobls for the American food culture. Unexpected, the officials of the Forbidden City were in favor of Starbucks company because they appreciated the efforts made by the company to increase the service area and to develop a culture for coffee.
- After years in which they have dealt with Chinese culture, trying to make the customers embrace Starbucks culture, the time has come to take the challange to the next level. In 2009 the global leader in coffee, Starbucks, started to sell instant coffee and this decision worthed an additional $100 million in just one year. Having these astonishing results, Starbucks decided to expand and in March 2011 news about the delivery of instant coffee in the Chinese market started to appear. Starbucks’ decision to sell instant coffee in the Chinese market represented a direct attack against Nestle, which at the moment is the leader in the market, with 75% shares of instant coffee and also is present on this market for over two decades. However, critics believe that on the short run, Starbucks will not succeed in overcoming Nestle’s instant coffee products, but on the long run it is believed that with the help of Starbucks brand equity, to surclass Nestle in this specific market.
- Nowadays, Starbucks owns 700 stores in China and more than 300 on the continent and this places China in front of Japan, which has only 870 opened stores.Starbucks is considered to be one of the fastest growing brands in the world and this is demonstrated by its position in the first 100 best global brands and has in plan that until 2015 to open in China more than 1500 new stores. It is believed that the chinese market represents a great opportuinity and it has all the chances of becoming the second largest market for coffee after America.
- Firstly, I truly believe that Starbucks should promote its brand for what it innitially standed for: innovative coffee market leader delivering high quality coffee products. It has been exemplified in the paper that brand image plays an important role and Starbucks should focus more on this aspect. Secondly, Starbucks should start differentiate its products according to the product and afterwards to the image and design of it. Considering the Chinese market which for decades had drank only tea, it is important for Starbucks company to first educate and develop a coffee culture among customers in order to cultivate their taste for coffee. Also, I do consider that it is important for Starbucks to place its brand as an experience because this will have a great impact on new Chinese customers and will ensure that first thoughts will be of great impact on them. In addition Starbucks should continue to take into account the specific habbits and characteristics of the Chinese culture and tranpose them into coffee experiences. The company should try to innovate more and be on the top of new products if it doesn’t want to start being seen as a commodity. This changes will also bring customer loyalty and recognition that Starbucks is a company that cares for its customers’ cultural characteristics.