Question

For this discussion, the case explores the international expansion of Starbucks. The company has expanded over the last thirty years from a single store in Seattle to more than 20,000 locations spread across 64 different countries. As Starbucks has expanded, it has been forced to meet the challenges of operating in different cultures and political systems. Today, Starbucks is focused on continuing its global expansion, particularly in China. Discussion of the case can revolve around the following questions.   

QUESTION 1: Starbucks prefers a combination approach to foreign market entry: the use of joint ventures and licensing. Do you agree with this approach? Why or why not?

QUESTION 2: Many would argue that Starbucks coffee is expensive, and yet customers get “value” for their money. How do you think Starbucks has been able to transfer this business model and value proposition to international markets?

Answer 1

Q1)Starbucks prefer a combination approach to foreign market entry: the use of joint ventures and licensing. I do agree with this approach. It is essential to understand the intellectual property rights laws and licensing issues when planning market entry in an emerging market. Starbucks has used intellectual protection laws to prevent its business model and brand from being illegally copied in China. Four years after opening its first cafe in China in 1999, Starbucks had registered all its major trademarks in China. A number of Chinese businesses have overstepped legal bounds in their efforts to mimic the successful Starbucks model.The organization and structure of Starbucks' global operations were informed by market research. The organizational strategies employed by Starbucks were derived from Starbucks' experiences in other emerging markets supported an early recognition that China is not one homogeneous market.

The complexity of the Chinese markets led to regional partnerships to aid in Starbucks' plans for expansion in China; the partnerships provided consumer insight into Chinese tastes and preferences that helped Starbucks localize to the diverse markets.

• Northern China - a joint venture with Beijing Mei Da coffee company.
• Eastern China - partnered with Taiwan-based Uni-President.
• Southern China - worked with Maxim's Caterers in Hong Kong.

Starbucks' competitive advantage is built on product, service, and brand attributes, many of which have been shown through market research to be important to Starbucks' customers. Western brands have an advantage over local Chinese brands because of a commonly accepted reputation for consistently higher quality products and services, a factor that establishes the Western brands as premium brands in the minds of consumers.When Western brands attempt to increase market share by cutting prices, they erode the very competitive strategy that gives them an edge in consumer perceptions. Moreover, Western brands cannot effectively maintain a lower pricing strategy than local Chinese brands.

Maintain brand integrity in new markets. Starbucks' global brand is valuable and maintaining brand integrity is a fundamental focus in Starbucks' internationalization efforts. The baristas in China acted as brand ambassadors to help embed the Starbucks culture in the new market and ensure that high standards for customer service and product quality are maintained at each new and established local store.Starbucks' ability to address changing markets is honed by effective and ongoing market research. Establishing and maintaining a global Starbucks brand does not mean having a global platform or uniform global products. Starbucks marketing strategy in China was based on customization in response to diverse Chinese consumer target segmentation.Starbucks created extensive consumer taste profile analyses that are sufficiently agile to enable them to change with the market and to create an attractive East meets West product mix. Moreover, the localization effort is sufficiently flexible to permit each store to have the flexibility to choose from a wide beverage portfolio.

Q2) Starbuck's coffee is not just expensive but way more expensive than a normal coffee, but customers do get their " value for money" ; can one way be explained by Veblen effect. An example can justify this. Many consumers use LUX supreme soap instead of ordinary Lux soap , although the latter being cheaper. The reason behind this anamolous behavior is the the higher price of the soap, The higher the price of commodity the higher social status a person gains. This is related to the social status of a person. Similarly value for money Starbuck's coffee is a luxury good and a symbol of social status.

Market research helped to identify the attributes of capitalism in the Peoples' Republic of China (PRC). The middle class in China has rapidly accepted Western standards as an acceptable standard of the bourgeois class. Moreover, Chinese consumers accept purchases of luxury goods as a means of pursuing quality lifestyles.Under the influence of Communism, the Chinese considered conspicuous consumption to be decadent or indicative of a lack of a nationalistic orientation. Capitalism in The Peoples' Republic of China supports the status-conscious population that manifests its interest in keeping up with the Jones' through excessive luxury consumption.The Chinese government's support of luxury consumption is particularly apparent in certain cities in China. The second-tier city of Chengdu serves as a market research case study in Chinese governmental support of capitalism. Chengdu promotes capitalism at a level evidenced by the presence of stores like Louis Vuitton and Cartier in its downtown.According to the Chengdu Retail Industry Association, stores selling 80 percent of international luxury brands are located in Chengdu, and the city ranks just third in luxury sales after Beijing and Shanghai. It is easy to see how this national orientation toward luxury goods extends to the Starbucks brand, which is characterized by a certain degree of exclusivity.