Starbucks: Selling Coffee in the Land of Tea
CASE STUDY 1: STARBUCKS: SELLING COFFEE IN THE LAND OF TEA Starbucks has been doing business in China since 1999 when they opened their first coffee shop in Beijing. Today, hundreds of Starbucks stores sell coffee in the land of tea, including one at the Great Wall. It has become one of the most popular brands among the country’s 20 – 40-year-old upwardly mobile Chinese, or “Chuppies”, as they’re called, but so far China accounts for only about 10 percent of Starbucks’ sales. Nevertheless, Chairman Howard Schultz believes the country will someday be the company’s largest market outside North America. The market response,’ he says, “has exceeded our expectations. ” This may seem surprising when you consider the fact that the majority of China’s one billion-plus population are tea drinkers who didn’t know what coffee was until Nestle introduced a powdered version on store shelves in the 1980s. But Starbucks is betting that it can win the new generation over by marketing its signature product as an emblem of modern china’s new sophistication. “Coffee represents the change,” says Wang Jinlong, president of Starbucks Greater China. “The disposable income in concentrated on the young people, and this is the place they want to come. Success in China could depend on how well Starbucks markets itself to what Wang calls the “little emperors. ” China’s one-child law has spawned a generation that isn’t interested in collective goals, he says. Instead, they embrace the Western belief in individually that Starbucks embodies. After surveying Chinese consumers, Starbucks compiled a list of the top reasons they go to cafes. Surprisingly, the number one reason was “to gather with family and friend,” while “to drink coffee” lagged behind at number six. Living spaces are generally small and cramped there, making place to congregate important to the Chinese.
Da Wei Sun, manager of outlets in Beijing, believes that Starbucks found success in China because it took this idea of a place to gather and gave people in the cities a “third space” beyond work and home, making it cool to have a latte and hang out. Starbucks offers more food on the Chinese menu, including duck sandwiches, moon pies, and green-tea cheese cake, than in other countries, and more seating as well. Only 20 percent of North American customers eat and drink inside the store after ordering, but the number is close to 90 percent in China.
China remains a communist country, so a change in its one-party dictatorship could potentially affect business overnight. Schultz says the key to establishing stores there is to first find local partners who understand the changing political and business landscapes. Starbucks initially entered China by authorizing local developers to use its brand and setting up joint ventures with partners. Industry analyst Pei Liang advised that for long-term success in the country, Starbucks would need to acquire controlling stakes in its joint ventures.
This, Pei explained, would strengthen management’s control and put in position to reap more of the profits as the market grew. “Licensing or holding a minority stake is an effective tool when first stepping into a new market because it involves a small investment,” says Pei. “But Starbucks, the brand’s owner, receives only royalty fees from the licensee. ” In late 2006, Starbucks announced that it was buying out its partner in China and taking control of 60 stores. The market had changed after Beijing entered the World Trade Organization in 2001, making it easier for foreign companies to navigate alone. Buying out one’s partner is becoming more common,” says industry consultant Kent D. Kedl. “Starbucks probably feels they sic know better how China works now so they sic can go it on their own. ” Chairman Howard Schultz says that Starbucks will concentrate most of its future expansion efforts in China, and Kedl predicts it will see continued success there. “It’s not just a drink in China. It’s a destination. It’s a place to be seen and a place to show how modern one is. ” And with China’s economy continuing to grow in double digits, the number of Chuppies willing to pay $3. 3 for a Mocha Frappucino Grande is likely to grow, too. Source: “Starbucks Targets Growing China Market,” AsiaPulse News, 6/13/2006; Janet Adamy, “Starbucks’ Task China? Winning Over Tea Drinkers,” The Seattle Times, 11/30/2006; Jeffrey S. Harrison, “Exporting a North American Concept to Asia”, Cornell Hotel & Restaurant Quarterly, May 2005; Craig Harris, “Starbucks Sees China as Key to Its International Growth,” Seattle Post-Intelligencer, 10/7/2006; Dexter Roberts, “Starbucks Caffeinates Its China Growth Plan,” Business Week Online, 10/26/2006. Questions 1.
Many of the same environmental factors, such as cultural factors, that operate in the domestic market also exist internationally. Discuss the key cultural factors Starbucks had to consider as it expanded into China. 2. Discuss the key political and legal factors Starbuck had to consider in the Chinese marketplace. What are the risks of entering a country with these factors? What changes have occurred in China’s political and legal structure to the advantage of foreign companies? 3. What demographic factors were important for Starbucks to understand in China?
What were the demographics they decided to target? 4. What was the initial global-market strategy Starbucks employed to enter China? Discuss the advantages and disadvantages to this early strategy. How has their strategy changed since then and why? CASE STUDY 2: VIVA LAS VEGAS In 2003, more than 35. 5 million travellers made Las Vegas their destination of choice. It was the second largest volume of visitors the city has ever entertained, lagging just slightly behind 35. 8 million recorded for the year 2000.
Those numbers are remarkable given the recent slump in the travel industry, and the city has the Las Vegas Convention and Visitors Authority to thank. For almost 50 years, the LVCVA has been promoting Las Vegas in an effort to maximize occupancy for the city’s hoteliers who suffer from the cyclical demand in the travel industry. The authority’s marketing of the city’s convention, lodging, and entertainment facilities to convention organizers, meeting planners, and leisure travellers plays an integral role in keeping hotel rooms and convention facilities occupied during off-peak times of the year.
Many types of visitors go to Las Vegas for a variety of reasons, and the LVCVA uses a multilevel promotion strategy to reach them all. The organization’s promotional mix includes national television advertising, grassroots marketing, and relationship building with a variety of organizations. Each element is specifically designed to address issues within particular segments of its growing target market, such as changes in the composition of the visitor pool, shifts in visitors’ travel preferences, the emergence of potentially lucrative metropolitan markets, and trends in foreign visitors.
An LVCVA study of the area’s visitors for 2001, for example, found that African American, Hispanics, and Asian Americans accounted for 9, 5, and 4 percent, respectively, of the total visitor pool. The same study also revealed that the number of visitors from each of those groups has been steadily rising and that all U. S. visitors were beginning to prefer two- or three-day stays to weeklong vacations. With those data in the hand, the LVCVA produced its award-winning “Vegas Stories” series of TV commercials.
These irreverent ads poke fun at the sticky situations travellers may find themselves in as a result of too much revelry in the desert. Using the tagline, “What happens here, stay here,” the spots from the “Vegas Stories” campaign include an older Asian woman trying to alter an after-the-trip love letter while Roy Orbison’s “Only the Lonely” plays in the background and a bachelorette party of African American women riding quietly in a limousine until the group is slowly overcome with sheepish laughter.
Other commercials depict elderly couples, businesswomen, and young professional males. The LVCVA also produced its first-ever commercial recorded entirely in Spanish, which was written specifically to appeal to Hispanics’ historical preference for family or group activities for vacations. Additionally, the authority’s director of diversity began promoting Las Vegas to ethnic chambers of commerce and organizations like the International Association of Hispanic Meeting Planners and the National Coalition of Black Meeting Planners.
Other research performed by the LVCVA identified Portland, Oregon, and Atlanta as emerging regional based on their median household incomes, their available flights to Las Vegas, the cost of advertising in those markets, and the propensity of their citizens to gamble. The LVCVA then bought billboards in each city, cruised the towns in a specially prepared van featuring an Elvis impersonator and a traditional Vegas showgirl, and offered special travel deals to promote the entertainment options that Las Vegas offers in addition to gambling.
The authority’s message carries beyond the borders of the United States, too. When it noticed significant drops in the visitor volume from Canada-Las Vegas’s leading source of international travellers- the LVCVA sent an official delegation to Toronto. This group canvassed Toronto’s Canadian Meeting & Incentive Travel Symposium & Trade Show to persuade convention operators to host their future productions in the desert.
Representatives also met with private convention and leisure travel planners and attended events in Montreal and Vancouver to promote their cause. Las Vegas is clearly on the rise again thanks to the tireless work of the LVCVA, and the authority has the hard data to prove it. As long as the LVCVA continues to understand its may diverse customers and communicate with them appropriately, the city of lights should continue to shine brightly for many years to come.
Questions 1. What bases does the LVCVA use for segmenting its target market? 2. Does the LVCVA use an undifferentiated, a concentrated, or a multi-segment targeting strategy? Why? Should the LVCVA be concerned with cannibalization? 3. Think of the many reasons a person might want to travel to Las Vegas. Given a target market of all U. S. citizens aged 18 – 75, speculate how you might segment that market by lifestyle. 4. What do you think makes the LVCVA so successful?
