Abstract

The case is about Starbucks’ pricing strategy in China under which the company charged higher prices for its products than in Western countries. 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 premium pricing strategy of the company aimed at improving its brand positioning in the Chinese market where the consumers’ perception was that high price products offered higher quality. However, the pricing strategy attracted criticism from the media outlets in China that accused the coffee giant of “profiteering” and of discriminating against its Chinese consumers. Starbucks defended it 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. 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. However, with competition growing in the market, can Starbucks sustain its high prices in China?

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Examine the issues and challenges in pricing, particularly premium pricing.
• Understand the reasons for Starbucks’ high prices in China, and why consumers are willing to pay the higher price.
• Understand the nature of the coffee market in China.
• Discuss and debate whether Starbucks can sustain its pricing strategy in China.
• Explore future strategies for Starbucks on the pricing front.

Keywords

Premium pricing strategy, Market skimming, Price elasticity of demand, Cost concepts, Marginal cost, Average total cost, Law of One Price, Structure-Conduct-Performance model, Herfindahl-Hirschman Index, Market concentration ratio, Monopoly, Oligopoly, Positioning, Lifestyle branding, Brand dilution