Starbucks is a coffee chain founded in Seatle, USA, in 1971. The company is famous for its premium coffee accompanied by top-notch customer service. With a mission to inspire one person, one cup, one neighbourhood at a time, Starbucks not only changed the way coffee is consumed in the USA but also gradually introduce the Western coffee culture to multiple parts of the world. As of 2020, there are 33,833 Starbucks stores all over the globe, serving more than 100 million customers. 1
One contributing factor to this major success is Starbucks' international strategy and its ability to adapt to each market. In this article, we'll learn more about how Starbucks' internationalization process, including the overall global penetration method, the type of market entry, as well as pricing strategy.
What is Starbucks' international strategy?
Bartlett & Ghoshal Matrix is a framework for determining the type of international strategy pursued by a business based on two criteria: global integration and local responsiveness.
A high level of global integration means that the business wants to try to reduce costs as much as possible through standardized products and economies of scale. On the other hand, a high level of local responsiveness indicates a business's tendency to adapt its products and services to local needs. These two factors create four types of international strategy: global strategy, transnational strategy, international strategy, multi-domestic strategies. 2
The multi-domestic strategy is adopted by Starbucks when expanding overseas. It is characterized by low integration and high responsiveness. Accordingly, the company tailors its products to the specific needs of the local customers. The structure of the organization is highly decentralized, which allows subsidiaries to operate autonomously and independently from the headquarter. 3
| Local responsiveness |
Low | High |
Global integration | High | Global strategy | Transnational strategy |
Low | International strategy | Multi-domestic strategy |
Figure 1. Types of International Strategy
Starbucks market entry strategy
When it comes to market entry strategy, Starbucks employs three strategies: wholly-owned subsidiaries, joint ventures, and licensing:
The wholly-owned subsidiaries strategy is carried out when the company has extensive knowledge of the market, such as that in the US or Canada. Joint ventures come in handy when Starbucks wants to initiate business in a new market. Finally, the licensing strategy allows the coffee chain to quickly expand in a specific country.3
The Asia Pacific has always been a fruitful market for Starbucks due to the increasing young population who are eager to adopt a Western lifestyle:
In Japan, Starbucks set up a joint venture with Sazaby League Ltd - a local designer and retailer of handbags, clothing and accessories which also operates restaurants and coffee shops under the name Afternoon Tea. The partnership starting in 1995 has allowed Starbucks to win over Japan, making it one of the company's top-performing markets internationally. Since 2014, the company has taken full control of a Japanese Subsidiary for $ 914M.4
In China, Starbucks made its debut under a licensing agreement with Beijing Mei Da Coffee Co. Ltd in 1998. In the following years, the company expanded its influence by forming joint ventures with Uni-President Group and Mei-Xin International Ltd to operate in Shanghai, Hong Kong, Shenzhen, Macau, and other parts of southern China.
Starbucks international pricing strategy
Starbucks adopts value-based pricing for its products all across the globe.
Value-based pricing is the value perceived by the customer rather than its actual costs.
However, most Starbucks customers - who belong to the middle and upper social class are happy to pay the extra price for the premium coffee and top-notch customer service. This pricing strategy has allowed the company to maximize its income while building a premium brand image to differentiate itself from the competitors.
The price of Starbucks not only varies based on the size and type of coffee but also on the country or region it operates in. This variation can be narrowed down to various factors such as spending power, tariffs, exchange rates, local market needs, and competition in different countries.6
Figure 2 shows the price of the same Starbucks coffee in different parts of the world (in £ equivalent):
| cappuccino | Americano | Latte |
Bern, Switzerland | £ 4.58 | £ 4.27 | £ 4.58 |
Paris, France | £ 3.39 | £ 2.53 | £ 3.39 |
New York, US | £ 2.69 | £ 2.03 | £ 2.69 |
London, UK | £ 2.45 | £ 2.20 | £ 2.45 |
Bangkok, Thailand | £ 2.37 | £ 2.17 | £ 2.40 |
Figure 2. Price for the same cup of Starbucks coffee around the world, based on Voucherbox
Prices are typically higher for countries outside the US. For example, Bern in Switzerland has the highest price Starbucks coffee with Cappuccino costs £ 4.58 a cup compared to the UK whose price is £ 2.45. Bangkok's Starbucks costs the least at around £ 2.37 for a cappuccino. Between different types of coffee, there's an average price difference of 20-30 cents.
An analysis of Starbucks international strategy
Starbucks' success in its internationalization process comes down to its cultural mindfulness and intensive research of the host market.
In China, tea is considered the national drink. Thus, to break into the market, the company has included a lot of products made from green tea on its menu. As people became more familiar with the brand, they began to introduce more coffee flavours to promote the American coffee-drinking culture. Knowing the Chinese like to sit in a large group, Starbucks has also designed tables that can be put together to accommodate more people.
Local partnerships also contribute enormously to the success of Starbucks' internationalization process.
Starbucks partnered with Beijing Mei Da with penetrating the northern Chinese market. In the east, it associates with Uni-President and in the South, Maxim Caterers. Through these partners, Starbucks learns to adapt and expand its product portfolio to better suit the local customers' preferences.
While focusing on adaptation, Starbucks maintains strong brand integrity. It sets a clear standard of how the products and brand image should be perceived by the customers. As a result, those who wish to become Starbucks partners must adhere to its explicit guidelines. In addition, all baristas in the host country have to undertake the same training as those in the US.
Starbucks international strategy relies on low integration and high responsiveness (multi-domestic), which is best reflected in Entry Modes and Pricing Strategies. The goal is to spread Starbucks' coffee culture while adapting to local tastes and preferences. Instead of competing with global brands, Starbucks establishes itself as a friendly choice among the many food and beverage options in the host country. This has endeared the brand to the local people and allowed it to enjoy global success.
Starbucks International Strategy - Key takeaways
- Starbucks is a coffee chain founded in Seattle, USA, in 1971, famous for its premium coffee accompanied by top-notch customer service.
- Starbucks is classified as a multi-domestic company due to the high level of local responsiveness and low level of global integration.
- Starbucks' products are customized to suit local tastes and preferences.
- In terms of market entry, Starbucks adopts three main approaches: wholly-owned subsidiaries, joint ventures, and licensing.
- Value-based pricing is adopted for markets worldwide which contributes to Starbucks premium image.
- Cultural mindfulness, market research, local partnership, and strong brand integrity are critical factors determining the success of Starbucks international strategy.
References
1. Statista, Number of Starbucks stores worldwide from 2003 to 2021, 2021.
2. Lars de Bruin, International Business Strategy, 2017.
3. Christine Nyandat, Starbucks International Strategy, 2019.
4. Starbucks Stories & News, Starbucks Poised for Continued Growth in Japan Through Full Ownership of Market, 2014.
5. MBA Knowledge Base, Case Study on Marketing Strategy: Starbucks Entry to China, n.d.
6. Abhiyash Jain, Starbucks prices products on value not cost. Why, 2020.
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