Introduction
Starbucks initiated as a gourmet coffee roasting company that started in Seattle over forty years ago. The market at that time had been dominated by the brands that were marketed in the supermarkets that include Maxwell House and Folgers. At the time that Starbucks started its operations, the coffee consumption on a per capita basis was declining. In the decades of the 1980s and the 1990s, the higher quality coffee beans and the specialty coffee began to develop a niche of loyal followers. Starbucks was purchased by Howard Schultz in 1987. Schultz envisioned creating a coffee culture that was similar to the coffee culture that had been developed in Europe. Schultz’s administration of Starbucks caused the marketing of elevated quality premium coffee drinks to all of the urban centers on the United States. Schultz acquired Starbucks with annual revenue of $10 million. Star buck’s 2007 revenues totalled to more than $ 9.43 billion. The number of outlets that Starbucks owned totalled 15,000 in 2007 (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Historical Overview
The stock and dividend rates that Starbucks has achieved have enabled it to become one of the investment community's outstanding performers. The price of the company’s stock rose from two dollars in 1995 to more than thirty dollars per share in 2005. The price of the stock was able to retain the thirty dollar level for a substantial portion of the following year. In the third quarter of 2006, the price of Starbucks stocks began to decrease rapidly. The value of the Starbucks stock decreased from thirty nine dollars during the third quarter of 2006 to less than nineteen dollars in the first quarter of 2008 (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
In 2008, the Chairman of the Board of Directors of Starbucks decided to replace the president of the company. Schultz accused The CEO Jim Donald of diluting the company brand. Schultz regained the position of the CEO of Starbucks. The first implementation that was done was to replace the automatic espresso machines with smaller machines. The smaller expresso machines facilitated the employees of Starbucks in their maintenance of eye contact with the consumers during the consumer’s purchasing experience. The second imitative that Schultz introduced to the company was a brand of coffee that was boasted to be so fresh that the consumers would want to drink it pure. This brand of coffee was labelled the Pike Place brand. Starbucks initial image of a mermaid was reapplied and placed on a logo. The mermaid became the symbol of the Starbucks brand. Other Initiatives that Schultz started was to distribute a prepaid Starbucks card. The Starbucks card would provide rewards for clients who would use the card toward purchases. Schultz optimized on the digital trend that developed since he initially purchased the company. Schultz invented a site called My Starbucks idea. The site is applied in order to receive input from the clients with regards to the taste of their coffee (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Other initiatives that were put into effect were to demonstrate environmental and social responsibility. A partnership was created with Conservation International. These initiatives caused Starbucks to regain the stock value that it had accumulated in 2006. Starbucks initiated on an international strategy. This international strategy had the objective of concentrated on four large markets. These markets were that nations of China, Brazil, India and Russia. In 2007, Starbucks established more than five hundred stores in China. The objective is to have over two thousand stores located in China. The international strategy that Starbucks applied consisted of perceiving the manner that the consumers would ingest their products. This involves paying attention to the cultural preferences and tastes (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
In the United States, the majority of the purchases that were made were carried out of the store. In China, the purchases were consumed in the stores. In the Chinese cities, Starbucks serves as a meeting place for the clients. In China, the Starbucks are used for evening social events. Consequently, the Starbucks in China required additional seating facilities. . Many of the Chinese were not accustomed to drinking coffee. The Chinese prefer imbibing tea. In order for Starbucks to continue on a suitable path, the requisite of exploring the Chinese markets is integral. China is one of the most rapidly growing economies. In China, the consumers have disposable income that can be applied in order to consume in luxury products. Starbucks is a luxury product and the characteristic of projecting the image of luxury will facilitate the penetration of the Chinese market. The Chinese and American consumers have slight differences in what they would desire in a product. In the United States, the target market for Starbucks has an elevated living standard (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
The United States has a diverse number of cultures that can easily support change. The Chinese target market for Starbucks is composed of consumers that have strong Oriental cultural perspectives that are not easily subject to change. The Chinese market is composed of young professionals, students and internet aficionados. The Chinese market also consists of truck drivers, house wives and young professionals. There are many similarities between the Chinese and American Starbucks consumers. The similarities to the American consumers are what will attribute success for Starbucks. China is composed of a market that has 1.3 billion people. This is one of the most expansive markets that can be penetrated outside of the United States. The large Chinese population is the causal attribute for Starbucks looking to gain market share in China. The Chinese have a predominant culture that the citizenry are ready to promote at all expenses. The marketers must be able to adapt to the Chinese population. Nike was one of the multinational organizations that produced a commercial that was prohibited for showing Le Bron James who is a professional NBA basketball player challenging a Kung Fu pract8tioner. The Chinese interpreted this as Le Bron James gaining mastery over the Chinese culture (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
This example clearly demonstrates that in order to penetrate the Chinese market, the marketers must be able to adjust their presentation to the target market. Nike adapted its perspective by performing marketing research. Marketing research is the methodological planning, gathering, evaluation and documentation of information that is particular to a certain market situation. Starbucks capacity of being able to adapt and position themselves in the majority of China central shopping malls enable them to be able to blend into the Chinese ,market with greater facility. . Starbucks has a robust organizational culture of depending on its employees in order to share information and delegate insight with the managers. The information sharing process that is part of Starbucks organizational culture enables the production of product development crews in order to be able to examine the local culture consumer behaviour and the fashion trends. In the strong Chinese culture, Starbucks has been able to adapt its marketing approach to the Chinese target market (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Chinese Macroeconomic Indicators
The Chinese GDP is assessed at $11.3 trillion. China has the second largest economy in the world. The GDP growth index is 9.1%. The Foreign exchange reserves are estimated at $3.24 trillion. The rate of inflation is 7.65%. The IIP growth index is 14%. China has a fiscal deficit of 800 billion Yuan. The interest rates in the Chinese economy are 6%. China has exports of $180 billion. China imports $140.5 billion. The present account deficit is established at $59 billion. The gross domestic product has been rising rapidly over the past three decades. The Chinese households have not shared in the economic growth of the nation. The average rate of the growth of the GDP is 10% during the past five years. There are serious concerns with regards to the distribution of China’s GDP. This is attributed to the average household expenditures and consumption being at low levels. The decreasing proportion of the private sector consumption and the disposable household incomes are attributed to two primary factors (Tang, Salvanathan and Salvanathan 2012). The banking policies that are implemented by China’s government and the deficiency of a safety net are one of the factors. The second factor is that Chinese delegate substantial amounts of money in domestic banks as savings. The interest rate on deposits is established by the Chinese government. It is a frequent occurrence that the interest rate on deposited funds goes below the Chinese rate of inflation. This characteristic decreases the Chinese household income. The Social safety systems that include healthcare benefits and pensions are at a low level in China due to the increased levels of household savings. This high rate of savings has the consequence of lower disposable income. The appropriate measures in enhancing the household consumptions in China will have the outcome of the Chinese household having greater autonomy (Tang, Salvanathan and Salvanathan 2012.
IIP Growth index
The industrial production assessments changes for the outputs of the industrial production sector of the Chinese economy incorporate utilities, mining and manufacturing. The industrial production index is an important indicator that is applied for economic forecasting in order to assess the influences of inflation tensions. The inflation tensions and the industrial production may have the outcome of abrupt changes in prices. There was a 9.5% increase in industrial production in the middle of 20132. The majority of the United States’ firms are present in China due to the highly skilled and inexpensive labor. The movement of China’s IIP index influences the movement of the Dow Jones and NASDAQ indexes as a result of the substantial U.S. manufacturing base that is located in China (Tang, Salvanathan and Salvanathan 2012.
Agricultural Growth Index
China experiences a 4.3% agricultural production rate. There is half of China’s population that is involved in agricultural activities. Technological progresses have been the primary reasons for growth in the agricultural industry. In China there are over 30 million farmers that are employed. This number causes China to be the primary nation on the globe with regards to agricultural production. The exchange rate for the Chinese Yuan to the dollar is one Yuan is equal to $0.16 USD. The interest rate in China is established by the government at 6%. The unemployment rate in China has been consistent at 4.1% (Tang, Salvanathan and Salvanathan 2012).
U.S. Economic Data
The United States growth rate of the GDP has been 4%. In the past decade, the GDP in the United States has remained somewhat constant. There was a significant decrease in the percentage change of the GDP subsequent to 2008. The consumer price index is approximately 2.5%. The money supply that is detailed as M1 is $11.472.3 Billion. The budget deficit in the United States is $122 billion. The bank interest rate in the United States is 3.25%. The unemployment level of the United States is 6% ( Mudge and Mudge 2014).
The Chinese have been redesigning the Starbucks idea. Many of the Chinese enjoy coffee with food. The Chinese have the capacity of being able to sit in the Starbucks establishments for a number of hours. The trend in China and Hong Kong is that drinking coffee at Starbucks is a social event. It is not a daily necessity as has been encouraged in the United States. The Chinese come to meet their acquaintances and friends at Starbucks. They enjoy the climate and use it to converse with one another. This characteristics has caused the Starbucks stores in Hong Kong and China to0 be increased to 2,000 ft2. This has been done in order to be able to accommodate all of the Chinese clientele who enjoy conversation, coffee and moon cakes at Starbucks in Hong Kong and China. This is the intention that is implied by Starbucks being a third place idea. This means that it is a home for people when they are not home. The Starbucks has the potential of improving candy and CD discs sales as well (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
The pace of Starbucks in the United States is distinct. The consumers in the United States order a coffee and a sandwich to go while they are between appointments. In China and Hong Kong, there is a 5% take out rate. In China, the majority of the business is performed during the nighttimes and the evening hours. The Chinese make more use of the facilities. Starbucks presently has plans to expand its Chinese operation by adding ten stores every year. The real estate prices have increased substantially in Hong Kong. In the United States, Starbucks has a robust index of sales with regards to mugs, beans and music. This segment of the Chinese market has been reluctant to adapt to the Starbucks stores. Starbucks has only initiated its Chinese operations and is anticipating to drastically increase the number of stores. The hopes for the Chinese market are that the Chinese operations will increase the organization’s revenues by 20% (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
The initiatives that were conducted by the management of Starbucks in China have had some effective components. When Starbucks initially entered the Chinese market in 1999, there were many sceptics. Considering that the Chinese people have always favoured tea over coffee, it did not seem likely that Starbucks would have success in the Chinese market. However, as China has become more prosperous, a Chinese middle class that was more disposed to drinking coffee emerged. This enabled Starbucks to present a coffee drinking experience, where people would be able to socialize and drink coffee. Starbucks was able to apply the marketing mix in order to have the right promotion with the right product in the right place (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Starbucks has been able to substantially change the manner by which the Chinese perceive the coffee drinking experience. In addition Starbucks implemented an intelligent market entry approach. The promotions and advertising that could be perceived as adverse by the members of China’s tea drinking community were avoided. . Starbucks directed attention to placing its stores in high traffic and high visibility locations in order to enhance its brand image. The stores are designed with comfortable seating, chic design and encouraging music. Consequently, Starbucks has been able to establish its brand as a brand that is aspiring in China. This enables Starbucks to be able to sell their products at a premium in China (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Starbucks has optimized on its global brand image in China. Starbucks engages in the practice of sending their best baristas as emissaries in order to gauge and enhance the consumer coffee drinking experience. In addition, Starbucks has been able to maintain local partnerships in order to penetrate the Chinese market. Starbucks has entered into a partnership with Maxim’s caterers in Hong Kong. The entry into the Chinese market requires a long term perspective. Patience is required (Amber, Witzel and Xi 2008; Bussing- Burks 2008; de kluyver 2010; Felner 2008; Ferrell and Fraedrich 2014; Fraser 2012; French and Crabbe 2010; Gillespie and Hennessey 2010; Hexler and Woetzel 2013; Hitt, Ireland and Hoskisson 2014; Holloman 2013; Huo and Hong 2013; Lamb, Hair and McDaniel 2010; Levesque 2011; Lim 2012; Tian and Dong 2010; Tsang 2014, Zhang and Baker 2008; Zinzius 2004).
Conclusion
There are substantial distinctions between the Chinese Starbucks consumers and the United States Starbucks’ consumers. There are also substantial cultural differences between the Chinese and the American markets. Starbucks was able to create a demand for their premium coffee products in the United States. It is the aspiration that the brand image that was created in the United States can serve as foundation in order to penetrate and gain market share in China.
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