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Starbucks International Strategy

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Business Studies

Starbucks is a coffee chain founded in Settle, 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 Settle, 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.

Starbucks International Strategy

Starbucks adopts a multi-domestic international strategy that focuses on low integration and high responsiveness. This means the company's product is tailored to the taste and preferences of locals rather than being made standardized. The structure of the company is highly decentralized, meaning subsidiaries can operate independently from the headquarter. 

The global success of Starbucks is a result of a smart international strategy, most notably its market entry and pricing strategies. For market entry, the company employs a different strategy depending on the type and knowledge of the target market. The international pricing strategy is the same value-based pricing Starbucks adopts for all its products, but with some variations in each region and country. 

The framework for determining the type of international strategy is called Bartlett & Ghoshal Maxtrix. It is based on two factors: global integration and local responsiveness. Starbucks is using a multi-domestic strategy characterised by high local responsiveness and low global integration.  

Starbucks is adopting a multi-domestic strategy with high local responsiveness and low global integration. Its entry strategies include wholly-owned subsidiaries, joint ventures, and licensing. For pricing, Starbucks utilizes value-based pricing with variations in different countries and regions. 

Final Starbucks International Strategy Quiz

Question

What is Starbucks International Strategy?

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Answer

Multi-domestic strategy

Show question

Question

What type of international strategy does Starbucks adopt?

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Answer

Multi-domestic strategy 

Show question

Question

What is Bartlett & Ghoshal Matrix used for?

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Answer

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.

Show question

Question

What are two key criteria for determining international strategies using the Bartlett & Ghoshal Matrix?

Show answer

Answer

Global integration and local responsiveness

Show question

Question

What does high global integration mean?

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Answer

The company tries to reduce costs as much as possible through standardized products and economies of scale. 

Show question

Question

What does it mean if the company has high local responsiveness?

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Answer

The company is adaptive to the local tastes and preferences. For example, include in its menu a type of drink unique to the region. 

Show question

Question

What are four types of international strategy?

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Answer

  • global strategy
  • transnational strategy
  • international strategy
  • multi-domestic strategy

Show question

Question

Which market entry strategies do Starbucks adopt?

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Answer

  • wholly-owned subsidiaries
  • joint ventures
  • licensing

Show question

Question

When does Starbucks employ wholly-owned subsidiaries, joint ventures, or licensing entry strategies?

Show answer

Answer

  • 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

Show question

Question

What is the pricing strategy that Starbucks adopts internationally?

Show answer

Answer

Value-based pricing strategy with variations in different regions and countries. 

Show question

Question

What is value-based pricing?

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Answer

Value-based pricing is the value perceived by the customer rather than its actual costs.

Show question

Question

What is the benefit of a value-based pricing strategy to Starbucks?

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Answer

This pricing strategy has allowed the company to maximize its income while building a premium brand image to differentiate itself from the competitors. 

Show question

Question

What factors influence Starbucks products' prices in a specific region?

Show answer

Answer

Spending power, tariffs, exchange rates, local market needs, and competition in different countries

Show question

Question

What brings about Starbucks' global success?

Show answer

Answer

Its cultural mindfulness and intensive research of each target market

Show question

Question

How does Starbucks maintain brand integrity while adapting to the local market?

Show answer

Answer

Starbucks creates brand integrity by setting 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. 

Show question

Question

The framework for determining the type of international strategy used by a company is called...

Show answer

Answer

Bartlett & Ghoshal Matrix

Show question

Question

A high level of local responsiveness indicates a business's tendency to adapt its products and services to local needs. 

Show answer

Answer

True

Show question

Question

A high level of global integration means that the business will try to reduce costs through...


Show answer

Answer

standardisation

Show question

Question

Multi-domestic strategy is characterised by...

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Answer

high local responsiveness, low global integration

Show question

Question

Wholly-owned subsidiaries strategy is carried out when the company has extensive knowledge of the market.

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Answer

True

Show question

Question

Which type of market entry strategy allows the company to quickly expand in a specific country?

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Answer

Licensing

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Question

When the company has limited knowledge about a market, it should enter the market using...

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Answer

Joint venture strategy

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Question

Who are targeted group of Starbucks?

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Answer

middle and upper class customers

Show question

Question

Why does value-based pricing work for Starbucks?

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Answer

Customers of Starbucks come from the middle and upper social class who are happy to pay more for premium coffee. 

Show question

Question

The international success of Starbucks is put down to its cultural mindfulness and intensive research of the host market. 

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Answer

True

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Question

A focus on adaption means that Starbucks can ignore brand integrity and standards. 

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Answer

True

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Question

Local partnership is a common international strategy adopted by Starbucks because it allows the company to...


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Answer

Gain deeper insight into the market

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Question

Starbucks' products are customized to suit local tastes and preferences.  

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Answer

True

Show question

Question

Starbucks is classified as a multi-domestic company due to the high level of local responsiveness and low level of global integration.  

Show answer

Answer

True

Show question

Question

Which international strategy is characterised by low local responsiveness and high global integration?

Show answer

Answer

The global strategy

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