If there is one company that should have failed in China, it would be Starbucks. China has thousands of years of history drinking tea and a strong culture associated with it. No one could have guessed that Chinese would ever drink coffee instead of tea.
Yet, Starbucks has successfully opened more than 570 stores in 48 cities since it first entered China twelve years ago. Building on this momentum, it plans to open 1,500 stores by 2015. What did the Seattle-based coffee company do right in China? Here are five lessons from Starbucks’ success.
When Starbucks entered China in 1999, many were skeptical that Starbucks had a chance. Given the fact that Chinese people have traditionally favored tea, it seemed impossible that Starbucks would be able to break into this market.
However, Starbucks did not let this skepticism stop it. A careful market study revealed that as the Chinese middle class emerged, there existed an opportunity for Starbucks to introduce a Western coffee experience, where people could meet with their friends while drinking their favorite beverages.
Starbucks literally created that demand. Now you can find a Starbucks almost on every major street of the coastal cities in China. Even my 90-year old father in China began to tell me how he drank coffee after meals, rather than tea, to help his digestion. Starbucks has revolutionized how Chinese view and drink coffee.
Once Starbucks decided to enter China, it implemented a smart market entry strategy. It did not use any advertising and promotions that could be perceived by the Chinese as a threat to their tea-drinking culture. Instead, it focused on selecting high-visibility and high-traffic locations to project its brand image.
The next thing Starbucks did was to capitalize on the tea-drinking culture of Chinese consumers by introducing beverages using popular local ingredients such as green tea. This strategy has effectively turned potential obstacles into Starbucks’ favor. Chinese consumers quickly developed a taste for Starbucks’ coffee, which was essential to Starbucks’ success in China.
One of Starbucks’ key marketing strategies is to provide customers with an exceptional experience. The chic interior, comfortable lounge chairs, and upbeat music are not only differentiators that set Starbucks apart from the competition, but also have strong appeal to younger generations who fantasize about Western coffee culture as a symbol of modern lifestyle. Many go to Starbucks not just for a cup of Frappuccino, but also for the “Starbucks Experience” that makes them feel cool and trendy.
Thus, Starbucks has established itself as an aspiration brand and is able to charge premium prices.
Starbucks understands the value of its global brand and has taken steps to maintain brand integrity. One of Starbucks’ best practices is to send their best baristas from established markets to new markets and train new employees. These baristas act as brand ambassadors to help establish the Starbucks culture in new locations and ensure that service at each local store meets their global standards.
Western brands in general have a reputation for quality products and services. They have a competitive advantage over Chinese companies in establishing themselves as premium brands. However, as Shaun Rein, founder and managing director of China Market Research Group, pointed out, too many Western brands push for market share by cutting prices, which is a losing strategy because they can never “out-cut” local Chinese competitors.
Global brand does not mean “global products,” or “global platform” as eBay mistakenly tried. Starbucks has highly localized menu of beverages that is particularly tailored to Chinese consumers. It has done an extensive consumer taste profile analysis to create a unique “East meets West” blend. It even gives each store the flexibility to choose from a wide variety of its beverage portfolio that fits the customers at its particular location.
It is critical for global brands to adapt their businesses to local markets in order to succeed in China, and Starbucks has done just that.
China is not one homogeneous market. There are many Chinas. The culture from northern China is very different from that of the east. Consumer spending power inland is not on par with that in coastal cities. To address this complexity of the Chinese market, Starbucks partnered with three regional partners as part of its expansion plans.
In the north, Starbucks entered a joint-venture with Beijing Mei Da coffee company. In the east, Starbucks partnered with the Taiwan-based Uni-President. In the south, Starbucks worked with Hong Kong-based Maxim’s Caterers. Each partner brings different strengths and local expertise that helped Starbucks gain insights into the tastes and preferences of local Chinese consumers.
Working with right partners can be an effective way to reach local customers and expand quickly without going through a significant learning curve.
Commit Long Term
China is not an easy market to crack. It requires a long term commitment. An important strategy is to invest in employees. When I visited a Starbucks store in Shanghai back in 2007, I was impressed by the cheerful greetings of Chinese baristas, which set Starbucks apart from copycats. Starbucks has done an excellent job in recruiting and training its employees. This is a win-win strategy because employees are at the heart of delivering the “Starbucks Experience” to customers. They are the best marketing ambassadors for the company.
Long term commitment also means patience. It takes time to educate the market and gain customer loyalty. The companies that invest in long term plans can be sure to reap handsome rewards.
If Starbucks can succeed in a most unlikely-to-succeed market, there is no reason that any other company, large or small, cannot succeed in China. The ability to think differently, do your homework, implement right strategies, adapt to local markets, and commit long term are all important steps to achieve that goal.
The original article was published on Forbes.