“This cup of coffee’s name is Starbucks…some customers have discovered that in my country (China) the price is much higher than in America and Europe.”
China Central Television (CCTV), the Chinese public yet advertising-filled state broadcaster, thus launched an awkward attack, or exposé, against U.S. coffee giant Starbucks over the weekend (you can watch the Chinese language CCTV news report here).
Quite rightly, the report has already come in for a fair bit of mockery within China itself, even as the foreign media worries whether this is yet another campaign to protect Chinese consumers from predatory foreign pricing. Xinhua, China’s state news agency, published this riposte, with the subtitle “Online friends: If you want cheap, go drink Nestlé.”Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Still, there are precedents for damaging attacks on foreign companies in the Chinese state media. Earlier this year, Apple was attacked for pricing and customer service discrepancies between China and other markets (with little effect on its sales performance). Despite this, it is hard not to think of this critique of Starbucks as very pointless and quite a long way off the mark.
First, to state the obvious, Starbucks charges more in China because it can. There are no regulations forcing Starbucks to charge lower prices in London or the U.S. Starbucks simply charges a price based on its market position. For example, perhaps there is better competition in other markets, meaning demand for Starbucks is more “price elastic” – in other words consumers will quickly and happily switch to other brands if Starbucks charged more. This is exactly what John Culver, Starbucks’ China and Asia Pacific region, pointed out when he said that Starbucks pricing in China is “competitive.”
China may have lower median incomes, but its large population combined with high inequality mean that there are plenty of very well off people able to afford Starbucks coffee without thinking too much about it. If prices are indeed too high, then market theory should suggest that there is plenty of room for a competitor to come and undercut Starbucks, stealing its market share.
Clearly at least one editor at CCTV is uncomfortable with such market mechanisms.
Director of the (until now unheard of) “Coffee Association of Shanghai” Wang Zhendong was wheeled out by CCTV as a talking head on the issue, his expert conclusion: "Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands.”
Quite why local consumers’ faith in “other Western brands” is a factor in Starbucks’ pricing was not explained, but for all the blinkered bias in the language and logic of the CCTV report, Wang has hit on another key factor in the issue – Starbucks enjoys a strong brand reputation in China.
The brand seems not just to be about coffee, it is also about exclusivity. It is about clean, comfortable locations in which people can sit, chat, do some work (often on Apple computers!), even have meetings, and be seen. Other foreign coffee brands are catching up – particularly British operator Costa Coffee and Hong Kong-based Pacific Coffee Company (both of which charge very similar prices to Starbucks in China), but Starbucks, which is soon to open its 1000th China store, is way ahead.
CCTV, a bastion of China’s own brand of “victim nationalism” has shown itself to be a little bit lacking in reasoning and basic high school business studies theory. It seems that this time the “backfire” reaction is extensive, and it would be wise for CCTV to back away from its “exposé.” With the northern city of Harbin shutting schools and its airport because of dangerous smog, and property prices continuing their climb outside of the reach of more and more people, there are probably more important things on the minds of most viewers than how much a small minority of people freely choose to spend on a quality discretionary drink experience.
Or perhaps Starbucks should just fork out for some expensive CCTV commercial spots.