No coffee mourning over expensive drinks(2)

Positioning move

Operating costs in China are much lower than in the US. So why do Starbucks and other American companies price their food and beverages higher in China? Two professors from Long Island University in New York offer explanations.

"From the marketing perspective, the price-setting reflects how the brand positions itself in the market," said T. Steven Chang, chair and professor of marketing and international business. "Therefore, cost is not the only factor considered by the company.

"Starbucks actually is selling their whole package, including the symbol of good taste and prestige, the Westernized atmosphere they created in each retail store, and high-quality coffee and food."

Thomas C. Webster, a professor of public administration and public economics, said, "Usually prices are set based on the conditions of the specific market. In the case of China, the market is probably not saturated with competitors, so if people want designer coffee - which many regard as a status symbol - they are willing to pay the higher price.

"If Starbucks starts making large profits," Webster said, "then you will see other competitors enter the market and that will drive the price down."

'Not just coffee'

"The Starbucks brand continues to resonate with the Chinese consumer," John Culver, president of Starbucks China and Asia Pacific, said in an article on Starbucks' website. The Chinese market has become so important that he rates it as "our second home market outside of the United States".

Zou Deqiang, a professor studying consumer behavior at Fudan University, believes Chinese consumers are willing to pay "unreasonable" prices for a nontraditional beverage because they are buying more than just coffee.

"In China, Starbucks is not just coffee anymore," he said. "It represents a Western lifestyle. Some people in China want to live like people live in the developed countries so, to some extent, drinking a cup of coffee that people in the US drink helps them fulfill that dream."

A lot of people can't really tell good coffee from bad, Zou said, but that doesn't keep them out of Starbucks. If they hold paper cups with the Starbucks logo, it gives them the illusion that they live better than those who don't drink Starbucks.