III. Adaption of Starbucks in Vietnam
3.1 The Segmentation (STP) strategy
Research has shown that most companies take a loss on serving the majority of their customers, while a small number of high-value customers often account for the majority of the profit (Jobber, 2004). Therefore, to segment the market in order to target the customers who bring the higher and more stable profit is very important for the market strategy. The company needs to evaluate the market segments and decide which one to serve in order to target the right segment for growth.
As mentioned in chapter 2, before Starbucks entered into Vietnam, there were many competing brands of coffee retailers already. The most significant players in the Vietnamese market included both domestic and international brands in which Trung Nguyen is the biggest domestic one and Nestle is the largest and the most well-known international conglomerate followed by Rock Café, MacCoffee, Passiona and Highland Coffee. At that time, the foreign brands were unable to beat the major domestic brands in the low-price range because they had less powerful distribution networks and also failed to cater to local people’s tastes and the additional obstacle of the high price of raw materials lead to unreasonable menu prices (The Vietnamese Coffee, 2013).
Starbucks seemed to be smarter in its decision by choosing the niche-marketing strategy
day or night time, lot of early customers visited the store for the first experience in the most famous international coffee brands even if the price was not really acceptable to all of them (The Wall Street Journal, 2013).
Figure 15: Customers stood in very long lines day and night in front of the first store.
Source: Starbucks Vietnam, 2014 3.1.2 Select Target Segment
Having identified the optimum segmentation, the next task of the marketing strategy is choosing the segments to be targeted (Wind, 1978). Starbucks chose “yuppies”, the well-paid young middle-class professional working a city job and having a luxurious lifestyle (Wikipedia definition), as the main target in the market. These people pay more attention to quality and want to enjoy indulgent lifestyles.
Figure 16: The typical features of a “yuppy” in modern life.
Source: Google 3.1.3 Develop Positioning Strategy
According to the analysis in the subsections above, and the images that Starbucks has been building in all stores over the world, the key to Starbucks’ success seems to be its positioning strategy as a luxury brand. This positioning strategy has been attracting yuppies to its stores by giving them the satisfaction of having a “higher status” and more
“modern” lifestyle than others who do not drink Starbucks. That explains why there were so many young people who came to the Starbucks’ debut and it also explains why they were more focused on taking beautiful pictures with any thing related to the Starbucks’ logo rather than trying the taste of drinks.
Figure 17: Once entering Starbucks’ store, taking pictures with logo or cup is the first priority of these young Vietnamese “yuppies”
Source: Google 3.2 The Marketing Mix (4Ps)
3.2.1 Product
In the marketing strategy of product, the adaptation is critically needed for the difference in local tastes and customs (Kotler and Armstrong, 2008). Therefore, Starbucks also needed to adjust its menu to Vietnamese traditional tastes to satisfy the local customers’ many needs and demands.
Focusing on this, Starbucks not only kept its famous “standby” flavors such as Frappuccino or Espresso beverages, but also brought in new flavors to adapt to the local people;
they began to serve “cà phê sữa đá”, the local variation of iced coffee with sweetened condensed milk.
Figure 18: Starbucks’ original flavors and new flavors to adapt the local tastes Source: Google
Starbucks included on its menu the usual bakery items like muffins, cakes and blended-frozen coffee drinks which were first introduced to Vietnamese customers by Highland Coffee. In addition, it also associated the brand with special significant holidays, such as Valentine Day, Woman’s Day, Mid-Autumn Festival and Christmas. It treats these special occasions as good opportunities to promote the product. For example, Starbucks latched on to the traditional Mid-Autumn Festival which is very important to Vietnamese people and used it for a marketing opportunity. On this particular Asian holiday, usually the family members will gather together and share moon cakes on that day. Starbucks’ moon cake, a unique and premium gift, has become the preferred choice in this occasion.
3.2.2 Price
Setting the price of a product is not a simple task at all (Rossiter & Percy, 1997). It requires the company to do careful strategic planning. Decisions need to be made about what a company wants to achieve. Premium pricing is often used for products with a perceived high status. Customers have an expectation of premium quality on high-priced products, which are assumed to have greater worth than their actual monetary value. Making the most of high pricing is a practice intended to exploit the inclination for consumers to assume that expensive items represent exceptional quality and thus to create the aspiration to own.
A high price can spur more interest among affluent people (Kotler, 1991). Following this rule prestige pricing, Starbucks has been using the premium price to attract the targeted consumers. Starbucks understood that customers would prefer to buy a premium priced product
markets, Starbucks believed the premium price can be a beautiful jewelry to show the success and status of buyer. These are quite true for the Vietnamese culture which has been deeply influenced by China over its long history.
Regularly, a traditional black or milk coffee cup costs in the range of 10,000 - 30,000 VNĐ (Vietnamese currency), equal to $0.5 - $1.5 (Vietnamfranchises, 2013), depending on the location is inside a café with air conditioner or outside a garden café or street café. How about Starbucks’ price? On average, a basic coffee cup of Starbucks in Vietnam may cost in the range of 90,000 - 150,000 VNĐ, equal to $4.5 - $7.5 that is approximately 6 times higher than the local price. Comparing with Starbucks’ prices in global, the one in Vietnamese market is in the similar range of very top developed countries such as Russia or Switzerland (Figure 18).
Figure 19: The price of a basic cup of Starbucks coffee in different countries Source: Wall Street Journal, 2013
One of the earliest customers in the debut, Truong Hong Giang who was mentioned in the previous chapter said: "I often come here 4-5 times per week to meet my clients thanks to the
customer Ho Diem Xuyen, a student in her fourth years of college, who regularly visits once a week also states: “I often choose green tea smoothie or other drinks, rather than coffee but I think the price here is too high, that why I often visit Starbucks once a week only”. Those quotes imply that Starbucks’ pricing may need to be reviewed to adapt to the local income structure.
This will be discussed in detail in the next chapter.
3.2.3 Place
Under the Marketing mix, place not only is where the product is placed, but also is how all those business activities can be structured to ensure the availability of the product to the targeted customers (Kotler & Armstrong, 2004). In the study of supply chain dynamics, it includes channels, locations, inventory, transportation, and logistics. The place or placement is where the company is able to distribute the product to the customer at the right time and in the right quantity (Trout, 1969).
As other chains all over the world, Starbucks has its own standard when choosing a place to open a new store. Unlike the Vietnamese traditional coffee shops, Starbucks stores are located in premium and primary spots in the busy city areas that are populated by other luxury brands. Prime streets or malls where young adults tend to hang out or socialize are its priority for a new store in the network. The first Starbucks store was located in the most beautiful and premium place in District 1, Ho Chi Minh City where foreigners and oversea Vietnamese often frequent or work in the big buildings surrounding the shopping mall and trade center. The subsequent stores of its chain in Ho Chi Minh City are also located in similar locations with the most traffic and people from this demographic.
Figure 20: The first store is at the best location for business in Ho Chi Minh City Source: Google
3.2.4 Promotion
Unlike the above three elements of the marketing mix, promotion is not really focused much on strategy. It is not because Starbucks disregards it. The reason is that its brand name was already familiar having been shared profusely by customers via social networks and online communication apps such as Facebook, Line or Viber. When the brand was strengthened, it does not need to continuously advertise any more. By focusing on building the images as a luxury brand, the company can gain free publicity at the same time. Before February 2013, local people may just talk about Highland Coffee or the special frozen coffee of Coffee Bean and Tea Leaf. However, after the opening of the first Starbuck’s store, the images of Starbucks can be seen and the Starbucks’ name can be heard anywhere and at any time.
3.3 Is Starbucks Successful in the Marketing Strategy?
As briefly discussed in the previous sections, it is hard to answer questions with regard to marketing strategy as Starbucks is even still in the process of building the brand in this unique coffee culture. Time will give us the answer but maybe not in the near future.
Constructing images of luxury brands always takes longer as it involves time to educate customers and fain recognition from the public. However, based on the observable efforts of the Starbucks team so far, it appears that they have been successful at temporary sidestepping the traditional US image of being a premium brand to position itself as the deliverer of a uniquely luxurious culinary experience in the mind of Vietnamese consumers. The following section will summarize successful adaptation practices for glocalization in its marketing strategy.
(1) The success of building subsequent stores of its chain in Ho Chi Minh City
When the initial ideas of this thesis began at the end of the year 2013, only 3 Starbucks stores were located in Ho Chi Minh City and there was a rumor of its failure in this challenge market (The Vietnamese Coffee, 2013). However, Starbucks successfully introduced the 8th store at Pandora City shopping mall on July 5th 2014 (Starbucks Vietnam, 2014) which the CEO Howard Schultz ever mentioned in his interview in the debut at the first store in Feb 2013.
Figure 21: The 8th Starbucks store in Pandora City shopping mall Source: Google
Moreover, Starbucks is planning to move its chain to the capital Hanoi. In stead of building stores one by one as in Ho Chi Minh City, it may introduce a series of subsequent simultaneously stores in the capital city in a big event which well be held on July 19th
Starbucks fans in the Facebook page of Starbucks in Vietnam (https://www.facebook.com/starbucksvietnam).
(2) Innovative products with images of intimacy and fancy creations
To maintain the brand’s affinity, one of the most effective ways of promoting products is to objectively observe the living circumstances of customers in close proximity. In this respect, Starbucks observed Vietnamese culture, consumer trends and their seasonal demands to create blockbuster products. Since the debut in 2013, Starbucks has continued to engage in the launching of new products and fancy creations with specialty Vietnamese flavors to increase brand shares, such as café sữa đá.
Starbucks also caters to Vietnamese customs, and adds the connotations of happiness and blessing in traditional festivals. For example, aiming at the gift market of the Mid-Autumn Festival, Starbucks created its own special moon cake, available for 500,000 ($25) per set of 4 pieces (Starbucks Vietnam, 2014). Though the price is relatively high, its unique combination of great-taste and chic appearance has been a great match and immediately became a hot seller in Vietnam.
Figure 22: Starbucks’ moon cake Source: Google
(3) Shopping experience: elegant, classic and relaxation.
Customer experience is a key factor for companies to use in building loyalty to brands, channels, and services. An increasing number of companies are aware of the importance of their customers, and they realize that their growth and profitability are being determined by the ability to retain customers and to recruit new ones.
Starbucks stores provide consumers with the ultimate shopping experience through a focus on sophisticated design, relaxing ambiance, and innovative product offerings. It helps Starbucks continuously cater to its niche segment of the affluent that are willing to pay the extra premium for this high grade of service. In Vietnam, a competitive global market, understanding, creating, and enhancing a superior customer experiences seem to be the central objectives for these kinds of companies.
Figure 23: Design, decoration, ambiance and innovative products bring customers to Starbucks, not only coffee
Source: Google
IV. Surveys and Interviews
4.1 Purposes and Methodology
As described in Research Methodology part of Chapter 1, beside the analytic tools, I also used surveys and interviews for customers’ satisfaction levels as additional evidence to evaluate the current status of Starbucks. Due to the time limit of my vacation in the Chinese New Year 2014 in Vietnam, I randomly chose the available customers who were in Ho Chi satisfaction in the term of coffee quality (taste), other drinks and food, location and decoration, service quality, innovative products and promotion and price. Then the last two questions invited customers to suggest the price of a basic coffee cup for Starbucks to adjust, together with the customers’ average income/expense to help Starbucks figure out the customer segment. The content of ten questions are listed below:
(1) How often do you come to Starbucks?
(2) Why (did) do you choose Starbucks?
(3) How is your satisfaction of Starbucks’ coffee?
(4) How is your satisfaction of other Starbucks’ drinks and food?
(5) How is your satisfaction of Starbucks’ location and decoration?
(6) How is your satisfaction of Starbucks’ service quality?
(7) How is your satisfaction of Starbucks’ innovative products and promotion?
(8) How is your satisfaction of Starbucks’ price?
(9) How much do you suggest the price of a basic coffee cup of Starbucks?
(10) How much is your monthly income (or expense)?
The detail of surveys in both Vietnamese and English are attached in the Appendix part in the end of thesis.
4.2 Summary of responses
After two Sundays working on distributing and collecting surveys, I generally got in total of 68 responses from approximately three hundred available customers in the first store and third store in Ho Chi Minh City.
For the first question about the frequency in Chart 1, there is 53% responses for 2-5 times of monthly visit who are considered as regular customers. The most surprised observation is 43% of responses said that they just came to Starbucks on that day which means there were more and more new customers continuing join to Starbucks community.
The rest of 3% of responses could be Starbucks’ fans or so-called Starbucks addicts.
Chart 1: Starbucks’ visit frequency-customers’ responses.
For the second issue of reason choosing Starbucks, I compared the responses with Starbucks’ global marketing strategies in term of brand, place, service, innovation and promotion, community & partnership (UW Business School, 2003). The details are listed as below:
• Brand Marketing (37%)
• Innovation (13%)
• Perfect Cup of Coffee (10%)
• Customer Satisfaction (10%)
• Starbucks Community & Partnership (9%)
From the results shown in Chart 2, the three most preferred reasons of choosing Starbucks is brand (37%), place (21%) and innovation and promotion (13%). The highest percentage in brand explained why 43% of new customers (as shown in Chart 1) still come to Starbucks stores for a try of the No. 1 global coffee retailer.
Chart 2: Reasons of choosing Starbucks-customers’ responses.
The responses of the following six questions were summarized in Table 1 with the increase of satisfaction level from strongly disagree to strongly agree. Corresponding to analysis in Chapter 3 and responses of the first two questions, Starbucks seem to do well in their marketing strategies of location (81% agree), service (64%) and innovation and promotion (27%). Conversely, customers may not come to stores for coffee quality or food which was shown in only 35% and 29% of responses satisfied the coffee and food quality.
The most critical finding here is the pricing strategy that got too much unsatisfied level of 75%. This issue may need to be adjusted or considered more in development plan when Starbucks expend the network to Ha Noi City or the whole of Vietnam.
Table 1: Satisfaction levels in term of coffee quality, other drinks and food, location and decoration, service quality, innovation and promotion, and price-customers’ responses.
In order to give Starbucks feedbacks for further expansion in Vietnam, the last two questions not only figure out the customer segment by average income/expense but also suggest the price of a basic cup which is more reasonable with the local incomes. As shown in Chart 3, 48% and 30% responses would love the price in the range of 1.25-2.5 $ and 2.5-3.75
$, respectively. This suggested price is somehow comparable with Starbucks price in Taiwan and other South East Asian countries such as Singapore and Malaysia.
Chart 3: Suggested price of a basic coffee cup-customers’ responses.
The detail of summary are recorded in an excel file and attached in the Appendix part in the end of thesis.
V. Conclusions and Recommendations
5.1 Conclusions
Vietnam, with its dynamic economic growth and increasing number of those with disposable incomes as an emerging market, provides a great opportunity for international brands. This study has showed that Starbucks, with the flexibility and adaptation to the Vietnamese coffee culture, generated perpetual profits and maintained its competition in the global world.
Since the debut in Feb 2013, Starbucks has won large numbers of customers, and has been regarded as a premium coffee brand. The observations from both analytic tools in Chapter 3 and surveys and interviews in Chapter 4 showed that Starbucks somehow is doing well in their own marketing strategies in the term of brand, location, innovation and service quality. With successful adaption in this, it has become the symbol of high-quality and modern life.
However, with the expansion of network to the whole Vietnam in the near future, Starbucks may need to consider about pricing issue which is highly recommended to reduced by most of customers. Keeping a balance consideration between global strategies and marketing activities in local, Starbucks will achieve local customers while maintaining its own uniform culture.
5.2 Recommendations
The Marketing Segmentation Strategies and the Marketing Mix were employed as an analysis method in this research. The overall model of this framework is internally consistent and well-structured, converting strategies and implementations into a tightly-linked, step-by-step execution. Consequently, whenever facing a glocalization process issue, this framework could provide a systematic marketing philosophy for a global company. Further, future studies requiring an effective methodology would do well to apply the technique from this study to examine glocalization. Finally, Starbucks’ success could be a good example and potential model for other foreign retailers such as McDonald’s, who are planning to penetrate the Vietnamese market in the near future.
References
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(2) An, N. T., “Living history Vietnamese Coffee”, Vicofa, 2013.
(3) Anthony, M., Diversification by smallholder farmers: Viet Nam Robusta Coffee,
(3) Anthony, M., Diversification by smallholder farmers: Viet Nam Robusta Coffee,