In October 2013, China’s main media (CCTV) exploded that Starbucks charged the highest price in China than any other counties. The same coffee that sold in London, the price is $3.81; but in Beijing, China, it charged $4.81, which is 26% higher. The funny thing is that the average annual wages in Beijing is much lower than that in London. From the Starbucks’s fiscal 2013 report, it is proved that the operation profit ratio was much higher than South America, even 16.8 times higher than many areas in Europe.
China’s main media also exploded that the cost of a cup of latte is only 5 Yuan ($0.83 dollar), but the selling price is 27 Yuan ($4.5 dollars). The report from CCTV compared the prices in different cities, and concluded that the price in Beijing is the highest one ($4.5 dollars); the price in Bombay is the lowest one ($2.3 dollars). Wang Zhendong, the president of the Professional Committee of Shanghai coffee, said the process of making a cup of coffee is not that complex. Usually, the process include 2 ounce dark coffee, 20 g coffee bean, milk, one- use cup, one heat protector, one cover, plus sugar, napkin, Stirring rod. The total cost is around $0.83 dollar.
As the high price was the most popular topic in China people are talking, Starbucks replied the reasons why they charge the higher price.
First, the price is based on the composite costs. Its includes the original sources, equipment, input on infrastructure, logistic, employee’s wages, rental fee, and the operation cost.
Second, compared to US, China is a developing country; Starbucks should input more when it first entered Chinese market. Also the number of stores is smaller than that in US, so the average cost is large.
Third, different from US, many Chinese customers will stay several hours once they enter the stores.
In my perspective, there are many other reasons for Starbucks to charge a higher price.
First, Chinese customers is not buying coffee, they are buying culture from Starbucks. Chinese customers like to stay in Starbucks stores since they feel they are in a foreign country.
Second, the price is not related to the cost. Thinking about LV, the cost is very low, the price is extremely high. Like LV, Starbucks are not only selling its product, but also selling its brand. Buying Starbucks could show the class level in China’s society. This is the magic part of international price strategy.