Winning in China: The 3 Reasons Why Starbucks Is a Huge Success There
This picture was taken at Beijing's international airport on my way back home after a very successful business trip to China, when going to Starbucks several times throughout the week, made me feel like home; as my non-fat decaf cappuccino came always tasty and every single store was super crowded — I always had to stand in-line for a few minutes. That made me stop and think how the Seattle based coffee brand had become the preferred choice in a country where most Western companies struggle to achieve market leadership. Even broadly why they do either very well or poorly there. The conclusion did not take long to emerge and has to do with 3 contemporary product management principles:
Nurture and Develop a Global Brand but Adapt Your Product to Local Markets a Way Beyond Language
In a country where people avidly drink tea, it seemed impossible for a Yankee company to take root and sell coffee, but they actually did by creating a new market. They came up with a variety of prime products — part of a menu of highly localized flavors — that were actually more expensive than the average charged globally. Coupled with a chic environment, it appealed extremely well to the younger demographics and emerged Chinese middle class, who sees the Western culture as a role model of modern lifestyle. In other words Starbucks focused on a premium segment and and it hit the nail on the head.
China is a very social country where meals are long — most business are conducted over drinks and team gatherings — and with that in mind Starbucks totally adapted its stores to support it.
Now it may not sound fair to compare a coffee company with Uber, but this is where the latter failed, for example, by only having 3 product offers — cheap, medium and expensive cars — that clearly did not address the complexity and sophistication of the local market, nor aimed a particular market segmentation. Although I am always a big proponent of focus on product development, China is simply too big for a very concise portfolio. Uber's rival Didi understood it well by having in contrast 8 products, which included taxi-hailing, which enabled an early honeymoon with taxi drivers, while Uber faced exactly the opposite, through severe opposition and street-fights in several markets. Moreover, the Chinese people are becoming extremely more environmentally and socially sensible, thus when offered features like carpool and designated drivers to drive you back home after drinks, it made the product very successful.
Be Mobile First
In the traditional school of product marketing, I was taught everything about 4Ps and most recently 8Ps, but it has become obsolete by the astounding adoption of mobile devices lately, and particularly “mobile payments, whose “volume in China will reach $6.3 trillion by 2020” , mainly driven by companies like WeChat and AliPay— owned by Tencent and Alibaba group respectively — with more than 800 million active users combined. Do not get confused by the numbers, they really have more active mobile payment users than Europe`s entire population. Starbucks has been a pioneer in the the US accepting mobile payments in store — Mobile payments account for 25% of all US Starbucks transactions — which enabled them to quickly adopt it in China. On the other hand, Uber's main form of of payment has been credit card, something China has a long time decided to ignore and move straight to mobile. Its rival Didi, has accepted payment leveraging mobile devices since its infancy. Although it is growing in the US and Europe, most multinational companies still struggle to build and develop robust capability in this area; to meet the gigant pressure the Chinese market has imposed. Partnering with the 2 giant mobile payment companies — WeChat and AliPay — is certainly not a shortcut to success, but a silver bullet not one single western company can ignore when entering China these days.
You Will Not Win Without Local Partners
A good friend took me to at least 3 very different restaurants to “try the taste of the South, North, East” and I soon understood there is not one China, but many, when it comes to culture, food and consumer preferences. In order to successfully navigate this rich and diverse environment you need local strong partnerships to help you quickly achieve product market fit. Uber tried a solo flight for a long time and got defeated by Didi — who later ended up acquiring them. Starbucks actually developed several alliances, that helped them scale and expand — they are set to have 3400 stores in China by 2019 — extremely faster as their connections supported them to understand well and gain insights of local tastes and preferences of consumers locally.
The right partners will also help your company deal with local regulations and government bureaucracy, so unique in China.
Putting it all together product localization is complex and not simple in a country with 1.4 billion people, who will demand more and more premium products, where the idea of a small roadmap with average quality items can no longer work out. They have a clear desire dominate the world and like many who already did, will also demand the best of best when it comes to rewards and features from the various brands we use today to express ourselves in the west.
Companies that opt to enter China, must do it on the back of strong partnerships, that can help accelerate their learning curve of local consumer habits and preferences.
And one last thing, I am writing this article from a nice HP Spectre X2 — one our finest mobile devices — which reminds if you are not ready to be mobile first, your company and business is good shape to die young in the land of The Red Dragon, despite your master's degree in marketing's XPs.
What are you thoughts? I want to hear from you specially if you are about to start a business in China, have already successfully done or failed it.
ABOUT THE AUTHOR:
Vinicius David is an executive in tech, a passionate for talent development and fanatic to drive innovation.