In Japan, it went for median pricing, in-between the base-level and the expensive option. It has opted for a similar pricing in India – in-between the affordable CCD and the expensive Costa/CBTL.
CCD had a rationale to go for affordable pricing – to tap students, who are one of the largest client segments frequenting coffee shops. However, it is debatable whether ‘spending time’ equals ‘spending money’. Starbucks has priced itself out of this client segment. So, its approach seems ‘spend-driven’, rather than ‘footfall-driven’.
However, India is a country where the concept of ‘value-for-money’ rules as far as spending habits are concerned, even among the wealthy. Indians can spend huge amounts when they want to, provided they feel they got their money’s worth.
Matching this value-for-money concept with maximizing the clients’ spending means providing the highest level of quality and service so that the clients are willing to pay the higher price. This is a challenge.
Maximising Elasticity of Spending by Adding Value
Given longer break-even time, increasing the scope of spending by its customers is important. The aim is to increase throughput per visit.
The probability that its higher-end client segment would pay higher-than-average amounts in a single-visit might be high.
One way to achieve this was to position itself as a premium brand with which its target clients would like to associate, as well as creating a good ambience.
Another way was its high-quality menu. Contracting of the catering the supply to TAJ SATS (which also supplies to the premium TAJ Hotels) adds to the premium ‘Starbucks experience’.
Creating Customer Pull
This can be achieved by choosing a unique selling point (USP) that wins repeated business. It is imperative to enhance customer pull in order to bring home the money.
In India, it is fashionable to hang out in cafes. Hence, the focus of its USP is to create a conducive and likable ambience – the ‘Starbucks experience’.
But creating this experience would come at a cost. Its capital outlay would be higher to create the store ambience and furnishing in line with this brand positioning. Store collections might vary depending on average footfalls.
Combining these factors, the average break-even for a Starbucks store might be longer than that of other coffee-chains like CCD, etc. This is where the ‘Starbucks experience’ has to ensure high pull.
Location-choice based on footfall
In other words, choose an attractive location irrespective of its cost. Starbucks is targeting upmarket locations, in line with its premium positioning. These include ground-floor space in high-end shopping malls where footfall is higher.
The higher rents have to be negotiated based on longer tenure. Presence of well-known brands also creates footfall in the shopping mall itself, creating synergies for all the brands in that mall.
Starbucks’ experience shows that one has to be bottom-line conscious to succeed in India, while pitching a specific value proposition as its USP to create customer pull.
Value addition is favoured in India, which helps gain a higher wallet-share of clients. Scale can be added by combining experience, quality and throughput per client in a formula that creates value-for-money for the client, and hence scope for repeated visits.
– The author works with a leading capital markets company in India. Views expressed are entirely personal and do not represent those of any entity.