Case Study : ' Gravity Payments '

There were two main start-up decisions. The first is the choice in furniture. The option was given to choose either Used Furniture for $2,000, or several other choices for $4,000. These others were New Modern, New Green, Urban, and New Elegant. So, sticking with my theme, I went for the Used Furniture. Being located where my new coffee shop is and well as my expected general customer classification, I don’t have the liberty to charge a premium for coffee. According to Kate Taylor in her article Some Starbucks locations quietly raised prices on brewed coffee and cookies on Pumpkin Spice Latte launch day, she says, “Starbucks just quietly raised prices at a sizable chunk of locations.” Starbucks can reach a much larger crowd than my simulated shop, therefore, I decided to take my approach differently with the cheaper route.

For instance, there are generic principles of pricing of desired net income, competitive position, and market structure. According to (Cleverly, Song, & Cleverly, 2011), every business must generate enough revenue through its sales of products and services to sustain its operations and provide for the replacement of its physical assets as well as provide a return to its investors. Partners Healthcare System and among other organizations must recognize levels of pricing, so inadequate pricing doesn’t accumulate to lead to business disaster.

Prices of the different products and services of the organization should be market specific. The economic capability and disposable income of clients should be put into consideration in setting prices for the products and services offered by the organization. By matching prices with the economic capability of a people, it would be much easier to for customers to access the products and services without straining or having to compromise and going for other products of lower quality (Donna, 2012).

Since Starbucks entered the coffee retail business, the company has made many trade-off business decisions. The first major trade-off was made when Howard Schultz wanted to acquire present day Starbucks from three entrepreneurs Baldwin, Siegel and Bowker. Therefore, Schultz prior to the acquisition made the trade-off to open his own coffee bar in 1986 instead of staying at Starbucks as the manager of retail sales and marketing. A bold feat, Schultz was able to replicate success and was offered to buy Starbucks for $4 million. At the time of the acquisition, many investors, including the former Starbucks owners, would not expect that the American consumer would pay a premium for coffee products. Schultz, after calculating the opportunity cost, was convinced that Starbucks would become a large coffee chain not only in the United States but internationally too. Reflecting this approach, Schultz’s trade-off worked. Starbucks, according to our book has revenue exceeding $13 billion and nearly 200,000 employees. The company has also expanded to 40 countries with 17,000 stores (Hill et al., 2015).

Centers for Medicare and Medicaid Services (CMS) adopted the Medical Severity Diagnosis Related Groups (MS-DRGs) for use in the Inpatient Prospective Payment System (IPPS) in the fiscal year 2008, which ran from October 1, 2007 through September 30, 2008. CMS was influenced by the Medicare Payment Advisory Commission (MEDPAC) and the hospital community to use a severity adjusted DRG system.

Pricing is one of the most important elements of the marketing mix for the MARC. It is the only one of the components that generates revenue, while promotion, place, and product generate cost. Producing, designing, distributing, and promoting products come with expenses.

Because of their substantial growth over two decades, they have spent a considerable amount of time defending their image. Their “clustering” strategy put many small coffee shops out of business and many consumers began to wonder if there really was a need

starbucks Corp., an international coffee and coffeehouse chain based in Seattle, Washington, has expanded rapidly since its opening in 1971. These outrageous success was due to its well-developed strategy vision which lay out the company's strategic course in developing and strengthening its business. Starbucks is a global corporation that sells authentic coffee in 30 countries, reporting revenues of nearly $5.1 billion in 2006. The main goal of Starbucks is to embrace diversity by applying the highest standards of excellence. Starbucks strives to perfect the relationship with the working class by making the service as fast as possible because they believe that every customer has their own personal rate. One

There are many sellers in the market heating up pricing competition. Competitors like McDonald’s, Dunkin Donuts, Peet’s Coffee and other specialty coffee companies incentivize price wars. Furthermore, coffee’s demand is elastic which makes it difficult to increase prices without greatly reducing the demand. This makes differentiation and positioning very important. Also, it is easy for customers to switch from coffee vendors. Whichever company is most convenient for the customer will likely win the business. Competition is a top priority in the industry.

Gravity Payments is a private credit card processing and financial services company founded by Dan and Lucas Price. Dan Price, the CEO, created the company because he believed that credit card companies were overcharging small businesses. Gravity Payments became the largest credit card processor in the state of Washington, while charging less than half of the industry average processing rate. Dan Price has a philanthropic operating model, as Gravity Payments is heavily involved in donating to charities, and in April 2015, Price set a new minimum salary of $70,000 for all of his 120 employees. While initially received with overwhelming support, some people expressed their concerns about the decision and questioned the feasibility of the wage increase, including Lucas Price who decided to sue Dan. Other options that Dan Price could have pursued are doing nothing, adding a set amount to each employee’s wage, increasing employee compensation using shares, or restructuring internal operations by adding incentives and increasing employee empowerment. The criteria that will be used to evaluate each decision are employee satisfaction, employee motivation, profit maximization, and brand image.

The system allows consumers to buy a variety of coffee and make a cup of coffee that has the quality like the one you would buy in a gourmet coffee house for upwards of $3 to $5. Based on the surveys and focus groups that had been conducted people were looking for convenience, minimal clean-up, and great taste. Keurig made its decision to promote the system based on those factors and with units succeeding in local businesses now was the time to strike, while the “iron is hot”, a large percentage of survey takers said they would gladly buy the units that were proposed based on the information they were given.

The original idea for the Starbucks format came from the 1980´s when the company´s director if marketing, Howard Schultz, came back from a trip to Italy enchanted with the Italian coffeehouse experience, the idea was to sell the company´s own premium roasted coffee and freshly brewed espresso-style coffee beverages, along with a variety of pastries, coffee accessories, teas, and other products in a tastefully designed coffeehouse setting. The focus was to sell a “third place experience”.

The demand for coffee shops is born from the increased number of individuals seeking coffee brewed outside of the home. This creates a larger market for coffee shops. An increased amount of people are starting their mornings off by purchasing breakfast and a cup of coffee away from home (Tuttle 2014), more people are enjoying gourmet coffee (NCA National Coffee Drinking Trends 2015 Infographic), and younger generations are demanding more coffee and coffee drinks from coffee shops (Tuttle 2014, S&D Coffee and Tea inc. 2014, Statista 2015). Coffee shops must compete with at home coffee, work place coffee, and teas for the caffeinated beverage markets (LN 2015). Demand for coffee within different markets varies, and provides competition for coffee shops. Single cup coffee makers, increasingly qualitative instant coffees, and gourmet beans are all sources of competition that could satisfy the demand for coffee. However, coffee shops are becoming more ingrained in social

Starbucks provide a large in store seating with free wi fi and a take-out service which only a few retail shops offer. The main target customers for Starbucks are office workers, with enough income, whom are able to afford the high prices of their products (Gaudio, 2003). The company has worked hard to establish itself as the brand leader with its branding as the most frequently drank coffee and noticeable brand logo. Introduction of promotions like the Starbucks Card, allows a more convenient way for a person to
pay for
your
drinks
and
earn
rewards
for
your purchase (Starbucks Coffee Company, 2011).
Furthermore, in‐store
promotions
accompanied
by
new
products and
amenities like free internet use are all strategies that Starbucks use to maintain their position in the market (Vasudha, 2011).

The consumer can control their spending with the card. By loading the card with the amount they allocate for coffee they can track their spending more effectively