Pricing Strategy Case Study

Starbucks uses price targeting to identify customers willing to pay more by charging different prices for products that cost essentially the same to produce. Starbucks’ menu has products ranging from $2.20 to $3.40. This price difference stems not from a $1.20 difference in production cost, but rather a subtle way of encouraging customers to signal their willingness or ability to pay higher prices, and therefore allow Starbucks to increase its profits.

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.

While the leading drinks in 2004 were espresso-based beverages with sales averaging $50,395 per store, drip-brewed coffee beverages – which Expresso Espresso does not offer – came in second at $33,336 per store. It is understandable that Todd insists on providing quality products, but refusing to add drip-coffee beverages to his menu is the equivalent of refusing to cater to his customers’ needs. Unlike any of the local competitors, Expresso Espresso and the eventual Starbucks are the only Mobile coffee shops that offer a drive-through service. The drive-through contributes to 40 percent of Expresso Espresso’s total revenues, so needless to say, it’s a very important contributor to the business. If Todd hopes to stand a chance against Starbucks, his biggest competition, he will need to add drip-coffee beverages to his menu. Otherwise, it will be just as easy for a customer to drive off 400 feet east to Starbucks and request a drip coffee there instead.

I set out to find a place to begin my observations, not knowing what to fully expect, what I may find. So I decided to look around at what is close to my home that isn’t a place I frequent or have even visited at all. Then it came to me, the Starbucks that is only about a mile away is a perfect place for me to observe subjects that I would consider different from myself, seeing as how I consider such obscene prices for coffee ridiculous. Starbucks is a very popular chain of coffee vendors that describe their product as more about quality than what Americans are used to in typical coffee joints.

The equilibrium price and the quantity will increase. The more customers purchase the product, faster Starbucks has to supply the coffee according to the demand of the consumer. The opportunity cost of not producing more premium blend will result in loss of revenue.

* Starbucks expanded to pursue sales of products in a variety of distribution channels and market segments. Products were marketed to restaurants, airlines, hotels, universities, hospitals, business offices, country clubs, and select retailers. In the airline industry, Starbucks coffee was served in flights United Airlines and United Airlines. Packets of Starbucks coffee along with coffee making equipment were made available in each room in Hyatt, Hilton, Sheraton, Radisson and Westin Hotels. Coffee service was also provided in several Wells Fargo banks in California. Foodservice distributors such as Sysco

When it comes to price, I do agree you get what you pay for, but I do feel it should not cost you an arm, and a leg for a single cup of coffee. Regardless where you get your coffee from your going to have to pay for it, some places are just priced more then others With that being said let's discuss, Dunkin’ Donuts extra large coffee before tax sits at $2.09 per cup, and their large ice coffee at $2.79. Starbucks large coffee before tax starts at $2.45 per cup, and their large ice coffee at $2.95. Although, Starbucks prices may not seem to be to much higher, if you are like me, drinking these coffees every day, and are not made of money, that change difference can definitely add up.

In regards to the company Starbucks, their cost of production includes the cost of coffee beans, milk, plastic products, advertising, rent and labor. When it comes to the high price of Starbucks coffee customers should consider the cost of what goes into the coffe, Howard Schultz said “I am concerned about dairy, both domestically and around the world, and we are working feverishly with our suppliers, (and to) identify new suppliers (Thomnson, R. 2014). When it comes to the price of coffee, “prices recently hit a two-year high due to crop-damaging drought in Brazil, the top producer” (Thomnson, R. 2014). This has a huge impact on the price consumers pay for their coffee.

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.

Starbucks can follow some strategies to differentiate their product even more that will lead to vary their menu prices. For example, Starbucks might create “saving menu” by selling some products at a lower prices to attract even more customers. Also, Starbucks might take into consideration the strategies of opening “Starbucks carts” that open in smaller express places that don’t fit for a whole store. Those “Starbucks carts” will attract even more customers because it is easier to get access to. “Starbucks carts” may provide the customers with low cost products to draw larger market base. To be a best cost provider in the market will allow Starbucks to be the most attractive company in the coffee market internationally. Thus, Starbucks will have a competitive advantage over its rivals by fulfilling the needs of a huge customer base in the market, by providing a high quality products and provide products with the best costs.

Statistics show that over half of the American population consumes coffee on a daily basis. You may drink coffee hot, cold, mixed, or even in a frappuccino. Individuals are able to make coffee at home, or buy it on the go. Coffee provides people with caffeine, which ultimately gives energy for hardworking people all around the world. The main focus for this paper will cover the following topics, with coffee as the basis: causes for shifts in supply and demand, how coffee supply and demand influence price, quantity,

Based on these 6 factors in setting a price: selecting the pricing objective, determining demand, estimating costs, analyzing competitors costs, prices and offers, selecting a pricing method and selecting the final price, Singapore GP Pte Ltd employed 2 different pricing strategies. They are

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

Nothing like the fresh scent of brewed coffee in the morning – “Starbucks” a well-known coffee house that is still growing and expanding their operations today is considered the number one specialty coffee retailer around the world and abroad. Therefore, the supply and demand for coffee is on the incline and is regarded as one of the most rapid growing organizations in the world. According to the National Coffee Association, adults between the ages of 18 and 39 are more likely to purchase coffee out-of-home, then older consumers (2016). Even coffee statistics conducted in 2016 indicates “50% of the population, equivalent to 150 million Americans, drink espresso, cappuccino, latte, iced/cold coffee” (E-Imports, 2016). Other statistics numbers show that an estimated of total Americans consuming coffee would be up by 1.5% and specialty coffee up from 20% in this year alone. Even the global consumption will increase by 12% over the next years. Therefore, a key question is how will the “law of demand” predict how the consumers will behave (Lorenzetti, 2016)? Namely, will the higher demand for coffee beans impact what the consumer at Starbucks will pay for a cup of coffee? Therefore, companies such as Starbucks should analyze and understand the microeconomic model to get a clear picture of the price elasticity, cost to produce, and the overall market to make the most effective business decisions and recommendations that will have an

Starbucks first opened its doors in Seattle’s Pike Place Market with the name being coined from that of Moby Dick’s first mate (Schultz & Yang 1999). It has spread its shops across North America, all over Europe, the Middle East, Latin America as well as the Pacific Rim with an estimated 35 million customer weekly (Michelli, 2008). With tremendous growth from a small time coffee shop, the company has matured to an international icon that today it is one of the world’s leading retailer, roaster and brand specialty coffee (Story, 1971). The company offers whole bean coffees, espresso beverages, and confectionery and bakery items.