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Starbucks Pricing

Pricing Strategy of Starbucks

Justin Mora

on 29 April 2014

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Transcript of Starbucks Pricing

As seen from the price comparison slide, Starbucks is cheapest in Thailand, due to the fact that there is huge competition at a very low cost.
Pricing Strategy
Pricing Strategies
International Pricing
Brief History
Customer Value
Marketing Strategy
Opened in 1971
Sold coffee beans and coffee making equipment
1983 - Italy
Conversation and a community
17,000 stores in 55 countries

“Our mission to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.”
Psychological Pricing
Price Change
The strategy all depends on the product mix

Always looking to maximize profits on the total product mix
Product-mix pricing strategies
1.) Product Line Pricing
Different prices between each size of each coffee

Why the consumer will pay the extra 50cents for Grande cappuccino instead of a Tall one
2.) Captive Product Pricing
Selling other items to go with the beverages e.g. Sandwiches, cakes, croissants etc

Special offers and promotions (a croissant is only $1 with any coffee)
Competitors strategies and pricing
Caribou Coffee

Coffee Republic

Costa Coffee


Dunkin’ Donuts

Caribou Coffee, Coffee Republic, Costa Coffee

Similar strategy:

Create ambiance

Premium Coffee for similar prices

Expansion- Starbucks is losing the race in certain regions

Starbucks is still the market leader on a global scale
Oxfam Fairtrade coffee
Created awareness of the unfairness within the industry

Starbucks is positioned at the quality end of the sector where consumers are ethically-minded

Forced Starbucks to readjust strategy and join the Ethiopian trademarking initiative.
Fast-food companies
Dunkin’ Donuts and McDonalds have expanded into the coffee industry

Already have established outlets

Offer premium coffee at cheaper prices.

McDonalds is constantly expanding McCafe outlets and the range of products being offered
Price Variance Worldwide
When you consider the psychology, and not just the economy with pricing
Why does price differ internationally?
“When (costumers) cannot judge quality, price becomes an important quality signal”
Tax can cause prices to be much higher, this is clear from looking at Thailand, which has a very low rate of tax

Minimum wage and costs can also drive up the price. For example a coffee in Ireland is much more expensive due to our high minimum wage
Starbucks’ Reasoning for Price Variance
‘We also have to take into account “Competitive dynamics” in individual markets as well as costs related to distribution, store operations and commodities, including fuel and ingredients for food and beverages’
Starbucks in Oligopoly Market
In Ireland, Starbucks is operating in an oligopolistic market, meaning there are only a small number of sellers, and therefore they are able to set a price that they wish. This explains why prices are high here.
Starbucks in Competitive Markets
Wages and production costs are low in Thailand and Starbucks has had to adjust its pricing in order to remain competitive.
Initiating price increases

A psychological reference when looking at a given product & price.
Even small differences in price can suggest product differences
Bargain price vs. quality
Reference pricing
Starbucks has raised prices in its cafes gradually

Especially, focused on popular items such as
Caffè Americano, Caffè Latte, Caffè Mocha, Capuccino, etc

This helps to increase company’s profit with effect
Technique to Justify its higher price
- When raising prices, the company must avoid being
perceived as a ‘price gouger’

- Starbucks sets its pricing strategy on a basic idea to
justify its costs : high value at moderate cost

- Starbucks' pricing strategy has a lot to do with
how it positions itself as an authority on coffee,
allowing the company to charge premium prices
Buyer reactions to price changes
- As the brand loyalty is high,
Most of buyers tend not to mind the price

can be one of ways
to understand Starbucks and buyer’s behaviour
cf) The word is a portmanteau of the words ‘mass ‘and ‘prestige’
and has been described as "prestige for the masses“
Masstige products are defined as "premium but attainable“
(1) They are considered luxury or premium products
(2) They have price points that fill the gap between
mid-market and super premium

'Veblen Effect'
In economics, a 'Veblen good' is a member of a group of commo- dities for which people's preference for buying them increases as their price increases instead of decreasing according to the law of demand
“To carry around a Starbucks tumbler(cup) or to meet in a Shop is
to mark yourself as having status”
Competitor reactions to price changes
& Responding to price changes
Coffee Market show unique aspects (seldom cut the price)
Store Growth
- 85 percent of sales come from their stores so they are constantly expanding in store growth

- Expansion of food options within stores as well in hopes to increase the average sales ticket per customer
New Retail Channels
- It has become more common for consumers to purchase coffee and make/drink it at home, so Starbucks is putting their product into grocery stores

- Expanding alternative
New Products and Concepts
- Brand expansion - Starbucks is partnering with different firms to expand the brand

- New store ideas

- Music revival: bringing music and coffee together again
International Growth
- Starbucks wants to go even more global
Starbucks faces several competitors and in order to maintain their companies growth they have created a multipronged growth strategy:
1. Store Growth

2. New Retail Channels

3. New Products and Concepts

4. International Growth
- Starbucks' also uses relative pricing. It offers premium items,
along side lower-cost items.

- While the risk exists that more customers will choose
the lower-priced items, by offering higher-priced items
along side lower-cost alternatives, Starbucks is justifying
the higher price through comparison.
Customer Value
Companies are going beyond just attracting customers
They aim to build long-term relationships
They achieve this through superior customer value
Customers avail of many benefits by choosing Starbucks over its’ competitors.
Coffee Quality
“It has been, and always will be, about quality”

Ethically sourced coffee beans

Largest buyer of Certified Fairtrade coffee in North America

Helps family farmers in under-developed countries

Raises consumer awareness
Idea: A third place for people to go after home and work.
Club-Like atmosphere
Neighbourhood Feel
Baristas trained on ‘hard skills’ and ‘soft skills’.

Connect with customers through eye contact and warm greetings

Enhances the experience

Other benefits include cleanliness, wifi, and seasonal beverages.
Starbucks has been able to remain successful, and out sell competitors, do to their continous store growth and strategic price marketing.

Any Questions?
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