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STARBUCKS

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by

Bantita Cheeptumrong

on 19 April 2014

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Transcript of STARBUCKS

among Fast Food industry
MARKET SHARE
In United State
Saturday 19, April, 2014
Industrial Organization
Starbucks is MONOPOLISTIC COMPETITION
MARKET STRUCTURE
the
SHORT
size
S T A R B U C K S C O F F E E C O M P A N Y
- a type of imperfect competition such that many producers sell products that are differentiated from one another.
 
- non price competition

- advertising and brand recognition is the most important for Starbucks
short run

make attraction and maintain customers with variety products in order to make profit in the short run.
Operating of the monopolistic competition of Starbucks
long run

Starbucks will tend to have zero economic profit.
MARKET SHARE
In Thailand
Dark blue: Black canyon
Blue: Starbucks
Green: Coffee world
Yellow: BanRai coffee
Red: others
From the graph of Market Share
among Fast Food industry
McDonald
Yum brand
Wendy’s/ Arby’s
Starbucks
market share 12.7%
market share 9.7 %
market share 6.6%
market share 5.9%
concentration ratio for top 4 firm (CR4) is 39.4%
low concentration ratio
greater competition among the firms
Economies of scale
increased output lead to lower unit costs due to Starbucks' large scale investment coffee shop.
STARBUCKS COFFEE COMPANY
Economies of scope
A large firm uses it existing resources to diversify products into the market.

For the example of Starbucks' products which are non-coffee drinks and bakery.
Sunk Cost
All entry cost
such as

Advertising
Rent
Investment
Franchise license
renovation
Flexible Manufacturing
The example product of Starbucks beverage is “Caramel Macchiato”
iced
caramel
macchiato
0
0.5
1
caramel
frappuccino
blended
beverage
caramel
frappuccino
blended
beverage
with whipping cream
Price Discrimination
STARBUCKS SECRET SMALLEST SIZE
8-ounce SHORT cappuccino

80 THB
12-ounce TALL cappuccino

100 THB
These two sizes of beverage contain the same amount of espresso (1 shot of espresso) and caffeine
STARBUCKS' PROMOTION
show
morning receipt
of any Starbucks beverage
purchase until 1pm
and get 50 percent off for their next beverage purchase within the same day from 1 pm onward.
a
morning
receipt for an afternoon treat
second degree price discrimination
There are two consumer groups

1. who get their caffeine fix in the morning
have a lower willingness to pay in the evening.





2. social coffee drinkers are more have a higher willingness to pay in the evening






Starbucks offer evening discounts to morning drinkers, they have a means of effectively separating the two groups.
STARBUCKS' PROMOTION
buy 1 drink get 1 free
or
get 50% discount for beverage
in a specific of time.

It is usually during 2pm to 5 pm which is office hour while majority of their customers are working.
- Frappuccino Happy Hour
- Buy 1 Holiday Drink Get 1 Free
- Half Price Happy Hour
Intertemporal price discrimination
Product Variety and Quality
Horizontal Product Differentiation
Reason behind this strategy

- Firm can reach and sell to consumers with very different tastes.

- Consumers often differ regarding their most preferred color, or favor, or texture.

- To sell successfully to consumers as many as possible requires different offers to each of them.
- A firm offers a variety of products

-In response to different consumer tastes.
Empirical Application: STARBUCKS
Starbucks offers varieties of its products
such as

Starbucks drinks


Empirical Application: STARBUCKS
Starbucks food
Starbucks Merchandise, Drinkware and Machine
SPATIAL MODEL
- Products are differentiated by locations.

- Starbucks also uses strategy by locating their coffee shops close to consumers.

- Especially, the concentration of Starbucks shops is higher in big cities than small cites.
Reference: http://www.statemaster.com/graph/lif_sta_sto-lifestyle-starbucks-stores
Vertical Differentiation
The product is differentiated by its
quality
SHOPS' LOCATION
price of brewed coffee at Starbucks located at
Suvanabhumi Airport
is
more expensive
than brewed coffee located at other area, such as
Chamchuree Sqaure.
Third Degree
Price Discrimination
General Information
- But to determine whether which spicy has better quality.

- The ONLY answer here is “Arabica”

- It bis superior in term of quality and of course much more expensive.
Arabica VS Robusta
Coffee can be classified
into 4 species which are
1. Arabica
2. Robusta
3. Excelsa
4. Liberrica
- Both Excelsa & Liberrica are not usually offered.

- Because their quality is NOT good enough.

- Therefore, there are only Arabica & Robusta species that are commonly offer to the customers.
Observation @Starbucks,
vertical differentiation exists or not
1. Brewed Coffee vs. Instant Coffee vs. Whole Bean Coffee

- Starbucks not only offers brewed coffee.

- But also VIA instant coffee, Brewed Coffee, and Whole Bean Coffee.

- Starbucks has NOT adopted this strategy.

- Starbucks only use Arabica coffee bean in the production process.
Coffee: There is 1 outcome from my observation
Commodity Bundling and Tie-In Sales
Commodity Bundling

classified into 2 types
1. Pure Bundling
2. Mixed Bundling
Tie-in Sales

Two or more products are tied together.

Commonly but not always observed is that tied goods are complementary with each other.
Observation @Starbucks
STARBUCKS has no example of
commodity bundling
and
tie-in sales
Full transcript