Economic and financial markets - Case Study Example

In 1992 Starbucks became a public limited company (www.mhhe.com) through an IPO. The coffee is supplied mainly through its own and franchised coffee-shop chains as well as through supermarkets. Starbucks’ main competitors in the speciality coffee-shop business are Costa Coffee, Barista and Coffee Bean. Though its mainstay remains its coffee brewing business, Starbucks also offers other hot and cold drinks, hot and cold sandwiches, ice cream, pastries and snacks. Many people have bought its mugs and tumblers to express their appreciation for the Starbucks brand.

A more recently created Starbucks Entertainment Division and its Hear Music label also offers books, music and films. Clearly Starbucks has expanded from just a coffee label to a much larger enterprise (www.starbucks.com). Comments on Starbucks’ Pricing Strategy In the given assignment, we are asked to comment on the pricing strategy of Starbucks chain. We are told that at a local Starbucks, customers are offered a variety of alternatives with the following price list: Freshly brewed coffee ?1.55 Cafe Latte ?1.99 Capuccino ?1.99 Vanilla Latte ?2.29 Caramel Machiato ?2.65 Cafe Americano ?1.70 Expresso ?1.35 Cafe Mocha ?2.25 White Cafe Mocha ?2.65 The above prices are for the ‘tall’ size of the above beverages. . tte, Cappuccino and Cafe Americano come in the price range ?1.70 to ?1.99, and the last or uppermost tier is for its fancier offerings such as Vanilla Latte, Cafe Mocha and White Cafe Mocha, costing between ?2.25 and ?2.65 respectively.

It is also possible that the people ordering these beverages form different classes of customers for Starbucks. Quite possibly the cost of making these beverages and the additional labour and ingredients that are put in have also affected the final price charged by Starbucks. So we can see that there are three tiers of prices possibly indicating low, medium and high class customer preferences. Anyway as far as a cup of coffee goes, there is not much overall variation between the lowest price of ?1.35 and the highest price of ?2.65 a cup at Starbucks- indeed it is very reasonable and such a price difference will readily be accepted by a consumer (Kotler, 1990).

Product pricing theory advises us that when setting the price of a product, we should take into account the price elasticity of demand for a product (McConnell & Brue, 2005). However one must regard a cup of coffee as a basic necessity especially in the winter season, so its price elasticity is relatively low. Its only real substitute is tea, but even that loses favour in the winter season. For avowed coffee fanatics, no other beverage will do. Starbucks’ pricing strategy will most likely also be impacted by the price charged by its competitors, whether it is entering into a new marketplace and is willing to offer price discounts in the beginning period, or whether it wants to place itself at the higher end of the market and charge higher prices, focusing only on a select group of high end customers having purchasing power.

Obviously it is aided in this by its international