Price discrimination is a practice of charging different prices to different consumers under the circumstances of keeping the same cost of production. The manufacturers always set the high price in one particular region to gain excess profit because they have the certain ability to monopolize or control consumers’ demand. However, for those markets which have lower demand, manufactures will set a relatively low price to encourage the consumption. Starbucks charges the relatively higher price in Shanghai than in New York and Mumbai to pursue the higher profit. The high price elasticity of demand of Starbucks ' coffee in Shanghai can be one factor and Starbucks also maintain the high price through taking action to influence consumers’ sensitiveness for high prices.
In Starbucks’s case, price increases throughout the company’s history have already deterred the most price sensitive customers, leaving a loyal, higher-income consumer base that perceives these coffee beverages as an affordable luxury. In order to compensate for the customers lost to cheaper alternatives like Dunkin Donuts, Starbucks raises prices to maximize profits from these price insensitive customers who now depend on their strong gourmet coffee. Rather than trying to compete with cheaper chains like Dunkin, Starbucks uses price hikes to separate itself from the pack and reinforce the premium image of their brand and products. Since their loyal following isn’t especially price sensitive, Starbucks coffee maintains a fairly elastic demand curve, and a small price increase can have a huge positive impact on their margins without decreasing demand for beverages. In addition, only certain regions are targeted for each price increase, and prices vary across the U.S. depending on the current markets in those areas (the most recent hike affects the Northeast and Sunbelt regions, but Florida and California prices remain the
Weaknesses High priced products: Starbucks is being differentiated with the high quality of products but during the economic recession, consumers might have to switch costs to competitor products that the prices of their products are low. The premium prices can create weaknesses to the company that is trying to succeed in less developed countries. High dependence in the U.S. market: Starbucks operates 7.049 stores in the U.S. while 8.078 stores are being operated in total America and 2.116 stores internationally. The percentage of stores operated in U.S. is 69% which diminishes long term growth of Starbucks. file:///C:/Documents%20and%20Settings/marketing/%CE%A4%CE%B1%20%CE%AD%CE%B3%CE%B3%CF%81%CE%B1%CF%86%CE%AC%20%CE%BC%CE%BF%CF%85/Downloads/Starbucks%20Fiscal%202013%20Annual%20Report%20-%20FINAL.PDF
Starbucks implements loyalty programs to help maintain customer satisfaction. It is also known as a corporation that adopts product differentiation. They have seen growth during the years. Weaknesses Weaknesses are always present, even in the top companies. Starbucks has a number of competitors in the market, and have high cost products when comparing them to other competitors.
For some people without coffee they cannot think of starting there day. The regular Coffee drinkers can easily refine and recognize the coffee quality from bad to good, but from long time ." If a customer needed to attempt the best mixes or flavors, he must be arranged to pay for it. The economy started spiraling descending, costs rose, and abruptly, a $4 mug of coffee was not exactly as appealing as it once had been, from here the Coffee war started, Premium cafés like Starbucks were all of a sudden confronted with rivalry from fast food upstarts like Mcdonald 's and Dunkin ' Donuts , coffee beans operations that were suddenly breaking into the premium coffee industry with "less expensive, however very nearly as great, Coffee. "( Brizek, M, 2012).
The increased lead-time will affect suppliers by resulting in a decrease or a delay in sales because of the inventory inaccuracies delaying their shipment. 7. Additionally, there are increased expenditures affecting the product costs caused by the errors made in inventory, even for “c” level class products it will be a significant loss in overall profit on a yearly basis for regular miscounts in inventory replacement. 8. This negative impact also occurs in manufacturing, as more products need to continuously be manufactured because of the inventory shortages.
They are classified as an oligopoly concentration as the two firms control the vast majority of the market share and therefore requires the two companies to compete on prices as well as non-price related aspects. This can be considered a negative impact on both companies as due to the similarity in their products, price wars are often triggered as consumers will tend to purchase the cheap option. With lowering the prices both PepsiCo and Coca-Cola are losing potential sale revenues and thus profits. Once the price wars come to a stand still, the businesses look for alternative marketing strategies to get an upperhand, such as products. To respond to this rivalry, PepsiCo has recently expanded their beverage line and has now introduced ‘Bubly’ to the American market.
A slow US economy critically affects Starbucks and will have an impact on revenue and profitability. The gross and disposable income of the company will be greatly affected in case of a slow United States economy. The vulnerability can be mitigated by spreading risks to other countries by having increased stores abroad and considering the quality and pricing strategies in other countries to ensure Starbucks makes pricing consistent with the countries’ ability to purchase. This is evidenced by the low demand and sales in China because of high pricing of Starbucks’ products making the company vulnerable to the market loss to McCafe (Thompson & Martin, p.
External environment analysis 5.1. Does the coffee industry offer attractive opportunities for growth? Vietnamese coffee has been developing fast. Among Vietnamese agricultural product commodities, coffee plays a quite important role, ranking the second after rice (Ipsos consulting, 2013) Vietnam’s coffee industry is expected to grow strongly in the coming years as the population continues to expand at a rate of about one million people a year and the country and the tastes of its people become more sophisticated. The activities to attract customers and trading between different regions has increased.
it contributes to economic growth, developing countries and the relationship are more valuable to consumer in society (Chapagain & Hoekstra, 2007). According to Talbot (2004), over twenty-five million people are sustained by the production of coffee and are linked to billions of consumer who drink it on a daily basis. Malaysia coffee culture grows by commercializing kopitiams and branding of local café to upgrades services including adopting technology as part of the marketing plans to attract younger generations (Nurbaya & Rahman, 2010). Coffee shop start to enter Malaysian’s society in the late 1990 's as one with some other fast food chain and