team #10 johanna phan, ryan mcintire, christina kraft, meagan mikkonen, eric spackman starbucks...
Post on 20-Dec-2015
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Team #10Johanna Phan, Ryan McIntire, Christina Kraft,
Meagan Mikkonen, Eric Spackman
Starbucks Pricing Strategy
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Current Pricing
• Tall 12-ounce: $1.40 and $1.65
• Lattes 12-ounce: $2.40 and $3.10
• Tall Mocha: $2.70 and $3.40
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PRICING STRATEGY
PRICE SKIMMING
- Premium Price for Premium Product
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Why the High Prices?
• Increase pricing in Fuel/Energy • Fair-trade Movement• Starbucks Experience
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Economic Factors
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Cincinnati Enquirer
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FAIR TRADE
WHY THE FAIR TRADE MOVEMENT?Help ensure that farmers receive an equitable price for their coffee and strengthen their farms for the future.
-HOW IT WORKS? -Long term contracts-Affordable credit for farmers-Direct purchasing -Investing in social projects in coffee communities
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FAIR TRADE • STARBUCKS IN NORTH
AMERICA’S LARGEST PURCHASER OF FAIR TRADE CERTIFIED COFFEE. – In 2005 Starbucks
purchased 11.5 million pounds of Fair Trade Certified coffee.
– Pay $1.42 per pound
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Fair Trade & the “Starbucks Effect”
• Paying premium prices stimulates production of high quality coffee.– Allows farmers to increase income and
reinvest in their farms and plan for the future.– Promotes steady and sustainable growth in a
market with price fluctuations.– Upholds Starbucks commitment to purchase
high-quality product in a socially responsible manner
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EXPERIENCE
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Top Competitors:McDonalds
• “ A pit stop for customers with little time, many kids and thin wallets.”
• McDonalds Manager: “McDonalds is a lot cheaper than Starbucks coffee in general, and they have the high quality to go with it.”
•Offers: lattes, cappuccinos and iced brews in 9,000 U.S. restaurants
•McDonald's has more locations and a lower price point for premium coffee.
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Top Competitors: Dunkin Donuts
• Cost Advantage
• Complements the Main Product.
• Faster and Cheaper
• Half its revenue from coffee sales
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STARBUCKS
• Premium Products
• Prominent Image
• Friendly Environment
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PRICE ELASTICITY• If price goes up and revenue goes up, demand
is inelastic.• Starbucks can raise its price and help increase
total revenue. • Relatively inexpensive but convenient
products tend to be inelastic.
2007 2006 2005
Revenue ($ mil.) 9,411.50 7,786.90 6,369.30
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Price Elasticity of Target Market
• Target Market: 18-34 years of age
• Price increase seven times since 1997
• Market still willing to pay as price increases
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Coffee industry
Arabica Coffee-Grown at higher elevations and requires
specific climate for optimal conditions.
-requires more care in growing/harvesting
Majority traded as commodity item on the New York “C” market.-greatly affected by global supply and demand
-average price = 1.04/lb (2005)
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Paying Premium
• Starbucks purchases only the highest grade Arabica coffee.– Negotiated at higher price to compensate for
farmers quality.– Accounts for only 10% of worldwide coffee
purchases– Currently sells 23% above commodity – Shields from volatile prices fluctuations
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Marketing Goals
• Address Increased Competition
• Market penetration and expand customer demographics
• Pricing/Utility
• Demographics
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What’s in Store for the Future?