Starbucks Pricing Strategy

Question

Q : Price as marketing strategy?

A : Did not emphasize PRICE as Competitive

Advantage

Q : Compare with competitor?

A : No - price setter

Business Today, March 4,2012 : Starbucks enter India

INTERNATIONAL APPROACH

MARKET-ORIENTED PRICING

Setting a price based upon analysis and research compiled from the

target market. This means that marketers will set prices depending on the

results from the research. For instance if the competitors are pricing their

products at a lower price, then it's up to them to either price their goods

at an above price or below, depending on what the company wants to

achieve

CALIFORNIA, 2008

HIGHER THAN COMPETITOR

HIGHER THAN COMPETITOR

LONDON, 2012

HIGHER THAN COMPETITOR

http://www.humuch.com/prices/Starbucks-Cappuccino-grande/______/102

COMPARE TO PREMIUM COFFEE CHAINS

Source : Reuters, Jan 3 2012

• Prices range from USD2.00-USD8.00 for drinks

For Premium outlet : • lower than its rivals, although

not by much

• Starbucks regular coffee was 4% less expensive and its iced blended drinks were as much as 30% less expensive

For quick-service restaurants • Starbucks was more expensive. Dunkin’ Donuts’ 20-ounce latte is an

average of 13% cheaper

PRICING SUMMARY

LATEST PRICE INCREASE JAN 2012 (price skimming) -

Source : Reuters, Jan 3 2012

WAY FORWARD STARBUCKS PRICING STRATEGY

Source : Reuters, Jan 3 2012

PRICING STRATEGY

PRICE SKIMMING - Premium Price for Premium Product

goods are sold at higher prices so that fewer sales are needed to break even. Selling a product at a high price, sacrificing high sales

to gain a high profit is therefore "skimming" the market

MARKET ORIENTED PRICING (enter new market)

SECOND DEGREE PRICE DISCRIMINATION price varies according to quantity demanded. Larger quantities are available

at a lower unit price. This is particularly widespread in sales to industrial customers, where bulk buyers enjoy higher discounts

Why the High Prices?

• Increase pricing in Fuel/Energy

• Fair-trade Movement

• Starbucks Experience

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 (hedging)

-Affordable credit for farmers

-Direct purchasing

-Investing in social projects in coffee

communities

Via Coffee And Farmer Equity

(CAFÉ)

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

• Premium Products

• Prominent Image

• Friendly Environment

EXPERIENCE

20

Price-Quality Strategies

• Philip Kotler identified 9 price-quality strategies

Premium High

Value

Super

Value

Over

Charging

Mid

Value

Good

Value

Rip-off False

Economy Economy

High Quality

Low Quality

High Price Low Price