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Starbucks Pricing Strategy Analysis

Starbucks raised prices on some beverage sizes by an average of 1% in the US, representing their first significant increase in 18 months. While Starbucks claimed the increase was due to rising costs, their net income had risen 25% and green coffee prices had fallen, so the true reason was likely to improve profits. By selectively increasing prices on only some beverages by small amounts, Starbucks was able to boost profits without alienating customers. Their approach demonstrates how even minor price hikes of around 1% can substantially increase profits through a carefully planned pricing strategy.

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Janice Balabat
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116 views1 page

Starbucks Pricing Strategy Analysis

Starbucks raised prices on some beverage sizes by an average of 1% in the US, representing their first significant increase in 18 months. While Starbucks claimed the increase was due to rising costs, their net income had risen 25% and green coffee prices had fallen, so the true reason was likely to improve profits. By selectively increasing prices on only some beverages by small amounts, Starbucks was able to boost profits without alienating customers. Their approach demonstrates how even minor price hikes of around 1% can substantially increase profits through a carefully planned pricing strategy.

Uploaded by

Janice Balabat
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd

MKT103: PRICING STRATEGY

Assignment # 2
How Starbucks Uses Pricing Strategy for Profit Maximization
by Tucker Dawson

Last Thursday Starbucks raised their beverage prices by an average of 1% across the U.S, a move that
represented the company’s first significant price increase in 18 months. I failed to notice because the
price change didn’t affect grande or venti (medium and large) brewed coffees and I don’t mess with
smaller sizes, but anyone who purchases tall size (small) brews saw as much as a 10 cent increase. The
company’s third quarter net income rose 25% to $417.8 million from $333.1 million a year earlier, and
green coffee prices have plummeted, so what gives?

Starbucks claims the price increase is due to rising labor and non-coffee commodity costs, but with the
significantly lower coffee costs already improving their profit margins, it seems unlikely this justification
is the true reason for the hike in prices. In addition, the price hike was applied to less than a third of their
beverages and only targets certain regions. Implementing such a specific and minor price increase when
the bottom line is already in great shape might seem like a greedy tactic, but the Starbucks approach to
pricing is one we can all use to improve our margins. As we’ve said before, it only takes a 1% increase in
prices to raise profits by an average of 11%.

QUESTION:
1. Research information about Starbucks Coffee.
[Link] the scenario, what do you think did Starbucks use in their pricing strategy? Explain further (500
words only).

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