Kristine D.
Tagalo BSA - A11
CASE ANALYSIS: STARBUCKS SALES
1. What kind of analysis or study would you do to help Starbucks validate their
hunches? What information or questions will you ask from Starbucks to
undertake this study? How will you analyze if you’re given these data?
Starbucks takes the risk in charging their special beverages up to 30
cents more, though the company is charging less for some basic drinks. By using
the price elasticity demand, we can measure how much the quantity demanded
of a product changes in response to a change in its price. To undertake this
study, information about the number of special beverages bought by the
consumer at a specific price is needed.
To analyze the data, I can use the midpoint method for elasticity or the
concept of arc elasticity. Where it is essentially calculating the percentage
change in quantity divided by the percentage change in price using the average
of the initial and final values for both quantity and price.
2. Will understanding the elasticity of demand for the different Starbucks products
help in identifying the best strategy? Explain how this works.
The elasticity of demand for the different Starbucks products will help in
identifying the best strategy because it provides sellers with information about
consumer pricing sensitivity. If the elasticity demand is greater than 1, then there
is a significant change to demand when price changes and it is called elastic. It
will be inelastic when it is less than 1, which emphasizes insignificant change and
if it is 1, there is an equivalent percent change in demand when price differs.
3. If Starbucks' objective is to increase revenues, would you advise them to
increase prices?
I would advise them to increase prices to also increase revenues as long
as the business keeps their goods or beverages in premium quality. Customers
will feel that they are getting what they paid for if good quality is maintained,
which will support their perception of value. Customers are more willing to pay
more if the company has a reputation for producing consistently excellent goods.
They can also change their approach by increasing the price of limited-edition or
exceptional products because there are typically fewer alternatives or
substitutions available, which enables the company to charge more without
upsetting customers.
4. Given the options of Starbucks and from what you know from the case, what
should they do to increase their revenue? Support your recommendation with an
analysis?
I would recommend Starbucks to maintain their premium quality of coffee
while expanding their menus and innovating taste that suits the locals of where
their store is located. They can also adapt the product expansion strategy and
differentiation by allowing the customers to customize their own coffee. These
would allow the company to attract a large number of customers as they would
have preferences of flavors, syrups and choices of toppings.