Pricing Strategy for Profit Maximization: Starbucks

1. Pricingstrategyforprofit
maximization:Starbucks
Laura Terry, Brenda Limon, Hailey Hollas, and Tuba
Qazi

2. Pricingstrategyforprofit
maximization:Starbucks
Laura Terry, Brenda Limon, Hailey Hollas, and Tuba
Qazi

3. PresentationLayout
● Laura: Intro, Demographics of Users, Pricing Power, Caffeine
Statistics
● Brenda: Price increase, How it works, Pricing Techniques
● Tuba: Effective techniques
● Hailey: Caffeine Concentration, Caffeine Use Disorder, Summary
● Discussion Questions

4. Demographicsofstarbucksconsumers
•Men and women aged 25-40 account for nearly half (49%) of its total
business. These people are Starbucks primary target market.
•Young adults aged 18-24 total 40 percent of Starbucks sales.
Starbucks positions itself as a place college students can hangout,
study, write term papers, and meet people.
•Customers tend to have relatively high income, professional careers
and a focus on social welfare. This target audience grows at a rate of
3 percent annually.

5. Whydoesstarbuckshavesomuchpricingpower?
● Starbucks has become the place to meet.
● Starbucks have becomes landmarks, aka a “zone of attraction”.
● Stores are everywhere and easy to spot.
● Drinks and food are offered while you wait for your visitor.
● Starbucks encourages customers to visit long periods, offering free WiFi and
charging stations for your smartphones and laptops.

6. caffeinestatistics
1. The United States is the country with the highest amount of caffeine
consumption (971 tons) followed by Brazil (969 tons).
2. 54% of Americans over the age of 18 consume caffeine on a daily basis.
3. The majority of caffeine consumers drink approximately 3.1 cups of coffee on a
daily basis.
4. 70% of consumed caffeine is in the form of coffee.
5. Coffee is certainly a national obsession. Americans drink over 400 million cups
of it each day.
6. The U.S spends $40 billion dollars on coffee each year.

7. Whyincreaseprices?
According to Starbucks their latest price increase was a result of rising
labor and non coffee commodity costs.
But… coffee costs have significantly decreased and therefore
improved their profit margins.
So why did they really increase price?
Because they can.

8. Starbucks’EffectiveTechniques
Starbucks has 3 effective techniques for increasing prices and profit
margins:
Value base pricing
Product versioning
Price Communication

9. Valuebasedpricing(howitworks)
● They have created a loyal customer base that perceives their beverages as
an affordable luxury.
● They don’t compete with cheaper chains, instead they separate themselves
and reinforce their premium image.
● They increase prices only on selected items and regions, not an overall price
increase.
● The items that increase in price are not high margin items.
● Prices are based on the customer’s willingness to pay.

10. Productversioning:
● Apply price hikes to specific drinks and sizes
● Their last price increase affected only Tall size(small drinks) pushing
consumers to upgrade their size in certain items
● This way the company enjoys a slightly higher margin than anticipated

11. PRICECOMMUNICATION:
● They communicate their price increase to manipulate consumer
perception. They use tactics like using increased commodity cost or
statements that aim to make the hike look insignificant. This helps
them foster an attitude of acceptance.

12. concentrationofcaffeine

13. “Mostwidelyuseddrug”
December 2015- Johns Hopkins University released a study
Dependence on caffeine has increased by 17% in the past year
Test group of individuals exhibited increased symptoms of “Caffeine
Use Disorder”

14. CaffeineUseDisorder
A speculated substance related/ addictive disorder
Reliance on excessive use of caffeine
More prone to “Caffeine Withdrawal”
Symptoms: Headaches, increased insomnia, anxiety, can’t function without the
help of caffeine
Has not been recognized as an actual disorder, but is quickly gaining ground in
the scientific community

15. Starbucks
What can Your Business Learn From Starbucks?
Here are some of the takeaways you can apply to your own business:
Study your customer personas
Justify the exchange rate for your product
Use product differentiation to put your company in the lead
Don’t increase the prices of the products with the highest margins
Sell something that others can get addicted to...

16. QUESTIONS
What does Starbucks offer that other coffee brands don’t? (in other words what
would you say is the greatest perceived value of this product).
Why are Starbuck’s techniques not as commonly used among other businesses if
it seems to be so effective for them?
Do you believe it is a valid assumption that the product Starbucks promotes allows
for them to be successful?
What other companies do you think could get away with raising their prices and it
wouldn’t affect the demand?

17. PresentationLayout
● Laura: Intro, Demographics of Users, Pricing Power, Caffeine
Statistics
● Brenda: Price increase, How it works, Pricing Techniques
● Tuba: Effective techniques
● Hailey: Caffeine Concentration, Caffeine Use Disorder, Summary
● Discussion Questions

18. Demographicsofstarbucksconsumers
•Men and women aged 25-40 account for nearly half (49%) of its total
business. These people are Starbucks primary target market.
•Young adults aged 18-24 total 40 percent of Starbucks sales.
Starbucks positions itself as a place college students can hangout,
study, write term papers, and meet people.
•Customers tend to have relatively high income, professional careers
and a focus on social welfare. This target audience grows at a rate of
3 percent annually.

19. Whydoesstarbuckshavesomuchpricingpower?
● Starbucks has become the place to meet.
● Starbucks have becomes landmarks, aka a “zone of attraction”.
● Stores are everywhere and easy to spot.
● Drinks and food are offered while you wait for your visitor.
● Starbucks encourages customers to visit long periods, offering free WiFi and
charging stations for your smartphones and laptops.

20. caffeinestatistics
1. The United States is the country with the highest amount of caffeine
consumption (971 tons) followed by Brazil (969 tons).
2. 54% of Americans over the age of 18 consume caffeine on a daily basis.
3. The majority of caffeine consumers drink approximately 3.1 cups of coffee on a
daily basis.
4. 70% of consumed caffeine is in the form of coffee.
5. Coffee is certainly a national obsession. Americans drink over 400 million cups
of it each day.
6. The U.S spends $40 billion dollars on coffee each year.

21. Whyincreaseprices?
According to Starbucks their latest price increase was a result of rising
labor and non coffee commodity costs.
But… coffee costs have significantly decreased and therefore
improved their profit margins.
So why did they really increase price?
Because they can.

22. Starbucks’EffectiveTechniques
Starbucks has 3 effective techniques for increasing prices and profit
margins:
Value base pricing
Product versioning
Price Communication

23. Valuebasedpricing(howitworks)
● They have created a loyal customer base that perceives their beverages as
an affordable luxury.
● They don’t compete with cheaper chains, instead they separate themselves
and reinforce their premium image.
● They increase prices only on selected items and regions, not an overall price
increase.
● The items that increase in price are not high margin items.
● Prices are based on the customer’s willingness to pay.

24. Productversioning:
● Apply price hikes to specific drinks and sizes
● Their last price increase affected only Tall size(small drinks) pushing
consumers to upgrade their size in certain items
● This way the company enjoys a slightly higher margin than anticipated

25. PRICECOMMUNICATION:
● They communicate their price increase to manipulate consumer
perception. They use tactics like using increased commodity cost or
statements that aim to make the hike look insignificant. This helps
them foster an attitude of acceptance.

26. concentrationofcaffeine

27. “Mostwidelyuseddrug”
December 2015- Johns Hopkins University released a study
Dependence on caffeine has increased by 17% in the past year
Test group of individuals exhibited increased symptoms of “Caffeine
Use Disorder”

28. CaffeineUseDisorder
A speculated substance related/ addictive disorder
Reliance on excessive use of caffeine
More prone to “Caffeine Withdrawal”
Symptoms: Headaches, increased insomnia, anxiety, can’t function without the
help of caffeine
Has not been recognized as an actual disorder, but is quickly gaining ground in
the scientific community

29. Starbucks
What can Your Business Learn From Starbucks?
Here are some of the takeaways you can apply to your own business:
Study your customer personas
Justify the exchange rate for your product
Use product differentiation to put your company in the lead
Don’t increase the prices of the products with the highest margins
Sell something that others can get addicted to...

30. QUESTIONS
What does Starbucks offer that other coffee brands don’t? (in other words what
would you say is the greatest perceived value of this product).
Why are Starbuck’s techniques not as commonly used among other businesses if
it seems to be so effective for them?
Do you believe it is a valid assumption that the product Starbucks promotes allows
for them to be successful?
What other companies do you think could get away with raising their prices and it
wouldn’t affect the demand?