Starbucks Pricing Strategy

Case:   How Starbucks Uses Pricing Strategy for Profit Maximization

Web Site:

Download and review the four page case statement.  Answer the following questions.  Note: your answers may vary from other students.

1. On average, how many days per week do you purchase a Starbucks coffee?  If zero, why?
2. Would you pay $3.00 for a Tall-sized (12 oz) plain coffee at Starbucks?  Would you pay $3.00 for a large cup of coffee (12 oz) at McDonalds?  What is your perception of the difference?
3. If the price of the Starbucks cups of coffee was raised to $3.10, would your decision in #2 change?  How about if it was raised to $3.50?
4. Assume that the Tall size is 12 oz and sells for $3.10 and that the Venti size is 20 oz and sells for $5.00, which one is the better value?
5. Using your best guess as to Starbucks’ product cost of each size (Tall @ $3.00 and Venti @ $5.00), which one would produce the higher contribution margin ratio?  Explain your reasoning.
6. The 1% price increase appears to be a short-term decision.  If you were the Product Manager for Starbucks, would you choose an increase of 1% every six months, 2% every year, or 5% the first year and 0% for the next two years?  Why?
7. The Product Manager has designed an Anniversary Coffee called:  “Chocolate-infused vanilla latte with a hint of mint topped with whipped cream.  As the head “Chef” for new products, what factors must be taken into consideration if the new coffee is to sell for $4.50 for a Tall with a contribution margin of 50% ?
8. The Balanced Scorecard is a set of performance targets and results relating to four dimensions of performance:  financial, customer, internal process and innovation. It recognizes that organiza­tions are responsible to different stakeholder groups, such as employees, suppliers, customers, com­munity and shareholders.  What specific actions does Starbucks engage in to maintain high performance targets for the customer?