Week 3 Product Pricing Starbucks

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1 Product Pricing – Starbucks Jasmina Sprayberry Colorado Christian University MKT-460A- Product, Development and Pricing James Douglas August 9th, 2020

2 Product Pricing -Starbucks Every great strategy has to have focus, the company’s strategic business plan including a though decision on how to price their product. There are 10 different product pricing models that company can utilize. Along with the strategies there are models such as premium, skimming and penetration. “The revenue model you select is basically the implementation of your business strategy, and the key to attaining your financial objectives.” (Zwilling, 2010). When setting a price strategy we must consider the whole business strategy and a way to meet our financial objectives and goals. Out of the different types of pricing strategies Starbucks pricing strategy is carefully calculated. There are many different factors that can go into establishing the best price for a service or product. A good strategy helps the company maximize profits, while considering consumer and market demand. “Most customers in most markets are sensitive to the price of a product or service, and the assumption is that more people will buy the product or service if it’s cheaper and less will buy it if it’s more expensive.” ( Gallow, 2015) The Different strategies and models I will discuss and implement in Starbucks are cost- based, competitive positioning and value model. Premium pricing is known just as it sounds luxury. This is the type of strategy that has prestige pricing. This is a strategy that prices the products fairly high that presents the imagine as luxury or premium. This is the type of strategy that is a direct function of brand awareness and brand perception. Brands like Starbucks that apply this pricing method are known for providing value and statues throughout their products. This is the meaning behind why their products are priced higher than their competitors. This is a strategy that falls under the cost – based model. Just as the article states “this more traditional product pricing model, the price is set at two to five times the product cost”. (Zwilling, 2010). Another pricing strategy Starbucks could use is competition-based this a strategy that

3 focuses more on the existing market rate for the service or product. This strategy does not take into account the cost of product or the consumer demand. Competition based pricing is based on the competitions price as a benchmark. Value model is another strategy that is a setting a price based on the consumer perception of the product. How valuable is the product or service. “If you can quantify a large value or cost savings to the customer, charge a price commensurate with the value delivered.” (Zwilling, 2010). This is a model that really focuses on overall satisfaction that the customer gets from using the product, it is the utility gained from the product. Value based pricing can help boost margins. Starbucks utilizes the premium pricing strategy the most, let’s say their menu, and it is exactly the same in every single store and it is specialized and focused. The menu items are extremely relevant to their pricing strategy because the pricing strategy shows how Starbucks is able to price their products at a high price while achieving their optimal margin. Rather than keeping up with competition Starbucks hikes up their products and reinforces a premium type of brand. When it comes to premium pricing strategy my suggestion would be to possibly lower the price where it meets the competitions. The competition will be doing discount and promos. In order to keep up Starbucks will have to do the same thing or change their pricing strategy. I would recommend keeping track of branding cost, and sales volumes to determine is the premium pricing strategy is maintainable. My other recommendation would be to not increase prices of the products with high margins. Stick with raising prices on smaller items to encourage customers to buy the next tier up. In this biblical perspective we learned about value of others and not just products. I feel that no matter what we do we must always put the value of others first before the products or

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4 pricing. We must trust in the Lord. “And whatever you do, in word or deed, do everything in the name of the Lord Jesus, giving thanks to God the Father through him” Colossians 3:17 (NIV). References Zwilling, Martin. (2010, Dec. 27). Ten Top Product Pricing Models for Startups. [Web log post]. Retrieved from http://www.businessinsider.com/ten-top-product-pricing-models-for-startups-2010-12? op=1/#mpetitive-positioning-8 Gallow, Amy. (2015, August). A Refresher on Price Elasticity. Harvard Business Review. Retrieved from https://hbr.org/2015/08/a-refresher-on-price-elasticity

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