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How Starbucks Uses Pricing Strategy for Profit Maximization...

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How Starbucks Uses Pricing Strategy forProfit Maximizationby Tucker DawsonLast Thursday Starbucks raised their beverage prices by an average of 1%across the U.S, a move that represented the company’s first significant priceincrease in 18 months. I failed to notice because the price change didn’t affectgrande or venti (medium and large) brewed coffees and I don’t mess withsmaller sizes, but anyone who purchases tall size (small) brews saw as muchas 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 haveplummeted, so what gives?Photo Credit:Thomas HawkStarbucks claims the price increase is due to rising labor and non-coffeecommodity costs, but with the significantly lower coffee costs alreadyimproving their profit margins, it seems unlikely this justification is the truereason for the hike in prices. In addition, the price hike was applied to lessthan a third of their beverages and only targets certain regions. Implementingsuch a specific and minor price increase when the bottom line is already ingreat 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, itonly takes a1% increase in prices to raise profits by an average of 11%.Value Based Pricing Can Boost MarginsFor the most part, Starbucks is a master of employingvalue based pricingtomaximize profits, and they use research and customer analysis to formulatetargeted price increases that capture the greatest amount consumers arewilling to pay without driving them off.Profit maximizationis the process by

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Term
Spring
Professor
devlina
Tags
Pricing, Photo Credit

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