Burkette 6.docx - Running Head STARBUCKS 1 Starbucks Jonathan Max Burkett Capella University STARBUCKS 2 Definition of Problem Statement Increase

Burkette 6.docx - Running Head STARBUCKS 1 Starbucks...

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Running Head: STARBUCKS 1 Starbucks Jonathan Max Burkett Capella University May 15, 2019
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STARBUCKS 2 Definition of Problem Statement One problem is that Starbucks has been relying on customer loyalty as well as the high inelasticity of premium coffee demand to continually raise the prices of its coffee products. This emanates from the fact that it has increased its employees as well as an increase in the rates of inflation. As a result, the cost of operation has increased leading to high prices of commodities in the company (Graban, 2016). Notably, the price increase is an operational strategy whose objective is to protect the operating margins of the company. Therefore, it is evident that the reason behind the increase in prices of the premium drinks is inelasticity in demand for the drinks. This has compelled the company to increase its prices, not once, but severally. The Materials Machinery People Methods High product (Coffee) prices Increased wages and salaries Low productivity Scarcity of skilled workers Trade Union interventions Increase in the cost of machinery Increase in charge of installing new technology Increased costs of maintenance and repair Increased prices of raw materials Low supply (shortage) Increased internal activities Legal compliance costs Increased participation in community development projects
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STARBUCKS 3 popular coffee chain has raised its prices by about ten to twenty cents and increased profit by about 17% (Purkayastha at al., 2019). One of the officials in the company reported that the increase in the prices of products has nothing to do with the company’s decision to close all stores for employee anti-bias training when two black men were arrested in Philadelphia (Purkayastha at al., 2019). Preferably, the company cites inflation as the cause of the increase in the prices of commodities. In a statement to Fortune, the company recorded, “Starbucks continually evaluates pricing on a product-by- product and market-by-market basis. Evaluating prices periodically allows us to balance the need to run our business profitably while continuing to provide value to our loyal customers and to attract new customers. Beverage and food prices vary by location and customers can find pricing posted in-store or through our mobile app,” (Purkayastha at al., 2019). Despite the increase in the operating margins by about 13%, it is evident that the company is gradually losing customers due to increased competition in the coffee sector. The strategy seems operational for the company, but it is not clear to what extent customer loyalty can be stretched as prices increase. Therefore, the company should make an effort to solve the price increment problem and ensure it remains at the top edge of competition in the industry.
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