Starbucks – Explain Four Determinants of Demand for Coffee
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1. Explain four (4) determinants of demand for coffee?
Taste: Taste is one of the most important determinants of demand for coffee because customers always put priority on their taste whether to drink coffee, tea or other drinks. Now a days coffee shop sells varieties type of flavored coffee drinks which drives customers to determine to drink coffee rather than other choices. Subject to the taste coffee became one of the best choice for drinker to drink coffee than other drinks.
Income: As a determinant of demand for coffee customers income has an important role to play in the matter of price, if the price of coffee is high then the low income customers will switch their choice to the other substitutes which is comparatively lower than coffee price. So ultimately income becomes a fact for consumers to determine whether come to the coffee shop to drink coffee or go for the other substitutes by the way we can see the effect of determination of coffee to its customers.
Location: We have studied about all coffee shops location and we noticed that all coffee shops have very good strategic location which attracts customers to sit in the coffee shop. Actually location is one of the most important determinations for the customers to make choice. If there is a attractive and convenient location then customers will prefer no to look for second choice and thats how it affects to the coffee.
Advertising: We considered that advertising plays an important role in the determination of demand for coffee. Advertising is an important tool by in which way customers get to know more about coffee and its drives customers to be known about coffee and bring into their attention to drink coffee as well as in where people get to introduced or to get to know about an product sold commonly through an advertisement which eventually thrive the customers interest towards coffee and also changes the demand of the coffee.
2. Name three (3) direct competitors of Starbucks in its lower price range coffee products. Justify your answer.
Old town White Coffee is one of the local competitors for starbucks coffee. Old town white coffee has a lower price of range than starbucks coffee which basically sells the coffee at the cheaper price and it has various kinds of sets referring to the menus as the options are high to be ordered so there for the price of the coffee being lower is not a matter because there are many other choices to be considered with.
San Francisco Coffee has its variety of coffee and other drinks with sets of cakes which price comparatively lower than starbucks coffee. In the competitive market San Francisco coffee having a strategic menu price which beat the market with other competitors. San Francisco giving a very reasonable price for its some menu just to compete with well known competitors and maintain their market share.
McDonalds mostly known for fast food only but it serves verities types of drinks as well. McDonalds Coffee is one of the most well known drinks because of the price than other coffee shops such as sturbucks coffee. Mc Donalds coffee got its popularity to the customers one of the reason its cheaper price but to compare the taste of the coffee is not compatible to the other specialized coffee shop as starbucks.
3. Does Starbucks has direct competitors in its higher price range coffee products? Justify your answer by giving examples.
Actually our findings on starbucks and its direct competitors shows that The Coffee Bean & Tea Leaf is playing a competency role with starbucks in regard of some of its special products. The Coffee Bean & Tea Leaf has a higher price range for some of its specialized coffee products than starbucks.
For Examples: The Coffee Bean & Tea Leaf has its some special aromatics coffee products which they sells higher price than stabucks, as we know that starbucks is one of the coffee shop who has higher price range among its competitors, our study shows that all competitors has their some specialized products in which field they are different than their competitors. And we noticed that on the special product they have their own price strategy (which is higher than others) among their competitors.
4. Why does Starbucks (a) increase the price of some coffees and (b) at the same time reduce the price of others? Use the total revenue concept to explain your answer.
In the economic downturn most of the products and services price went down, in order to maintain the quantity demand during the period of economic recession. But Starbucks had increased the prices for some of its goods and also reduced the prices of the other goods as well. Actually this was a strategic pricing technique for starbucks coffee, behind this price strategy there were two types of customers who had been targeted, (i) hard core starbucks customers was targeted for higher price and (ii) average customer were targeted for reduction of price. During the economic recession starbucks wanted to up hold the quantity demand as well as to keep maintain their total revenue by this price strategy. They implemented their new pricing strategy based on the logical theory, the elasticity of quantity demand of goods, price, and total revenue that is showed in detail as following:
When demand is elastic: