You are the owner of a tiny independent chain of coffeehouses rivalling head-to-head with Starbucks. The retail price your customers pay for caffeine is exactly exactly like Starbucks. The general price you pay for roasted coffees has increased by 25%. You know that you cannot absorb this increase and that you must pass it to your visitors. However, you are worried about the results of an open price increase. Discuss three alternate price-increase strategies that talk about these concerns.
Enlarge products and greatly advertise higher price coffee products:
This first strategy targets both cross-selling and up-selling as a means to absorb the raises in costs. The past will add more items to the menu which customers would also buy using their coffees, and the latter would create and intensely advertise higher price coffee products that would have a higher profit-margin. This would all be achieved while leaving the original espresso price the same.
The cross-selling strategy may be best executed by the launch of alternative refreshments and snack foods. The refreshments menu could be expanded to incorporate more types of teas, juices, and hot chocolates. Adding a richer variety of treats, sandwiches, salads, and pastries may possibly also help to expand the menu selection. The goal of this would not be to de-market caffeine products; customers would be enticed to also buy other menu items with a higher profit percentage.
The up-selling strategy would start to see the launch of higher price espresso products that might be easily able to absorb the cost-increase of the coffee beans. The forex market of exclusive and quality differentiated coffees regularly contains customers looking for trendy, new, and sometimes eccentric blends. This market may be inelastic enough to adopt these products, regardless of their higher prices.
Starbucks is undoubtedly the father of coffee chains. They may have built “the perfect combine” brand on both quality and exclusivity. However, in the united kingdom, a rival string Caff Nero is normally perceived to be higher quality at a lower price in a sizable number of surveys (The Separate, 2008), (London Hotel Understanding, 2010). They may have ranked as the number one consumer choice before six years (Westfield Health, 2010). This demonstrates the concept that the Starbucks marketplace is an inelastic one. Their customers seem to be not overly hypersensitive to price changes and prepared to pay a lot more for a coffee in a place with a great reputation and atmosphere.
Young individuals would generally see Starbucks as a location for trendy coffees which present their lifestyle. The center age target portion sees it as a great place to relax, chat, search the internet. One third target section is coffee lovers who are really focused on the quality of the espresso. Starbucks does not appear to be a coffee string that focus on customers who are buying a bargain.
Therefore I think that an open-price increase would not terribly affect sales if it was coupled with a new marketing strategy which promotes a more ‘genuine’ espresso and customer service. This plan would fail in market segments which concentrate on low prices like the McDonalds coffees. Coffee chains that are part of the high price and “perfect blend” quality market that Starbucks has made contain customers that are certainly buying frills-service. Although this plan would be difficult to do, it could be quite a rewarding one for preserving customer loyalty and retention.
This third strategy is quite a risky one, that could potentially affect customer loyalty if not carried out properly. However, it’s the most tangible method for covering cost rises without raising the entire price of the caffeine product.
The first low presence change would be to remove savings and loyalty plans that may be running in the business. This would addresses some of the price increase problem by decreasing the quantity of cost to customers. However, this might negatively impact sales as these loyalty schemes and savings may be the reason that customers could make the acquisitions.
The second type of change is always to intelligently reduce the amount of coffee beans required per item. This could mean just a bit smaller helpings, or lower amounts of coffee beans per cup. This could be done without customer communication, which could lead to dissatisfaction, or the change could be attributed to health awareness promotions of lowering the amount of caffeine containing drinks in people’s diets.
This is quite an evident strategy and it could meet the objective of absorbing prices. However this may affect the brand and contradict the two main keys of marketing success. It could lower the identified value that customers enable you to from special discounts and loyalty techniques, and they may become less satisfied if the grade of the espresso is sacrificed for the sake of bringing down costs.
The Indie, 2008, “Starbucks is bottom of high street coffee test”, [online], Available at: http://www. independent. co. uk/news/uk/this-britain/starbucks-is-bottom-of-high-street-coffee-test-773150. html, Seen on 10th November 2010.
London Hotels Understanding, 2010, “Starbucks vs CaffЁ Nero vs Costa: who wins?” [online], Available at:, Accessed on 10th November 2010.
West Field Health, 2010, “Cash plan is CaffЁ Nero’s cup of tea”. [online], , Seen on 10th November 2010.