Starbucks sets its prices on a simple idea: high value at moderate cost. When people feel like they are getting a good deal for their money, they are more likely to pay a higher cost. Quality is key. Starbucks has to maintain strict quality controls in its coffee sourcing as well as in its customer service and peripheral products to justify its costs.
Starbucks also spends a lot of time and energy differentiating itself from the competition. You can see this in the design of its coffee shops, the music played there and the types of products it sells, such as coffee-brewing equipment and jazz CDs. Starbucks makes sure to keep current on the latest technology, often times being the first to introduce the newest advancements to its customers. For example, Starbucks was one of the first companies to adopt location-based promotions and mobile payments.
The Value of Authority
Starbucks’ pricing strategy has a lot to do with how it positions itself as an authority on coffee, allowing the company to charge premium prices. Thus, when Starbucks introduces new products at higher prices, consumers are willing to pay extra without even having tried the products because they associate the Starbucks name with high quality.
Starbucks also uses relative pricing. It offers premium items, like its espresso drinks or its Starbucks brand whole-bean coffees sold in grocery stores, along side lower-cost items, like its drip coffees or its Seattle’s Best line. While the risk exists that more customers will choose the lower-priced items, by offering higher-priced items along side lower-cost alternatives, Starbucks is justifying the higher price through comparison.
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