Question
Starbucks uses price increases strategically to capture consumer surplus. Instead of raising the prices of all products, they selectively increase the price of certain drinks and sizes. For instance, by raising the price of the tall size brewed coffee, Starbucks encourages customers to upgrade to a grande size. Customers who find more value in upgrading after witnessing the price of a small drip with tax climb over the $2 mark, end up purchasing larger sizes. This versioning of the product allows Starbucks to enjoy a slightly higher margin from these customers who were persuaded by the price hike to purchase larger sizes.
This question was asked on:
The company also applies price increases to certain drinks and sizes rather than the whole product line. "By raising the price of the tall size brewed coffee exclusively, Starbucks is able to capture consumer surplus from the customers who find more value in upgrading to grande after witnessing the price of a small drip with tax climb over the $2 mark. By versioning the product in this way, the company can enjoy a slightly higher margin from these customers who were persuaded by the price hike to purchase larger sizes," Price Intelligently experts say.
Receive new free presentations every Monday to your inbox.
Full content, complete versions — No credit card required.
