1. Team #10 Johanna Phan, Ryan McIntire, Christina Kraft, Meagan Mikkonen, Eric Spackman Starbucks Pricing Strategy

2. Current Pricing Tall 12-ounce: $1.40 and $1.65 Lattes 12-ounce: $2.40 and $3.10 Tall Mocha: $2.70 and $3.40

3. PRICING STRATEGY PRICE SKIMMING - Premium Price for Premium Product

4. Why the High Prices? Increase pricing in Fuel/Energy Fair-trade Movement Starbucks Experience

5. Economic Factors

6. Cincinnati Enquirer

7. FAIR TRADE WHY THE FAIR TRADE MOVEMENT? Help ensure that farmers receive an equitable price for their coffee and strengthen their farms for the future. -HOW IT WORKS? -Long term contracts -Affordable credit for farmers -Direct purchasing -Investing in social projects in coffee communities

8. FAIR TRADE STARBUCKS IN NORTH AMERICA’S LARGEST PURCHASER OF FAIR TRADE CERTIFIED COFFEE. –In 2005 Starbucks purchased 11.5 million pounds of Fair Trade Certified coffee. –Pay $1.42 per pound

9. Fair Trade & the “Starbucks Effect” Paying premium prices stimulates production of high quality coffee. –Allows farmers to increase income and reinvest in their farms and plan for the future. –Promotes steady and sustainable growth in a market with price fluctuations. –Upholds Starbucks commitment to purchase high-quality product in a socially responsible manner

10. EXPERIENCE

11. Top Competitors: McDonalds “ A pit stop for customers with little time, many kids and thin wallets.” McDonalds Manager: “McDonalds is a lot cheaper than Starbucks coffee in general, and they have the high quality to go with it.” Offers: lattes, cappuccinos and iced brews in 9,000 U.S. restaurants McDonald's has more locations and a lower price point for premium coffee.

12. Top Competitors: Dunkin Donuts Cost Advantage Complements the Main Product. Faster and Cheaper Half its revenue from coffee sales

13. STARBUCKS Premium Products Prominent Image Friendly Environment

14. PRICE ELASTICITY If price goes up and revenue goes up, demand is inelastic. Starbucks can raise its price and help increase total revenue. Relatively inexpensive but convenient products tend to be inelastic. 200720062005 Revenue ($ mil.)9,411.507,786.906,369.30

15. Price Elasticity of Target Market Target Market: 18-34 years of age Price increase seven times since 1997 Market still willing to pay as price increases

16. Coffee industry Arabica Coffee -Grown at higher elevations and requires specific climate for optimal conditions. -requires more care in growing/harvesting Majority traded as commodity item on the New York “C” market. -greatly affected by global supply and demand -average price = 1.04/lb (2005)

17. Paying Premium Starbucks purchases only the highest grade Arabica coffee. –Negotiated at higher price to compensate for farmers quality. –Accounts for only 10% of worldwide coffee purchases –Currently sells 23% above commodity –Shields from volatile prices fluctuations

18. Marketing Goals Address Increased Competition Market penetration and expand customer demographics Pricing/Utility Demographics

19. What’s in Store for the Future?