Starbuck\'s Pricing Strategy: Throughout Its History, Starbucks

Starbuck's Pricing Strategy:

Throughout its history, Starbucks Corporation has established a reputation for having the most expensive coffee products in the marketplace. The evident premium pricing at Starbucks are combined with the premium name or brand that the organization has also developed. While the prices of Starbucks coffee products are relatively expensive, the high prices are approved by many customers in many places where the firm has its operations. Pricing act as an important aspect of Starbuck's marketing strategy because it's critical to the firm's promotion strategies and profitability. However, the company's pricing strategy is based on several aspects and decisions that help in determining its efficiency.

Pricing Decisions and Strategies:

Pricing decisions and strategies are important to a business since pricing is the only element in the marketing mix that generates revenues. Moreover, these decisions and strategies are crucial since the wrong ones can damage the firm's corporate value at a faster rate than any other mistake in the business (Florissen et. al., 2001). Some of the common mistakes that contribute to flawed pricing policies are usually carried out in attempts to hang on to customers. In such instances, an organization's managers lessen prices preemptively in order to minimize the threats from new rivals and instigate price wars in the hope of being victorious at the end.

Currently, there are several pricing strategies that are classified into different categories based on various variables. First, the variable of interest is used as a pricing strategy as it relates to the consistency of prices ("Pricing," n.d.). This variable has led to the development of daily low pricing strategy, which is practice with perfect consistency by few companies. In other instances, some retailers like Wal-Mart focus on the provision of constant low prices of products to an extent that they do not make any actual sales.

The other pricing strategy is the high-low initiative with which retailers feature prices that are relatively higher, especially when they are not discounted. Similar to the daily low price strategy, the high-low strategy is for the aim taking advantage of the different price elasticities among several people. Third, the interest in pricing the price introductory strategy has contributed to the establishment of the price skimming strategy in which a product is initially offered at an apparently high price. Through this strategy, a company charge a relatively higher price based on its existing substantial competitive advantage. Since the advantage tends to be unsustainable, the higher prices usually attract new competitors and reduce inevitably because of increased supply ("Pricing Strategies," n.d.).

The penetration pricing strategy is used as an alternative by companies because it also capitalizes on price elasticity and tries to significantly enhance the number of products sold by offering such products at low prices. Through this strategy, the price of products and/or services is established artificially in order to gain a competitive advantage and market share while it's increased once these aims are achieved. The other major pricing strategies that are currently used are value pricing, which is used when firms are forced to offer value products and services by external factors and promotional pricing in order to promote a product and/or service.

For Starbuck Corporation, the most logical and reasonable pricing strategy is geographical and premium pricing strategy. This is primarily because the corporation has developed a strong brand image and reputation to extent that these factors are the main elements that drives it sales and marketing strategy. Through geographical pricing strategy, Starbucks prices its products differently across various parts in the globe and in consideration of the various factors like distribution logistics. Geographical pricing strategy also enables the company to consider the internal and external factors within the specific country that determine and affect its business operations. Some of these factors that are critical in determining the prices of a product based on this pricing strategy include shipping costs, existing legislation, and taxes on products.

Starbucks premium pricing strategy is also logical because the corporation has established relatively expensive prices because it's a unique or premium brand. This strategy is reasonable for this firm because it has a significant competitive advantage in the coffee industry and has adequate knowledge that it can charge such prices.

Role of Discounting in Starbuck's Strategy:

Throughout the years, Starbucks Corporation has been renowned for its premium pricing strategy that has enabled it to establish relatively high prices. While this strategy has made the company to be successful for long in the coffee industry and given the firm a competitive advantage, the growth of the market has contributed to numerous challenges. This growth has not only resulted in the entrance of new firms in this industry and market but it has also increased competition, especially price wars within the market. Companies in this market are increasingly reducing their prices of their products and/or services while Starbucks is firmly holding on the prices of its products.

Currently, the corporation is using a variety of pricing techniques in order to attract and retain price sensitive customer while increasing its check size ("What Business Strategy," 2009). As part of its marketing strategy, Starbucks Corporation offers discounts to its customer from time to time. The major role of discounting in Starbuck's strategy is to enhance the promotion of a new product like breakfast pastry and enable customers to start their day with less expensive products. While seemingly hawking discounts do not appear in the firm's operations, the corporation uses discounts as part of bargains for its products.

Notably, the company should continue to provide discounts while holding steadily to its overall pricing strategy. In this case, the firm will avoid the possibility of customers to fixate the prices of its products and help in sustaining the long-term value of the business. Customers tend to fixate the prices of a product by their view of the product as a commodity rather than for the value it possess through its distinctive characteristics (Bertini & Wathieu, 2010). Starbucks Corporation should not abandon its overall pricing strategy because of discounting since such as a measure could have significant negative impacts.

SWOT Analysis of Starbucks' Product/Brand Pricing:

Through the premium and geographic pricing strategies based on the firm's brand image and reputation, Starbucks' product/brand pricing has largely contributed to its success and profitability in the market as well as a sustainable competitive advantage. The main strength of the corporation's product/brand pricing is that it has enabled the firm to attract and retain price sensitive customers. However, despite of this strength, the premium pricing strategy has also contributed to the weakness of Starbucks' brand pricing because its products are relatively expensive and unattractive to low-income individuals. This has in turn contributed to the inability of the firm to attract low-income individuals, which is another weakness of its pricing.