Starbucks operates in a market that displays characteristics of purely competitive markets but also exhibits some unique traits. In a purely competitive market, numerous buyers and sellers exist, products are largely homogeneous, and no single entity can control prices significantly. While coffee shops, including Starbucks, face competition from numerous other cafes and retailers, Starbucks differentiates itself through branding, product offerings, and customer experience.
When Starbucks considers raising prices, such as a $1 increase, it’s important to evaluate the implications. This action carries inherent risks. Customers have a wide variety of alternatives, from other coffee shops to home brewing. If Starbucks raises prices, it risks losing price-sensitive customers to competitors who offer similar products at lower prices. This could potentially decrease the volume of sales.
However, if Starbucks has established a strong brand loyalty and value perception among customers, the price increase could be seen as a safe bet. Loyal customers may continue to choose Starbucks despite the price increase, particularly if they perceive the quality and experience as superior. Ultimately, the impact of a price hike depends on the competitive landscape and customer loyalty. The decision requires careful consideration of existing market conditions and customer sentiment.