A demand of Starbucks premium coffee has its own special characteristics that will determine the quantity of people that are willing and able to consume the related product and /or services of the company (StudyDriver.com, 2020). Through the years, products of the company had been influenced by various determinants of economic and market demands, including the price, the income, population and demographics, tastes, and price of related goods (Rittenberg, L. & Trgarthen, T., 2012).
A price determinant of demand will determine how much of the coffee and related products of the company a customers are willing to buy, hence, it is stated that, the increase in the price of Starbucks would be a decrease in quantity demanded, and a decrease in prices is an increased in to quantity demanded of related products (Grutzmacher, G., 2014). Over the last decade the price of the coffee products of the company has been quite volatile. The increase in prices is reportedly due to the increase in coffee bean which is the main raw ingredient in producing the coffee. In the late 2000s, the price of the coffee had been shot up globally just as customers were growing accustomed to the coffee variants of cappuccinos and lattes. In the early 2000s in Vietnam, the price of the coffee has been plummeted affecting the demand to decrease because of the flood that caused in the low production of coffee beans (StudyDriver.com, 2020). Moreover, recently ib the 4th quarter of 2020 the company also claimed the first increase of prices in 18 months for about 1% in all of their coffee products primarily because on the significant rise in non-coffee commodity costs and rising labor, and to improve the product margin of the company (Dawson, T., 2020).
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According to the website of WordPress.com, Microeconomic Individual Assignment-Starbucks (2013), stated that Starbucks price elasticity of demand is relatively elastic through most years in existence because of its products are considered to be more luxurious goods. Presented in the graph above, the change in percentage for quantity demanded is greater than the percentage change in prices. It is shown that the elasticity demand of the company is greater than the P1 is presented as the original price of the coffee, when it decreases to P2, the demand of coffee will be greater than the original quantity Q1 to Q2 as depicted. It is considered that the brand loyalty is seen as the reason to affect the elasticity of demand. Starbucks has been raised their prices since late 2000s of about 7 times, and it only affects a minimal amount to customers’ product purchases or demanded (Grutzmacher, G., 2014).
The increase in demand of the Starbucks Corporation had further and greatly influence by the identified determinants of demand such as, income, population and demographics. Income plays a large role to the decisions of the customers to whether buy an expensive coffee or cheaper ones. As income rises, the consumption of people to many goods and power to buy choices on luxury goods is certain. Moreover, the population and demographics had determined the company to provide additional resources and invest for franchises for additional coffeehouses. The company’s prior target markets are focuses on students, individuals who are socially inclined and who are professionals, and are places that is usually in modern and locally urbanized. With this, the demand of the company has seen visible with the additional coffee houses worldwide. For the past 10 years beginning in 2019, Starbucks stores have increased annually compare to the recent years of corporate franchises. Over 14,000 new Starbucks stores both company operated and licensed stores opened globally that makes a store count growing to 70% since 2008. This is a significant image for the company through expansion in showing the increase of demand despite of financial crisis (Lock, S., 2020).
Product innovation and corporate strategy to adapt in modern technology had lead Starbucks in its operations of becoming more ease, more efficient and being high-productive and profitable within the industry. Further, it had so much affect to the customers and demand preferences with regard to the product and services quality, convenience and taste. During the year 2008, the company had took an economic slowdown because the customers had opted to patronize cheaper and equal preferred product quality in the industry. The Dunkin Donuts and McDonalds as both of the competitors of the company had took a significant increase to quantity demanded. In line with this, the company had forced to shut 900 coffee shops that are not already profitable and laid 6,700 employees during 2009. In order for the company to bring back its customer demands and operations in the industry, in June 2010 with the presence of Howard Schultz as CEO of Starbucks had presented and adapted the company in the presence of different social media platforms. Starbucks’s social media space includes in websites, Facebook, Twitter and Foursquare. Purposely, this was strategically implemented in order for the company to receive and be provided with feedback on customer’s experience and market the product in a large area of demands. The company had also executed an initiative, “My Starbucks Signature” in which the customers could create a personalised drinks. They had also implemented the ‘free Wi-Fi’, a ‘comfy chair group’ or ‘frappuccino’ lovers in order to extend opportunities with an increase in demand to students and the millennial. In the year 2011, the company had able to launch a mobile payment app specifically to those who are accessible for the services. Moreover, the online services has already seen and widely patronize by the market. Through years, the company had then brewed and developed 3 roasts types (blonde, medium, and dark). This new brewed coffee services, product innovation strategy of the company, and online services would able to meet the product preferences of the customers, increase the demand of the economic activity certainly during the recovery in 2010 up to the present.
Moreover, as the Covid-19 has still affecting global economic crisis, the coffee giant Starbucks has set to close 400 shops specifically in the U.S. and Canada, and a loss of more than $3 billion. The probable huge decrease in demand is materially due to the threat in the spread of virus, hence, everyone is recommended by the government to stay at home and observe maximum health standards. In response to the global threat, the company had adapt a new Covid-19 economy, Starbucks intends to provide services on the traditional sit and stay café with the new on-the-go customer experiences without hampering the public protocols. They will also introduce its new concept “Pickup” of mobile phone ordering to adapt the economic changes and continually provide corporate demands (TheNationalNews.com, 2020).
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