How did the coffee giant Starbucks manage to make a whopping $85 million in just three months without anyone noticing? The answer is with one small, targeted pricing change. If you want to find out more, read through our article below.
In April 2022, Starbucks increased the price of their small coffee by just 10 cents, but only in the northeast and southern US.
But how did this small change lead to such a big profit? Starbucks focused the price increase on lower-margin products like small coffee, making it more appealing for customers to upgrade to the next size up. The customers thought that for a little more money they can get more coffee, so they were persuaded to buy the bigger size.
Starbucks also understood the willingness to pay for each US region and focused their price hikes on geographies that are willing to pay more. The same strategy applies in the European market where they have tested the pricing model, and it has been successful in increasing the revenue.
But it’s not just about increasing prices – Starbucks also communicated the price change to customers. They gave them a reason for the increase -which was the increased costs- and made them comfortable with the change. By doing so, the company has built a customer base that is less sensitive to price changes and is willing to pay more for their products, even if they are more expensive than other coffee chains.
Want to learn the secret of Starbucks’ success? Here are a few key takeaways:
- Focus on low-margin products
- Understand your customer base’s price sensitivity
- Communicate any pricing changes clearly
- Test and implement the pricing model in different regions
- Use pricing to attract the customer base you want
- Use the pricing strategy to increase revenue while keeping customer satisfaction
Starbucks has shown that a small, targeted pricing change can lead to significant profits. By focusing on low-margin products, understanding customer willingness to pay, and communicating pricing changes clearly, the company has built a customer base that is less sensitive to price changes and is willing to pay more for their products. So, next time you’re sipping on your latte, remember that sometimes the small things can make a big difference!