Saturday, August 22, 2009

Price Changes at Starbucks

Starbucks announced yesterday that it will be raising prices on some drinks, while cutting prices on others. Which prices will be raised? Apparently, they have chosen to increase price on more complicated drinks such as Frapuccinos, while dropping prices slightly on items that are easier for the baristas to make/serve (such as drip coffee and tall lattes). Why has Starbucks made this move? They may have come to a better understanding of their true costs for each product on their menu and realized that the time required to make certain complicated drinks had driven up costs and eaten into their margins on those items. They may also want to encourage slightly higher volumes of easy-to-make drinks as opposed to complicated ones so as to speed up overall service. One complaint many customers have had is the slow service, particularly due to people in line who are ordering complicated, customized drinks. On both the cost and speed fronts, Starbucks seems to be making progress. It's always effective for firms to have a good understanding of the cost of each activity in their production and selling process, as well as to comprehend how to speed up service to the consumer.

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