Trouble Brews at Starbucks
Grantham University

Trouble Brews at Starbucks
A. Primary (and Secondary) Target Markets
Primary target market Starbucks’ primary target market is men and women ages 25 to 40. They account for almost half, 49 percent, of their total business. Starbucks’ appeal to this consumer age group through hip, contemporary design that is consistent in its advertising and decor, and working to keep its products current as status symbols. Customers tend to be urbanites with relatively high income, professional careers and a focus on social welfare. This target audience grows at a rate of three percent annually (O’Farrell, n.d.).
Secondary target market (optional) Starbucks’ secondary target market is …show more content…

In order to compensate for the customers lost to cheaper alternatives like Dunkin Donuts, Starbucks raises prices to maximize profits from these price insensitive customers who now depend on their strong gourmet coffee. Rather than trying to compete with cheaper chains like Dunkin, Starbucks uses price hikes to separate itself from the pack and reinforce the premium image of their brand and products. Since their loyal following isn’t especially price sensitive, Starbucks coffee maintains a fairly inelastic demand curve, and a small price increase can have a huge positive impact on their margins without decreasing demand for beverages (Dawon, 2013). They also apply price increases to specific drinks and sizes rather than the whole lot. By raising the price of the tall size brewed coffee exclusively, Starbucks is able to capture consumer surplus from the customers who find more value in upgrading to grande after witnessing the price of a small drip with tax climb over the $2 mark. By versioning the product in this way, the company can enjoy a slightly higher margin from these customers who were persuaded by the price hike to purchase larger sizes (Dawon, 2013). Starbucks also expertly communicates their price increases to manipulate consumer perception. The