Extended Essays 2021

Price

Starbucks markets its products at a high-end premium price with beverages averaging above $6 which is

substantially more than the Australian average of $4 12 . Starbucks refers to its model of pricing as value-based

pricing, when a company sets its pricing according to the perceived value of the product/service to the

customer rather than according to the production costs 13 . However, Starbucks’ failed to adjust its pricing to

the Australian customers perceived value of the product. This higher pricing in combination with what

Australians deemed to be a sub-par product resulted in an overwhelming disinterest in Starbucks. When other

cafes offer better quality coffee with equal or superior customer service at lower prices, it is no surprise

Australians resorted back to their local cafes after the initial hype of Starbucks’ opening . This idea is supported

throughout many reports including John Quelch, a Harvard professor who wrote “Starbucks is a mass brand

attempting to command a premium price for an experience that is no longer special ” 14 . From this it can be

concluded that Starbucks’ poor pricing strategy hindered its marketing plan and thus contributed to its failure

in Australia.

12 Statista. (2019). U.S. coffee chains market share 2019 | Statista . [online] Available at: https://www.statista.com/statistics/250166/market-share-of-major-us- coffee-shops/ [Accessed 17 Jul. 2021]. 13 Fotini Mastroianni (2016). Starbucks. evolution of the company’s marketing plan. . 14 How Starbucks’ Growth Destroyed Brand Value. (2008). Harvard Business Review . [online] Available at: https://hbr.org/2008/07/how-starbucks-growth- destroyed [Accessed 17 Jul. 2021].

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