The Pros And Cons Of Starbucks

It is a well-known fact that Starbucks is expensive, and it is not only coffee the company sell but status. In today 's developing countries Starbucks represents a status symbol that separates the rich consumers from the masses especially in the continent of Asia. A cup of Starbucks cappuccino coffee costs more than 6 dollars in China and is even more expensive in other developing countries in Asia, but the same cup of coffee may only cost half that price in the US. The American coffee and chain company of Starbucks Corporation sets an example and explanation of how global hospitality companies can implement price discrimination.

Before any hospitality company expands globally there are key indicator that the company will generate profits.

Schiavenza stated, “for a country where labor is cheap Starbucks baristas in Beijing make much less than their American counterparts this may seem counterintuitive”. Labor is just one component of the company what is expensive are the logistics. As for Starbucks majority of their materials are imported from the United States and South America to China. China is a great example of transportation ports that has invested billions of dollars over the years to improve transportation infrastructure. With the new ports and investments is the combination of taxes, fees, and middle-men that adds to the logistics costs which are then passed on to customers in the form of marked-up of frappuccinos and lattes. The price elasticity of demand is a measure by the responsiveness of demand for a product to changes in price (Hill, 2002). We can interpret that demand is elastic when a small change in price produces a large change in demand such as a status, “There’s also the possibility that the high prices may give the coffee shop more cachet by making it seem like a venue for more affluent customers,” (Jing Daily reported, 2013). Companies also has the flexibility to make the price inelastic when a large change in price produces only a small change in demand (Hill, 2002). In general, firms can charge higher prices when demand is inelastic. What determines elasticity of demand is income level is one factor that determines demand elasticity. When income levels are low, people tend to be more price-conscious, and demand is more elastic, but because Starbucks is considered a luxury drink in china consumers are not worried about the cost of the product whether the price increase or decrease the demand for the drink is growing because of who the company markets to (Hill, 2002). The other main factor that affects price elasticity is the number of competitors in a market and if it was just coffee there would be plenty