Starbucks is a company who employ price discrimination to seek out those customers who are willing to pay more for their coffee. Often criticised for using barriers to entry, Strarbuck’s are trying to squeeze every last drop of blood out of the stone (or bean) that is coffee drinking consumer.
Starbucks has split its market into two smaller submarkets, both supply coffee, but one is “regular” while the other is “Premium”. The marginal cost of the regular coffee is $0.90 and for the premium, $1. Yet, Starbucks charges $1 for the regular coffee, giving it 10 cents worth profits. But it charges $2.50 for the premium coffee, giving it $1.50 worth of profit. The differences in the two coffees is small, one may have caramel or chocolate added in, a small increase in the marginal cost, yet a huge increase in retail price. Starbucks cannot identify the customers who aren’t price sensitive as they walk through the door; they let the customers identify themselves when they pick which moca loca throffa coffee they decide to purchase, showing they don’t really care about the price.
On the plus side though, this means that those who are price sensitive have a lower more fairly priced coffee, by splitting its market, Starbucks has managed to sell more coffee to both the richer and poorer of society.
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