Critical Analysis Of Starbucks

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Commentary In this article, Starbucks concluded that the way to save the environment and reduce the use of disposable cups would be to add an extra 5p to the price of each cup. The outcome of this plan will depend on the price elasticity of demand (PED), which is a measure used to show the responsiveness of the quantity demanded of a good or service to a change in price of coffee, and to assess whether a change in price would lead to a less or more than proportionate change in quantity demanded for this good. This commentary will attempt to assess to what extent the increase in price of disposable cups can lead to reducing demand for it and benefitting the environment. There are several reasons for the success of the plan. Starbucks assumes…show more content…
Coffee cups and coffee are seen as complementary goods, which are goods that tend to be used together, and it is assumed that whatever happens to one would most likely also affect the other. Since coffee itself is seen as indispensable, there would most likely be the same result with the cups. When evaluating the degree of necessity, coffee in a disposable cup might not be directly categorized as a necessary good, however, it is something that could be seen as a luxury item that people would be willing to spend extra money on anyway. As for the price, the article mentioned that Starbucks had already been taking 25p off the bill for every person who brings their own cup, however, the number of coffee cups being recycled has remained to be less than 1%, despite the discount. This leads to the conclusion that charging the customers an extra 5p to get them to bring their own cups could prove ineffective as well. Furthermore, it would be inconvenient for customers to carry around their personal mugs, and that inconvenience would make their demand less responsive to minimal changes in price. Additionally, Starbucks being an established company, would have brand-loyal customers who most likely would not change their cup buying habits because of this minute price change. If the demand for both these goods turns out to be inelastic, meaning that people would most likely be willing to spend money on the product regardless of any price shift, quantity demanded would remain the same and Starbucks would increase their revenue, as seen by diagram 2 when P1 changes to P2 but the quantity demanded (Q) remains stable. If this ends up being the case, Starbucks could still promote the use of their own branded mugs and encourage customers to purchase and use those instead, maintaining the same level of brand

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