Starbucks is the coffee market leader as it controls a large market share as compared to its competitors. Channel pricing entails the utilization of the distribution channels as an element in pricing. The pricing channel that Starbucks should use is promotion pricing, and it involves recommending retail price of its products. It ensures that the customers who the company values get discounts and coupons when they purchase products from the firm.
According to Krafft and Mantrala, the marketing business is short-term and mainly concerned with the price promotions. Many firms are currently doing well in the market due to the promotions they give their clients. The main advantage of the promotional pricing strategy is that it increases sales of the products. Also, it helps in attracting new customers who can remain loyal to the firm. Promotional pricing strategy increases value perception and revenue growth. However, the firm should not input costly promotions for new clients as they might not purchase any product from Starbucks
The following graph shows the movement of promotion and sales:
The above graph shows when there are several promotions, then the company's sales increase which is an indication that promotion has an impact on sales.
It is the process in which a company efficiently gets its products and services to the consumers. The company should use the intensive distribution method in reaching its esteemed clients. The intensive distribution strategy that should be used is a direct retail system. It entails importing and processing coffee then selling it directly to the customer's using the company's brand name (Louckx, 2014). Through this process, the firm will be able to reach a high number of customers.
The other intensive distribution strategy that firm can use to maximize its profits is selling its products to the shopping centers and supermarkets considering the high competition in the coffee market. Currently, the world is globally changing, and most of the people including low-income earners use the supermarkets and shopping centers to purchase their products. The other distribution channel that can be used is selling the products to hotels, airlines, and coffee suppliers. Through these distribution strategies, the company will reach a wide market as compared to its competitors.
- Indirect Distribution (hotels, airlines, supermarkets, and coffee suppliers)
- Direct Distribution
Positioning Within Channels
Although static pricing is a good strategy that Starbucks would use to increase the number of its customers and profits, it is a risky strategy as it can make the company make high losses if it does not change the prices according to the market trends. Therefore, the best pricing strategy that the firm should use is dynamic pricing. It is essential to change the price of an item in real time and be reactive on the market demand.
Dynamic pricing is the best strategy considering high competition in the coffee market as it gives a firm the chance of changing prices in relation to the behavior of the competition. Also, utilization of this strategy will result in increased company turnover. According to Babaioff et al. 2015, dynamic pricing strategy helps in managing the customers. The strategy is effective in the company due to weather changes, and most people love taking a coffee when the weather is cold.
Babaioff, M., Dughmi, S., Kleinberg, R., & Slivkins, A. (2015). Dynamic pricing with limited supply. ACM Transactions on Economics and Computation (TEAC), 3(1), 4.
Louckx, Y. (2014). RECOMMENDATIONS FOR THE DISTRIBUTION STRATEGY IN CHANGING MARKET ENVIRONMENT: Case: Belgian Brewery Van Honsebrouck in Russia.
Krafft, M., & Mantrala, M. K. (2010). Retailing in the 21st Century: Current and future trends. Berlin: Springer-Verlag.
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