Starbucks revenues: Why customers are willing to pay a premium

Market Realist

Rethink your drink: An investor's guide to Starbucks Coffee Company (Part 2 of 9)

(Continued from Part 1)

Product mix

Starbucks’ revenue mix is weighted in favor of beverages. This should come as no shock, considering the firm’s roots trace back to a single coffee shop at Pike’s Place Market in Seattle. Consumers crave a higher-quality coffee and are willing to pay for it when consumer confidence is up or stable. Coffee drinkers, particularly in developed nations, are willing to pay a premium for what they perceive as all-around better coffee and the convenience of buying it ready-made.

Geography

The size of the premium varies by geography, and it’s largely impacted by the U.S. dollar’s strength in the country in question. Developed economic centers are expected to pay a higher premium for their quality coffee. Corporate-controlled vendors benefit by offering rewards programs on the international scale, which attracts more business from those who can afford Starbucks beverages by mitigating the excessive premium.

Rewards programs

Consumers place higher value on Starbucks’ products and services when they save money via frequent spender benefits. A repeat customer is enticed by gift cards and rewards systems such as the Starbucks Gold card. Members of this elite club of coffee drinkers receive coupons on regular purchases in addition to every 12th drink free.

Starbucks’ corporate mission is to bring high-quality coffee to every corner of the world. The purpose of the rewards program is to ensure customer loyalty and consistent revenue generation, which are critical to maintaining Starbucks’ revenue consistency.

Continue to Part 3

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