As a lifestyle product and a product that consumers perceive as attaching some degree of social prestige to themselves for being seen to consume the product, Starbucks prepared coffees are characterized by a relatively low level of price elasticity of demand.
Changes in product demand in relation to product price reflect the price elasticity of demand of the product. Price inelasticity of demand means that demand does not change in relation to changes in price. A low price elasticity of demand means that the proportionate change in demand is less than the proportionate change in price. This type of price elasticity has generally characterized Starbucks prepared coffees. A low price elasticity of demand, in some instances, may indicate that a firm or an industry may maximize revenues by raising prices, and Starbucks appears to be taking such action. Alternatively, however, low price elasticity may indicate that a firm or industry enjoys a significant competitive advantage (Mastrianna & Hailstones, 2000). Starbucks, by selling a lifestyle product, has developed such a comparative advantage.
A high price elasticity of demand means that the proportionate change in demand is greater than the proportionate change in price. A high price elasticity of demand may indicate, in some instances, that a firm or industry could maximize its revenues by lowering prices. Alternatively, however, it may also indicate that a firm or industry is in a competitive situation from which they may not be able to recover.
With a low price elasticity of demand, it would not be prudent for Starbucks to lower prices, because the increase in sales would not offset to effects of the lower price. If, however, Starbucks were to raise prices by an avera